Zest IP Holdings, LLC et al v. Implant Direct MFG. LLC et al, No. 3:2010cv00541 - Document 312 (S.D. Cal. 2013)
Court Description: ORDER Granting In Part and Denying In Part 121 Plaintiffs' Motion For Spoilation and Discovery Abuse Sanctions; Recommendation Regarding Adverse Jury Instructions. Objections to Recommendation for Adverse Inference Jury Instruction due 12/31/2013, Reply to Objections due 1/14/2014. Signed by Magistrate Judge William V. Gallo on 11/25/2013. (srm)
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Zest IP Holdings, LLC et al v. Implant Direct MFG. LLC et al Doc. 312 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 ZEST IP HOLDINGS, LLC, et al., 12 Plaintiffs, 13 v. 14 IMPLANT DIRECT MFG., LLC, et al., 15 Defendants. 16 ) ) ) ) ) ) ) ) ) ) ) ) Civil No.10-0541-GPC(WVG) ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS’ MOTION FOR SPOLIATION AND DISCOVERY ABUSE SANCTIONS (DOC. NO. 121) RECOMMENDATION REGARDING ADVERSE JURY INSTRUCTION 17 18 19 I 20 INTRODUCTION 21 Plaintiff Zest IP Holdings, LLC, (“Plaintiffs”) have 22 made a Motion For Spoliation And Discovery Abuse Sanctions 23 Against Defendants Implant Direct MFG. LLC, Implant Direct 24 LLC, and Implant Direct INTL (“Defendants”). Plaintiffs 25 seek a default judgment against Defendants, and an adverse 26 inference jury instruction against Defendants for destroy- 27 ing documents, failing to put in place a litigation hold 28 and document retention policy, and discovery misconduct. 1 10cv0541 Dockets.Justia.com 1 Plaintiffs seek sanctions in the form of attorney’s fees 2 and costs associated with pursuing the allegedly destroyed 3 documents and for preparing this Motion. Defendants filed 4 an Opposition to the Motion. Plaintiffs filed a Reply to 5 Defendants’ Opposition. On October 19, 2012 and May 29, 6 2013, the Court held hearings on Plaintiffs’ Motion. 7 The Court, having reviewed Plaintiffs’ Motion, 8 Defendants’ Opposition, and Plaintiffs’ Reply, and having 9 entertained the parties’ arguments, hereby finds that 10 Defendants did not take adequate steps to avoid spoliation 11 of evidence after it should have reasonably anticipated 12 this lawsuit and did not issue a litigation hold nor 13 implement nor monitor an adequate document preservation 14 policy. 15 part Plaintiffs’ Motion For Spoliation And Discovery Abuse 16 Sanctions. The Court RECOMMENDS that an adverse jury 17 instruction against Defendants be given to the jury at the 18 trial of this action. Therefore, the Court GRANTS in part and DENIES in II 19 PROCEDURAL HISTORY 20 21 On March 20, 2010, Plaintiffs filed this action. 22 Plaintiffs allege that Defendants’ products infringe on 23 Plaintiffs’ 24 (“Patents-in-Suit”, or “Locator” products) through the 25 manufacture and sale of Defendants’ “Go Direct” product. 26 Plaintiffs also allege claims for trademark infringement 27 with respect to Plaintiffs’ marks “Zest” and “Locator,” 28 false designation of origin, false advertising in viola- U.S. Patent Nos. 2 6,030,219 and 6,299,447 10cv0541 1 tion of § 43(a) of the Lanham Act, and state statutory law 2 and common law unfair competition. 3 Plaintiffs amended their Complaint. In the Amended Com- 4 plaint, Plaintiffs allege that another product of Defen- 5 dants, the “GPS abutment,” infringes on the Patents-in- 6 Suit. On August 27, 2010, 7 On August 27, 2012, Plaintiffs filed a Motion For 8 Spoliation And Discovery Abuses Sanctions Against Defen- 9 dants (“Motion”). On October 5, 2012, Defendants filed an 10 Opposition to the Motion (“Opposition”). On October 12, 11 2012, Plaintiffs filed a Reply In Support Of Plaintiffs’ 12 Motion (“Reply”). On March 5, 2013, Plaintiffs filed a 13 Supplemental Brief in support of their Motion. On May 19, 14 2013, Defendants filed a Response to Plaintiffs’ Supple- 15 mental Brief. On October 19, 2012 and May 29, 2013, the 16 Court heard oral argument on the Motion. 17 III 18 FACTS 19 A. Defendant’s Did Not Implement a Litigation Hold 20 Plaintiffs argue that Defendants were aware of a 21 potential lawsuit as early as Fall 2008. At that time, 22 Defendants 23 products. Defendants informed Plaintiffs of their plan to 24 make their own clone product to compete with Plaintiffs’ 25 “Locator” products. were distributors of Plaintiffs’ “Locator” 26 On August 8, 2008, Plaintiffs informed Defendants that 27 they considered Defendants’ planned product to be a knock- 28 off, and an infringement of 3 the “Locator product.” 10cv0541 1 [Declaration of Manuel J. Velez in Support of Motion for 2 Spoliation and Discovery Abuse Sanctions (“Velez Dec.”), 3 Exhs. 5, 6]. On October 22, 2008, Plaintiffs sent another 4 letter 5 lawsuit for patent infringement against Defendants should 6 Defendants continue their plan to commercialize their 7 product. (Velez Dec. Exh. 7). Defendants acknowledged 8 receipt of the October 22, 2008 letter. 