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Federal Courts Strengthen Spoliation Sanctions under New Federal Rules (PA)

March 10, 2016

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Although the Third Circuit has long been considered a polestar of spoliation jurisprudence amongst the federal circuits, a recent decision from the Eastern District of Pennsylvania signals an even greater focus on sanctions under the recently strengthened Federal Rules of Civil Procedure.
In <em><a href="" rel="">DVComm, LLC v. Hotwire Communications</a></em>, DVComm sued Hotwire Communications for breach of contract arising out of the use of a telecommunications business plan improperly shared, pursuant to a non-disclosure agreement.  As DVComm planned expansion into the Georgia telecommunications market, Hotwire Communications allegedly implemented the former’s business plan to create a fiber optics network in the Atlanta area without compensation.  According to DVComm, the use of the business plan violated a mutual non-disclosure agreement between the parties, though Hotwire ultimately contended that the business plan was part of the public domain and thus outside the limitations of confidentiality.
Hotwire tailored its discovery plan to identify the drafting process of the business plan in order to demonstrate that it was, in fact, part of the public domain when implemented in the Atlanta area.  In particular, Hotwire pursued all prior versions of the business plan, as well as communications related to its conception, from DVComm and third-party telecommunications providers.  In response, DVComm produced only two prior versions of the business plan and certain limited correspondences regarding its development, professing in various attestations and certifications that it did not possess any additional documentation.  Notwithstanding these affirmations, additional investigation by Hotwire revealed that DVComm had not only drafted several prior, undisclosed versions of the business plan, but also “double deleted” all evidence of the same during the course of litigation.  Not good.
After Hotwire ultimately prevailed in defending the breach of contract claims, it petitioned the Court for spoliation sanctions stemming from costs incurred in chasing relevant discovery that was purposefully destroyed by DVComm.  In considering the petition, the Court specifically referred to certain amendments of the Federal Rules of Civil Procedure designed to encourage the speedy, efficient and cost-effective disposition of claims, noting that spoliation of evidence directly undermines these aims.  The Court found that because DVComm’s conduct in respect of destroying evidence was intentional, it could not demonstrate a “substantial justification” for its actions that would outweigh the defendant’s right to timely and forthcoming discovery disclosures.  Consequently, the Court imposed upon DVComm roughly $110,000 in sanctions, explaining that only a monetary penalty could restore the balance in litigation compelled by recent amendments to the Federal Rules of Civil Procedure as relate to discovery.
The ruling emphasizes the Court's potential role  in respect of discovery disputes under the new Federal Rules of Civil Procedure.  Specifically, whereas litigation had previously been marred by the doldrums of discovery violations, <em>DVComm</em> cautions that federal courts have recently been empowered to deal with the same swiftly, and where appropriate, definitively against plaintiffs and defendants alike in order to promote case resolution as quickly as possible.  Thanks to Adam Gomez for his contribution to this post.  Please email <a href="">Brian Gibbons</a> with any questions.


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