The Sherwin-Williams Company v. JB Collision Services, Inc. et al, No. 3:2013cv01946 - Document 176 (S.D. Cal. 2015)
Court Description: ORDER denying defendants' 126 Motion for Sanctions for Spoliation of Evidence. Signed by Judge Larry Alan Burns on 7/3/15. (kas)
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The Sherwin-Williams Company v. JB Collision Services, Inc. et al Doc. 176 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 THE SHERWIN-WILLIAMS COMPANY, CASE NO. 13cv1946-LAB (WVG) Plaintiff, 12 vs. 13 ORDER DENYING DEFENDANTS' MOTION FOR SANCTIONS FOR SPOLIATION OF EVIDENCE JB COLLISION SERVICES, INC. et al., 14 Defendants. 15 16 17 This lawsuit involves allegedly defective automotive paint products Sherwin-Williams 18 supplied Defendants, two auto body shops. Whether or not Sherwin-Williams' AWX paint line 19 is defective is an unresolved material factual question in this litigation. Defendants have filed 20 a motion for sanctions for spoliation of evidence, alleging Sherwin-Williams improperly 21 destroyed AWX paint products located at the Qualtech Auto Collision auto body shop. 22 (Docket no. 127.) 23 I. Factual Background 24 During a deposition on November 7, 2014, Defendants learned that another auto body 25 shop, Qualtech, possessed five cans of expired AWX paint line toner that may have been 26 manufactured during a time relevant to this litigation. (Docket no. 126-2 at 86–91.) Toner is 27 one product used in the process of refinishing an automobile. (Docket no. 126 at 4–5, n.3.) 28 The combination of several different products including toner, primers, base coats, clear -1- 13cv1946 Dockets.Justia.com 1 coats, reducers, and hardeners make up a paint line "system." (Id.) Defendants requested 2 during 3 location—Sherwin-Williams' counsel did not agree to this request. (Id.) the deposition that these cans of toner not be moved from their 4 A few days after the deposition, Sherwin-Williams representatives went to Qualtech 5 unannounced and removed and apparently destroyed the toner. (Docket no. 126-7.) 6 Defendants are understandably angry about this, and filed this motion for spoliation of 7 evidence. In response, Sherwin-Williams explains that its representative that serviced 8 Qualtech removed the cans of toner completely independent of this lawsuit, and did so 9 because the toner was expired. (Docket no. 150 at 4–6.) Because its lead attorney on this 10 case was traveling during the relevant time period, Sherwin-Williams apparently wasn't 11 notified of Defendants' request. (Id. at 7.) 12 Defendants contend that their expert needs "wet" paint samples, as opposed to the 13 dry ones that Defendants have, to determine whether the paint's chemical composition led 14 to the alleged defects underlying this lawsuit. (Docket no. 126 at 3.) They have explained 15 that, on December 9, 2014, their expert "requested that Defendants obtain 'wet' paint 16 samples that were manufactured and packaged during the time period in which Defendants 17 used Plaintiff's products." (Docket no. 137-1, ¶ 3.) The Qualtech wet samples weren't 18 available because Sherwin-Williams had destroyed them, but on January 8, 2015 Defendants 19 shipped the remaining wet paint samples left in their possession after their business 20 relationship with Sherwin-Williams ended. (Id., ¶ 4.) This wasn't sufficient. (Id. ¶ 6.) "On 21 January 14, 2015, Defendants' paint expert informed [Defendants' counsel] that the paint 22 samples sent on January 8, 2015 were not sufficient for his purposes because they were not 23 a 'full system sample'; i.e. a complete sample set of all necessary paint components to 24 complete a full paint job from start to finish." (Id.) Defendants don't allege that the destroyed 25 AWX toner would give them a "full system sample," and don't contest Sherwin-Williams' 26 argument that it wouldn't. Defendants apparently didn't request a wet, full system sample 27 during discovery, and didn't learn of its need for one until after the fact discovery cutoff date. 28 /// -2- 13cv1946 1 II. Timeliness 2 While fact discovery closed on November 7, 2014, Defendants didn't file its spoliation 3 motion until March 13, 2015. Defendants contend that they didn't learn of the alleged 4 spoliation until December 2014, and used the time between then and March 13, 2015 5 "attempt[ing] to locate other comparable 'wet' paint samples in order to mitigate the prejudice 6 in this matter." (Docket no. 126 at 13.) Sherwin-Williams argues the spoliation motion is 7 untimely. 