Laptop Wiped After Preservation Duty Was Triggered; But, No Sanctions on the Facts

A motion for sanctions was denied in an alleged misappropriation of trade secrets action by a former employer against departed employees.  Lifestyle Realty, LLC v. Kirn, et al., 2025 WL 2719984 (D. Md. Sep. 23, 2025)(Simms, J.).

Lifestyle Realty (“DKG”) is a real estate brokerage firm.  It sued four individual defendants and Compass DMV LLC, alleging that they planned to take confidential information and start a competitor, The Phoenix Group of Compass.

REQUEST TO MOVE FOR SANCTIONS:

COURT REPORTER IN “MEET & CONFER”

DKG filed a notice that it sought leave to move for “spoliation relief.”  It alleged that defendant Natalie Perez had wiped a DKG laptop after she anticipated litigation and after she had retained counsel.  Ms. Perez and the other Individual Defendants challenged assertions that the duty had arisen, the culpable state of mind requirement, and prejudice.

In response to the notice, the Court held a hearing and: “The Court further ordered the parties to meet and confer with a court reporter present to address the potential spoliation issue, and to update the Court with its efforts to resolve the same.” Id. at *2 (emphasis added).  That is an unusual, but not unprecedent, directive.  Felder: Part 1 of 4:  Court-Ordered Transcription of “Meet and Confer” Session (Aug. 13, 2024).

After the conference was unsuccessful, the Court entered a briefing order.  The decision is roughly 18 pages long and this blog skips over many details.

The Court applied the ESI Rule, Fed.R.Civ.P. 37(e).  It wrote:

Because the Fourth Circuit has not yet articulated the standard of proof required to prevail on such a motion, clear and convincing evidence, as opposed to mere preponderance of the evidence certainly suffices.

Id. at *6.

FACTUAL CHRONOLOGY

The four Individual Defendants were hired between 2016 and 2019.  DKG provided them with access to G-Suite/Google Workspace.  “On or about May 17, 2022, while still employed at DKG, Individual Defendants signed contracts to join Defendant DMV Compass as real estate agents on June 28, 2022…. Individual Defendant Perez received an identical contract, but did not sign it.”

All of Individual Defendants simultaneously resigned on June 28, 2022. The Court wrote: “That same day, they announced their new brokerage group called ‘Phoenix Group,’ which was affiliated with Defendant Compass DMV.”

Defendant Perez used the DKG laptop for both business and personal purposes.  “The same day that the Individual Defendants resigned, Individual Defendant Perez returned a laptop to Plaintiff that had been erased of its contents and restored to its original factory settings.”  DKG’s forensic expert, Andreas Mueller, could not recover any data from it.

DKG sent a preservation and claim letter to the individual defendants on July 1, 2022.  They then sought counsel.

DKG relied on chats and email from May and June 2022 which it alleged were inculpatory. It claimed that they showed manipulation of data and misappropriation.  Further, on June 28, 2022, DKG “logged into the Individual Defendants’ Gmail accounts and found emails between them that show acceptance of certain calendar events, ‘but for which no corresponding event (sic) appear on the Google calendar, indicating that the calendar events have been deleted.’”

The Individual Defendants provided what they contended were, in my words, benign explanations. For example, one of them asserted that “the reference to contacting an employment attorney in an email involving an employee of Defendant Compass DMV were her way of deciding how to behave appropriately upon separating from employment with Plaintiff.”

Additionally, “[t]hey all denied thinking that litigation involving [DKG’s principal] Ms. Kerr was a possibility.”  Further, they all asserted that during a June 28, 2025, resignation meeting, everyone was cordial and there was no mention of any dispute.  Instead, DKG discussed a follow up meeting and a smooth client transition.

All professed to being “shocked” or “stunned” or “surprised” at receiving the July 1, 2022 cease-and-desist letter, and claimed that they did not consider litigation…. All claimed that they did not anticipate litigation before receiving that letter.

