De Simone v. VSL Pharms., Inc., No. TDC-15-1356, 2018 BL 91133 (D. Md. Mar. 16, 2018).

In this intellectual property dispute, the court imposed monetary sanctions for the plaintiff’s spoliation of company documents, but rejected a motion for dismissal or for adverse inference jury instructions, concluding that the loss caused no severe prejudice.

The plaintiff, Claudio De Simone, is the former CEO of the defendant company, VSL Pharmaceuticals, Inc. While De Simone was CEO, he asked the company’s law firm to send him “documents containing sensitive information” about a specific VSL product, VSL#3. De Simone asked the firm to destroy its own copies of those documents.

De Simone admitted during his deposition that he destroyed the VSL documents he received, though he disputed what they were. The attorney who handled De Simone’s request stated that she sent “non-public communications” about VSL#3’s formulation. De Simone, on the other hand, argued that the documents he threw away were published articles that were readily available online.

VSL moved for spoliation sanctions, arguing that De Simone acted on “a premeditated plan to deprive VSL of its own highly relevant documents” regarding VSL#3.

The court considered first whether De Simone had a duty at the time he destroyed the documents to preserve them as potentially relevant evidence. VSL argued that De Simone clearly anticipated litigation at that point, pointing to his statement that he was the “sole rightful owner of all intellectual property rights” regarding VSL#3.

The court agreed with VSL, finding that De Simone “should have reasonably anticipated litigation” at the time he took the VSL#3 documents. Therefore, the court found that “De Simone had a duty to preserve” those documents.

Next, the court turned to whether De Simone had a “culpable state of mind” when he destroyed the law firm documents. The parties agreed that De Simone willfully destroyed the documents, but De Simone argued that he didn’t intend to deprive VSL of their use in litigation. Rather, De Simone said, he was attempting to shield trade secrets from a competitor, Sigma Tau Italy. (This explanation contradicts De Simone’s argument that he only destroyed published articles, not product information.) De Simone also noted that VSL#3 was in production at the time, and the manufacturer had “full information about [its] composition.”

The court concluded that De Simone intentionally destroyed documents but that there was insufficient proof that he did so in bad faith. Finding the timing “suspect,” the court nonetheless admitted that De Simone’s competition argument was “persuasive.”

As to the relevance of the documents, the court accepted the attorney’s declaration that they included private conversations describing the makeup of VSL#3. It concluded that the documents were relevant.

However, in the absence of bad faith, sanctions for spoliation are only available where the loss of evidence caused prejudice. De Simone claimed that any information he destroyed was “superfluous” and readily available elsewhere. He also recovered two computer files entitled “confidential documents,” which he produced in discovery. De Simone argued that anything he destroyed had thus been replaced.

The court somewhat reluctantly found that while VSL was prejudiced by De Simone’s spoliation, the prejudice was likely slight. That conclusion was based in part on the otherwise “extensive discovery” the parties exchanged.

The court therefore rejected VSL’s motion for dismissal as a sanction or for adverse inference jury instructions. Instead, the court granted only monetary sanctions for VSL’s costs and attorneys’ fees. In doing so, however, the court noted that “this was not an innocent mistake” and that De Simone clearly had “little regard for his duty to preserve relevant evidence.”

Takeaways on seeking sanctions for spoliation

Only the lawyers come out ahead in a sanctions opinion like this one. If you’re dealing with a spoliation claim where you have in fact received “extensive discovery,” carefully weigh your likely outcomes. The court may conclude that any loss of evidence has not caused prejudice and deny harsh sanctions, leaving you breaking even at best.

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