SID LEACH, Phoenix, AZ Snell & Wilmer L.L.P.Sid Leach Sid Leach has over 30 years of experience in...
Transcript of SID LEACH, Phoenix, AZ Snell & Wilmer L.L.P.Sid Leach Sid Leach has over 30 years of experience in...
SPOLIATION AND SANCTIONS
SID LEACH, Phoenix, AZ
Snell & Wilmer L.L.P.
State Bar of Texas
25TH
ANNUAL
INTELLECTUAL PROPERTY LAW COURSE 2012 March 22-23, 2012
Houston
CHAPTER 16
Sid Leach
Sid Leach has over 30 years of experience in litigating patent infringement actions. He is a partner in the law firm of Snell & Wilmer, L.L.P. Recently, he served as lead counsel for Home Gambling Network in a patent infringement action, in which a magistrate judge issued a report and recommendation that default judgment be entered against the defendants based upon findings that the defendants had willfully violated the court’s discovery orders. Sid Leach successfully defended a trade secret case in New Hampshire state court that focused upon computer forensic evidence, in which the plaintiff alleged that a departing employee copied trade secret computer files before he turned in his company-provided laptop. In 2009, Mr. Leach obtained one of the seven largest jury verdicts in the State of Arizona for that year. The federal court in Arizona, in a 2011 order approving an award of attorneys’ fees in favor of Mr. Leach’s client, stated that “[t]he Court’s experience teaches it that Mr. Leach’s credentials and experience set him apart from many of the attorneys who practice before this Court.”
Sid Leach has successfully litigated patent infringement cases, proceedings before the International Trade Commission, and interference proceedings before the Patent and Trademark Office. He has handled a number of trade secret cases involving computer software and other technology. He has represented clients in trademark infringement cases and trademark opposition proceedings before the Patent and Trademark Office. He has appeared in courts across the nation in cases involving IP litigation, including Arizona, Texas, California, Pennsylvania, New York, New Jersey, Michigan, Ohio, Florida, Indiana, Oklahoma, Louisiana, Virginia, Illinois, Colorado, Nebraska, Kansas, Nevada, Maryland, Minnesota, Georgia, Oregon, New Hampshire, and Washington, D.C. Mr. Leach was selected as the 2012 Phoenix Lawyer of the Year in Patent Law by Best Lawyers In America. Mr. Leach received his J.D. degree from the University of Virginia Law School in 1978, and a B.S. in Electrical Engineering from the University of Alabama in 1975. He is admitted to practice in Arizona and Texas, and registered to practice before the United States Patent and Trademark Office.
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TABLE OF CONTENTS
I. THE DUTY TO PRESERVE EVIDENCE .................................................................................................................... 1
II. SPOLIATION ................................................................................................................................................................... 3
III. EXAMPLES OF SPOLIATION CASES INVOLVING ELECTRONICALLY STORED INFORMATION ........ 5
IV. A COURT’S POWER TO IMPOSE SANCTIONS ...................................................................................................... 7
V. DEFAULT JUDGMENT AS A SANCTION ................................................................................................................ 8 A. The Public’s Interest In Expeditious Resolution Of Litigation ............................................................................... 9 B. The Court’s Need To Manage Its Docket ................................................................................................................ 9 C. The Risk Of Prejudice To The Other Party ............................................................................................................ 10 D. The Availability Of Less Drastic Sanctions............................................................................................................ 10 E. The Public Policy Favoring Disposition Of Cases On Their Merits ..................................................................... 10
VI. STANDARD OF REVIEW ........................................................................................................................................... 11
VII. SANCTIONS BASED UPON A REPORT AND RECOMMENDATION FROM A MAGISTRATE JUDGE .. 11 A. Consideration Of New Evidence Submitted With An Objection To A Report And Recommendation From A
Magistrate Judge ..................................................................................................................................................... 11 B. Non-Specific Objections To A Magistrate Judge’s Report And Recommendation Are Functionally Equivalent
To No Objections At All ........................................................................................................................................ 12 C. Consideration Of New Arguments Advanced For The First Time In A Party’s Objection To The Report And
Recommendation By A Magistrate Judge ............................................................................................................ 13
VIII. THE EFFECT OF A DEFAULT JUDGMENT ........................................................................................................... 13
IX. CONCLUSION............................................................................................................................................................... 14 APPENDIX ................................................................................................................................................................................... 17
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SPOLIATION AND SANCTIONS by Sid Leach
Snell & Wilmer L.L.P.
Recently, a Magistrate Judge in Las Vegas issued
a report and recommendation that a default judgment be entered against the defendants in a patent case as a
sanction for their failure to comply with discovery
orders compelling the production of electronically stored information. Home Gambling Network, Inc. v.
Piche, No. 2:05-cv-00610-DAE-LRL, slip opinion (D.
Nevada Aug. 12, 2011) [copy provided in Appendix]. This is a case in which the defendants claimed that
they did not have any ―documents‖ to produce, but
discovery later revealed that they were limiting the
meaning of the word ―documents‖ to paper documents only.
In our adversarial system of resolving disputes,
attorneys play an important role in the search for truth. In order for the system to work as intended, attorneys
must maintain a high standard of ethics in their
litigation conduct. ―An attorney is an ‗officer of the court‘ who, by virtue of his or her professional
position, undertakes certain ‗special duties ... to avoid
conduct that undermines the integrity of the
adjudicative process.‘‖ Federal Trade Commission v. Network Services Depot, Inc., 617 F.3d 1127, 1143
(9th Cir. 2010) (citation omitted). Unfortunately, there
are times when such high standards are not met, and in appropriate cases, sanctions are available against a
party and/or the party‘s counsel. This paper will
discuss sanctions in the context of spoliation of
evidence, particularly in the form of electronically stored information.
Today, virtually everyone uses a computer at
work, and a company‘s documents and business information are typically contained in electronically
stored files and databases. In modern litigation, the
relevant evidence is typically in the form of electronically stored information. For purposes of
discovery, it is well established that electronic data is
within the scope of discoverable material. In re
Pharmatrak, Inc., 329 F.3d 9, 17 (1st Cir. 2003); Antioch Co. v. Scrapbook Borders, Inc., 210 F.R.D.
645, 652 (D. Minn. 2002). Because of the relative ease
with which electronically stored information may be deleted, issues involving spoliation of evidence are
becoming commonplace in litigation.
Today, the legal profession faces the challenge of an exponentially increasing avalanche of electronically
stored information. The Sedona Conference,
Commentary on Achieving Quality in the E-Discovery
Process, at 4 (May 2009). In the words of one court, ―With the rapid and sweeping advent of electronic
discovery, the litigation landscape has been radically
altered in terms of scope, mechanism, cost, and
perplexity. This landscape may be littered with more casualties than successes…‖. PSEG Power New York,
Inc. v. Alberici Constructors, Inc., No. 1:05-CV-657
(DNH/RFT), 2007 U.S. Dist. LEXIS 66767, at *1 (N.D.N.Y. Sept. 7, 2007).
I. THE DUTY TO PRESERVE EVIDENCE
―The preservation obligation runs first to counsel, who has a duty to advise his client of the type of
information potentially relevant to the lawsuit and of
the necessity of preventing its destruction.‖ Surowiec v.
Capital Title Agency, Inc., 790 F. Supp.2d 997, 1006 (D. Ariz. 2011); see Richard Green (Fine Paintings) v.
McClendon, 262 F.R.D. 284, 290 (S.D.N.Y. 2009).
The duty to preserve evidence ―is a duty owed to the court, not to the party‘s potential adversary.‖ Surowiec,
790 F. Supp.2d at 1006, quoting from Ashton v. Knight
Transp., Inc., 772 F. Supp.2d 772 (N.D. Tex. 2011). The duty to preserve evidence arises when a party
reasonably anticipates litigation. Pension Committee of
the University of Montreal Pension Plan v Banc of
America Securities, LLC, 685 F. Supp.2d 456, 466 (S.D.N.Y. 2010) (―It is well established that the duty to
preserve evidence arises when a party reasonably
anticipates litigation.‖). ―Once a party reasonably anticipates litigation, it must suspend its routine
document retention/destruction policy and put in place
a ‗litigation hold‘ to ensure the preservation of relevant
documents.‖ Zubulake v. UBS Warburg, LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003)(―Zubulake IV‖);
Pension Committee, 685 F. Supp.2d at 466.
It is well established that the ―duty to preserve arises when a party knows or should know that certain
evidence is relevant to pending or future litigation.‖
Ashton v. Knight Transp., Inc., 772 F. Supp.2d 772 (N.D. Tex. 2011) (emphasis added). Stated differently,
the duty to preserve is triggered ―not only during
litigation, but also extends to the period before
litigation when a party should reasonably know that evidence may be relevant to anticipated litigation.‖
Morford v. Wal-Mart Stores, Inc., No. 2:09-cv-02251-
RLH-PAL, 2011 U.S. Dist. LEXIS 21039, 2011 WL 635220, at *3 (D. Nev. Feb. 11, 2011); Surowiec v.
Capital Title Agency, Inc., 790 F. Supp.2d 997, 1005
(D. Ariz. 2011); see Zublake IV, 220 F.R.D. at 216; In re Napster, Inc. Copyright Litig., 462 F. Supp.2d 1060,
1067-68 (N.D. Cal. 2006).
An immediate ―litigation hold‖ should be
promptly issued after notice of a claim is received. See, e.g., ACORN v. County of Nassau, 2009 U.S. Dist.
LEXIS 19459 (E.D.N.Y. Mar. 9, 2009) (holding that
failure to issue a litigation hold once you have notice of a claim will serve as the necessary culpable state of
mind to sustain a claim of spoliation.); Zubulake IV,
220 F.R.D. at 218.
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Where a ―letter openly threatens litigation, then
the recipient is on notice that litigation is reasonably foreseeable and the duty to preserve evidence relevant
to that dispute is triggered.‖ Goodman v. Praxair
Servs., Inc., 632 F. Supp.2d 494, 511 (D. Md. 2009); Surowiec, 790 F. Supp.2d at 1006.
For example, when in-house counsel receives a
letter threatening litigation, he or she is ―obligated to suspend [the company‘s] document
retention/destruction policy and implement a ‗litigation
hold‘ to ensure the preservation of relevant
documents.‖ Surowiec, 790 F. Supp.2d at 1006, quoting from Goodman, 632 F. Supp.2d at 511; see
also Thompson v. U.S. Department of Housing &
Urban Dev., 219 F.R.D. 93, 100 (D. Md. 2003). ―A party or anticipated party must retain all
relevant documents ... in existence at the time the duty
to preserve attaches, and any relevant documents created thereafter.‖ Zubulake v. UBS Warburg LLC,
220 F.R.D. 212, 218 (S.D.N.Y. 2003).
However, a party‘s obligations for preservation of
evidence do not end with a ―litigation hold.‖ The ―litigation hold‖ is only the beginning. Zubulake v.
UBS Warburg, LLC, 229 F.R.D. 422, 432 (S.D.N.Y.
2004) (―Zubulake V‖) (―A party's discovery obligations do not end with the implementation of a ‗litigation
hold‘ - to the contrary, that‘s only the beginning.
Counsel must oversee compliance with the litigation
hold, monitoring the party‘s efforts to retain and produce the relevant documents.‖).
The attorneys representing a party in litigation are
responsible for making sufficient inquiries to determine what electronically stored information is
available on the party‘s computer system. See
G.T.F.M., Inc. v. Wal-Mart Stores, Inc., 2000 U.S. Dist. LEXIS 3804 (S.D.N.Y. 2000) (court-imposed
monetary sanctions on Wal-Mart for electronic
discovery abuses and further found that counsel‘s
inquiries about the defendant‘s computer capacity were certainly deficient.).
Although there may be a ―multitude‖ of ways to
comply with the duty to preserve evidence, ―a mirror-image of the computer system taken at the time the
duty to preserve attaches‖ is one way that a litigant can
preserve evidence. Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003). A mirror image,
also referred to as a forensic image, of a computer
storage device is an exact replica, bit for bit, of the
contents of the original storage device. New Hampshire Ball Bearings, Inc. v. Jackson, 158 N.H. 421, 424, 969
A.2d 351, 356 (2009) (―A forensic image is an exact
replica, bit for bit, of the original storage device that allows investigation of past use without altering the
original evidence.‖).
However, this is usually an expensive procedure
requiring trained personnel and special forensic
software. Cf. State v. Plude, 2007 Wisc. App. LEXIS
194, at *10 (Wis. Ct. App. March 6, 2007) (Forensic software ―makes a mirror image copy of a hard drive,
without altering the original drive.‖). Making forensic
images of computer hard drives is not practical in a large corporation that faces frequent threats of
litigation. No reported decision has been found in
which a party was sanctioned for failing to make mirror images of its computers upon notice of
threatened litigation.
But in some high stakes litigation, making mirror
images of relevant computers may be required at some point. In a case where deleted files, metadata, or
temporary files stored on a computer system are highly
relevant, a party‘s computers may have relevant information that is lost through normal use of the
computers. Antioch Co. v. Scrapbook Borders, Inc.,
210 F.R.D. 645, 652 (D. Minn. 2002) (ordering defendants to allow plaintiff‘s expert to make a mirror
image of defendants‘ computer hard drives because the
computers may have relevant information which is
being lost through normal use of the computers); State v. Butler, 2005 Tenn. Crim. App. LEXIS 302, at *8
(Tenn. Ct. Crim. App. March 30, 2005) (computer
expert ―agreed that in the process of booting up the Windows operating system the contents of the hard
drive would be changed‖); State v. Plude, 2007 Wisc.
App. LEXIS 194, at *10 (Wis. Ct. App. March 6,
2007) (―every time a computer is even turned on, some change, however small, is made to the hard drive‖).
