On May 16, 2016 defendant and counter-claim plaintiff Herman Miller, Inc. (“HM”) filed a Motion for Default Judgment or Sanctions in the Alternative (docket no. 204, or the “Motion”) against plaintiff and counter-claim defendant Blumenthal Distributing, Inc., also known as Office Star (“OS”). This most recent Motion is the culmination of a number of long-standing discovery disputes, discussions, and orders in this case, including those relating to the November 21, 2015 ex parte application (docket no. 102), which HM filed seeking to enforce prior discovery orders.

The Motion for Default Judgment or Sanctions is supported by the declaration of Jean-Paul Ciardullo (docket no. 204-1), and exhibits A though Z attached thereto (docket nos. 204-2 through 204-40), including several exhibits filed under seal (docket nos. 203, 209). HM contends OS disregarded its duty to institute a litigation hold, which resulted in spoliation of critical documents. HM further contends OS repeatedly failed to produce documents responsive to propounded discovery or abide by court orders requiring production of documents, the lack of which now prejudice HM's ability to fairly present its case at trial. HM seeks default judgment as a terminating sanction, or in the alternative sanctions: (1) declaring the validity of HM's trade dress rights; (2) prohibiting OS from asserting the equitable defense of laches; (3) precluding OS from arguing lack of notice of HM's trademark registration; and (4) presenting an adverse inference jury instruction in relation to withheld or spoliated documents, leaving only leaving only the basic questions of infringement and damages for the jury at trial. HM additionally requests sanctions in the form of expenses and attorney's fees incurred as a result of OS's conduct.

OS filed an Opposition (docket no. 211) to the Motion, supported by the Declarations of Richard Blumenthal (“R. Blumenthal Decl.”), Fred Rueda (“Rueda Decl.”), Barry Barsamian (“Barsamian Decl.”), Joshua Blumenthal (“J. Blumenthal Decl.”), Eddie Mora (“Mora Decl.”), Larry J. Schrock (“Schrock Decl.”), Edward R. Schwartz (“Schwartz Decl.”), and Stacy-Ann Goodwin (“Goodwin Decl.”) (docket nos. 211-1 through 211-8), and also supported by the Declaration of David A. Dillard (docket no. 212) and exhibits A through L attached thereto (docket nos. 212-1 through 212-12). OS concedes it failed to impose a litigation hold, but argues this resulted in no spoliation because the company has an unwritten policy of retaining information indefinitely. OS concedes it failed to produce responsive discovery at the time it was requested, but argues it conducted appropriate searches and a computer system glitch caused the failure, which has since been remedied. OS concedes it initially failed disclose that its chair design and manufacturing took place overseas and failed to provide correct names or addresses for its foreign manufacturers in the first response to interrogatories, but argues the information was readily available in documents produced, these errors were expeditiously corrected, and in any event the information is not relevant. OS argues HM's Motion is untimely, improper, and lacks merit. OS contends it acted in good faith and made every effort to comply with the court's orders.

*2 HM filed a Reply to OS's Opposition (docket no. 214), supported by a second declaration of Jean-Paul Ciardullo and exhibits AA and BB attached thereto (docket nos. 214-1 through 214-3).[1] In its Reply HM: emphasizes OS's continued failure to search several computer storage devices currently in its possession and control; reiterates that forensic analysis conducted at HM's expense, not a search conducted by OS, led to the fruitful production of some of the documents sought; and argues that OS's unwritten retention policy does not account for the automatic purge of archived emails after 84 months or the destruction of system back-ups every six months.

Having considered the parties' moving and opposing papers and other records in this case, as well as the statements and argument made during numerous telephonic conferences and hearings, for the reasons that follow the court now recommends that the District Court grant in part and deny in part HM's Motion for Default Judgment or Sanctions in the Alternative.

On December 13, 2013, HM sent OS a cease-and-desist letter alleging certain chairs designed and distributed by OS infringed HM's Aeron and Eames style chairs' registered and unregistered trade dress rights. Docket no. 13 (First Amended Complaint or “FAC”) at 2, Ex. A. On January 9, 2014, OS sent a letter to HM denying that the “Accused Chairs” infringed on any of HM's trade dress rights. Id. at 2, Ex. B. On February 24, 2014, Herman Miller sent a second letter reiterating its earlier claims and demands. Id. at 3, Ex. D.

OS initiated this action by filing a Complaint for a Declaratory Judgment of Non-Infringement on September 16, 2014. OS filed a First Amended Complaint on October 6, 2014, in which it continued to advance a claim under the Declaratory Judgment Act seeking a declaration that its “importation, advertising, depiction, offering for sale, and/or selling of any of the Accused Chairs does not infringe [HM]'s trade dress rights.” FAC at 4; see 28 U.S.C. § 2201 et seq.

On April 24, 2015, HM filed Counterclaims against OS and other companies engaged in the manufacture or distribution of the Accused Chairs alleging: (1) infringement of registered trademarks (15 U.S.C. § 1114); (2) false designation of origin (15 U.S.C. § 1125(a)); (3) trademark dilution (15 U.S.C. § 1125(c)); (4) unfair competition (Cal. Bus. & Prof. Code § 17203); (5) false advertising (id. § 17500); (6) trademark dilution (id. § 14330); and (7) common law unfair competition trademark infringement. Docket no. 40 at 1-2. HM claims the trade dress of its Aeron and Eames chairs “is unique, distinctive, and non-functional, and it is not necessary for others to use this trade dress to compete in the marketplace.” Id. at 4-5.

During these proceedings, the parties have engaged in an often bitter dispute about the existence and production of several categories of documents. At the heart of the controversy lies the lack of communications produced in discovery by OS related to the design, development, selection, marketing, and advertising of the Accused Chairs. Attempts at resolution involved multiple ex parte applications and motions filed by HM, including two Motions to Compel, several informal telephonic conferences before the court, and two telephonic hearings. See docket nos. 68, 69, 75, 79, 80, 82, 85, 92, 93, 102, 104, 204, 205, 209, 210, 214 (HM discovery motions and ex parte applications filed); docket nos. 70-74, 76, 103, 105, 206, 211, 212 (OS oppositions and responses to each HM filing); docket nos. 83, 91, 111, 113, 169, 195, 196 (informal telephonic conferences held by the court); docket nos. 78, 86 (orders resulting from discovery hearings).

*3 HM filed a motion to dismiss the FAC for lack of declaratory judgment jurisdiction, or in the alternative to transfer the case to the Western District of Michigan. Docket no. 22. In its opposition to the motion, OS argued the case should remain in the Central District of California, in part because that “is where the design, research, and manufacturing of the allegedly infringing product occurred.” Docket no. 27 at 12. The court found it had jurisdiction over the matter and denied the transfer, reasoning HM “failed to rebut the presumption that Plaintiff's choice of forum is entitled to deference.” Docket no. 35.

During a May 1, 2015 telephone conversation regarding potential settlement, HM learned for the first time that the OS Accused Chairs were in fact produced by foreign manufacturers and not in California. Docket no. 68 at 3-4. It was not until May 29, 2015, in response to HM's interrogatory seeking identification of “all persons, whether or not employed by Office Star, involved in designing the Accused Chairs, setting forth the title and role of each such person,” that HM learned the name and address of “Jorng Well Industrial,” a Taiwanese manufacturer. Id., Ex. C at 3. Rather than immediately pursuing information from this third party, HM chose to wait for OS's responses to its first set of Requests for Production of Documents (“RFPs”) served on April 30, 2015. See docket no. 68 at 3, Ex. B.

OS responded to HM's first set of RFPs on July 15, 2015. Docket no. 68 at 4, Ex. D. Upon initial inspection of the 30 boxes of paper records and one electronic thumb drive produced by OS, HM found mostly shipping invoices and sales receipts from two companies, “King Hong” and “Nova,” and no information pertaining to the previously disclosed “Jorng Well Industrial.” Docket no. 68 at 4. During this in-person document inspection, HM questioned how the documents were gathered and whether all applicable electronically stored information (“ESI”) was produced. Docket no. 68, Ciardullo Decl. ¶ 5. OS did not respond to the inquiry. Id. Further analysis of the response to HM's first set of RFPs revealed only 380 emails, none of which related to the manufacture or design of the Accused Chairs. Id.

During July and August 2015, HM sent additional emails and made telephone inquires about the method OS used to gather documents, whether metadata would be made available, and when supplemental disclosures should be expected in light of the lack of communications disclosed—particularly the lack of “email records concerning the design, development and manufacture of the accused products.” Docket no. 68, Exs. D, E, Ciardullo Decl. ¶¶ 7-8. On July 23, 2015, HM received responses to its second set of interrogatories, in which OS provided new contact information for Jorng Well Industrial and information related to a second foreign manufacturer, King Hong.[2] Docket no. 211 at 16; see docket no. 93 at 3. HM served document request subpoenas on some domestic third parties in an effort to supplement what it perceived to be a deficient document production by OS, but again did not solicit information directly from these international manufacturers. Docket no. 68 at 7.

Late in August HM retained a foreign process server and arranged to have subpoenas translated into Chinese, and served in Taiwan on King Hong and Jorng Well, attempting to serve the key identified executives involved directly with OS. Docket no. 93 at 3. Service on Jorng Well was hindered by lack of a correct address, which again required updating from OS. Id. On October 8, 2015, HM effected personal service on representatives of the two Taiwanese companies identified by OS as being involved in the design or manufacture of the Accused Chairs. Id.

*4 On October 20, 2015, during an informal telephonic discovery conference, OS requested the court to quash the subpoenas. Docket no. 91. At the court's direction, the parties filed memoranda the following day. OS argued “there is no statutory authority for personal service of subpoenas for production of documents on non-party foreign corporations in a foreign country and the subpoenas to Jorng Well and King Hong should be quashed.” Docket no. 92. HM argued the manufacturers are so closely tied to OS that they are represented by the same counsel, the formal method for service by letter rogatory under the rules would have required at least six months to achieve service, and therefore personal service or notice of service to the party's counsel should be deemed valid. Docket no. 93; see Fed. R. Civ. P. 4(f)(2)(B). Pursuant to the Federal Rules of Civil Procedure, the court found personal service of foreign entities ineffective, and ordered that the subpoenas be quashed. Docket no. 94; see Fed. R. Civ. P. 4(h)(2) (requiring service of a foreign corporation not located within a U.S. judicial district “in any manner prescribed by Rule 4(f) for serving an individual, except personal delivery”). As HM failed to timely serve letters rogatory or effect any other appropriate international service, it has had no direct contact with the third party manufacturers of the Accused Chairs.

