Tech Pharmacy Services, LLC v. Alixa Rx LLC et al

Filing 299

MEMORANDUM OPINION AND ORDER re 190 SEALED MOTION Motion for Sanctions for Spoliation filed by Tech Pharmacy Services, LLC. Tech Pharmacy Services, LLCs Motion for Sanctions and Spoliation (Dkt. #190) is DENIED.It is further ORDERED th at Defendants stipulate to the following: Nurses at GLC-Lake Ridge commonly use a separate and removable container placed in front of the ADU machine to collect dispensed medication. However, at the time of the Tech Pharmacys inspection of the GLC-Lake Ridge facility, such container was not present. Signed by Judge Amos L. Mazzant, III on 8/7/17. (cm, )

United States District Court
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION

TECH PHARMACY SERVICES, LLC
v.
ALIXA RX LLC, GOLDEN GATE
NATIONAL SENIOR CARE LLC d/b/a
GOLDEN LIVINGCENTERS, FILLMORE
CAPITAL PARTNERS, LLC, FILLMORE
STRATEGIC INVESTORS, LLC, and
FILLMORE STRATEGIC
MANAGEMENT, LLC

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Civil Action No. 4:15-CV-766
Judge Mazzant

MEMORANDUM OPINION AND ORDER
Pending before the Court is Tech Pharmacy Services, LLC’s (“Tech Pharmacy”) Motion
for Sanctions and Spoliation (Dkt. #190). After reviewing the relevant pleadings, the Court denies
Tech Pharmacy’s motion.
BACKGROUND
A central element in proving Tech Pharmacy’s infringement claims is the presence of a
“separate and removable container” in front of Defendant Alixa Rx LLC’s (“Alixa”) automated
dispensing unit (“ADU”) machine. On January 17 and 18, 2017, Alixa Senior Vice President Brad
Savage testified as a corporate representative for Alixa and Golden LivingCenters (“GLC”)
regarding the container. He testified he was aware of an unidentified facility that put “something
underneath the front of an ADU machine” (Dkt. #190, Exhibit 5 at 158:23–159:4). Pursuant to
Federal Rule of Civil Procedure 34(a)(2), Tech Pharmacy requested to inspect an ADU machine
inside a GLC-operated long-term care facility. The inspection’s purpose was to demonstrate the
ADU machine’s operation for Tech Pharmacy’s expert Dr. Michael Metzker (Dkt. #190, Exhibit
2 at ¶ 5).

On February 14, 2017, Mr. Savage told Jason Dietrich, a Pharmacy Service Technician
Supervisor for Alixa, to prepare for the demonstration (Dkt. #215, Exhibit A at ¶ 4). Mr. Dietrich
performed normal, routine tasks of making sure the Alixa machine and medication room (“med
room”) were in proper order (Dkt. # 215, Exhibit B at ¶¶ 4–5, 8). In doing so, he moved a
container and stool sitting in front of the ADU machine to a cabinet in the med room (Dkt. #215
Exhibit B at ¶ 9). Joe Grdinovac, an attorney for Tech Pharmacy, and Dr. Metzker arrived later
that day to the Golden LivingCenter Lake Ridge facility (“GLC-Lake Ridge”). Mr. Grdinovac
and Dr. Metzker met Mr. Savage, Linda Swanson, and a nurse named Dee, whose last name is
unknown (Dkt. #190, Exhibit 2, at ¶¶ 1–2).
Defendants contest Dr. Metzker’s account of the following events that occurred during the
demonstration: (1) Nurse Dee asked, without prompt, where the bucket or stool was and shook her
head “no” when Mr. Savage explained the medication strips fall on the floor when dispensed;
(2) Nurse Dee said the basket typically sat on top of a stool; and (3) Nurse Dee again shook her
head “no” when Mr. Savage explained the medication strips are collected from the floor and rolled
into ball after dispensing (Dkt. #190, Exhibit 2 at ¶¶ 1, 8–10). During the inspection, Dr. Metzker
stated he observed visible scuff marks on the front of the ADU machine below the dispensing slot,
consistent with routine use of a basket sitting on top of a stool to catch dispensed medication (Dkt.
#190, Exhibit 2 at ¶ 9).
On March 15, 2017, Tech Pharmacy filed the present motion for sanctions (Dkt. #190).
On March 29, 2017, Defendants filed a response (Dkt. #215). On April 5, 2017, Tech Pharmacy
filed a reply (Dkt. #226). On April 12, 2017, Defendants filed a sur-reply (Dkt. #242).

