MicroVention, Inc. v. Balt USA, LLC
MicroVention, Inc. v. Balt USA, LLC
2023 WL 7476998 (C.D. Cal. 2023)
October 5, 2023
Scott, Karen E., United States Magistrate Judge
Summary
The court found that the defendant and a former employee intentionally deleted ESI relevant to the case, resulting in the loss of important evidence. The court imposed sanctions on both parties, including monetary sanctions and an adverse inference instruction to the jury, and discussed the duty to preserve evidence when litigation is reasonably foreseeable.
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. 501).
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 (“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 that Le and Balt spoliated electronically stored information (“ESI”) on six devices as follows:
• Surface 3 Laptop – MVI alleges that either Balt or Le reinstalled or upgraded the operating system (“OS”) in July 2021, destroying forensic artifacts about how the device was used between June 7 and July 3, 2021.
• Hard Drive 7 and Hard Drive 3 – MVI alleges that Le intentionally deleted files from them in June 2021, leading to the loss of those files and/or forensic artifacts about how the files were accessed and used.
• Surface 7 Laptop – MVI alleges that Le reinstalled or upgraded the OS in May 2022, destroying forensic artifacts about how the device was used before that date.
• Lenovo and Surface Go Laptops – Le reported that these devices were missing as of May 2023, despite his prior counsel representing (earlier in the litigation) that Le had the devices in his possession and had searched them for MVI files. This has resulted in a complete loss of any files and forensic artifacts on these devices.
MVI contends that Balt should be held responsible for Le's actions, and that terminating sanctions or an adverse inference instruction should be issued as to both parties.
MVI filed the motion, which relies on two reports from its forensic expert, Michael Bandemer. (Dkt. 522 (notice of motion); Dkt. 526 (amended memo of law, cited herein as “Motion”); Dkt. 694-4 (“Bandemer Initial Report”); Dkt. 694-5 (“Bandemer Suppl. Report”).)
Le and Balt filed opposition briefs, which rely in part on a declaration from an opposing forensic expert, Ashraf Massoud. (Dkt. 692 (“Le Opposition”); Dkt. 696 (“Balt Opposition”); Dkt. 696-2 (“Massoud Decl.”).)[1] Their briefs also rely on a sworn declaration from Defendant Le and from Balt's IT director, Kheng Ang. (Dkt. 682-3 (“Le Decl.”); Dkt. 676-6 (“Ang Decl.”).)
*2 MVI filed reply briefs as to each Defendant. (Dkt. 705 (“Reply to Balt”); Dkt. 706 (“Reply to Le”).) MVI also filed a rebuttal declaration from Mr. Bandemer. (Dkt. 704-2 (“Bandemer Reply Decl.”).)
The District Judge referred the motion to the undersigned Magistrate Judge for an R&R. (Dkt. 501.) On August 31, 2023, the Magistrate Judge heard oral argument on the motion. (Dkt. 729 (minutes); Dkt. 736 (“Hearing Transcript”).) On September 7, 2023, with the Court's permission, Le filed a supplemental declaration. (Dkt. 731 (“Le Suppl. Decl.”); Hearing Tr. at 94, 99-100, 116-17.)
For the reasons discussed below, it is recommended that the District Judge issue a mandatory adverse inference instruction against Le and Balt as to Hard Drives 7 and 3, directing the jury to presume that the lost evidence was unfavorable to Le and Balt. The jury also should be instructed to decide if Le spoliated evidence on the Surface 7 Laptop and the Lenovo and Surface Go Laptops with the intent to deprive MVI of the evidence's use in this litigation; if so, the jury should presume that any lost evidence on those devices was unfavorable to Le and Balt. Additionally, Le and Balt 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).
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.”).[2] Because MVI's motion exclusively concerns spoliation of ESI, this R&R relies on the Court's authority under Rule 37(e).
B. Duty to Preserve Evidence.
*3 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). “Stated differently, the duty to preserve is triggered not only during litigation, but also extends to the period before litigation when a party should reasonably know that evidence may be relevant to anticipated litigation.” Id. (citation and quotation marks omitted).
The anticipated litigation need not be certain or imminent. In re Napster, Inc. Copyright Litig., 462 F. Supp. 2d 1060, 1068 (N.D. Cal. 2006) (holding that imminence is “sufficient, rather than necessary, to trigger the duty to preserve documents”). Rather, the duty is triggered when one knows or reasonably should know that future litigation is “ ‘probable,’ which has been held to mean ‘more than a possibility.’ ” Id. (citation omitted). “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.” teamLab Inc. v. Museum of Dream Space, LLC, No. 19-cv-06906-VAP-GJSx, 2022 WL 1590746 at *3, 2022 U.S. Dist. LEXIS 96140 at *8 (C.D. Cal. Mar. 10, 2022) (quoting Napster, 462 F. Supp. 2d at 1067).
Evidence that a defendant actually anticipated litigation might include emails or meeting minutes discussing potential litigation, actions taken to retain a lawyer, or a company budget that allocates funds for potential litigation. See, e.g., Nation v. Ducey, No. 15-cv-01135, 2016 WL 7338341 at *7, 2016 U.S. Dist. LEXIS 174974 at *18-19 (D. Ariz. Dec. 19, 2016) (finding department of gaming actually anticipated litigation where meeting minutes showed a discussion of a possible tortious interference claim and the department asserted work product protection for documents created during that time period). When a defendant should have reasonably anticipated litigation involves applying “a flexible fact-specific standard that allows a district court to exercise the discretion necessary to confront the myriad factual situations inherent in the spoliation inquiry.” Micron Tech., Inc. v. Rambus Inc., 645 F.3d 1311, 1320 (Fed. Cir. 2011) (citing Fujitsu Ltd. v. Fed. Express Corp., 247 F.3d 423, 436 (2d Cir. 2001)). It “is informed by a number of policy considerations, including ‘the need to preserve the integrity of the judicial process in order to retain confidence that the process works to uncover the truth,’ ... and must balance the reality that ‘litigation is an ever-present possibility in American life,’ ... with the legitimate business interest of eliminating unnecessary documents and data.” Hynix Semiconductor Inc. v. Rambus Inc., 645 F.3d 1336, 1345 (Fed. Cir. 2011) (quoting Silvestri, 271 F.3d at 590 and Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. Murray Sheet Metal Co., 967 F.2d 980, 984 (4th Cir. 1992)).
In some cases, the plaintiff may send a preservation letter. However, “a future litigant is not required to make such a request, and a failure to do so does not vitiate the independent obligation of an adverse party to preserve such information if the adverse party knows or should know of impending litigation.” Apple, Inc. v. Samsung Elecs. Co., Ltd., 881 F. Supp. 2d 1132, 1136-37 (N.D. Cal. 2012) (citation and quotation marks omitted). Thus, even if a preservation letter is sent, the duty to preserve evidence may arise earlier. See, e.g., Small v. Univ. Med. Ctr., No. 13-cv-0298, 2018 WL 3795238 at *59, 2018 U.S. Dist. LEXIS 134716 at *200-01 (D. Nev. Aug. 9, 2018) (“Arguably, UMC was on notice of the potential for litigation months earlier” than the preservation letter.).
C. Sanctions for ESI Spoliation Under Rule 37(e).
*4 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[3] 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.
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).
*5 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-cv-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, 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 U.S. Dist. LEXIS 108370 at *17, 2020 WL 5740265 at *6 (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)). “While ‘there need not be a ‘smoking gun’ to prove intent ... there must be evidence of ‘a serious and specific sort of culpability' regarding the loss of the relevant ESI.’ ” Deerpoint Grp., Inc. v. Agrigenix, LLC, No. 18-cv-00536, 2022 WL 16551632 at *15, 2022 U.S. Dist. LEXIS 197646 at *47-48 (E.D. Cal. Oct. 31, 2022) (quoting Muhammad v. Jenkins, No. 19-cv-7970-JAK, 2022 WL 4292341 at *6, 2022 U.S. Dist. LEXIS 167908 at *16 (C.D. Cal. Aug. 26, 2022), R&R adopted, 2022 WL 4292308, 2022 U.S. Dist. LEXIS 167828 (C.D. Cal. Sept. 15, 2022). This requires evidence “that the ESI's loss was not merely negligent or even grossly negligent, but an intentional effort to keep the ESI from the opposing party.” Oracle Am., Inc. v. Hewlett Packard Enter. Co., 328 F.R.D. 543, 549 (N.D. Cal. 2018). In other words, “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, 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 2022 WL 16551632 at *23, 2022 U.S. Dist. LEXIS 197646 at *69; 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 permits or requires 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(e)(2)(B) (“only upon a finding that the party acted with the intent to deprive another party of the information's use in the litigation may” the court “instruct the jury that it may or must presume the information was unfavorable to the party”).
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. As the advisory committee notes explain, such an instruction:
*6 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 U.S. Dist. LEXIS 187180 at *4, 2015 WL 12734011 at *2 (C.D. Cal. Dec. 17, 2015).
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. Terminating Sanctions.
Where there is intentional spoliation under Rule 37(e)(2), the court may, instead of issuing an adverse inference instruction, “dismiss the action or enter a default judgment.” Fed. R. Civ. P. 37(e)(2)(C). Courts generally consider the following factors in deciding whether to issue this type of terminating sanction: “(1) the public's interest in expeditious resolution of litigation; (2) the court's need to manage its docket; (3) the risk of prejudice to the other party; (4) the public policy favoring the disposition of cases on their merits; and (5) the availability of less drastic sanctions.” Conn. Gen. Life Ins. Co. v. New Images of Beverly Hills, 482 F.3d 1091, 1096 (9th Cir. 2007); see also Leon v. IDX Sys. Corp., 464 F.3d 951, 958 (9th Cir. 2006).[4] “This ‘test’ is not mechanical. It provides the district court with a way to think about what to do, not a set of conditions precedent for sanctions or a script that the district court must follow....” Conn. Gen., 482 F.3d at 1096. “In deciding whether to impose case-dispositive sanctions, the most critical factor is not merely delay or docket management concerns, but truth,” i.e., “whether the discovery violations ‘threaten to interfere with the rightful decision of the case.’ ” Id. at 1097 (citation omitted).
5. Standard of Proof.
*7 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”).
“Although direct evidence of an intent to deprive is ‘always preferred, a court can find such intent from circumstantial evidence.’ ” Muhammad, 2022 WL 4292341 at *6, 2022 U.S. Dist. LEXIS 167908 at *16. For example, courts “consider the timing of the document loss when evaluating intent.” Mkrtchyan v. Sacramento Cnty., No. 17-cv-2366, 2021 WL 5284322 at *10, 2021 U.S. Dist. LEXIS 219521 at *26 (E.D. Cal. Nov. 12, 2021). Additionally, “[i]ntent may be inferred if a party is on notice that documents were potentially relevant and fails to take measures to preserve relevant evidence, or otherwise seeks to ‘keep incriminating facts out of evidence.’ ” Id. (quoting Leon v. IDX Sys. Corp., 464 F.3d 951, 959 (9th Cir. 2006) (affirming finding of intent where party intentionally deleted documents he contended were “personal” because he sought to “protect his privacy”)).
III.
FACTUAL BACKGROUND
A. July 2019: MVI Files the Patent Case.
On July 8, 2019, MVI filed a patent infringement case against Balt. MicroVention, Inc. v. Balt USA, LLC, No. 8:19-cv-01335-JLS-KES (C.D. Cal.).
B. August 2019: Balt's First Litigation Hold.
In August 2019, Le—then Balt's Senior Director of Research and Development—received a litigation hold notice from Balt related to the patent case. (Reply to Le at 4; Dkt. 437-3 at 3 ¶ 7 (declaration from Balt's counsel opposing motion to compel); Dkt. 729 at 3, 5 (Balt hearing demonstrative stating that Balt issued a litigation hold notice to employees, including Le, in August 2019).)[5]
C. May 2020: Le Purchased the Surface 3 Laptop.[6]
In May 2020, Balt collected and quarantined the Balt-issued Hewlett Packard (“HP”) laptop that Le had used for work between 2016 and 2020. (Ang Decl. ¶ 8 / Dkt. 676-6.) As a result, in July 2020, Le purchased the Surface 3 Laptop to perform work for Balt. (Ang Decl. ¶¶ 9-10 / Dkt. 676-6.)
D. August 2020: Balt Produced MVI Documents in the Patent Case.
On August 14, 2020, Balt produced more than 45,000 MVI documents that were discovered on Le's Balt-issued HP laptop. (Mot. at 7; Balt Opp'n at 5; Dkt. 483-1 ¶ 15 (declaration from MVI's counsel describing discovery process).)
