Persistence Rewarded in Seeking Electronic Discovery in Non-Compete Context

A recent decision from the United States Court for the District of New Jersey demonstrates how a corporation’s tenacity in seeking electronically stored information despite the intransigence and apparent spoliation of evidence by a former employee and his new company led to positive results for the corporation.

In Telquest International Corp. v. Dedicated Business Systems, Inc., No. 06-5259 (PGS), 2009 U.S. Dist. LEXIS 19546 (D.N.J. March 11, 2009), the plaintiff Telquest International Corp. (“Telquest”) sued its former employee Jason Hines and his new corporation, Dedicated Business Systems, Inc. (“DBSI”), asserting claims of fraud, misappropriation of confidential and proprietary information, breach of fiduciary duties, and breach of a non-compete provision in Hines’ employment contract. Telquest alleged that Hines stole confidential company information from Telquest computers and used such information in direct competition with Telquest.

As part of its discovery requests, Telquest sought documents and emails evidencing communications between Hines and Telquest customers and vendors, as well as communications between Hines and Telquest employees. When DBSI’s production of paper documents was incomplete, Telquest sought access to DBSI computers in order to have a forensic copy of the hard drive made and analyzed. Because of defendants’ incomplete production, Telquest was able to procure a court order, dated March 27, 2008, directing Hines to produce the computers by March 31, 2008.

Defendants continued to stonewall, refusing to produce the computers. In a conference call with the Magistrate Judge on June 17, 2008, the Court again ordered defendants to produce the computers. This time, Hines delivered a computer to Telquest’s forensic consultant, on June 19, 2008. The consultant discovered that on June 17, 2008 (the date of the conference call), a “defrag” program, which overwrites deleted data and undermines its recovery, had been run on the computer, and on June 19, 2008 (the date the computer was turned over), “Secure Clean,” a program that wipes data from the hard drive so that it may not be recovered using conventional forensic tools, had been run on the computer.

Additionally, it was revealed in a deposition that even after Telquest’s lawsuit was filed, Hines routinely deleted business emails and other records, which plainly should have been preserved.
The result of these actions by defendants was a motion for sanctions by Telquest. The Court granted the motion for sanctions, granting Telquest’s request for a spoliation inference (but declining to strike defendants’ answer), and assessing attorneys’ fees and costs, in amounts to be determined, against defendants.