U.S. v. HVI Cat Canyon, Inc.
U.S. v. HVI Cat Canyon, Inc.
2015 WL 12766161 (C.D. Cal. 2015)
November 20, 2015

Olguin, Fernando M.,  United States District Judge

Failure to Preserve
Legal Hold
Bad Faith
Spoliation
Sanctions
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Summary
The court found that the representations made by the State's counsel regarding the issuance of a litigation hold did not result in the spoliation of evidence. The court also noted that the Rule 30(b)(6) deposition regarding the State's document preservation and collection efforts occurred shortly after the representations were made.
United States of America, et al.
v.
HVI Cat Canyon, Inc., f/k/a Greka Oil & Gas, Inc
Case No. CV 11-5097 FMO (RZx)
United States District Court, C.D. California
Filed November 20, 2015

Counsel

Angela Mo, Mark Sabath, US Department of Justice Environmental Enforcement Section, Washington, DC, Davis H. Forsythe, United States Department of Justice, Denver, CO, Robert D. Mullaney, United States Department of Justice, San Francisco, CA, Michael T. Zarro, Ross H. Hirsch, Gary E. Tavetian, Shanaira F. Udwadia, CAAG—California Attorney Generals Office, Los Angeles, CA, for United States of America, et al.
James L. Meeder, Kamran Javandel, Allen Matkins Leck Gamble Mallory & Natsis LLP, San Francisco, CA, Robert C. O'Brien, Stephen Gerard Larson, Larson O'Brien LLP, Emily L. Murray, Allen Matkins Leck Gamble Mallory & Natsis LLP, Steven E. Bledsoe, Arent Fox LLP, Los Angeles, CA, for HVI Cat Canyon, Inc., f/k/a Greka Oil & Gas, Inc.
Olguin, Fernando M., United States District Judge

