MicroVention, Inc. v. Balt USA, LLC
MicroVention, Inc. v. Balt USA, LLC
2023 WL 7476521 (C.D. Cal. 2023)
October 5, 2023
Scott, Karen E., United States Magistrate Judge
Summary
MicroVention, Inc. (MVI) brought a claim against Balt, USA LLC (Balt) for misappropriation of trade secrets and breach of contract. Balt had failed to take reasonable steps to preserve two laptops used by former employees, resulting in the spoliation of ESI. The court found that Balt had acted with gross negligence, but not with intent to deprive MVI of the evidence, and thus declined to award sanctions under Rule 37(e)(2). The court did award sanctions under Rule 37(e)(1).
Additional Decisions
MICROVENTION, INC., Plaintiff,
v.
BALT USA, LLC, et al., Defendants
v.
BALT USA, LLC, et al., Defendants
Case No. 8:20-cv-02400-JLS-KES
United States District Court, C.D. California
Filed October 05, 2023
Counsel
Callie A. Bjurstrom, Michelle A. Herrera, Pillsbury Winthrop Shaw Pittman LLP, San Diego, CA, Alekzandir Morton, Christopher Edward Stretch, Colin T. Kemp, John Joseph Steger, Pillsbury Winthrop Shaw Pittman LLP, San Francisco, CA, Bryan P. Collins, Pro Hac Vice, Pillsbury Winthrop Shaw Pittman LLP, McLean, VA, Chaz Matthew Hales, Chloe Stepney, Evan Finkel, Michael S. Horikawa, Pillsbury Winthrop Shaw Pittman LLP, Los Angeles, CA, Kenneth W. Taber, Pro Hac Vice, Pillsbury Winthrop Shaw Pittman LLP, New York, NY, Ranjini Acharya, Pillsbury Winthrop Shaw Pittman LLP, Palo Alto, CA, Yuri Mikulka, Alston and Bird LLP, Los Angeles, CA, for Plaintiff.Sheila N. Swaroop, Knobbe Martens Olson and Bear LLP, Irvine, CA, Alexander Ding Zeng, Knobbe Martens Olson and Bear LLP, Los Angeles, CA, Cecilia Sanabria, Pro Hac Vice, Michael E. Bern, Pro Hac Vice, Michael A. Morin, Pro Hac Vice, Latham and Watkins LLP, Washington, DC, Christopher W. Henry, Latham and Watkins LLP, Boston, MA, Douglas E. Lumish, Julianne Catherine Osborne, Latham and Watkins LLP, San Francisco, CA, Jeffrey Gerard Homrig, Latham and Watkins LLP, Austin, TX, Joseph Hyuk Lee, Ryan Robert Owen, Latham and Watkins LLP, Costa Mesa, CA, Lucas Anthony Lonergan, Latham and Watkins LLP, Menlo Park, CA, Nicholas Andrew Belair, Knobbe Martens Olson and Bear LLP, San Francisco, CA, Patricia Young, Latham and Watkins LLP, Menlo Park, CA, Paul A. Stewart, Sean M. Murray, William Oscar Adams, Knobbe Martens Olson and Bear LLP, Irvine, CA, Russell Mangas, Pro Hac Vice, Latham and Watkins LLP, Chicago, IL, Tiffany M. Ikeda, Latham and Watkins LLP, Los Angeles, CA, for Defendants Balt USA, LLC.
Lindley Paige Fraley, Kroesche Schindler LLP, Irvine, CA, Mark A. Finkelstein, Molly J. Magnuson, Umberg Zipser LLP, Irvine, CA, for Defendants David Ferrera.
Adam S. Cashman, Benjamin L. Singer, Evan N. Budaj, Singer Cashman LLP, San Francisco, CA, Eric J. Schindler, Lindley Paige Fraley, KroescheSchindler LLP, Irvine, CA, Mark A. Finkelstein, Molly J Magnuson, Umberg Zipser LLP, Irvine, CA, Sheila N. Swaroop, Knobbe Martens Olson and Bear LLP, Irvine, CA, for Defendants Nguyen Jake Le.
Bernard Conrad Jasper, Jasper Law, Fullerton, CA, Mark A. Finkelstein, Molly J. Magnuson, Umberg Zipser LLP, Irvine, CA, Lindley Paige Fraley, Kroesche Schindler LLP, Irvine, CA, for Defendants Michelle Tran.
Scott, Karen E., United States Magistrate Judge
REPORT AND RECOMMENDATION OF U.S. MAGISTRATE JUDGE
*1 This Report and Recommendation (“R&R”) is submitted to the Honorable Josephine L. Staton, United States District Judge, pursuant to the provisions of 28 U.S.C. § 636 and the Court's referral (Dkt. 434).
I. INTRODUCTION
Plaintiff MicroVention, Inc. (“MicroVention” or “MVI”) brought this action against Balt, USA LLC (“Balt”) and five former MVI employees who left MVI to work for Balt: David Ferrera, Nguyen Le, Yoshitaka Katayama, Stephanie Gong, and Michelle Tran. In the operative Second Amended Complaint (“SAC” at Dkt. 91), MVI brings claims for misappropriation of trade secrets under federal and California law, as well as claims for breach of contract against the individual Defendants, arising from that alleged misappropriation.
In the present motion for sanctions, MVI alleges Balt spoliated electronically stored information (“ESI”) on two laptops used by Defendant Michelle Tran (“Tran”) and former Defendant Yoshitaka Katayama (“Katayama”).[1] (Dkt. 386 (notice of motion); Dkt. 390, 407 (“Motion”).)[2] Evidence on those laptops became inaccessible when encryption software on the laptops was triggered during an examination by Stroz Friedberg (“Stroz”), a neutral forensic examiner hired by the parties. Although prior to the examination Balt informed MVI and Stroz that it could provide all necessary encryption keys, after the laptops were locked, Balt said that the only copies of the keys were on the locked laptops. Any evidence on the laptops therefore became inaccessible.
Balt filed an opposition brief (Dkt. 409 (“Opp'n”)), and MVI filed a reply (Dkt. 424 (“Reply”)). The District Judge referred the motion to the undersigned Magistrate Judge for an R&R. (Dkt. 434.)