9 3 at 150:17 to 159:8). Plaintiffs argue that a litigation 10 hold should have been put in place as of October 22, 2008. 11 Defendants argue that the duty to preserve evidence 12 arose when Plaintiffs filed this action in March 2010 13 because until this action was filed, Defendants did not 14 believe that there would be litigation with Plaintiff. 15 Further, Defendants contend that the duty to preserve 16 could 17 Plaintiffs were aware of Defendants’ intent to market the 18 alleged infringing product and did not ask Defendants to 19 save any documents or emails. Defendants did not implement 20 a litigation hold or document preservation policy on 21 October 22, 2008, or at any time before the Complaint was 22 filed, or after the Complaint was filed. Defendants did 23 not take steps to preserve electronic documents, nor did 24 they 25 Instead, Defendants argue that failure to institute a 26 litigation hold does not warrant sanctions. Defendants 27 further assert that sanctions are not warranted because 28 they have a company policy that “no documents are to be to not Defendants have instruct stating begun their prior employees 4 that to to they would file a (Velez Dec. Exh. March 2010 preserve because documents. 10cv0541 1 deleted” and that [Defendants] did not believe any of 2 Defendants’ 3 (Velez Dec. Exh. 3 at 47:5 to 47:17). employees would delete company documents. B. Defendant’s Failure to Preserve Documents 4 1. 5 Ines Aravena’s emails 6 Ines Aravena (“Aravena”) was Defendants’ Director of 7 Design Engineering, and oversaw the design development and 8 testing 9 independent contractor working for Defendants before she of Defendant’s Defendants’ products. 11 deposition 12 because she received so many emails and that no one told 13 her not to delete them. (Velez Dec. Exh. 2 at 212:13-20). 14 She had two email accounts: one on Defendants’ system, and 15 one on America On Line (“AOL”) that was her personal 16 account. (Velez Dec. Exh. 2 at 212:1-4). She used the AOL 17 account 18 purposes. (Velez Dec. Exh. 2 at 211:13-25, 389:13-19). for work intentionally purposes, as testified deleted well as at an became she She was 10 that employee. Aravena her for her emails personal 19 Defendants are unable to confirm that all of Aravena’s 20 deleted emails were recovered and produced to Plaintiffs 21 but 22 emails. 23 prevent the deletion of documents, but instead took the 24 position that their emails “are automatically preserved to 25 the 26 control.” However, on November 15, 2012, Defendants sent 27 a letter to the Court stating that “(s)ubsequent to the they assert that Defendants Intermedia they did server, produced not have which a is all of back-up under Aravena’s system to Defendants’ 28 5 10cv0541 1 hearing of the motion1/, Defendants’ counsel discovered 2 that emails can be deleted from the Intermedia email 3 server.” (Letter of Michael Hurey to the Court, dated 4 November 15, 2012). 5 may have been irretrievably lost. Therefore, Aravena’s deleted emails 2. Gerald Niznick’s Communications To Third Parties Dr. Gerald Niznick (“Niznick”) is Defendants’ 6 7 8 President 9 failed and to CEO. Plaintiffs collect and assert produce that Defendants all electronic 10 communications from Niznick that are relevant to this 11 litigation. Plaintiffs located in third parties’ files 12 Niznick’s email communications to third party dentists 13 which may be considered evidence of Niznick’s inducing the 14 third party dentists to infringe on Plaintiffs’ patents. 15 Niznick’s emails to the third party dentists 16 the 17 Plaintiffs’ 18 (dated November 12, 2008), 12 (dated December 3, 2008)]. 19 It cannot be disputed that Exhibits 11 and 12 once existed 20 in Defendants’ electronic files. However, they appear to 21 no longer exist in Defendants’ files and Defendants have 22 not produced the emails to Plaintiffs in this litigation. 23 Niznick testified at his deposition that he has six 24 different email accounts. The emails in these accounts 25 were not produced nor preserved. Niznick also testified 26 that he did not search these email accounts because he 27 alleges to have previously saved all e-mail communications dentists to combine “Locator” Defendants’ products. [Velez encourage product Dec. with Exhs. 11 28 1/ Defendants refer to the hearing held on October 19, 2012. 6 10cv0541 1 relating to Plaintiffs in a folder on his desktop. (Velez 2 Dec. Exh. 3 at 44:6-15). Niznick limited his collection 3 efforts to this file on his desktop and he claims that 4 this file did not contain communications concerning the 5 accused products. (Velez Dec. Exh. 3 at 45:21- 46:3). The 6 contents of the file have been produced to Plaintiff. 