Lifetouch National School Studios, Inc. v. Moss-Williams

Filing 67

INTERIM ORDER RE: 65 DISCOVERY DISPUTE JOINT REPORT #2. See order for further details. Signed by Magistrate Judge Howard R. Lloyd on 6/18/2012. (hrllc1, COURT STAFF) (Filed on 6/18/2012)

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** E-filed June 18, 2012 **

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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For the Northern District of California

NOT FOR CITATION

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United States District Court

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SAN JOSE DIVISION

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LIFETOUCH NATIONAL SCHOOL
STUDIOS, INC.,

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Plaintiff,
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No. C10-05297 RMW (HRL)
INTERIM ORDER RE: DISCOVERY
DISPUTE JOINT REPORT #2

v.
[Re: Docket No. 65]

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KIMBERLY MOSS-WILLIAMS; ET AL.,

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Defendants.
____________________________________/

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On March 6, 2012, the parties in the above-captioned action filed Discovery Dispute Joint

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Report #2 to settle a dispute over (1) whether plaintiff is entitled to conducting forensic imaging of

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all company computers owned by defendant Creative Imaging by Robert Garcia (“Creative”), and

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(2) if so, who should bear the cost. Dkt. No. 65 (“DDJR”). Lifetouch contends that the computers

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contain evidence that defendant Kimberly Moss-Williams brought Lifetouch’s trade secrets to

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Creative, a rival company, when she left Lifetouch to take a job at Creative. Lifetouch further

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contends that Moss-Williams destroyed the thumb drive used to transport the proprietary data from

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a Lifetouch computer to Creative’s computer(s), which constitutes evidence spoliation that justifies

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requiring the defendants to pay for the total cost of the forensic imaging, estimated to be between

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$315,000 and $350,000. Defendants assert that, while Moss-Williams did accidentally take some

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Lifetouch files when she left the company, she had no intent to steal trade secrets, took no data that

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constitutes a trade secret, and never uploaded any such information to Creative’s computers or

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otherwise gave proprietary data to Creative for use in its business. They further argue that being

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made to pay the entire cost of forensic imaging of all their computers would pose an undue burden

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due to the time and cost required.

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The parties have offered to jointly establish a protocol for the forensic imaging, but have not

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yet agreed to any actual terms. They have indicated some willingness to share in the cost. While

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Lifetouch would prefer to use a forensic imaging specialist it has designated to be deposed as its

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representative in this action, the parties have also expressed a willingness to use a neutral third-party

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company to perform the forensic imaging.

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LEGAL STANDARD

For the Northern District of California

United States District Court

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“It is not unusual for a court to enter an order requiring the mirror imaging of the hard drives

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of any computers that contain documents responsive to an opposing party's request for production of

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documents.” Balboa Threadworks, Inc. v. Stucky, 2006 U.S. Dist. LEXIS 29265, *7 (D. Kan. Mar.

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24, 2006) (citing Communications Center, Inc. v. Hewitt, 2005 U.S. Dist. LEXIS 10891, *3 (E.D.

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Cal., Apr. 5, 2005)). When a party is found to have engaged in spoliation of evidence, cost-shifting

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may be an appropriate sanction to the party to who spoliated evidence. See Genworth Fin. Wealth

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Mgmt. v. McMullan, 267 F.R.D. 443, 449 (D. Conn. 2010) (allocating 80% of the cost of computer

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mirror imaging to party who admitted to the court that he knowingly and intentionally spoliated

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evidence).

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Cost-shifting is also appropriate when the discovery sought “imposes an ‘undue burden or

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expense’ on the responding party.” Zubulake v. UBS Warburg LLC, 217 F.R.D. 309, 316-17

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(S.D.N.Y. 2003) (quoting Fed. R. Civ. P. 26(c)). The burden or expense of discovery is “undue”

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when it “outweighs its likely benefit, considering the needs of the case, the amount in controversy,

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the parties' resources, the importance of the issues at stake in the action, and the importance of the

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discovery in resolving the issues.” Fed. R. Civ. P. 26(b)(2)(C)(iii). Zubulake established a seven-

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factor test to neutrally evaluate whether cost-shifting is warranted: “(1) the extent to which the

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request is specifically tailored to discover relevant information; (2) the availability of such

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information from other sources; (3) the total cost of production, compared to the amount in

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controversy; (4) the total cost of production, compared to the resources available to each party; (5)

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the relative ability of each party to control costs and its incentive to do so; (6) the importance of the

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issues at stake in the litigation; and (7) the relative benefits to the parties of obtaining the

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information.” Zubulake at 322; see also Hynix Semiconductor, Inc. v. Rambus, Inc., 2006 U.S. Dist.

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LEXIS 98229, *32-34 (N.D. Cal. Mar. 2, 2006) (applying Zubulake’s seven-factor test). Of these

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factors, the first and second are weighed most heavily, the third through fifth weighed less heavily.

