Integrated Communications & Technologies, Inc. et al v. Hewlett-Packard Financial Services Company et al

Filing 368

District Judge Leo T. Sorokin: ORDER entered. Defendants' 320 Motion for Spoliation Sanctions is ALLOWED IN PART insofar as the Court: (a) finds that Plaintiffs willfully and recklessly destroyed various kinds of evidence that was potentially relevant to this litigation after their duty to preserve such evidence had been triggered, and (b) imposes the sanctions detailed in the Order. The motion is otherwise DENIED. (Montes, Mariliz)

Case 1:16-cv-10386-LTS Document 368 Filed 08/13/20 Page 1 of 12

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

INTEGRATED COMMUNICATIONS &
TECHNOLOGIES, INC. et al.,
Plaintiffs,
v.
HEWLETT-PACKARD FINANCIAL
SERVICES COMPANY et al.,
Defendants.

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Civil No. 16-10386-LTS

ORDER ON MOTION FOR SPOLIATION SANCTIONS (DOC. NO. 320)
August 13, 2020
SOROKIN, J.
Defendants seek various sanctions pursuant to Fed. R. Civ. P. 37(e) for Plaintiffs’ alleged
failure to preserve—and their alleged deliberate or reckless spoliation of—electronically stored
information (ESI) potentially relevant to this litigation. Doc. No. 320.1 The motion is fully briefed
and the Court heard argument on July 9, 2020. For the reasons that follow, the Defendants’ motion
is ALLOWED IN PART insofar as the Court: (a) finds that Plaintiffs willfully and recklessly
destroyed various kinds of evidence that was potentially relevant to this litigation after their duty
to preserve such evidence had been triggered, and (b) imposes the sanctions detailed below. The
motion is otherwise DENIED.

Citations to “Doc. No. __” reference documents appearing on the court’s electronic docketing
system; pincites are to the page numbers in the ECF header.
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I.

FACTS
The events that gave rise to this litigation began in early 2012, when Plaintiff ICT received

certain “H3C-manufactured” transceivers it had purchased from Defendant HPFS India and
discovered that the equipment “was in a substandard condition (scrap-grade), with physical
damage, rust, scratches and other defects, and not marketable as anticipated.” Doc. No. 101
¶¶ 26, 47; Doc. No. 321-10 at 7-8 (supplemental response to interrogatory). A dispute arose
between Plaintiffs and Defendants over the ensuing months regarding the quality of the
transceivers. By July 2012, Mr. Alexander Pekar, the then-employee of ICT who had established
ICT’s relationship with HP, was “working hard with HP on the price reduction for the remainder
of H3C shipments.” Doc. No. 321-10 at 8 (supplemental response to interrogatory).
On December 9, 2012, the Chinese police raided ICT’s offices, seized 781 transceivers,
and arrested Plaintiffs Cathy Yu and Jason Yuyi based on allegations that they were selling
counterfeit H3C equipment. Doc. No. 341 (Joint Statement of Undisputed Facts) ¶¶ 7, 9. Their
supervisor, Plaintiff Jade Cheng, was arrested on December 21, 2012, when he went to the Haidian
Detention Center searching for his missing colleagues. Id. ¶ 8; Doc. No. 101 ¶ 55. Plaintiffs allege
that the raid and arrests were precipitated by a report to the Chinese police alleging that ICT was
selling counterfeit H3C equipment. Doc. No. 341 ¶ 10. When the Individual Plaintiffs were
arrested, the Chinese police also seized their personal laptop computers, which the Individual
Plaintiffs had used for ICT-related work. Doc. No. 321-36 (Styller Dep. Tr.) at 12:10-16:22.
Plaintiff Styller has testified that after Individual Plaintiffs Cathy Yu and Jason Yuyi were
arrested, and before Plaintiff Jade Cheng went to the police department in search of them, Styller
authorized the erasure of the Individual Plaintiffs’ email accounts, and that of another then-current
ICT employee, Ryan Quinn, at Cheng’s request, so as to prevent the Chinese police from accessing

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the content of those accounts. Doc. No. 321-35 (Styller Dep. Tr.) at 201:18-203:19; 206:23-209:9;
220:7-15; 231:17-232:14; 238:13-239:4. Cheng transmitted his request that Styller authorize the
deletion of their email accounts through Quinn. Id. 201:18-203:19; 205:20-206:17. Styller
complied with the request immediately.