Defendant Perez stated that it was not her practice to store work materials on the DKG laptop.  Instead, she used Google Drive for storage.  She contended that anything on the laptop was also on the cloud drive.  Further:

Before Individual Defendant Perez ceased working for DKG, in or about early June 2022, she made a “mirror image” of the DKG-issued laptop….  In particular, she did this by copying the data from the DKG-issued laptop “to an external hard drive owned by [Andrea] Bramson,” and then uploading the data from there to a laptop….

To “recap,” these events were prior to receipt of the “cease and desist” letter.  After verifying that the copy was complete, Perez reset the DKG-issued laptop to factory settings. She claimed in part that she was protecting “over five years of personal and confidential information….” DKG’s expert opined that the machine had contained 56,823 files and folders.  He also confirmed a “mass-copy” to external media.

At the time of the spoliation motion, defense expert, Trustpoint, had extracted and produced approximately 40,000 documents from the Individual Defendants’ computers and phones.  Defendant Perez gave Trustpoint the external device that had been used to copy the DKG laptop. Ms. Perez said: “I believe that DKG has all documents, communications or material which existed on the DKG laptop.”

On these facts, the Court wrote: “The parties do not dispute that the DKG-issued laptop is the only device that is the subject of the spoliation motion…. Given that reality, the Court carefully considered the conduct of each Individual Defendant.”  It concluded that DKG had not met its burden of proof.

THE OTHER DEFENDANTS ARE NOT CULPABLE

Turning to the Individual Defendants other than Ms. Perez, the Court found no evidence that they had used the laptop. It wrote that “Plaintiff has not put forth any evidence that Individual Defendants Kirn, Fitzgerald, or Goelman played any role in Perez’s copying and later erasing the material from the DKG-issued laptop. Indeed, the evidence before the Court establishes otherwise.”

Nor was there any evidence that the others knew that Defendant Perez was going to erase that laptop.  Therefore, none of them could be sanctioned under Fed.R.Civ.P. 37(e).

Ms. PEREZ’S DUTY TO PRESERVE

WAS TRIGGERED BEFORE WIPING OF LAPTOP

At pages *12, passim, the Court reviewed the case law governing triggering of the duty to preserve.  The latest date of trigger was the July 1, 2022, notice from DKG, which stated a claim and demanded preservation.

However, DKG argued for an earlier trigger date.

The Court first analyzed Individual Defendant Perez’s self-serving statement that she did not anticipate litigation before July 1, 2022…. The Court did not find this statement to be persuasive, given the fact that more contemporaneous statements from 2022 existed.

The Court wrote: “A judge tasked with finding the facts has the right to disregard any aspect of a witness’ testimony or statements if judge finds that information provided is inherently improbable due to interest or bias.”

The Court next carefully analyzed a series of earlier communications and found that, despite Ms. Perez recognizing that there would be a “negative react[ion]” to their departure from DKG,  the communications do not “clearly signify” that Ms. Perez anticipated litigation.

The Court noted Ms. Perez’s concern with protecting personal information on that device; however:

The Court finds this statement self-serving and not credible; Individual Defendant Perez could have erased her personal information and left the remaining information on the laptop that she concedes was not her own but belonged to her employer and was given to her to aid her in performing work for Plaintiff, not to store her personal information.

This showed her plan to conceal DKG data and “[t]hese facts must be considered, along with the May 11-12 chats, in analyzing when the duty to preserve arose.” Those chats included Ms. Perez writing: “Whatever we can have in our ‘back pocket’ for [DKG] to hesitate going after us is essential. Especially for me and Susan and our database because she’s gonna go after us just like she did David.”

The Court held that, based on the clear and convincing evidence, Ms. Perez reasonably anticipated litigation before June 28, 2022, the date when she returned the wiped laptop.  Further, knowing that the contents she copied would assist her with her clients at her new job, DKG had shown that Ms. Perez knew the deleted information was relevant.

