Facts

The facts in this case are relatively undisputed. Plaintiff served as one of Defendants distributors from August 2000 until April 2003. At that time, Plaintiff claims it was wrongfully terminated. It brought suit soon thereafter on June 3, 2003 in state court and requested documents in conjunction therewith. These requests for documents sought communications relating to (1) Plaintiff being made a distributor; (2) (sales) goals; (3) Plaintiff’s termination; and, finally, (4) The Hardwood Group, Inc. being made a distributor.

Before the discovery could be answered, Defendants removed the case to this Court on July 7, 2003. They also filed a number of motions, including a motion to dismiss. This stopped discovery. While awaiting the outcome of the motions, Plaintiff became concerned that evidence might be lost and, on October 13, 2005, filed a motion to commence discovery. Defendants opposed the motion and assured the Court and Plaintiff that they understood their duty to preserve evidence. The motion to dismiss and other motions were decided before Plaintiff’s motion to commence discovery could be granted. Therefore, discovery began and the above documents were again requested.

Despite Defendants’ acknowledgment that they knew documents should be preserved, they have not been able to produce e-mails, computer files, or paper files which were in the possession of Katherine Lee and Ricky Choe. These files contained information concerning whether there were any sales goals for Plaintiff for the years 2001 and 2002, and perhaps part of 2003 as well. Part of the computer files appear to have been spreadsheets which may have contained information concerning whether Defendants set sales goals for Plaintiff. Defendants acknowledge that they cannot produce these spreadsheets and analyses comparing the 2001 and 2002 sales goals. (Defs.’ Br. 6) Defendants contend there was no prejudice, however, because they produced documents generated in March and April 2003, which shows sales goals. These documents, however, were generated when Plaintiff was about to be terminated and, thus, are “suspect.” That is, they only show what Defendants thought the sales goals were or “should be” in 2003, not what they were in 2001 and 2002. With respect to the e-mails, Defendants state that Plaintiff should have a copy of any e-mails. However, this answer does not take into account that Plaintiff would not have access to Defendants’ intra-company e-mails. Finally, Defendants fail to offer any explanation showing why the documents disappeared.

Discussion

*2 As noted previously, the doctrine of spoliation of evidence is a rule of evidence deriving from this Court’s inherent power to maintain order and control over court proceedings. Silvestri, 271 F.3d at 590. As stated by that court:

It is clear from the evidence presented by Plaintiff that Defendants have violated the spoliation of evidence rule by destroying the documents of Ms. Lee and Mr. Choe. Defendants, in a half-hearted attempt to mitigate the violation of this duty, refer to the fact that when the matter was removed to federal court, Plaintiff’s state court discovery filings became a nullity. To so argue only aggravates the situation because: “[t]he duty to preserve material evidence arises not only during litigation but also extends to the period before the litigation when a party reasonably should know that the evidence may be relevant to anticipated litigation.” Silvestri, 271 F.3d at 591. Irrespective of whether the state court request for production remained viable or not, Defendants had a duty to preserve material evidence and were specifically notified what evidence Plaintiff considered to be material. Therefore, Defendants have no excuse for not immediately preserving such evidence. In addition, Defendants opposed Plaintiff’s motion to begin discovery in this Court with the assurance that they would preserve evidence. Finally, because Defendants have not offered any explanation concerning what happened to the missing documents, the Court must assume that the failure to produce the evidence resulted from a willful or reckless disregard of Defendants’ duty.

*3 In the instant case, Plaintiff claims that because Defendants acted or should be assumed to have acted, in bad faith, the only appropriate sanction would be the granting of a default judgment or judgment in Plaintiff’s failure. And, it is true that the court in Silvestri, 271 F.3d at 593, did indicate that bad faith alone in an appropriate case could result in the ultimate sanction of a default judgment or dismissal of the action. Perhaps sensing the danger to it, Defendants support their argument that a default judgment would be inappropriate by relying on cases where a party has disobeyed court orders or rules, such as in Mutual Federal Sav. and Loan Ass’n v. Richards & Associates, Inc., 872 F.2d 88, 92 (4th Cir. 1989). These cases, which amount to a disregard of the court itself, require a solid finding of bad faith, usually based on a series of actions or inactions by a party. They also look to the need for deterrence. While on their face, such cases are inapposite, they do help focus attention on the fact that ultimate sanctions should be avoided when “a lesser sanction will perform the necessary function.” Silvestri, 271 F.3d at 590.

