Ingrid & Isabel, LLC v. Baby Be Mine, LLC et al

Filing 71

ORDER by Judge Joseph C. Spero granting in part and denying in part 50 Motion for Sanctions (jcslc1, COURT STAFF) (Filed on 4/1/2014)

Download PDF
1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 INGRID & ISABEL, LLC, 7 Case No. 13-cv-01806-JCS Plaintiff, 8 v. ORDER RE MOTION FOR SANCTIONS 9 BABY BE MINE, LLC, et al., 10 Re: Dkt. No. 50 Defendants. United States District Court Northern District of California 11 12 13 I. INTRODUCTION 14 This case arises out of Defendants‟ alleged breach of two separate settlement agreements 15 relating to Defendants‟ Belly Band product. Presently before the Court is Plaintiff‟s Motion for 16 Sanctions Against Defendants for Failing to Comply with Court Order (“Motion”). A hearing on 17 the Motion was held on Friday, March 21, 2014 at 9:30 a.m. For the reasons stated below, the 18 Motion is GRANTED in part and DENIED in part.1 19 II. BACKGROUND 20 A. 21 In 2006, Plaintiff filed suit in this Court asserting trademark infringement and unfair Procedural Background 22 competition claims against Defendants based on allegations that Defendants‟ Belly Band was 23 confusingly similar to Plaintiff‟s Bella Band product and Bella Band marks. That case ended 24 when the parties entered into a settlement agreement (“the Trademark Settlement Agreement”). In 25 2008, Plaintiff filed an action in this Court asserting claims of patent infringement and unfair 26 competition against the same Defendants. That case ended when the parties entered into another 27 1 28 The parties have consented to the jurisdiction of the undersigned United States magistrate judge pursuant to 28 U.S.C. § 636(c). 1 settlement agreement (“the Patent Settlement Agreement”). In this action, Plaintiff alleges that 2 Defendants have breached both settlement agreements by, inter alia, selling and advertising a 3 maternity band that holds up pants or skirts. 4 On October 4, 2013, after two extensions of the deadline to respond, Defendants produced 5 their first responses to Plaintiff‟s document requests. Declaration of Ilene H. Goldberg in Support 6 of Plaintiff Ingrid & Isabel, LLC‟s Motion for Sanctions (“Goldberg Decl.”) ¶ 3. Plaintiff asserted 7 Defendants‟ responses were insufficient and the parties met and conferred but were unable to 8 resolve their disputes. Id. ¶¶ 3-5. On December 3, 2013, Defendants‟ counsel sent Plaintiff‟s 9 counsel an email stating, “[y]ou have received everything that my clients say they have that would be responsive to any of the document requests.” Id. ¶ 7 & Ex. H. Subsequently, the parties 11 United States District Court Northern District of California 10 submitted a joint letter to the Court setting forth their discovery disputes. On December 20, 2013, 12 the Court issued an order requiring that: 13 14 15 16 17 18 19 (1) Defendants shall produce all documents referring or relating to customer comments or complaints on Belly Band products to the extent that they are responsive to Categories 10, 11, 15, 17, and 54; Defendants shall provide a declaration that (a) details the methods used to search for such documents and (b) states that no further documents were found other than those produced; (2) Defendants shall produce all documents responsive to Category 49; Defendants shall provide a declaration that (a) details the methods used to search for such documents and (b) states that no further documents were found other than those produced; and (3) Defendants shall not be ordered to produce documents requested by any of the other categories. 20 Docket No. 37 (“December 20 Order”). The Court further ordered that “Defendants shall make 21 the necessary productions and provide the necessary declarations within thirty days of this Order.” 22 On January 21, 2014, Defendant Helen Tekce, who jointly manages Baby Be Mine, LLC 23 (“BBM”) with Defendant Isabelle Gartner, submitted a declaration describing the efforts 24 Defendants had made to comply with the Court‟s order. Docket No. 44 (“Tekce January 21 25 Decl.”). In the declaration, Tekce states that: 1) Gartner was in Germany between December 15, 26 2013 and January 8, 2014; 2) Tekce was in England between December 20, 2013 and January 3, 27 2014; and 3) Defendants began their efforts to comply with the Court‟s order after Gartner and 28 Tekce returned from Europe. Id. ¶ 3. As of January 21, 2014, the date they were to have complied 2 1 with the Court‟s order, Gartner and Tekce had determined that they “need[ed] to retain a computer 2 expert to assist [them]” in retrieving communications from customers on the BBM website. Id. 3 Defendants stated, “[w]e will produce all relevant documents that the computer expert might 4 locate.” Id. ¶ 3(l). In the declaration, Tekce also described efforts relating to the other customer 5 comments and financial documents that the Court had ordered produced. Id. ¶¶ 3-4. 6 On January 23, 2014, Defendants retained Kevin Andle, of We Care Computers, LLC, to 7 restore deleted emails from two of their computers. Declaration of Kevin Andle in Opposition to 8 Plaintiff‟s Motion for Sanctions (“Andle Decl.”) ¶ 2. On February 4, 2014, Defendants‟ counsel 9 sent an email to Plaintiff‟s counsel stating: “Last week our clients retained a computer expert and the expert was able to locate additional documents. We will produce them once Denise Bate 11 United States District Court Northern District of California 10 stamps them.” Declaration of Peter W. Craigie in Support of Defendants‟ Opposition to Plaintiff‟s 12 Motion for Sanctions (“Craigie Decl.”) ¶ 3 & Ex. B. Denise is the legal assistant to Robert Levin, 13 who represents Defendants but is not counsel of record in this case. Id. According to Craigie, 14 Denise had difficulty Bates stamping the documents because she was out sick with pneumonia, so 15 on February 18, 2014, he forwarded the new documents to Plaintiff without the Bates stamps. Id. 16 ¶ 3. A few days later, on February 21, 2014, Defendants produced 948 of the documents – now 17 with Bates stamps – to Plaintiff . Id. Another 88 Bates-stamped documents were produced on 18 February 24, 2014. Id. 19 2014. Declaration of Ilene H. Goldberg in Support of Plaintiff Ingrid & Isabel, LLC‟s Motion for 20 Sanctions (Docket No. 62) (“Goldberg Reply Decl.”) ¶ 9 & Ex. B. Defendants produced additional financial documents on February 28, 21 In the meantime, on February 10, 2014, Plaintiff filed the instant Motion. In the Motion, 22 Plaintiff asserted that: 1) Defendants had not produced all documents responsive to the requests 23 listed in the Court‟s December 20 Order; and 2) the declaration provided by Defendants was not 24 sufficiently detailed in describing how Defendants searched for responsive documents, making it 25 impossible to determine whether their efforts were reasonable and diligent. Motion at 3-4. 