7 (Doc. No 127 at 10). Defendants argue that the emails 8 presented by Plaintiff as evidence of spoliation were 9 dated before Defendants had any obligation to preserve 10 evidence. Defendants further argue that Plaintiffs have 11 failed to present any other evidence indicating that any 12 other similar emails exist. 3. Regulatory Documents 13 14 Plaintiffs argue that regulatory files and submissions 15 to the Food and Drug Administration (“FDA”) documents are 16 relevant 17 information related to Defendant’s products. Plaintiffs 18 argue that these regulatory files and submissions to the 19 FDA made in conjunction with putting Defendants’ 20 on the market have not been produced despite Plaintiffs’ 21 repeated requests for them. However, Plaintiffs have not 22 provided any evidence in support of their contention that 23 Defendants destroyed these documents. because they contain design and testing products 24 Defendants argue that it produced to Plaintiffs all of 25 the regulatory documents requested by Plaintiffs. However, 26 on 27 regulatory March 14, 2013, documents Plaintiffs for the requested first time. additional Defendants 28 7 10cv0541 1 anticipated producing these documents to Plaintiff.2/ The 2 Court assumes that Defendants produced to Plaintiffs the 3 regulatory documents as requested on March 14, 2013. In 4 any event, Plaintiffs do not offer any evidence to suggest 5 that any regulatory documents that they requested have 6 been destroyed. 7 8 9 4. Materials Used By Sales Force To Promote Defendants Products Plaintiffs argue that they have located materials in a third party’s files, which are, or were, used by 10 Defendants’ sales force to promote Defendants’ products. 11 Plaintiffs assert that these materials show Defendants’ 12 infringement of Plaintiffs’ trademarks. 13 Plaintiffs learned from the third party’s files that 14 Defendants’ sales force distributed a tool to dentists 15 (called 16 Plaintiffs 17 relevant as evidence of counterfeiting that may assist them 18 in proving their trademark infringement claims. “GoDirect argue Implant that the Locator tool and Insertion its Drill”). packaging are 19 Defendants have not produced the tool or its packaging 20 to Plaintiffs despite the fact that Plaintiffs’ counsel has 21 requested them and Defendants’ counsel took pictures of 22 them during the deposition of one of Defendants’ sales 23 representatives. Defendants assert that the tool presented 24 25 26 2/ 27 28 Defendants agreed to produce these documents subject to Plaintiffs’ agreement that they would not argue that the fact of Defendants’ production shows that the Defendant Sybron entities should be joined in this lawsuit. However this is now a moot point, because the Defendant Sybron entities have been joined in the lawsuit. 8 10cv0541 1 by Plaintiffs at the deposition of Abi Dickerson3/ is not 2 relevant 3 manufactured and sold while Defendants were Plaintiffs’ 4 distributor and during Defendants’ licensing period with 5 Plaintiffs. Defendants agreed to produce any samples of the 6 tool and its packaging to the extent that Defendants still 7 retained 8 Defendants produced to Plaintiffs the tool, its packaging, 9 and any written information about the tool, to the extent 10 that Defendants retained the tool, packaging and written 11 information about the tool. In any event, Plaintiffs do not 12 offer any evidence to suggest that the tool, packaging and 13 written information about the tool have been destroyed. to any 5. 14 the current such litigation material. The because Court it assumes was that Customer Complaints Plaintiffs argue that Defendants kept a spreadsheet/log 15 16 of customer 17 Despite 18 failed 19 Plaintiffs indicate that they have copies of incomplete 20 logs/spreadsheets of the customer complaints. 21 do 22 incomplete. Nor do they present any evidence that the 23 documents they seek in this regard have been destroyed. not complaints Plaintiffs’ to produce indicate regarding repeated the how or Defendants’ requests, customer why Defendants complaint what products. they have documents. Plaintiffs received is 24 Defendants argue that they have previously produced to 25 Plaintiffs the customer complaint logs. However, Defendants 26 27 28 3/ Velez Dec. In Support of Plaintiffs’ Supp. Brief, Exh. 7 (dated October 23, 2012). 9 10cv0541 1 have obtained additional complaint logs4/ and anticipates 2 producing these documents to Plaintiff.5/ The Court assumes 3 that the additional customer complaint logs, as identified 4 in footnote 3, have been produced to Plaintiffs. In any 5 event, Plaintiffs do not offer any evidence to suggest that 6 any of the customer complaint logs have been destroyed. 7 IV DISCUSSION 8 9 A. The Court’s Inherent Authority To Impose Sanctions. 10 The Court’s inherent power to impose sanctions is not 11 limited to Article III courts, but extends to Magistrate 12 Judges. 