Origami Owl, LLC v. Palmer
Origami Owl, LLC v. Palmer
2013 WL 12092565 (D. Ariz. 2013)
April 16, 2013
Bolton, Susan R., United States District Judge
Summary
The Plaintiff alleges that the Defendants intentionally destroyed evidence that was relevant to the litigation, which was supported by deposition testimony and emails from a former South Hill employee. The facts suggest that the Defendants knew about the lawsuit and destroyed evidence that they knew would be relevant to the case.
Origami Owl, LLC, Plaintiff,
v.
Riley Palmer; Brian Palmer; Tamara Ochoa; Joseph Ochoa; Steffani Brown; Marty Brown; South Hill Design Corp., Defendants
v.
Riley Palmer; Brian Palmer; Tamara Ochoa; Joseph Ochoa; Steffani Brown; Marty Brown; South Hill Design Corp., Defendants
No. CV-12-02290-PHX-SRB
Signed April 16, 2013
Counsel
E. Jeffrey Walsh, Peter W. Sorensen, Katherine V. Brown, Greenberg Traurig LLP, Frank Garrett Long, Dickinson Wright PLLC, Phoenix, AZ, for Plaintiff.Erik John Stone, William D. Holm, Jones Skelton & Hochuli PLC, Phoenix, AZ, for Defendants.
Bolton, Susan R., United States District Judge
ORDER
*1 At issue is Plaintiff's Motion for Sanctions for Spoliation (“Pl.'s Mot.”) (Doc. 74).
I. BACKGROUND
Plaintiff brings this case to address what it avers are Defendants' unfair business practices that have resulted in, among other things, Defendants allegedly infringing Plaintiff's copyrighted materials. (See Doc. 89, Am. Verified Compl. & Appl. for Prelim. & Permanent Inj. (“FAC”) ¶¶ 22-30.) Plaintiff is a jewelry company that sells through “the Direct Sales Party Plan Model” in which individuals sign up to become “Independent Designers” that purchase products from Plaintiff to sell at “home parties or the like.” (Id. ¶ 11.) Its jewelry is all customizable through a five-step process that allows customers to select (1) a locket, (2) “a chain on which to hang the locket,” (3) a “plate” with a saying stamped on it to go in the locket, (4) “charms to insert inside the locket,” and (5) “a ‘dangle,’ which is a small object or bead that hangs from the chain with the locket.” (Id. ¶ 12.) Plaintiff “has registered copyrights on more than 200 charm designs and claims copyrights on the majority [of its 300 charm designs.]” (Id. ¶ 13.)
Defendant Riley Palmer became an “Independent Designer” for Origami Owl in February 2012. (Id. ¶ 14.) As part of the process for becoming an Independent Designer, Palmer agreed to Plaintiff's “Designer Agreement Terms and Conditions” and “Origami Owl, LLC. Policies & Procedures,” which informed her that certain of Plaintiff's materials were protected by intellectual property laws and that upon termination of the agreement, Palmer would not be allowed to use those materials or to disclose her “customer and consultant lists.” (Id. ¶¶ 14-18.) Palmer terminated her agreement with Plaintiff on September 25, 2012. (Id. ¶ 21.)
Plaintiff alleges that prior to that termination, “Defendants commissioned a foreign company to replicate Origami Owl's Living Locket™ product, including its lockets, chains, plates, charms and dangles.” (Id. ¶ 22.) It further alleges that “[o]n or around October 19, 2012 Origami owl discovered that Defendants and others were selling and/or preparing to sell via the direct sales model utilized by Origami Owl, products almost identical to Origami Owl's signature lockets, including copyrighted materials, through a new company called South Hill Designs Corp.” (Id. ¶ 23.) Plaintiff subsequently brought this lawsuit bringing causes of action for copyright infringement under 17 U.S.C. § 501, unfair competition under 15 U.S.C. § 1125(a), common law unfair competition, civil conspiracy, and breach of contract (against only Riley Palmer), and seeking a preliminary and permanent injunction against all Defendants. (Id. ¶¶ 31-65.) Plaintiff brings the present motion seeking “sanctions against Defendants for intentionally destroying and otherwise failing to preserve evidence that they knew would be relevant to this matter.” (Pl.'s Mot. at 1.)
