<p> Copies of decisions posted on this site have been downloaded from Westlaw with permission from West, a Thomson business.</p><p>Page 1</p><p>Slip Copy, 2013 WL 6159177 (S.D.Cal.) (Cite as: 2013 WL 6159177 (S.D.Cal.))</p><p>MFG. LLC, Implant Direct LLC, and Implant Direct Only the Westlaw citation is currently available. INTL (“Defendants”). Plaintiffs seek a default judg- ment against Defendants, and an adverse inference United States District Court, jury instruction against Defendants for destroying S.D. California. documents, failing to put in place a litigation hold ZEST IP HOLDINGS, LLC, et al., Plaintiffs, and document retention policy, and discovery mis- v. conduct. Plaintiffs seek sanctions in the form of attor- IMPLANT DIRECT MFG., LLC, et al., Defendants. ney's fees and costs associated with pursuing the al- legedly destroyed documents and for preparing this Civil No. 10–0541–GPC(WVG). Motion. Defendants filed an Opposition to the Mo- Nov. 25, 2013. tion. Plaintiffs filed a Reply to Defendants' Opposi- tion. On October 19, 2012 and May 29, 2013, the Court held hearings on Plaintiffs' Motion. Brandon D. Baum, Mayer Brown LLP, Palo Alto, CA, Brian W. Nolan, John Molenda, Lisa M. Ferri, Manuel J. Velez, Mayer Brown, LLP, New York, The Court, having reviewed Plaintiffs' Motion, NY, Andrew Z. Edelstein, John Nadolenco, Mayer Defendants' Opposition, and Plaintiffs' Reply, and Brown LLP, Los Angeles, CA, for Plaintiffs. having entertained the parties' arguments, hereby finds that Defendants did not take adequate steps to avoid spoliation of evidence after it should have rea- Christopher J. Dugger, Michael Hurey, Philip Angelo sonably anticipated this lawsuit and did not issue a Lim Nulud, Robert Nathan Treiman, Kleinberg & litigation hold nor implement nor monitor an ade- Lerner, Los Angeles, CA, Patrick F. Bright, Wagner, quate document preservation policy. Therefore, the Anderson & Bright, LLP, Glendale, CA, for Defen- Court GRANTS in part and DENIES in part Plain- dants. tiffs' Motion For Spoliation And Discovery Abuse Sanctions. The Court RECOMMENDS that an ad- ORDER GRANTING IN PART AND DENYING IN verse jury instruction against Defendants be given to PART PLAINTIFFS' MOTION FOR SPOLIATION the jury at the trial of this action. AND DISCOVERY ABUSE SANCTIONS (DOC. NO. 121) II RECOMMENDATION REGARDING ADVERSE PROCEDURAL HISTORY JURY INSTRUCTION On March 20, 2010, Plaintiffs filed this action. WILLIAM V. GALLO, United States Magistrate Plaintiffs allege that Defendants' products infringe on Judge. Plaintiffs' U.S. Patent Nos. 6,030,219 and 6,299,447 I (“Patents–in–Suit”, or “Locator” products) through INTRODUCTION the manufacture and sale of Defendants' “Go Direct” *1 Plaintiff Zest IP Holdings, LLC, (“Plaintiffs”) product. Plaintiffs also allege claims for trademark have made a Motion For Spoliation And Discovery infringement with respect to Plaintiffs' marks “Zest” Abuse Sanctions Against Defendants Implant Direct</p><p>© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works. Copies of decisions posted on this site have been downloaded from Westlaw with permission from West, a Thomson business.</p><p>Page 2</p><p>Slip Copy, 2013 WL 6159177 (S.D.Cal.) (Cite as: 2013 WL 6159177 (S.D.Cal.)) and “Locator,” false designation of origin, false ad- dants stating that they would file a lawsuit for patent vertising in violation of § 43(a) of the Lanham Act, infringement against Defendants should Defendants and state statutory law and common law unfair com- continue their plan to commercialize their product. petition. On August 27, 2010, Plaintiffs amended (Velez Dec. Exh. 7). Defendants acknowledged re- their Complaint. In the Amended Complaint, Plain- ceipt of the October 22, 2008 letter. (Velez Dec. Exh. tiffs allege that another product of Defendants, the 3 at 150:17 to 159:8). Plaintiffs argue that a litigation “GPS abutment,” infringes on the Patents–in–Suit. hold should have been put in place as of October 22, 2008. On August 27, 2012, Plaintiffs filed a Motion For Spoliation And Discovery Abuses Sanctions Defendants argue that the duty to preserve evi- Against Defendants (“Motion”). On October 5, 2012, dence arose when Plaintiffs filed this action in March Defendants filed an Opposition to the Motion (“Op- 2010 because until this action was filed, Defendants position”). On October 12, 2012, Plaintiffs filed a Re- did not believe that there would be litigation with ply In Support Of Plaintiffs' Motion (“Reply”). On Plaintiff. Further, Defendants contend that the duty to March 5, 2013, Plaintiffs filed a Supplemental Brief preserve could not have begun prior to March 2010 in support of their Motion. On May 19, 2013, Defen- because Plaintiffs were aware of Defendants' intent to dants filed a Response to Plaintiffs' Supplemental market the alleged infringing product and did not ask Brief. On October 19, 2012 and May 29, 2013, the Defendants to save any documents or emails. Defen- Court heard oral argument on the Motion. dants did not implement a litigation