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Stratacache, Inc. v. Wenzel

Court of Appeals of Ohio, Second District, Montgomery

August 30, 2019

STRATACACHE, INC. Plaintiff-Appellee
ALBERT A. WENZEL Defendant-Appellant

          Civil Appeal from Common Pleas Court Trial Court Case No. 2015-CV-5966

          JONATHAN R. SECREST, Atty. Reg. and SARA H. JODKA, Atty. Attorneys for Plaintiff-Appellee

          THOMAS M. GREEN, Atty. and JONATHAN F. HUNG, Atty. Attorneys for Defendant-Appellant


          FROELICH, J.

         {¶ 1} Albert A. Wenzel appeals from the trial court's final judgment entry granting judgment by default in favor of Stratacache, Inc. and against Wenzel on counts two and three[1] of Stratacache's complaint; dismissing with prejudice Wenzel's counterclaims against Stratacache and third-party complaint against Christopher Riegel; and awarding Stratacache damages totaling $200, 000. The judgment of the trial court will be affirmed.

         Factual and Procedural Background

         {¶ 2} Stratacache, Inc. is a digital media company headquartered in Dayton, Ohio. For nearly 10 years, Wenzel worked as a salesman for Stratacache, where he was paid a salary plus commissions and reported to Riegel, Stratacache's chief executive officer. When Wenzel left Stratacache's employ[2] in September 2015, he held the position of Senior Vice President.

         {¶ 3} On November 12, 2015, Stratacache filed a five-count complaint against Wenzel in the Montgomery County Court of Common Pleas, setting forth claims for: 1) breach of contract, 2) disgorgement of wages, 3) misappropriation of trade secrets, 4) tortious interference with contracts and business relationships, and 5) preliminary and permanent injunctive relief. According to Stratacache, while working for the company, Wenzel sought reimbursement for travel expenses that were not reasonably related to his employment. After Wenzel's employment there ended, however, Stratacache learned that Wenzel, while still employed by Stratacache, had co-founded and performed services for a competing business called "Strata Insights, Inc." Stratacache's complaint alleged that Wenzel impermissibly competed against his former employer by soliciting Stratacache's customers and using and disclosing Stratacache's trade secrets and confidential information, and violated his duty of loyalty by engaging in outside employment while still employed by Stratacache.

         {¶ 4} Wenzel responded with counterclaims against Stratacache and a third-party complaint against Riegel. Wenzel asserted claims for breach of contract and violation of R.C. 4113.15[3] against Stratacache, and claims for unjust enrichment, fraud, promissory estoppel, and punitive damages against both Stratacache and Riegel. Wenzel later amended his pleadings to add a claim of conversion against both other parties. Wenzel alleged that Stratacache and Riegel failed to pay Wenzel commissions and reimburse business expenses due from his time at Stratacache. With leave of court, Wenzel later filed second amended counterclaims as well as an amended third-party complaint, adding no new claims, but clarifying certain factual allegations.

         {¶ 5} After the exchange of some discovery, the trial court granted partial summary judgment in Wenzel's favor as to Stratacache's breach of contract claim (Count One), based on Stratacache's failure to produce evidence that Wenzel had signed a noncompete agreement. (Doc. #61). All parties later submitted motions for summary judgment as to the remaining claims. (Docs. # 68, 69, 75).

         {¶ 6} With the summary judgment motions pending, however, discovery disputes persisted as to certain aspects of the parties' claims. One particular point of contention was Stratacache's assertion that it sent Wenzel an email on May 11, 2012 that set his commission rate at one percent (1%), and Wenzel's denial that he ever received that email. Additionally, Stratacache sought information as to any communications between Wenzel and Stratacache customers about Wenzel's competing business while Wenzel remained in Stratacache's employ. For those reasons, on January 9, 2017, Stratacache served on Wenzel a second set of interrogatories and first request for production of documents, including a request that Wenzel produce an IBM ThinkPad computer in his possession. Earlier that day, Wenzel had submitted supplemental responses to Stratacache's first set of discovery requests, identifying an IBM ThinkPad laptop as the computer "he used during his employment at Stratacache."

         {¶ 7} Wenzel failed to produce that computer or other requested discovery by the February 6, 2017 deadline specified in Stratacache's requests. As a result, on May 16, 2017, Stratacache moved to compel Wenzel to respond to its outstanding discovery requests. (Doc. #65). On June 8, 2017, the trial court granted in part that motion to compel, directing Wenzel "to submit * * * for a forensic search" the IBM ThinkPad computer believed to possibly contain emails relevant to the parties' claims. (Doc. # 79, p. 5).

         {¶ 8} Pursuant to Civ.R. 56(F), Stratacache thereafter sought to delay its response to Wenzel's summary judgment motion until Wenzel produced additional discovery, including the computer; Wenzel opposed that motion. Following a telephone conference with the parties on July 12, 2017, the court issued an order clarifying the protocol for the forensic examination and the subsequent handling of "any documents extracted" from Wenzel's computer. (Doc. #94). Thereafter, Wenzel submitted the computer for examination by Stratacache's designated expert.