A forensic image of a hard drive will preserve
evidence available in unallocated space on the hard drive concerning files and data that were once stored
on the hard drive, and then permanently deleted, as
long as the space on the hard drive has not been over-written. It is well-settled that discoverable ―documents‘
within the meaning of Rule 34 of the Federal Rules of
Evidence include computer records that have been
―deleted.‖ Simon Property Group L.P. v. mySimon, Inc., 194 F.R.D. 639, 640 (S.D. Ind. 2000) (―First,
computer records, including records that have been
‗deleted,‘ are documents discoverable under Fed.R.Civ.P. 34.‖). In addition, electronic evidence
that is discoverable includes relevant metadata. Nova
Measuring Instruments Ltd. v. Nanometrics, Inc., 417 F. Supp.2d 1121 (N.D. Cal. 2006) (compelling
production of documents in electronic format complete
with metadata); Williams v. Sprint/United Management
Co., 230 F.R.D. 640, 653 (D. Kan. 2005); In re Honeywell International, Inc., 230 F.R.D. 293, 296
(S.D.N.Y. 2003).
―In general, metadata is relevant when the process by which a document was created is in issue or there
are questions concerning a document‘s authenticity;
metadata may reveal when a document was created,
how many times it was edited, when it was edited and
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the nature of the edits.‖ Kingsway Financial Services,
Inc. v. Pricewaterhouse-Coopers, LLP, 2008 WL 5423316, at *6 (S.D.N.Y. 2008).
On the other hand, obtaining forensic images of
an adversary‘s computers has provided evidence of spoliation in some cases. A computer forensic expert
can analyze a forensic image of a storage device to
determine what was stored on the device, what files were accessed, and when the files were last accessed or
modified. In addition, a forensic image of a PC hard
drive includes data from which an investigator can
determine what peripheral devices had been connected to the PC. New Hampshire Ball Bearings, Inc. v.
Jackson, 158 N.H. 421, 424-25, 969 A.2d 351, 356
(2009) (―Analysis of the forensic image with forensic software allows an investigator to determine what
peripheral devices have been connected to the device,
what a user accessed, what has been stored on the device, and when it was last accessed or modified.
Because deleted files are not actually erased from
storage media, analysts are able to determine both
current and deleted files so long as the latter have not been completely overwritten with new data.‖).
Because electronic discovery can easily become
broad and intrusive, ―[c]ourts have been cautious in requiring the mirror imaging of computers where the
request is extremely broad in nature and the connection
between the computers and the claims in the lawsuit
are unduly vague or unsubstantiated in nature.‖ Balboa Threadworks, Inc. v. Stucky, No. 05-1157-JTM-DWB,
2006 U.S. Dist. LEXIS 29265, 2006 WL 763668, at *3
(D. Kan. Mar. 24, 2006). Without a sufficient showing of relevance and need, courts disallow the ―drastic
discovery measure‖ of permitting a party to image all
of an opponent‘s computers and electronic media. McCurdy Group v. American Biomedical Group, Inc.,
9 Fed. Appx. 822, 831 (10th Cir. 2001); New
Hampshire Ball Bearings, Inc. v. Jackson, 158 N.H.
421, 969 A.2d 351 (2009) (sustained trial court refusal to allow plaintiff to image 250 computers and all
servers at a competitor, where trial court had allowed
narrower request to image 35 computers of potentially relevant employees and ordered production of back-up
tapes for the servers). Courts are more receptive,
however, to circumscribed requests limited to specified individuals or computers expected to produce relevant
information. See Rowe Entertainment v. William
Morris Agency, 205 F.R.D. 421, 427-28, 432-33
(S.D.N.Y. 2002) (granting revised and limited request for defendants‘ backup tapes and emails and
prescribing protocols for imaging); Simon Property
Group L.P. v. mySimon, Inc., 194 F.R.D. 639, 641 (S.D. Ind. 2000) (granting access to computers used by
four named individuals); Playboy Enterprises, Inc. v.
Welles, 60 F. Supp.2d 1050, 1053 (S.D. Cal. 1999)
(granting access to defendant‘s personal computer).
The case of AdvantaCare Health Partners, L.P. v.
Access IV, 2004 WL 1837997 (N.D. Cal. Aug. 17, 2004), is one example of how forensic images of a
defendant‘s computers provided proof of spoliation of
evidence. In that case, two employees resigned and began a competing business. The defendants were
served with a TRO on the afternoon of October 6,
2003. The TRO prohibited the defendants from using, copying, or destroying any of the plaintiff‘s data, and
required the defendants to permit the plaintiff to make
forensic copies of the hard drives and network servers
of their new company. After forensic images were made of the
defendants‘ hard drives, the plaintiff‘s computer
forensics expert was able to show that one of the defendants had accessed his former employer‘s
computer network and copied a large number of the
company‘s files containing proprietary data prior to leaving. The forensic expert also determined that the
defendant tried to conceal his copying activities by
deleting copied files from his hard drive. A forensic
examination of the defendants‘ computers showed that, after being served with the TRO, one of the defendants
visited numerous websites searching for computer data
deleting software. Immediately after being served, the defendant obtained anti-forensic wiping software, and
over the next four days deleted more than 13,000 files
from his home computer. Id., at *2. Based on the
evidence developed by the computer forensic expert, the plaintiff obtained a sanction instructing the jury
that they must find that the defendants copied all of the
files on the plaintiff‘s computers. Id., at *11.
II. SPOLIATION
―The failure to preserve electronic or other records, once the duty to do so has been triggered,
raises the issue of spoliation of evidence and its
consequences.‖ Thompson v. U.S. Department of
Housing & Urban Dev., 219 F.R.D. 93, 100 (D. Md. 2003). ―Spoliation is the destruction or material
alteration of evidence, or the failure to otherwise
preserve evidence, for another‘s use in litigation.‖ Surowiec v Capital Title Agency, Inc., 790 F. Supp.2d
997, 1005 (D. Ariz. 2011); see Ashton v. Knight
Transp., Inc., 772 F. Supp.2d 772 (N.D. Tex. 2011). ―A party seeking sanctions for spoliation of
evidence must prove the following elements: (1) the
party having control over the evidence had an
obligation to preserve it when it was destroyed or altered; (2) the destruction or loss was accompanied by
a ‗culpable state of mind;‘ and (3) the evidence that
was destroyed or altered was ‗relevant‘ to the claims or defenses of the party that sought the discovery of the
spoliated evidence[.]‖ Goodman v. Praxair Servs., Inc.,
632 F. Supp.2d 494, 509 (D. Md. 2009) (quoting
Thompson, 219 F.R.D. at 101); see Surowiec v Capital
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Title Agency, Inc., 790 F. Supp.2d 997, 1005 (D. Ariz.
2011); Victor Stanley, Inc. v. Creative Pipe, Inc., ("Victor Stanley II"), 269 F.R.D. 497, 520-21 (D. Md.
2010); In re Napster, Inc. Copyright Litig., 462 F.
Supp.2d 1060, 1070-78 (N.D. Cal. 2006); Zublake v. UBS Warburg LLC ("Zublake IV"), 220 F.R.D. 212,
216 (S.D.N.Y. 2003).
―Courts have not been uniform in defining the level of culpability – be it negligence, gross
negligence, willfulness, or bad faith – that is required
before sanctions are appropriate[.]"Surowiec, 790 F.
Supp.2d at 1006, quoting from Ashton, 2011 U.S. Dist. LEXIS 17569, 2011 WL 734282, at *26. ―Nor is there
consensus as to how the level of culpability is to be
determined, or what prejudice, if any, may be presumed from culpable conduct.‖ Surowiec, 790 F.
Supp.2d at 1006-07.
One case held, in a decision issued six years after the Zubulake V opinion, that the failure to issue a
written litigation hold is now considered to be ―gross
negligence because that failure is likely to result in the
destruction of relevant information.‖ Pension Committee of the University of Montreal Pension Plan
v Banc of America Securities, LLC, 685 F. Supp.2d
456, 465 (S.D.N.Y. 2010) (―By now, it should be abundantly clear that the duty to preserve means what
it says and that a failure to preserve records -- paper or
electronic - and to search in the right places for those
records, will inevitably result in the spoliation of evidence.‖). Judge Scheindlin, the author of the
Pension Committee and Zubulake opinions, is the co-
author of ―Electronic Discovery and Digital Evidence‖ (West 2008), was a member of the Judicial Conference
of the United States Advisory Committee on Rules of
Civil Procedure from 1998 to 2006, where she was actively involved in drafting the e-discovery
amendments to the Federal Rules of Civil Procedure, is
an Observer to The Sedona Conference Working
Group on Electronic Document Retention and Production, and serves on The Sedona Conference
Advisory Board.
However, Judge Scheindlin‘s per se rule has been criticized by other courts. See, e.g., Surowiec v. Capital
Title Agency, Inc., 790 F. Supp.2d 997, 1005 (D. Ariz.
2011) (―The Court disagrees with Pension Committee’s holding that a failure to issue a litigation hold
constitutes gross negligence per se. Per se rules are too
inflexible for this factually complex area of the law
where a wide variety of circumstances may lead to spoliation accusations. An allegedly spoliating party‘s
culpability must be determined case-by-case.‖). Other
courts have found the failure to implement a litigation hold to be an important factor in determining
culpability, but not per se evidence of culpable conduct
giving rise to a presumption of relevance and
prejudice. See, e.g., Hayes v. Dart, No. 08 C 4834,
2010 U.S. Dist. LEXIS 1901, 2010 WL 140387, at *4
(N.D. Ill. Jan. 11, 2010); Sampson v. City of Cambridge, 251 F.R.D. 172, 181-82 (D. Md. 2008);
see also Victor Stanley, Inc. v. Creative Pipe, Inc., 269
F.R.D. 497, 524, 529-31 (D. Md. 2010) ("Victor Stanley II") (discussing how courts differ in the fault
they assign where a party fails to implement a litigation
hold). One court noted, ―Judge Scheindlin‘s views, while
widely quoted and cited, are not always followed by
other judges in her district.‖ Point Blank Solutions, Inc.
v. Toyobo America, Inc., 2011 U.S. Dist. L:EXIS 42239, at *11-12 n.3 (S.D. Fla. April 5, 2011). See
Orbit One Communications, Inc. v. Numerex Corp.,
271 F.R.D. 429, 440 (S.D.N.Y. 2010) (analyzing Judge Scheindlin‘s opinion in Pension Committee and
―respectfully disagree[ing] if the ‗implication‘ from a
‗fair reading‘ of‖ Judge Scheindlin‘s opinion in Pension Committee is that ―some sanctions are
warranted even if the lost information did not have
discovery relevance and even if there has been no
showing that the information was likely to have helped the innocent party.‖).
In Rimkus Consulting Group, Inc. v. Cammarata,
688 F. Supp.2d 598 (S.D. Tex. 2010), the court declined to follow the approach taken in Pension
Committee of presuming relevance and prejudice when
the spoliating party is grossly negligent, noting that
requiring ―a showing that the lost information is relevant and prejudicial is an important check on
spoliation allegations and sanctions motions.‖ 688 F.
Supp.2d at 616-17. Rimkus also made clear, however, that when ―the evidence in the case as a whole would
allow a reasonable fact finder to conclude that the
missing evidence would have helped the requesting party support its claims or defenses, that may be a
sufficient showing of both relevance and prejudice to
make [sanctions] appropriate.‖ Id. at 617.
In the Fifth Circuit, destruction or deletion of information subject to a preservation obligation is not
sufficient for sanctions. Bad faith is required. A severe
sanction such as a default judgment or an adverse inference instruction requires bad faith and prejudice.
See Condrey v. SunTrust Bank of Ga., 431 F.3d 191,
203 (5th Cir.2005); Yeldon v. Phi, Inc., No. 09-3144C, 2011 U.S. Dist. LEXIS 140936, at *53-54 (E.D. La.
Dec. 7, 2011); Consolidated Aluminum Corp. v. Alcoa,
Inc., No. 03-1055-C-M2, 2006 U.S. Dist. LEXIS
66642, at *22-23 n.14 (M.D. La. July 19, 2006) (―[A]lthough courts in other circuits may permit the
imposition of an adverse inference instruction based
upon the gross negligence of the spoliating party, the Fifth Circuit has held that such a sanction may only be
imposed upon a showing of ‗bad faith‘ or intentional
conduct by the spoliating party.‖).
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In the Ninth Circuit, sanctions may be imposed
even for negligent failures to provide discovery. Fjelstad vs. American Honda Motor Co., 762 F.2d
1334, 1343 (9th Cir. 1985). The moving party need not
demonstrate prejudice in order to obtain an award of sanctions. Torres vs. City of Los Angeles, 548 F.3d
1197, 1213 (9th Cir. 2008). At the same time, a
showing of prejudice can be taken into account in determining appropriate sanctions. However, in order
to impose the sanction of a default judgment, ―the
losing party‘s non-compliance must be due to
willfulness, fault or bad faith.‖ Henry v. Gill Industries, Inc., 983 F.2d 943, 946 (9th Cir. 1993)
(citation omitted). See also Electronics for Imaging,
Inc. v. Photoscript Group Ltd., No. C98-2759 SI (MED), 1999 U.S. Dist. LEXIS 7395, at *13-14 (N.D.
Cal. 1999) (―Defendants' repeated violations of this
Court's orders and applicable local rules, including Defendants' failure to participate in the case
management and discovery processes, plainly
constitute bad faith conduct or, at best, gross
negligence.‖). ―Disobedient conduct not shown to be outside the control of the litigant is all that is required
to demonstrate willfulness, bad faith, or fault.‖ Davis v.
Calvin, No. CIV S-07-1383 FCD EFB P, 2009 U.S. Dist. LEXIS 34066, at *4 (E.D. Cal. April 17, 2009)
(citations and internal quotes omitted), aff’d, 398 Fed.