hold or document preservation policy on October 22, 2008, or at any III time before the Complaint was filed, or after the FACTS Complaint was filed. Defendants did not take steps to A. Defendant's Did Not Implement a Litigation preserve electronic documents, nor did they instruct Hold their employees to preserve documents. Instead, De- Plaintiffs argue that Defendants were aware of a fendants argue that failure to institute a litigation hold potential lawsuit as early as Fall 2008. At that time, does not warrant sanctions. Defendants further assert Defendants were distributors of Plaintiffs' “Locator” that sanctions are not warranted because they have a products. Defendants informed Plaintiffs of their plan company policy that “no documents are to be delet- to make their own clone product to compete with ed” and that [Defendants] did not believe any of De- Plaintiffs' “Locator” products. fendants' employees would delete company docu- ments. (Velez Dec. Exh. 3 at 47:5 to 47:17). *2 On August 8, 2008, Plaintiffs informed De- fendants that they considered Defendants' planned B. Defendant's Failure to Preserve Documents product to be a knockoff, and an infringement of the “Locator product.” [Declaration of Manuel J. Velez 1. Ines Aravena's emails in Support of Motion for Spoliation and Discovery Abuse Sanctions (“Velez Dec.”), Exhs. 5, 6]. On Oc- Ines Aravena (“Aravena”) was Defendants' Di- tober 22, 2008, Plaintiffs sent another letter to Defen- rector of Design Engineering, and oversaw the design</p><p>© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works. Copies of decisions posted on this site have been downloaded from Westlaw with permission from West, a Thomson business.</p><p>Page 3</p><p>Slip Copy, 2013 WL 6159177 (S.D.Cal.) (Cite as: 2013 WL 6159177 (S.D.Cal.)) development and testing of Defendant's products. Ar- communications from Niznick that are relevant to avena was an independent contractor working for De- this litigation. Plaintiffs located in third parties' files fendants before she became Defendants' employee. Niznick's email communications to third party den- She testified at her deposition that she intentionally tists which may be considered evidence of Niznick's deleted her emails because she received so many inducing the third party dentists to infringe on Plain- emails and that no one told her not to delete them. tiffs' patents. Niznick's emails to the third party den- (Velez Dec. Exh. 2 at 212:13–20). She had two email tists encourage the dentists to combine Defendants' accounts: one on Defendants' system, and one on product with Plaintiffs' “Locator” products. [Velez America On Line (“AOL”) that was her personal ac- Dec. Exhs. 11 (dated November 12, 2008), 12 (dated count. (Velez Dec. Exh. 2 at 212:1–4). She used the December 3, 2008) ]. It cannot be disputed that Ex- AOL account for work purposes, as well as for per- hibits 11 and 12 once existed in Defendants' electron- sonal purposes. (Velez Dec. Exh. 2 at 211:13–25, ic files. However, they appear to no longer exist in 389:13–19). Defendants' files and Defendants have not produced the emails to Plaintiffs in this litigation. Defendants are unable to confirm that all of Ar- avena's deleted emails were recovered and produced Niznick testified at his deposition that he has six to Plaintiffs but they assert that they produced all of different email accounts. The emails in these ac- Aravena's emails. Defendants did not have a back-up counts were not produced nor preserved. Niznick also system to prevent the deletion of documents, but in- testified that he did not search these email accounts stead took the position that their emails “are automat- because he alleges to have previously saved all e- ically preserved to the Intermedia server, which is un- mail communications relating to Plaintiffs in a folder der Defendants' control.” However, on November 15, on his desktop. (Velez Dec. Exh. 3 at 44:6–15). 2012, Defendants sent a letter to the Court stating Niznick limited his collection efforts to this file on that “(s)ubsequent to the hearing of the motion FN1, his desktop and he claims that this file did not contain Defendants' counsel discovered that emails can be communications concerning the accused products. deleted from the Intermedia email server.” (Letter of (Velez Dec. Exh. 3 at 45:21–46:3). The contents of Michael Hurey to the Court, dated November 15, the file have been produced to Plaintiff. (Doc. No 127 2012). Therefore, Aravena's deleted emails may have at 10). Defendants argue that the emails presented by been irretrievably lost. Plaintiff as evidence of spoliation were dated before Defendants had any obligation to preserve evidence. FN1. Defendants refer to the hearing held on Defendants further argue that Plaintiffs have failed to October 19, 2012. present any other evidence indicating that any other similar emails exist. 