E. December 2020: MVI Filed This Trade Secret Action.
Review of the document production in the patent case prompted MVI to file the instant case for misappropriation of trade secrets against Le, Balt, and others on December 22, 2020. (Dkt. 1.) Balt was served with the complaint on December 23, 2020, and Le was served on December 24, 2020. (Dkt. 13, 16.)
F. February 2021: Second Balt Litigation Hold.
*8 On February 5, 2021, Balt issued a litigation hold memorandum to its employees, including Le, in connection with this case. (Mot. at 9; Balt Opp'n at 14-15; Dkt. 483-1 ¶ 13 (declaration from MVI's counsel describing discovery process); Dkt. 729 at 3, 5 (Balt hearing demonstrative stating that Balt issued a litigation hold notice to employees, including Le, in February 2021).)[7]
G. April 2021: MVI Served Document Requests on Le.
In April 2021, MVI served requests for production (“RFPs”) on Le in this case, seeking any documents (technical or otherwise) containing MVI information. (Mot. at 8; Dkt. 102-3.) Le did not provide substantive responses to these RFPs until October 2021, as discussed further below.
H. May 2021: MVI Sent Preservation Letters to Le and Balt.
On May 6, 2021, MVI sent evidence preservation letters to both Le and Balt. (Hales Decl. Ex. 3-4 / Dkt. 522-2 at 15-16, 19-20.) The letter to Le instructed him to preserve “[r]elevant electronic data” on “personal or shared electronic devices,” including “hard drives, ... USBs, ... home computers, laptops, ... and tablets.” (Hales Decl. Ex. 3 / Dkt. 522-2 at 15-16.) The letter to Balt instructed it to preserve data on “personal or shared electronic devices provided to or used by Balt's employees,” including the same types of devices listed in the letter to Le. (Hales Decl. Ex. 4 / Dkt. 522-2 at 20.)
The letters instructed both Balt and Le, “Do not dispose of any devices or media that are replaced due to a failure or upgrade if the original device may contain relevant documents or data.” (Hales Decl. Exs. 3, 4 / Dkt. 522-2 at 16, 20.) The letters further instructed Balt and Le to preserve the ESI “in its current form, without moving any electronic information or changing any related metadata,” and preserve the devices “such that forensic inspection, imaging and searching can be conducted.” (Hales Decl. Ex. 3, 4 / Dkt. 522-2 at 16, 20.)
I. June-July 2021: MVI Deposed Le in the Patent Case; Le Deleted Documents from Hard Drives 7 and 3; Balt Imaged the Surface 3 Laptop and Then Le Reset or Upgraded the OS.
On June 7, 2021, Balt collected the Surface 3 Laptop from Le and created an image of its contents. It then gave the device back to Le for continued use. (Ang Decl. ¶ 11 / Dkt. 676-6.)
On June 15, 2021, MVI deposed Le—then Balt's Senior Director of Research and Development—in the patent case. (Le Depo. at 3, 59 / Hales Decl. Ex. 5, Dkt. 694-1; Mot. at 9.) Although Le was represented at the time by separate counsel in this trade secret case, the deposition was defended by outside counsel for Balt, and Le's personal counsel did not attend the deposition. (Dkt. 483-1 ¶ 12 (declaration from MVI's counsel stating, “Although Mr. Le was represented at the time by Mr. Finkelstein in the trade secret case, Mr. Le's patent case deposition was defended by Sheila Swaroop, outside counsel for Balt, and Mr. Finkelstein did not attend the deposition.”); see also Le Depo at 309-11 / Hales Ex. 5, Dkt. 694-1 (defense counsel objected to questions about “allegations that [MVI had] in other lawsuits” and noting that Le's “trade secret counsel has made it very clear about the scope of this deposition”).)
*9 During that deposition, Le testified that, when he left MVI, he “continued to have [MVI] documents in [his] possession.” (Le Depo. at 312-13 / Hales Ex. 5, Dkt. 694-1.) He denied “tak[ing] those documents to Balt,” but he confirmed that he “had them in [his] possession when [he] started” at Balt. (Le Depo. at 312-13 / Hales Ex. 5, Dkt. 694-1.) He at first testified that he did not recall if he “store[d] the documents on network servers or storage devices belonging to [Balt],” but then he admitted that they “were located on [his] laptop ... issued to [him] by Balt[.]” (Le Depo. at 313-14 / Hales Decl. Ex. 5, Dkt. 694-1.) At the deposition, Le also gave the following testimony:
Q. Did you store any [MVI] files on any other location other than your laptop?
A. Yes.
Q. What other location?
A. They were on an external hard drive.
Q. Do you still have that external hard drive?
A. I don't know.
Q. Did you store any [MVI] documents on your personal computer?
A. I don't think so.
Q. Did you use the external hard drive to take the documents with you from [MVI]?
A. That seems logical. I mean, I don't remember which – I don't remember what external hard drive.
(Le Depo at 317-18 / Hales Ex. 5, Dkt. 694-1.)
About a week after Le's deposition in the patent case, on June 23, 2021, Le mass deleted thousands of files from Hard Drives 7 and 3. (Bandemer Suppl. Report at 12 ¶ 2.5; id. at 17; id. at 24 ¶ 4.3; id. at 29 ¶ 4.8 / Dkt. 694-5.)
About ten days after that, on July 3, 2021, the OS on the Surface 3 Laptop was reinstalled or upgraded. (Bandemer Suppl. Report at 12 ¶ 2.5 / Dkt. 694-5; Massoud Decl. ¶ 37 / Dkt. 696-2.)
J. September 2021-January 2022: MVI's First Motion to Compel Le to Search or Produce His Personal Devices.
Le and Balt at first refused to substantively respond to MVI's discovery requests, arguing that MVI had failed to comply with California Code of Civil Procedure § 2019.210, which requires a plaintiff to identify its trade secrets with reasonable particularity before initiating discovery. (Dkt. 83 at 7.) In September 2021, the Court rejected this argument and ordered Le to respond to the April 2021 RFPs. (Id. at 9.) Le then objected that the RFPs were overly burdensome, claiming he did not have any responsive documents “that [were] not also in the possession, custody, or control of Balt.” (Dkt. 102-2 at 6.)
In December 2021, MVI moved to compel Le to search or produce his personal devices. (Dkt. 102, 103 (letter briefs filed on Dec. 20, 2021); Dkt. 107 (hearing transcript from Dec. 21, 2021).) MVI argued that it needed any MVI documents on Le's personal devices to prove “chain of custody,” “how [the documents] made their way to Balt in the first place,” “if they were transmitted to others,” and “if other copies were made....” (Dkt. 107 at 8-9, 14-15, 21 (hearing transcript from Dec. 21, 2021).) Defense counsel admitted that there had been “sort of a melding between” Le's personal and work devices, because many of the “devices were used co-extensively for work and personal reasons”; however, he asserted that “everything that is related here is on the work computers or on the computers that Balt has.” (Id. at 15.) The Court denied MVI's motion to compel without prejudice, but it directed Le to identify the personal devices he had used during the relevant time period and provide information about how he had used them. (Id. at 27, 29.)
In January 2022, in response to the Court's order, Le identified multiple devices, including the Surface 7 Laptop, the Lenovo Laptop, the Surface Go Laptop, and miscellaneous hard drives. (Dkt. 114-3 at 2 (letter from defense counsel dated Jan. 14, 2022).) Le's counsel represented that these laptops were not used for work purposes. (Id.)
K. February-March 2022: Le Left Balt; Balt Retained the Surface 3 Laptop and Imaged It Again.
*10 In February 2022, Le left his employment at Balt. (Ang Decl. ¶ 12 / Dkt. 676-6.) Balt kept the Surface 3 Laptop when he left, and in March 2022, Balt's outside counsel in unrelated litigated created a second image of this device in connection with that litigation. (Id.)
L. March 2022: MVI's Second Motion to Compel Le to Search or Produce His Personal Devices.
In March 2022, the Court held another hearing with the parties to discuss whether Le should search or produce his personal devices. (Dkt. 114, 117 (letter briefs filed on Mar. 9, 2022); Dkt 122 (hearing transcript from Mar. 10, 2022).) The Court noted that the parties' briefing was confusing due to the multiple devices and factual issues involved, and suggested the parties prepare a chart listing the devices and the parties' positions with respect to each. (Id. at 30-32.) The parties agreed to do so and submit the chart to the Court if devices remained in dispute. (Id. at 32-40.)
M. April-May 2022: Parties Negotiate and Sign a Forensic Protocol; Le Reinstalled or Upgraded the OS on His Surface 7 Laptop.
In or around April and May 2022, MVI and Balt negotiated and then executed a forensic protocol, jointly retaining a neutral forensic examiner, Stroz Friedberg (“Stroz”). (Dkt. 386-3 3 ¶¶ 10-11; id. at 23-31.)
In April 2022, Stroz created forensic images of multiple Balt employee computers to analyze in accordance with the parties' forensic protocol. (Dkt. 399-2 ¶ 9 (declaration from MVI's counsel).) As part of this process, Balt produced the first image of the Surface 3 Laptop to Stroz; it did not disclose that the second image existed or turn the laptop itself over for imaging by Stroz. (Mot. at 12; Balt Opp'n at 11; Dkt. 483-1 ¶ 18 (declaration from MVI's counsel).)
On May 6, 2022, Le reinstalled or upgraded the OS on his Surface 7 Laptop. (Bandemer Suppl. Report at 18 / Dkt. 694-5 at 19; Massoud Decl. ¶¶ 8, 28 / Dkt. 696-2.)
N. May 2022: MVI's Third Motion to Compel Le to Search or Produce His Personal Devices.
A few weeks later, the parties returned to the Court again to discuss Le's personal devices. (Dkt. 154, 155 (letter briefs filed on May 18, 2022).) Le's counsel represented that the Surface 7 Laptop, the Lenovo Laptop, and the Surface Go Laptop, were “not used for work activities,” and that Le had “searched the ‘C’ drive of” these devices and found “no files relating to Balt or MVI.” (Dkt. 154-2 at 4-6 (chart attached to briefing).) Regarding “other hard drives” in Le's possession, Le's counsel stated, “Le opened every folder on the hard drive and viewed the files. No MVI files exist.” (Id. at 7.) Based on these representations, the Court declined to order further discovery from these devices. (Dkt. 159 at 20-22, 25 (hearing transcript from May 19, 2022).)
O. October-December 2022: MVI Seeks to Identify Removable Hard Drives That Were Connected to Balt Laptops.
Forensic analysis of the Balt devices imaged by Stroz showed that over 49 USB drives were connected to various Balt computers between September 2019 and April 2022. (Dkt. 399-1 ¶ 6 (declaration from MVI's expert, Bandemer).) In October 2022, MVI served a new RFP on Le asking him to identify “[e]ach of the USB devices and/or removeable storage media identified in the forensic reports ... as having been connected to any of the Balt ... laptop computers that were forensically imaged by Stroz....” (Dkt. 399-2 at 4 ¶ 10 (declaration from MVI's counsel).)
*11 In November 2022, Le served objections and declined to respond. (Id.) In late December 2022, he served a supplemental response stating that he had six hard drives in his possession that Stroz had identified as drives that had been connected to Balt laptops. (Hales Decl. Ex. 2 / Dkt. 522-2 (RFP response); Dkt. 399-2 at 4 ¶ 11 (declaration from MVI's counsel).) Citing the May 2022 hearing transcript, Le asserted, “These hard drives were the subject of prior discovery motions and the Court ruled they did not have to be produced by Le.” (Hales Decl. Ex. 2 / Dkt. 522-2.)
P. January-March 2023: Le Obtained New Counsel; Hard Drive 3 and the Second Image of the Surface 3 Laptop Were Produced; MVI's Expert Found Le Intentionally Deleted MVI Files from Hard Drive 3.
In January 2023, Le obtained new counsel. (Dkt. 399-2 at 5 ¶ 12 (declaration from MVI's counsel).) After meeting and conferring with MVI about the issue, in March 2023, Le's new counsel produced to MVI some of the hard drives identified in Le's RFP response, including Hard Drive 3. (Id. at 5 ¶¶ 12-13.) Around the same time, Balt also produced the second image of the Surface 3 Laptop, which MVI had learned about during a February 2023 deposition of Balt's IT Director, Kheng Ang. (Mot. at 12; Dkt. 483-1 at 6-7 ¶ 18 (declaration from MVI's counsel).)
