WeRide Corp. v. Huang

Background

WeRide Corp. and WeRide Inc. sued Kun Huang, Jing Wang, Zhong Zhi Xing Technology Co. Ltd. (ZZX), AllRide.AI, Inc., and others over alleged misappropriation of WeRide’s trade-secret source code and related claims. WeRide moved for sanctions under Federal Rules of Civil Procedure 37(b) and 37(e), and under the court’s inherent authority, alleging that defendants destroyed or failed to preserve emails, source code, and other electronically stored information.

The court described evidence destruction by AllRide, including automatic deletion of emails older than 90 days, deletion of individual email accounts, wiping former employees’ laptops, and use of automatically deleting messages. The court also found that Huang reformatted a WeRide-issued laptop, deleted files from another WeRide-issued laptop, returned a personal laptop to an Apple store, and altered source-code files on an AllRide-issued laptop after the court’s preliminary injunction prohibited destruction or alteration of relevant electronic evidence.

Legal standards

Rule 37(b) permits sanctions when a party fails to obey a discovery-related court order. Rule 37(e) permits sanctions when electronically stored information that should have been preserved is lost, cannot be restored or replaced, and the party failed to take reasonable preservation steps. For case-ending sanctions under Rule 37(e), the court must find that the party acted with intent to deprive another party of the information’s use in the litigation.

The court adopted the preponderance-of-the-evidence standard for terminating sanctions. It also stated that it could make factual findings and assess witness credibility. Although WeRide also invoked the court’s inherent authority, the court said it would impose sanctions under Rules 37(b) and 37(e) and therefore did not impose sanctions under its inherent power.

Rulings concerning AllRide

The court found that AllRide violated the preliminary injunction by continuing practices that destroyed potentially discoverable evidence. It found AllRide’s conduct willful and in bad faith, and found that the mass destruction of internal emails severely prejudiced WeRide’s ability to prove its trade-secret claims. The court also found that lesser sanctions, such as jury instructions or excluding AllRide’s evidence, would not cure the prejudice because the lost evidence could have supported WeRide’s affirmative case.

The court held that AllRide’s conduct satisfied the requirements for terminating sanctions under Rule 37(b). It separately found that the requirements of Rule 37(e) were met and that the totality of the circumstances showed intentional spoliation. The court issued terminating sanctions against AllRide under both rules. The court did not find that AllRide had spoliated the October 2018 source code or that its produced code was a sham; instead, it found that missing emails created unresolved questions about the code’s authenticity and development.

Rulings concerning Wang

WeRide argued that Wang should be sanctioned because he controlled AllRide and therefore was responsible for its evidence destruction. Applying agency principles and a California three-factor test, the court found that the evidence established Wang’s financial interest in, control over, and knowledge of AllRide’s conduct. The court concluded that AllRide acted as Wang’s agent when it engaged in the evidence destruction.

The court issued terminating sanctions against Wang based on AllRide’s spoliation. Having reached that conclusion, it did not consider WeRide’s other arguments for sanctioning Wang.

Rulings concerning Huang

The court found that Huang violated the preliminary injunction by modifying more than 1,000 source-code files on his surrendered AllRide-issued laptop. It rejected Huang’s arguments that forensic irregularities undermined the analysis and that the code was open-source. The court found that the evidence showed Huang spoliated source code that had been on the laptop before the modifications.

The court also found that Huang had a preservation duty by July 31, 2018, before WeRide filed suit, because litigation was reasonably foreseeable under the circumstances described in the opinion. It found that Huang failed to take reasonable steps to preserve information on his two WeRide-issued laptops, his personal laptop, and the AllRide-issued laptop. The court further found that Huang acted with intent to deprive WeRide of access to the evidence and that lesser sanctions would not cure the prejudice.

The court issued terminating sanctions against Huang under Rule 37(b) for violating the preliminary injunction and under Rule 37(e) for destroying electronically stored information.

Additional motions and final order

The court overruled Huang’s evidentiary objections, including objections concerning arguments and expert declarations submitted in reply. The court also granted AllRide’s administrative motion to file a supplemental expert declaration.

The court ordered Wang, Huang, and AllRide to pay WeRide’s reasonable fees and costs incurred in connection with the sanctions motion, discovery concerning their evidence destruction, and specified discovery-motion practice before Judge Cousins. WeRide was directed to submit a declaration supporting its requested fees and costs, after which the court would award them. Wang, Huang, and AllRide were made jointly and severally liable for the award.

The court struck the answers filed by Wang, Huang, and AllRide and directed the Clerk to enter defaults against them. The order imposed discovery sanctions and did not decide the underlying claims on their merits.