This article originally ran in The Legal Intelligencer on July 23, 2013.
A dispute between a Philadelphia advertising firm and a competing agency newly created by several of the firm's former employees has, at the discovery stage, resulted in a U.S. magistrate judge's finding of spoliation of electronically stored evidence and the decision to make an assessment of compensatory sanctions against the start-up.
The deletion of relevant emails clearly constituted spoliation of evidence, U.S. Magistrate Judge Lynne Sitarski of the Eastern District of Pennsylvania ruled in Stream Companies v. Windward Advertising, finding that the start-up agency, which is a defendant in the case, along with two of Stream Companies' former employees, had acted in bad faith.
"Here, the evidence of defendants' fault and bad-faith conduct is strong," Sitarski said. "Defendants not only failed to preserve the emails as required by court orders, they actively deleted them."
Stream Companies, an established advertising agency in Philadelphia, sued Windward Advertising, founded largely by former Stream employees who left in 2012. According to Sitarski's memorandum, Stream in its lawsuit is alleging that defendants are liable for violations of the Computer Fraud and Abuse Act, the Copyright Act, the Pennsylvania Wiretap Act, state trade secret law, and the duty of loyalty.
Stream alleged that the former employees, Corey Lorenz and Michael Cresta, took valuable information about its business practices and potential clients that the firm had been courting by accessing Stream's computer system, downloading the information to thumb drives and forwarding it to private email accounts, according to court documents.
The case is in front of U.S. District Judge C. Darnell Jones II, who referred Stream's motion for sanctions to Sitarski.
Sitarski said compensatory monetary sanctions are appropriate against Windward but declined to accept the $25,000 figure for which Stream had asked. The magistrate judge asked the plaintiffs to spell out the expenses and fees incurred because of the spoliation of evidence. After the defendants have their chance to respond, Sitarski said, she will fashion compensatory sanctions for the spoliation.
Sitarski also sent the matter to Jones for a hearing to show cause why the Windward defendants should not be held in contempt for violation of the court's discovery orders in the case.
Altogether, Stream alleged that Windward engaged in spoliation of evidence with regard to its failure to produce six thumb drives and one hard drive, personal computers used before July 16, 2012, deleted emails, Lorenz's iPhone and iPad, and Cresta's iPad.
The external storage devices, personal computers and emails still haven't been produced and are most appropriately handled as a spoliation issue, Sitarski said, while the very late production of the iPhone and iPads is best addressed under Federal Rule of Civil Procedure 37 because their late production violated a discovery order issued by Jones.
"Because further discovery is available on these devices before trial, the exact amount of relevant information that remains discoverable on these devices has yet to be determined. Importantly ... the extent of information that has been lost has yet to be ascertained — and thus the magnitude of any prejudice suffered by Stream from the delayed production of these devices has not yet been fully realized," Sitarski explained in a footnote.
"Accordingly, because the extent of any spoliation has yet to be determined, this court finds that the appropriate basis for addressing the failure to produce these devices is pursuant to Rule 37 for failure to comply with court orders."
In assessing the spoliation of the emails and the electronic storage devices, Sitarski held that they were clearly under the control of the defendants and that the evidence is relevant to the claims, but she held that Stream had proved only that the defendants had suppressed the emails, not the storage devices.
Sitarski was convinced by Stream's computer expert, Louis Cinquanto, who had testified that there is a two-step process for deleting emails and the defendants took both steps. The defendants didn't rebut that testimony, Sitarski added in a footnote.
However, regarding the laptop computers and external storage devices, Sitarski found that Stream hadn't met its considerable burden in proving spoliation.
Cresta and Lorenz each testified that both computers crashed and that each of them had disposed of his computer. Stream had argued that the credibility of that testimony should be questioned.
"This court certainly acknowledges that defendants' testimony that both their computers 'crashed' at or the around the same time, and both were immediately disposed of, strains credulity, especially considering their conduct during discovery in this matter. Nevertheless, the record is not yet fully developed, and there is no electronic (or other) evidence that rebuts this explanation," Sitarski explained in a footnote.
She applied similar reasoning on the spoliation claim for the external storage devices.
Neither Frank Emmerich Jr. of Conrad O'Brien, who represented Stream, nor Mark Sophocles, who has a practice in Paoli, Pa., and represented Windward, could immediately be reached for comment.
Reprinted with permission from the July 23, 2013 issue of The Legal Intelligencer. © 2013 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.