Compass Bank v. Morris Cerullo World Evangelism

Filing 166

ORDER granting Defendant's 109 Motion for Evidentiary and Monetary Sanctions Against Plaintiff. Court finds that Pla wilfully engaged in the spoliation of relevant evidence, and that Pla has demonstrated a pattern of recalcitrant behavior duri ng discovery in this litigation. Dft's request for an adverse inference jury instruction is granted. Court also finds that monetary sanctions are appropriate under Rule 37 and Court's inherent authority. The amount of monetary sanctions imp osed against Pla will be determined after Court's review of Dft's detailed time calculations and Declaration(s), and after Pla has had the opportunity to respond. Pla's response shall be filed by 6/5/2015. Pla's request for attorneys' fees is denied. Signed by Magistrate Judge William V. Gallo on 5/8/2015. (jah). Modified on 5/8/2015 - Corrected text. Regenerated NEF (jah).

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 13 14 15 COMPASS BANK, v. Plaintiff, MORRIS CERULLO WORLD EVANGELISM, Defendant. 16 ) ) ) ) ) ) ) ) ) ) ) ) Civil No. 13-CV-0654-BAS (WVG) ORDER GRANTING DEFENDANT’S MOTION FOR EVIDENTIARY AND MONETARY SANCTIONS AGAINST PLAINTIFF [DOC. NO. 109] 17 18 I. INTRODUCTION 19 A. PROCEDURAL BACKGROUND 20 On March 17, 2015, Defendant Morris Cerullo World Evangelism (“Defendant”) filed 21 a Motion for Evidentiary Sanctions against Plaintiff Compass Bank (“Plaintiff”). (Doc. No. 22 109.) Specifically, Defendant claims that Plaintiff engaged in spoliation of evidence by 23 failing to preserve a recorded telephone call (“the subject call”) between Ms. Geraldine 24 Gurley, Plaintiffs’ Federal Rule of Civil Procedure (“Rule”) 30(b)(6) designee, and Mr. Jack 25 Wilkinson, Plaintiff’s former branch manager and defaulted Defendant to the instant lawsuit. 26 (Doc. No. 109-1 at 5.) Defendant claims that Plaintiff had a duty to preserve what it knew 27 or should have known would be relevant evidence, and that Plaintiff’s failure to preserve the 28 recorded call amounts to willful spoliation of evidence. Id. Defendant seeks terminating 1 13CV0654 1 sanctions against Plaintiff, or in the alternative, Defendant asks that the Court adopt an 2 adverse inference instruction against Plaintiff, establishing that Mr. Wilkinson admitted to 3 issuing the letter of credit at the center of this litigation. Id. at 16. 4 On March 19, 2015, the Court issued an Order Setting Briefing Schedule and Motion 5 Hearing. (Doc. No. 114.) On March 26, 2015, Plaintiff filed a Response in Opposition to 6 Defendant’s Motion. (Doc. No. 134.) On April 2, 2015, at 9:00 a.m., the Court held an in- 7 person Hearing on Defendant’s Motion. Mr. Ernest Wagner and Mr. Patrick Kane appeared 8 on behalf of Plaintiff, and Mr. Steven Blake and Mr. Louis Galuppo appeared on behalf of 9 Defendant. Defense representative, Mr. Lynn Hodge, was also present in the undersigned’s 10 11 12 courtroom for the Motion Hearing. B. FACTUAL BACKGROUND 1. MS. GURLEY’S DEPOSITION TESTIMONY 13 During discovery in this case, Defendant issued two sets of document requests which 14 included all audio recordings relating to a letter of credit at the center of the dispute, 15 allegedly issued on behalf of Plaintiff by Mr. Wilkinson. Plaintiff did not produce any audio 16 recordings during discovery. On February 12, 2015, Defendant took the deposition of Ms. 17 Gurley, Plaintiff’s Rule 30(b)(6) witness. At her deposition, Ms. Gurley stated that during 18 a phone call with Mr. Wilkinson in February of 2013, Mr. Wilkinson admitted that he issued 19 the letter of credit. Ms. Gurley testified that during the call she asked, “What did you do?” 20 “You have no authority to issue letters of credit.” She testified that Mr. Wilkinson 21 responded, “Well, I issued it. It’s done.” Ms. Gurley testified she was upset that Mr. 22 Wilkinson issued the letter of credit without any authority, and that she chastised him for 23 issuing the letter of credit. 24 Ms. Gurley also testified that Plaintiff automatically records all of her phone calls in 25 the regular course of business, and automatically records the calls of all Plaintiff’s Trade 26 Service Division officers. 27 international trade services and the letter of credit are recorded 24/7.” During her deposition, Ms. Gurley stated, “our lines in 28 2 13CV0654 1 Defendant learned of the audio recordings for the first time while deposing Ms. 2 Gurley, and immediately requested that Plaintiff produce the audio recording of the subject 3 call. In a letter dated March 6, 2015, Plaintiff informed Defendant that it could not locate 4 any such recording. 5 Mr. Wilkinson was deposed after Ms. Gurley’s deposition. He testified that he could 6 not remember the subject call. Mr. Wilkinson has been an unreliable witness in this case due 7 to alleged untruthfulness and health problems. 2. DEFENDANT’S DISCOVERY REQUESTS 8 9 On April 21, 2014 and October 16, 2014, Defendant propounded Requests for 10 Production of Documents (“RFPs”) Sets One and Two on Plaintiff. Defendant’s first set of 11 RFPs sought: “any and all documents supporting your allegation[s],” “documents 12 referencing… efforts to authenticate the signature of Wilkinson,” “referencing Wilkinson’s 13 employment history,” and “containing communications occurring between January 1, 2012 14 and the present, between you and Wilkinson.” Defendant’s second set of RFPs sought: “Any 15 and all documents… related to the termination of Wilkinson,” and “related to any 16 investigations conducted by you, including but not limited to any reports, interviews, witness 17 lists, exhibit lists, or memorandums.” 18 In Defendant’s RFPs Set One, it set forth the definition of “Document,” which 19 included “all internal communications,” “discussions,” “conversations,” “telephone 20 conversations,” “transcriptions,” “whether transcribed by hand or by some mechanical, 21 electronic… or other means, as well as sound reproductions of oral statements or 22 conversations by whatever means made.” (Doc. No. 109-2 at 32) (emphasis added). 23 Further, Defendant indicated that the definition of “YOUR” meant “COMPASS BANK, its 24 agents, employees, employers, insurance companies, attorneys, accountants, investigators, 25 predecessors-in-interest, successors-in-interest and anyone else acting on its behalf.” Id. at 26 33. 27 // 28 // 3 13CV0654 1 Specifically, Defendant’s RFPs Set One sought: 2 7 14. Any and all documents supporting YOUR allegation that ‘… local branch employees have no authority to issue standby letters of credit’ as alleged in Paragraph 6 of YOUR COMPLAINT.” 15. Any and all documents evidencing that YOUR contention that ‘… local branch employees have no authority to issue standby letters of credit.’ 16. Any and all documents supporting YOUR allegation that ‘Wilkinson … was never authorized to sign standby letters of credit on behalf of Compass.’ 38. Any and all documents containing communications occurring between January 1, 2012 and the present, between YOU and WILKINSON addressing, referencing, or relating to any of the following topics. … f. ‘Jack Wilkinson’… i. ‘Letter of Credit’ 8 Specifically, Defendant’s RFPs Set Two sought: 9 1. Any and all documents referencing, concerning, or related to the termination of WILKINSON from COMPASS on or around February 15, 2013. 2. Any and all documents referencing, concerning, or related to the termination of WILKINSON from BBVA on or around February 15, 2013. 3 4 5 6 10 11 12 13 14 15 Defendant claims that both sets of discovery requests required Plaintiff to turn over the audio recording of the subject call between Ms. Gurley and Mr. Wilkinson. Plaintiff did not produce or identify any audio recordings involving Mr. Wilkinson in response to either set of RFPs, nor did Plaintiff inform Defendant at any time that it automatically records all of the phone calls in Ms. Gurley’s department. 