Babcock Power Inc. et al v. Kapsalis

Filing 488

MEMORANDUM OPINION AND ORDER signed by Senior Judge Charles R. Simpson, III on 1/4/2018. For the reasons set forth, Plaintiff's 477 Renewed Motion to Amend Scheduling Order to Permit Limited Discovery is GRANTED. Parties shall CONFER AND TENDER an agreed order of discovery consistent with this Memorandum Opinion and Order within FOURTEEN (14) DAYS FROM THE DATE OF ENTRY OF THIS ORDER. cc: Counsel(RLK)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
AT LOUISVILLE

BABCOCK POWER INC., et al.

v.

PLAINTIFFS

NO. 3:13-CV-717-CRS

STEPHEN T. KAPSALIS, et al.

DEFENDANTS

MEMORANDUM OPINION AND ORDER

This matter is before the court on the renewed motion of the plaintiffs, Babcock
Power, Inc. and Vogt Power International, Inc. (collectively herein “Babcock”), to amend
the court’s scheduling order to permit additional limited discovery (DN 477).1 Babcock
has sought and been denied this discovery a number of times before, as it did not support
the grounds for its request with an offer of any evidence. Most recently, the court
explained in detail the deficiencies in the motion, and denied the request by order dated
September 28, 2017. However, we noted
Babcock’s assertions concerning hash value analysis and conclusions
concerning the identification and location of Vogt documents is wholly
unsupported. Babcock’s arguments were unsupported in March of 2017
(DNs 426, 432) and permission to engage in additional discovery of the
Express server was denied by the magistrate judge at that time. (DN 445).
These arguments remain unsupported and wholly unsubstantiated now.
While the court is aware that Kapsalis was ordered to turn over hash value
data, and did so, after the discovery deadline, that point begs the question.
In order to reopen discovery, the court must be given a properly supported
ground for doing so. By agreement of the parties, forensic analysis was
performed on Express’ server during the discovery period. It did not yield
the results hoped for by Babcock. September 2017 is not a time for a
discovery do-over, however.

1

Three motions for leave to file exhibits to the memoranda under seal (DNs 478, 482, and 485) have been granted by separate
order of the court.

If Babcock properly establishes that its analysis of the post-discovery
production of hash value data ordered by the magistrate judge revealed six
documents on the Express server not identified by the prior forensic
analysis, Babcock should be afforded the opportunity to ask One Source
Discovery if it has additional information concerning “when the six Vogt
Power documents…were transferred onto Express’s server, where they
were transferred to and whether they have been opened and/or changed.”
(DN 461-1, Tendered Order). The court has not been shown any ground,
either factual or legal, for the additional relief Babcock seeks – a
reopening of expert discovery (Babcock seeks leave to “disclose any new
or supplemental expert opinions based upon the newly provided hash
values”), and leave to depose Innova Global, Inc., the apparent purchaser
of the servers from the bankruptcy estate.
Babcock, who apparently took no action to protect its interests in the
bankruptcy court, will be hard pressed to convince this court to permit
Babcock to peek under the tent of an entity who has no connection to this
litigation and was presumably a bona fide purchaser for value in that sale
by the trustee. Babcock admits having received notice of the impending
sale from the bankruptcy court.
Babcock has not established grounds for amendment of the scheduling
order. That motion will also be denied.

DN 470, p. 5.
Kapsalis objected to additional discovery and continues to object to the current
motion. Kapsalis raises the same arguments as made previously, but Babcock’s motion
differs significantly from its prior submissions. This time, the motion is well-grounded in
evidence, evidence which accompanies the motion, and the motion substantiates the
request for additional limited discovery.
The court’s ruling compelling the production

of the so-called “hash value

evidence” lagged behind the discovery cut-off dates in the case. On December 6, 2016,
the court ordered Kapsalis to produce “a listing of all of the hash values of every file on
the Express server at the time it was analyzed by [One Source Discovery], as well as the