26 Plaintiff asked the Court to impose sanctions, including: 1) an award of attorneys‟ fees and costs 27 incurred as a result of Defendants‟ failure to comply with the Court‟s order; and 2) an order 28 requiring that Defendants disclose all of their hard drives and provide Plaintiff with access to their 3 1 Amazon Seller account and all of their email accounts. Motion at 14. In addition, Plaintiff asked 2 the Court to prohibit Defendants from opposing Plaintiff‟s claims that Defendants‟ Belly Band 3 product holds up skirts and jeans, from opposing Plaintiff‟s damages calculation, and from 4 introducing any opposing evidence with respect to the damages calculation in this case. Id. 5 In their Opposition, Defendants argue that the imposition of sanctions is not justified 6 because they have made diligent efforts to comply with the Court‟s order and have not acted in 7 bad faith. Opposition at 1-3. Defendants also provide a supplemental declaration by Tekce 8 providing additional details regarding the specific efforts Defendants had made to comply with the 9 Court‟s order. See Supplemental Declaration of Helen Tekce in Opposition to Plaintiff‟s Motion 10 for Sanctions (“Tekce Supp. Decl.”). In its Reply, Plaintiff argues that Defendants‟ efforts with regard to the production of United States District Court Northern District of California 11 12 documents required under the December 20 Order continue to be inadequate and that “critical 13 evidence” – including customer comments lost as a result of third-party document retention 14 policies, handwritten comments sent to BBM, and Belly Bands that were returned to BBM as 15 defective – has been destroyed as a result. Reply at 4. Plaintiff asserts it has been prejudiced not 16 only by Defendants‟ failure to produce important evidence but also by the late production of the 17 evidence. Id. at 7-8. In particular, because the documents were produced only a few days prior to 18 several scheduled depositions in Connecticut, Plaintiff‟s counsel was unable to adequately prepare 19 for the depositions and will need to return to Connecticut to complete them.2 Goldberg Reply 20 Decl., ¶¶ 4-9. Plaintiff‟s counsel asserts that this prejudice was compounded by Defendants‟ 21 improper designation of some of the new documents as Attorneys‟ Eyes Only and their initial 22 refusal to remove these designations, which prevented Plaintiff‟s counsel from reviewing these 23 documents with their client prior to the depositions. Id. ¶¶ 4-7. According to Plaintiff‟s counsel, 24 Defendants did not agree to remove the improper Attorneys‟ Eyes Only designations until they 25 arrived at the depositions. Id. ¶ 7. Plaintiff continues to seek the sanctions requested in the Motion, as well as additional 26 27 2 28 In fact, as noted above, some of the documents were not produced until February 24, 2014 – the day of one of the depositions – and others were not produced until after the depositions. 4 1 monetary sanctions to cover the fees and costs associated with returning to Connecticut to 2 complete depositions and for filing the Reply brief and appearing at the Motion hearing. Id. ¶¶ 31- 3 32. Plaintiff also seeks to recover fees and costs incurred in subpoenaing documents directly from 4 BBM‟s third-party vendors. Id. ¶ 30. Finally, Plaintiff asks the Court to order, in addition to the 5 relief described above, that Defendants “make a full and complete production of requested 6 documents (including all customs documents).” Reply at 10. 7 B. 8 Plaintiff points to numerous areas in which it contends Defendants have failed to produce 9 10 evidence and documents responsive to their requests. A summary of the main disputes as to this evidence is provided below. 1. Documents on Defendants’ Computers 11 United States District Court Northern District of California Specific Disputes  12 email communications between Defendants and their customers stored on Defendants’ computers: 13 At the time the Motion was filed, Defendants had not produced any email communications 14 15 between Defendants and their customers. Goldberg Decl. ¶ 9. Tekce testified at her January 20, 16 2014 deposition that Defendants deleted emails from customers after issues were resolved. Id., Ex. 17 K at 46-47. Similarly, she stated in her supplemental declaration that BBM routinely deletes 18 emails due to the volume of email that it receives. Tekce Supp. Decl., ¶ 21. However, she also 19 stated that Defendants had “not deleted any relevant emails since the inception of this lawsuit last 20 year.” Id. ¶ 21. In contrast, Defendants‟ office manager, Michele Klimczak, testified at her 21 February 26, 2014 deposition that only in the last three months (that is, sometime in late 22 November 2013) had she been instructed to save emails; moreover, she had forgotten these 23 instructions until she was asked about it at her deposition and had continued to delete emails from 24 customers. Goldberg Reply Decl., Ex. C at 56-57. After Defendants retained Kevin Andle (in late 25 January 2014), they produced some email communications that had been deleted. Tekce Supp. 26 Decl., ¶ 1.3 According to Tekce, she, Gartner and Klimscak spent “weeks” going through 27 3 28 Tekce states that the computer specialist not only searched for emails that had been deleted from the two computers but that he also “pulled all emails that he could from the server.” Tekce Supp. 5 1 “thousands of emails” to determine which ones