16 3. PLAINTIFF’S SEARCH FOR THE RECORDED CALL 17 18 19 20 In February and March of 2015, after Ms. Gurley’s deposition, Defendant repeated its request for the recording of the subject call. Defendant claims that in response, Plaintiff’s counsel stated that he could not find the recordings and did not know how to locate them, yet failed to explain how he attempted to search for the recordings. 21 22 23 24 25 26 27 28 Through Plaintiff’s Opposition, the Court learned that after Ms. Gurley’s deposition, Plaintiff conducted a search of the work phone number listed on Ms. Gurley’s letterhead, which was 713-499-8640. However, during the Motion Hearing, the Court learned that Ms. Gurley had another work phone number, which was 713-449-8643. At no time did Plaintiff search this phone number for the subject call or any recorded phone calls related to this litigation. // // 4 13CV0654 1 II. DEFENDANT’S ARGUMENT 2 A. PLAINTIFF FAILED TO PRESERVE RELEVANT EVIDENCE 3 Defendant argues that parties to litigation have a duty to preserve all evidence that 4 may be relevant, even if they would normally delete the evidence. It argues that the duty 5 arises even before litigation begins, when litigation is reasonably anticipated. It argues that 6 a party must take affirmative steps to monitor compliance and place the documents on a 7 litigation hold, and sanctions may be imposed if a party violates this duty. Defendant asserts 8 that the recording of Mr. Gurley’s phone conversation with Mr. Wilkinson in February of 9 2013 was relevant to this litigation, yet Defendant failed to preserve the recording. 10 Defendant claims that the subject call is at the heart of this litigation, as Plaintiff 11 argues that it did not issue the letter of credit, yet Ms. Gurley testified that Mr. Wilkinson 12 contradicted that assertion during the subject call. 13 Wilkinson, a suspect in a criminal investigation, does not admit to issuing the letter of credit 14 nor does he remember the conversation with Ms. Gurley, he was terminated for accepting 15 money from Mr. Christopher Hammatt, another defaulted Defendant to this lawsuit. Defendant notes that while Mr. 16 At the Motion Hearing, Defendant argued that Plaintiff filed this lawsuit in March of 17 2013, and the relevant time frame for the litigation is from September of 2012 through 18 February of 2013. Defendant noted that it presented the letter of credit to Plaintiff one month 19 before the lawsuit was filed, and therefore, Plaintiff had an unqualified duty to preserve 20 evidence for this litigation starting in February of 2013, which is when the subject call 21 occurred. Defendant argues that while Plaintiff has represented that it was taking steps 22 towards litigation in February of 2013, there is no evidence that Plaintiff’s counsel took any 23 action to advise his client of its duty to preserve evidence. 24 Defendant notes that Ms. Gurley has been in the banking business for over 45 years, 25 and is the person in charge of letters of credit at the Plaintiff bank. Defendant asserts that 26 Ms. Gurley received phone calls related to this litigation in February of 2013, was named by 27 Plaintiff in the Complaint, and was designated by Plaintiff as a Rule 30(b)(6) witness. 28 Defendant specifically asked for recordings during discovery, and in the two years since this 5 13CV0654 1 case was filed, Defendant was never told that Plaintiff records phone calls. Defendant argues 2 that it is highly prejudiced by not having this evidence. 3 Defendant argues that Plaintiff has identified two phone numbers for Ms. Gurley, and 4 while Plaintiff has produced redacted records for one of Ms. Gurley’s phone numbers, it has 5 failed to produce any records for her other phone number. Thus, Defendant argues, 6 Plaintiff’s Opposition is insufficient to show that the subject call did not occur. Defendant 7 argues that the phone records do show that Ms. Gurley made several calls to individuals 8 related to this litigation during the time period that she testified the subject call occurred. 9 Defendant notes that those calls were all made from Ms. Gurley’s 8640 number, the number 10 that Plaintiff searched. Defendant asserts that Ms. Gurley called Plaintiff’s in-house counsel, 11 a Secret Service Agent, a fraud investigator, and Defense representative Mr. Hodge. 12 Defendant argues that all of those phone calls were recorded by Plaintiff, but Defendant was 13 unaware of the recordings and none were produced. Defendant asserts that it was never told 14 about any of those recordings until it filed the instant Motion. 15 B. SANCTIONS REQUESTED 16 Defendant argues that Plaintiff’s Complaint should be stricken, monetary sanctions 17 should be imposed, and default judgment should be entered against Plaintiff. Further, 18 Defendant asks that there be a finding by the Court that Mr. Wilkinson issued the letter of 19 credit. At the Hearing, the Court inquired whether an appropriate sanction for spoliation 20 would be an instruction that the conversation between Ms. Gurley and Mr. Wilkinson did 21 occur and that Mr. Wilkinson told Ms. Gurley that he issued the letter of credit. Defendant 22 responded that sanction was “a step in the right direction, absolutely.” 23 1. TERMINATING SANCTIONS 24 Defendant asks the Court to dismiss Plaintiff’s Complaint. It asserts that a finding of 25 willfulness, fault, or bad faith is enough for dismissal, and there is no requirement of a prior 26 order when there was a serious or total failure to respond to discovery. Defendant argues 27 that Plaintiff’s destruction of evidence was willful. It notes that Defendant asked for the 28 recordings on multiple occasions, and Plaintiff failed to respond to the discovery requests. 6 13CV0654 1 Defendant also argues that Plaintiff’s spoliation of evidence prejudiced Defendant. 2 While Defendant notes that this is an optional factor for the Court to consider, it claims that 3 Plaintiff’s failure to obey Court Orders compelling compliance with discovery is in itself 4 ample ground for prejudice. Defendant claims it is also prejudiced because Plaintiff has 5 impaired Defendant’s ability to go to trial, and it must rely on incomplete evidence because 6 there is no way to recreate the contents of the recording. Defendant contends that the 7 recording would allow for summary judgment and confirm Ms. Gurley’s recollection, but 8 without it there may be a triable issue of fact as Mr. Wilkinson cannot remember if he issued 9 the letter of credit. 10 2. ADVERSE INFERENCE JURY INSTRUCTION 11 In the alternative to terminating sanctions, Defendant asks the Court to prohibit 12 Plaintiff from disputing that Mr. Wilkinson has been found to have issued the letter of credit 13 in Plaintiff’s name. However, Defendant does not believe that an adverse inference would 14 be enough to remedy this error because of the substantial unfairness to Defendant. 