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information reviewed by OSD and Dr. Cobb on Kapsalis’s Express laptop, including
LNK files, jump lists, and registry hives.” DN 381, p. 7. The order compelling discovery
was granted in order to permit Babcock to evaluate the grounds for Kapsalis’ expert’s
opinions:
The Court rejects Kapsalis’s assertion that he has provided the facts and
data relied upon by Dr. Cobb because the MD5 hash values, Bates
number, and file names of the approximately 760 files identified by
plaintiffs were produced. “The purpose of such disclosure [i.e., the facts
and data considered] is to allow opposing parties a ‘reasonable opportunity
to prepare for effective cross examination and perhaps arrange for expert
testimony from other witnesses.’” City of Owensboro v. Kentucky Utilities
Co., No. CIV.A.4:04CV-87-M, 2008 WL 4542674, at *2 (W.D. Ky. Oct.
8, 2008) (quoting advisory committee notes to Rule 26(a)(2)). Simply
providing plaintiffs with the 760 files and nothing else does not serve this
purpose or comply with Rule 26(a)(2)(B)(ii). That said, plaintiffs are not
entitled to a copy of the Express server and Kapsalis’s Express laptop in
full either. Although Dr. Cobb’s report could have been more clearly
worded, he clarified under oath at his deposition that the hash values on
the live Express server were extracted using a program called X-ways, and
that a hash value comparison of the 760 files identified by plaintiffs was
run against the hash values on the live Express server as of April 2016.
(DN 289-3, pp. 9-10, 13, 20.) Additionally, Dr. Cobb testified that the
hash values of the various Kapsalis devices were compared against
Kapsalis’s Express laptop. (Id. at 7-8, 15, 22.) Thus, Kapsalis shall
provide, as was offered, a listing of all of the hash values of every file on
the Express server at the time it was analyzed by OSD, as well as the
information reviewed by OSD and Dr. Cobb on Kapsalis’s Express laptop,
including LNK files, jump lists, and registry hives.

DN 381, pp. 6-7.
In sum, as the court noted in the September 2017 Order, Babcock is not entitled to
a discovery do-over. Babcock is not entitled to a copy of the Express server or Kapsalis’
Express laptop. While Babcock has come forward with evidence to establish that the
search by Digital Strata for Babcock’s files on the Express server was flawed, Babcock is
not entitled to a second attempt. The parties agreed to the use of Digital Strata to perform
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a search of the Express server and they agreed-upon the protocol. Digital Strata did not
discover any files residing on the Express server. That topic has been exhaustively
discussed and put to rest at a prior time. We will not revisit any such discussion here.
Rather, the discovery of matching hash values was made by Babcock as a result
of the compelled disclosure of hash value evidence made in January, 2017, long after the
close of discovery. Kapsalis’ expert provided the hash value data he used in his analysis
which was then utilized by Babcock’s expert, Lacey Walker, Jr.in his own hash value
comparison.
The hash value analysis performed by Walker yielded 3,526 files on the Express
server which had hash values matching the hash values of files on Kapsalis’ Western
Digital Hard Drive. After excluding “picture files,” Walker found 765 remaining files
with matching hash values. Of this 765 files, Babcock identified six files which it
reviewed and confirmed consisted of Vogt’s pipe stress model files in live/native format
for the Parnaiba project it undertook in Brazil.
There are a number of significant points to be gleaned from this hash value match,
as explained by Babcock.
First, Babcock has come forward with evidence that the hash value matches found
through the comparison of these “digital fingerprints,” is 99.99% reliable in establishing
that the files are identical on the Express server and the Western Digital Hard Drive. The
mathematical algorithm “generate[s] numerical values so distinctive that the chances that
any two data sets will have the same hash value, no matter how similar they appear, is
less than one in one billion.” Managing Discovery of Electronic Information: A Pocket

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Guide for Judges. As explained succinctly in U.S. v. Miller, Crim. Action No. 16-47DLB-CJS, 2017 WL 2705963, *1 (E.D.Ky. June 23, 2017),
Hashing is “the process of taking an input data string [from an electronic
image, for example] and using a mathematical function to generate a
(usually smaller) output string.” Richard P. Salgado, Fourth Amendment
Search and the Power of the Hash, 119 Harv. L. Rev. F. 38, 38-39 (2005).
The output string, called the hash value, is a “digital fingerprint” shared by
any duplicate of the input data string. (Doc. # 33-1 at ¶ 4)…Importantly,
hash values are uniquely associated with the input data, meaning that “if
an unknown file has a hash value identical to that of another known file,
then you know that the first file is the same as the second.” Id. at 39-40.

