STATE OF MINNESOTA

DISTRICT COURT

COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT

_________________________________________________________________________________

Mark Lanterman and

Computer Forensic Services,

Plaintiffs,

v.

Michael Roman Afremov,

Defendant.

_________________________________________________________________________________

The above-captioned matter came before the undersigned Judge of District Court

on March 25, 2014 and March 27, 2014 for a court trial and evidentiary hearing on

Counts II and III of the Complaint. Pursuant to the Court’s instructions, the parties

filed post-trial memoranda on April 18, 2014, whereupon the record was closed and the

matter was submitted.

Plaintiffs are represented by K. Jon Breyer, Esq., and Christopher D. Pham, Esq.

Defendant is represented by William R. Skolnick, Esq., and Andrew H. Bardwell,

Esq.

Based upon all the files, records, and proceedings herein, the Court makes the

following:

FINDINGS OF FACT

Introduction

1. Plaintiff Computer Forensic Services (“CFS”) is a Minnesota corporation.

Court File No. 27-CV-12-22089

The Honorable Philip D. Bush

FINDINGS OF FACT,

CONCLUSIONS OF LAW, AND

ORDER FOR JUDGMENT

Filed in Fourth Judicial District Court7/17/2014 2:26:20 PM

Hennepin County Civil, MN

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2. Plaintiff Mark Lanterman (“Lanterman”) is the founder and CEO of CFS.

While Lanterman sued individually, he has no legally recognizable individual claims.

3. Defendant Michael Afremov (“Afremov”) is a Minnesota resident.

4. CFS is seeking to be paid by Afremov over $800,000 for work allegedly

done by three people over a two-month period of time.1

5. CFS sued Afremov on three causes of action: Count 1: Breach of Contact;

Count 2: Promissory Estoppel; and Count 3: Unjust Enrichment.

6. A jury trial was held on Plaintiffs’ contract claim. At the close of Plaintiffs’

case, Afremov moved for a judgment as a matter of law on the contract claim, and the

Court took the matter under advisement. The jury awarded CFS $105,568.75. Post

trial, the Court granted judgment as a matter of law on the contract claim. This court

trial was held on the two equitable claims to add any additional testimony to the

record.

The AGA Litigation

7. Afremov was formerly a shareholder in and officer of AGA Medical

Corporation (“AGA”), a closely-held corporation that he co-founded in 1995. In 2002,

Afremov brought a lawsuit regarding AGA and its shareholders (“AGA Litigation”).

8. The AGA Litigation was venued in Hennepin County District Court and

assigned to Judge Patricia Karasov (“Judge Karasov”). Judge Karasov appointed former

Hennepin County District Court Judge John Borg as Receiver for AGA during the term

of the shareholder dispute.

1 On an annual basis, this amount would be $4.8 million dollars or $1.6 million dollars per worker.

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9. The Receiver retained Espiria, a computer consulting firm, to store and

analyze a large volume of data obtained from AGA. Lanterman, then an employee of

Espiria, performed those services at the Receiver’s request.

10. Lanterman later left Espiria, and the Receiver engaged Lanterman and

his new firm, CFS, to continue the work begun at Espiria.

11. The Receiver directed CFS to acquire AGA’s email servers and other

computers, perform diagnostic tests, produce documents requested by parties to the

lawsuit, and retain custody of AGA’s data.

12. CFS’s invoices for this work were submitted to the District Court for

review and approval. Each invoice was paid by AGA. CFS billed and was paid about $1

million dollars for its work over a few years.

13. In the fall of 2005, the AGA Litigation was settled.

14. On October 24, 2005, at the conclusion of the AGA Litigation, Judge

Karasov entered an Order (“Discharge Order”) discharging the Receiver and providing

a process whereby the parties to the AGA Litigation could have continued access to the

AGA data. Specifically, paragraph 5 of the Discharge Order provides:

Bassford, Remele (Company litigation counsel) shall retain and store the

Company’s litigation files relating to this action for a period of six years,

allowing the Company and Mr. Afremov access to such files, provided that

neither the Company, Mr. Afremov, nor any person other than the

Receiver or SLC [i.e., Special Litigation Committee] or their attorneys,

shall have access to writings reflecting interaction between the SLC

and/or the Receiver (or their counsel) with company litigation counsel,

which by their nature are privileged, confidential, or work product

(“Protected Items”) . . . . The SLC and Receiver shall have access to such

files at any time during the six-year period in connection with any

obligation they have to participate in, cooperate with, or testify in any

future action, civil or criminal, arising out of their service in this matter.

The costs resulting from the Bassford, Remele custody and administration

of the files and the access process, are properly payable by Plaintiff

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Afremov, except that the Company should pay all costs associated with

identification and segregation of the Protected Items and the costs

associated with its own access to such files.

(Ex. 5.) (Emphasis added.)

Afremov’s Criminal Charges and Request for Access to AGA Data

15. In June 2006, Afremov was indicted on federal criminal charges.

16. In early April 2007, Afremov’s criminal defense counsel called Lanterman

to inquire about obtaining AGA documents.

17. That request was followed by correspondence, dated April 18, 2007, from

Joseph Petrosinelli (“Petrosinelli”), one of Afremov’s criminal defense attorneys, to

Lanterman and CFS. The second paragraph of the letter states:

We note that on October 24, 2005, the trial court in the [AGA Litigation]

entered an Order concerning discharge of the Receiver, Mr. Afremov’s

right to continued access to AGA’s litigation files, and other matters.

Pursuant to that Order, Mr. Afremov will pay any costs, including

reasonable attorney’s fees, that you incur in connection with responding to

this request and the forthcoming subpoenas. Please send all bills for such

costs to my attention at the above number.

(Ex. 6.) (Emphasis added.)

18. Petrosinelli testified that, in stating that Afremov would pay CFS for any

“costs . . . incur[rred],” he intended to convey that CFS would be compensated for its

out-of-pocket costs.

19. Afremov’s counsel later served subpoenas upon Lanterman and CFS that

identified documents that they wanted. (Ex. 7.)

20. Because the Discharge Order prevented Afremov from obtaining AGA’s

privileged documents, Lanterman and CFS retained Scott Harris (“Harris”), an

attorney with Leonard, Street & Deinard, to review and segregate the documents

Afremov requested.

