IN RE: AHERN RENTALS, INC., TRADE SECRET LITIGATION Case No. 20-02945-MD-C-BP United States District Court, W.D. Missouri, Central Division Filed June 27, 2023 Phillips, Beth, United States District Judge ORDER DENYING MOTION FOR SANCTIONS *1 This MDL arises from a dispute between two companies in the equipment rental industry. In this member suit, Ahern Rentals, Inc. (“Ahern”) alleges one of its former employees, Matthew Allen, and Allen's subsequent employer, EquipmentShare.com, Inc. (“EquipmentShare”), misappropriated trade secrets and committed other wrongful acts.[1] Pending is Ahern's Motion for Sanctions based on Allen's and EquipmentShare's alleged failure to preserve evidence. The Motion, (Doc. 1303), is DENIED. I. BACKGROUND[2] Allen resigned from Ahern on June 3, 2019, to begin working for EquipmentShare. When he left, he brought with him “on-rent reports,” intending to use them in his work at EquipmentShare. (Doc. 1304, pp. 8-9 (Allen Dep., pp. 137-38).) On-rent reports are generated by Ahern's computer system and contain information about customers, the equipment they rented, and the rate they paid. (Doc. 1304, p. 8 (Allen Dep., p. 137).) On June 28, 2019, Ahern sent Allen a Cease and Desist Letter (the “Allen Letter”), accusing him of possessing a list of Ahern employees. (Doc. 1303-1, pp. 181-82.) The Allen Letter does not discuss any other confidential information or trade secrets in any detail and expresses Ahern's concern that Allen was using the employee information to lure more of Ahern's employees to work for EquipmentShare. It outlines steps Allen and EquipmentShare must take “to avoid litigation,” including a direction to “[i]mmediately cease and desist from using or disclosing [Ahern's] confidential information and trade secrets.” (Doc. 1303-1 p. 182.) The Allen Letter also instructs Allen to cease and desist “from utilizing any [Ahern] confidential information and/or trade secrets to solicit [Ahern's] employees or customers, including ... employee lists, client lists, or proprietary information related to” Ahern's employees. (Doc. 1303-1, p. 182.) This constitutes the Ahern Letter's only reference to, and instruction about, customer information. Finally, the Allen Letter directs Allen to “return to [Ahern] all confidential information and trade secrets” in his possession and confirm in writing that he has done so. (Doc. 1303-1, p. 182.) On July 1, 2019, Allen executed an Affirmation stating in part that he “returned or deleted all documents (including emails and other electronic records), electronic storage devices or other tangible property containing business records or reflecting confidential, proprietary or trade secret information belonging to” Ahern. (Doc. 1303-1, p. 194.) The Affirmation does not specify the property that he returned or deleted.[3] *2 On July 16, 2019, Ahern sent a letter captioned “Cease and Desist & Litigation Hold” to EquipmentShare (the “ES Letter”), which is substantially similar to the Allen Letter. It expresses Ahern's belief Allen had “acquired and used confidential [Ahern] information regarding the skills, compensation, employment practices, performance, job descriptions, duration of employment and other details of Ahern's workforce” to aid EquipmentShare's efforts to lure Ahern employees to work for EquipmentShare and thereby acquire Ahern's customers. (Doc. 1303-1, p. 185.) The ES Letter provides additional details, all of which relate to Ahern's belief Allen had information that EquipmentShare was using to “poach” Ahern's employees. (Doc. 1303-1, p. 186.) The ES Letter mentions Allen “referenced an important existing [Ahern] customer account and detail of that account and how it is billed and structured” during a sales call, (Doc. 1303-1, p. 186), but no further details are provided. It also advises that “to avoid litigation” EquipmentShare had to stop using any Ahern “employee lists, client lists, or other proprietary information related to [Ahern] employees, including salary information, ... job descriptions, or information regarding [Ahern] employee skills and expertise ....” (Doc. 1303-1, p. 187.) But, as with the Allen Letter, the vast majority of the ES Letter is devoted to Allen's and EquipmentShare's possession and use of information about Ahern's employees to lure them to work for EquipmentShare and thereby obtain access to Ahern's customers. EquipmentShare responded on July 22, 2019, confirming it had seen both the Allen Letter and the ES Letter and had discussed the matter with Allen. Allen represented to EquipmentShare that the only employee information he might have related to friends and family members and “confirmed that he has not used any Ahern confidential or proprietary information during his employment with” EquipmentShare. (Doc. 1303-1, p. 191.) Ahern filed suit on September 9, 2019. The case was transferred to this Court as part of the MDL in August 2020, and the operative pleading is Ahern's Third Amended Complaint, (Doc. 546). Ahern seeks sanctions for what