CIGNEX Datamatics, Inc. v. Lam Research Corporation

Filing 100

MEMORANDUM OPINION. Signed by Judge Maryellen Noreika on 3/11/2019. (dlw)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
CIGNEX DATAMATICS, INC.,
Plaintiff,
v.
LAM RESEARCH CORPORATION,
Defendant.

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C.A. No. 17-320 (MN)

MEMORANDUM OPINION
Theodore A. Kittila, James G. McMillan, III, HALLORAN FARKAS + KITTILA LLP, Wilmington,
DE – attorneys for Plaintiff
Christopher P. Simon, David G. Holmes, CROSS & SIMON, LLC, Wilmington, DE – attorneys for
Defendants

March 11, 2019
Wilmington, Delaware

NOREIKA, U.S. DISTRICT JUDGE:
Presently before the Court is the motion of Defendant Lam Research Corporation
(“Defendant” or “Lam”) for a finding of spoliation and for sanctions against Plaintiff CIGNEX
Datamatics, Inc. (“Plaintiff” or “CIGNEX”). (D.I. 54). For the reasons set forth below, the Court
DENIES Lam’s motion.
I.

BACKGROUND
CIGNEX is a consulting company that provides “services and products such as open source

enterprise portals, content management, big data analytics, and e-commerce solutions.” (D.I. 1
¶ 5). On October 28, 2014, CIGNEX and Lam entered into a Contract for Independent Contractor
or Consultant Services (“the Agreement”), whereby CIGNEX agreed to provide software
development services for Lam’s MyLam/PK redesign project. (Id. ¶ 6; see also D.I. 1, Ex. A).
The Agreement provided that, in exchange for CIGNEX’s work on the MyLam/PK redesign
project, Lam would pay certain fees to CIGNEX according to the relevant Statement(s) of Work.
(D.I. 1 ¶ 6, see also D.I. 1, Ex. A ¶¶ 1-2). The Agreement also provided that Lam would pay
CIGNEX within thirty days of each undisputed invoice for the project. (D.I. 1, Ex. A ¶ 4). In
January 2015, both parties signed a Statement of Work prepared by CIGNEX, which outlined the
scope and cost of the work on the MyLam/PK redesign project. (See D.I. 55 at 2; D.I. 61 at 5).
At some point after CIGNEX began work on the project, problems developed. CIGNEX
was unable to meet certain deadlines (including completion by July 2015), and the cost of the
project apparently exceeded the initial proposal. (See, e.g., D.I. 55 at 3). In August 2015, Lam
stopped paying CIGNEX, but CIGNEX nevertheless continued to work on the MyLam/PK
redesign project. (See id.; see also D.I. 1 ¶ 11; D.I. 61 at 9-12). Although CIGNEX continued
working, the relationship between the parties deteriorated as the problems persisted. By late April

1

or early May of 2016, Lam had suggested it may seek “legal recourse” if CIGNEX was unable to
deliver as promised under the Agreement. (See D.I. 62, Ex. 1 at CIGNEX00043 (“Legal Option
– CIGNEX will not be able to respond favorably if the options are ‘Deliver or Legal recourse.’”);
D.I. 68, Ex. F at LAM 70 (“Final Delivery Milestone Dates Must Be Met or Legal Recourse Will
Be Required – CIGNEX Response – Under the given circumstances going thru legal option is not
advisable.”)). A few months later, on or around August 5, 2016, Lam issued a stop work order to
CIGNEX for the MyLam/PK redesign project. (See D.I. 63, Ex. C at LAM 0113523). On
March 24, 2017, CIGNEX filed the present action, alleging that Lam breached the Agreement.
(D.I. 1 ¶¶ 15-19). In particular, CIGNEX alleges that it performed all of its obligations under the
Agreement and Lam has refused to pay the remainder of the amount due for work that CIGNEX
performed – i.e., $434,096.71. (D.I. 1 ¶ 11). 1 On May 15, 2017, Lam answered and filed
counterclaims for, inter alia, breach of contract and unjust enrichment, seeking recovery of all
payments rendered to CIGNEX over the course of the project. (See, e.g., D.I. 8 ¶¶ 25-47).
Discovery proceeded.
On August 20, 2018, Lam filed the present motion, which seeks a finding of spoliation and
sanctions for CIGNEX’s failure to preserve email documents from certain former CIGNEX
employees involved in the MyLam/PK redesign project. (See D.I. 54, 55). The motion was fully
briefed as of September 25, 2018 (see D.I. 61, 62, 63, 68), and the Court heard oral argument on
December 13, 2018 (D.I. 78). At the hearing, the Court ordered CIGNEX to make one of its
employees – Mr. Srinivas Tadeparti – available for deposition on issues relating CIGNEX’s failure
to preserve certain email accounts of former employees. (D.I. 78 at 68:5-15). The Court also