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21. Lanterman and Harris consulted with Afremov’s local counsel, Frank

Berman (“Berman”), and developed a list of search terms for searching the AGA data

for the requested documents. (Ex. 8.)

22. Afremov’s counsel understood that CFS’s work would consist simply of

running the search terms on the AGA data already in its possession pursuant to the

Discharge Order.

23. At the initial meeting, Lanterman and Afremov’s counsel all believed the

AGA data was stored on CFS’s server in ready to access format. Lanterman testified

that he did not know whether the AGA data had been removed from CFS’s server when

he received the April 18, 2007 letter from Petrosinelli or when he retained Harris.

Indeed, during the evidentiary hearing, Lanterman testified that he was “surprised”

the “data had been deleted2.” At that time, CFS was charging $7,400 per month to AGA

for allegedly storing the data on its secure server3. Even though it would massively

increase the cost the project (by over a half million dollars), Lanterman and CFS never

advised Afremov’s counsel that the AGA data had allegedly been removed from CFS’s

server and would have to be reloaded.

2 CFS has two separate servers: production and storage. This deletion reference must mean

production server because Lanterman later testified that the AGA data always remained on the

storage server. 3 The storage charges culminated in litigation between AGA and CFS that ultimately reached the

court of appeals. See Afremov v. Amplatz, A09-1157, 2010 WL 2035732 (Minn. Ct. App. May 25,

2010). According to the court of appeals decision, in May 2006, CFS wrote a letter to AGA stating

that “[t]he imaged data is being stored on our secure servers” and offering to store the data for a

monthly fee. AGA refused to pay the monthly fee, and CFS moved, in the AGA Litigation, for an

order requiring AGA to pay the storage fees. The district court awarded $7,400 per month for storage

but did not require AGA to pay storage fees for a period of time following the April 18, 2007 letter

from Petrosinelli. The court of appeals reduced the monthly award from $7,400 to $3,000 for a total

of $105,000 to store the data on the secure servers. It would not be reasonable to charge either

$7,400 per month or $3,000 per month for simply storing the data offline on a couple of boxes full of

DVD spindles.

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24. On June 15, 2007, CFS issued an invoice in the amount of $674,861.08.

This figure included $628,737.33 for CFS’s services and $46,123.75 in attorney fees for

the privilege review conducted by Leonard, Street & Deinard.4 (Ex. 15.)

25. The invoice issued by CFS was not based on out-of-pocket costs, and it

was not strictly based on hours expended by analysts or other people. Rather, the

invoice included a significant profit margin, and it was based largely on flat rate

charges for a given item of work.

26. Before Afremov’s counsel received the CFS invoice, Harris called

Afremov’s counsel Berman. When Harris learned that Berman was driving, Harris told

him to pull over. Once Berman pulled over, Harris told him that Afremov would be

receiving a bill from CFS for over $600,000. Berman was shocked and told Harris that

CFS should stop its work immediately.

27. Berman thought it would be improper for CFS to gain a profit from the

subpoena since he viewed CFS as a fact witness in a criminal federal proceeding.

28. Shortly after the invoice was issued, Lanterman and CFS were told to

stop working on the project by Afremov’s counsel. CFS stopped work around June 25,

2007.

29. On July 11, 2007, Harris sent Afremov’s counsel a letter confirming his

understanding that the Discharge Order provided Afremov with a right of access to the

AGA data “separate and apart from the referenced subpoenas, so long as he pays any

costs, including reasonable attorney’s fees, incurred by Mr. Lanterman and Computer

Forensic Services in providing access to those records held by them.” (Ex. 107.) Harris’

letter further stated: “[W]e are prepared to afford you and your client access to those 4 The attorney fees have been paid.

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AGA records in advance of your September 10, 2007 trial date, based on your assurance

to pay my clients their reasonable and appropriate costs incurred in providing you

access to the requested records.” (Id.) (Emphasis added.)

30. Afremov’s counsel paid $257,858.09 to Leonard Street & Deinard for their

review of the documents produced from the search. (Exs. 20, 27, 33.) Afremov and his

counsel refused to pay Lanterman and CFS for the invoice submitted by CFS. Afremov’s

counsel offered, however, to pay for CFS’s out-of-pocket costs incurred in performing the

work.

31. On May 7, 2008, CFS issued a second invoice in the amount of $178,850.

(Ex. 18.) The second invoice was accompanied by a letter from CFS’s attorney, John

Bonner, stating that the invoice is “for work performed after June 15, 2007.”

32. The second invoice also was not paid. None of the work product

comprising the second invoice was ever provided to Afremov’s counsel.

33. On March 19, 2008, Afremov pled guilty to two counts of making false

statements on tax returns and one count of conspiracy.

Work Allegedly Performed by CFS, Claimed Fees, and Lack of

Documentation and Disclosures

34. CFS has presented five documents that allegedly show the work

performed.

35. The first two documents are invoices dated June 15, 2007 (“First Invoice”).

(Ex. 15.) and a second invoice dated May 7, 2008 (“Second Invoice”). (Ex. 18.)

36. The third document is a spreadsheet listing the electronic devices for

which CFS had AGA data and allegedly recording submittals of that data to Leonard,

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Street & Deinard (“Device Spreadsheet”).5 (Ex. 10.) According to Lanterman, an entry

in one of the “Email Search” columns reflects the submittal of data with the date of

submittal in parentheses, and a “pending” designation in the parentheses means that

data was generated but never submitted. The fourth document is a spreadsheet

identifying the data submitted to Leonard, Street & Deinard and specifying the date of

submittal (“Submittal Spreadsheet”). (Ex. 9.) The Submittal Spreadsheet is allegedly a

summary of the submittals recorded in the Device Spreadsheet.

37. The fifth document is a purported email, dated July 18, 2007, from Mark

Ledbetter (“Ledbetter”), then CFS’s operations manager, to Lanterman, in which

Ledbetter allegedly identifies the hours of human time and computer time that were

expended searching the data from various specified devices (“Ledbetter Email”). (Ex.

17.)

38. When performing work on behalf of Afremov, CFS’s employees were

supposed to record their time in 15-minute increments on paper. CFS destroyed all of

those alleged time records even though (a) Lanterman had billing disputes in the past

and (b) the prospect of a billing dispute with Afremov was plainly evident less than two

months into the project.

