Gentex Corporation v. Sutter et al
Filing
412
MEMORANDUM AND ORDER granting in part and denying in part 295 Motion for Default Judgment. IT IS HEREBY ORDERED that Plaintiffs Motion for Default Judgment (Doc. 295) is GRANTED IN PART and DENIED IN PART as follows:(1) Plaintiffs Motion for Defau lt Judgment against Defendants Brad Sutter and Patrick Walko is GRANTED. Judgment shall be entered in favor of the Plaintiff and against Sutter and Walko.(2) Plaintiffs Motion for Default Judgment against BAE Systems Aerospace & Defense Group Inc., BASE Systems AH Inc., and BAE Systems Specialty Defense Systems of Pennsylvania, Inc. is DENIED. Signed by Honorable A. Richard Caputo on 10/24/11 (jam, )
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
GENTEX CORPORATION,
CIVIL ACTION NO. 3:07-CV-1269
Plaintiff,
(JUDGE CAPUTO)
v.
BRAD SUTTER, PATRICK WALKO, BAE
SYSTEMS AEROSPACE & DEFENSE
GROUP INC., BAE SYSTEMS AH INC.
and BAE SYSTEMS SPECIALTY
DEFENSE SYSTEMS OF
PENNSYLVANIA INC.,
Defendants.
MEMORANDUM
Presently before the Court is Plaintiff’s Motion for Default Judgment. Default
judgment against Defendants Brad Sutter and Patrick Walko1 is appropriate based on
their intentional destruction of relevant evidence, so the Plaintiff’s motion will be granted
in part. But because genuine issues of material fact remain as to whether the Defendant
Corporations engaged in spoliation, the Plaintiff’s motion will be denied in part.
I. Background
Because I write for the parties only, I will only summarize the facts relevant to the
1
Judgment has already been entered by stipulation against Walko on Count I of
Gentex’s complaint under the Computer Fraud and Abuse Act, 18 U.S.C. § 1030. Default
judgment against Walko will therefore only be entered on the remaining two counts against
him: the claim under Pennsylvania’s Uniform Trade Secrets Act, 12 Pa. C.S.A. § 5301 et
seq., and the breach of contract claim.
instant motion.
Plaintiff Gentex instituted this action against the Defendants on July 13, 2007, alleging
violations of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030, and the Pennsylvania
Uniform Trade Secrets Act, 12 Pa. C.S.A. § 5301 et seq., as well as breach of contract and
tortious interference. Gentex alleges that the Defendant Corporations (which I will refer to
collectively as “Armor”)2 induced several of its employees to quit Gentex and work for Armor
in order to obtain Gentex trade secrets involving its design for an Advanced Combat Helmet
(“ACH”). According to Gentex, Defendants Patrick Walko and Brad Sutter copied proprietary
files when they left Gentex and shared them with Armor in violation of their non-disclosure
agreements with Gentex.
On September 27, 2006, upon learning that Sutter was working on ACH design at
Armor, Gentex’s attorney wrote a letter to Sutter advising him that he might be violating the
terms of his non-disclosure agreement as well as Pennsylvania law. (Ex. 11.) The letter
asked Sutter to sign an affidavit swearing that he had not used or disclosed trade secrets,
advising that if he did not sign it, Gentex’s attorney would recommend that the company
“take appropriate action to protect its business and prohibit any further breaches of the
Agreement.” (Id.) Based on the advice of Armor and counsel, Sutter did not sign the
affidavit. (Def.’s Answer ¶ 65.) Gentex sent a similar letter to Walko. (Ex. 15 ¶ 17.)
In a business report dated November 22, 2006, Armor documented Gentex’s
concerns over Sutter’s work on the ACH project, noting, “Our attorney believes they are
2
At the inception of this litigation, Defendant Corporations were known as Simula
Aerospace & Defense Group, Inc., Armor Holdings, Inc., and Specialty Defense Systems
of Pennsylvania, Inc. Their formal names have changed as a result of a sale and/or
merger, but they were known collectively as Armor at the time of all relevant events.