On March 1, 2023, MVI deposed Le in this case. (Hales Decl. Ex 7 / Dkt. 694-3.) Le testified that he had never been reprimanded or suffered “any negative repercussions ... at Balt” for “having [MVI] documents on [his] laptop.” (Id. at 263.)
On March 17, 2023, MVI's forensic expert, Michael Bandemer, issued his initial report, which concluded that Hard Drive 3 had at one time contained MVI files, and that Le had intentionally deleted those files on June 23, 2021, about a week after his deposition in the patent case. (Bandemer Initial Report at 107-08 ¶¶ 1-5 / Dkt. 694-4.)
When confronted with this finding, Le still refused to produce his other personal devices, including Hard Drive 7, the Surface 7 Laptop, the Lenovo Laptop, and the Surface Go Laptop. (Mot. at 9; Dkt. 399-2 at 5-6 ¶¶ 16-17 (declaration from MVI's counsel).) By this time, the deadline to file discovery motions had expired. (Dkt. 54 at 2 ¶ I.C; Dkt. 224 (imposing deadline of February 27, 2023).) Le's counsel declined to stipulate that MVI could file a belated motion to compel production of these devices. (Dkt. 399-2 at 5-6 ¶¶ 16-17 (declaration from MVI's counsel describing the discovery process).)
Additionally, since March 2022, MVI and Balt had been operating under an agreement to use the undersigned's informal discovery conference process for all discovery disputes. (Id. at 9 ¶ 30.) Now, a year later, Balt revoked that consent and insisted that MVI file a formal motion using the time-consuming joint stipulation process set forth in Local Rule 37-2. (Id.)
Q. April-June 2023: The Court Granted MVI's Ex Parte Motion to Allow Late Motions to Compel; Le Reported That the Lenovo Go and Surface Laptops Were Missing; the Parties Briefed the Current Sanctions Motion.
In early April 2023, MVI moved ex parte for leave to file a late motion to compel Le's production of his personal devices. (Dkt. 399.) Le opposed that request. (Dkt. 400.) The District Judge granted MVI leave to file the motion to compel. (Dkt. 413.)
MVI ultimately did not need to do so, because after losing the ex parte, Le agreed to allow MVI's expert Bandemer to analyze Hard Drive 7 and the Surface 7 Laptop. (Mot. at 9; Dkt. 483-6 at 2 ¶¶ 3-4 (declaration from Bandemer).) However, Le reported for the first time that the Lenovo Laptop and Surface Go Laptop—which he previously claimed to have searched in response to MVI's prior motions to compel—were now missing. (Mot. at 11-12; Dkt. 483-1 at 4 ¶ 9 (declaration from MVI's counsel describing discovery process); Dkt. 483-5 at 2 (email from Le).)[8]
*12 On June 27, 2023, MVI filed the present motion for sanctions against Le and Balt for spoliation of evidence. (Dkt. 522, 526.) The motion included a second, supplemental report from MVI's expert, Bandemer. (Bandemer Suppl. Report / Dkt. 694-5.)[9] Bandemer concluded that Le had intentionally deleted thousands of files from Hard Drive 7 on the same day that he deleted files from Hard Drive 3 and about a week after his deposition in the patent case. (Id. at 12 ¶ 2.5; id. at 23-30 ¶¶ 4.1-4.9.) Bandemer also concluded that Le had used his Surface 7 Laptop for work activities, and that forensic artifacts on the Surface 3 Laptop and the Surface 7 Laptop were lost when the OS on those devices were reinstalled or upgraded. (Id. at 11 ¶ 2.5; id. at 17-21 ¶¶ 2.1-2.10; id. at 30-32 ¶¶ 5.1-5.5.)
IV. DISCUSSION
A. Le and Balt Should Not Be Sanctioned for the Spoliation of Evidence on the Surface 3 Laptop that Le Used for Work.
1. Balt Had Sufficient Control Over the Surface 3 Laptop, Which Le Used to Perform Work for Balt.
In its briefing, Balt lumps the Surface 3 Laptop in with Le's personal devices and argues, “MVI points to no corporate policy or contractual agreement that afforded [Balt] the required control over” the laptop. (Balt Opp'n at 16.) Yet the declaration from Balt's IT director states that Le purchased the Surface 3 Laptop after his Balt HP laptop was quarantined in the patent infringement lawsuit, because he “needed a new laptop to perform work for Balt.” (Ang Decl. ¶¶ 8-9 / Dkt. 676-6.) Balt “reimbursed” Le for the purchase price of the laptop, and Le “turned in” the laptop “to Balt when he left” the company in February 2022. (Id. ¶¶ 10, 12.) On June 7, 2021—about a week before Le's deposition in the patent case and about a month before the alleged spoliation of ESI on this device occurred—Balt collected the laptop from Le and imaged it. (Id. ¶ 11.)
Even absent a specific written policy or contract, these facts demonstrate that Balt retained sufficient control over the Surface 3 Laptop as to be responsible for any spoliation of ESI on it.
2. Le and Balt Had a Duty to Preserve the ESI on the Surface 3 Laptop When It Was Lost.
MVI alleges that ESI on the Balt Surface 3 Laptop was lost on July 3, 2021, when the laptop's OS was reinstalled or upgraded. (Bandemer Suppl. Report at 16 / Dkt. 694-5.) It is undisputed that Balt and Le had a duty to preserve relevant ESI at that time, because it was about six months after this action was filed and served. (Dkt. 1, 13, 16.)
3. Le and Balt Took Reasonable Steps to Preserve the ESI on the Surface 3 Laptop.
Le began using the Surface 3 Laptop for Balt work in July 2020. (Ang Decl. ¶ 10 / Dkt. 676-6.) This action was filed and served in December 2020. (Dkt. 1, 13, 16.) On June 7, 2021, Balt imaged the laptop and returned it to Le. (Ang Decl. ¶ 11 / Dkt. 676-6.) The OS change occurred about a month later, on July 3, 2021, when the laptop was in Le's possession. (Bandemer Suppl. Report at 16 / Dkt. 694-5.) Balt has no record of “initiat[ing] any updates, upgrades, or reinstallations of the [OS] on that laptop” or “of anyone at Balt instruction or asking” Le “to make any changes to the system on any laptops....” (Ang Decl. ¶ 13 / Dkt. 676-6.) Le left his employment with Balt about seven months after the OS change, in February 2022, and Balt imaged the Surface 3 Laptop again in connection with separate, unrelated litigation in March 2022. (Ang. Decl. ¶ 12 / Dkt. 676-6; Bandemer Suppl. Report at 31 ¶ 5.2 / Dkt. 694-5; Hearing Tr. at 83 / Dkt. 736.)
*13 After receiving and analyzing both of the images,[10] MVI's expert concluded that, because of the OS change, “Balt has not provided any forensic data for” the Surface 3 Laptop “for the 26-day period from June 7 to July 3, 2021” (Bandemer Suppl. Report at 31 ¶ 5.2 / Dkt. 694-5), i.e., the time period between when the laptop was first imaged and the OS change.
Balt and Le took reasonable steps to preserve the ESI on the Surface 3 Laptop by imaging it in 2021, about six months after this action was filed, and providing that image to MVI. By producing this image, plus the ESI from Le's HP work laptop during the patent case, Balt likely has produced all or most of the relevant ESI from those devices. As Le points out, “parties regularly create forensic images of their devices (as Defendants did here) and then continue to use [the devices] without committing ‘spoliation.’ ” (Le Opp'n at 17.) Unlike with the Surface 7 Laptop – which, as discussed below, was not imaged prior to the OS change that destroyed forensic artifacts – Le and Balt might have reasonably assumed that relevant ESI from this device had already been captured at the time of the OS change. MVI would not even have known about the OS change if Balt had not voluntarily produced the second image of the Surface 3 Laptop, which was created in connection with unrelated litigation and which Balt was not necessarily obliged to create to satisfy its preservation duties in this case.
Because Le and Balt took reasonable steps to preserve relevant ESI on the Surface 3 Laptop, sanctions are not appropriate as to this device.
B. Le Should Be Sanctioned for Spoliation of ESI on His Personal Devices.
1. Hard Drive 7.
a. Le Had a Duty to Preserve the ESI on Hard Drive 7 When It Was Lost.
It is undisputed that Le had a duty to preserve relevant ESI when Le intentionally deleted files from Hard Drive 7 in June 2021, because this was about six months after he had been served with the complaint in this trade secret case. (Dkt. 1, 13; Bandemer Suppl. Report at 12, 16, 24, 29 / Dkt. 694-5 (describing deletions).)[11]
b. Le Failed to Take Reasonable Steps to Preserve the ESI on Hard Drive 7.
It is undisputed that Le intentionally deleted files from Hard Drive 7, and Le offers no explanation for his actions. (Le Decl. / Dkt. 682-3; Le Suppl. Decl. / Dkt. 731; see also Hearing Tr. / Dkt. 736 at 14 (Le's counsel: “[T]here is not an explanation in the record for why Mr. Le did this.”).)
c. The Lost ESI from Hard Drive 7 Was Relevant, It Cannot Be Restored or Replaced Through Additional Discovery, and MVI Was Prejudiced by the Loss of the ESI.
“In June 2021, Le deleted two folders labeled ‘MVI’ and ‘MVI Archive’ from Hard Drive 7, which together contained more than 50,000 files.” (Bandemer Suppl. Report at 24 ¶ 4.3 / Dkt. 694-5.) It appears that in late 2011 or early 2012—shortly after Le left MVI—he transferred these files from Hard Drive 7 to the Balt Sony VAIO work laptop he was using at that time. (Bandemer Suppl. Report at 10 ¶ 2.2; id. at 25-26 ¶ 4.4, n.7 / Dkt. 694-5.) Because of this transfer, all of the files were either recovered from Le's Balt HP laptop, which was produced in the patent case, or forensically recovered by MVI's expert. (Mot. at 10; Reply to Le at 6, 11; Bandemer Suppl. Report at 27 ¶ 4.5 / Dkt. 694-5.)
*14 Balt and Le argue, “Because the material on [Hard Drive 7] was either recovered or available from other discovery, it is not ‘lost’ as required to impose sanctions.” (Balt Opp'n at 21; see also Le Opp'n at 14.) However, MVI argues that Le's mass file deletions also destroyed forensic artifacts that would have shown how the files were accessed and used. Specifically, MVI points to overwritten entries in Hard Drive 7's Update Sequence Number (“USN”) Journal, which MVI states would have provided “granular information about files or folders, including when they were created, opened, modified, renamed, or deleted.” (Reply to Balt at 11.)
In analyzing Defendant Tran's personal hard drive—which had an intact USN Journal—MVI's expert explains how the USN Journal generally works:
When a SolidWorks file, Adobe pdf, or Microsoft Office file is opened, a corresponding temporary or ‘temp’ file is created in the same folder, and when the opened file is closed successfully the temp file is deleted. Temp files are typically hidden from the user, and their filenames are either identical to the file that was opened (with the first 2 characters of the filename replaced by “~$”) or are something similar to “~WRD0002.tmp.” The creation and deletion of these temp files are tracked in the USN journal.
(Bandemer Suppl. Report at 43-44 ¶ 1.7 / Dkt. 694-5.) Such information is crucial, MVI argues, because it reveals the actual usage of the stolen trade secrets. (Reply to Balt at 11; Reply to Le at 6-7.)
Balt and Le do not dispute that some USN Journal entries were lost,[12] but they argue that MVI was not prejudiced for several reasons. First, they argue that generally the “USN Journal does not directly contain ... data” about “how and when Le accessed, opened, and used MVI's files.” (Balt Opp'n at 9 (citing Massoud Decl. ¶ 19).) Balt's expert declaration does state in one portion that “changes made to files” would appear in the USN journal, but “[i]f a user were to merely open or access a file without making changes to it, that information would not be recorded in the USN Journal.” (Massoud Decl. ¶ 19 / Dkt. 696-2) (emphasis added). Yet in the very next paragraph of his declaration, he does not appear to dispute MVI's expert's testimony that “the USN Journal might indirectly record access because when a file is opened, the computer often creates a temp file or a LNK file related to the opening of the underlying file and those temp files or LNK files would be recorded in the USN Journal on the external hard drive.” (Id. ¶ 20.) Balt's expert does not convincingly refute MVI's assertion that the USN Journal would have contained evidence about if and when Le accessed MVI documents. Moreover, Balt's expert does not appear to dispute that the USN Journal would have recorded evidence of when the files were created, modified, or renamed, all of which could indicate use as well.
