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Atpac, Inc., A California Corporation v. Aptitude Solutions

April 12, 2011

ATPAC, INC., A CALIFORNIA CORPORATION, PLAINTIFF,
v.
APTITUDE SOLUTIONS, INC., A FLORIDA CORPORATION, COUNTY OF AND STAY NEVADA, A CALIFORNIA COUNTY, AND GREGORY J. DIAZ, AN INDIVIDUAL, DEFENDANTS.



MEMORANDUM AND ORDER RE: PLAINTIFF'S MOTION FOR TERMINATING SANCTIONS AND DEFENDANTS' MOTION FOR APPOINTMENT OF SPECIAL MASTER

Plaintiff AtPac, Inc., filed this action against defendants Aptitude Solutions, Inc. ("Aptitude"), County of Nevada, and Gregory J. Diaz, alleging breach of contract, misappropriation of trade secrets under the California Uniform Trade Secrets Act ("CUTSA"), Cal. Civ. Code §§ 3426-3426.11, and copyright infringement.*fn1 Plaintiff now moves for terminating sanctions against defendants, and defendants move for appointment of a special master and a stay of the non-copyright claims.

I. Evidentiary Objections

The parties have filed numerous evidentiary objections.

"While the Federal Rules of Evidence do not necessarily apply in the context of a motion for sanctions, evidence relied upon must, at a minimum, bear indicia of reliability." Sentis Grp., Inc., Coral Grp., Inc. v. Shell Oil Co., 559 F.3d 888, 901 (8th Cir. 2009); see Jensen v. Phillips Screw Co., 546 F.3d 59, 66 n.5 (1st Cir. 2008). Similarly, evidentiary objections are inappropriate on a motion to stay. See Network Appliance Inc. v. Sun Microsys. Inc., No. C-07-06053, 2008 WL 2168917, at *6 (N.D. Cal. May 23, 2008) (taking evidentiary objections into account in assessing the weight of the evidence and disregarding any legal argument or conclusions, but overruling objections on motion to stay). The court can find no cases in which evidentiary objections were made on a motion for appointment of a special master, but it is clear in comparing this type of motion to other pretrial, nondispositive motions that evidence need not be submitted in a form that would be admissible at trial.

The court is satisfied that the evidence upon which it relies*fn2 bears indicia of reliability, and thus the parties' objections are overruled.

II. Factual and Procedural Background Plaintiff provides software and consulting services

related to county clerk-recorder information imaging systems. (First Am. Compl. ("FAC") ¶ 3 (Docket No. 22).) These systems are computer-based and designed to, inter alia, electronically receive, store, and organize information that is within the purview of a county clerk-recorder and store images of relevant documents associated with this information. (Id.) Plaintiff's clerk-recorder imaging information software is distributed under the mark "CRiis." (Id.) In 1999, plaintiff entered into a License Agreement with County of Nevada for the CRiis software and related products and services. (Id. ¶ 12.) The License Agreement was amended between 2001 and 2006, the most recent of which extended the term of the License Agreement until June 30, 2010. (Id. ¶ 13.)

The License Agreement allegedly provides, inter alia, that plaintiff retains title to the software, that the software constitutes a trade secret and that County of Nevada will not release or disclose the software to third parties (id. ¶ 14), that County of Nevada will notify AtPac immediately of any known or suspected unauthorized use or access of the software (id. ¶ 16), and that all documents provided to County of Nevada may not be reproduced by County of Nevada (id. ¶ 17). In 1999, pursuant to the License Agreement, plaintiff installed the CRiis software on a dedicated AtPac-maintained server, called ER-Recorder, which was housed with County of Nevada. (Id. ¶ 24.) The parties agreed that plaintiff would be the exclusive system administrator of the ER-Recorder server. (Id.)

In November of 2008, County of Nevada began discussions with Aptitude to replace plaintiff as the County's clerk-recorder software provider. (Id. ¶ 28.) Diaz, the Clerk-Recorder of County of Nevada, allegedly rejected plaintiff's offer to help the County extract the data from plaintiff's files and convert it into a form usable by Aptitude. (Id. ¶¶ 32-33.) Diaz allegedly represented in a January 8, 2009, letter that County of Nevada would extract the data from the CRiis files on its own, and that County of Nevada would not provide AtPac's trade secret information to Aptitude or save the trade secret and proprietary information. (Id. ¶¶ 33-34.)

Plaintiff alleges that County of Nevada did not perform the data extraction itself and that it instead provided Aptitude with plaintiff's trade secret and copyright-protected information. (Id. ¶ 39.) In November of 2008, Aptitude provided County of Nevada with the "AS-Nevada" server to give Aptitude access to County of Nevada's data through a remote connection. (McGrath Decl. in Supp. of Defs.' Opp'n ¶¶ 6-8 (Docket No. 144); Dion Decl. in Supp. of Defs.' Opp'n ¶ 2.) Plaintiff contends that on November 4, 2008, two Aptitude employees used a computer logged in simultaneously to the ER-Recorder server and Aptitude's AS-Nevada server, and that the employees transferred files from the ER-Recorder server to the AS-Nevada server. (Mem. of P. & A. in Supp. of Pl.'s Mot. at 5:12-26 (Docket No. 137).) Plaintiff also contends that Aptitude was able to log in to the AS-Nevada server after that day and remotely connect to the ER-Recorder server. (Id. at 7:2-6.)