8 A spoliation motion doesn't need to be filed before the close of discovery. See 9 Goodman v. Praxair Servs., Inc., 632 F. Supp. 2d 494, 506 (D. Md. 2009) (collecting cases). 10 But, it should "be filed as soon as reasonably possible after discovery of the facts that 11 underlie the motion." Id. at 508. Defendants' three month delay indicates that they were 12 dilatory in bringing their spoliation motion. That Defendants learned of their experts' need 13 for a wet, full paint sample after the close of discovery, and spent time attempting to locate 14 a sample through other means, doesn't fully justify their delay. Nonetheless, the Court 15 declines to deny the motion as untimely because it was filed before Sherwin-Williams filed 16 its motion for summary judgment and wasn't filed on the eve of trial. Id. at 509 (refusing to 17 deny spoliation motion as untimely, despite unexcused delay, where it was brought before 18 dispositive motions were ruled on). 19 III. Discussion 20 Spoliation is the destruction or significant alteration of evidence or the failure to 21 preserve property for another's use as evidence in pending or reasonably foreseeable 22 litigation. United States v. Kitsap Physicians Svs., 314 F.3d 995, 1001 (9th Cir. 2002). A 23 party's destruction of evidence doesn't necessarily mean that the party has engaged in 24 sanction-worthy spoliation. Reinsdorf v. Skechers USA, Inc., 296 F.R.D. 604, 626 (C.D. Cal. 25 2013). "Courts may sanction parties responsible for spoliation of evidence in three ways. 26 First, a court can instruct the jury that it may draw an inference adverse to the party or 27 witness responsible for destroying the evidence. Second, a court can exclude witness 28 testimony proffered by the party responsible for destroying the evidence and based on the -3- 13cv1946 1 destroyed evidence. Finally, a court may dismiss the claim of the party responsible for 2 destroying the evidence." In re Napster, Inc. Copyright Litigation, 462 F.Supp.2d 1060, 1066 3 (N.D. Cal. 2006) (citations omitted.) 4 A. 5 A party seeking an adverse inference instruction based on the spoliation of evidence 6 7 Adverse Inference must establish the following three elements: (1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; 8 (2) that the records were destroyed with a culpable state of mind; and 9 10 11 12 (3) that the evidence was 'relevant' to the party's claim or defense such that a reasonable trier of fact could find that it would support that claim or defense. Reinsdorf, 296 F.R.D. at 626 (internal quotation marks omitted). 1. Sherwin-Williams' Obligation to Preserve the Toner 13 "As soon as a potential claim is identified, a litigant is under a duty to preserve 14 evidence which it knows or reasonably should know is relevant to the action." In re Napster, 15 Inc. Copyright Litig., 462 F. Supp. 2d at 1067. "[C]ourts have extended the affirmative duty 16 to preserve evidence to instances when that evidence is not directly within the party's 17 custody or control so long as the party has access to or indirect control over such evidence." 18 World Courier v. Barone, WL 1119196, at *1 (N.D. Cal. Apr. 16, 2007). The duty applies to 19 documents, electronically stored information, and physical evidence. In re Pfizer Inc. Sec. 20 Litig., 288 F.R.D. 297, 313–14 (S.D.N.Y. 2013). 21 This is a case about allegedly defective AWX paint products. So, as soon as 22 Sherwin-Williams learned of Defendants' claims, it should have preserved representative 23 samples of relevant paint products. Sherwin-Williams admits that the AWX toner product 24 removed from Qualtech was introduced during its business relationship with Defendants. 25 (Docket no. 150 at 18.) And, Sherwin-Williams doesn't deny that the toner product was 26 supplied to Defendants. Thus, the evidence suggests that the toner removed from Qualtech 27 was relevant to this case, and Sherwin-Williams should have preserved a representative 28 sample of the product, whether obtained from Qualtech or another source. Cf. Zubulake v. -4- 13cv1946 1 UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003) ("A party . . . must retain all 2 relevant documents[,] but not multiple identical copies. . . ."). This is especially true in light 3 of Defendants' specific request that the toner not be removed. 