*15 Second, Balt argues that MVI is not prejudiced because “other forensic data, such as LNK files and Jumplists ... still exist and would inform file usage on” Hard Drive 7. (Balt Opp'n at 9, 21-22 (citing Massoud Decl. ¶¶ 18-19).) These artifacts do not appear on Hard Drive 7 itself, but rather on “laptops that were used to open those files.” (Massoud Decl. ¶ 19 / Dkt. 696-2; see also Hearing Tr. / Dkt. 736 at 10.) Balt's expert states, “Balt and Mr. Le have collectively produced six images from laptops used by” Le, and “those images contain the relevant artifacts.” (Massoud Decl. ¶ 19 / Dkt. 696-2.) Yet Balt's expert never explains specifically what artifacts he believes are available on those laptops.
Moreover, as MVI points out, to gain all of the information that was lost from the LNK files and Jumplists, MVI would need “access to ... every single computer that the hard drive had ever been plugged into.” (Hearing Tr. / Dkt. 736 at 10.) Le and Balt have not provided this. These types of forensic artifacts for Hard Drive 7 are not available from the Balt-issued HP laptop that Le formerly used (which was produced in the patent case), because Hard Drive 7 was never connected to that laptop. In late 2011 and early 2012, when the MVI files were transferred from Hard Drive 7 to Le's work laptop, Le was using a Sony VAIO laptop, which was later replaced by the HP laptop. (See Bandemer Suppl. Report at 26 n.7 / Dkt. 694-5 (“Le testified that his first computer at [Balt] was a Sony VAIO that was replaced in or around 2014 with an HP laptop. ... Le's Sony laptop, the computer to which he likely transferred the MVI files from [Hard Drive 7] on November 7, 2011, has not been produced in this case. ... [T]he MVI files were restored to his newer HP laptop ... from that Sony laptop in a way that preserved the original creation date on that Sony laptop.”); see also Le Opp'n at 13 (“[T]he folders on Hard Drive 7 were copied to Mr. Le's Balt work computer (first the Sony VAIO, and from there to the HP).”).) In fact, “[a]nalysis of all the USB artifacts available has not shown that [Hard Drive 7] was plugged into any of the Balt computers or Le personal computers produced for analysis.” (Bandemer Suppl. Report at 30 ¶ 4.9 / Dkt. 694-5.)
Even for the devices that were identified and provided for analysis, such as Le's Surface 7 Laptop and Surface 3 Laptop, some forensic artifacts were lost when their OS were upgraded or reinstalled (as discussed elsewhere in this R&R). MVI's expert also found evidence that files were transferred off of Hard Drive 7 to unknown devices. (Bandemer Suppl. Report at 28 ¶ 4.6 / Dkt. 694-5 (“The file system last accessed date and time stored in the MFT shows that most of the files stored inside both the ‘MVI’ and ‘MVI ARCHIVE’ folders on [Hard Drive 7] were transferred to another unknown device on December 28 and 29, 2018. ... The device(s) to which the files were transferred ... has either not been produced in this matter or has since been reset in some fashion causing loss of evidence of that transfer....”); see also Hearing Tr. / Dkt. 736 at 11.)
Overall, Balt and Le's arguments are unconvincing. MVI has shown that the deleted forensic artifacts likely would have shown if, when, and how Le accessed and/or used the MVI files on Hard Drive 7. This evidence is relevant and not available elsewhere, and MVI is prejudiced by the loss of that evidence.
d. Le Acted with Intent to Deprive MVI of the ESI's Use under Rule 37(e)(2).
Having found that the requirements for sanctions under Rule 37(e)(1) are satisfied, this R&R next considers whether sanctions are available under Rule 37(e)(2) based on a finding that Le acted “with the intent to deprive [Plaintiffs] of the information's use in the litigation.” Le offers no explanation for deleting the files from Hard Drive 7, and it is “reasonable to infer” from circumstantial evidence that Le “purposefully destroyed evidence to avoid [his] litigation obligations.” Porter, 2018 U.S. Dist. LEXIS 151349 at *8, 2018 WL 4215602 at *3.
*16 Le deleted the files about a week after his deposition in the patent case. (Le 2021 Depo. at 1 / Hales Decl. Ex. 5, Dkt. 694-1.) Although the deposition was defended by Balt's counsel, Le had already been named as a defendant in this trade secret action and had retained separate counsel to represent him personally. (Dkt. 1, 13; Le 2021 Depo. at 309-11 / Hales Decl. Ex. 5, Dkt. 694-1.) He testified that he had retained MVI files on an external hard drive after leaving MVI, but that he did not know if he still had the hard drive. (Le 2021 Depo. at 317 / Hales Decl. Ex. 5, Dkt. 694-1.) Only a week later, he apparently located Hard Drive 7 and deleted thousands of MVI files from it.
Le also made misleading representations to this Court about the contents of Hard Drive 7 after he deleted the files. In May 2022, when MVI was attempting to compel the production of Le's personal hard drives, Le's counsel represented, “Mr. Le opened every folder on the hard drive and viewed the files. No MVI files exist.” (Dkt. 154-2 at 7 (chart from counsel); see also Dkt. 155 (letter brief asserting, “As to the hard drives, Mr. Le has already confirmed they do not contain any MVI information.”).) It is reasonable to infer that counsel's representation was based on information from Le, because counsel stated that he did not personally participate in this search. (Dkt. 159 at 13-15 (transcript from hearing on May 19, 2022).)
While this representation appears to have been technically true, it was extremely misleading in context. The only reason there were no MVI documents on Hard Drive 7 in May 2022 was because Le had intentionally deleted them about a year earlier, despite being under a duty of preservation. Notwithstanding the deletions, relevant evidence remained in the form of forensic artifacts, as discussed above.
Le argues that he could not have intended to delete the USN Journal or other forensic artifacts because they are “not the types of things that a user is typically aware of.” (Hearing Tr. / Dkt. 736 at 47-48; see also Massoud Decl. ¶¶ 29, 30 / Dkt. 696-2 (opining that lay users typically are not aware of forensic artifacts).) Yet it is undisputed that Le intentionally deleted the files at issue, and in the absence of evidence to the contrary, the Court assumes that parties intended the natural consequences of their actions. His declaration does not assert, for example, that he deleted the files because he knew duplicates existed on his Balt-issued HP laptop and he was unaware that his actions would also delete the USN Journal entries. Compare Wisk Aero LLC v. Archer Aviation Inc., No. 21-cv-02450, 2023 WL 2277112 at *7, 2023 U.S. Dist. LEXIS 33294 at *23 (N.D. Cal. Feb. 28, 2023) (“showing that [the defendant's employee] intentionally deleted the files [was] insufficient to show he deleted any metadata with the intent to deprive Wisk of the metadata,” where the employee “repeatedly stated under oath that he did not know there were any Wisk-related files on his computer, which implie[d] that he did not access any Wisk-related files on his computer”).
Furthermore, MVI's preservation letter informed Le that he should avoid “moving electronic information or changing any related metadata” and should preserve devices “such that forensic inspection, imaging and searching can be conducted.” (Hales Decl. Ex. 3, 4 / Dkt. 522-2 at 16, 20.) This gave Le notice that moving or deleting files might affect forensic artifacts and violate his duty of preservation.
The circumstantial evidence—specifically, the timing of the deletions and the misleading representations Le's former counsel made to this Court about the contents of the Hard Drive 7—shows by a preponderance of the evidence that Le acted with intent to deprive MVI of the ESI's use in this litigation. A mandatory adverse inference instruction is appropriate and required to cure the prejudice suffered by MVI.
2. Hard Drive 3.
a. Le Had a Duty to Preserve the ESI on Hard Drive 3 When It Was Lost.
*17 Between March 2020 and June 2021, Le deleted three folders from Hard Drive 3 entitled, “BALT Backup 4-21-2020,” “BALT ARCHIVE & WORKING FOLDER,” and “Balt 2020.” (Bandemer Initial Report at 107 ¶ 2 / Dkt. 694-4.)[13]
MVI's expert concluded that the folder called “Balt Backup 4-21-2020” was deleted on or after June 23, 2021, the same day that Le deleted files from Hard Drive 7. (Bandemer Depo. at 443-44 (agreeing that he “identified activity occurring in that folder on June 23, 2021,” so it could not have been deleted prior to that date) / Dkt. 696-1; see also Bandemer Initial Report at 107-08 ¶ 4 / Dkt. 694-4; Bandemer Suppl. Report at 15-16 (timeline items 16-17) / Dkt. 694-5.) As discussed above, it is undisputed that Le had a duty to preserve relevant ESI at that time, because it was about six months after he had been served with the complaint in this case. (Dkt. 1, 13.)
However, MVI's expert could not tell precisely when the other two folders—entitled “BALT ARCHIVE & WORKING FOLDER” and “Balt 2020”—were deleted, other than that they must have been deleted sometime after they were created in March 2020. (Bandemer Depo. at 442-43 / Lonergan Decl. Ex. A, Dkt. 696-1; Bandemer Initial Report at 107 ¶¶ 3-4 / Dkt. 694-4.) Le and Balt argue that these folders could have been deleted before this case was filed in December 2020, and therefore before Le had a duty to preserve ESI. (Balt Opp'n at 10 n.5; Le Opp'n at 15.)
As discussed above in Section II.B., “the duty to preserve is triggered not only during litigation, but also extends to the period before litigation when a party should reasonably know that evidence may be relevant to anticipated litigation.” Surowiec, 790 F. Supp. 2d at 1005 (emphasis added); see also Apple, 888 F. Supp. 2d at 990 (“[T]here is no question that the duty to preserve relevant evidence may arise even before litigation is formally commenced.”). In March 2020, the related patent case had been pending for about eight months. The parties were conducting discovery, and Balt had issued its first litigation hold notice. (Reply to Le at 4; Dkt. 437-3 at 3 ¶ 7 (declaration from Balt's counsel opposing motion to compel); Dkt. 729 at 3, 5 (hearing demonstrative from Balt's counsel, stating that Balt issued its first litigation hold notice to Le in August 2019).) Although Le was not named as a defendant in the patent case, the complaint alleged that Balt had “directly copied” MVI technology that Le worked on while he was employed by MVI, and it mentioned Le by name multiple times. MicroVention, Inc. v. Balt USA, LLC, No. 8:19-cv-1335-JLS-KES, Dkt. 1 at 3-4, 6-7 ¶¶ 11-12, 16, 18(b). Based on these facts, a reasonable person in Le's position should have anticipated trade secret litigation in March 2020. See, e.g., Montoya v. Orange Cnty. Sheriff's Dep't, No. 11-cv-1922-JGB-RNBx, 2013 WL 6705992 at *8, 2013 U.S. Dist. LEXIS 180682 at *21-22 (C.D. Cal. Dec. 18, 2013) (finding duty to retain evidence related to claim under the Uniform Servicemembers Employment and Reemployment Rights Act arose when the plaintiff filed a workers' compensation claim alleging injury resulting from ongoing workplace harassment, due to “the similarity between the claims alleged in this action and those in the [worker's compensation] claim”).
*18 Thus, even if Le deleted the “BALT ARCHIVE & WORKING FOLDER” and “Balt 2020” folders as early as March 2020, Le had a duty to preserve evidence relevant to this case at that time.
b. Le Failed to Take Reasonable Steps to Preserve the ESI on Hard Drive 3.
It is undisputed that Le intentionally deleted files off of Hard Drive 3. Le offers no explanation for his actions. (Le Decl. / Dkt. 682-3; Le Suppl. Decl. / Dkt. 731; Hearing Tr. / Dkt. 736 at 14 (Le's counsel: “[T]here is not an explanation in the record for why Mr. Le did this.”).)
c. The Lost ESI on Hard Drive 3 Was Relevant, It Cannot Be Restored or Replaced Through Additional Discovery, and MVI Was Prejudiced by the Loss of the ESI.
One of the three deleted folders on Hard Drive 3, “BALT Backup 4-21-2020,” contained a subfolder called “MVI ref docs.” (Bandemer Initial Report at 107 ¶¶ 2-3 / Dkt. 694-4.) Le placed this subfolder and its contents in Hard Drive 3's recycle bin, but he did not empty the bin; MVI's expert was therefore able to recover those files. (Id.) However, all other contents of the three deleted folders—“BALT Backup 4-21-2020,” “BALT ARCHIVE & WORKING FOLDER,” and “Balt 2020”—were deleted from Hard Drive 3 and have not been recovered. (Id.; MVI Reply to Le at 8.)