On August 21, 2015, cognizant of the then looming September 30, 2015 discovery deadline and the probability that subpoenaing international third-parties would be necessary, HM initiated the meet and confer process required before bringing a motion to compel by serving a letter under Local Rule 37-1. Docket no. 68 at 8; docket no. 69 at 9. On August 25, 2015, HM separately sent OS a request to stipulate to extend the discovery cut-off date through November 30, 2015 to allow sufficient time for third party document responses prior to depositions, so that meaningful testimony could be acquired. Id. at 7-8. OS declined to make such a stipulation. Id., Ex. F.

HM then filed an ex parte application to extend the discovery cut-off to November 30, 2015, and an ex parte application to expedite resolution of an intended motion to compel. Docket nos. 68, 69. OS opposed both ex parte applications, arguing HM “is asking the court to save it from its lack of diligence in pursuing discovery in this matter.” Docket no. 70 at 2; see docket no. 71 at 2 (contending any need for an expedited hearing “is a sole result of HM's lack of diligence and initiating and pursuing discovery”).

The court, finding HM acted with reasonable diligence, granted a somewhat expedited hearing schedule (docket no. 78), and on September 9, 2015 the parties filed a joint submission of HM's motion to compel further document production, amended interrogatory responses, and Rule 26(a) disclosures. Docket no. 79. In the joint submission HM argued OS's production of documents must be deficient, because an extensive team of OS executives, several manufacturers, and many customers were involved to varying degrees in the design, production, and sale of Accused Chairs, and yet OS claims that essentially no documented communications on the relevant subject over the course of several years exist between any of these parties. Id. at 1.

In its opposition, OS represented to the court that it had “made a thorough search for relevant responsive documents to [HM]'s document requests.” Id. at 2. OS asserted that “[w]ithout justification, HM alleges that Office Star's search was not complete based on self-serving speculation and erroneous assumptions.” Id. at 3; see docket no. 70 at 6. (“HM relies on self-serving speculation to suggest that Office Star is withholding relevant documents.”).

On September 14, 2015, HM submitted a supplement to its motion to compel indicating HM's depositions of two OS employees revealed OS neither instituted a litigation hold nor searched these employees' hard drives for discoverable responsive documents. Docket no. 82 at 2-4. The court held a telephonic conference on September 15, 2015, during which OS advised the court an agreement regarding production of documents could be obtained between the parties. HM expressed skepticism about this assertion. Notwithstanding HM's hesitation, the court ordered the parties to further meet and confer and to submit additional supplemental briefs prior to the scheduled hearing. On the same date, in a separate order, the court extended the discovery cut-off date from September 30 to October 23, 2015.

*5 A telephonic hearing was held on September 25, 2015.[3] At the hearing OS acknowledged it had conducted an additional, extensive key word search and recovered a large number of potentially responsive documents, some of which had been provided to HM in a supplement to OS's RFP responses. But OS expressed its belief that the vast majority of the documents recovered were redundant of those previously produced, and therefore the result of the search was submitted to an outside vendor who was currently conducting a comparative analysis. OS stated it expected to produce only a very small number of additional responsive documents.

HM stressed its belief that OS failed to produce many responsive documents that must exist and relayed its concern regarding the lack of information being provided prior to several key depositions noticed for the week of September 29, 2015. HM argued it should be permitted to reschedule these critical depositions or at minimum have the ability to leave the proceedings open so that the deponents can be questioned after HM received a complete production. OS adamantly opposed rescheduling and argued HM is making “assumptions that are simply not true.” HM again expressed its skepticism over OS's assurances it had complied with all discovery requirements, and put OS on notice that it reserved the right to seek all potential remedies given what HM perceived to be OS's repeated deceptive conduct. OS took exception with HM's characterization and assured the court it had made only one inadvertent misstatement regarding the location of its manufacturers, which was expeditiously corrected. OS maintained it never acted in bath faith or intentionally deprived HM; rather, it claimed the documents simply do not exist.

In light of OS's acknowledgment that it had already conducted a new search prior to the hearing, and the fast approaching scheduled depositions, the court issued an order the same day, ordering in relevant part:

Docket no. 86.

On October 1, 2015, OS stated it had “conducted a further search for documents, particularly emails.” Docket no. 204, Ex. B at 3. OS confirmed that “some of the search terms resulted in a large overall number of documents,” but OS analyzed the results and removed non-responsive documents. Id. at 4. OS certified it had, by October 1, 2015, produced all relevant non-privileged documents and communications responsive to the eleven categories of documents at issue, including those concerning the design, development, selection, marketing, and advertising of the Accused Chairs. Id. at 5-6. OS stated, “[a]s part of this effort, Mr. Fred Rueda, Vice President of OSP, and OSP's Head of Information Technology conducted a search based on key words on the company's main servers and the servers of the individuals identified by HM in the Rule 37 Submission.”[4] Id. at 3-4.

*6 OS's supplemental production consisted of approximately 109 emails. Docket no. 204, Ciardullo Decl. ¶ 10.

HM at no time attempted to complete adequate service on OS's foreign manufacturers disclosed by OS. But on October 21, 2015, HM deposed Amy Chen of Nova Innovations (“Nova”). See docket no. 204 at 4; see also docket no. 88. Nova, which maintains an office in California, acts “as an agent through which [OS] purchases chairs from Jorng Well,” therefore OS's “communication with Jorng Well is though Nova.” Docket no. 71 (opposing HM's August 31, 2015 ex parte application to shorten time). At the deposition, HM acquired several emails, not previously produced in discovery, between OS executives and Nova in which HM and the Accused Chairs are discussed. Docket no. 204 at 4, Ciardullo Decl. ¶ 5; see e.g., Id., Exs. A.50, E.

HM additionally subpoenaed documents from retailer Office Depot and obtained an email exchange between Office Depot and OS that mentioned HM by name. Docket no. 204, Ciardullo Decl. ¶ 11. In the emails, OS and Office Depot discuss Office Depot's concerns over the possibility that OS chairs infringed on HM's designs. Docket no. 204, Ex. H. The email recipients included OS's National Accounts Sales Manager and two OS Vice Presidents. Id.

On September 30, 2015, HM deposed OS Executive Vice President, Frederick Rueda. Docket no. 204, Ex. Q. Rueda testified he was responsible for “[g]athering information” about the instant action as requested by OS attorneys. Id. at 10. He testified he received his first request from OS attorneys in May 2015. Id. He gathered mostly invoices, vendor agreements, and purchase orders in response. Id. He also gathered emails provided by the President of OS, Rick Blumenthal. Id. at 11. He did not at that time collect emails from any other employee or search any electronic files for communications related to this action. Id. at 11-12. Rueda conducted other various collections of documents between May and August. Id. at 12-14.

A few weeks prior to his deposition, Rueda directed Eddie Mora, who was in charge of OS's Information Technology (“IT”), to conduct a search of the OS email archive system using key words Herman Miller, Eames, and Aeron. Id. at 14-16. These key words were found to exist in 101,000 emails. Id. The emails were exported and the result of this search was placed on a portable storage device and delivered to OS's counsel. Id. at 15.

HM deposed Mora on October 7, 2015. Docket no. 204, Ex. V. Mora explained OS maintains an EMC Source One email archive system that retains a copy of every email processed thorough the OS network. Id. at 7. He testified that the archive retains all emails, even those that have been deleted from an individual's desktop or laptop computer. Id. But emails older than 84 months are purged from the system.[5] Id. at 8. Mora confirmed OS does not have any specific policy or method for purging non-email electronic documents stored on individual hardware connected to the system or on the shared network drive. Id. Mora also explained OS has automatic backups of the “shared network resources,” but this information is only maintained for a six-month period. Id. at 10.

*7 Specific to the discovery at issue, Mora testified he conducted two email searches on OS's EMC Source One system. Id. at 13-14. The first search, in June or July 2015, may not have had anything to do with this case. Id. at 18. In the more recent search he conducted about three weeks prior to his deposition, he used ten to fifteen key words and the search resulted in approximately 101,000 emails. Id. at 16-17. He uploaded the search results to an external hard drive and provided it to Rueda. Id. at 15. He could not recall the size of the file uploaded, but stated the transfer took five minutes, at most. Id. Mora confirmed his search could not gather emails or documents residing on any individual hardware attached to the network that had not been uploaded to, or had been previously purged from, the archive. Id. at 16, 25. He also stated he was never informed by anyone that documents relevant to this proceeding should not be deleted from the system. Id. at 25. Despite the large number of potentially relevant emails, as noted above, OS produced substantially fewer such documents in response to HM's RFPs.

On or around October 14, 2015, OS contacted technical support at EMC.[6] Docket no. 209, Ex. Y.2. It is not entirely from the record before the court what OS reported to EMC, but the EMC trouble ticket indicates the product at issue was “SourceOne Discovery.” Id. The trouble ticket was closed on November 23, 2015 and noted under the resolution section: “customer is not available to work on the issue due to other priorities Closing out the case for now until the customer is available again.” Id.

At the request of the parties the court held several informal discovery conferences to discuss, among many issues, the continued dispute regarding ESI collection procedures and the resulting documents or lack thereof. Docket nos. 88, 91, 95. Over the course of these and other conversations the parties informally agreed to permit HM to hire a neutral third party to conduct a forensic analysis of OS's EMC Source One drive and several OS employees' individual hard drives for information responsive to HM's RFPs. See docket no. 204, Ex. I.

On October 16, 2015, HM sent technicians to OS facilities. Docket no. 204, Ciardullo Decl. ¶ 12; docket no. 102-6 ¶ 10. A search conducted on the archive using keywords Herman Miller, Eames, and Aeron yielded 74,258 “hits,” in other words the text of 74,258 emails in the system contained one or more of these keywords.[7] Docket no. 102-6 ¶ 10. But when the experts attempted to download the contents of these email messages, only the text of 6,764 emails was actually available for export. Id. Although HM technicians had successfully gathered more than 6,000 potentially relevant emails, they were not permitted to remove any information from OS's facility. Id. ¶ 12; see docket no. 211 at 6 (keeping the collected data at OS in a sealed envelop until directed by OS counsel to turn the information over to HM technicians), Mora Decl. ¶ 3.

*8 The parties then formalized the previously informal agreement permitting forensic analysis of OS's system. Docket no. 98. Formalization was necessary, in part, because it became clear to the parties that completion of the full process—forensic analysis and attorney review of information prior to disclosure—was unlikely to conclude before the October 23, 2015 discovery cut-off date. Id.

