Ex. 428 JEREMY L. KEATING RICHARD P. GIGLIOTTI and ALEXANDER J. MELE

Case 3:15-cv-00057-L-AGS Document 428 Filed 06/24/19 PageID.
36311 Page 1 of 18
1 Gerald A. Klein, Esq. (Bar No. 107727)

klein@kleinandwilson.com
2 Michael S. LeBoff1 Esq. (Bar No. 204612)
leboff~kleinandw1lson.com
3 KLEI}\( & WILSON
A Partnership of Professional Corporations
4 4770 Von Karman Avenue
Newport Beach, California 92660
5 (949) 631-3300; Facsimile (949) 631-3703
6 Attorneys for Counterclaimant THE RETIREMENT GROUP, LLC
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8 UNITED STATES DISTRICT COURT
9 SOUTHERN DISTRICT OF CALIFORNIA
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11 JEREMY L. KEATING; RICHARD P. CASE NO. 3:15-cv-00057-L-AGS
12 GIGLIOTTI; and ALEXANDER J.
MELE, NOTICE OF LODGING OF SPECIAL
13 MASTER'S REPORT AND
RECOMMENDATION RE
14 Plaintiffs, THE RETIREMENT GROUP, LLC'S
MOTION FOR TERMINATING
15 SANCTIONS
v.
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JOHN A. JASTREMSKI; THE
17 RETIREMENT GROUP, LLC; and
18 DOES 1-5,
19 Defendants.
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AND RELATED CROSS-ACTIONS.
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23 Ill
24 Ill
25 Ill
26 Ill
27 Ill
28 Ill
431085_1 1 3: l 5-cv-00057-L-AGS
Case 3:15-cv-00057-L-AGS Document 428 Filed 06/24/19 PageID.36312 Page 2 of 18
1 TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD:

