Straitshot Communications Inc et al v. Telekenex Inc et al
Filing
416
SPOLIATION FINDINGS OF FACT AND CONCLUSIONS OF LAW by Judge Thomas S. Zilly. (TF) cc: Jane Doe Chaney
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE
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STRAITSHOT COMMUNICATIONS, INC., a
Washington corporation, and STRAITSHOT RC,
LLC, a Delaware limited liability company,
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No. C10-268Z
Plaintiffs,
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v.
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TELEKENEX, INC., a Delaware corporation;
IXC HOLDINGS, INC., a Delaware corporation;
MARK PRUDELL and JOY PRUDELL,
husband and wife and the marital community
composed thereof; MARK RADFORD and
NIKKI RADFORD, husband and wife and the
marital community composed thereof; JOSHUA
SUMMERS and JULIA SUMMERS, husband
and wife and the marital community composed
thereof; ANTHONY ZABIT and KAREN
SALAZAR, husband and wife and the marital
community composed thereof; BRANDON
CHANEY and DEANNA CHANEY, husband
and wife and the marital community composed
thereof; MAMMOTH NETWORKS, LLC, and
BRIAN WORTHEN and NIKKI WORTHEN,
husband and wife and the marital community
composed thereof,
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Defendants.
____________________________________
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MAMMOTH NETWORKS, LLC, a Wyoming
limited liability company,
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SPOLIATION FINDINGS OF FACT
AND CONCLUSIONS OF LAW
Counterclaimant,
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v.
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STRAITSHOT COMMUNICATIONS, INC., a
Washington corporation,
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Third-Party Defendant.
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INTRODUCTION
This matter came before the Court on Straitshot Communications, Inc. and Straitshot
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RC, LLC’s motion in limine seeking sanctions against Defendants Telekenex, Inc., IXC
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Holdings, Inc., Brandon Chaney, Deanna Chaney, Anthony Zabit, Karen Salazar, Joshua
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Summers, and Julia Summers for spoliation and failure to produce documents during
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discovery (docket no. 278). The Court gave an instruction to the jury at trial on spoliation,
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but otherwise deferred ruling on Plaintiffs’ motion. See Minute Order (docket no. 316).
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The Court has considered all of the declarations and exhibits filed with the motion, the
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exhibits admitted into evidence at trial, the testimony of witnesses at trial, and the arguments
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of counsel. The Court being fully advised, now enters the following Findings of Fact and
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Conclusions of Law.
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The Parties
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1.
Plaintiff Straitshot Communications, Inc. was a corporation organized under
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the laws of the State of Washington and authorized to conduct business in the State of
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Washington. Plaintiff Straitshot RC, LLC, is a Delaware limited liability company.
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(Straitshot Communications, Inc. and Straitshot RC, LLC are collectively referred to as
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“Plaintiff” or “Straitshot”).
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2.
Defendant Telekenex, Inc. (“Telekenex”) is a Delaware corporation, registered
to do business in Washington. Defendant IXC Holdings, Inc. (“IXC Holdings”) is a
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corporation organized under the laws of the State of Delaware. IXC Holdings maintains an
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SPOLIATION FINDINGS OF FACT AND CONCLUSIONS OF LAW - 2
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office in Seattle, Washington and is registered to do business in the State of Washington.
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IXC Holdings is the successor in interest to Telekenex.
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3.
Defendants Joshua Summers (“Summers”) and Julia Summers are Washington
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residents and husband and wife, constituting a marital community. Summers started his
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employment as a network engineer and progressed to the point that he was part of the
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management team at Straitshot by 2008. As part of the management team, Summers was
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involved in all aspects of strategy involving the growth of the company and how to resolve
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complex issues that Straitshot customers were having with their networks. During at least
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2008 and until he resigned in 2009, Summers managed all of the Straitshot engineers.
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Summers resigned on January 27, 2009 by email. Tr. Ex. A-232.
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Summers’s Use of Straitshot’s Laptop and Deletion of Files
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4.