1

In its summary judgment opinion of February 26, 2019, the Court reduced the amount of
CIGNEX’s damages claim by $58,000. (See D.I. 94 at 6).
2

directed Lam to file Mr. Tadeparti’s deposition transcript, and the parties were permitted to submit
letters regarding their views of the importance of Mr. Tadeparti’s testimony. (Id. at 68:16-21).
After the transcript and letters were filed (see D.I. 85, 86, 87), the Court received further
submissions regarding CIGNEX’s document retention policies (see D.I. 89, 90, 91, 93).
II.

LEGAL STANDARDS
“Spoliation occurs where: the evidence was in the party’s control; the evidence is relevant

to the claims or defenses in the case; there has been actual suppression or withholding of evidence;
and, the duty to preserve the evidence was reasonably foreseeable to the party.” Bull v. United
Parcel Serv. Inc., 665 F.3d 68, 73 (3d Cir. 2012). Historically, in the Third Circuit, “a finding of
bad faith [has been] pivotal to a spoliation determination.” Id. at 79.
If a court finds that spoliation occurred, it must then determine an appropriate sanction for
the suppression or withholding of evidence. The sanctions analysis focuses on “(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, and, where the offending party is seriously at fault, will serve to deter such
conduct by others in the future.” Schmid v. Milwaukee Elec. Tool Corp., 13 F.3d 76, 79 (3d Cir.
1994).
Rule 37(e) of the Federal Rules of Civil Procedure addresses sanctions available for a
party’s loss (or destruction) of electronically stored information (“ESI”). 2 Rule 37(e) provides:
If electronically stored information that should have been preserved
in the anticipation or conduct of litigation 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:

2

Rule 37(e) in its current form became effective December 1, 2015. Prior to the 2015
amendment, subsections (e)(1) and (e)(2) did not exist. See FED. R. CIV. P. 37(e) (2006).
3

(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.
Under this Rule, a party’s loss of ESI may be sanctionable when: (1) litigation is ongoing or
anticipated, (2) the party failed to take reasonable steps to preserve the ESI, and (3) the information
lost cannot be restored or replaced through additional discovery. Rule 37(e)(1) allows for curative
measures when a party’s loss of ESI causes prejudice to another party, while Rule 37(e)(2) allows
for more severe sanctions when the loss of ESI occurred with “intent to deprive another party of
the information’s use in litigation.” FED. R. CIV. P. 37(e)(2). Subsection (e)(1) is thus concerned
with a party’s negligent or grossly negligent failure to preserve ESI, whereas subsection (e)(2) is
directed to instances where a party intentionally destroyed or lost ESI. See FED. R. CIV. P. 37(e)(2)
Advisory Committee Notes to 2015 Amendment (“The better rule for the negligent or grossly
negligent loss of [ESI] is to preserve a broad range of measures to cure prejudice caused by its loss
[i.e., (e)(1)], but to limit the most severe measures to instances of intentional loss or destruction
[i.e., (e)(2)].”). In this way, Rule 37(e)(1) appears to depart from the traditional spoliation analysis
under Third Circuit law in that it allows for sanctions (i.e., curative measures) for conduct falling
short of “bad faith” when the information lost is in the form of ESI. 3 See, e.g., Orologio of Short

3

By its terms, Rule 37(e) applies only to electronically stored information. When other
forms of information are at issue (e.g., physical evidence, paper documents, etc.), the
spoliation analysis follows the framework set forth in Bull.
4

Hills Inc v. The Swatch Grp. (U.S.) Inc., 653 F. App’x 134, 145 (3d Cir. 2016) (“Spoliation of
evidence requires ‘bad faith,’ not mere negligence . . . .” (citing Bull, 665 F.3d at 79)).
III.

