Federal Trade Commission v. Vyera Pharmaceuticals, LLC

Background

The plaintiffs—the Federal Trade Commission and several states and commonwealths—brought an antitrust action concerning Vyera’s conduct involving Daraprim, a drug used to treat toxoplasmosis. The plaintiffs alleged that Vyera entered into anticompetitive agreements, including an exclusive supply agreement with RL Fine after learning that RL Fine was preparing to seek approval to manufacture the drug’s active ingredient.

The plaintiffs sought sanctions under Federal Rule of Civil Procedure 37(e), which governs the failure to preserve electronically stored information. They alleged that Vyera and Phoenixus failed to preserve relevant communications of Akeel Mithani. Mithani became a Phoenixus board member and Vyera executive in 2017 and negotiated with RL Fine.

Vyera generally issued employees iPhones that automatically backed up messages. Mithani instead received a company-issued BlackBerry around November 18, 2017, and that device did not systematically back up text messages. Although Vyera had an obligation to preserve relevant messages beginning in September 2015, it did not provide Mithani with a document-preservation notice until November 14, 2018. Mithani returned the BlackBerry in April 2019, after which it was factory-reset and no data could be retrieved.

At a January 2021 deposition, Mithani said that he did not know of any deleted texts concerning company business. Vyera later told the plaintiffs that Mithani had deleted texts from both his company-issued and personal devices, before and after receiving the preservation notice. Vyera conceded that Mithani’s non-email communications production was incomplete.

Rule 37(e) standards

The court explained that spoliation means destroying or significantly altering evidence, or failing to preserve property for use as evidence in pending or reasonably foreseeable litigation. Under Rule 37(e), sanctions may be imposed when electronically stored information that should have been preserved is lost because reasonable preservation steps were not taken and the information cannot be restored or replaced through additional discovery.

Rule 37(e)(1) permits measures no greater than necessary to cure prejudice caused by the loss. Rule 37(e)(2) permits more serious measures—including adverse inferences, adverse jury instructions, and default judgment—only when the party acted with the intent to deprive another party of the information’s use in the litigation.

The parties’ requested sanctions

The plaintiffs asked the court to presume that the destroyed evidence would show that Vyera engaged in three types of conduct to restrain generic entry rather than for legitimate reasons: entering the RL Fine agreement, entering data-blocking agreements, and tightening Daraprim’s closed distribution system.

Vyera proposed a narrower remedy: barring it from calling Mithani as a defense witness or introducing documents authored by Mithani.

Holding and disposition

The court found that Mithani lied at his deposition and intentionally deleted text messages from both devices before and after receiving the preservation notice. It also found that Vyera facilitated the loss by providing Mithani with a BlackBerry instead of the usual automatically backed-up iPhone and by failing to give him a timely preservation notice. The court held that this conduct constituted spoliation, that the plaintiffs were prejudiced, and that Mithani acted intentionally to deprive them of information usable in the litigation.

Despite those findings, the court exercised its discretion and declined to impose the plaintiffs’ proposed sanctions. It adopted Vyera’s proposed sanction instead: Vyera and Phoenixus are precluded from calling Mithani to testify in their defense or introducing documents authored by him. If the plaintiffs offer Mithani’s testimony or documents he authored, the defendants may supplement the record as required by the rule of completeness.