         {¶ 9} On August 14, 2017, Stratacache and Riegel jointly moved for dismissal of Wenzel's claims as well as default judgment on Stratacache's claims against Wenzel, "as sanctions for Wenzel's intentional destruction of evidence." (Doc. #104, p. 1). Specifically, Stratacache and Riegel contended that on February 13, 2017 - "after Stratacache requested [that Wenzel] produce the computer - Wenzel "wiped [the] computer and deleted all information contained on it." (Emphasis sic.) (Id., pp. 1-2). According to a report prepared by Stratacache's computer expert, his forensic examination of the IBM ThinkPad revealed that Wenzel reformatted the computer's hard drive and installed a Windows 10 Professional operating system on February 13, 2017, leaving no emails from the relevant time frame remaining on that computer. (Id., Exh. C). The movants noted that Wenzel withheld that fact throughout Stratacache's efforts to obtain the computer. Maintaining that Wenzel's actions "destroyed relevant electronic evidence crucial to Stratacache's case against Wenzel and to Stratacache's defense of Wenzel's claims" (id, p. 2), Stratacache and Riegel urged that judgment in their favor as to all claims between the parties was warranted.

         {¶ 10} In opposing the motion for discovery sanctions against him, [4] Wenzel asserted for the first time that he had created a backup of his laptop's hard drive, which he claimed "means that Stratacache still has the ability to review emails contained on the laptop" from the relevant time period. (Doc. #111, p. 13). Wenzel also denied that the laptop ever had contained any "relevant emails," offered a benign explanation for changes made to the laptop, [5] and asserted that any discovery delays were due to Stratacache's "unreasonable demand for unfettered access" to the computer's contents. (Id., pp. 5-7). Additionally, Wenzel took issue with certain conclusions of Stratacache's expert about changes made to the ThinkPad's hard drive.

         {¶ 11} On September 26, 2017, the trial court held a hearing on the parties' motions for sanctions and motion in limine, [6] during which Wenzel and computer experts for both parties testified. On October 3, 2017, the court issued its decision. (Doc. #121). The trial court concluded that Wenzel had violated the discovery rules by failing to disclose the existence of the backup drives in his discovery responses or in response to the court's orders that he produce the IBM ThinkPad computer. Further, the court found that "Wenzel intentionally destroyed the evidence contained on the computer [o]n February 13, 2017." (Id., p. 12). As to that finding, the trial court elaborated:

The Court does not find * * * credible [Wenzel's claim] that he was just one of the unlucky users whose data was lost upgrading the system to Windows 10. * * * The reformatting of the hard drive prior to the installation of the new operating system opened all previous information to the risk of being overwritten. The installation of the new operating system overwrote all of the information, removing any chance of recovering the information. The timing of the installation of the new operating system is the most concerning part for this Court. The computer was required to be turned over only seven days prior to the installation of the operating system[, ] despite [Windows 10 having] be[en] available for about a year and a half.
Further, the entire incident is suspect. This is not a matter of a person with little technological knowledge believing the prompt to upgrade [to] Windows 10[, ] which stated that data would not be los[t]. Wenzel is tech savvy and has a better understanding of computers and their workings than the average user. This is further not the case where information was lost innocently and then immediately disclosed to attorneys and the Court. No, this is a case where Wenzel was aware that information was no longer contained on the computer yet continued to fight its production in discovery. The Court and counsel spent hours of their time negotiating the production of the computer, not including the time spent dealing with the many motions to compel on the matter. The Court assumes such tactics to delay turning over the computer were utilized in hopes that this Court would rule in Wenzel's favor on the [then-]pending motions for summary judgment.
Finally, even if this information was not destroyed intentionally (which is not what the court believes), Wenzel undertook a major risk by choosing to install the new operating system. As the experts at the hearing testified, every time someone decides to upgrade the operating system[, ] they run the risk of destroying information. So, at the very least, Wenzel affirmatively made a decision to risk losing all of the information contained on the computer. Information he was aware that he need to preserve[, ] * * * as the litigation had been pending for more than a year. Wenzel did not seek advice of counsel or a technology expert before deciding to initiate an updated operating system.

(Emphasis added.) (Doc. #121, pp. 12-13).

         {¶ 12} The trial court further found "a reasonable probability that access to [Wenzel's] emails prior to the reformatting of the hard drive and installation of the new operating system would have produced evidence favorable to Stratacache that is not otherwise obtainable." (Id., p.14). Based on its determination that Wenzel's intentional actions would cause Stratacache "a large amount of prejudice" due to its inability to recover emails that might be relevant to the parties' competing claims (id.), the trial court imposed the "harsh sanction" of dismissing Wenzel's claims against Stratacache and Riegel [7] and granting default judgment in Stratacache's favor on its claims against Wenzel. (Id., p. 17).

         {¶ 13} The trial court denied in most respects Wenzel's subsequent motions to reconsider that sanctions decision (see Docs. #127, 129, 135, 136), but did agree to afford Wenzel a jury trial regarding the amount of damages due Stratacache on its default judgment against Wenzel. (Doc. #136). Ultimately, however, the parties reached an agreement as to damages, pursuant to which the trial court issued a final judgment entry granting judgment by default in favor of Stratacache, Inc. and against Wenzel on counts two and three of Stratacache's complaint; [8] dismissing with prejudice Wenzel's counterclaims against Stratacache and third-party complaint against Christopher Riegel; and awarding Stratacache damages totaling $200, 000. (Doc. #158).

         {¶ 14} Wenzel appeals from that judgment, setting forth this sole assignment of error:

The trial court erred by abusing its discretion and imposing sanctions of default[9] against * * * Wenzel for installing a Windows 10 update to his laptop resulting in data loss, and [for] late disclosure that he had Carbonite Premium and ...

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