39. CFS charged $275 per hour for analyst time. No testimony was offered as

to the breakdown of the $275 per hour. Presumably, the hourly rate covers labor (about

$50 per hour), benefits, overhead (rent, utilities, insurance and computer equipment

etc.), and a profit. The Court assumes, given the high hourly rate, that part of the

overhead is the expensive computer systems that CFS must use to do its work. It is not

5 The data was submitted to Leonard, Street & Deinard rather than Afremov’s counsel so that the

privilege review could be conducted.

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reasonable to double charge for that equipment as part of the hourly rate and as a

separate $275 for computer run time.

40. CFS also charged $275 per hour for computer run time. Computer time

was allegedly recorded to the second. However, apart from the invoices, CFS has not

produced or presented any written record of the amount of computer run time expended

on behalf of Afremov. The smallest time increment on an invoice or record produced by

CFS was a quarter hour.

41. The invoices do not distinguish human time from computer run time.

42. CFS called an expert, Brett Harrison (“Harrison”), to testify about the

reasonableness of CFS’s invoices. The Court does not find that testimony persuasive

because the project he described was the cost of a forensic computer company new to

the data and devices. CFS had already extracted the data and was storing it on its

server.

43. CFS has offered no testimony through Harrison or otherwise that it is

reasonable in the industry to charge separately for computer run time in addition to the

worker’s human time.

44. CFS allegedly stored the AGA data on three different media: (a) its

storage server; (b) approximately 1,000 DVD’s; and (c) approximately 25-30 tapes.

45. CFS has one production server (“Production Server”). According to

Lanterman, the Production Server is used to search or otherwise work with data.

46. Only three people at CFS worked on the AGA data for Afremov. One of

the three people was Lanterman. Another was a CFS employee named Robert Scanlon

(“Scanlon”). The third person, Matt Willis (“Willis”), who was not an employee of CFS;

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rather, he sometimes provided assistance to CFS, when available, in exchange for the

use of a free office.

47. Willis did not testify, and CFS has maintained no records of the number

of hours Willis worked on the Afremov project. For purposes of this analysis, it is

reasonable to infer that Willis would have worked at most half time (i.e., 20 hours per

week) in exchange for a free office. At $275 per hour, that would mean that CFS was

receiving $22,000 per month in billable time as rent for one free office. 6 The Court will

also give CFS the benefit of the doubt and assume that Willis worked 20 hours a week

and all of Willis’ work was on the Afremov project, although it may well have been on

other work CFS was doing at the time.

First Invoice

48. The First Invoice includes charges of $628,737.33 for CFS’s services.

49. The First Invoice is dated June 15, 2007. The letter from Petrosinelli is

dated April 18, 2007. Accordingly, the services underlying the First Invoice occurred

over a time period of at most 59 days. The charges of $628,737.33 thus translate to

$10,656.56 per day, including Saturdays, Sundays and Memorial Day. Assuming that

all the work was billed at the rate of $275 per hour rather than any flat fee, the charges

of $628,737.33 translate to 2,286 hours or 38.75 hours per day. The First Invoice, on an

hourly rate, means that Lanterman and Scanlon each must have worked 17.9 hours a

day on the Afremov project for 59 days straight with no break. 7

6 $275 times 20 hours per week equals $5,500 per week; $5,500 times 4 weeks equals $22,000 per

month. 7 2,286 total hours minus 170 hours for Willis (i.e., 20 hours a week for 8.5 weeks) equals 2,116 or

1,058 hours each. That number of hours divided by 59 days is 17.9 hours per day

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50. CFS produced no time or pay records of Scanlon to document that he

worked more than a 40 hour week and, if so, how many hours he was paid.

51. In addition to the Afremov project, CFS had other clients and work during

this period. Also, Lanterman is the CEO of the company with other administrative

duties and responsibilities in addition to working as an analyst on the Afremov project.

52. The actual human time expended is a complete unknown since CFS

destroyed all of the time records, the invoices do not distinguish between computer time

and human time, and neither Scanlon nor Willis testified at trial.

Flat fees

53. The First Invoice includes flat fee charges of $99,475 for allegedly loading,

decrypting, and verifying the AGA data from 10 servers, 84 hard drives, 13 DVD’s, and

21 CD’s. CFS charged the following flat fees for that work: (a) $1,000 per server and

hard drive; (b) $300 per DVD; and (c) $75 per CD.

54. None of that work would have been necessary if the AGA data had been

maintained on the Production Server. Lanterman testified that it would have been

unreasonable to maintain the AGA data on the Production Server because the data

would take up space and would not be encrypted. As with much of Lanterman’s

testimony, his testimony on that point is not credible. His testimony regarding storage

space is not credible because CFS was charging $7,400 per month to AGA to store the

data on a secure server. His testimony regarding encryption is not credible because, if

Lanterman had genuine concerns regarding encryption, he would not have been

“surprised” that the AGA data was no longer on the Production Server.8

8 According to Lanterman’s testimony, he was not the one who “deleted” the data, which further

undermines his alleged concern regarding encryption.

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55. Loading the data allegedly consisted of placing a series of DVD’s into the

drive of the Production Server and copying the data to the Production Server. Instead of

loading the data onto the Production Server from the storage server or 25-30 tapes,

CFS allegedly loaded the data onto the Production Server from approximately 1,000

DVD’s. According to Lanterman, it was more efficient to load the data from 1,000 DVD’s

than from 25-30 tapes or a single storage server9.

56. Verification consisted of making sure that the number of data chunks

loaded onto the Production Server matched the number of data chunks that were being

stored on the DVD’s.

57. Decryption consisted of decrypting the data chunks.10

58. The final stage of the process was validation, which according to

Lanterman is the most time-consuming aspect of the process even though it is the one

stage of the process not referenced on the invoice. Validation consisted of generating a

“hash value” from the uploaded data to make sure that it matched the hash value that

was recorded from the original image of the data.

59. CFS charged a flat rate fee for loading, decrypting, and verifying data

from the various devices. Lanterman claims that the client benefits from flat rate fees

because the cost remains the same regardless of how much analyst time is expended.

However, the First Invoice includes 68 hours of analyst time for “data load, decryption,

and verification.” Since the First Invoice includes both a flat rate fee and analyst time

for that process, either the benefit of that flat rate fee is entirely illusory, or CFS is

9 There was no credible testimony as to what beneficial role, if any, storing the data on a “secure

storage server” would have (billing AGA at $7,400 per month) if it could not be used to efficiently

access the stored data when needed. 10 Lanterman did not describe the decryption process in any particular detail.