HOWEVER, DKG FAILED TO SHOW THE ESI WAS LOST

Defendants argued that DKG cannot show that the purportedly lost ESI “actually existed.”  The Court rejected that, writing “why else would Individual Defendant Perez take steps to ‘mirror’ and migrate this data to the Perez laptop if it had nothing to do with existing clients and possible leads?”

However, to be “lost” the ESI must be “irretrievable from another source, including other custodians.” The Court determined that:

Plaintiff has failed to meet its burden to establish that the information on that laptop is truly irretrievable from another source…. Relatedly, Plaintiff has failed to demonstrate that it made a good-faith attempt to explore alternatives before filing the spoliation motion.

In short, DKG failed to conduct sufficient depositions to prove irretrievable loss.  “In contrast, the Individual Defendants, who do not have the burden of proof, have put before the Court unrefuted evidence that Individual Defendant Perez made a ‘mirror image’ of the DKG-issued laptop and confirmed that the contents of the DKG-issued laptop matched what she copied to the Perez laptop.”  And, approximately 40,000 documents had been produced.

Ms. PEREZ DID NOT FAIL TO TAKE REASONABLE PRESERVATION STEPS

The Court explained that: “As a general matter, ‘reasonable steps to preserve’ does not mean that Individual Defendant Perez had a duty to preserve every shred of paper, every e-mail or electronic document, and every back up tape.” [cleaned up].

Ms. Perez submitted evidence of the copying of the laptop – a “mirror image.”  First ESI was copied to an external drive and then to another laptop. The Court wrote: “Individual Defendant Perez verified that ‘the material on the DKG laptop matched the material on the Perez laptop by using the Perez laptop and the DKG laptop and seeing that all of the files, folders, and data were in the same locations on both laptops.’”

There was no discussion about whether the double-copying process altered key metadata.  In fact, DKG had not deposed Ms. Perez about the exact steps taken to create the “mirror image.” Nor did DKG ask for a forensic examination of the external drive.

The Court concluded:

In sum, Plaintiff has failed to establish, by clear and convincing evidence, that Individual Defendant Perez has truly “lost” the relevant ESI that was on the DKG-issued laptop (it does not exist in its entirety elsewhere) because of Perez’s failure to take reasonable steps to preserve it.

RESTORATION OR REPLACEMENT THROUGH ADDITIONAL DISCOVERY

The Court stated: “The law is clear that Plaintiff must show that the lost ESI cannot be restored or replaced through additional discovery….” Here, DKG failed to meet its burden.

In addition to the 40,000 documents and material extracted by Trustpoint: “Individual Defendants Kirn, Fitzgerald, and Goelman each deny deleting any materials ‘from my phone or computer.’”  Further, there was no evidence to refute the assertion that the material exist on DKG’s Google Drive.

For additional information on replacement or restoration, see Secondary Evidence as a “Gap Filler” (Mar. 11, 2022); Satisfactory Secondary Evidence Prevents Sanction (Sep. 4, 2021); Secondary Evidence of Missing Video Permitted (Dec. 10 2023).

NO PREJUDICE or INTENT TO DEPRIVE

The Court wrote that “in order to find prejudice to Plaintiff, the Court must first find that the information has been lost. See Fed. R. Civ. P. 37(e)(1) (‘upon finding prejudice to another party from loss of the information’)(emphasis supplied)….”

DKG would need to show that  it “cannot present evidence essential to its underlying claim.”  Here, there was no showing of a deprivation of “evidence” essential to DKG proving its claim.

Given its prior holdings, the Court did not need to reach “intent to deprive” under Rule 37(e)(2).  It wrote that there was “little question” that Ms. Perez intentionally and deliberately wiped the DKG laptop.  However, if the other predicates of Rule 37(e) had been satisfied, it still would have had to resolve whether there was intent to deprive.  One may speculate that, given the copying to an external drive and then to another computer, that burden may not have been met. For additional information on intent, see Failure to Show “Intent to Deprive” Leads to Denial of Rule 37(e)(2) Sanctions (Mar. 5, 2024).