In First Financial Security, Inc. v. Freedom Equity Group, LLC, Case NO. 15-1893 (N.D. Cali., Oct. 7, 2016), Plaintiff sued Defendant for intentional interference with contractual relationships and violations of California’s Unfair Competition Law, alleging that Defendant induced 1,400 sales contractors to leave Plaintiff’s employ and join Defendant “en masse”. Particularly, Plaintiff’s former sales contractors Moua and Lee hosted meetings with Plaintiff’s other team members on May 10, 2014, and around that time, Moua, Lee, and many of those same team members resigned and went to work for Defendant.
Most of the discovery in the case focused on those meetings of May 10, 2014 and how Defendant “engineered the wholesale departure” of Plaintiff’s sales contractors. The parties engaged in a discovery dispute over Defendant’s failure to produce text messages by its principals as well as employment applications submitted by Plaintiff’s former workers, native format copies of digital data, and phone records. Defendant “apologized” but promised to turn everything over once it updated its outmoded computer system. The court ordered Defendant to produce the records.
Defendant did not produce the records pursuant to the court order, and Plaintiff filed a Motion for Sanctions. In opposition, Defendant argued that text messages were “innocently deleted” by “people who did not understand their discovery obligations”. Defendant also asserted that (1) the phone company had deleted the phone records; (2) the data did not exist in native format, as it was “a data base” that could be reviewed through “a query”; and (3) it never possessed employment applications because the applications were digitally submitted.
The court ordered Defendant to produce the native format data and to work with Plaintiff to create necessary copies if the native format data could not be produced. Defendant was also required to file a declaration clarifying the employment application retention and assimilation process.
Defendant’s declaration stated that it did not have possession of the data because it relied upon third party software service providers to receive and store the data related to Plaintiff’s contractors. Defendant also declared that it had changed providers (switched from third party provider Greystar over to Salestrakr). Defendant argued that the former provider, Greystar, had no obligation to turn over the data without a court order. Plaintiff countered with a charge of obstruction and spoliation, and requested an adverse inference instruction against Defendant.
The court’s rulings as to spoliation were split between the parties, with the court making distinct findings related to the types of data sought. The court did not find spoliation with respect to the employment applications or the phone records. With respect to the text messages, the court found that Plaintiff had proved spoliation under FRCP 37(e) and that Defendant had a duty to preserve, but took no reasonable steps to preserve and could not restore the text messages. The court also found that Defendant acted with intent to deprive Plaintiff of the text messages, despite its assertion that the deletions were “innocent”. Based upon these spoliation findings, an adverse inference instruction was ordered, that the jury may presume the missing texts contained evidence that Defendant intended to recruit the Plaintiff’s contractors. The court also ordered an adverse inference instruction with respect to the data that Defendant failed to produce in native format.
ILS – Plaintiff Electronic Discovery Experts