II. LEGAL STANDARDS AND ANALYSIS
A. Spoliation of Evidence
Spoliation is “ ‘the destruction or material alteration of evidence or ... the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation.’ ” Apple Inc. v. Samsung Elecs. Co., Ltd., 888 F. Supp. 2d 976, 989 (N.D. Cal. 2012) (quoting Silvestri v. Gen. Motors Corp., 271 F.3d 583, 590 (4th Cir. 2001)). The Ninth Circuit Court of Appeals has not clearly defined when the duty to preserve evidence arises, but courts have generally found the duty to arise when a party “knows or should know that certain evidence is relevant to pending or future litigation.” Surowiec v. Capital Title Agency, Inc., 790 F. Supp. 2d 997, 1005 (D. Ariz. 2011); see also Lewis v. Ryan, 261 F.R.D. 513, 518 (S.D. Cal. 2009) (“Federal courts have recognized a party's duty to preserve evidence when it knows or reasonably should know the evidence is relevant and when prejudice to an opposing party is foreseeable if the evidence is destroyed.”); Marceau v. Int'l Broth. of Elec. Workers, 618 F. Supp. 2d 1127, 1174 (D. Ariz. 2009) (“The duty to preserve material evidence arises not only during litigation but also extends to that period before the litigation when a party reasonably should know that the evidence may be relevant to anticipated litigation.” (quotation omitted)); In re Napster, Inc. Copyright Litigation, 462 F. Supp. 2d 1060, 1068 (N.D. Cal. 2006) (“The duty to preserve documents attaches when a party should have known that the evidence may be relevant to future litigation.” (quotation omitted)).
*2 Courts have the inherent authority to “sanction a party who has despoiled evidence.” Leon v. IDX Sys. Corp., 464 F.3d 951, 958 (9th Cir. 2006). Possible sanctions for spoliation include dismissing the case or allowing the finder of fact to draw an adverse inference from the destruction of evidence. See id. (dismissal); Akiona v. United States, 938 F.2d 158, 161 (9th Cir. 1991) (adverse inference). Dismissal is proper only “when ‘party has engaged deliberately in deceptive practices that undermine the integrity of judicial proceedings.’ ” Leon, 464 F.3d at 958 (quoting Anheuser-Busch, Inc. v. Natural Beverage Distribs., 69 F.3d 337, 348 (9th Cir. 1995)). Destruction of evidence is deliberate “if the party has ‘some notice that the documents were potentially relevant to the litigation before they were destroyed.’ ” Id. at 959 (quoting United States v. Kitsap Physicians Serv., 314 F.3d 995, 1001 (9th Cir. 2002)). To justify an adverse inference, many courts in the Ninth Circuit have required evidence of a “culpable state of mind”; however, the Ninth Circuit Court of Appeals has specifically stated that “a finding of ‘bad faith’ is not a prerequisite to [allowing an adverse inference].” Glover, 6 F.3d at 1329; see also Apple, 888 F. Supp. 2d at 989-90 (gathering cases from courts in the Ninth Circuit that have borrowed a standard from the Second Circuit Court of Appeals that requires evidence of a “culpable state of mind” to justify an adverse inference); In re Napster, 462 F. Supp. 2d at 1066-67 (“A party's destruction of evidence need not be in ‘bad faith’ to warrant a court's imposition of sanctions.... However, a party's motive or degree of fault in destroying evidence is relevant to what sanction, if any, is imposed.”)[1]
B. Analysis
As a preliminary matter, the parties dispute when the duty to preserve evidence arose in this case. (See Pl.'s Mot. at 5-6 (arguing that it arose as early as “the moment [Defendants] set out to recreate what Origami Owl had already created” or at the latest “in August 20[12], once they exchanged correspondence with their counsel regarding their concerns of potential liability”); Doc. 80, Defs.' Resp. to Pl.'s Mot. (“Defs.' Resp.”) at 9-10 (arguing that the duty arose on October 26, 2012, the day Plaintiff filed this lawsuit).) The Court need not determine when exactly the duty arose because the facts raise the reasonable inference that Defendants' actions were taken out of concern for future litigation. In other words, the facts show that Defendants knew that certain evidence would be relevant in future litigation, which is sufficient to attach the duty to preserve. See Surowiec, 790 F. Supp. 2d at 1005.
Plaintiff's argue that Defendants willfully destroyed evidence based on the deposition testimony and e-mails provided by former South Hill employee Tiana Hulse, as well as Defendants Brian Palmer's and Joseph Ochoa's deposition testimony concerning their use of laptops provided by a previous employer to conduct business related to South Hill. (See Pl.'s Mot. at 2-4.) “Tiana Hulse worked for South Hill from September 24, 2012 through December 5, 2012.” (Id. at 2 (citing Pl.'s Mot, Ex. 2, Deposition of Tiana Hulse (“Hulse Dep.”) at 4, 81).)[2] Hulse testified that she used Origami Owl materials as references or guides for developing informational materials for South Hill. (Hulse Dep. at 58, 61-67, 204-07.) She further testified that after Defendants had received service of process in this case on October 26, 2012, Defendant Brian Palmer “told [her] that everything that was Origami Owl related needed to be removed from the office and also deleted from our computers.” (Id. at 68.) She also testified that Defendant Joe Ochoa sent her an e-mail on October 19, 2012 stating that “All [Origami Owl] stuff needs to be deleted.” (Id. at 69.)[3]Brian Palmer testified that South Hill did not have a document retention policy, but that it was “obvious” to employees that they should save all e-mails. (Pl.'s Mot., Ex. 4, Dep. of Brian Palmer at 49-50.)