Appx. 268 (9th Cir. 2010); Henry v. Gill Industries,
Inc., 983 F.2d at 948; Fjelstad v. American Honda Motor Co., 762 F.2d 1334, 1337 (9th Cir. 1985).
In Victor Stanley, Inc. v. Creative Pipe, Inc., 269
F.R.D. 497, 542 (D. Md. 2010), the court summarized, in a chart at the end of the opinion, the law in each
circuit relating to spoliation sanctions by a court,
including the culpability and prejudice requirements.
III. EXAMPLES OF SPOLIATION CASES
INVOLVING ELECTRONICALLY STORED
INFORMATION Spoliation cases involve many types of
electronically stored information. In addition to
documents stored on a hard drive, and emails, electronically stored information involved in spoliation
cases has included voicemail, text messages, photos
posted on Facebook, deleted files, swap files maintained by Windows, the contents of the Windows
print spool file, PDA synchronized data, records
maintained by Windows of searches performed,
records maintained by Windows of websites visited, data maintained in the Windows registry files of thumb
drives that were attached to the computer, blogs, email
―PST‖ files left on a hard drive after the computer was used to access ISP email accounts like Yahoo, Hot
Mail, AOL, etc., and metadata associated with stored
files, such as last access time, file creation time, and
last modified time.
In the recent case of Lester v. Allied Concrete Co.,
No. CL08-150, 2010 Va. Cir. LEXIS 132 (Va. Cir. Ct. Oct. 21, 2011), the plaintiff was advised by his
attorney to remove a photo posted to his Facebook
account before e-discovery began in his wrongful death case. A picture of the plaintiff wearing an ―I [heart] hot
moms‖ t-shirt, with beer in hand, was destroyed and
never produced to the opposing party in a wrongful death lawsuit on behalf of his slain wife, who died
when an Allied Concrete truck slammed into his car.
According to reports, the plaintiff‘s attorney told
him in an email, ―Don‘t worry about sanctions. If we get sanctioned, after the trial, you‘ll have plenty of
money to pay for it.‖ The evidence of spoliation came
to light after the conclusion of the trial. The deletion of the photo will reportedly cost the plaintiff $4.13
million. His attorney was ordered to pay $542,000 of
an award of attorneys fees to the defendant. Forensic experts were able to independently
recover 15 deleted photos, because cloud services like
Facebook have data retention periods and disaster
recovery programs that back up content posted on Facebook. Once something has been stored on a cloud
server, it is almost impossible to permanently delete it
or to destroy all evidence of its existence. In Wisconsin v. Huggett, 324 Wis.2d 786, 783
N.W.2d 675 (Ct. App. 2010), second-degree
intentional homicide charges against the defendant
were dismissed because the state failed to preserve voicemail messages left on two cell phones. The
voicemail messages were apparently exculpatory
evidence of threats against the defendant and his girl friend supporting his affirmative defense of self-
defense. The police were aware of the apparently
exculpatory value of the evidence, and confiscated the defendant‘s cell phone and his girl friend‘s cell phone
as part of the investigation. The defendant was not
charged with any crime until nearly four months after
the incident, and by then, the voice recordings had been automatically deleted by the cell phone provider.
In the case of Flagg v. City of Detroit, 2008 WL
3895470 (E.D. Mich Aug. 22, 2008), the court held that text messages of certain city employees were
discoverable. In addition, the court held that the
defendant had ―possession‖ of the text messages because of its control over the information maintained
through its contractual relationship with the non-party
service provider.
In the case of Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497 (D. Md. 2010), a forensic
examination of the registry files on the defendant‘s
computer showed that thousands of files were deleted from the defendant‘s computers on the eve of a
discovery hearing, and the defendant knew that the
plaintiff‘s interest in imaging his computers was at
issue. 269 F.R.D. at 509. The court had previously
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entered an evidence preservation order, and found that
the files were deleted intentionally by the defendant. Id. at 510.
Of course, email is commonly involved in
spoliation cases. Metropolitan Opera Ass'n, Inc. v. Local 100, Hotel Employees & Rest, 212 F.R.D. 178
(S.D.N.Y. 2003) (Sanctions were imposed where the
spoliating party had failed to comply with its discovery obligations from the very outset of the litigation by
failing to retrieve deleted emails and to implement a
document retention policy, misrepresenting to the court
information regarding the production of documents, willfully delaying and frustrating a court-ordered
deposition, and replacing computers after agreeing to
have a forensic computer expert retrieve emails from those computers).
Emails commonly include attachments.
Attachments to email messages must also be produced when production of the email is required. United States
v. New York Metropolitan Transportation Authority,
No. CV-2004-4237(SLT)(MDG), 2006 WL 3833120,
at *3 (E.D.N.Y. Dec. 29, 2006) (―attachments must be produced.‖); CP Solutions PTE, Ltd. v. General
Electric Co., No. 3:04cv2150(JBA)(WIG), 2006 U.S.
Dist. LEXIS 27053, at *14 (D. Conn. Feb. 6, 2006) (―Attachments should have been produced with their
corresponding emails.).
Email programs like Microsoft Outlook create a
―PST‖ file when email is accessed using a computer. The ‗PST‖ file is a data file where electronic copies of
email are stored on a hard drive. The ―PST‖ file also
includes copies of attachments to email messages. A ―PST‖ file is searchable by a forensic expert, and can
be used to locate email messages that are sent to
specified people, that use specified words, that were sent within a given date range, as well as other search
parameters. The ―PST‖ file can be used to match up
attachments with emails. CP Solutions, at *11 n.4
(―Each of the hundred of thousands of e-mail communications and the attachments bears a
fingerprint identifiable by its date of creation, author,
recipient(s), subject, body, attachments, and related information. This identifying information is the e-
mail‘s PST file. This is the same identifying
information which Plaintiff would use in creating a document index, which could then be used to sort,
review, and analyze these documents.‖). In addition,
the ―PST‖ may reveal that emails were intentionally
deleted if it indicates that a reply was sent to an incoming message, but no corresponding message
appears in the sent folder. Optowave Co. v. Nikitin, No.
6:05-cv-1083-Orl-22DAB, 2006 U.S. Dist. LEXIS 81345, at *28-29 (M.D. Fla. Nov. 7, 2006) (―[T]he
PST file indicated certain messages had been
intentionally deleted, where the ‗inbox‘ folder
indicated that a reply had been sent to an incoming
message, but no such outgoing message existed in the
‗sent‘ folder.‖). In some cases, parties seeking discovery have
been successful in compelling an adversary to produce
electronic ―PST‖ files. See Optowave Co. v. Nikitin, No. 6:05-cv-1803-Orl-22DAB, 2006 WL 3231422, at
*9 (M.D. Fla. 2006) (compelling production of ―PST‖
file containing email). If a company-owned computer is used to log onto
a personal email server, such as a Yahoo! account,
Outlook will make a ―PST‖ file for that email server. A
former employee‘s personal email can be retrieved from the hard drive if the company-owned computer
was used to send and receive personal email. There
have been cases where a departing employee used his personal email account to send email relating to his or
her planned departure and job interviews. If the
company-owned laptop is used to access the departing employee‘s personal email from home, Outlook will
create a ―PST‖ file for the personal email account. That
―PST‖ file will still be on the laptop when the
departing employee returns the company-owned laptop to his former employer. The former employer will be
able to retrieve the former employee‘s personal email
from the hard drive, and read every email, including any emails in the inbox folder, sent folder, or deleted
folder.
In the case of PSEG Power New York, Inc. v.
Alberici Constructors, Inc., No. 1:05-CV-657 (DNH/RFT), 2007 U.S. Dist. LEXIS 66767, at *32-33
(N.D.N.Y. Sept. 7, 2007), the plaintiff was required to
re-produce 3000 emails and their corresponding attachments co-joined at an estimated cost of $37,500,
because the potential for discovery outweighed the
cost. In one remarkable case, the defendant ―deleted‖
three files from his hard drive, and in so doing, actually
preserved the files. New Hampshire Ball Bearings, Inc.
v. Jackson, 158 N.H. 421, 426, 969 A.2d 351, 357 (2009) (―Jackson testified that after receiving a phone
call about the suit on May 5, 2006, he had difficulty
sleeping and searched his computer at 4:00 a.m. for any NHBB files he may have accidentally copied,
found three, and placed them in the recycling bin —
where they remained — with instructions not to erase them.‖). When a file is deleted in Windows, the file is
normally only moved from the folder where it was
previously located to the Recycle Bin. The file is not
actually deleted, and the space where the file is physically located on the hard disk continues to be
regarded as used space that cannot be over-written by
the operating system. In addition, a file in the Recycle Bin cannot be opened or used, and Windows retains a
record of every file moved into and out of the Recycle
Bin since the last time that the Recycle Bin was
emptied. Thus, a file moved to the Recycle Bin is
Spoliation and Sanctions Chapter 16
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actually preserved, cannot be used or opened, and can
later be completely restored. If a departing employee prints out documents
from his or her company-owned laptop before turning
it back in, a forensic examination of the laptop will usually show the last documents that were printed. A
typical printer will print at a speed that is much slower
than the rate at which the data to be printed can be sent to the printer. When a document is printed, Windows
usually sends a copy of the document to a print spooler
so that the PC is not tied up and unable to respond
while the document is printing. After a document has been printed, a copy of the
document remains in the print spooler. The last
document printed can be retrieved from the print spooler, even if the original document itself was
deleted from the computer. The copy of the printed
document remains in the print spooler until the data in the print spooler is over-written by subsequent
documents that are printed.
A departing employee may use the company-
owned laptop to burn a CD in order to copy files from the company-owned laptop. However, the CD burning
process usually makes a temporary copy on the hard
drive of the files being burned. The CD burning process also creates a ―project‖ or ―session‖ for the
contents of the CD. The burning software may also
keep its own log of the CD, or at least a record that a
CD was made, (even if the contents of what was copied are not known).
Windows stores a record of the searches that were
performed searching for files of documents using the ―Search‖ function available on the ―Start‖ menu. The
date each search was performed is also available.
Windows stores Internet history files and temporary Internet files that contain temporary copies
of web pages accessed when someone uses Internet
Explorer to browse the Internet. A forensic
examination of a computer can reveal the Internet websites visited by a user, and reconstruct copies of the
actual web pages that were viewed, and determine
when they were viewed. See Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497, 514 (D. Md.
2010) (deleted temporary Internet files would have
shown the Internet sites that the defendant had accessed). A forensic expert can determine what search
terms were used to search the Internet. For example, if
a defendant searched the Internet to find wiping
software to use for the purpose of cleaning off of his or her hard drive any traces of misappropriated trade
secret data, a computer forensic expert can detect what
websites were visited, what wiping software was purchased, installed, and used, and how much data was
wiped from the hard drive. See AdvantaCare Health
Partners, L.P. v. Access IV, 2004 WL 1837997, at *1-2
(N.D. Cal. Aug. 17, 2004) (computer expert
determined when the ex-employee visited websites and
what websites were visited, what wiping software he installed, and when he used the wiping software to
delete data from his computer).
If an employee uses his or her company-owned PC to synch a PDA, such as a Palm Pilot, the PC hard
drive will have a copy of the synched files stored on it.
Thus, relevant information contained on a former employee‘s PDA may, under those circumstances, be
obtained even if discovery of the contents of the PDA
is not possible, because the information was
subsequently erased or modified by the ex-employee. Wiping software can be used to remove all traces
of electronic data that may have once been stored on a
hard drive or thumb drive. The entire hard drive can be wiped, or the wiping process can be limited to only the
unallocated storage space. However, if a hard drive has
been wiped, the use of wiping software can be detected. Most wiping software will leave a
characteristic pattern on the wiped storage space of the
hard drive; and this pattern will be different from the
expected contents of a new hard drive that has never been used. If wiping software has been installed on a
PC, the registry file will usually reveal that fact. In
addition, the ―accessed date‖ for the ―exe‖ program files of the wiping software program will usually be the
date that the wiping software was last used. The
registry file may also contain the date the wiping
software was installed on the computer. A computer forensic expert can examine a PC to determine whether
wiping software has ever been used on the PC.
Disk defragmentation software can also remove evidence of deleted files. Microsoft Window‘s disk
defragmentation program is a system utility that
consolidates fragmented files and folders on a computer‘s hard disk, so that each occupies a single,
contiguous space in the system. ―To consolidate
fragmented files, the program moves the file fragments
together by ‗overwriting all those places‘ where space in the system was occupied by deleted files. As a
result, ‗the ability to recover deleted items virtually ...
disappears‘ because the same is occupied by other files. Cutting through all the techno-speak, it is
foreseeable that the running of a disk defragmentation
program … can result in the loss of files that were recoverable before the defragmentation occurred.‖
Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D.
497, 504 n.14 (D. Md. 2010).
IV. A COURT’S POWER TO IMPOSE
SANCTIONS
There are two primary sources that supply a court with authority to impose sanctions against a party for
spoliation of evidence. Victor Stanley, Inc. v. Creative
Pipe, Inc., 269 F.R.D. 497, 517 (D. Md. 2010).
Spoliation and Sanctions Chapter 16
8
First, a court may impose sanctions based on its
inherent power to manage its docket and its cases. Chambers v. NASCO, Inc., 501 U.S. 32, 46 (1991); In
re Mroz, 65 F.3d 1567, 1575 (11th Cir. 1995);
Residential Funding Corp. v. Degeorge Fin. Corp., 306 F.3d 99, 106-07 (2nd Cir. 2002) (court has the
―inherent power to manage its own affairs‖ via
sanctions); Methode Electronics, Inc. v. Adam Technologies, Inc., 371 F.3d 923, 927 (7th Cir. 2004)
(district courts have ―inherent power to impose
sanctions for abuse of the judicial system.‖); Adkins v.