Id. at 209:1-9.

The accounts contained email

correspondence on which Plaintiff Styller was not copied. Id. at 100:13-17; 109:3-1011:11; 125:413; 135:5-139:22; 140:11-141:7; 143:16-19. Plaintiffs did not first backup the emails or take any
other steps to preserve the information the emails contained before destroying them, and they are
not preserved.
In February 2013, Plaintiff Styller and another ICT employee assessed their damages from
the “ruined” operation in China at over $2 million. Doc. No. 321-43 at 2. The following month,
they discussed the question of where a legal action to resolve the dispute might be brought, noting
that the contract between the parties identified Massachusetts as the proper forum. Doc. No. 32144 at 2. Also in March 2013, they discussed the possibility that the Family Plaintiffs would bring
a lawsuit against HP in China, and the possibility that ICT would also sue HP and share any
compensation it received with the Family Plaintiffs. Doc. No. 321-46 at 2.
For documents created as far back as April 2, 2013, Plaintiffs have claimed work product
protection for documents on the ground the documents were prepared in anticipation of litigation.
See Doc. No. 321-16 at 2 (privilege log). On June 10, 2013, Plaintiff Styller sent various law firms
a factual “brief” describing the facts giving rise to this lawsuit. See Doc. Nos. 321-47, 321-48,
321-49. The following month, Ryan Quinn, a former employee of Plaintiff ICT, informed one of
the Family Plaintiffs that Styller was planning to sue HP. Doc. No. 321-50. Also in July 2013,
Styller emailed a Chinese lawyer to discuss the potential “case against HP/H3C” and whether they
should “sue H3C in China.” Doc. No. 321-52 at 11-12.

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On July 17, 2013, the Individual Plaintiffs were released on bail after 7 months’
incarceration, and Chinese authorities later issued them “no criminal record” letters. Doc. No. 341
¶ 11. Plaintiffs continued to pursue non-litigious resolutions of their dispute with defendants
throughout 2013 and 2014. Doc. No. 344 at 8-12. Plaintiff Styller has testified that he first
anticipated litigation by late spring/early summer 2014. Doc. No. 321-35 at 311:24–312:6.
Sometime in the summer or early fall of 2014, the Individual Plaintiffs were asked to
retrieve their seized belongings from the police. These included their personal laptop computers,
which they had used for ICT-related business in China (the Seized Computers). Doc. No. 321-36
(Styller Dep. Tr.) at 18:21–19:14; 20:24–22:17; 25:5–27:8; 34:4–35:5; Doc. No. 321-35 (Styller
Dep. Tr.) at 101:19–22; 259:18–24; Doc. No. 321-54. The Seized Computers apparently did not
work when they were retrieved from the Chinese police, so the Individual Plaintiffs sold them for
parts to avoid the cost of repair. Doc. No. 321-36 (Styller Dep. Tr.) at 31:7–32:21; 35:6–39:5.
They did so without first retrieving any data off of the Seized Computers. Doc. No. 321-36 (Styller
Dep. Tr.) at 37:22–39:12. There is no evidence suggesting that anyone undertook a forensic
examination of these computers.
Around the same time—July to September 2014—ICT migrated its email from a physical
server to the cloud (the “Email Migration”). Doc. No. 321-35 (Styller Dep. Tr.) at 60:23–61:9;
189:9–190:22; Doc. No. 321-42. The Individual Plaintiffs’ emails and those of ICT employee
Ryan Quinn had already been erased so they were not affected by the Email Migration. Doc. No.
321-35 (Styller Dep. Tr.) at 194:8–200:8; 205:16–207:9; 231:18–232:5; 235:22–237:4; Doc. No.
321-9. When ICT decided to migrate its email from a physical server to the cloud, it made a
business decision to migrate only the emails of its then-current employees. Doc. No. 321-35
(Styller Dep. Tr.) at 96:7–11; 192:2–194:1. It therefore did not migrate the emails of its former

