Flexport, Inc. v. Freightmate AI, Inc., No. 3:25-cv-02500-RFL (N.D. Cal. Sept. 16, 2026), full opinion (PDF)
Two founders left Flexport to start a competing company. Their duty to preserve ESI began only when Flexport's notice letters arrived, a Northern District of California magistrate judge has ruled. Flexport sued the founders and their company, Freightmate AI, for trade secret misappropriation, breach of contract, and breach of fiduciary duty. It argued the duty arose earlier, at a chat message about getting sued or at a consultation with an intellectual property litigator. At the latest, it argued, the duty arose in June 2024, when the founders had taken Flexport files. On the whole record, the court found no reasonable anticipation of litigation before the letters. The deletions after the letters arrived violated Rule 37(e), the court concluded. The founders' claim that the letters had asked for the deletions did not alter the result. Because Flexport did not prove an intent to deprive, the court ordered a permissive jury instruction rather than a mandatory adverse inference.
What happened
In late 2023 the founders began planning a startup. One of them told the group to compare their offer letters "to ensure we prevent getting sued". In February 2024 the founders consulted an intellectual property litigator. That May one founder moved roughly 2,000 Flexport shipping documents to personal and company cloud storage.
In July 2024 the founders and a colleague deleted the Flexport documents they could find on Freightmate's drive, their laptops, and their email accounts. On September 6, 2024 Flexport sent each founder a letter asserting violations of its intellectual property rights. The letters asked the founders to confirm that they had not retained any Flexport proprietary information. The founders deleted more files that day and the next, including prompt engineering files on the Freightmate drive.
The court's analysis
Foreseeability is an objective question, the court explained, so the founders' subjective fears were not dispositive. A party taking steps to avoid a lawsuit, the court reasoned, is trying to prevent litigation rather than anticipating it. Like the chat message, the February 2024 consultation did not trigger the duty, in the court's view. The court noted that nothing in the record showed the attorney had advised retention or discussed litigation. In the court's reading, the founders sought counsel to avoid a lawsuit, not because they expected one. By contrast, the September letters stated that Flexport had reason to believe the founders were violating its intellectual property rights.
The court concluded that the July deletions fell outside Rule 37(e). The September deletions violated the rule. Whether the founders thought the letters asked them to delete went to intent, the court explained, not to loss. The court found at least some prejudice, because the deleted files bore on how far the founders had relied on Flexport materials.
Flexport had not carried its burden of proving an intent to deprive, the court found. The letters, the court noted, contained no explicit demand to preserve evidence. Negligence, even gross negligence, does not support an adverse inference under Rule 37(e)(2), as the court observed. The founders had preserved other evidence of Freightmate's development, which the court said tended to negate intent. Their apparent retention of counsel also cut against intent, because the court would not infer that counsel had advised a client to destroy evidence. With intent unproven, the court denied sanctions under Rule 37(e)(2). Under Rule 37(e)(1) it ordered a modified version of California's pattern jury instruction on willful suppression of evidence. The jury may consider whether the founders destroyed evidence with the specific intent to deprive Flexport of its use. If it so decides, it may infer that the evidence was unfavorable to the founders. The court denied fees because Flexport's motion lacked the itemized declarations the district's local rules require.
Why it matters
A movant who dates the duty to preserve from the founders' first worry about a lawsuit needs more than the founders' own caution. The record has to show something like notice of a claim. Under an objective standard, a message about avoiding a lawsuit reads as evidence that litigation was not expected. A consultation with counsel reads the same way unless the record ties it to the prospect of litigation. Absent that tie, the consultation adds only the presence of counsel, which this court treated as adding nothing on anticipation.
A demand letter asking the recipient to confirm it holds no proprietary information triggers a duty to preserve any such information it holds. The recipient should preserve everything the letter describes, whatever the letter seems to ask. A misreading of the letter bears only on whether a later deletion was intended to deprive the other side of evidence. The deletion is still a loss of ESI under Rule 37(e). The recipient answers for that loss. A demand letter that expressly requires preservation also takes away the recipient's argument that it misread a silent one.
The full opinion is available as a PDF.