Wolever, 554 F.3d 650, 652 (6th Cir. 2009); Leon v. IDX Sys. Corp., 464 F.3d 951, 958 (9th Cir. 2006);
Victor Stanley, 269 F.R.D. at 517 (a court‘s inherent
power to control the judicial process and litigation provides the court with the power that is necessary to
redress conduct which abuses the judicial process.). In
Chambers v. NASCO, Inc., 501 U.S. 32, 49 (1991), the Supreme Court held that ―the inherent power of a court
can be invoked even if procedural rules exist which
sanction the same conduct.‖
In a case where sanctions are authorized by statute or rule, but the statute or rule does not include within
its scope a person who is responsible for the
sanctionable conduct, a court may rely upon its inherent power in order to sanction the person. Lockary
v. Kayfetz, 974 F.2d 1166 (9th Cir. 1992).
A finding of bad faith, however, is usually
required to impose sanctions based on the Court‘s inherent powers. Victor Stanley, 269 F.R.D. at 518 (a
court‘s inherent authority may only be exercised to
sanction bad-faith conduct); In re Mroz, 65 F.3d at 1575; In re Pennie & Edmonds, LLP, 323 F.3d 86, 89-
90 (2nd Cir. 2002); Barber v. Miller, 146 F.3d 707,
711 (9th Cir. 1998). But see Young v. City of Providence ex rel. Napolitano, 404 F.3d 33, 40 (1st
Cir. 2005).
―Second, if the spoliation violates a specific court
order or disrupts the court‘s discovery plan, sanctions also may be imposed under Fed. R. Civ. P. 37.‖ Victor
Stanley, 269 F.R.D. at 517. Rule 37(b)(2)(A) provides
a list of sanctions that a court may impose for not obeying a discovery order. The available sanctions
include an order directing that designated facts be
taken as established, an order prohibiting the disobedient party from introducing designated matters
in evidence, and rendering a default judgment. Rule
37(b)(2)(A), Fed.R.Civ.P.
Rule 37 permits sanctions for disobedience of an order to provide or permit discovery, and does not
expressly include an order to preserve evidence.
However, the rule has been interpreted as including sanctions for evidence preservation orders. Victor
Stanley, 269 F.R.D. at 519 (―[I]t cannot seriously be
questioned that a court order to preserve information,
including ESI, has as its core purpose the objective of
ensuring that the ESI can be ‗provided‘ during
discovery, and is intended to ‗permit‘ that discovery.‖). A court may impose sanctions on its own
initiative without any motion for sanctions being filed.
See, e.g., Methode Electronics, Inc. v. Adam Technologies, Inc., 371 F.3d 923 (7th Cir. 2004). If the
court does so, a show cause order will normally be
issued directing the party in question to show cause why sanctions should not be imposed. A show cause
order does not shift the burden of proof for the
imposition of sanctions, but instead facilitates due
process requirements for notice. Cook v. American Steamship Co., 134 F.3d 771, 776 (6th Cir. 1998) (―[A]
show cause order only acts as notice to the relevant
party by informing the party what conduct is alleged to be sanctionable, and allows the party an opportunity to
respond, by presenting evidence and arguments why
sanctions should not be imposed, the party has the opportunity to ‗persuade‘ the court that sanctions are
not warranted.‖).
A district can impose sanctions even if the court
has determined that it does not have subject matter jurisdiction over a case. Willy v. Coastal Corp., 503
U.S. 131, 137 & 140 (1992)(―[T]he interest in having
the rules of procedure obeyed ... does not disappear upon a subsequent determination that the court was
without subject matter jurisdiction.‖).
V. DEFAULT JUDGMENT AS A SANCTION The entry of a default judgment may be imposed
as a sanction for failing to comply with a court‘s
discovery orders. Rio Properties, Inc. v. Rio International Interlink, 284 F.3d 1007, 1022-23 (9th
Cir. 2002). A default judgment may also be entered as
a sanction for the intentional destruction of evidence. Telectron, Inc. v. Overhead Door Corp., 116 F.R.D.
107 (S.D. Fla.1987) (default judgment entered where
corporate counsel for the defendant ordered the
destruction of all the pricing documents he believed would be damaging to the corporate defendant);
Helmac Products Corp. v. Roth (Plastics) Corp., 814
F. Supp. 560, 572 (E.D. Mich. 1992) (default judgment entered against defendant who had destroyed
documents intentionally to prevent fair adjudication of
the dispute). It is appropriate for the court to consider all of a
party‘s discovery conduct in deciding whether a default
judgment should be entered. Henry v. Gill Industries, Inc.,
983 F.2d 943, 947 (9th Cir. 1993) (―Henry appears to suggest that only so much of his discovery conduct as
occurred after the court‘s imposition of monetary
sanctions should have been considered in deciding whether dismissal was warranted. This circuit‘s law is to
the contrary.‖); Adriana Int'l Corp. v. Thoeren, 913 F.2d
1406, 1411 (9th Cir. 1990) (district court properly
considered all of defendant's discovery conduct in
Spoliation and Sanctions Chapter 16
9
ordering default judgment: ―In evaluating the propriety of
sanctions, we look at all incidents of a party‘s misconduct.‖), cert. denied, 111 S. Ct. 1019 (1991);
Halaco Eng'g Co. v. Costle, 843 F.2d 376, 381 n.2 (9th
Cir. 1988) (The ―court may indeed consider prior conduct that has already been subject to sanction, when it is
weighing a subsequent sanction motion.‖).
Normally, a court should make an express finding of willfulness, fault or bad faith before imposing the sanction
of a default judgment. See Electronics for Imaging, Inc. v.
Photoscript Group Ltd., No. C98-2759 SI (MED), 1999
U.S. Dist. LEXIS 7395, at *13-14 (N.D. Cal. 1999) (―Defendants' repeated violations of this Court‘s orders
and applicable local rules, including Defendants' failure to
participate in the case management and discovery processes, plainly constitute bad faith conduct or, at best,
gross negligence.‖). In cases where dismissal sanctions are
imposed, ―the losing party‘s non-compliance must be due to willfulness, fault or bad faith.‖ Henry v. Gill Industries,
Inc., 983 F.2d 943, 946 (9th Cir. 1993) (citation omitted).
―Disobedient conduct not shown to be outside the control
of the litigant is all that is required to demonstrate willfulness, bad faith, or fault.‖ Davis v. Calvin, No. CIV
S-07-1383 FCD EFB P, 2009 U.S. Dist. LEXIS 34066, at
*4 (E.D. Cal. April 17, 2009) (citations and internal quotes omitted), aff’d, 398 Fed. Appx. 268 (9th Cir. 2010). See
also Henry v. Gill Industries, Inc., 983 F.2d at 948;
Fjelstad v. American Honda Motor Co., 762 F.2d 1334,
1337 (9th Cir. 1985). Belated compliance with discovery orders does not
preclude imposition of a default judgment as a sanction.
Payne v. Exxon Corp., 121 F.3d 503, 508 (9th Cir. 1997) (noting that last-minute tender of documents does not cure
prejudice or restore other litigants on a crowded docket to
the opportunity to use the courts); North American Watch Corp. v. Princess Ermine Jewels, 786 F.2d 1447, 1451
(9th Cir. 1986) (order of dismissal affirmed: ―Belated
compliance with discovery orders does not preclude the
imposition of sanctions.‖); G-K Properties v. Redevelopment Agency of San Jose, 577 F.2d 645, 647-48
(9th Cir. 1978) (order of dismissal affirmed: ―last minute
tender‖ of discovery does not cure effects of discovery misconduct); Henry v. Gill Industries, Inc., 983 F.2d 943,
947-49 (9th Cir. 1993) (affirming dismissal after a failure
to answer interrogatories or to submit to deposition for eight months); In re Phenylpropanolamine (PPA)
Products Liability Litigation, 460 F.3d 1217, 1238 (9th
Cir. 2006) (―[S]ubstantially complete Fact Sheets were not
submitted until after the motion to dismiss was filed two years after originally due. This neither excuses, nor cures,
prejudice.‖).
A district court should consider five factors before imposing the sanction of a default judgment. (1) the
public‘s interest in expeditious resolution of litigation; (2)
the court‘s need to manage its docket; (3) the risk of
prejudice to the party seeking dismissal; (4) the public
policy favoring disposition of cases on their merits; and
(5) the availability of less drastic sanctions. Rio Properties, Inc. v. Rio International Interlink, 284 F.3d
1007, 1022 (9th Cir. 2002); Construction Laborers Trust
Funds v. Rosal, No. CV 07-6508-AHM(Ex), 2008 U.S. Dist. LEXIS 79677, at *6 (C.D. Cal. Oct. 6, 2008). While
it can always be said, in every case, that ―the public policy
favoring disposition of cases on their merits weighs against default judgment, that single factor is not enough
to preclude imposition of this sanction when the other four
factors weigh in its favor.‖ Rio Properties, 284 F.3d at
1022.
A. The Public’s Interest In Expeditious Resolution
Of Litigation
In a case in which the defendant‘s violation of a
court‘s discovery orders and litigation misconduct forces
the opposing party to invest a substantial amount of time,
effort and attorneys fees in a continuing attempt to obtain relevant and useful discovery, the expeditious resolution
of litigation requires that such conduct be deterred. If
parties in other litigation who are similarly situated got the message that they could engage in the same type of
conduct and escape harsh sanctions, the public policy in
favor of the expeditious resolution of litigation would be
undermined. The public‘s interest in the expeditious resolution of
litigation favors terminating sanctions under
circumstances where the case has been pending for a lengthy period of time due to one party‘s spoliation of
evidence or failure to comply with discovery obligations.
B. The Court’s Need To Manage Its Docket
If every defendant in every case was allowed to get
away with a pattern of delay and non-compliance, a
court‘s docket would likely grind to a halt. As the Ninth
Circuit has noted, ―[d]isregard of the [court‘s] order would undermine the court‘s ability to control its docket, disrupt
the agreed-upon course of the litigation, and reward the
indolent and the cavalier.‖ Johnson v. Mammoth Recreations Inc., 975 F.2d 604, 610 (9th Cir. 1992). The
efficient treatment and resolution of cases will only be
successful if a court‘s orders are taken seriously, and the best way to achieve that is to enforce the court‘s orders
and impose severe sanctions for continued non-
compliance. Wong v. Regents of the University of
California, 410 F.3d 1052, 1060 (9th Cir. 2005)(―In these days of heavy caseloads, trial courts in both the federal
and state systems routinely set schedules and establish
deadlines to foster the efficient treatment and resolution of cases. Those efforts will be successful only if the
deadlines are taken seriously by the parties, and the best
way to encourage that is to enforce the deadlines.‖).
In order to manage a court‘s docket, it is imperative that a court enforces its discovery orders with appropriate
Spoliation and Sanctions Chapter 16
10
sanctions. The court‘s need to manage its docket is a
factor that usually weighs in favor of sanctions under such circumstances.
C. The Risk Of Prejudice To The Other Party
The innocent party is usually prejudiced by an
opposing party‘s discovery abuse. This is more true when
the information sought during discovery was central,
rather than peripheral, to the issues in the case. See Construction Laborers Trust Funds v. Rosal, No. CV 07-
6508-AHM(Ex), 2008 U.S. Dist. LEXIS 79677, at *7
(C.D. Cal. Oct. 6, 2008).
Typically, a party‘s non-compliance with the court‘s discovery orders will force the opposing party to invest a
substantial amount of time, effort and attorneys fees in a
continuing attempt to obtain relevant and useful discovery. A party‘s discovery abuse may make the opposing party‘s
trial preparation practically impossible. See Construction
Laborers Trust Funds v. Rosal, supra, 2008 U.S. Dist. LEXIS 79677, at *7 (Default judgment granted against
defendant where ―Defendant's discovery abuse has made
Plaintiff's trial preparation practically impossible.‖).
The absence of timely discovery may deprive a party of the potential opportunity to pursue a motion for
summary judgment or summary adjudication of issues.
See Payne v. Exxon Corporation, 121 F.3d 503, 508 (9th Cir. 1997) (finding prejudice where parties‘ ―repeated
failure to provide documents and information in a timely
fashion prejudiced the ability of [the opposing parties] to prepare their case for trial‖).
The delays occasioned by a party‘s discovery abuse
may result in protracted litigation. See In re Exxon Valdez,
102 F.3d 429, 433 (9th Cir. 1996) (parties‘ ―total failure to respond to discovery and the time consumed by
attempting to secure compliance‖ show prejudice).
An opposing party will be prejudiced if a court does not enforce its orders with effective sanctions. Cf. Welch v.
Professional Transit Management of Tucson, Inc., No. CV
03-631-TUC-CKJ, 2005 U.S. Dist. LEXIS 26577, at *24
n.2 (D. Ariz. Nov. 2, 2005)(―Defendant would be prejudiced [because] Defendant would be forced to
expend additional time and money defending Plaintiff's
claim.‖). Enforcement of a court‘s orders is necessary to preserve the integrity of the discovery process, and to
deter others from attempting the same type of discovery
abuse.
D. The Availability Of Less Drastic Sanctions
Normally, a court should attempt to secure
compliance using less drastic sanctions, before imposing
the sanction of a default judgment. A default judgment is warranted where it is clear that less drastic sanctions will
not achieve compliance. Toth v. Trans World Airlines,
Inc., 862 F.2d 1381, 1385 (9th Cir. 1988) (―The district court considered, and indeed instigated, less drastic
sanctions, but to no avail.‖); Davis v. Calvin, No. CIV S-
07-1383 FCD EFB P, 2009 U.S. Dist. LEXIS 34066, at *8 (E.D. Cal. April 17, 2009) (‗[T]here is no indication that
additional sanctions or another order from the court will
result in plaintiff‘s compliance.‖), aff’d, 398 Fed. Appx. 268 (9th Cir. 2010); Blundell v. County of Los Angeles,
No. CV 08-2212-DDP(Ex), 2009 U.S. Dist. LEXIS
124279, at *14-15 (C.D. Cal. Dec. 1, 2009) (―[T]he Court previously imposed less drastic sanctions for Plaintiff's
discovery abuses, without any apparent effect. More than
once, the Court ordered discovery compliance, imposed
monetary sanctions, and warned of a terminating sanction upon further noncompliance. Nevertheless,
noncompliance continued, suggesting the futility of
sanctions lesser than a terminating sanction.‖).
