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Omnigen Research v. Wang

United States District Court, D. Oregon

May 23, 2017



          Michael J. McShane United States District Judge.

         Plaintiffs, in their Motion for Terminating Spoliation Sanctions (ECF No. 129), ask this court to grant a default judgment in their favor due to the conduct of the defendants; specifically, the defendants' intentional destruction of evidence. Plaintiffs argue that such an extreme measure is warranted because of the scope of the spoliation and its consequential impact on the plaintiffs' ability to seek a judgement. Because defendants have intentionally hidden or destroyed evidence to the extent that it severely undermines the Court's ability to render a judgment based on the evidence, and because the conduct of the defendants threatens the "orderly administration of justice." Leon v. IDC Sys. Corp., 464 F.3d 951, 958 (9th Cir. 2006), the Motion is GRANTED.

         Defendants' Motions for Summary Judgment (ECF No. 126 and 130), Defendants' Motion for Judgment on the Pleadings (ECF No. 177), and Plaintiffs' Motions for Partial Summary Judgment (ECF No. 119, 120, and 123), are DENIED as moot.


         This action was filed on 2/15/2016 by plaintiffs OmniGen Research, LLC (OmniGen) and Prince Agri Products, Inc. (Prince Agri) against defendants Dr. Yongqiang Wang, Ms. Yan Zheng, and Bioshen (an Oregon business) for breach of contract, intentional interference with economic relations, trade secret misappropriation, copyright infringement, false advertising and unfair competition under the Lanham Act, and breach of fiduciary duty. (ECF No. 1).

         OmniGen was co-founded by Neil Forsberg and Steve Puntenney in 2002. They sold the company to Prince Agri in December 2012. Wang first met Forsberg when Wang was a graduate student at Oregon State University (OSU), where Forsberg was a professor. Wang completed his PhD and worked as an assistant professor in Forsberg's research laboratory at OSU until Forsberg hired him to work for OmniGen in 2005.

         According to the plaintiffs, while still working at OmniGen in 2012, Wang breached his employment contract by stealing trade secrets and then using them to secretly create two rival businesses, Bioshen in Oregon and Jiangsu Mirigen Biotechnology Development Company (Mirigen) in China. Both, the plaintiffs claim, market lines of nutritional specialty products that are knockoffs of OmniGen's products. (Id.).

         The defendants brought counterclaims for promissory estoppel and unjust enrichment, naming Forsberg as a third party defendant. (ECF No. 83). The counterclaims are based on the defendants' theory that Wang had helped develop food additive products for dairy cows that OmniGen, Prince Agri, and Forsberg had profited from without fairly compensating Wang for his contributions. (Id. at pp. 20-24).

         This case has been plagued by discovery issues and concerns of spoliation from its inception. Plaintiffs, concerned in part about the possible destruction of evidence early in the case, filed a Motion for Preliminary Injunction on 2/23/2016 asking that Wang, Zheng, and Bioshen "account for the location of all material in its, his or her possession, custody or control... and to provide to Omnigen Research and Prince Agri all originals and all copies (in whatever format they currently exist) of any materials in its, his or her possession, custody or control." They further requested that "Wang and Zheng (including Bioshen) shall immediately produce to Plaintiffs all electronic media in their custody, possession or control for purposes of verifying that they do not contain Plaintiffs confidential and/ or copyrighted material." (ECF No. 12). The motion was granted after a hearing on 5/12/2016 (ECF No. 50).[1]

         Eleven days later, the plaintiffs filed a Motion for Order to Show Cause (ECF No. 54) because Mr. Wang had left for China without producing his laptop as required by the Preliminary Injunction. A hearing on the issue was held on 5/24/2016 and, in addition to other requirements, the defendants were ordered to "download all of the contents of the computer in China on a portable hard drive and have it mailed to defense counsel within 7 days, and deliver any computers or portable storage data to defense counsel by 5/27/2016." (ECF No. 60).

         The Plaintiffs were required to seek court intervention regarding discovery on multiple occasions because of the failure of the defense to adequately respond to Plaintiffs' requests for production. Hearings were held on 2/7/2017 (ECF No. 109; 113), 2/22/2017 (ECF No. 114; 116), and 3/20/2017 (ECF No. 146; 160). There were multiple email communications between the court and the parties regarding discovery. Without belaboring the details of every dispute, at each turn the defense would either maintain that no responsive documents existed or they would fail to adequately respond to production requests and court orders.

         In addition to other motions not addressed in this Opinion, Plaintiffs filed their Motion for Terminating Spoliation Sanctions (ECF No. 129) on 3/3/2017. Oral arguments on the motion were heard on 4/18/2017 (ECF No. 179 and 180) and the matter is now before this court.


         Default Judgment and terminating sanctions for the spoliation of evidence is warranted in instances wherein a party has intentionally hidden or destroyed evidence to the extent it severely undermines the Court's ability to render a judgment based on the evidence and threatens the "orderly administration of justice." Leon v. IDC Sys. Corp., 464 F.3d 951, 958 (9th Cir. 2006).

         This Court may remedy the spoliation of evidence with terminating sanctions under: (1) FRCP Rule 37(b)(2), which permits the Court to sanction a party for disobeying a discovery order; (2) the Court's inherent authority to sanction abusive litigation practices; and (3) FRCP Rule 37(e), which permits the Court to sanction a party for the spoliation of electronic evidence. Each of these three authorities have different requirements, although courts often follow the same analysis when considering terminating sanctions under Rule 37(b)(2) and the Court's inherent power.