Le and Balt argue that all MVI-related files were recovered, because the subfolder entitled “MVI ref docs” was recovered; they argue there is no proof that the other files in the three deleted top-level folders—entitled “BALT Backup 4-21-2020,” “BALT ARCHIVE & WORKING FOLDER,” and “Balt 2020”—were relevant to this action. (Balt Opp'n at 21-22; Le Opp'n at 9, 15.) Le argues: (a) none of the folders had “MVI” in the title, and (b) the folders were created in 2020 and 2021, when Le “had been gone from [MVI] for almost a decade.” (Hearing Tr. / Dkt. 736 at 44-47.)
The reason MVI is unable to say precisely what was in the folders is because Le intentionally deleted them. It is therefore unfair to hold MVI to “too strict a standard of proof regarding the likely contents of the destroyed or unavailable evidence....” Ottoson, 268 F. Supp. 3d at 580; see also Fed. R. Civ. P. 37, Advisory Committee Notes to 2015 Amendment (“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.”). MVI has shown that at least one of the subfolders had “MVI” in the title. Moreover, because Le connected Hard Drive 3 to his Balt-issued HP laptop, MVI's expert was able to examine forensic artifacts on that laptop and reconstruct the names and organizational structure of the files and folders that were deleted. (Bandemer Initial Report at 108-09 ¶ 5 (explaining that “the partial contents of the device can be determined via forensic analysis of the artifacts that show when and where files were opened”) / Dkt. 694-4.)[14] The names of other folders and subfolders tend to show that they contained files related to the subject matter of this litigation. (Compare Bandemer Initial Report at 108-109 (subfolders entitled “0.64 CATHETER,” “0.70 CATHETER,” “MICROCATHETER PROJECT,” and “_DOUBLE COIL PROJECT”) / Dkt. 694-4 with Dkt. 91 at ¶¶ 85, 104, 118 (Second Amended Complaint alleging that Le stole MVI trade secrets related to catheters and coils).)
*19 Le and Balt contend that all of the deleted files likely could have been recovered elsewhere, such as from Le's Balt-issued HP laptop. They do not offer proof of this; rather, they fault MVI for not performing an “exhaustive comparison” of the forensic analysis with Le and Balt's document productions. (Hearing Tr. at 50-51 / Dkt. 736; see also Le Opp'n at 14-15; Balt Opp'n at 10, 21.) Where there is evidence that a party intentionally destroyed evidence—as there is here regarding Hard Drive 3—the burden of proof is properly placed on the spoliator. See Apple, 888 F. Supp. 2d at 998 (“[S]poliation 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.”) (citation omitted); Mfg. Automation, 2018 WL 5914238 at *11, 2018 U.S. Dist. LEXIS 227206 at *32 (“When, as here, spoliation is shown, the burden shifts to the guilty party to demonstrate that no prejudice resulted from the spoliation.”); Czuchaj, 2016 WL 4130946 at *2 (same). If Le and Balt believe that all of the lost evidence was produced elsewhere, the burden was on them to demonstrate this. They have not done so.
MVI has sufficiently shown that the deleted files and folders on Hard Drive 3 were relevant and not available elsewhere, and that MVI was prejudiced by the loss of this evidence.
d. Le Acted with Intent to Deprive MVI of the Information's Use under Rule 37(e)(2).
Having found that the requirements for sanctions under Rule 37(e)(1) are satisfied, this R&R next considers whether sanctions are available under Rule 37(e)(2) based on a finding that Le acted “with the intent to deprive [Plaintiffs] of the information's use in the litigation.” For the ESI lost as a result of the June 2021 deletions from Hard Drive 3, MVI has demonstrated intent by a preponderance of the evidence, for the same reasons as discussed above regarding Hard Drive 7 (in Section IV.B.1.d.)
Even if other folders were deleted as early as March 2020, MVI has demonstrated intent as to that ESI as well. Trade secret litigation was reasonably foreseeable at that time, based on the allegations in the related patent case and the litigation hold Balt issued in connection with that case. Le has offered no explanation for the deletions, and he made the same misleading representations about Hard Drive 3's contents during discovery.
A mandatory adverse inference instruction is appropriate and required to cure the prejudice suffered by MVI.
3. Surface 7 Laptop.
a. Le Had a Duty to Preserve the ESI on the Surface 7 Laptop When it Was Lost.
On May 6, 2022, Le reinstalled or upgraded the OS on his Surface 7 Laptop. (Bandemer Suppl. Report at 17 ¶ 2.1 / Dkt. 694-5.)[15] It is undisputed that Le and Balt had a duty to preserve relevant ESI at that time, which was years after this case was filed and well into discovery. At that time, MVI was actively trying to obtain access to Le's personal devices, including the Surface 7 Laptop. (See Dkt. 102, 103, 107 (letter briefs and hearing transcript from December 2021); Dkt. 114, 117, 122 (same from March 2022); Dkt. 154, 155, 159 (same from May 2022).)
b. Le Failed to Take Reasonable Steps to Preserve the ESI on the Surface 7 Laptop.
Unlike with the hard drives discussed above, MVI does not argue that Le deleted any files from this device. Rather, MVI argues that when Le reinstalled or upgraded the OS on the laptop in May 2022, this destroyed forensic artifacts about how the laptop was used prior to that date. (Reply to Le at 10-11.) MVI's expert opines that “most commonly” such an action is “the result of either an attempt to ‘reset’ the device, such as returning a device to its factory settings, or the result of a major OS upgrade, such as upgrading from Windows 10 to Windows 11. In either case, user involvement is required.” (Bandemer Suppl. Report at 18 ¶ 2.2 / Dkt. 694-5.)
*20 Le argues that his actions were reasonable because “forensic artifacts constantly update with the user's normal use of the device,” which is why “parties regularly create forensic images of their devices,” and “such routine, ongoing use [of the device] is not only permissible, but the norm.” (Le Opp'n at 17.) Yet neither Le nor Balt forensically imaged the Surface 7 Laptop before the OS was reinstalled or upgraded. In fact, when Le reinstalled or upgraded the OS in May 2022, Le was actively resisting imaging or producing the Surface 7 Laptop, based on his representation that this device “was not used for work activities.” (See Dkt. 154-2 at 4-6 (letter brief and chart filed by Le's counsel on May 18, 2022).) This representation was false, as discussed further below. Le did not produce the Surface 7 Laptop for imaging until 2023, after MVI's successful ex parte motion. (Mot. at 9; Dkt. 483-6 at 2 ¶¶ 3-4.)
By upgrading or reinstalling the OS without first imaging or backing up the Surface 7 Laptop, Le failed to take reasonable steps to preserve the ESI on it. See, e.g., Nutrition Distribution LLC v. PEP Rsch., LLC, No. 16-cv-2328, 2018 WL 3769162 at *18, 2018 U.S. Dist. LEXIS 134720 at *53 (S.D. Cal. Aug. 9, 2018) (“Defendants' decision to perform a computer upgrade without backing up any of the information was a conscious disregard of their preservation obligations and was, at the very least, negligent.”), R&R adopted as modified on other grounds, 2018 WL 6323082, 2018 U.S. Dist. LEXIS 182709 (S.D. Cal. Dec. 4, 2018).
c. The Lost ESI from the Surface 7 Laptop Was Relevant, It Cannot Be Restored or Replaced Through Additional Discovery, and MVI Was Prejudiced by the Loss of the ESI.
Notwithstanding the May 2022 OS change, MVI's expert was able to review some forensic artifacts that remained on the Surface 7 Laptop after that change. Based on the following evidence, MVI's expert concluded that Le used the Surface 7 Laptop for work purposes:
• Le used the Surface 7 Laptop to open files from Balt SharePoint websites and sign into Microsoft Teams using Balt credentials. (Bandemer Suppl. Report at 19 ¶ 2.4 / Dkt. 694-5 (based on Jump Lists and Microsoft Teams activity).)
• On May 24, 2022 (after the May 2022 OS reinstallation or upgrade), Le connected Hard Drive 3 and other personal hard drives and flash drives to the Surface 7 Laptop. These same hard drives and flash drives were also connected to computers Le used for work, such as Le's Surface 3 Laptop. (Bandemer Suppl. Report at 20-21 ¶¶ 2.8, 2.9, 5.5 / Dkt. 694-5.)
MVI's expert also concluded that Le used the Surface 7 Laptop to view files related to MVI:
• Le used the Surface 7 Laptop “to view the contents of folders named ‘MVI’ and ‘MVI ARCHIVE,’ ... ‘BALT BACKUP 4-21-2020\MVI ref docs,’ and ‘BALT Backup 4-21-2020\MVP’ that were stored on an [unspecified] external USB drive.” However, the date on which he viewed these folders “has been lost” due the May 2022 OS reinstallation or upgrade. (Bandemer Suppl. Report at 19-20 ¶ 2.6 / Dkt. 694-5 (based on the Shellbags).)
• On June 22, 2021, Le opened a file in the “MVI Ref” subfolder on Hard Drive 3, within minutes of that subfolder being placed in the recycle bin of Hard Drive 3. (Bandemer Suppl. Report at 18-19 ¶ 2.3 / Dkt. 694-5 (based on LNK Files and Jump Lists).)
• Le used the Surface 7 Laptop “to view the contents of folders named ‘Dropbox\Microvention’ and ‘Dropbox\Microvention\Germany Presentations.’ ” (Bandemer Suppl. Report at 20 ¶ 2.6 / Dkt. 694-5.)
MVI contends that this forensic analysis is incomplete because other forensic artifacts on the Surface 7 Laptop were lost when Le reinstalled or upgraded the OS in May 2022. MVI's expert describes the lost artifacts as “file usage information from forensic artifacts like Shellbags and MRU (Most Recently Used), as well as information stored in Windows Events Log artifacts that would identify when various external devices were connected to the Surface 7.” (Bandemer Suppl. Report at 19 ¶ 2.5 / Dkt. 694-5; see also id. at 20 ¶ 2.7.)
*21 Le argues that MVI was not prejudiced by the loss because the forensic artifacts that remain on the Surface 7 Laptop are, essentially, good enough. (Le Opp'n at 12 (“other, allegedly relevant forensic artifacts still exist on [the Surface 7 Laptop] even after the [OS] was reinstalled or upgraded”); see also id. at 15 (arguing that the OS change “alter[ed] some (but not all) of the forensic artifacts that show how the computer was used prior to the update”). However, MVI's expert convincingly refutes the arguments made by Balt's expert about the usefulness of the remaining forensic artifacts as follows:
• Balt's expert points to unspecified “records in the registry hives” that “contain information related to USB connection activity prior to the May 6, 2022 upgrade.” (Massoud Decl. ¶ 31 / Dkt. 696-2.) MVI's expert explains that only a small number of such records, “from a narrow time window on June 5, 2021,” survived the OS change. (Bandemer Reply Decl. ¶ 15 / Dkt. 704-2.)
• Balt's expert points to the “setupapi.upgrade.log” that would also “contain information related to USB connection activity prior to the May 6, 2022 upgrade.” (Massoud Decl. ¶ 31 / Dkt. 696-2.) MVI's expert explains that this contains much more limited information than the lost Windows Events Log, and is therefore an inadequate replacement. (Bandemer Reply Decl. ¶ 16 / Dkt. 704-2.)
Additionally, Balt and Le argue that MVI cannot show prejudice because the lost forensic artifacts were relevant only to “determining which computer Mr. Le used to delete [files from] Hard Drives 3 and 7,” an issue that has no “bearing on whether MVI's data constitute trade secrets, was misappropriated by any defendant, or supports any damages theory.” (Balt Opp'n at 22-23; see also Le Opp'n at 17.) Yet the undersigned agrees with MVI that the lost forensic evidence “prevents MVI from fully determining how and when Le and Balt used MVI's stolen files and information.” (Reply to Balt at 13.)
In sum, the forensic artifacts lost from the Surface 7 Laptop were relevant and cannot be replaced through additional discovery, and MVI has been prejudiced by the loss of this ESI.
d. The Jury Should Decide Whether Le Acted with Intent to Deprive MVI of the Surface 7 Laptop's Use Under Rule 37(e)(2).
Having found that the requirements for sanctions under Rule 37(e)(1) are satisfied, this R&R next considers whether sanctions are available under Rule 37(e)(2) based on a finding that Le acted “with the intent to deprive [Plaintiff] of the information's use in the litigation.”