Order re: Magistrate Judge's Report and Recommendation

*1 Pursuant to 28 U.S.C. § 636, the court has reviewed the Magistrate Judge's Report and Recommendation (“R&R,” Dkt. No. 134) relating to defendant HVI Cat Canyon, Inc. f/k/a Greka Oil & Gas, Inc.'s (“HVI-CC” or “defendant”) Joint Memorandum of Points and Authorities Regarding Defendant's Motion for Terminating Sanctions or, in the Alternative, Other Appropriate Sanctions (“Motion,” Dkt. No. 98), the Objections to the Report and Recommendation filed by each of the parties, and the responses to those Objections. Having made a de novo determination of the portions of the Report and Recommendation to which Objections were directed, the court concurs with and accepts the findings and conclusions of the Magistrate Judge with modifications.
Plaintiff People of the State of California ex rel. California Department of Fish and Wildlife (“CDFW”) and the California Regional Water Quality Control Board, Central Coast Region (“California” or “State”), and the United States of America (“United States” or “Government” and together with California, “plaintiffs”) object to the Magistrate Judge's R&R regarding the exclusion of certain witnesses from testifying at trial. (See R&R at 16). The Magistrate Judge recommends that witnesses Kelly Abe (“Abe”), Melissa Boggs (“Boggs”), Dave Brown (“Brown”), Dennis Chastain (“Chastain”), Mike Connell (“Connell”), Robin Lewis (“Lewis”), Becky Mack (“Mack”), Bill Scott (“Scott”), Beckye Stanton (“Stanton”), and Charles Robert Todd (“Todd”) be excluded. (See id.); (see also Motion at 6, 12-13 & 17-21 (identifying witnesses)). While California objects only to the exclusion of Abe, Boggs, Chastain, Connell, Mack, and Stanton, (see California's Objections to Report and Recommendation of United States Magistrate Judge Regarding Motion for Terminating Sanctions (“State Objs.,” Dkt. No. 136) at 2-4), the United States objects to the exclusion of all witnesses, (see United States' Objections to Magistrate Judge's Report and Recommendation on Defendant's Motion for Terminating Sanctions (“Govt. Objs.,” Dkt. No. 137) at 2-6), particularly as applied to the Government. (See id. at 6-11). The Government also argues that, to the extent witness exclusion is warranted, it should be limited to four witnesses. (See id. at 11-18).
As an initial matter, the court notes that it takes seriously the principle that “[t]he prosecutor's job isn't just to win, but to win fairly, staying well within the rules[,]” U.S. v. Koiavan, 8 F.3d 1315, 1323 (9th Cir. 1993), and expects plaintiffs to fully abide by it. Thus, the court cannot downplay, as the State seems to do, (see, generally, State Objs.) (failing to address the representations), the inaccurate statements its counsel made to HVI-CC's counsel regarding the issuance of a litigation hold.[1] (See also Evidentiary Appendix for Defendant's Motion for Terminating Sanctions or, in the Alternative, Other Appropriate Sanctions (“Evid. App'x,” Dkt. Nos. 99-103)), Tab A (Declaration of Emily L. Murray (“Murray Decl.,” Dkt. No. 99)), at Exh. 12 (counsel for California stating that “John Holland put a litigation hold in place and notified Wildlife personnel”); Murray Decl., Exh. 16 at 6 (counsel for California stating that “[t]here indeed was a litigation hold directive maintained by Wildlife”). However, those representations themselves did not result in the spoliation of evidence. As HVI-CC points out, discovery was stayed in 2012, and the representations were made primarily in July and August 2014, when counsel for HVI-CC first began raising questions about missing electronic data. (See Motion at 7-9); (see also Murray Decl., at Exh. 12; id., Exh. 16 at 6). The Rule 30(b)(6) deposition regarding the State's document preservation and collection efforts occurred shortly thereafter, on September 16, 2014. (See Motion at 1 & 10). There is no evidence that the State misrepresented the issuance of a litigation hold prior to 2014, or that the parties discussed issues related to preservation efforts prior to the date HVI-CC first raised the issue in the summer of 2014. In other words, there is no evidence that prior to 2014, the State misrepresented that it had issued a litigation hold when indeed it had not. Instead, the representations were made in the summer of 2014, which quickly resulted in HVI-CC filing the instant Motion.
*2 Putting aside the representations, the court's review of the record establishes that there was no showing of intent or bad faith on the part of CDFW in connection with the failure to issue a litigation hold. And the Magistrate Judge concluded as much. (See R&R at 8 (“[T]he Court has seen no evidence that California made a deliberate initial decision not to impose a litigation hold.”) (emphasis in original); id. at 9 (noting that with respect to the representations regarding the placement of a litigation hold, California “appears to have acted, or failed to act, in a manner that at least was grossly negligent or reckless”); id. at 13 (“Here, there was a serious blunder—the failure to impose a litigation hold—and the blunder created the circumstance that allowed for evidence to be destroyed. A second blunder compounded the first, when California repeatedly represented that it had placed a litigation hold, when, in fact, it had not. The blunders were serious, but the Court cannot find that they were maliciously motivated, or that they were made with the deliberate intention that evidence would be destroyed.”)). At most, it appears that a lack of litigation competence was the cause of