United States District Court, D. Oregon
OPINION AND ORDER
Michael J. McShane United States District Judge.
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.
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.
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).
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.
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.
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).
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.
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).
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.
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.
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).
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.
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.
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
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.
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).
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).
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.
of Wang's Computer Files:
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).
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 ...