2 PLEASE TAKE NOTICE that counterclaimant The Retirement Group, LLC
3 ("TRG") lodges a copy of the report and recommendation regarding TRG's motion for
4 terminating sanctions (ECF no. 157) issued by the Special Master, Hon. Ronald S.
5 Prager (Ret.), on June 21, 2019.
6 GERALD A. KLEIN
KLEIN & WILSON
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8 Dated: June 24, 2019 By: Isl Gerald A. Klein
Attorneys for Counterclaimant The
9 Retirement Group, LLC
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431085_1 2 3: 15-cv-00057-L-AGS
1 TABLE OF CONTENTS
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Exhibit Description Page No.
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Exhibit 1 Recommendation Re Defendant and Counterclaimant 4-17
4
The Retirement Group, LLC and Defendant John A.
5 Jastremski's Motion for Terminating Sanctions, dated
6 June 21, 2019
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431085_1 3 3: 15-cv-00057-L-AGS
1
Hon. Ronald S. Prager (RET.)
2 Judicate West
402 W. Broadway
3 Suite 2400
San Diego, CA92101
4 Tel: (619) 814-1966
Fax: (619) 814-1967
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9
UNITED STATES DISTRICT COURT
10
SOUTHERN DISTRICT OF CALIFORNIA
11
12 JEREMY L. KEATING; RICHARD P. CASE NO: 3:15-CV-00057-L-AGS
13 GIGLIOTTI; and ALEXANDER J. MELE
RECOMMENDATION RE DEFENDANT AND
Plaintiffs, COUNTERCLAIMANT THE RETIREMENT
14
GROUP, LLC AND DEFENDANT JOHN A.
15 JASTREMSKI’S MOTION FOR
vs. TERMINATING SANCTIONS
16
Hearing Date: March 4-6, April 15-17, 2019
17
JOHN A. JASTREMSKI; THE RETIREMENT Time: 9:00 A.M.
18 GROUP, LLC; and DOES 1-5, Place: Judicate West – San Diego
402 West Broadway, Suite 2400
19 Defendants. San Diego, CA 92101
20
21 AND RELATED CROSS ACTIONS.
22
23
Factual and Procedural History
24
Introduction
25
26 This motion is for evidentiary sanctions for spoliation of evidence brought by counterclaimant,
27 The Retirement Group, LLC (TRG), a Registered Investment Advisor (RIA) and its principal, John A.
28 Jastremski, against Counterdefendants Jeremy Keating, Richard P. Gigliotti, and Alexander J. Mele
30
1
31 DEFENDANT AND COUNTERCLAIMANT THE RETIREMENT GROUP, LLC AND JOHN A. JASTREMSKI’S MOTION FOR TERMINATING SANCTIONS
32
EXHIBIT 1
Page 4
(collectively the Keating Group), formerly with TRG but now with the Ardent Retirement Planning,
1
2 Inc.(the Ardent Group); Securities America, Inc. (SAI), broker-dealer for the Ardent Group; Steven
3 Dalton principal of the Ardent Group (Dalton) and of broker-dealer Securities America, Inc. (SAI); and
4 Lloyd Silvers (Silvers) former TRG employee, now office manager of the Ardent Group. The Hon. M.
5
James Lorenz, Judge of the United States District Court for the Southern District of California, referred
6
this matter to a special master to recommend possible discovery sanctions involving allegations of
7
spoliation of evidence by the counterdefendants. Judge Lorenz empowered the special master to receive
8
evidence in order to make this recommendation. Under this assignment, the special master heard six full
9
10 days of testimony.
11 After the first three days of testimony, the Keating Group resolved the entire case, including the
12 counterclaim, for a $2,000,000 settlement, without admitting fault, and SAI entered into a similar
13
settlement for $550,000. The sole remaining Counterdefendants are, Dalton, the Ardent Group, and
14
Silvers1.
15
16 Overview of Evidence Presented to the Special Master
17 TRG, an RIA firm with the Securities and Exchange Commission (SEC), through its affiliated
18 investment advisors, provides asset management services to high net worth individuals. TRG's business
19
model is unique because it focuses on wealthy retirees receiving large lump-sum distributions from their
20
employers upon retirement. These targeted retirees are difficult to identify but comprise the most
21
profitable source of prospective clientele to the financial advisory industry.
22
TRG has produced a proprietary data-base of these prospects, which could be valuable if accessed
23
24 by others. TRG expends significant efforts and expense to acquire and preserve this database, which
25
26
27
1
As a result of the settlement by the Keating group, all remaining fees incurred in conjunction with this motion should be split
28 equally, 50 percent to be paid by claimants and the other 50 percent to be paid by the Ardent Group and Steven Dalton.
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2
1 constitutes a trade secret . TRG monitors layoffs and early retirement packages at target companies such
2 as AT&T and Hewlett Packard to focus on potential clients expected to retire in the near future. As part
3 of this process, TRG makes up to 2000 cold calls per day, sends out almost a quarter-million mailers
4