4 Sherwin-Williams contends its employees removed the AWX toner from Qualtech 5 independent from, and without knowledge of, the request to preserve the evidence. The 6 Ninth Circuit has held that a party doesn't engage in spoliation when, without notice of the 7 evidence's potential relevance, it destroys the evidence according to its policy or in the 8 normal course of its business. United States v. $40,955.00 in U.S. Currency, 554 F.3d 752, 9 758 (9th Cir. 2009) (no indication that evidence destroyed with knowledge that it was relevant 10 to litigation); Kitsap, 314 F.3d at 1001–02 (no spoliation where evidence destroyed in normal 11 course of business and no indication that relevant to anticipated litigation); State of Idaho 12 Potato Comm'n v. G & T Terminal Packaging, Inc., 425 F.3d 708, 720 (9th Cir. 2005) (same). 13 Here, however, Sherwin-Williams did have notice of the potential relevance of the toner. 14 17 It is no defense to suggest, as the defendant attempts, that particular employees were not on notice. To hold otherwise would permit an agency, corporate officer, or legal department to shield itself from discovery obligations by keeping its employees ignorant. The obligation to retain discoverable materials is an affirmative one; it requires that the agency or corporate officers having notice of discovery obligations communicate those obligations to employees in possession of discoverable materials. 18 Nat'l Ass'n of Radiation Survivors v. Turnage, 115 F.R.D. 543, 557–58 (N.D. Cal. 1987). The 19 independent action of its employees is not relevant to whether Sherwin-Williams had an 20 obligation to preserve the toner. 15 16 21 The unavailability of Sherwin-Williams' lead attorney around the time of the deposition 22 is also irrelevant. Sherwin-Williams had a duty to preserve relevant evidence even without 23 a request from Defendants. Moreover, Sherwin-Williams was represented by counsel at the 24 November 7, 2014 deposition. Subordinate attorneys don't avoid discovery obligations by 25 twiddling their thumbs until their boss arrives. Defendants have established the first element 26 for an adverse inference instruction. 27 /// 28 /// -5- 13cv1946 1 2. Sherwin-Williams' State of Mind 2 Defendants argue that the timing of Sherwin-Williams' removal of the AWX toner from 3 Qualtech suggests bad faith. The Court finds reason to be suspicious. Escamilla v. SMS Ho 4 ldings Corp., 2011 WL 5025254, at *4 (D. Minn. Oct. 21, 2011) ("The suspicious timing of 5 [the defendant's reinstallation of his computer's operating system] supports an inference that 6 [he] acted in an intentional manner to destroy evidence or data on his computer."); Sage 7 Realty Corp. v. Proskauer Rose LLP, 275 A.D.2d 11, 17 (2000) ("We also conclude that the 8 destruction of the tapes was done in bad faith, an inference also circumstantially supported 9 by the nature of Kaufman's conduct and the timing ."). 10 But, suspicion notwithstanding, Defendants have not shown that the AWX toner was 11 deliberately destroyed for the purpose of making it unavailable in this lawsuit. 12 Sherwin-Williams does provide an explanation. While the explanation doesn't alleviate 13 Sherwin-Williams of its obligation to preserve evidence, it does indicate that its destruction 14 of evidence wasn't meant to prejudice Defendants. Considering the evidence as a whole, 15 the Court cannot conclude that Sherwin-Williams acted with intentional bad faith. See Pettit 16 v. Smith, 45 F. Supp. 3d 1099, 1114 (D. Ariz. 2014). The Court does, however, find that 17 Sherwin-Williams acted negligently in failing to preserve the AWX toner. Id. Indeed, despite 18 its duty to preserve evidence, Sherwin-Williams doesn't allege that it took even minimum 19 precautions, such as circulating a litigation hold letter, or otherwise providing its employees 20 with a directive to preserve the allegedly defective paint products. The "culpable state of 21 mind" includes negligence. Cottle-Banks v. Cox Commc'ns, Inc., 2013 WL 2244333, at *14 22 (S.D. Cal. May 21, 2013). Thus, the Defendants have established the second element for 23 an adverse inference instruction. 24 3. And, Relevance of the Qualtech Toner 25 When evidence is destroyed in bad faith, that alone demonstrates relevance. 