Back in May, I wrote about the litigation between two of the largest ediscovery service providers — DTI and LDiscovery — pending in federal court before Judge Jed Rakoff of the Southern District of New York. My article highlighted some fairly egregious facts alleged in the complaint, in which DTI accused LDiscovery and four salespeople from Epiq (the company that DTI acquired in fall 2016) of conspiring to steal trade secrets and solicit their customers in violation of various provisions of their employment agreements. The complaint painted a picture of calculated deception and conspiracy on the part of LDiscovery’s CEO and the salesmen.
The latest evidence in the case suggests those alleged facts are not close to the truth.
DTI moved for a preliminary injunction restricting the individual defendants from engaging in behavior in violation of those “numerous restrictive covenants” from their employment agreements with Epiq (the precursor to DTI), including the following: a one-year non-competition agreement, a one-year prohibition on soliciting the company’s clients, a one-year prohibition on soliciting the company’s employees, a broad non-disclosure provision, and a covenant to return the company’s confidential information upon termination. Judge Rakoff held a three-day hearing on the motion, and summarily denied DTI’s motion on June 16, 2017- with a written decision to follow.
While we were all taking the Independence Day week off, Judge Rakoff issued his written decision last Friday. It took me reading roughly three pages of the 30-page decision to see that the evidence that came to light in the hearing was vastly different than the facts alleged in the complaint. You can read the decision in its entirety here, but suffice it to say that Judge Rakoff shot DTI down on the two key elements necessary for a preliminary injunction: the reasonable likelihood of success on the merits and irreparable harm.
Judge Rakoff dismissed DTI’s claims of misappropriation as “conjecture.” He ruled the contractual provisions they sought to enforce were unenforceable under New York law:
In sum, DTI’s motion for a preliminary injunction fails as to the facts and the law. On the facts, DTI mistakenly portrays what are in actuality innocuous or otherwise legitimate acts by LDiscovery and the Individual Defendants as part of a conjectural (but unsupported) scheme to misappropriate DTI’s trade secrets and improperly compete for its clients and employees. On the law, DTI’s expansive view of its trade secrets and the restrictive covenants in its employment agreements is at odds with New York law and the testimony elicited during Court’s three-day evidentiary hearing, and DTI has failed to show a likelihood of success on the merits or imminent and irreparable harm.
Ouch.
Where DTI sought to paint a picture of these defendants colluding, the facts cited by Judge Rakoff from hearing testimony tell a different story — that the salesmen had been looking for new employment for a year, complied with the provisions of their contracts during the search, and hired counsel to represent them in negotiations with LDiscovery starting in March of 2016, almost six months before DTI’s acquisition of Epiq was final. Communications between the salesmen and clients after their departure showed that the defendants directed the clients to DTI and made no attempts to solicit the clients to LDiscovery. Similarly, the payments to defendants by LDiscovery to sit out for their non-compete year were a non-starter:
DTI contends here that LDiscovery intentionally induced the Individual Defendants to breach the restrictive covenants in their employment agreements by indemnifying them against claims that would be foreseeably brought by DTI and by agreeing to pay them a collective $5.1 million during their Sabbatical Year. The Court, however, is unpersuaded that LDiscovery has done anything improper by entering into these agreements with the Individual Defendants, let alone that the Individual Defendants have breached the applicable terms of their agreements with DTI.
DTI’s claims for misappropriation were similarly doomed, as were the claims for breach of the non-disclosure provisions relating to DTI’s proprietary information:
While there is no dispute that the Individual Defendants initially retained some of DTI’s proprietary information following their resignations, the testimony and forensic evidence from the evidentiary hearing established to the Court’s satisfaction that this was inadvertent rather than the result of a conspiracy.
DTI alleged defendant Steve West mass-copied documents from his company laptop to a thumb drive prior to resigning. The evidence showed that DTI sent West a thumb drive in fall 2016 containing the remnants of information recovered from his “broken company computer,” which he then uploaded to his new computer. The thumb drive made its way to a desk drawer before West read the allegations in the complaint, at which time he sent the thumb drive to his lawyer who turned it over, and a forensic analysis showed that he did not access the thumb drive between when he initially copied the files and the day after he was served with the complaint.
Doesn’t DTI have an obligation to investigate that allegation before making it? That one seems pretty easy to test, especially since DTI has forensic analysts in the company.
DTI also claimed that defendant Seth Kreger logged into DTI’s customer relationship software 25 times the day before signing his agreement with LDiscovery. Twenty-five times, whoa — that’s a lot of times, folks, especially when you are leaving to go elsewhere. But at the hearing, Kreger said he didn’t remember doing it, and “DTI introduced no evidence showing that he actually accessed the system.” Can we say audit logs? Maybe the logs had been overwritten by then, or maybe DTI is keeping that evidence in its back pocket, but either way, DTI did not come out of this motion well.
Although the evidence did not stack up in DTI’s favor here, a few nuggets, like the CRM logins, suggest that something might be rotten in the state of Denmark. But, since all claims not seeking a preliminary injunction were submitted to arbitration, the merits of the case itself will now head there and likely out of the public eye (and certainly the PACER docket).
If the facts found by Judge Rakoff are any indication, DTI’s resources may be better spent finding some new sales reps.
Earlier: eDiscovery Is Big Business — And Worth Fighting Over For Providers
(Flip to the next page to read Judge Rakoff’s ruling in full.)
Kelly Twigger gave up the golden handcuffs of her Biglaw partnership to start ESI Attorneys, an eDiscovery and information law Firm, in 2009. She is passionate about teaching lawyers and legal professionals how to think about and use ESI to win, and does so regularly for her clients. The Wisconsin State Bar named Kelly a Legal Innovator in 2014 for her development of eDiscovery Assistant— an online eDiscovery playbook for lawyers and legal professionals. When she’s not thinking, writing or talking about ESI, Kelly is wandering in the mountains of Colorado, or watching Kentucky basketball. You can reach her by email at [email protected] or on Twitter: @kellytwigger.