each year to potential prospects, puts on seminars at expensive restaurants, and spends about $2 million
5
each year for these activities. Despite these efforts, fewer than 5% of those prospects solicited become
6
clients.
7
8 To effectively accomplish its business plan, TRG also accumulates all sorts of personal
9 information about clients to effectively service their needs, including family situation, interests, income
10 and expenses, net worth, trading preferences, account holdings, monthly retirement income, monthly
11 expenses etc. This invaluable information, accumulated in a proprietary Salesforce database, enables
12
TRG investment advisors, such as the members of the Keating Group, to build bonds of trust with clients.
13
Each member of the Keating Group acknowledged that this database contained invaluable information
14
they needed to acquire new clients and to service existing clients.
15
16 To protect its database, TRG has instituted strict security procedures, including restricting
17 Salesforce database accessibility to TRG's secure premises, which are accessible only by electronic key
18 entry. Further, advisors could only utilize database information of clients assigned to them by TRG.
19
TRG computers were password protected and could only be accessed from pre-authorized IP addresses
20
21
2
22 The California Uniform Trade Secrets Act, contained in California Civil Code sections 3426-3426.11, defines "trade secret"
broadly as follows:
23 (d) 'Trade Secret' means information including a formula pattern
compilation, program, device, method, technique or process that:
24 (1) Derives independent economic value, actual or potential,
from not being generally known to the public or to other
25
persons who can obtain economic value from its disclosure
26 or use;
(2). Is the subject of efforts that are reasonable under the
27 circumstances to maintain its secrecy.
In a previous hearing in this case, Judge Lorenz stated, "It is undisputed that TRG meets the first prong of the trade secret
28 definition." As will be seen, infra, regarding prong 2, TRG also expends great efforts to undertake reasonable measures to
retain the secrecy of its proprietary information.
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and had restricted hardware to make it difficult to use external hard drives. Software could not be
1
2 downloaded to TRG computers without Jastremski's express approval. TRG closely monitored company
3 computers to check whether anyone engaged in unusual downloads.
4 In order to access the TRG database, user names and passwords were required. TRG also
5
required each advisor and employee to sign confidentiality agreements and online user agreements
6
prohibiting them from using or disclosing TRG's trade secrets. These agreements restrict employees and
7
independent contractors such as the Keating Group from using unauthorized cloud servers. TRG also
8
implemented a privacy policy, which forbade advisors from taking client information when they severed
9
10 their relationship with TRG. TRG's privacy policy was much more stringent than that of TRG's broker-
11 dealer, First Securities Corporation (FSC) or the Ardent Group's broker-dealer, SAI.
12 TRG as an investment advisor had to utilize the services of a registered broker dealer to execute
13
purchase of securities and utilizes the services of FSC as its broker dealer. Several years ago, SAI
14
through one of its principals, counterdefendant Dalton, tried unsuccessfully to convince TRG's principal,
15
Jastremski, to move his TRG business to broker-dealer SAI. Later, in 2013, SAI made a multi-million
16
17 dollar offer to buy TRG, but Jastremski again declined.
18 The Keating Group prospered through its use of the TRG proprietary Salesforce database. Even
19 though Keating had worked in well-known financial institutions, he did not have a single client when he
20 joined TRG. In the few years he was with TRG, Keating acquired over $200 million in assets and was
21
making a seven-figure annual income when he left to join the Ardent Group. Before joining TRG, Mele
22
was unemployed and had no book of business. His previous job was bartending. However, after
23
working at TRG as RIA for a few years, he left with $32 million in assets under management and was
24
25 earning $200,000 per year. RIA Gigliotti had not successfully built a book of business before joining
26 TRG, but when he left a few years after joining TRG, he had $44 million of assets under management
27 and was earning a six-figure annual income. Mele admitted that the clients he acquired at TRG still,
28
years after leaving TRG, represent the majority of his client base. Keating acknowledged that his
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practice focuses on clients he acquired during his tenure at TRG.

