Net-Com Services Inc v. Eupen Cable USA Inc et al
Filing
239
MEMORANDUM AND ORDER REQUIRING PLAINTIFF TO RESTORE AND PRODUCE ELECTRONIC DATA (Dkt. Nos. 128 & 210 ) by Magistrate Judge Suzanne H. Segal. Net-Com is ORDERED to restore and produce any relevant data from the subject hard drives within fourteen days of the date of this Order. Net-Com shall pay the full cost of restoration and production. (See document for further details). (mr)
1
2
3
4
5
6
7
8
UNITED STATES DISTRICT COURT
9
CENTRAL DISTRICT OF CALIFORNIA
10
11
12
13
14
15
16
17
18
19
20
NET-COM SERVICES, INC.,
)
)
Plaintiff,
)
)
v.
)
)
EUPEN CABLE USA, INC., et al.,
)
)
Defendants.
)
)
EUPEN CABLE USA, INC.,
)
)
Counterclaimant,
)
)
v.
)
)
NET-COM SERVICES, INC., et al.,
)
)
Counterdefendants. )
)
NO. CV 11-2553 JGB (SSx)
MEMORANDUM AND ORDER REQUIRING
PLAINTIFF TO RESTORE AND PRODUCE
ELECTRONIC DATA
(Dkt. Nos. 128 & 210)
21
22
On July 26, 2013, Net-Com filed a Notice of Submission indicating
23
that it had submitted hard drives containing potentially relevant
24
financial data to a vendor for forensic analysis.
25
the reasons stated below, Net-Com is ORDERED to produce any relevant
26
data recovered from the hard drives within fourteen (14) days of the
27
date of this Order and to bear the full cost of restoration and
28
production.
(Dkt. No. 231).
For
PRIOR PROCEEDINGS
1
2
3
On November 14, 2012, the Court issued an Order granting in part
4
Eupen USA’s Motion to Compel Production of Documents.
(See Dkt. No.
5
128).
6
requiring production of “Missing Accounting Information,” including
7
financial data believed to be stored on purportedly “dead” hard drives.
8
(Id. at 14-15).
9
the financial records Eupen USA sought “may no longer exist because they
Among other documents, Eupen USA’s Motion sought an Order
In its Opposition to the Motion, Net-Com argued that
10
were on computers that are now dead.
Net-Com’s principals have been
11
trying to access the dead hard drives, but so far with no luck.”
12
No. 117 at 5).
13
“Missing Accounting Information,” with the exception of state and
14
federal tax returns.
15
production, the Court also ordered Net-Com to produce “the computer hard
16
drives containing potentially relevant ESI that Net-Com has been unable
17
to restore” to allow Eupen USA “to test Net-Com’s assertion that the
18
information is inaccessible.”
(Dkt.
The Court ordered Net-Com to produce the requested
(Dkt. No. 128 at 15-16).
As part of that
(Id.).
19
20
On July 11, 2013, the Court granted in part and denied in part
21
Eupen USA’s Motion for Evidence Sanctions.
(Dkt. No. 228).
Eupen USA
22
argued that Net-Com should be precluded from offering evidence of its
23
damages because its production of financial data was incomplete and
24
insufficient due to the loss of information “allegedly contained on a
25
computer hard drive that was apparently no longer functional.”
26
No. 210 at 1-2).
27
evidence that the hard drives have been ‘irreparably damaged’ such that
28
their contents are irretrievable.”
(Dkt.
Net-Com argued in opposition that “there is no
2
(Dkt. No. 210 at 3).
The Court
1
denied without prejudice Eupen USA’s Motion for evidence preclusion.
2
(Dkt. No. 228 at 9).
3
Court ordered Net-Com to submit the subject hard drives to a vendor for
4
forensic analysis.
5
file a Notice of Submission indicating (1) the name of the vendor and
6
date of submission, (2) whether any of the files on the hard drives are
7
recoverable, and, if so, (3) the vendor’s estimated cost of restoration
8
and (4) the estimated length of time it would take to restore the data.
9
(Id. at 10).
However, consistent with its prior Order, the
(Id. at 10).
The Order also required Net-Com to
10
11
On July 25, 2013, Net-Com filed a Notice of Submission.
(Dkt. No.
12
230).
The Notice reported that Net-Com submitted the subject hard
13
drives to Ai Networks (DBA DriveCrash.com) in Irvine, California on July
14
22, 2013.
