eDiscovery Daily Blog

• May 23, 2019

In 4DD Holdings, LLC v. U.S., No. 15-945C (Fed. Cl. May 10, 2019), the US Court of Federal Claims, in an opinion issued by Judge Bruggink, “grant[ed] plaintiffs’ motion for sanctions because the government destroyed relevant evidence that it had a duty to preserve.”  The Court directed the plaintiffs to “file a motion, appropriately supported, seeking a recovery of its costs and fees related to the motion for sanctions and with respect to discovery prompted by the destruction of evidence” and indicated it would “defer until summary judgment or trial the application of the evidentiary implications of this ruling.”  The court also denied the defendant’s motion to dismiss “[b]ecause plaintiffs established that the government authorized or consented to SMS’s allegedly infringing activity when working in SMS labs.”

Case Background

In this copyright infringement case involving installation of the plaintiff’s software in excess of the purchased license, the DoD’s Defense Health Agency (“DHA”) “repeatedly” required its contractor Systems Made Simple, Inc. (“SMS”) to perform work using the plaintiff’s copyrighted software in the contractor’s own labs.  The agency purchased a software license from the plaintiff’s reseller for 64 cores and the plaintiff’s End User License Agreement (“EULA”) permitted “the agency to make ‘one (1) copy of the object code to [TETRA] solely for back-up purposes,’ which it could only use ‘if the original copy is damaged or destroyed.’”  The agency also required the plaintiff to disable its software tracking feature to inform it of a software installation.

However, the Chief Engineer on the project (David Calvin) acknowledged in both his July 2018 declaration and his October 2018 deposition that work by SMS would have involved cloning TETRA virtual machines in their labs.  And, in August 2014, the plaintiff contacted the Contracting Officer’s Representative (Sheila Swenson) alleging that more than 64 cores were in use.  In September, Calvin directed the removal of instances of the plaintiff’s software in certain environments.  By December 2014, the agency “identified an over deployment of 168 core licenses to development servers.”  Nonetheless, Swenson reported 64 cores in use because that was the number of cores the agency had originally paid for.  In March 2015, the agency modified the license to increase the licensed quantity by 168 cores.

The plaintiff filed suit in August 2015. On September 9, 2015, the Department of Justice sent a letter to alert DoD of its responsibility to provide a litigation report and to furnish all evidence in DoD’s possession, stating “all records storage centers and other facilities where records are kept be immediately notified to forthwith identify, physically segregate and withhold from destruction all documents and papers touching upon the claims set forth in the complaint.”  Nonetheless, the agency’s Development Test Center (“DTC”) proceeded with a shredding of hard drives later that same month.  In addition, most of the laptops in use related to the project were returned and reimaged months after the litigation hold notice was issued, destroying any data related to the case they might have contained.  As discovery wound down, plaintiffs filed a motion for sanctions in November 2018.

Court Ruling

The Court found that “SMS was acting (1) “for the Government” and (2) “with the authorization or consent of the Government” when it performed any infringing activity in SMS labs.”  As a result, the Court denied the defendant’s motion to dismiss.

With regard to the plaintiffs’ motion for sanctions, the Court said: “The parties agree on the key events: The agency deleted instances of TETRA during the true-up period without informing 4DD. The agency destroyed the DTC servers’ hard drives. The agency erased all the information on many laptops used on the DMIX project.”  With regard to the DTC servers, the Court ruled that “Mr. Calvin’s orders directing contractors to delete instances of TETRA in listed environments because of ‘a license issue’ is sufficient to demonstrate that he intentionally deprived 4DD of the use of that information in litigation.”  But, the Court also noted that the “DTC decommissioning and laptop reimaging are not as clear cut”, ruling that “communication failure is undoubtedly negligent but falls short of the intentional behavior expected under Rule 37(e)(2)”.

Nonetheless, the Court “grant[ed] plaintiffs’ motion for sanctions because the government destroyed relevant evidence that it had a duty to preserve” and directed the plaintiffs to “file a motion, appropriately supported, seeking a recovery of its costs and fees related to the motion for sanctions and with respect to discovery prompted by the destruction of evidence” and indicated it would “defer until summary judgment or trial the application of the evidentiary implications of this ruling.”

So, what do you think?  Do you think the court ruled correctly on the intent to deprive standard for Rule 37(e)(2) in this case?  Please let us know if any comments you might have or if you’d like to know more about a particular topic.

Case opinion link courtesy of eDiscovery Assistant.

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