For the reasons discussed below, it is recommended that, while there is insufficient evidence of intent to support an adverse inference instruction, other sanctions are appropriate. First, MVI should be allowed to present the facts about the spoliation to the jury. Second, Balt should be prevented from relying on the lack of evidence from the laptops at trial. Third, Balt and Balt's former counsel[3] should be jointly and severally ordered to pay MVI for the reasonable expenses MVI incurred in bringing the instant motion, including attorney's fees and expert fees.
II. LEGAL STANDARDS
A. The Court's Authority to Sanction Spoliation.
Spoliation occurs when a party destroys, significantly alters, or fails to preserve evidence after its duty to preserve arose. See United States v. Kitsap Physicians Serv., 314 F.3d 995, 1001 (9th Cir. 2002); see also Apple, Inc. v. Samsung Elecs. Co., 888 F. Supp. 2d 976, 989 (N.D. Cal. 2012). The “duty to preserve [evidence] arises when a party knows or should know that certain evidence is relevant to pending or future litigation.” Surowiec v. Cap. Title Agency, Inc., 790 F. Supp. 2d 997, 1005 (D. Ariz. 2011) (citation omitted).
*2 District courts may sanction spoliation under their inherent authority to sanction abusive litigation tactics or under Federal Rule of Civil Procedure 37. Leon v. IDX Sys. Corp., 464 F.3d 951, 958 (9th Cir. 2006); Fed. R. Civ. P. 37(b)(2)(A) (listing examples of sanctions that may be imposed upon a party who “fails to obey an order to provide or permit discovery”). If, however, the spoliation involves ESI, then Rule 37(e) provides the most appropriate and, some authority holds, the exclusive framework for imposing sanctions. Long Nguyen v. Lotus by Johnny Dung, Inc., No. 17-cv-1317-JVS-JDEx, 2019 WL 1950294 at *4, 2019 U.S. Dist. LEXIS 77821 at *12 (C.D. Cal. Mar. 14, 2019) (citing Fed. R. Civ. P. 37(e), Advisory Committee Notes to 2015 Amendment); see also Wright & Miller, 8B Fed. Prac. & Proc. Civ. § 2284.2 (3d ed.) (“Although the 2006 rule applied only to ‘sanctions under these rules,’ the 2015 provision supplants inherent authority, which courts sometimes invoked to address preservation problems when rule provisions did not seem pertinent.”).[4] Because MVI's motion exclusively concerns spoliation of ESI, this R&R relies on the Court's authority under Rule 37(e).
B. Sanctions for ESI Spoliation Under Rule 37(e).
Rule 37(e), as amended in 2015, provides in full as follows:
(e) Failure to Preserve [ESI]. If [ESI] that should have been preserved in the anticipation or conduct of litigation[5] is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court:
(1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or
(2) only upon finding that the party acted with the intent to deprive another party of the information's use in the litigation 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.
Fed. R. Civ. P. 37(e).
Thus, there are two levels of sanctions available under Rule 37(e). In the first level under Rule 37(e)(1), upon finding that (i) a party had a duty to preserve ESI and (ii) breached that duty by failing to take reasonable steps to preserve it, (iii) causing prejudicial loss of the ESI, then the court may order measures no greater than necessary to cure the prejudice. In the second level under Rule 37(e)(2), the court may impose more severe sanctions if it finds that the spoliating party “acted with the intent to deprive another party of the information's use in the litigation.” Fed. R. Civ. P. 37(e)(2).
1. Prejudice Under 37(e)(1).
Regarding the issue of who has the burden to prove the prejudice element of Rule 37(e)(1), the Advisory Committee Notes opine as follows:
An evaluation of prejudice from the loss of information necessarily includes an evaluation of the information's importance in the litigation. The rule does not place a burden of proving or disproving prejudice on one party or the other. Determining the content of lost information may be a difficult task in some cases, and placing the burden of proving prejudice on the party that did not lose the information may be unfair. In other situations, however, the content of the lost information may be fairly evident, the information may appear to be unimportant, or the abundance of preserved information may appear sufficient to meet the needs of all parties. Requiring the party seeking curative measures to prove prejudice may be reasonable in such situations. The rule leaves judges with discretion to determine how best to assess prejudice in particular cases.
*3 Fed. R. Civ. P. 37, Advisory Committee Notes to 2015 Amendment. Similarly, some courts have noted, “The prejudiced party must not be held ‘to too strict a standard of proof regarding the likely contents of the destroyed or unavailable evidence,’ because doing so ‘would allow parties who have destroyed evidence to profit from that destruction.’ ” Ottoson v. SMBC Leasing & Fin., Inc., 268 F. Supp. 3d 570, 580 (S.D.N.Y. 2017) (citation omitted).
If the destruction of evidence was intentional, courts in the Ninth Circuit generally place the burden on the destroyer to show that the loss of the evidence was not prejudicial. See, e.g., Mfg. Automation & Software Sys., Inc. v. Hughes, No. 16-8962-CAS-KSx, 2018 WL 5914238 at *11, 2018 U.S. Dist. LEXIS 227206 at *32 (C.D. Cal. Aug. 20, 2018) (citing Czuchaj v. Conair Corp, No. 13-cv-1901, 2016 WL 4130946 at *2 (S.D. Cal. May 3, 2016) and Apple Inc. v. Samsung Elecs. Co., 888 F. Supp. 2d at 998).
2. Intent Under Rule 37(e)(2).
“[N]either the Rule itself nor the Ninth Circuit have provided a definition of ‘intent’ in this context.” Estate of Moreno by & through Moreno v. Corr. Healthcare Cos., Inc., No. 18-cv-5171, 2020 WL 5740265 at *6, 2020 U.S. Dist. LEXIS 108370 at *17 (E.D. Wash. June 1, 2020). The Advisory Committee notes indicate that negligent or even grossly negligent behavior is insufficient to support sanctions under Rule 37(e)(2). See Fed. R. Civ. P. 37, Advisory Committee Note to 2015 Amendment (rejecting Residential Funding Corp v. DeGeorge Financial Corp., 306 F 3d 99 (2d Cir. 2002)). “Accordingly, courts have found that a party's conduct satisfies Rule 37(e)(2)'s intent requirement when the evidence shows or it is reasonable to infer, that the ... party purposefully destroyed evidence to avoid its litigation obligations.” Porter v. City & Cty. of San Francisco, No. 16-cv-03771-CW-DMR, 2018 WL 4215602 at *3, 2018 U.S. Dist. LEXIS 151349 at *8 (N.D. Cal. Sept. 5, 2018) (collecting cases).