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employee, Alexander Pekar, who had “developed the relationship between ICT and HP,
communicated about the equipment, and traveled to India to inspect equipment not yet shipped to
and ultimately not purchased by ICT.” Doc. No. 322 at 9-10 (citing amended complaint, Doc. No.
101 ⁋⁋ 25-36, 50). ICT then “repurposed” the storage device backing up the physical server
resulting in the overwriting, over time, of Mr. Pekar’s email account. Doc. No. 321-35 (Styller
Dep. Tr.) at 86:17–20; 88:3–20; 92:17–94:7; 186:8–188:2; 190:23–192:1; 233:18–234:13; Doc.
No. 321-42.
In December 2015, ICT and some of the other Plaintiffs filed an action in state court against
some of the Defendants. Those Defendants removed the action to federal court. Thereafter, the
original Plaintiffs amended the complaint adding claims, plaintiffs and defendants. Not until
March 2016 did Plaintiffs’ counsel issue any litigation hold notice. Doc. No. 321-10 at 9
(supplemental response to interrogatory). The hold was issued verbally, not in writing, and only
to Plaintiff Styller, who did not communicate it to anyone else. See Styller Dep. Tr. (Doc. No. 32135) at 288:1–290:17. Styller “told no one to preserve evidence. Even when ICT migrated its
emails, Styller did not tell any IT personnel or the outside vendor performing the migration about
the need to preserve any evidence.” Doc. No. 322 at 17 (citing Styller Dep. Tr. (Doc. No. 321-35)
at 190:23–194:1).
II.

LEGAL STANDARD
“The duty to preserve evidence arises when litigation is reasonably anticipated.” Gordon

v. Dreamworks Animation SKG, Inc., 935 F. Supp. 2d 306, 314 (D. Mass. 2013) (internal
quotation marks and citation omitted). “Spoliation can be defined as the failure to preserve
evidence that is relevant to pending or potential litigation.” Gonzalez-Bermudez v. Abbott Labs.
PR Inc., 214 F. Supp. 3d 130, 160 (D.P.R. 2016) (internal quotation marks and citation omitted).

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Courts have inherent power to impose sanctions on parties that have spoliated evidence.
Chambers v. NASCO, Inc., 501 U.S. 32, 43-45 (1991). “In determining what sanctions to apply
upon a finding of spoliation, courts consider, among other things, whether a party acted in good
faith or bad faith, and whether prejudice resulted from the destruction of evidence.” Hefter Impact
Techs., LLC v. Sport Maska, Inc., No. 15-13290-FDS, 2017 U.S. Dist. LEXIS 122122, *21-22
(D. Mass. Aug. 3, 2017). “[O]f particular importance when considering the appropriateness of
sanctions is the prejudice to the non-offending party and the degree of fault of the offending party.”
Collazo-Santiago v. Toyota Motor Corp., 149 F.3d 23, 29 (1st Cir. 1998).
“Willful or purposeful destruction of relevant evidence can lead to the ‘ultimate’ sanction
of dismissing a claim. Courts may also impose the lesser sanction of an adverse inference in cases
of willful destruction of documents.” In re Pharm. Indus. Average Wholesale Price Litig., No. 0112257-PBS, 2007 U.S. Dist. LEXIS 100125, *70 (D. Mass. Mar. 14, 2007) (internal citation
omitted). Mere negligence may also be sufficient to merit sanctions. Id. (citing Sacramona v.
Bridgestone/Firestone Inc., 106 F.3d 444, 447 (1st Cir. 1997)).
Rule 37(e) of the Federal Rules of Civil Procedure permits a variety of sanctions for
spoliation of evidence, which vary in accordance with the prejudice to the moving party and the
intent of the spoliator. Rule 37(e)(1) provides that “[i]f 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: (1) upon finding prejudice to another party from loss of the information, may
order measures no greater than necessary to cure the prejudice.” Fed. R. Civ. P. 37 (e)(1).
More severe sanctions are available under Rule 37(e)(2), which applies “only upon finding
that the party acted with the intent to deprive another party of the information’s use in the

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litigation.” Fed. R. Civ. P. 37(e)(2). If the court makes such a finding, it “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.” Id.
The First Circuit has explained that “[t]he intended goals behind excluding evidence, or at
the extreme, dismissing a complaint, are to rectify any prejudice the non-offending party may have
suffered as a result of the loss of evidence and to deter any future conduct, particularly deliberate
conduct, leading to such loss of evidence.” Sharp v. Hylas Yachts, LLC, 872 F.3d 31, 42 (1st Cir.
2017) (quotation marks and citation omitted). “While a district court has broad discretion in
choosing an appropriate sanction for spoliation, the applicable sanction should be molded to serve
the prophylactic, punitive, and remedial rationales underlying the spoliation doctrine.”

