CTC Global Corp. v. Huang
CTC Global Corp. v. Huang
2019 WL 2610971 (C.D. Cal. 2019)
April 15, 2019

Guilford, Andrew J.,  United States District Judge

In Camera Review
Default Judgment
Mobile Device
Failure to Preserve
Sanctions
Spoliation
Bad Faith
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Summary
The Court found that Defendants had a duty to preserve documents at the time the devices at issue were wiped or given away and ordered an evidentiary hearing to take place on May 10, 2019 to further explore the elements of willfulness or bad faith and prejudice. The Court also found that Jason Huang willfully disclosed confidential settlement terms to WTEC Energy, and ordered an evidentiary hearing to take place on May 10, 2019 to further explore the issue of sanctions for this violation.
Additional Decisions
CTC GLOBAL CORPORATION
v.
Jason HUANG et al
Case No. SACV 17-02202 AG (KESx)
United States District Court, C.D. California
Filed April 15, 2019

Counsel

Richard J. Frey, Epstein Becker and Green PC, Tamany Vinson Bentz, Hector Emilio Corea, DLA Piper LLP, Los Angeles, CA, Aaron T. Goodman, Pro Hac Vice, DLA Piper LLP, Phoenix, AZ, for CTC Global Corporation.
Asheesh Paul Puri, Charlie Chaya Nelson Keever, James E. Doroshow, Jeffrey H. Grant, John Shaeffer, Fox Rothschild LLP, Los Angeles, CA, for Jason Huang et al.
Guilford, Andrew J., United States District Judge

ORDER REGARDING MOTIONS TO AMEND COMPLAINT AND FOR SUMMARY JUDGMENT, DEFAULT JUDGMENT, AND SANCTIONS

*1 This case will not proceed to trial on May 7, 2019 for several reasons, including: (1) the ruling on CTC’s request to amend the Complaint, (2) the need for further consideration of the facts underlying CTC’s motion for default judgment (and that motion’s impact on the summary judgment briefing), (3) a likely conflict with the Court’s criminal trial calendar, and (4) the parties’ decision to file five motions for hearing on the same day and over 4,400 pages of briefing and exhibits without building in any room between the hearing and trial. An evidentiary hearing regarding CTC’s Motion for Default Judgment will be held on May 10, 2019 at 9:00 a.m. The Court sets a new trial date of Aug. 13, 2019 at 9:00 a.m.
Considering the Court’s rulings in this order, the parties are ORDERED to file a joint status report of no more than 6 pages by April 26, 2019 providing the following:
• A joint plan for limited additional discovery (if any) concerning CTC’s permitted amendments;
• A description of any additional motions the parties expect to file before trial (excluding motions in limine).
At the April 15 hearing, the Court will hear the parties’ positions on (1) the Court’s tentative rulings on CTC’s Motion to Amend and Motion for Sanctions; (2) the evidence to be presented at the May 10, 2019 evidentiary hearing and amount of time required; (3) the tentative trial date; and (4) which portions of the pending summary judgment motions (if any) are not impacted by Plaintiff’s permitted amendments and the upcoming evidentiary hearing.
1. BRIEF BACKGROUND
Plaintiff CTC specializes in technologies used in electric utilities to improve the efficiency, capability, reliability, and resiliency of electric power grids. (Complaint (“Compl.”), Dkt. 1 at ¶ 18.) CTC manufactures and sells composite core for high-voltage power cables, though it doesn’t have the ability to do its own stranding of the composite core for commercial sales of conducts. (Defendants’ Proposed Statement of Uncontroverted Facts (“DSUF”), Dkt. 185-1 at No. 3.) Defendant and Counterplaintiff Jason Huang (“Huang”) is CTC’s former CEO, CTO, and Board Member. (First Amended Complaint (“FAC”) ¶¶ 24, 28.) He was employed by CTC from May 2010 to January 2017 in various roles. (Id. ¶¶ 25, 76.) James Huang is Jason Huang’s brother and is the sole named inventor on U.S. Patent No. 9,633,766 (the “766 Patent”). Rulong Chen is Jason Huang’s wife and was CTC’s systems consultant. (Id. ¶ 27.)