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double billing. Lanterman could not explain why the First Invoice included 68 hours of

analyst time for “data load, decryption, and verification” when that process is allegedly

covered by the flat rate fee.

60. According to Lanterman, the human time required to load, verify and

decrypt the data from hard drive varies, on average, from 15 minutes to a couple hours

depending on the size of the hard drive. Thus, given a flat rate fee of $1,000 per hard

drive, the flat rate fee entails an effective hourly rate for analyst time ranging between

$500 and $4,000.11 This is 2-14 times the analyst hourly rate of $275.12

61. Even if one accepts the premise that it sometimes takes “several hours” to

load, verify, and decrypt a hard drive,13 the flat rate fee is not beneficial to the client

even under the most time-consuming scenario because 3 hours (i.e., several hours) at

$275 per hour is $825 and thus considerably less than $1,000. The flat rate fee would

not be beneficial to the client unless the analyst time to load, decrypt, and verify the

data from a hard drive averaged more than 3.6 hours. Lanterman’s testimony that a

flat rate fee is “more beneficial” for the client is not credible.

11 For those hard drives taking a couple hours to load, verify, and decrypt, the hourly rate is $500

(i.e, $1,000/2 hours). For those hard drives taking 15 minutes to load, verify, and decrypt, the hourly

rate is $4,000 (i.e., $1,000/0.25 hours). 12 In making that calculation, the Court is rejecting the premise that computer time warrants an

hourly charge on top of analyst time. 13 Lanterman offered this testimony in response to a question from his attorney using the figure

“several hours.” However, in the testimony preceding that question, Lanterman testified that it

sometimes took a “couple” hours, not “several” hours. A couple generally denotes two, while several

denotes three or more.

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62. Lanterman does not have any documentation of what devices were

uploaded. Rather, he allegedly knows and recalls what devices were uploaded even

though some of the work was being performed by other people14.

63. The Device Spreadsheet (Ex. 10) is reported to be a comprehensive list of

AGA devices. When asked to identify on the Device Spreadsheet the 84 hard drives that

were allegedly uploaded, Lanterman was only able to identify at most 62 devices.15

64. When identifying on the Device Spreadsheet the “hard drives” that were

allegedly uploaded, Lanterman’s testimony included “memory sticks” which he billed as

a “hard drive” at a flat rate fee of $1,000 even though memory sticks store significantly

less data than the smallest hard drive.

65. Plaintiff has the burden of proof as to the work that they performed.

There were not 84 AGA hard drives in CFS’s possession. It is not credible that

Lanterman and CFS uploaded 84 hard drives

Mailbox Extraction

66. The First Invoice includes charges of $424,600 for allegedly extracting 386

mailboxes at a flat rate of $1,100 per extraction.

67. Mailbox extraction consists of loading an exchange database or EDB onto

the Production Server, opening the database using special software, extracting the

mailbox for each custodian or user, and generating a searchable index using the special

14 This work occurred seven years ago with, at best, sparse recordkeeping. Since that time,

Lanterman has had hundreds of clients with many tens of thousands of devices. His “recall” of the

non-documented details is questionable. 15 The Court is not counting devices that Lanterman identified as a server in his immediately

preceding testimony since they were billed separately. The Court is giving Lanterman the benefit of

the doubt and counting those devices where Lanterman testified that he could not recall whether it

had been uploaded but thought they might have been.

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software. Once the index is created, searches can be performed. At that point, according

to Lanterman, the searches “go pretty quickly.”

68. At the inception, Afremov’s counsel, Lanterman, and CFS did not realize

that the mailboxes would need to be extracted since none of the parties knew that the

AGA data had allegedly been removed from the Production Server.16 Moreover,

Lanterman and CFS never advised Afremov’s counsel that the mailboxes allegedly

needed to be re-extracted even though the process entailed a charge in excess of

$400,000.

69. Even though CFS was charging a flat rate fee for mailbox extraction, the

First Invoice also includes 278.25 hours of time for “Data Analysis: Email compilation”

at the rate of $275 per hour for a total charge of $76,518.75.

IRS Data Disk

70. Before Afremov was criminally charged in federal court, the IRS had

conducted an investigation that included many documents from AGA. The IRS used

CFS to obtain those documents.

71. Lanterman made a copy of the documents on a DVD and kept the disc in a

desk drawer. Afremov’s defense counsel naturally wanted a copy of those documents

that had already been extracted from the AGA data.

72. The First Invoice includes, under the heading “Deliverable 1: IRS

Documents,” six hours of “[d]ata analysis” and one hour of “[d]eliverable preparation”

for a total charge of $1,925. Lanterman’s testimony at trial established that the work

16 Lanterman testified that the mailboxes were extracted in connection with the AGA Litigation.

Also, as previously noted, CFS was charging $7,400 per month to AGA for storing the data on its

secure server.

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comprising that entry consisted simply of copying the disc and delivering it to Leonard,

Street & Deinard.

73. There was no data analysis of the IRS Disc by Lanterman. CFS thus

charged Afremov for six hours of work ($1,650) that was never actually performed.

Recordkeeping on Data Transmittal

74. According to the Submittal Spreadsheet, CFS submitted search results to

Leonard, Street & Deinard on May 3, 2007; May 18, 2007; and June 5, 2007. CFS

delivered a very large volume of data to counsel for privilege review. After the review,

Afremov’s counsel received about 1200 pages of documents.

75. The submittal dates in the Submittal Spreadsheet do not correspond with

the submittal dates in the Device Spreadsheet even though the former is allegedly a

summary of the latter. Specifically, the Submittal Spreadsheet shows a submittal on

May 18, 2007. According to Lanterman, the submittal on May 18, 2007 was the largest

submittal, but the Device Spreadsheet makes no reference to a submittal on that date.

76. There is a cover letter for the submittals on May 3, 2007 and June 5,

2007. (Exs. 12, 14.) There is no cover letter for the alleged submittal on May 18, 2007.

However, Leonard, Street & Deinard’s billing records do refer to “receipt and review of

data supplied by client” in an entry dated May 18, 2007. (Ex. 105.)

77. CFS did not maintain a list of what devices had been searched, who

searched them, when they were searched or how long the search took.