2. Gerald Niznick's Communications To Third Par- ties 3. Regulatory Documents *3 Dr. Gerald Niznick (“Niznick”) is Defen- Plaintiffs argue that regulatory files and submis- dants' President and CEO. Plaintiffs assert that De- sions to the Food and Drug Administration (“FDA”) fendants failed to collect and produce all electronic documents are relevant because they contain design</p><p>© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works. Copies of decisions posted on this site have been downloaded from Westlaw with permission from West, a Thomson business.</p><p>Page 4</p><p>Slip Copy, 2013 WL 6159177 (S.D.Cal.) (Cite as: 2013 WL 6159177 (S.D.Cal.)) and testing information related to Defendant's prod- Plaintiffs learned from the third party's files that ucts. Plaintiffs argue that these regulatory files and Defendants' sales force distributed a tool to dentists submissions to the FDA made in conjunction with (called “GoDirect Implant Locator Insertion Drill”). putting Defendants' products on the market have not Plaintiffs argue that the tool and its packaging are rel- been produced despite Plaintiffs' repeated requests evant as evidence of counterfeiting that may assist for them. However, Plaintiffs have not provided any them in proving their trademark infringement claims. evidence in support of their contention that Defen- dants destroyed these documents. Defendants have not produced the tool or its packaging to Plaintiffs despite the fact that Plaintiffs' Defendants argue that it produced to Plaintiffs all counsel has requested them and Defendants' counsel of the regulatory documents requested by Plaintiffs. took pictures of them during the deposition of one of However, on March 14, 2013, Plaintiffs requested ad- Defendants' sales representatives. Defendants assert ditional regulatory documents for the first time. De- that the tool presented by Plaintiffs at the deposition fendants anticipated producing these documents to of Abi Dickerson FN3 is not relevant to the current liti- Plaintiff.FN2 The Court assumes that Defendants pro- gation because it was manufactured and sold while duced to Plaintiffs the regulatory documents as re- Defendants were Plaintiffs' distributor and during De- quested on March 14, 2013. In any event, Plaintiffs fendants' licensing period with Plaintiffs. Defendants do not offer any evidence to suggest that any regula- agreed to produce any samples of the tool and its tory documents that they requested have been de- packaging to the extent that Defendants still retained stroyed. any such material. The Court assumes that Defen- dants produced to Plaintiffs the tool, its packaging, FN2. Defendants agreed to produce these and any written information about the tool, to the ex- documents subject to Plaintiffs' agreement tent that Defendants retained the tool, packaging and that they would not argue that the fact of written information about the tool. In any event, Defendants' production shows that the De- Plaintiffs do not offer any evidence to suggest that fendant Sybron entities should be joined in the tool, packaging and written information about the this lawsuit. However this is now a moot tool have been destroyed. point, because the Defendant Sybron entities have been joined in the lawsuit. FN3. Velez Dec. In Support of Plaintiffs' Supp. Brief, Exh. 7 (dated October 23, 4. Materials Used By Sales Force To Promote De- 2012). fendants Products *4 Plaintiffs argue that they have located materi- 5. Customer Complaints als in a third party's files, which are, or were, used by Plaintiffs argue that Defendants kept a spread- Defendants' sales force to promote Defendants' prod- sheet/log of customer complaints regarding Defen- ucts. Plaintiffs assert that these materials show De- dants' products. Despite Plaintiffs' repeated requests, fendants' infringement of Plaintiffs' trademarks. Defendants have failed to produce the customer com- plaint documents. Plaintiffs indicate that they have</p><p>© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works. Copies of decisions posted on this site have been downloaded from Westlaw with permission from West, a Thomson business.</p><p>Page 5</p><p>Slip Copy, 2013 WL 6159177 (S.D.Cal.) (Cite as: 2013 WL 6159177 (S.D.Cal.)) copies of incomplete logs/spreadsheets of the cus- Magistrate Judges. Apple v. Samsung, 888 F.Supp 2d tomer complaints. Plaintiffs do not indicate how or 976, 987 (N.D.Cal.2012) (“Apple II”). This inherent why what they received is incomplete. Nor do they power may be invoked “to levy appropriate sanctions present any evidence that the documents they seek in against a party who prejudices its opponent through this regard have been destroyed. the spoliation of evidence that the spoliating party had reason to know was relevant to litigation.” Apple Defendants argue that they have previously pro- II, 888 F.Supp.2d at 987 [citing Apple v. Samsung, duced to Plaintiffs the customer complaint logs. 881 F.Supp.2d 1132, 1135 (N.D.Cal.2012) (“Apple However, Defendants have obtained additional com- I”). The exercise of a court's inherent powers must be plaint logs FN4 and anticipates producing these docu- applied with “restraint and