it describes as Allen's and EquipmentShare's destruction of the on-rent reports and spreadsheets created therefrom. Cynthia Sanchez was another former employee who left Ahern to work for EquipmentShare two days after Allen. Within a few months of starting at EquipmentShare, Allen asked Sanchez to prepare spreadsheets based on the on-rent reports. (E.g., Doc. 1304-4, pp. 13-14, 20-21 (Sanchez Dep., pp. 72-73, 119-20).) Other evidence in the Record indicates Allen made the request of Sanchez in July 2019. (See Doc. 1304, p. 16 (Allen Dep., p. 266); Doc. 1304-4, pp. 20-21 (Sanchez Dep., pp. 119-20).) However, Sanchez never gave the spreadsheets to Allen. (Doc. 1304-4, pp. 15-17 (Sanchez Dep., pp. 74-76).) At Allen's direction, Sanchez destroyed the on-rent reports near the time she created the spreadsheets. And, later, also at Allen's direction, Sanchez destroyed the spreadsheets. The parties dispute when the on-rent reports and spreadsheets were destroyed. Sanchez testified she did not remember but initially believed it was “probably about two years ago or so,” (Doc. 1339-2, p. 7 (Sanchez Dep., p. 75); see also Doc. 1339-2, pp. 8-10 (Sanchez Dep., pp. 76-77, 133)), which would have been approximately October 2020. However, after her deposition, Sanchez completed an Errata Sheet as permitted by Rule 30(e)(2)(B) of the Federal Rules of Civil Procedure. There, she changed her approximations and replaced them with statements (1) indicating she was not certain how long ago she deleted the spreadsheets, (2) reiterating that her prior testimony was an estimate, and (3) stating she only remembers that Allen asked her to delete the spreadsheets shortly after he received the Allen Letter. (Doc. 1339-3, p. 3.)[4] Allen also testified the on-rent reports were thrown out “within a month maybe” of him starting at EquipmentShare. (Doc. 1304, p. 9-11 (Allen Dep., p. 138-40).) In response to EquipmentShare's and Allen's failure to preserve the on-rent reports and spreadsheets, Ahern primarily advocates for an Order striking the Answers and entering a Default Judgment, although it mentions lesser sanctions such as striking affirmative defenses, imposing “conclusive evidentiary presumption[s],” prohibiting Allen and EquipmentShare from introducing testimony and evidence on certain subjects, or utilizing an “adverse inference instruction at trial.” (Doc. 1303, pp. 1-2.) Ahern also asks for an award of costs. Ahern's motion, (Doc. 1303), is DENIED in its entirety. II. DISCUSSION A. Trial-Related Sanctions *3 Ahern bases its request for sanctions on both Rule 37 of the Federal Rules of Civil Procedure and the Court's inherent authority and cites case involving both without distinguishing between them. The parties do not suggest the analysis for one is different from the other, and they generally agree on the governing legal principles. Accordingly, the Court will also rely on Rule 37 as a framework and cite cases discussing both Rule 37 and the Court's inherent authority.[5] Rule 37(e) applies when (1) “electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost” (2) “because a party failed to take reasonable steps to preserve it” and (3) “it cannot be restored or replaced through additional discovery.” Fed. R. Civ. P. 37(e). If these three elements are met, and if a party is prejudiced by the loss of that information, the Court “may order measures no greater than necessary to cure the prejudice.” Fed. R. Civ. P. 37(e)(1). The Court may order more serious remedies (such as striking pleadings or instructing the jury to draw an adverse inference from the information's absence) only if the Court finds “that the party acted with the intent to deprive another party of the information's use in the litigation.” Fed. R. Civ. P. 37(e)(2); see also Menz v. New Holland N. Am., Inc., 440 F.3d 1002, 1006 (8th Cir. 2006) (stating a court must find “intentional destruction indicating a desire to suppress the truth” before granting dismissal or judgment or delivering an adverse inference instruction). The Court concludes sanctions are not justified for a myriad of reasons. First, Allen had no reason to know that litigation was imminent and that he should have preserved the on-rent reports, so it finds he lacked the intent necessary to justify sanctions. E.g., Silvestri v. General Motors Corp., 271 F.3d 583, 592 (4th Cir. 2001) (“The duty to preserve material evidence arises [in] that period before the litigation when a party reasonably should know that the evidence may be relevant to anticipated litigation.”); see also Kronisch v. United States, 150 F.3d 112, 126 (2d Cir. 1998). “[C]ourts have found a spoliation sanction to be proper only where a party has a duty to preserve evidence because it knew, or should have known, that litigation was imminent.” Trask-Morton v. Motel 6 Operating L.P., 534 F.3d 672, 681 (7th Cir. 2008). Ahern contends Allen should have anticipated litigation based on the Allen Letter, but the Allen Letter is almost exclusively focused on Ahern's accusation