3. Jury Instructions As Sanctions.
There are different types of jury instructions that district courts can issue, ranging in severity. See generally Deerpoint Grp., Inc. v. Agrigenix, LLC, No. 18-cv-00536, 2022 WL 16551632 at *23, 2022 U.S. Dist. LEXIS 197646 at *69 (E.D. Cal. Oct. 31, 2022); Matter of In re Skanska USA Civ. Se. Inc., 340 F.R.D. 180, 191 (N.D. Fla. 2021). The harshest type, an adverse inference instruction, either requires or permits the jury to assume that the spoliated ESI was unfavorable to the party that lost it. A finding of intent under subdivision (e)(2) is required to issue this type of instruction. See Fed. R. Civ. P. 37, Advisory Committee Note to 2015 Amendment.
If intent under Rule 37(e)(2) is an open question of fact about which reasonable juries or judges could disagree, then courts may allow the parties to present the disputed evidence of spoliation to the jury. “[T]he court's instruction should make clear that the jury may infer from the loss of the information that it was unfavorable to the party that lost it only if the jury first finds that the party acted with the intent to deprive another party of the information's use in the litigation. If the jury does not make this finding, it may not infer from the loss that the information was unfavorable to the party that lost it.” Fed. R. Civ. P. 37, Advisory Committee Note to 2015 Amendment (emphasis added); see, e.g., Aramark Mgmt., LLC v. Borgquist, No. 18-cv-01888-JLS-KESx, 2021 WL 864067 at *15-19, 2021 U.S. Dist. LEXIS 45569 at *41-58 (C.D. Cal. Jan. 27, 2021), R&R adopted, 2021 WL 863746, 2021 U.S. Dist. LEXIS 43068 (C.D. Cal. Mar. 8, 2021); Epicor Software Corp. v. Alt. Tech. Sols., Inc., No. 13-00448-CJC-JCGx, 2015 WL 12734011 at *2, 2015 U.S. Dist. LEXIS 187180 at *4 (C.D. Cal. Dec. 17, 2015).
*4 Even if there is no evidence of intent under Rule 37(e)(2), courts may still “allow[ ] the parties to present evidence to the jury concerning the loss and likely relevance of information” and instruct the jury that “it may consider that evidence, along with all the other evidence in the case, in making its decision.” Fed. R. Civ. P. 37, Advisory Committee Notes to 2015 Amendment; see, e.g., Lopez v. Cardenas Markets, LLC, No. 21-cv-01915, 2023 WL 3182658 at *7, 2023 U.S. Dist. LEXIS 75128 at *16-17 (D. Nev. May 1, 2023) (imposing this type of instruction under Rule 37(e)(1), where the defendant was “negligent” but the record did not support “an intent to deprive” plaintiff of the evidence); see also Spencer v. Lunada Bay Boys, No. 16-cv-02129-SJO-RAOx, 2017 WL 11527978 at *7, 2017 U.S. Dist. LEXIS 229464 at *21 (C.D. Cal. Nov. 29, 2017) (noting that “Rule 37(e)(2) does not prohibit a court from allowing the parties, as a measure under subdivision (e)(1), to present evidence to the jury concerning the loss and likely relevance of information and instructing the jury that it may consider that evidence, along with all the other evidence in the case, in making its decision”) (citing the Advisory Committee Notes), R&R adopted, 2018 WL 10699689, 2018 U.S. Dist. LEXIS 236340 (C.D. Cal. Jan. 8, 2018). However, courts must find that issuing such an instruction is “no greater than necessary to cure the prejudice” suffered by the non-spoliating party. Fed. R. Civ. P. 37(e)(1).
4. Standard of Proof.
In making factual findings to support the imposition of spoliation sanctions, courts in the Ninth Circuit apply a preponderance of the evidence standard. See Compass Bank v. Morris Cerullo World Evangelism, 104 F. Supp. 3d 1040, 1052-53 (S.D. Cal. 2015) (“the applicable standard of proof for spoliation in the Ninth Circuit appears to be by a preponderance of the evidence”); see also Napster, Inc. Copyright Litig., 462 F. Supp. 2d 1060, 1072 (N.D. Cal. 2006) (finding “no Ninth Circuit authority applying the clear and convincing standard to the exercise of the court's inherent authority to impose dismissal or default sanctions, and the Ninth Circuit has not squarely addressed the issue of which standard of proof is appropriate”).
III. THE PARTIES' ARGUMENTS
MVI contends that Balt breached its obligation to preserve the two laptops used by Tran and Katayama because MVI: (i) booted up both laptops immediately prior to making them available to the neutral forensic examiner, Stroz, for imaging, when neither MVI nor Stroz were present; and (ii) failed to maintain the encryption keys for either laptop. (Mot. at 5-6.)[6] MVI “requests the Court to allow MVI to present the facts surrounding Balt's spoliation to the jury, and issue an adverse instruction to the jury that it must presume the spoliated evidence would have been favorable to MVI, and unfavorable to Balt.” (Id. at 5) (emphasis added).
Balt responds that there is no evidence that Balt had copies of the encryption keys when this litigation began or was anticipated, and “the ‘evidence’ that MVI claims was lost during this litigation was actually unavailable before this case began, if it ever existed at all.” (Opp'n at 4.) Moreover, Balt argues, the evidence on the laptops was rendered inaccessible not due to Balt's actions, but rather due to the actions of Stroz, which could have “made a forensic image (copy) of the laptops' hard drives, without triggering the BitLocker encryption software to freeze the laptops.” (Id. at 4-5.) Balt argues that there is no evidence it had an “intent to deprive MVI of any evidence,” because Balt “turned these laptops over to Stroz Friedberg in working order....” (Id. at 5.)
IV. FACTUAL BACKGROUND
A. BitLocker Encryption Software.
“BitLocker is an encryption software designed to encrypt the hard drive on which it is installed and enabled. Upon boot-up of the computer, the data is decrypted on the fly so that the user can use the computer unhindered.” (Massoud Decl. ¶ 4 / Dkt. 411.)[7] “When BitLocker is enabled on a computer, BitLocker automatically generates a decryption key, which is a 48-digit code.” (Id. ¶ 5.) At that point, “when the computer is powered off, the hard drive user data is in an encrypted state. Therefore, if you make a forensic or mirror image of that hard drive, the forensic image of the drive will also be encrypted requiring the BitLocker key to unlock and decrypt the user data.” (Id. ¶ 6.)