A. Facts Relevant to Defendants' Motion for Appointment of Special Master and Stay On August 10, 2010, defendants requested to examine the

ER-Recorder server, and on October 15, 2010, County of Nevada propounded discovery requests calling for the production of the allegedly infringed aspects of CRiis. (Abu-Assal Decl. in Supp. of Defs.' Mot. ¶¶ 2, 3, Ex. B.) On December 10, 2010, the magistrate judge entered a protective order governing the pretrial handling of documents. (Protective Order (Docket No. 70).) The Order required that CRiis be inspected at plaintiff's counsel's office and that Aptitude's software, OnCore, be inspected where the source code is maintained or another mutually agreed-upon location. (Id. at 12:13-26.) Soon thereafter, each party proposed a protocol for reviewing the source codes, which involved some combination of independent reviews and side-by-side comparisons. (Muller Decl. in Supp. of Defs.' Mot. ¶¶ 2-5, Exs. I, J.) As of the filing of the instant motion on February 17, 2011, the parties had not yet agreed on a protocol. (Id. ¶ 16.) However, defendants were able to begin an inspection of CRiis between March 2 and 4, but could not finish the inspection because defendants' expert did not have the right equipment. (Thomas Decl. in Supp. of Pl.'s Mot. ¶¶ 3-6; Menz Decl. in Supp. of Pl.'s Mot. ¶¶ 6-7.)

B. Facts Relevant to Plaintiff's Motion for Terminating Sanctions

In May and June of 2009, before the instant action had commenced, plaintiff requested access to both servers in order to "ensure all AtPac software, and CRiis databases, ha[d] been deleted." (Barale Decl. in Supp. of Defs.' Opp'n ¶ 2, Exs. C, D.) County of Nevada conveyed the request to Aptitude, which confirmed on August 16, 2009, that all data files transferred from the ER-Recorder server had been deleted from the AS-Nevada server. (Id. ¶ 3; McGrath Decl. ¶ 11, Ex. E; Cox Decl. in Supp. of Defs.' Opp'n ¶ 12.) In a September 11, 2009, letter to County of Nevada's counsel, plaintiff acknowledged that the files had been deleted:

[Y]ou have represented that the County has deleted all of the CRiisTM program data from the "Aptitude FTP" site, that the County has provided no information belonging to AtPac other than certain ".dat files" to Aptitude, that the County has no intention of providing any additional data from the CRiisTM system to Aptitude, and that the County has received assurances from Aptitude that this information was used solely for extraction purposes and has since been deleted. (McLeran Decl. in Supp. of Defs.' Opp'n ¶ 5, Ex. G.) The letter, which proposed a possible resolution of the dispute, went on to ask for a statement under oath including "confirmation that any and all copies of AtPac's information, including CRiisTM program files and data, have been permanently deleted from both the County's server and from Aptitude's computer systems, including all back-up systems (including all tape backups) . . . ." (Id.)

On September 23, 2009, plaintiff filed a government tort claim against the County of Nevada, which addressed defendants' wrongful access to and extraction of data from the ER-Recorder server.*fn3 (Pl.'s Req. for Judicial Notice in Supp. of Mot. Ex. A (Docket No. 118).) On October 20, 2009, counsel for plaintiff instructed defendants' counsel in writing that defendants were obligated to "maintain all copies of data (both in hard copy and electronic form) relevant to this dispute." (Thomas Decl. ¶ 17, Ex. P.) On February 3, 2010, plaintiff filed its initial complaint against defendants.

In December of 2009, as part of the virtualization of their physical servers, County of Nevada requested of Aptitude that the AS-Nevada server "be cleaned up and all unnecessary files and configurations removed." (Thomas Decl. ¶¶ 8, 13, Exs. G, L.) Defendants then removed all but the files Aptitude "may need in the future to help with support." (Id. ¶¶ 8, 14, Exs. G, M.) At that time, any CRiis data had already been deleted from the server.

On February 19, 2010, soon after the filing of the complaint, the Deputy Counsel for County of Nevada issued a litigation hold notice to the affected employees, instructing recipients to "preserve all records, correspondence, written material, electronically stored material, or other information related to the County's involvement with AtPac, Inc. and Aptitude Solutions, regardless of form" and to "inform any members of [their] staff who might be in possession of such relevant evidence to not discard or destroy any records relating to this prosecution." (McLeran Decl. ¶ 7, Ex. H.)

Also on February 19, 2010, Kathy Barale, an Information System Analyst for County of Nevada, and Alana Wittig, a Project Manager for Aptitude, began to discuss scrubbing the AS-Nevada server in preparation for returning it to Aptitude. (Thomas Decl. ¶¶ 8, 15, Exs. G, N.) Defendants contend that the server was scrubbed because County of Nevada's servers were being virtualized and thus the County did not need to retain the physical server. (Monaghan Decl. in Supp. of Defs.' Opp'n ¶ 4.) County of Nevada was required by law to remove public data from the server before returning it to Aptitude. (Id. ¶ 9.) Despite County of Nevada's Deputy Counsel's litigation hold, staff did not believe that the hold precluded them from scrubbing the server because the data had already been deleted and the contents of the server as it then existed were saved on the virtual server. (Id. ¶ 10; Barale Decl. ¶¶ 5-8.) The AS-Nevada server was placed in queue to be wiped on March 22, 2010 (Monaghan Decl. ¶ 9, Ex. J), but because of the backlog of servers to be wiped, the task was reassigned and eventually completed in the middle of October of 2010, but was not reported as completed until November 10, 2010. (Paredes Decl. in Supp. of Defs.' Opp'n ¶ 2.)

Plaintiff believes that had the server not been scrubbed, it would have been possible for a forensic examination to determine what information from the ER-Recorder server had been transferred to the AS-Nevada server. (Menz Decl. in Supp. of Pl.'s Mot. ΒΆΒΆ 4-5.) However, defendants contend that the AS-Nevada server was not configured with the capability or software to track if and when particular files were transferred to or from the server, so ...


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