E. The Public Policy Favoring Disposition Of Cases
On Their Merits
The public policy favoring disposition of cases on their merits ―is not enough to preclude imposition of this
sanction [of default judgment] when the other four factors
weigh in its favor.‖ Rio Properties, Inc. v. Rio
International Interlink, 284 F.3d 1007, 1022 (9th Cir. 2002).
However, when a party is responsible for evidence
spoliation that effectively prevents a court from reaching the merits of the case, the misconduct may preclude a case
from being decided on the merits. When a court‘s inability
to reach a disposition of this case on the merits is a direct result of a party‘s pattern of delay, evasiveness and non-
compliance with the court‘s orders, the offending party
cannot rely on this factor. Blundell v. County of Los
Angeles, No. CV 08-2212-DDP(Ex), 2009 U.S. Dist. LEXIS 124279, at *14 (C.D. Cal. Dec. 1, 2009) (―[T]he
fourth factor is entitled to little weight where a plaintiff
completely refuses to cooperate in discovery.‖). ―[A] case that is stalled or unreasonably delayed by a
party‘s failure to comply with deadlines and discovery
obligations cannot move forward toward resolution on the
merits.‖ In re Phenylpropanolamine (PPA) Products Liability Litigation, 460 F.3d 1217, 1228 (9th Cir. 2006).
Therefore, the fourth factor ―lends little support to a party
whose responsibility it is to move a case toward disposition on the merits but whose conduct impedes
progress in that direction.‖ Id. (citation and internal
quotations omitted). This factor is entitled to little or no weight under
circumstances where there is a total failure to provide
discovery. In re Exxon Valdez, 102 F.3d 429, 433 (9th Cir.
1996) (policy favoring disposition on merits of little weight in light of parties‘ ―total refusal to provide
discovery‖).
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VI. STANDARD OF REVIEW
A district court‘s imposition of terminating sanctions is reviewed for abuse of discretion. Rio Properties, Inc. v.
Rio International Interlink, 284 F.3d 1007, 1022 (9th Cir.
2002) (―We review for an abuse of discretion the district court's decision under Rule 37, and we will overturn a
dismissal sanction only with a definite conviction that it
was clearly outside the acceptable range of sanctions.‖); Toth v. Trans World Airlines, Inc., 862 F.2d 1381, 1385
(9th Cir. 1988).
VII. SANCTIONS BASED UPON A REPORT
AND RECOMMENDATION FROM A
MAGISTRATE JUDGE
The imposition of sanctions, especially the
ultimate sanction of a default judgment, usually mandates
a hearing and the development of an adequate record. Especially where electronically stored information is
involved, the evidentiary hearing may be conducted by a
magistrate judge who prepares a report and recommendation based upon evidentiary findings.
The procedures relating to reports and
recommendations by magistrate judges raises certain issues worthy of discussion.
A. Consideration Of New Evidence Submitted With
An Objection To A Report And Recommendation
From A Magistrate Judge
Under 28 U.S.C. § 636(b)(1), when an objection is
filed to a report and recommendation of a magistrate judge, the district judge ―shall make a de novo
determination of those portions of the report or specified
proposed findings or recommendations to which objection
is made.‖ A district judge ―may accept, reject, or modify, in whole or in part, the findings or recommendations made
by the magistrate judge.‖ Id. Under the statute, ―[t]he
judge may also receive further evidence or recommit the matter to the magistrate judge with instructions.‖ Id.
In United States v. Howell, 231 F.3d 615 (9th Cir.
2000), cert. denied, 534 U.S. 831 (2001), the district court
had refused to consider new factual allegations that were presented for the first time in an objection to the
magistrate judge‘s recommendation. The appellant argued
that the district court was required to consider new evidence filed with an objection, because the statute says
that the judge ―shall make a de novo determination‖ of the
magistrate judge‘s recommendation. The Ninth Circuit rejected that argument. In doing so, the Ninth Circuit
quoted from the legislative history of the statute as
follows:
The use of the words ―de novo‖ determination
is not intended to require the judge actually
conduct a new hearing on contested issues. Normally, the judge, on application, will
consider the record which has been developed
before the magistrate and make his own
determination on the basis of that record, without being bound to adopt the findings and
conclusions of the magistrate.
H.R. Rep. No. 1609, 94th Cong., 2d Sess. 3, reprinted in
1976 U.S.C.C.A.N. at 6163, quoted in United States v.
Howell, 231 F.3d at 622 (emphasis added). The legislative history indicates Congress intended
that a district judge‘s review would normally be based
upon the record developed before the magistrate judge.
The statute provides that a district court judge ―may‖ receive further evidence, however it is apparent that this
should only occur when the objecting party shows that the
new evidence was not available at the time the magistrate judge issued his report and recommendation, or that there
are other extraordinary circumstances that make it
necessary for the district judge to take additional evidence. In the Howell case, the Ninth Circuit noted that this
issue had been addressed in other circuits, and ―[t]he First
and Fifth Circuit say that a district court may, but is not
required to, consider evidence presented for the first time in a party‘s objection to the magistrate judge‘s
recommendation.‖ 231 F.3d at 621. Rejecting the law of
the Fourth Circuit, the Ninth Circuit held, ―[l]ike the First and Fifth Circuits, we conclude that a district court has
discretion, but is not required, to consider evidence
presented for the time in a party‘s objection to a magistrate
judge‘s recommendation.‖ Id. In adopting the law of the First Circuit, the Ninth
Circuit cited Paterson-Leitch Co. v. Massachusetts Mun.
Wholesale Elec. Co., 840 F.2d 985, 990-91 (1st Cir. 1988) (―We hold categorically that an unsuccessful party is not
entitled as of right to de novo review by the judge of an
argument never seasonably raised before the magistrate.‖). In the Paterson-Leitch case, the First Circuit held that the
requirement of a ―de novo determination‖ by the district
judge does not mean that ―an entirely new hand is dealt
when objection is lodged to a recommendation.‖ 840 F.2d at 990. In the words of the court, ―[a]t most, the party
aggrieved is entitled to a review of the bidding rather than
to a fresh deal.‖ The court explained:
The role played by magistrates within the
federal judicial framework is an important one. They exist to assume some of the burden
imposed on the district courts by a burgeoning
caseload. The system is premised on the notion
that magistrates will relieve courts of unnecessary work. Systemic efficiencies would
be frustrated and the magistrate‘s role reduced
to that of a mere dress rehearser if a party were allowed to feint and weave at the initial hearing,
and save its knockout punch for the second
round. In addition, it would be fundamentally
unfair to permit a litigant to set its case in
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motion before the magistrate, wait to see which
way the wind was blowing, and -- having received an unfavorable recommendation --
shift gears before the district judge. Such a fast
shuffling of the orderly processes of federal litigation should not be encouraged.
In a nutshell, the argument upon which [the appellant] belatedly places such stock could
have been, but inexplicably was not, presented
to the magistrate in the first instance. The
appellant is not entitled to yet another nibble at this particular apple. We conclude without
hesitation that the district judge did not abuse
his discretion in declining to entertain the [new argument].
Paterson-Leitch Co. v. Massachusetts Mun. Wholesale Elec. Co., 840 F.2d at 990-91 (citations, internal quotes
and bracketing omitted).
The Ninth Circuit also cited the Paterson-Leitch case
to support its explanation of why the rule makes prudential sense:
The magistrate judge system was designed to alleviate the workload of district courts. To
require a district court to consider evidence not
previously presented to the magistrate judge
would effectively nullify the magistrate judge‘s consideration of the matter and would not help
to relieve the workload of the district court.
Systemic efficiencies would be frustrated and the magistrate judge‘s role reduced to that of a
mere dress rehearser if a party were allowed to
feint and weave at the initial hearing, and save its knockout punch for the second round.
Equally important, requiring the district court to
hear evidence not previously presented to the
magistrate judge might encourage sandbagging. It would be fundamentally unfair to permit a
litigant to set its case in motion before the
magistrate, wait to see which way the wind was blowing, and - having received an unfavorable
recommendation - shift gears before the district
judge.
United States v. Howell, 231 F.3d at 622 (citations and
internal quotes omitted).
In adopting the law of the Fifth Circuit, the Ninth Circuit cited Freeman v. County of Bexar, 142 F.3d 848
(5th Cir. 1998). In the Freeman case, the Fifth Circuit
noted that in exercising its discretion to allow the objecting party to offer new or amplified evidence, ―the
district court should not be compelled to ignore that the
parties had a full and fair opportunity to present their best
evidence to the magistrate judge.‖ 142 F.3d at 852. The
Fifth Circuit said the general nature of the inquiry is
similar to a motion for reconsideration, and a district court should consider, among other things, whether the evidence
was available to the party before she responded to the
motion, or before the evidentiary hearing. See id. at 852-53. The Fifth Circuit also said a district court should
consider ―the reasons for the moving party‘s default‖ in
timely presenting the evidence. 142 F.3d at 853. A district court judge has discretion to refuse to
consider evidence offered for the first time in a party‘s
objections to a magistrate judge‘s report and
recommendation. Stringham v. Bick, 2007 U.S. Dist. LEXIS 18227, at *2 (―It is within this court‘s discretion
‗not to consider evidence offered for the first time in a
party‘s objections to a magistrate judge‘s proposed findings and recommendations…‘.‖) (E.D. Cal. March 15,
2007), quoting from Jones v. Blanas, 393 F.3d 918, 935
(9th Cir. 2004).
B. Non-Specific Objections To A Magistrate Judge’s
Report And Recommendation Are Functionally
Equivalent To No Objections At All
―Failure to object to a magistrate judge‘s recommendation waives all objections to the judge‘s
findings of fact.‖ Jones v. Wood, 207 F.3d 557, 562 n.2
(9th Cir. 2000). In the absence of any objection, a district court may adopt a magistrate judge‘s report and
recommendation without a de novo review. United States
v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003)
(―The statute makes it clear that the district judge must review the magistrate judge‘s findings and
recommendations de novo if objection is made, but not
otherwise.‖) (en banc). In addition, if objections are filed, a de novo review is triggered only for those portions of the
report and recommendation to which an objection is made.
It is well-settled that ―[d]istrict courts are not required to conduct ‗any review at all . . . of any issue that is not the
subject of objection.‘‖ Ward v. Chavez, 2009 U.S. Dist.
LEXIS 76744, at *2-3 (D. Ariz. Aug. 27, 2009), quoting
from Thomas v. Arn, 474 U.S. 140, 149, (1985). Accord, Lopez v. Yamhill County, 2011 U.S. Dist. LEXIS 90391,
at *2 (Aug. 12, 2011) (―[T]he court is not required to
review, under a de novo or any other standard, the factual or legal conclusions of the magistrate judge as to those
portions of the F&R to which no objections are
addressed.‖) (citations omitted). A district court need not review any part of a
magistrate judge‘s report and recommendation that was
not the subject of a specific objection. Ross v. Goddard,
2006 U.S. Dist. LEXIS 65903, at *8 (D. Ariz. Sept. 14, 2006). Broad non-specific objections to a magistrate
judge‘s report and recommendation, such as it would be a
―miscarriage of justice,‖ are ―too broad to mandate de novo review.‖ Id. at *11.
A primary reason that district courts may accept
magistrate court recommendations without explanation
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when no party objects is to encourage judicial economy and efficiency. Allowing general objections to trigger de novo review of a magistrate court’s recommendation would vitiate the purpose of such recommendations. Non-specific objections to a magistrate’s recommendation are functionally equivalent to no objections at all.
Ross v. Goddard, 2006 U.S. Dist. LEXIS 65903, at *11 (citations omitted).
C. Consideration Of New Arguments Advanced For The First Time In A Party’s Objection To The Report And Recommendation By A Magistrate Judge A party objecting to a report and recommendation of
a magistrate judge should not be allowed to advance new legal arguments that were not made to the magistrate judge. World Triathalon Corp. v. Dunbar, 539 F. Supp.2d 1270, 1278 n.13 (D. Haw. 2008) (“Defendants cannot raise entirely new arguments for the first time on an objection to a Special Master’s Report.”); Aggers v. Tyson, 2011 U.S. Dist. LEXIS 83894, at *3 (E.D. Cal. Aug. 1, 2011) (“As an initial matter, the Court notes that Plaintiff raises a new argument in his objections to the findings and recommendation… A district court is not required to consider arguments that are presented for the first time in objections to a U.S. Magistrate Judge’s findings and recommendations.”) (citation omitted); Ross v. Goddard, 2006 U.S. Dist. LEXIS 65903, at *15 (“The Ninth Circuit has held that a district court need not consider arguments raised for the first time in an objection to a recommendation.”) (citation omitted); Borden v. Secretary of Health & Human Services, 836 F.2d 4, 6 (1st Cir. 1987) (“Appellant was entitled to a de novo review by the district court of the [magistrate judge’s] recommendations to which he objected, however he was not entitled to a de novo review of an argument never raised.”) (citation omitted); Freeman v. County of Bexar, 142 F.3d at 851 (“A party who objects to the magistrate judge’s report waives legal arguments not made in the first instance before the magistrate judge”); see Brown v. Roe, 279 F.3d 742, 745-46 (9th Cir. 2002) (“[W]e do not go as far as the Fourth Circuit, which has held that a district court must consider new arguments raised for the first time in an objection to a magistrate judge’s findings and recommendation.”) (emphasis in original and citation omitted).
