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Inc. v. Invincea, Inc.

United States District Court, E.D. Virginia, Norfolk Division

January 27, 2017

Vir2us, Inc., Plaintiff and Counterclaim Defendant,
v.
Invincea, Inc. and Invincea Labs, LLC, Defendants and Counterclaim Plaintiffs. Date Event Source

          Counsel for Plaintiff/Counter Defendant Vir2us. Inc.: Clark J. Belote Stephen E. Noona Kaufman & Canoles, P.C., Craig C. Reilly Law Office of Craig C. Reilly, Alden K. W. Lee Brian A. E. Smith Christina M. Finn Henry C. Bunsow Jeffrey D. Chen Joseph J. Fraresso Bunsow, De Mory, Smith & Allison LLP

          Counsel for Defendants/Counterclaim Plaintiffs Invincea, Inc. and Invincea Labs, LLC: Nathan K. Cummings Christopher C. Campbell Scott A. Cole Stephen C. Crenshaw Cooley LLP, Carrie J. Richey Matthew E. Buccellato Cooley LLP, Scott Sukenick Cooley LLP, Robert W. McFarland McGuireWoods LLP, Robert M. Tata Hunton & Williams LLP

          OPINION & ORDER

          HENRY COKE MORGAN, JR. SENIOR UNITED STATES DISTRICT JUDGE

         This matter is before the Court on Plaintiff Vir2us, Inc.'s ("Plaintiff) two motions seeking disciplinary action against Invincea, Inc. and Invincea Labs, LLC (collectively, "Defendant"): an Emergency Motion to Show Cause for Why Invincea Should Not Be Held in Contempt for Violating the Court's Order Compelling Discovery ("Show Cause Motion"), Doc. 430, and a Motion to Strike Defendants' Exhibits Never Produced During Discovery and Never Disclosed to Vir2us ("Motion to Strike"), Doc. 461. For the reasons set forth below, the Court GRANTS IN PART the Show Cause Motion, Doc. 430, and DENIES the Motion to Strike, Doc. 461, as MOOT.

         I. BACKGROUND

         A. Procedural History

         On April 15, 2015, Plaintiff filed its complaint in this action alleging that Defendant infringed Plaintiffs patents relating to computer system software security. See generally Compl. The Parties engaged in discovery; argued at a Markman claim construction hearing, Docs. 65, 78; filed discovery motions, Docs. 126, 192, 400; and filed motions in limine, Docs. 158, 171, 178, 185, 200, 202, 204, 206, 208, 210, 218, 220, 222. Late on May 31, 2016, the night before trial, the Parties settled the case. See Hearing Tr. at 2:13-18, June 1, 2016. On June 1, 2016, the Court held a hearing on the remaining motions, including those currently pending before the Court. Doc. 466. On June 20, 2016, Defendant filed its opposition to the Show Cause Motion and lodged supporting documents with the Court. Doc. 490.

         B. Facts On April 20, 2016, the Parties completed fact and expert discovery. See Doc. 24 at 2. On May 17, 2016, the Court conducted a final pretrial conference, ruled on several outstanding motions, and filed the final pretrial order. Doc. 414; see Docs. 141, 158, 165, 171, 178, 185, 192, 200, 202, 204, 206, 208, 210, 216, 218, 220, 222, 400, 405. On May 24, 2016, Plaintiff filed its Show Cause Motion. Doc. 430. On May 31, 2016, Plaintiff filed its Motion to Strike. Doc. 461.