2
headed toward filing a lawsuit.” (Ex. 16 at 2.) On December 8, 2006, Gentex filed suit
against Sutter. Armor implemented a litigation hold on January 26, 2007, suspending the
document destruction policy and instructing employees to preserve “all paper documents and
electronically stored information concerning the Company’s relationship with Brad Sutter and
his work while at the Company. . . . from March 2006 until the present.” (Ex. 28 at 1.) The
litigation hold included instructions to preserve backup tapes (Ex. 28 at 3), home and office
computers (Ex. 28 at 2), and removable storage media (id.). Armor’s counsel recommended
that the litigation hold continue “until the resolution of Gentex’s dispute with Brad Sutter.”
(Id. at 3.)
On February 9, 2007, Armor retained First Advantage Litigation Consulting to assist
with evidence preservation and analysis. (Ex. B. at App’x 7.) Armor’s forensic investigation
involved, inter alia: creating ghost images for Sutter, Walko, Vice-President of Engineering
Michael Daly, Senior Vice-President Joe Coltman, and Human Resources Director Taryn
Sickels in January 2007; creating an image for Sutter’s home computer and for six Armor
computers belonging to former Gentex employees Walko, Mary Gowat, Scott Hartley, Cheryl
Nolan, Sandy Gambutti, and Deborah Panna on March 14, 2007; creating an image of
Sutter’s Armor laptop on March 15, 2007; creating an image of Nolan’s thumb drive on
March 29, 2007 and her home computer on April 2, 2007; creating images of thumb drives
belonging to Panna, Walko, and Nolan on May 3, 2007; creating special server backup tapes
between May and November of 2007; and creating forensic images for seventeen other
employee computers between December 13 and 14, 2007. (Id.)
On July 13, 2007, Gentex filed suit against all Defendants, an action which was
consolidated with the December 8, 2006 action against Sutter. In a deposition by Gentex,
3
Sutter testified that he took CDs and thumb drives with Gentex information on them when
he left Gentex. (Ex. 10 at 23:9-24:2.) He states that he may have shared these with Armor
colleagues. (Id. at 66:20-67:2.) Walko testified that Gentex files were stored on Armor
servers and shared over Armor’s e-mail system. (Ex. 15 ¶ 4, 6, 15, 16, 45.) Gentex now
argues that the Defendants intentionally destroyed or allowed the destruction of evidence
in the following ways:
Premature Lift of Litigation Hold: According to Dave Morgan, Armor’s Network
Administrator, “the litigation hold was taken off” a few months after it was put in place. (Ex.
30 at 29:7-19, 31:23-32:2.) Armor disputes this testimony, arguing that the litigation hold
remained in place.
Destruction of Server Back-Up Tapes: Morgan testified that Armor regularly made
backup tapes. (Ex. 30 at 36:16-24, 123:14-24.) Gentex’s expert analyzed the Armor backup
system and determined that in March of 2007, Armor should have had twenty-four sets of
backup tapes. (Ex. 31 ¶ 289.) Armor states that although it pulled copies of its backup
tapes for production, it has been unable to locate them and assumes they were inadvertently
recycled in accordance with company policies. Gentex disputes this for two reasons. First,
it cites to testimony of one of Armor’s IT employees, who stated that when there is a litigation
hold, the company uses software that makes it impossible to inadvertently delete relevant
tapes. (Ex. 73 at 247:25-248:18.) Second, Gentex states that even if that software was not
used, Armor’s regular policy was to keep yearly tapes for seven years (id. at 118:6-7),
meaning that the 2006 yearly tape should not have been destroyed. Armor also argues that
Gentex suffered no prejudice because it created special backups of the servers on or after
May 24, 2007, id., but Gentex argues that these special backups cannot preserve evidence
4
from April 2006 to February 2007, the dates when Sutter, Walko, and the other employees
used Armor computers. Armor disputes this, arguing that all the backup tapes contain the
information from that time period. Gentex responds that Armor’s expert stated that he did
not know what was on the servers between April 2006 and May 2007 because there were
no backup tapes for those dates, and the backup tapes from after May 2007 do not show
what was deleted during the earlier time period. (Ex. 66 at 55:10-19, 281:1-8.) Armor further
argues that Gentex has not shown that the backup tapes have relevant information that is
not duplicative of the information on the computer images. Gentex responds that Armor’s
expert stated that the ghost images “did not capture the entirety of the file or e-mail servers
from those time periods.” (Id. at 88:5-8.)