1
2 Having failed to acquire TRG's database by legitimate means, Dalton, as head of the Ardent
3 Group and principal of SAI, broker-dealer for the Ardent Group, orchestrated a conspiracy to steal TRG's
4 trade secrets and eliminate evidence of the theft in order to smoothly facilitate the Keating Group's
5
relocation at the Ardent Group. To accomplish his goal, he conspired with the Keating Group, including
6
its three members, Keating, Mele, and Gigliotti, and with the office manager of the Ardent Group, Lloyd
7
Silvers, a former TRG employee, to steal TRG's trade secrets, to transfer the stolen proprietary
8
information to the Ardent Group's Zoho database, and to conceal the theft through use of devices such as
9
10 false email addresses, secret Google Drives and use of VOIP (Voice Over Internet Protocol) phones
11 instead of more easily detectible use of cellphones or land lines.
12 To prevent office assistant Tina Abernathy from turning over her computer to Jastremski, which
13
Dalton and Silvers believed might contain information that could expose their activities to Jastremski,
14
Dalton and Silvers worked together to destroy Abernathy's computer. Moreover, to divert TRG from
15
effectively investigating the conspirator's theft of TRG trade secrets, Dalton made false accusations to the
16
17 SEC and FNRA that TRG had violated their rules, which triggered an investigation of TRG. Ultimately
18 Jastremski was required to spend many hours defending against these false allegations, which were
19 ultimately unsubstantiated.
20 Details of Evidence Presented to Special Master and Legal Analysis
21
TRG's Database is a Trade Secret
22
To constitute a trade secret, the putative trade secret under the California Uniform Trade Secret
23
Act (CUTSA) must derive economic value from being kept confidential and unknown to the public, and
24
25 the owner must take reasonable steps to keep the information confidential and unknown to other persons
26 who can obtain economic value from its disclosure. (California Civil Code section 3426.1(d). Under
27 CUTSA, customer lists may qualify as trade secrets when the collection of the data requires expenditure
28
of resources, and it is not generally known to the public. (Morlife, Inc. v. Perry, 56 Cal.App.4th 1514,
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1518, 1521-12, 1522 (1997) (Morlife), which holds that where information is difficult to obtain, and the
1
2 employer is required to spend resources to gather the information, a court may reasonably find that the
3 list of customer names constitutes a trade secret, especially where the information was not readily
4 ascertainable and could only be discovered with great effort.)
5
In this case, TRG's Salesforce database was highly protected in various ways, including requiring
6
the employees to sign written and electronic confidentiality agreements before onboarding, providing
7
password protection for each computer (with two levels of password authentication), limiting access only
8
to TRG employees and investment advisors on a need-to-know basis, prohibiting access to Salesforce
9
10 data to computers without TRG permission, and not allowing thumb drive use. TRG required investment
11 advisors and employees to sign confidentiality agreements, prohibiting them from using or disclosing
12 TRG's trade secrets. This policy also prohibited investment advisors from taking client information
13
when they left TRG. Indisputably, under these circumstances, there is little doubt that TRG's Salesforce
14
Database constituted a trade secret.3 This conclusion is corroborated by the elaborate plan carried out by
15
16 the counter-defendants to steal TRG's salesforce data. There would have been no reason to steal and
17 preserve this information on their Zoho database but for the fact that TRG's proprietary information was
18 not readily available from other sources and the Keating Group needed to use it to continue to pursue
19
their business.
20
Evidence of the Conspiracy to Steal TRG's Trade Secrets
21
At the evidentiary hearing, co-conspirators Mike Dalton (Mike Dalton), a recruiter for the Ardent
22
Group, and an Ardent principal securities licensee and attorney John Davenport, provided convincing
23
24
25 3
The Special Master rejects counterdefendants' contention that the Keating Group had access to all of TRG's trade secret
