Michigan Court of Appeals: No Spoliation For IT Department's Destruction of Defendant's Laptop

This Thursday, the Court of Appeals of Michigan issued a decision, Gen-Wealth, Inc. v. Freckman, No. 353584, 2021 Mich. App. LEXIS 3003 (Mich. Ct. App. May 13, 2021), that both affirmed the trial court's order dismissing Gen-Wealth, Inc.'s claims, and its order on a dispute over the spoliation of evidence.

The drive on a laptop used by Freckman, an employee of the Co-Defendant Korhorn Financial, failed but Korhorn's IT department was able to copy the user created files and metadata to a new drive. The original drive was destroyed by the IT staff. On appeal, Gen-Wealth asserted that the trial court should have granted judgment in its favor as a sanction for the spoliation, or at least, in the interest of justice, not awarded offer-of-judgment sanctions as a sanction for the spoliation. [In MIchigan, a party who rejects an offer by the opposing party to enter judgment, and does not obtain a more favorable judgment, may have to pay sanctions.]

The Court found that the trial court's ruling was not clearly erroneous because the Defendants did not act with the intent to cause evidence to be destroyed. "To be sure, Korhorn Financial and Freckman had a duty to take reasonable steps to preserve evidence that they knew or should have known was relevant. . . As such, had they known that reporting the defective hard drive would result in the loss of the physical drive, which in turn might have caused the loss of evidence, they might be said to have breached their duty by failing to take reasonable steps to ensure that the information-technology persons addressing Freckman's concerns about the drive preserved the hardware." Id. at *12 (internal citations omitted). The Court noted that Gen-Wealth's own expert could only state that it was possible some files were not transferred from the original laptop, and it was proven that relevant files had been transferred to the new laptop. "Although there was evidence that the original hard drive theoretically could have contained artifacts in the form of data generated by the operating system that were not copied to the interim hard drive or the hard drive submitted for expert review, there was no evidence that the artifacts were relevant and material evidence." Id. at *13-14.

The Court considered that Gen-Wealth was able to examine Freckman's work computer at its own office, and this personal computer. The use of thumb drives with the work computer did not show what was copied to the thumb drives or who used them. "Therefore, even if there were artifacts that were lost from the laptop that Freckman had originally been provided by Korhorn Financial, the artifacts would not have established that Freckman himself copied confidential files, continued to possess confidential files, or that he transferred or disclosed them to a third party. Accordingly, the trial court did not clearly err when it determined that any data lost by the destruction of the hard drive was not material or relevant to the issues involved." Id. at *14-15.

The Court also rejected the Defendants' cross-appeal which asserted that its award of costs should not have been reduced by the cost to Gen-Wealth of litigating the spoliation issue. The Defendants were aware of their need to preserve electronic data, and the Court faulted them for not preventing the IT department from destroying the original laptop. "Had Freckman and Korhorn Financial informed the information-technology personnel of the need to preserve the hardware associated with Freckman's electronic devices, they might have spared the parties and court the time and expense associated with litigating the spoliation issue. In other words, the failure to take simple and reasonable steps to protect evidence undermined the very goal of the offer-of-judgment rule by encouraging further contentious litigation." Id. at *21.