In 2014, CTC and a Chinese State-owned company, NARI Group (“NARI”), created a joint venture in China called Jiangsu NARI CTC Composite Material Co., Ltd. (the “JV”) to bring CTC’s expertise in carbon fiber cores and conductors to the Chinese electric utility market. (FAC ¶ 29.) Huang was appointed as CTC’s on-site representative and General Manager of the JV. (Id. ¶ 30.)
CTC’s allegations are as follows. Around June 2014, Huang prompted the JV to enter an agreement with Tianjin Xinbo Power Composite Insulator Manufacturing Co. Ltd. (“Xinbo”), a potential stranding partner. (FAC ¶ 34.) Huang then sought a large amount of money from Xinbo in exchange for CTC’s trade secret technology, which would allow Zinbo to manufacture carbon fiber core and conductor. (Id. ¶ 35.) Xinbo has since filed several patents “closely related to technology that CTC had developed and that Huang had worked on” during his employment with CTC. (Id. ¶ 37.) Huang received shares from Xinbo, which CTC alleges were in consideration for his disclosure of CTC’s technology. (Id. ¶ 38.)
*2 From 2015 through 2016, James Huang also filed several patents, which CTC asserts are closely related to its technology. (FAC ¶ 44.) CTC believes Jason Huang diverted CTC’s technology to Xinbo’s use through his brother’s patent registrations. (Id. ¶ 47.) CTC also asserts that Huang failed to inform CTC of a corporate opportunity relating to carbon fiber composite materials, improperly sought investments from CTC’s business partners on his own behalf, and engaged in self-dealing at the JV. CTC further alleges that James Huang improperly registered a patent (U.S. Patent No. 9,633,766, the “ ’766 Patent”) and filed a patent application (U.S. Patent Application 15/449,602 (the “ ’602 application”) without crediting CTC employees Eric Bosze, Doug Pilling, or Jason Huang. CTC states that in late 2016, CTC commenced an investigation into Huang’s activities in China. (FAC ¶ 73.) CTC terminated Huang’s and Chen’s employment in February 2017. (Id. ¶ 76.)
2. CTC’S MOTION TO AMEND COMPLAINT (DKT 161)
CTC seeks to modify the Court’s Scheduling Order and amend CTC’s Complaint to (1) assert a breach of contract claim against Defendant Rulong Chen and (2) clarify their breach of contract claim against Jason Huang. Once a district court files a scheduling order establishing a timetable for amending pleadings, a motion seeking leave to amend is first governed by Federal Rule of Civil Procedure 16(b) and secondarily by Rule 15(a). See In re Western States Wholesale Nat’l Gas Antitrust Litig., 715 F.3d 716, 737 (9th Cir. 2013); Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 607-08 (9th Cir. 1992). Rule 16(b) requires the moving party to show “good cause” for amending the scheduling order. Fed. R. Civ. P. 16(b)(4); Johnson, 975 F.2d at 607. “While a court may take into account any prejudice to the party opposing modification of the scheduling order, ‘the focus of the [Rule 16(b)] inquiry is upon the moving party’s reasons for seeking modification.’ ” Id. (quoting Johnson, 975 F.2d at 609(alteration in original)). Then, applying Federal Rule of Civil Procedure 15(a), “the court should freely give leave when justice so requires.” This policy is to be “applied with extreme liberality.” Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708, 712 (9th Cir. 2001).
2.1 Addition of Contract Claim Against Chen
CTC argues that Chen’s January 11, 2019 deposition alerted them for the first time to her alleged breach. In response to questioning about her document collection for this litigation, Chen stated that she had “all [responsive] email[s] with [her] ... on [her] computer” in a large file. (Chen Dep. At 120:19-20, 24-25.) CTC asserts that Chen’s newly discovered retention of its proprietary documents and information after her termination constitutes a breach of Chen’s Consultant Agreement with CTC. (Mot. to Amend, 3.) Defendants counter that Tamany Bentz (CTC’s attorney) was not in fact prompted by Chen’s deposition testimony to amend the complaint but instead made a pure error of omission. (Opposition (Dkt. 177), 3.) But the Court takes seriously Bentz’s under-oath statements about her basis for bringing this motion and is thus satisfied that CTC was diligent in seeking this amendment. Also, this is the first amendment CTC has requested, while Defendants have amended their counterclaims against CTC three times.
