Lackluster Retention Policy Leads to Spoliation Sanctions (California)

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Zest IP Holdings, LLC v. Implant Direct Mfg., LLC, 2013 WL 6159177 (S.D. Cal. Nov. 25, 2013).

In this patent and trademark infringement case, the plaintiffs sought sanctions for the defendants’ alleged spoliation and other discovery misconduct. The plaintiffs argued that the defendants became aware of a potential lawsuit after receiving an October 2008 letter from the plaintiffs which stated they would file suit if the defendants commercialized an alleged “knockoff” of the plaintiffs’ product. The defendants allegedly did not implement a litigation hold at that time because they did not believe litigation would ensue until the plaintiffs actually filed a lawsuit in March 2010. The defendants further argued that the failure to institute a litigation hold would not warrant sanctions because they have a company policy that “no documents are to be deleted.” However, the defendants’ assertions proved false as employees of the defendants testified that they intentionally deleted emails because they were never instructed to preserve them. The court held that the defendants’ duty to preserve arose when they received the October 2008 letter informing them of the plaintiffs’ intent to sue. The documents that were destroyed after that date were deemed “highly probative” by the court, and therefore the plaintiffs suffered prejudice as a result of the spoliation. Considering sanctions under the Zubulake test, the court found that the defendants’ actions did not amount to bad faith so as to warrant a default judgment and instead awarded monetary sanctions and ordered an adverse inference instruction against the defendants.