Erasure of Sutter’s Home Computer: Sutter had Gentex files on his home and Armor
work computers. (Ex. 10 at 22:9-20.) Sutter had been advised to preserve his home and
work computers by Armor in a memorandum about the litigation hold (Ex. 28 at 2) and by
Gentex’s counsel at a deposition on January 29, 2007 (Ex. 23 at 30:17-20). On January 31,
2007, Sutter ran software on his computer to scrub his hard drive. (Ex. 10 at 55:12-15.) He
explained that he did this because he was scared because Gentex had sued him. (Id. at
56:22-57:3.)
Destruction of Portable Storage Devices: Sutter used six removable media devices
and eight CD-ROMs on his computer at Armor. (Ex. 36 at 5-6.) Two of the CD-ROMS were
labeled with the name of a Gentex employee and three others were dated to the period when
Sutter worked at Gentex. (Id. at 6.) Sutter said those devices may have contained Gentex
information. (Ex. 10 at 61:8-63:1.) Sutter destroyed all of the CD-ROMs with Gentex
information that he had in his possession, though he does not recall when. (Id. at 63:215
64:12.) Sutter also had two thumb drives with Gentex information on them. (Id. at 23:2324:2.) Sutter purposely destroyed one after his deposition (id. at 24:6-24) and believes that
he left the other at Armor (Ex. 61 at 26:4-18).
According to Gentex, Armor has only
produced one of Sutter’s thumb drives, which has music files on it, and no CD-ROMs.
Walko also had a CD-ROM with Gentex information on it. (Ex. 62 at 157:3-10.) Walko
stated that he destroyed the disc after a conversation with Daly. (Id. at 158:6-10.) According
to Walko, in January 2007, when Walko contacted Daly about the litigation hold and
explained that he had Gentex information on his computer, Daly told him, “Do what you think
you have to do to clean up. If you need to clean up, clean up.” (Ex. 15 ¶ 45.) Gentex’s
expert determined sixty-five thumb drives, one hard drive, and seventeen CD-ROMs were
used by former Gentex employees on Armor computers between April 2006 and March
2007. (Ex. 31 ¶ 282.) According to Gentex, Armor failed to produce any of the CD-ROMs.
Armor requested that all employees turn in portable media devices between March
29 and May 3, 2007. (Ex. B at App’x 7.) Armor states that it collected six: Walko turned in
a drive, Nolan turned in two drives, and Panna turned in three. All these were provided to
Gentex. Further, Armor states that it did not authorize, condone, or instruct either Sutter or
Walko to destroy portable media. Finally, Armor states that there is no proof that the other
devices plugged into Armor computers by Gentex employees contained relevant information.
Delay in Preserving Computers and File Deletion: Gentex’s expert states that Armor
did not make forensic images of several relevant computers until March 2007, allowing
workers to delete files. (Id. ¶ 269.) Walko had Gentex files on his computer, and deleted
them. (Ex. 15 ¶ 45.) Walko testified that he did this in response to several statements from
his supervisors at Armor: Daly told him to “clean up,” which Walko interpreted as a direction
6
to delete incriminating Gentex files from his computer (id.); Coltman told Walko to “clean it
up” (Ex. 62 at 223:13-25); and Sutter, Walko’s supervisor, told him to “do what it takes, clean
up” (Ex. 15 ¶ 48). Walko also states that Sutter admitted deleting Gentex files from Sutter’s
own work computer. (Id.) According to Walko, Daly told him that Daly was directing other
Armor employees to clean up their computers as well. (Ex. 5 at 451:12-19.) Walko
additionally testified that Hartley purposely deleted information and then copied large
amounts of pictures and videos in order to hide the deleted information. (Id. at 492:10493:5.) Gentex states that the forensic images from Hartley’s computer confirm that he
copied the same picture of a character from “The Office” multiple times between December
17, 2006 and January 31, 2007 and that he downloaded a large amount of pornographic
images on February 22, 2007 and March 8, 2007. Coltman also directed Armor’s IT staff to
delete a directory called “Joe Files 2006" that contained a significant amount of data. (Ex.