         Defendant's failure to comply with the Federal Rules of Civil Procedure and the Court's discovery orders on this issue needlessly burdened discovery. The April 21, 2016 hearing on Plaintiffs Motion to Compel, Doc. 126, resulted in the Court's ordering Defendant to make several statements under oath: (1) that no investor presentations existed for the period of 2009 through 2013 and that the six (6) produced were the only remnants, Hearing Tr. at 21:23-23:5, Apr. 21, 2016; (2) that all Board meeting minutes and presentations containing sales, product, or competition information had been produced, Id. at 24:11-25:9, 33:20-35:6; and (3) that the production of documents after the first deposition of Management Employee A[1] did not change Defendant's supplemental answer to Plaintiffs interrogatory No. 5, Id. at 26:22-27:25. The Court also allowed Plaintiff to take a limited subsequent deposition of Management Employee A to address questions that arose when Defendant produced supplemental documents after her first deposition. Id. at 32:18-33:3. However, the Court stated at the pretrial conference that Defendant's certifications following the previous hearing did not "satisfy the spirit of the Court's order" because they addressed only the fact of production, not the substance of the produced documents. Hearing Tr. at 17:25-18:8, May 17, 2016. In granting Plaintiffs request to file supplemental damage and expert reports, therefore, the Court stated, "[T]his opens the door for you to file anything you want that's related to these documents which were produced late. Anything you think that's related to that you can produce or amend, whatever you want." Id. at 19:21-20:2.

Date
Event
Source

April 15

Plaintiff files Motion to Compel

Doc. 126

April 20

Discovery ends[2]

See Doc. 24 at 2

April 21

Hearing on Motion to Compel and Motion to Voluntarily Dismiss Count I of Counterclaim

• Court allowed Plaintiff to take second deposition of

Management Employee A regarding documents produced

after her first deposition

Doc. 155

April 29

Management Employee A declaration #1

Mgmt. Emp. A Decl., Apr. 29, 2016, Doc. 402, Ex. A

May 9

Defendant produces 65 Invincea Board of Directors presentations

Doc. 430 at 4 n.7

May 11

Defendant produces 54 Invincea Board meeting minutes

Doc. 430 at 4 n.7

May 16

Management Employee A declaration #2

• "Invincea produced copies of all Board presentations and Board minutes from prior to April 15, 2015."

• "Right after this case was filed, Invincea searched its computers and files for documents mentioning Vir2us and found none."

• "Invincea has repeated that search several times, and until May 8, 2016, found no documents mentioning Vir2us that existed or were created prior to suit."

Mgmt. Emp. A Decl. ¶¶ 8-9, May 16, 2016, Doc. 392, Ex. 1

Plaintiff files Motion to Enforce Court's Order Compelling

Doc. 400

Discovery

May 17

Defendant adds 118 exhibits, including 65 Invincea Board presentations, to Defendant's trial exhibit list in Final Pretrial Order without notifying Plaintiff or the Court

Doc. 461 at 1-2; Doc. 491 at 19-20

Final pretrial conference Final Pretrial Order

Docs. 414, 405

May 20

Defendant produces 154 documents including Board meetings, minutes, and presentations

Doc. 431 atl

May 24

Plaintiff files Show Cause Motion

Doc. 430

May 25

After Plaintiffs counsel identifies holes in production, Defendant produces 26 sets of Board meeting materials and other documents from Management Employee B and an engineering manager's hard drives and e-mail accounts

Doc. 508 at 16; Cooley Counsel A Decl. ¶¶ 8-12

May 26

Management Employee A deposition #2

May 29

Defendant adds 19 new exhibits to pretrial exhibit list

Doc. 461 at 3

May 31

Plaintiff files Motion to Strike

Doc. 461

Parties settle

See Hearing Tr. at 2:13-18, June 1, 2016.

June 1

Hearing on Show Cause Motion and Motion to Strike

Doc. 466

June 20

Defendant files Opposition to Show Cause Motion

Doc. 490

Management Employee A declaration #3

Mgmt. Emp. A Decl., June 20, 2016, Doc. 493

June 28

Plaintiff files Reply in support of Show Cause Motion

Doc. 508; see Doc. 510

         II. LEGAL STANDARDS

         "[T]he district court has broad discretion in determining the appropriate sanction for a party's noncompliance with a discovery request." Majestic Distilling Co., Inc. v. Stanley Stawski Distrib. Co., 205 F.3d 1333, *4 (4th Cir. 2000) (unpublished table decision); see also Wilson v. Volkswagen of Am., Inc., 561 F.2d 494, 505 (4th Cir. 1977). Even after parties settle, a court may impose sanctions "to ensure the proper functioning of judicial process." Bradley v. Am. Household Inc., 378 F.3d 373, 380 (4th Cir. 2004).