Upon accessing OS archives on November 4, 2015, HM experts discovered 100,608 hits containing potentially responsive emails, but again the text of the majority of these emails was not present upon export of the information. Docket no. 102-6 ¶¶ 13-14; docket no. 211, Mora Decl. ¶ 5. It was not known what was causing the export failure. HM's experts proceeded to analyze the limited information acquired from the archive and information stored on several OS employee hard drives: Richard Blumenthal, Joshua Blumenthal, Fred Rueda, and Barry Barsamian. See docket no. 204, Ciardullo Decl. ¶ 13.

On November 21, 2015, well after the close discovery, HM filed an ex parte application to enforce two prior discovery orders. Docket no. 102; see docket nos. 86, 98 (ordering production of responsive documents and permitting independent forensic analysis). OS opposed the application, acknowledging its email archive system was not functioning as expected and explaining a two-step process was then underway to fix the problem. Docket no. 103 (describing OS's reindexing of the drive and troubleshooting by the drive's manufacturer); see also docket no. 110. OS “anticipated that EMC SourceOne will complete its portion of the repair process by Tuesday, Nov. 24, 2014 or Wednesday, Nov. 25, 2015.” Docket no. 103 at 2.

On November 24, 2015, a second trouble ticket was initiated at EMC which indicated “SourceOne Email Mana ...” as the product at issue. Docket no. 209, Ex. Y.3. The ticket was closed the following day with a resolution indicating “a software defect” caused the problems, and that “the customer will need to upgrade to resolve” the issue. Id. On November 30, 2015, OS filed a Status [Update] of the Repair of Office Star's Email Archive System, in which OS reported “to export the emails in question, [it] must upgrade the software to the current latest version ... [in] several sequential upgrades as there is no direct upgrade from the version [OS] is currently using to the latest version.” Docket no. 105. It was not known how long the process would be or how costly, but OS would continue to provide updates. Id.

The court held a telephonic conference to discuss HM's ex parte motion on December 4, 2015. See docket nos. 109, 111. The court expressed concern over the current computer issues and what appeared to be confirmation of missing responsive information. OS assured the court that correcting the problem was a high priority and that substantial resources were being invested by OS to upgrade the system, but it was still unclear how long the system upgrade process would take. The court informed the parties that the late production may warrant delaying the overall schedule if, for example, additional depositions are requested based on the newly discovered information. The court ordered OS to file updates every Tuesday and Friday until the system upgrade was complete. Id.

On December 11, 2015, OS provided an update indicating the software upgrade was complete, but the computer problem was not resolved. OS was still unable to export the missing email messages. Docket no. 112. The court held another telephonic conference on December 14, 2015. See docket no. 113. At the conference, OS explained that during the ongoing analysis of the problem an EMC technician discovered the “bodies” and “attachments” of several emails were physically removed from the archive. Thus while the metadata for these emails—such as who sent the email, who received the email and on what date, and the email subject—remained listed in the Source One SQL tables of the archives' contents, the actual text messages associated with these emails were not located on the Source One drive. A search for a key word thus might be found in a party or subject, but any export would be unable to associate that information with the actual email message. OS stressed it was unclear how such a large number of hits resulted from searches of only metadata. OS believed the information was moved by its previous IT manager to make room on the archive drive. OS assured HM and the court that it would contact this individual and try to locate the missing information, but OS could provide no greater insight into when, or if, the information would be produced.

*9 To provide OS additional time to locate and recover the emails that may be relevant to any summary judgment motion, the parties filed and the court granted two joint stipulations for extensions of the motions deadlines. Docket nos. 116, 121. Between December 16, 2015 and January 26, 2016, OS continued to provide regular updates as to the status of the missing emails. See docket nos. 115, 117, 120, 131, 133, 137, 146. On January 22, 2016, OS provided an update indicating all necessary repairs to all OS systems had been made and a search of “the backup server (a CX300 drive array) at Office Star's Fontana Warehouse” did not uncover the missing information. Docket no. 137 (“Office Star has analyzed numerous storage devices and servers at its facility (and continues to do so), but has so far not been able to locate the moved data.”).

During the December 14, 2015 telephonic conference OS stated it intended to contact a former OS IT manager, and the record indicates OS spoke with Austin Engel. See docket no. 115; docket no. 204, Ex. W at 13. Engel had no knowledge of the files' current location or how they could have been moved, and in fact he found the whole series of events mind boggling. Docket no. 204, Ex. W at 14.

There is no evidence in the record indicating OS contacted any other former employees, but HM independently contacted Juan Monsivais, a former OS IT Administrator and Desktop Help employee. Docket no. 204, Ciardullo Decl. ¶ 14; see docket no. 212, Ex. J at 6 (confirming during deposition that Monsivais was not contacted by OS). Monsivais provided HM with information that resulted in OS locating the missing emails. Docket no. 204, Ciardullo Decl. ¶ 14. It was at HM's request that OS search specific locations which ultimately resulted in OS locating the missing files. Docket no. 146 (“Further Update as of January 26, 2016[:] Based on a suggestion by [HM's counsel], Mr. Mora conducted a further investigation of a Synology DS-1813+ storage device at Office Star's Ontario headquarters.”); docket no. 211, Mora Decl. ¶¶ 10-11 (recounting steps taken to acquire missing information). OS was able to copy files to the EMC Source One drive and conduct a successful export.[8] See docket no. 204, Ciardullo Decl. ¶ 14.

In late January 2016, OS resolved all its computer issues. Docket no. 211 at 4-8. Using the agreed protocol to screen for confidential and unresponsive documents, OS provided HM with responsive documents stored on its EMC Source One drive dated between February 2011 and November 2013.[9] Id. at 8. HM contends relevant pre-2011 communications have either been destroyed by OS, or continue to exist and have not been produced by OS.

It is uncontested that OS failed to institute a litigation hold. Docket no. 211 at 10; docket no. 204, Exs. R at 4-5, S at 11, T at 4, U at 5-6, V at 25 (confirming no specific request to preserve documents due to possible or pending litigation was made of OS employees). It is also uncontested that in addition to the EMC Source One email archive, among other networked drives OS maintains a Microsoft Exchange Server. Docket no. 211 at 5; see Id., Mora Decl. ¶ 2. OS's former IT manager testified this server had no purge protocol during his tenure at OS. Docket no. 204, Ex. W at 8. OS's current IT Manager confirms that emails “may reside in the Exchange server and/or the user workstation for a period of time.” Docket no. 211, Mora Decl. ¶ 2. OS does not state it searched this server either before or after the Source One problems were identified, nor does it claim the server was purged or devoid of relevant information. Rather, OS contends “[b]ecause the EMC SourceOne archive is set up to keep copies of all email communications happening via the Exchange Server, it was the logical place to conduct or search for emails responsive to HM's document requests.” Docket no. 211 at 5.

*10 Under the Federal Rules of Civil Procedure and in accord with its inherent powers, “the court may impose broad discovery sanctions for failure to obey a court order that compels discovery, up to and including ‘dismissing the action or proceeding in whole or in part.’ ” Compass Bank v. Morris Cerullo World Evangelism, 104 F. Supp. 3d 1040, 1053 (S.D. Cal. 2015) (quoting Fed. R. Civ. P. 37(b)(2)(A)(v)); see Unigard Sec. Ins. Co. v. Lakewood Eng'g & Mfg. Corp., 982 F.2d 363, 368 (9th Cir. 1992) (internal quotation marks and citation omitted) (“This circuit has recognized as part of a district court's inherent powers the broad discretion to make discovery and evidentiary rulings conducive to the conduct of a fair and orderly trial.”); Id. at 365 (moving for terminating sanction for destruction of evidence).

Although HM questioned the adequacy and veracity of OS's discovery responses in a number of motions, HM first directly asserted OS had failed to comply with court orders in its November 21, 2015 ex parte application (docket no. 102) to enforce the court's September 25, 2015 and October 10, 2015 orders (docket nos. 86, 98). The September 25 order required OS to conduct a thorough search for documents, including on shared computer resources and individuals' hard drives. The October 30 order required OS to allow HM's computer forensics experts to access to OS's computer systems to search for documents past the discovery cutoff. HM's November 21 application asked the court to order OS to repair its email system and produce all responsive documents, to extend the case schedule as necessary to allow for this repair and production, and to permit HM to seek to reopen depositions depending on the documents produced. Through the process described above, HM obtained much of the relief it sought, but builds on that application with the instant Motion.

In particular, HM now moves the court to sanction OS for not implementing a litigation hold, failing to follow court orders, misrepresenting facts to the court, requiring HM to undertake costly forensic analysis to recover ESI that was available to OS by alternative means, and withholding, losing, or destroying relevant evidence. Docket no. 204 at 1.

The first question before the court is whether OS's conduct warrants any sanction at all. The court concludes that some sanction is warranted based on OS's failure to take appropriate measures—some of which were court-ordered—to preserve, locate, and timely produce information responsive to HM's discovery requests.

“Although the Ninth Circuit has not precisely defined when the duty to preserve is triggered, trial courts in this Circuit generally agree [it is triggered] ‘[a]s soon as a potential claim is identified.’ ” Apple Inc. v. Samsung Elecs. Co., Ltd., 888 F. Supp. 2d 976, 991 (N.D. Cal. 2012) (quoting In re Napster, Inc. Copyright Litig., 462 F. Supp. 2d 1060, 1067 (N.D. Cal. 2006); other citations omitted); accord Compass Bank, 104 F. Supp. 3d at 1051 (citation omitted).

Compass Bank, 104 F. Supp. 3d at 1051 (internal citations omitted); see U.S. v. Kitsap Physicians Serv., 314 F.3d 995, 1001 (9th Cir. 2002) (routine destruction constitutes spoliation where party “had ‘some notice that the documents were potentially relevant’ to the litigation before they were destroyed”) (citation omitted).

*11 “Once the duty to preserve attaches, a party must suspend any existing policies related to deleting or destroying files and preserve all relevant documents related to the litigation.” Compass Bank, 104 F. Supp. 3d at 1052 (citations and internal quotation marks omitted). Making “some efforts” to preserve documents does not meet this obligation; implementation of a full litigation hold to ensure preservation of relevant documents is required. Apple Inc., 888 F. Supp. 2d at 991-92. OS fell far short of satisfying its duty here.

