Intentional Info Dump Costs Online Real Estate Company $130 Million

Delete ButtonDuring his presentations on Electronically Stored Information (ESI), Steven Garcia of GARCIA LEGAL, A Professional Corporation, always warns of the importance of having and following a written retention policy for all ESI. In fact, he has prepared policies for several clients working in conjunction with their IT professionals. Steve also speaks of the importance of placing a “litigation hold” on any ESI destruction policy if there is a known threat of litigation or an actual suit. Failure by an employee to follow such a policy led Zillow, the online real estate database, to settle a recent suit for $130 million. Move, which is owned by News Corp. and operates Realtor.com for the National Association of Realtors, sued Zillow alleging that it stole trade secrets and proprietary information when Move’s chief strategy officer and another key employee were hired away by Zillow. The chief strategy officer—Samuelson—became Zillow’s second-highest paid executive the same day he resigned from Move. The other key employee—Beardsley—assumed the role as Zillow’s vice president of industry development. About a month prior to the settlement, the court ruled on a “spoliation” hearing. “Spoliation” is the intentional destruction of potentially relevant evidence, in this case ESI stored on hard drives, other portable storage devices, and computers. The ruling is what many believe forced the settlement.

Move argued the destruction of the ESI deprived it of the right to a fair trial. Move was seeking more than $2 Billion in the suit. Following a six-day hearing, the court ruled the evidence did not show Samuelson acted in bad faith with respect to the destruction of the ESI because they were made before Zillow had reasonable notice of any suit. In Beardsley’s case, however, the court ruled he had have unclean hands when he intentionally ran a deletion program to reformat his hard drive and destroyed another drive in what he called a fit of anger when he smashed it into a wall. A significant fact to note is that much of the evidence destroyed was “meta-data,” which is data about data entries such as when they were created and by whom.

As a result of the spoliation, the court granted sanctions in the form of a jury instruction which would have informed the jurors that they were allowed, though not required, to infer that the missing evidence would have either benefited the plaintiffs’ case or hurt the defendants’ case. It is unclear how much the ruling affected settlement discussions, but regardless there are important lessons to be learned.

Perhaps the most troubling lesson learned from Zillow’s misfortune is that in practical terms, just taking good faith steps to inform employees of their duty to preserve may not be enough. The court found that Zillow did take early, affirmative steps to put its employees on notice of their obligation to preserve the evidence. However, one employee’s actions had the practical effect of supporting a jury instruction that would have been harmful to Zillow’s position had the case been brought to trial and may have cost the company in terms of the settlement. The employee’s activities had the practical effect of harming the company’s case, even though the company itself seemingly made good faith efforts preserve evidence. This case emphasizes the importance of having a Written Retention Policy for ESI and ensuring that all employees follow through with the instructions. California Escrow Documents can assist clients in creating a Written Retention Policy. Contact us for more information.