On July 16, 2020, the U.S. Court of Appeals for the Fourth Circuit issued a decision highlighting the critical need for litigants to preserve evidence once notified of a potential lawsuit, and the serious ramifications associated with failing to do so.  See QueTel Corp. v. Hisham Abbas, et al., No. 18-2334 (4th Cir. July 16, 2020).

In QueTel Corp. v. Hisham Abbas, et al., a software copyright infringement and trade secret case, QueTel alleged that an ex-employee had misappropriated software code and provided it to competitor, Defendant Finalcover LLC, for use with Finalcover’s CaseGuard software. Four months after receiving a cease-and-desist letter from QueTel, Defendants destroyed the computer used to develop the CaseGuard software. Further, despite receiving discovery requests seeking information regarding the continued existence or disposition of each computer used in Defendants’ business, Defendants failed to disclose the destruction of the computer until QueTel’s counsel directly confronted Defendants. Defendants also deleted a source control system and a significant amount of CaseGuard-related files from a replacement computer during discovery.

The U.S. District Court for the Eastern District of Virginia awarded QueTel a judgment and permanent injunction against Defendants as a sanction for Defendants’ spoliation of evidence. The district court ruled that QueTel’s cease-and-desist letter had placed Defendants on notice of a potential litigation and, therefore, Defendants had a duty to preserve the destroyed evidence. The district court further ruled that Defendants had destroyed the evidence in bad faith and, in doing so, had irreparably harmed QueTel. Finally, the district court concluded that an adverse inference jury instruction was insufficient to remedy the harm because Defendants’ spoliation had deprived QueTel of its ability to pursue its copyright infringement and trade secret misappropriation claims.

The Fourth Circuit affirmed the district court’s rulings in their entirety. While QueTel involved facts on which a court could base a finding of bad faith on the part of Defendants, the Fourth Circuit’s decision is a stark reminder that, even in cases of “innocent” spoliation, litigants can potentially face case-dispositive sanctions due to the failure to preserve evidence. To that end, litigants should make the preservation of potential evidence a primary objective in all disputes.

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