discretion” and only to the ments to Plaintiff.FN5 The Court assumes that the ad- degree necessary to redress the abuse. Chambers v. ditional customer complaint logs, as identified in NASCO, Inc., 501 U.S. 32, 45, 111 S.Ct. 2123, 115 footnote 3, have been produced to Plaintiffs. In any L.Ed.2d 27 (1991). event, Plaintiffs do not offer any evidence to suggest that any of the customer complaint logs have been B. Sanctions for Spoliation destroyed. *5 Spoliation of evidence is “the destruction or material alteration of evidence or the failure to pre- FN4. The additional complaint logs are serve property for another's use as evidence in pend- identified as (1) Excel Spreadsheet “GoDi- ing or reasonably foreseeable litigation.” Apple II, rect.XLS;” (2) Excel Spreadsheet “GP- 888 F.Supp 2d at 989 [citing Silvestri v. Gen. Motors S.XLS;” (3) Excel Spreadsheet “GPSLiner- Corp., 271 F.3d 583, 590 (4th Cir.2001) ]. “The obli- s.XLS;” and (4) Word document “Pareto.” gation to preserve evidence arises when the party rea- sonably should know the evidence is relevant to liti- gation or when a party should have known that the FN5. Defendants agreed to produce these evidence may be relevant to future litigation.” Apple documents subject to Plaintiffs' agreement II, 888 F.Supp.2d at 990. Evidence of spoliation may that they would not argue that the fact of be grounds for sanctions. Apple II, 888 F.Supp.2d at Defendants' production shows that the De- 989, [citing Akiona v. U.S., 938 F.2d 158, 161 (9th fendant Sybron entities should be joined in Cir.1991) ]. The bare fact that evidence has been al- this lawsuit. However, this is now a moot tered or destroyed does not necessarily mean that the point, because the Sybron entities have been party has engaged in sanction-worthy spoliation. joined in the lawsuit. Ashton v. Knight Transp., Inc., 772 F.Supp.2d 772, 799–800 (N.D.Tex.2011). IV DISCUSSION Spoliation of evidence raises the presumption A. The Court's Inherent Authority To Impose Sanc- that the destroyed evidence goes to the merits of the tions. case, and further, that such evidence was adverse to The Court's inherent power to impose sanctions the party that destroyed it. Apple II, 888 F.Supp 2d at is not limited to Article III courts, but extends to</p><p>© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works. Copies of decisions posted on this site have been downloaded from Westlaw with permission from West, a Thomson business.</p><p>Page 6</p><p>Slip Copy, 2013 WL 6159177 (S.D.Cal.) (Cite as: 2013 WL 6159177 (S.D.Cal.))</p><p>998 [citing Hynix Semiconductor v. Rambus, 591 F.Supp 2d 1038, 1060 (N.D.Cal.2006), vacated on C. Defendants' Spoliation other grounds in Hynix Semiconductor v. Rambus, *6 Defendants' duty to preserve documents arose 645 F.3d 1336 (D.C.Cir.2011) ]. In the Ninth Circuit, on October 22, 2008, when Plaintiffs notified Defen- “a party's destruction of evidence need not be in ‘bad dants of a potential lawsuit against them should they faith’ to warrant a court's imposition of sanctions.” In decide to market their alleged infringing product. The re Napster, Inc. Copyright Litigation, 462 F.Supp 2d evidence is clear that Defendants destroyed at least 1060, 1066 (N.D.Cal.2006) [citing Glover v. BIC some documents as alleged by Plaintiffs. Plaintiffs Corp., 6 F.3d 1318, 1329 (9th Cir.1993) ]. The Ninth have suffered prejudice as a result of Defendants' Circuit has instructed that district courts may impose spoliation of evidence because the destroyed docu- sanctions even against a spoliating party that merely ments are highly probative of the claims at issue in had “simple notice of ‘potential relevance to the liti- this litigation. gation.’ ” Glover, 6 F.3d at 1329 [quoting Akiona v. United States, 938 F.2d 158, 161 (9th Cir.1991) ]. Plaintiffs show that one of Defendants' key se- nior employees, Aravena, Director of Design Engi- While the Court has the discretion to impose neering, indisputably destroyed email communica- sanctions, “the sanction should be designed to: (1) tions due to Defendants' failure to put in place a liti- deter parties from engaging in spoliation; (2) place gation hold. Although Plaintiffs failed to identify spe- the risk of an erroneous judgment on the party who cific emails that were not produced, Aravena testified wrongfully created the risk; and (3) restore the preju- that she did not provide Defendants' counsel with any diced party to the same position he would have been emails, including emails relating to the design of the in absent the wrongful destruction of evidence by the accused products, because she deleted them. Further, opposing party.” West v. Goodyear Tire & Rubber Aravena testified that no one told her not to delete Co., 167 F.3d 776, 779 (2d Cir.1999). To decide her emails. Aravena's communications are especially which specific spoliation sanction to impose, courts probative of the claims at issue in this litigation be- generally consider three factors: “(1) the degree of cause her current and past employment with