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Delaware Court Enters Default Judgment for Extreme Spoliation

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March 28, 2023
By: K. Tyler O'Connell and Joseph C. Leonard
Business Law Today

Spoliation of evidence can lead to significant litigation sanctions, including adverse inferences, fee-shifting, and—in egregious cases—the entry of a default judgment. In this recent case involving intentional spoliation of evidence by a corporation's founder, owner, and chief executive officer, Chancellor Kathaleen St. J. McCormick, sitting by designation in the Delaware Superior Court's Complex Commercial Litigation Division, found that a non-party's spoliation may be imputed to a party, and that entry of a default judgment was appropriate. See BDO USA, LLP v. Everglade Global, Inc., 2023 WL 1371097 (Del. Super. Jan. 31, 2023).

Defendant Everglade Global is a consulting firm founded by former BDO partner Eric Jia-Sobota, whose departure led to a legal battle with BDO. During that litigation, BDO became the target of an online smear campaign. Jia-Sobota claimed to have been contacted by an anonymous party online, to whom he claimed to have provided information used in the smear campaign. BDO brought suit for defamation.

Everglade initiated an internal investigation, enlisting an eDiscovery vendor to collect from Jia-Sobota’s devices. The vendor found that a program had been used to wipe data from the devices, including browsing history. As such, it was forced to state the investigation was inconclusive, and it resisted efforts by Jia-Sobota to report differently. Everglade also engaged in other obstructive behavior in discovery, and it refused to engage further with BDO, claiming it had fully satisfied all obligations. When the Court appointed a Special Discovery Master, the extent of the spoliation was revealed, including (i) the use of a “cleaner” program to wipe data, (ii) the destruction of thumb drives, (iii) the deletion of OneDrive data, and (iv) the factory reset of seven laptops at issue. As a result, BDO was deprived of discovery from the potential sources of direct evidence of Jia-Sobota’s wrongdoing.

In response to BDO’s request for a default judgment, Everglade acknowledged the intentional spoliation by Jia-Sobota, but argued that it was not responsible for his behavior. The Court sided with BDO, noting that the requirements of respondeat superior liability were satisfied, and that there also are policy reasons to hold corporations accountable when a CEO destroys the evidence. The Court also found that the egregious spoliation and the obstructive conduct of Everglade’s counsel warranted fee-shifting for the sanctions motion and prior discovery practice needed to uncover the spoliation.

Reprinted with permission, originally appeared in Business Law Today, a publication of the American Bar Association Business Law Section.

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