Bungie Inc v. Aimjunkies.com, 2:21-cv-00811

Background

Bungie, Inc. sued Phoenix Digital Group, AimJunkies.com, managers Schaefer, Conway, Green, and contractor James May for distributing cheat software and related copyright/trademark claims involving Destiny 2.
Bungie sent cease-and-desist and preservation letters in late 2020, warning the Phoenix Digital defendants to preserve evidence; May received notice in 2021.
After notice, Phoenix Digital deleted AimJunkies.com content (forum messages, Cheat Software, Loader Software, marketing images) and failed to preserve archival/site data before selling the site; they also deleted Bitcoin-related transaction records.
May admitted wiping four hard drives in May 2022 after he suspected Plaintiff accessed his computers; he did preserve five files transferred to a new machine.
The court found the deleted material constituted ESI (except certain Bitcoin wallet records), that defendants had a duty to preserve, that the evidence is irretrievably lost, and that reasonable preservation steps were not taken.
The court concluded the spoliation prejudiced Bungie, inferred defendants acted with intent to deprive, and imposed the sanction of adverse jury instructions permitting a presumption that the destroyed evidence was unfavorable to defendants and allowing Bungie to present spoliation evidence.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether a duty to preserve was triggered by pre-suit letters and notice	Cease-and-desist and later counsel letters expressly demanded preservation, triggering the duty	Preservation demand was overbroad and did not identify specific items, so no duty to preserve particular materials	Duty was triggered upon receipt of the cease-and-desist and notice; defendants had possession/control so duty applied
Whether the deleted material qualified as lost ESI and is irretrievable	Deleted website content, software, images, and financial/Bitcoin records are ESI and cannot be restored	Some information can be reconstructed via depositions or other payment-processor records; Destiny images and some transaction data are known to Plaintiff	Court held the ESI was lost and irretrievable given intentional deletions and sale of the website; May’s wiped drives also irretrievable
Whether defendants took reasonable steps to preserve ESI after duty arose	Plaintiff: defendants took no reasonable steps (did not stop auto-deletion, sold site, deleted wallets)	Defendants claimed available substitutes and existing access to some records	Court found defendants failed to take reasonable preservation steps (no preservation of AimJunkies.com, monthly deletion of wallets, May’s willful wiping)
Appropriate sanctions and whether intent to deprive exists	Plaintiff sought sanctions for spoliation including adverse inference	Defendants argued prejudice not shown and severe sanctions unwarranted	Court found circumstantial evidence of intent to deprive (intentional deletions, misrepresentations, evasive conduct) and imposed adverse-jury-instruction sanction under Rule 37(e)(2); default/dismissal too severe

Key Cases Cited

United States v. Kitsap Physicians Serv., 314 F.3d 995 (9th Cir. 2002) (spoliation requires notice of potential relevance to litigation).
Leon v. IDX Sys. Corp., 464 F.3d 951 (9th Cir. 2006) (destruction of evidence can support presumption evidence was adverse to spoliator; prejudice inquiry explained).
Phoceene Sous–Marine, S.A. v. U.S. Phosmarine, Inc., 682 F.2d 802 (9th Cir. 1982) (spoliation may give rise to adverse inference).
Ryan v. Editions Ltd. W., Inc., 786 F.3d 754 (9th Cir. 2015) (party seeking Rule 37(e) sanctions bears burden on elements for ESI loss).
EEOC v. Fry’s Electronics, Inc., 874 F. Supp. 2d 1042 (W.D. Wash. 2012) (notice to preserve can be triggered by communications; relevance presumption against spoliator).
Cache La Poudre Feeds, LLC v. Land O’Lakes, Inc., 244 F.R.D. 614 (D. Colo. 2007) (context for when preservation obligations arise and limits of overbroad preservation demands).
Apple Inc. v. Samsung Elecs. Co., 888 F. Supp. 2d 976 (N.D. Cal. 2012) (framework for spoliation of non-ESI: duty, culpability, and relevance).
United States v. $40,955 in United States Currency, 554 F.3d 752 (9th Cir. 2009) (distinguishes when informal statements do not trigger preservation duties).