were relevant to Plaintiff‟s requests, id. ¶ 4, but 2 Klimscak testified at her deposition that she has never reviewed any emails. Goldberg Reply 3 Decl., ¶ 20 & Ex. C at 49-51. Plaintiff asserts it cannot be sure it received all relevant email 4 communications because: 1) Kevin Andle only searched two of Defendants‟ five computers and it 5 is not even clear which two computers he searched;4 2) Defendants used only a narrow set of 6 search terms which would not have turned up all responsive communications5; and 3) several 7 email addresses used by Defendants were not searched at all.6 8 9  financial documents on Defendants’ computers In her motion declaration, Plaintiff‟s counsel stated that Defendants had only produced “a smattering of incomplete invoices.” Goldberg Decl. ¶ 9(i). According to Plaintiff, “Defendants 11 United States District Court Northern District of California 10 are missing in their production approximately 100 invoices from 2009, 120 invoices from 2010, 12 200 invoices from 2011, 870 invoices from 2012, and 900 invoices from 2013.” Id. In response, 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Decl. ¶ 1. According to Tekce, because Andle pulled emails from the server, his search of two of Defendants‟ computers actually amounted to searching all five computers “as far back as technically possible.” Id. Andle, however, states only that he recovered deleted emails from the two computers he searched. Andle Decl. ¶ 2. There is no indication that Andle pulled any emails from Defendants‟ server, or even that he was asked to do so. Indeed, Defendants‟ counsel stipulated at the motion hearing that Andle did not pull emails from the server (or attempt to do so). Tekce appears to have simply made this statement up. 4 In her supplemental declaration, Tekce describes the five computers that Defendants have in their possession – two at Tekce‟s home, two at the BBM warehouse and one at Gartner‟s home (a new computer as her old computer was destroyed in a fire). Tekce Supp. Decl. ¶ 1. Tekce says that one of the computers at the warehouse was her old computer. Id. According to Tekce, one of those computers was used for invoicing and both were used for printing labels. Id. Tekce also says that the forensic expert examined two computers. Id. It does not appear that these were the same two computers discussed by Tekce, however. Rather, the computer expert states that he examined one computer located at Tekce‟s home and another computer located at the warehouse. See Andle Decl. ¶ 2. 5 According to Tekce, the following search terms were used: photoshoot, photography, angela morris, belly band, Aynur, Shea Long, Rachel Florio. Tekce Supp. Decl. ¶ 5. Plaintiff points out that Defendants did not search using “names of manufacturers, vendors, agents, fabric composition and suppliers.” Reply at 4. 6 Tekce states that the forensic expert they retained was asked to search for deleted emails to and from sales@babybeminematernity.com and Michele@babybeminematernatiy.com. Id. According to Tekce, “[t]hese two email addresses are the only two used to communicate with manufacturers, customers and vendors that would have emails pertaining to the belly bands.” Id. She states that helent@tconnections.com is her own personal email address and has “no pertinent information.” Id. She also states that Lisa@babybeminematernity.com has not yet been created and that Isabelle@babybeminematernity.com “was created years ago but has not been used almost since the time it was created.” Id. ¶ 4. Plaintiff contends Defendants should have searched for communications that used these other email addresses, as well as an email address referenced on Defendants‟ website, returns@babybeminematernity.com. Goldberg Reply Decl. ¶ 19. 6 1 Tekce stated in her supplemental declaration that all invoices are kept on one of Defendants‟ 2 computers and they downloaded and produced every invoice that mentioned Belly Bands. Tekce 3 Supp. Decl. ¶ 20. According to Tekce, if invoices were missing from Defendants‟ production, it is 4 because they did not mention Belly Bands. Id. Defendants‟ office manager also testified that she 5 “went through invoices and emailed them to Sales at BabyBeMineMaternaity.com for [Tekce] to 6 email to the attorney.” Goldberg Reply Decl., Ex. C at 49-50. However, Plaintiff suggests that 7 Defendants‟ computer expert should have searched all five of Defendants‟ computers for financial 8 documents that may have been deleted. Reply at 6. In addition, at the motion hearing Plaintiff‟s 9 counsel stated that the invoices that were produced still appear to be incomplete and that some of 10 United States District Court Northern District of California 11 12 the invoices that were produced show only half of the invoice. 2. Documents related to Defendants’ Amazon Seller account  customer communications As of mid-January 2014, Defendants had only produced “about 15 email communications” 13 14 between BBM and their customers on their Amazon Seller account, all of which had occurred in 15 the previous thirty days. See Goldberg Decl., Ex. N (Docket No. 51-14) at p. 53. Previously, 16 Defendants‟ counsel had informed Plaintiff that all of the responsive Amazon communications 17 had been produced “months ago.” Id. at p. 22. After Plaintiff sought to obtain the documents 18 directly from Amazon, however, Amazon‟s counsel informed Defendants‟ counsel (as well as 19 Plaintiff‟s counsel) that Amazon maintains customer communications for a period of two years 20 and that sellers have access to those communications. Id. at p. 3 (January 14, 2014 email). 21 Defendants subsequently produced Amazon customer communications going back to the 22 beginning of 2012 but earlier communications no longer existed. Goldberg Decl., ¶ 9(f) & (g). 23 Thus, approximately six months of communications were lost due to Defendants‟ failure to timely 24 respond to Plaintiff‟s requests for production. Plaintiff further states that it cannot be certain that 25 all responsive Amazon documents have been produced. Id. Plaintiff has brought a motion to 26 compel against Amazon.com that is currently pending in the Western District of Washington. 