CTC filed this motion about 7 weeks after discovering the new evidence and after meeting and conferring with Defendants’ counsel. (Bentz Decl. ¶¶ 5, 7.) Considering Defendants’ delay in scheduling Chen’s deposition and CTC’s reasonable diligence in bringing this motion, the Court finds good cause to modify its Scheduling Order under Rule 16. See, e.g., Dominguez v. Crown Equip. Corp., 2015 WL 3477079, at *3 (C.D. Cal. June 1, 2015)(finding that “a four month delay between the earliest alleged date on which Plaintiff’s should have known of the claim and the date of filing for leave to amend is not particularly long or unreasonable.”)).
*3 Applying Rule 15, the Court also finds that the interests of justice support CTC’s requested amendment. “Courts may decline to grant leave to amend only if there is strong evidence of ‘undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of amendment.’ ” See Sonoma Cty. Ass’n of Retired Employees v. Sonoma Cty., 708 F.3d 1109, 1117 (9th Cir. 2013); Aten Int’l Co. v. Emine Tech. Co., No. SACV090843AGMLGX, 2011 WL 13134915, at *1 (C.D. Cal. Mar. 23, 2011). “Generally, this determination should be performed with all inferences in favor of granting the motion.” Griggs v. Pace Am. Grp., Inc., 170 F.3d 877, 880 (9th Cir. 1999).
The Court has already found there was no undue delay by CTC and sees no evidence of bad faith. Rather, CTC’s motion was based on new evidence and was preceded by good faith meet and confer efforts. (Bentz Decl. ¶¶ 4, 7.) Regarding prejudice, Chen has known the facts underlying CTC’s contract claim since her termination in February 2017. (Chen Dep. Ex. 3.) CTC explains that they didn’t bring a contract claim against her then, because they weren’t aware of the distinct chain of conduct (retaining confidential information) that would allow them to avoid California Uniform Trade Secrets Act preemption. (Mot. to Amend, 11.) The possibility of this amendment was thus always looming for Chen, the question was mainly when CTC might discover the information giving rise to a non-preempted contract claim. In any case, Defendants have been fully informed of CTC’s proposed amendment since January 2019, when CTC attempted to resolve this dispute bilaterally. (Reply (Dkt. 192) at 4.) This fact both weighs both against prejudice and in favor of diligence.
Finding further that the contract claim CTC seeks to add is uncomplicated and involves facts that overlap with over claims, the Court doesn’t believe this amendment should require additional discovery or unduly prejudice the defense. See, e.g., Bickoff v. Wells Fargo Bank, N.A., No. 14CV1065 BEN (WVG), 2015 WL 12910741, at *5 (S.D. Cal. June 10, 2015) (granting motion to amend complaint to add over 10 claims “based on loan related documents produced in discovery that support [the] additional claims” because the new claims did not “ ‘greatly alter[ ] the nature of the litigation.’ ”). In any case, the continuance of the trial date reduces any prejudice that might otherwise exist. The Court GRANTS CTC’s first request for leave to amend.
2.2 Addition of Contract Claim Against Chen
The reasoning in Section 2.1 applies with even greater force to CTC’s second requested amendment, which is less substantive and impacts Defendants’ preparation minimally, if at all. CTC seeks to substitute a “functionally identical” Invention Agreement for the one currently referenced in the Complaint and attached as Exhibit A. (Mot. to Amend, 15.) The replacement contract would be the unsigned version of Exhibit A, which replaces “Composite Technology Corporation” with “CTC Cable Corp” and is dated one year later but is otherwise the same. (Id.) Importantly, CTC doesn’t seek to amend the body of the current Complaint – where they describe the terms of the contract and details of the alleged breach – only the first exhibit.
CTC brought this motion within 6 weeks of the conference where Defendants first voiced concern about the company name identified in the contract. (Bentz Decl. ¶¶ 6-7). Specifically, Defendants stated that CTC’s breach of contract claim against Huang was deficient because there was no contract between Huang and the specific CTC entity involved in this dispute. But a substantively identical contract exists between Huang and the CTC entity that is the Plaintiff in this case, as both parties are aware.
