- Over the course of six days, a King County Superior Court judge heard arguments for and against imposing sanctions on Zillow and two of its executives, Errol Samuelson and Curt Beardsley.
- Move and its co-plaintiff, the National Association of Realtors (NAR), allege that Samuelson and Beardsley's actions constituted "massive" evidence destruction in a trade secrets lawsuit originally filed in March 2014.
- One litigation analyst predicts Zillow will emerge bruised from the hearing, but live to defend itself and plead its own case at the upcoming June 6 trial.
Now that archrivals Zillow and Move Inc. have faced off in the courtroom, a Washington state judge will decide whether the two fight an even bigger battle.
Over the course of six days, a King County Superior Court judge heard arguments for and against imposing sanctions on Zillow and two of its executives for what Move and its co-plaintiff, the National Association of Realtors (NAR), allege constituted “massive” evidence destruction in a trade secrets lawsuit originally filed in March 2014.
Move and NAR contend the executives — Errol Samuelson and Curt Beardsley, Zillow Group’s top representatives to the real estate industry — destroyed, or “spoliated,” so much critical evidence in the case that a fair trial may no longer be possible.
Therefore, they are asking the court to issue a ruling deciding the case in their favor without a trial — a “terminating sanction” — or, if the case does go to trial, that the court give an “adverse inference” instruction to the jury telling them to presume the destroyed evidence would have shown the execs stole Move’s information to take to Zillow.
The spoliation hearing wrapped up on Monday. The judge, Judge Sean O’Donnell, has asked the parties to submit additional briefs by May 2, and a decision is likely to come one to two weeks later.
One litigation analyst predicts Zillow will emerge bruised from the hearing, but live to defend itself and plead its own case at the upcoming June 6 trial.
Sanctions
Thomas Claps, a litigation analyst from Susquehanna Financial Group (SFG), believes “there is a significant risk to Zillow” in the case and O’Donnell is likely to impose some type of sanction — though not a terminating sanction.
In a research note at the end of the hearing Claps said that an adverse inference jury instruction could be “a crippling blow to Zillow’s defenses” at trial, but that SFG believes “substantial evidence” presented at the hearing could justify such a sanction.
“[N]ote that the Judge does have discretion to craft the language of an adverse inference instruction in a manner that would be less harmful to Zillow; however, this would still be a significant setback for Zillow in this case,” Claps said.
Claps told Inman the adverse inference jury instruction would definitely be a “severe” sanction, “which is why I think the court has spent so much time and attention on this matter.”
Spending six days on a sanctions hearing is fairly unusual given the proximity of the trial, according to Claps.
“At the very least, we expect some form of monetary fine to be imposed against Zillow (e.g., reimbursing Move for the legal/forensic expenses incurred in addressing the destruction of evidence issues),” he said.
Settlement possible?
While settlement is always a possibility in any case, there hasn’t been any indication that Move and Zillow are close to a settlement, either from the judge or the public record, Claps said.
Move and NAR’s $1.77 billion damages claim in the case is so high that it makes settlement more difficult, he added.
SFG believes the demand is “inflated.”
“Two billion dollars in a trade secrets case like this just seems to be an extremely high number,” Claps said.
“However, we’re not going to get the full picture of damages until the experts testify at trial and present their model for how they arrive at the $2 billion number. We’ll get the strength of damages model once that portion of the trial begins.”
In a research summary before the hearing, Claps noted that due to the size of the claim, “Zillow may be forced to increase its settlement offer in order to avoid a trial.”
Closing arguments
Claps noted O’Donnell questioned both sides during closing arguments but “seemed more probing and critical” of Zillow and its defenses.
“For example, the Judge stated that there was a lot ‘smoke’ regarding messages between Samuelson and Beardsley in this case — for example, Samuelson’s message to Beardsley telling him not to discuss Zillow in emails — and asked if this would allow an inference that similar messages existed,” Claps said.
“At another point, the Judge called these messages ‘inculpatory’ — i.e. evidence that helps to establish Move’s claims in the hearing/case. The Judge’s questions towards Move did not seem as critical.”
A transcript of the closing arguments is available here. But here is summary of each side’s position:
Move and NAR:
Plaintiffs’ lawyer David Singer argued that Samuelson, Beardsley and Zillow had a duty to preserve evidence when they knew or reasonably should have known that evidence may be relevant to pending or future litigation, which in this case was well before a complaint was filed.
Singer noted that Beardsley had received a litigation hold notice directing him not to delete anything related to Samuelson the day after Samuelson resigned and was told not to erase anything from his Move devices when he himself resigned — but Beardsley allegedly ignored both.
Samuelson reset his Move iPhone and iPad to factory settings and attempted to clone the hard drive on his Move Dell laptop — with some data not copied over — in order to return the laptop with clone rather the original.