Defen- fault of the party who altered or destroyed the evi- dants involved the design, development, and testing dence; (2) the degree of prejudice suffered by the op- of the products accused of infringing on the Patents– posing party; and (3) whether there is a lesser sanc- In–Suit. As a result, the Court concludes that Defen- tion that will avoid substantial unfairness to the op- dants spoliated Aravena's emails. posing party.” Apple II, 888 F.Supp.2d at 992. Preju- dice is determined by evaluating whether the spoliat- Plaintiffs also show that Niznick, Defendants' ing party's actions impaired the non-spoliating party's President and CEO, destroyed emails that he sent to ability to go to trial, threatened to interfere with the third party dentists.FN6 Niznick testified that of his six rightful decision of the case, or forced the non-spoli- email accounts, he did not produce or preserve any of ating party to rely on incomplete and spotty evidence. the emails in those accounts because he saved any In re Hitachi, 2011 WL 3563781 at *6 [citing Leon v. communications he deemed relevant to a file of his IDX Systems Corp., 464 F.3d 951, 959 (9th Cir.2006) desktop.FN7 However, Plaintiffs obtained two of ].</p><p>© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works. Copies of decisions posted on this site have been downloaded from Westlaw with permission from West, a Thomson business.</p><p>Page 7</p><p>Slip Copy, 2013 WL 6159177 (S.D.Cal.) (Cite as: 2013 WL 6159177 (S.D.Cal.))</p><p>Niznick's emails from third parties, that were not pro- have a back-up system to prevent the destruction of duced by Defendants, that support the contention that documents, and although their employees' emails Niznick was inducing the third parties to infringe on were automatically preserved to a server under De- the Patents–In–Suit. While Plaintiffs have been able fendant's control, the emails could have been deleted to obtain these communications from third parties, from the server. there may have been additional communications of a similar sort that were destroyed that are especially Plaintiffs contend that the packaging and infor- probative of the claims at issue in this litigation. Con- mation pertaining to the alleged infringing tool were sequently, the Court concludes that Defendants spoli- intentionally not produced and destroyed. Plaintiffs ated at least the two emails from Niznick that Plain- obtained the alleged infringing tool from a third par- tiffs obtained from third parties. ty. However, the production of the tool did not in- clude any labels or documents that may have been in- FN6. The Court is unsure whether Niznick's cluded with the tool. The labels and any correspond- emails were destroyed intentionally. The ing instructions for the tool are probative of the trade- emails are dated November 12, 2008 and mark infringement claims alleged in this litigation. December 3, 2008, after October 22, 2008, Although Defendants have agreed to produce to when Defendants should have put in place a Plaintiffs samples of the tool, labels and/or instruc- litigation hold. The Court finds that Niznick- tions, they may not have retained any samples. With- 's emails were destroyed as a result of De- out more, the Court cannot conclude that Defendants fendants' failure to put in place a litigation spoliated evidence pertaining to the tool. hold. *7 Nevertheless, individually and collectively, FN7. The Court notes that Niznick is not the the aforementioned facts support imposition of some final arbiter of what evidence is relevant in form of sanction against Defendants. Defendants' in- this action. Previously, the Court admon- actions warrant sanctions because after they received ished Defendants' counsel that they, and not from Plaintiffs notice of potential litigation, they Niznick, should search for and produce doc- failed to issue a litigation hold, and failed to monitor uments to Plaintiffs that could be relevant to their employees' document preservation efforts. a claim or defense in this action. (Order Re- These inactions resulted in the destruction of docu- garding Production of Documents And De- ments relevant to this litigation. position of Dr. Gerald Niznick, April 19, 2012, Docket No. 94). D. Appropriate Sanctions Courts may sanction parties responsible for spo- Although Defendants argue that there was no liation of evidence in four ways: (1) Instruct the jury need for a litigation hold because of their document that it may draw an inference adverse to the party de- retention policy, it is obvious that Defendants' docu- stroying the evidence; In re Napster, 462 F.Supp 2d ment retention policy did not prevent documents at 1066, (citing Glover at 1329); (2) Exclude witness from being destroyed. Further, Defendants did not testimony based on the destroyed evidence proffered</p><p>© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works. Copies of decisions posted on this site have been downloaded from Westlaw with permission from West, a Thomson business.