DISCUSSION
On or around May 25, 2018, as fact discovery was ongoing, CIGNEX notified Lam that

the emails of certain former CIGNEX employees who worked on the MyLam/PK redesign project
were not preserved. (See D.I. 55, Ex. H). CIGNEX claims that these email accounts were deleted
in the 2015-2016 timeframe pursuant to CIGNEX’s email-retention policy. (See D.I. 61 at 2-3).
According to that policy, a former employee’s emails are usually deleted from CIGNEX’s internal
system 4 on or around the employee’s last day at CIGNEX. (See D.I. 62 ¶ 7(a)). For thirty days
thereafter, the former employee’s emails remain accessible to CIGNEX via its third-party hosting
provider (AppRiver). (See D.I. 62 ¶ 7(d)). After those thirty days elapse, CIGNEX can elect to
continue paying the monthly fee to store the former employee’s emails with AppRiver, or
CIGNEX can stop paying and the emails become inaccessible to CIGNEX. (See id. ¶¶ 7(b)-(c);
see also D.I. 61 at 2-3). Pursuant to this policy, CIGNEX stopped paying to store the emails of
many former employees who worked on the MyLam/PK redesign project and, as a result, those
emails were not preserved (and therefore not available to produce in this litigation).
The following chart identifies the former CIGNEX employees whose emails were not
preserved, along with the employee’s termination date and the last day that CIGNEX stored the
emails:
CIGNEX Employee

Last Day CIGNEX
Stored Employee’s Email

Ramesh Chowhan

6/11/2015

6/11/2015

Sandeep Nair
4

Last Day Employee
Worked at CIGNEX
6/18/2015

6/18/2015

CIGNEX uses third-party hosting for email storage, but it also stores some emails on its
own system. (See D.I. 62 ¶¶ 4, 7(d)).
5

CIGNEX Employee

Last Day Employee
Worked at CIGNEX

Last Day CIGNEX
Stored Employee’s Email

Amit Barbaria

10/29/2015

11/28/2015

Arun Nityanandam

11/13/2015

12/13/2015

Nitin Yadav

12/4/2015

1/3/2016

Ravi Kumar Gupta

2/12/2016

2/12/2016

Payal Shah

4/1/2016

4/1/2016

Omprakash Misha

4/26/2016

5/25/2016

Dhaval Joshi

6/21/2016

6/21/2016

Subramaniam Pillai

2/26/2016

8/4/2016

(See D.I. 55 at 6; D.I. 61 at 4-7 & 7 n.3; see also D.I. 55, Ex. I at 3; D.I. 62 ¶ 7(d)). The date of
last storage in the chart above is the last day CIGNEX stored the emails internally – the emails
remained available via AppRiver for at least thirty days beyond that date. (See D.I. 62 ¶ 7(d)).
Lam argues that CIGNEX’s failure to preserve email for the above-referenced former
employees amounts to willful spoliation and warrants severe sanctions. (D.I. 55 at 13-14). Lam
contends that litigation between the parties was reasonably foreseeable as of August 2015 when
Lam stopped paying CIGNEX and, therefore, CIGNEX had a duty to preserve relevant evidence
from that point forward. (Id. at 6-7, 11). In Lam’s view, any instance after August 2015 in which
CIGNEX failed to preserve emails of former employees who worked on the project constitutes
willful spoliation of evidence. (Id. at 11-13). Lam never articulates – let alone demonstrates with
facts – how CIGNEX’s conduct rises to the level of willfulness (or bad faith), but Lam nevertheless
requests that the Court impose severe sanctions for the loss of these emails. (See id. at 1, 14
(requesting “striking and dismissing CIGNEX’s claims” or in the alternative an adverse-inference
against CIGNEX)).
As an initial matter, it is necessary to clarify the nature and scope of the spoliation analysis
that the Court believes should apply under the present facts. Neither party articulates the issue as

6

a failure to preserve ESI within the meaning of Rule 37(e) and, instead, the parties focus on the
spoliation analysis as set forth in Bull and related cases. 5 But the allegedly spoliated evidence in
this case is email, which is undeniably ESI. Where, as here, the issue of spoliation turns on a
party’s loss or destruction of ESI, Rule 37(e) appears to govern the analysis. 6
Before turning to the requirements of subsections (e)(1) and (e)(2), the Court must first
address the threshold issues of Rule 37(e) – i.e., whether CIGNEX should have preserved former
employees’ email because litigation was ongoing or anticipated, whether CIGNEX failed to take
reasonable steps to preserve the email, and whether the lost information cannot be restored or
replaced via other discovery. See FED. R. CIV. P. 37(e) (preamble). As to the first two, the Court
finds that CIGNEX should have preserved at least some of these email accounts in anticipation of
litigation, but it failed to take reasonable steps to do so. 7 Although Lam claims that litigation was
reasonably foreseeable when it stopped paying as of August 2015, CIGNEX maintains that
litigation was not reasonably foreseeable until the stop-work order issued on August 5, 2016.
(See D.I. 61 at 14 (“[T]he only logical point at which litigation would be reasonably foreseeable

5

In fact, neither Lam nor CIGNEX even cite Rule 37(e) in their briefs.