any spoliation of evidence. Incompetence, however, is not bad faith. In the absence of a showing of intent or bad faith, a terminating sanction is not warranted under the circumstances of this case. See Apple Inc. v. Samsung Elecs. Co., Ltd., 888 F.Supp.2d 976, 992-93 (N.D. Cal. 2012) (“Ultimately, the choice of appropriate spoliation sanctions must be determined on a case-by-case basis, and should be commensurate to the spoliating party's motive or degree of fault in destroying the evidence.”); Realnetworks, Inc. v. DVD Copy Control Ass'n, Inc., 264 F.R.D. 517, 523 (N.D. Cal. 2009) (“[C]ourts should choose the least onerous sanction corresponding to the willfulness of the destructive act and the prejudice suffered by the victim.”) (internal quotation marks and citation omitted); see, e.g., Adv. Comm. Notes to Proposed Rule Fed. R. Civ. P. 37(e) (test focuses on proof of “an intent to deprive” and limits most serious remedies “only on a finding of intent to deprive another party of the lost information's use in the litigation.”).
Moreover, although the State was not completely forthright in its communications with defendant regarding the issuance of a litigation hold, there is no allegation, much less evidence, that the United States had any role in the conduct at issue. Yet, the R&R recommends that the exclusion sanction apply equally to the United States. (See R&R at 14-16). Such a sanction is not warranted, particularly since the United States is not alleged to have engaged in the spoliation of evidence. See Apple, 888 F.Supp.2d at 995 (“Court is unable to find justification for imposing an adverse inference instruction against all three Samsung entity defendants, where the record only supports a finding that Samsung Electronics Co., Ltd.... engaged in any spoliation of evidence.”); Toste v. Lewis Controls, Inc., 1996 WL 101189, *7 (N.D. Cal. 1996) (“The present record does not support an order imposing sanctions at trial because an adverse inference against [culpable party] might prejudice [plaintiff].”). The Magistrate Judge reasoned that the United States should be subject to the exclusion sanction because, among other things, it “was intimately involved with this matter from the start[,]” (R&R at 14); its source of information and identification of witnesses included State employees, (id.); there is a “significant intertwining between the factual matters alleged by the State and Federal governments,” (id.); and “[i]t has entered into a Common Interest Confidentiality Agreement with the State, predicated in part on ‘common interests in their investigation’ ” of defendant. (id. at 14-15). However, this close working relationship between the parties is insufficient to sanction the United States for the conduct of the State where there is no showing that the United States played any role or had knowledge of the conduct at issue. See Bonilla v. Volvo Car Corp., 150 F.3d 88, 93 (1st Cir. 1998) (finding sanctions order flawed, in part, because of its “automatic attribution of fault to all defendants”). As the Bonilla court explained:
There may be instances in which one codefendant is liable for sanctions for the litigation-related misconduct of another defendant, but it would take findings as to knowledge and participation or acquiescence far more specific and detailed than a simple reference to a joint defense. Codefendants cooperate all the time, but that does not mean that one defendant is automatically responsible for misconduct of another—of which it may have no knowledge or as to which it may have played no role, active or passive.
Id. at 93-94. Also, as the United States notes, the R&R “makes no finding that the United States had control over the State's documents, employees, or preservation practice; had an obligation to preserve the State's evidence; participated in any spoliation of the State's evidence; or was subject to sanctions on the basis of res judicata or agency principles.” (Govt. Objs. at 6). In short, the sanction imposed upon the Government for the State's litigation conduct is not warranted.
*3 This Order is not intended for publication. Nor is it intended to be included in or submitted to any online service such as Westlaw or Lexis.
Based on the foregoing, IT IS ORDERED THAT:
1. HVI-CC's Motion for Terminating Sanctions Or, in the Alternative, Other Appropriate Sanctions (Document No. 98), is granted in part and denied in part as set forth below.[2]
2. The following witnesses shall be excluded from testifying at trial on behalf of California: Brown, Lewis, Scott, and Todd. No witnesses shall be excluded from testifying on behalf of the United States.
3. California shall pay HVI-CC's reasonable costs and attorney's fees for taking the depositions of Ed Boyes, Joshua Curtis, Jamie Dostal, Carlos Fonseca, James Foto, Jennifer Gold, Bryan Golhofer, Jorge Gross, Jim McCall, Jorge Paz, Ken Wilson, Abe, Boggs, Chastain, Connell, Mack, and Stanton.
4. California shall pay for the reasonable costs and attorney's fees defendant incurred in connection with the Motion.

Footnotes

As the Magistrate Judge recognized, the representations “were made by litigation counsel for California, who appears to have been relying on what he had been told either by Mr. Holland or others.” (R&R at 8-9).
Given that proposed Rule 37(e) “forecloses reliance on inherent authority or state law to determine when certain [curative or sanctioning] measures should be used,” Adv. Comm. Notes to Proposed Rule 37(e), the parties shall file any motions relating to ESI preservation pursuant to the new Rule 37(e).