Balt argues that there is “no evidence that this upgrade was anything other than routine maintenance nor that Le acted with an intent to destroy evidence....” (Balt Opp'n at 11, 22.) There is no direct evidence of Le's intent because he has offered no explanation for his actions. (Le Decl. / Dkt. 682-3; Le Suppl. Decl. / Dkt. 731.) The circumstantial evidence is less definitive for this device, as compared to Hard Drives 7 and 3, because there is no evidence that Le intentionally deleted files from it.
First, it is not clear whether Le upgraded the OS or reinstalled it. The latter more strongly suggests an intent to spoliate, because it suggests an intent to “reset” or wipe the device. (See Bandemer Suppl. Report at 18 ¶ 2.2 / Dkt. 694-5.) MVI's expert opines that the Surface 7 Laptop's OS could have been either upgraded or reinstalled. (Id. at 17-18 ¶¶ 2.1, 2.2.) Balt's expert, in contrast, asserts that it was an upgrade. (Massoud Decl. ¶¶ 8, 28 (alleging that he “identified forensic artifacts that the laptop was upgraded, not reinstalled, from Windows 10 (Display Version 21H1 to Windows 11 (Display Version: 21H2)”).) MVI's expert does not address this issue in his reply declaration. (Bandemer Reply Decl. / Dkt. 704-2.)
*22 Second, it is not clear whether a reasonable person in Le's position would have known that upgrading the OS could cause the loss of forensic artifacts.[16] Balt's expert opines that “lay users are typically not aware of these types of forensic artifacts” and “LNK files and Jumplists require specialized forensic tools to parse and interpret.” (Massoud Decl. ¶ 29 / Dkt. 696-2.) The preservation letter MVI sent to Le instructed him:
You must preserve this information in its current form, without moving any electronic information or changing any related metadata, including at least message contents, attachments, links, dates and other header information, and usage logs. ... Furthermore, electronic data, electronic devices, external media should be preserved and maintained such that forensic inspection, imaging and searching can be conducted.
(Hales Decl. Ex. 3, 4 / Dkt. 522-2 at 16, 20.) It did not specifically mention upgrading or reinstalling the OS on such devices.
On the other hand, the timing of the May 6, 2022 OS change is suspicious. At that time, the parties were negotiating an ESI protocol, and MVI had twice moved to compel Le to produce his personal devices for examination under the protocol. (Dkt. 386-3 3 ¶¶ 10-11; id. at 23-31; Dkt. 102, 103, 107, 114, 117, 122.) The Court had not definitively ruled on the issue, but it had ordered Le to identify personal devices he had used during the relevant time period and provide information about how he had used them. (Dkt. 107, 122.) Le would have been specifically discussing the Surface 7 Laptop with his counsel around this time, because on May 18, 2022, counsel filed a chart with the Court asserting that the device was “not used for work activities,” and that Le had “searched the ‘C’ drive” and found “no files relating to Balt or MVI.” (Dkt. 154-2 at 5.) As discussed above, forensic analysis of the Surface 7 Laptop has revealed that these representations were either extremely misleading or provably false.
Reasonable minds could disagree on whether this evidence is sufficient to show that Le upgraded or reinstalled the Surface 7 Laptop's OS with intent to deprive MVI of forensic artifact ESI on the laptop. In this situation, it is appropriate for the jury to decide this issue. See, e.g., Aramark Mgmt., 2021 WL 864067 at *15-19, 2021 U.S. Dist. LEXIS 45569 at *41-58; Epicor Software, 2015 U.S. Dist. LEXIS 187180 at *4, 2015 WL 12734011 at *2; see also Fed. R. Civ. P. 37, Advisory Committee Notes to 2015 Amendment (“If a court were to conclude that the intent finding should be made by a jury, the 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.”).
4. Le's Personal Lenovo and Surface Go Laptops.
a. Le Had a Duty to Preserve the ESI on the Lenovo and Surface Go Laptops When They Were Lost.
*23 Le and Balt argue that the Lenovo was lost “long before the events MVI complains of,” and therefore before a duty to preserve evidence arose. (Le Opp'n at 16; see also Balt Opp'n at 23.) They rely on a sworn declaration Le submitted to oppose this motion, which states that he has not seen the Lenovo Laptop “in seven to eight years.” (Le Decl. ¶ 2 / Dkt. 682-3.) This declaration directly contradicts representations that Le's former counsel made to the Court about a year ago, in May 2022, which were that Le “searched the ‘C’ drive of the computer” and found “no files relating to Balt or MVI.” (Dkt. 154-2 at 4.) It is reasonable to infer that counsel's representation was based on information from Le, because counsel stated that he did not personally participate in this search. (Dkt. 159 at 13-15.)[17]
MVI's expert found evidence that about a year before that representation, in April 2021, Le used his work Surface 3 Laptop to perform a Google search for “how to factory reset Lenovo laptop from startup.” (Bandemer Suppl. Report at 15 (item 12) / Dkt. Dkt. 694-5.) After the hearing on this motion, Le submitted a supplemental declaration stating that he “believe[s] these searches relate to a Lenovo laptop [his] wife had been using for her work, and which her employer was allowing her to retain as a personal device.” (Le Suppl. Decl. ¶ 2 / Dkt. 731; see also id., Ex. 1 (photo of his wife's Lenovo laptop).) He declares that these internet searches did not relate to his Lenovo Laptop, which he reiterates he has “not seen for years.” (Le Suppl. Dec. ¶ 3 / Dkt. 731.)
Neither of Le's declarations provide details on whether his laptops were lost, donated, thrown out, etc. The record simply contains no explanation about what happened to them.
Le's most recent statements about the Lenovo Laptop are not credible, in light of the evidence that he intentionally spoliated evidence from other personal devices and made misrepresentations to this Court about how he used his personal devices. Le's April 2021 Google search for how to factory reset a Lenovo laptop occurred after this lawsuit was filed and within two months of when he intentionally deleted relevant files from Hard Drives 7 and 3 (as discussed above in Sections IV.B.1 and 2). If the Lenovo Laptop had truly been missing for years, Le and his counsel had every reason to tell MVI that in May 2022, when he opposed MVI's multiple motions seeking to compel production of his personal devices. In fact, it was Le himself who identified the Lenovo Laptop in January 2022, in response to the Court order directing him to identify the personal devices he had used during the relevant time period. (Dkt. 107 at 27-29 (transcript of Dec. 21, 2021 hearing); Dkt. 114-3 at 2 (letter from Le's counsel dated January 14, 2022).) If Le had not seen the laptop for years, it makes no sense for him to have identified the device without disclosing to MVI that it was missing. Notably, he did state that other devices were either non-functioning (his personal Apple MacBook) or no longer in his possession (his Sony VAIO work laptop). (Id.)
Accordingly, the preponderance of the evidence shows that the Lenovo Laptop was in Le's possession after this lawsuit was filed, and that it went missing after he had a duty to preserve it.
Le's former counsel made the same representations about the Surface Go Laptop as the Lenovo Laptop in response to MVI's motions to compel. (See Dkt. 114-3 at 2 (letter from defense counsel dated Jan. 14, 2022); Dkt. 154-2 at 6 (chart filed in May 2022).) Le also had the same incentives to report the Surface Go Laptop was missing at that time.
*24 Former counsel reported that Le had obtained and used the Surface Go Laptop in 2020, i.e., much more recently than the Lenovo Laptop, which he allegedly obtained in 2014. (Dkt. 114-3 at 2.) Le's most recent declaration states:
In response to MVI's request earlier this year [i.e., in 2023], I ... searched for ... a Surface Go tablet-type device, but was unable to find that device.... I purchased that device second-hand in 2019 or 2020, and used it as a family device for watching movies and for my children to use with their homework. Despite having looked for that device multiple times, I have been unable to locate it and do not know where it is.
(Le Decl. ¶ 3 / Dkt. 682-3.) Notably, this declaration does not state that Le could not find the Surface Go Laptop in 2022, when his prior counsel stated that he had possession of it and searched it.
Thus, the preponderance of the evidence shows that the Surface Go Laptop was in Le's possession after this lawsuit was filed, and that it went missing after he had a duty to preserve it.
b. Le Failed to Take Reasonable Steps to Preserve the ESI on the Lenovo and Surface Go Laptops.
Le offers no explanation for his failure to retain the laptops, even though: (a) circumstantial evidence shows that they were in his possession after this lawsuit was filed; and (b) he had received MVI's preservation letter, which specifically instructed him to retain personal devices (Hales Decl. Ex. 3 / Dkt. 522-2 at 15-16). Le therefore failed to take reasonable steps to preserve the laptops.
c. The Lost ESI from the Lenovo and Surface Go Laptops Was Relevant and Cannot Be Restored or Replaced Through Additional Discovery.
Le and Balt argue that MVI is only speculating that the Lenovo and Surface Go contained relevant evidence. (Le Opp'n at 16; Balt Opp'n at 12, 23.) Le's most recent declarations do not say anything about whether he used the Lenovo Laptop for work activities. (Le Decl. / Dkt. 682-3; Le Suppl. Decl. / Dkt. 731.) They state that the Surface Go was “used ... as a family device for watching movies and for [his] children to use with their homework”; they do not unequivocally state that the Surface Go was never used for work activities. (Le Decl. ¶ 3 / Dkt. 682-3.)
In 2022, his former counsel did represent that these devices were not used for work activities. (Dkt. 114-3 at 2 (Jan. 14, 2022 letter from Le's former counsel stating these devices were “used for email and web browsing only and, thus, no search ... for MVI documents was necessary”); Dkt. 154-2 at 4, 6 (May 2022 chart filed by Le's former counsel stating these laptops were “not used for work activities”).) As discussed above, however, later forensic analysis has proven that similar representations about Le's other personal devices were either false or very misleading, and Le's current counsel now asserts that former counsel's statements about searching the laptops in 2022 were inaccurate. (Hearing Tr. at 95 / Dkt. 736.)
It is undisputed that Le used these laptops during a time period when he was accessing MVI documents on other devices. Additionally, MVI's expert found that MVI files were transferred off of Hard Drive 7 onto devices that remain unaccounted for. (Bandemer Suppl. Report at 28-29 ¶ 4.6 / Dkt. 694-5 (“The file system last accessed date and time stored in the MFT shows that most of the files stored inside both the ‘MVI’ and ‘MVI ARCHIVE’ folders on [Hard Drive 7] were transferred to another unknown device on December 28 and 29, 2018. ... The device(s) to which the files were transferred in these windows has either not been produced in this matter or has since been reset in some fashion causing loss of evidence of that transfer....”).
*25 Given that relevant evidence was found on other allegedly personal devices, and given the inconsistent representations Le has made about these devices, there is sufficient evidence that the Lenovo and Surface Go Laptops contained relevant evidence that cannot be restored or replaced through additional discovery, and that MVI is prejudiced by the loss of that information.
d. The Jury Should Decide Whether Le Acted with Intent to Deprive MVI of the ESI's Use Under Rule 37(e)(2).
Having found that the requirements for sanctions under Rule 37(e)(1) are satisfied, this R&R next considers whether sanctions are available under Rule 37(e)(2) based on a finding that Le acted “with the intent to deprive [Plaintiffs] of the information's use in the litigation.”
Because Le does not address the issue in his declarations, there is little evidence about when, how, and why the Lenovo and Surface Go Laptops went missing. In this civil context, unlike in the criminal context, the fact-finder can consider a defendant's choice to stay silent as evidence that he cannot provide an honest, innocent explanation. See, e.g., Jones v. Riot Hosp. Grp. LLC, No. 17-cv-04612, 2022 WL 3682031 at *10, 2022 U.S. Dist. LEXIS 153270 at *28 (D. Ariz. Aug. 25, 2022) (“Nor does she offer any explanation, let alone a credible one, for why she deleted messages notwithstanding her duty to preserve. A finding that she intentionally deleted messages is therefore justified.”); Est. of Hill by & through Grube v. NaphCare, Inc., No. 20-cv-00410, 2022 WL 1464830 at *13, 2022 U.S. Dist. LEXIS 83714 at *35 (E.D. Wash. May 9, 2022) (finding intent under Rule 37(e)(2) “given the absence of a credible explanation” for the spoliation).
Furthermore, as with the Surface 7 Laptop, the timing of spoliation and Le's representations about them are suspicious. When he was opposing MVI's motions to compel the laptops' production, he represented that they were available but contained no relevant documents. Then, when it looked like MVI would successfully compel their production, he announced for the first time that they were missing. And again, he provided no factual details about how they went missing.