27 28  financial documents relating to Amazon sales According to Plaintiff, “[d]espite the fact that during the entire pendency of this lawsuit 7 1 Defendants have had immediate and complete access to all their financial documents regarding 2 sales and disbursements in their Amazon Account, not one of those documents has been 3 produced.” Motion at 6; Goldberg Decl. ¶ 9(i); see also Reply at 5; Goldberg Reply Decl. ¶ 14 4 (“Plaintiff has been unable to locate a document production by Defendants of financial documents 5 regarding sales and disbursements in Defendants‟ Amazon Account.”). Plaintiff‟s counsel states 6 that “[t]hese documents definitely exist because Amazon has provided such documents to 7 Plaintiff, and such documents represent a very significant amount of sales by Defendants.” 8 Goldberg Decl. ¶ 9(i). At the motion hearing, Plaintiff‟s counsel stated that Defendants had 9 produced a document on March 7, 2014 and another on March 10, 2014, which appeared to be reports of Belly Band sales on Amazon.com but that the reports were only partial reports and did 11 United States District Court Northern District of California 10 not contain any dates. 12 3. Documents related to Defendants’ 3DCart Store, former server for Defendants’ website 13 Until sometime in 2012, 3dCart Store hosted Defendants‟ website. Goldberg Decl. ¶ 9(c). At 14 the time the Motion was filed, Defendants had not produced any customer communications, even 15 though communications between Defendants and their customers came through the 3dCart Store 16 account. Goldberg Decl. ¶ 9 (c) & (d). Nor had they produced customer comments on 17 Defendants‟ website, though Plaintiff had obtained some directly from 3dCart. Id., Ex. L. 18 According to Plaintiff, it had also obtained sales information from 3dCart Store, none of which 19 was produced by Defendants. Id. ¶ 9(i). In her supplemental declaration, Tekce stated that 20 Defendants had reopened their 3dCart Store account in November 2013 and had recovered emails 21 with the term “belly band” for the period November 2009 to December 2012. Tekce Supp. Decl. ¶ 22 9. Defendants did not address the production of sales information from their 3dCart Store 23 Account in their Opposition or supporting declarations. However, Plaintiff‟s counsel states in her 24 Reply declaration that just a few days before the Reply was filed, on February 28, 2014, 25 Defendants produced some financial documents for the 3dCart Store Account. Goldberg Reply 26 Decl. ¶ 15. She states in her declaration that she does not know if this production is complete. 27 Goldberg Reply Decl., ¶ 15. 28 4. Customer communications stored by Volusion, current server for Defendants’ website 8 1 Defendants‟ current website is hosted by Volusion. Reply at 6; Goldberg Reply Decl. ¶ 22. 2 Volusion stores customer emails for only 30 days, either because of its document retention policy 3 or customer settings. Id. Defendants did not produce any emails from their website until February 4 2014 despite earlier statements in response to Defendants‟ discovery requests that they had made a 5 diligent search and all responsive documents had been produced. Goldberg Reply Decl. ¶ 22 & 6 Exs. F & G. 7 5. Twitter and Facebook 8 Tekce testified in her deposition that Defendants‟ customers could communicate with them via 9 Facebook. Goldberg Decl., Ex. J at 51. Tekce also stated in her supplemental declaration that Defendants have had a Twitter account since 2009. At the time the Motions was filed, 11 United States District Court Northern District of California 10 Defendants had not produced any customer comments about the Belly Band from Facebook or 12 Twitter. Goldberg Decl. ¶ 9(b). In her supplemental declaration, Tekce says that she and Gartner 13 searched BBM‟s Facebook account by logging in and reviewing messages. Tekce Supp. Decl. ¶ 14 14. Tekce states that “these were all produced.” Id. She further states, “I do not believe there was 15 one about belly bands.” Id. Similarly, Tekce states that “all tweets were forwarded.” Id. It is not 16 clear to whom the tweets were forwarded, however. Plaintiff‟s counsel stated in her reply 17 declaration that no tweets had been produced. Goldberg Reply Decl. ¶ 23. At the motion hearing, 18 she stated that on January 16, 2014 a “handful” of tweets was produced. 19 6. eBay 20 In the Motion, Plaintiff asserted that the Tekce January 21 Declaration was inadequate because 21 it did not contain information about how Defendants searched for responsive documents on their 22 eBay account. Motion at 9. In the Tekce Supplemental Declaration, Tekce states that she and 23 Gartner searched for email communications for the previous 31 days, which is all the system 24 allows. Tekce Supp. Decl. ¶ 13. She states that the comments they found about the Belly Band 25 were produced. Id. She further states that “BBM currently does not sell belly bands on eBay” 26 and that “BBM only sold a handful of belly bands on eBay in 2012 and, before 2012, [Defendants] 27 had not sold belly bands on eBay since 2007.” Id. At the motion hearing, Plaintiff‟s counsel 28 stated that Defendants had produced two pages relating to their eBay sales but those pages did not 9 1 show any comments, even though comments relating to the Belly Band can be seen on eBay. 2 Plaintiff has subpoenaed responsive documents directly from eBay; counsel estimated that 3 Plaintiff would receive documents from eBay in about a month. 4 7. WalMart 5 Plaintiff states in the Motion that Defendants have not produced customer reviews on the 6 Walmart website about Defendants‟ Belly Band. Goldberg Decl. ¶ 9(e). Plaintiff provides copies 7 of some comments that were posted on the Walmart website and which Defendants did not 8 produce. Id., Ex. M. 9 8. Hand-Written Notes and Defective Belly Bands On February 26, 2014, Plaintiff deposed Defendants‟ office manager, Michel Klimzcak. 