The ultimate sanction of dismissal or default judgment should be reserved for the most egregious cases. Such sanctions may be appropriate where there has been a pattern of abusive or deceptive litigation tactics or false or misleading representations concerning the preservation of evidence. See In re Napster, Inc. Copyright Litigation, 462 F. Supp. 2d 1060, 1071 (N.D. Cal. 2006). They may also be appropriate when the evidence discloses a willful or grossly negligent failure to preserve documents and a clear nexus tying the destroyed documents to the merits of the litigation, especially when the loss severely prejudices the other party. Id. at 1074-1075.

In deciding which sanction to employ, the Court must always bear in mind that the rationale behind sanctions has a three-fold purpose of being either prophylactic, punitive, and/or remedial. One or a combination of the reasons may be appropriate depending on the particular case before it. In a situation where a party deliberately disobeys court orders and rules, or engages in deception or fraud in relation to spoliation, it may well be appropriate to impose the ultimate sanction for a purely punitive and prophylactic purpose, regardless of minimal prejudice to an opposing party. On the other hand, even when the evidence of willfulness is less egregious, should the prejudice component loom large, then it may also be appropriate to use the ultimate sanction of dismissal or default judgment. At all times, the Court should examine whether lesser sanctions would serve the purpose.

In the instant case, the spoliation of evidence did not involve (1) disobedience of a court order, (2) a pattern of deceptive or abusive practices, or (3) fraud or misrepresentations. It arguably might be concluded that Defendants promised the Court to preserve this evidence when they opposed Plaintiff’s motion for early discovery. That is admittedly a close issue in this case. Nevertheless, because Defendants did not clearly mislead the Court, it would be appropriate to look at the prejudice to Plaintiff when selecting from the range of appropriate sanctions. As noted above, such prejudice may serve as a basis for imposing the ultimate sanction against a party, even when the spoliation conduct may not be the most egregious. Silvestri, 271 F.3d at 593. However, Plaintiff’s showing of prejudice is the weak link in its request for the ultimate sanction.

Defendants assert that the sales goals for 2001 and 2002 are not relevant to Plaintiff’s remaining claims which, according to Defendants, only amount to negligent misrepresentation and unfair and deceptive trade practices. Plaintiff does not really address this issue, except to say that because documents were not produced, it cannot know whether those documents may have contained other evidence of value. Moreover, Plaintiff still contends that sales goals are relevant with respect to Defendants’ reasons for terminating Plaintiff. Be that as it may, it is not clear how or if the documents would be relevant at trial. In Silvestri, the spoliation of evidence directly affected a party’s ability to present evidence. To have excluded the plaintiff’s evidence as a lesser sanction for not preserving evidence would simply have amounted to imposing the ultimate sanction because it would have made it impossible for the plaintiff to proceed. That fact pointed out the extreme relevance of the evidence which was lost. Accordingly, it was appropriate to impose the ultimate sanction of dismissal of a claim on the party which destroyed or allowed the evidence to be destroyed.

*4 However, as Judge Traxler noted in his partial dissent in Silvestri, and as the Fourth Circuit held in Cole v. Keller Industries, Inc., 132 F.3d 1044 (4th Cir. 1998), when the circumstances surrounding the loss of evidence is not egregious and the lost evidence does not affect a party’s ability to present its case, then the court should choose from lesser sanctions, such as precluding evidence or allowing an adverse inference to be drawn. That is the situation in the instant case. Plaintiff has not convinced the Court that the evidence destroyed was so highly material to the case that it effectively prevents Plaintiff from proceeding. In other words, even though the Court finds Defendants’ unexplained destruction of the evidence to be unjustified and, consequently, bordering on an interference with the system of justice, it is not convinced that lesser sanctions would not be more appropriate, especially considering the fact that the ultimate sanction should be sparingly applied.

Appropriate sanctions in this case would be first that Defendants compensate Plaintiff for all of Plaintiff’s efforts to obtain the files of Katherine Lee and Ricky Choe, starting with Plaintiff’s October 13, 2005 motion to commence discovery. See In re Napster, 462 F. Supp. 2d at 1078 (attorney’s fees appropriate). Second, in the discretion of the trial judge, some instruction to the jury permitting an adverse inference may be given with respect to any testimony by Defendants concerning sales goals or the lack of them for Plaintiff.[2] The inference would be along the line that because Defendants destroyed evidence relating to the sales goals or lack of them for Plaintiff for the years 2001 and 2002, the jury may infer that such evidence was not favorable to Defendants and consequently destroyed for that reason and, therefore, the jury may use this adverse inference as a factor in determining and discounting the credibility of any of Defendants’ witnesses who testify as to this matter.[3]

IT IS THEREFORE RECOMMENDED that Plaintiff’s motion for sanctions and default judgment (docket no. 54) be denied, but that in its discretion, the Court impose the sanction of attorney’s fees and permitting the trial judge to instruct the jury concerning an adverse inference noted above should issues relevant to such an inference arise during the trial.