15
assessment is that “there is recoverable data on at least one of the
16
hard drives” and that the estimated cost to stabilize and recover the
17
data
18
represented to Net-Com that it could complete the recovery within two
19
to three weeks of being instructed to proceed.
was
(Id. at 1).
between
According to Net-Com, Ai Networks’ preliminary
$2,000
and
$3,000.
(Id.
at
2).
Ai
Networks
(Id.).
20
BACKGROUND FACTS
21
22
23
Net-Com instigated this litigation on February 8, 2011 in the Los
24
Angeles County Superior Court.
(Dkt. No. 1 at 2).
25
removed to this Court on March 25, 2011.
26
Net-Com’s principals, admitted in deposition that he was responsible for
27
maintaining care, custody and control of Net-Com’s documents, including
28
its financial data.
(Id.).
The action was
Steve Moffatt, one of
(Dkt. No. 210, Malingagio Decl., Exh. 13, at 49).
3
1
Moffatt testified that Net-Com stopped using its older accounting
2
system, American Contractor, shortly after the company moved into
3
“Avenue Penn.” (Id. at 23). Although Moffatt could not recall the year
4
the company moved to Avenue Penn or the last time he saw the hardware
5
with the American Contractor data, he believed that it must have been
6
“lost or stolen” because he could not find it when he later looked for
7
it.
8
insurance claim regarding Net-Com’s allegedly lost or stolen property.
9
(Id. at 48).
(Id. at 32).
However, Moffatt did not file a police report or an
10
11
For the last three years of its operation, from approximately
12
September 2008 to September 2011, Net-Com operated out of an office in
13
Moffatt’s residence on Remington Road.
14
doing business in October 2011. (Id. at 7). As the company was winding
15
down, Moffatt rented out the home in September or October 2011.
16
at 37).
17
hardware and software systems that had accounting data in the garage of
18
the Remington Road home.
19
renters not to throw anything out, but he failed to take any other
20
precautions to preserve Net-Com’s financial data.
(Id. at 36).
Net-Com stopped
(Id.
Before Moffatt moved out, he stored all of Net-Com’s computer
(Id. at 35 & 40).
Moffatt instructed the
(Id. at 37).
21
22
When Moffatt drove by the home in September or October of 2011, he
23
discovered that despite his instructions, the renters had put a “big
24
pile of office equipment and everything else in the front yard, and they
25
were being – they were thrown in dumpsters.”
26
damaged hard drives that Moffatt later delivered to his attorneys were
27
dug out of the renters’ trash by an associate named “Pablo” on a
28
different occasion sometime in September 2011.
4
(Id. at 38 & 60).
The
(Id. at 40 & 59).
1
Moffat admitted that the Timberline accounting system on the now non-
2
functional hard drives was functional up to September 2011.
3
33).
4
Moffatt assumes that the renters threw out the back-up drive along with
5
Net-Com’s other hardware.
(Id. at
A back up of the Timberline system existed, (id. at 34), but
(Id. at 35 & 37).
6
7
NET-COM IS RESPONSIBLE FOR ITS OWN NEGLIGENCE AND SHALL PAY
8
THE FULL COST OF RESTORING AND PRODUCING ITS ELECTRONIC DATA
9
10
Spoliation
is
“the
destruction
or
significant
alteration
of
11
evidence, or the failure to preserve property for another’s use as
12
evidence[,] in pending or reasonably foreseeable litigation.” Zubulake
13
v. UBS Warburg LLC, 220 F.R.D. 212, 216 (S.D. N.Y. 2003) (emphasis
14
added).
15
pending or reasonably foreseeable, at which time a party is required to
16
preserve all relevant evidence and put into place a litigation hold to
17
preserve relevant documents.
18
Barone, 2007 WL 1119196 at *1 (N.D. Cal. Apr. 16, 2007) (“‘The duty to
19
preserve material evidence arises not only during litigation but also
20
extends to that period before the litigation when a party reasonably
21
should
22
litigation.’”) (quoting Kronisch v. United States, 150 F.3d 112, 126 (2d
23
Cir. 1998)); Zubulake, 220 F.R.D. at 216 (obligation to preserve
24
evidence “arises when the party has notice that the evidence is relevant
25
to litigation or when a party should have known that the evidence may
26
be relevant to future litigation”).