11 United States District Court Northern District of California 10 Goldberg Reply Decl., Ex. C. Klimzcak testified that sometime in the past two years she had 12 received a shipment of white Belly Bands that had been returned with handwritten notes on the 13 packing slips saying “stitching coming undone” and “stitching unraveling.” Id. at 89. According 14 to Klimzcak, she threw away the handwritten notes and disposed of the bands. Id. Klimzcak also 15 testified that when Belly Bands are returned they are either thrown away (if they are defective or if 16 “somebody ripped them up”), donated (if there is only a slight defect) or ironed and put back in 17 the package for resale (if the band is clean and is not defective). Id. at 70-73. In its Reply brief, 18 Plaintiff cites the defective bands and the handwritten notes as additional responsive evidence that 19 Defendants have failed to produce. Reply at 1. However, the December 20 Order only refers to 20 document requests and none of the specific requests listed in the Order asks Defendants to produce 21 defective and/or returned Belly Bands. Thus, Defendants‟ failure to preserve defective or returned 22 Belly Bands does not necessarily constitute a violation of the Court‟s Order even if Defendants 23 had an obligation to produce them. 24 9. Communications with Retail Customers 25 In the Motion and the Reply, Plaintiff contends Defendants have failed to produce all 26 responsive communications between Defendants and their retail customers. Motion at 6; 27 Goldberg Decl. ¶ 9(h); Reply at 4; Goldberg Supp. Decl. ¶ 12. In her supplemental declaration, 28 Tekce states that all responsive communications with manufacturers have been produced, Tekce 10 1 Supp. Decl. ¶ 18, but Defendants do not address Plaintiff‟s contention that Defendants have failed 2 to produce all responsive communications with retailers. 3 10. Financial Records 4 In the Motion, Plaintiff contends Defendants‟ production of financial documents was 5 inadequate because “all that had been produced [were] tax returns, a handful of purchase orders, a 6 smattering of incomplete invoices . . . , a list of „website sales 11/29/09-12/5/12‟ that do not 7 appear to have been produced in the manner maintained in the ordinary course of business, and 8 some bank records for 2012 and 2013.” Motion at 6-7; Goldberg Decl. ¶ 9(i). As discussed 9 above, Plaintiff asserted Defendants should have produced financial documents from its Amazon Seller account and sales information from its 3dCart Store. Id. Plaintiff also stated that “only very 11 United States District Court Northern District of California 10 limited financial documents for 2010, 2011 and 2013 have been produced, and no financial 12 documents for the years 2006 - November 29, 2009 have been produced (other than tax returns 13 with no supporting documentation).” Id. According to Plaintiff, while Defendants could have 14 obtained missing information and invoices from their retailers, they failed to do so. Id. The only 15 effort they made to obtain this information from third parties was to instruct their CPA to produce 16 BBM‟s entire file. Id. 17 In the Tekce supplemental declaration she stated that Defendants produced all of the bank 18 statements in Defendants‟ possession and instructed their CPA, Carl Casthano, to “provide any 19 BBM documents he has.” Tekce Supp. Decl. ¶ 20. Tekce also noted that Plaintiff had served Mr. 20 Casthano with a deposition and records subpoena. Id. Finally, Tekce stated that Defendants had 21 produced all invoices for Belly Bands on their computers. Id. 22 In the Reply brief, Plaintiff asserted that Defendants still had not complied with the Court‟s 23 Order as to the production of financial documents. Reply at 4-5. First, as discussed above, 24 Defendants still had not produced records of sales for the Amazon Seller account. Goldberg Reply 25 Decl. ¶ 14. Second, although Defendants produced sales documents for 3dCart on February 28, 26 2014, Plaintiff did not know if the production was complete, as discussed above. Id., ¶ 9. Third, at 27 his deposition Defendants‟ CPA testified that the bank records for 2009 to 2012 that he used to 28 prepare Defendants‟ taxes had been returned to Defendants. Id. ¶ 13 & Ex. D. To the extent that 11 1 Defendants apparently no longer have these bank statements (which were not produced to 2 Plaintiff), Plaintiff asserts Defendants should have obtained these statements from their bank to 3 produce in this litigation. Reply at 4-5. Fourth, Plaintiff argued for the first time in its Reply 4 brief that Defendants should have produced UPS freight and customs documents, which could also 5 contain relevant financial information. Reply at 5; Goldberg Reply Decl. ¶ 16. Finally, Plaintiff 6 points to testimony by Klimzcak at her deposition that Defendants have a PayPal account and 7 assert that Defendants should have produced financial records from PayPal. Id. at 5; Goldberg 8 Reply Decl., ¶ 17 & Ex. C at 118. 9 III. ANALYSIS A. 11 United States District Court Northern District of California 10 Federal courts have the authority to sanction litigants for discovery abuses both under the Legal Standard 12 Federal Rules of Civil Procedure and pursuant to the court‟s inherent power to prevent abuse of 13 the judicial process. Network Appliance, Inc. v. Bluearc Corp., 2005 WL 1513099. at *2 14 (N.D.Cal., June 27, 2005) (citing Chambers v. NASCO, Inc., 501 U.S. 32, 45-46 (1991); In re 15 Matter of Yagman, 796 F.2d 1165, 1187 (9th Cir.1986)). Rule 16(f) of the Federal Rules of Civil 16 Procedure allows a court to order sanctions where a party or its attorney fails to obey a pretrial 17 order. Federal Rule of Civil Procedure 37(b)(2)(A) specifically addresses sanctions that may be 18 imposed on a party that has failed to comply with a discovery order, including striking the 19 pleadings in whole or in part, claim or issue preclusion, dismissal, and entry of default judgment. 20 Fed. R. Civ. P. 37(b)(2). In addition, Rule 37(b)(2)(C) provides that where a party fails to comply 21 with a discovery order, “the court must order the disobedient party, the attorney advising that 22 party, or both to pay the reasonable expenses, including attorney‟s fees, caused by the failure, 23 unless the failure was substantially justified or other circumstances make an award of expenses 24 unjust.” Fed.R. Civ. P. 37(b)(2)(C) (emphasis added). 