AtPac, Inc v. Aptitude Solutions, Inc., et al

Filing 154

MEMORANDUM and ORDER signed by Judge William B. Shubb on 4/12/2011 ORDERING that Dfts' 91 motion for appointment of a special master and stay is DENIED. Pltf's 112 motion for terminating sanctions or, in the alternative, issue sanctions is DENIED to the extent Pltf seeks default sanctions and GRANTED to the extent Pltf seeks an adverse inference jury instruction. (Zignago, K.)

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UNITED STATES DISTRICT COURT
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EASTERN DISTRICT OF CALIFORNIA
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NO. CIV. 2:10-294 WBS JFM

ATPAC, INC., a California
corporation,
Plaintiff,

MEMORANDUM AND ORDER RE:
PLAINTIFF’S MOTION FOR
TERMINATING SANCTIONS AND
DEFENDANTS’ MOTION FOR
APPOINTMENT OF SPECIAL MASTER
AND STAY

v.

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APTITUDE SOLUTIONS, INC., a
Florida corporation, COUNTY OF
NEVADA, a California County,
and GREGORY J. DIAZ, an
individual,

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Defendants.

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/
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Plaintiff AtPac, Inc., filed this action against
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defendants Aptitude Solutions, Inc. (“Aptitude”), County of
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Nevada, and Gregory J. Diaz, alleging breach of contract,
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misappropriation of trade secrets under the California Uniform
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Trade Secrets Act (“CUTSA”), Cal. Civ. Code §§ 3426-3426.11, and
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copyright infringement.1

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sanctions against defendants, and defendants move for appointment

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of a special master and a stay of the non-copyright claims.

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I.

Plaintiff now moves for terminating

Evidentiary Objections

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The parties have filed numerous evidentiary objections.

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“While the Federal Rules of Evidence do not necessarily apply in

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the context of a motion for sanctions, evidence relied upon must,

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at a minimum, bear indicia of reliability.”

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Coral Grp., Inc. v. Shell Oil Co., 559 F.3d 888, 901 (8th Cir.

Sentis Grp., Inc.,

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2009); see Jensen v. Phillips Screw Co., 546 F.3d 59, 66 n.5 (1st

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Cir. 2008).

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on a motion to stay.

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Inc., No. C-07-06053, 2008 WL 2168917, at *6 (N.D. Cal. May 23,

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2008) (taking evidentiary objections into account in assessing

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the weight of the evidence and disregarding any legal argument or

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conclusions, but overruling objections on motion to stay).

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court can find no cases in which evidentiary objections were made

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on a motion for appointment of a special master, but it is clear

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in comparing this type of motion to other pretrial, non-

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dispositive motions that evidence need not be submitted in a form

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that would be admissible at trial.

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Similarly, evidentiary objections are inappropriate
See Network Appliance Inc. v. Sun Microsys.

The

The court is satisfied that the evidence upon which it
relies2 bears indicia of reliability, and thus the parties’

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Plaintiff’s fourth claim, under the Computer Fraud and
Abuse Act, 18 U.S.C. § 1030, was dismissed by the court on August
4, 2010. (Docket No. 30.)
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To the extent that the parties’ evidentiary objections
are actually arguments about the relevance of evidence or the
weight the court should give to the evidence, the court has
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objections are overruled.

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II.

Factual and Procedural Background

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Plaintiff provides software and consulting services

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related to county clerk-recorder information imaging systems.

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(First Am. Compl. (“FAC”) ¶ 3 (Docket No. 22).)

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are computer-based and designed to, inter alia, electronically

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receive, store, and organize information that is within the

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purview of a county clerk-recorder and store images of relevant

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documents associated with this information.

These systems

(Id.)

Plaintiff’s

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clerk-recorder imaging information software is distributed under

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the mark “CRiis.”

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License Agreement with County of Nevada for the CRiis software

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and related products and services.

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Agreement was amended between 2001 and 2006, the most recent of

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which extended the term of the License Agreement until June 30,

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2010.

(Id.)

In 1999, plaintiff entered into a

(Id. ¶ 12.)

The License

(Id. ¶ 13.)

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The License Agreement allegedly provides, inter alia,

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that plaintiff retains title to the software, that the software

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constitutes a trade secret and that County of Nevada will not

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release or disclose the software to third parties (id. ¶ 14),

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that County of Nevada will notify AtPac immediately of any known

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or suspected unauthorized use or access of the software (id. ¶

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16), and that all documents provided to County of Nevada may not

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be reproduced by County of Nevada (id. ¶ 17).

In 1999, pursuant

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considered those arguments. To the extent that statements in
declarations are based on speculation, improper legal
conclusions, or argument, those statements are not facts and the
court does not consider them as such. See Burch v. Regents of
Univ. of Cal., 433 F. Supp. 2d 1110, 1119 (E.D. Cal. 2006).
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to the License Agreement, plaintiff installed the CRiis software

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on a dedicated AtPac-maintained server, called ER-Recorder, which

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was housed with County of Nevada.

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agreed that plaintiff would be the exclusive system administrator

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of the ER-Recorder server.