information because of an agreement between broker-dealers FSC and SAI, which allowed transfer of client information from
26 one broker dealer to another when the investment advisor changed broker dealer affiliation. However, this broker-dealer
information subject to this agreement only covered limited basic customer information such as name, address, phone number,
27 and social security number and did not include the much more detailed information available in TRG's Salesforce database. In
addition, the evidence established that the Keating Group took items from TRG that could not be a part of the broker protocol,
28 including TRG Retirekits, TRG Seminar slides, and lists of prospects.
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4
1 testimony describing the inner workings of the conspiracy to steal TRG trade secrets. At the outset of
2 the plan, Keating told Gigliotti and Mele that he would not leave TRG until they had a duplicate of the
3 TRG's Salesforce database so that the conspirators could hit the ground running from day one with
4
Ardent. Keating told Davenport that he would not leave TRG until he had a copy of the TRG database.
5
Dalton planned to copy the Salesforce database and download it into the Ardent Group's Zoho database,
6
so that immediately upon joining the Ardent Group, the Keating Group would be able to continue doing
7
8 business as usual, servicing existing accounts as well as seeking new prospects.
9 The conspirators, Dalton, Silvers, the Keating Group and the Ardent Group, through the Ardent
10 Group's principal, Dalton, engaged in an elaborate scheme to steal TRG's Salesforce data and to cover
11 their tracks. When Silvers left TRG in 2013, he secretly downloaded as much information as he could
12
from the TRG database. To avoid detection of their theft, beginning in October 2014, the conspirators
13
took the TRG data piece by piece over a period of months. Even though the Keating Group struck a deal
14
with Ardent Group's broker-dealer, SAI, in October or November 2014, they remained at TRG until
15
16 January 2015 to complete the theft of the precious TRG data. Keating uploaded various files to the cloud
17 so that Silvers could transfer it to the Zoho database. Mele signed his agreement to join SAI on
18 December 17, 2014. On December 26, 2014, Mele brought his laptop to Silvers so that Silvers could
19
download its contents and upload it into the Ardent Zoho database. Mele destroyed paper copies of
20
work-related data he kept in notebooks and yellow pads. Silvers installed a program called DBAN to
21
scrub his computer potentially incriminating data. To further their deception and to avoid detection
22
Dalton, Silvers, and SAI repeatedly referred to Keating, Mele, and Gigliotti as, "X," "Y," and "Z" in
23
24 various emails. Silvers and Dalton unconvincingly testified that they did not know who "X," "Y," and
25
4
The Special Master likens the testimony of Mike Dalton and John Davenport to that of accomplices in criminal cases, who
26 receive special consideration on sentencing in return for their testimony, which usually must be corroborated to be found
credible by the trier of fact. Here Jastremski promised not to seek monetary damages from Mike Dalton and John Davenport
27 in return for their complete cooperation, an arrangement similar to special consideration for accomplices in criminal cases.
Based on the totality of the evidence presented at the evidentiary hearing, including significant material corroboration by
28 independent evidence, the Special Master finds their testimony credible.
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5
1 "Z" were. Dalton also paid TRG employee Nelson to steal TRG data.
2 Keating gave generous monetary bonuses to TRG office assistants White and Lujano for their
3 work in December 2014 accessing Salesforce information that he could not obtain on his own to enable
4
him to transfer it to the Zoho database. To cover up their theft of the TRG database, mastermind Dalton
5
warned his fellow conspirators not to leave "footprints in the sand." He told them to use blind copy
6
email addresses to avoid discovery and to destroy documents. Recognizing SAI's regulatory duties to
7
8 preserve all emails, he told the conspirators not to send or copy emails to SAI. The conspirators used
9 false email addresses such as cara.ann.morrison@gmail.com and threejabrones@gmail.com. The

