Construction Law Insights

GMS Indus. Supply, Inc. v. G&S Supply, LLC, 2022 U.S. Dist. LEXIS 51657, 2022 WL 853624 (E.D. Va. Mar. 22, 2022)
GMS Indus. Supply, Inc. v. G&S Supply, LLC, 2022 U.S. Dist. LEXIS 51658, 2022 WL 853626 (E.D. Va. Mar. 22, 2022)
GMS Indus. Supply, Inc. v. G&S Supply, LLC, 2022 U.S. Dist. LEXIS 151648, 2022 WL 3635325 (E.D. Va. Aug. 23, 2022)

GMS Industrial Supply, Inc. (“GMS”) is an industrial sales company that sells its products to military customers throughout the United States, Europe, and Asia. To sell its products, GMS uses sales agents. GMS hired Westly L. Greer (“Greer”) as a sales agent in 2011 and promoted him in 2015 to Director of Sales, which gave him access to GMS’ confidential, proprietary, and trade secret information. In 2015, Greer started GMC Supply, LLC (“GMC”) with Gregory Spires (“Spires”) and two other GMS sales agents. In June 2017, Greer and Spires started G&S Supply, LLC (“G&S”), which sold standard industrial products to GMS customers. Greer and Spires also recruited other GMS sales agents to sell G&S goods to GMS customers. On April 3, 2019, GMS’ counsel sent letters to Greer, Spires, and other sales agents working with G&S terminating their sales agreements with GMS. Greer’s letter also informed him of his legal obligation to preserve all potentially relevant information and his responsibility to suspend any document destruction policies and automatic deletion functions.

On April 17, 2019, GMS sent Greer a letter directing him to return GMS’ property (laptop, desktop, tablet, and two monitors), which Greer returned on April 22, 2019. GMS discovered that user-created files had been deleted and they could not access the tablet because it was password protected. GMS had a forensic examination performed on the laptop and desktop, which revealed 18,866 deleted files after Greer received the litigation hold letter, the attachment of unique data storage devices, and the connection of a USB device. After Greer attached the USB device on April 19, 2019, Greer then ran a Google search for “fileshredder,” visited the File Shredder website, downloaded and installed the file shredding program, ran the file shredding program which permanently deleted 3,397 files, and then uninstalled the file shredding program.

On June 20, 2019, GMS sued G&S, Greer, and other defendants for injunctive relief and damages. The Court granted a temporary restraining order and preliminary injunction. The Court granted in part and denied in part the defendants’ motion to dismiss and the plaintiffs amended their complaint. Both sides then moved for sanctions pursuant to Rule 11 and GMS moved for partial summary judgment. The Court granted GMS’ motion for sanctions against Greer and G&S, denied the defendants’ motion for sanctions, and denied GMS’ motion for partial summary judgment.

Spoilation refers to the destruction or material alteration of evidence or to the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation. Movants must establish the following before a court decides if any spoliation sanction is appropriate: (1) ESI should have been preserved; (2) ESI was lost; (3) the loss was due to a party’s failure to take reasonable steps to preserve the ESI; and (4) the ESI cannot be restored or replaced through additional discovery. Spoliation requires more than negligent loss or destruction, as the alleged destroyer must know that the evidence was relevant to some issue in the anticipated case and willfully engaged in conduct resulting in the evidence’s loss or destruction. If spoliation occurred, courts may impose a variety of sanctions, ranging from dismissal or judgment by default, preclusion of evidence, imposition of an adverse inference, or assessment of attorney’s fees and costs, but the sanction should be molded to serve the prophylactic, punitive, and remedial rationales underlying the spoliation doctrine.

The defendants’ agreed that GMS could establish the first and third elements, so the Court only examined the second and fourth elements. For Rule 37(e) purposes, information is lost if it is irretrievable from another source, including other custodians. Irreplaceability does not require a party to pursue every possible avenue for replacing or restoring the ESI, but good-faith attempts must be made to explore its alternatives before pursuing spoliation sanctions. Of the 3,397 files Greer destroyed, GMS was only able to recover the original file names for 2,916 files, which meant that GMS was unable to recover the names for 481 files destroyed by Greer and it was impossible for the parties to determine whether those files were relevant or replace the files. Thus, the Court found that the DLA documents and the 481 permanently deleted files were both lost and irreplaceable.

Sanctions under Rule 37(e)(1) require a finding of prejudice to another party from the loss of the information, which sanctions under Rule 37(e)(2) requires a finding that the party acted with the intent to deprive another party of the information’s use in litigation. A party’s conscious dereliction of a known duty to preserve electronic data – whether passive or active – is both necessary and sufficient to find that the party acted with the intent to deprive another party of the information’s use under Rule 37(e)(2). The Court found that Greer actively attempted to destroy files after receiving GMS’ litigation hold letter and second letter to return GMS’ equipment. For sanctions, the Court imposed an adverse inference jury instruction and ordered Greer and G&S to pay GMS’ reasonable attorney fees and costs incurred in preparing its motion for sanctions. The Court reduced GMS’s attorney’s fee request and awarded GMS $95,022.05 in attorney’s fees.

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