Bad Faith Spoliation of Critical Emails Warrants Adverse Inference Instruction

Optowave Co., Ltd. v. Nikitin, 2006 WL 3231422 (M.D. Fla. Nov. 7, 2006)

In this breach of contract case, Optowave contended that its contract with defendant Dmitri Nikitin d/b/a Precision Technology Group (“PTG”) incorporated eight certain specifications, and that PTG failed to meet any of the specifications, thereby breaching the contract. During discovery, Optowave sought to compel production of electronic documents and emails regarding the contract. Following oral argument and the parties’ agreement on certain issues raised by the motion to compel, the court scheduled a second hearing on the issue of spoliation of certain internal emails between Nikitin and his employees.

In its motion for sanctions, Optowave alleged that Nikitin intentionally allowed the destruction of internal emails, particularly those from former PTG employee Stefan Tudor, which would have supported Optowave’s position that the contract was drafted by PTG and incorporated Optowave’s acceptance test specifications into the contract specifications. Nikitin did not seriously contest that he failed to preserve Tudor’s emails following his termination; rather, Nikitin argued that Tudor was a disgruntled former employee whose testimony was biased against PTG.

The court observed that, before exercising any leveling mechanism due to spoliation of evidence, it must decide: 1) whether the evidence existed at one time; 2) whether the spoliator had a duty to preserve the evidence; and 3) whether the evidence was “critical” to an opposing party being able to prove its prima facie case or a defense. It further stated that an adverse inference is drawn from a party’s failure to preserve evidence only when the absence of that evidence is predicated on bad faith. “Thus, negligence in losing or destroying records is not enough for an adverse inference, as “’’it does not sustain an inference of consciousness of a weak case.’” (Citations omitted.)

Evaluating these factors, the court found that Nikitin allowed critical evidence to be destroyed in bad faith. Evidence presented at the sanctions hearing showed that emails and other electronic documents had existed at one time, and that the missing evidence was directly relevant to construction of the terms of the parties’ disputed contract. It also found that PTG/Nikitin had a duty to preserve the missing evidence. The court concluded that either of the two pre-litigation demand letters sent by plaintiff’s counsel in November 2004 and May 2005 was sufficient to put Nikitin on notice that legal action would be taken if an amicable solution was not reached. Indeed, the May 2005 letter attached a “NOTICE REGARDING NON-DESTRUCTION OF COMPUTER FILES,” which the court found directly triggered Nikitin/PTG’s duty to preserve “all relevant materials (or those materials that could lead to other relevant materials).” The court noted that the Non-Destruction Notice spelled out that PTG could be liable for spoliation of evidence and subject to sanctions for deleting or altering files by storing newly created files to existing drives, loading new software, using utility programs to permanently wipe files, disks or drives, or disposing of media storage devices replaced to upgrades, and that it suggested that PTG could comply by immediately making a copy of the hard drives on all network servers, computers, and/or laptop computers, including any deleted files resident on the hard drives. (A copy of the Non-Destruction Notice is available here.)

The court found that, despite such notice, Nikitin thereafter allowed another party to reformat the hard drives of his employees’ computers (including Tudor’s) without first preserving relevant files contained on the computers to be reformatted. As a result, all information contained on the reformatted drives, including emails between Tudor and Optowave discussing various aspects of the contract and the disputed specifications, as well as other internal company emails discussing the Optowave account, were erased. In this, the court found bad faith:

Given Nikitin’s level of sophistication in advanced computer technology, he must at least have been aware that reformatting the hard drives of his employees’ computers, would create a loss of all of the documents contained on the drive prior to its reformatting. Despite this, the Defendant allowed the reformatting to take place without first preserving the information and documents already contained on the computers after he had been put on notice of potential litigation and explicit notice of the duty to preserve the evidence. The Court finds that Nikitin allowed relevant evidence to be destroyed in bad faith. Destroying or allowing destruction of Tudor’s customer file and emails was a blatant disregard for the liberal rules of discovery which undermines the integrity of the judicial process and warrants sanctions.

The magistrate judge concluded that the appropriate sanction for Nikitin’s spoliation was an adverse inference instruction to the jury directing that the destroyed evidence would have supported the Optowave’s case on the following two issues: 1) the parties understood that acceptance tests, or the contract specifications, were incorporated into the contract, and 2) the contract must be construed against PTG, who drafted the contract. The precise wording of the adverse inference instruction was left to the discretion of the district judge to determine.