*4 Huang has thus been on notice of the substance of CTC’s contract claim since the beginning of this case, and the proposed substitution corrects a mere technical defect, without altering the true substance. Securimetrics, Inc. v. Hartford Cas. Ins. Co., No. C 0500917CW, 2005 WL 1712008, at *2 (N.D. Cal. July 21, 2005) (A plaintiff may set forth the contract verbatim in the complaint or plead it ... by exhibit, or plead it according to its legal effect’ ” and holding that “Plaintiff has plead the ‘legal effect’ of the contract [by] alleg[ing] sufficient facts to enable Defendant to understand and respond to its claims.”). See also Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (“ ‘[T]he underlying purpose of Rule 15 ... is to facilitate decision on the merits, rather than on the pleadings or technicalities.’ ”) (quoting Noll v. Carlson, 809 F.2d 1446 (9th Cir.1987)).
The Court GRANTS CTC’s Motion to Amend and considers the First Amended Complaint (Dkt. 161-3) to be the operative Complaint.
3. CTC’S MOTION FOR DEFAULT JUDGMENT OR, IN THE ALTERNATIVE, FOR SANCTIONS (DKT. 169-1)
3.1 Background
CTC asserts that Defendants failed to preserve and instead destroyed evidence in this case, such that a just outcome cannot be had regarding CTC’s claims for trade secret misappropriation, patent ownership, and breach of fiduciary duty. (Motion for Default (“Default Mot.”) (Dkt. 169-1).) Specifically, CTC states that Defendants destroyed four main categories of electronic evidence when litigation became imminent:
• WeChats (from a messaging app commonly used in China) – CTC asserts Huang deleted the WeChat application from his phone sometime between June 2016 and December 2016, and thus deleted messages relevant to this case.
• iPad – CTC asserts Chen set Huang’s iPad back to factory setting before returning it to CTC, deleting all data in the device.
• USB Drives – CTC asserts Huang used several USB drives during the relevant time period for this case, and that forensic evidence shows the files related to CTC products and confidential materials. Chen admitted that she and Huang threw the drives away after they were terminated.
• JASONPC – CTC asserts Huang’s PC would have had relevant information, but that he claims to have donated it to Goodwill in January 2017 during CTC’s investigation.
(Default Mot., 2-3.) CTC notes that while there is testimony and other evidence showing that Jason Huang worked with James Huang on the ‘766 patent application, no documents regarding Jason Huang’s work on the application have been produced in this litigation. (Default Mot., 6.) CTC argues that its employees discovered James Huang’s patent registration in June 2016 and confronted Jason Huang that same month. (Id., 7.) CTC’s counsel then informed Jason Huang that he had breached his fiduciary duty to the company and recommended that he retain an attorney. (Id.; Goodman Decl. ¶ 7.) CTC asserts that Huang has been on notice of potential litigation and has had a duty to preserve evidence since at least August 30, 2016, when he met with CTC’s counsel. (Default Mot., 8.)
In November 2016, CTC opened an investigation into Jason Huang’s activities, and in early December they suspended him without pay. (Default Mot., 8.) During this time, CTC states that it also asked Huang to turn over any company computers, phones, external hard drives, thumb drives, hard copy files, access cards, and keys, including his company-issued iPhone, iPad, and laptop. (Id.)
CTC engaged a forensic analyst, SETEC Investigations, to investigate the devices available to them. (Default Mot., 9.) SETEC found that Huang’s iPhone had been wiped of data, but that it had been synced with his personal computer, JASONPC. (Sitton Decl. (Dkt. 162-2) ¶¶ 14, 15.) CTC thus requested to inspect JASONPC, but Defendants refused to produce it. CTC moved to compel, and Defendants responded that Huang had donated JASONPC to charity. (Huang Decl. (Dkt. 127-1) ¶ 8.) SETEC also found that all data on Huang’s iPad had been deleted. (Kunkel Decl. (Dkt. 111) ¶ 13; see also Cain Expert Report (Dkt. 168-3) ¶¶ 32-33.) Chen testified that she intentionally wiped this data. (Chen Dep. 96:7-9.) CTC also asserts that after their termination, Huang and Chen threw away multiple USB drives, which Chen testified bore a CTC logo and may have contained CTC information. (Chen Dep. 75:21-76:19.)
*5 In addition to forensic evidence, CTC offers Huang’s and Chen’s deposition testimony. For example:
Q Earlier today, you testified your agreement with CTC wasn’t terminated until February 2017. So my question is why would you start deleting information concerning CTC from your computer in December 2016 before your agreement with the company was terminated?