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LEGAL STANDARD
Federal Rule of Civil Procedure 37 authorizes sanctions for failure to comply with
discovery orders. A court may bar the disobedient party from introducing evidence, or it may
direct that certain facts shall be “taken to be established for purposes of the action.” Fed. R. Civ.
P. 37(b)(2)(A)(i). Rule 37 also permits a court to strike claims from the pleadings, and even to
“dismiss the action . . . or render a judgment by default against the disobedient party.” Roadway
Express, Inc. v. Piper, 447 U.S. 752, 763 (1980) (citation omitted); accord Fed. R. Civ. P.
37(b)(2)(A)(v)-(vi). “Rule 37 sanctions must be applied diligently both ‘to penalize those whose
conduct may be deemed to warrant such a sanction, [and] to deter those who might be tempted to
such conduct in the absence of such a deterrent.”’ Roadway Express, 447 U.S. at 763–64 (citation
omitted).
In addition, Rule 37(b)(2) requires that any sanction be just and specifically related to the
particular claim that was the subject of the discovery violation. Compaq Comput. Corp. v.
Ergonome Inc., 387 F.3d 403, 413 (5th Cir. 2004) (citation omitted). Further, the penalized party’s
discovery violation must be willful. United States v. $49,000 Currency, 330 F.3d 371, 376
(5th Cir. 2003).
ANALYSIS
Tech Pharmacy seeks sanctions for Defendants’ concealment of relevant evidence during
the Rule 34(a)(2) inspection of the ADU room at GLC-Lake Ridge. Tech Pharmacy asserts the
container, usually placed on a stool under the ADU machine, was deliberately spoliated when it
was moved into a closet and made unavailable for inspection.
Spoliation is a longstanding doctrine that applies to “the destruction or the significant and
meaningful alteration of evidence.” Guzman v. Jones, 804 F.3d 707 (5th Cir. 2015) (quoting

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Rimkus Consulting Grp., Inc. v. Cammarata, 688 F. Supp. 2d 598, 612 (S.D. Tex. 2010)). A court
may impose appropriate sanctions “[i]f a party with a duty to preserve evidence fails to do so and
acts with culpability.” Lopez v. Kempthorne, 684 F. Supp. 2d 827, 890 (S.D. Tex. 2010) (quoting
Smith v. Am. Founders Fin. Corp., 365 B.R. 647, 681 (S.D. Tex. 2007)). “The obligation to
preserve evidence arises when the party has notice that the evidence is relevant to litigation or
when a party should have known that the evidence may be relevant to future litigation.” Id.
Before evaluating Tech Pharmacy’s requested relief, the Court must first determine
whether Defendants were under a duty to preserve relevant evidence. If so, the Court inquires
about evidence should have been preserved. Lastly, the Court considers whether the failure to
preserve was done in bad faith to warrant sanctions.
A. Duty to Preserve
The duty to preserve arises when a party has notice or should anticipate the evidence is
relevant to current or future litigation. Rimkus Consulting Grp., Inc. v. Cammarata, 688 F. Supp.
2d 598, 612 (S.D. Tex. 2010).
Tech Pharmacy argues Mr. Savage, acting as a corporate representative, was well-versed
on the pending litigation and knew the container was relevant to the infringement claim. Because
container is an element of its infringement claim, Tech Pharmacy further argues Defendants were
charged with a duty to preserve such evidence. Defendants contend evidence of the container was
immaterial because Mr. Savage had already testified containers were used at other locations. Thus,
Defendants argue the presence of a container was irrelevant to the inspection, which was supposed
to be a demonstration of the ADU machine’s typical and routine use.
Defendants had notice the presence of a container is relevant to this litigation. In April
2012, Alixa commissioned an opinion letter regarding Alixa’s ADU machines and U.S. Patent

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Nos. 7,698,019 (the “’019 Patent”), 7,685,004, and U.S. Reissue Patent No. RE44,127 (the “‘127
Patent”) (Dkt. #190, Exhibit 3). The opinion letter found that Alixa did not infringe based on a
finding that Alixa’s ADU machines did not dispense packages into a separate and removable
container. As such, Defendants have known since before the suit was filed in November 2015 that
use of a separate and removable container is crucial to whether Alixa’s ADU machines infringe
claims of Tech Pharmacy’s patents. Further, Mr. Savage testified, “I am aware that there are –
have been occasion where a facility has put something underneath the front of a machine to catch
packets coming out,” but doing so is “against the policy and procedure and against the training
that we provide.” (Dkt. #190, Exhibit 5 at 158:23–159:4). Mr. Savage, as a senior executive for
Alixa and a corporate representative for both Alixa and GLC, was aware of the importance of a
container before Tech Pharmacy visited the GLC-Lake Ridge facility.
Taking all of this together, the Court finds that Defendants were under a duty to preserve.
This duty to preserve required Defendants to maintain the container’s presence in front of the ADU
machine when Tech Pharmacy inspected the GLC-Lake Ridge facility. Dr. Metzker’s findings did
not discharge Defendants’ duty to preserve. Dr. Metzker documented “clear evidence” that a
separate and removable container was used with the ADU machine (Dkt. #190, Exhibit B at ¶ 10).
The fact that Dr. Metzker’s findings were consistent with the container’s presence does not replace
material evidence of the container at the GLC-Lake Ridge facility. If Dr. Metzker had not seen
scuff marks on the floor, he may not have concluded the facility used a container or found the
ADU machine infringed.
B. Sanctions
Tech Pharmacy respects the following sanctions against Defendants: (1) an order striking
Defendants’ pleadings and defenses to liability for infringement and willfulness regarding the ’019

