BalanceCXI, Inc. v. International Consulting & Research Group, LLC, 1:19-cv-00767

Background

DeSimone (COO) and Oldfield (CTO) left BalanceCXI on Jan 15, 2019 but retained company laptops; both had signed employee policies and non‑compete/non‑solicit agreements.
BalanceCXI demanded return of laptops on April 5, 2019 and expressly instructed no copying, deletion, or alteration; defense counsel engaged and acknowledged potential litigation.
Forensic analysis showed on April 9, 2019 each defendant connected external drives to their laptops, accessed folders containing Zacoustic (BalanceCXI) source code, created “ZacousticRepo”/“Z Backup” folders, and later ran CCleaner to irretrievably wipe large numbers of files.
Multiple storage devices and three additional computers identified by forensics were never produced or were later discarded, reformatted, or physically destroyed; some drives were also wiped again just before attorney production in December 2019.
BalanceCXI filed suit, moved to compel discovery, and then moved for Rule 37 sanctions after forensic reports; the magistrate held a multi‑day evidentiary hearing.
The magistrate found intentional, repeated spoliation by DeSimone and Oldfield (but insufficient proof as to ICAR), concluded severe sanctions were warranted, and recommended default judgment on trade‑secret–related counts plus an award of attorneys’ fees.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether defendants violated the Court’s March 13, 2020 order by failing to produce additional devices	Defendants failed to produce devices identified by forensic exam and thus violated the Court’s admonition	Defendants say much misconduct occurred before the order and some devices no longer exist; they supplemented responses	Court: No violation of the March 13 order because most misconduct predated it and some devices cannot be produced (claimed lost/destroyed)
Whether Rule 37(e) spoliation occurred (duty, failure to take reasonable steps, ESI irretrievable)	BalanceCXI: defendants had a preservation duty, intentionally deleted ESI with CCleaner and destroyed devices, and the data cannot be restored	Defendants: actions were to remove personal files and not wrongful; production efforts ongoing	Court: Rule 37(e) elements satisfied—duty existed, reasonable steps not taken, ESI unrecoverable; spoliation established
Whether defendants acted with intent to deprive (predicate for severe sanctions under Rule 37(e)(2))	BalanceCXI: deletions were repeated, concealed, timed around litigation, and targeted core source‑code materials—demonstrating intent to deprive	Defendants: deny wrongful intent, claim innocent motives and some devices misplaced	Court: Intent to deprive found (intentional, repeated, concealed wiping and destruction); severe sanctions appropriate
Appropriate sanctions and entitlement to fees	Default judgment (death‑penalty) on theft/trade‑secret claims and recovery of attorneys’ fees and forensic costs	Defendants: sanctions excessive and overbroad; also argued discovery weaponization	Court: Recommended default judgment as to liability on Counts 1,2,5,6,7 (trade‑secret/conversion/CFAA/conspiracy claims) against DeSimone and Oldfield; awarded attorneys’ fees and costs for motion to compel and sanctions proceedings; no default as to non‑compete/non‑solicit counts; ICAR not sanctioned due to lack of causation evidence

Key Cases Cited

Law Funder, L.L.C. v. Munoz, 924 F.3d 753 (5th Cir. 2019) (district court has broad discretion to fashion Rule 37(b) sanctions, including terminating sanctions)
Moore v. CITGO Ref. & Chemicals Co., L.P., 735 F.3d 309 (5th Cir. 2013) (affirming dismissal where destroyed ESI was potentially essential to opposing party’s defense)
Guzman v. Jones, 804 F.3d 707 (5th Cir. 2015) (duty to preserve arises when a party knows or should know evidence is relevant to litigation)
Batson v. Neal Spelce Assocs., Inc., 765 F.2d 511 (5th Cir. 1985) (Rule 37 permits awarding reasonable expenses and attorneys’ fees against noncomplying parties)
Rimkus Consulting Grp., Inc. v. Cammarata, 688 F. Supp. 2d 598 (S.D. Tex. 2010) (courts may use inherent power to sanction spoliation that occurs before suit or when rules are inadequate)
Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Sec., 685 F. Supp. 2d 456 (S.D.N.Y. 2010) (terminating sanctions appropriate in extreme spoliation cases involving intentional destruction or wiping of electronic evidence)