13 Cal. 2012)(“Apple II”). This inherent power may be invoked 14 “to 15 prejudices its opponent through the spoliation of evidence 16 that the spoliating party had reason to know was relevant 17 to litigation.” Apple II, 888 F.Supp.2d at 987 [citing 18 Apple v. Samsung, 881 F.Supp.2d 1132, 1135 (N.D. Cal. 19 2012)(“Apple I”). The exercise of a court’s inherent powers 20 must be applied with “restraint and discretion” and only to 21 the degree necessary to redress the abuse. Chambers v. 22 NASCO, Inc., 501 U.S. 32, 45 (1991). levy Apple v. Samsung, 888 F.Supp 2d 976, 987 (N.D. appropriate sanctions against a party who 23 24 25 26 4/ The additional complaint logs are identified as (1) Excel Spreadsheet “GoDirect.XLS;” (2) Excel Spreadsheet “GPS.XLS;” (3) Excel Spreadsheet “GPSLiners.XLS;” and (4) Word document “Pareto.” 5/ 27 28 Defendants agreed to produce these documents subject to Plaintiffs’ agreement that they would not argue that the fact of Defendants’ production shows that the Defendant Sybron entities should be joined in this lawsuit. However, this is now a moot point, because the Sybron entities have been joined in the lawsuit. 10 10cv0541 1 B. Sanctions for Spoliation 2 Spoliation of evidence is “the destruction or material 3 alteration of evidence or the failure to preserve property 4 for another’s use as evidence in pending or reasonably 5 foreseeable litigation.” Apple II, 888 F.Supp 2d at 989 6 [citing Silvestri v. Gen. Motors Corp., 271 F.3d 583, 590 7 (4th Cir. 2001)]. “The obligation to preserve evidence 8 arises when the party reasonably should know the evidence 9 is relevant to litigation or when a party should have known 10 that the evidence may be relevant to future litigation.” 11 Apple II, 888 F.Supp.2d at 990. 12 be grounds for sanctions. Apple II, 888 F.Supp.2d at 989, 13 [citing Akiona v. U.S., 938 F.2d 158, 161 (9th Cir. 1991)]. 14 The bare fact that evidence has been altered or destroyed 15 does not necessarily mean that the party has engaged in 16 sanction-worthy spoliation. Ashton v. Knight Transp., Inc., 17 772 F.Supp.2d 772, 799-800 (N.D. Tex. 2011). Evidence of spoliation may 18 Spoliation of evidence raises the presumption that the 19 destroyed evidence goes to the merits of the case, and 20 further, that such evidence was adverse to the party that 21 destroyed it. Apple II, 888 F.Supp 2d at 998 [citing Hynix 22 Semiconductor v. Rambus, 591 F.Supp 2d 1038, 1060 (N.D. 23 Cal. 2006), vacated on other grounds in Hynix Semiconductor 24 v. Rambus, 645 F.3d 1336 (D.C. Cir. 2011)]. In the Ninth 25 Circuit, "a party's destruction of evidence need not be in 26 'bad faith' to warrant a court's imposition of sanctions." 27 In re Napster, Inc. Copyright Litigation, 462 F.Supp 2d 28 1060, 1066 (N.D. Cal. 2006) [citing Glover v. BIC Corp., 6 11 10cv0541 1 F.3d 1318, 1329 (9th Cir.1993)]. The Ninth Circuit has 2 instructed that district courts may impose sanctions even 3 against a spoliating party that merely had "simple notice 4 of 'potential relevance to the litigation.'" Glover, 6 F.3d 5 at 1329 [quoting Akiona v. United States, 938 F.2d 158, 161 6 (9th Cir.1991)]. 7 While the Court has the discretion to impose sanctions, 8 “the sanction should be designed to: (1) deter parties from 9 engaging in spoliation; (2) place the risk of an erroneous 10 judgment on the party who wrongfully created the risk; and 11 (3) restore the prejudiced party to the same position he 12 would have been in absent the wrongful destruction of 13 evidence by the opposing party." West v. Goodyear Tire & 14 Rubber Co., 167 F.3d 776, 779 (2d Cir. 1999). To decide 15 which 16 generally consider three factors: "(1) the degree of fault 17 of the party who altered or destroyed the evidence; (2) the 18 degree of prejudice suffered by the opposing party; and (3) 19 whether 20 substantial unfairness to the opposing party." Apple II, 21 888 F.Supp.2d at 992. Prejudice is determined by evaluating 22 whether the spoliating party’s actions impaired the non- 23 spoliating party’s ability to go to trial, threatened to 24 interfere with the rightful decision of the case, or forced 25 the non-spoliating party to rely on incomplete and spotty 26 evidence. In re Hitachi, 2011 WL 3563781 at *6 [citing Leon 27 v. IDX Systems Corp., 464 F.3d 951, 959 (9th Cir. 2006)]. specific there spoliation is a sanction lesser to sanction impose, that will courts avoid 28 12 10cv0541 1 C. Defendants’ Spoliation 2 Defendants’ duty to preserve documents arose on October 3 22, 4 potential 5 market their alleged infringing product. The evidence is 6 clear that Defendants destroyed at least some documents as 7 alleged by Plaintiffs. Plaintiffs have suffered prejudice 8 as a result of Defendants’ spoliation of evidence because 9 the destroyed documents are highly probative of the claims 10 