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Shumway v. Wright

United States District Court, D. Utah

August 26, 2019

TRAVIS LYNN SHUMWAY, an individual residing in the state of Utah; CHAD L. SHUMWAY, an individual residing in the state of Utah; MOUNTAIN WEST MEDICAL SUPPLY, L.L.C., a Utah limited liability company; UNITED ENERGY WORKERS HEALTHCARE, CORP., an Ohio corporation; FOUR CORNERS HEALTH CARE CORP., a Utah corporation; and FOUR CORNERS HEALTHCARE INC., a Wyoming corporation; Plaintiffs,
v.
JAMES LINN WRIGHT, an individual; AUDRA WRIGHT, as individual; GARY D. SLAVENS, as individual; JANE AND JOHN DOES 1-10; and DOE BUSINESS ENTITIES 1-10; Defendants.

          ORDER

          David Nuffer, United States District Judge.

         This Ex Parte Seizure Order and Evidence Preservation Order (“Order”) is entered against Defendants James Linn Wright, Audra Wright and Gary D. Slavens. The Order is entered pursuant to the Federal Defend Trade Secrets Act (“DTSA”) 18 U.S.C. § 1836. The Order is issued after consideration of the Application for Ex Parte Seizure and Preservation Orders and Supporting Memorandum (“Application”)[1] filed by Plaintiffs Travis Lynn Shumway, Chad L. Shumway, United Energy Workers Healthcare, Corp., Four Corners Health Care Corp. and Four Corners Healthcare, Inc. (collectively “Plaintiffs”); the accompanying Joint Declaration of Travis Lynn Shumway and Chad L. Shumway[2] and the Exhibits thereto; a three-page listing of Entity Principals;[3] an ex parte hearing held August 9, 2019;[4] the Supplemental Memorandum supporting the Application;[5] the Declaration of J. Gregory Hardman;[6] the Joint Declaration of Michael Gutierrez and Trevor Haight and the Exhibits thereto;[7] and an exchange of draft orders[8]and emails.[9]

         This Order GRANTS IN PART Plaintiffs' Application.[10]

         Additionally, under the inherent authority of this court and the All Writs Act, 28 U.S.C. § 1651, third parties Microsoft Corporation and Google LLC ARE HEREBY ORDERED to copy and preserve, during the pendency of this action or until further order of this court, all digital files and data respectively within the Microsoft (including Hotmail) accounts of James Linn Wright and Google (Gmail) account(s) of Gary D. Slavens.

         Background

         Plaintiffs originally asked for (1) seizure of all Defendants' computer devices to the extent necessary for imaging, and without maintaining possession of any computer devices apart from copied files; for (2) pre-hearing on-site deletion from Defendants' devices of computer files containing trade secrets; and for 3) confiscation of a broad range of papers in relatively specific locations.[11] The second request carries too great a risk of violating the mandate of 18 U.S.C. § 1836(b)(2)(B)(ii) that an ex parte seizure order must:

provide for the narrowest seizure of property necessary to achieve the purpose of this paragraph and direct that the seizure be conducted in a manner that minimizes any interruption of the business operations of third parties and, to the extent possible, does not interrupt the legitimate business operations of the person accused of misappropriating the trade secret . . . .

         While the DTSA refers in two places to the possible seizure of “unrelated materials, ”[12] the foregoing provision requires an order to be as narrow as possible.

         After being presented with a revised order the court had prepared, [13] and a hearing, [14]Plaintiffs submitted supplemental materials and another draft order, with increased breadth, seeking seizure of many computer devices for imaging and delivery to the court, and seizure of a slightly broader range of papers from much less specifically defined locations.[15]

         Plaintiffs have not delineated the nature or extent of any legitimate business of Defendants, nor have they specified the other legitimate uses of Defendants' computers and media. While Plaintiffs' submissions are very thorough, they do not disclose Defendants' legitimate operations, legitimate uses of the computers at issue; and legitimate papers and purposes of entities they control. The submissions also do not quantify the dollar amount of business lost to date by Defendants' possession of Plaintiffs' trade secrets, or the dollar volume of Plaintiffs' overall business. This missing information makes assessment of risk difficult. And risk of confusion is presented due to the similarity of names of entities controlled by Plaintiffs and Defendants. Nevertheless, given the lengthy history of prior dealings and litigation between Plaintiffs and Defendants, including specific adjudications involving some of these entities, as well as the transfer of Mr. Wright's interest in others, [16] the risk of interfering with the legitimate operation of the businesses run by Defendants (at least those at issue here)[17] appears to be very slight.

