Buyer beware: suspicious timing warrants adverse inference instruction for spoliation of electronic data, and a punitive damage claim based on that inference
March 5th, 2009 | By Steve PuiszisSmith v. Slifer Smith & Frampton/Vail Associates Real Estate, LLC, 2009 WL 482603 (D. Colo., Feb. 25, 2009)
A real estate broker and the brokerage firm he worked for were retained by the plaintiffs to sell a parcel of property in Vail, Colorado. The property was sold for $2,846,250, based on the defendants’ recommendation. Less than three months later, the same property was resold by the buyer in the first transaction for $7,200,000, with the defendants again serving as the broker for that transaction. Plaintiffs subsequently filed suit claiming negligent misrepresentation, fraud, concealment, and that the defendants had breached their statutory duties as a transaction broker.
In discovery, plaintiffs sought production of emails and other electronic documents on the brokerage firm’s servers, and on the broker’s work and home computers. A forensic examination of the broker’s home computer revealed that a secure deletion (wiping) software called “Anti Tracks” had been downloaded from the Internet, and used on the broker’s home computer resulting in the loss of data from thousands of files and folders. A similar examination of the broker’s computer at work revealed that information appeared to have been deleted from that computer as well, and that the computer’s hard drive had been reformatted. Plaintiff’s forensic computer expert opined that the process to reformat the drive was too involved and complicated to be unintentional.
The district court acknowledged that there was no smoking gun establishing who caused the data loss, nor could anyone pinpoint exactly what information had been deleted. However, it was apparent that the defendants had failed to properly preserve potentially relevant information. In the court’s view, the “highly-suspect timing” of the use of the wiping software on the defendant’s home computer and the reformatting of the hard drive of his work computer was sufficient to establish that evidence had been destroyed in bad faith to prevent disclosure of relevant information from those computers. Therefore, the court ordered that an adverse inference instruction be issued, and allowed the plaintiffs to add a punitive damages claim based on the adverse inference. The court further awarded plaintiffs their fees and costs, including expert costs associated with plaintiffs’ sanctions motion, and related discovery expenses incurred as a result of the defendants’ actions.
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