15 III. PLAINTIFF’S ARGUMENT 16 A. PLAINTIFF DID NOT LOSE OR DESTROY EVIDENCE 17 Plaintiff asserts that it did not lose or destroy any evidence, and it has retained all call 18 records and recordings for its International Trade Services department for the last seven 19 years. Plaintiff claims that it conducted a thorough investigation of its records for the past 20 seven years. Along with its Opposition, Plaintiff attached a Declaration of Mr. James Reedy, 21 Plaintiff’s custodian of records. In his Declaration, Mr. Reedy states that Plaintiff maintains 22 a call log and a recording of all telephone calls made from Ms. Gurley’s telephone number, 23 and retains those records and recordings for a period of seven years. Based upon his review 24 of Ms. Gurley’s phone records for those months and an intensive search of Plaintiff’s phone 25 recordings for those same months, he asserts that no phone call from Ms. Gurley’s phone 26 27 28 7 13CV0654 1 number was placed to Mr. Wilkinson’s work phone or cell phone in January or February of 2 2013.1/ 3 Plaintiff asserts that there is insufficient evidence to prove that the subject call even 4 existed, let alone that it was subsequently destroyed by Plaintiff. Plaintiff claims there is no 5 testimony of record that Ms. Gurley made the subject call from her work phone, and after 6 an intensive search of Ms. Gurley’s phone records for the months of January and February 7 of 2013, it was revealed that no phone calls were placed to the Temecula branch or Mr. 8 Wilkinson’s cell phone. Plaintiff notes it has sworn under penalty of perjury that it has a 9 company policy to retain all phone records for a period of seven years. Further, Plaintiff 10 notes that it was Plaintiff’s counsel who initially asked Ms. Gurley during her deposition 11 whether Plaintiff may have recorded the call with Mr. Wilkinson. Plaintiff argues that Mr. 12 Wilkinson testified he does not remember the subject call, and while Defendant argues Mr. 13 Wilkinson is a “proven liar,” the trier of fact decides that issue. Finally, Plaintiff claims that 14 Ms. Gurley’s testimony regarding the subject call has been inconsistent and it is the primary 15 fact Defendant relies on for its Motion. It contends that Ms. Gurley testified Mr. Wilkinson 16 admitted that he issued the fraudulent line of credit, and subsequently Ms. Gurley asked Mr. 17 Wilkinson why he did this and his response was silence. Although Plaintiff does not dispute 18 that Ms. Gurley maintained that the subject call occurred, Plaintiff argues that Defendant’s 19 implications are insufficient. 20 At the Motion Hearing, the Court noted there was no evidence that Ms. Gurley’s 8643 21 number was searched, but Plaintiff’s custodian of records made conclusory statements that 22 he did an intensive search. The Court asked why Plaintiff has not spoken to Ms. Gurley to 23 determine which phone lines she typically used to make or receive calls. Plaintiff responded 24 that it attempted to speak to Ms. Gurley, but has been unsuccessful due to Ms. Gurley’s 25 recent health issues. Of course, this does not excuse Plaintiff’s failure to discuss these 26 27 1/ 28 Attached to Plaintiff’s Opposition were redacted copies of Ms. Gurley’s phone records for January and February of 2013, which Plaintiff contends do not reflect any phone calls made from Ms. Gurley to Mr. Wilkinson. (Doc. No. 134-4 at 11-36.) 8 13CV0654 1 questions with Ms. Gurley, its employee, much earlier in this case, when she was not 2 experiencing any health problems. 3 The Court inquired as to whether Plaintiff initiated any type of litigation hold. 4 Plaintiff responded that it is Plaintiff’s policy to issue litigation holds, and Plaintiff’s counsel 5 understood it to be initiated as a matter of course. Plaintiff’s counsel also stated it was his 6 understanding that Plaintiff put a litigation hold in place in this case, but he could not testify 7 first hand because he was not with the law firm representing Plaintiff when the lawsuit was 8 filed. 9 The Court inquired as to why documentation regarding the call recordings was not 10 produced more than a year ago in Plaintiff’s discovery responses. Plaintiff’s response was 11 simply that, “in a perfect world” it would have produced the recordings. 12 Plaintiff argued that, like Defendant, it also learned of the possible recording of the 13 subject call for the first time at Ms. Gurley’s deposition. It asserted that it searched Ms. 14 Gurley’s 8640 phone number, and there was no such recorded call on that line, therefore the 15 subject call did not occur. Thus, Plaintiff asserts that Defendant has failed to prove that 16 Plaintiff lost or destroyed evidence. Plaintiff contends that it is Defendant’s burden to prove 17 that Plaintiff lost or destroyed evidence and although Plaintiff’s search may be incomplete, 18 Defendant has not met its burden. 19 B. DEFENDANT FAILED TO MEET AND CONFER 20 Plaintiff argues that the parties listed the recording of the subject call as one of the 21 items in dispute in a February 26, 2015, Joint Discovery Status Report filed with the Court. 22 (Doc. No. 103.) The Court then ordered the parties to engage in an in person meet and 23 confer until all pending discovery disputes were resolved. (Doc. No. 105.) Plaintiff argues 24 that Defendant violated local rules by failing to meet and confer concerning the subject call, 25 and therefore, the Court should deny Defendant’s instant Motion. 26 Plaintiff notes that it completed its investigation of the subject call on March 5, 2014, 27 and on March 6, 2015, Plaintiff’s counsel sent correspondence to Defense counsel stating 28 that the subject call could not be located. Since this correspondence, Plaintiff claims that the 9 13CV0654 1 parties have met and conferred regarding the status of two depositions, and attended a six 2 hour deposition of Mr. Wilkinson, but the dispute regarding the subject call was not 3 mentioned during either of these in person meetings. 4 On March 12, 2015, Plaintiff contends that Defense counsel sent Plaintiff’s counsel 5 an email alleging that Plaintiff destroyed the recording of the subject call, and threatening 6 sanctions. Plaintiff argues that Defense counsel did not place a phone call to Plaintiff’s 7 counsel or attempt to meet and confer to resolve the dispute. Plaintiff claims that it requested 8 to meet and confer before Defendant filed its instant Motion, but the parties did not meet and 9 confer. 10 C. SANCTIONS ARE NOT APPROPRIATE 11 Plaintiff argues that a party moving for sanctions against another has the burden of 12 proving the other party destroyed relevant evidence. Plaintiff claims that it did not destroy 13 the call recording because the subject call never occurred. Plaintiff argues that a possible 14 inconsistent statement is not grounds for a discovery sanction. 15 Plaintiff asks the Court to deny Defendant’s Motion, award Plaintiff attorneys’ fees 16 expended in responding to the Motion, and provide any additional relief the Court deems 17 appropriate. 18 IV. APPLICABLE LAW 19 A. SCOPE OF DISCOVERY 20 The threshold requirement for discoverability under the Federal Rules of Civil 21 Procedure is whether the information sought is “relevant to any party’s claim or defense.” 22 Fed. R. Civ. P. 26(b)(1). In addition, “[f]or good cause, the court may order discovery of any 23 matter relevant to the subject matter involved in the action. Relevant information need not 24 be admissible at the trial if the discovery appears reasonably calculated to lead to the 25 discovery of admissible evidence.” Id. The relevance standard is commonly recognized as 26 one that is necessarily broad in scope in order “to encompass any matter that bears on, or that 27 reasonably could lead to other matter that could bear on, any issue that is or may be in the 28 10 13CV0654 1 case.” Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351, 98 S.Ct. 2380, 57 L.Ed.2d 2 253 (1978). 3 Despite the broad interpretation of Rule 26, the scope of discovery is not without 4 limits. Hickman v. Taylor, 329 U.S. 495, 507, 67 S.Ct. 385, 91 L.Ed. 451 (1947). The scope 5 of discovery is limited to information that is relevant to a claim or defense in the lawsuit. 6 See Adv. Comm. Notes to 2000 Amendment to Rule 26(b)(1) (“The rule change signals to 7 the court that it has authority to confine discovery to the claims and defenses asserted in the 8 pleadings, and signals to the parties that they have no entitlement to discovery to develop 9 new claims or defenses that are not already identified in the pleadings.”). 