56.) Gentex’s expert analyzed the relevant computers and found 57,300 file deletions
between March 2006 and March 2007, of which 56,697 were deleted after September 2006,
leading him to conclude that the deletions were “intentional and coordinated and designed
to circumvent the duty to preserve documents.” (Ex. 31 ¶ 331.)
Armor responds that it did not have any duty to delete irrelevant files and that Gentex
has not proven that the deleted files were relevant. It states that all files were deleted in the
normal course of business, including automatic system deletions. Hartley testified that he
was not aware of deleting any files relevant to the lawsuit after the litigation hold. (Ex. U at
199:5-9.) Further, Armor states that it preserved Sutter’s computers and produced all
relevant evidence from them–and that when Sutter attempted to delete a file without Armor’s
consent, Armor restored it and produced it to Gentex.
7
Disk Defragmentation: Gentex’s expert stated that Windows Disk Defragmentation
(“Defrag”) was run on all of the Armor computers before forensic images were made of them.
(Ex. 63.) Defrag makes it difficult to locate files that have been deleted and overwritten and
can mask evidence of deletions. (Ex. 48 ¶ 115; Ex. 64 at 527:17-19.) In some cases,
employees testified that they did not run Defrag on their computers. (Ex. 47 at 173:1174:25.) Gentex’s expert suggested that the Defrag may have been done remotely (Ex. 48
¶¶ 115-125), leading Gentex to suggest that Armor’s IT staff was involved in destructing
evidence. Gentex’s expert also determined that Windows Disk Cleanup, which removes
files, was run on several of the computers. (Ex. 31 ¶ 334.) Walko states that he ran
Windows Disk Cleanup on his computer after Sutter was sued by Gentex. (Ex. 15 ¶ 46.)
Armor’s expert states that Defrag and Cleanup are standard software commonly used
by businesses to increase computer efficiency. (Ex. B at 26.) Further, Armor’s expert
determined that Defrag was only run by a user (as opposed to automatically or remotely) on
three computers: Hartley’s, Walko’s, and Sutter’s home computer. Armor states that it never
instructed Sutter to use any wiping software, and Sutter testified that nobody at Armor told
him to clean up his computer. (Ex. E at 53:2-10.) Hartley testified that he ran Defrag
because his computer was running slowly (Ex. U at 196:4-7), but he had no intention of
purposely deleting information (id. at 201:11-17). As for Walko, Armor states that nobody
instructed him to run Defrag, and further notes that any deletions would have been revealed
by the ghost imaging of Walko’s computer in January 2007 or the forensic imaging in March
2007. Daly denies advising Walko to clean up his computer. (Ex. K at 80:18-20.)
Destruction of Ghost Images: Armor made images of the computers used by Panna,
Nolan, Gowat, Hartley, and Gambuti. ( Ex. 49; Ex. 50 at 86:20-87:25.) Armor later stated
8
that ghost images of those computers could not be located. (Order ¶ 5, Sept. 29, 2010, Doc.
226.) Armor now explains that the confusion stems out of a difference in terminology: they
took forensic images of those computers, but not “ghost images.”
Failure to Preserve Computers: Gentex asserts that there are several missing
computers: those used by Coltman and Gowat as well as those used by several employees
who received Gentex information via e-mail from Sutter, including Shane Alt, Jeff Mears, and
Stan Lyons. Armor responds that none of the computers were intentionally destroyed.