2008, when Plaintiffs lawsuit against notified them Defendants should they of decide a to at issue in this litigation. Plaintiffs show that one of Defendants’ key senior 11 12 employees, 13 indisputably 14 Defendants’ failure to put in place a litigation hold. 15 Although Plaintiffs failed to identify specific emails that 16 were not produced, Aravena testified that she did not 17 provide Defendants’ counsel with any emails, including 18 emails relating to the design of the accused products, 19 because she deleted them. Further, Aravena testified that 20 no 21 communications are especially probative of the claims at 22 issue in this litigation because her current and past 23 employment 24 development, 25 infringing on the Patents-In-Suit. As a result, the Court 26 concludes that Defendants spoliated Aravena’s emails. 27 28 one Aravena, told Director destroyed her with and Plaintiffs not email to testing show of Design Engineering, communications delete Defendants also of her emails. involved the that the products Niznick, due to Aravena’s design, accused of Defendants’ President and CEO, destroyed emails that he sent to third 13 10cv0541 1 party dentists.6/ 2 accounts, he did not produce or preserve any of the emails 3 in those accounts because he saved any communications he 4 deemed 5 Plaintiffs obtained two of Niznick’s emails from third 6 parties, that were not produced by Defendants, that support 7 the contention that Niznick was inducing the third parties 8 to infringe on the Patents-In-Suit. While Plaintiffs have 9 been relevant able to Niznick testified that of his six email to a obtain file these of desktop.7/ his communications However, from third 10 parties, there may have been additional communications of 11 a similar sort that were destroyed that are especially 12 probative 13 Consequently, the Court concludes that Defendants spoliated 14 at 15 obtained from third parties. least of the the two claims emails at issue from in this Niznick that litigation. Plaintiffs 16 Although Defendants argue that there was no need 17 for a litigation hold because of their document retention 18 policy, it is obvious that Defendants’ document retention 19 policy did not prevent documents from being destroyed. 20 Further, 21 prevent the destruction of documents, and although their 22 employees’ emails were automatically preserved to a server Defendants did not have a back-up system to 23 24 25 26 27 28 6/ The Court is unsure whether Niznick’s emails were destroyed intentionally. The emails are dated November 12, 2008 and December 3, 2008, after October 22, 2008, when Defendants should have put in place a litigation hold. The Court finds that Niznick’s emails were destroyed as a result of Defendants’ failure to put in place a litigation hold. 7/ The Court notes that Niznick is not the final arbiter of what evidence is relevant in this action. Previously, the Court admonished Defendants’ counsel that they, and not Niznick, should search for and produce documents to Plaintiffs that could be relevant to a claim or defense in this action. (Order Regarding Production of Documents And Deposition of Dr. Gerald Niznick, April 19, 2012, Docket No. 94). 14 10cv0541 1 under Defendant’s control, the emails could have been 2 deleted from the server. Plaintiffs 3 contend that the packaging and 4 information pertaining to the alleged infringing tool were 5 intentionally 6 obtained the alleged infringing tool from a third party. 7 However, the production of the tool did not include any 8 labels or documents that may have been included with the 9 tool. The labels and any corresponding instructions for the 10 tool are probative of the trademark infringement claims 11 alleged in this litigation. Although Defendants have agreed 12 to produce to Plaintiffs samples of the tool, labels and/or 13 instructions, they may not have retained any samples. 14 Without more, the Court cannot conclude that Defendants 15 spoliated evidence pertaining to the tool. not Nevertheless, 16 produced and individually destroyed. and Plaintiffs collectively, the 17 aforementioned facts support imposition of some form of 18 sanction against Defendants. Defendants’ inactions warrant 19 sanctions 20 notice of potential litigation, they failed to issue a 21 litigation hold, and failed to monitor their employees’ 22 document preservation efforts. These inactions resulted in 23 the destruction of documents relevant to this litigation. D. 24 because they received from Plaintiffs Appropriate Sanctions Courts 25 after may sanction parties responsible for 26 spoliation of evidence in four ways: (1) Instruct the jury 27 that 28 destroying the evidence; In re Napster, 462 F.Supp 2d at it may draw an inference 15 adverse to the party 10cv0541 1 1066, 2 testimony based on the destroyed evidence proffered by the 3 party 4 Napster, 462 F.Supp 2d at 1066 (citing Glover, 6 F.3d at 5 1329); (3) Dismiss the claim of the party responsible for 6 destroying the evidence; In re Napster, 462 F.Supp 2d at 7 1066, [citing Chambers v. NASCO, 501 U.S. 32, 45 (1991)]; 8 (4) Assess monetary sanctions for the costs of bringing the 9 motion for sanctions for spoliation of evidence under Fed. 10 (citing Glover responsible at for 1329); destroying (2) the Exclude witness evidence; In re R. Civ. P. 37. 