Reasonable minds could disagree on whether this evidence is sufficient to show that Le intended to deprive MVI of ESI on the laptops. In this situation, it is appropriate for the jury to decide this issue. See, e.g., Aramark Mgmt., 2021 WL 864067 at *15-19, 2021 U.S. Dist. LEXIS 45569 at *41-58; Epicor Software, 2015 U.S. Dist. LEXIS 187180 at *4, 2015 WL 12734011 at *2; see also Fed. R. Civ. P. 37, Advisory Committee Notes to 2015 Amendment.
C. Le's Spoliation of Evidence on His Personal Devices Should Be Imputed to Balt.
“There is scant Ninth Circuit authority squarely considering whether and under what circumstances spoliation of evidence may be imputed to a defendant who did not participate in the spoliation.” Edifecs, Inc. v. Welltok, Inc., No. 18-cv-1086, 2019 WL 5862771 at *4, 2019 U.S. Dist. LEXIS 194858 at *9 (W.D. Wash. Nov. 8, 2019) (citation omitted). “The current trend among district courts appears to be to impute liability for an agent's spoliation to the principal ‘based on traditional notions of agency law, in which a defendant principal exercises control and authority over its third-party agent who possess the spoliated evidence.’ ” Id. (citation omitted); see also Gemsa Enters., LLC v. Specialty Foods of Ala., Inc., No. 13-cv-00729-JAK-RZx, 2015 WL 12746220 at *9, 2015 U.S. Dist. LEXIS 189302 at *27 (C.D. Cal. Feb. 10, 2015) (“ ‘[S]poliation of evidence may be imputed to a [party] who did not participate in the spoliation’ only where the destroying party is the ‘agent’ of that party.”); In re Hitachi Television Optical Block Cases, No. 08-cv-1746, 2010 WL 11748027 at *2, 2010 U.S. Dist. LEXIS 166103 at *6 (S.D. Cal. Oct. 20, 2010) (finding purposeful deletion of files by employee “must be imputed to the company under standard principles of agency law”); E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 803 F. Supp. 2d 469, 506-07 (E.D. Va. 2011) (“Standard principles of agency law govern the attribution of employees' spoliation to the company.”).
*26 Balt argues that none of Le's personal devices were within its control, and “any deletion ... of potentially relevant evidence would never have been within the scope of his authority as a Balt employee” because “Balt expressly instructed [him] to preserve any potentially relevant evidence.” (Balt Opp'n at 17; see also Hearing Tr. / Dkt. 736 at 25.) Essentially, Balt argues it did all it needed to do by issuing a litigation hold to Le and imaging his two official, Balt-funded work laptops. (Balt Opp'n at 14-19.)
MVI responds that Le misappropriated MVI's trade secrets—and consequently had the ESI that was spoliated in his possession—for Balt's benefit, not exclusively his personal benefit. (Hearing Tr. / Dkt. 736 at 37.) MVI also argues that, after Le's June 2021 deposition in the patent case, Balt's counsel knew Le had MVI documents on an unspecified personal hard drive, and therefore “should have talked to Mr. Le at that point, asked about the hard drive, recovered it themselves, [and] made arrangements to forensically image it.” (Hearing Tr. / Dkt. 736 at 35.)
Under general agency principles, and considering the case law cited by the parties, it is appropriate to hold Balt responsible for Le's spoliation of evidence on his personal devices.
Comparison to one of the main cases discussed in Balt's briefing, In re Hitachi Television Optical Block Cases, No. 08-cv-1746, 2010 WL 11748027, 2010 U.S. Dist. LEXIS 166103 (S.D. Cal. Oct. 20, 2010), supports this result. Hitachi's employee Kato “copied company files, took them home, took them to Japan, and ultimately destroyed them.” 2010 WL 11748027 at *3; 2010 U.S. Dist. LEXIS 166103 at *9. The court found that Kato “purposely deleted relevant files” from his personal computer and hard drives, “knowing he had an obligation to preserve them,” and this should “be imputed to the company under standard principles of agency law.” 2010 WL 11748027 at *2; 2010 U.S. Dist. LEXIS 166103 at *6.[18]
First, the Hitachi court found that Kato was “Chief Engineer of the Quality Assurance Department at HIMEX and the person initially designated by Hitachi as most knowledgeable about problems with the televisions that are the subject of this litigation....” 2010 WL 11748027 at *2; 2010 U.S. Dist. LEXIS 166103 at *6. Similarly, Le was Balt's Senior Director of Research and.[19] (Le 2021 Depo. at 3, 59 / Hales Ex. 5, Dkt. 694-1.) Although it is unclear from the record whether his June 2021 deposition in the patent case was a Rule 30(b)(6) deposition, it was defended by Balt's counsel, and Le is “indisputably a key player” in the dispute between MVI and Balt. Laub v. Horbaczewsk, No. 17-cv-6210-JAK-KSx, 2020 WL 7978227 at *19, 2020 U.S. Dist. LEXIS 247102 at *58-59 (C.D. Cal. Nov. 17, 2020) (finding executive's failure to preserve evidence on his personal cell phone could be imputed to his employer, but declining to impose sanctions because plaintiffs failed to show that the lost evidence was relevant).
*27 Second, the Hitachi court found that Kato's “act of taking home relevant company files” (which Kato later spoliated) was done “for Hitachi's benefit, not just his own,” because he had retained the files “for reference in the event his successor contacted him with questions.” Hitachi, 2010 WL 11748027 at *2, 2010 U.S. Dist. LEXIS 166103 at *7. Similarly, when Le placed the MVI files onto his personal hard drives, the evidence suggests that he was acting for Balt's benefit, not just his own. Le admitted at his 2021 deposition that he had MVI documents in his possession when he left MVI, and forensic evidence shows that he transferred MVI documents from his personal hard drives to his Balt work computer shortly thereafter. (Le 2021 Depo. at 312-14, 317-18 / Hales Decl. Ex. 5, Dkt. 694-1; Bandemer Suppl. Report at 10-11 ¶ 2.2 / Dkt. 694-5 (“On November 1, 2011, the day before his last day of employment at MVI, Le placed thousands of MVI files onto [Hard Drive 7] in a folder called ‘MVI.’ A few days later, on November 7, Le placed thousands of MVI files onto his [Balt] work computer in a folder also called ‘MVI’ that has a similar subfolder structure and file count as the ‘MVI’ folder on Le's USB drive.”); see also Le Opp'n at 13 (“[T]he folders on Hard Drive 7 were copied to Mr. Le's Balt work computer (first the Sony VAIO, and from there to the HP).”).)
Balt argues that when Le deleted the files, he was acting for his own personal benefit and not Balt's. (See Balt Opp'n at 17.) Yet deleting potential evidence of trade secret misappropriation would have benefited Le and Balt, since both are named as codefendants in this action. Compare Nucor Corp. v. Bell, 251 F.R.D. 191, 196 (D.S.C. 2008) (declining to impute employee's spoliation to his employer where the employee's “testimony implie[d] that he was only trying to protect himself by discarding the SanDisk”).
Third, the Hitachi court rejected Hitachi's argument that “Kato was repeatedly asked, both before and after this litigation was filed, whether he possessed any work files at his home,” and “he repeatedly certified in writing that he did not.” 2010 WL 11748027 at *3, 2010 U.S. Dist. LEXIS 166103 at *7. The court found that “Hitachi was on notice that Kato had taken work files home in the past as evidenced by his responses to Hitachi's employee surveys,” which made it “reasonably foreseeable he might do so again”; despite this, “Hitachi never asked Kato to produce any documents” or took “independent steps to gather and preserve Kato's and other pertinent employee work files....” 2010 WL 11748027 at *3, 2010 U.S. Dist. LEXIS 166103 at *8; see also Colonies Partners, L.P. v. Cnty. of San Bernardino, No. 18-cv-00420-JGB-SHK, 2020 WL 1496444 at *10, 2020 U.S. Dist. LEXIS 56922 at *27 (C.D. Cal. Feb. 27, 2020) (finding employee's intent to spoliate could be imputed to the county in part because the employee “appeared to somewhat regularly use his personal devices and accounts for official business, and Defendants should have taken action to preserve communications once on notice about potential ligation”), R&R adopted, 2020 WL 1491339, 2020 U.S. Dist. LEXIS 54026 (C.D. Cal. Mar. 27, 2020).
Here, Balt was aware that Le had MVI files on his work computer since at least August 2020, when Balt produced more than 45,000 MVI documents from Le's Balt HP laptop in the patent case. (Mot. at 7; Balt Opp'n at 5; Dkt. 483-1 ¶ 15 (declaration from MVI's counsel describing discovery process).) As of at least June 2021, Balt was also aware Le had stored MVI documents on unknown personal device(s). Le testified in the patent case that he stored MVI files “on an external hard drive,” and that it was “logical” to assume that he had used such a drive to “take the documents with [him] from” MVI, although he did not “remember what external hard drive” or whether he still had it. (Le 2021 Depo. at 317-18 / Dkt. 694-1.) When asked if he stored MVI files on his personal computer, he testified, “I don't think so.” (Id.)
This testimony triggered a duty by Balt to inquire whether Le had stored relevant evidence on his personal devices. There is no evidence that Balt made any such attempt. Although Balt issued a general litigation hold, it has not disclosed the language of that hold, so it is unclear whether the hold covered personal devices. (See Reply to Balt at 18; Dkt. 227.) Importantly, Le's 2021 deposition occurred before all or the vast majority of the spoliation on Le's personal devices occurred.[20] If Balt had taken these reasonable steps, it may have prevented the spoliation at issue.
*28 Balt cites Gemsa Enterprises, LLC v. Specialty Foods of Alabama, Inc., No. 13-cv-00729-JAK-RZx, 2015 WL 12746220, 2015 U.S. Dist. LEXIS 189302 (C.D. Cal. Feb. 10, 2015) for the proposition that an employee is not acting as his employer's agent if he acts “without [the employer's] advance knowledge or permission.” (Balt Opp'n at 17; see also Hearing Tr. at 25-26 / Dkt. 736.) The undersigned does not read Gemsa as applying such a bright line rule. The Gemsa court did note that punishing the employer would not serve the deterrent goal of spoliation sanctions, in part because the employer “neither knew of nor approved of [the employee's] actions.” 2015 WL 12746220 n.8, 2015 U.S. Dist. LEXIS 189302 n.8. However, the court also found that, after discovering the spoliation, the employer: (a) “went in to try to capture the contents of [the employee's personal] computer,” (b) “incurred financial costs by undertaking two investigations without being ordered to do so,” and (c) terminated the employee for destroying company files. 2015 WL 12746220 at *10 & n.8, 2015 U.S. Dist. LEXIS 189302 at *29-30 & n.8. Here, in contrast, there is no evidence that Balt terminated or punished Le for the destruction of evidence or did anything else attempting to remedy the situation voluntarily. Unlike Gemsa, the undersigned cannot say that sanctioning Balt would have no deterrent effect.
Finally, Balt argues that it did not have possession, custody, or control of Le's personal devices. (Balt Opp'n at 5, 16-17.) Because the Court should find that Le was effectively acting as Balt's agent when he spoliated the evidence on his personal devices, it is also appropriate to find that Balt had sufficient control over his personal devices. Otherwise “any employer or principal in any case could always avoid producing any physical or data evidence by simply asking an employee or agent to hold it for them until after the discovery cut-off date.” Proofpoint, Inc. v. Vade Secure, Inc., No. 19-cv-04238, 2021 WL 11108111 at *5 (N.D. Cal. June 1, 2021) (finding “this distinction – between ... the employer and ... [its] Chief Technology Officer – to be immaterial” and declaring the court did “not believe the suggestion that [the employer] was unable to direct its agent to produce [the employer's] source code” from the employee's personal devices).
D. Terminating Sanctions Are Not Appropriate.
As noted above, courts generally consider the following factors in deciding whether to issue terminating sanctions: “(1) the public's interest in expeditious resolution of litigation; (2) the court's need to manage its docket; (3) the risk of prejudice to the other party; (4) the public policy favoring the disposition of cases on their merits; and (5) the availability of less drastic sanctions.” Conn. Gen., 482 F.3d at 1096; see also Leon, 464 F.3d at 958. “This ‘test’ is not mechanical. It provides the district court with a way to think about what to do, not a set of conditions precedent for sanctions or a script that the district court must follow....” Conn. Gen., 482 F.3d at 1096. Courts also “often consider ... (1) the degree of fault of the party who altered or destroyed the evidence; (2) the degree of prejudice suffered by the opposing party; and (3) whether there is a lesser sanction that will avoid substantial unfairness to the opposing party.” Storz Mgmt. Co. v. Carey, No. 18-cv-0068, 2019 WL 2615755 at *4, 2019 U.S. Dist. LEXIS 107272 at *9 (E.D. Cal. June 26, 2019) (citing Apple, Inc., 888 F. Supp. 2d at 992; quotation marks omitted). “[T]he most critical factor is not merely delay or docket management concerns, but truth,” i.e., “whether the discovery violations ‘threaten to interfere with the rightful decision of the case.’ ” Conn Gen., 482 F.3d at 1097 (citation omitted).
