Filed: Dec. 13, 2010
Latest Update: Feb. 21, 2020
Summary: NOT PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _ No. 09-4208 _ JOSEPH OAT HOLDINGS, INC.; BIOTHANE CORPORATION; ROBERT SAX; MICHAEL HOLTZ; GRAIG ROSENBERGER; MARTIN KAPLAN; RONALD KAPLAN; JOHN MURPHY; RCM BIOTHANE, LLC, a nominal plaintiff, Appellants v. RCM DIGESTERS, INC.; MARK MOSER _ On Appeal from the United States District Court for the District of New Jersey D.C. Civil Action No. 06-cv-4449 (Honorable Noel L. Hillman) _ Argued September 15, 2010 Before: SCIRICA, REN
Summary: NOT PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _ No. 09-4208 _ JOSEPH OAT HOLDINGS, INC.; BIOTHANE CORPORATION; ROBERT SAX; MICHAEL HOLTZ; GRAIG ROSENBERGER; MARTIN KAPLAN; RONALD KAPLAN; JOHN MURPHY; RCM BIOTHANE, LLC, a nominal plaintiff, Appellants v. RCM DIGESTERS, INC.; MARK MOSER _ On Appeal from the United States District Court for the District of New Jersey D.C. Civil Action No. 06-cv-4449 (Honorable Noel L. Hillman) _ Argued September 15, 2010 Before: SCIRICA, REND..
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 09-4208
___________
JOSEPH OAT HOLDINGS, INC.;
BIOTHANE CORPORATION; ROBERT SAX;
MICHAEL HOLTZ; GRAIG ROSENBERGER;
MARTIN KAPLAN; RONALD KAPLAN; JOHN MURPHY;
RCM BIOTHANE, LLC, a nominal plaintiff,
Appellants
v.
RCM DIGESTERS, INC.;
MARK MOSER
_______________________
On Appeal from the United States District Court
for the District of New Jersey
D.C. Civil Action No. 06-cv-4449
(Honorable Noel L. Hillman)
______________
Argued September 15, 2010
Before: SCIRICA, RENDELL and FISHER, Circuit Judges.
(Filed: December 13, 2010)
R. JAMES KRAVITZ, ESQUIRE (ARGUED)
MUKTI N. PATEL, ESQUIRE
Fox Rothschild
Princeton Pike Corporate Center, Building 3
997 Lenox Drive
Lawrenceville, New Jersey 08648
Attorneys for Appellants
JAMES C. DUDA, ESQUIRE (ARGUED)
ERIC D. BEAL, ESQUIRE
Buckley, Richardson and Gilinas
1500 Main Street, Suite 2700
Springfield, Massachusetts 01115
WILLIAM J. DESANTIS, ESQUIRE
Ballard Spahr
210 Lake Drive East, Suite 200
Cherry Hill, New Jersey 08002
JOSEPH H. KENNEY, ESQUIRE
Ballard Spahr
Plaza 1000, Suite 500
Main Street
Voorhees, New Jersey 08043
Attorneys for Appellees
_________________
OPINION OF THE COURT
_________________
SCIRICA, Circuit Judge.
This appeal involves an overlap between substantive claims under state and
federal anti-hacking laws and alleged electronic discovery misconduct. The underlying
suit arises out of a failed joint venture and subsequent copying of electronic files by one
of the parties through a joint computer network that connected the parties to the joint
venture. Following initiation of this action, appellants, individuals and corporations
associated with one party to the joint venture, Biothane Corporation, accessed a server
used by the joint venture, and copied files. In addition to seeking discovery sanctions for
obtaining the files allegedly outside the discovery methods sanctioned by the Federal
Rules of Civil Procedure, appellees, Mark Moser and his corporation, RCM Digesters,
2
Inc., the counterpart in the joint venture, amended their counterclaims to sue under state
and federal anti-hacking laws for unauthorized access to the server.
The District Court granted summary judgment in favor of Moser and RCM
Digesters, finding Biothane liable under state anti-hacking laws and enjoining them from
retaining or using copies of the data. Because it remains disputed whether Biothane and
its employees, in fact, had authorization to access the server, we will vacate the grant of
summary judgment and remand for further proceedings consistent with our opinion.
I.