A Well, after December 6, I was – I and Jason was escorted out by J.D. Sitton. And I know I will eventually be terminated by CTC.
Q So you deleted the information in anticipation of being terminated; is that correct?
A That’s correct.
(Goodman Decl. ¶ 4, Excerpts of Chen Deposition (“Chen Depo.”), 122:20-123:6.)
Defendants dispute the impact of Huang’s and Chen’s disposal of electronic evidence rather than the fact of it, and they assert that CTC hasn’t been prejudiced by any deletions. For example, they state that CTC was able to find a backup of all of Jason Huang’s WeChat messages from 2013 through June 2016, and that the only messages CTC hasn’t obtained are those from September to December 2016. (Opposition to Motion for Default Judgment (“Opp. to Default”), 4.) And more generally, they note that CTC has access to “mountains of evidence” regarding their claims and greater access to the relevant electronic record than Defendants have. For example, Defendants point to evidence not at issue in CTC’s motion – including much of Huang’s iPhone, his work laptop, and certain WeChat messages – that is available to CTC. Defendants also argue that the material relevant to this case was generated in 2014-2015, and that CTC’s motion regarding conduct from 2016-2017 is thus a “red herring.” (Opp. to Default, 2-3.) Finally, much of Defendants’ opposition is based on evidentiary objections and arguments regarding the absence of bad faith.
3.2 Legal Standard
“Spoliation occurs when a party destroys evidence after receiving some notice that the evidence was potentially relevant to litigation, thereby impairing the non-spoiling party’s ‘ability to go to trial or threatening to interfere with the rightful decision of the case.’ ” Columbia Pictures, Inc. v. Bunnell, 2007 WL 4877701, at *4 (C.D. Cal. Dec. 13, 2007). “ ‘The duty to preserve material evidence arises not only during litigation but also extends to that period before the litigation when a party reasonably should know that the evidence may be relevant to anticipated litigation.’ ” World Courier v. Barone, No. C 06-3072 TEH, 2007 WL 1119196, at *1 (N.D. Cal. Apr. 16, 2007)(quoting Kronisch v. United States, 150 F.3d 112, 126 (2d Cir.1998)). “As soon as a potential claim is identified, a litigant is under a duty to preserve evidence which it knows or reasonably should know is relevant to the action.” In re Napster, Inc. Copyright Litig., 462 F. Supp. 2d 1060, 1067 (N.D. Cal. 2006). “The Court’s authority to sanction a party for despoiling evidence derives from two sources: ‘the inherent power of federal courts to levy sanctions in response to abusive litigation practices, and the availability of sanctions under Rule 37 against a party who fails to obey an order to provide or permit discovery.’ ” Columbia Pictures, Inc., 2007 WL 4877701 at *5 (quoting Leon v. IDX Systems Corp., 464 F.3d 951, 958 (9th Cir. 2006)).
*6 Terminating sanctions against a spoiling party are appropriate when the Court finds “willfulness, fault, or bad faith.” Leon, 464 F.3d at 958 (quoting Anheuser-Busch, Inc. v. Natural Beverage Distrib., 69 F.3d 337, 348 (9th Cir. 1995)); see also Columbia Pictures, 2007 WL 4877701 at *4-5 (granting default judgment due to evidentiary spoliation). “A party’s destruction of evidence qualifies as willful spoliation if the party has some notice that the documents were potentially relevant to the litigation before they were destroyed.” Leon, 464 F.3d at 959 (emphasis in original) (internal quotation omitted). The Ninth Circuit has instructed courts to weigh five factors before imposing terminating sanctions. Id. at 958. They are “(1) the public’s interest in expeditious resolution of litigation; (2) the court’s need to manage its dockets; (3) the risk of prejudice to the party seeking sanctions; (4) the public policy favoring disposition of cases on their merits; and (5) the availability of less drastic sanctions.” Anheuser-Busch, 69 F.3d at 348.
3.3 Analysis
The Court has concerns about the possibility of prejudicial spoliation in this case. The Court finds that the meeting between Huang and CTC’s counsel in August 2016 put Defendants on notice of potential litigation and that Defendants’ duty to preserve began at that point. And the Court is unpersuaded by many of Defendants’ explanations for their behavior.