11 Courts should choose “the less onerous sanction 12 corresponding to the willfulness of the destructive act and 13 the 14 F.Supp. 2d at 992, [citing Schmid v. Milwaukee Elec. Tool 15 Corp., 13 F.3d 76, 79 (3rd Cir. 1994)]. The choice of 16 appropriate sanction must be determined on a case-by-case 17 basis and should be commensurate to the spoliating party’s 18 motive or degree of fault in destroying the evidence. Apple 19 II, 888 F.Supp 2d at 993. prejudice suffered by the victim.” Apple II, 888 Plaintiffs seek the entry of a default judgment 20 21 against Defendants, 22 instruction to be read to the jury at the trial of this 23 action. Plaintiffs also seek monetary sanctions in the form 24 of their attorney’s fees and costs for bringing this Motion 25 and the additional expenses incurred in connection with 26 their 27 evidence. 28 considered below. efforts Each in of and an exposing these adverse Defendants’ potential 16 inference jury spoliation sanctions will of be 10cv0541 1. 1 Default Judgment 11 When considering a default sanction in response to spoliation of evidence, the court must determine (1) the existence of certain extraordinary circumstances, (2) the presence of willfulness, bad faith, or fault by the offending party, (3) the efficacy of lesser sanctions, [and] (4) the relationship or nexus between the misconduct drawing the [default] sanction and the matters in controversy in the case. In addition, the court may consider the prejudice to the moving party as an optional consideration where appropriate. This multi-factor test is not a mechanical means of determining what discovery sanction is just, but rather a way for a district judge to think about what to do. Bobrick Washroom Equip., Inc. v. Am. Specialties, Inc., 12 2012 WL 3217858 at *5, [citing In re Napster, 462 13 F.Supp 2d at 1070 (N.D. Cal.2006) (quoting Halaco Eng'g Co. 14 v. Costle, 843 F.2d 376, 380 (9th Cir. 1988); Valley 15 Engineers, Inc. v. Electric Eng'g Co., 158 F.3d 1051, 1057 16 (9th 17 omitted). 2 3 4 5 6 7 8 9 10 Cir. 1998)](internal The 18 Court case. default judgment respect 21 materials amounts to gross negligence, but that conduct 22 does not rise to the level of bad faith sufficient to 23 warrant default judgment under the circumstances. Leon, 464 24 F.3d at 961 (affirming default judgment where the defendant 25 admitted he had intentionally deleted information from his 26 company-issued laptop computer and had written a program to 27 remove any deleted files from the computer's hard drive, 28 noting the district court's bad-faith determination, which 17 and conduct is 20 preserving Defendants’ quotations inappropriate not this that and 19 to in concludes citations destroying with discovery 10cv0541 1 is a prerequisite to dismissing a case pursuant to a 2 court's inherent power, was not clearly erroneous). 2. Adverse Inference Jury Instruction 3 4 The majority of courts, including many courts in 5 the Ninth Circuit, apply "the three-part test set forth in 6 Zubulake v. UBS Warburg, LLC, 220 F.R.D. 212, 216 (S.D. NY 7 2003), 8 inference spoliation instruction." Apple I, 881 F.Supp 2d 9 1138. for determining whether to grant an adverse 10 In Zubulake, the court stated: 11 A party seeking an adverse inference instruction (or other sanctions) based on the spoliation of evidence 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; (2) that the records were destroyed with a ‘culpable state of mind’ and (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. 12 13 14 15 16 17 18 Zubulake, 220 F.R.D. at 220 [citing Residential Funding 19 Corp. v. DeGeorge Fin'l Corp., 306 F.3d 99, 108 (2d Cir. 20 2002)]; 21 Surowiec v. Capital Title Agency, Inc., 790 F.Supp 2d 997, 22 1005 (D. AZ 2011); Lewis v. Ryan, 261 F.R.D. 513, 521 23 (S.D.Cal. 2009). see also Apple II, 888 F.Supp 2d at 989-90; 24 The Ninth Circuit generally has found that "[A]s 25 soon as a potential claim is identified, a litigant is 26 under 27 reasonably should know is relevant to the action." 