The language in the statute, i.e., that a district judge “shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made,” 28 U.S.C. § 636(b)(1) (emphasis added), limits the de novo review to issues in the report and recommendation. De novo review does not encompass new arguments and legal theories that were never raised before the magistrate judge, and which consequently are not addressed in the report. The Seventh
Circuit explained the policy considerations underlying this rule:
[T]here are good reasons for the rule that district courts should not consider arguments not raised initially before the magistrate judge, even though their review in cases governed by 28 U.S.C. § 636(b)(1) is de novo. Failure to raise arguments will often mean that facts relevant to their resolution will not have been developed; one of the parties may be prejudiced by the untimely introduction of an argument… Additionally, a willingness to consider new arguments at the district court level would undercut the rule that the findings in a magistrate judge’s report and recommendation are taken as established unless the party files objections to them.
United States v. Melgar, 227 F.3d 1038, 1040 (7th Cir. 2000).
VIII. THE EFFECT OF A DEFAULT JUDGMENT Upon entry of a default judgment, the factual
allegations of the complaint are deemed true. Rio Properties, Inc. v. Rio International Interlink, 284 F.3d 1007, 1023 (9th Cir. 2002); TeleVideo Systems, Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987). Therefore, it is useful to have sufficient factual allegations in the complaint to support a judgment on the merits. If the pleading does not contain sufficient factual allegations, it may be necessary for the court to conduct a hearing to establish the truth of allegations by evidence. Rule 55(b)(2)(C), Fed.R.Civ.P.
The allegations in the complaint have an important impact upon the damages and other relief available on a default judgment. Under Rule 54(c), Fed.R.Civ.P., a default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings. If the complaint demands a sum certain, or a sum can be made certain by computation, the clerk can enter judgment for that amount. In all other cases, a party must apply to the court for a default judgment. Rule 55(b), Fed.R.Civ.P. The court may conduct hearings, or refer the matter to a magistrate judge, to determine the amount of damages. Rule 55(b)(2), Fed.R.Civ.P.
Normally, the entry of a default judgment based upon a party’s bad faith, intentional misconduct, or violations of a court’s discovery orders, will also result in an award of attorneys fees.
In a patent case, the statutory provisions of 35 U.S.C. §285 authorize a court, in an “exceptional” case, to award reasonable attorneys fees to the prevailing party. Litigation misconduct may suffice, by itself, to make a case exceptional under §285. Rambus Inc. v. Infineon
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Technologies AG, 318 F.3d 1081, 1106 (Fed. Cir.) (―[T]he
district court found that Rambus's misconduct alone supported the determination that this case was
exceptional‖), cert. denied, 540 U.S. 874 (2003);
Telecommunication Systems, Inc. v. Mobile 365, Inc., No. 3:06CV485, 2008 U.S. Dist. LEXIS 112753, at *36-37
(E.D. Va. Sept. 25, 2008), appeal dismissed by stipulation,
363 Fed. Appx. 743 (Fed. Cir. 2009) (settlement). In cases deemed exceptional only on the basis of litigation
misconduct, however, the amount of the award must bear
some relation to the extent of the misconduct. Rambus
Inc., 318 at 1106. ―The trial court has broad discretion in the criteria by which it decides to award attorney fees.‖
Ncube Corp. v. Seachange Int’l, Inc., 436 F.3d 1317, 1325
(Fed. Cir. 2006).
An award of attorneys‘ fees under Section 285 has two purposes. First, an award of fees is designed to
―reimburse a party injured when forced to undergo an
exceptional case.‖ Mathis v. Spears, 857 F.2d 749, 753 (Fed. Cir. 1988). But an award of attorneys‘ fees under
§ 285 also has another purpose. An award of attorneys‘
fees is a sanction that is designed to deter other parties from engaging in similar litigation misconduct. Mathis,
857 F.2d at 754; Samsung Electronics Co. v. Rambus
Inc., No. 3:05cv406, 2006 U.S. Dist. LEXIS 50074, at
*14-17 (E.D. Va. July 18, 2006); cf. Merriman v. Security Insurance Co., 100 F.3d 1187, 1194 (5th Cir.
1996) (―[T]he award of attorneys‘ fees is explicitly
targeted to deterrence of litigation abuse.‖).
―The purpose of sanctions goes beyond
reimbursing parties for expenses incurred responding to unjustified or vexatious claims.
Rather, sanctions are designed to punish a
party who has already violated the court‘s
rules.‖
Perkins v. General Motors Corp., 965 F.2d 597, 599 (8th Cir.), cert. denied, 506 U.S. 1020 (1992).
In an action involving both patent and non-patent
claims, recovery is available under section 285 for the
non-patent claims if the issues involved are intertwined
with the patent issues. Beckman Instruments, Inc. v.
LKB Produkter AB, 892 F.2d 1547, 1552 n.2 (Fed. Cir. 1989); Finkelstein v. Bergna, 804 F. Supp. 1235, 1238-
39 (N.D. Ca. 1992) (No reduction in legal fees where
―all of the legal theories put forward arose from the same nucleus of operative facts,‖ and could not be
viewed as discrete claims because they involved ―a
common core of facts.‖); see Stickle v. Heublein, Inc., 716 F.2d 1550, 1564 (Fed. Cir. 1983) (fees are
available where the evidence is material to both patent
and non-patent issues). In the case of Nikko Materials
USA, Inc. v. R.E. Service Co., No. C 03-2549 SBA,
2006 U.S. Dist. LEXIS 3750, at *29-30 (N.D. Cal. Jan.
13, 2006), the court rejected the argument that an attorneys‘ fee award under 35 U.S.C. § 285 should be
allocated between the patent infringement claims and
counterclaims, and instead awarded the prevailing party all of its requested fees and costs without
reduction. In reaching this result, the Nikko court held
that § 285 is intended to compensate the prevailing party ―for its monetary outlays‖ in defense of the suit,
and includes ―the recovery of all reasonable expenses
incurred in prosecuting the entire action.‖ Id. at *16
(emphasis added), citing Central Soya Co. v. Geo. A. Hormel & Co., 723 F.2d 1573, 1578 (Fed. Cir. 1983).
Awards under section 285 are not limited to
attorneys‘ fees. Mathis v. Spears, 857 F.2d 749, 754 (Fed. Cir. 1988) (In awarding fees under § 285, ―courts
should not be, and have not been, limited to ordinary
reimbursement of only those amounts paid by the injured party for purely legal services of lawyers, or
precluded from ordinary reimbursement of legitimate
expenses defendant was unfairly forced to pay.‖).
Section 285 permits the recovery of reasonable costs, including postage, fax, photocopy, electronic research,
telephone, court reporter, and travel. GT Development
Corp. v. Temco Metal Products Co., No. C04-0451Z, 2005 U.S. Dist. LEXIS 37501, at *8 (W.D. Wash.
August 31, 2005).
Under Section 285, it is proper to include in the
award of attorneys‘ fees the attorney time expended in connection with the claim for attorneys‘ fees. Central
Soya Co. v. Geo. A. Hormel & Co., 723 F.2d 1573,
1577-78 (Fed. Cir. 1983); Mathis v. Spears, No. CV 80-4481 MRP, 1986 U.S. Dist. LEXIS 23590, at *10-
11 (C.D. Cal. June 26, 1986), aff’d without opinion,
818 F.2d 874 (Fed. Cir. 1987), cert. denied, 484 U.S. 826 (1987).
Rule 37(b)(2)(C) of the Federal Rules of Civil
Procedure also provides the Court with authority to award
reasonable attorneys fees and expenses caused by a party‘s failure to comply with the court‘s discovery orders. This
provides an additional basis for an award of attorneys‘
fees subsequent to the date of the court‘s order compelling
discovery.
IX. CONCLUSION
It is now abundantly clear that appropriate efforts must be taken in order to avoid the spoliation of
electronic evidence. Pension Committee of the
University of Montreal Pension Plan v Banc of
America Securities, LLC, No. 05 Civ. 9016 (SAS), slip op. at 2 (S.D.N.Y. Jan. 11, 2010) (―By now, it should
be abundantly clear that the duty to preserve means
what it says and that a failure to preserve records – paper or electronic – and to search in the right places
for those records, will inevitably result in the spoliation
of evidence.‖).
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In an ever-growing trend, courts expect the parties
to work out electronic discovery issues as much as possible without court intervention. Covad
Communications Co. v. Revonet, Inc., 254 F.R.D. 147,
151 (D.D.C. 2008) (―[T]he courts have reached the limits of their patience with having to resolve
electronic discovery controversies that are expensive,
time consuming, and so easily avoided by the lawyers‘ conferring with each other on such a fundamental
question as the format of their productions of
electronically stored information.‖). With the growing
importance of electronic discovery, courts are at risk of being swamped with too many discovery disputes if
the courts do not require counsel to resolve routine
issues themselves; and the imposition of sanctions is seen as a way of providing the incentive to approach
discovery in a different way. Mancia v. Mayflower
Textile Services Company, 253 F.R.D. 354, 361 (D. Md. 2008) (―[C]ourts repeatedly have noted the need
for attorneys to work cooperatively to conduct
electronic discovery, and sanctioned lawyers and
parties for failing to do so.‖).
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UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
* * *
HOME GAMBLING NETWORK, INC., et al., ))
Plaintiffs, )) 2:05-cv-00610-DAE-LRL
v. ))
CHRIS PICHE, et al., ))
Defendants. ) )
REPORT & RECOMMENDATION
This matter comes before the court on plaintiffs’ Request for an Expedited Status
Conference/Evidentiary Hearing Regarding the CWC Defendants’ Database (#241). Pursuant to the
court’s order (#242), defendants timely filed a six-page Response (#243) on August 13, 2010. On
August 23, 2010, plaintiffs filed a nineteen-page Reply (#244), in which they asserted detailed legal and
factual arguments in support of a demand for default judgment as a sanction against defendants for their
alleged wrongful conduct. The court therefore permitted defendants to file a responsive Sur-Reply
(#250). Minute Order (#249). On December 7, 2010, the court scheduled a status conference for
Wednesday, December 22, 2010. Thereafter, the court conducted an evidentiary hearing on February
17, 2011. The parties submitted post-hearing briefs on March 15, 2011.
Relevant Background
This is an action for patent infringement and related state law claims brought by plaintiffs Home
Gambling Network, Inc. and Melvin Molnick (collectively “plaintiffs”), alleging that defendants
Inversiones VC Dos Mil, S.A., et al. (the “CWC defendants”) are violating United States Patent No.
5,800,268 (the “Method Patent”) by operation of an online gambling website and the production and
distribution of online gambling software. On July 10, 2006, plaintiffs filed a First Amended Complaint
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(#98), alleging among other things that the CWC defendants infringed its Method Patent through
operation of an online gambling website and the production and distribution of online gambling
software that permit sports betting, lottery, keno, and bingo games in violation of the parties’ agreement.
Although recognizing that the CWC defendants were granted the right to sub-license to CWC Resellers,
CWC Licensees, and End Users, plaintiffs assert that the CWC defendants sub-licensed its software to
its licensees without excluding bingo, keno, lottery and sports betting.
The instant motion stems from a discovery dispute that began with plaintiffs’ February 12, 2007
request for production of documents. Plaintiffs’ first motion to compel (#147) was filed on July 31,
2007. The court granted plaintiffs’ motion (#147) on February 12, 2008, and ordered the defendants
to produce all responsive documents by March 11, 2008, with the exception of one item, which was to
be produced subject to entry of a protective order. Order (#154).
On March 11, 2008, the CWC defendants provided supplemental responses to plaintiffs’ First
request for production of documents, in which the CWC defendants claimed to have no responsive
documents for some of the requests. Dissatisfied, plaintiffs filed a Motion for Sanctions (#156) on
March 31, 2008. On June 27, 2008, the court held a hearing on plaintiffs’ motion and again ordered the
CWC defendants to produce the materials that were at issue and subject to the February 12, 2008 Order
(#154); or defendant Chris Piche (“Piche”) was to provide a detailed explanation in a sworn affidavit
as to why the documents or other materials had not been produced. Minutes (#168). Moreover, a
response that documents did not exist had to be supported by a sufficient explanation. Id. The CWC
defendants continued to claim that they had no documents to produce.
On September 5, 2008, plaintiffs requested a status conference regarding the progress of
discovery. Mot. (#178). A hearing was held on September 22, 2008. Minutes (#183). At that time,
the court made explicit its “serious concerns” as to whether the CWC defendants were behaving in the
spirit of the Rules of Civil Procedure. See Transcript (#186) at 19. The court authorized plaintiffs to
depose Piche, who was designated as defendants’ person most knowledgeable. The court warned, “if
there’s somebody else to whom [Mr. Piche] would have to defer, who is not available because he lives
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in Costa Rica or he is in parts unknown, then it’s up to Mr. Piche to educate himself so that he’s able
to answer all these questions on all these subjects.” Id. at 40. On November 3, 2008, Piche was
deposed. The deposition revealed that the CWC defendants apparently had construed “documents” to
mean only paper documents, and had thus excluded relevant electronically stored information. See
Reply (#244) at 9.
Plaintiffs once again sought the court’s assistance in obtaining the CWC defendants’ compliance
with the court’s Order (#154). On February 9, 2009, they filed a Sealed Status Report regarding
Defendants [sic] Non-Compliance with Court Orders (#188), seeking a variety of sanctions pursuant
to Rule 37(b)(2) against the CWC defendants for their noncompliance with the court’s Order (#154).