For example, Defendants fault CTC for not proving that deleted documents were relevant, stating that “any relevant evidence that was deleted was maintained on other devices or in the cloud.” (Opp. to Default, 12.) But in the Ninth Circuit, “spoliation of evidence raises a presumption that the destroyed evidence goes to the merits of the case, and further, that such evidence was adverse to the party that destroyed it.” Apple Inc. v. Samsung Elecs. Co., 888 F. Supp. 2d 976, 993 (N.D. Cal. 2012). Defendants also emphasize that certain devices were purchased with personal funds, without citing any authority suggesting the data is thus irrelevant or not subject to spoliation. And the volume, however massive, of other information available to CTC doesn’t undercut the potential importance of information that Defendants apparently saw fit to delete.
Defendants also challenge the admissibility of the Crain reports and Kunkel declaration. The Court doesn’t find the November 2018 Kunkel declaration, which was given before Huang’s and Chen’s depositions, crucial to CTC’s arguments or the Court’s findings. The Court thus focuses on the Crain reports (January 7, 2019 Report, Dkt 168-3; March 2, 2019 Report, Dkt. 168-4.) Defendants assert the reports are inadmissible because they are unsworn and thus constitute hearsay, largely citing to rules and case law concerning motions for summary judgment. (Opp. to Default, 10.) But Federal Rule 56 doesn’t govern a motion for default judgment. And in any case, the hearsay concern is vitiated at least for Crain’s first report, since he was deposed and cross-examined on that report. (Bentz Decl. ¶ 5.)
Still, considering the weight of CTC’s allegations and serious potential consequences, further exploration and clarification of certain issues is necessary before the Court can make a finding regarding spoliation and default judgment. See Federal Rule 55(b)(2) (“The court may conduct hearings ... when, to enter or effectuate [default] judgment, it needs to: ... (C) establish the truth of any allegation or evidence; or (D) investigate any other matter.”) An evidentiary hearing will take place on May 10, 2019 at 9:00 a.m. and will focus on the elements of (1) willfulness or bad faith and (2) prejudice. The Court will allow testimony from Andrew Crain, Jason Huang, and/or Rulong Chen.
Regarding the intent element, courts may only “dismiss the claim of the party responsible for the spoliation when the court determines that ‘a party has engaged deliberately in deceptive practices that undermine the integrity of judicial proceedings.’ ” Io Grp. Inc. v. GLBT Ltd., No. C10-1282 MMC DMR, 2011 WL 4974337, at *3 (N.D. Cal. Oct. 19, 2011) (quoting Leon, 464 F.3d at 958). However, the “court need not find bad faith by the offending party before issuing terminating sanctions for destruction of evidence; willfulness or fault may suffice.” Id. The Court has already found that Defendants had a duty to preserve documents at the time the devices at issue were wiped or given away. So Defendants’ argument that CTC hadn’t filed a lawsuit at that point is unavailing. (Opp. to Default, 18.) But the Court wishes to probe further into Defendants’ various explanations for their behavior. Defendants assert, for example, that Jason Huang donated his laptop to Goodwill because it routinely overheated; that the couple threw away USB drives because they didn’t want to see the CTC logo; and that Chen wiped her iPad clean because her parents had used it and had personal information on it. Given the timing of these events and their proximity to one another, the Court finds that further inquiry is necessary.
*7 Regarding prejudice, both the motion and opposition fail to provide an adequate roadmap for the Court to track which categories of deleted documents are and aren’t duplicated on other available sources. At least 14 daysbefore the May 10 hearing, the parties must submit a chart setting forth (1) in one column, CTC’s source-by-source list of data that is not duplicated elsewhere and (2) in the other column, Defendants’ response stating where (if anywhere) that material is duplicated. If Defendants assert that any categories of documents are available through a third party, they must state any efforts to collect those documents from the third party and authority regarding their accessibility. The Court also expects to resolve at the evidentiary hearing the question of whether there was in fact a back-up of Jason Huang’s WeChats in September 2016, which the parties apparently dispute. (Reply (Dkt. 193) at 4, n.2.)
4. CTC’S MOTION FOR SANCTIONS FOR WILLFUL DISCLOSURE OF CONFIDENTIAL SETTLEMENT TERMS (DKT. 163)
The parties in this case participated in a court-ordered mediation on September 14, 2018. On October 21, 2018, Jason Huang sent an email (redacted below) to WTEC Energy, Defendants’ United States Distributor of their TS Conductor products:
Tabular or graphic material set at this point is not displayable.