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Patent and Claim 2 of the ’127 Patent, as well as Defendants’ counterclaims for non-infringement
of the ’019 Patent and for Claim 2 of the ’127 Patent; (2) an order that Defendants pay Tech
Pharmacy the costs and expenses for the February 14, 2017 inspection, the costs and expenses
associated with the present motion, and the costs and expenses for any additional inspections
necessitated by Defendants’ misconduct; (3) an order and jury instruction deeming Alixa’s ADU
machines dispense into separate and removable containers (Dkt. #190 at p. 1, 13).
To impose sanctions against a party, a court must make a specific finding that the party
acted in bad faith. Toon v. Wackenhut Corr. Corp., 250 F.3d 950, 952 (5th Cir. 2001) (citing
Goldin v. Bartholow, 166 F.3d 710, 722 (5th Cir. 1999)). Tech Pharmacy argues Mr. Savage acted
in bad faith because he knew his instructions to Mr. Dietrich implicitly meant containers should
be removed. Defendants counter by asserting Mr. Savage was, at most, negligent in failing to
ensure any containers would remain in place. Mr. Savage claims he did not see a container in the
med room before the inspection and did not know Mr. Dietrich removed it. Defendants argue
these facts prove if Mr. Savage had acted in bad faith to conceal the container, he would not have
admitted to containers at other GLC facilities and would have hidden the container himself.
Although the container was absent during the inspection, the evidence put forth falls short
of convincing the Court that Defendants acted in bad faith. Tech Pharmacy has not presented
evidence that indicates Mr. Savage instructed Mr. Dietrich to hide the container before the
inspection or that Mr. Savage knew Mr. Dietrich would hide the container. Mr. Savage denies he
gave any instructions for med room preparation (Dkt. #215, Exhibit A at ¶ 4). While Mr. Savage
was unaware of the particular facility that put “something underneath the front of a machine,” he
should have inquired into whether GLC-Lake Ridge used a container in violation of policy. This
is negligence rather than bad faith. In addition, the Court does not find that Mr. Dietrich knew of

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the pending litigation surrounding the ADU machine or the ramifications of removing the
container (Dkt. #215, Exhibit B at ¶¶ 7, 11 (indicating Mr. Dietrich was unaware of this lawsuit or
the relevance of a container in the ADU machine dispensing area)). Thus, absent evidence of bad
faith, the failure to preserve alone is not sufficient for sanctions. Cammarata, 688 F. Supp. 2d at
642.
Aside from no showing of bad faith, the Court finds no actual prejudice to Tech Pharmacy.
Tech Pharmacy argues the container’s removal rendered the inspection’s findings materially
altered. The Court disagrees. While the container is a key element for Tech Pharmacy to prove
infringement, Dr. Metzker’s findings account for the container’s absence. Dr. Metzker noted he
saw scuff marks on the floor, consistent with the presence of a container on a stool under the ADU
machine. In fact, Dr. Metzer still found the ADU machine infringed despite the container’s
absence.
Accordingly, the Court determines that Tech Pharmacy’s requested sanctions are not
warranted or just in this case. However, the Court must address the present situation in which
Defendants should have preserved evidence relevant to the litigation but where the Court cannot
find bad faith. Given the proximity to trial and the burden of another inspection, the Court finds
that a stipulation is the appropriate remedy.
CONCLUSION
It is therefore ORDERED that is Tech Pharmacy Services, LLC’s Motion for Sanctions
and Spoliation (Dkt. #190) is DENIED.
It is further ORDERED that Defendants stipulate to the following: Nurses at GLC-Lake
Ridge commonly use a separate and removable container placed in front of the ADU machine to

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collect dispensed medication. However, at the time of the Tech Pharmacy’s inspection of the
GLC-Lake Ridge facility, such container was not present.
SIGNED this 7th day of August, 2017.

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AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE

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