(Id. ¶ 24.)

The parties

(Id.)

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In November of 2008, County of Nevada began discussions

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with Aptitude to replace plaintiff as the County’s clerk-recorder

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software provider.

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County of Nevada, allegedly rejected plaintiff’s offer to help

(Id. ¶ 28.)

Diaz, the Clerk-Recorder of

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the County extract the data from plaintiff’s files and convert it

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into a form usable by Aptitude.

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represented in a January 8, 2009, letter that County of Nevada

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would extract the data from the CRiis files on its own, and that

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County of Nevada would not provide AtPac’s trade secret

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information to Aptitude or save the trade secret and proprietary

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information.

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(Id. ¶¶ 32-33.)

Diaz allegedly

(Id. ¶¶ 33-34.)

Plaintiff alleges that County of Nevada did not perform

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the data extraction itself and that it instead provided Aptitude

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with plaintiff’s trade secret and copyright-protected

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information.

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County of Nevada with the “AS-Nevada” server to give Aptitude

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access to County of Nevada’s data through a remote connection.

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(McGrath Decl. in Supp. of Defs.’ Opp’n ¶¶ 6-8 (Docket No. 144);

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Dion Decl. in Supp. of Defs.’ Opp’n ¶ 2.)

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that on November 4, 2008, two Aptitude employees used a computer

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logged in simultaneously to the ER-Recorder server and Aptitude’s

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AS-Nevada server, and that the employees transferred files from

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the ER-Recorder server to the AS-Nevada server.

(Id. ¶ 39.)

In November of 2008, Aptitude provided

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Plaintiff contends

(Mem. of P. & A.

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in Supp. of Pl.’s Mot. at 5:12-26 (Docket No. 137).)

Plaintiff

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also contends that Aptitude was able to log in to the AS-Nevada

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server after that day and remotely connect to the ER-Recorder

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server.

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A.

(Id. at 7:2-6.)
Facts Relevant to Defendants’ Motion for Appointment of

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Special Master and Stay

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On August 10, 2010, defendants requested to examine the

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ER-Recorder server, and on October 15, 2010, County of Nevada

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propounded discovery requests calling for the production of the

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allegedly infringed aspects of CRiis.

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of Defs.’ Mot. ¶¶ 2, 3, Ex. B.)

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magistrate judge entered a protective order governing the

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pretrial handling of documents.

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70).)

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counsel’s office and that Aptitude’s software, OnCore, be

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inspected where the source code is maintained or another mutually

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agreed-upon location.

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party proposed a protocol for reviewing the source codes, which

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involved some combination of independent reviews and side-by-side

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comparisons.

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I, J.)

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2011, the parties had not yet agreed on a protocol.

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However, defendants were able to begin an inspection of CRiis

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between March 2 and 4, but could not finish the inspection

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because defendants’ expert did not have the right equipment.

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(Thomas Decl. in Supp. of Pl.’s Mot. ¶¶ 3-6; Menz Decl. in Supp.

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of Pl.’s Mot. ¶¶ 6-7.)

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(Abu-Assal Decl. in Supp.

On December 10, 2010, the

(Protective Order (Docket No.

The Order required that CRiis be inspected at plaintiff’s

B.

(Id. at 12:13-26.)

Soon thereafter, each

(Muller Decl. in Supp. of Defs.’ Mot. ¶¶ 2-5, Exs.

As of the filing of the instant motion on February 17,
(Id. ¶ 16.)

Facts Relevant to Plaintiff’s Motion for Terminating
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Sanctions

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In May and June of 2009, before the instant action had

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commenced, plaintiff requested access to both servers in order to

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“ensure all AtPac software, and CRiis databases, ha[d] been

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deleted.”

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D.)

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confirmed on August 16, 2009, that all data files transferred

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from the ER-Recorder server had been deleted from the AS-Nevada

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server.

(Barale Decl. in Supp. of Defs.’ Opp’n ¶ 2, Exs. C,

County of Nevada conveyed the request to Aptitude, which

(Id. ¶ 3; McGrath Decl. ¶ 11, Ex. E; Cox Decl. in Supp.

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of Defs.’ Opp’n ¶ 12.)

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of Nevada’s counsel, plaintiff acknowledged that the files had

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been deleted:

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In a September 11, 2009, letter to County

[Y]ou have represented that the County has deleted all of
the CRiis™ program data from the “Aptitude FTP” site,
that the County has provided no information belonging to
AtPac other than certain “.dat files” to Aptitude, that
the County has no intention of providing any additional
data from the CRiis™ system to Aptitude, and that the
County has received assurances from Aptitude that this
information was used solely for extraction purposes and
has since been deleted.

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(McLeran Decl. in Supp. of Defs.’ Opp’n ¶ 5, Ex. G.)

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which proposed a possible resolution of the dispute, went on to

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ask for a statement under oath including “confirmation that any

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and all copies of AtPac’s information, including CRiis™ program

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files and data, have been permanently deleted from both the

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County’s server and from Aptitude’s computer systems, including

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all back-up systems (including all tape backups) . . . .”