(Goodman Decl. re: Mediation Motion, ¶ 2.)
The Alternative Dispute Resolution Act states that “each district court shall, by local rule, provide for confidentiality of the alternative dispute resolution processes and to prohibit disclosure of confidential dispute resolution communications.” 28 U.S.C. § 652(d). The Local Rules for this District provide that “the mediator, all counsel and parties, and any other persons attending the mediation shall treat as ‘confidential information’ the contents of the written mediation statements ... anything that happened or was said relating to the subject matter of the case in mediation, any position taken, and any view of the merits of the case expressed by any participant in connection with any mediation.” L.R. 16-15.8. Further, “ ‘Confidential information’ shall not be: (1) disclosed to anyone not involved in the litigation ....” Id.
Magistrate Judge Karen Scott also instructed the parties twice regarding confidentiality, in the settlement conference order and again at the start of the mediation. See Order re Settlement Conference (Dkt. 52); Huang Dep. 142:20-143:4.
At his deposition, Huang testified that he remembered being told by Judge Scott that the mediation was confidential.
Q. And do you remember being told that it was confidential?
A. Yes.
Q. Do you remember being told that by the judge?
A. I do remember being told by the judge it’s confidential.
...
Q. So it was supposed to be maintained confidential by the parties to the mediation correct?
A. Yes.
(Huang Depo. at 142:22-143:4; 144:13-15.) Huang then denied that he had shared any content of the conference with WTEC.
Q. Did you ever E-mail WTEC a description of what happened in our mediation?
A. No. I E-mailed WTEC the court case filed against me in and our responsive these are all in public domain that’s all.
(Id. at 144:23-145:2.) When CTC’s counsel showed Huang the October 21, 2018 email, he explained, “I guess I didn’t know that – these information that are confidential are proprietary what is the harm here.” (Id. at 147:15-148:17.) CTC argues that besides the broader harm to the mediation process between the parties, Huang’s disclosure to a buyer of a competitor’s products (WTEC) undermined CTC’s credibility with WTEC and thus the market. (Mediation Motion, Dkt. 163-1 at 8.) CTC requests that Defendants’ counterclaims (including wrongful termination) be dismissed as a sanction.
Defendants don’t dispute that Huang’s conduct was improper or that the October 21 email contained confidential mediation information. (Opposition to Mediation Motion, Dkt. 176 at 2.) But they do assert that CTC has mischaracterized the redacted content, and that the requested relief is disproportionate to the harm. They request in camera review of the unredacted email, which CTC also suggested. (Opp. at 2; Mediation Motion at 1 n.1.) The Court agrees with Defendants on several points. Huang’s willful disregard for Judge Scott’s orders and the federal and local rules was indeed improper, and it compromised the settlement process in this case. While the unredacted portion of the email is sufficient to reach this conclusion, the degree of harm is unclear without access to the full text. The Court will thus undertake in camera review of the email.
*8 The Court also finds that CTC hasn’t presented sufficient proof of any competitive injury stemming from the email. CTC’s assertions of prejudice in the market are too speculative to warrant sanctions on that basis. See, e.g., Mediation Motion at 11. Rather, the injury here was to the settlement process between the parties, and an appropriate sanction would compensate CTC for the time and effort it gave to that process in good faith.
The Court GRANTS IN PART CTC’s motion for sanctions. The Court ORDERS Defendants to present an unredacted version of the October 21, 2018 email to the Court for in camera review and ORDERS CTC to file a statement of reasonable fees and costs associated with the September 2018 settlement conference. The Court may make upward or downward adjustments to the fee award based on its review of the email.
5. DISPOSITION
The Court GRANTS CTC’s Motion for Leave to Amend (Dkt. 161) and GRANTS IN PART CTC’s Motion for Sanctions (Dkt. 163). A hearing on CTC’s Motion for Default Judgment (Dkt. 168/169) will take place on May 10, 2019 at 9:00 a.m. The trial in this case is continued from May 7, 2019 to August 13, 2019 at 9:00 a.m. The pretrial conference is continued from April 29, 2019 to July 29, 2019 at 8:30 a.m. Additional instructions are in the introduction to this Order.