Coltman testified that he lost his laptop at the airport (Ex. L at 284:9-285:24), but there is a
ghost image of his work computer from January 2007 and his e-mails were restored from the
server . Armor states that there are forensic images of the computers of Gowat, Lyons, and
Mears. Armor also explains that Alt’s computer was reissued when Alt resigned.
Destruction of E-mails: Walko testified that Sutter deleted many of his own e-mail
messages when he was printing them for production to Gentex. (Ex. 5 at 491:8-492:8.)
Destruction of File Server: On January 19, 2007, files from the SPPPA01 server went
missing, include the helmets directory. (Ex. 57.) Armor replaced its server in 2007. (Ex. 30
at 101:11-20.) Gentex states that Armor never produced the SPPPA01 server and has since
destroyed it. Armor responds that it transferred all of the data from the old SPPPA01 server
to the new replacement server.
Gentex filed the instant motion on June 27, 2011, seeking default judgment based on
the alleged spoliation. The motion has been fully briefed and is ripe for disposition.
9
II. Discussion
A. Spoliation
Gentex moves for default judgment in its favor on the grounds that the Defendants
have engaged in rampant spoliation. Spoliation is defined as “[t]he intentional
destruction, mutilation, alteration, or concealment of evidence.” Black’s Law Dictionary
1531 (9th ed. 2009). The burden of proof on a spoliation claim lies with the party
asserting the claim. See Byrnie v. Town of Cromwell, 243 F.3d 93, 108 (2d Cir. 2001);
Culler v. Shinseki, No. 3:09-0305, 2011 WL 3795009, at *3 (M.D. Pa. Aug. 26, 2011).
Gentex has presented sufficient evidence to establish that Sutter and Walko
engaged in spoliation. Questions of fact remain, however, as to whether Armor engaged
in spoliation. In particular, there are fact issues regarding: 1) when Armor’s duty to
preserve evidence began, 2) whether Armor lifted the litigation hold, 3) whether Armor’s
deletion of the server backup tapes was inadvertent and/or according to company policy,
4) whether Armor encouraged employees to destroy evidence, 5) whether the deleted
“Joe files” were relevant to the litigation, 6) whether the file deletion between September
2006 and March 2007 was intentional and coordinated or part of the routine course of
business, 7) whether Disk Defrag and Windows Disk Cleanup were remotely and
intentionally run by Armor, 8) whether there are missing ghost images for the computers
of five employees, 9) whether the replacement server is missing the helmets directory
that existed on the prior server, 10) whether Armor failed to produce relevant portable
media devices in its possession, 11) whether Armor failed to produce relevant computers
in its possession. Based on these genuine issues of material fact, Gentex’s motion for
10
default judgment will be denied in regard to Armor. Both parties should address these
issues of fact at trial.
B. Sanctions
Because Sutter and Walko engaged in spoliation, the question becomes whether
and what type of sanctions are appropriate. Federal courts have inherent discretionary
power “to fashion an appropriate sanction” for conduct like spoliation that “abuses the
judicial process.” Chambers v. NASCO, Inc., 501 U.S. 32, 44-45 (1991); accord Silvestri
v. Gen. Motors Corp., 271 F.3d 583, 590 (4th Cir. 2001); Glover v. BIC Corp., 6 F.3d
1318, 1329 (9th Cir. 1993); cf. Fed. R. Civ. P. 37 (allowing the court to sanction a party
that fails to comply with a discovery order). In determining whether sanctions are an
appropriate response to spoliation, a court must consider “(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, 69 (1994). “Potential sanctions for spoliation include: dismissal of a
claim or granting judgment in favor of a prejudiced party; suppression of evidence; an
adverse inference, referred to as the spoliation inference; fines; and attorneys’ fees and
costs.” Mosaid Techs. Inc. v. Samsung Elecs. Co., Ltd., 348 F. Supp. 2d 332, 335
(D.N.J. 2004) (internal citations omitted).
