Motion for Spoliation Sanctions Denied In Light Of Failure To Prove Intent To Deprive
- ILS Team
In MEDIDATA SOLUTIONS, INC. ET AL. v. VEEVA SOLUTIONS, INC., N. 17 Civ. 589 (LSG) (S.D. NY, Sept. 22, 2021), before the Court was Plaintiffs’ spoliation sanctions in the form of an adverse inference. Plaintiffs claimed that Defendant spoliated evidence when Defendant failed to prevent one of its employees, Anthony Tsai (“Tsai”) from deleting data that showed his creation, modification, access, or deletion of certain files that allegedly embodied Plaintiffs’ trade secrets (the “File Metadata”).
Both the Defendant and Plaintiffs sell software for clinical trials. In Jan. 2017, Plaintiffs filed this action against Defendant, and alleged misappropriation of trade secrets related to and embodied in its Electronic Data Capture (“EDC”) and Clinical Trial Management System (“CTMS”) products, as well as associated trade secrets related to business planning, marketing, and the sale of EDC and CTMS products. Plaintiffs primarily alleged that five of their former employees who were hired by Defendant used Plaintiffs’ trade secrets to develop Defendant’s competing EDC and CTMS products.
Tsai was a former employee of Plaintiffs, and was subsequently involved in developing Defendant’s own EDC and CTMS products. Soon after Plaintiffs commenced this action, Defendant issued a companywide litigation hold for various electronic and document management systems, which included employee email accounts, computers, shared drives and corporate databases. This hold applied to Tsai.
In its discovery responses, Defendant stated that it had not searched for items within the personal possession, custody, or control of its employees. Plaintiffs did not object or move to compel production of such documentation, which included Tsai, but instead likewise declined to produce information of its own employees’ personal possession. Plaintiffs also did not identify Tsai as a key custodian under the Court’s Individual Rules.
In July 2019, Defendant learned that Tsai had retained hundreds of thousands of Plaintiffs’ documents (the “Retained Files”) on a personal networked storage hard drive that was maintained on his home computer network (the “D-Link Drive”). Defendant directed Tsai to hold the Retained Documents and alerted Plaintiffs. The D-Link Drive was also delivered to an ediscovery service provider retained by the parties.
Approximately one month later, Defendant learned that (1) Tsai also copied the files from the D-Link drive to another drive on his home network (the “QNAP Drive”), (2) had moved files from that drive to a Sandisk USB drive (“USB Drive”) for transmission to an electronic discovery vendor and then (3) reset the operating system of his personal iMac computer (the “iMac”) — one of three computers he had used to access files on the QNAP Drive, with the other two being work laptops.
Plaintiffs obtained forensic data from the D-Link Drive, the QNAP Drive, the USB Drive, the iMac and Tsai’s two work laptops. The analysis suggested that: (1) Tsai copied files onto the D-Link Drive in the three weeks before his departure from Plaintiffs; (2) Tsai used Defendant’s laptops to access the Retained Files on the QNAP Drive from 2015 to 2017, the period when Defendant’s CTMS and EDC products were under development; (3) File Metadata for the files and folders on the QNAP Drive were lost when Tsai transferred those files to the USC Drive, and (4) when Tsai reset the iMac, File Metadata on the iMac showed what files Tsai created, accessed, or modified on the QNAP Drive via the iMac were lost, along with File Metadata that showed the dates and times of access.
When Tsai was deposed in Nov. 2019, he stated that he: (1) kept the Retained Documents after he left the company in 2011; (2) copied the Retained Documents from the QNAP Drive to the USB Drive in order to provide that information to the parties’ e-discovery vendor, and (3) subsequently deleted the Retained Documents from the QNAP Drive without instruction from either party. After discovery closed, Plaintiffs moved for sanctions and claimed that Defendant failed to ensure that the File Metadata was fully preserved.
