Hoisted on Their Own Petard: Production of Inaccessible Data That Later Becomes Unavailable Will Not Support a Suppression Claim Based on Spoliation Against the Recipient

The trial of Elizabeth Holmes, the founder and former Chief Executive Officer of Theranos, Inc., has finally commenced after numerous well-publicized delays. A little more than a month ago, the District Court for the Northern District of California denied Holmes’s motion to suppress evidence prior to her criminal fraud trial, finding that it was the “deliberate actions” of third parties (Theranos) that resulted in the loss of evidence contained on a database, not the prosecutors’ actions. Indeed, Theranos “knowingly and without comment produced an inaccessible” and encrypted copy of a database, and then dismantled the database hardware, rendering it permanently “unusable” only days after its production.

In U.S. v. Holmes, the defendant filed a motion to suppress evidence, pursuant to Rule 12(b)(3)(C), of customer complaints and testing results, as well as findings from a 2016 report. Theranos used a bespoke database called the Laboratory Information System (LIS) that “housed, among other things, all patient test results and all quality control data at Theranos.” In 2015, federal government agencies (the “Government”) began investigating Theranos and, in April and June 2018, “served grand jury subpoenas on Theranos for information specifically from the LIS database and requested a copy of the database itself, along with the necessary software to access and search it.”

One day after the grand jury subpoena seeking a copy of the LIS database was issued, outside counsel for Theranos emailed Theranos’s general counsel “‘to touch base on LIS’ and suggested that ‘we should just give DOJ the database and let them figure it out … [T]hey won’t know what to do with it and…the people who do are in India.’” According to internal emails between Theranos employees, “the LIS database copy would be encrypted and require not only a password but also a private key to access the information in the database.” In other emails, the general counsel acknowledged that “‘[t]here might be one password’ to the LIS database copy that only one person at Theranos knew, and that ‘IT is still working on that,’” but that, the general counsel further wrote, “[I]t’s ultimately not Theranos’[s] problem if our system of storing and accessing data is inconvenient for outsiders.”

Outside counsel produced to the Government a copy of the LIS database and the password but did not mention that a private key was also necessary to access the database. Within several days after the production, Theranos decommissioned and dismantled the LIS database, which permanently destroyed the private key. At the time of the defendant’s motion, all the parties agreed that the LIS database produced “cannot be accessed without the private key, and the information on the LIS database is lost – perhaps irretrievably.”

Ironically, it was Holmes who moved to suppress evidence “based on the Government’s duty to preserve potentially exculpatory evidence,” arguing that “allowing the Government to use that evidence as ‘evidence of fraud’ after it failed to gather and preserve the LIS database would violate her rights to present a complete defense and to receive due process, because the entirety of the LIS database was necessary to refute that evidence.” In response, the Government contended that the inaccessible database did not contain exculpatory evidence for the defendant, but evidence that was “either highly inculpatory … or … useless to both sides …”

The court found that “[t]he LIS database information alone would not provide a conclusive determination of whether the Theranos blood tests were accurate, and it could just as likely contain incriminating evidence to the contrary,” and thus, “[a]ny exculpatory value [wa]s therefore speculative in nature.” The court further found that the alleged “exculpatory value of the LIS database was not apparent to the Government on August 31, 2018 for multiple reasons,” including the fact that the potential usefulness of the database was speculative. Most importantly, the court also reasoned that “the Government did not lose or destroy evidence in its possession,” but rather, it was Theranos that produced an encrypted copy of the database and failed to inform the Government that an additional key was necessary to access the database; nor did Theranos provide that key. The court emphasized that it was “undisputed that the copy of the LIS database Theranos provided was not accessible; and the only entity in possession of the sole working version of the LIS database was Theranos – up until it dismantled the database hardware, destroying the key and rending the original database unusable as well.” Accordingly, the Government “never had true possession of the LIS database in the first instance.”

To that point, the court noted that the defendant did not cite any cases “suggesting that the Government can be held responsible for not acting before a third party destroys the potentially exculpatory evidence, when the Government has no knowledge of the destruction and has no control or influence over the third party.” The court stated that there was no legal support for the defendant’s apparent proposition that “failure to look at a production within four days of receipt is per se unreasonable.” Indeed, the court found that “[a] brief delay of four days hardly approaches even negligence, much less bad faith or a due process violation.” According to the court, “the Government sought production of a (presumably) functioning LIS database, but Theranos knowingly and without comment produced an inaccessible copy. It appears the Government believed in good faith that Theranos had provided a working copy of the LIS database, with all necessary passwords and information on the additional software required to access it.” As such, the court denied the defendant’s motion to suppress.

The court’s decision in Holmes is an important reminder to attorneys and clients alike that a database should be accessible when produced, and if it is not reasonably accessible solely as a result of legacy or encryption systems used by the producing party, that party may be obligated to provide access at its expense. Indeed, a producing party may not produce inaccessible data and then attempt to penalize the receiving party by suppressing evidence, alleging that the information that it provided, which was inaccessible, was exculpatory. This dispute also underscores the importance of communication between counsel before production of ESI during which counsel can seek to reach an agreement on the method, format, and content of productions. The record in this case suggests that the defendant had no intention of collaborating with the Government in discovery. As the court concluded, “dump[ing]” an inaccessible database on a receiving party and letting that party “figure it out” will likely have adverse effects in the long run and thus, clients and counsel should be honest with their adversaries and, of course, not attempt to frustrate the efforts of their adversaries during discovery.

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