As discussed above, the spoliation of evidence on Le's personal devices was prejudicial. There is evidence that Le and other individual Defendants who previously worked for MVI took many MVI documents with them when they left to work for Balt. 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. Evidence on Le's personal devices might have shown whether and how Balt used MVI's trade secrets. The loss of evidence from Le's personal devices is particularly prejudicial in light of the total spoliation of evidence on Defendant Tran and former Defendant Katayama's work laptops—discussed in a separate R&R—evidence that was also relevant to Balt's alleged use of MVI's trade secrets.
*29 However, it is unclear at this stage how much the spoliation threatens to interfere with the rightful decision of the case. MVI still has some evidence relevant to use of its trade secrets from Le's two work laptops. Moreover, there are multiple trade secrets at issue, and MVI has not moved for summary judgment, making it difficult to fully assess what evidence MVI will rely on for each secret.[21]
The policy favoring disposition of cases on their merits and the availability of less drastic sanctions—namely, the jury instructions described in this R&R—likewise weigh against imposing terminating sanctions. See, e.g., Advantacare Health Partners v. Access IV, No. 03-cv-04496, 2004 WL 1837997 at *5, 2004 U.S. Dist. LEXIS 16835 at *15-16 (N.D. Cal. Aug. 17, 2004) (declining to impose terminating sanctions where the spoliators' “actions do not eclipse entirely the possibility of a just result, suggesting that extraordinary circumstances do not exist” and evidentiary sanctions “could be equally effective and yet less drastic”). Overall, the other sanctions that this R&R recommends imposing are sufficient.
E. To Cure the Prejudice Due to ESI Spoliation, Plaintiffs Should Be Awarded Attorney's Fees and Expert Expenses Incurred in Bringing the Instant Motion.
Federal Rule of Civil Procedure 37(e)(1) authorizes courts to employ measures “no greater than necessary to cure the prejudice” caused by spoliated ESI. “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).’ ... 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).” Spencer v. Lunada Bay Boys, No. 16-02129-SJO-RAOx, 2018 WL 839862 at *1 (C.D. Cal. Feb. 12, 2018) (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, 2020 WL 1496444 at *12-13; 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”).
An award of attorney's fees and expert expenses MVI incurred in bringing the instant motion is necessary to cure the prejudice they have suffered due to the ESI spoliation. Balt and Le should be held jointly and severally liable for these expenses.[22] The District Judge should order the parties to meet-and-confer over the amount of such fees, and if they cannot reach agreement, Plaintiffs should be allowed to submit evidence of such expenses to the Magistrate Judge.
V.
RECOMMENDATION
Based on the foregoing, IT IS RECOMMENDED that the District Judge issue an Order:
(1) approving and accepting this R&R;
(2) directing that the jury will be instructed to presume that the ESI Le deleted from Hard Drive 7 and Hard Drive 3 was unfavorable to Le and Balt;[23]
*30 (3) directing that the jury will be instructed that: (a) the jury should decide if Le reinstalled or upgraded the OS on the Surface 7 Laptop and failed to retain the Lenovo and Surface Go Laptops with the intent to deprive MVI of ESI for use in the litigation, and (b) if so, the jury should presume any ESI on those devices was unfavorable to Le and Balt;
(4) finding Le and Balt jointly and severally liable for the reasonable expenses MVI incurred in bringing the instant motion; and
(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
MVI argues that Massoud's declaration “should be rejected as improper expert opinion,” because it does not attach exhibits or supporting data and therefore fails to comply with the requirements for written expert reports in Federal Rule of Civil Procedure 26(a)(2)(B). (Reply to Balt at 8-11; see also Hearing Tr. at 51-55, 101-05.) This R&R declines to reach this issue because, as discussed below, sanctions are appropriate even considering Massoud's declaration. The Court has considered MVI's arguments in deciding how much weight to give Massoud's opinions. Whether Massoud's testimony is admissible at trial is a matter for the presiding District Judge.
But see Hugler v. Sw. Fuel Mgmt., Inc., No. 16-cv-4547-FMO-AGRx, 2017 U.S. Dist. LEXIS 225593 at *22-23, 2017 WL 8941163 at *8 (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.
Although these Ninth Circuit cases discussed sanctions under the court's inherent powers for failing to obey a discovery order under Rule 37(b), district courts have applied this test to Rule 37(e) sanctions for ESI spoliation as well. See, e.g., Est. of Moreno by & through Moreno v. Corr. Healthcare Companies, Inc., No. 18-cv-5171, 2020 WL 5740265 at *7, 2020 U.S. Dist. LEXIS 108370 at*22-23 (E.D. Wash. June 1, 2020) (“The Ninth Circuit consistently has reiterated the severity of terminating sanctions for discovery abuse. Accordingly, even if a district court finds that the requisite factors have been met for issuing terminating sanctions, the court still should consider the five factors laid out by the Ninth Circuit” in Connecticut General and Leon); see also OmniGen Rsch. v. Yongqiang Wang, 321 F.R.D. 367, 371 (D. Or. 2017).
When citing to filings on the docket, the Court uses the page numbers imposed by the Court's online filing system, which appear in blue at the top of the filed documents.6 The six devices involved in the present spoliation motion are bolded and italicized in this section.
The six devices involved in the present spoliation motion are bolded and italicized in this section.
Balt's IT Director, Kheng Ang, testified that Balt had issued an internal litigation hold memorandum to its employees on February 5, 2021, and Balt's counsel emailed MVI a list of recipients of Balt's litigation hold memorandum that included Jake Le. (Dkt. 483-1 at 5 ¶ 13 (MVI ex parte application).) Balt has not produced the 2021 litigation hold memo itself, asserting privilege. (See Reply to Balt at 18; Dkt. 227 (discovery letter brief from Balt arguing, “The law is abundantly clear that the contents and details of litigation hold notices, advising personnel to preserve documents, are privileged.”).)
For about six weeks in April and/or May 2023, Le was proceeding pro se. (Dkt. 432, 433.) His current counsel filed a notice of appearance in June 2023. (Dkt. 518, 519, 530.) The production of Hard Drive 7 was negotiated with counsel. (Hearing Tr. at 31-32.)
MVI also filed a separate motion for spoliation sanctions against Balt related to devices used by Michelle Tran and Yoshitaka Katayama. (Dkt. 386.) That motion is addressed in a separate R&R.
In April 2022, Balt provided the first image to Stroz, the parties' neutral forensic examiner, but it did not disclose to MVI that the second image existed. Balt did not produce the second image until March 2023, after MVI learned of it while deposing Balt's IT director. (Mot. at 12; Bandemer Suppl. Report § F ¶¶ 5.1, 5.2 / Dkt. Dkt. 694-5.)
Bandemer's Supplemental Report refers to Hard Drive 7 with a number assigned to the image of this device: “38196_010.”
Balt's expert does opine that he was “able to recover additional historical USN Journal entries from the unallocated space on Hard Drive 7,” disputing that all USN Journal data was “irretrievably lost.” (Massoud Decl. ¶ 17 / Dkt. 696-2 at 6) (emphasis added). Yet he never states how many entries he was able to recover or what those entries showed. In attempting to replicate his work, MVI's expert admits to being able to “carve additional USN Journal entries from the unallocated space,” but he concludes, “[E]ven the combined listing of active and carved USN Journal entries is incomplete, and some entries are permanently lost ... including the USN Journal entries corresponding to the creation of the recycle bin only an hour before [Le] deleted the 50,000 files....” (Bandemer Reply Decl. ¶¶ 20-21 / Dkt. 704-2 at 8-9.) Balt's expert does not convincingly show that no relevant ESI was lost.
Bandemer's reports refer to Hard Drive 3 with a number assigned to the image of this device: “38196_003.”
It is not clear whether Le used his personal Surface 7 Laptop, his work Surface 3 Laptop, or some other device to perform the deletions, because the “USB artifacts that would show whether and when Le connected” the drive to these devices “was lost when Le reinstalled and/or upgraded the” OS on those devices. (See Bandemer Suppl. Report at 12 ¶ 2.5 / Dkt. 694-5.)
Le connected Hard Drive 3 to his Personal Surface 7 Laptop and the Balt Surface 3 Laptop that he used for work. (Bandemer Suppl. Report at 11 ¶ 2.4.) “Forensic data, such as the SUB artifacts that would show whether and when Le connected his USB drives to his personal Surface 7 laptop to perform the deletions, is no longer available because that forensic data was lost when Le reinstalled and/or upgraded the [OS] on his Surface 7 on May 6, 2022.” (Bandemer Suppl. Report at 12 para. 2.5.)
Bandemer's Supplemental Report sometimes refers to the Surface 7 Laptop with a number assigned to the image of this device: “38196_008.”
When a lay person intentionally deletes files from a device, as Le did from his hard drives, it is reasonable to assume an intent to spoliate evidence, even where, as with Le's hard drives, the evidence that ends up lost is forensic artifacts rather than the files that were intentionally deleted. This is different from an OS change, which does not necessarily show intent to delete any ESI.
After speaking with both Le and his former counsel, Le's current counsel stated at the hearing on this motion that he had no explanation for the discrepancy, other than that there was a “disconnect between lawyer and client,” and “it was just a mistake.” (Hearing Tr. / Dkt. 736 at 95-96.)
Balt's briefing discusses the Hitachi court's August 12, 2011 decision (Balt Opp'n at 18), which notes: “In an [earlier] Order dated October 20, 2010, the Court found Hitachi committed spoliation via the actions of [its employee] Kato.” 2011 WL 3563781 at *3, 2011 U.S. Dist. LEXIS 90882 at *10. At that time, the court “reserved judgment on the appropriate sanction until the extent of any prejudice could be determined through forensic analysis of the pertinent hard drives and the deposition of Hitachi regarding the efforts made to preserve and produce electronic data.” 2011 WL 3563781 at *1, 2011 U.S. Dist. LEXIS 90882 at *2. Later, in August 2011, the court declined to impose sanctions because it found little prejudice and that Hitachi had undertaken “speedy corrective action” at its own expense. 2011 WL 3563781 at *12-16; 2011 U.S. Dist. LEXIS 90882 at *21-56. In deciding whether Balt is legally responsible for Le's actions, the earlier October 2010 Hitachi order is more useful.
Le was in this senior position at Balt in June 2021, when he intentionally deleted files from Hard Drives 7 and 3. He left Balt in February 2022, about three months before he reinstalled or upgraded the OS on his Surface 7 Laptop, and possibly before the Lenovo and Surface Go laptops were lost or became unavailable. Despite his departure from Balt, he could still act as Balt's agent when spoliating evidence, given their unity of interest in this ongoing action. Kato, the employee who spoliated evidence in Hitachi, also was also a former Hitachi employee when he spoliated evidence. Hitachi, 2010 WL 11748027 at *1, 2010 U.S. Dist. LEXIS 166103 at *2-3 (stating that Kato worked for Hitachi between 2002 and July 2007 and was scheduled to testify as a Rule 30(b)(6) witness in July 2010); Hitachi, 2011 WL 3563781 at *1, 2011 U.S. Dist. LEXIS 90882 at *4 (finding Kato deleted the files “[a]fter Hitachi designated him as a 30(b)(6) witness, and just prior to his deposition”).
As discussed above in section IV.B.2.a., Le could have deleted some of the files on Hard Drive 3 as early as March 2020, but he also could have deleted the files later. All of the other spoliation occurred after the Le's 2021 deposition.
Balt unsuccessfully moved for summary judgment, but only on the grounds that MVI failed to identify some trade secrets with particularity and that one alleged trade secret does not qualify as such as a matter of law. (Dkt. 377-1.)
The Court should not impose these sanctions on counsel for Balt or Le.
The Court anticipates that the parties will submit specific proposed language for the jury instructions discussed in this R&R, pursuant to the District Judge's standard pre-trial procedures.