*5 When BitLocker is first enabled, “Windows provides multiple options at that time for saving the critical recovery key.” (Bandemer Decl. ¶ 5 / Dkt. 386-2.) The key is stored in the computer, and the user may also “export the key and store it on a separate device (like a USB drive) or print it out in a text format.” (Massoud Decl. ¶ 5 / Dkt. 411.) Commonly, the keys are also “stored automatically within a managed repository such as Active Directory.” (Bandemer Decl. ¶ 5 / Dkt. 386-2.) “The storage of the recovery key is critical for both the employee and company because certain normal events on the computer can cause the operating system to request this key at system start, or a laptop failure may require recovery of files from the drive (which necessitates use of the recovery key).” (Id. ¶ 6.)
B. Balt's Encryption Practices.
The Balt laptops that are the subject of this motion were issued to Tran and Katayama in March 2018. (Ang Decl. ¶¶ 2-3 / Dkt. 412 at 2.) At that time, Balt had no written policy or standard practice regarding the encryption of laptops; some laptops were encrypted and some were not. (Ang Depo. at 61, 63-64 / Herrera Decl. Ex. 10, Dkt. 385-7.)[8] Balt haphazardly stored BitLocker encryption keys in certain Active Directories—Intune (a.k.a. Azure) and KeePass—but only for some employee laptops, not all. (Id. at 65-67; see also Herrera Decl. Ex. 11 / Dkt. 385-8 (Balt Resp. to RFA Nos. 5, 8).) Balt does not know if the IT department ever received copies of the BitLocker keys or passwords for the Tran and Katayama laptops, apart from the copies saved in the laptops themselves. (Herrera Decl. Ex. 11 / Dkt. 385-8 (Balt's response to RFA nos. 48-51, 87-90); Massoud Decl. ¶ 16 / Dkt. 411 (noting that the “keys are still stored within Windows in the laptops”).)
C. Litigation Hold.
In July 2019, MVI filed a patent case against Balt. MicroVention, Inc. v. Balt USA LLC, No. 8:19-cv-1335-JLS-KES (C.D. Cal.). During discovery in that case, Balt produced documents that MVI contends contain highly confidential and proprietary MVI information, and Defendants David Ferrera and Jake Le were identified as the custodians of those documents. (Herrera Decl. ¶ 4 / Dkt. 386-3 at 2.) As a result, on December 22, 2020, MVI filed the current lawsuit for misappropriation of trade secrets and breach of contract against Balt, Ferrera, and Le, as well as Tran and Katayama. (Dkt. 1.)
On February 5, 2021, Balt issued a litigation hold, which was sent to Tran, Katayama, and personnel in Balt's IT department. (Ang Depo. at 167 / Herrera Ex. 10, Dkt. 385-7; Herrera Decl. Ex. 11 / Dkt. 385-8 at 8 (Balt's response to RFAs); Herrera Decl. Ex. 13 / Dkt. 385-10 at 2-5.) In late February 2021, Tran and Katayama left Balt, and Balt's IT department sequestered their Balt-issued laptops. (Ang Depo. at 266-67, 277 / Stewart Decl. Ex. 3, Dkt. 410-1.)
D. Forensic Protocol and Discussions Prior to Imaging the Laptops.
In November 2021, MVI sent Balt a draft forensic protocol that was prepared by MVI's retained forensic expert, Michael Bandemer, and offered to take charge of forensic imaging and searches of the Balt-owned electronic devices and to pay the costs. Balt declined MVI's offer. Thereafter, MVI and Balt agreed to retain a neutral forensic examiner and share the costs equally. MVI and Balt spent several weeks vetting potential neutrals. They jointly selected Stroz in early February 2022. (Herrera Decl. ¶¶ 9-10 / Dkt. 386-3 at 3; Herrera Decl. Ex. 5 / Dkt. 386-3 at 10-21 (emails); Stewart Decl. Ex. 2 / Dkt. 410-1 at 6 (emails).)
*6 A forensic protocol was formally executed by MVI and Balt on May 6, 2022, and by Stroz on May 11, 2022. (Herrera Decl. Ex. 6 / Dkt. 386-3 at 23-31 (the protocol).) The protocol required Balt to turn over “any and all necessary log-in information (e.g., usernames and passwords) ... so that the Forensic Examiner can log into and search said Devices in accordance with this Protocol.” (Id. at ¶ II.B.)
Meanwhile, in April 2022, consistent with the forensic protocol, Balt made multiple devices available to Stroz for imaging and/or copying, including the Balt laptops used by Tran and Katayama. (Herrera Decl. Ex. 7 at 27 / Dkt. 385-6 at 28.) In anticipation of the imaging and/or copying, Stroz asked Balt for “information regarding any encryption keys and/or user name/passwords,” and on April 15, 2022, Balt's counsel responded that they would have “a representative from Balt's IT department on hand who will be able to unlock any encryption and provide user names and passwords.” (Herrera Decl. Ex. 7 at 25-26 / Dkt. 385-6 at 26-27.)
On April 18, 2022, the day before the laptops were provided to Stroz for imaging, a representative of Balt's IT department verified that the laptops were in working order by turning the power on and logging into the computers using the IT department's standard administrative user name and password. (Ang Depo. at 56-57 / Herrera Decl. Ex. 10, Dkt. 385-7.) Balt's attorneys instructed Balt IT to turn on the Tran and Katayama laptops (among other devices) before providing the devices to Stroz for imaging. (Id. at 54-60.) They did so not knowing whether or not the laptops were encrypted. (Id. at 61.) Based on the April 18 boot up, Balt IT was “under the impression” that “there were no BitLocker [encryption] keys for those laptops because ... there was no prompt for them upon log-in.” (Id. at 268 / Stewart Decl. Ex. 3, Dkt. 410-1.) Other than looking for a prompt at log-in, there is no evidence that anyone at Balt did anything to determine whether BitLocker was installed on the Tran and Katayama laptops before handing them over to Stroz.
E. Imaging of the Laptops and Attempts to Unlock the Laptops.
On April 19, 2022, Stroz went to the offices of Balt's counsel. Stroz imaged seven devices and collected two external hard drives with images of other devices. All of these devices and images were encrypted. Because no one from Balt's IT department was present to provide encryption keys (contrary to Balt's early representation), Stroz made images of the devices in their encrypted state and took the images back to its office for analysis. (Herrera Decl. Ex. 7 at 22-23 / Dkt. 385-6 at 23-24 (email from Sergio Kopelev of Stroz).)