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The sixth factor “rarely” comes into play, but has the potential to outweigh all other factors, and the

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seventh is least important, though it can weigh against cost-shifting when the responding party

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stands to gain a “tangible or strategic” benefit. Because the cost-shifting analysis is fact-intensive, it

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may be necessary to order supplemental briefing and/or to require the responding party to restore

For the Northern District of California

United States District Court

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and produce responsive documents from a representative sample of the computers sought to be

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imaged. Zubulake at 324.

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DISCUSSION

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The DDJR presents several questions for this court’s determination: (1) whether Lifetouch

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may compel Creative to allow a forensic imaging specialist to analyze its computers; (2) if so,

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whether Creative must supply all of its computers and all the data thereon, or some subset thereof;

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and (3) if forensic imaging occurs, which party should bear the cost. Additionally, the parties

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vigorously dispute whether or not Moss-Williams and/or Creative engaged in spoliation of evidence.

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The court must therefore analyze whether cost-shifting is appropriate (1) as a sanction to defendants

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for spoliation of evidence; (2) in light of an undue burden on defendants; (3) both; or (4) neither.

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In compliance with this court’s Standing Order re: Civil Discovery Disputes, the parties

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refrained from attaching documents that may help resolve this key factual issue. However, as in

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Zubulake, the cost-shifting analysis is a fact-intensive inquiry requiring a complete factual record.

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Unlike in Zubulake, this court faces an additional hurdle: first determining whether evidence

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spoliation occurred. Therefore, it is necessary to supplement the factual record before the court can

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determine whether and to what extent forensic imaging is warranted, and whether and to what extent

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cost-shifting is appropriate.

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Accordingly, IT IS ORDERED THAT:

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1. Lifetouch shall file a statement “identify[ing] . . . with reasonable particularity” all trade
secrets it alleges were stolen, in compliance with Cal. Code Civ. Proc. § 2019.210.

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2. Lifetouch shall produce the discovery requests aimed at obtaining documents that Moss-

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Williams took from Lifetouch and/or uploaded to Creative computers, as well as the

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discovery responses defendants provided to those requests;

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3. Lifetouch shall produce all evidence in support of its claim of evidence spoliation,

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including (1) relevant portions of the deposition testimony of Moss-Williams and Garcia,

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and (2) all communications Lifetouch sent to the defendants regarding the thumb drive or

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evidence preservation generally;

For the Northern District of California

United States District Court

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4. Creative shall submit a declaration, by someone with firsthand knowledge, explaining:

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(a) what actions Creative took in generating its response to all discovery requests issued

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by Lifetouch regarding alleged Lifetouch trade secrets or proprietary information on

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Creative’s computers; (b) where Creative looked for such information in its own files,

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computers, etc. and how it conducted those searches; and (c) whether and what

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communications occurred between Lifetouch and Creative regarding said discovery

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requests, including any communications that occurred after Creative submitted its

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discovery responses regarding the adequacy of the responses;

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5. Creative shall submit a declaration, by the person most knowledgeable, explaining: (a)

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the number and type of active computers it maintains; (b) whether and how its computers

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are networked; (c) whether and how, and how often it conducts backups of its computers;

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(d) how it stores and maintains its backup files; (e) the availability, number, and type of

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backup disks made from the time Moss-Williams began her employment with Creative

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to the present; and (f) a log of computers that were “recycled, wiped, or destroyed” since

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Moss-Williams began her employment with Creative, and whether and where Creative

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stores the data from any such computers.

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The parties shall file and serve responses to the above prompts no later than July 2, 2012. Creative

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may file a response to Lifetouch’s evidence in support of spoliation no later than July 9, 2012,

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including such exhibits as may be necessary. In addition, both parties are ORDERED to meet and

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confer to discuss the specific terms of a protocol for conducting forensic imaging of Creative’s

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computers, addressing in particular the need to balance Lifetouch’s interest in searching for

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evidence with Creative’s interest in protecting its own proprietary information from disclosure. The

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parties shall file a joint statement detailing their agreement, if any, no later than July 9, 2012. After

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reviewing the factual record, the court will conduct the appropriate cost-shifting analysis if

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necessary and may set a hearing if one is needed.

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Dated: June 18, 2012
HOWARD R. LLOYD
UNITED STATES MAGISTRATE JUDGE

For the Northern District of California

United States District Court

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C10-05297 RMW Notice will be electronically mailed to:

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Mark Slater Askanas
Dylan B. Carp
Burton F. Boltuch
Michael G. Zatkin

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[e-mail]
[e-mail]
[e-mail]
[e-mail]

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Counsel are responsible for distributing copies of this document to co-counsel who have not
registered for e-filing under the court’s CM/ECF program.

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For the Northern District of California

United States District Court

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