that Allen had information about Ahern's employees, not its customers. Ahern correctly observes the Allen Letter contains references to “trade secrets” and “confidential information,” but the Court does not believe (1) a general reference to “trade secrets” or “confidential information” coupled with (2) a lengthy and specific discussion about employee information suggests (particularly to a layperson) anything about customer information. Finally, and most importantly, while the Allen Letter mentions the possibility of litigation, its primary point is to address methods for avoiding litigation. Taken as a whole, the Allen Letter does not indicate litigation is going to occur. For these reasons, the Court concludes the Allen Letter does not suggest litigation was imminent or that Allen was required to preserve anything. *4 Ahern contends that even if the Allen Letter did not put Allen on notice that he needed to preserve the on-rent reports, its lawsuit did. However, like the Allen Letter, the original Complaint alleged a scheme whereby Allen used information about Ahern's employees to lure them to work for EquipmentShare and thereby take Ahern's customers. Some claims were based on Allen taking Ahern's “trade secrets” or “confidential information,” but the allegations were so general that the transferor Court directed Ahern to replead them with greater specificity. (See Case No. 20-04141, Doc. 61, pp. 6-9.) If the assertions about trade secrets were too general to state a claim, the Court cannot say the lawsuit itself put Allen on notice that the on-rent reports related to the lawsuit. More importantly, and independently, it appears the on-rent reports (and the spreadsheets Sanchez created) were destroyed before Ahern filed suit in September 2019. Ahern argues otherwise, pointing to Sanchez's initial estimate that the spreadsheets were destroyed two years before her October 2022 deposition. The Court is not persuaded by Ahern's interpretation of the facts; Sanchez made clear she was only estimating and was not certain of the date. Her further explanation tying her actions to a specific contemporaneous event (Allen's receipt of the Allen letter) is more persuasive, particularly in light of Allen's testimony explaining he found the information unhelpful and unnecessary (which makes it more plausible that it would have been destroyed then instead of a year later). For similar reasons, the ES Letter did not suggest litigation was imminent. Moreover, there is no evidence EquipmentShare knew Allen had the on-rent reports or spreadsheets, or that EquipmentShare failed to take reasonable steps to preserve them. Ahern claims Allen “used them openly,” (Doc. 1303-2, p. 13), but there is no support for this conclusion. Ahern points to the fact Allen possessed them in the presence of another former Ahern employee, Billy Ray Echols, but there is no evidence any other EquipmentShare employee saw him possess or use them—or, more importantly, that any other EquipmentShare employee recognized they contained information obtained from Ahern. Finally, the Court is not persuaded Ahern has been prejudiced. In this context, prejudice arises if a party is deprived of the factual basis for its claim. E.g., In re O'Brien, 351 F.3d 832, 839 (8th Cir. 2003). First, Ahern knows the type of information contained in its on-rent reports—so it knows what type of information Allen took. Second, having the on-rent reports would not demonstrate Allen used them to contact any particular customer. There is other evidence (such as evidence about Allen's sales and the “overlapping customer” analysis conducted during discovery) that can be used to connect him to Ahern's customers. Third, and most importantly, the deleted spreadsheet was recovered from Sanchez's computer. The spreadsheet compiled information from the on-rent reports, so Ahern knows which customers' information Allen possessed. Ahern's arguments to the contrary are not persuasive. It insists the recreated spreadsheet does not reliably indicate which customer's information Allen took because EquipmentShare's discovery response indicates the recreated spreadsheet only “may be responsive” to Ahern's discovery requests. (Doc. 1303, p. 15 n.9.) However, subsequent to EquipmentShare's discovery response, Sanchez was deposed, and she confirmed the recreation is the spreadsheet she created. (Doc. 1304-4, pp. 20-21 (Sanchez Dep., pp. 119-20); see also Doc. 1413, p. 2 (Order discussing the recreated spreadsheet).) The Court further observes Allen and EquipmentShare seem to now concede the recreated spreadsheets are accurate. (E.g., Doc. 1322, p. 16; Doc. 1325, pp. 15-20.) Finally, when discovery was open Ahern could have taken additional steps to confirm the recreated spreadsheet was the one Sanchez created if it deemed it necessary to do so. *5 In conclusion, the Court declines to strike pleadings or affirmative defenses, impose limitations on the presentation of evidence at trial, impose any presumptions of fact, or commit