In a short post-trial letter ruling, the Court of Chancery awarded damages for spoliation of evidence in ATG Capital Opportunity Funds LP v. Lane, C.A. No. 2026-0477-LWW (Del. Ch. Sept. 2, 2026). The record showed that a principal of plaintiff ATG failed to preserve relevant data on his mobile device. The prior post-trial decision on the merits did not rule on a motion seeking spoliation sanctions but explained that the requested adverse inference would not affect the outcome, nor would raising the burden of proof change the court’s analysis—so those requested remedies were moot. But because the spoliating party was not blameless, the court analyzed what other appropriate sanction was warranted.

Applicable Law

Court of Chancery Rule 37(e) authorizes sanctions when ESI should have been preserved in reasonable anticipation of litigation but is lost because the party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery. In such cases, “upon finding prejudice to another party from the loss of ESI, the court may order measures no greater than necessary to cure the prejudice.” Id. (citations omitted).

The court explained that the date when a duty to preserve arises is both a fact-specific and context-specific inquiry. Namely: “[a]n affirmative duty to preserve evidence attaches upon the discovery of facts and circumstances that would lead to a conclusion that litigation is imminent or should otherwise be expected,” and it attaches even before litigation has commenced “when a party should have known that the evidence may be relevant to future litigation.” Letter Ruling at 5-6 (citations omitted).

The court found that a principal of the plaintiff communicated using an ephemeral messaging app called Signal, as well as WhatsApp “with the auto-delete function enabled”—over two weeks after receiving a formal litigation-hold notice from counsel. He affirmatively turned on the WhatsApp auto-delete function while communicating with another board nominee—four days after the duty to preserve attached.

The court held that “leaving auto-delete enabled during this period was at least negligent. Failing to disable it after receiving the litigation hold was at least reckless. Affirmatively turning it on with litigation growing increasingly likely evidences an intentional disregard for [the party’s] preservation obligations.” Id. at 7 (citations omitted).

The court reasoned that: “[t]o impose monetary sanctions, I need only find that [the party] had a duty to preserve evidence and breached that duty.” Id. (citation omitted). The court rejected the argument that substitute discovery eliminated any prejudice from the lost communications because it “ignores the financial burden it imposed, and that the discovery was an incomplete substitute for contemporaneous messages.” Id.

The court concluded that the proportionate remedy required for the court to cure the prejudice in this matter was “reasonable attorneys’ fees and expenses incurred in connection with [the opposing party’s] motion for spoliation sanctions and pursuit of supplemental discovery to compensate for the lost evidence.” Id. at 8. (citation omitted).

Takeaway

Motions for spoliation are very fact-specific and context-specific. The court will apply a measured and proportionate response depending on the prejudice that results from spoliation. There is no “one size fits all” remedy for all cases.