</p><p>Page 8</p><p>Slip Copy, 2013 WL 6159177 (S.D.Cal.) (Cite as: 2013 WL 6159177 (S.D.Cal.)) by the party responsible for destroying the evidence; between the misconduct drawing the [default] In re Napster, 462 F.Supp 2d at 1066 (citing Glover, sanction and the matters in controversy in the case. 6 F.3d at 1329); (3) Dismiss the claim of the party re- In addition, the court may consider the prejudice to sponsible for destroying the evidence; In re Napster, the moving party as an optional consideration 462 F.Supp 2d at 1066, [citing Chambers v. NASCO, where appropriate. This multi-factor test is not a 501 U.S. 32, 45, 111 S.Ct. 2123, 115 L.Ed.2d 27 mechanical means of determining what discovery (1991) ]; (4) Assess monetary sanctions for the costs sanction is just, but rather a way for a district judge of bringing the motion for sanctions for spoliation of to think about what to do. evidence under Fed.R.Civ.P. 37. Bobrick Washroom Equip., Inc. v. Am. Courts should choose “the less onerous sanction Specialties, Inc., 2012 WL 3217858 at *5, [citing In corresponding to the willfulness of the destructive act re Napster, 462 F.Supp 2d at 1070 (N.D.Cal.2006) and the prejudice suffered by the victim.” Apple II, (quoting Halaco Eng'g Co. v. Costle, 843 F.2d 376, 888 F.Supp.2d at 992, [citing Schmid v. Milwaukee 380 (9th Cir.1988); Valley Engineers, Inc. v. Electric Elec. Tool Corp., 13 F.3d 76, 79 (3rd Cir.1994) ]. Eng'g Co., 158 F.3d 1051, 1057 (9th Cir.1998) ] (in- The choice of appropriate sanction must be deter- ternal citations and quotations omitted). mined on a case-by-case basis and should be com- mensurate to the spoliating party's motive or degree *8 The Court concludes that default judgment is of fault in destroying the evidence. Apple II, 888 inappropriate in this case. Defendants' conduct with F.Supp 2d at 993. respect to not preserving and destroying discovery materials amounts to gross negligence, but that con- Plaintiffs seek the entry of a default judgment duct does not rise to the level of bad faith sufficient against Defendants, and an adverse inference jury in- to warrant default judgment under the circumstances. struction to be read to the jury at the trial of this ac- Leon, 464 F.3d at 961 (affirming default judgment tion. Plaintiffs also seek monetary sanctions in the where the defendant admitted he had intentionally form of their attorney's fees and costs for bringing deleted information from his company-issued laptop this Motion and the additional expenses incurred in computer and had written a program to remove any connection with their efforts in exposing Defendants' deleted files from the computer's hard drive, noting spoliation of evidence. Each of these potential sanc- the district court's bad-faith determination, which is a tions will be considered below. prerequisite to dismissing a case pursuant to a court's inherent power, was not clearly erroneous). 1. Default Judgment When considering a default sanction in response to 2. Adverse Inference Jury Instruction spoliation of evidence, the court must determine The majority of courts, including many courts in (1) the existence of certain extraordinary circum- the Ninth Circuit, apply “the three-part test set forth stances, (2) the presence of willfulness, bad faith, in Zubulake v. UBS Warburg, LLC, 220 F.R.D. 212, or fault by the offending party, (3) the efficacy of 216 (S.D.N.Y.2003), for determining whether to lesser sanctions, [and] (4) the relationship or nexus grant an adverse inference spoliation instruction.”</p><p>© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works. Copies of decisions posted on this site have been downloaded from Westlaw with permission from West, a Thomson business.</p><p>Page 9</p><p>Slip Copy, 2013 WL 6159177 (S.D.Cal.) (Cite as: 2013 WL 6159177 (S.D.Cal.))</p><p>Apple I, 881 F.Supp 2d 1138. v. Signature Flight Support Corp., 2005 WL 3481423 at *7 (N.D.Cal.2004), Io Group v. GLBT, Ltd., 2011 In Zubulake, the court stated: WL 4974337 at *7 (N.D.Cal.2011) ]. However, where a non-spoliating party fails to show a degree of fault and level of prejudice, negligent destruction of A party seeking an adverse inference instruction documents does not warrant an adverse inference in- (or other sanctions) based on the spoliation of evi- struction or evidence preclusion. Apple II, 888 dence must establish the following three elements: F.Supp.2d at 993. (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 *9 If spoliation is shown, the burden of proof a ‘culpable state of mind’ and (3) that the evidence shifts to the guilty party to show that no prejudice re- was ‘relevant’ to the party's claim or defense such sulted from the spoliation, because that party “is in a that a reasonable trier of fact could find that it much better position to show what was destroyed and would support that claim or defense. should not be able to benefit from its wrongdoing.” Apple II, 888 F.Supp 2d at 998, [citing Hynix Semiconductor v. Rambus, 591 F.Supp 2d 1038, 1060 Zubulake, 220 F.R.D. at 220 [citing