Court Issues Terminating Sanctions Against Defendants for Multiple Spoliation Violations: eDiscovery Case Law

Sure, it’s rare to see terminating sanctions issued these days for spoliation of evidence, but it can happen when the violations are so widespread as they are in this case.

In WeRide Corp. v. Huang et al., No. 5:18-cv-07233-EJD (N.D. Cal. Apr. 24, 2020), California District Judge Edward J. Davila granted the plaintiffs’ motion for sanctions through FRCP Rules 37(b) and 37(e), issuing terminating sanctions against defendants Wang, Huang, and AllRide and ordering them to “pay WeRide’s reasonable fees and costs incurred in connection with (i) this motion; (ii) all discovery related to their spoliation of evidence; and (iii) the discovery motion practice before {Magistrate} Judge Cousins”.

Case Background

This case was filed by the plaintiffs against their former CEO, Jing Wang; their former Head of Hardware Technology, Kun Huang; Huang’s LLC, ZKA; Wang and Huang’s current company, AllRide; and AllRide’s corporate alter-ego, Kaizr, Inc (“Kaizr”) claiming trade secret misappropriation under the Federal Defend Trade Secrets Act, over alleged misappropriation of the plaintiffs’ trade secret source code.  After being terminated, Wang founded a competitor to the plaintiffs, allegedly disparaged the plaintiffs to investors despite his separation agreement’s non-disparagement clause and allegedly solicited plaintiff employees, including Kun Huang.  Huang, before leaving the plaintiffs’ company, allegedly downloaded significant amounts of data from the plaintiffs’ servers and his company laptop and allegedly also solicited plaintiff employees.

After Huang arrived at AllRide, AllRide began hosting potential investors for video demonstrations of its autonomous driving software, which mimicked the proprietary software capabilities and hardware configurations of the plaintiffs’ software. As a result, the plaintiffs sent both Wang and Huang cease-and-desist letters, Huang’s counsel issued a document hold notice to AllRide and the plaintiffs filed their original complaint on November 29, 2018, and then moved for a preliminary injunction on December 23, 2018, which was granted on March 22, 2019 (as to Huang and AllRide).

During discovery, the defendants were alleged to have committed several acts of spoliation, including:

  • Destroyed Email: AllRide acknowledged it destroyed email even through the Court’s preliminary injunction by: (1) setting its email servers to automatically delete all emails older than 90 days and maintaining that setting, and (2) repeatedly destroying email accounts belonging to certain individuals.
  • Source Code: The plaintiffs argued that AllRide and/or Huang spoliated, or otherwise failed to produce, five categories of source code.
  • Wiped Devices: Among other spoliation violations were three wiped computers admittedly by Huang (including two issued by the plaintiff before he left) and a MacBook that was returned to an Apple store in exchange for a gift card the day the plaintiffs sent a cease-and-desist letter to Wang and two others by former AllRide employees.
  • Ephemeral Messaging: Use of the app DingTalk which allows for “ephemeral messages” that automatically delete after they have been sent and read.

Judge’s Ruling

With regard to AllRide, Judge Davila stated: “The amount of spoliation that AllRide concedes is staggering. AllRide admits that it kept its company-wide policy of deleting from its server all emails older than 90 days until months after the preliminary injunction issued, that it deleted the jing@allride.ai email account after the original complaint was filed, that it deleted the jack@allride.ai email account after the complaint was filed, that it deleted the rongrong@allride.ai email account after the preliminary injunction issued, that it deleted Wu Wei and Dongxiang Xu’s email accounts and wiped their laptops after the complaint was filed, that it did not end its policies of deleting the email accounts and wiping the computers of former employees when they leave AllRide until months after the preliminary injunction issued, and that its employees began communicating with DingTalk’s ephemeral messaging feature after the preliminary injunction issued. Based on these undisputed facts, the Court finds it appropriate to issue terminating sanctions.”

As for Wang, noting that AllRide deleted several email accounts for Wang and that Wang introduced DingTalk to the organization after the preliminary injunction, Judge Davila stated: “Wang tries to nitpick each of these facts, but taken together, they show that Wang was in a position of authority and or control and therefore must have had knowledge of AllRide’s spoliation. The Court finds that AllRide was Wang’s agent when it engaged in mass spoliation. The Court will issue terminating sanctions against Wang.”

As for Huang, Judge Davila stated: “Huang spoliated critical evidence; that loss has prejudiced WeRide’s ability to raise its affirmative case against Huang and AllRide. Thus, specific jury instructions or an exclusion of evidence offered by Huang cannot cure the prejudice…He {also} spoliated ESI on the fourth device in violation of the preliminary injunction, which demonstrates that further warnings would be futile. Terminating sanctions must issue against Huang.”

As a result, Judge Davila issued the terminating sanctions through FRCP Rules 37(b) and 37(e) as noted above and also stated: “WeRide shall submit a declaration supporting its claimed costs and fees within 14 days of this Order, and the Court will award WeRide’s costs and fees thereafter. Wang, Huang, and AllRide shall be jointly and severally liable for the payment of the Court’s award of WeRide’s costs and fees, and payment shall be due in full within 15 days of the Court’s entry of an award.”

So, what do you think?  Does it take this level of spoliation to get to terminating sanctions?  Or could any one of these violations have been sufficient?  Please share any comments you might have or if you’d like to know more about a particular topic.

Case opinion link courtesy of eDiscovery Assistant.

Disclaimer: The views represented herein are exclusively the views of the author, and do not necessarily represent the views held by my employer, my partners or my clients. eDiscovery Today is made available solely for educational purposes to provide general information about general eDiscovery principles and not to provide specific legal advice applicable to any particular circumstance. eDiscovery Today should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

2 comments

  1. In my view, this is the most important language to include when you describe the Court’s disposition in your penultimate paragraph:

    2. The Court strikes the answers of Wang (Dkt. No. 261), Huang (Dkt. No. 311); and AllRide (Dkt. No. 254). The Clerk is directed to enter the default of Wang, Huang, and AllRide.

  2. Excellent result! Such egregious behavior, and we have no idea how much uglier this must have been behind the scenes, i.e. in social circles and among family friends. Such bold violations.

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