Almost all of the encrypted devices and images—including devices used by Defendants David Ferrera and Nguyen Jake Le—were later able to be decrypted, after Balt provided passwords or keys. However, Balt reported that it did not have the BitLocker recovery keys for the Tran and Katayama laptops. (Herrera Decl. Ex. 7 at 4-23 / Dkt. 385-6 at 5-24.) On April 20, 2022, Balt's counsel reported that Balt's IT department “simply [had] no information regarding the bit locker keys for the Tran and Katayama laptops.” (Herrera Decl. Ex. 7 at 18 / Dkt. 385-6 at 19.) According to an attorney representing Tran and Katayama, they “were not now and never had been aware of any bit locker keys,” and “[b]oth used only ordinary passwords to access their laptops, not 48-digit bit locker keys.” (Herrera Decl. Ex. 7 at 21-22 / Dkt. 385-6 at 22-23.)
*7 MVI consulted with its forensics expert and suggested several procedures Balt could use to attempt to discover the missing BitLocker keys, including “check[ing] the Active Directory [“AD”],” or having Stroz personnel “boot the machines, log in with an admin account, and use” a specialized command to retrieve the keys. (Herrera Decl. Ex. 7 at 11-14 / Dkt. 385-6 at 12-15; see also Massoud Decl. ¶¶ 8, 15 / Dkt. 411 (describing how the BitLocker keys could have been accessed through the unlocked laptop).) Balt agreed to the latter method. On or around May 2, 2022, Balt mailed the Tran and Katayama laptops to Stroz for this purpose and provided admin credentials. (Herrera Decl. Ex. 7 at 5-7 / Dkt. 385-6 at 7-10.)
After receiving the laptops, however, Stroz reported that it was still unable to access them, explaining:
Unfortunately both systems were received in a state where the systems are prompting for BitLocker recovery keys, before reaching the login screen. This is a security feature usually due to a detected change in hardware/firmware. We are trying some potential workarounds to bypass this.... [W]e may be successful if the BitLocker password, distinct from the recovery key, is known for these systems.
(Herrera Decl. Ex. 7 at 5-6 / Dkt. 385-6 at 6-7.) Stroz provided Balt with more information about the laptops (BitLocker key IDs and drive label numbers) in the hope that Balt might be able to use that information to find the BitLocker recovery keys or passwords. (Id.)
Several days later, on May 6, 2022, Balt's counsel reported that, after meeting with an IT consultant and the head of Balt's IT department, they were “unable to recover the encryption keys, passwords, and PINs” for the laptops, because these keys or passwords “were never managed by AD and were not present in AD Backup locations or in the Active Directory.” (Herrera Decl. Ex. 7 at 2-3 / Dkt. 385-6 at 3-4.) Balt's counsel stated that although generally, “Balt stores its Bit Locker encryption keys in an Azure database,” a search of that database “found no Bit Locker keys for the Katayama or Tran devices.” (Herrera Decl. Ex. 7 at 1 / Dkt. 385-6 at 2.) Balt's counsel blamed Stroz for locking the laptops, arguing that “they were accessible using the Balt IT department's ordinary admin credentials” when they were presented to Stroz. (Id.)
Stroz admitted that when imaging the laptops, it had “changed a setting in the computer firmware to allow booting from external media,” which “could've triggered the BitLocker Recovery Mode.” (Herrera Decl. Ex. 8 at 1 / Dkt. 386-3 at 34; see also Massoud Decl. ¶¶ 7, 10-12 (confirming that a change in the “BIOS settings,” to allow the computer to boot from external media, could trigger BitLocker to lock the device, requiring entry of the decryption key “upon the next boot up process”); Ang Depo. at 267 / Stewart Decl. Ex. 3, Dkt. 410-1 (testifying that his “understanding of what happened” with the Tran and Katayama laptops “was that the Stroz Friedberg technician went into the bio [sic], tried to make a change, and then the BitLocker key prompt triggered”).) Stroz believed this method was “the best from a data preservation standpoint, when the necessary decryption information (PIN, recovery key, etc.) is known,” and it chose this method “based on the representation made prior to our arrival that Balt IT could unlock any encryption [referring to counsel's April 15 email]. It was not until after this step was taken that Balt IT informed Stroz ... that they did not have decryption information for the two systems. There was no indication that this was even a concern prior.” (Herrera Decl. Ex. 8 at 1 / Dkt. 386-3 at 34.)
All data on the Tran and Katayama laptops is inaccessible and has been irretrievably lost. (Bandemer Decl. ¶ 8 / Dkt. 386-2.) MVI's expert states, “In hundreds of matters involving thousands of corporate Windows computers encrypted with BitLocker, I have not experienced a situation where the company IT department was not able to decrypt a company managed laptop drive.” (Bandemer Decl. ¶ 7 / Dkt. 386-2.) Kheng Ang, Balt's head of IT, testified that he has never witnessed a complete loss of encryption keys in his entire career. (Ang. Depo. 265-66 / Herrera Decl. Ex. 10, Dkt. 385-7.)
V. DISCUSSION[9]
A. An Adverse Inference Instruction Under Rule 37(e)(2) Is Not Warranted.
*8 MVI asks the Court to “issue an adverse instruction to the jury that it must presume the spoliated evidence would have been favorable to MVI, and unfavorable to Balt.” (Mot. at 5.) As discussed above in section II.B.3, this type of instruction requires a finding that Balt “acted with the intent to deprive [MVI] of the information's use in the litigation....” Fed. R. Civ. P. 37(e)(2). MVI argues that intent exists because “Balt acted with conscious disregard of its discovery obligations” when it “made an affirmative representation to Stroz, in writing, that it had the encryption keys for the laptops to be imaged ... without conducting any due diligence whatsoever regarding the accuracy of the representation,” which turned out to be false. (Reply at 7.) Balt counters that it acted in good faith, with “every reason to believe that Stroz ... would successfully create and decrypt images of the two laptops,” because Balt “turned over the Katayama and Tran laptops to Stroz ... in working order, with the internally stored encryption keys fully accessible....” (Opp'n at 12.)
