In a dispute over the theft of intellectual property, a District Court entered default against the defendant for spoliation and related discovery abuses. The U.S. Fifth Circuit affirmed.
Initially, the Court outlined the framework under which sanctions may be imposed: “First, parties must comply with court orders. Fed.R.Civ.P.37(b)(2)(A). Failure to do so means a court may sanction a party, including by dismissing the action or rendering a default judgment. Second, parties have an obligation to preserve, through reasonable steps, electronic evidence for trial. Fed.R.Civ.P.37(e). Failure to do so is, again, sanctionable by dismissal or default judgment. Before doing so, though, a court must first find that (1) the troublemaker acted with the intent to deprive the other party of the information’s use, (2) there was prejudice to the other party from loss of the information, and (3) the sanction is no greater than necessary to cure the prejudice. Finally, federal courts may, for a number of reasons, invoke their inherent power to control and regulate the cases before them. That includes issuing reasonable and appropriate sanctions if a party is acting in bad faith. Still, such a power is to be interpreted narrowly and used cautiously, especially when a statute or rule is at play. Accordingly, we limit our analysis to Rule 37, not the court’s inherent powers.” Fifth Circuit caselaw, in this regard, imposes a heighted standard for entering litigation-ending sanctions. “Before a court ends a case through Rule 37 sanctions, it must make four additional findings beyond those required by the Rule itself: (1) the discovery violation was committed willfully or in bad faith; (2) the client, rather than counsel, is responsible for the violation; (3) the violation substantially prejudiced the opposing party; and (4) a lesser sanction would not substantially achieve the desired deterrent effect.”
In this particular case, the defendant argued that entering litigation-ending sanctions was an abuse of discretion because (a) there was insufficient evidence that relevant data was deleted, (b) he didn’t act in bad faith when the deletions occurred, (c) the deletions didn’t prejudice the plaintiff, and (4) lesser sanctions were more appropriate. The Court of Appeal rejected these arguments in turn:
“As for noncompliance with several court orders, Dabral offers no real contest on this point. Instead, he argues that he didn’t withhold discovery or destroy evidence – his company did. But, he fails to advance any support for that argument, (see Fed.R.App.P.28), meaning he doesn’t rebut the charge of violating Rule 37(b). In reviewing the record, it’s plain that Dabral ignored or violated several court orders, including: (1) a protective order requiring disclosure of the ‘unmanipulated’ source code, (2) an order compelling Dabral to disclose a report given to his expert witness, (3) an order requiring production of Sah’s USBs, (4) a preliminary injunction forbidding destruction of evidence, and (5) an order compelling Dabral to provide copies of the source code control system. Those findings are clearly supported by the record.
“Next, we turn to bad faith. Below, the district court concluded that Dabral delayed discovery, manipulated electronic data, and permanently deleted a significant amount of electronic data…. In response, Dabral advances two defenses. First, he argues that there’s no evidence he destroyed any software, or that he was dilatory during discovery. Instead, Dabral emphasizes, his brother and BPSS handled the source code control system and discovery productions, meaning they must’ve committed the bad acts.” However: “BPSS and Dabral’s brother Sudhanshu work under the direction of IRC, which ‘retains all rights to the software’ made by the company. And, as Dabral swore, he is the 100% owner of IRC. Consequently, we cannot – for the limited purposes of this case – separate Dabral’s existence as a party from his companies’ actions in this litigation…. Turning to Dabral’s contention that there’s no ‘clear record’ of ‘delay’ or bad conduct in this case…. It may be true that some of Dabral’s deletions were irrelevant or non-prejudicial. But, the district court – relying on expert testimony – found that many of those deletions were intentionally performed and that the deleted information was ‘necessary’ for Calsep’s case…. Dabral admittedly deleted evidence, delayed discovery on several occasions, and ignored court orders. And, when he was offered one last chance to come clean and submit an unmodified source code control system, he didn’t. Instead, he deleted more evidence and produced a copy of the system that had numerous other files missing. Per his own expert, those deletions were seemingly ‘intentional’ and done after the filing of Calsep’s suit and even after the district court’s disclosure order. So, the district court concluded that Dabral acted willfully and in bad faith. The court didn’t reach that conclusion easily. Instead, it came after months of violations and a long evidentiary hearing. Only then did it make its informed decision.”
With respect to the issue of prejudice, the plaintiff’s expert testified that the deleted files were critical to the case because, without them, he couldn’t properly compare PVTsim and InPVT, meaning Calsep couldn’t directly prove its misappropriation claim. In response, the defendant maintains that the deleted data wasn’t relevant to the case and the scale of deletions was overexaggerated. On the record, the Court of Appeal found that the plaintiff “proffered plenty of proof that the deletions were important, including expert testimony and circumstantial evidence. Besides, the mere inconvenience of dealing with Dabral’s unusable productions and being forced to repeatedly file motions to compel may alone amount to prejudice.”
Finally, on the question of lesser sanctions: “the district court found Dabral’s conduct to be so egregious – given it involved willful and intentional attempts to manipulate the judicial system through dilatory tactics and disobedience – that future actors wouldn’t have been sufficiently deterred with a less drastic sanction. The court emphasized that, although Dabral was given multiple opportunities to comply with the court’s orders – including an instruction that he had one last chance to submit his source code control system – Dabral still didn’t comply. All in all, the district court concluded, because Dabral destroyed evidence crucial for Calsep to prove its case and disregarded four separate court orders, lesser sanctions were insufficient. On appeal, Dabral contends that the district court failed to consider any lesser sanctions and, relatedly, an adverse inference instruction would’ve worked fine. But, we disagree for two reasons. First, Dabral is mistaken – the district court did consider lesser sanctions. Admittedly, that consideration wasn’t greatly detailed, but by concluding that a ‘less drastic sanction’ wasn’t appropriate, the lower court did nod to the possible imposition of other sanctions. Second, and more importantly, given the facts of this case, the court was not required to consider specific alternative sanctions…. Here, Dabral admittedly violated several court orders. He doesn’t contest that. Instead, he contends that the violations weren’t that serious and that a lesser punishment would’ve been more fitting. But, in making that argument, Dabral misunderstands the extreme nature of his misconduct — intentionally deleting evidence key to Calsep’s misappropriation claim in the face of multiple court orders. Given that level of conduct, the district court was not required to consider lesser sanctions in any more detail than it did.”
Calsep v. Dabral, No.22-20440, 2023 U.S.App.LEXIS 26969 (5th Cir. Oct. 11, 2023).