Default Judgment Granted, Monetary Sanctions Imposed Against Plaintiff Tech Company and Counsel for Misconduct

Default Judgment Granted, Monetary Sanctions Imposed Against Plaintiff Tech Company and Counsel for Misconduct

Plaintiff’s counsel tried to distance the company and themselves from their retained consultant in an unsuccessful attempt to escape sanctions for multiple instances of misconduct. Illinois District Court Judge Coleman saw through counsel’s feeble attempts to use the consultant as a scapegoat and granted the defendant’s motion for default judgment and monetary sanctions.

This case arose as one of several involving Trading Technologies International, Inc. (TT) and its patents for use in the futures trading industry. Plaintiff, Rosenthal Collins Group LLC (RCG), filed a declaratory judgment action against TT claiming that a function of its software (Wit DSM) invalidates the TT patents, and TT counterclaimed alleging patent infringement.

In April 2006, RCG filed a motion for summary judgment claiming that Wit DSM anticipated the TT patents and that software written in 1998-99 constituted prior art invalidating TT’s patents. RCG primarily supported its position with a declaration from Walter Buist, a retained consultant and computer programmer that developed the source code for Wit DSM. RCG further supported its motion with zip disks that contained a back-up copy of Wit DSM source code from 1998-99.

In June 2006, Buist was deposed and stated, contrary to his declaration that the software code at issue was not written during the 1998-99 period, but was instead written in 2006. Buist also testified that he sent RCG’s counsel a list of differences between the codes and the date of Wit DSM’s modifications.

After Buist’s revelations, TT filed a motion for default judgment and monetary sanctions. In March 2007, Judge Moran found RCG’s motion was somewhat misleading, but did not rise to the level of “clear and convincing evidence that Buist or RCG’s counsel willfully and intentionally fabricated evidence to deceive the court.” As a result, Judge Moran granted the monetary sanctions and costs and attorneys’ fees to TT and struck Buist’s declaration, but declined to enter default judgment.

A series of discovery requests by TT then went unanswered, and TT filed a motion to compel documents and equipment in March 2007. The court compelled RCG to produce thumb drives and three computers.

TT deposed Buist again in June 2009, and Buist admitted that he turned back the clock on his computer when he overwrote the source code on the zip disks. He further admitted that this was an attempt to make it appear that the files on the zip disks had last modified dates in 1998-99. Finally, and importantly, Buist admitted that he knew by doing this no one would be able to tell the files had actually been modified in 2006.

David Klausner, TT’s computer forensic analyst, found there was “no valid technical reason” for Buist to have changed the modified dates. Klausner also noted that TT may not have discovered the code modifications had they performed only a normal comparison of the relevant files. Finally, Klausner revealed that various disks, thumb drives, and computers produced by RCG during discovery had been “wiped,” including all seven zip disks.

Counsel for RCG asserted Buist wiped the disks to prevent the recovery of any personal information because he is “a very private person.” Armed with this new information, TT filed the current motion for default and sanctions under Federal Rule of Civil Procedure 37 and 28 U.S.C. § 1927. Some of TT’s allegations included:

  1. Buist knowingly altered the last modified dates for the source code files, back-dating the code before the critical dates for the suit.
  2. The seven zip disks provided during discovery were wiped before their production, and the last of the disks was wiped 90 minutes before TT met with RCG’s counsel to inspect the disk.
  3. The thumb drives produced were wiped.
  4. The laptop produced was reformatted in 2008.

RCG responded that neither the company nor its counsel knew of Buist’s actions. Rather than produce evidence to refute the allegations, RCG and its counsel distanced themselves from Buist, disavowing actual knowledge of wrongdoing and any personal wrongdoing.

Judge Coleman found this was not the case. She concluded that RCG should have known Buist altered the last modified dates because RCG and its counsel had an affirmative duty to ensure the metadata was accurate. Judge Coleman also determined that Buist was not responsible for wiping the seventh disk, and that all facts pointed to RCG or its counsel wiping the disk in the minutes before TT’s counsel were to arrive for a meeting to review the disk at RCG’s counsel’s office. The judge found “it impossible to believe that it is merely concidence that the seventh disk happened to be wiped on [the date of the meeting].”

Importantly, Judge Coleman agreed that TT’s allegation that “virtually every piece of media ordered produced by the Court . . . was wiped, altered, or destroyed after those orders were entered” was supported by forensic analysis.

As for RCG’s defense that it had no actual knowledge of misconduct, Judge Coleman determined that to impose sanctions, actual knowledge is not required and gross negligence or recklessness would suffice. She concluded that RCG knew or should have known of the evidence destruction and modification. Judge Coleman also found that while Buist was not a party to the lawsuit, RCG intended to use him as a fact witness, hired him as a consultant to reconstruct the code, and he was RCG’s paid agent.

Judge Coleman concluded default judgment against RCG was warranted because she found clear and convincing evidence that RCG and its counsel “acted in bad faith and with willful disregard” for the Court’s orders. She further determined that monetary sanctions alone were insufficient since RCG had already been sanctioned once for discovery abuses and

remained undeterred from future misconduct.


Lauren Winchester is a student at Seton Hall University School of Law (Class of 2012), where she serves as an articles editor for the Law Review and a research fellow for the Center for Policy and Research. Lauren received a B.S. in Political Science from Carnegie Mellon University in 2009. After graduating from Seton Hall Law, Lauren will work as an associate at Fox Rothschild LLP.

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