10 B. DUTY TO PRESERVE EVIDENCE 11 A party must preserve evidence it knows or should know is relevant to a claim or 12 defense of any party, or that may lead to the discovery of relevant evidence. Lopez v. 13 Santoyo, 2012 WL 5427957, at *6 (S.D. Cal. Nov. 7, 2012); see also United States v. Kitsap 14 Physicians Serv., 314 F.3d 995, 1001 (9th Cir. 2002). The duty to preserve arises not only 15 during litigation, but also extends to the period before litigation when a party should 16 reasonably know that evidence may be relevant to anticipated litigation. Patton v. Wal-Mart 17 Stores, Inc., 2013 WL 6158467, at *6 (D.Nev. Nov. 20, 2013) (citing In re Napster, Inc. 18 Copyright Litig., 462 F.Supp.2d 1060, 1067 (N.D. Cal. 2006).) As soon as a potential claim 19 is identified, a litigant is under a duty to preserve evidence which it knows or reasonably 20 should know is relevant to the action, is reasonably calculated to lead to the discovery of 21 admissible evidence, is reasonably likely to be requested during discovery, or is the subject 22 of a pending discovery request. In re Napster, Inc., 462 F.Supp.2d at 1067. 23 C. SPOLIATION OF EVIDENCE 24 Spoliation is the destruction or significant alteration of evidence, or the failure to 25 preserve property for another’s use as evidence in pending or reasonably foreseeable 26 litigation. Kitsap Physicians Svs., 314 F.3d at 1001 (citing Akiona v. United States, 938 27 F.2d 158, 161 (9th Cir. 1991) (a party engages in spoliation only if they had some notice that 28 the documents were potentially relevant to the litigation before they were destroyed).) 11 13CV0654 1 A party’s destruction of evidence is considered “willful” if the party “has some notice 2 that the [evidence was] potentially relevant to the litigation before [it was] destroyed.” Leon 3 v. IDX Sys. Corp., 464 F.3d 951, 959 (9th Cir.2006) (internal citation omitted). “Once the 4 duty to preserve attaches, a party must ‘suspend any existing policies related to deleting or 5 destroying files and preserve all relevant documents related to the litigation.’ ” Lopez, 2012 6 WL 5427957, at *7 (citing Brooks v. Felker, 2011 WL 2313021 (E.D. Cal. June 9, 2011) 7 (citation omitted).) “The failure to preserve electronic or other records, once the duty to do 8 so has been triggered, raises the issue of spoliation of evidence and its consequences.” U.S. 9 Legal Support, Inc. v. Hofioni, 2014 WL 172336, at *3 (E.D. Cal. Jan. 15, 2014) (citing 10 Thompson v. U.S. Dep’t of Housing & Urban Dev., 219 F.R.D. 93, 100 (D.Md. 2003).) 11 D. SANCTIONS 12 There are two sources of authority under which a district court can sanction a party 13 who has engaged in spoliation of evidence: the inherent power of federal courts to levy 14 sanctions in response to abusive litigation practices, and the availability of sanctions under 15 Rule 37 against a party who fails to obey an order to provide or permit discovery. Leon, 464 16 F.3d at 958; Fed.R.Civ.P. 37(b)(2)(A). Specifically, “[a] federal trial court has the inherent 17 discretionary power to make appropriate evidentiary rulings in response to the destruction 18 or spoliation of relevant evidence.” See Med. Lab Mgmt. Consultants v. Am. Broad. Cos., 19 Inc., 306 F.3d 806, 824 (9th Cir. 2002) (citing Glover v. BIC Corp., 6 F.3d 1318, 1329 (9th 20 Cir. 1993).) Further, Rule 37 “authorizes the district court, in its discretion, to impose a wide 21 range of sanctions when a party fails to comply with the rules of discovery or with court 22 orders enforcing those rules. Johnson v. Sisodia, 2015 WL 1746553, at *2 (E.D.Cal. Apr. 23 16, 2015); citing Wyle v. R.J. Reynolds Indus. Inc., 709 F.2d 585, 589 (9th Cir.1983) (citing 24 Nat’l Hockey League v. Metro. Hockey Clubs, 427 U.S. 639, 643, 96 S.Ct. 2778, 49 L.Ed.2d 25 747 (1976)). 26 “‘Sanctions that a federal court may impose for spoliation include assessing attorney’s 27 fees and costs, giving the jury an adverse inference instruction, precluding evidence, or 28 imposing the harsh, case-dispositive sanctions of dismissal or judgment.’” U.S. v. Town of 12 13CV0654 1 Colorado City, Ariz., 2014 WL 3724232, *7 (D.Ariz. Jul. 28, 2014); citing Surowiec v. 2 Capital Title Agency, Inc., 790 F.supp.2d 997, 1008 (D. Ariz. 2011). “While the court has 3 discretion to impose spoliation sanctions, it must determine which sanction best (1) deters 4 parties from future spoliation; (2) places the risk of an erroneous judgment on the spoliating 5 party; and (3) restores the innocent party to their rightful litigation position.” Town of 6 Colorado City, Ariz., 2014 WL 3724232, *7 (citing Id.) “Ultimately, the choice of 7 appropriate spoliation sanctions must be determined on a case-by-case basis, and should be 8 commensurate to the spoliating party’s motive or degree of fault in destroying the evidence.” 9 Town of Colorado City, Ariz., 2014 WL 3724232, *7 (citing Apple Inc. v. Samsung 10 Electronics Co., 888 F.Supp.2d 976, 992-93 (N.D.Cal. 2012).) 11 Additionally, the applicable standard of proof for spoliation in the Ninth Circuit 12 appears to be by a preponderance of the evidence. Krause v. Nevada Mut. Ins. Co., 2014 13 WL 496936, at *7 (D.Nev. Feb. 6, 2014); Maxim v. FP Holdings, LP, 2014 WL 200545, at 14 *1; In re Napster, 462 F.Supp.2d at 1072. 15 1. TERMINATING SANCTIONS 16 The court may impose broad discovery sanctions for failure to obey a court order that 17 compels discovery, up to and including “dismissing the action or proceeding in whole or in 18 part.” Fed.R.Civ.P. 37(b)(2)(A)(v). Dismissal and default are appropriate only when 19 circumstances evidence willful disobedience of court orders or bad faith conduct. Fjelstad 20 v. Am. Honda Motor Co., 762 F.2d 1334, 1337 (9th Cir. 1985). “‘[D]isobedient conduct not 21 shown to be outside the control of the litigant’ is all that is required to demonstrate 22 willfulness, bad faith, or fault.” Henry v. Gill Indus., Inc., 983 F.2d 943, 948 (9th Cir. 1993) 23 (quoting Fjelstad, 762 F.2d at 1341). The court may consider the party’s motivations, and 24 can consider his “dilatory and obstructive conduct” in the case and other related cases. See 25 Smith v. Smith, 145 F.3d 335, 344 (5th Cir. 1998). 26 In addition to a finding of willfulness or bad faith, the Ninth Circuit has provided the 27 following five nonexclusive factors that the sanctioning court may use to determine whether 28 case dispositive sanctions are just: 13 13CV0654 1 2 3 (1) The public’s interest in expeditious resolution of litigation; (2) The court’s need to manage its dockets; (3) The risk of prejudice to the party seeking sanctions; (4) The public policy favoring disposition of cases on their merits; and (5) The availability of less drastic sanctions. 4 Conn. Gen. Life Ins. Co. v. New Images of Beverly Hills, 482 F.3d 1091, 1096 (9th Cir. 5 2007). 6 Because “factors 1 and 2 support sanctions and 4 cuts against case-dispositive 7 sanctions, . . . [factors] 3 and 5, prejudice and availability of less drastic sanctions, are 8 decisive.” Valley Eng’rs v. Electric Eng’g Co., 158 F.3d 1051, 1057 (9th Cir. 1998). 9 Further, “factor 5 involves consideration of three subparts: whether the court explicitly 10 discussed alternative sanctions, whether it tried them, and whether it warned the recalcitrant 11 party about the possibility of dismissal.” Id. “[W]hat is most critical for case-dispositive 12 sanctions, regarding risk of prejudice and of less drastic sanctions, is whether the discovery 13 violations ‘threaten to interfere with the rightful decision of the case.’” Id. 14 2. ADVERSE INFERENCE JURY INSTRUCTION 15 The Court’s broad discretionary power includes permitting an adverse inference from 16 the spoliation of relevant evidence against the spoliating party. Krause v. Nevada Mut. Ins. 17 Co., 2014 WL 496936, at *7 (D.Nev. Feb. 6, 2014) (citing Glover v. BIC Corp., 6 F.3d 1318, 18 1329 (9th Cir. 1993).) The rule permitting a jury to draw an adverse inference is based on 19 two rationales. Millenkamp v. Davisco Foods Int’l, Inc., 562 F.3d 971, 981 (9th Cir. 2009) 20 (citing Akiona v. United States, 938 F.2d 158, 160-161 (9th Cir. 1991).) The “evidentiary 21 rationale” recognizes the common sense proposition that a party who destroys material 22 relevant to litigation is more likely to have been threatened by the item than someone who 23 does not destroy it. Akonia, 938 F.2d at 161. The “deterrence rationale” presumes that an 24 adverse inference will deter parties from destroying relevant evidence before it can be 25 introduced at trial. Id. To justify an adverse jury instruction, the spoliating party’s degree 26 of fault and the resulting prejudice to the other party must be significant. Town of Colorado 27 City, Ariz., 2014 WL 3724232, at *7 (citing Apple Inc. v. Samsung Electronics Co., Ltd., 28 888 F.Supp.2d at 993. 