         Determining whether discovery sanctions are appropriate requires a three-step analysis of (1) whether a party violated a discovery order or Federal Rule of Civil Procedure; (2) whether the violation was "harmless" or "substantially justified;" and (3) which sanction is appropriate for the violation. Samsung Elecs. Co., Ltd. v. Nvidia Corp., 314 F.R.D. 190, 195-96 (E.D. Va. 2016).

         Rule 26 requires parties to disclose relevant information during discovery.[3] Fed.R.Civ.P. 26. Rule 37(c) requires parties to disclose relevant information under Rule 26(a) and (e) and supplement earlier incomplete or incorrect responses. Fed.R.Civ.P. 37.[4] Rule 16(f) allows a court to impose sanctions if a party fails to obey a scheduling or other pretrial order. Fed.R.Civ.P. 16(f)(1)(C); see Fed.R.Civ.P. 37(b). A court may also "order the party, its attorney, or both to pay the reasonable expenses-including attorney's fees-incurred because of any noncompliance with this rule, unless the noncompliance was substantially justified or other circumstances make an award of expenses unjust." Fed.R.Civ.P. 16(f)(2).

         III. ANALYSIS

          A. Defendant Violated Rules 37 and 26.

         Defendant committed numerous discovery violations during the pendency of this case.

         i. Defendant Failed to Properly Search for and Produce Responsive Invincea Investor and Board Materials.

         Through interrogatories and Court intervention, Plaintiff requested all of Defendant's presentations to investors as well as presentations and minutes taken during Invincea's Board of Directors ("Board") meetings. See Doc. 508 at 2. In March 2016, Management Employee A claimed with regard to the investor materials, "After a reasonable search, Invincea produced all the written investor presentations, memorandums offering securities, offering memorandums, private placement memorandums and similar documents provided to actual and potential investors and lenders that could be found in Invincea's files and computers." Mgmt. Emp. A Decl. ¶ 6, Apr. 29, 2016, Doc. 402, Ex. A. Later, Defendant claimed that "if there were written materials for those investor[ presentations conducted early in the company's history], they just don't exist anymore." Hearing Tr. at 21:23-23:10, Apr. 21, 2016. No additional investor materials were ever produced.

         However, Defendant produced sixty-five (65) Invincea Board meeting slide show presentations on May 9, 2016, Doc. 430 at 4 n.7; fifty-four (54) Board meeting minutes on May 11, 2016, Doc. 491 at 21; six (6) additional Board presentations on May 20, 2016, Doc. 508 at 16; and twenty-six (26) other Board presentation documents on May 25, 2016, Cooley Counsel A Decl. ¶¶ 8-12. The materials were responsive to various requests for production. See Hearing Tr. at 26:22-27:25, April 21, 2016; Doc. 508 at 2. They were pertinent to issues including "willful infringement, induced and contributory infringement, enhanced damages, and whether and to what extent Invincea copied Vir2us's technology after Vir2us made presentations to various individuals who would later hold key Board of Director and advisor positions at Invincea." Doc. 491 at 16; Doc. 508 at 13. In addition, though Defendant had allegedly searched its document repositories and some employees' computers for documents mentioning "Vir2us, " some presentations Defendant eventually produced contained a digital graphic of Vir2us's logo in a discussion of "Emerging Competition." Doc. 491 at 3.

         ii. Defendant Provided Varying Justifications for Its Failure to Produce Company Documents.

         Defendant compounded its failure to produce company documents by providing shifting justifications for their absence.

         Regarding the investor presentations, Defendant's counsel stated that Management Employee B "had dozens of meetings with potential investors, but they don't have a unique presentation for each investor." Hearing Tr. at 22:1-4, Apr. 21, 2016. Defendant represented that the presentations were created early in its company history and used "long enough ago that if there were written materials for those investors, they just don't exist anymore." Id. at 22:8-10; Mgmt. Emp. B Dep. 68:11-19; see also Hearing Tr. at 9:5-10:11, May 17, 2016. Management Employee A later reiterated this theory under oath, saying that Management Employee B's laptop had been wiped before the litigation began such that some materials could never be produced: "If any existed, they were lost before this case was filed, before Invincea had heard of Vir2us, and before Invincea had an obligation to preserve them." Mgmt. Emp. A Decl. ¶¶ 2, 7, Apr. 29, 2016, Doc. 402, Ex. A; see also Doc. 491 at 9. Later, Defendant clarified that no laptops had been wiped during the case, but "if any investor presentations were lost, they were lost prior to this case being filed." Cooley Counsel B Decl. ¶¶ 108-09.

