Sunlight Financial LLC v. Hinkle

Background

Sunlight Financial LLC and Sunlight Financial Holdings, Inc. sued Samuel Duncan Hinkle and others. Sunlight alleged that Hinkle, a former Sunlight executive, took confidential, proprietary, and trade-secret information while secretly working for Sunstone Credit, Inc., a competing solar-financing business. The complaint also alleged that Sunstone aided Hinkle’s misconduct.

The parties negotiated a stipulated amended preliminary injunction, which the court approved. The order required covered parties to provide an expert with access to electronic devices, cloud storage, email accounts, and other data systems that contained, or might have contained, Sunlight’s nonpublic information. The expert was to locate and preserve that information, return it to Sunlight, and provide copies to counsel under specified protections, including an attorney-eyes-only designation and a procedure for redacting privileged material.

The disputed devices and files

Scott Muckleroy, a Sunstone co-founder and employee, was covered by the injunction. His personal Google Drive and laptop contained, or had contained, Sunlight-related material, including a confidential Sunlight investor presentation. The Drive also contained a folder with more than 100 Sunlight-related files, including analyses that defendants and Hudson described as Hudson-owned work product.

Sunstone initially resisted producing the Drive and laptop, arguing that Muckleroy had received or created the files while consulting for Hudson Sustainable Group LLC and that defendants lacked the legal right to turn over Hudson’s materials. Sunstone later provided the current contents of the Drive but allowed Hudson to make a forensic copy and remove the folder. Sunstone said it could not produce the removed folder because it no longer possessed it. Sunstone continued to withhold the laptop.

Hudson asked the court to require Sunlight to subpoena Hudson instead and said it would produce Sunlight documents and related emails but not Hudson’s confidential analyses and work product. Hudson did not dispute that those analyses were covered by the injunction’s definition of Sunlight material or that the Drive and laptop were covered sources. Hudson also did not move to intervene or seek to modify the injunction.

Court’s analysis

The court held that the injunction required Sunstone and Muckleroy to provide both sources to the expert. The Sunlight investor presentation qualified as Sunlight material because it was a nonpublic document containing Sunlight business information that had been created by Sunlight and later stored, accessed, or used by Muckleroy. The injunction also covered documents created by Muckleroy or others that incorporated Sunlight’s nonpublic information.

The court rejected the argument that the injunction applied only to materials obtained through Muckleroy’s work for Sunstone. The order’s language did not impose that limitation. The court also held that the personal nature of the Drive and laptop did not matter because the injunction expressly covered personal devices and storage systems in an enjoined party’s possession or control.

The court then rejected the defense that compliance was impossible. A party may avoid discovery sanctions or contempt based on inability to comply only by clearly proving that compliance is impossible, not merely difficult or legally risky. Muckleroy had possession, custody, and physical control of the Drive and laptop, and he declined to object to providing them to the expert. Sunstone also had practical control over the Drive because it arranged for Hudson and an information-technology firm to copy the Drive and remove the folder. The court concluded that Sunstone and Muckleroy could have complied but chose not to.

Ruling

The court granted Sunlight’s motion to the extent that Sunstone and Muckleroy were required, within one week of the order, to provide the expert with access to the remainder of the Muckleroy Drive, including the Sunlight Folder, and to the entire Muckleroy Laptop. The expert was to review the contents under the process established by the preliminary injunction.

The order did not run directly against Hudson because Hudson was not a party or an enjoined party. If Sunstone and Muckleroy could not reacquire the Sunlight Folder from Hudson, Sunlight could seek sanctions under the cited Federal Rules of Civil Procedure. The portion of Sunlight’s request concerning another employee’s Sunstone laptop was moot because that laptop had already been provided to the expert. The order also stated that defendants, or Hudson if it successfully intervened, could later move to modify the injunction’s treatment of the disputed material.