Biothane Corporation, a wholly owned subsidiary of Joseph Oat Holdings, Inc.,
(“JOHI”), is a multinational corporation specializing in the biological treatment of
wastewater. Mark Moser is the founding stockholder of RCM Digesters, Inc., a business
that develops anaerobic digester systems, which are containers of bacteria that break
down organic wastes and produce methane. On February 17, 2005,1 Biothane and RCM
Digesters created a joint venture, RCM Biothane; JOHI owned eighty percent and Moser
owned twenty percent. The appellants2 are JOHI, Biothane, and individual plaintiffs3
1
The Certificate of Formation is dated February 17, 2005.
2
Appellants were the plaintiffs/counterclaim-defendants below. Additional counterclaim
defendants are Martin Kaplan, Ronald Kaplan, Michael Holtz, and Graig Rosenberger,
who were all employees or board members of JOHI or Biothane. Before the order at
issue here was made, the parties voluntarily dismissed the Kaplans, Holtz and
Rosenberger as defendants for the claims involved in this appeal.
3
The individual plaintiffs were JOHI‟s designees to the board of managers. Some were
also executives of Biothane. All had financial interests in Biothane, JOHI, or both.
3
Robert Sax,4 and John Murphy, who were members of RCM Biothane‟s board of
managers. RCM Biothane is a nominal plaintiff, as its dissolution was approved by the
board of managers. We refer to appellants as the Biothane parties.
A.
Disputes between the parties resulted in a short-lived business arrangement. Less
than two years after the joint venture began, the parties entered into a separation
agreement dated August 7, 2006.
On August 7, 2006, at a board of managers‟ meeting to discuss dissolution of
RCM Biothane, the parties signed the separation agreement, which specifies, “[a]ll
documents received by Purchaser and its subsidiaries as part of the asset purchase
agreement are to be expeditiously returned to Moser, or in the case of electronic files,
erased” and “[a]ll documents and electronic files generated in the pursuit of sales related
to manure digestion shall be expeditiously provided to Moser.” It also states, “Biothane
will cooperate fully with Moser to facilitate his ability to carry on his business going
forward including the expeditious restoration of his computer system independent of
Biothane‟s computer system and modification of the website to reflect and communicate
with RCM Digesters.”
A prior agreement does not appear to give Moser the right to RCM Biothane‟s
assets. The Limited Liability Company Agreement of RCM Biothane, LLC, specifies
that all rights of management are exclusively vested in the board of managers and only
4
President of Biothane.
4
RCM Biothane or a designee of the board of managers shall have any rights, title, or
interest in RCM Biothane property “of any kind.”
The Biothane parties claim that Moser repudiated the separation agreement shortly
after it was reached. Emails indicate that Moser repeatedly told employees of Biothane
that he viewed the agreement as void or incomplete. The Biothane parties claim Moser
continued to operate RCM Biothane well after the separation agreement was signed.
B.
On September 20, 2006, the Biothane parties commenced the present action
alleging trademark infringement in violation of 15 U.S.C. § 1125(a), unfair competition,
breach of contract, breach of the covenant of good faith and fair dealing, breach of
fiduciary duties, and fraud. The defendants, Moser and RCM Digesters, filed a
counterclaim and third party complaint alleging fraud, breach of contract, violation of the
Anticybersquatting Act, 15 U.S.C § 1125(d), trademark infringement in violation of 15
U.S.C. § 1125(a), misappropriation of trade secrets, and unjust enrichment.
On October 11, 2006, James C. Duda, attorney for the Moser and RCM Biothane,
sent a “litigation hold” letter to R. James Kravitz, attorney for the Biothane parties. The
relevant portion of the letter states:
As you know, the laws and rules prohibiting destruction of evidence apply to
electronic data with the same force as they apply to other kinds of evidence. This
letter is to remind you to ensure that your clients, [the Biothane parties], have been
mindful of and have taken proactive steps to ensure preservation of relevant
electronic evidence associated with this matter pending its resolution. Your
clients‟ preservation obligations include, at a minimum, the following:
5
Identifying those individuals and entities currently or formerly associated
with JOHI, Biothane Corporation, and/or RCM Biothane, including but
not limited to [specified individuals], who potentially possess or control,
or possessed or controlled, relevant recorded information, whether in
electronic or hard-copy form, and taking steps to ensure that all recorded
information potentially relevant to JOHI‟s claims and defenses and any
potential counterclaims or defenses that [the RCM parties] might raise,
wherever that material may be found, are identified and preserved
pending resolution of this matter . . . .