The court finds OS's duty to preserve attached on December 13, 2013, when HM sent OS a cease-and-desist letter alleging the Accused Chairs infringed on HM's Aeron and Eames style chairs' registered and unregistered trade dress rights. See docket no. 13-1. This was sufficient to alert OS to a potential claim involving the chairs, and for OS to reasonably anticipate litigation. OS argues the triggering date is, at the earliest, August 13, 2014, when an OS retailer, Bed Bath & Beyond, received a cease-and-desist letter from HM. Docket no. 211 at 10; see docket no. 13-4. OS also notes that HM previously argued, in its motion to dismiss or transfer the case, that the December 13, 2013 letter and a second letter to OS on February 24, 2014 did not create a “reasonable apprehension of suit.” Id. at 9-10; see docket no. 22 at 11-12. But this court has already found, in denying the motion to dismiss or transfer, that although “[n]either letter expressly threatened the filing of a lawsuit ... each states that ‘Herman Miller will not consider this matter closed’ unless Plaintiff complied with these terms,” and therefore “there was a real, immediate controversy between Plaintiff and Defendant when Plaintiff brought this action.” Docket no. 35 at 6. If the letters were sufficient to create a real and immediate controversy between the parties, they were certainly sufficient to cause OS to anticipate litigation, and to trigger OS's duty to preserve relevant documents. OS was thus on notice by February 24, 2014 at the latest, the date HM sent its second cease-and-desist letter to OS. See FAC, Ex. A.

Further, a quick review of OS's privilege log supports HM's contention that OS's duty to preserve attached on December 13, 2013. The OS privilege log shows that between December 14 and 19, 2013, attorney work product or attorney client communication privileges attached to no less than forty emails involving various combinations of Jerry Chen of King Hong, Any Chen of Nova, and OS executives Richard Blumenthal, Barry Barsamian, and Fred Rueda, sometimes with and sometimes without inclusion of OS's counsel. See docket no. 204, Ex. G. Such privileged communications demonstrate OS's understanding of the possible ramifications of HM's December 13, 2013 letter, and as such show OS should have known to institute a litigation hold.

Moreover, whatever the triggering date, OS never instituted a proper litigation hold to preserve relevant documents and information from destruction. See docket no. 211 at 10 (OS acknowledging it “did not circulate a formal litigation hold”); docket no. 204, Exs. R at 4-5, S at 11, T at 4, U at 5-6, V at 25. OS contends no spoliation resulted from this failure because of the well-known company-wide unwritten policy to indefinitely retain all information. Docket no. 211 at 9. This contention is neither supported by the record, nor sufficient to satisfy OS's duty. Indeed, if such a policy existed, production of OS ESI pertaining to the Accused Chairs should have been a simple undertaking. Instead, as recounted above and discussed further below, HM had to contract with forensic experts even to retrieve emails from OS's system. Further, OS IT manager Mora testified the EMC Source One email archive system purges emails older than 84 months, and that he was never instructed to place a hold to keep documents relevant to this case from being deleted from the system. Docket no. 204, Ex. V at 8, 25.

*12 In short, it is plain from the record that OS had a duty to institute a litigation hold starting in December 2013, and that it never instituted such a hold.

As recounted above, when HM first began seeking relief from the court due to OS's inadequate discovery responses, HM argued OS could not have done a complete search because it had produced no documented communications concerning the Accused Chairs or HM or its products. OS contended it had conducted a thorough search, HM was simply speculating, and the reason no such communications had been produced was because none existed. Additional discovery revealed OS's initial search to have been nothing even approaching thorough.

OS Executive Vice President Fred Rueda was responsible for gathering information to respond to the discovery requests. Docket no. 204, Ex. Q at 10. In May 2015 he gathered invoices, vendor agreements, and purchase orders, and also collected emails provided to him by OS President Rick Blumenthal, but he did not then collect emails from any other employee or search any electronic files for responsive communications. Id. at 10-12. It was not until two or three weeks prior to his September 30, 2015 deposition—and thus apparently after HM had already raised the inadequacy of OS's discovery responses with the court at the end of August (see docket no. 69)—that Rueda directed IT manager Mora to search OS's email archive system for responsive documents. Docket no. 204, Ex. Q at 14-16; see id., Ex. V at 13-16.

HM served its discovery requests on April 30, 2015. Docket no. 204, Ex. C. Rueda's testimony reveals that OS did not even begin to take the steps needed for a thorough search until September 2015. OS's contention that production of responsive documents was only delayed by “two to three months,” by the time it took OS to repair its email archive system (see docket no. 211 at 5), ignores the fact that OS's initial search was grossly inadequate, and itself the source of several months' additional delay. OS argues it is being unfairly accused of misconduct for its “reliance on its EMC archival system as the best way to conduct key-word searches.” Id. at 2. This is unpersuasive since OS in no way utilized that system to search for responsive emails until confronted with a motion to compel and the noticing of Rueda's deposition. Nothing about the way OS responded to the discovery requests at the outset indicates a good faith effort to fulfill its discovery obligations.

After HM presented its concern and reason to believe that OS may not have conducted a thorough search for responsive documents, on September 25, 2015 the court issued an order granting HM's motion to compel in part. Among other things, that order required OS to “engage in a thorough document search for all the categories of documents identified in Herman Miller's Motion,” and to “specifically search the individual hard drives and email accounts of its employees, including specifically all the employees that Herman Miller has noticed for depositions,” in addition to “any shared computer resources.” Docket no. 86. The search was to be conducted immediately, as OS was ordered to “produce all remaining responsive documents in its possession, custody, or control no later than October 1, 2015.” Id. Subsequent deposition testimony revealed OS failed to conduct this search.

*13 First, there is evidence OS never searched employees' hard drives. After the court's order, OS President Blumenthal testified he relied on OS Vice President Rueda to look for email. Docket no. 204, Ex. O at 20-22. At his deposition the following day, Rueda agreed he was responsible for gathering discovery for OS's attorneys, and testified that he collected responsive email by taking what OS President Blumenthal provided him, and by directing OS IT manager Mora to search OS's email archive system. Docket no. 204, Ex. Q at 10-12, 14-16. Mora in turn testified, at his October 7, 2015 deposition, that the only time he had assisted in collecting responsive documents was three weeks before when he conducted a keyword search in the EMC Source One email archive system, and he did not search individuals' hard drives. Docket no. 204, Ex. V at 12-14, 16.

Second, although OS searched its email archive system, it never searched its Microsoft Outlook Exchange email server. While the Source One archive system retained even emails that had been deleted from the user's inbox, emails would be purged if they were older than 84 months. Docket no. 204, Ex. V at 7-8, Ex. X at 6-7. By contrast, the Microsoft Exchange server held the users' live email accounts and so kept only undeleted emails, but it kept them indefinitely and thus had emails predating those stored in the Source One archives. Docket no. 204, Ex. V at 8-9, Ex. W at 6-9, Ex. X at 6-7. Nonetheless, and despite the court's order to search “any shared computer resources,” Mora testified he searched only the EMC Source One archive system. Docket no. 204, Ex. V at 13-14.

Indeed, OS acknowledges that after these depositions and the close of discovery, OS conducted further searches of the EMC archives, but “otherwise undertook no further searches.”[10] Docket no. 212, Dillard Decl. ¶ 8. OS thus limited its searches for email exclusively to the EMC Source One archive system, and does not contend otherwise. See docket no. 211 at 12. But this was plainly contrary to the court's order. Given how the EMC archive system was supposed to work, it may have been logical for OS to search primarily there. But there is no good excuse for OS's apparent decision to disregard and disobey the court's order to search employees' hard drives and any shared computer resources.

After finally searching its email archives in September 2015, OS's keyword search got 101,000 hits, but resulted in a production of only 109 emails. Docket no. 204, Ex. Q at 14-16, Ciardullo Decl. ¶ 10. This should have been a sign to OS that something was wrong. Yet after receiving this small additional production, and after not receiving emails from OS that it received from third parties and that should have been included in OS's production too, it was HM that once again was forced to bring its concerns to the court's attention. See docket no. 204, Ciardullo Decl. ¶ 11.

OS agreed to allow HM to send forensic experts to OS's facilities to try to retrieve relevant documents from OS's computer system. HM's technicians went to OS facilities on October 16, 2015, but were able to successfully export only 6,764 emails from 74,258 hits. Id. ¶ 12; docket no. 102-6 ¶ 10. Meanwhile, around October 14, 2015, OS contacted technical support at EMC for assistance with Source One, but EMC failed to then resolve the matter, and closed the trouble ticket on November 23, 2015 because OS was “not available to work on the issue due to other priorities.” Docket no. 209, Ex. Y.2. Thus, although it was plainly OS's responsibility to correct this problem—and to do so expeditiously after its many months of delay in even beginning to search for email—OS failed to make the matter a priority. Instead, it was HM that contracted with forensic experts to resolve the problem, not OS.

*14 Facing resistance to fixing the problem, on November 21, 2015, HM filed an ex parte application to enforce prior discovery orders. To its credit, OS thereafter took steps to diagnose and repair its computer system problems. Nonetheless, even after investigation by the forensic experts and supposed update and repair of the computer system, OS ESI could not be recovered. OS stated it would contact its former IT manager to try to locate information that had been moved, and it did contact Austin Engel, but Engel did not know where the missing files were. Docket no. 204, Ex. W at 13-14. OS apparently did not try to contact any other former IT employee, including Juan Monsivais, whom it now blames for moving the files. See docket no. 211, Mora Decl. ¶¶ 9-10. Instead, it was HM that contacted Monsivais, who provided the key information to enable OS to recover a not insignificant amount of missing communications that had been physically removed from the server. See docket no. 211 at 7-8; docket no. 204, Ciardullo Decl. ¶ 14.

OS has made a number of misrepresentations, some of which have had the effect of prejudicing HM's discovery efforts. The first of these was OS's admitted misstatement in its opposition to HM's motion to dismiss or transfer the case to the Western District of Michigan. In that opposition, filed on February 6, 2015, OS argued the case should remain in this district, in part because that “is where the design, research, and manufacturing of the allegedly infringing product occurred.” Docket no. 27 at 12. OS has explained the misstatement as a simple mistake by an associate, and asserted it was not prejudicial since OS corrected the misstatement in its discovery responses. Docket no. 73 ¶ 3. But HM did not learn the Accused Chairs were produced by foreign manufacturers until almost three months later, during a May 1, 2015 telephone conversation. See docket no. 68 at 3-4. Since HM thereafter waited to get OS's discovery responses before following up on this information, it is impossible to know if HM would have acted any differently had OS not made the misstatement in its opposition. Given that HM ultimately did not have enough time to serve letters rogatory on the foreign manufacturers, there is at least the possibility of prejudice. At the same time, the court cannot say the misstatement was in any way deliberate.