         Nonetheless, significant effort has been made to minimize even that risk. The order drafts, hearing comments, and materials submitted have been carefully considered. This Order is narrower than the most recent draft from Plaintiffs and allows seizure of the specific computers identified as used by Linn Wright and Gary Slavens, and identifiable customer lists, while authorizing imaging of other computers and storage.

         A challenge is presented because electronic data may easily be copied and may be stored in many devices and places. Backups and cloud storage make an effective “seizure” difficult to achieve. Plaintiffs have indicated they will move, after seizure, for injunctive relief, which will provide additional protections.[18] The hearing set in seven days[19] will afford an opportunity for examination of the Defendants, their computers, and papers, at which time a motion for additional protections may be considered.

         A. Ex Parte Seizure Order ........................................................................................................ 6

         1. Findings of Fact and Conclusions of Law .................................................................... 7

         a) Plaintiffs' patient lists are protected trade secrets ......................................................... 7

         b) Plaintiffs have taken reasonable efforts to protect their trade secrets ........................... 9

         c) Defendants misappropriated Plaintiffs' trade secrets and Plaintiffs are being harmed as a result ..................................................................................................................... 10

         Linn Wright ................................................................................................................. 10 2014

         Wright litigation ................................................................................................. 11

         Gary Slavens ............................................................................................................... 12

         Slavens discharge and litigation ................................................................................. 13

         Testimony regarding Wright's use of Plaintiffs' patient list ....................................... 14

         Chris Williams deposition ........................................................................................... 15

         Testimony regarding laptop computer and briefcase ................................................. 15

         Slavens computer and paper files for Four Corners customer lists ........................... 18

         Slavens adjudicated lack of credibility ....................................................................... 20

         d) Conclusions of Law .................................................................................................... 20

         2. Scope of Seizure ......................................................................................................... 22

         a) “Electronic Computer Devices” Defined .................................................................... 23

         b) “Seized Electronic Computer Devices” - Seizure of Specified Electronic Computer Devices ........................................................................................................................ 23

         c) Imaging of Seized Electronic Computer Devices ....................................................... 25

         d) Imaging of Other Electronic Computer Devices ........................................................ 25

         e) Cloud Based Storage ................................................................................................... 25

         f) “Customer and Patient Lists” Defined ........................................................................ 26

         g) Seizure of Customer and Patient Lists ........................................................................ 26

         h) Copying/Scanning of Customer and Patient Lists ...................................................... 27

         i) No. Undue Seizure ....................................................................................................... 27

         3. Order Protecting Seized Property ............................................................................... 28

         4. Guidance to Law Enforcement Officials Executing the Seizure, and Appointment of Copying Staff and Technical Experts ....................................................................................... 28

         a) Time and Places of Seizure ......................................................................................... 29

         b) Designation of Contact Counsel ................................................................................. 30

         c) Duty of Cooperation ................................................................................................... 30

         d) Technical Experts ........................................................................................................ 31

         e) Copying Staff .............................................................................................................. 33

         5. Date for Seizure Hearing ............................................................................................ 33

         6. Security ....................................................................................................................... 35

         B. Evidence Preservation Order ............................................................................................. 35

         1. Microsoft Corporation ................................................................................................ 35

         2. Google LLC ................................................................................................................ 36

         3. Defendants .................................................................................................................. 37

         C. Conclusion ........................................................................................................................... 37

         EXHIBIT A .................................................................................................................................. 39

         EXHIBIT B .................................................................................................................................. 41

         A. Ex Parte Seizure Order

         Pursuant to the DTSA, 18 U.S.C. § 1836(b)(2)(B), an ex parte seizure order must:

(i) set forth findings of fact and conclusions of law required for the order;
(ii) provide for the narrowest seizure of property necessary to achieve the purpose of this paragraph and direct that the seizure be conducted in a manner that minimizes any interruption of the business operations of third parties and, to the extent possible, does not interrupt the legitimate business operations of the person accused of misappropriating the trade secret;
(iii) (I) be accompanied by an order protecting the seized property from disclosure by prohibiting access by the applicant or the person against whom the order is directed, and prohibiting any copies, in whole or in part, of the seized property, to prevent undue damage to the party against whom the order has issued or others, until such parties have an opportunity to be heard in court; and
(II) provide that if access is granted by the court to the applicant or the person against whom the order is directed, the access shall be consistent with subparagraph (D);
(iv) provide guidance to the law enforcement officials executing the seizure that clearly delineates the scope of the authority of the officials, including:
(I) the hours during which the seizure may be executed; and
(II) whether force may be used to access locked areas;
(v) set a date for a hearing described in subparagraph (F) at the earliest possible time, and not later than seven (7) days after the order has issued, unless the party against whom the order is directed and others harmed by the order consent to another date for the hearing, except that a party against whom the order has issued or any person harmed by the order may move the court at any time to dissolve or modify the order after giving notice to the applicant who obtained the order; and
(vi) require the person obtaining the order to provide the security determined adequate by the court for the payment of the damages that any person may be entitled to recover as a result of a wrongful or excessive seizure or wrongful or excessive attempted seizure under this paragraph.