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Second Invoice

78. The Second Invoice is for $178,850.17 (Ex. 18.) The Second Invoice itemizes

hours that were allegedly expended searching various specified devices. According to

Lanterman, the hours listed include both human time and computer time, but there is

no way to differentiate between the two.

79. The cover letter accompanying the Second Invoice states that it is “for

work performed after June 15, 2007.” Since work stopped on June 25, 2007, the Second

Invoice represents work performed over an 11-day period (i.e., between June 15, 2007

and June 25, 2007), which translates to a daily charge of $16,259 (including Saturday

and Sunday). To calculate this on a daily hourly basis, the Court first subtracts Willis’

half-time work over 1 ½ weeks (i.e., 30 hours). That would mean that Scanlon and

Lanterman would each have had to have worked more than 28 hours per day for each of

the eleven days.18

80. Giving CFS the benefit of the doubt, the Court will analyze the Second

Invoice as if the work allegedly done was done from the beginning of the project until

June 25, 2007 (70 days). This would mean that Scanlon and Lanterman would each

have had to have worked about 4.5 hours per day for 7 days a week. These hours would

be in addition to the 17.9 hours per day that they were allegedly already working on the

First Invoice. Working 22.4 hours a day for weeks on end is not credible.

81. CFS never submitted any data generated from the alleged work

underlying the Second Invoice.

17 CFS apparently erred in calculating total charges because 654 hours are listed and 654 hours at

an hourly rate of $275 totals $179,850.00, not $178,850. 18 654 hours minus 30 hours equals 624 hours; 624 hours divided by 11 days equals 56.7 hours per

day; 56.7 hours per day divided by 2 people equals 28.35 hours per day per person.

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82. Even though CFS allegedly recorded and charged for human time in

quarter hours and computer time in seconds, the Second Invoice does not have a single

fraction of an hour for any of the 18 entries. Lanterman could not provide any

explanation for that extremely unlikely coincidence.19

83. According to the Second Invoice, it took 141.0 combined hours of human

time and computer time to search the “Peterson Computer.” That amount of hours

equates to nearly 3.5 weeks of full-time work on just one computer. Also, according to

the Second Invoice, among the computers allegedly searched were the receiver Judge

Borg’s two computers.

84. The Second Invoice lists 18 devices. Of those 18 devices, 12 of them do not

even have a “pending” submission in the Device Spreadsheet. (Ex. 10.) There is no

credible evidence that 12 of the 18 devices were ever worked on.

85. According to the Second Invoice and Lanterman’s testimony, it took

exactly 4.0 combined hours of human time and computer time to search three separate

DVD’s (even though they may well have contained different amounts of data) and a CD

even though a CD has significantly less storage capacity. This is not credible

86. The Second Invoice (Ex. 18) was prepared by Benjamin Green (“Green”),

who was then CFS’s operations manager. Green credibly testified that he was

concerned about the validity of the bills sent out by CFS, including the Second Invoice.

Green testified when he prepared the Second Invoice in May 2008 he could find no

19 The odds of that happening by chance are astronomically small. For time recorded in 15-minute

increments, there are four possibilities for the final digit(s): .0; .25; .5; and .75. Accordingly, the

probability of having all 18 entries end in a whole number is 0.2518 (about a one in 68 billion chance).

For computer time recorded to the second, the likelihood of all 18 entries being only whole numbers

by chance is vanishingly small.

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records of the number of hours of work so the size of each of the drives or disks was

used as a stand-in for the number of hours worked.

87. Lanterman testified that the hours set forth in the Second Invoice were

allegedly derived from the Ledbetter Email (Ex. 17.) The Ledbetter Email simply lists

18 devices followed by a number. It does not say what the number represents. There is

no breakdown between human time and computer time and no accompanying text

apart from “Here you go.” (Id.) The Court finds Exhibit 17 suspect and lacking in

credibility. 20

88. The Court finds the Second Invoice to be not credible or reliable.

Lanterman’s Lack of Credibility

89. The Court has significant doubts about Lanterman’s credibility about

billing issues based on the lack of disclosure, the lack of documentation, the apparent

double billing (i.e., charging a flat rate fee and an hourly fee for loading, decrypting,

and verifying data), the significant questions raised by what little documentation does

exist, Green’s testimony, and other factors. There are additional reasons to question

Lanterman’s credibility.

90. Harris, CFS’s former attorney, was called as a witness for Lanterman.

Under cross examination about Lanterman’s reputation for integrity and business

billing, Harris credibly testified that Lanterman’s reputation for integrity is highly

questionable and Lanterman’s reputation among law firms raise serious questions

about his billing practices.

20 Exhibit 17 could be a paper print out of an email. Based on its appearance, it also could be word

processed document typed to look like an email printout. Because CFS is unable to verify its

authenticity based on its electronic records, the Court can make no clear decision on its reliability.

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91. In a federal court proceeding regarding the disputed invoices, Lanterman

testified to a federal Magistrate Judge that he had 11 people working on the Afremov

project. It has since been established that only three people were working on the

Afremov project.

92. In that same proceeding, Lanterman testified unequivocally that, as of

June 15, 2007, 1,500 hours of human time had been spent on the Afremov project21.

Lanterman would have no basis for making that representation insofar as the time

records were destroyed. When confronted with the fact that he only had, at most, three

people working on the Afremov project, he tried to soften this and said that the 1,500

hours was both human and computer time. What little documentation there is does not

distinguish human time from computer time.

93. The Court concludes that billing for computer run time is a fiction that

Lanterman used to avoid the problems created by his false testimony in federal court

that he had 11 people working full time 24 hours a day in shifts on the Afremov project

for a total of 1,500 human work hours. To explain away the fact that there were not

enough people working on the project to come anywhere close to account for an

21

In the federal court proceeding, Lanterman testified as follows in response to questioning by

United States Magistrate Judge Sue Nelson:

The Court: So when you say 1,500 hours, is that an individual’s time, or is that a

combination of an individual working or 11 individuals working and the machines working, if

you will?

Mr. Lanterman: No. That’s human time.

The Court: That human time.

Mr. Lanterman: Yes.

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$800,000 bill, Lanterman later unbelievably testified that the hours were both human

and computer run time.