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The letter,

(Id.)

On September 23, 2009, plaintiff filed a government

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tort claim against the County of Nevada, which addressed

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defendants’ wrongful access to and extraction of data from the

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ER-Recorder server.3

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Mot. Ex. A (Docket No. 118).)

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plaintiff instructed defendants’ counsel in writing that

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defendants were obligated to “maintain all copies of data (both

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in hard copy and electronic form) relevant to this dispute.”

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(Thomas Decl. ¶ 17, Ex. P.)

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its initial complaint against defendants.

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(Pl.’s Req. for Judicial Notice in Supp. of
On October 20, 2009, counsel for

On February 3, 2010, plaintiff filed

In December of 2009, as part of the virtualization of
their physical servers, County of Nevada requested of Aptitude

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that the AS-Nevada server “be cleaned up and all unnecessary

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files and configurations removed.”

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G, L.)

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need in the future to help with support.”

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M.)

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the server.

(Thomas Decl. ¶¶ 8, 13, Exs.

Defendants then removed all but the files Aptitude “may
(Id. ¶¶ 8, 14, Exs. G,

At that time, any CRiis data had already been deleted from

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On February 19, 2010, soon after the filing of the

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complaint, the Deputy Counsel for County of Nevada issued a

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litigation hold notice to the affected employees, instructing

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recipients to “preserve all records, correspondence, written

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material, electronically stored material, or other information

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Plaintiff asks the court to take judicial notice of its
government tort claim filed on September 23, 2009, and the letter
from the County of Nevada Board of Supervisors denying that
claim. (Docket No. 118.) The court may take judicial notice of
facts “not subject to reasonable dispute” because they are either
“(1) generally known within the territorial jurisdiction of the
trial court or (2) capable of accurate and ready determination by
resort to sources whose accuracy cannot reasonably be
questioned,” Fed. R. Evid. 201, which includes “matters of public
record.” Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir.
2001). Both of these documents are matters of public record
whose authenticity is not disputed, and the court will take
judicial notice of them.
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related to the County’s involvement with AtPac, Inc. and Aptitude

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Solutions, regardless of form” and to “inform any members of

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[their] staff who might be in possession of such relevant

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evidence to not discard or destroy any records relating to this

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prosecution.”

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(McLeran Decl. ¶ 7, Ex. H.)

Also on February 19, 2010, Kathy Barale, an Information

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System Analyst for County of Nevada, and Alana Wittig, a Project

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Manager for Aptitude, began to discuss scrubbing the AS-Nevada

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server in preparation for returning it to Aptitude.

(Thomas

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Decl. ¶¶ 8, 15, Exs. G, N.)

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was scrubbed because County of Nevada’s servers were being

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virtualized and thus the County did not need to retain the

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physical server.

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County of Nevada was required by law to remove public data from

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the server before returning it to Aptitude.

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County of Nevada’s Deputy Counsel’s litigation hold, staff did

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not believe that the hold precluded them from scrubbing the

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server because the data had already been deleted and the contents

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of the server as it then existed were saved on the virtual

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server.

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was placed in queue to be wiped on March 22, 2010 (Monaghan Decl.

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¶ 9, Ex. J), but because of the backlog of servers to be wiped,

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the task was reassigned and eventually completed in the middle of

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October of 2010, but was not reported as completed until November

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10, 2010.

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Defendants contend that the server

(Monaghan Decl. in Supp. of Defs.’ Opp’n ¶ 4.)

(Id. ¶ 10; Barale Decl. ¶¶ 5-8.)

(Id. ¶ 9.)

Despite

The AS-Nevada server

(Paredes Decl. in Supp. of Defs.’ Opp’n ¶ 2.)
Plaintiff believes that had the server not been

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scrubbed, it would have been possible for a forensic examination

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to determine what information from the ER-Recorder server had
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been transferred to the AS-Nevada server.

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of Pl.’s Mot. ¶¶ 4-5.)

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Nevada server was not configured with the capability or software

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to track if and when particular files were transferred to or from

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the server, so forensic examination might not have been effective

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even before the server was scrubbed.

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(Menz Decl. in Supp.

However, defendants contend that the AS-

(Dion Decl. ¶¶ 3-4.)

Plaintiff complains of several other alleged discovery

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abuses by defendants: defendants (1) failed to identify the AS-

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Nevada server as the device corresponding to an IP address known

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to have accessed the ER-Recorder server; (2) failed to produce

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any documents related to the spoliation of the AS-Nevada server

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until after the scrubbing took place, making it impossible for

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plaintiff to prevent the scrubbing; (3) failed to produce

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documents relating to Placer County, another county in which

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Aptitude was engaged in converting from plaintiff’s software to

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its own; and (4) failed to produce handwritten notes until the

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day before a hearing on plaintiff’s motion to compel production.

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(Defs.’ Mot. at 14:9-17:8.)

