T&E Investment Group, LLC v. Faulkner et al

Introduction

The District Court for the Northern District of Texas adopted the recommendation of the Magistrate Judge to sanction the Defendants, Christopher Faulkner, Brietling Oil and Gas Corporation, Parker Hallam, and Dustin Rodriguez, by fining the Defendants in the amount of $27,500, and by instructing the jury that it might make an adverse inference due to the spoliation of evidence.

Facts

On November 9, 2011, the Magistrate Judge ordered the Defendants to produce “all of the computers used by the defendants during the year 2011” so that they might be examined by a third party independent forensic expert, Lance Fogarty. Such computers were turned over and following the forensic evaluation by Fogarty, the Plaintiffs, T&E Investment Group, moved for sanctions for spoliation of evidence and asked that the court hold each of the Defendants in contempt for violating the November 9, 2011 order.

To support its claims for spoliation, the Plaintiffs presented Fogarty’s forensic report and analysis on three of the Defendants’ computers, PCL-02, PCL-03, and PCL-06. In addition to alleging that the Defendants tampered with evidence contained on these three computers, the Plaintiffs also alleged that the Defendants withheld several other computers that would have been subject to the Magistrate Judge’s November 9 order, particularly a computer identified as “Alienware.”

During Fogarty’s evaluation of the computers, he discovered a software program on PCL-03, a computer produced by Defendant Faulkner, called a bulk file changer. The bulk file changer allowed a user, in this instance Faulkner, to change the metadata for multiple files at the same time. After this discovery, Fogarty reported that PCL-03 had files that had been manipulated to appear that there were two users of the computer, Faulkner’s wife and a second profile “Chris.” Fogarty gathered that Faulkner created this second profile to “make it look like [PCL–3] was his computer that he used all the time,” and to hide the existence of an unproduced computer, namely the Alienware computer, which would have been subject to the Court’s November 9 order.

Fogarty’s investigation and the evidence showed that the Alienware computer had been used in the Faulkner home on November 10, 2011, the day after the Court ordered for the computers to be produced, and that the Alienware computer had been connected to PCL-03, the computer having the manipulated metadata.

When questioned about the manipulated metadata, Faulkner acknowledged use of the bulk file changer, but stated that he intended to use the program to convert his files to “read-only” and not to manipulate any of its data. Based on Fogarty’s expert report, the Plaintiffs sought sanctions for the spoliation of evidence.

Elements of Spoliation

The Magistrate Judge limited his spoliation analysis to three computers, PCL-02, PCL-03, and PCL-06. In his analysis, the Magistrate Judge acknowledged the Court’s inherent powers to sanction parties for the spoliation of evidence, which had the effect of prejudicing the non-spoliating party. In the Fifth Circuit, to prove that spoliation has occurred, a party must show, 1) a duty to preserve the information; 2) a culpable breach of that duty; and 3) the spoliation resulted in prejudice to the innocent party. Further, for the innocent party to obtain sanctions against the spoliating party, the non-spoliating party must establish: 1) the party with control over the evidence had an obligation to preserve it at the time it was destroyed; 2) the evidence was destroyed with a culpable state of mind; and 3) the destroyed evidence was “relevant” to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.

Duty

Looking first to duty, the Court determined that the Defendants indeed had a duty to preserve the evidence at issue. The Court evaluated Fogarty’s report that the Alienware computer was located within the Faulkner’s home and had been used within days of the Court’s order to preserve the evidence, yet the Defendants did not produce it. As a result, the Magistrate Court found that the Defendants had a duty to preserve all relevant evidence. The first element of duty was satisfied.

Culpability

Turning to culpability, the Court found that the evidence and the results of Fogarty’s report established that Faulkner acted in bad faith. In evaluating culpability, the Court reasoned that Faulkner’s failure to turn over the Alienware computer, and the manual manipulation of the files on PCL-03 to attempt to show that he had been the user of the PCL-03 computer for several years was done in bad faith. As such, the Plaintiffs satisfied the culpability element of spoliation.

Prejudice

The Court found that though it is difficult to prove that the Alienware computer would have contained evidence that would have been both relevant and helpful to the Plaintiffs, it was easy to conclude that the computer more than likely contained information that would have aided the Plaintiffs in their case. The Court acknowledged that prejudice is the most difficult element to prove because the innocent party is seeking to show that information lost through the spoliation of evidence would have been relevant and prejudicial. Accordingly, the Judge found that the requisite prejudice had been established from the spoliation of PCL-3 in an attempt to conceal the existence and significance of the Alienware computer. In finding prejudice against the Plaintiffs, the Magistrate Judge rejected the Defendants’ objection that the Alienware computer was beyond the scope of the Plaintiffs’ motion for sanctions, and therefore, was not a sanctionable offense. The Court held that Faulkner’s failure to produce the Alienware computer was “a related circumstance that [could not] be disentangled from Defendants’ spoliation of PCL-3. . .”

Conclusion

The Magistrate Judge recommended that the jury be given a spoliation instruction that would permit the jury to draw an adverse inference that a party who intentionally spoliated evidence did so in order to conceal evidence that was unfavorable to that party and that Defendants be sanctioned in the amount of $27,500.

The Defendants objected to the adverse inference instruction and the fine, arguing that the sanctions violated due process of law and exceeded the scope of the spoliation motion submitted by the Plaintiffs. The District Court reviewed and adopted the recommendation of the Magistrate Judge in its entirety except to clarify that the sanctions were limited to Faulkner and one other defendant.

You may read the full order here. This case is still pending.