CONCLUSIONS OF LAW

1. The Complaint sets forth three causes of action: breach of

contract (Count I); promissory estoppel (Count II); and unjust enrichment (Count III).

2. The Court granted judgment as a matter of law dismissing Count I.22 Both

of the remaining claims – promissory estoppel and unjust enrichment – are equitable in

nature. They were tried to the Court without a jury.

Unclean Hands Doctrine

3. A party seeking equitable relief “must come with clean hands.” Gully v.

Gully, 599 N.W.2d 814, 825 (Minn. 1999) (“Hruska v. Chandler Assocs., Inc., 372

N.W.2d 709, 715 (Minn. 1985)). Accordingly, under the doctrine of unclean hands,

equitable relief may be withheld from a party whose “conduct has been unconscionable

by reason of a bad motive, or where the result induced by his conduct will be

unconscionable either in the benefit to himself or the injury to others.” Johnson v.

Freberg, 178 Minn. 594, 597-98, 228 N.W. 159, 160 (1929).

4. Afremov argues that this Court should withhold equitable relief from CFS

based on the doctrine of unclean hands. In making that argument, Afremov notes that

(a) Lanterman made misrepresentations to the federal court by claiming that CFS had

11 people working on the Afremov project when, in reality, only three people were

working on the project; (b) CFS failed to maintain contemporaneous time records and

destroyed whatever time records may have existed; and (c) Lanterman failed to provide 22 The basis for that ruling is explained in the attached Memorandum.

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any cost estimate to Afremov’s counsel even though he allegedly expected the cost to

total nearly $1 million.

5. Lanterman and CFS arguably have unclean hands based on the conduct

cited by Afremov and the pecuniary motive underlying that conduct. Nevertheless, the

doctrine of unclean hands should not be applied to withhold any relief from CFS

because (a) the offending conduct was ancillary to the conduct for which CFS seeks

equitable relief; (b) the most egregious conduct (i.e., the misrepresentation in federal

court) occurred after CFS had performed the work for which it seeks equitable relief;

and (c) CFS is entitled to some relief for the work it performed on behalf of Afremov.

Promissory Estoppel

6. “Promissory estoppel is an equitable doctrine that ‘impl[ies] a contract in

law where none exists in fact.’” Martens v. Minnesota Min. & Mfg. Co., 616 N.W.2d 732,

746 (Minn. 2000) (quoting Grouse v. Group Health Plan, Inc., 306 N.W.2d 114, 116

(Minn. 1981)). Application of the doctrine “requires proof that that 1) a clear and

definite promise was made, 2) the promisor intended to induce reliance and the

promisee in fact relied to his or her detriment, and 3) the promise must be enforced to

prevent injustice.” Id.

7. Recovery on a promissory estoppel claim is properly “limited to damages

measured by the promisee’s reliance.” Grouse, 306 N.W.2d at 116. Accordingly, the

standard measure of damages is “the party’s out-of-pocket expenses made in reliance on

the promise.” Dallum v. Farmers Union Cent. Exch., Inc., 462 N.W.2d 608, 613 (Minn.

Ct. App. 1990). Awarding expectation damages is not appropriate. See, e.g., Gorham v.

Benson Optical, 539 N.W.2d 798, 802 (Minn. Ct. App. 1995).

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8. In this case, the alleged promise is contained in the April 18, 2007 letter

in which Petrosinelli stated that Afremov would pay “any costs, including reasonable

attorney’s fees, that you incur in connection with responding to this request and the

forthcoming subpoenas.” (Ex. 6.) (Emphasis added.) Given the language of the promise,

applying the standard measure of damages (i.e., out-of-pocket costs) is especially

appropriate in this case.

9. Plaintiffs have not determined what costs they incurred in working on the

Afremov project, and they have not presented any evidence of those costs. Accordingly,

Plaintiffs are not entitled to any recovery on their promissory estoppel claim even if the

three elements are satisfied.23

Unjust Enrichment

10. Unjust enrichment is an equitable right of recovery. See, e.g., Southtown

Plumbing, Inc. v. Har-Ned Lumber Co., Inc., 493 N.W.2d 137, 140 (Minn. Ct. App.

1992). Recovery on an unjust enrichment claim requires a showing that “another party

knowingly received something of value to which he was not entitled, and that the

circumstances are such that it would be unjust for that person to retain the benefit.”

Schumacher v. Schumacher, 627 N.W.2d 725, 729 (Minn. Ct. App. 2001) (citing

ServiceMaster of St. Cloud v. GAB Bus. Servs., Inc., 544 N.W.2d 302, 306 (Minn. 1996)).

11. Afremov raises two arguments in opposing any recovery on the unjust

enrichment claim. First, Afremov argues that he and his counsel did not do anything

illegal or morally wrong in serving the subpoenas and obtaining documents from CFS.

That argument does not defeat the unjust enrichment claim because, even though

23 The one element in doubt is whether the promise must be enforced to prevent injustice. That

element is in doubt largely because all along Afremov’s counsel have offered to reimburse Plaintiffs

for their out-of-pocket costs. (Ex. 111.)

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Afremov and his counsel did not do anything illegal or immoral in obtaining the

documents, it would be morally wrong for Afremov to obtain those documents through

the efforts of CFS without any compensation to CFS. See Schumacher, 627 N.W.2d at

729 (“[T]he cause of action for unjust enrichment has been extended to also apply

where, as here, the defendants’ conduct in retaining the benefit is morally wrong.”).

12. Second, Afremov argues that he obtained no benefit from the efforts of

CFS because, according to Petrosinelli, the documents were not of any use in his

defense. That argument is unavailing because obtaining the documents was beneficial

in itself insofar as Afremov and his counsel were able to review the documents and

determine whether they were helpful to Afremov’s defense. In other words, knowledge

that the documents were not helpful was beneficial because Afremov and his counsel

could rest assured that the documents had no significant bearing on his case. To draw

an analogy, if a property owner suspects he is living on an oil field and asks a drilling

company to explore the property for oil, the property owner has benefitted from the

drilling company’s efforts even if no oil is discovered because those efforts have satisfied

the property owner’s inquiry.