10 conspirators tried to limit written communications and to rely as much as possible on conference calls.
11 One of the agenda items for a conspirator’s conference call was "Keating Doc Disposal." Just a few days
12
before leaving TRG for The Ardent Group, Mele brought his laptop to Silvers, to facilitate the
13
downloading of confidential TRG information to the Zoho database.
14
In perhaps the most egregious example of their destruction of evidence, Dalton and Silvers
15
16 destroyed the computer of office assistant Abernathy, which they feared contained incriminating
17 evidence that Abernathy might turn over to Jastremski. Dalton emailed Silvers that they needed to "tread
18 lightly" with Abernathy because "if she decides to call (Jastremski) and stir the pot out of revenge, we
19
have issues." On August 4, 2015, Silvers told Dalton that Abernathy's laptop was in the office. After
20
receiving Silvers' report, Dalton ordered Silvers to "Crack it." Silvers waited until Abernathy's office
21
mate, Sam Goerrs, went to lunch before "cracking" it. After Silvers destroyed the hard drive and
22
Abernathy discovered that her computer was "fried," she was falsely told that the cause of the hard
23
24 drive's destruction was a "power surge." To keep Abernathy quiet, Silvers replaced her hard drive. The
25 old hard drive was never recovered.
26 To distract Jastremski, Dalton told his fellow conspirators that he would set "brush fires" and
27
28 5
The Special Master finds the entire testimony of Silvers and Dalton lacked credibility, especially in the face of the
overwhelming weight of the credible incriminating testimony against them.
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launch a "25-point campaign" against TRG, which included complaints about TRG to FINRA and the
1
2 SEC. Because of these complaints, Jastremski was forced to submit voluminous documents to these
3 agencies and to sit for a deposition. Keating eventually admitted that there was a "25-point campaign,"
4 and Silvers admitted hearing "something" about a "25-point plan," a copy of which Dalton might have
5
sent him. The purpose of the "brushfires" was to make it impossible for TRG to effectively investigate
6
and litigate this case and to undermine TRG's credibility with its own remaining employees. Ultimately,
7
after Jastremski was forced to expend time and effort in his defense, the claims against TRG were
8
dropped.
9
10 Early in Jastremski's investigation, Silvers cooperated by turning over his cell phone and
11 computers to Jastremski before he eventually reneged on his promise of cooperation. Silvers delivered
12 his computers to TRG's forensic expert resulting in TRG's discovery of a plethora of valuable
13
information including the text messages between Silvers and Dalton implementing the plan to "crack"
14
Abernathy's computer. TRG's computer expert also determined that Silvers had deleted over 10,000 files
15
before turning over his computers for inspection. Also, in furtherance of this plan, each of the Keating
16
17 Group destroyed evidence. For example, Keating destroyed TRG information, which he had stored in the
18 cloud. Gigliotti's Dropbox disappeared. Mele destroyed hard copies of notes he kept regarding clients of
19 TRG.
20 Analysis
21
Federal courts will not tolerate willful destruction of evidence and may issue terminating
22
sanctions for willful spoliation. Leon v. IDX Systems Corp, 464 F. 3d 951, 958 (9th Cir. 2006) (Leon).
23
"Dismissal is an available sanction when 'a party has deliberately engaged in deceptive practices that
24
25 undermine the integrity of judicial proceedings' because 'courts have inherent power to dismiss an action
26 when a party has willfully deceived the court and engaged in conduct that is utterly inconsistent with the
27 orderly administration of justice.' Anheuser-Busch, Inc. v Natural Beverage Distributors, 69 F.3d at 348
28
(9th Cir.1995) (internal quotation marks and citations omitted)." [(which held dismissal appropriate
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because of the defendants' concealment of relevant documents for 3 years and continuous false denials
1
2 under oath that the documents existed.) (See also Global NAPS, Inc. v. Verizon New England, Inc., 603
3 F. 3d. 71, 93-94 (1st Cir. 2010) upholding termination sanctions where party lied to court about records,
4 dropped laptop containing relevant evidence and intentionally deleted relevant files, just as in this case.)
5
Before imposing the harsh sanction of dismissal, the district court should consider five factors:
6
"(1) the public's interest in the expeditious resolution of litigation; (2) the court's need to manage its
7
dockets; (3) the risk of prejudice to the party seeking sanctions; (4) the public policy favoring disposition
8
of cases on their merits; and (5) the availability of less drastic sanctions." Leon, 464 F. 3d at p. 958.
9
10 Although the district court is not required to make explicit findings on each of the 5 factors, a finding of "
11 'willfulness, fault, or bad faith' " is required for a proper dismissal. Id. The district court's exercise of
12 discretion will not be disturbed on appeal unless the record creates "a 'definite and firm conviction that
13
the court below committed a clear error of judgment in the conclusion it reached upon weighing of the
14
relevant factors'." Anderson v. AirWest, Inc., 542 F. 2d 522, 524 (9th Cir. 1976) [quoting In re
15
Josephson, 218 F. 2d 174 (1st Cir. 1954).]
16
17 Litigants are obligated to preserve evidence from the moment litigation is reasonably anticipated,
18 not destroy it. Apple Inc. v. Samsung Electronics Co., Ltd., 881 F.Supp. 2d 1132, 1136 (N.D. Cal. 2012).
19 This duty attaches when the party should have known that the evidence might be relevant to future
20 litigation, is reasonably likely to lead to admissible evidence and/or is reasonably likely to be the subject
21
of a pending discovery request. Wm. T. Thompson Co, v. General Nutrition Corp., 593 F. Supp. 1143,
22
1455 (C.D. Cal.1984). In this case, from their actions and admissions, the conspirators knew from the
23
beginning of their scheme that they would be in litigation with TRG. In their deposition testimony each
24
25 of the Keating group acknowledged that before leaving TRG they knew that here was a strong likelihood
26 that Jastremski would sue them. Dalton and Silvers also recognized that they would likely be sued, and
27 Dalton characterized this eventuality as a "cost of doing business." Their actions were totally consistent
28
with the realization of impending litigation when they began to steal TRG's trade secrets and conceal the
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evidence of their bad acts.