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Defendants respond by stating that (1) plaintiff never

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asked for them to identify the IP address (Opp’n at 20:20-24,

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38:11-14); (2) defendants produced documents related to the

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scrubbing on or before the date by which they were required to

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produce such documents (id. at 21:1-5, 38:15-18); (3) Aptitude’s

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in-house counsel mistakenly believed that all documents relating

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to Placer County had already been collected (id. at 22:12-23:10,

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37:1-17); and (4) defendants immediately produced the handwritten

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notes after discovering that they were inadvertently omitted,

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conduct for which it has already been sanctioned (id. at 38:199

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25; Dec. 10, 2010, Order (Docket No. 71)).

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Plaintiff has previously brought two successful motions

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to compel, one of which resulted in monetary sanctions against

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defendants.

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disputes are currently pending before the magistrate judge.

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(Docket Nos. 75, 90.)

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III. Discussion

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A.

(Docket Nos. 42, 56, 71.)

Two other discovery

Appointment of a Special Master and Stay
Defendants ask the court to appoint a special master to

(1) determine the terms of the protocol for the
examination of the County’s servers and the side-by-side
examination of the CRiis and OnCore source code and
related software based on the special master’s expertise
in the field and from the proposals made by the parties,
(2) supervise the examination of the servers and the
comparison of CRiis and OnCore along with the parties and
their
consultants,
and
(3)
make
a
Report
and
Recommendation to the Court as to findings of fact with
regard to forensic examination of the servers, whether
the CRiis and OnCore source code are substantially
similar, whether the CRiis GUIs and data files contain
the requisite level of creative expression to warrant
protection under the Copyright Act, and whether any
substantial similarity exists with respect to any other
protectable portions of the CRiis and OnCore programs.

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(Defs.’ Mot. at 2:11-22 (Docket No. 91).)

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A court may appoint a special master only to:

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(A) perform duties consented to by the parties;
(B) hold trial proceedings and make or recommend findings
of fact on issues to be decided without a jury if
appointment is warranted by:
(i) some exceptional condition; or
(ii) the need to perform an accounting or resolve a
difficult computation of damages; or
(C) address pretrial and posttrial matters that cannot be
effectively and timely addressed by an available district
judge or magistrate judge of the district.

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Fed. R. Civ. P. 53(a)(1).

Plaintiff has not consented to the

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appointment of a special master.
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Defendants’ request for the

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special master to determine a protocol and supervise the

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examination appears to be brought under Rule 53(a)(1)(C)

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regarding pretrial matters, and their request that the special

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master recommend findings of fact appears to be based on Rule

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53(a)(1)(B)(i), which relates to trial proceedings when an

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exceptional condition applies.

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The impetus for defendants’ request for a special

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master, particularly the first two tasks they wish the special

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master to perform, appears to be their sense that an impasse has

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been reached in agreeing on a protocol for examining the parties’

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source codes.

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parties have apparently begun the process of examining the CRiis

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software.

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interference in the form of appointing a special master is

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unnecessary.

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parties are unable to determine the terms of a protocol or that

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they require supervision to examine the software.

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that the parties cannot agree, defendants have not shown that

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such matters cannot be effectively and timely addressed by the

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court.4

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parties may request that the magistrate judge alter the

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protective order to deal with new conflicts, but a special master

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is not necessary nor would one be effective for that purpose.

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The protective order is already in place and defendants have not

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shown that it is insufficient to protect the parties’ interests.

Since the filing of the instant motion, the

This demonstrates to the court that extraordinary

Defendants have not shown, for example, that the

See Fed. R. Civ. P. 53(a)(1)(C).

To the extent

If necessary, the

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To the extent defendants’ motion is
plaintiff’s failure to cooperate in discovery
noting that plaintiff will presumably require
software’s source codes in order to establish
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based on
to date, it bears
review of the
some of its claims.

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Furthermore, plaintiff has requested a jury trial.

A

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special master cannot decide questions reserved for the jury.

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Fed. R. Civ. P. 53(a)(1)(B).

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copyright claim could be decided on summary judgment, the court

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declines to appoint a special master solely to make it easier for

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defendants to bring a summary judgment motion.

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ultimate determination of whether defendants infringed on

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plaintiff’s copyright may require technical expertise beyond the

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competency of a layperson or this court, the parties may present

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their experts’ opinions, which is the ordinary procedure in cases

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involving technical or specialized knowledge beyond the

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competency of a layperson or the court.

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If at a later date the appointment of a special master becomes

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necessary, defendants may renew their motion.

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While it is possible that the

Although the

See Fed. R. Evid. 702.

Defendants have also moved to stay the non-copyright

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claims pending a motion for summary judgment on the copyright

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claim that they intend to file at a later date.

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the power to stay proceedings “incidental to the power inherent

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in every court to control the disposition of the causes on its

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docket with economy of time and effort for itself, for counsel,

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and for litigants.”

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(1936).

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grounded at least in part in the same set of facts, a stay would

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be a waste of time and resources and might result in duplicative

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discovery.

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B.