25 Sanctions are permissible under Rule 37 when a party fails to comply with a court order, 26 regardless of the reasons. See Societé Internationale Pour Participations Industrielles et 27 Commerciales, S.A. v. Rogers, 357 U.S. 197, 208 (1958) (“[T]he willfulness or good faith of [a 28 party], can hardly affect the fact of noncompliance and [is] relevant only to the path which the 12 1 District Court might follow in dealing with [the party‟s] failure to comply.”); David v. Hooker, 2 Ltd., 560 F.2d 412, 420 (9th Cir.1977) (“in view of the possibility of light sanctions, even a 3 negligent failure [to obey an order] should come within” Rule 37); Chicult v. U.S., 4 F.3d 1322, 4 1320 n. 23 (5th Cir.1993) (citing Societé for the proposition that “the type of conduct displayed 5 by a party ha[s] no bearing on whether sanctions should be imposed, but only on the type of 6 sanctions imposed”). An imposition of sanctions under Rule 37 does not require willfulness, fault, 7 or bad faith unless the sanction is dismissal. Varney v. California Highway Patrol, WL 2299544, 8 at *2 (N.D.Cal., May 24, 2013) (citing Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 9 1101, 1106 (9th Cir.2001)). However, “[i]n order for the sanction to comport with due process, the sanction imposed under Rule 37 must be specifically related to the particular claim which was 11 United States District Court Northern District of California 10 at issue in the order to provide discovery.” Adriana International Corp. v. Thoeren, 913 F.2d 12 1406, 1412 (9th Cir.1990) (citing Fjelstad v. American Honda Motor Co., Inc., 762 F.2d 1334, 13 1342 (9th Cir.1985)). Further, Rule 37 requires that the sanction must be “just.” Ins. Corp. of 14 Ireland, Ltd., v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 707 (1982). 15 “When a court excludes evidence under Rule 37, the court should do so only where there is 16 a finding of prejudice to the nonoffending party.” Life Technologies Corp. v. Biosearch 17 Technologies, Inc., 2012 WL 1600393, at *11 (N.D.Cal., May 7, 2012) (citing Rooney v. Sierra 18 Pacific Windows, 2011 WL 2149097, at * 3 (N.D.Cal., June 1, 2011) (Koh, J.) (“Evidentiary 19 preclusion is a harsh sanction that generally is not imposed where the failure to provide discovery 20 was either substantially justified or harmless.”); Allergan, Inc. v. Sandoz Inc., 2011 WL 2563238, 21 at *3 (E.D. Tex. June 28, 2011) (striking an expert report and precluding that expert from 22 testifying at trial where the party presenting the expert caused “extreme prejudice” by 23 inadvertently disclosing confidential information to a witness not designated on its list of potential 24 experts)). 25 In cases where there has been spoliation of evidence, the Court also may impose sanctions 26 under its inherent power. Nursing Home Pension Fund v. Oracle Corp., 254 F.R.D. 559, 563 27 (N.D.Cal., 2008). The three types of sanctions courts may impose, in order of least severe to most 28 severe, are: 1) the court can instruct the jury that “it may infer that evidence made unavailable by a 13 1 party was unfavorable to that party”; 2) “a court can exclude witness testimony based on the 2 spoliated evidence”; and 3) the court can “dismiss the claim of the party responsible for the 3 spoliation.” Id. (citations omitted). In determining what sanctions are appropriate in cases of 4 spoliation, courts consider: “1) the degree of fault of the party who altered or destroyed the 5 evidence; 2) the degree of prejudice suffered by the opposing party; and 3) whether there is a 6 lesser sanction that will avoid substantial unfairness to the opposing party.” Apple Inc. v. Samsung 7 Electronics Co., Ltd., 888 F.Supp.2d 976, 992 (N.D.Cal., 2012) (citing Nursing Home Pension 8 Fund v. Oracle Corp., 254 F.R.D. at 563). “[T]he choice of appropriate spoliation sanctions must 9 be determined on a case-by-case basis, and should be commensurate to the spoliating party‟s 10 motive or degree of fault in destroying the evidence.” Id. United States District Court Northern District of California 11 In evaluating the prejudice that results from a party‟s failure to comply with a discovery 12 order or the destruction of evidence, courts should consider whether the actions of the party that 13 destroyed evidence “impair [its opponent‟s] ability to go to trial or threaten to interfere with the 14 rightful decision of the case.” Adriana International Corp., 913 F.2d at 1412. 15 B. 16 Defendants assert that there is “no evidence” that they violated the December 20 Order “let Monetary Sanctions 17 alone acted in bad faith.” Opposition at 3. At most, they contend, they were late in complying 18 with the Court‟s Order because they retained a computer specialist after the 30-day compliance 19 period had passed. Id. at 4. They assert that their late compliance was substantially justified, 20 however, because they are a small company – essentially the two individuals who run the 21 company “with a few employees” – and Defendants “could not commence their search efforts” 22 until Gartner and Tekce returned from Europe in January. Id. According to Defendants, they did 23 “everything within their power to comply with this Court‟s Discovery Order.” Id. The Court 24 finds that Defendants violated the December 20 Order without substantial justification and 25 therefore, that the imposition of monetary sanction is mandatory under Rule 37. 