1
2 If a party destroys evidence, such destruction qualifies as willful spoliation of evidence if the
3 party has "some notice that the documents were potentially relevant to the litigation before they were
4 destroyed." United States v. Kitsap Physicians Serv., 314 F. 3d 995, 1001 (9th Cir. 2002. Moreover,
5
because "the relevance of ...[destroyed] documents cannot be clearly ascertained because the documents
6
no longer exist, " a party "can hardly assert any presumption of irrelevance as to the destroyed
7
documents." Alexander v. Nat'l Farmers Org., 687 F. 2d 1172, 1205. Regarding willful destruction of
8
evidence, Dalton and Silvers intentionally and maliciously destroyed Abernathy's computer because they
9
10 feared Abernathy might provide the damaging evidence contained in its hard drive to Jastremski. In
11 addition, Silvers deleted 10,000 computer files. Also, the Ardent Group took no steps to preserve
12 metadata, which would have revealed movement of data from TRG to the Ardent Group.
13
In this case, the evidence convincingly established that remaining counterdefendants Dalton,
14
Silvers and, through their efforts, the Ardent Group deliberately engaged in a pattern of deceptive
15
practices undermining the integrity of the judicial proceedings in this case. "It is well settled that
16
17 dismissal is warranted where, as here, a party has engaged deliberately in deceptive practices that
18 undermine the integrity of the judicial proceedings" that courts possess the inherent power to grant
19 terminating sanctions. Anheuser-Busch, Inc. v. Natural Beverage Distributers, 69 F. 3d. 348.
20 Regarding the applicability of the first two of five factors mentioned in Leon, the public's interest
21
in expeditious resolution of litigation and the court's need to manage its dockets, there is no doubt that
22
the destruction of evidence has significantly worked against the expeditious resolution of this case, which
23
was filed on January 12, 2015 followed by the filing of the counterclaim on March 23, 2015. Since then,
24
25 this matter has been delayed for two years by discovery disputes, especially this motion for terminating
26 sanctions based on spoliation of evidence. Judge Schopler spent many months trying to resolve
27 discovery disputes, including this spoliation issue but then was forced to recuse himself before finally
28
resolving the issue of sanctions based on spoliation. In a previous motion, the special master has
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documented delays in resolution of spoliation sanctions based on foot-dragging and bad acts of
1
2 counterclaimants' former counsel, which was also the responsibility of all counterclaimants. Now, more
3 than four years after the filing of the counterclaim, the case is still bogged down in pre-trial discovery
4 disputes, largely based on the need to resolve this issue of sanctions for spoliation of evidence. These
5
acts of the defendants in anticipation of litigation, have made it impossible for the District Court to move
6
this case forward to trial. Thus, the counterdefendants' illegal actions have made it impossible for the
7
District Court to timely move this case forward to trial. The factors of expeditious resolution of cases
8
and effective management of the court's docket strongly militate in favor of imposition of the most severe
9
10 sanctions for counterdefendants' discovery abuse.
11 As to factor three, risk of prejudice to the party, TRG, as stated many times by TRG's counsel
12 during these proceedings, "We do not know that which we do not know." Although it is very clear that
13
Dalton and Silvers destroyed probative evidence, such as the Abernathy computer hard drive, TRG will
14
never know what was contained in the 10,000 files Silvers deleted, or in the plethora of deleted evidence
15
that was in the cloud or on other of the conspirators' computers6. Under these circumstances, the
16
17 remaining counterdefendants are responsible for prejudice caused by their destruction of evidence. (See
18 United States v. Kitsap Physicians Serv., 314 F. 3d at p. 1001.)
19
The only factor favoring less drastic sanctions is the policy of having cases tried on their merits.
20
However, "(A) party's motive or degree of fault in destroying evidence is relevant to what sanction, if
21
any, is imposed." In re Napster, Inc. Copyright Litigation 462 F.3d 1060, 1066-1067 (N.D. Cal 2006).
22
In this case, the motive for the conspirators' destruction of the evidence and their bad faith was clear, i.e.,
23
24 to eliminate TRG's ability to prosecute theft of trade secret claims.
25 Considering the plethora of evidence that Silvers, Dalton and the others destroyed, it would be
26
27
6
Based on the evidence, other missing evidence that cannot be recovered includes, Keating Dropbox communications,
28 Gigliotti Dropbox, two years of Gigliotti text messages, emails from the false email addresses, and contents of the secret
Google drives.
30
12
32
EXHIBIT 1
Page 15
very difficult if not impossible to fashion any appropriate sanction other than a terminating sanction. An
1
2 examination of the destroyed evidence reveals inter alia (1) Dalton and Silvers destroyed Abernathy's
3 computer because they feared she would turn over its contents of incriminating information to
4 Jastremski; (2) Silvers deleted approximately 10,000 files before turning over his computer to TRG's
5