On January 27, 2009, when Summers submitted his resignation, Summers was
in possession of miscellaneous property of Straitshot, including computer equipment and
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files. Jan 27 Trial Tr. at 29-30.
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5.
Between January 27 and February 5, Straitshot requested Summers to provide
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assistance to Straitshot customers, which he provided. Trial Exs. A-82, A-234, A-236, A-
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237, A-238, A-240, A-242. He was paid by Straitshot during this time. During this time
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period, Summers was also working for Telekenex to transition Straitshot customers to
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Telekenex. Jan 27 Trial Tr. at 5-29; Trial Exs. 52, 57, 95, 234. This included organizing a
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Telekenex “Transition Team” to move Straitshot customers and distributing to Telekenex a
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script to use with such customers. Summers drafted the script used by Telekenex in an
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attempt to have Straitshot customers migrate to Telekenex.
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6.
On or about February 6, 2009, Summers spoke with Telekenex counsel and
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became aware of litigation between Straitshot and Telekenex. On February 6, 2009,
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Summers sent an e-mail to Andrew Gold, the CEO of Straitshot, telling Gold he felt there
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was a conflict, and that he would cease assisting Straitshot. Summers testified that “shortly
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thereafter” he “shut down all my access” and “ceased my abilities to help them out.” Jan 27
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Trial Tr. at 25-26; Trial Ex. A-242. At all times material after February 6, 2009, Summers
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worked exclusively for Telekenex.
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On February 11, 2009, Summers returned the majority of the Straitshot
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property in his possession to Straitshot’s CFO Phil Howe at the Bel-Red storage locker, but
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maintained possession of his Straitshot laptop. Jan 27 Trial Tr. at 30-33. The Straitshot
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laptop, which was provided to Summers sometime in 2007, contained confidential Straitshot
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customer information and data that showed how each Straitshot customer’s network was
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built, the kind of circuits each Straitshot customer had, the IP addresses of the Straitshot
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customer circuits, when Straitshot had installed its customer circuits, the underlying carriers
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for the Straitshot customer circuits, the amount of Straitshot monthly revenue derived from
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each of Straitshot customers, and other confidential information belonging to Straitshot. Jan
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27 Trial Tr. at 56; Decl. of Andrew Gold in Supp. of Plaintiffs’ in Limine Motions ¶¶ 4-5,
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docket no. 279; Ex. 28 to Decl. of Leonard Gail in Supp. of Straitshot’s Motions in Limine,
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docket no. 280-3 (“Gail Decl.”). The Straitshot laptop required a user name and a complex
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password in order to log on. Jan 27 Trial Tr. at 62.
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8.
On February 13, 2009, Straitshot obtained a second temporary restraining order
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in King County Superior Court against “Telekenex, Inc. and its employees”, “requiring
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Telekenex employee Joshua Summers to produce to Plaintiff’s Counsel the Straitshot laptop
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in his possession.” Trial Ex. 108. Summers received actual notice of the TRO on or about
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February 13, 2009. Jan 27 Trial Tr. at 66-67. On the same day, Summers called Howe to tell
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him the Straitshot laptop was in the Straitshot storage locker. Decl. of Phil Howe, Ex. 6. to
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Gail Decl. Howe again searched the storage locker and was unable to locate the missing
laptop.
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On February 14, 2009, Summers used the Straitshot laptop to access a CD-
ROM containing a file “Engineering Contacts.” Expert Report of Eric Laykin (“Laykin
Report”) ¶ 18(c), Ex. 3 to Gail Decl.
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10.
On February 15, Summers emailed Howe “I just wanted to email you and get
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confirmation that you received everything from me in regards to equipment. If I don’t
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receive word by tuesday [sic] then I will assume this is confirmed. Thanks!” Trial Ex.
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A-248.
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11.