The court has

Landis v. N. Am. Co., 299 U.S. 248, 254

Given that the copyright and non-copyright claims are

Accordingly, the court will deny the motion to stay.
Terminating Sanctions
District courts may impose sanctions as part of their

inherent power “to manage their own affairs so as to achieve the
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orderly and expeditious disposition of cases.”5

2

R.R. Co., 370 U.S. 626, 630-31 (1962); see also Unigard Sec. Ins.

3

Co. v. Lakewood Eng’g & Mfg. Corp., 982 F.2d 363, 368 (9th Cir.

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1992) (excluding evidence as a sanction for spoliation); In re

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Napster, Inc. Copyright Litig., 462 F. Supp. 2d 1060, 1066 (N.D.

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Cal. 2006).

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. . evidentiary rulings conducive to the conduct of a fair and

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orderly trial.’”

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Indus. v. M/V Gemini, 619 F.2d 24, 27 (9th Cir. 1980)).

Link v. Wabash

This power includes the “‘broad discretion to make .

Unigard, 982 F.2d at 368 (quoting Campbell

A district court’s inherent power to sanction may be

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invoked in response to spoliation of evidence.

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when a party destroys evidence after receiving some notice that

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the evidence was potentially relevant to litigation.

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States v. Kitsap Physicians Serv., 314 F.3d 995, 1001 (9th Cir.

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2002).

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opposing party may move to sanction the party that destroyed

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evidence.

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Spoliation occurs

United

If a party breaches its duty to preserve evidence, the

See Unigard, 982 F.2d at 365.
Courts may sanction parties responsible for spoliation

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of evidence in three ways.

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that it may draw an adverse inference against the party or

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witness responsible for destroying the evidence.

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BIC Corp., 6 F.3d 1318, 1329 (9th Cir. 1993); Akiona v. United

First, a court can instruct the jury

See Glover v.

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A court may also impose sanctions pursuant to Federal
Rule of Civil Procedure 37 for failure to comply with a court
order or disclose, supplement, or admit discovery responses.
Fed. R. Civ. P. 37(b), (c). The tests for Rule 37 sanctions and
“inherent power” sanctions are “subject to much the same
considerations,” Halaco Eng’g Co. v. Costle, 843 F.2d 376, 380
(9th Cir. 1988), but they are not identical. In re Napster, Inc.
Copyright Litig., 462 F. Supp. 2d 1060, 1075 n.4 (N.D. Cal.
2006).
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States, 938 F.2d 158, 161 (9th Cir. 1991).

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exclude witness testimony proffered by the party responsible for

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destroying the evidence and based on the destroyed evidence.

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Glover, 6 F.3d at 1329; Unigard, 982 F.2d at 368-69.

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court may enter default judgment against the party responsible

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for destroying the evidence.

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U.S. Phosmarine, Inc., 682 F.2d 802, 806 (9th Cir. 1982) (court

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may enter default judgment when sanctionable conduct is related

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to the merits of the controversy); Columbia Pictures, Inc. v.

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Bunnell, No. 2:06-cv-01093, 2007 WL 4877701, at *5 (C.D. Cal.

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Dec. 13, 2007); cf. In re Exxon Valdez, 102 F.3d 429, 432 (9th

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Cir. 1996) (a court may dismiss claims brought by the party

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responsible for discovery abuses).

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Second, a court can

See

Finally, a

See Phoceene Sous-Marine, S.A. v.

A party’s destruction of evidence need not be in “bad

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faith” to warrant a court’s imposition of sanctions.

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F.3d at 1329; Unigard, 982 F.2d at 368 n.2.

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impose sanctions against a party that merely had notice that the

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destroyed evidence was potentially relevant to litigation.

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Glover, 6 F.3d at 1329; Akiona, 938 F.2d at 161; cf. Unigard, 982

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F.2d at 368 n.2 (sanctions may be imposed for “willfulness or

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fault by the offending party”).

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degree of fault in destroying evidence is relevant to what

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sanction, if any, is imposed.

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1285, 1291 (M.D. Pa. 1994); see also Schmid v. Milwaukee Elec.

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Tool Corp., 13 F.3d 76, 79 (3d Cir. 1994) (courts should choose

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“the least onerous sanction corresponding to the willfulness of

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the destructive act and the prejudice suffered by the victim”).

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Glover, 6

District courts may

See

However, a party’s motive or

Baliotis v. McNeil, 870 F. Supp.

When considering a default sanction in response to
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spoliation of evidence, the court must determine “(1) the

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existence of certain extraordinary circumstances, (2) the

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presence of willfulness, bad faith, or fault by the offending

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party, (3) the efficacy of lesser sanctions, [and] (4) the

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relationship or nexus between the misconduct drawing the

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dismissal [or default] sanction and the matters in controversy in

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the case . . . .”

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(9th Cir. 1988).

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prejudice to the party victim as an “optional” consideration

Halaco Eng’g Co. v. Costle, 843 F.2d 376, 380
In addition, the court may consider the

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where appropriate.

Id.

11

mechanical means of determining what discovery sanction is just,”

12

but rather “a way for a district judge to think about what to

13

do.”

14

(9th Cir. 1998).

