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When is a Default Judgment for eDiscovery Spoliation Warranted?

Posted on April 25th, 2014

A default judgment is the harshest form of sanction available to parties after electronic discovery spoliation.  So when is such a severe sanction appropriate? The court considered this very question in Innovation Ventures, LLC v. Aspen Fitness Products, Inc. et al., No. 11-13537, (E.D.Mich. April 7, 2014).

In this business litigation alleging misappropriation and trademark infringement, the magistrate had ordered Defendant to produce numerous documents and electronically stored information (ESI), including email communications. The Order also compelled the production of a hard drives and storage devices seized by the FBI for forensic imaging.

In addition to Plaintiff’s allegations that Defendants failed to comply with the Order and the production had “numerous deficiencies,” there was a particularly egregious omission: Defendant had failed to disclose an additional company it owned that was selling the product in question that had sales of $605,807. Plaintiff alleged Defendants not only failed to disclose this company, but purposely concealed it.

Plaintiff sought Rule 37 sanctions, specifically, a default judgment under 37(b)(2)(A)(vi) for a defendant who has been disobedient. The court applied a four-part test from Harmon v. CSX Transportation, Inc. 110 F.3d 364, 366-67 (6th Cir. 1997):

1. Whether the failure was due to willfulness or bad faith;

2. Whether the adversary was prejudiced by the conduct;

3. Whether the defaulting party was warned that failure to cooperate could lead to dismissal; and

4. Whether less drastic sanctions were imposed or considered before default was entered.

While the court concedes that the first two prongs were met, it acknowledged that some production had been tendered. The court differentiated between this scenario with other case law where a default judgment was entered. It examined two cases from the jurisdiction and explained that in those cases, there was no discovery production at all. The court felt that Plaintiff’s prejudice could be remedied by attorney fees and the opportunity for Defendant to complete the production. The court noted that a sanction should be sufficient but not greater than necessary. Therefore, the court declined to order a default judgment, but did order attorney fees paid, additional discovery, and an adverse inference instruction as sanctions.

ILS – Plaintiff Electronic Discovery Experts

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