14 13CV0654 1 The Ninth Circuit has approved the use of adverse inferences as sanctions for 2 spoliation of evidence, but has not set forth a precise standard for determining when such 3 sanctions are appropriate. Trial courts have widely adopted the Second Circuit’s three-part 4 test, which provides that, 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 a party seeking an adverse inference instruction based on the destruction of evidence must establish[:] (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. Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 107 (2d Cir. 2002)2/ When applying the spoliation inference, courts are faced with a dilemma. Apple Inc. v. Samsung Electronics Co., Ltd., 881 F.Supp.2d 1132 (N.D.Cal. 2012). By the very nature of the spoliation, there is no way to know what the spoliated evidence would have revealed, so courts have to instruct the jury that they are allowed to infer a certain fact or set of facts from the absence of specific evidence. Apple Inc. v. Samsung Electronics Co., Ltd., 881 F.Supp.2d 1132, 1150 (N.D.Cal. 2012). With this in mind, courts have formulated adverse inference instructions that range in their level of severity. Id. The degree of harshness of the instruction should be dictated by the nature of the spoliating party’s conduct - the more egregious the conduct, the more harsh the sanction. Apple Inc., 881 F.Supp.2d at 1150. In its most harsh form, when a spoliating party has acted willfully or in bad faith, the jury can be instructed that certain facts are deemed admitted and must be accepted as true. Id. At the next level, when a spoliating party has acted willfully or recklessly, a court may impose a mandatory presumption. Id. At the other 22 23 2/ 24 25 26 27 28 Many district courts within the Ninth Circuit have adopted this test. See, e.g., Io Group Inc. v. GLBT Ltd., 2011 WL 4974337, at *8 (N.D.Cal. Oct. 19, 2011); Vieste, LLC v. Hill Redwood Dev., 2011 WL 2198257, at *2 (N.D.Cal. June 6, 2011); Cyntegra, Inc. v. Idexx Labs., Inc., 2007 WL 5193736, at *2 (C.D.Cal. Sept. 21, 2007); World Courier v. Barone, 2007 WL 1119196, at *1 (N.D.Cal. Apr. 16, 2007); UMG Recordings, Inc. v. Hummer Winblad Venture Partners (In re Napster, Inc. Copyright Litig.), 462 F.Supp.2d 1060, 1078 (N.D.Cal.2006); AmeriPride Servs., Inc. v. Valley Indus. Serv., Inc., 2006 WL 2308442, at *5 n. 6 (E.D.Cal. Aug. 9, 2006); Hamilton v. Signature Flight Support Corp., 2005 WL 3481423, at *3 (N.D.Cal. Dec. 20, 2005); Housing Rights Ctr. v. Sterling, 2005 WL 3320739, at *7 (C.D.Cal. Mar. 2, 2005). 15 13CV0654 1 end of the spectrum, the least harsh instruction permits (but does not require) a jury to 2 presume that the lost evidence is both relevant and favorable to the innocent party. Id. If it 3 makes this presumption, the spoliating party’s rebuttal evidence must then be considered by 4 the jury, which must then decide whether to draw an adverse inference against the spoliating 5 party. Id. 6 V. COURT DISCUSSION 7 A. RELEVANT EVIDENCE EXISTED 8 Although discovery closed on February 20, 2015, Defendant first learned that Plaintiff 9 records all calls and retains them for seven years on February 12, 2015, a mere eight days 10 before the discovery cutoff. While Plaintiff questioned the relevance of the subject call 11 during the Motion Hearing, the relevance of this evidence cannot reasonably be disputed. 12 Rule 26 states that parties may obtain discovery regarding any non-privileged matter that is 13 relevant to any party’s claim or defense. Fed.R.Civ.P. 26(b)(1). The evidence withheld by 14 Plaintiff goes to the heart of this litigation. One of the main disputes in this case is whether 15 Plaintiff issued the letter of credit. Plaintiff denies issuing the letter of credit and therefore 16 refuses to honor it. Yet eight days before the close of all discovery, Plaintiff’s own Rule 17 30(b)(6) witness testified under oath that she had a telephone conversation with Plaintiff’s 18 former branch manager and defaulted Defendant in this litigation, who allegedly issued the 19 letter of credit. She testified that Mr. Wilkinson, while working for Plaintiff, confirmed that 20 he issued the letter of credit. Further, she testified that she chastised Mr. Wilkinson for 21 issuing the letter of credit, as he had no authority to do so. 22 Plaintiff argues that Ms. Gurley backtracked from her exact testimony, and claims that 23 she is currently unavailable due to health issues. It also contends that Mr. Wilkinson has no 24 recollection of the call, although both parties have previously asserted that Mr. Wilkinson 25 is an unreliable witness, and they have involved the Court with their difficulties in 26 scheduling and conducting his deposition. Plaintiff’s arguments lend additional support to 27 the relevancy of the recording. As the parties dispute whether Mr. Wilkinson admitted to 28 issuing the letter of credit and they assert conflicting evidence, there could be no better 16 13CV0654 1 evidence than the recording itself. Based on Plaintiff’s arguments in opposition to the instant 2 Motion, it appears that Plaintiff plans to attack Ms. Gurley’s credibility and ability to recall 3 accurately. This is all the more reason why the recording is of paramount importance to 4 Defendant’s case. 5 Ms. Gurley testified that she had a phone conversation with Mr. Wilkinson about the 6 disputed letter of credit. Plaintiff concedes that her testimony was consistent that such a 7 phone call occurred. Recently produced phone records reveal that during the same time 8 period that Ms. Gurley claims she spoke with Mr. Wilkinson, she was also involved in 9 several other phone calls related to this case. The records demonstrate that she spoke with 10 Plaintiff’s in-house counsel, a Secret Service agent, a fraud investigator, and Defense 11 representative Mr. Hodge during that time period. A phone call to Mr. Wilkinson would be 12 entirely consistent with Ms. Gurley’s phone activity at that time. It is entirely reasonable that 13 while speaking to the other individuals related to this case, Ms. Gurley would also want to 14 speak with the individual who allegedly issued the letter of credit. 15 16 B. PLAINTIFF HAD A DUTY TO PRESERVE THE RECORDING 1. PLAINTIFF ANTICIPATED THE LITIGATION 17 A party must preserve evidence it knows or should reasonably know is relevant to a 18 claim or defense of any party and the duty to preserve arises not only during litigation, but 19 also extends to the period before litigation when a party should reasonably know that 20 evidence may be relevant to anticipated litigation. See Lopez v. Santoyo, 2012 WL 21 5427957, at *6 (S.D. Cal. Nov. 7, 2012); United States v. Kitsap Physicians Serv., 314 F.3d 22 995, 1001 (9th Cir. 2002); Patton v. Wal-Mart Stores, Inc., 2013 WL 6158467, at *6. Ms. 23 Gurley testified that the subject call occurred sometime in early February of 2013. (Doc. No. 24 1091 at 6.) While the subject call occurred prior to Plaintiff filing the Complaint, Plaintiff 25 has previously argued to this Court that it reasonably anticipated litigation regarding the 26 letter of credit in February of 2013. 