On February 16, 2009, Summers signed a declaration under oath stating that
“[o]n February 12th, I gave back all the hardware I had in my possession.” Trial Tr. at
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63-64. This declaration was filed in the King County Superior Court on February 17, 2009,
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under cause no. 09-2-06611-6. On the same day, Summers undertook various activities on
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the Straitshot laptop, including, without limitation, installing Windows Vista and partitioning
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the laptop’s hard drive, the effect of which was to make deleted documents difficult or
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impossible to recover. Summers thereafter continued to use the Straitshot laptop, delete files,
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and make alterations to the Straitshot laptop. Laykin Report ¶ 23. At trial, Summers
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admitted installing the Windows Vista program on the Straitshot laptop.
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12.
On February 17, Summers created a new Telekenex folder on the Straitshot
laptop containing Straitshot business information. Laykin Report, ¶ 18.
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13.
On February 18, 2009, Straitshot attorney Maureen Mitchell emailed
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Telekenex about the missing Straitshot laptop; the email was forwarded to Summers on the
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same day. February 18, 2009 Mitchell email, Ex. 23 to Gail Decl. Also on February 18,
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2009, Straitshot obtained another state court TRO against “Telekenex, Inc. and its
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employees” (the “Amended 2nd TRO”) “requiring Summers to make a diligent search for
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and produce the Straitshot laptop in his possession,” and not to tamper with or alter the
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Straitshot laptop. Trial Ex. 111. On February 18, 2009, Summers had actual knowledge of
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the amended 2nd TRO. On February 19, Summers deleted ten Excel files from the Straitshot
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laptop. Laykin Report ¶ 25(d).
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On February 24, 2009, Summers ran a program on the Straitshot laptop, known
as “RegEdit,” the effect of which permanently destroyed or modified evidence of external
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devices attached to the Straitshot laptop, records of deleted files, and other user activity.
Laykin Report ¶ 25(g).
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On March 5, 2009, Summers shut down the Straitshot laptop for the last time.
Laykin Report ¶ 23.
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On March 9, 2009, Summers sent a text message to Straitshot’s CFO, Phil
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Howe, stating: “I finally went through all my closet and found the laptop bag behind a box. I
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can meet you tomorrow morning to give it to you?” Trial Ex. A-251. On March 13,
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Summers delivered the missing Straitshot laptop to Straitshot’s attorney.
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On March 18, 2009, the King County Superior Court issued an order on
Plaintiff’s Motion for Contempt, finding that “Defendants failed to timely deliver the
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laptop…[and] violated the [Amended 2nd TRO].” Trial Ex. 705.
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On August 3, 2009, Summers was deposed for the first time in this case and
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denied using the Straitshot laptop for Telekenex activities once he began working at
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Telekenex. He claimed to have “stored” the laptop in the same place with the rest of the
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computer equipment, and he claimed to have no recollection of the last time he booted it up
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or of having used it during the time he worked for Telekenex. Summers Aug. 3, 2009
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Deposition at 63–65, Ex. 10 to Gail Decl.
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On October 7, 2010, Straitshot computer forensic expert, Erik Laykin,
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completed a report uncovering the computer usage described above and finding numerous
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occasions between February 16 and March 5, 2009 when Summers used the Straitshot laptop
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and destroyed various files. Laykin Report ¶ 25. Laykin testified at trial that the pattern of
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activity on the laptop demonstrated a deliberate effort to delete information on the laptop
without leaving a pattern or signature on the hard drive and to try to remove the possibility of
SPOLIATION FINDINGS OF FACT AND CONCLUSIONS OF LAW - 7
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reconstructing deleted files. Laykin Report ¶ 23. The Laykin Report was not admitted into
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evidence at trial. However, Laykin testified as an expert witness at trial about the report.
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Trial Ex. 10.12 is a copy of the browser history that Laykin recovered from the Straitshot
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laptop. This history establishes that after the TRO was entered on February 13, 2009, a
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search was run the next day for “data,” and “forensics tools.” The Court finds that Laykin
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testimony at trial was credible and adopts Laykin’s conclusions in the report as findings of
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fact.
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20.