13. CFS is entitled to recover on its unjust enrichment claim because Afremov

obtained some benefit from CFS’s production of AGA documents and it would be unjust

to allow Afremov to retain that benefit without any compensation to CFS.24

14. The more difficult issue is the amount that CFS may recover for unjust

enrichment. “[R]ecovery for unjust enrichment is based upon what the person enriched

24 CFS, rather than Lanterman, is the party entitled to recovery on the unjust enrichment claim

because (1) the documents were not produced solely through Lanterman’s efforts and (2) given the

lack of any time records, it is impossible to determine which, if any, documents were produced

through Lanterman’s efforts.

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has received rather than what the opposing party has lost.” Anderson v. DeLisle, 352

N.W.2d 794, 796 (Minn. Ct. App. 1984). The Court approaches that issue by reference to

the invoices

15. The First Invoice includes $99,475 in flat rate fees for data load,

decryption, and verification. The Court is not allowing any recovery on those flat rate

fees for four reasons. First, Afremov and his counsel had no idea that the AGA data

needed to be loaded onto the Production Server. Moreover, even though Lanterman did

not realize the AGA data had been “deleted” when he received the April 18, 2007 letter

from Petrosinelli, Lanterman never advised Afremov’s counsel that the data needed to

be uploaded at a massive cost. Under those circumstances, even if the uploading

actually occurred, it is not unjust for Afremov to retain the benefit of that service

because he never requested the service and never knew that it would be provided.

Second, Lanterman and CFS never advised Afremov’s counsel that CFS would be

charging a flat rate fee for the service, and the flat rate fee charged by CFS is not

reasonable insofar as it produces an hourly rate for human time ranging between $500

and $4,000.25 Additionally, given the lack of any time records, it is impossible to

determine an actual hourly rate. Third, since the First Invoice also includes an hourly

charge for “data load, decryption, and [v]erification,” the flat rates are at least

somewhat, if not entirely, duplicative of other charges on the First Invoice. Fourth,

when asked to refer to the Device Spreadsheet, Lanterman could not identify all of the

devices that were allegedly uploaded to the Production Server. For example, CFS

charged Afremov for uploading 84 hard drives, but Lanterman could identify, at most,

25 There may be some type of computer services that warrant an hourly rate in that range, but given

Lanterman’s description of the process, the uploading work is not particularly complex or

sophisticated.

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62 “hard drives” that were allegedly uploaded. Thus, Afremov received no benefit from

a significant amount of work that was billed but was not performed.

16. The First Invoice includes charges of $424,600 for allegedly extracting 386

mailbox extractions at a flat rate fee of $1,100 per extraction. The Court is not allowing

any recovery on those charges for three reasons. First, Afremov and his counsel had no

idea the mailboxes needed to be extracted, and Lanterman never advised Afremov’s

counsel that the mailboxes needed to be extracted even though (1) he himself did not

realize the AGA data had been “deleted” from the Production Server when he received

the April 18, 2007 letter from Petrosinelli and (2) the alleged extraction entailed a

charge in excess of $400,000. Under those circumstances, even if the extractions

actually occurred, it is not unjust for Afremov to retain the benefit of that service

because he never requested the service and never knew that it would be provided.

Second, given the lack of any time records, the Court has no basis for determining

whether the extraction charges are reasonable. Third, the First Invoice also includes

278.25 hours for “Data Analysis: Email compilation” (i.e., over six weeks of full-time

employment at an hourly rate of $275), and given the lack of time records or other

documentation provided by CFS, the Court has no means of determining whether those

charges are duplicative of the extraction charges arising from the flat rate fee.

17. The balance of the First Invoice, (excluding attorney fees payable to

Leonard, Street & Deinard), is for $104,662.33. Those charges are based primarily on

an hourly rate of $275. The Court is allowing recovery on the balance of the First

Invoice, minus 6 hours for IRS data analysis that was not performed, as the most

capable measure of the benefit that Afremov received from CFS’s services because the

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balance of the First Invoice, given the use of hourly rates, best reflects the value of the

services that were provided. The Court has some reluctance to use the hourly balance of

the First Invoice as a measure of damages given the lack of documentation, the

supposed charge for computer time, and Lanterman’s overall lack of credibility.

Nevertheless, given the services that were provided to Afremov and the value of

receiving those services, CFS is entitled to some compensation. The time-based charges

on the First Invoice afford the best alternative for measuring the value of those services

given the state of the evidence.

18. CFS may have spent more than (or less than) $104,000 in labor hours on

the Afremov project but they have failed to document this. They are seeking equitable

relief with arguably unclean hands. The Court considers the amount it is awarding to

be a fair and reasonable measure of the benefit received by Afremov for the work that

was actually performed by CFS.

19. The Court is not using a unit based measure of damages for a number of

reasons. First, the number of units serviced is in doubt and clearly it is less than CFS

billed for. Second, CFS’s unit charge grossly inflates its hourly rate and is not

reasonable in equity. Third, while CFS called an expert about the reasonableness of the

charges, his testimony is not persuasive because the scale of the project he testified

about is substantially different than the one that CFS performed. Harrison testified

about what it would cost if an outside expert who did not have the AGA data on its

machine. CFS had, or should have had, the AGA data on its server. CFS provided no

expert testimony on what it would reasonably cost to search the documents for the

terms in question that were or should have been on its production server.

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20. The Second Invoice is for $178,850. The Court is not allowing any

recovery on the Second Invoice for a number of reasons. First, the data and documents

generated by those alleged services were never delivered to Afremov, and he never

received any benefit from those services. Second, based on the Findings of Fact, the

Court has very serious doubts that some or all of the work was actually performed.

Certainly CFS has failed to meet its burden of proof that it performed these services.

Third, the Second Invoice was not issued until a year after the work was allegedly

performed. During that year, neither Lanterman nor his counsel told Afremov that CFS

had done additional work and intended to bill for it. The timing of the invoice (between

the two federal court hearings about the bill) suggests that the last invoice may have

had some other purpose. Based on principles of equity, CFS is not entitled to any

recovery based on the Second Invoice.

21. For those reasons, the Court is awarding $103,012.33 to CFS on the

unjust enrichment claim. This amount includes the hourly charges in the First Invoice

minus the 6 hours of billing for data analysis on the IRS disk that clearly was not done

(374.25 hours at $275 equals $102,918.75) and $93.58 in courier fees.

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ORDER

1. On Count III of the Complaint, Plaintiff Computer Forensic Services shall

have judgment against Defendant Michael Roman Afremov for the principal amount of

$103,012.33 plus prejudgment interest at the statutory rate from October 8, 2012.