In response to HM's arguments in the late summer and fall of 2015 that OS's document production had to be incomplete because there were no or, later, too few communications concerning HM and the other subjects of this case, OS repeatedly asserted to the court and HM that it had made a thorough search and all the responsive documents in its possession had been produced. See, e.g., docket no. 70 at 6; docket no. 79 at 2-3. Indeed, OS ultimately certified on October 1, 2015 that it had produced all relevant and non-privileged documents and communications, including those obtained through a search of “the company's main servers and the servers of the individuals identified by HM.” Docket no. 204, Ex. B at 3-6.

As set forth above, numerous additional responsive documents were later discovered, and thus OS's certification was incorrect. Assuming OS was unaware of its email exporting problems on October 1, 2015, it may have then genuinely believe it had produced all relevant documents. But OS knew it had not searched its individual employees' hard drives as ordered by the court. Whether its certification that it had searched “the servers of the individuals”—whatever that means—was an effort to misleadingly suggest it had complied with the court's order to search individuals' hard drives when it had not is questionable, but a concern.

Of greater concern are the representations made by OS—in early September 2015, before it had even searched the EMC Source One email archives—that it had made a thorough search and no further responsive documents existed. There was simply no basis for such an assertion given OS's woefully inadequate search. Moreover, given the numerous emails ultimately obtained by HM through its third party discovery and forensic retrieval efforts in which key OS executives discuss and compare their products to HM products and even touch on infringement issues (see docket no. 204, Exs. A, E, H), it is not plausible that these same OS executives believed there were no such communications when OS told the court this in opposing HM's motion to compel on September 9, 2015. See docket no. 79 at 3 (insisting its search was complete), 14 (“[t]here should be no surprise that there are few documents that mention Herman Miller” given differences in the chairs), 20 (“Herman Miller is simply wrong in its speculation that there should be lots of communications about Herman Miller's trade dress infringement.”). Based on this, the court concludes OS's assertions to the court and HM were not made in good faith. Indeed, given the numerous relevant emails retrieved subsequent to the October 1 certification, there is strong reason to believe OS was also not acting in good faith when it certified that, after its production of 109 emails, its production was complete.

*15 In addition, in light of the deposition testimony given by certain executives, it appears OS's assertions that it had produced all relevant documents when it had not yet produced any emails mentioning these subjects may have been made deliberately to block HM from obtaining the emails that would demonstrate the misleading or false nature of that deposition testimony. For example, HM acquired—on or after the November 4, 2015 forensic analysis of four OS executives' hard drives—the following June 3, 2010 email that was sent from Larry Schrock, OS Director of Marketing, to several clients and OS executives, including OS's President Rick Blumenthal and Executive Vice President Rueda, with the subject of “New hotel chairs”:

Docket no. 204, Ex. A.9 (emphasis added); see also id. at A.17 (email sent by Schrock introducing OS's new “hospitality chairs” with images); id. at A.21 (email forwarded to Schrock which was originally sent from OS customer comparing OS chairs to HM Aeron and Eames chairs, lauding the popularity of these chairs in the media and among Los Angeles buyers, and requesting specific styles be stocked in the West Coast, which resulted in OS's President prompting follow-up with the manufacturer of these styles “for stocking in California”); id. at A.55 (August 2014 email from Schrock to Joshua Blumenthal and Fred Rueda arguing against placement of “direct knockoffs of Herman Miller statement chairs” on the cover of a publication within which OS advertises).

At his September 15, 2015 deposition, before the retrieval of these emails, Schrock testified as follows:

Docket no. 204, Ex. S at 7.

After HM pointed out in the instant Motion the inconsistency between what the emails show and the deposition testimony of Schrock and other OS executives, Schrock and other OS employees filed declarations in support of OS's Opposition to the instant motion. On June 6, 2016, Schrock declared under penalty of perjury:

Docket no. 211, Schrock Decl. ¶ 2. Even assuming that in 2015 Schrock did not recall the emails sent and received in 2010, Schrock's deposition testimony that he had essentially no familiarity with HM's famous designs—especially in light of this ongoing litigation—is simply not credible. Schrock's claim in his declaration, that his deposition testimony that he had never seen an Eames chair and would not know an Eames chair if he saw one simply meant he had never seen a physical sample, appears to be nothing more than a thinly veiled attempt to cover his intended deception. Absent HM obtaining the emails, such deception would be difficult to prove.[11]

*16 For all these reasons, the court finds OS made deliberate misrepresentations to the court and HM when it claimed it had conducted a thorough search and produced all responsive documents.

As recounted above, the court finds OS failed in its duty to institute a litigation hold, conducted a wholly inadequate initial search that delayed HM's discovery of relevant emails, disobeyed the court's order to search employees' hard drives, failed to address its own computer problems and thus forced HM to retain forensic experts to retrieve ESI, and made misrepresentations to the court and HM regarding its search for and production of responsive documents. This is all sanctionable conduct. The question remains, however, whether it resulted in the actual spoliation of evidence.

“Spoliation is the destruction or significant alteration of evidence, or the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation.” Compass Bank, 104 F. Supp. 3d at 1051-52 (citing Kitsap Physicians Serv., 314 F.3d at 1001). “[T]he applicable standard of proof for spoliation in the Ninth Circuit appears to be by a preponderance of the evidence.” Id. at 1052-53 (citations omitted). Here, it is more likely than not that OS's failure to preserve ESI deprived HM of evidence relevant to a party's claim or defense. See Fed. R. Civ. P. 26(b) (defining the scope of discovery).

As discussed above, OS's duty to preserve evidence arose on December 13, 2013, yet OS never instituted a proper litigation hold. Such a litigation hold would have preserved information in the EMC Source One email archive from the date the system was installed in 2010, including any emails predating the installation that may have been transferred from an earlier archival system. See docket no. 209, Ex. Y at 14-15, Ex. Y.5. If on the date of the litigation hold the archives held older emails that later passed the 84-month age before HM's forensic retrieval efforts, those would have been preserved. Further, OS's shared network, including the never-searched Microsoft Outlook Exchange server, had backups that retained even subsequently deleted emails for six months. Docket no. 204, Ex. V at 9-10. A litigation hold would have preserved those backups as of the date of the hold and going forward, as well as everything then on the Exchange server and going forward.

HM's investigation of this matter included the deposition of Ryan Johnson, a technical support engineer for EMC who worked with OS. He testified that EMC's investigation of OS's Source One retrieval problems in December 2015 revealed that the bodies of emails archived before January 2012 were manually deleted from the storage drive outside of the Source Once system, and that someone from OS must have carried out the manual deletion at the actual archive location. Docket no. 204, Ex. Y at 10-12; see id., Ex. Y.4. OS disputes this, arguing the only persons capable of such manual deletions—OS current and former IT employees Mora, Monsivais, and Engel—did not testify to having done so. Docket no. 211 at 11. At the same time, OS suggests Monsivais is responsible for moving portions of emails from the EMC Source One system to make room for more emails. Id. Thus, nothing in OS's Opposition wholly discredits the findings of the EMC investigation.

*17 If in fact someone at OS manually deleted emails, there is nothing to indicate whether this was done with an intent to obstruct discovery or simply for an innocent technical purpose, nor is there anything to indicate who made the decision to manually delete emails. What is clear is that no one at OS ordered a litigation hold, which would have stopped the deletion of emails for any purpose, whether done manually or due to automatic purges from the system.

Whether OS simply failed to preserve evidence by instituting a litigation hold or also manually deleted emails, HM has adequately demonstrated that some evidence was lost. In particular, even after the expert work to reconstitute the Source One archival emails, no emails predating October 2011 were produced from the Source One collection. Docket no. 204, Ciardullo Decl. ¶ 14; see id., Ex. A. By contrast, forensic searches of the individual hard drives undertaken by HM's experts yielded relevant emails dated prior to October 2011, as did the third party document subpoenas. See id., Exs. A, A.1-A.28, H. As such, it is apparent that OS's failure to preserve the emails in its Source One archives resulted in the loss of some emails. Indeed, it would be surprising if this were not the case given its purge function, and given the evidence of a manual deletion of emails predating 2012. And although HM has been able to obtain some pre-October 2011 emails through third party subpoenas and its own forensic efforts, it is reasonable to conclude that additional relevant emails that existed on OS's computers systems December 2013 have been lost and never obtained by HM.

The court finds OS's actions, which occurred at a time when OS had control over relevant evidence and a duty to preserve it, were at a minimum acts of gross negligence resulting in spoliation. See Surowiec v. Capital Title Agency, Inc., 790 F. Supp. 2d 997, 1005 (D. Ariz. 2011). Having found spoliation of ESI, it is within the Rules and the court's inherent power to impose sanctions. Fed. R. Civ. P. 37(b)(2), (e); Chambers v. NASCO, Inc., 501 U.S. 32, 44, 111 S. Ct. 2123, 115 L.Ed. 2d 27 (1991); Unigard Sec. Ins. Co., 982 F.2d at 365, 368. HM argues, in light of this spoliation and OS's failure to abide by court orders, terminating sanctions in the form of default judgment akin to granting HM summary judgment on the merits is warranted. Docket no. 204 at 1. The court thus turns to the question of what sanctions are warranted.

The Ninth Circuit engages in a “five-part ‘test’ to determine whether a dismissal sanction is just:

Valley Engineers Inc. v. Elec. Eng'g Co., 158 F.3d 1051, 1057 (9th Cir. 1998) (quoting Malone v. U.S. Postal Service, 833 F.2d 128, 130 (9th Cir. 1987)). Factors “3 and 5, prejudice and availability of less drastic sanctions” have been deemed “decisive” by the Ninth Circuit, because “where a court order is violated, factors 1 and 2 support [terminating] sanctions and 4 cuts against case-dispositive sanctions.” Id. at 1057 (citing Adriana International Corp. v. Thoeren, 913 F.2d 1406, 1412 (9th Cir. 1990)). Consideration of the fifth factor is additionally divided into “three subparts: whether the court explicitly discussed alternative sanctions, whether it tried them, and whether it warned the recalcitrant party about the possibility of dismissal.” Id. (citing Malone, 833 F.2d at 132).

