The parties' multifaceted dispute has a long and fiercely litigated procedural history and the discovery phase of the federal court case has been especially challenging. The parties engaged in extensive and, at many times, contentious discovery and motion practices concerning, among other things, Plaintiffs access to ESI concerning YEI's intellectual property allegedly in the exclusive possession of Crescent. Crescent now requests that the Court impose a severe form of sanctions on YEI for YEI's spoliation of certain ESI—the exact nature of which is unknown due to its destruction.
Many significant facts concerning the spoliation motion are not in dispute, but the content of the data destroyed is hotly disputed. On September 4, 2013, Yoe and several other employees who worked with the FITS sock brand were fired by Crescent. Crescent also ended its contract with its two-person IT consulting firm, DataBasix. At all relevant times, DataBasix was a company owned by IT consultant George Ervin ("Ervin"). The day prior, Crescent had filed a lawsuit against Plaintiffs in McMinn County, Tennessee Chancery Court (the "Chancery Court Case") concerning, among other things, the ownership of certain intellectual property.2
Ervin, through DataBasix, worked consistently as an IT consultant to Crescent during the time Yoe was employed3 [Doc. 289-3, Page ID # 5182]. When Crescent terminated DataBasix's services and Yoe, Ervin and his son were the only employees of DataBasix and they promptly began working for YEI [Doc. 289-2, Page ID # 5141-42, 5172].
Prior to the terminations in September 2013, Crescent's data was protected via offsite backup to servers managed by DataBasix [Doc. 289-2, Page ID # 5120-23]. At the termination of the DataBasix contract by Crescent, Ervin was in possession of ESI backed up onto servers from Crescent. Ervin sought direction from Yoe and Yoe's attorney, Gary E. Patrick ("Attorney Patrick")—not from Crescent—as to what he should do with that ESI [Doc. 289-2, Page ID # 5139-45].
Ervin gave depositions in both 2014 and 2017. On June 23, 2014, before the data at issue on the hard drive had been destroyed, Ervin testified:
Q. Okay. Well, did you - it's my understanding that you provided Bob with some data in regard to Crescent since the firing. Has there been a deletion since that occurred?
A. I would say so, yeah.
Q. Let me ask it this way. Do you have any data involving Crescent on any manner of storage device?
A. Yes.
Q. Tell me what you have.
A. I have a portable hard drive backup that's my own.
Q. And what data or information is on that portable hard drive?
A. Anything that affects the intellectual property of Yoe Enterprises.
Q. Where did that data come from?
A. My server.
Q. Would it have been copied from the server over on to the portable hard drive?
. . .
A. Yes.
Q. Okay. When did that occur, that transfer?
A. I'm not sure.
Q. Was it since September 4th, 2013?
A. Yes.
Q. Was it since January of 2014?
A. I don't know.
Q. Why did you transfer that information over on to a hard drive, for what purpose?
A. To protect the intellectual property.
Q. When you say to protect the intellectual property, are you talking about like the trademark information or -
A. Anything related to the - when Bob gets the brand back, then he'll need the manufacturing specifications to be intact and we'll need to use that information to hit the ground running.
[Doc. 289-3, Page ID # 5183-85 (emphasis added)].
In the same 2014 deposition, Ervin testified about what he considered to be YEI data copied to the hard drive:
Q Why do you say YEI data?
A Yoe Enterprises' intellectual property is contained in the FITS specifications that were on it.
Q So on the hard drive do you have the actual knitting specifications?
A Yes.
Q Okay. Do you have FITS brand sales information that was collected from Crescent?
A No. I was trying to get the knitting -- the things related to knitting specifications.
Q Okay. And --
A Or total manufacturing specifications for FITS.
Q Okay. And we're just talking about the hard drive right now. We're not talking about the server, okay, because we're going to go back to that server. So you have knitting specs. What else is on there relating to IT?
A Manufacturing specifications.
Q Is that different than knitting specifications?
A Sure. Yes.
Q When I hear the term knitting specifications, to me that denotes what information is entered into the computer aspect of a knitting machine. Am I right about that?
A Pretty close.
Q Okay. In contrast, what does manufacturing specifications involve?
A Measurements, weights, relationships.
Q Would that be of yarns and materials --
A Yes.