         1. Findings of Fact and Conclusions of Law

         The following facts and conclusions of law, based on the record at this time, in compliance with 18 U.S.C. § 1836(b)(2)(B), support this Order.[20]

         a) Plaintiffs' patient lists are protected trade secrets

         Four Corners Health Care Corp. (“Four Corners Utah”) is in the business of providing home health care to beneficiaries of the Energy Employees Occupational Illness Compensation Program Act (“EEOICPA”) and the Radiation Exposure Compensation Act (“RECA”). Among other things, the EEOICPA compensates current or former employees (or their survivors) of the U.S. Department of Energy, its predecessor agencies, and certain of its vendors, contractors and subcontractors, who were diagnosed with a radiogenic cancer, chronic beryllium diseases, beryllium sensitivity, or chronic silicosis, as a result of exposure to radiation, beryllium, or silica while employed at covered facilities. The EEOICPA and RECA are administered by the U.S. Department of Labor. Four Corners Utah is a registered provider of home health care services. Four Corners Healthcare, Inc. (“Four Corners Wyoming”) and United Energy Workers Healthcare, Corp. (“United Energy Workers”) are also in the business of providing home health care to beneficiaries of the EEOICPA and RECA and are also registered providers of home health care services by the U.S. Department of Labor. Mountain West Medical Supply, LLC (“Mountain West Medical Supply”) is in the business of providing durable medical goods and equipment (“DME”) to home health care recipients. Mountain West Medical Supply provides DME to most patients of Four Corners Utah, Four Corners Wyoming and United Energy Workers who are eligible to receive DME as a part of their approved compliment of medical care services. This means that a Mountain West Medical Supply customer list contains most customers of Plaintiffs.

         Together, Four Corners Utah, Four Corners Wyoming and United Energy Workers comprise one of the largest home health care agencies for EEOICPA and RECA beneficiaries and collectively operate throughout all regions of the United States. Successful home health care companies serving eligible EEOICPA and RECA beneficiaries must expend substantial upfront sums of money and amounts of time to locate and qualify patients. Marketing efforts include mass mailings, direct mailings, online website, community center and residential health care facility presentations, and door-to-door contacting in communities thought to have substantial concentrations of potential beneficiaries. Furthermore, potential EEOICPA and RECA beneficiaries must be qualified for eligibility by the U.S. Department of Labor. Among other criteria, a home health care agency seeking to qualify the potential beneficiary (patient) must arrange for the person to receive a medical screening exam from a licensed medical doctor and hire a nurse to prepare a plan of care report. The physician's exam results and the nurse's plan of care report are then submitted by the home health care agency to the U.S. Department of Labor. If the potential beneficiary (patient) is deemed eligible for medical service benefits, the U.S. Department of Labor issues an authorization letter and the home health care agency may thereafter begin providing a particular complement of medical care services by contracting with licensed medical care providers (i.e., registered nurses, certified nurse assistants, physician assistants, therapists, etc.) at privately agreed-upon rates.

         Providing home health care to beneficiaries of EEOICPA and RECA is highly competitive. Thus, any information known to a business in this field that is not readily ascertainable gives an advantage to acquiring or generating patients and is very valuable. Plaintiffs were among the first home health care agencies providing services to patients under EEOICPA and are among the largest such businesses nationally. Consequently, the generation of patient lists for Plaintiffs constitute unique proprietary and confidential information. Plaintiffs' proprietary and confidential information and trade secrets are extremely valuable to them.

         Plaintiffs have invested large amounts of time and resources, including millions of dollars, into developing their proprietary systems and methods for developing patients, which include valuable proprietary and confidential information and trade secrets, including, without limitation, market demographics research; backend parameters for social media and other online marketing platforms and methods not readily ascertainable by the public; web interface information for Plaintiffs' websites and platforms; proprietary empirical trial and error data/information developed through experimentation and fine tuning of patient generation systems; business, customer, medical care provider and vendor information and relationships; and other proprietary, confidential information and trade secrets, which are not publicly available or readily ascertainable by the public. Plaintiffs' proprietary confidential information and trade secrets provide them a tremendous advantage over competitors with respect to their ability to generate large numbers of high-quality patients.

         b) Plaintiffs have taken reasonable efforts to protect ...


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