Residential (N.D.Cal.2006), vacated on other grounds in Hynix Funding Corp. v. DeGeorge Fin'l Corp., 306 F.3d 99, Semiconductor v. Rambus, 645 F.3d 1336 (D .C. 108 (2d Cir.2002) ]; see also Apple II, 888 F.Supp 2d Cir.2011); In re Hitachi, 2011 WL 3563781 at *6]. at 989–90; Surowiec v. Capital Title Agency, Inc., 790 F.Supp 2d 997, 1005 (D. AZ 2011); Lewis v. Ryan, 261 F.R.D. 513, 521 (S.D.Cal.2009). Defendants had control of all of their email and non-email documents. They had an obligation to pre- serve them. As soon as Defendants were notified of a The Ninth Circuit generally has found that “[A]s potential lawsuit, Defendants were under a duty to soon as a potential claim is identified, a litigant is un- preserve evidence which it knew, or reasonably der a duty to preserve evidence which it knows or should have known, were relevant to the action. Once reasonably should know is relevant to the action.” Defendants were notified of a potential lawsuit, it Apple II, 888 F.Supp. at 991, (citing In re Napster, was their responsibility to suspend any existing poli- 462 F.Supp 2d at 1067). “When evidence is de- cies related to the deletion or destruction of docu- stroyed in bad faith, that fact alone is sufficient to ments and to ensure all employees knew to preserve demonstrate relevance.” Zubulake, 220 F.R.D. at 220. all documents related to the alleged infringing prod- “By contrast, when the destruction is negligent, rele- ucts. Here, Defendants would have had reason to vance must be proven by the party seeking the sanc- know that the documents were relevant in this action tions.” Id. because the documents contained information that re- lated directly to the design of the alleged infringing To find “culpable state of mind,” a court need products and were communications to third parties on only find that a spoliater acted in “conscious disre- the use of the alleged infringing products with Plain- gard” of its obligations to not destroy documents. tiff's product. Accordingly, Defendants had control Apple II, 888 F.Supp 2d at 989–990, [citing Hamilton</p><p>© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works. Copies of decisions posted on this site have been downloaded from Westlaw with permission from West, a Thomson business.</p><p>Page 10</p><p>Slip Copy, 2013 WL 6159177 (S.D.Cal.) (Cite as: 2013 WL 6159177 (S.D.Cal.)) over the documents and an obligation to preserve mitted ample evidence for this Court to determine them. They did not discharge this obligation. that documents relevant to the claims in this action were destroyed because of Defendants' negligent con- Defendants destroyed the documents with a cul- duct. pable state of mind. Defendants, in conscious, or per- haps willful, disregard of their obligation to preserve *10 As a sanction for Defendant's spoliation of documents, allowed the documents to be destroyed relevant evidence, the Court RECOMMENDS that an by failing to implement a litigation hold and a docu- adverse inference instruction should be read to the ment preservation policy. Thus, Defendants were at jury. This recommendation is warranted in light of least negligent in not implementing a litigation hold the degree of Defendants' fault and the degree of prej- on or after October 22, 2008, and not giving any af- udice Plaintiffs have suffered. Based on Defendants' firmative instructions to their employees to preserve conscious and/or willful disregard of its obligations, potentially relevant documents. and in the absence of bad faith, the Court RECOM- MENDS that the jury be instructed as follows: Plaintiffs are prejudiced by the destruction of Ar- avena's and Niznick's emails because the contents of Defendants failed to prevent the destruction of rele- these documents are directly relevant to the claims at vant evidence for Plaintiffs' use in this litigation. issue in this litigation. As a result, Plaintiff is now The evidence pertains to the design, development, forced to go to trial while relying on incomplete evi- and testing, of Defendants' products and Plaintiffs' dence. claims that Defendants induced infringement of Plaintiffs' patents. This failure resulted from De- Defendants attempt to rebut the presumption of fendants' failure to perform their discovery obliga- prejudice by stating that they produced all of Arave- tions. na's emails, that Plaintiff has not shown that any spe- cific emails are missing, and that her emails were ir- You may, if you find appropriate, presume from relevant to Plaintiff's expert's opinions. Further, De- that destruction, that the evidence destroyed was fendants contend that Plaintiffs are not prejudiced by relevant to Plaintiffs' case and that the destroyed the destruction of Niznick's communications with evidence was favorable to Plaintiffs. third parties, because Plaintiffs have failed to show that any other similar emails exist. Finally, Defen- Whether this finding is important to you in reach- dants argue that since Plaintiffs already have the tool ing a verdict is for you to decide. and its packaging, they need nothing more and cannot be prejudiced. However, none of these contentions Food Service of America, Inc. v. Carrington actually rebut the presumption, because spoliation of 2013 WL 4507593 at *22 (D. AZ 2013), evidence carries the presumption that the destroyed Chamberlain v. Les Schwab Tire Center of evidence goes to the merits of the case. Further, it is California, 2012 WL 6020103 at *6 (E.D.Cal.2012). not possible for Plaintiffs to point to specific emails that were destroyed. Moreover, Plaintiffs have sub- 3. Attorney's Fees and Costs</p><p>© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works. Copies of decisions posted on this site have been downloaded from Westlaw with permission from West, a Thomson business.