28 II, 888 F.Supp. at 991, (citing In re Napster, 462 F.Supp a duty to preserve evidence 18 which it knows or Apple 10cv0541 1 2d at 1067). "When evidence is destroyed in bad faith, that 2 fact 3 Zubulake, 4 destruction is negligent, relevance must be proven by the 5 party seeking the sanctions." Id. alone is 220 sufficient F.R.D. at to 220. demonstrate "By relevance." contrast, when the 6 To find “culpable state of mind,” a court need 7 only find that a spoliater acted in “conscious disregard” 8 of its obligations to not destroy documents. Apple II, 888 9 F.Supp 2d at 989-990, [citing Hamilton v. Signature Flight 10 Support Corp., 2005 WL 3481423 at *7 (N.D. Cal. 2004), Io 11 Group v. GLBT, Ltd., 2011 WL 4974337 at *7 (N.D. Cal. 12 2011)]. However, where a non-spoliating party fails to show 13 a 14 destruction 15 inference instruction or evidence preclusion. Apple II, 888 16 F.Supp.2d at 993. degree of fault of and documents level does of not prejudice, warrant negligent an adverse 17 If spoliation is shown, the burden of proof shifts 18 to the guilty party to show that no prejudice resulted from 19 the spoliation, because that party "is in a much better 20 position to show what was destroyed and should not be able 21 to benefit from its wrongdoing.” 22 at 998, [citing Hynix Semiconductor v. Rambus, 591 F.Supp 23 2d 1038, 1060 (N.D. Cal. 2006), vacated on other grounds in 24 Hynix Semiconductor v. Rambus, 645 F.3d 1336 (D.C. Cir. 25 2011); In re Hitachi, 2011 WL 3563781 at *6]. Apple II, 888 F.Supp 2d 26 Defendants had control of all of their email and 27 non-email documents. They had an obligation to preserve 28 them. As soon as Defendants were notified of a potential 19 10cv0541 1 lawsuit, Defendants were under a duty to preserve evidence 2 which 3 relevant to the action. Once Defendants were notified of a 4 potential lawsuit, it was their responsibility to suspend 5 any 6 destruction of documents and to ensure all employees knew 7 to preserve all documents related to the alleged infringing 8 products. Here, Defendants would have had reason to know 9 that the documents were relevant in this action because the 10 documents contained information that related directly to 11 the design of the alleged infringing products and were 12 communications to third parties on the use of the alleged 13 infringing products with Plaintiff’s product. Accordingly, 14 Defendants had control over the documents and an obligation 15 to preserve them. They did not discharge this obligation. 16 Defendants destroyed the documents with a culpable it knew, existing of or reasonably policies mind. should related Defendants, the deletion or 18 willful, 19 documents, allowed the documents to be destroyed by failing 20 to implement a litigation hold and a document preservation 21 policy. Thus, Defendants were at least negligent in not 22 implementing a litigation hold on or after October 22, 23 2008, and not giving any affirmative instructions to their 24 employees to preserve potentially relevant documents. their obligation or were state of conscious, known, 17 disregard in to have to perhaps preserve 25 Plaintiffs are prejudiced by the destruction of 26 Aravena’s and Niznick’s emails because the contents of 27 these documents are directly relevant to the claims at 28 issue in this litigation. As a result, Plaintiff is now 20 10cv0541 1 forced to go to trial while relying on incomplete evidence. Defendants 2 attempt to rebut the presumption of 3 prejudice by stating that they produced all of Aravena’s 4 emails, that Plaintiff has not shown that any specific 5 emails are missing, and that her emails were irrelevant to 6 Plaintiff’s expert’s opinions. Further, Defendants contend 7 that Plaintiffs are not prejudiced by the destruction of 8 Niznick’s 9 Plaintiffs have failed to show that any other similar communications exist. with 11 Plaintiffs already have the tool and its packaging, they 12 need nothing more and cannot be prejudiced. However, none 13 of 14 because spoliation of evidence carries the presumption that 15 the destroyed evidence goes to the merits of the case. 16 Further, it is not possible for Plaintiffs to point to 17 specific emails that were destroyed. 18 have submitted ample evidence for this Court to determine 19 that documents relevant to the claims in this action were 20 destroyed because of Defendants’ negligent conduct. As 21 a sanction actually for argue because emails contentions Defendants parties, 10 these Finally, third rebut the that since presumption, Moreover, Plaintiffs Defendant’s spoliation of 22 relevant evidence, the Court RECOMMENDS that an adverse 23 inference instruction should be read to the jury. This 24 recommendation is warranted in light of the degree of 25 Defendants’ fault and the degree of prejudice Plaintiffs 26 have 27 willful disregard of its obligations, and in the absence of suffered. Based on Defendants’ conscious and/or 28 21 10cv0541 1 bad faith, the Court RECOMMENDS that the jury be instructed 2 as follows: Defendants failed to prevent the destruction of relevant evidence for Plaintiffs’ use in this litigation. The evidence pertains to the design, development, and testing, of Defendants’ products and Plaintiffs’ claims that Defendants induced infringement of Plaintiffs’ patents. This failure resulted from Defendants’ failure to perform their discovery obligations. 