27 In a Discovery Brief related to a different dispute and filed by Plaintiff on December 28 29, 2014, Plaintiff argued that the summary of an interview conducted on February 15, 2013, 17 13CV0654 1 with Mr. Wilkinson, before the lawsuit was filed, was work product material because it was 2 prepared in anticipation of litigation. (Doc. No. 88.) In support of its argument, Plaintiff 3 claimed that, in a telephone conversation on February 12, 2013, Defendant informed Ms. 4 Gurley that Mr. Wilkinson had previously stated that the letter of credit was valid. Id. at 3. 5 Plaintiff stated that Defendant then sent written correspondence to Plaintiff requesting that 6 it notify Defendant in writing that it considered the letter of credit to be a fake. Id. Plaintiff 7 claimed that Defendant provided a courtesy copy to its counsel. Id.; Doc. No. 88-3 at 4. 8 Plaintiff asserted that, on February 15, 2013, its internal investigators, working at the behest 9 of in-house counsel, interviewed Mr. Wilkinson concerning his knowledge of the fraudulent 10 letter of credit purporting to bear his signature. (Doc. No. 88 at 3.) In a response brief 11 related to the same dispute, Defendant noted that, on February 22, 2013, Plaintiff sent a letter 12 to Defendant advising that Plaintiff would not be honoring the letter of credit. (Doc. No. 91 13 at 3.) On March 19, 2013, Plaintiff initiated the instant litigation. (Doc. No. 1.) 14 2. PLAINTIFF KNEW THE RECORDING WAS RELEVANT 15 As discussed above, although Plaintiff half-heartedly argued during the Motion 16 Hearing that it disputed the relevance of the recording, Plaintiff’s argument is frivolous. In 17 early February of 2013, Plaintiff was aware that the parties disputed the legitimacy of the 18 letter of credit purportedly issued by Mr. Wilkinson. Plaintiff was also aware that Ms. 19 Gurley had spoken with Defense representative Hodge in early February of 2013 regarding 20 the disputed letter of credit. It was on notice that any conversation between Ms. Gurley and 21 Mr. Wilkinson at that time about the disputed letter of credit would have been highly 22 relevant to the anticipated litigation. Thus, Plaintiff had a duty to preserve the recording of 23 the subject call. 24 25 C. PLAINTIFF HAD A CULPABLE STATE OF MIND 1. PLAINTIFF FAILED TO PRESERVE THE RECORDING 26 Imposing an adverse inference jury instruction as a sanction for spoliation requires that 27 evidence was lost or destroyed with a culpable state of mind. Here, while Plaintiff may not 28 have technically lost or destroyed the recording of the subject call, although the Court has 18 13CV0654 1 not ruled out that possibility, the Court finds that Plaintiff wilfully failed to produce the 2 recording in response to discovery requests, wilfully failed to conduct a diligent search in 3 an effort to locate the recording, and wilfully withheld the recording from Defendant. 4 Plaintiff has effectively lost or destroyed relevant evidence, as it had a duty to preserve the 5 recording and Defendant has no other way to obtain this evidence. Due to Plaintiff’s failure 6 to preserve or produce the recording, Defendant is left to litigate this case without a critical 7 piece of evidence. 8 Surprisingly, Plaintiff claims that it first learned of the subject call during Ms. 9 Gurley’s deposition on February 12, 2015. Had Plaintiff diligently pursued its discovery 10 obligations or simply been naturally curious regarding Ms. Gurley’s knowledge, Plaintiff 11 would have learned about this call, or should have known about the call, even before it filed 12 this lawsuit. However, Defendant asked for this specific information in discovery requests 13 propounded in April of 2014. At that time, Plaintiff was well aware that it recorded calls, 14 as it apparently recorded all calls of the employees in Ms. Gurley’s department. Therefore, 15 any and all recorded calls related to this case should have been produced in April of 2014. 16 The subject call should have been included in the production. However, not only did 17 Plaintiff not produce the recording of the subject call or any other calls, it utterly failed to 18 even disclose that such calls were recorded. 19 Moreover, no evidence has been presented to the Court that Plaintiff initiated a 20 litigation hold. Despite being on notice that Plaintiff’s litigation hold would be discussed 21 at the Motion Hearing because it was examined in Defendant’s Motion, Plaintiff was totally 22 unprepared to respond to that issue during the Hearing. 23 Plaintiff initiated this lawsuit. It argued in a previous motion that, with respect to the 24 information surrounding Mr. Wilkinson in February of 2013, anything done by Plaintiff was 25 in anticipation of litigation. Thus, Plaintiff knew better than anyone that all of this 26 information needed to be preserved. Moreover, in Plaintiff’s Complaint, it identified Ms. 27 Gurley as a key player in the events surrounding this litigation. Paragraph 10 of Plaintiff’s 28 Complaint states, 19 13CV0654 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 On February 12, 2013, Geraldine Gurley (“Gurley”) of Compass’s International Trade Services Department received a call from Lynn Hodge of MCWE (“Hodge”), regarding the Century Bank LOC. Gurley informed Hodge that Compass had determined the Century Bank LOC was fraudulent and had refused to accept it. During that same conversation, Hodge referenced a standby letter of credit from Compass for $5.2 million with MCWE as beneficiary. Gurley informed Hodge that no such standby letter of credit was ever issued by Compass. (Doc. No. 1 at 3.) Plaintiff also knew that Mr. Wilkinson was a key player in the events surrounding this litigation, and they ultimately terminated his employment. Paragraph 12 of Plaintiff’s Complaint states, in part, “... Moreover, Compass is informed and believes and thereupon alleges that Wilkinson’s purported signature on the Fraudulent Compass LOC is forged.” (Doc. No. 1 at 4.) In April of 2014, when Defendant propounded its discovery requests and asked for all recordings related to the letter of credit, Plaintiff had an obligation to disclose at that time that Plaintiff records all calls, and to produce the relevant recordings. Yet Plaintiff did not reveal, disclose, or even hint that there were potentially relevant conversations that were recorded as a matter of course. Instead, Plaintiff was completely silent on that issue. Defendant issued its second set of RFPs in October of 2014, and again, Plaintiff was silent about any recorded phone calls. Defendant’s RFPs were not ambiguous as to what Defendant was seeking. Three months later, Ms. Gurley testified very clearly that she had a conversation with Mr. Wilkinson. There is no dispute about that testimony, and Ms. Gurley has never backtracked from that assertion. That conversation, regardless of whether it goes as far as Ms. Gurley’s testimony revealed, is absolutely important to this litigation. After Ms. Gurley’s deposition, Defendant again asked for the recording and all that it received in response was a conclusory letter from Plaintiff’s counsel stating that it could not be located. Moreover, Plaintiff evaded the Court’s questions during the Motion Hearing when asked why it had only searched one of Ms. Gurley’s two phone lines. The Court never received a response to its inquiries. Equally troubling is that, at no time during the Motion Hearing did Plaintiff represent that it would conduct a search of Ms. Gurley’s other phone 20 13CV0654 1 line. Instead, Plaintiff suggested several times that it may be able to solve the problem by 2 using a “reverse engineer” approach to search Mr. Wilkinson’s phone records in an effort 3 to locate the subject call. However, Plaintiff conceded that it had not yet conducted or 4 initiated a search of Mr. Wilkinson’s phone records, despite being on notice of the subject 5 call since February 12, 2015 at the latest, nearly two months before the Motion Hearing. 