1. Fault
A strong degree of fault exists where “there has been an actual suppression or
withholding of the evidence,” as opposed to where “the document or article in question
11
has been lost or accidentally destroyed.” Brewer v. Quaker State Oil Refining Corp., 72
F.3d 326, 334 (3d Cir. 1995). In this case, the evidence is clear: both Sutter and Walko
admit to intentionally destroying the evidence despite full awareness that it would impede
the litigation. Sutter attempts to deny fault by explaining that he was afraid,3 but cites to
no case suggesting that fear of litigation is a legitimate exception to the rules of
spoliation. The strong degree of fault in this case suggests that sanctions are appropriate.
2. Prejudice
There is no doubt that Gentex was prejudiced by Sutter’s and Walko’s spoliation.
Sutter and Walko admitted to having Gentex information. The destruction and/or erasure
of computer files, e-mails, thumb drives, and CD-ROMs deprives Gentex of evidence
relevant to prove the extent of information taken by Sutter and Walko and whether and
how it was used at Armor. Armor argues that Gentex still has access to some evidence
in the form of ghost images and files from other computers. There is no replacement,
however, for the lost evidence on Sutter’s and Walko’s portable media devices. Further,
Sutter erased his home computer prior to Armor’s imaging, and therefore that evidence is
lost as well. Thus, this factor also weighs in favor of imposing sanctions.
3. Proportionality
In choosing the proper sanction, courts must “select the least onerous sanction
corresponding to the willfulness of the destructive act and the prejudice suffered by the
victim.” Schmid, 13 F.3d at 79 (quoting Jamie S. Gorelick et al., Destruction of Evidence
§ 3.16, at 117 (1989)). Gentex moves for the most severe sanction possible. See, e.g.,
3
Walko did not file a brief in opposition to this motion.
12
Baliotis v. McNeil, 870 F. Supp. 1285, 1289 (M.D. Pa. 1994) (“A sanction that has the
drastic result of judgment being entered against the party who has lost or destroyed
evidence must be regarded as a last resort, to be imposed only if no alternative remedy
by way of a lesser, but equally efficient sanction is available.”). Default judgment is a
proportional response in this case, however, given Sutter’s and Walko’s unabashedly
intentional destruction of relevant, irretrievable evidence. I am especially conscious of
the deterrence value of harsh sanctions in cases like this where the crucial evidence
exists in electronic form, and a party may destroy its opponent’s case with the mere click
of a button. Based on the egregious conduct of Sutter and Walko, the significant
prejudice to Gentex, and the need for a strong deterrent, Gentex’s motion for default
judgment will be granted as to Sutter and Walko.
III. Conclusion
For the reasons explained above, Plaintiff’s motion for default judgment will be
granted in part and denied in part. An appropriate order follows.
October 24, 2011
Date
/s/ A. Richard Caputo
A. Richard Caputo
United States District Judge
13
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
GENTEX CORPORATION,
CIVIL ACTION NO. 3:07-CV-1269
Plaintiff,
(JUDGE CAPUTO)
v.
BRAD SUTTER, PATRICK
WALKO, BAE SYSTEMS
AEROSPACE & DEFENSE
GROUP INC., BAE SYSTEMS AH
INC. and BAE SYSTEMS
SPECIALTY DEFENSE SYSTEMS
OF PENNSYLVANIA INC.,
Defendants.
ORDER
NOW, this 24th
day of October, 2011, IT IS HEREBY ORDERED that Plaintiff’s
Motion for Default Judgment (Doc. 295) is GRANTED IN PART and DENIED IN PART as
follows:
(1) Plaintiff’s Motion for Default Judgment against Defendants Brad Sutter and Patrick Walko
is GRANTED. Judgment shall be entered in favor of the Plaintiff and against Sutter and
Walko.
(2) Plaintiff’s Motion for Default Judgment against BAE Systems Aerospace & Defense
Group Inc., BASE Systems AH Inc., and BAE Systems Specialty Defense Systems of
Pennsylvania, Inc. is DENIED.
/s/ A. Richard Caputo
A. Richard Caputo
United States District Judge
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