When Stroz imaged the computers on April 18, Balt was not aware that the encryption keys were “internally stored” and “fully accessible,” because Balt was not even aware that the laptops were encrypted. Ang testified that Balt IT was “under the impression” that the laptops were not encrypted because “there was no prompt for [the BitLocker keys] upon log-in” when Balt IT booted up the laptops on April 18, 2022. (Ang Depo. at 56-57, 268 / Herrera Decl. Ex. 10, Dkt. 385-7.) Even assuming that booting up the laptops was a reasonable way to determine whether they were encrypted,[10] this boot-up occurred three days after Balt's counsel affirmatively told Stroz that Balt's IT department would “be able to unlock any encryption and provide user names and passwords.” (Herrera Decl. Ex. 7 at 25-26 / Dkt. 385-6 at 26-27.) There is no evidence that, prior to making this representation, Balt did any investigation to determine whether the laptops were encrypted or whether Balt actually had the encryption keys. And this was despite Balt IT's knowledge that, when these laptops were issued in 2018, Balt had no written policy or standard practice regarding encryption or storage of encryption keys. (Ang Depo. at 61, 63-64 / Herrera Decl. Ex. 10, Dkt. 385-7.) This inconsistent practice underscored the importance of investigating the encryption status and whereabouts of the keys for each device ahead of time. At the May 30 hearing on this motion, Balt's counsel admitted that if Balt had searched KeePass prior to handing over the laptops, Balt would have realized that the encryption keys were not stored there. (See also Massoud Decl. ¶ 18 / Dkt. 411 (describing Balt's efforts to find the encryption keys after the fact).) Both Ang and MVI's expert opined that they had never heard of a company like Balt losing access to a company-issued device due to failure to maintain encryption keys. (Ang. Depo. 265-66 / Herrera Decl. Ex. 10, Dkt. 385-7; Bandemer Decl. ¶ 7 / Dkt. 386-2.) All of this demonstrates gross negligence by Balt.
As discussed above, however, even grossly negligent behavior is insufficient to support sanctions under Rule 37(e)(2). See Fed. R. Civ. P. 37, Advisory Committee Note to 2015 Amendment (rejecting Residential Funding Corp v. DeGeorge Financial Corp., 306 F 3d 99 (2d Cir. 2002)). MVI must show that Balt's intended to “avoid its litigation obligations.” Porter, 2018 WL 4215602 at *3, 2018 U.S. Dist. LEXIS 151349 at *8 (collecting cases). MVI has not shown by a preponderance of the evidence that Balt acted with intent to deprive MVI of the evidence on the laptops, or that intent is an open question of fact about which reasonable factfinders could disagree.
This case is similar to Youngevity Int'l v. Smith, No. 3:16-cv-704-BTM-JLB, 2020 WL 7048687, 2020 U.S. Dist. LEXIS 227170 (S.D. Cal. July 28, 2020), a case from MVI's briefing where the court declined to award Rule 37(e)(2) sanctions. There, an independent forensics expert found that defendants' text message production was incomplete and messages were lost, but that this could have been due to “intentional deletion,” “backup failures,” or “issues arising from internal housekeeping of the database. 2020 WL 7048687 at *1, 2020 U.S. Dist. LEXIS 227170 at *22. The court found that defendants “took no affirmative action to preserve text messages and simply assumed their text messages were being saved automatically.” 2020 WL 7048687 at *1, 2020 U.S. Dist. LEXIS 227170 at *23. The court found that while this was unreasonable under Rule 37(e)(1), it did not warrant sanctions under Rule 37(e)(2). The court found it was not “conduct surpass[ing] gross negligence,” particularly given that the defendants had “produced thousands of documents including all text messages from four other defendants, and have introduced possible explanations for unintentional deletions....” 2020 WL 7048687 at *4, 2020 U.S. Dist. LEXIS 227170 at *32-33.
*9 Here, similarly, Balt took no affirmative action to ensure that the laptops were not encrypted and/or that they could be readily decrypted if need be. Yet Balt did produce the laptops in an unlocked condition, and MVI does not point to any evidence that Balt's counsel or IT Department knew that Stroz's method of imaging the laptops would cause them to lock. Additionally, Balt produced multiple other devices that were successfully imaged, unlocked, and examined by Stroz. On this record, the Court cannot say by a preponderance of the evidence that Balt acted with intent to deprive MVI of the evidence on the laptops.
The three cases MVI's counsel referenced at the hearing on this motion—Ungar v. City of New York, 329 F.R.D. 8, 13 (E.D.N.Y. 2018); First Financial Security, Inc. v. Freedom Equity Group, 2016 WL 5870218, 2016 U.S. Dist. LEXIS 140087 (N.D. Cal. Oct. 7, 2016); and In re Skanska USA Civ. Se. Inc., 340 F.R.D. 180 (N.D. Fla. 2021)—do not support the imposition of Rule 37(e)(2) sanctions on Balt.
The Ungar court did note that a party who “passively allows [ESI] to be lost” may have the requisite state of mind to support an adverse inference instruction, even if the spoliator did not “affirmatively destroy[ ] the data....” 329 F.R.D. at 13. Yet the court also emphasized that negligence alone was insufficient to support sanctions under Rule 37(e)(2). Id. at *12, 14-15 (noting that many of the cases cited by the plaintiff were “inapposite, as they are traceable to Residential Funding,” a Second Circuit case that was superseded by the 2015 amendments to Rule 37(e)). Here, as discussed above, the evidence shows only gross negligence. The result in Ungar is also unhelpful to MVI, as the court ultimately found that the defendant “acted without the requisite intent to deprive” plaintiff of the evidence, because the defendant was not “consciously aware of a duty to preserve the video before its deletion....” Id. at *14.
In First Financial Security, the text messages at issue were intentionally deleted by the defendants, and there was evidence that the defendants had agreed not to communicate electronically about the lawsuit, which the court found “suggest[ed] a shared intent to keep incriminating facts out of evidence.” 2016 WL 5870218 at *3 (emphasis added). Additionally, the court found that the alternative explanation offered by these defendants—that “each one of them happened to have a habit of routinely deleting text messages, and each one of them was ‘ignoran[t]’ of the fact that [they] might be sued”—“seem[ed] unlikely.” 2016 WL 5870218 at *3. Here, there is no comparable direct evidence of bad intent, and Balt has offered a plausible explanation for the spoliation: that it negligently believed the laptops were not encrypted.