6 When asked by the Court why Plaintiff waited until after the close of all discovery to 7 search Ms. Gurley’s phone line for the first time, Plaintiff responded that it only learned of 8 the possible existence of the recording during Ms. Gurley’s deposition on February 12, 2015. 9 The Court finds this explanation to be completely unjustified and spurious, as Plaintiff knew 10 that it recorded all of the phone calls in Ms. Gurley’s department from the beginning of this 11 litigation. Further, Ms. Gurley’s role in this litigation was no surprise to Plaintiff, as Plaintiff 12 listed her in its Complaint and designated her as its Rule 30(b)(6) witness. Defendant 13 requested this specific discovery in April of 2014, and again in October of 2014, yet nothing 14 was produced. None of this was a surprise to Plaintiff, and if it was, that further supports 15 Defendant’s argument that Plaintiff was delinquent in its duty to preserve evidence and to 16 respond to discovery requests. 17 During the Motion Hearing, Plaintiff repeatedly asserted that it conducted a complete 18 and diligent search of Ms. Gurley’s records, and because the subject call did not appear in 19 the records, the call did not occur. Plaintiff discounts Ms. Gurley’s testimony to the 20 contrary, and overlooks the critical fact that it does not have Ms. Gurley’s complete phone 21 records. The Court is confounded as to why Plaintiff only searched one of Ms. Gurley’s two 22 phone lines. The Court is also deeply troubled that Plaintiff could adamantly assert that the 23 call recording does not exist when a diligent search has not been conducted or even 24 attempted. Plaintiff did not present any evidence that the subject call could not have been 25 made from Ms. Gurley’s other phone line. Plaintiff’s search does nothing to prove that the 26 subject call did not occur. The Court is left with an incomplete search by Plaintiff and the 27 unequivocal testimony of Ms. Gurley that the subject call did occur. Plaintiff’s cavalier 28 approach to Defendant’s discovery requests, Defendant’s requests for the information after 21 13CV0654 1 Ms. Gurley’s deposition, and the preparation for the Court’s Motion Hearing leads the Court 2 to believe that there is information that Plaintiff does not want Defendant to discover. The 3 Court finds that Plaintiff’s obstructionist behavior and brazen failure to produce relevant 4 evidence in response to discovery amounts to the wilful destruction or loss of evidence. 5 2. PLAINTIFF’S HISTORY OF VIOLATING DISCOVERY OBLIGATIONS 6 7 Plaintiff has a history of being recalcitrant and failing to produce relevant discovery. 8 On January 23, 2015, this Court issued a Discovery Order requiring Plaintiff to produce an 9 Interview Summary of Mr. Wilkinson. (Doc. No. 95.) On December 29, 2014, Plaintiff filed 10 a Discovery Brief in Support of its position that a statement that Mr. Wilkinson gave to 11 Plaintiff during an interview on February 15, 2013, was protected by the work product 12 doctrine. (Doc. No. 88.) Plaintiff argued that the Interview Summary reflected Plaintiff’s 13 investigators’ and Plaintiff’s counsel’s thought processes and mental impressions of what 14 they considered to be the instant litigation’s material issues. (Doc. No. 88 at 2-3, 6-7.) 15 The Court conducted an in camera review of the Interview Summary and found that 16 it was apparent on the face of the document that it was not protected work product material. 17 (Doc. No. 95 at 8.) In an Order issued on January 23, 2015, the Court strongly disagreed 18 with Plaintiff’s claims that the Interview Summary contained material that was prepared in 19 anticipation of litigation. Id. The Court noted that the document was simply a factual 20 statement obtained by Plaintiff’s Risk Manager and Human Resources staff during what 21 appeared to be a standard employee interview immediately preceding termination. Id. at 9. 22 The Court noted that, despite Plaintiff’s assertions, it was completely devoid of any mental 23 impressions or thought processes of counsel. Id. 24 The Court admonished Plaintiff and reiterated its expectation that all counsel and all 25 parties provide true and accurate discovery responses consistent with the sprit of Rule 26. 26 (Doc. No. 95 at 11.) The Court observed that withholding the Interview Summary under the 27 guise that it was protected by the work product doctrine was clearly an effort by Plaintiff to 28 try, and almost succeed, in suppressing highly relevant and clearly discoverable information. 22 13CV0654 1 Id. The Court found that Plaintiff engaged in an intentional effort designed to delay the 2 discovery process and prevent the document from getting into the hands of Defendant. Id. 3 The Court warned that it would not tolerate such blatant gamesmanship, and stated that 4 Plaintiff was on notice that should the Court become aware of any similar antics throughout 5 the remainder of the discovery period, sanctions would likely issue. Id. 6 Based on the Court’s prior discovery ruling and the information presented in the 7 instant dispute, the Court finds that Plaintiff has demonstrated a pattern of suppressing highly 8 relevant and clearly discoverable evidence. Plaintiff has not been forthcoming with respect 9 to discovery in the past, and this is more of the same recalcitrant conduct. Despite its best 10 efforts, Defendant has faced extreme difficulty in obtaining discovery from Plaintiff. The 11 Court has previously warned Plaintiff to obey the letter and spirit of the Federal Rules, yet 12 Plaintiff has cavalierly disregarded both the spirit of the Rules and this Court’s Order. Ms. 13 Gurley’s deposition occurred less than three weeks after this Court issued its ruling regarding 14 the Interview Summary and warned Plaintiff to refrain from engaging in further gamesman- 15 ship. The Court is deeply disturbed by Plaintiff’s blatant disregard of its discovery 16 obligations and this Court’s unambiguous Order. 17 D. SANCTIONS ARE WARRANTED 18 Defendant requests both monetary sanctions and the use of adverse inference jury 19 20 instructions. As described below, both are warranted on the record before the Court. 1. COURT WILL NOT GRANT TERMINATING SANCTIONS 21 The risk of prejudice to the party seeking sanctions and the availability of less drastic 22 sanctions are the decisive factors in the Ninth Circuit’s test to determine whether case 23 dispositive sanctions are justified. Conn. Gen. Life Ins. Co., 482 F.3d at 1096; Valley 24 Eng’rs, 158 F.3d at 1057. In analyzing whether less drastic sanctions are available, the court 25 considers whether it explicitly discussed alternative sanctions, whether it tried them, and 26 whether it warned the recalcitrant party about the possibility of dismissal. Valley Eng’rs, 27 158 F.3d at 1057. 28 23 13CV0654 1 Here, the Court finds that the risk of prejudice to Defendant is great, as Plaintiff’s 2 spoliation of evidence requires Defendant to rely on incomplete evidence. Without the 3 recording, there may be a triable issue of fact as Mr. Wilkinson claims he cannot remember 4 if he issued the letter of credit on behalf of Plaintiff. Defendant has no way to recreate the 5 contents of the recording. Plaintiff argued to this Court that Ms. Gurley’s testimony was 6 inconsistent regarding what Mr. Wilkinson actually said during the phone call, and stated 7 that she is currently unavailable due to health issues. 8 The Court finds that less drastic sanctions are available. The Court has previously 9 warned Plaintiff that continued gamesmanship and attempts to withhold discovery could 10 result in sanctions, however, terminating sanctions were not discussed. To date, the Court 11 has not imposed any sanctions on Plaintiff. In its Motion, Defendant addresses an 12 alternative, less drastic sanction for the Court to consider. Although Defendant believes that 13 terminating sanctions are appropriate in this situation, the Court finds that terminating 14 sanctions are not warranted as there is an appropriate less drastic sanction that can be 15 imposed. 