The Court finds that Summers’ use of the Straitshot laptop during the period of
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February 18, 2009 through March 5, 2009 was a deliberate effort to use and then conceal his
use of the Straitshot laptop.
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Laykin recovered several emails from the laptop, including a deleted February
11, 2009 email that Summers sent to the Telekenex “Transition Team,” including Zabit,
which regarded “Access to the Straitshot Network,” in which Summers states: “Someone has
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changed the passwords for all the existing Straitshot equipment. We are no longer able to get
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into the routers or access customer routers. Just keep this in mind when you are working
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with customers on transition.” Trial Ex. 293. This email, although requested by Straitshot
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during discovery, was not produced in discovery. Stipulations, docket no. 377, at Stipulation
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No. 5.1 Other documents not produced in discovery include:
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Although the stipulation refers to the email as from January 11, 2009, the Court is satisfied the email is from February 11,
2009.
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a. A January 29, 2009, email from Larry Bani to Aaron Kanahele, Tim Healy,
Lorenzo Henderson, Leonard Williams, Dominick Nboli, Benjamin Jones, Jon
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Rief, and Oscar Molnar, carbon copying Karen Salazar, Heather Currie, Joel
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Ciniero, Felix Stuckey, Mark Prudell, Mark Radford, Brandon Chaney,
Anthony Zabit, and Ralph Romero. Trial Ex. 7.
b. A January 31, 2009, email from Anthony Zabit to Anthony Zabit with an excel
file attachment entitled “copy of circuits back-up working.xls.” Trial Ex.
10.06.
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c. A January 31, 2009, email from Anthony Zabit to Sunil Modi, John Holst,
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Joshua Summers, and Charles Hampton forwarding an excel file attachment
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entitled “copy of circuits back-up working.xls.” Trial Ex. 10.06.
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d. A March 3, 2009, email from Joshua Summers to Darek Niedojadlo with the
subject of “Existing Straitshot Customer Information for Monitoring:” which
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attaches an excel file entitled “Carrier Mappings-v2.xls.” Trial Ex. 10.07.
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e. A February 11, 2009 Email from Joshua Summers to Stefan Dickason with the
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subject “Contact Sheet for Straitshot Carriers” with an attached excel file
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entitled “Engineering_Contacts v.3.xls.” Trial Ex. 10.10.
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f. A January 30, 2009 email from Sunil Modi to Larry Bani and Karen Salazar,
carbon copying Defendant Mark Prudell and Defendant Mark Radford with the
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subject “Dodge Chrysler Jeep of Rairdon – Old Straitshot Customer.” Trial
Ex. 22.01.
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g. A February 5, 2009, email from Sunil Modi to John Holst, Mark Prudell, and
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Mark Radford, carbon copying Joshua Summers, Charles Hampton, and Archie
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Acosta with the subject “Inked Customers.” Trial Ex. 22.02.
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h. An email string ending on January 26, 2009, between Mark Prudell and Murray
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Barsch with the subject of “my contact info.” Trial Ex. 818.
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i. An email string ending on February 9, 2009, between Scott McKay, Charles
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Hampton, and Marilou King with the subject of “Scott McKay’s Resume, Per
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Our Conversation & Thank You” with an attached file titled “Scott_McKay
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Charles 01.30.09.doc.” Trial Ex. 23.02.
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Stipulations, docket no. 377. These documents, recovered by Laykin but not produced in
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discovery, demonstrate a deliberate effort to conceal the actions of the defendants.
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On November 16, 2010, Summers was deposed again in this litigation, after he
had received the Laykin report. Jan 27 Trial Tr. at 61. During this deposition and at trial,
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Summers testified to have “mistakenly” used the Straitshot laptop which he thought was a
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Telekenex laptop. At trial, Summers testified that he was only able to ascertain that he was
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mistakenly using the Straitshot laptop as his Telekenex laptop when he checked the serial
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number. Jan 27 Trial Tr. at 32. He testified, however, that he continued using the laptop
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even after he discovered it was the wrong laptop. Jan 27 Trial Tr. at 77. Summers claimed
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that his mistake explains why he thought he had returned the laptop in February and why he
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didn’t actually return it until March 13. Summers testified that between February and March
he used the laptop continuously for Telekenex work. Jan 27 Trial Tr. at 40-41.