27
\\
The duty to preserve evidence is triggered when litigation is
know
that
the
Id. at 218; see also World Courier v.
evidence
may
28
5
be
relevant
to
anticipated
1
The authority to impose sanctions for spoliation arises from a
2
court’s inherent power to control the judicial process.
3
Laboratory Mgmt. Consultants v. American Broadcasting Companies, Inc.,
4
306 F.3d 806, 824 (9th Cir. 2002).
5
powers must be applied with “restraint and discretion” and only to the
6
degree necessary to redress the abuse.
7
U.S. 32, 45, 111 S. Ct. 2123, 115 L. Ed. 2d 27 (1991).
8
determination of an appropriate sanction for spoliation is “confined to
9
the
sound
discretion
of
the
Medical
The exercise of a court’s inherent
trial
Chambers v. NASCO, Inc., 501
judge,
and
is
Accordingly, the
assessed
on
a
10
case-by-case basis.”
Fujitsu Ltd. v. Fed. Express Corp., 247 F.3d 423,
11
436 (2d Cir. 2001) (internal citations omitted).
12
specific spoliation sanction to impose, courts generally consider three
13
factors: “(1) the degree of fault of the party who altered or destroyed
14
the evidence; (2) the degree of prejudice suffered by the opposing
15
party; and (3) whether there is a lesser sanction that will avoid
16
substantial unfairness to the opposing party.”
17
Electronics Co., Ltd., 888 F. Supp. 2d 976, 992 (N.D. Cal. 2012)
18
(internal quotation marks omitted).
To decide which
Apple, Inc. v. Samsung
19
20
Net-Com’s duty to preserve evidence arose at the very latest by
21
February 8, 2011, when it filed suit. In the Complaint, Net-Com alleged
22
that due to Defendants’ allegedly false representations, Net-Com lost
23
“millions of dollars” which it sought to recover by this action.
24
No. 1, Complaint, at 13).
Net-Com’s own complaint clearly placed Net-
25
Com’s finances at issue.
Net-Com’s financial and accounting data is
26
highly relevant to both Net-Com’s allegations and Eupen USA’s defenses.
27
Nonetheless,
28
abandoned the hardware and software containing Net-Com’s financial
seven
months
after
filing
6
suit,
Moffatt
(Dkt.
effectively
1
records by leaving the equipment and data in a garage in a house he
2
rented out to third parties.
3
of evidence was not intentional, it was definitely negligent.
4
negligent spoliation of evidence may still be sanctionable where it
5
results in prejudice to the opposing party because “each party should
6
bear the risk of its own negligence.”
7
DeGeorge Fin’l Corp., 306 F.3d 99, 108 (2d Cir. 2002).
8
explained,
Even if the eventual loss and destruction
The
Residential Funding Corp. v.
As one court
9
10
“It makes little difference to the party victimized by the
11
destruction of evidence whether that act was done willfully or
12
negligently.
13
mechanism
14
inference is adverse to the destroyer not because of any
15
finding of moral culpability, but because the risk that the
16
evidence would have been detrimental rather than favorable
17
should fall on the party responsible for its loss.”
for
The adverse inference provides the necessary
restoring
the
evidentiary
balance.
The
18
19
Id. (quoting Turner v. Hudson Transit Lines, Inc., 142 F.R.D. 68, 75
20
(S.D. N.Y. 1991)).
21
22
While it is not yet clear whether or to what degree Eupen USA has
23
been prejudiced, the Court finds it appropriate for Net-Com, due to Net-
24
Com’s negligence, to bear the full cost of restoring and producing data
25
on the hard drives submitted to Ai Networks.
26
ORDERED to restore and produce any relevant data from the subject hard
27
28
7
Accordingly, Net-Com is
1
drives within fourteen days of the date of this Order.1
2
pay the full cost of restoration and production.
Net-Com shall
3
4
IT IS SO ORDERED.
5
6
7
8
DATED: August 5, 2013
/S/
SUZANNE H. SEGAL
UNITED STATES MAGISTRATE JUDGE
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
1
The Court sets this deadline based upon Net-Com’s representations
27 regarding the time needed for Ai Networks to restore the hard drives.
If more time is needed, the parties may either stipulate or apply ex
28 parte, with good cause, for a brief extension of the deadline.
8
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?