After full briefing, the court held a hearing on the matter. On July 20, 2009, the court issued its Order
(#210) granting plaintiffs’ Motion (#188). There the court stated:
[T]he CWC defendants have abused the discovery process through a pattern of delay,evasiveness and non-compliance with this court orders. Such behavior has forcedplaintiffs to invest a substantial amount of time, effort and attorneys fees in a continuingattempt to obtain relevant and useful discovery. Despite repeated document demandsand court orders, and repeated assurances that all responsive documents were beingproduced, the CWC defendants have still not produced relevant and responsivedocuments during the more than 2-year discovery period. If the CWC defendants hadpreviously been handed less severe sanctions for their failure to produce, one or moreof the harsh evidentiary sanctions authorized by Rule 37(b) would now be appropriate. Fairness, however, requires that the CWC defendants be given, and are hereby put onclear notice that their failure to comply with this court’s orders will result in severeevidentiary sanctions. The CWC defendants are also given notice that their continuedfailure to respond fully to plaintiffs’ discovery requests will invite the type of sanctionsplaintiffs currently seek. 1
Order (#210) at 9-10.
The CWC defendants filed a Request for Review of Magistrate Judge Decision re #210 Order
(#211) on July 31, 2009. The presiding district judge, the Honorable David A. Ezra, held a hearing on
the motion (#211) on August 5, 2009. Judge Ezra affirmed Order (#210) and ordered the CWC
defendants to comply fully with Order (#154) not later than September 7, 2009, by turning over an
The CWC defendants were ordered to pay the reasonable expenses, including attorney’s fees and costs, incurred1
by plaintiffs in making filings ## 147, 150, 156, 157, 160, 173, 178, 188, 194, 195, and 196; conducting the discovery
compliance deposition of Piche on November 3, 2008; and preparing for and participating in the September 22, 2008 and
March 2, 2009 discovery hearings. Order (#210).
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“identical mirror image copy of the backup database . . . without any alterations, modifications or
deletions, together with any necessary passwords required to access the information contained in the
database.” See Order (#219). At the hearing, he warned defendants, “If it turns out that there is any
manipulation of that data in any way, shape or form, the Court will consider that to be not only a civilly
punishable matter, but the Court would look at that as a criminally contemptible matter because it would
amount to obstruction of justice, if you want to put it in the bluntest way possible.” Mot. (#241) at Exh.
1, Transcript of Aug. 5, 2009 Hearing at 13. He explained that should defendants “run into some
significant technical difficulty that would require a short extension of that time, then you best file a
motion, serve it on counsel, and you better have some expert computer people signing off on it.... I am
not going to have any of this chicanery here.” Id. at 17. While acknowledging that he had bent over
backward to be fair, id. at 21, Judge Ezra quite explicit: “Warning: Next sanction, judgment for the
plaintiff.” Id. at 17. Minutes of that proceeding were filed that day and a written Order (#219) was
issued on August 24, 2009. On August 25, 2009, the CWC defendants took the database offline to make
the copy, and the copy was made on September 4, 2009.
Immediately following Judge Ezra’s Order (#219), the CWC defendants filed an Emergency
Motion to Amend Protective Order (#221), which this court granted on December 7, 2009. The
Protective Order (#233) was entered on December 21, 2009. The CWC defendants produced the
database on December 29, 2009. On April 15, 2010, plaintiffs’ expert, Chris Beall, received a sealed
copy of the database from plaintiffs’ counsel, Craig A. Marquiz. Beall Aff., Exh. A to Doc. (#240) at
¶ 6. Before he could access the database and analyze its contents, Beall needed certain information,
such as what version of Oracle had been used, which Marquiz obtained from defense counsel, Jacob A.
Reynolds. After accessing the drive, Beall opened the README file for instructions. The file
contained three lines of text. Id. at 4. Because Beall had expected more information, he contacted
Marquiz to determine if defendants had provided any other instructions. Marquiz confirmed that
defense counsel advised that everything necessary to access the database was in the README file.
Beall examined the database and concluded that it had been altered, modified, manipulated, or otherwise
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contained errors. Beall Aff., Exh. A to Doc. (#240) at ¶ 59. Beall based this opinion, at least in part,
on various error messages that were generated as the result of certain queries. He stated, for example,
that “based upon my ability to extract a portion of data from the CUSTOMER table without obtaining
the . . . error messages, I can conclude to a reasonable degree of scientific certainty that the CWC
defendants CUSTOMER table has been altered, modified, manipulated or otherwise contains errors.”
Id. at ¶ 59. In his opinion, absent alteration, modification, manipulation or errors, his queries would have
generated responsive data absent the error messages. Id. at ¶ 60.
Marquiz sent a letter to Reynolds dated May 26, 2010, explaining, “the database behaves as if
the two most important tables in the database have been manipulated or tampered with. For example,2
the database will not allow us to print out or query the table for the players’ accounts. As a result, we
cannot obtain from the database information such as wagering histories and IP addresses that would
allow us to identify and quantify wagers that were made by players in the United States.” Exh. C to Dkt.
(#240). Marquiz stated that plaintiffs had done their best to eliminate possible alternatives that might
explain the behavior of the database, and wanted “to give your client an opportunity to explain what is
wrong with the database produced to us, and if there is some crucial configuration information that your
client has withheld from us, to give them an opportunity to disclose it.” Id. On May 27, 2010, Reynolds
responded that he was scheduling an appointment with Piche to discuss the matter and further
suggested, “If your expert is Oracle certified then that would eliminate some of the concerns and we
might have to visit the issue.” Exh D. to Dkt. (#240). Marquiz replied that day, noting that Reynolds
had failed to address the questions raised in Marquiz’s letter. Reynolds responded with a link to a
Wikipedia page about Oracle certification and asked once more whether Beall had Oracle database
certification. Id.
Unable to obtain helpful information from the CWC defendants, plaintiffs addressed the issue
These are the CUSTOMERID and USERSESSION tables, which are located in an offline file named,2
“user12.dbf.”
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with Judge Ezra during a telephonic status conference on July 28, 2010. There, plaintiffs expressed
concern that the CWC defendants’ database appeared to have been altered, modified, manipulated or
produced with errors. Judge Ezra referred the matter to the undersigned. Thereafter, plaintiffs filed
their Request for an Expedited Status Conference/Evidentiary Hearing Regarding the CWC Defendants’
Database (#241) on August 5, 2010, in which they asked the court to schedule a hearing regarding
possible alteration, modification, manipulation or errors within the CWC defendants’ database.
On August 13, 2010, the CWC defendants filed a Response (#243), wherein they explained for
the first time that the database did contain errors, allegedly resulting from a power failure that occurred
while the servers were writing data and/or resulting from several instances when the Oracle database
ran out of disk space while writing to its disk drives. Ech. 3 to Response (#243), Piche Decl. at ¶ 5.
Because defendants had been advised by counsel to not alter or modify the database in anyway, the
database was produced with errors in it. According to Piche, the errors are not the result of tampering
but are resident in the database that is used by CWC, “including an error or errors related to the
CUSTOMER table. According to Piche, the server was down for a few days in early August 2009, then
brought back online until taken offline again on August 25, 2009, to make the mirror image copy
ordered by the court. Piche contends that relevant data could still be extracted using appropriate3
queries, and he provided purported examples of such queries.
Plaintiffs maintain, however, that the database is searchable only if “you limited your search,
for example, to certain partial incomplete searches of only a limited number of records.” Brief (#260)
at 5. This because an “offline” file, user12.dbf, has made certain files inaccessible. Plaintiffs further
doubt that defendants produced a copy of their actual production database, because they find it
incredible that the CWC defendants were using the corrupted database from August 9, 2009 through
August 25, 2009 as Piche claims. The CWC defendants assert that plaintiffs’ call for sanctions is
nothing more than gamesmanship, and “plaintiffs have never seriously been seeking to obtain discovery
Beall determined that the server crashed on August 5, 2009. Brief (#260) at 7. Piche testified that it worked as3
a production database from August 9, 2009 through August 25, 2009. Tr. (#259) at 112-113.
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of facts necessary to their case.” Brief (#261) at 2. The CWC defendants further maintain that they
have not acted in bad faith, insofar as they produced the drive with errors native to it, in compliance
with the Federal Rules and the court’s order. Finally, the CWC defendants maintain that relatively few
files – approximately 1.4% – are inaccessible and are thus “simply not consequential enough to alter
the outcome of the action.” Id. at 3.
DISCUSSION
If a party “fails to obey an order to provide or permit discovery ... the court where the action is
pending may issue further just orders,” including, (i) directing that the matters embraced in the order
or other designated facts be taken as established for purposes of the action, as the prevailing party
claims; (ii) prohibiting the disobedient party from supporting or opposing designated claims or defenses,
or from introducing designated matters in evidence; (iii) striking pleadings in whole or in part; (iv)
staying further proceedings until the order is obeyed; (v) dismissing the action or proceeding in whole
or in part; (vi) rendering a default judgment against the disobedient party; or (vii) treating as contempt
of court the failure to obey any order except an order to submit to a physical or mental examination.
Fed.R.Civ.P. 37(b)(2)(A).
A district court also has inherent power to sanction a party or attorney for acting in bad faith,
vexatiously, wantonly, or for oppressive reasons. Chambers v. Nasco, Inc., 501 U.S. 32, 45-46 & n.10
(1991); Roadway Express, Inc. v. Piper, 447 U.S. 772, 766 (1980); F.J. Hanshaw Enter., Inc. v.
Emerald River Dev., Inc., 244 F.3d 1128, 1136-1137 (9th Cir.2001); Fink v. Gomez, 239 F.3d 989, 991
(9th Cir. 2001). “[W]hen there is bad-faith conduct in the course of litigation that could be adequately
sanctioned under the Rules, the court ordinarily should rely on the Rules rather than its inherent power.
But if in the informed discretion of the court, neither the statute nor the Rules are up to the task, the
court may safely rely on its inherent power.” Chambers, 501 U.S. at 50 (holding that the district court
did not abuse its discretion in imposing sanctions under its inherent power where conduct sanctionable
under the federal rules “was intertwined with conduct that only the inherent power could address”).
Cases involving sanctions under Rule 37 and the court’s inherent power may be used “interchangeably.”
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Adriana Int’l Corp. v. Thoeren, 913 F.2d 1406, 1412 n. 4 (9th Cir.1990), cert. denied, 498 U.S. 1109
(1991). Because a terminating sanction is severe, it may be justified only where there is “wilfulness,
bad faith, and fault.” Jorgensen v. Cassiday, 320 F.3d 906, 912 (9th Cir. 2003). “‘Disobedient conduct
not shown to be outside the control of the litigant’ is all that is required to demonstrate willfulness, bad
faith or fault.’”Henry, 983 F.2d at 948.
A. Whether the CWC Defendants Have Wilfully Violated the Court’s Orders
The CWC defendants acknowledge that the database contained errors. They represent, however,
that the database was produced with errors in it because counsel had directed them not to alter or modify
the database in any way. According to Piche, the errors were not the result of tampering; rather, they
were resident in the database and resulted from one or more separate events, including a crash that
occurred sometime in early August 2009, when the server lost power while writing to the disk drives.
Plaintiffs’ expert, Beall, determined that the crash occurred on August 5, 2009, within four hours of
Judge Ezra’s order to produce the database, and within three hours of the electronic filing of the minutes
of the August 5, 2009 hearing and notification of the minutes of the hearing. See Brief (#260) at 7.
The source of the alleged power failure is something of a mystery, but the CWC defendants
admit that the server was down until August 9, 2009. At the February 15, 2011 hearing, Piche
confirmed that the server, which is located in Costa Rica, was connected to a UPS battery backup power
supply, which was connected to a stand alone power generator, and the generator was connected to the
city’s power grid. The UPS backup alone was capable of supplying power to the servers for two hours,
but if necessary, the generator could supply ten hours of power when fully fueled.
Piche admitted, however, that there was no general power outage in Costa Rica on August 5,
2009. Nor did the UPS malfunction. Apparently, “all of [the CWC defendants’] other computers and
systems continued to operate normally.” Tr. (#259) at 120. Piche represented that the CWC defendants
contacted the vendor of the equipment, but the vendor could not find any defect that would have caused
the server to lose power. Piche had not experienced this issue with any similar equipment. He further
testified, “A second reason [defendants think an internal power failure occurred] is that there are
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actually some -- some kind of internal log files in the storage area network that I’m not -- I’m not
personally -- I don’t have an expert level of familiarity with them, but there are some log files inside this
storage area network that we looked at, which suggested to us that this had happened. As a matter of
fact, I believe that -- it’s been awhile, but if I recall correctly I think it was also -- I think our
interpretation of the log files was confirmed by Pillar Data, although we couldn’t figure out why it had
happened. [] Which is why they ended up sending the replacement part.” Tr. (#259) at 120.
Courts have the inherent discretionary power to make appropriate evidentiary rulings in response
to the destruction or spoliation of relevant evidence. See Glover v. BIC Corp., 6 F.3d 1318, 1329 (9th
Cir.1993). Common sense dictates that “when a party has relevant evidence within his control which
he fails to produce, that failure gives rise to an inference that the evidence is unfavorable to him.” Int’l
International Union, United Auto., Aerospace and Agr. Implement Workers of America (UAW) v.
N.L.R.B., 459 F.2d 1329, 1335 (9th Cir. 1972). The court also has the inherent power to sanction a party
for destroying relevant evidence which it knows or should have known it had a duty to preserve even
absent a preservation order. Leon v. IDX Syst. Corp., 464 F.3d 951, 958-59 (9th Cir. 2006).
Here, one reasonably would expect the CWC defendants to promptly notify plaintiffs and/or the
court of the alleged four day long equipment failure and damage to the server, particularly in light of
Judge Ezra’s express warning that the court would consider any manipulation of the data in any way,
shape or form, not only a civilly punishable matter, but a criminally contemptible matter that would
amount to obstruction of justice. Yet, the CWC defendants did not mention the alleged corrupting event
when it occurred on August 5, 2009; nor in connection with their September 2, 2009 motion to amend
protective order; nor in their communication with plaintiffs in May 2010, as plaintiffs attempted to
ascertain what the problem was with the database; nor even during the July 28, 2010 status conference
with Judge Ezra. The first mention of such an event came when they filed their Response (#243) to
plaintiffs’ Request for a Status Conference (#241), over a year after the power failure allegedly occurred.