</p><p>Page 11</p><p>Slip Copy, 2013 WL 6159177 (S.D.Cal.) (Cite as: 2013 WL 6159177 (S.D.Cal.))</p><p>Monetary sanctions may be imposed where one Parties are required to preserve evidence relevant to party has wrongfully destroyed evidence. See, e.g., litigation and to prevent spoliation. Defendants failed National Ass'n of Radiation Survivors, 115 F.R.D. to preserve multiple documents that are relevant to 543, 558–59 (C.D.Cal.1987). Plaintiffs claim that Plaintiff's claims with the requisite culpable state of they are entitled to their attorneys' fees incurred as a mind to support a finding of spoliation of evidence. result of Defendants' misconduct, with bringing this Motion, and with additional investigation efforts in- *11 After review of all the evidence presented, volved in bringing the misconduct to the Court's at- and for the reasons stated above, the Court rules as tention. follows:</p><p>Here, the Court finds that monetary sanctions are 1. The Court RECOMMENDS that Plaintiffs' warranted. Defendants' negligence and their denial of Motion for Sanctions, to the extent that Plaintiffs spoliation of evidence caused delay and unnecessary seek an adverse inference jury instruction, be costs that could have been avoided had Defendants GRANTED. simply put in place a litigation hold and monitored a document preservation policy, as they were obligated 2. Plaintiff's Motion for Sanctions, to the extent to do. Further, it is particularly egregious that, to Plaintiffs seek monetary sanctions, is GRANTED. date, Defendants have not presented any evidence that they have ever implemented a litigation hold in 3. Plaintiff's Motion for Sanctions, to the extent this case. Plaintiffs seek a default judgment, is DENIED.</p><p>Therefore, Plaintiffs are entitled to an award of IT IS FURTHER ORDERED that on or before reasonable attorney fees in light of the degree of De- December 31, 2013, Plaintiffs shall file with the fendants' culpability. Defendants shall reimburse Court substantiation of the reasonable attorneys' fees Plaintiff the reasonable attorneys' fees and costs asso- and costs associated with (1) the time spent by Plain- ciated with (1) the time spent by Plaintiffs in bringing tiffs in bringing Defendants' spoliation of evidence to Defendants' misconduct to the Court's attention, (2) the Court's attention, (2) bringing the current Motion, bringing the instant Motion, and (3) obtaining de- and (3) obtaining destroyed documents from third stroyed documents from third parties. Plaintiffs shall parties. submit a request for a specific amount of fees and costs, with evidentiary support, for the Court's con- sideration. As noted above, the undersigned Magistrate Judge RECOMMENDS that Plaintiffs' Motion for Sanctions, to the extent that Plaintiffs seek an adverse V inference jury instruction, be GRANTED. CONCLUSION The Federal Rules of Civil Procedure do not re- quire perfection or guarantee that every possible re- This Recommendation of the undersigned Mag- sponsive document will be found and/or produced. istrate Judge is submitted to the United States District</p><p>© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works. Copies of decisions posted on this site have been downloaded from Westlaw with permission from West, a Thomson business.</p><p>Page 12</p><p>Slip Copy, 2013 WL 6159177 (S.D.Cal.) (Cite as: 2013 WL 6159177 (S.D.Cal.))</p><p>Judge assigned to this case, pursuant to the provision of 28 U.S.C. Section 636(b)(1).</p><p>IT IS ORDERED that no later than December 31, 2013 any party to this action may file written ob- jections with the Court and serve a copy on all par- ties. The document should be captioned “Objections to Recommendation for Adverse Inference Jury In- struction.”</p><p>IT IS FURTHER ORDERED that any reply to the objections shall be filed with the Court and served on all parties no later than January 14, 2014. The parties are advised that failure to file objections with- in the specified time may waive the right to raise those objections on appeal of the Court's order. Martinez v. Ylst, 951 F.2d 1153 (9th Cir.1991).</p><p>S.D.Cal.,2013. Zest IP Holdings, LLC v. Implant Direct Mfg., LLC Slip Copy, 2013 WL 6159177 (S.D.Cal.)</p><p>END OF DOCUMENT</p><p>© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.</p>