(emphasis in original). On October 20, 2006, Duda sent another letter reminding
Biothane to preserve “all electronic data pertaining to any and all activities of RCM
Biothane LLC, RCM Digesters, Inc. and Mark Moser.”
According to the Moser‟s and RCM Digester‟s expert, Timothy O‟Shea, the
computer networks of JOHI and RCM Biothane were connected in June of 2005 via a
virtual private network (VPN). The purpose of a VPN is to “create a seamless unbroken
connection between different locations.” Data servers were located in Camden, New
Jersey, the site of the JOHI network, and Oakland, California, the site of the RCM
Biothane network. The server in Oakland was called the “cube” server. The only
administrators of the VPN were Biothane employees in Camden. Moser did not have
administrative privileges. O‟Shea states that “parameters of authorized access, such as
from what PC or even which office location, time or day of the week, to what the user
can do with the files, [could] all be controlled by the admin in the Camden office.”
O‟Shea concludes the lack of anyone at the Oakland Site with administrative power over
that location departed from usual practice in the IT field. The report also states that:
It has long been the common practice of IT administrators to maintain and
6
organize the users on the network while having access to the data without
resorting to looking through that data to collect information, copy files, or delete
or manipulate data, either for the administrators‟ own use or the use of others,
except by way of company policy in which all users know of the same policy. . . .
Absent authorization from RCM Digesters, the administrator for content of its
server in the Oakland office should not have been accessing, copying, or
destroying files.
Mark Moser states he never authorized the Biothane parties to access and copy files from
the cube server.
Stephen Murphy, IT manager at Biothane, claimed that Biothane had access to the
documents on the server and Moser knowingly placed all documents on the
Biothane/JOHI computer system. An email from Chris Soltys, who administered
Biothane‟s network, indicates that Biothane‟s position was that the cube server was under
Biothane‟s IT policy until it was disconnected from the VPN. Thus, in the view of
Biothane‟s employees, only they, and not Moser, had ultimate control of the server and
the files on it.
In October 2006, Biothane copied the files residing on the Oakland cube server.
In emails, Biothane personnel referred to this as the “information copy project.” Several
internal Biothane emails from October 11, 2006, refer to the need to back up files on the
cube server to preserve access to them. Biothane employees asked that it be done “under
the radar.” A desktop “shortcut” to allow employees of JOHI and Biothane to easily
access the copied data was created on some computers. At his deposition, Jay Murphy,
Vice President of Biothane, stated that he ordered the copying of the data on the cube
server pursuant to the directive in James Duda‟s litigation hold letter. Jay Murphy
7
considered Biothane to have access to and to own the files because they were on the
JOHI computer system via the VPN. He stated that Biothane had previously presented
Moser with a detailed plan to disconnect the networks, which Moser ignored. Murphy
stated he was concerned, after a conversation with his IT manager, Chris Soltys, that, if
Moser disconnected the VPN on his own, the files and computer system would be
damaged. Accordingly, he ordered the copying to preserve the files. Biothane
employees also changed administrative passwords on the server and deleted backup
disks.
On November 14, 2007, Moser and RCM Digesters moved to amend the
counterclaim to add counts alleging violations of California, New Jersey, and Federal
anti-hacking laws arising from the Biothane parties‟ unauthorized access of the computer
server. The counts at issue here5 include: Count 19, violation of California‟s Computer
Data Access and Fraud Act, Cal. Penal Code § 502; Count 20, violation of a similar New
Jersey statute, N.J. Stat. Ann. § 2A:38A-1; and Count 21, violation of California‟s Unfair
Competition Law, Cal. Bus. & Prof. Code § 17200. On March 27, 2008, the District
Court granted leave to amend.
On June 27, 2008, a Magistrate Judge issued an opinion and order on Moser‟s and
RCM Digester‟s motion for sanctions for copying files from the cube server. The court
5
Summary judgment was not granted in the order being appealed from on other counts, a
determination from which Moser and RCM Digesters have not cross-appealed. These
are: Count 18, violation of the Federal Computer Fraud and Abuse Act (“CFAA”), 18
U.S.C. § 1030; Count 22, conversion; Count 23, civil conspiracy; and Count 24, aiding
and abetting.
