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 WebMD Health Corp., Medscape, LLC, and WebMD Global LLC for alleged trade-secret misappropriation under the federal Defend Trade Secrets Act and New York common law. Medcenter also asserted a breach-of-contract claim against WebMD. The dispute included allegations that Medcenter’s former executive, Mariel Aristu, improperly accessed or used information in Medcenter’s Salesforce database after leaving Medcenter to work for the defendants.

In an earlier order, the court denied spoliation sanctions after finding that Medcenter had reasonably preserved the Salesforce information by downloading it into spreadsheet files. Spoliation means the loss or destruction of evidence that should have been preserved. The earlier ruling relied on the belief that the spreadsheet backup allowed the defendants to examine the unusual activity identified by Medcenter’s information-technology administrator, Carlos Padilla.

Reconsideration of the Salesforce Data Ruling

The defendants moved for reconsideration under Local Civil Rule 6.3. Reconsideration is an extraordinary remedy generally available only when the court overlooked controlling law or important facts, receives new evidence, or must correct clear error or prevent manifest injustice.

After oral argument, Medcenter confirmed that the abnormalities identified during Padilla’s investigation could not be recreated from the produced Salesforce backup. The court concluded that this fact had been overlooked in the earlier ruling. It therefore granted reconsideration on the Salesforce-data issue.

On reconsideration, the court found that Medcenter failed to take reasonable steps to preserve electronically stored information under Federal Rule of Civil Procedure 37(e)(1). Once Padilla’s investigation indicated that the Salesforce database might show whether Aristu had improperly accessed it, Medcenter had a duty to preserve the critical evidence. The court stated that, if preserving the entire database was not practical, Medcenter at least needed to preserve the evidence of the alleged access, such as by rerunning the analysis and taking screenshots or otherwise recording the results.

The court found that the defendants were severely prejudiced because they could not test the accuracy of Medcenter’s account of Padilla’s findings or otherwise challenge what the lost data showed. As a remedy, Medcenter was precluded from offering evidence relying on or derived from the lost Salesforce data, including evidence based on the results of Padilla’s investigation using that database. The preclusion applies to that investigation and does not automatically cover other Salesforce-based investigations for which the relevant data was preserved. Medcenter may still offer other evidence supporting its allegations.

The court rejected the defendants’ argument that the lost data also required barring evidence about the existence or timing of Padilla’s investigation. The defendants had not shown that any prejudice on that issue resulted from the loss of the electronically stored information. The court also concluded that Medcenter did not have a duty in 2017 or 2018 to preserve evidence about the date of the investigation for purposes of the defendants’ statute-of-limitations defense. Medcenter may use Padilla’s testimony to explain that the investigation continued into early 2017, but it may not use evidence of the investigation’s results derived from the lost Salesforce data.

The court also stated that it found no clear and convincing evidence that Medcenter intended to deprive the defendants of evidence. Accordingly, the ruling was based on the prejudice remedy in Rule 37(e)(1), not the more severe sanctions available for intentional deprivation under Rule 37(e)(2).

Second Reconsideration Argument

The defendants separately argued that Medcenter’s duty to preserve arose earlier, based on 2016 corporate meeting minutes, a November 2016 email, and paragraph 134 of the amended complaint. The court rejected the argument concerning the meeting minutes and email, finding that they showed a general concern about Aristu’s access to confidential information but did not show specific awareness that she had taken Salesforce data or shared it with the defendants. The court treated that argument as an attempt to relitigate issues already decided.

The court denied reconsideration based on paragraph 134 because the defendants had not cited or discussed that paragraph when the original motion was decided. The court added that, even if it considered the paragraph, it was not specific enough to establish precisely when Medcenter knew Aristu had improperly used trade secrets.

Disposition

The court granted the motion for reconsideration, Docket No. 98. Medcenter is precluded from offering evidence relying on or derived from the data lost from the Salesforce database, including evidence relying on or derived from the results of Padilla’s investigation using that database. The order did not decide the defendants’ statute-of-limitations defense or the merits of the trade-secret claims. The opinion identifies United States Magistrate Judge Gabriel W. Gorenstein as the judge, although the supplied case metadata lists Andrew Carter.