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