Commercial Litigation and Arbitration

Striking of Answer, Dismissal of Counterclaims and Entry of Default Judgment as Sanction for Destruction of Electronically-Stored Information, Disregard of Court Orders, and Fraud on the Court — Good Quote

From Philips Elecs. N. Am. V. BC Technical, 2010 U.S. Dist. LEXIS 141472 (D. Utah July 27, 2010):

BCT's behavior as it relates to the five laptops at issue has interfered with the judicial process in several ways. BCT destroyed a massive number of documents and disobeyed two direct court orders. In response to Philips' assertions that this behavior had occurred, several BCT employees and executives — including BCT's Chief Technical Officer and Chief Operating Officer — gave false statements at depositions and/or within sworn declarations to this court. Further, during the Hearing, many BCT witnesses — including BCT's Founder and CETO [Chief Executive Transition Officer] — contradicted his testimony and was presented with evidence that contradicted his testimony, casting extreme doubt on his credibility. BCT's Founder and CETO even admitted that he lied in his deposition and at the Hearing. As stated above, "[w]hen false evidence is provided under oath, knowingly and with intent to deceive, a party commits a fraud on the court." Garcia, 569 F.3d at 1181. ***

BCT executives and employees purposefully deleted, then wiped, shredded, and overwrote files from their computer hard drives after learning of the court's order compelling BCT to produce its ESI and/or just before the computers were turned in to be imaged by Lighthouse. After this behavior, several employees and executives — including BCT's Chief Technical Officer — lied about their behavior in their depositions, sworn declarations, and/or in the Hearing, in an apparent attempt to commit fraud on this court. Further, BCT's CETO (and Founder) and COO also lied under oath during the investigation into the missing ESI. BCT flouted this court's authority and willfully disregarded this court's orders to turn over its ESI and to stop wiping hard drives. ***

Civil litigation and discovery demand a level of integrity from the parties in order to properly function. When parties disregard that responsibility and/or ignore the court's mandates, there must be strong consequences. Having examined the degree of prejudice to Philips, the interference with the judicial process, BCT's culpability, whether BCT was warned in advance that its non-compliance may result in dismissal, and the efficacy of lesser sanctions, the court concludes that extreme sanctions are warranted in this case where discovery abuses of a serious magnitude involving bad faith and willful disregard of two direct court orders occurred. See Ehrenhaus, 965 F.2d at 920; accord Garcia, 569 F.3d at 1179; Archibeque, 70 F.3d at 1174-75. In considering the facts of this case, the court concludes that sanctions less than those requested by Philips - including default judgment - would not effectively either deter others from such behavior in other cases or make Philips whole from the permanent destruction of so many documents. As a result, the court recommends that BCT's amended answer be stricken, that BCT's counterclaims be dismissed, and that judgment by default be entered in Philips' favor. The court also has concluded that monetary sanctions are appropriate in this case, and will file a separate order addressing those sanctions.

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