8
found there was “no question that [the Biothane parties‟] actions were willful in the sense
that [they] deliberately copied [Moser‟s and RCM Digester‟s] documents” but stated
“the Court does not find that plaintiffs acted in flagrant bad faith.” The court went on to
reject the Biothane parties‟ proffered explanation of acting pursuant to the litigation hold
letter, but stated “it appears to this Court that plaintiffs accessed defendants‟ computer to
preserve business documents, not for the purpose of gaining an advantage in this
litigation.” Furthermore, the court found “plaintiffs could believe they had a justifiable
and legal right to access defendants‟ documents.” The Magistrate Judge imposed a
sanction of paying the “reasonable out-of-pocket costs defendants incurred, not attorney‟s
fees, to take the discovery specifically directed to finding out what documents were
copied from their computer system.”
On March 31, 2009, the District Court denied summary judgment for claims
relating to the separation agreement. The District Court found “material issues of
disputed fact remain as to the validity of the separation agreement” but that “neither party
disputes that they wanted to dissolve the business relationship and execute a writing to
memorialize all the attendant details.” It “is disputed that the Separation Agreement is
that writing [memorializing the details]” as the document may not have been “complete
enough to constitute a binding agreement.” In regard to the purported date of separation
of August 7, 2006, the District Court stated:
[T]he one undisputed fact is that the parties wanted a business divorce, and on
August 7, 2006, they discussed the details of that divorce. The fact that Moser still
continued to operate RCM Biothane after August 7, 2006, despite the language in
9
the Separation Agreement that “RCM Biothane is dissolved,” demonstrates that in
practical effect, even if the Separation Agreement were valid, time was necessary
to wind down the affairs of RCM Biothane.
The District Court could not determine the validity or the terms of the separation
agreement at the summary judgment stage.
In an order and opinion of October 14, 2009 giving rise to this appeal, the District
Court addressed the cross-motions for summary judgment involving the RCM parties‟
counts alleging violation of state and federal anti-hacking laws. The District Court
separated the documents copied into two categories—those created before August 7,
2006 and those created after August 7, 2006—because “the documents plaintiff copied
from defendants‟ computer server that were created after the August 7, 2006 business
divorce are undisputedly the sole property of defendants.”
The District Court granted summary judgment in favor of the RCM parties and
against the remaining Biothane Parties, on Count 19, California‟s Computer Data Access
and Fraud Act, Cal. Penal. Code § 503(c).6 The District Court stated the RCM parties
provided evidence: (1) “that plaintiffs called their actions the „Information Copy Project‟
and that they intended to keep it a secret, which they did for over a year,” (2) “that
computer desktop „shortcuts‟ were placed on the computers of the individual plaintiffs
6
Section 502 provides:
In addition to any other civil remedy available, the owner or lessee of the
computer, computer system, computer network, computer program, or data who
suffers damage or loss by reason of a violation of any of the provisions of
subdivision (c) may bring a civil action against the violator for compensatory
damages and injunctive relief or other equitable relief.
Cal. Penal Code. § 502(e)(1).
10
and other Biothane employees so they would have quick access to the copied files,” and
(3) that “at the time the plaintiffs accessed the cube server[, the server] had reverted back
to the property of RCM Digesters, . . . RCM Biothane, which previously had access to the
cube server, was defunct, and . . . plaintiffs had no interest or rights in RCM Digesters.”
The District Court found Jay Murphy‟s claim that the documents were preserved for
litigation was undercut by the secretive nature of the project and the creation of desktop
shortcuts for Biothane employees to access the documents for business purposes. With
regard to the claim that access was privileged litigation conduct, the court “found that
plaintiffs‟ clandestine copying of computer files was not conducted purely for litigation,
or, more specifically, e-discovery purposes.” Lastly, the court found the ownership of the
server was not disputed post-August 7, 2006, because there was no genuine issue of
material fact as to whether RCM Biothane dissolved on August 7. The District Court did
not find it necessary to revise its prior decision that there were genuine issues of material
fact regarding the validity of the separation agreement in order to find Moser and RCM
Digesters owned the server.