         As for the Board presentations and minutes, Defendant insinuated that it did not previously locate some materials because it believed they no longer existed. See Mgmt. Emp. A Dep. 338:22-339:18, May 3, 2016. It also represented that confusion about where documents were electronically stored caused the delay in production. Management Employee A evasively discussed Invincea's storage and search procedures in her declarations and depositions. See Mgmt. Emp. A Decl., Apr. 29, 2016, Doc. 402, Ex. A; Mgmt. Emp. A Dep., May 3, 2016; Hearing Tr. at 10:23-12:5, June 1, 2016.[5] Originally, she declared that "Invincea does not need to produce copies of additional Board presentations or of Board minutes because the information that Vir2us is seeking has already been produced in other documents." Mgmt Emp. A Decl. ¶ 8, Apr. 29, 2016, Doc. 402, Ex. A. Defendant's lead counsel also expressed this theory. Cooley Counsel B Decl. ¶¶ 113, 116.

         Defendant assisted its counsel in searching electronic documents in two (2) ways: it provided documents to counsel for uploading to the firm's Relativity document storage account and gave counsel access to Invincea's Box.com document storage account. Counsel's Relativity database allowed counsel to search the documents' text. Cooley Counsel B Decl. ¶¶ 80-83. The Box.com database allowed Defendant and counsel to conduct an allegedly comprehensive document search: "[I]t's my understanding thatif it wasn't there, it doesn't exist." Mgmt. Emp. A Dep. 338:22-339:18, May 3, 2016. Defendant explained that, consistent with company policy, Management Employee A believed "throughout this litigation that any final versions of Board Minutes and Board Presentations" were stored in the Box.com account. Mgmt. Emp. A Decl. ¶ 83, June 20, 2016, Doc. 493. Defendant could not satisfactorily explain why the Board meeting minutes, which "are just simply a typed-up Microsoft Word document, " were not found during searches of Defendant's storage databases. Hearing Tr. at 19:23-20:1, June 1, 2016. Defendant claimed that it searched "the appropriate folders" and used search terms "like 'minutes'" without success. Id. at 20:2-7.

         The Board materials, of course, were not destroyed and were later produced. A Board presentation produced on May 25, 2016 was even discovered in the Box.com account, which had allegedly been thoroughly searched. See Mgmt. Emp. A Dep. 27:7-28:17, May 26, 2016. One of the Board meeting minutes documents was also found outside the expected storage repository. Hearing Tr. at 20:7-9, June 1, 2016. Management Employee A also apparently believed that when she testified she had "produced certain documents, " she meant "that she had produced them to her attorneys." Id. at 10:23-11:6. The materials available in the Box.com and Relativity databases, some of which counsel had earlier located but identified as "cumulative, " should have been timely produced to Plaintiff.

         Some of the revealed Board materials included the roll of the Board members present at the meetings, crucial information which would have shaped Plaintiffs deposition strategy. Defendant's withholding of responsive documents prohibited Plaintiff from deposing individuals with vital knowledge of Defendant's pre-suit awareness of Plaintiff s products. Doc. 508 at 8.

         Ironically, Defendant's general counsel, a partner at Defendant's lead firm, has regularly attended Invincea Board meetings since the company was founded. Hearing Tr. at 14:16-15:3, June 1, 2016; Cooley Counsel B Decl. ¶ 138. The Court inquired whether Defendant had questioned the partner about the missing Board meeting minutes and presentations. Hearing Tr. at 17:6-9. Counsel for Defendant asserted twice that "it did not occur to [Defendant] to do so" because Defendant was confident that all ...


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