“The Gang That Couldn’t Spoliate Straight”

Documenting When the Duty to Preserve Potentially Responsive Information Was Triggered
January 17, 2021
Some Tactical Options for Businesses Faced With Pre-Litigation Preservation Demands
January 29, 2021

A few years ago, the Hon. Paul W. Grimm wrote: “At the end of the day, this is the case of the ‘gang that couldn’t spoliate straight.’”  Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497, 501 (D. Md. 2010).

That description is equally applicable to the conduct that led to a preservation order in Precigen, Inc. v. Shuyuan Zhang, 2020 WL 3060398, at *1 (D. Md. June 9, 2020).

Precigen was a theft of trade secrets case. Precigen’s employee, Zhang, was a high-level director. He signed a “Confidentiality and Proprietary Rights Agreement” in June 2011. In May 2020, after years of access to confidential information, he gave two weeks’ notice that he was resigning.

But several suspicious things happened.  Some of them were:

  • Zhang was hesitant in his exit interview, denying certain activity. Two days later, he admitted that he was named on patent applications for another company on overlapping subject matter.
  • Zhang reset his iPhone to factory settings, “removing all data and making it impossible to determine whether the device had been used to engage in any misappropriation of trade secret and confidential information.”
  • Zhang’s laptop “was also configured in such a way as to make it difficult to scrutinize how Zhang treated Precigen’s trade secret and confidential information.”
  • A “deleted files report” showed specific documents that were relevant had been deleted.
  • There were “indications that Zhang attempted to transfer certain files after his employment with Precigen had ended and he was set to begin work with [another company].”

Zhang offered a lot of “explanations.”  For example, one was that “he asserts that he reset his electronic devices before returning them to Precigen because they contained personal information and he had not been instructed to preserve the data on his phone.”**

Neither the plaintiff – – ably represented by my friends Phil Andrews and Justin Redd of Kramon & Graham, P.A.,  as well as Deborah Pollack-Milgate and her colleagues at Barnes & Thornburg, LLP – –  nor the Court was willing to buy Zhang’s Brooklyn Bridge.

Phrased as a temporary restraining order, the Court entered a preservation order that:

Defendant and any persons or entities in active concert or participation with him who receive notice of this Order, whether acting directly or through any corporation, are hereby temporarily restrained and enjoined from destroying, erasing, mutilating, concealing, altering, transferring, or otherwise disposing of, in any manner, directly or indirectly, any document (including, but not limited to, all documents residing or otherwise available through an electronic date host) that relate to his employment by Precigen, Precigen’s confidential and/or trade secret information, or any document or electronically stored information belonging to or received from Precigen.

IT IS FURTHER ORDERED that Defendant Shuyuan Zhang shall, within 24 hours of entry of this Order produce, for bit-by-bit imaging by a forensic ESI consultant retained by Plaintiffs, all computers, cellular telephones, hard drives, removable storage media, compact disks, physical or cloud-based servers, email accounts, or any other medium in his possession, custody, or control that contains, or has ever contained or been used to transmit or store, electronically stored information related in any way to his employment with Precigen, or Precigen’s confidential and/or trade information. [emphasis added]

Kudos to Kramon & Graham for catching someone who “couldn’t spoliate straight.”  A great firm and excellent lawyers got a superb result.

Craig Ball’s post, “What’s in a Name (or Hash Value)?,” January 14, 2021, discussed some of the forensic aspects of trade secret litigation.  Craig “underscored the pitfalls of filename and hash searches” in those cases.  He also suggested the use of filename matching, writing: “Electronic search—by hash, filename, metadata or keyword–is an invaluable tool in investigation and e-discovery; but one best used with a modicum of common sense by those who appreciate its limitations.”

Clearly, Precigen’s attorneys did it correctly.  Precigen was – quite properly – brought under the Defend Trade Secrets Act, 18 U.S.C. §1832, et seq., the Maryland analog, Md. Code Ann., Com. Law. Art. §11-1201, et seq., and common law contract and fiduciary duty claims.

I have also, in trade secret cases, relied on the Computer Fraud and Abuse Act, 18 U.S.C. §1030 (“CFAA”), which provides a civil cause of action.  Maryland’s “little CFAA” does not create a cause of action for civil claims.  Md. Code Ann., Crim. L. Art. §7-302.

A case currently pending in the United States Supreme Court may foreclose reliance on CFAA.  Van Buren v. U.S., No. 19-783.  Oral argument was held on November 30, 2020.  The question presented is: “Whether a person who is authorized to access information on a computer for certain purposes violates Section 1030(a)(2) of the Computer Fraud and Abuse Act if he accesses the same information for an improper purpose.”

January 28, 2021, Update:

For a synopsis of the CFAA case in the Supreme Court, see E. McAndrew, “Supreme Court dives into circuit split over the Consumer Fraud and Abuse Act,” DLA Piper, Jan. 28, 2021.

A blog by Jessica A. Huse, “The Risks of ‘Failed’ Spoliation Efforts: The Southern District of New York Finds Severe Sanctions Available Under Rule 37(b)(2) and Inherent Authority for ‘Incompetent Spoliators’,” Gibbons Law Alert, October 6, 2020, presents an interesting analog – – “what happens when the attempted spoliation ultimately fails because the discovery is located and produced often after much unnecessary effort and expense by the requesting party?”  In the blogged decision, the court relied on its inherent authority to impose sanctions.  Ms. Huse wrote:

This case is noteworthy as it reminds litigants that spoliation efforts themselves can always result in severe sanctions, even where those efforts fail to accomplish their nefarious goal. The courts have several options here; sufficiently egregious misconduct – however ultimately incompetent – can be addressed by resort to both the sanctions provided in Rule 37(b)(2) and/or the court’s inherent authority. With all the focus on the strict parameters of amended Rule 37(a) to address actual spoliation of ESI, it is easy to lose sight of the fact that even failed efforts to withhold electronic discovery can have devastating consequences for your case. “No harm, no foul” may not carry the day.


** As pointed out in a prior blog, it has long been settled that the duty to preserve arises by operation of law and no preservation demand is required to trigger it, citing Thompson v. U.S. Dep’t of Hous. & Urban Dev., 219 F.R.D. 93, 100 (D. Md. 2003).  I suggest that the commingling of Zhang’s personal data with Precigen’s data exacerbates the wrongdoing.  Commingling in no way mitigates or excuses Zhang’s conduct.