3 4 5 6 7 8 You may, if you find appropriate, presume from that destruction, that the evidence destroyed was relevant to Plaintiffs’ case and that the destroyed evidence was favorable to Plaintiffs. 9 10 11 Whether this finding is important to you in reaching a verdict is for you to decide. 12 13 Food Service of America, Inc. v. Carrington 2013 WL 14 4507593 at *22 (D. AZ 2013), Chamberlain v. Les Schwab Tire 15 Center of California, 2012 WL 6020103 at *6 (E.D. Cal. 16 2012). 17 18 3. Attorney’s Fees and Costs 19 Monetary sanctions may be imposed where one party 20 has wrongfully destroyed evidence. See, e.g., National 21 Ass'n of Radiation Survivors, 115 F.R.D. 543, 558-59 (C.D. 22 Cal. 1987). Plaintiffs claim that they are entitled to 23 their attorneys' fees incurred as a result of Defendants’ 24 misconduct, with bringing this Motion, and with additional 25 investigation efforts involved in bringing the misconduct 26 to the Court’s attention. 27 28 Here, the Court finds that monetary sanctions are warranted. Defendants’ negligence 22 and their denial of 10cv0541 1 spoliation of evidence caused delay and unnecessary costs 2 that could have been avoided had Defendants simply put in 3 place 4 preservation policy, as they were obligated to do. Further, 5 it is particularly egregious that, to date, Defendants have 6 not presented any evidence that they have ever implemented 7 a litigation hold in this case. litigation hold and monitored a document Therefore, Plaintiffs are entitled to an award of 8 9 a reasonable attorney fees in culpability. light of the Defendants’ 11 Plaintiff 12 associated attorneys' fees 13 bringing Defendants’ misconduct to the Court’s attention, 14 (2) 15 destroyed documents from third parties. Plaintiffs shall 16 submit a request for a specific amount of fees and costs, 17 with evidentiary support, for the Court's consideration. 18 V reasonable with bringing shall of 10 the Defendants degree (1) the the time instant spent Motion, by and reimburse and costs Plaintiffs (3) in obtaining CONCLUSION 19 20 The Federal Rules of Civil Procedure do not require 21 perfection or guarantee that every possible responsive 22 document 23 required to preserve evidence relevant to litigation and to 24 prevent spoliation. Defendants failed to preserve multiple 25 documents that are relevant to Plaintiff’s claims with the 26 requisite culpable state of mind to support a finding of 27 spoliation of evidence. will be found and/or produced. Parties are 28 23 10cv0541 After review of all the evidence presented, and for the 1 2 reasons stated above, the Court rules as follows: 1. The Court RECOMMENDS that Plaintiffs’ Motion 3 4 for 5 adverse inference jury instruction, be GRANTED. 6 7 8 9 Sanctions, to the extent that Plaintiffs seek an 2. Plaintiff’s Motion for Sanctions, to the extent Plaintiffs seek monetary sanctions, is GRANTED. 3. Plaintiff’s Motion for Sanctions, to the extent Plaintiffs seek a default judgment, is DENIED. 10 IT IS FURTHER ORDERED that on or before December 31, 11 2013, Plaintiffs shall file with the Court substantiation 12 of the reasonable attorneys' fees and costs associated with 13 (1) the time spent by Plaintiffs in bringing Defendants’ 14 spoliation 15 bringing the current Motion, and (3) obtaining destroyed 16 documents from third parties. 17 of evidence to the Court’s attention, (2) As noted above, the undersigned Magistrate Judge 18 RECOMMENDS that Plaintiffs’ Motion for Sanctions, to the 19 extent that Plaintiffs seek an adverse inference jury 20 instruction, be GRANTED. 21 This Recommendation of the undersigned Magistrate 22 Judge is submitted to the United States District Judge 23 assigned to this case, pursuant to the provision of 28 24 U.S.C. Section 636(b)(1). 25 IT IS ORDERED that no later than December 31, 2013 26 any party to this action may file written objections with 27 the Court and serve a copy on all parties. The document 28 24 10cv0541 1 should be 2 Adverse Inference Jury Instruction.” IT 3 captioned IS “Objections FURTHER ORDERED to that Recommendation any reply to for the 4 objections shall be filed with the Court and served on all 5 parties no later than January 14, 2014. The parties are 6 advised 7 specified 8 objections on appeal of the Court’s order. 9 Ylst, 951 F.2d 1153 (9th Cir. 1991). that time failure may to waive file the objections right to within raise the those Martinez v. 10 11 12 DATED: November 25, 2013 13 14 Hon. William V. Gallo U.S. Magistrate Judge 15 16 17 18 19 20 21 22 23 24 25 26 27 28 25 10cv0541
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