RICHARD A. WILLIAMSON, ON BEHALF OF AND AS TRUSTEE FOR AT HOME BONDHOLDERS' LIQUIDATING TRUST, Plaintiff,
VERIZON COMMUNICATIONS INC., VERIZON SERVICES CORP., VERIZON CORPORATE RESOURCES GROUP LLC, VERIZON DATA SERVICES LLC, and VERIZON NEW YORK, INC., Defendants. RICHARD A. WILLIAMSON, ON BEHALF OF AND AS TRUSTEE FOR AT HOME BONDHOLDERS' LIQUIDATING TRUST, Plaintiff,
AT&T OPERATIONS, INC. and AT&T SERVICES, INC., Defendants.
REPORT AND RECOMMENDATION
HENRY PITMAN, Magistrate Judge.
By notice of motion dated October 16, 2012, defendants AT&T Operations, Inc. and AT&T Services, Inc. ("AT&T") and Verizon Communications, Inc., Verizon Services Corp., Verizon Corporate Resources Group LLC, Verizon Data Services LLC and Verizon New York, Inc. ("Verizon") (collectively, "Defendants") move for spoliation sanctions against plaintiff Richard A. Williamson, on behalf of and as trustee for At Home Bondholders' Liquidating Trust (Docket Item 144 in 11 Civ. 4948). Defendants seek dismissal of the complaint with prejudice or, in the alternative, the imposition of an adverse inference jury instruction.
For the following reasons, I recommend that Defendants' motion be denied.
On July 19, 2011, Williamson, on behalf of and as trustee for At Home Bondholders' Liquidating Trust ("BHLT"), commenced this patent infringement action against AT&T and Verizon. BHLT is the beneficial owner of the former At Home Corporation's ("At Home") patents concerning Internet Protocol television (Compl. ¶ 2). Plaintiff alleges that Verizon's FiOS and AT&T's U-verse products and services infringe these patents (Compl. ¶ 3).
A. At Home's Bankruptcy
In 2001, At Home filed a petition for bankruptcy protection under Chapter 11 of the Bankruptcy Code in the Northern District of California. In re At Home Corporation, No. 01-32495-TC (Bankr. N.D. Cal.). At Home entered into a plan of liquidation under which it did not survive as an independent operating company. Instead, as of the effective date of the plan - September 30, 2002 - three liquidating trusts were created to distribute At Home's assets to its creditors (Declaration of Richard B. Harper, Esq. in Support of Defendants' Motion for Spoliation Sanctions, dated Oct. 16, 2012, Docket Item 145 ("Harper Decl.") Exs. 1, 2; Declaration of Brian T. Bagley, Esq. in Support of Plaintiff's Memorandum in Opposition to Defendants' Motion for Spoliation Sanctions, dated Nov. 21, 2012, Docket Item 166 ("Bagley Decl.") Ex. B ¶ 3). First, At Home Liquidating Trust ("AHLT") was granted legal title to all of At Home's records and its intellectual property rights, including the patents-in-suit (Harper Decl. Ex. 2 at Article 7.C; Bagley Decl. Ex. D ¶ 3). Second, BHLT was granted the rights to At Home's claims - including the right to bring patent infringement suits - against the following entities: AT&T Corporation, Comcast Corporation and Cox Communications, Inc. (collectively, the "Controlling Shareholders") (Harper Decl. Ex. 1 ¶ 8(iii); Bagley Decl. Ex. B ¶ 4). Finally, At Home General Unsecured Creditors' Liquidating Trust ("GUCLT") was granted the rights to At Home's claims against all parties other than the Controlling Shareholders (Harper Decl. Ex. 1 ¶ 8(vi)). Each trust had a separate and independent trustee (Bagley Decl. Ex. A ¶ 3; Ex. D. ¶ 2).
Beginning in the middle of 2008, AHLT, GUCLT and BHLT entered into settlement negotiations concerning the transfer of ownership of At Home's patents that were then held by AHLT (Bagley Decl. Ex. A ¶ 9). After the Bankruptcy Court approved the settlement agreement in January 2010, BHLT received ownership of the At Home patents that are the subject of these actions (Bagley Decl. Exs. A ¶¶ 9-10, C and F). However, the patent assignment expressly provided that BHLT was not the successor of AHLT (Bagley Decl. Exs. A ¶ 10 and F). Because it was now the owner of the patents, BHLT was now permitted to bring patent infringement actions against any party, and was no longer limited to asserting claims against only the Controlling Shareholders (Bagley Decl. Ex. A ¶¶ 9-11).
B. The Storage Agreement with Iron Mountain
Prior to the effective date of At Home's bankruptcy plan, At Home made arrangements to store its records. The agreement that created the three trusts provided that At Home "shall also prepay the costs to transport, index and centrally store all retained documents from September 30, 2002 to September 30, 2005, and the cost to destroy such documents thereafter" (Harper Decl. Ex. 1 ¶ 7). To that end, At Home considered proposals from several storage vendors and evaluated these proposals on the assumption that its documents would be destroyed after three years (Harper Decl. Ex. 10 at JC0000021). At the same time, however, At Home also noted that "[s]torage fees beyond 3 years [were] to be paid by creditor's committee" (Harper Decl. Ex. 10 at JC0000023).
At Home selected Iron Mountain Information Management, Inc. ("Iron Mountain"), which had previously stored its records, as its storage vendor (Bagley Decl. Ex. D ¶ 3). In April 2002, At Home entered into a storage agreement with Iron Mountain ("the Storage Agreement") (Harper Decl. Ex. 4). Neither Williamson nor BHLT was a party to the Storage Agreement. Under the Storage Agreement, At Home pre-paid the costs for three years of storage for its documents, as well as the costs for their destruction (Harper Decl. Ex. 5).
Iron Mountain's Rule 30(b)(6) witness Mark Mizuhara characterized this agreement as an "automatic destruction account" meaning that At Home "prepaid in advance for their records to be stored for a certain period of time, and after that period of time, the records would be destroyed" (Harper Decl. Ex. 7 at 35:23-36:4). He further testified that these types of agreements were not "that prevalent" (Harper Decl. Ex. 7 at 36:8), but he also acknowledged that they were not uncommon at the time because "the Silicon Valley was going through a lot of companies that were going through bankruptcies" (Harper Decl. Ex. 7 at 36:5-8).
Terri Curtis, who was formerly At Home's Vice President and who signed the Storage Agreement on behalf of At Home, testified that Iron Mountain required At Home to pre-pay the destruction costs because At Home was a debtor in a ...