2. Counts I and II of the Complaint are hereby dismissed with prejudice.

3. The attached Memorandum is made a part hereof.

LET JUDGMENT BE ENTERED ACCORDINGLY.

BY THE COURT:

Dated: July 17, 2014

Philip D. Bush

Judge of District Court

07/17/2014 02:11:28 pm

SigPlus1

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MEMORANDUM

The Court is attaching this Memorandum to further explain the basis for

granting judgment as a matter law on the breach of contract claim and to address some

of the arguments raised by Plaintiffs in their post-trial memorandum.

Breach of Contract

“A contract requires a meeting of the minds concerning its essential elements.”

Minneapolis Cablesystems v. City of Minneapolis, 299 N.W.2d 121, 122 (Minn. 1980). In

this case, there was no meeting of the minds on two essential terms: (1) the scope of the

work to be performed by CFS and (2) the compensation to be paid to CFS.

There was no meeting of the minds on the scope of the work to be performed by

CFS because, as of April 18, 2007, neither Afremov and his attorneys nor CFS and

Lanterman knew that the AGA data was not in a searchable format and would have to

be recreated. Of the $628,737.33 in charges on the First Invoice, at least $524,075 was

charged for recreating the data into a searchable format – $99,475 for allegedly

uploading the data from various devices to the Production Server and $424,600 for

allegedly extracting mailboxes.1 Lanterman testified that he thought the AGA data was

still on the Production Server and was surprised to learn, after the engagement, that it

had been removed.

Nevertheless, CFS never advised Afremov or his counsel that the AGA data

needed to be recreated into a searchable format at substantial cost (over $500,000).

That lack of clarification stymied any meeting of minds after April 18, 2007 and thus

further precluded any mutual understanding on the scope of the work to be performed.

1 The amount is actually higher since, in addition to the flat rate charges, the First Invoice included

68 hours for “data load, decryption, and verification.”

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2

The situation is analogous to the following hypothetical: A freight shipper hires a

railway to deliver freight from Minneapolis to Duluth with the mutual understanding

that the railway has a rail line running between the two cities. The railway then

realizes that the rail line has been damaged/destroyed. Without advising the freight

shipper that the rail line has been damaged/destroyed, the railway charges the freight

shipper for both repairing/reconstructing the rail line and hauling the freight. In that

scenario, as in this case, there has been no meeting of the minds on the scope of the

work to be performed.

In addition, in this case, there was also no meeting of the minds on the terms of

compensation to be paid to CFS. Afremov’s counsel understood “costs . . . incurred” (i.e.,

the phrase used in the April 18, 2007 letter from Petrosinelli) to refer to CFS’s out-of-

pocket costs. Conversely, CFS and Lanterman understood that phrase, given the

preceding reference to the Discharge Order, to somehow imply that CFS could charge

its profit-inclusive standard rates, including flat rate fees.2 The parties thus widely

diverged in their understanding of the terms of compensation.

The scope of the work to be performed and the terms of compensation are

essential to a service contract. Since there was no meeting of the minds on either of

those essential terms, no contract was ever formed.3

2 Paragraph 5 of the Discharge Order also uses the term “costs” in providing that “[t]he costs

resulting from . . . the access process” are payable by Afremov. (Ex. 3.) 3 Alternatively, the contract clearly and unambiguously provides for cost-based compensation insofar

as the April 18, 2007 letter refers to “costs . . . incurred” and paragraph 5 of the Discharge Order

refers to “costs” resulting from the access process. There was no representation by Afremov or his

agents to support CFS’s understanding that Afremov would pay CFS’s profit-based flat rate fees and

hourly rates.

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Arguments in Post-Trial Memorandum

In their post-trial memorandum, Plaintiffs raise two arguments that warrant

brief discussion. First, Plaintiffs argue that the lack of documentation and destruction

of time records are not significant because (1) the submission of data to Leonard, Street

& Deinard is proof that the work was done and (2) there was no need to maintain the

analysts’ time records because the hours were recorded on the invoices. That argument

is unavailing for the following reasons.

While the data submitted to Leonard, Street & Deinard data may show that CFS

ran search terms against the AGA data, the submission of that data does not show that

CFS had to reload the AGA data onto the Production Server or re-extract the

mailboxes. Those alleged endeavors make up the vast majority of the First Invoice.

Given the lack of documentation, the Court’s concerns regarding Lanterman’s

credibility, and CFS’s failure to inform Afremov’s counsel that the AGA data allegedly

had to be recreated into searchable format, the Court is skeptical that CFS actually had

to reload the data or re-extract the mailboxes without any documentation to support

the claim. Even if CFS did have to load the data onto the Production Server, it should

not be at Afremov’s expense without his agreement.

The invoices do not eliminate the need to preserve the analysts’ time records. As

the Plaintiff, CFS has the burden of proving how it is entitled to compensation. The

invoices do not distinguish between computer time and human time, so the number of

hours expended by the analysts is a total mystery – even if one makes the tenuous

assumption that the invoices are accurate. Moreover, the invoices contain only a

cursory description of the work allegedly performed, such that the reasonableness of the

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4

hours expended is hard to gauge. It would not be acceptable for an attorney to dispose

of 278.25 hours of contemporaneous time records and simply bill his clients for 278.25

hours of “legal research” without any additional elaboration. While computer analysts

may not be held to the same standard, a four-word description of six weeks of full-time

work (i.e., “Data analysis: Email compilation”) is likely not sufficient for any disputed

work being performed at the rate of $275 per hour.

The second argument that warrants discussion is Plaintiffs’ contention that the

removal of AGA data from the Production Server is not significant because many of

Afremov’s requested search terms were unique to his project. Regardless of whether

Afremov’s search terms were unique, the removal of the AGA data had major

significance because the data allegedly ceased to be in searchable format, thereby

resulting in over $500,000 of charges for allegedly recreating the data. Returning to the

railway analogy, destruction of the rail line would have major significance for a freight

shipper even though the shipper’s freight may be unique to that shipper. Once the data

is on the Production Server, the entry of a few dozen unique search terms is a relatively

minor part of the overall invoice. Lanterman testified that that part of the project goes

fairly quickly. Neither equity nor contract law permits shifting the cost of restoring the

data (if it actually occurred) where it is contrary to the parties’ expectations.

PDB

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