The District Court found Biothane violated five subparts of California Penal Code
§ 502(c)7 and granted summary judgment as to liability on Count 19. As the amount of
damages was disputed and could not be resolved until trial, the District Court provided
7
The court partially rejected the RCM parties‟ argument as to one subpart regarding the
alteration or destruction of data. Cal. Penal Code § 502(c)(4). The court found that the
Biothane parties could not be liable for the destruction of data on backup disks, as there
were no damages caused by the destruction, because the main data files never failed.
11
injunctive relief requiring the Biothane parties to return any data created post-August 7,
2006 and forbidding the Biothane parties from using the post-dissolution data in any
manner.
The District Court also granted summary judgment in favor of the RCM parties on
liability and injunctive relief on Count 20, violation of the New Jersey Computer-Related
Offense Act, N.J. Stat. Ann. § 2A:38A-2(a), (c), (e). The court found the New Jersey Act
mirrored the California Act and therefore granted summary judgment on the same basis.
Finally, the district court granted summary judgment on liability for Count 21,
violation of California‟s Unfair Competition Law (UCL), Cal. Bus. & Prof. Code §
17200. The violation of California Penal Code § 502 and the New Jersey Computer
Related Offenses Act constitute the predicate unlawful acts under § 17200, which
requires that there be an “unlawful . . . business act or practice.” Accordingly, the same
facts are material to liability under the three statutes, as the anti-hacking statutes mirror
one another, and the UCL claim is dependent on finding liability under the anti-hacking
laws.
II.
There is no final order in this case. We have jurisdiction because the interlocutory
order on appeal granted an injunction. See 28 U.S.C. § 1292(a)(1) (granting jurisdiction
to review interlocutory orders “granting . . . injunctions”). As the district court granted
an injunction in its summary judgment order, our “review properly extends to matters
inextricably bound up with the injunction decision.” DeJohn v. Temple Univ., 537 F.3d
12
301, 313 (3d Cir. 2008) (citation omitted). “While the scope of appellate review under §
1292(a)(1) is confined to the issues necessary to determine the propriety of the
interlocutory order itself, interlocutory orders with respect to permanent injunctions
provide frequent occasion for review of the merits.”
Id. If “the permanent injunction is
premised entirely on the District Court's grant of summary judgment to plaintiff . . ., to
resolve the propriety of the permanent injunction, we must determine whether the District
Court erred in granting summary judgment.” Doeblers Pa. Hybrids, Inc. v. Doebler,
442
F.3d 812, 819 (3d Cir. 2006). Because the injunction derives from the underlying finding
of liability under the state law anti-hacking statutes, we review the propriety of granting
summary judgment on these counts.8
The District Court found undisputed material facts establishing whether the
Biothane parties violated two states‟ anti-hacking laws and California‟s Unfair
Competition Law.9 The common elements to each subsection of California Penal Code §
8
We have described our review of orders granting summary judgment, as follows:
We exercise plenary review over a district court's decision granting summary
judgment. See Prowel v. Wise Bus. Forms, Inc., 579 F.3d 285, 286 (3d Cir. 2009).
Summary judgment is proper “if the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any
material fact and that the movant is entitled to judgment as a matter of law.” Fed.
R. Civ. P. 56(c). “A motion for summary judgment will not be defeated by „the
mere existence‟ of some disputed facts, but will be denied when there is a genuine
issue of material fact.” Am. Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575,
581 (3d Cir. 2009) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48
(1986)). We draw all inferences in a light most favorable to the nonmoving party.
Id.
Sheridan v. NGK Metals Corp.,
609 F.3d 239 (3d Cir. 2010).
9
Section 502(c) of the California Penal Code states in relevant part:
13
502(c) are “knowing access” “followed by [specified] unauthorized” actions. Facebook,
Inc. v. ConnectU, LLC, 489 F. Supp. 2d 1087, 1091 (N.D. Cal. 2007). The New Jersey
Computer Related Offenses Act (“NJ CROA”), N.J. Stat. Ann. § 2A:38A-3, parallels §
502 by requiring knowing access and “unauthorized” actions.10 The violation of § 502
[A]ny person who commits any of the following acts is guilty of a public offense:
(1) Knowingly accesses and without permission alters, damages, deletes,
destroys, or otherwise uses any data, computer, computer system, or computer
network in order to either (A) devise or execute any scheme or artifice to
defraud, deceive, or extort, or (B) wrongfully control or obtain money,
property, or data.