16 2. ADVERSE INFERENCE JURY INSTRUCTION IS AN APPROPRIATE SANCTION 17 18 Plaintiff has had one year to produce all of the relevant recordings discussed at the 19 Motion Hearing, and has failed to produce them. Plaintiff was aware of this Motion for 16 20 days before the Hearing, but did nothing independently to show that it explored other 21 potential sources, such as searching Ms. Gurley’s other phone line, Mr. Wilkinson’s phone 22 records, Ms. Gurley’s cell phone, or at the very least, speaking with Ms. Gurley. 23 The Court agrees that it was initially Defendant’s burden to show that Plaintiff lost or 24 destroyed relevant evidence. However, the Court finds that the circumstances demonstrate 25 that if the subject phone call was not made, Plaintiff had ample opportunity to research its 26 records of other phone lines that would reasonably have been used by Ms. Gurley, ask her 27 if she used her personal cell phone, or searched Mr. Wilkinson’s phone records, and it has 28 done nothing. Therefore, although it was initially Defendant’s burden, the failure to perform 24 13CV0654 1 any due diligence to demonstrate that there is no recorded call falls upon Plaintiff. The Court 2 finds that Defendant has made a prima facie showing that the subject call occurred, that the 3 call was recorded, and that Mr. Wilkinson said what Ms. Gurley testified to during her 4 deposition. 5 Due to Plaintiff’s wilful disregard of its discovery obligations, failure to issue a 6 litigation hold, failure to comply with this Court’s prior Order, and Plaintiff’s cavalier 7 approach to try to remedy the situation and reduce the resulting prejudice to Defendant, the 8 Court declines to order an adverse inference instruction that may be rebutted by Plaintiff. 9 The Court finds that due to Plaintiff’s bad faith and wilful spoliation of evidence, the more 10 appropriate sanction is an adverse inference that cannot be rebutted by Plaintiff. 11 Therefore, the Court recommends to the District Judge that the jury be instructed that 12 Ms. Gurley had a phone conversation with Mr. Wilkinson in February of 2013, and that 13 Wilkinson said exactly what Ms. Gurley testified to during her February 12, 2015, 14 deposition. 3. MONETARY SANCTIONS 15 16 Defendant also seeks monetary sanctions to compensate for the time and expense 17 involved in attempting to obtain the subject call and bringing the instant Motion. The court 18 may levy monetary sanctions under two sources of authority: the court’s “inherent 19 authority,” see Leon, 464 F.3d at 961, and under Rule 37 (providing for recovery of fees and 20 costs in motions to compel discovery or for failure to obey an order to provide or permit 21 discovery). 22 a. RULE 37 23 Under Rule 37(b), a court may award monetary sanctions for a party’s failure to 24 comply with a court order. Fed.R.Civ.P. 37(b). Here, the Court finds that monetary 25 sanctions may be imposed against Plaintiff under Rule 37(b), as Plaintiff clearly violated this 26 Court’s January 23, 2015, Discovery Order (Doc. No. 95), in which the Court warned that 27 it would not tolerate Plaintiff’s blatant gamesmanship, and admonished that Plaintiff was on 28 25 13CV0654 1 notice that should the Court become aware of any similar antics throughout the remainder 2 of the discovery period, sanctions would likely issue. Id. at 11. 3 b. COURT’S INHERENT AUTHORITY 4 A trial court has the discretion to impose a wide array of sanctions under its inherent 5 authority, and “assessment of attorney’s fees is undoubtedly within a court’s inherent 6 powers.” Chambers v. NASCO, 501 U.S. 32, 44-45, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991). 7 Under its inherent powers, a district court may award sanctions in the form of attorney’s fees 8 against a party or counsel who acts “in bad faith, vexatiously, wantonly, or for oppressive 9 reasons.” Primus Auto. Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 648 (9th Cir. 1997) 10 (discussing a sanction against an attorney). Before awarding such sanctions, the court must 11 make an express finding that the sanctioned party’s behavior “constituted or was tantamount 12 to bad faith.” Id. A party “demonstrates bad faith by delaying or disrupting the litigation 13 or hampering enforcement of a court order.” Id. at 649. The bad faith requirement ensures 14 that the district court’s exercise of its broad power is properly restrained, and “preserves a 15 balance between protecting the court’s integrity and encouraging meritorious arguments.” 16 Id. Additionally, the amount of monetary sanctions must be “reasonable.” Brown v. Baden 17 (In re Yagman), 796 F.2d 1165, 1184 (9th Cir. 1986), as amended by 803 F.2d 1085 (1986) 18 (reviewing a Rule 11 sanction but announcing a standard applicable to other sanctions as 19 well). 20 Here, the Court also finds monetary sanctions to be appropriate under the Court’s 21 inherent authority due to the evidence presented which demonstrates Plaintiff’s delay, 22 disruption of the discovery process and this litigation, gamesmanship, and discovery abuses. 23 See Primus Auto. Fin. Servs., 115 F.3d at 649 (“A party ... demonstrates bad faith by 24 ‘delaying or disrupting the litigation or hampering enforcement of a court order.’ ”) (citing 25 Hutto v. Finney, 437 U.S. 678, 689 n.14, 98 S.Ct. 2565, 57 L.Ed.2d 522 (1978)) (implicitly 26 overruled on other grounds); see also Leon, 464 F.3d at 961. To be clear, the Court finds 27 that Plaintiff’s wilful disregard of its discovery obligations, failure to issue a litigation hold, 28 failure to comply with this Court’s prior Order, and cavalier approach to try to remedy the 26 13CV0654 1 situation and reduce the resulting prejudice to Defendant, “constituted or was tantamount to 2 bad faith.” Roadway Exp., Inc. v. Piper, 447 U.S. 752, 767, 100 S.Ct. 2455, 65 L.Ed.2d 488 3 (1980). 4 c. DEFENDANT SHALL SUBMIT BILLING STATEMENTS 5 In light of the Court’s award of monetary sanctions, Defendant shall lodge with the 6 Court detailed time calculations and descriptions of activities in attempting to obtain the 7 recording of the subject call, and for litigating its Motion for Sanctions. Defendant shall 8 include a Declaration(s) by counsel, and shall lodge these detailed documents with the Court, 9 with a copy to opposing counsel, on or before May 22, 2015. 10 VI. CONCLUSION 11 The Court finds that Plaintiff wilfully engaged in the spoliation of relevant evidence, 12 and that Plaintiff has demonstrated a pattern of recalcitrant behavior during discovery in this 13 litigation. Accordingly, as explained above, the Court hereby finds that Defendant’s request 14 for an adverse inference jury instruction is hereby GRANTED. 15 The Court also finds that monetary sanctions are appropriate under both Rule 37 and 16 the Court’s inherent authority. Defendant’s request for monetary sanctions is hereby 17 GRANTED. The amount of monetary sanctions imposed against Plaintiff will be determined 18 after the Court’s review of Defendant’s detailed time calculations and Declaration(s), and 19 after Plaintiff has had the opportunity to respond. Plaintiff’s response shall be filed on or 20 before June 5, 2015. 21 Further, Plaintiff has requested attorneys’ fees for its time and expenses associated 22 with responding to Defendant’s Motion for Sanctions. (Doc. No. 134 at 9.) Based on the 23 Court’s ruling set forth above, the Court finds no merit in this request, and Plaintiff’s request 24 for attorneys’ fees is hereby DENIED. 25 IT IS SO ORDERED. 26 DATED: May 8, 2015 27 Hon. William V. Gallo U.S. Magistrate Judge 28 27 13CV0654 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 28 13CV0654

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