*3 Taken together, this testimony shows that Defendants improperly destroyed evidence that was relevant to this case. The fact that Defendants ordered Hulse to remove Origami Owl documents from the office, including from office computers, the same day they were served with this lawsuit shows that Defendants' both knew about the lawsuit and intentionally destroyed evidence that they knew would be relevant to the litigation. Moreover, Brian Palmer's testimony that South Hill did not have a document retention policy and that he expected employees to keep all e-mails shows that the removal of Origami Owl documents was not done in the normal course of business. The Court finds that Defendants willfully failed to preserve evidence that was potentially relevant to this case.[4]
Plaintiff also argues that Defendants Brian Palmer and Joseph Ochoa failed to preserve evidence that was on laptops that they used while forming South Hill. (Pl.'s Mot. at 3-4.) Those laptops belonged to their former employer, Cisco Systems. (Defs.' Resp. at 4.) Palmer returned his laptop to Cisco without incident and Cisco provided no documents from that computer in response to a subpoena. (Pl.'s Mot. at 4; Defs.' Resp. at 5.) Defendants argue that Plaintiff is seeking sanctions merely because it is upset that Cisco did not produce any documents. (Defs.' Resp. at 5.) The lack of discovery production is the basis for Plaintiff's argument that Palmer must have deleted documents; however, in its Response to Plaintiff's subpoena, Cisco objected to all of Plaintiff's document requests on multiple grounds. (See id., Ex. D, Cisco Systems, Inc's Objections & Resps. to Pl.'s Subpoena in a Civil Case.) Since there is no evidence that Plaintiff has sought more evidence from Cisco by challenging Cisco's objections, the Court can conclude only that Cisco did not produce any documents, not that none exist. Since the Court cannot say with any certainty that there were no documents on Palmer's laptop, the Court cannot conclude that Palmer improperly deleted relevant evidence from the laptop. Accordingly, the Court will not impose sanctions in this regard.
Joseph Ochoa testified at his deposition that he gave his laptop to Palmer to return to Cisco, but that the laptop was stolen from Palmer's unlocked car while Palmer was eating lunch. (See Defs.' Resp., Ex. F, Dep. of Joseph Ochoa at 18.) Plaintiff implies that this story is a fabrication meant to prevent it from discovering relevant information from the laptop. (See Pl.'s Mot. at 4.) While the robbery story is not entirely logical,[5] there is not sufficient evidence for the Court to conclude that it was probably fabricated, so sanctions are not warranted.
C. Sanctions
*4 Plaintiff requests that the Court “bar Defendants from offering testimony or evidence that they did NOT set out to and copy [Plaintiff's] products, documents, photos, web page, marketing platform, or business methods, etc.” (Pl.'s Mot. at 10.) The Court will not go so far. Plaintiff's request amounts to a request for entry of default, since barring Defendants from offering testimony that they did not do what Plaintiff alleges effectively bars them from presenting any defense at all. While the Court has found that Defendants actions were willful, it believes that less drastic sanctions would rectify any harm Plaintiff may have suffered. See Leon, 464 F.3d at 958 (stating that courts should consider less drastic sanctions before dismissing a case for spoliation of evidence). The Court will instruct the fact finder that it may infer that Defendants destroyed documents that tended to show that Defendants infringed Plaintiff's copyrights, engaged in unfair competition, and formed a civil conspiracy, and that Riley Palmer breached her contract with Plaintiff.
III. CONCLUSION
The Court finds that Defendants knowingly destroyed evidence relevant to this case by ordering an employee to remove all Origami Owl documents from South Hill's offices and computers. The Court invokes its inherent authority and sanctions Defendants for their improper actions instructing the fact finder that it may infer that Defendants destroyed evidence that tended to show that they infringed Plaintiff's copyrights, engaged in unfair competition, formed a civil conspiracy, and that Riley Palmer breached her contract with Plaintiff.
IT IS ORDERED granting in part and denying in part Plaintiff's Motion for Sanctions for Spoliation (Doc. 74).