Curt Beardsley
Singer highlighted several missing, destroyed or wiped devices in the case and Beardsley using the overwriting software Cipher 17 times on his devices.
He emphasized plaintiffs had “gotten lucky” finding some “incriminating” documents and text messages that the defendants had attempted to delete but that these were just “the tip of the iceberg.”
He checked off several actions by the defendants that allegedly demonstrate they destroyed evidence in “bad faith” and questioned the credibility of both executives.
He also stressed that the evidence destruction happened “under Zillow’s watch.” He alleged Zillow waited a “beyond negligent” amount of time to image Samuelson and Beardsley’s computers after the lawsuit was filed, waited a year and a half to discipline anyone in connection with the case and that “big discipline” turned out to be an unpaid two-week suspension that cost Beardsley $10,000 but didn’t affect the bonus and additional stock options he later received.
When asked by the judge if there is a Move document Zillow had to have had in order to take a particular step, Singer did not point to a specific one, but said the question goes to “prejudice” as a result of the evidence destruction in the case.
Instead of being able to present to the jury several documents that would have proved their case, the plaintiffs are left with some documents they were able to obtain through “luck” and Samuelson and Beardsley’s word that they have produced all of the documents and messages relevant to the case, according to Singer.
Zillow
Zillow’s lawyer Joe McMillan said the plaintiffs had failed to meet the standard for spoliation sanctions — prejudice and bad faith — and emphasized that, despite plaintiffs’ claims, there was a “huge quantity of existing evidence” that “does not support evil intent or bad faith.”
McMillan also argued that plaintiffs had made “no effort whatsoever” to meet the requirement that there be a “nexus” between the missing data and the trade secret claims in the case.
McMillan asserted the plaintiffs haven’t show what the destroyed evidence is and failed to prove its relevance to their claims.
He acknowledged that some messages may have been deleted and unrecoverable, but that “[w]ithout some evidence, direct or circumstantial, of the unfavorable content of the deleted emails, the Court simply cannot justify giving that adverse inference.”
When O’Donnell asked on what date Zillow had a duty to preserve evidence in the case, McMillan said it was the date the complaint was filed — March 17, 2014 — for all defendants.
Samuelson
Samuelson’s lawyer, Michael Fandel, said Samuelson’s story in regards to his actions upon leaving Move has “never wavered” and that his data deletions were all a result of him wanting to avoid exposing his personal information.
Errol Samuelson
He argued that there’s no evidence that “anything of any import” is missing.
“There’s no Move documents; there’s no email of any kind; there’s no texts with Zillow; and there’s really no reason to conclude that any texts with Mr. Beardsley that would make any difference to this case are gone,” Fandel said.
“So the very basis of spoliation that we’ve lost some evidence I think has not been established in this case.
“And there’s no evidence of any documents of any import that would be the crown jewels of Move anywhere in Mr. Samuelson’s possession or Zillow’s possession,” he added.
“And the reason for that is clear, because the crown jewels weren’t any documents at Move. The crown jewels were Mr. Samuelson and his relationships. He didn’t need any of those documents to take with him, and he didn’t take anything with him.”
Beardsley
Beardsley’s attorney, James Savitt, alleged the plaintiffs made no effort to find the evidence they say is missing and gave their forensic expert instructions to ensure he wouldn’t look for that evidence.
Savitt said Beardsley “did not open or copy Move documents on any of his computers” and that it was “rank speculation” that he connected one of his thumb drives to a “mystery computer.”
Plaintiffs’ rebuttal
O’Donnell asked Singer about the Western Digital hard drive Beardsley said he threw against his workshop wall because he was frustrated that it was failing. Singer pointed to the files and metadata that is subsequently missing.
“Let’s take the Western Digital. If you know that there’s Move documents on there, and it was destroyed, why does that support a default or terminating sanction versus it’s just evidence that you’re going to use at trial to cover up supports the crime?” O’Donnell said.
Singer replied, “Because both experts have said that the only way to know for sure the actual files that were on there, if you want to click it open and show the jury what files are on there and how important they were, the only place is at the bottom of some dump right now.
“And if you want to show the jury, this was last accessed three months ago, four months ago, a year ago, look at it, it doesn’t lie, I don’t have that. Now, talk about a misappropriation case and the most valuable evidence in a case, it’s what they looked at and when. And it’s gone.”
Zillow declined to comment for this story.
In an emailed statement, Move spokeswoman Janice McDill said, “We appreciated having the opportunity to present to Judge O’Donnell our proof that the defendants destroyed evidence. It would not be appropriate for us to comment further while the Court’s consideration of the matter remains open.”
Read the first, second, third, fourth, fifth and sixth days of our live blog of the hearing.
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Editor’s note: An earlier version of this story stated that Zillow had a duty to preserve evidence in the case beginning on March 14, 2014.
