A Washington state judge has ruled that Zillow executive Curt Beardsley — one of the company’s top representatives to the real estate industry — destroyed evidence willfully and in bad faith in a trade secrets lawsuit between Zillow and realtor.com operator and News Corp. subsidiary Move Inc.
Consequently, Judge Sean O’Donnell of King County Superior Court will allow the suit’s plaintiffs — Move and the National Association of Realtors — to issue an instruction to the jury in the case’s upcoming June 6 trial allowing the jury to infer the missing evidence would have benefited their case — or, alternatively, hurt Beardsley’s case.
The judge declined to impose sanctions on Zillow or Zillow executive Errol Samuelson, also defendants in this case, saying neither “acted with the requisite willfulness or bad faith to destroy evidence to support spoliation sanctions.”
“[T]he evidence does not support a finding that Zillow acted willfully or in bad faith to withhold evidence from the plaintiffs,” O’Donnell wrote in his ruling.
“It did not perform deletions; it did not hide or lose devices; and it notified its employees of their duty to preserve evidence through a litigation hold issued the same date Move filed its lawsuit.”
The judge’s ruling is far less severe than the plaintiffs’ original request for “terminating sanctions” deciding the case in their favor without a trial.
Move and NAR are asking for $1.77 billion in damages in the lawsuit, which began two years ago after former Move employees Beardsley and Samuelson jumped ship to Zillow. The damages claim largely stems from the allegation that Samuelson tipped off Zillow that Move and Trulia planned to merge, thereby allowing Zillow to merge with Trulia first.
The two executives
O’Donnell found Samuelson to be a “credible witness” and determined that that Samuelson was not under a duty to preserve evidence prior to the filing of the lawsuit on March 17, 2014.
Beardsley’s duty to preserve evidence also began on that date, but he destroyed evidence several times after that despite knowing he had a duty to preserve, according to O’Donnell.
“Mr. Beardsley’s hands are unclean when it comes his intentional destruction of certain evidence. Plaintiffs have shown that Mr. Beardsley took deliberate steps to hide or destroy evidence after being on notice of his duty to preserve it,” O’Donnell wrote.
“The loss of this evidence, specifically meta-data associated with a number of media storage devices, puts plaintiffs at a disadvantage in presenting their case.”
He noted that Beardsley had admitted to likely using numbers from a Move MLS report after he started working at Zillow and ran computer programs designed to wipe out evidence on his Zillow computer and his home office computer.
“The Court finds Mr. Beardsley’s explanation — that he was embarrassed to reveal his pornography use — likely,” O’Donnell wrote.
“But the logical corollary to his decision to delete pornography is that he would be equally motivated to cover up his alleged perfidy in connection with misappropriated Move documents.”
Beardsley’s conduct did not warrant “terminating sanctions,” however, O’Donnell said.
“While his conduct appears egregious (and in many respects is egregious), when examining the details, there is insufficient corroborating evidence to demonstrate the materiality or importance of supposedly lost documents,” O’Donnell wrote.
“And, in many instances, the supposedly lost documents are actually reproduced in other media.”
O’Donnell concluded by saying Beardsley’s conduct does more than prejudice plaintiffs’ ability to prosecute their case.
“It is an undermining of the tenants [sic] which make our system of justice work: honesty, fairness and compliance with the rule of law. These sanctions flow from both results of his conduct,” he wrote.
What does this mean for the lawsuit?
Litigation analyst Tom Claps of Susquehanna Financial Group said the ruling was “a significant, damaging setback for Zillow.”
“It will provide Plaintiffs (Move/NAR) with further leverage in the June 6 trial, and makes the already challenging case for Zillow much more difficult to defend,” Claps wrote in a research note earlier today.
“Zillow has previously acknowledged the negative impact that an ‘adverse inference’ sanction would have on its legal position, stating that it would ‘brand [Zillow] as dishonest or effectively end the case’ against them at trial.”
Even though the jury instruction will only be given against Beardsley, it should have a “direct, negative impact” on Zillow and Samuelson as well, Claps said.
“Beardsley is a senior employee at Zillow, and the alleged trade secret allegations/document destruction arguably occurred on ‘Zillow’s watch.’ Therefore, the instruction could negatively impact all defendants in the case,” he said.
Zillow’s response
In an emailed statement, Zillow Group spokeswoman Amanda Woolley said: “We applaud the Court’s decision with respect to Zillow, which validates what we already knew: that during the pre-trial hearing, News Corp. did not offer evidence that Zillow did anything wrong or that the company failed to live up to our obligations in this case. We look forward to vigorously defending against the claims in this litigation during the jury trial.
“Zillow Group has and will continue to act with the utmost integrity in conducting our business. Ultimately this comes down to News Corp trying to win in the courts, since they aren’t winning in the court of consumer opinion. We are fully focused on innovating and continuing to grow the most popular real estate network on mobile and Web.”
Move and NAR weigh in
In an emailed statement, Move Inc. spokeswoman Christie Farrell said the company welcomed the judge’s decision and that the ruling was “an important first step toward holding the defendants accountable for their harmful and unlawful behavior.”
“Today’s decision, when combined with the powerful evidence that has not been destroyed, will help us prove our case that our trade secrets were stolen and abused by the defendants to their advantage,” she said.
“This case has cost Zillow — and their shareholders — more than $40 million so far, making the two poached executives among the most expensive in corporate history. And one of those senior executives was found by this court to have engaged in ‘egregious’ conduct that represents ‘an undermining’ of the principles which make our system of justice work: ‘honesty, fairness and compliance with the rule of law.’
“That Zillow, which has known of such wrongful conduct for many months, has continued to employ someone like this as one of its chief ambassadors to the real estate industry raises serious questions.”
NAR general counsel Katherine Johnson released the following statement: “National Association of Realtors applauds King County Superior Court Judge Sean O’Donnell’s ruling today in the lawsuit against Curt Beardsley; we believe that those who purposely destroy evidence for their own benefit should be held accountable.”
Editor’s note: This story has been updated.
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