In Skanska, the court found intent under Rule 37(e)(2) because Skanska “failed to suspend its normal document destruction procedures, failed to collect cell phone data from key custodians, failed to ensure its employees understood the litigation hold, and failed to take any steps to prevent the destruction of cell phone data.” 340 F.R.D. at 185. In response to Skanska's argument that there were simply “gaps in its procedures,” the court noted that while it “may be able to tolerate a ‘gap’ here or there, the Court cannot ignore Skanska's wholesale failure to take any steps to collect the cell phone data from these custodians....” Id. (emphasis added). It found circumstantial evidence of bad faith due to the “lack of any cogent explanation for these failures, other than ‘oops’....” Id. at 189. Skanska is unpersuasive here because, although Balt's actions were grossly negligent, the Court cannot characterize them as similarly sweeping in scale or lacking any cogent explanation. As discussed above, Balt did turn the laptops over to Stroz in an unlocked form, and all of the other devices and images Balt provided (including devices used by other Defendants in this case) were successful decrypted.
*10 In sum, MVI has not shown the intent necessary to support an adverse inference instruction under Rule 37(e)(2). However, the Court should issue the sanctions described below under Rule 37(e)(1).
B. Sanctions Under Rule 37(e)(1) Are Warranted.
1. Balt Had a Duty to Preserve the Evidence on the Tran and Katayama Laptops.
Balt argues that it “had no duty to preserve copies of the Katayama and Tran encryption keys that it never made or were lost long ago,” before litigation was reasonably anticipated. (Opp'n at 10.) Balt argues, “[I]f copies of the encryption keys were made,” this would have been done when the laptops were issued in March 2018, i.e., “long before Balt had any reason to believe it would be sued for trade secret misappropriation.” (Id.)
This argument misconstrues the relevant issue. As MVI points out, “the encryption keys are not the evidence that was destroyed”; the “data on the Tran and Katayama [laptops] is the evidence that was destroyed....” (Reply at 4.) In 2022, Balt had a duty to ensure that the evidence on the laptops was preserved and accessible to Stroz and MVI. There were other ways Balt could have fulfilled this duty, even if it did not have copies of the BitLocker keys and passwords at that point. For example, Balt could have diligently searched for the keys and passwords before making a false representation to Stroz and MVI that it had them. Informing Stroz that these keys and passwords were only available on the laptops themselves could have allowed Stroz to retrieve the passwords or choose a method of imaging and/or examining the laptops that would not have triggered BitLocker to lock the devices.
2. Balt Failed to Take Reasonable Steps to Preserve the Evidence on the Tran and Katayama Laptops, Which Caused the Spoliation.
Balt argues that Stroz, not Balt, caused the spoliation, because Stroz could have accessed the “original encryption keys ... automatically stored by BitLocker within the Katayama and Tran laptops” if it had not “unnecessarily triggered the BitLocker encryption software....” (Opp'n at 11). This argument fails for several reasons.
First, it is not entirely clear that Stroz's imaging of the laptops was what triggered BitLocker to lock the laptops. It appears that Balt's decision to boot up the laptops on April 18 also could have triggered the lock. (See Bandemer Decl. ¶ 6 / Dkt. 386-2 (noting that “certain normal events on the computer can cause the operating system to request this key at system start”).)
Second, even if Stroz's imaging techniques were what caused the laptops to lock, Stroz acted reasonably based on Balt's representations. The parties agree that there are several different methods Stroz could have used to image and/or examine the laptops, some of which might not have triggered the lock. (Opp'n at 7; Reply at 5.) Although Balt's briefing asserts that Stroz did not “follow[ ] best practices” (Opp'n at 14), the record does not support this. Balt's forensic expert declares that it was not “necessary” to change the BIOS program in order to image the laptops, but he does not opine that Stroz's method was somehow scientifically unreasonable or negligent. (Massoud Decl. ¶ 17 / Dkt. 411; see also Bandemer Decl. ¶ 8 / Dkt. 386-2 (opining, “After Stroz imaged the Balt laptops, Stroz followed industry standard methodologies in a corporate environment and requested the recovery keys from Balt IT.”).) The Court finds that Stroz reasonably relied on Balt's representation that “a representative from Balt's IT department” would “be able to unlock any encryption....” (Herrera Decl. Ex. 7 at 25-26 / Dkt. 385-6 at 26-27.)
3. MVI is Prejudiced By the Loss of Evidence from the Laptops.
*11 There is evidence that Defendant Tran took many MVI documents with her when she left to work for Balt, both by forwarding emails from her MVI email address to her personal Gmail address and by placing documents on a hard drive. (Mot. at 7-9; Herrera Decl. ¶ 6 / Dkt. 386-3; Herrera Decl. Ex. 2 at 59-60 / Dkt. 385-3.) Balt's main defense to the misappropriation claims is that, despite this, Balt never used the documents for a competitive purpose in ways that caused damages to MVI. The Court agrees with MVI that the “loss of the Tran and Katayama laptop evidence prejudices MVI because it cannot explore ... forensic evidence of the use of MVI documents Tran [took] from MVI pertaining to the design, development, manufacture and testing of MVI catheter products.” (Reply at 20.) In other words, the “forensics on Tran's and Katayama's laptops” might have “show[n] additional instances of misappropriation, particularly use by Balt,” causing damages to MVI. (Mot. at 23.) The loss of evidence from these laptops is particularly prejudicial in light of the spoliation of evidence on Defendant Le's personal hard drives and devices—discussed in a separate R&R—evidence that was also relevant to Balt's alleged use of MVI's trade secrets. Accordingly, MVI has been prejudiced by the loss of this evidence, which Balt does not assert can be found elsewhere.[11]
4. Under Rule 37(e)(1), MVI Should Be Allowed to Present Evidence of the Spoliation to the Jury.
Under Rule 37(e)(1), the Court has broad discretion to employ measures “no greater than necessary to cure the prejudice” suffered by the non-spoliating party. Such measures may include “forbidding the party that failed to preserve information from putting on certain evidence” or “permitting the parties to present evidence and argument to the jury regarding the loss of the information.” Fed. R. Civ. P. 37(e), Advisory Committee Notes to 2015 Amendment. “[I]t may be appropriate to exclude a specific item of evidence to offset prejudice caused by failure to preserve other evidence that might contradict the excluded item of evidence.” Id. “The only express limitation to curative measures under Rule 37(e)(1) is that they ‘do not have the effect of measures that are permitted under subdivision (e)(2).’ ” Spencer v. Lunada Bay Boys, No. 16-cv-02129-SJO-RAOx, 2018 WL 839862 at *1, 2018 U.S. Dist. LEXIS 22779 at *5 (C.D. Cal. Feb. 12, 2018).