This multi-factor test is not “a

Valley Eng’rs Inc. v. Elec. Eng’g Co., 158 F.3d 1051, 1057

15

“As soon as a potential claim is identified, a litigant

16

is under a duty to preserve evidence which it knows or reasonably

17

should know is relevant to the action.”

18

Supp. 2d at 1067.

19

materials is an affirmative one; it requires that the agency or

20

corporate officers having notice of discovery obligations

21

communicate those obligations to employees in possession of

22

discoverable materials.”

23

Turnage, 115 F.R.D. 543, 557-58 (N.D. Cal. 1987).

24

reasonably anticipates litigation, it must suspend its routine

25

document retention/destruction policy and put in place a

26

‘litigation hold’ to ensure the preservation of relevant

27

documents.”

28

Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 220 (S.D.N.Y. 2003).

In re Napster, 462 F.

“The obligation to retain discoverable

Nat’l Ass’n of Radiation Survivors v.
“Once a party

In re Napster, 462 F. Supp. 2d at 1070 (citing

15

1

Plaintiff contends that defendants’ deletion of the

2

relevant files from the AS-Nevada server and the subsequent

3

scrubbing of the server constitute spoliation of evidence because

4

defendants were on notice in September of 2009, when the

5

government tort claim was filed, that defendants’ extraction of

6

data from the ER-Recorder server was relevant.

7

counsel also told defendants in October of 2009 to retain

8

relevant evidence.

9

February of 2010 was certainly sufficient to put defendants on

10

Plaintiff’s

At the latest, the filing of this action in

notice of their obligation to retain evidence.
Plaintiff asked defendants to delete all CRiis-related

11
12

data from their servers when the parties were in settlement

13

discussions and before any claim or lawsuit was filed; defendants

14

cannot be at fault for deleting the files at that time.

15

by the time defendants scrubbed the server, the instant case had

16

been filed and they were on notice of their obligation to retain

17

evidence.

18

appropriate in response to defendants’ scrubbing of the server,

19

but not their deletion of the files from the server.

However,

Thus, the court will consider whether sanctions are

20

1.

Extraordinary Circumstances

21

In the Ninth Circuit, “extraordinary circumstances

22

exist where there is a pattern of disregard for Court orders and

23

deceptive litigation tactics that threaten to interfere with the

24

rightful decision of a case.”

25

LP v. Access IV, No. C 03-04496, 2004 WL 1837997 at *5 (N.D. Cal.

26

Aug. 17, 2004) (citing Valley Eng’rs, 158 F.3d at 1057-58); see

27

also Anheuser-Busch, Inc. v. Natural Beverage Distribs., 69 F.3d

28

337, 348 (9th Cir. 1995) (“It is well settled that dismissal is

See Advantacare Health Partners,

16

1

warranted where . . . a party has engaged deliberately in

2

deceptive practices that undermine the integrity of judicial

3

proceedings . . . .”); Wyle v. R.J. Reynolds Indus., Inc., 709

4

F.2d 585, 591 (9th Cir. 1983) (upholding dismissal where the

5

district court determined that “the deliberate deception and

6

irreparable loss of material evidence justified the sanction of

7

dismissal”); Wm. T. Thompson Co. v. Gen. Nutrition Corp., 593 F.

8

Supp. 1443, 1456 (C.D. Cal. 1984) (holding that default and

9

dismissal were proper sanctions in view of party’s “willful

10

destruction of documents and records that deprived [the opposing

11

party] of the opportunity to present critical evidence on its key

12

claims to the jury”).
Plaintiff has pointed to a litany of alleged discovery

13
14

abuses by defendants, one of which subjected defendants to

15

monetary sanctions.

16

disputes are currently pending before the magistrate judge.

17

(Docket Nos. 75, 90.)

18

their actions, essentially arguing that their failures to comply

19

with discovery requests and orders were the result of

20

incompetence or confusion rather than deliberate deception.

21

Plaintiff, on the other hand, argues that the sheer volume of the

22

discovery problems suggests deliberateness, a point that is well-

23

taken.

24

(Docket Nos. 56, 71.)

Two other discovery

Defendants have proffered explanations for

The court is not in a position on this motion to make

25

findings that each of the alleged discovery abuses was

26

sanctionable.

27

533, 537 (9th Cir. 2001) (upholding district court judge’s

28

decision not to sanction because of moving party’s “fail[ure] to

See Freeman v. Allstate Life Ins. Co., 253 F.3d

17

1

prosecute the issue before the magistrate judge as required by”

2

the Eastern District’s Local Rules and the court’s order); see

3

also Local R. 302(c)(1) (prescribing that “[a]ll discovery

4

motions, including Fed. R. Civ. P. 37 motions” are to be heard by

5

a magistrate judge).

6

orders by the magistrate judge, and the continuing difficulties

7

the parties are apparently having in conducting discovery

8

properly, as evidence pointing to “extreme circumstances.”

9
10

2.

However, the court considers the previous

Willfulness, Bad Faith, or Fault

“For dismissal [or default judgment] to be proper, the

11

conduct to be sanctioned must be due to willfulness, fault, or

12

bad faith.”

13

marks omitted).