26 The Court ordered that Defendants comply with its discovery order within thirty days. 27 Defendants did not do so. Their only excuse is that Gartner and Tekce had planned family 28 vacations in Europe over the holidays. Defendants offer no explanation for their failure to alert 14 1 the Court that these plans would impair their ability to comply with its order; nor did they request 2 an extension of the deadline. They did not instruct their office manager to search for responsive 3 documents while they were in Europe. Goldberg Supp. Decl. ¶ 10 & Ex. C at 8-9. Further, when 4 Gartner and Tekce did return from Europe, it apparently took them two to three weeks to 5 determine that they did not have the skills to access deleted emails on their computers and 6 therefore needed to retain an expert. It is not clear why this could not have been determined 7 immediately upon their return from Europe. Even more troubling is the fact that even after the 8 computer expert was retained (several days after Defendants were required to have complied with 9 the Court‟s order), no responsive documents were produced for almost an entire month. Much of this delay is attributed to the fact that the legal assistant to Robert Levin (who is not counsel of 11 United States District Court Northern District of California 10 record in this case) was ill and could not Bates stamp the documents for some period of time. But 12 counsel is silent as to why the documents had to be Bates stamped by that particular individual. 13 Given that Defendants were already in violation of the Court‟s order, Defendants‟ failure to 14 expedite the production of documents, once obtained, is more than a little surprising, especially as 15 Plaintiff had a series of depositions planned to occur in Connecticut in late February. In sum, Defendants‟ failure to comply with the requirement in the Court‟s December 20 16 17 Order that they produce all responsive documents within thirty days was not substantially 18 justified.7 Nor is it unjust to award monetary sanction given that the delay caused Plaintiff to 19 incur significant attorneys‟ fees and costs associated with: 1) efforts to obtain responsive 20 documents through subpoenas to third parties; 2) the completion of depositions in Connecticut for 21 which Plaintiff‟s counsel was unable to adequately prepare because of the late production; and 3) 22 the filing of the instant motion. Consequently, Plaintiff is entitled to an award of monetary 23 sanctions under Rule 37(b)(2)(C). The Court awards monetary sanctions as follows: 1) attorneys‟ fees and costs incurred in 24 25 connection with the sanctions motion through the date of the Motion hearing, in the amount of 26 27 28 7 Although Defendants‟ failure to comply with the thirty-day deadline in the Court‟s order is, by itself, a sufficient basis for imposing monetary sanctions under Rule 37(b)(2)(C), Defendants‟ efforts to comply also fell short in other ways, as discussed further below. 15 1 $20,443.55;8 and 2) costs (including travel costs) incurred in connection with re-depositions 2 Plaintiff must conduct as a result of Defendants‟ failure to comply with the Court‟s Order, in an 3 amount to be determined at the close of discovery. Further, while Plaintiff shall initially bear the 4 cost of retaining the forensic computer expert, in the event the expert‟s inspection demonstrates 5 that relevant, nonprivileged, information has been unreasonably withheld or that there has been 6 spoliation of relevant evidence, Plaintiff may bring a motion seeking to shift these costs to 7 Defendants. 8 C. 9 Plaintiff requests that the Court “[c]ompel disclosure of all of Defendants‟ hard drives and Disclosure of Hard Drives, Access to Email and Other Accounts provide Plaintiff (and their forensic vendor) with full and immediate access to Defendants‟ 11 United States District Court Northern District of California 10 Amazon Account and all of Defendants‟ email accounts.” Motion at 14. The Court finds that 12 Plaintiff has made a sufficient showing to warrant the requested relief subject to an appropriate 13 protocol that will protect any privileges or privacy interests of Defendants. 14 1. Hard Drives The production of hard drives is a remedy that is typically ordered only in cases that 15 16 “involve an extreme situation where data is likely to be destroyed or where computers have a 17 special connection to the lawsuit.” Memry Corp. v. Kentucky Oil Technology, N.V., 2007 WL 18 832937 (N.D. Cal. March 19, 2007); see also Cefalu v. Holder, 2013 WL 4102160, at *1 (N.D. 19 Cal. Aug. 12, 2013) (“[b]ecause personal computers contain highly personal and sensitive material 20 courts generally require a heightened showing of good cause”). A strong showing of spoliation of 21 relevant evidence in the instant action would likely meet this standard. See Cefalu, 2013 WL 22 4102160, at *1. However, even where a party demonstrates that “serious questions exist both as to 23 24 25 26 27 28 8 This amount consists of: 1) $14,871.60 in attorneys‟ fees for 20 hours of work on the Motion, 26.6 hours on the Reply and 2 hours to prepare for and attend the Motion hearing; see Goldberg Decl. ¶ 13; Goldberg Reply Decl. ¶ 32 ; 2) $2,601 in attorneys‟ fees incurred in connection with Plaintiff‟s Motion to Compel production of documents from third-party Amazon.com when Defendants failed to produce customer communications received through their Amazon account; Id. ¶ 14; 3) $2,205 in attorneys‟ fees incurred by local counsel in Washington, Alan Middleton, in connection with Amazon.com motion to compel; Id. ¶ 15; and 4) $765.95 in costs incurred in subpoenaing responsive documents from third-party vendors Amazon.com, Quidsi, 3D Cart Store, Mageno, Inc. Volusion and Soft Layer. Goldberg Reply Decl. ¶ 30. 16 1 the reliability and the completeness of materials produced in discovery,” an order compelling 2 disclosure to a forensics expert is only appropriate where there is a protocol in place that will 3 protect against unwarranted invasion of privacy. See Advante International Corp. v. Mintel 4 Learning Technology, 2006 WL 3371576 (N.D. Cal. Nov. 21, 2006) (declining to permit 5 inspection of hard drives until parties worked out a protocol for the inspection). Because access to 6 personal email is similar to production of a hard drive in terms of its invasiveness, the Court 7 assumes that similar standards apply. The record in this case shows that there is a serious question as to whether Defendants 8 have produced all responsive documents stored on their hard drives and further, that there is real 10 danger that evidence may be destroyed. Defendants have repeatedly represented to Plaintiff that 11 United States District Court Northern District of California 9 they have produced all responsive documents stored on their computers, only to later reveal that 12 they failed to produce documents of which they were aware or should have been aware. They 13 have made false statements about their efforts, such as the statement that they spent weeks 14 reviewing thousands of emails with their office manager, who says she never reviewed any emails. 