This despite plaintiffs’ continued complaints and Judge Ezra’s instructions that if anything should go
wrong, defendants better let the court know about it, complete with “computer people” signing off.
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Even if the court were to assume that the four-day power failure, which began within hours of
Judge Ezra’s August 5, 2009 order to produce the database, was a complete coincidence, the CWC
defendants engaged in wasteful and needless gamesmanship by repeatedly chiding plaintiffs for their
choice of expert, and not revealing the alleged power failure until filing its Response (#243) to the
motion now before the court. The court need not pause, however, over the prospect that the alleged
power failure was a mere coincidence.
At the evidentiary hearing, the CWC defendants produced several expert witnesses, including
one in Belarus, to testified telephonically regarding the importance of the offline file, the extent of data
it affected, and the ability to recover data. What they didn’t do was produce a single witness or
declaration from anyone other than Piche to substantiate the power failure story. The CWC defendants’
own expert did testify, however, that data loss can be caused by a “hard shutdown,” such as where “you
pull the plug from the wall.” Tr. (#259) at 51. With that kind of shutdown, the “disks literally stop in
their tracks,” so “a file may remain offline because of the fact it was shutdown hard.” Id. at 51, 48.
Although Piche admitted he did not have the expertise to explain the issue, he testified it was
his belief that the defendants’ interpretation of a sudden internal power failure was confirmed by Pillar
Data. Yet the defendants provided no expert witness or declaration from such an expert or technician
from Pillar Data. Nor did they produce any witness other than Piche to describe or elaborate on the
alleged power failure. Notably, Piche was nowhere near the equipment in Costa Rica on August 5,
2009; he was in Vancouver, British Columbia at the time of the alleged equipment failure. Nor did
defendants offer witnesses or evidence to explain what might cause such a sudden failure. While
defendants’ invoices demonstrate that a consultation occurred on August 7, 2009, they do not state what
the consultation concerned. See Brief (#261) at Ech. L. Given the unexplained failure of the CWC
defendants to produce live witnesses or even written declarations concerning the alleged power failure,
the court infers that such testimony, if produced, would be unfavorable to them. Sparkman v. C.I.R.,
509 F.3d 1149, 1156 (9th Cir. 2007) (“Where the burden of production rests on a party, a court may,
at its discretion, presume or infer from that party’s failure to call a witness that the testimony the witness
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would have offered would not favor that party.”); see also Underwriters Labs. Inc. v. NLRB, 147 F.3d
1048, 1054 (9th Cir.1998) (same).
Based on the foregoing facts and circumstances and the reasonable inferences to be drawn
therefrom, the court finds that the CWC defendants’ efforts to blame its corrupted server on a
coincidental and sudden power failure on August 5, 2009 are unsupported by credible evidence. The
court further finds that the CWC defendants took some deliberate action on August 5, 2009, to
intentionally corrupt the server at issue in willful defiance of this court’s orders. The defendants’
argument that they produced a copy of the database as it existed on the date it was copied, September
4, 2009, simply sidesteps the central issue of the circumstances surrounding the August 5, 2009
corrupting event. Moreover, that “only 1.4%” of the files are inaccessible does not ameliorate the issue,
inasmuch as it is unknown what import the inaccessible data has in this case. See Leon v. IDX Sys.
Corp., 464 F.3d at 960 (“any number of the 2,200 [spoliated] files could have been relevant to IDX’s
claims or defenses, although it is impossible to identify which files and how they might have been
used.”). The court further finds that the CWC defendants’ noncompliance with the discovery rules and
court orders was willful or in bad faith because they knowingly made false statements of material fact
to plaintiffs and to the court to conceal their actions. Cf. Anheuser-Busch, Inc. v. Natural Beverage
Distrib., 151 F.R.D. 346, 351-353 (N.D. Cal.1993) (dismissing a counterclaim as a sanction for willful,
bad faith violation of discovery rules where, among other things, the defendant was aware that some of
her business records had survived a warehouse fire in legible form and falsely testified about her
knowledge of those documents, their existence, and their condition).
B. Whether Terminating Sanctions Are Appropriate
In determining whether to impose a case dispositive sanction, the court applies a non-
mechanical five factor test: (1) the public’s interest in expeditious resolution of litigation; (2) the court’s
need to manage its docket; (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.
Connecticut Gen. Life Ins. Co. v. New Images of Beverly Hills, 482 F.3d 1091, 1096 (9th Cir.2007); see
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Valley Eng’rs Inc. v. Elec. Eng’g Co., 158 F.3d 1051, 1056-1057 (9th Cir.1998), cert. denied, 526 U.S.
1064 (1999). The first two factors favor the imposition of sanctions, while the fourth factor cuts against
a dismissal or default sanction in most cases. Thus, the key factors are the third and fifth factors –
prejudice and the availability of lesser sanctions. Henry v. Gill, 983 F.2d 943, 948 (9th Cir. 1993) (citing
Wanderer v. Johnson, 910 F.2d 652, 656 (9th Cir.1990)); see also Computer Task Group, Inc. v. Brotby,
364 F.3d 1112, 1115 (9th Cir. 2004) (“Where a court order is violated, the first and second factors will
favor sanctions....”).
The first factor clearly favors imposing a sanction of dismissal or default. This action was filed
in May 2005, discovery commenced in November 2006, plaintiffs first motion to compel (#147) on this
issue was filed in July 2007. The court’s Order (#154) granting that motion was filed in February 2008.
The CWC defendants have yet to comply with that order, despite repeated attempts by plaintiffs and the
court to obtain their compliance. Rather, the CWC defendants’ disingenuousness, dishonesty, disregard
of discovery obligations, and disobedience of court orders undeniably have frustrated the interest in
orderly and expeditious resolution of this litigation. See Pagtalunan v. Galaza, 291 F.3d 639, 642 (9th
Cir. 2002), cert. denied, 538 U.S. 909 (2003); see In re PPA Products Liab. Litig., 460 F.3d at 1227
(“Orderly and expeditious resolution of disputes is of great importance to the rule of law. By the same
token, delay in reaching the merits ... is costly in money, memory, manageability, and confidence in the
process.”).
The court’s need to manage its docket likewise favors imposition of default. See Ferdik v.
Bonzelet, 963 F.2d 1258, 1261 (9th Cir. 1992) (noting that “[i]t is incumbent upon us to preserve the
district courts’ power to manage their dockets without being subject to the endless vexatious
noncompliance of litigants” like the plaintiff in that case), cert. denied, 506 U.S. 915 (1992).
Defendants’ ongoing noncompliance with its discovery obligations and this court’s discovery orders left
plaintiffs with little choice but to bring successive, meritorious motions and the court to conduct
repeated status conferences and hearings in an attempt to gain their compliance and deter further
noncompliance. Hence defendants’ conduct needlessly congested the court’s docket, consumed scarce
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judicial resources, and multiplied the proceedings in this case. Payne v. Exxon Corp., 121 F.3d 503,
507 (9th Cir.1997).
A party suffers prejudice if its opponent’s actions “impair [its] ability to go to trial or threaten
to interfere with the rightful decision of the case.” Adriana Int'l Corp., 913 F.2d at 1412 (holding that
the plaintiff's repeated failure to appear at depositions and continuing refusal to comply with
court-ordered production of documents interfered with the rightful decision of the case and therefore
was prejudicial) (citing S.E.C. v. Seaboard Corp., 666 F.2d 414, 417 (9th Cir.1982)); see In re Exxon
Valdez, 102 F.3d at 433 (holding that the plaintiffs’ failure to respond to discovery and the time
consumed in attempting to secure compliance prejudiced defendants). “Standing alone, failure to
produce documents as ordered is considered sufficient prejudice to justify” a terminating sanction. See
Anheuser-Busch, Inc., 151 F.R.D. at 347, 353-354 (affirming Rule 37 dismissal sanction where the
defendant failed to produce relevant documents until two months before trial) (quoting Adriana Int'l
Corp., 913 F.2d at 1412); see also Adriana Int'l Corp., 913 F.2d at 1411-1412 (affirming dismissal
sanction under Rule 37 due to the plaintiffs’ willful “continuing refusal” to comply fully with orders
for the production of documents).
When considering prejudice, the court may consider a party’s conduct as a whole throughout the
discovery process. Adriana Int'l Corp., 913 F.2d at 1412. The record in this case demonstrates a
consistent pattern of discovery delay and obstruction by the CWC defendants directed at preventing
plaintiffs from obtaining relevant evidence. Defendants’ dilatory and obstructive discovery conduct
began with their failure to produce documents in response to plaintiffs’ requests for production in 2007,
and they have willfully violated the court’s production orders since that time. See In re PPA, 460 F.3d
at 1227 (“The law also presumes prejudice from unreasonable delay.”). Any number of files, now
inaccessible due to defendants’ willful obstruction, could have been relevant to the litigation, although
now it isn’t possible to determine which files and how they affect other relevant data resident on the
database. See Leon, 464 F.3d at 960 (citing United States ex rel. Wiltec Guam, Inc. v. Kahaluu Constr.
Co., 857 F.2d 600, 604 (9th Cir.1988). Defendants’ continuing refusal to comply with court-ordered
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production, defendants’ evasions, and defendants’ corruption of the database clearly have interfered
with the rightful decision in this case. Adriana Int'l Corp., 913 F.2d at 1412.
The fourth factor – the public policy favoring disposition of cases on their merits – usually
weighs against a terminating sanction. Pagtalunan, 291 F.3d at 643 (citing Hernandez v. City of El
Monte, 138 F.3d 393, 399 (9th Cir.1998)). “Although there is indeed a policy favoring disposition on
the merits, it is the responsibility of the [nonmoving] party to move towards that disposition at a
reasonable pace, and to refrain from dilatory and evasive tactics.” In re Eisen, 31 F.3d 1447, 1454 (9th
Cir.1994) (quoting Morris v. Morgan Stanley & Co., 942 F.2d 648, 652 (9th Cir.1991)). Because the
CWC defendants have flouted that responsibility through their ongoing obfuscation and dilatory
discovery tactics, the court finds that this factor weighs neither against nor for terminating sanctions.
As for the availability of lesser sanctions, the record in this case reflects that such sanctions have
not been successful in reforming defendants’ conduct. Defendants have continued to engage willfully
in dilatory and obstructive discovery tactics. While a sanction of dismissal would be unfair where a
party could not have realized it was in jeopardy of such a severe sanction, Valley Eng’rs, 158 F.3d at
1057, here the CWC defendants were warned by both the undersigned Magistrate Judge and the
presiding District Judge that they were on the verge of a dismissal sanction. The court previously found,
“the CWC defendants have abused the discovery process through a pattern of delay, evasiveness and
non-compliance with this court’s orders.” Order (#210) at 9. The court further explained in its Order
(#210), “if the CWC defendants had previously been handed less severe sanctions for their failure to
produce, one or more of the harsh evidentiary sanctions authorized by Rule 37(b) would now be
appropriate.” Id. Thus, in the interest of fairness, the court declined to impose one of the harsher Rule
37(b) sanctions but warned that a continued failure to comply with the court’s orders or to respond fully
to plaintiffs’ discovery requests “will invite the type of sanction plaintiffs currently seek.” Id. Judge
Ezra also made clear at the August 5, 2009 hearing, that should the CWC defendants continue on a path
of evasiveness and chicanery the next step would be “judgment for the plaintiff.” Despite these prior
warnings and sanctions, the CWC defendants continued their pattern of delay and non-compliance,
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evidencing that lesser sanctions have had little to no effect on defendants’ behavior in this case. There
is no reason to expect the CWC defendants would respond any more satisfactorily to another round of
intermediate sanctions and warnings. Henry, 983 F.2d at 948.
Any sanction imposed under Rule 37(b) or the court's inherent power must be “just” and, in
order to comport with due process principles, must specifically relate to the particular claim or defense
that was at issue in the order to provide discovery. The Sunrider Corp. v. Bountiful Biotech Corp., 2010
WL 4590766 at *32 (C.D. Cal. Oct. 8, 2010) (citing Ins. Corp. of Ireland, Ltd. v. Compagnie des
Bauxite de Guinee, 456 U.S. 694, 707 (1982)). When a party’s failure or inability to comply with a
pretrial discovery order was caused “by its own conduct [or] by circumstances within its control,” the
court may strike the party’s answer and render a default judgment as a sanction, consistent with due
process, because a permissible presumption [arises] that the refusal to produce material evidence “was
but an admission of the want of merit in the asserted defense.” See Adriana Int’l Corp., 913 F.2d at
1413 n.6. “A proper application of Rule 37(b)(2) will, as a matter of law, support such a presumption.”
Sunrider Corp., 2010 WL 4590766 at *32 (quoting Ins. Co. of Ireland, Ltd., 456 U.S. at 706). That
presumption is applicable in this case, making entry of a default judgment just, as well as consistent
with due process principles.4
RECOMMENDATION
Based on the foregoing, it is the recommendation of the undersigned United States Magistrate
Judge that plaintiffs’ motion for terminating sanctions should be granted, the CWC defendants’ answer
should be stricken and a default judgment should be entered against the CWC defendants.
DATED this 12th day of August, 2011.
LAWRENCE R. LEAVITTUNITED STATES MAGISTRATE JUDGE
Plaintiffs request additional relief pursuant to 35 U.S.C. §§271 and 285, and an order allowing the plaintiffs to4
submit information regarding recovery of attorneys’ fees. Brief (#260) at 20-24. Those issues are not properly before the
court at this time, and are therefore not considered in this report and recommendation.
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