14

due to a misunderstanding of the scope of the discovery hold, as

15

the AS-Nevada server was merely one of eighty-two servers that

16

County of Nevada virtualized in an effort to increase efficiency

17

and decrease costs.

18

on the server when it was virtualized were preserved and saved on

19

County of Nevada’s virtual server, (id. ¶ 10), and defendants

20

claim that the server was scrubbed as protocol before returning

21

it to Aptitude.

Anheuser-Busch, 69 F.3d at 348 (internal quotation
Defendants argue that the scrubbing was simply

(Monaghan Decl. ¶¶ 4, 8.)

Files that were

22

Even if an individual employee for County of Nevada or

23

Aptitude may have misunderstood that the litigation hold applied

24

to the AS-Nevada server, which the court doubts for reasons

25

discussed below, defendants cannot escape responsibility by

26

arguing that no willfulness, bad faith, or fault was involved.

27

High-level employees for both defendants must have known that the

28

AS-Nevada server was extremely relevant to the litigation, and it
18

1

was their responsibility to see that the server was preserved.

2

See In re Napster, 462 F. Supp. 2d at 1070 (“Once a party

3

reasonably anticipates litigation, it must suspend its routine

4

document retention/destruction policy and put in place a

5

‘litigation hold’ to ensure the preservation of relevant

6

documents.” (citing Zubulake v. UBS Warburg LLC, 220 F.R.D. 212,

7

220 (S.D.N.Y. 2003)); Nat’l Ass’n of Radiation Survivors, 115

8

F.R.D. at 557-58 (“The obligation to retain discoverable

9

materials . . . requires that the agency or corporate officers

10

having notice of discovery obligations communicate those

11

obligations to employees in possession of discoverable

12

materials.”).

13

indicate that either the high-level employees failed in their

14

duty to explain the extent of the litigation hold or that the

15

employees responsible for the scrubbing acted in bad faith.

The circumstances surrounding the scrubbing

16

Counsel for County of Nevada sent an e-mail to inform

17

the relevant employees of the litigation hold, instructing them

18

to preserve all information related to the County’s involvement

19

with AtPac and Aptitude.

20

Information System Analyst for County of Nevada and one of the

21

recipients of the e-mail regarding the litigation hold, began

22

discussing scrubbing the AS-Nevada server with Alana Wittig, a

23

Project Manager for Aptitude.

24

coincidental and not itself evidence of bad faith, the employees

25

should have at least investigated the issue before irrevocably

26

damaging potentially relevant evidence.

27

that Barale, Wittig, or anyone else at County of Nevada or

28

Aptitude even attempted to ensure that the scrubbing would comply

Later that very day, Kathy Barale, the

Even if the timing was

19

There is no indication

1

with their obligation to retain potentially relevant evidence.

2

While many other servers were virtualized and

3

presumably scrubbed by County of Nevada, only the AS-Nevada

4

server was owned by Aptitude, stored at County of Nevada, and

5

used for making the transfer from AtPac’s software to Aptitude’s

6

software.

7

Aptitude, and the need for treating it differently than other

8

servers, was clear.

9

scrubbing was concealed from plaintiff until after it took place

10

is further indication that defendants knew the scrubbing was not

11

appropriate.

12

relevance demonstrates willful ignorance or worse, not an

13

innocent misunderstanding.

Its relevance to the dispute involving AtPac and

The fact that all evidence relating to the

Scrubbing the server despite its potential

14

3.

Efficacy of Lesser Sanctions

15

Imposition of a default judgment sanction is

16

appropriate where “(1) no lesser sanction would adequately punish

17

[defendants] and deter other parties from engaging in the same

18

conduct or (2) [defendants] ha[ve] engaged in deceptive conduct

19

and will continue to do so.”

20

1074.

21

appropriate because defendants must be prevented from engaging in

22

further discovery abuses.

23

conceded that an adverse inference jury instruction sanction

24

would be an eye-opener to defendants and could deter future

25

abuses while also punishing defendants for the spoliation.

26

the reasons set forth below, the court concludes that the lesser

27

sanction of a jury instruction would be adequate.

28

this factor weighs against default sanctions.

In re Napster, 462 F. Supp. 2d at

Plaintiff argues that no lesser sanction would be

However, at the hearing, plaintiff

20

For

Therefore,

1

4.

2
3

Nexus between Misconduct and Matters in
Controversy

In order for default sanctions to be imposed for

4

defendants’ scrubbing of the AS-Nevada server, there must be a

5

nexus between defendants’ conduct and the merits such that the

6

conduct interferes with the rightful decision of the action.

7

Halaco, 843 F.2d at 381.

8

evidence, a nexus exists if the party destroyed documents that

9

were relevant to discovery requests.

In the context of spoliation of

See Anheuser-Busch, 69 F.3d

10

at 351; Advantacare, 2004 WL 1837997, at *6-7.

11

evidence raises a presumption that the destroyed evidence goes to

12

the merits of the case and that such evidence was adverse to the

13

party that destroyed it.

14

Nat’l Ass’n of Radiation Survivors, 115 F.R.D. at 557.