Id.

(quotation marks and citation omitted). The court has counseled that in light of its “preference
that adjudications be driven by the merits of a case, . . . dismissal should be granted only in
extreme cases.” Id. (quotation marks, modification, and citations omitted).
III.

DISCUSSION
Plaintiff Styller conceded in his testimony that he anticipated litigation by late spring/early

summer 2014, before ICT undertook the Email Migration. Doc. No. 321-35 at 3011:24–312:6.
Clearly, Plaintiffs had a duty to preserve any ESI they had at that time that might be relevant to
this litigation—including most particularly the email of their former employee, Alexander Pekar,
who had established the relationship with HP and was with ICT as the events giving rise to this
litigation unfolded. They did not do so.
But the record shows that Plaintiffs anticipated litigation well before the late spring/early
summer of 2014. By their own (albeit implicit) admission, Plaintiffs anticipated litigation by April

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2, 2013, because they have claimed work product protection going back that far. See Doc. No.
321-16 at 2 (privilege log). The work product doctrine protects work done by an attorney in
anticipation of litigation from discovery by the opposing party. Blattman v. Scaramellino, 891
F.3d 1, 4 (1st Cir. 2018). Thus, claiming work product protection for a document withheld from
discovery is an admission that litigation was anticipated at the time the document was created.
Plaintiffs cannot in the same breath both claim and dispute that they anticipated litigation as of
April 2, 2013.
Other evidence confirms the basis for the privilege assertion as 2013 progressed. On June
10, 2013, Plaintiff Styller sent various law firms a factual “brief” describing the facts giving rise
to this lawsuit. See Doc. Nos. 321-47, 321-48, 321-49. The following month, in July 2013, ICT
employee Ryan Quinn, informed one of the Family Plaintiffs that Styller was planning to sue HP.
Doc. No. 321-50. The same month, Styller emailed a Chinese lawyer to discuss the potential “case
against HP/H3C” and whether they should “sue H3C in China.” Doc. No. 321-52 at 11-12.
Plaintiffs’ anticipation of litigation did not begin on April 2, 2013, however. In February
2013, Plaintiff Styller and another ICT employee assessed their damages from the “ruined”
operation in China at over $2 million. Doc. No. 321-43 at 2. This was plainly an evaluation with
an eye toward litigation. The following month, in March 2013, they discussed the question of
where a legal action to resolve the dispute might be brought, noting that the contract between the
parties identified Massachusetts as the proper forum. Doc. No. 321-44 at 2. They also discussed
the possibility that the Family Plaintiffs would bring a lawsuit against HP in China, and the
possibility that ICT would also sue HP and share any compensation it received with the Family
Plaintiffs. Doc. No. 321-46 at 2.

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Plaintiffs argue that these communications are irrelevant because Plaintiffs continued to
pursue non-litigious resolutions throughout 2013 and 2014, and that the prospect of litigation was
therefore neither desired nor likely at that time. Doc. No. 344 at 8-12. That is not the issue. The
question is not whether Plaintiffs desired litigation or whether they believed it was likely. The
question is whether they reasonably anticipated litigation. In re Pharm. Indus. Average Wholesale
Price Litig., 2007 U.S. Dist. LEXIS 100125, *73 (“The weight of authority indicates that a duty to
preserve evidence arises when a party knows or should know about potential litigation.”). All of
the foregoing facts triggered Plaintiffs’2 duty to preserve evidence by the spring of 2013.
The Court finds, however, that Plaintiffs reasonably anticipated litigation even earlier—at
least by the time of the arrest of the first two ICT employees in December 2012. At that point,
Plaintiffs had been unhappy for some time with Defendants’ performance under the contract and
they were arrested for selling goods that they then believed and still believe they received from
Defendants, which, according to the Chinese police, were counterfeit.