26 Reinsdorf, 296 F.R.D. at 626–27. "By contrast, when the destruction is negligent, relevance 27 must be proven by the party seeking the sanctions." Id. at 627. "[R]elevance for spoliation 28 purposes is a two-pronged finding of relevance and prejudice because for the court to issue -6- 13cv1946 1 sanctions, the absence of the evidence must be prejudicial to the party alleging spoliation of 2 evidence." Id. To show prejudice, "[t]he innocent party must . . . show that the evidence 3 would have been helpful in proving its claims or defenses." Pension Comm. of Univ. of 4 Montreal Pension Plan v. Banc of Am. Sec., 685 F. Supp. 2d 456, 467 (S.D.N.Y. 2010) 5 abrogated on other grounds by Chin v. Port Auth. of New York & New Jersey, 685 F.3d 135 6 (2d Cir. 2012); but see Olney v. Job.com, 2014 WL 5430350, at *20 (E.D. Cal. Oct. 24, 2014) 7 ("If spoliation is shown, the burden of proof logically shifts to the guilty party to show that no 8 prejudice resulted from the spoliation because that party is in a much better position to show 9 what was destroyed and should not be able to benefit from its wrongdoing."). 10 The premise of Defendants' motion is that they need a wet, full system sample of AWX 11 paint products, but don't have one. Defendants explain that toner is part of a full system 12 sample (Docket no. 126 at 4–5, n.3.), but do not allege that Qualtech's toner was the missing 13 piece that would make their system sample complete, i.e. they don't argue that they have 14 access to relevant vintage AWX primers, base coats, clear coats, reducers, and hardeners 15 which, if combined with the Qualtech toner, would provide a full, relevant, system sample. 16 (Id.) Sherwin-Williams raised this argument in their opposition, and the only argument 17 Defendants offer in response is that "the relevance of destroyed [evidence] cannot be clearly 18 ascertained because [it] no longer exist[s]." 19 Sherwin-Williams' destruction of the toner means that Defendants will never know what 20 testing the toner would have revealed. But the evidentiary value of the toner isn't the basis 21 for their motion (or their excuse for filing their motion well after the close of discovery). 22 Instead, Defendants tout the evidentiary value of a full system sample. Without a definitive 23 link between the destroyed toner and the wet, full system sample that they allege they need 24 for testing, the Court finds that giving an adverse inference instruction would be improper. 25 Although the Court declines to give an adverse inference instruction, this ruling does not 26 foreclose Defendants' counsel from presenting evidence that the toner was destroyed after 27 a request to preserve it had been made, and from arguing any reasonable inference that 28 follows from such evidence. -7- (Docket no. 160 at 7.) It's true that 13cv1946 1 B. Exclusion of Evidence 2 The Court's inherent authority to impose sanctions for the wrongful destruction of 3 evidence includes the power to exclude evidence that, given the spoliation, would "unfairly 4 prejudice an opposing party." Unigard Sec. Ins. Co. v. Lakewood Eng'g & Mfg. Corp., 982 5 F.2d 363, 368 (9th Cir. 1992). Defendants ask the Court to "preclud[e] testimony that the 6 chemical composition and formulation of Plaintiff's AWX automotive paint products were not 7 the cause of physical defects in Defendants' paint jobs." (Docket no. 126 at 2.) As 8 discussed above, the Court finds no unfair prejudice. 9 Defendants' request. However, the Court makes this ruling without knowing what evidence 10 Sherwin-Williams might use regarding the chemical composition of AWX paint products. 11 Thus, the Court denies Defendants' request without prejudice. If Sherwin-Williams presents 12 evidence that is unfairly prejudicial in light of its improper destruction of Qualtech's toner, the 13 Court will reevaluate its ruling. For example, Sherwin-Williams can't rely on its analysis of 14 paint or paint compounds if its destruction of evidence has denied Defendants the 15 opportunity to examine an identical compound. Therefore, the Court declines 16 C. 17 Dismissal is an extreme remedy that is only warranted in extraordinary circumstances. 18 Lewis v. Ryan, 261 F.R.D. 513, 522 (S.D. Cal. 2009). Here, there is no evidence that the 19 documents were destroyed in order to prevent Defendants from receiving them, and 20 dismissal isn't necessary to counteract the prejudice from the destruction of Qualtech's toner. 21 Id. The Court declines to order dismissal. 22 IV. 23 24 25 26 Dismissal Conclusion Defendants haven't carried their burden to establish that spoliation sanctions are appropriate. Their spoliation motion is DENIED. IT IS SO ORDERED. DATED: July 3, 2015 27 28 HONORABLE LARRY ALAN BURNS United States District Judge -8- 13cv1946
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