15

Plaintiff’s claims are based in part on the allegation that

16

defendants copied copyrighted and trade secret information from

17

the ER-Recorder server to the AS-Nevada server.

18

evidence was adverse to defendants, if the AS-Nevada server had

19

not been scrubbed, plaintiff could have proven that the relevant

20

information was copied to the AS-Nevada server.

21

exists between the spoliation of the AS-Nevada server and the

22

merits of the action.

23

5.

24

The existence and degree of prejudice to the wronged

Spoliation of

Phoceene Sous-Marine, 682 F.2d at 806;

Assuming the

Thus, a nexus

Prejudice

25

party is an “optional” consideration when determining whether

26

default sanctions are appropriate.

27

the nexus between spoliation and the merits indicates, a critical

28

portion of plaintiff’s case may have been spoiled by the
21

Halaco, 843 F.2d at 382.

As

1

scrubbing.

2

Defendants argue that no actual prejudice will result,

3

contending that even before having scrubbed the server it would

4

have been impossible to determine what files were transferred to

5

the server and when, because any relevant files were already

6

deleted and the server was not configured to log such activities.

7

However, the fact that a server did not log activities does not

8

preclude the possibility of a forensic examination uncovering

9

deleted files.

As the party at fault for scrubbing the server,
See Nat’l

10

defendants bear the consequences of this uncertainty.

11

Ass’n of Radiation Survivors, 115 F.R.D. at 557 (holding that

12

where “the relevance of and resulting prejudice from destruction

13

of documents cannot be clearly ascertained because the documents

14

no longer exist . . . [the culpable party] can hardly assert any

15

presumption of irrelevance as to the destroyed documents”

16

(quoting Alexander v. Nat’l Farmers Org., 687 F.2d 1173, 1205

17

(8th Cir. 1982))) (alteration in original); see also Computer

18

Assocs. Int’l, Inc. v. Am. Fundware, Inc., 133 F.R.D. 166, 170

19

(D. Colo. 1990).

20

Defendants also point out that there may be other

21

sources for the same evidence, such as examining the ER-Recorder

22

server, which might shed light on what files were transferred

23

from it to the AS-Nevada server, or the virtualized server

24

containing all the files from the AS-Nevada server before it was

25

scrubbed.

26

only contain files that existed on the AS-Nevada server, not the

27

traces of previously-deleted files that might have been

28

discovered on the physical server.

Plaintiff responds that the virtualized server would

22

1

Finally, defendants argue that evidence might be

2

retrievable from the AS-Nevada server even after the scrubbing.

3

This is highly unlikely given the complexity of the scrubbing

4

performed; furthermore, if any evidence was retrievable from the

5

AS-Nevada server, defendants would be in violation of the court’s

6

discovery orders for failing to produce such evidence.

7

Defendants scrubbed a server that they had a duty to

8

preserve and produce to plaintiff.

The server was related to the

9

merits of the action, and plaintiff has almost certainly been

10

prejudiced by its destruction.

The spoliation, combined with

11

other deceptive discovery practices by defendants, indicates that

12

without some sort of sanction, a fair and just resolution of the

13

action will be impossible.

14

6.

Evidentiary Sanctions

15

“[A] party seeking an adverse inference instruction

16

based on the destruction of evidence must establish (1) that the

17

party having control over the evidence had an obligation to

18

preserve it at the time it was destroyed; (2) that the records

19

were destroyed with a culpable state of mind; and (3) that the

20

destroyed evidence was relevant to the party’s claim or defense

21

such that a reasonable trier of fact could find that it would

22

support that claim or defense.”

23

Litig., 462 F. Supp. 2d 1060, 1078 (N.D. Cal. 2006) (quoting

24

Hamilton v. Signature Flight Support Corp., No. C 05-0490, 2005

25

WL 3481423, at *3 (N.D. Cal. Dec. 20, 2005)).

26

In re Napster, Inc. Copyright

As discussed above, defendants had an obligation to

27

preserve the AS-Nevada server at the time it was destroyed, and

28

they willfully destroyed it.

In addition, information on the
23

1

server was relevant to the action.

2

it may infer the truth of what plaintiff might have been able to

3

prove, under the best case scenario, if the evidence had not been

4

destroyed, the court believes it can cure any prejudice resulting

5

from defendants’ spoliation of the evidence.

6

court will instruct the jury to the effect that it may infer that

7

any files on the ER-Recorder server were transferred to the AS-

8

Nevada server.

9

determined at trial.

10

By instructing the jury that

Therefore, the

The precise wording of the instruction will be

IT IS THEREFORE ORDERED that defendants’ motion for

11

appointment of a special master and stay be, and the same hereby

12

is, DENIED.

13

IT IS FURTHER ORDERED that plaintiff’s motion for

14

terminating sanctions or, in the alternative, issue sanctions,

15

be, and the same hereby is, DENIED to the extent plaintiff seeks

16

default sanctions and GRANTED to the extent plaintiff seeks an

17

adverse inference jury instruction.

18

DATED:

April 12, 2011

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