Network Data Rooms, LLC v. Saulrealism LLC

Background

Network Data Rooms, LLC sued Saulrealism LLC and Ryan Saul under the federal Defense of Trade Secrets Act, New York common law, and claims for conversion and breach of contract. Network Data Rooms alleged that Saul, its former software developer, took source code for its DealTable virtual data room platform. Saul denied possessing the code and said he could not return something he did not have.

Network Data Rooms focused on recovering the decompiled source code. It sought an order requiring Saul to return the code and preventing him from destroying or sharing it. The court granted the request for prohibitory relief in part but later denied the request for a mandatory order requiring Saul to turn over the code, finding that the plaintiff lacked credible evidence and had not shown a clear and substantial likelihood of success. The court also denied the plaintiff’s motion to reconsider.

Altered Evidence

Defense counsel reported that an email submitted by Network Data Rooms in support of its request for preliminary relief had been altered. The plaintiff acknowledged that David Delorge had altered the email but argued that Delorge had acted on his own and that neither the company nor its lawyers knew about the alteration.

The altered version made it appear that Saul had told Delorge he was saving code in a branch called “Ryan Development.” The unaltered version instead referred to a different project and branch. The court found that the altered email supported Delorge’s claim that Saul had secretly saved code outside the plaintiff’s repository and was central to the plaintiff’s theory that Saul stole the code.

Court’s Analysis

The court found by clear and convincing evidence that Delorge, acting on behalf of Network Data Rooms, knowingly, willfully, and in bad faith submitted altered evidence and committed fraud on the court. The court rejected the argument that the company could rely on Delorge’s assertions when they supported its lawsuit but disassociate itself from him when those assertions proved fraudulent. It concluded that Delorge had apparent authority because the plaintiff presented him as its chief cloud architect and security engineer and relied on his technical knowledge.

The court considered lesser sanctions, including monetary penalties, excluding evidence, or instructing a jury about the misconduct. It found those alternatives inadequate because the fabrication concerned a central issue, the plaintiff continued to pursue its claims, and a trial would likely be pointless. The court also noted that the expert’s conclusions were inconclusive and that there was no evidence from any source that Saul currently possessed, controlled, or held the code.

The court found no evidence that Network Data Rooms’ lawyers knew the email had been altered or were deliberately ignoring that possibility. Although the lawyers should have noticed a date discrepancy, the court imposed no sanctions on them.

Disposition

The action was dismissed with prejudice as a sanction for fraud on the court. The plaintiff’s request for a pre-motion conference concerning evidence destruction was denied as moot. The Clerk of Court was directed to close the case.