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Summers did not tell anyone at Straitshot in February or March 2009 that he
had mistakenly used the Straitshot laptop thinking it was a Telekenex laptop. The first time
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Summers told anyone at Straitshot about his alleged “mistaken” use of the Straitshot laptop
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was after he had read the Laykin Report in the Fall of 2010.
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The testimony of Joshua Summers concerning his use of the Straitshot laptop at
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his deposition on August 3, 2009, his deposition on November 16, 2010, and at trial was not
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credible. The Court finds Summers intentionally and wrongfully used the Straitshot laptop
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after the TRO dated February 13, 2009, and his testimony to the contrary is not credible.
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The Court finds that Summers knew that he was in possession of the laptop and
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deliberately and in bad faith made substantial alterations and deletions to the laptop in
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violation of the February 13, 2009 and February 18, 2009 temporary restraining orders.
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26.
The Court concludes that Summers failed to timely deliver the Straitshot laptop
and intentionally violated the Amended 2nd TRO.
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27.
The Court finds that at all times material between February 6, 2009 and March
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5, 2009, Summers was an employee of Telekenex and was engaged in the performance of
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duties required of him by Telekenex. The Court finds that the use of the Straitshot laptop
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and the deletion of files was conducted in furtherance of the business of Telekenex.
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28.
Straitshot has failed to present evidence that any other Telekenex
employee violated the Amended 2nd TRO by failing to make a diligent search for the
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Straitshot laptop, by failing to deliver the laptop, or by tampering with or altering the laptop.
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SANCTIONS FOR DESTRUCTION OF AND FAILURE TO PRODUCE EVIDENCE
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29.
“Under its ‘inherent powers,’ a district court may…award sanctions in
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the form of attorneys' fees against a party or counsel who acts ‘in bad faith,
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vexatiously, wantonly, or for oppressive reasons.’” Leon v. IDX Systems Corp., 464
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F.3d 951, 961 (9th Cir. 2006) (quoting Primus Auto. Fin. Servs., Inc. v. Batarse, 115
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F.3d 644, 648 (9th Cir. 1997) (upholding award of attorney’s fees for spoliation). Bad
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faith may be demonstrated by hampering enforcement of a court order. Id.
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30.
Straitshot is entitled, pursuant to the Court’s inherent authority, to
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sanctions against defendants Joshua Summers and Julia Summers for Summers’
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violation of the State Court’s 2nd TRO and Amended 2nd TRO, his destruction of
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evidence on the Straitshot-owned laptop computer and his failure to produce
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responsive documents, as demonstrated by the non-production of documents
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recovered from the same laptop.
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At all times Summers used the laptop and deleted files between
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February 6, 2009 and March 5, 2009, Summers was an employee of Telekenex and
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acting within the scope of his employment. Accordingly, Straitshot is entitled to
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sanctions under the doctrine of respondeat superior against Telekenex, and its
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successor in interest IXC Holdings, for Summers’ destruction of evidence on the
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Straitshot-owned laptop computer and his failure to produce responsive documents.
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Dickinson v. Edwards, 105 Wn.2d 457, 466-70 (1986).
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32.
The Court awards sanctions in favor of Plaintiff Straitshot and against
Joshua Summers, Julia Summers, Telekenex, and IXC Holdings as follows: (1)
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Straitshot’s costs in attempting to identify and recover the destroyed documents,
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including expert costs and fees of Erik Laykin; and (2) Straitshot’s reasonable
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attorneys’ fees in pursing the destroyed documents and the documents that Summers
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and/or Telekenex failed to produce, and (3) Any other costs to Plaintiff caused by the
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defendants’ conduct related to the Straitshot laptop.
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DATED this 6th day of March, 2012.
A
Thomas S. Zilly
United States District Judge
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