Q -- primarily?
A Materials, raw materials, and the relationships between those components.
Q Okay. What else is on the hard drive besides knitting specs, manufacturing specs?
A There may be some extraneous data that is contained in the databases that contains those information. So stuff I don't look at, but there may be other tables.
Q Would any of that -- and you said on the hard drive you don't -- there's not any sales data?
A I didn't say that. I said I don't know.
Q. Okay. Is it possible that there's on the server that relates to Crescent; is that right?
Q We're talking about the server now.
Q. Right. We're talking about the server.
A I mean, I'm not sure what all is on there. I don't know how to answer that question.
Q Well, I'm asking you why you still have their data. I'm not asking you what the data is. I'm asking you why you still have it.
A The data contains intellectual property.
Q And you've extracted that, right, and put it on the hard drive?
A The portable hard drive.
Q Correct.
A Right.
[Doc. 289-3, Page ID # 5186-88].
Q Okay. Well, let's say, for example, if you did back up [a company's] data, in your opinion would you own that data if you preserved it for them?
A No. I would be a steward.
Q Well, wouldn't that be true of Crescent as well?
A And Yoe Enterprises at this point, yes.
[Doc. 289-3, Page ID # 5190].
Several years later, in his May 18, 2017 deposition taken in this case, Ervin testified the typical Crescent backup of data included a snapshot of "everything" but did not include design programs, which involved a specialty program; and thus, the knitting machine programs were not part of the data backed up or copied to the hard drive [Doc. 289-2, Page ID # 5124-25]. He also testified that, at times, "pieces" of the design programs were backed up [Doc. 289-2, Page ID # 5126-29].
Turning to why he copied the data to a hard drive, Ervin testified in 2017 that he asked Yoe and Attorney Patrick what to do with the information "that looked like it was Crescent" contained on the backup servers that was "stuff that belonged to [Yoe]." [Doc. 289-2, Page ID # 5140]. Ervin swore he made a "safekeeping copy" of that data on the servers because he "asked the lawyers and we decided to preserve it, get it off those servers and preserve it onto a backup copy." [Id.]. Plaintiff's counsel asserted an attorney-client privilege and instructed Ervin not to answer questions about any discussion Ervin had with Yoe with counsel present about preserving the data to the hard drive because Ervin "[was] an employee of YEI at the time" of this discussion [Doc. 289-2, Page ID # 5142-45 & 5160-61].4
After Ervin's discussion with counsel, and within no more than two weeks of the September termination, Ervin preserved the data on an external hard drive with two terabytes of capacity by taking the following steps:
Q. So after you had conversations with [Yoe] and [Attorney Patrick] about what to do with it, what did you do with the data?
A I put it on a backup copy, a backup hard drive.
Q Okay. What type of hard drive was it?
A It was a USB external removable type thing.
Q Okay. Who provided you that removable external USB hard drive?
A I can't remember. I went and bought it.
Q You went and bought it specifically for this task?
A I think so.
Q Okay. So at some point in time you discovered the data. You had a conversation. Then afterwards you went and purchased a portable USB external hard drive and then you made a copy of the data?
A Yeah.
Q Was it all the data, everything that you saw was there, or did you discriminate some data to copy and others not to?
A I'm not sure of the exact technical steps I took. I think I deleted some stuff that was -- if there was more than one copy, may have got rid of duplicates.
Q Sure.
A And then just sort of took a broad brush and threw it on there.
Q So other than sort of de-duping multiple backup copies, you took everything that was there and put it on a hard drive?
A Everything I saw in one blush, yes.
Q Okay. And then you went back and did you -- what did you do with the data that was still residing on the storage device at the time? Not the portable hard drive, but the sort of -- the original, where the data was originally where you found it?
A I started the process of actually removing pieces of information.
Q Okay. So you wanted to clean up that device to get anything involving Crescent off of it?
A Sure.
Q And this device that you were doing, this storage station, was this one that was purchased by Crescent or by DataBasix?
A I'm sorry, the --
Q The storage device where you originally found the data from which you took a copy onto the hard drive?
A It was on several devices, some that were purchased by DataBasix and some that were purchased by Crescent.
[Doc. 289-2, Page ID # 5146-5148].