(2) Knowingly accesses and without permission takes, copies, or makes use of
any data from a computer, computer system, or computer network, or takes or
copies any supporting documentation, whether existing or residing internal or
external to a computer, computer system, or computer network.
...
(4) Knowingly accesses and without permission adds, alters, damages, deletes,
or destroys any data, computer software, or computer programs which reside or
exist internal or external to a computer, computer system, or computer
network.
...
(6) Knowingly and without permission provides or assists in providing a means
of accessing a computer, computer system, or computer network in violation of
this section.
(7) Knowingly and without permission accesses or causes to be accessed any
computer, computer system, or computer network . . . .
Cal. Penal Code § 502(c).
10
The NJ CROA states in relevant part:
A person or enterprise damaged in business or property as a result of any of the
following actions may sue the actor therefor [sic] in the Superior Court and may
recover compensatory and punitive damages and the cost of the suit including a
reasonable attorney's fee, costs of investigation and litigation:
a. The purposeful or knowing, and unauthorized altering, damaging, taking or
destruction of any data, data base, computer program, computer software or
computer equipment existing internally or externally to a computer, computer
system or computer network;
...
14
and the CROA also served as the predicate “unlawful . . . business practice” needed to
show a violation of California‟s Unfair Competition Law (UCL). Cal. Bus. & Prof. Code
§ 17200.11 We will vacate and remand because the court‟s decision was premised on
ownership of the server, and did not address whether Biothane had authorization or
permission to access the server—the element required under the state statutes and about
which there were genuine issues of material fact.
The focus at summary judgment was on the ownership of the server and the date
the joint venture ceased to exist. While ownership of the server may be an important
factor in determining whether the Biothane parties acted without authorization or
permission, ownership does not necessarily entitle Moser and RCM Digesters to
summary judgment. A change in ownership may not be determinative with respect to
whether Biothane had permission to access the server.
The record contains evidence that Biothane may have acted with permission.
c. The purposeful or knowing, and unauthorized accessing or attempt to access
any computer, computer system or computer network;
...
e. The purposeful or knowing accessing and reckless altering, damaging,
destroying or obtaining of any data, data base, computer, computer program,
computer software, computer equipment, computer system or computer
network.
N.J. Stat. Ann. § 2A:38A-3(a), (c), (e).
11
Section 17200 states in its entirety:
As used in this chapter, unfair competition shall mean and include any unlawful,
unfair or fraudulent business act or practice and unfair, deceptive, untrue or
misleading advertising and any act prohibited by Chapter 1 (commencing with
Section 17500) of Part 3 of Division 7 of the Business and Professions Code.
Cal. Bus. & Prof. Code § 17200.
15
During the joint venture and while the venture was winding up, employees of Biothane
not only had access to the server via the VPN, but also administered the network. Steven
Murphy, an IT manager at Biothane, testified at deposition that Biothane considered the
server a part of their network and that anything placed on it could be accessed by
Biothane employees. The record appears to be silent on whether Moser and RCM
Digesters, assuming they owned the server, rescinded any prior authorization to access
the server, express or implied.
Furthermore, ownership may still be in dispute. The District Court declined to
grant summary judgment as to the validity of the separation agreement because material
facts remained in dispute. Because the separation agreement appears to be the only
agreement that would give Moser and RCM Digesters ownership and control of the
server, it remains unclear what would entitle Moser and RCM Digesters to the server
absent that agreement.
The District Court rejected the Biothane parties‟ arguments that the litigation hold
letter or the Federal Rules of Civil Procedure authorized their access, finding the
Biothane parties did not act in order to preserve documents for litigation. In doing so, the
court appeared to have made a credibility judgment on the deposition testimony of Jay
Murphy that he ordered Biothane‟s employees to access the server and copy files in order
to preserve documents for litigation. “Although a „scintilla of evidence‟ supporting the
non-movant‟s case is not sufficient to defeat a motion for summary judgment, . . . a
district court should not weigh the evidence and determine the truth of the matter itself . .
16
. .” Country Floors, Inc. v. Partnership Composed of Gepner & Ford, 930 F.2d 1056,
1061-62 (3d Cir. 1991) (citing Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 252
(1986)).