“There is no requirement in Rule 37(e) or the Committee Notes that a court must make a finding of bad faith before imposing monetary sanctions, and district courts have imposed monetary sanctions pursuant to Rule 37(e)(1).” Id. (rejecting argument that Rule 37(e)(1) does not authorize monetary sanctions), aff'd, 806 F. App'x 564, 568 (9th Cir. 2020) (finding the district court “did not abuse its discretion by ordering the sanctions award,” although the amount was in error); see also Colonies Partners, L.P. v. Cty. of San Bernardino, No. 18-00420-JGB-SHK, 2020 WL 1496444 at *12-13 (C.D. Cal. Feb. 27, 2020), R&R adopted, 2020 WL 1491339 (C.D. Cal. Mar. 27, 2020); Matthew Enter., Inc. v. Chrysler Grp. LLC, No. 13-04236-BLF, 2016 WL 2957133 at *5 (N.D. Cal. May 23, 2016) (awarding party prevailing on Rule 37(e) motion “reasonable attorney's fees it incurred in bringing this motion”).
Here, the Court finds that the sanctions recommended below are no greater than necessary to cure the prejudice to MVI.
VI. RECOMMENDATION
IT IS THEREFORE RECOMMENDED that the District Judge issue an Order:
(1) approving and accepting this R&R and granting MVI's motion (Dkt. 386);
(2) allowing MVI to present evidence to the jury concerning the loss and likely relevance of the information on the Tran and Katayama laptops, and instructing the jury that it may consider that evidence, along with all the other evidence in the case, in making its decision;
(3) precluding Balt from arguing at trial that the lack of evidence from the laptops is proof that (a) Tran and Katayama took no documents from MVI, or (b) any documents Tran and Katayama took from MVI were not used by Balt;
(4) finding Balt and Balt's former counsel jointly and severally liable for the reasonable expenses MVI incurred in bringing the instant motion, including attorney's fees and expert fees; and
*12 (5) directing MVI to file a status report within fourteen (14) days of the order accepting this R&R, advising the Court whether, after meeting and conferring with counsel for Le and Balt, the parties agree on the reasonable amount of expenses MVI incurred in bringing the instant motion. If they cannot reach agreement, MVI should be allowed to submit evidence of such to the Magistrate Judge.
NOTICE
Reports and Recommendations are not appealable to the Court of Appeals but are subject to the right of any party to timely file objections as provided in the Federal Rules of Civil Procedure and the instructions attached to this Report. This Report and any objections will be reviewed by the District Judge whose initials appear in the case docket number.
Footnotes
On October 3, 2022, Plaintiff voluntarily dismissed the claims against Defendant Katayama, who agreed to sit for a deposition. (Dkt. 214, 219.)
A redacted copy of Plaintiff's memorandum is at Dkt. 390, and an unredacted version appears at Dkt. 407.
In September 2023, Balt's counsel from the law firm of Knobbe Martens was replaced by counsel from Latham and Watkins. (Dkt. 740.) References to “Balt's counsel” in this R&R refer to former counsel.
But see Hugler v. Sw. Fuel Mgmt., Inc., No. 16-cv-4547-FMO-AGRx, 2017 WL 8941163 at *8, 2017 U.S. Dist. LEXIS 225593 at *22-23 (C.D. Cal. May 2, 2017) (reasoning that courts' inherent authority “cannot be limited by a body such as the Advisory Committee” and “it would be poor public policy to require the courts to rely solely upon the Rules” because “almost all documents are now electronically stored, and destruction or alteration of electronically stored documents often occurs”).
Rule 37(e)'s phrase “should have been preserved in the anticipation or conduct of litigation” codifies the duty to preserve evidence when litigation is reasonably foreseeable as established by case law. See Fed. R. Civ. P. 37(e), Advisory Committee Notes to 2015 Amendment.
When citing to the parties' memoranda, the Court uses the page numbers imposed by the Court's online filing system, which appear in blue at the top of the documents.
The parties have both submitted declarations from technology experts. Balt's is from Ashraf Massoud, an Associate Director of Forensics and Collections at Epiq eDiscovery Solutions, Inc. (Dkt. 411), and MVI's is from Michael Bandemer, Managing Director with Berkeley Research Group and leader of its Discovery and Forensic Technology Services group (Dkt. 386-2).
On September 22, 2022, MVI served a Rule 30(b)(6) notice of deposition on Balt. The topics included Balt's specific efforts to identify, collect, maintain, preserve, and store the data on the Tran and Katayama laptops, and Balt's handling of devices provided to Stroz for forensic imaging and analysis. (Herrera Decl. Ex. 9 / Dkt. 386-3 at 37.) Balt designated Kheng Ang, Balt's IT Director for Global Operations, to testify about all eight topics. During Ang's first deposition, Balt's counsel instructed him not to answer certain questions. (Herrera Decl. Ex. 10 / Dkt. 385-7 (transcript of October 2022 deposition).) After a hearing before the Magistrate Judge (Dkt. 253, 258), Balt deposed Ang a second time in February 2023. (Herrera Decl. Ex. 12 / Dkt. 385-9 at 2.)
Balt argues that MVI's motion should be denied as untimely, because MVI initially filed a supporting memorandum that was over the 7,000 word limit imposed by Local Rule 11-6, and MVI only filed a compliant memorandum after the deadline for filing motions expired. (Opp'n at 9.) Local Rule 11-6 had recently changed from limiting legal memoranda to 25 pages to limiting them to 7,000 words. MVI's memorandum complied with the old Local Rule, but not the new one. Given this, the lack of prejudice to Balt, and the fact that MVI's compliant memorandum was filed only three days after the motions deadline expired, the Court exercises its discretion to deem MVI's motion timely. See Pro. Programs Grp. v. Dep't of Com., 29 F.3d 1349, 1353 (9th Cir. 1994) (“[T]he district court has broad discretion to depart from the strict terms of the local rules where it makes sense to do so and substantial rights are not at stake.”).
It likely was not a reasonable method, given that all of the devices and images Balt gave Stroz on April 19, 2022, turned out to be encrypted.
Balt does not appear to dispute that MVI has been prejudiced, since it does not discuss this element in its opposition brief. (Opp'n at 1-18.)