*18 When a party's disobedience of a court's order results in spoliation and sanctions are sought under the court's inherent powers rather than the Federal Rules, the court specifically considers: “(1) the existence of certain extraordinary circumstances, (2) the presence of willfulness, bad faith, or fault by the offending party, (3) the efficacy of lesser sanctions, [and] (4) the relationship or nexus between the misconduct drawing the [default] sanction and the matters in controversy in the case” to determine if a terminating sanction is warranted.[12] In re Napster, Inc., 462 F. Supp. 2d at 1070 (quoting Halaco Eng'g Co. v. Costle, 843 F.2d 376, 380 (9th Cir. 1988)).

Application of these multi-factor tests should not amount to “a mechanical means of determining what discovery sanction is just.” Valley Engineers, Inc., 158 F.3d at 1057. Instead, they “provide[ ] a non-exhaustive list of things [the court] can think about in evaluating” the proper course of action. Id. As such, the court has considered all these factors, but discusses below only those factors relevant to its determination.

“While contumaciousness toward the court needs a remedy, something other than case-dispositive sanctions will often suffice.” Valley Engineers Inc., 158 F.3d at 1057. Where a party's “actions do not eclipse entirely the possibility of a just result, [this] suggest[s] that extraordinary circumstances do not exist.” Advantacare Health Partners v. Access IV, 2004 WL 1837997, at *5 (N.D. Cal. Aug. 17, 2004). Case-dispositive sanctions are only “appropriate under two circumstances: (1) when no lesser sanction could both punish Defendants and deter other[s] similarly tempted and (2) when the facts show that deceptive conduct has occurred and will continue.” Id. at *6 (citation omitted).

OS's actions—including its failure to preserve documents, its failure to conduct a proper search for documents as required by the discovery rules and as ordered by the court, and its misrepresentations regarding its efforts—are inexcusable, but nonetheless do not quite create extraordinary circumstances. The delay in production of some evidence and the spoliation of other evidence has not precluded the possibility of a just result at trial. As discussed in detail below, less drastic sanctions can be fashioned to punish OS's behavior, deter others from behaving in the same manner, and ensure that the behavior will not continue throughout the remainder of these proceedings.

*19 “For a dismissal to be proper, the conduct to be sanctioned must be due to willfulness, fault, or bad faith.” Anheuser-Busch, Inc. v. Nat. Beverage Distributors, 69 F.3d 337, 348 (9th Cir. 1995) (internal quotations marks omitted) (quoting Fjelstad v. American Honda Motor Co., 762 F.2d 1334, 1337 (9th Cir. 1985)). “A party's destruction of evidence is considered ‘willful’ if the party ‘has some notice that the [evidence was] potentially relevant to the litigation before [it was] destroyed.’ ” Compass Bank, 104 F. Supp. 3d at 1052 (quoting Leon v. IDX Sys. Corp., 464 F.3d 951, 959 (9th Cir. 2006)).

As discussed above, the court finds OS acted willfully and in bad faith. It had an obligation to institute a litigation hold in December 2013, but it never instituted such a hold, even after it filed this case. Thus, throughout this litigation, automatic purging protocols remained in effect, and apparently manual deletion of email bodies occurred. Once served with discovery, OS failed to undertake any actual search of its computer system for ESI for months, and finally did so only after HM raised the adequacy of the OS production with the court. Meanwhile, OS told HM and the court it had conducted a thorough search and no documents concerning HM existed, when in fact there were numerous emails in which OS executives discussed HM and subjects at issue in this litigation, as OS executives must have known.

OS argues the delay in production was the sole result of the actions of one former OS IT employee, Monsivais, who was terminated for cause. Docket no. 211 at 11; see docket no. 212, Ex. J at 5 (testifying he was terminated for deleting emails off the OS system, but not the emails at issue in the instant dispute). OS suggests this non-managerial employee, without seeking permission, creating any documentation, or informing any OS manager or executive, moved files off the email archive drive to make room for additional data and stored the moved files in hidden folders on a different company server. Docket no. 211 at 7-8, 11; see id., Mora Decl. ¶¶ 9-10. Assuming this is what occurred, it does not explain why OS failed to contact this former employee or locate the information on alternative servers, and chose instead to wait for HM to track down the critical information necessary for OS document production. See docket no. 212, Ex. J at 7 (testifying that he, Monsivais, and the previous and the current IT managers, Engel and Mora, were the only three OS employees for the relevant time period who would have had the access necessary to transfer the missing data). More importantly, although computer problems caused a delay in production between September 2015 and January 2016, this does not excuse or explain the more than four-month delay in OS even beginning to search its computer system after it was served with discovery requests on April 30, 2015.

The court also finds OS acted willfully when it failed to search networked drives other than the EMC Source One drive, such as its Microsoft Exchange Server, as well as its employees' individual hard drives in direct contravention to the court's order. See docket no. 204, Exs. O-T. OS thus acted with the requisite state of mind for the imposition of sanctions, up to and including terminating sanction. See Fjelstad, 762 F.2d at 1341 (defining this requirement as “ ‘disobedient conduct,’ which connotes deliberate malfeasance”); In re Napster, Inc., 462 F. Supp. 2d at 1074.

*20 HM argues it has been substantially prejudiced by OS's failure to produce all relevant information relating to the design, manufacture, and sale of the Accused Chairs. Docket no. 204 at 20. Specifically, HM contends that during depositions OS witnesses took advantage of HM's lack of knowledge about the contents of missing emails and provided false or misleading testimony.

There is evidence of OS attempting to mislead HM and the court, as discussed above. OS misrepresented the thoroughness of its search for documents and that it had produced all responsive documents, and meanwhile, before HM obtained the relevant emails, OS executives sat for deposition. As detailed above, there is at least some evidence of, if not blatantly false testimony, then intentionally misleading testimony at these depositions. OS contends its employees testified to the best of their recollections and HM suffered no prejudice because HM now has access to all the documents. Docket no. 211 at 13-18. But HM did not have the documents at the depositions when it should have.

The recovery of missing information is not always sufficient to overcome prejudice. Payne v. Exxon Corp., 121 F.3d 503, 508 (9th Cir. 1997) (quoting N. Am. Watch Corp. v. Princess Ermine Jewels, 786 F.2d 1447, 1451 (9th Cir. 1986) (“Belated compliance with discovery orders does not preclude the imposition of sanctions. Last-minute tender of documents does not cure the prejudice to opponents nor does it restore to other litigants on a crowded docket the opportunity to use the courts.”)). The court considers “not whether [the movants] eventually obtained the information that they needed, or whether [respondents] are now willing to provide it, but whether [respondents'] repeated failure to provide documents and information in a timely fashion prejudiced the ability of [the movants] to prepare their case for trial.” Id. Such prejudice exists here.

OS also argues if any prejudice resulted from the delay in production it could have been cleared up though supplemental depositions, but HM failed to notice any. Docket no. 211 at 24. This is unpersuasive in light of the history of this case. HM requested a delay of depositions during the September 25, 2015 telephonic conference, which OS strenuously opposed. OS and HM formalized the forensic discovery agreement, in a joint stipulation acknowledging that HM would not have access to the propounded documents before the close of discovery on October 23, 2015. Docket no. 98. HM requested supplemental depositions be included in the formal agreement, but OS struck this clause from the joint stipulation prior to filing with the court. Docket no. 214, Ex. BB. OS repeatedly opposed extending discovery, leaving depositions open until all documents were produced, or permitting additional depositions. OS cannot in good faith now blame HM for failing to notice depositions related to documents produced several months after the close of discovery.

Even if OS acted in good faith with regard to data collection efforts from the EMC Source One archive drive once it finally initiated these efforts, OS still failed in its duty to preserve evidence, and to date has failed to attempt to gather this information from other available sources, such as the Microsoft Outlook Exchange server. HM was not simply prejudiced at depositions due to the delayed production. It remains prejudiced due to the absence of emails that have been lost or at least never retrieved. As such, the prejudice to HM is substantial.

*21 The Ninth Circuit considers the “most critical criterion for the imposition of a dismissal sanction” a determination “that the misconduct penalized [ ] relate[s] to matters in controversy in such a way as to interfere with the rightful decision of the case.” Halaco Eng'g Co., 843 F.2d at 381. Due process requires “a nexus between the party's actionable conduct and the merits of his case.” Id. (citing Fjelstad, 762 F.2d at 1342).

OS argues that not only is there no nexus between its delayed production of documents and adjudication on the merits, because HM is now in possession of the delayed production, but also more broadly that these communications are not relevant to the case. See docket no. 211 at 2 (“None of the emails that HM relies on are relevant because none distinguish between protectable non-functional features and functional features that anyone can use.”); id. at 10 (“[R]elevancy needs to be shown on a document-by-document basis. Simply because a document contains ‘Herman Miller’ does not make the document automatically relevant.”). But OS concedes “potentially relevant emails” may have been collected by HM from third parties that were not included in productions from OS. Id. at 10.

The court finds the communications acquired by HM in spite of OS's conduct, through third party subpoenas and costly forensic analysis of a limited number of OS executive hard drives, evidence a sufficient nexus between the controversy and the spoliated documents to ensure due process is not offended by the imposition of sanctions. See, e.g., docket no. 204, Ex. A.5 (September 2009 email between Richard Blumenthal and Active Associates, LLC discussing a customer's “extreme[ ] interest in pursuing the ‘Herman Miller knock-off’ ”), Ex. A.11 (September 2010 email between Fred Rueda and other OS executives, including Richard Blumenthal, discussing retailer's concern with “the legal issue with Herman Miller,” and acknowledging it was not the first time this customer raised this issue, as similar concerns regarding different style chairs were addressed back in 2007), Ex. A.16 (October 2010 email from Don Smith & Associates to Richard Blumenthal explaining that OS's “New Space Chairs” could be “an Aeron Killer, which is the most sought after product EVER [by] our dealers” if only the arm height could be made adjustable), Ex. A.28 (2011 email from Joshua Blumenthal explaining to a customer OS recommends its EPICC chair to those specifically looking for a “Herman Miller looking chair”), Ex. A.37 (September 2012 email between Joshua Blumenthal and Jennifer Blumenthal: “People know Herman Miller, the Aeron Chair, the Mira, etc. because it's a multibillion dollar company that spends thousands on marketing. Every primetime television show showcases their most well known product.”), Ex. A.39 (December 2012 email between Nova Innovations and OS designers and manufacturers of the Accused Chairs indicating an OS customer “wants a Herman Miller look at $99”).

