KCH Services, Inc. v. Vanaire, Inc. et al, No. 3:2005cv00777 - Document 217 (W.D. Ky. 2009)

Court Description: MEMORANDUM OPINION AND ORDER granting in part and denying in part 179 Motion for Default Judgment. WIthin 10 days from the date of entry of this order the parties will advise the court of dates they will be available and estimated number of days needed for trial. Signed by Judge Jennifer B. Coffman on 7/21/09. cc:counsel (JBM)

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UNITED STATES DISTRICT COURT WESTERN DISTRICT OF KENTUCKY LOUISVILLE DIVISION CIVIL ACTION NO. 05-777-C KCH SERVICES, INC., V. PLAINTIFF, MEMORANDUM OPINION AND ORDER VANAIRE, INC., ET AL., DEFENDANTS. * * * * * * * * * * * This matter is before the court upon the plaintiff s motion f or default judgment, sanctions, or an adverse-inference instruction due to the spoliation of evidence, refusal to provide discovery, and obstructionist tactics t o block or impede discovery by the defendants (R. 179). The court w ill grant the plaintiff s motion to the extent that the plaintiff w ill be entitled to an adverse-inference instruction to the jury at trial. In October 2005, plaintiff KCH Services Inc. s president, Kenneth Hankinson, telephoned the defendant Guillermo Vanegas, Sr., notifying Vanegas, Sr. of his belief that defendant Vanaire, Inc. w as using KCH s softw are. See Hankinson Dep. 262:215, Oct. 17, 2007; Vanegas, Jr. Dep. 151:3-152:3, Nov. 1, 2007. Vanegas, Sr. then spoke w ith employees at Vanaire, instructing them to delete from Vanaire s computers any softw are that he did not purchase or did not ow n. See Vanegas, Jr. 30(b)(6) Dep. 68:3-6, Nov. 1, 2007; Vanegas, Jr. Dep. 151:19-152:3. The plaintiff filed a complaint on November 23, 2005, and sent an evidence-preservation letter to the defendant on December 14, 2005. See R. 1. The federal law of spoliation governs in this case. See Adkins v. Wolever, 554 F.3d 650, 652 (6th Cir. 2009). As a general matter, it is beyond quest ion that a party to civil litigation has a duty to preserve relevant information, including ESI, w hen that party has notice that the evidence is relevant to litigation or...should have know n t hat t he evidence may be relevant to future litigation. John B. v. Goetz, 531 F.3d 448, 459 (6th Cir. 2008) (quoting Fujitsu Ltd. v. Fed. Express Corp., 247 F.3d 423, 436 (2d Cir. 2001)). 1 Hankinson s telephone call to Vanegas, Sr. in October 2005 should have put the defendants on notice that issues of softw are may be relevant to future litigation. For the duty to preserve to have at t ached, it is not required that Vanegas, Sr. actually knew that lit igation w as on the horizon, or that the softw are w ould be relevant, but only that he should have know n the softw are may be relevant to future litigation. Id. In October 2005, the defendants w ere familiar w ith their competitor s w illingness and abilit y to file suit; Vanegas, Sr. had been personally involved w ith Vanaire during the 1995 litigation w ith KCH. See KCH Services, Inc. v. Brooks, et. al., No. 3:95-cv672-S, Dep. (R. 19), Dec 4., 1995. Even w ith such experience, Vanegas, Sr. ordered the softw are deleted immediately after the telephone call, before KCH had an 1 The Sixth Circuit also cites Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 216-18 (S.D.N.Y. 2003), an employment discrimination case, in w hich the duty to preserve arose as soon as the plaintiff s superiors became reasonably aw are of the of the possibility of litigation, rather than w hen an EEOC complaint w as filed months later. See Goetz, 531 F.3d at 459 (6th Cir. 2008). See generally The Sedona Principles: Best Practices Recommendations & Principles for Addressing Electronic Document Production, Second Edition 11, 28 (The Sedona Conference Working Group Series, 2007), available at http://w w w .thesedonaconference.org/ content/miscFiles/TSC_PRINCP_2nd _ed_607.pdf. 2 opportunity to inspect . 