6

There appears to be a question as to whether the Court may deviate from Rule 37(e) – i.e.,
use its inherent authority to impose sanctions – when the spoliation issue is based on the
loss or destruction of ESI. The Advisory Committee Notes to the 2015 Amendment to
Rule 37(e) state that the rule “forecloses reliance on inherent authority or state law to
determine when certain measures should be used” as a sanction for a party’s loss of ESI
that should have been preserved. See FED. R. CIV. P. 37(e) Advisory Committee Notes to
2015 Amendment. The Supreme Court, however, has made clear that “the inherent power
of a court can be invoked even if procedural rules exist which sanction the same conduct.”
Chambers v. NASCO, Inc., 501 U.S. 32, 49 (1991).

7

Rule 37(e) follows the “reasonable foreseeability” test for determining whether
information should have been preserved in anticipation of litigation. See FED. R. CIV. P.
37(e) Advisory Committee Notes to 2015 Amendment (“Many court decisions hold that
potential litigants have a duty to preserve relevant information when litigation is reasonably
foreseeable. Rule 37(e) is based on this common-law duty; it does not attempt to create a
new duty to preserve.”).
7

to an objective litigant is when Lam issued the stop work order to Cignex on August 5, 2016.”)).
The Court disagrees with both parties, instead finding that litigation was reasonably foreseeable at
least as of late April or early May of 2016. By that point in time, Lam had informed CIGNEX that
litigation would be forthcoming if the situation did not improve, and CIGNEX was preparing a
reply indicating it would not “respond favorably” to a legal option.

(D.I. 62, Ex. 1 at

CIGNEX00043; see also D.I. 68, Ex. F at LAM 70). Once litigation was reasonably foreseeable
to CIGNEX, it should have (and could have) preserved emails of former employees, including
Omaprakash Misha, Dhaval Joshin and Subramaniam Pillai, all of whose email was still stored on
CIGNEX’s internal system well after litigation was foreseeable. 8 Even after that, CIGNEX could
have avoided the loss by continuing to pay AppRiver to store emails, but chose not to. The Court
thus finds that CIGNEX failed to take reasonable steps to preserve the emails of Mr. Misha, Mr.
Joshin and Mr. Pillai, all of which should have been preserved in anticipation of litigation. 9
As to the third threshold issue of Rule 37(e), Lam has not shown that the lost emails “cannot
be restored or replaced through additional discovery.” FED. R. CIV. P. 37(e); see also Monolithic
Power Sys., Inc. v. Intersil Corp., No. 16-1125-LPS, 2018 WL 6075046, at *3 (D. Del. Nov. 19,
2018) (sanctions under Rule 37(e) inappropriate where defendant failed to show missing instant
messages “cannot be restored or replaced through additional discovery”). Perhaps this failure is

8

There is an argument that CIGNEX should also have attempted to retrieve the emails of
Payal Shah from AppRiver in the thirty days following his April 1, 2016 termination.

9

Even under CIGNEX’s proposed date for reasonable foreseeability of litigation –
August 5, 2016 – there is no explanation for CIGNEX’s failure to preserve the email of
Mr. Pillai. CIGNEX admits that it has access to a former employee’s email for at least
thirty days after it stops storing them internally, and it was not until August 4, 2016 that
Mr. Tadeparti announced that he no longer needed Mr. Pillai’s emails. (D.I. 62 ¶ 22;
see also D.I. 61 at 6 n.3). There is no doubt that CIGNEX had until at least
September 4, 2016 to preserve Mr. Pillai’s emails, and the Court is troubled by CIGNEX’s
inexplicable failure to do so.
8