Regardless of whether these emails ultimately prove HM's case, they are at least relevant, and their delayed production affected HM's case at least to the extent they were not available for use in depositions. Further, to the extent there were additional relevant emails that have since been lost through OS's failure to preserve them, as appears likely, that goes directly to HM's ability to prove the merits of its case.

*22 The “court's discretion regarding the form of a spoliation sanction is broad, and can range from minor sanctions, such as the awarding of attorneys' fees, to more serious sanctions, such as dismissal of claims or instructing the jury that it may draw an adverse inference.” Apple Inc., 881 F. Supp. 2d at 1135 (citations omitted). The court must be mindful of the need to “exercise [ ] with restraint and discretion” its powers to sanction. Chambers, 501 U.S. at 44. “Any sanction must be the least drastic available to adequately mitigate the prejudice [ ] suffered.” Apple Inc., 881 F. Supp. 2d at 1150 (citing Chambers, 501 U.S. at 44-45 (“A primary aspect of [the court's] discretion is the ability to fashion an appropriate sanction for conduct which abuses the judicial process.”)).

Before finding less drastic sanctions unavailable, the court considers “whether [it] explicitly discussed alternative sanctions, whether it tried them, and whether it warned the recalcitrant party about the possibility of dismissal.” Valley Engineers Inc., 158 F.3d at 1057 (citing Malone, 833 F.2d at 132). OS argues it was not warned by the court and thus terminating sanctions would be unjust. Docket no. 211 at 21 (“[T]he Court has not previously warned OSP of the prospect of default judgment for any of the acts of which HM complains.”). A review of the record reveals OS had ample warning about the likelihood of facing some form of sanctions, although it had not previously been sanctioned or specifically warned about the possibility of terminating sanctions. Docket no. 86 (warning at September 25, 2015 telephonic hearing that HM reserved the right to seek all potential remedies); see docket no. 111 (minute order from December 4, 2015 telephonic conference, during which the court expressed concern about the missing documents, but acknowledged computer problems were affecting production, and stated it would wait to see how the matter may be resolved before taking up the issue of whether any further relief is needed); see also docket no. 204 at 1 n.1 (noting it has repeatedly informed OS of its intent to seek sanctions and citing “Dkts. 102-1 at 12; 138-1 at 6; 153 at 1; see also Dkt. 134”).

“[I]t is not always necessary for the court to impose less serious sanctions first, or to give any explicit warning.” Valley Engineers Inc., 158 F.3d at 1057 (citing Adriana, 913 F.2d at 1413). The conduct here has been long disputed, and that HM seeks terminating sanctions in addition to other sanctions should come as no surprise to OS. Nonetheless, the court finds terminating sanctions are not appropriate because less drastic sanctions can overcome the prejudice HM has suffered. As discussed, HM was prejudiced by the delayed production of relevant emails in that they were not available for HM to use during depositions, and continues to be prejudiced by its lack of any emails that existed but will never be produced due to spoliation or OS's failure to search all available locations such as the Microsoft Exchange server. But without knowing how many such emails have been lost and their precise nature, it is difficult to say with any certainty that their loss so prejudices HM that terminating sanctions are warranted. Instead, as discussed below, there are lesser sanctions that can address this prejudice.

In sum, OS's conduct has been egregious and has prejudiced HM. As such, serious sanctions are warranted. But terminating sanctions are not appropriate because they are not the least drastic sanctions available and capable of mitigating the harm suffered by HM. See Compass Bank, 104 F. Supp. 3d at 1060 (considering presentation of “alternative, less drastic sanction for the Court to consider” in determining whether terminating sanction are warranted).

*23 HM argues that should the court decline to implement terminating sanctions, in the alternative the court should sanction OS by: (1) declaring the validity of HM's trade dress rights; (2) prohibiting OS from asserting the equitable defense of laches; (3) precluding OS from arguing lack of notice of HM's trademark registration; and (4) presenting an adverse inference jury instruction in relation to withheld or spoliated documents. HM argues these sanctions are warranted for all the same reasons default judgment is warranted. Docket no. 204 at 23.

HM's first three requests are for sanctions asserting its trade dress rights and prohibiting OS from asserting a of lack of notice of HM trademarks and the defense of latches. In essence, HM argues OS's delaying tactics and failure to respond to discovery deprived HM of the right to submit a timely and proper Motion for Summary Judgment. Docket no. 204 at 23. Consequently, HM contends the court should deem the instant motion as a Motion for Summary Judgment and grant the requested sanctions, in light of the newly presented evidence and OS “having already lost on those same issues at summary judgment.” see id. (“It is unseemly that Office Star can have withheld documents bearing on the questions of intentional infringement, aesthetics versus functionality, and secondary meaning, yet still be able to pursue defenses at trial....”).

Although OS did not prevail on its summary judgment motion, that does not mean HM is entitled to summary judgment itself. In denying OS's motion, the court repeatedly found “Herman Miller has shown the presence of a material issue of fact.” See docket no. 192 at 19 (“a genuine issue of fact as to whether the overall combination of shapes and parts selected to create the look of the EAMES and AERON chairs is non-functional and purely aesthetic in nature”); id. at 20 (“a genuine issue of fact as to the availability of alternative designs”); id. at 23 (“triable issues of fact are presented as to whether the asserted trade dress for the AERON and EAMES chairs is non-functional”); id. at 26 (“a triable issue of fact as to the contested elements of its claims for trade dress infringement”); id. at 27 (“a triable issue of fact as to whether Herman Miller's asserted EAMES and AERON trade dress has achieved the status of ‘famous' ”); id. at 29 (“a triable issue as to whether Office Star was aware of the EAMES and AERON chair designs, and intentionally copied them in an effort to increase its sales”); id. at 30 (finding a triable issue of fact exists with respect to constructive notice of HM's trademark registrations). The court also denied OS's request to limit damages under the defense of laches at the summary judgment stage, because OS failed to present evidence that HM's “delay in filing suit was unreasonable” or that OS “would suffer prejudice caused by the delay if the suit were to continue.” id. at 32. These issues remain.

Much of the evidence, including several of HM's expert reports and many of the incriminating emails, were available prior to the summary judgment motion filing deadline. See generally id.; docket no. 116 (granting extension of time to file). HM points to no “smoking gun” that unequivocally resolves these material issues of fact, the determination of which is the rightful provenance of the jury. See docket no. 69 at 2 (seeking a “ ‘smoking gun’ communication directing [OS designers and manufacturers] to overtly copy [HM] design”). Furthermore, HM fails to make clear how each of the three proposed sanctions specifically relates to the spoliated evidence. Due process requires such a nexus. See Fjelstad, 762 F.2d at 1342; Halaco Eng'g Co., 843 F.2d at 381.

*24 The delayed discovery tends to show OS's knowledge of HM's unique designs and that this knowledge played some roll in its manufacture of the Accused Chairs. See docket no. 204, Ex. A.1-A.60. But it falls short of unequivocally establishing HM's trade dress rights in these designs or proving OS was aware of HM's trademarks. See, e.g., docket no. 33 at 6 (quoting Clicks Billiards, Inc. v. Sixshooters, Inc., 251 F.3d 1252, 1258 (9th Cir. 2001) (“To sustain a claim for trade dress infringement, [a party] must prove: (1) that its claimed dress is nonfunctional; (2) that its claimed dress serves a source-identifying role either because it is inherently distinctive or has acquired secondary meaning; and (3) that the defendant's product or service creates a likelihood of consumer confusion.”)); Id. at 17 (citing Disc Golf Ass'n, Inc. v. Champion Discs, Inc., 158 F.3d 1002, 1006 (9th Cir. 1998) (identifying four factors that must be addressed to assess functionality)). The requested sanctions are equally unrelated to the application of laches as a defense. see id. at 32. It is pure speculation to assert the spoliated documents would be substantially different from those produced and affirmatively prove every element of HM's case. Thus, the court should deny HM's request for alternative sanctions one through three.

“The Ninth Circuit has approved the use of adverse inferences as sanctions for spoliation of evidence, but has not set forth a precise standard for determining when such sanctions are appropriate.” Compass Bank, 104 F. Supp. 3d at 1054. Many courts in this circuit have adopted a multi-factor test developed in the Second Circuit. Id. This test provides:

Id. (citing Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 107 (2d Cir. 2002)).

As detailed above, HM has proved each of the three elements. OS's duty to preserve evidence attached on December 13, 2013. OS's computer system contained communications dating at least as far back as November 2010 and likely much older files. See docket no. 209, Ex. Y.5 (documenting installation of the EMC system); docket no. 204, Exs. A.1-A.28, H (recovered relevant emails from 2009 and 2010); docket no. 211, Mora Decl. ¶ 2 (attesting to an indefinite period of storage on individual drives and the OS Microsoft Exchange Server). OS failed to institute a litigation hold, acted with conscious disregard towards its duty to preserve evidence, and was at least grossly negligent in the management of its EMC Source One email archive. Emails recovered from third parties show the spoliated evidence was relevant to HM's claims of trade dress infringement. See docket no. 204, Exs. E, H.

OS argues an adverse jury instruction is not warranted, in part because “HM merely speculates that there would be documents relevant to the alleged trade dress.” The court disagrees, given the relevant documents that were eventually recovered from a later period and other sources. See In re Napster, Inc., 462 F. Supp. 2d at 1077 n.5 (the content of emails recovered from other sources is probative of the contents of lost emails) (citing Zubulake v. UBS Warburg LLC, 229 F.R.D. 422, 437 (S.D.N.Y. 2004)). OS is correct in asserting HM has the “burden to show that [OS] lost or destroyed relevant evidence.” See Compass Bank, 104 F. Supp. 3d at 1060. But the court finds HM “has made a prima facie showing” that the emails exist or existed in other storage devices that the court ordered OS to search. see id. Since discovery requests were initially propounded on April 30, 2015, OS has had ample time to conduct these searches but has not done so. Further, HM has shown the likelihood that older emails relevant to this case have been purged from OS's computer servers since December 2013 due to OS's failure to institute a litigation hold. Under such circumstance a negative inference is warranted. See Compass Bank, 104 F. Supp. 3d at 1060.

*25 “ ‘[A]n adverse inference instruction can take many forms, again ranging in degrees of harshness.’ ” Apple Inc., 881 F. Supp. 2d at 1150 (citation omitted). The level of harshness should be commensurate with the egregiousness of the conduct. Id. There are three levels of instructions generally considered: (1) “when a spoliating party has acted willfully or in bad faith, the jury can be instructed that certain facts are deemed admitted and must be accepted as true”; (2) “when a spoliating party has acted willfully or recklessly, a court may impose a mandatory presumption”; and (3) the least harsh instruction “permits (but does not require) a jury to presume that the lost evidence is both relevant and favorable to the innocent party.” Id. (citation omitted).