Second, Babcock has come forward with evidence establishing that the matching
files are “live/native pipe stress model files containing temperature data developed using
Plaintiffs’ proprietary Thermal Rating Software and explaining how Plaintiffs design and
evaluate their HRSG products. Babcock has offered evidence that these files were not
made available to the general public and that they resided on Express’ server as late as
March 2016 when Cobb, Kapsalis’ expert, reviewed the hash values on the Express
server live, and formulated his opinions in the case.
Third, the Parnaiba project files were acquired in their native/live format.
According to the declaration of Anthony Thompson, Senior Vice President - Engineering
and Chief Technology Officer at Vogt Power International Inc. and Chief Technology
Officer – Utility for Babcock Power, Inc., the significance of these files in their
live/native format is as follows:
I reviewed six files with the following file names : V I 7466 HPSH
ATTEMP.C2, VI7466 HPSH ATTEMP [I].C2, V I 7466 HPSH
ATTEMP [2].C2, V I 7466 HPSH ATTEMP [3].C2, V I 7466 HPSH
ATTEMP [4].C2 and V I 7466 HPSH ATTEMP.C2.
The above referenced files are live/native C2 files that can be opened
using Caesar II software. The Caesar II software is used for piping
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system design and stress analysis. The live/native version of these files
combined with the Caesar II software allows the person opening the
files to access and review Vogt's stress models, analyze them, and
collect Vogt's design inputs and load cases.
The above referenced files are job specific files concerning a project
in Brazil - Parnaiba, Project Number V l 7466 -that Vogt was hired by
a customer to do.
These files are stress models that contain temperature data from Vogt's
Thermal Rating Software ("TRS program"). The TRS program serves as
the basis for Vogt' s heat transfer surface and performance evaluation
design. The TRS program is the heart of Vogt' s products and every
Vogt design starts with the use of the TRS program and its outputs. The
TRS program is Vogt's proprietary software that was initially developed
by Vogt over the course of a year and has continued to be maintained
and improved at great expense. The TRS program and its corresponding
data are not readily ascertainable by proper means.
How Vogt controls thermal expansion of high energy p1pmg [sic]
systems and optimizes the support arrangements are a significant part
of what makes Vogt HRSG designs, Vogt HRSG designs. Vogt's
HRSG designs are a reflection of years of the company's work and
lessons learned.
The six above referenced files are not readily ascertainable by proper
means. Vogt did not make the files publically available. BPI and Vogt
have undertaken several measures to ensure the continued protection
of their confidential, proprietary, and trade secret information and
materials such as the above referenced files. For example, Vogt's
systems are password protected and Kapsalis was required to sign a
Non-Disclosure, Non-Solicitation, Non-Competition and Assignment
Agreement as a condition of his employment.

DN 477-5, p. 2.
Kapsalis attacks the credibility of Babcock’s representations by referencing past
events, but does not refute the evidence that Babcock has now produced. Kapsalis does
not challenge Walker’s hash value analysis, what the results represent, or how or when
the hash value data was obtained by Babcock for its expert’s review. Kapsalis does not

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challenge that the files discovered are live/native format files for Babcock’s Parnaiba
project, although he makes a passing attempt to refute their proprietary nature. That
Kapsalis suggests that they are not proprietary, that Kapsalis did not take them, or that
nobody has been shown to have reverse-engineered Babcock’s process from those files
does not address the question presently before the court, which is whether Babcock
should be permitted limited discovery concerning the certain files discovered through the
analysis of hash value data provided by Kapsalis’ expert after the close of discovery.
What Kapsalis has not refuted is that, to a virtual certainty, Babcock documents
claimed to be proprietary, confidential and trade secrets, resided on the Express server as
of March 2016 and were discovered after Kapsalis was compelled to produce the hash
value data at a date after the close of discovery. We find that fairness requires that
Babcock be permitted limited discovery concerning the hash value data disclosed to it
January 23, 2017. Babcock seeks to “obtain additional discovery from One Source
Discovery2 including information concerning when the six Vogt Power documents that
the January 2017 Kapsalis hash values establish were transferred onto Express’s server,
how they were transferred, whether other files were transferred at the same time, where
they were transferred to and whether they have been opened.” See DN 477-10, Tendered
Order. At this time we adhere to our prior ruling (DN 470, p. 5) that “The court has not
been shown any ground, either factual or legal, for the additional relief Babcock seeks – a
reopening of expert discovery (Babcock seeks leave to ‘disclose any new or supplemental
expert opinions based upon newly provided hash values’) and leave to depose Innova
Global, Inc., the apparent purchaser of the servers from the bankruptcy estate.” As it is

2

The entity with whom Cobb is affiliated.

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uncertain what, if any, evidence will be developed through additional discovery, it is
premature to discuss supplementation of expert opinions at this time. Further, Babcock
has offered no ground to depose the third-party purchaser of the Express servers.

Therefore, IT IS HEREBY ORDERED AND ADJUDGED that the renewed
motion of the plaintiffs to amend the scheduling order to permit limited additional
discovery (DN 477) is GRANTED to the extent it seeks an additional ninety-day period
in order to obtain additional, limited discovery from One Source Discovery including
information concerning when the six Vogt Power documents that the January 2017
Kapsalis hash values identified were transferred onto Express’ server, how they were
transferred, whether other files were transferred at the same time, where they were
transferred to and whether they have been opened. In all other respects, the motion is
DENIED.
IT IS FURTHER ORDERED that the parties shall CONFER AND TENDER
an agreed order of discovery consistent with this memorandum opinion and order
WITHIN FOURTEEN (14) DAYS FROM THE DATE OF ENTRY OF THIS
ORDER.

January 4, 2018

IT IS SO ORDERED.

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