expert; (3) Dalton masterminded a plan to steal TRG trade secrets but conceal the evidence of the theft,
6
which included, Keating and Mele's deletion of thousands of computer files before returning their
7
computers to TRG upon their departure to the Ardent Group; (4) Mele's destroyed TRG work-related
8
notebooks and yellow note pads instead of leaving turning them in to TRG; (5) Gigliotti claimed to have
9
10 lost of two years of text messages and Dropbox from his time at TRG; (6) Silvers' installed a program
11 called DBAN, a "Hard Drive and Eraser Cleaning Utility" program; (7) Conspirators used Google Drive
12 and false email addresses, which were requested but not produced in discovery; and (8) Dalton' made
13
"brush fire" plan of false accusations about TRG to FINRA and SEC in order to divert Jastremski's
14
attention from the conspirators' theft of TRG information and to weaken TRG.
15
The bad acts directly attributable to Ardent Group employee Silvers and its principal Dalton are
16
17 more than sufficient to establish bad faith destruction of evidence as to each of them individually and as
18 to their employer, the Ardent Group. In addition, because the evidence established a conspiracy to steal
19 trade secrets, Dalton, Silvers and the Ardent Group are vicariously responsible for all of the acts of
20 conspirators Keating, Mele and Gigliotti in furtherance of the conspiracy. (See Adriana Intern. Corp. v.
21
Thoreen, 913 F. 2d 1406, 1414, 1417 (9th Cir. 1990) and Pinkerton v. United States, 328 U.S. 640, 647
22
(1946).
23
Given the egregious and bad faith nature of the planned destruction of evidence and the evidence
24
25 of willful destruction of evidence, the only appropriate sanction is terminating sanction striking the
26 answer of the remaining counterdefendants to TRG's counterclaim.
27 Recommended Ruling
28
Based on the totality of the evidence elicited in 6 days of evidentiary hearings as summarized
30
13
32
EXHIBIT 1
Page 16
above, and in consideration of the five factors used to review the propriety of such sanctions, the Special
1
2 Master recommends granting terminating sanctions against counter-defendants Steven Dalton, Lloyd
3 Silvers, and the Ardent Group.
4
5
DATED: June 21, 2019
6
7
____________________________
8 Hon Ronald S. Prager (Ret.)
Special Master
9
10
Approval of Recommended Ruling of Special Master
11
12 I have read the attached recommendation of the special master, and I approve of his
13 recommended ruling.
14 It is so ordered.
15
16
DATED: ______________
17 Hon. M. James Lorenz,
Judge of the United States District Court
18 Southern California District
19
20
21
22
23
24
25
26
27
28
30
14
32
EXHIBIT 1
Page 17
1 CERTIFICATE OF SERVICE
(Declaration)
2 (Federal Rules of Civil Procedure 5(a)(l) & 5(b))
3 STATE OF CALIFORNIA, COUNTY OF ORANGE
4 I am employed in the County of Orange, State of California. I am over the age
of 18 and not a party to the within action. My business address is 4 770 Von Karman
5 Avenu~ Newport Beach, California 92660. My electronic service address is
mvovk~kleinandwJJson.com.
6
7 OF
4,
On June ,_f 2019, I served the foregoing document described as NOTICE
LODG~ OF SPECIAL ~ASTER'S REPORT AND
RECOMMENDATION RE THE RETIREMENT GROUP, LLC'S MOTION
8 FOR TERMINATING SANCTIONS on the interested parties in this action. The
document was served by the following method:
9
-------'./'---BY ECF (ELECTRONIC CASE FILING): I e-filed the above-referenced
10 document utilizing the United States District Court, Southern District of California's
mandated ECF (Electronic Case Filing) service. Counsel of record are required to be
11 registered e-filers and, as such, are automaticallJ e-served with a copy of the document
upon confirmation of e-filing. All addresses of the interested parties are listed below.
12
David P. Hall, Esq. Attorneys for Counter-Defendants Ardent
13 Law Office of David Hall Retirement Planning, LLC and Steven
43537 Ridge Park Drive Dalton
14 Temecula, CA 92590 Telephone: (951) 526-2055
Facsimile: (95/) 297-3387
15 Email: dhall@dhallaw.com
16 Assly Sayyar, Esq . . Attorneys for Counter-Defendants Ardent
Assly Sayyar, Attorney at Law Inc. Retirement Planning, LLC and Steven
17 2348 Foothill Drive Dalton
Vista, CA 92084 Telephone: (760) 542-8717
18 Facsimile: (760) 444-3560
Email: ass ly@vistalawyer.net
19
Robert M. Bursky, Esq. Attorneys for Counter-Defendants Ardent
20 Robert M. BurskJ Retirement Planning, LLC and Steven
68 South Service Road, Suite 100 Dalton
21 Melville, NY 1174 7 Telephone: (516) 641-9313
Facsimile: (516) 612-0084
22 Email: rbursky@rmblegal.com
23 Lloyd J. Silvers In Pro Per
3908 Wendi Court Telephone: (760) 644-2069
24 Fallbrook, CA 92028)/ Email: lloyd(ciJsilvers nsultants.com
25 Executed on June cf?l.f ,2019, at Newport e h, California.
26 I declare that I am employed in the offic
whose direction the service was made.
27
28
431085_1 3: 15-cv-00057-L-AGS

Ex. 428 JEREMY L. KEATING RICHARD P. GIGLIOTTI and ALEXANDER J. MELE

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Case 3:15-cv-00057-L-AGS Document 428 Filed 06/24/19 PageID.

1 Gerald A. Klein, Esq. (Bar No. 107727)

1 TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD:

16 Overview of Evidence Presented to the Special Master

practice focuses on clients he acquired during his tenure at TRG.

9 false email addresses such as cara.ann.morrison@gmail.com and threejabrones@gmail.com. The

evidence of their bad acts.

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