not surprising given that Lam did not address CIGNEX’s conduct under Rule 37(e), yet because
neither party suggests to the contrary, the Court will presume that the lost emails of Mr. Misha,
Mr. Joshin and Mr. Pillai cannot, at this point, be restored or replaced through additional discovery.
See, e.g., Moody v. CSX Transportation, Inc., 271 F. Supp. 3d 410, 429 (W.D.N.Y. 2017)
(“Nothing in the record before the Court suggests that the event recorder data may be restored or
replaced, and defendants have not argued otherwise. Accordingly, the Court concludes that this
element of Rule 37(e) has been met.”).
Turning to the specifics of subsections (e)(1) and (e)(2), the Court finds that Lam has not
made a sufficient showing to invoke the severe sanctions of the latter. Although Lam claims that
CIGNEX’s conduct amounts to “willful spoliation,” Lam fails to point to any facts that support a
finding that CIGNEX acted in bad faith or with “intent to deprive another party of the information’s
use in the litigation,” as required by Rule 37(e)(2). Therefore, to the extent that CIGNEX’s failure
to preserve its former employees’ email is actionable, the Court proceeds under Rule 37(e)(1),
which allows the Court to impose curative measures only “upon a finding of prejudice to another
party from the loss of the information.” FED. R. CIV. P. 37(e)(1). “An evaluation of prejudice
from the loss of information necessarily includes an evaluation of the information’s importance in
the litigation.” Monolithic Power, 2018 WL 6075046, at *1 (quoting Rule 37(e)(1) Advisory
Committee Notes to 2015 Amendment); see also Eshelman v. Puma Biotechnology, Inc., No. 7:16CV-18-D, 2017 WL 2483800, at *5 (E.D.N.C. June 7, 2017) (“In order to impose a sanction under
Rule 37(e)(1), the court must have some evidence regarding the particular nature of the missing
ESI in order to evaluate the prejudice it is being requested to mitigate.”). Rule 37(e)(1) does not
impose a burden on any party to either prove or disprove prejudice – rather, the Court is to use its

9

discretion to assess whether prejudice exists from the loss of ESI (including which party should
bear the burden). See FED. R. CIV. P. 37(e)(1) Advisory Committee Notes to 2015 Amendment.
Lam claims that it has suffered prejudice because the lost emails may have contained
information showing, inter alia, how CIGNEX viewed the Agreement (“deliverable” vs. “time and
material” contract), how CIGNEX understood the technical requirements of the MyLam/PK
redesign project, why CIGNEX continued to work despite nonpayment, etc. (See D.I. 55 at 14).
CIGNEX, on the other hand, claims that it has no idea whether the lost information would have
been favorable to Lam and, in fact, argues that the information “might very well” have been
favorable to CIGNEX. (D.I. 61 at 17; see also D.I. 62 ¶ 23). In support, CIGNEX states that its
email-retention policy is content-neutral and, once the employee departs and their emails are no
longer needed, all emails are deleted – including ones that may be favorable to CIGNEX. (D.I. 61
at 17; see also D.I. 62 ¶ 12).
As discussed above, only the emails of Mr. Misha, Mr. Joshin and Mr. Pillai clearly
constitute lost ESI that CIGNEX should have preserved in anticipation of litigation within the
meaning of Rule 37(e). Whether the burden here is on Lam to show prejudice from the loss of
these emails, or whether the burden is on CIGNEX to show Lam has not suffered prejudice from
the loss, the Court concludes that there is insufficient evidence either way. Lam’s suggestion as
to the potential contents of the lost emails appears to be speculation. Although CIGNEX asserts
that its policy is content-neutral, it likewise does not offer any meaningful showing as to the
contents of the lost emails one way or the other. On this record, the Court cannot conclude that
Lam has been prejudiced by the loss of Mr. Misha, Mr. Joshin and Mr. Pillai’s emails.10 That

10

Additionally, although not dispositive, it is worth noting that Lam never attempted to obtain
any of the lost emails from AppRiver, CIGNEX’s third-party vendor. That Lam failed to
pursue other possible avenues to obtain these emails (e.g., a subpoena to AppRiver) may
10

there is insufficient evidence of prejudice means that a curative measure under Rule 37(e)(1) is
inappropriate.
Finally, for the sake of completeness, even if the spoliation analysis were to proceed
outside the context of Rule 37(e), the Court would decline to impose sanctions using its inherent
authority. To invoke the Court’s inherent power to sanction spoliation, Lam must satisfy the
elements of spoliation under Third Circuit law, which requires a showing of bad faith. See Bull,
665 F.3d at 79. As discussed above, Lam has not shown that CIGNEX’s failure to preserve the
email of certain former employees was willful, intentional or otherwise done in bad faith. Under
these facts, the Court does not believe that sanctions are warranted.
IV.

CONCLUSION
For the foregoing reasons, Lam’s motion for a finding of spoliation and sanctions (D.I. 54)

is DENIED. An appropriate order will follow.

suggest that any prejudice from the loss is not as significant as Lam claims. See Medeva
Pharma Suisse A.G. v. Roxane Labs., Inc., No. 07-5165 FLW, 2011 WL 310697, at *16
n.7 (D.N.J. Jan. 28, 2011) (“While not necessary for the Court to reach this conclusion, the
fact that Medeva never sought to obtain the missing Anapharm documents directly from
Anapharm, reinforces the Court’s determination that Medeva has not been prejudiced by
their nonproduction.”).
11