Given the awkward procedural posture here, where substantive claims arose from
discovery misconduct, we can easily understand how a court might apply an earlier
credibility finding in ruling on a summary judgment motion. In addressing sanctionable
discovery conduct, district courts can find facts and make credibility determinations. See
Bowers v. NCAA, 475 F.3d 524, 538 (3d Cir. 2007) (“The decision to impose sanctions
for discovery violations and any determination as to what sanctions are appropriate are
matters generally entrusted to the discretion of the district court.” (citation omitted)). It
may be different, however, if a credibility determination is made addressing a motion for
summary judgment, even if the same conduct serves as the basis for both motions. See
Doeblers, 442 F.3d at 820. When, as here, substantive claims arise from sanctionable
discovery conduct, the trial court is put in the discordant position of finding facts for one
order while stating in a parallel order that the same factual issues are in genuine dispute.
Here, the Magistrate Judge had already found the Biothane parties proffered
explanation was not credible, when he found access to the server was done for business,
not litigation, purposes. It appears the able District Court here incorporated this finding.
But owing to a different trial stage when addressing a summary judgment motion, we
believe incorporation of the finding was in error.
Faced with concurrent claims of sanctions for discovery abuse and for injunctive
17
relief because of anti-hacking violations arising from the same conduct,12 trial courts may
encounter special problems. Injunctive relief may be proper before final judgment, but it
can create management difficulties. Some commentators have noted that suits under anti-
hacking laws have gone beyond the intended scope of such laws and are increasingly
being used as a tactical tool to gain business or litigation advantages. See Andrew B.
Serwin, Poised on the Precipice: A Critical Examination of Privacy Litigation, 25 Santa
Clara Computer & High Tech. L.J. 883, 887 (2009) (“The [Federal Computer Fraud and
Abuse Act] was an anti-hacking law that has grown well beyond its original role. Now, it
can serve as the basis of litigation by creative plaintiffs‟ class action attorneys, as well as
companies attempting to protect their trade secrets.”); Christine D. Galbraith, Access
Denied: Improper Use of the Computer Fraud and Abuse Act to Control Information on
Publically Accessible Internet Websites, 63 Md. L. Rev. 320, 324 (2004) (noting that
although some “actions may fall within the literal language of the CFAA, such cases
were never intended to be covered by the statute”).
Normally discovery misconduct is addressed through sanctions under the Federal
Rules of Civil Procedure. Depending on the facts, early resolution of substantive anti-
12
Other courts and commentators have addressed such a situation. A litigant who, in
seeking emails of the opposing parties, served the opposing parties‟ internet service
provider with an overbroad subpoena was both sanctioned and found liable under anti-
hacking laws for accessing the emails via the overbroad subpoena. Theofel v. Farey-
Jones, 359 F.3d 1066, 1072 (9th Cir. 2004); see also Adam I. Cohen & David J. Lender,
Electronic Discovery: Law & Practice § 11.04 (Supp. 2010) (noting the need to
understand “the limitations that [anti-hacking] statutes may place on electronic
discovery”).
18
hacking claims arising from discovery misconduct may be necessary, but it may also
impact the course of the litigation. Litigants may seek to use that tool to gain litigation
advantage. Also, resolution of anti-hacking claims for misconduct during discovery
short-circuits the normal course of litigation and permits litigants to obtain interlocutory
review. See 28 U.S.C. § 1292(a)(1) (granting jurisdiction over “appeals from” orders
“granting, continuing, modifying, refusing or dissolving injunctions, or refusing to
dissolve or modify injunctions”).13 If the matter can be addressed in a discovery order, it
can be reviewed along with the merits after final judgment, making for more efficient
adjudication of claims.
III.
For the foregoing reasons we will vacate the order of the District Court partially
granting summary judgment against the Biothane parties and remand for further
proceedings consistent with this opinion.
13
Interlocutory review delays the proceedings in the trial court and also burdens litigants
and the courts with additional work and costs. See Cleveland Hair Clinic, Inc. v. Puig,
104 F.3d 123, 125-26 (7th Cir. 1997) (stating that, in an appeal in which sanctionable
conduct overlapped with the merits of the action, “[m]ultiplication of appeals would
delay final adjudication and increase the expense of getting there, without producing
material benefits”).
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