         FRCP Rule 37(b)(2) states that terminating sanctions-an order "dismissing the action" or "rendering a default judgment against the disobedient party"-may be imposed when a party "fails to obey an order to provide or permit discovery." The rule's definition of "order" is broad. Dreith v. Nu Image, Inc., 648 F.3d 779, 787 (9th Cir. 2011). The Court has inherent power to impose terminating sanctions "when a party has engaged deliberately in deceptive practices that undermine the integrity of judicial proceedings" because this power permits dismissal "when a party has willfully deceived the court and engaged in conduct utterly inconsistent with the orderly administration of justice." Leon, 464 F.3d at 958.

         A terminating sanction for spoliation under these authorities requires "a finding of willfulness, fault, or bad faith." Connecticut General Life Ins. Co. v. New Images of Beverly Hills, 482 F.3d 1091 (9th Cir. 2007) (Rule 37(b)(2)). A party's destruction of evidence qualifies as willful if the party has "some notice that the documents were potentially relevant to the litigation before they were destroyed." Leon, 464 F.3d at 959.

         There are five factors relevant for considering imposing 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." Connecticut General Life Ins. Co., 482 F.3d at 1096. These factors are not a "mechanical" test, and are "not a set of conditions precedent for sanction or a script that the district court must follow." Id. A District Court is not required to make explicit findings regarding each of the factors, and "it is not always necessary for the court to impose less serious sanctions first, or to give any explicit warning." Valley Engineers Inc. v. Elec. Eng'g Co., 158 F.3d 1051, 1057 (9th Cir. 1998); Leon, 464 F.3d at 958. Instead, "the most critical factor is not merely delay or docket management concerns, but truth, " and thus the most critical issue for the court to determine is "whether the discovery violations threaten to interfere with the rightful decision of the case." Connecticut General Life Ins. Co., 482F.3datl096.

         FRCP Rule 37(e) applies when "electronically stored information" that should have been preserved "is lost" and "cannot be restored or replaced through additional discovery, " Terminating sanctions are available under this rule only when the party who lost the information "acted with the intent to deprive another party of the information's use in the litigation." A finding of intent, however, eliminates the requirement that the opposing party be prejudiced by the spoliation. Upon a finding of intent, Rule 37(e)(2) permits the adverse inference "that the lost information was unfavorable." In the Advisory Committee Notes to FRCP 37(e) notes, when intent is found, the rule "does not include a requirement that the court find prejudice to the party deprived of the information, " it "does not require any further finding of prejudice, " and it "does not place a burden of proving or disproving prejudice on one party or the other." (See FRCP 37(e) Advisory Committee Notes 2010 and 2015.) This is logical because "once spoliation is shown, the burden of proof logically shifts to the guilty party to show that no prejudice resulted from the spoliation because that party is in a much better position to show what was destroyed and should not be able to benefit from its wrongdoing." Sec. Alarm Fin. Enterprises, L.P. v. Alarm Prot. Tech., LLC, No. 3:13-CV-00102-SLG, 2016 WL 7115911, at *6 (D.Alaska Dec. 6, 2016).

         The applicable standard of proof for spoliation motions in the Ninth Circuit is the preponderance of evidence. See, e.g., Compass Bank v. Morris Cerullo World Evangelism, 104 F.Supp.3d 1040, 1052-53 (S.D. Cal. 2015); LaJocies v. City of N. Las Vegas, No. 2:08-CV-00606-GMN, 2011 WL 1630331, at *1 (D.Nev. Apr. 28, 2011).


         As stated during oral arguments on 4/18/2017, the Court finds the destruction of evidence by the defendants was intentional (ECF No. 180 at p. 15). The plaintiffs' Motion for Terminating Spoliation Sanctions (ECF No. 129) describes in full detail the many ways the defendants intentionally hid or destroyed evidence in this case. In summary, Plaintiffs allege that the defendants made their desktop computer unavailable by "donating" it to Goodwill, that the defendants intentionally deleted thousands of documents from Wang's personal Lenovo computer, that the defendants intentionally deleted and refused to produce relevant emails from multiple email accounts, and that the defendants intentionally destroyed metadata. These actions have deprived the Plaintiffs of evidence central to their case and undermined the Court's ability to enter a judgment based on the evidence. For these reasons, default judgment and terminating sanctions for the spoliation of evidence is warranted FRCP 37(b)(2), Rule 37(e), and the Court's inherent authority to sanction abusive litigation practices.

         Deletion of Wang's Computer Files:

         On July 14, 2015, the plaintiffs sent the defendants a cease & desist letter, asserting that Wang breached his contract with plaintiffs and misappropriated their trade secrets, and that Zheng assisted. (ECF No. 136-1). In this letter, the plaintiffs demanded access to "all documents and electronically stored information available to Mr. Wang or Ms. Zheng related to Mirigen or its affiliates." (Id. at p 3).

         A week later on July 22, 2015, Wang intentionally deleted over 200 files from his Lenovo laptop, at least 44 of which were not recoverable. (ECF No. 136-37 at p. 19). While it is certainly possible that some of the deleted files were of no consequence, within them were the names of documents that are most certainly relevant to this litigation. These include: "Table 301: Mirigen client user report.docx, " and "Table 305: Collaboration agreement on Mirigen cultivation experimentdocx." (Id. at p. 34.). Because these deleted files are unrecoverable, we will never know their contents, but it is clear from their titles that they were the ...

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