15 They have stated that no responsive emails were deleted during the time of this litigation when the 16 overwhelming evidence shows that they were (and that Tekce had no reasonable basis for 17 believing that they were not). They retained a computer expert but asked him to search only two 18 of their five computers (and it is not even clear which ones). Tekce stated in her declaration that 19 Defendants‟ computer expert had pulled emails from the server when in fact he had not. They 20 used search terms that were so narrow as to be obviously deficient. In short, Defendants have 21 knowingly and flagrantly failed to comply with the Court‟s Order as to documents stored on their 22 hard drives. The Court finds that this case is one of the extreme cases where production of 23 Defendants‟ hard drives is necessary to avoid the possibility that relevant documents will continue 24 to be deleted and to ensure that all responsive documents are produced.9 25 9 26 27 28 In its minute order, issued on the day of the Motion hearing, the Court ordered that Defendants produce “all hard drives and electronic storage media in their custody and control to a computer forensics expert to be designated by Plaintiff, who may search for responsive documents that have been deleted or were not produced as well as information regarding the circumstances of any deletions (including the date the document was deleted and the user who deleted the document).” See Docket No. 64. The Court further ordered that the parties‟ production of hard drives and any 17 1 2. Access to email, Amazon, Twitter, Facebook and eBay Accounts Plaintiff also requests access to Defendants‟ various accounts. As discussed above, the 2 record in this case suggests that there is reason for serious concern as to whether Defendants have 3 met their discovery obligations as to production of responsive documents from their email 4 5 6 accounts, Amazon, Facebook, Twitter and eBay accounts. Therefore, as stated in the Court‟s minute order, Plaintiff‟s expert shall be given access to “all email accounts for all five email addresses listed in Plaintiff's moving papers” as well as Defendants‟ accounts (both those of the 7 business and those of the individual defendants) on Amazon.com, Facebook, Twitter and eBay, 8 subject to the protocol that has been agreed upon by the parties. See Docket No. 67. 9 10 D. Issue Preclusion Sanctions In addition to the problems discussed above, Plaintiff points to a host of other deficiencies United States District Court Northern District of California 11 12 13 14 15 regarding Defendants‟ responses to Plaintiff‟s discovery requests and their compliance with the December 20 Order. According to Plaintiff, it has been so severely prejudiced by Defendants‟ lack of compliance with the Court‟s order that the appropriate remedy is to prohibit Defendants from opposing Plaintiff‟s claims that Defendants‟ Belly Band holds up skirts and jeans, from opposing Plaintiff‟s damages calculation, or from introducing any opposing evidence with regard 16 to the damages calculation in this case. The Court finds that Plaintiff has not made a sufficient 17 showing to warrant the entry of the requested preclusion sanctions, at least at this stage of 18 discovery. 19 As discussed above, preclusion sanctions are a harsh remedy that should be imposed only 20 in extreme circumstances. In determining what sanctions are appropriate, the Court must consider 21 whether Defendants‟ conduct has impaired Plaintiff‟s “ability to go to trial or threaten[s] to 22 interfere with the rightful decision of the case.” Adriana International Corp., 913 F.2d at 1412. 23 In light of the documents Plaintiff has obtained directly from third parties and the documents 24 Plaintiff may recover from Defendants‟ hard drives and through obtaining access to Defendants‟ 25 various accounts, the Court finds that the sanctions requested by Plaintiff as to the issues of 26 27 28 other electronic storage media would be subject to a protocol to be agreed upon by the parties. That protocol was submitted by the parties on March 25, 2014 and approved by the Court on March 27, 2014. 18 1 damages and whether Defendants‟ product holds up pants and skirts are not warranted at this 2 point. Therefore, the Court denies Plaintiff‟s request for issue preclusion sanctions without 3 prejudice. The Court also notes that it will consider instructing the jury that it can draw an adverse 4 inference based on Defendants‟ failure to produce specific types of evidence if Plaintiff is able to 5 make a showing that such evidence was knowingly destroyed and that the absence of such 6 evidence actually threatens its ability to obtain a just outcome in this litigation. 7 IV. 8 9 CONCLUSION For the reasons stated above, the Motion is GRANTED in part and DENIED in part. Defendants are ordered to pay, within thirty (30) days of the date of this Order, $20,443.55 in monetary sanctions for attorneys‟ fees and costs incurred through the date of the Motion hearing. 11 United States District Court Northern District of California 10 The Court will also award costs (including travel costs) incurred in connection with re- 12 depositions, as set forth in its minute order. In addition, subject to the protocol approved by the 13 Court on March 27, 2014, Defendants shall produce all hard drives and any other electronic 14 storage media, and provide Plaintiff‟s experts with access to Defendants‟ various accounts, as 15 specifically set forth in the Court‟s minute order. The Motion is DENIED without prejudice as to 16 the issue preclusion sanctions requested by Plaintiff. 17 IT IS SO ORDERED. 18 19 Dated: April 1, 2014 20 21 22 23 ______________________________________ JOSEPH C. SPERO United States Magistrate Judge 24 25 26 27 28 19

Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.


Why Is My Information Online?