A federal judge has ordered a new trial in a trade secrets case that yielded a $115 million verdict against Walmart Inc., agreeing that evidence discovered when the winning lawyers sought $46 million in fees would probably have changed the outcome of the 2021 trial.
U.S. District Judge James M. Moody Jr. of Little Rock issued his order Dec. 22.
Walmart, of Bentonville, discovered the evidence after attorneys for Ecoark Holdings Inc., formerly of Rogers and now of San Antonio, and a subsidiary, Zest Labs Inc., submitted documentation to justify their request for fees. Walmart said it found in attorney log notes that Zest’s lawyers had information regarding its patent applications that would have shaken the plaintiffs’ case.
Zest’s lawsuit involved allegations that Walmart took trade secrets from Zest Labs for supply-chain technologies used to manage fresh produce and meats. Walmart argued that Zest had misrepresented evidence and even destroyed some of it.
“The post-trial discovery confirmed Zest’s misrepresentation, but it also uncovered that Zest engaged in a pattern of misrepresentations, and even altered and destroyed evidence, to cover up the original lie,” one of Walmart’s attorneys, John Keville of the Houston office of Sheppard Mullin Richter & Hampton, said in a September filing.
During the discovery phase of the case, Walmart handed over to Zest’s lawyers thousands of pages of documents, including Walmart’s patent applications.
Walmart said in filings that if Zest believed the applications contained Zest’s trade secrets, Zest had a duty to take reasonable steps to keep them confidential by trying to stop the U.S. Patent & Trademark Office from making them public.
Walmart said if Zest had done that, there might not have been a case. Instead, Walmart said, Zest did nothing to prevent the applications going public. Zest had accused Walmart of using the patent information and disclosing it.
Zest’s attorneys had said in a court filing that it didn’t try to stop the patent office because it never received the applications in Walmart’s discovery material. But that was untrue, Walmart argued.
“The post-trial discovery proved that Zest learned of the unpublished patent application on March 3, 2019, just four days after Walmart produced them, and then used them to create a trade secret claim where none existed,” Keville said in his motion, which was unsealed in January.
Keville and attorneys John Tull III and R. Ryan Younger of Quattlebaum Grooms & Tull of Little Rock asked Moody to dismiss Zest’s lawsuit or order a new trial, and to impose sanctions and grant attorneys’ fees.
“Regardless of the motive or lack thereof, the Court finds that Zest’s failure to disclose that it had notice of Walmart’s patent application before it was published was material and not merely cumulative or impeaching,” Moody wrote in his order.
Moody ordered both sides to mediation in front of Magistrate Judge Patricia S. Harris. A settlement conference is scheduled for Feb. 21.
If the case isn’t settled, Moody set the new trial for Jan. 21, 2025, in Little Rock federal court.
Moody also said he would take Walmart’s motion for sanctions and attorneys’ fees under advisement, as well as Walmart’s request to dismiss the case.
Walmart’s recently unsealed documents provide some insight into how it discovered the alleged legal wrongdoing.
“It’s because this matter is still pending, out of respect for the court’s process, Zest has no comment at this time,” an attorney for Zest, Fred I. Williams of Williams Simons & Landis of Austin, Texas, told Arkansas Business last week.
The Allegations
Zest Labs first sued Walmart in federal court in Little Rock in October 2018, seeking more than $2 billion in damages.
But Zest’s specific allegations shifted throughout the case, Walmart said in its filing, “ultimately arguing that a Walmart patent application … destroyed Zest’s trade secret when it [was] published during discovery.”
During discovery, on Feb. 28, 2019, Walmart provided Zest the patent applications. The provisional application said that the anticipated publication date was May 16, 2019, and that’s exactly when the patent office made the applications public.
Zest blamed Walmart for allowing the patent applications to be published without Zest’s consent. One of Zest’s attorneys, Jonathan Hardt, said in a March 2020 filing that, “To Plaintiffs’ counsels’ knowledge, Walmart has never produced the provisional or nonprovisional Walmart Applications.”
Hardt also filed a March 2020 declaration that said he and a paralegal searched thousands of pages of documents Walmart handed over, but couldn’t find the applications.
Hardt, who is no longer working at Williams Simons & Landis, declined to comment.
At the trial in 2021, Walmart had no basis to argue that Zest knew of the applications before they were published but failed to try to stop it.
“To do so, Walmart would have had to accuse Zest’s attorneys of misrepresentation, with no evidence at that time that they were lying to Court and Walmart,” the filing said. “That changed after the trial.”
Billing Records
After the jury award, the largest in a federal court in Arkansas in recent memory, Zest asked for $46 million in attorneys’ fees. Walmart’s attorneys then sought the plaintiffs’ attorneys’ detailed billing records.
After getting access to the billing records and other documents, Walmart’s attorneys discovered that Zest’s attorneys saw the patent document within days after Walmart shared it. Then after denying having received it, Zest had to make more misrepresentations to continue the cover-up, Walmart alleged.
Walmart also said it discovered that on May 27, 2021, two weeks after Moody ordered Zest to hand over unredacted time records, Zest’s attorney Michael Simons asked Catalyst Repository Systems Inc., a cloud-based electronic discovery company the law firm used, to copy all case data to a hard drive, ship it to him and then delete its copy from its servers. (OpenText of Waterloo, Canada, bought Catalyst in 2019.)
Walmart said that Simons, knowing that an appeal was likely, could have had the data stored with Catalyst for a minimal cost.
“Months later, Mr. Simons had the data put back on Catalyst’s system, then had Catalyst repeat the copy-and-delete process; the result being that no original unaltered files and metadata exist,” Walmart said.
Catalyst, however, kept the emails. It had hundreds of emails from before May 16, 2019, “confirming Zest’s receipt and awareness of the Walmart Patent Applications,” Walmart’s filing said.
In July 2023, Simons asked Moody to be allowed to withdraw as counsel of record in the case. Simons said in a motion that he was leaving the firm and wasn’t expected to be involved in the case.
Walmart didn’t oppose Simons’ motion to leave the case but it wanted Moody to explain his whereabouts and continued affiliation with his firm, Williams Simons & Landis. Walmart also reported in its filing about Simons’ request to have all the case data copied, shipped to him and deleted.
Simons’ colleague Williams said in an Aug. 2 response that the law firm’s practice is to reduce litigation costs by taking down and saving online documents when they aren’t needed for litigation. He said he had practiced with Simons for 23 years.
“Regardless of the unsupported innuendo of Walmart’s response, I have consistently witnessed Mr. Simons’ observance of compliance with, and respect for the ethical standards that apply to our profession and our firm,” Williams wrote.
In August, Judge Moody denied Simons’ request to withdraw from the case.
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