Medcenter Holdings Inc v. Web MD Health Corp.

Background

Medcenter Holdings Inc., Medcenter Solutions SA, Med Solutions Mexico, S. de R.L. de C.V., and Medcenter Solutions do Brasil SA sued Web MD Health Corp., Medscape, LLC, and WebMD Global LLC. The claims alleged misappropriation of trade secrets under federal and New York law. Medcenter also alleged that WebMD breached a 2014 nondisclosure agreement.

According to the allegations described in the opinion, Medcenter maintained a Physicians Database containing detailed information about medical professionals in Latin America and a Salesforce Database containing information about pharmaceutical marketing projects and physician responses. Medcenter alleged that Mariel Aristu, after leaving Medcenter to work for defendants, obtained and provided defendants with data from those databases.

Defendants moved for sanctions under Federal Rule of Civil Procedure 37(e), which governs lost electronically stored information. They argued that Medcenter failed to preserve database information and emails. They sought various sanctions, including an order preventing Medcenter from presenting evidence about the databases and an instruction allowing the jury to presume that lost information was unfavorable to Medcenter.

Preservation duty

The court held that the duty to preserve evidence related to the trade-secret claims began after an investigation in early 2017. That investigation revealed that numerous Salesforce reports had been run at unusual times and from unusual locations, including activity associated with Mariel Aristu. The court concluded that, at that point, Medcenter knew or should have known that Aristu might have taken information from its databases and that litigation over the alleged theft was likely.

The court rejected defendants’ arguments that the duty began in June or July 2016, during August and September 2016 board and shareholder meetings, or during communications from September through November 2016. The court found that those materials concerned possible breaches of the nondisclosure agreement, employee and client recruiting, or Aristu’s general access to confidential business information—not specific awareness that data from the Physicians Database or Salesforce Database had been stolen.

Physicians Database

Medcenter preserved contact and practice-specialty information, called the “Contact Data,” but lost the remaining information, called the “Non-Contact Data.” The court found that the Non-Contact Data was lost after Medcenter’s preservation duty arose and that Medcenter failed to take reasonable steps to preserve it. The court did not impose a sanction concerning the Contact Data because that information remained intact.

The court rejected defendants’ request for the harsh sanctions available under Rule 37(e)(2), including an unfavorable-information presumption, a jury instruction, dismissal, or default judgment. Those sanctions require a finding that Medcenter acted with an intent to deprive defendants of the information. The court found that defendants had not proven that intent by clear and convincing evidence. It also found that Medcenter had offered a plausible explanation involving the cost and practicality of downloading the database.

The court nevertheless found prejudice to defendants because the lost Non-Contact Data concerned the alleged trade secrets and prevented defendants from examining the claimed secrets and assessing their value. To cure that prejudice, the court precluded Medcenter from presenting evidence about the nature or value of the Non-Contact Data. The ruling did not prevent Medcenter from presenting evidence about the preserved Contact Data.

Salesforce Database

Medcenter lost access to its Salesforce platform after its subscription ended, but before that occurred it downloaded and saved the information available from the system in spreadsheet and table-file formats. Medcenter produced those files in the litigation.

The court held that Medcenter took reasonable steps to preserve the Salesforce information. Rule 37(e) requires reasonable preservation efforts, not perfect preservation. Although the downloaded files may not have retained all of the hosted database’s functionality or metadata, defendants did not provide competent evidence showing precisely what necessary information was unavailable from the preserved files. The court therefore found that no spoliation sanctions were warranted concerning the Salesforce Database.

Emails

Medcenter deleted Mariel Aristu’s and Estefania Aristu’s email accounts in late 2016. The court held that sanctions were unavailable because the duty to preserve evidence relevant to the trade-secret claims did not arise until 2017. The court therefore imposed no sanctions concerning those emails.

Fees and disposition

Defendants also sought expenses for bringing the sanctions motion. Because defendants did not prevail on most of the motion, and because the preclusion of evidence concerning the Non-Contact Data fully cured the prejudice identified by the court, the court declined to award additional expenses.

Judge Gabriel W. Gorenstein concluded that the sanctions motion was granted in part and denied in part. Specifically, the motion was granted to the extent that Medcenter was precluded from presenting evidence about the nature or value of the Non-Contact Data. The opinion did not impose sanctions concerning the preserved Salesforce information or the deleted emails, and it did not impose the harsher sanctions requiring an intent to deprive.