2 Vanegas Sr. s conversations w ith Vanaire employees and other correspondence among Vanaire employees3 immediately after Hankinson s telephone call show clearly that the defendants w ere, in fact, alerted to the problem and saw it as such. After the plaintiff filed the complaint on November 23, 2005, the defendants not only should have know n that e-mail and other electronic evidence concerning the plaintiff s claims may be relevant to litigation, but had notice that they w ere relevant to litigation. See Goetz, 531 F.3d at 459. How ever, the defendant Vanaire, Inc. failed to preserve them by continuing to delete and overw rite, even after receipt of a preservation letter. See Vanegas, Jr. 30(b)(6) Dep. 211:10-18. The defendants conduct in regard to electronically stored evidence falls beyond the scope of routine, good faith operation of an electronic information system. See Fed. R. Civ. P. 37(e). Vanegas Sr. s order to delete the softw are and the defendants continued unw illingness to place a meaningf ul litigation hold on relevant electronic information after being placed on notice resulted in a loss of evidence relevant to the plaintiff s case. Whether the evidence w as lost in good faith or w as an intentional attempt to destroy evidence, Fujitsu, 247 F.3d at 436, the plaintiff is bereft of the very subject 2 Cf. Fujitsu, 247 F.3d at 435-36 (2d Cir. 2001) (Trial court denied sanctions w here the defendant destroyed evidence but not before the plaintiff had an opportunity to inspect.). 3 See, e.g., e-mail from Scott Freeman to Guillermo Vanegas, Ray Steele, Gary Vanegas, and Michael Vanegas (Oct. 17, 2005, 11:45 a.m.) ( I am currently w orking w ith Keith to insure [sic] there is nothing left on the computers.... ). 3 of the litigation as w ell as any e-mail correspondence contemporaneous to the softw are s installation and use. 4 A proper spoliation sanction should serve both fairness and punitive functions. Adkins, 554 F.3d at 652 (citing Vodusek v. Bayliner Marine Corp., 71 F.3d 148, 156 (4th Cir. 1995)). In fashioning a remedy for spoliation, courts generally consider w hether the spoliation w as prejudicial, w hether it can be cured, the importance of the missing evidence, w hether the spoliating party w as acting in good faith or bad faith, and the deterrent effect of the remedy compared w ith a lesser sanction. See Ware v. Seabring Marine Indus., 2006 WL 980735 at * 3 (E.D. Ky. 2006). In this case, even though the spoliation of the softw are and the e-mail w as prejudicial to the plaintiff and cannot be fully cured, default judgment for the plaintiff is not w arranted because a less drastic measure w ill redress the spoliation. 5 An adverse-inference instruction concerning the softw are and e-mail w ill fairly compensate the plaintiff for lost evidence that may have been presented to the jury. The plaintiff s protests concerning other discovery refusals and general 4 For example, the evidence of softw are on Vanaire s computers may have been important for the plaintiff to show that it is the same softw are that originated at KCH and that it w as used by Vanaire in layout, resulting in enhanced profits vis-à-vis KCH, Vanaire s competitor in the industry. The deleted e-mails may have been relevant to the plaintiff s other claims, such as unfair competition. 5 See, e.g., Lexington Ins. Co. v. Tubbs, 2009 WL 1586862 (W.D. Tenn. 2009) (entitlement to a negative-inference instruction that discarded furniture w ould have provided favorable evidence to the defendant concerning the cause of a fire); Ware, 2006 WL 980735 (grant of a missing evidence instruction allow ing an inference adverse to the defendants that discarded boat struts w ere defective). 4 obstructionism by the defendants aim at the same underlying issue as spoliation of evidence, and are thus addressed by this order. Accordingly, IT IS ORDERED that the plaintiff s motion for default judgment, sanctions, or for an adverse-inference instruction (R. 179) is GRANTED to the extent that the plaintiff w ill be entitled to an adverse-inference instruction to the jury at trial, and is otherw ise DENIED. IT IS FURTHER ORDERED that w ithin ten (10) days of the date of entry of this order t he parties w ill advise the court of dates they w ill be available and estimated number of days needed for trial. Signed on July 21, 2009 5

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