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CIGNEX Datamatics, Inc. v. Lam Research Corp.

United States District Court, D. Delaware

March 11, 2019

CIGNEX DATAMATICS, INC., Plaintiff,
v.
LAM RESEARCH CORPORATION, Defendant. CIGNEX Employee Last Day Employee Worked at CIGNEX Last Day CIGNEX Stored Employee's Email

          Theodore A. Kittila, James G. McMillan, III, Halloran Farkas Kittila LLP, Wilmington, DE - attorneys for Plaintiff

          Christopher P. Simon, David G. Holmes, Cross & Simon, LLC, Wilmington, DE - attorneys for Defendants

          MEMORANDUM OPINION

          NOREIKA, U.S. DISTRICT JUDGE

         Presently before the Court is the motion of Defendant Lam Research Corporation (“Defendant” or “Lam”) for a finding of spoliation and for sanctions against Plaintiff CIGNEX Datamatics, Inc. (“Plaintiff or “CIGNEX”). (D.I. 54). For the reasons set forth below, the Court DENES Lam's motion.

         I. BACKGROUND

         CIGNEX is a consulting company that provides “services and products such as open source enterprise portals, content management, big data analytics, and e-commerce solutions.” (D.I. 1 ¶ 5). On October 28, 2014, CIGNEX and Lam entered into a Contract for Independent Contractor or Consultant Services (“the Agreement”), whereby CIGNEX agreed to provide software development services for Lam's MyLam/PK redesign project. (Id. ¶ 6; see also D.I. 1, Ex. A). The Agreement provided that, in exchange for CIGNEX's work on the MyLam/PK redesign project, Lam would pay certain fees to CIGNEX according to the relevant Statement(s) of Work. (D.I. 1 ¶ 6, see also D.I. 1, Ex. A ¶¶ 1-2). The Agreement also provided that Lam would pay CIGNEX within thirty days of each undisputed invoice for the project. (D.I. 1, Ex. A ¶ 4). In January 2015, both parties signed a Statement of Work prepared by CIGNEX, which outlined the scope and cost of the work on the MyLam/PK redesign project. (See D.I. 55 at 2; D.I. 61 at 5).

         At some point after CIGNEX began work on the project, problems developed. CIGNEX was unable to meet certain deadlines (including completion by July 2015), and the cost of the project apparently exceeded the initial proposal. (See, e.g., D.I. 55 at 3). In August 2015, Lam stopped paying CIGNEX, but CIGNEX nevertheless continued to work on the MyLam/PK redesign project. (See id.; see also D.I. 1 ¶ 11; D.I. 61 at 9-12). Although CIGNEX continued working, the relationship between the parties deteriorated as the problems persisted. By late April or early May of 2016, Lam had suggested it may seek “legal recourse” if CIGNEX was unable to deliver as promised under the Agreement. (See D.I. 62, Ex. 1 at CIGNEX00043 (“Legal Option - CIGNEX will not be able to respond favorably if the options are ‘Deliver or Legal recourse.'”); D.I. 68, Ex. F at LAM 70 (“Final Delivery Milestone Dates Must Be Met or Legal Recourse Will Be Required - CIGNEX Response - Under the given circumstances going thru legal option is not advisable.”)). A few months later, on or around August 5, 2016, Lam issued a stop work order to CIGNEX for the MyLam/PK redesign project. (See D.I. 63, Ex. C at LAM 0113523). On March 24, 2017, CIGNEX filed the present action, alleging that Lam breached the Agreement. (D.I. 1 ¶¶ 15-19). In particular, CIGNEX alleges that it performed all of its obligations under the Agreement and Lam has refused to pay the remainder of the amount due for work that CIGNEX performed - i.e., $434, 096.71. (D.I. 1 ¶ 11).[1] On May 15, 2017, Lam answered and filed counterclaims for, inter alia, breach of contract and unjust enrichment, seeking recovery of all payments rendered to CIGNEX over the course of the project. (See, e.g., D.I. 8 ¶¶ 25-47). Discovery proceeded.

         On August 20, 2018, Lam filed the present motion, which seeks a finding of spoliation and sanctions for CIGNEX's failure to preserve email documents from certain former CIGNEX employees involved in the MyLam/PK redesign project. (See D.I. 54, 55). The motion was fully briefed as of September 25, 2018 (see D.I. 61, 62, 63, 68), and the Court heard oral argument on December 13, 2018 (D.I. 78). At the hearing, the Court ordered CIGNEX to make one of its employees - Mr. Srinivas Tadeparti - available for deposition on issues relating CIGNEX's failure to preserve certain email accounts of former employees. (D.I. 78 at 68:5-15). The Court also directed Lam to file Mr. Tadeparti's deposition transcript, and the parties were permitted to submit letters regarding their views of the importance of Mr. Tadeparti's testimony. (Id. at 68:16-21). After the transcript and letters were filed (see D.I. 85, 86, 87), the Court received further submissions regarding CIGNEX's document retention policies (see D.I. 89, 90, 91, 93).

         II. LEGAL STANDARDS

         “Spoliation occurs where: the evidence was in the party's control; the evidence is relevant to the claims or defenses in the case; there has been actual suppression or withholding of evidence; and, the duty to preserve the evidence was reasonably foreseeable to the party.” Bull v. United Parcel Serv. Inc., 665 F.3d 68, 73 (3d Cir. 2012). Historically, in the Third Circuit, “a finding of bad faith [has been] pivotal to a spoliation determination.” Id. at 79.

         If a court finds that spoliation occurred, it must then determine an appropriate sanction for the suppression or withholding of evidence. The sanctions analysis focuses on “(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, 79 (3d Cir. 1994).

         Rule 37(e) of the Federal Rules of Civil Procedure addresses sanctions available for a party's loss (or destruction) of electronically stored information (“ESI”).[2] Rule 37(e) provides:

If 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 ...

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