Thus, Plaintiffs’ duty to

preserve evidence was triggered at least by December 2012, when the Individual Plaintiffs were
arrested.
From the time their duty to preserve evidence arose, Plaintiffs breached their duty by:
(a) willfully destroying the Individual Plaintiffs’ work email accounts without first backing them
up, (b) willfully failing to preserve additional evidence by selling their Seized Computers for parts
without recovering any information that may have been stored on those computers, (c) recklessly
undertaking the Email Migration in 2014 without preserving the emails of a former company
employee, Alexander Pekar, who had knowledge of the relevant events as they unfolded in 2012,

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The Court need not probe here whether the duty arose at different times for different Plaintiffs.
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and (d) negligently failing to issue a litigation hold until months after this action was initiated and
then failing to communicate it to the relevant employees.
Plaintiffs argue that these actions are of no consequence and that there has been no
prejudice to Defendants because the destroyed and lost evidence was “of marginal value” or
“marginal relevance.” Doc. No. 344 at 5. Unfortunately, Plaintiffs have no evidence to support
this assertion. And contrary to Plaintiffs’ assertions that all relevant emails were preserved during
even when the email accounts of the Individual Plaintiffs were erased after they were arrested
because Plaintiff Styller was copied on all emails, Doc. No. 344 at 5, Plaintiff Styller himself
concedes that he was not copied on all the emails of the Individual Plaintiffs, who are Chinese
nationals, because these emails were often in Chinese, which Styller does not read, see Doc. No.
322 at 14 (“Styller also now concedes that he was not copied on all correspondence sent or received
by these custodians (he does not speak Chinese), despite Plaintiffs’ prior position that nothing of
substance could have been lost because Styller was copied on all email.”) (citing Styller Dep.
Tr. (Doc. No. 321-35) at 100:13–17; 109:3–111:11; 125:4–13; 135:5–139:22; 140:11–141:7;
143:16–19). It is not possible now to recover all that was lost, much of which consisted of highly
relevant and material documents that were otherwise unavailable.
The Court need not now determine whether Plaintiffs’ various actions were motivated by
bad faith or by an intent to deprive Defendants of relevant evidence. Nevertheless, “mere
negligence in the destruction of evidence is sufficient to merit sanctions” if the prejudice to the
non-offending party is substantial. In re Pharm. Indus. Average Wholesale Price Litig., 2007 U.S.
Dist. LEXIS 100125, at *70. Given the facts recited above, the Court finds that the prejudice to
Defendants from the destroyed or lost evidence is substantial. The parties’ key disputes include
the circumstances surrounding the sale of the transceivers at issue, the items the ICT employees

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sold in China, and the post-sale communications between the parties. Meaningful discovery on all
of these questions has been lost due to Plaintiffs’ actions. Thus, pursuant to Rule 37(e)(1), the
Court orders that in connection with Plaintiffs’ claims and Defendants’ corresponding defenses
thereto, the Court will consider imposing all of the following sanctions: (a) permitting the
introduction of evidence, by all parties, regarding the destruction or loss of evidence as well as the
reason(s) therefor; (b) precluding testimony from Plaintiffs regarding the content of any
unpreserved ESI; and (c) an appropriate instruction permitting the drawing of an adverse inference.
Defendants also request that, pursuant to Rule 37(e)(2), the Court draw an adverse
inference against Plaintiffs in connection with Defendants’ pending motion for summary judgment
as to the counterfeiting claims. Doc. No. 322 at 23. Specifically, Defendants ask the Court to
draw an adverse inference against Plaintiffs regarding 31 transceivers that did not appear on
Plaintiffs’ inventory list, and whose origin is a matter of dispute between the parties. Id. The
Parties agree that the 31 transceivers at issue were counterfeit but disagree as to who supplied
them. Insofar as Defendants request that the Court (1) draw an adverse inference against Plaintiffs
regarding the origin of the 31 counterfeit transceivers, and (2) allow their motion for summary
judgment as to those transceivers based upon that inference coupled with the fact that these
transceivers do not appear on the Plaintiffs’ inventory list, the request is DENIED WITHOUT
PREJUDICE.

The Court will consider Defendants’ request later when it determines the

appropriate response to Plaintiffs’ discovery actions.

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IV.

CONCLUSION
For the foregoing reasons, Defendants’ motion for spoliation sanctions (Doc. No. 320) is

ALLOWED IN PART as described herein and is otherwise DENIED.
SO ORDERED.

/s/ Leo T. Sorokin
Leo T. Sorokin
United States District Judge

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