Dated this 16th day of April, 2013.
Footnotes
Some cases have suggested that there is a difference between having “a culpable state of mind” and bad faith. See, e.g., Lewis, 261 F.R.D. at 522. Those cases state that a party has a culpable state of mind if it knew or should have known that the evidence was potentially relevant. See id. The Court does not believe it is possible that a party could know that evidence was relevant, fail to preserve it or actively destroy it, but not have acted in bad faith. Moreover, the Ninth Circuit Court of Appeals has suggested that a court may allow an adverse inference as a sanction for the accidental loss of evidence. See Med. Lab. Consultants v. Am. Broad. Cos., Inc., 306 F.3d 806, 824 (9th Cir. 2002) (“When relevant evidence is lost accidentally or for an innocent reason, an adverse evidentiary inference from the loss may be rejected.” (emphasis added)). Therefore, even if there is a difference between a culpable mind state and bad faith, the difference is irrelevant for determining whether an adverse inference is warranted.
Defendants also attach portions of Hulse's deposition testimony to their Response and Plaintiff attaches additional excerpts to its Reply. (See Defs.' Resp., Ex. A; Doc. 81, Pl.'s Reply in Supp. of Pl.'s Mot. (“Pl.'s Reply”), Ex. 11.) When referring to any of these excerpts the Court will use the citation “Hulse Dep.” with the relevant page number regardless of the identity of the briefing to which that page is attached.
Both parties attach the e-mail chain in which this statement appears. (See Pl.'s Mot., Ex. 3; Defs.' Resp., Ex. B.) Defendants argue that Plaintiff and Hulse have misinterpreted the e-mail by taking it out of context and explain that Ochoa wanted Origami Owl information deleted so that no one would accidentally send that information to a third party instead of South Hill's information. (See Defs.' Resp. at 2-4.) There is no evidence to support Defendants' argument and the Court finds the explanation implausible. To begin, though Defendants accuse Plaintiff of selectively offering only a portion of the e-mail chain, Defendants themselves provide only a slightly larger portion of that chain. (See id., Ex. B.) The entire chain—as Defendants have provided it—reads:
Ochoa: Thanks.... please send ASAP
Hulse: Oh my-looks like I sent the wrong one. Almost done and will send to you shortly.
Ochoa: I almost sent this out!!!!
Time to delete all OO documentation....
We need to be VERY careful.
Hulse: Needs a couple things before sending...
(Id.) Defendants admit that they used Plaintiff's information, but argue that their use was proper. (See Defs.' Resp. at 4.) However, if they were using Origami Owl's information properly, there would be no reason to delete all of it just to avoid accidentally sending it to a third party as an attachment. Indeed, it would have been counterproductive because they would have no longer had that information to utilize for whatever purpose for which they had been using it. Reasonable businesses do not sacrifice useful information just to avoid accidentally e-mailing it to a third party. A more reasonable interpretation of Ochoa's e-mail is that Defendants knew that they were using Plaintiff's information improperly and Ochoa's close call with revealing its use to a third party convinced him that it was time to delete “all OO documentation” to ensure that its use remained a company secret. Even the person to whom the e-mail was sent interpreted it accordingly. Since a nefarious purpose is the only reasonable explanation for the e-mail, the Court also finds that Plaintiff knew about the potential litigation, thereby attaching the duty to preserve evidence.
Defendants also argue that even if they did destroy certain documents, the evidence still exists and has been produced, so there was no spoliation. (See Defs.' Resp. at 7-8.) While Defendants have produced some of the documents that were destroyed, the Court cannot conclude that all relevant evidence was ultimately produced. Defendants ordered Hulse to destroy all Origami Owl documentation, but there is no evidence that proves the extent of that documentation. Without such evidence, it is impossible to prove whether all relevant evidence was ultimately produced.
For example, it is strange that Ochoa did not return the laptop himself; that only Ochoa filed a police report even though other items belonging to Palmer, including his passport, were also stolen; that a thief would prowl a restaurant parking lot in broad daylight; that a person would forget to lock a car containing a laptop, business documents, and a passport; that the police report states that Ochoa was having lunch with Palmer, but Ochoa testified during his deposition that he did not know who Palmer was having lunch with; and that Palmer could not remember whether the robbery happened before or after his employment with Cisco ended. (See Defs.' Resp., Ex. E, Dep. of Brian Palmer at 131-34, Ex. F, Dep. of Joseph Ochoa at 18; Ex. G, police report of the incident.) These oddities are all especially suspicious considering the alleged theft occurred after Plaintiff filed this lawsuit. (See id., Ex. G, police report listing the date of the incident as November 9, 2012.)