In KCH Services, Inc. v. Vanaire, Inc., et. al., 2009 U.S. Dist. LEXIS 62993 (W.D. Ky. July 21, 2009), U.S. District Court Judge Jennifer B. Coffman granted plaintiff's request for an adverse inference instruction where defendants intentionally deleted evidence and failed to implement a litigation hold.

Plaintiff brought this action to recover damages for defendants' improper use and installation of plaintiff's software on defendants' computers.  Plaintiff's president telephoned defendant Vanegas of Vanaire, Inc., to notify him that defendants had loaded plaintiff's software on its computers without paying a licensing fee or otherwise purchasing the software.  After the October 2005 telephone call, Vanegas immediately instructed all employees to delete any software that the company did not purchase or did not own.  Plaintiff filed a complaint on November 23, 2005 and sent an evidence-preservation letter on December 14, 2005.

The court held that plaintiff's telephone call to Vanegas should have put the defendants on notice that issues of software may be relevant to future litigation.  The court noted that for the duty to preserve to have attached, it was not required that Vanegas actually knew that litigation was on the horizon, or that the software would be relevant, but only that he "should have known" the software "may be" relevant to future litigation, particularly given the fact that plaintiff was a competitor who had sued defendant previously.

In addition to the deletion of the software, the defendants failed to issue a litigation hold to halt the routine deletion and overwriting of email and other potentially relevant electronic evidence.  The court held that defendants' conduct went beyond the scope of Rule 37(e)'s "routine, good faith operation of an electronic information system." The court found that the deletion of the software and electronic documents had prejudiced plaintiff's case, but declined to order a default judgment.  Rather, the court ruled that an adverse-inference instruction concerning the software and email would fairly compensate plaintiff for lost evidence that may have been presented to the jury.