to the use of an adverse inference instruction for the following reasons: Allen and EquipmentShare had no reason to believe litigation was contemplated, much less litigation about customer information, before the on-rent reports and the spreadsheets were destroyed; EquipmentShare had no reason to know Allen had the on-rent reports and spreadsheets before they were destroyed; and Ahern has not been prejudiced by the destruction of the on-rent reports and spreadsheets, at least not to the degree that would justify the sanctions Ahern requests. B. Costs Ahern does not clearly explain what costs it should recover, or why it should recover them. In its Suggestions in Support, Ahern contends it should recover its “attorney fees and costs incurred as a result of Allen destroying evidence and then concealing that fact throughout most of this litigation,” (Doc. 1303-2, p. 2), but it does not discuss the matter further (including in its Reply Suggestions), so Ahern does not clearly establish it incurred any additional costs. The Court will address the few references to costs that appear in Ahern's filings. A claim based on the on-rent reports was not in the case until Ahern filed its Third Amended Complaint in August 2021; in his Answer Allen denied allegations related to the claim. Based on this, the Motion itself seeks costs associated with Ahern's efforts to “[o]ppos[e] pleading challenges based on a contention that [it] lacked evidence of trade secret misappropriation ....” (Doc. 1303, p. 3.) A plaintiff is not entitled to costs because the defendant's Answer does not admit the claims against him. The Motion also states Ahern seeks costs associated with drafting discovery requests to obtain the on-rent reports and with meeting with opposing counsel to resolve discovery disputes. (Doc. 1303, p. 3.) In large measure, this seems to describe normal litigation activity, and the Court discerns no reason to award any costs in this category to Ahern. In its Suggestions in Support, Ahern describes some of Allen's discovery responses as misleading or untruthful. For instance, Ahern issued Requests for Admission that asked Allen to admit that prior to the end of his employment he “took” documents “that identified AHERN customers AND their contact information.” (Doc. 1303-1, p. 39 (capitalizations in original).) Allen objected on a variety of grounds, including the fact that the term “took” was vague and the question was not limited in time or scope, and admitted that he received and possessed such information while working with Ahern. (Doc. 1303-1, pp. 39-40.) But the objection regarding time or scope appears well-taken, and the question does not clearly ask Allen whether he “took” information with him when he went to work for EquipmentShare; Ahern did not seek the Court's resolution of the objection, and it is not clear if Ahern followed up with a more focused question. Allen also responded to Requests for Production by indicating he did not have any of Ahern's customers' information without divulging that he previously did. It was not until Allen was deposed that he admitted he had previously possessed such information while working for EquipmentShare. The Court is concerned about Allen's apparent lack of candor in his response to the Requests for Production—but the Court has no basis for determining this response caused Ahern to incur costs it would not have otherwise incurred. *6 Finally, Ahern seeks costs associated with preparing its Motion for Sanctions. As the motion is being denied, this provides no basis for an award of costs. III. CONCLUSION Ahern's Motion for Sanctions, (Doc. 1303), is DENIED. IT IS SO ORDERED. Footnotes [1] Derrick Torres was also a defendant in this member case, but he was dismissed in January 2023. (Doc. 1366.) [2] The Court's discussion describes evidence that can be found in the Record and should not be construed as a determination that any of the facts are uncontroverted. More specifically, the Court's findings should not be cited in any summary judgment briefing. [3] There is evidence Allen had destroyed some daily logs reflecting customer information within a week of starting at EquipmentShare, before receiving the Allen Letter. (Doc. 1304, pp. 6-7 (Allen Dep., pp. 135-36).)) [4] The Court previously ruled that “the Errata Sheet is to be considered part of Sanchez's deposition” and her “original answer remains available for use in the same manner as is any other part of her deposition.” (Doc. 1525, p. 3.) [5] EquipmentShare suggests the Court must rely only on Rule 37 and cannot rely on its inherent authority. (Doc. 1325, p. 10 n.3.) The Eighth Circuit has held a court is not “forbidden to sanction bad-faith conduct by means of the inherent power simply because that conduct could also be sanctioned under the Federal Rules.” Schlafly v. Eagle Forum., 970 F.3d 924, 936 (8th Cir. 2020) (cleaned up). Moreover, EquipmentShare does not suggest the analysis for Rule 37 differs from the analysis for the Court's inherent authority.