Deerpoint Group, Inc. v. Agrigenix, LLC, 1:18-cv-00536

Background

Deerpoint sued Agrigenix and Sean Mahoney (and others) in 2018 for trade-secret misappropriation and patent infringement, alleging Mahoney took Deerpoint materials to start Agrigenix.
Extensive discovery began in 2019; Plaintiff later uncovered responsive third‑party records (Agriglobe, Hydrite, GAR Bennett) that Defendants had not produced.
Agrigenix used Unity IT for cloud storage; Unity suspended/reactivated licenses multiple times for nonpayment, and Plaintiff alleges cloud ESI was lost and not downloaded prior to suspension.
Multiple Agrigenix laptops were unavailable, encrypted, or forensically altered (e.g., CCleaner wipes, replaced hard drives); a forensic examiner found missing and unrecoverable ESI.
Plaintiff moved for sanctions under FRCP 37(e); the magistrate judge found the three Rule 37(e) thresholds satisfied, concluded Defendants acted with intent/ conscious disregard to deprive Plaintiff of ESI, awarded $32,500 in attorney fees, granted adverse‑inference instructions in part, denied default judgment, and ordered supplemental briefing on expert costs.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether ESI should have been preserved, was lost due to failure to take reasonable steps, and cannot be restored (Rule 37(e) thresholds)	Defendants had a duty and failed to preserve cloud and laptop ESI; much is unrecoverable	Defendants say they tried to preserve (litigation hold, Unity IT requests), believed data remained recoverable, and lost access partly due to financial constraints	Court: All three Rule 37(e) threshold criteria met — duty, failure to take reasonable steps, and ESI not restorable
Whether Plaintiff was prejudiced by the loss (Rule 37(e)(1))	Lost ESI impaired ability to prove trade‑secret, formula, sales, and customer communications; third‑party records and witness testimony indicate missing relevant material	Defendants say prejudice is speculative and Plaintiff could have pursued discovery earlier	Court: Plaintiff was prejudiced; lost ESI likely relevant and beneficial to Plaintiff’s claims
Whether Defendants acted with intent to deprive use of ESI (Rule 37(e)(2))	Defendants had notice of preservation obligations, received warnings from Unity IT, allowed laptops to leave custody, and failed to download cloud data after suspensions — conscious disregard/intent inferred	Defendants contend absence of bad faith; they believed cloud copies existed and some wiping was done by former employees after devices left their control	Court: Intent (or conscious disregard) inferred from totality (repeated license lapses with warning, failure to preserve, missing nondisclosed third‑party docs); Rule 37(e)(2) intent requirement satisfied
Appropriate sanctions (monetary, adverse inference, terminating)	Seek fees/costs, forensic costs, adverse factual findings and jury instructions, and partial default judgment	Ask for narrower relief (reopen discovery); oppose prejudicial dispositive sanctions and some fee amounts	Court: Awarded $32,500 in attorney fees (jointly and severally against Agrigenix and Mahoney), deferred expert fee award pending supplemental documentation, granted adverse‑inference instructions in part (left precise wording to trial judge), denied default judgment

Key Cases Cited

Wyle v. R.J. Reynolds Indus., Inc., 709 F.2d 585 (9th Cir. 1983) (district court’s broad discretion to sanction discovery abuses)
Apple Inc. v. Samsung Elecs. Co., 888 F. Supp. 2d 976 (N.D. Cal. 2012) (adverse‑inference guidance and spoliation sanctions analysis)
Leon v. IDX Sys. Corp., 464 F.3d 951 (9th Cir. 2006) (prejudice standard and terminating‑sanctions framework)
Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003) (factors for adverse‑inference instruction in ESI context)
In re Oracle Corp. Sec. Litig., 627 F.3d 376 (9th Cir. 2010) (crafting adverse inference sanctions to deny wrongdoer benefits while preserving right to present other evidence)
Kearney v. Foley & Lardner, LLP, 590 F.3d 638 (9th Cir. 2009) (definition of spoliation and related evidentiary principles)