“Spoliation is the destruction or significant alteration of evidence, or failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation.” Watkins v. New York City Transit Auth., No. 16 Civ., 2018 WL 895624, at *9 (S.D.N.Y. Feb. 13, 2018) (quoting In re Terrorist Bombings of U.S. Embassies in E. Africa, 552 F.3d 93, 148 (2d Cir. 2008)).
Under Federal Rule of Civil Procedure 37(e), if ESI that should have been preserved in anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, the court, upon finding prejudice, may order measures no greater than necessary to cure prejudice. Or, only upon finding the party acted with the intent to deprive another party of the information’s use in the litigation, the court may “(A) presume that the lost information was unfavorable to the party (B) instruct the jury that it may or must presume the information was unfavorable to the party; or (C) dismiss the action or enter a default judgment.”
“The burden is on the moving party to prove the elements of a spoliation claim by a preponderance of the evidence.” Jacquety v. Baptista, No. 19 Civ. 9642, 2021 WL 1885263, at *10 (S.D.N.Y. May 11, 2021). Here, the Court found that Plaintiffs did not show by a preponderance of the evidence that Defendant acted with the intent to deprive Plaintiffs of the file metadata.
Plaintiffs’ arguments rested on three observations: “(1) that Tsai was involved in development of Veeva’s CTMS and EDC products, and he used certain Retained Documents [that] allegedly embod[ied] unspecified trade secrets during that period; (2) that Tsai deleted Plaintiffs’ files from the QNAP Drive after [he] transfer[ed] them to the USB Drive and (3) that Tsai reset his personal iMac,  [and] prevent[ed] recovery of File Metadata on that device and prevent[ed] Plaintiffs from knowing the true extent to which Tsai accessed the Retained Files.”
From the above facts, Plaintiffs inferred that Defendant, through some communication with Tsai, directed him to take these actions. The Court found that this inference was not supported by evidence that Plaintiffs offered.
First, Plaintiffs did not dispute that Defendant undertook numerous efforts, which included general and individualized litigation holds and prompt notifications to Plaintiffs, to preserve the Retained Documents and File Metadata.
Second, Plaintiffs did not dispute that the alleged acts of spoliation took place after Defendant learned of the Retained Documents, directed Tsai to preserve them, and immediately notified Plaintiffs.
Third, Plaintiffs offered no evidence that suggested that Tsai was acting at Defendant’s direction when he copied the Retained Documents to the USB Drive and deleted them from the QNAP Drive, or when he reset his personal iMac. Tsai testified that he transferred and deleted the files on his own initiative, without direction from any party. The Court found that Plaintiffs’ evidence was too tenuous, and that adverse inference was unwarranted.
In response, Plaintiffs first argued that Defendant should have identified Tsai as a potential custodian of Retained Documents and inventoried his personal devices. The Court found this argument to be unconvincing, as Defendant did issue a litigation hold for Tsai, and all other Defendant employees, at the outset of the case, when neither party “(1) had any inkling of the Retained Documents and (2) did not search employees’ personal devices for discoverable information.”
After the submission of Plaintiffs’ expert report and the completion of various depositions that referenced Tsai’s emails, Defendant further investigated Tsai, at which point it “(1) earned of the Retained Documents and (2) took prompt action to preserve them, as well as the associated File Metadata.” The Court found that such actions were consistent with the normal discovery process in complex civil litigation, in which general document holds are imposed on party employees, and then a huge number of attorney hours are expended reviewing millions of documents from dozens of custodians.
Second, Plaintiffs argued that they were entitled to information retained on Tsai’s personal drives and iMac, as “Courts have repeatedly found that employers have control over their employees and can be required to produce documents in their employees’ possession.” Well true, neither party asked their employees to search their personal devices for ESI in the ordinary course, objected to that practice, or moved to compel production of such information during discovery.
Plaintiffs ignored that as soon as Defendant had any indication that Tsai held the Retained Documents, Defendant took immediate action to preserve those documents and alert Plaintiffs. The result was that many details of specific instances when Tsai accessed the Retained Documents were recovered. That some details were not, due to Tsai’s actions, recovered, did not create an inference that Defendant worked to deprive Plaintiffs of relevant information.