OS made misrepresentations to the court and HM that reflect willfulness and bad faith. With respect to the evidence actually lost, however, the record reflects OS acted with at least gross negligence and a conscious disregard towards its obligations, but not necessarily deliberate intent. Given this, to address the spoliated evidence, the court recommends an intermediate, mandatory presumption instruction be given to the jury.

Although the exact wording of the instruction will likely be determined at trial, the court recommends the instruction contain many of the elements proposed by HM in its proposed order submitted with this Motion. First, the instruction should acknowledge the lack of production of communications between OS and third parties dated prior to 2011. Second, it should inform the jury the lack of such documents resulted from OS's failure to preserve certain records, and also may be due to OS's failure to search certain electronic records contrary to a court order to do so. Third, it should instruct the jury to presume the records that have been lost were adverse to OS, and would have been similar to the post-2011 communications they have seen that mention HM and draw comparisons between the design and functional elements of the HM chairs and the Accused Chairs.

Neither party has requested the court to reopen discovery for the purposes of compelling OS to undertake an additional searches for documents, and the court finds, with only two months to trial, such an undertaking would be unduly burdensome. Additionally neither the parties, nor the court, desires any delay in the current trial schedule. See docket no. 214 at 10; docket no. 211 at 25. The jury instruction recommended above would address the prejudice to HM from spoliated evidence. But it would not address the prejudice to HM due to OS's delay in production.

Both parties agree HM may be able to mitigate some prejudice through additional deposition testimony. See docket no. (“If the Court were not inclined to grant a default judgment, Herman Miller would consent to such supplemental discovery if it could be accomplished without delaying trial and were conducted at Office Star's expense.”); docket no. 211 at 22 (“If the Court felt it was warranted, it could allow HM to conduct additional depositions of OSP's witnesses to cure any alleged prejudice from the delayed receipt of the temporarily missing documents.”). The court, being unable to determine the extent of mitigation that might be achieved through additional depositions, and mindful of the fast approaching trial deadlines, recommends the parties meet and confer regarding the efficacy of noticing and conducting a limited number of depositions, and then report back to the court. If HM desires to take additional depositions, the court recommends discovery be reopened for this limited purpose. The court finds, as discussed further below, the reasonable expenses associated with any such depositions should be charged to OS.

*26 “The discretion to impose sanctions for reckless or negligent misconduct is as broad as the discretion which is accorded for imposition of sanctions where the misconduct was deliberate and intentional.” Gates Rubber Co. v. Bando Chem. Indus., Ltd., 167 F.R.D. 90, 103 (D. Colo. 1996). “[I]ssue-related sanctions [that] are fundamentally remedial rather than punitive ... can be imposed on a showing that the sanctioned party resisted discovery by a preponderance of the evidence.” Parsi v. Daioleslam, 778 F.3d 116, 131 (D.C. Cir. 2015) (internal quotation marks and citation omitted). “The appropriateness of a particular sanction is primarily a function of two variables: the facts presented and the court's purpose in penalizing the errant party.” Anderson v. Beatrice Foods Co., 900 F.2d 388, 394 (1st Cir. 1990).

Pursuant to Rule 37(b), the court finds HM is entitled to monetary sanctions in the form of attorney's fees and expenses related specifically to its November 21, 2015 ex parte application (docket no. 102) and the instant Motion (docket no. 204). See Fed. R. Civ. P. 37(b)(2)(C). The court must order sanctions under Rule 37 unless OS's failure to search its employees' individual hard drives and all other relevant network drives when ordered “was substantially justified or other circumstances make an award of expenses unjust.” Id.; see Pierce v. Underwood, 487 U.S. 552, 565, 108 S. Ct. 2541, 2550, 101 L.Ed. 2d 490 (1988) (defining “substantially justified” as “justified to a degree that could satisfy a reasonable person”). A “disobedient party,” after failing to comply with a court order, must “pay the reasonable expenses, including attorney's fees, caused by [its] failure.” Id. As detailed above, OS's noncompliance with the court's order was unreasonable and without justification. Due to OS's prolonged and repeated failure to produce requested ESI, the court finds this cost-shifting a just award of expenses. See Parsi, 778 F.3d at 118 (“A court without the authority to sanction conduct that so plainly abuses the judicial process cannot function.”).

Additionally, pursuant to its Rule 37(e), the court finds HM is entitled to monetary sanctions in the form of attorney's fees and expenses related to HM's forensic analysis of OS computers, and to HM's taking of depositions associated with determining the cause underlying OS's inability to export emails from its EMC email archive or, more generally, the lack of ESI produced. These “measures [are] no greater than necessary to cure the prejudice” incurred by HM due to OS's failure to preserve ESI resulting in spoliated evidence that “cannot be restored or replaced.” Fed. R. Civ. P. 37(e)(1); see Matthew Enter., Inc. v. Chrysler Grp. LLC, 2016 WL 2957133, at *3 (N.D. Cal. May 23, 2016) (“Rule 37(e) intentionally leaves to the court's discretion exactly what measures are necessary”); Fed. R. Civ. P. 37(e) advisory committee's notes to 2015 amendment (emphasis added) (explaining the rule is intended to “foreclose[ ] reliance on inherent authority” and applies “only if the information was lost because the party failed to take reasonable steps to preserve the information”); id. 37(e)(1) (describing how “the severity of given measures must be calibrated in terms of their effect on the particular case.”).

In addition, in light of OS's failure to adequately search for ESI and its subsequent misrepresentations to the court and HM regarding that search, which delayed the production of discovery so as to deprive HM of having the documents during depositions, the court finds HM is entitled to reimbursement of its fees and costs incurred in the taking of any depositions subsequent to this Report and Recommendation to mitigate the prejudice suffered as a direct consequence of OS's discovery failures. Due to OS's willful actions that, when taken together, amount to more than gross negligence, award of all of the above monetary sanctions is also available under the court's inherent powers. See Fink v. Gomez, 239 F.3d 989, 993-94 (9th Cir. 2001) (reasoning “willful actions, including recklessness when combined with an additional factor” can be “tantamount to bad faith” and justify sanctions under the court's inherent powers). Under its inherent powers, the court retains the control necessary “ ‘to manage [its] own affairs so as to achieve the orderly and expeditious disposition of cases.’ ” Chambers, 501 U.S. at 43 (quoting Link v. Wabash R. Co., 370 U.S. 626, 630-31, 82 S. Ct. 1386, 8 L.Ed. 2d 734 (1962)).

*27 “In the context of spoliation of evidence, the Ninth Circuit has ‘confirmed the power of the district court to sanction under its inherent powers not only for bad faith, but also for willfulness or fault by the offending party.’ ” Knickerbocker v. Corinthian Colleges, 298 F.R.D. 670, 678 (W.D. Wash. 2014) (quoting Unigard Sec. Ins. Co., 982 F.2d at 368 n.2 (citing Halaco Eng'g Co., 843 F.2d at 380)). “Before awarding sanctions under its inherent powers, however, the court must make an explicit finding that counsel's conduct ‘constituted or was tantamount to bad faith.’ ” Primus Auto. Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 648 (9th Cir. 1997) (citation omitted). Furthermore, the offending “party's motive or degree of fault in destroying evidence is relevant to what sanction, if any, is imposed.” Realnetworks, Inc. v. DVD Copy Control Ass'n, Inc., 264 F.R.D. 517 (N.D. Cal. 2009) (citing Baliotis v. McNeil, 870 F. Supp. 1285, 1291 (M.D. Pa. 1994)).

OS never instituted a proper litigation hold; OS has made a number of misrepresentations to the court and HM regarding its discovery efforts, some of which have had the effect of prejudicing HM's discovery efforts; OS disobeyed a court order; and OS's gross negligence led to spoliation of evidence. The court finds these actions “tantamount to bad faith.” See Roadway Exp., Inc. v. Piper, 447 U.S. 752, 767, 100 S. Ct. 2455, 65 L.Ed. 2d 488 (1980). As discussed above, it also appears OS may have been motivated, at least in part, by a highly culpable desire to deliberately block HM from obtaining relevant information. As such, sanctions in the form of cost-shifting, including the expense associated with forensic analysis undertaken by HM and depositions undertaken by HM to substantiate claims regarding discovery failures continuously denied by OS, and future depositions intended to mitigate the prejudice suffered by HM, are commensurate with OS's degree of fault in the spoilation of the evidence and other discovery abuses at issue. See E.E.O.C. v. Fry's Elecs., Inc., 287 F.R.D. 655, 660 (W.D. Wash. 2012) (awarding monetary sanctions “to offset the excess costs caused by defendant's discovery violations, to punish unacceptable behavior, and as a deterrent to future bad conduct.”).

The amount of the sanctions can only be determined after submission of a declaration and records in support of reasonable attorneys' fees and costs associated with (1) HM's November 21, 2015 ex parte application (docket no. 102) and the instant Motion (docket no. 204), (2) HM's employment of forensic experts, (3) HM's taking of depositions associated with determining the cause underlying OS's inability to export emails from its EMC email archive and other problems obtaining ESI, and (4) HM's taking of any depositions subsequent to this Report and Recommendation to redress the problems discussed above. HM should be ordered to submit detailed calculations within fourteen days of any Order accepting this Report and Recommendation, and OS should be ordered to file any response within fourteen days of that submission.

IT IS THEREFORE RECOMMENDED that the District Court issue an Order approving and accepting this Report and Recommendation, and ordering the following:

Page references for exhibits to docket numbers 204, 212, and 214 correspond to the pages as numbered by the court's electronic case filing system. All other page references are to the document's internal numbering.

A third foreign manufacturer was later disclosed by OS in a September 28, 2015 supplemental response. Docket no. 211 at 16; see docket no. 93 at 3.

The court was able to review the audio recordings of the September 25, 2015 hearing and several other telephonic conferences during preparation of this Report and Recommendation.

It is not entirely clear what is meant by either “servers of the individuals,” or “individuals identified in by HM in the Rule 37 Submission.” In one section of the Rule 37 Joint Submission on HM's Motion to compel, the following OS employees are listed: Richard Blumenthal (President), Josh Blumenthal (VP of Sales), Fred Rueda (Executive VP), Jullien Egger (Director of Seating Design), Barry Barsamian (Director of Operations), Larry Schrock (Marketing), Lili Ghavami (Director of Finance), and Richard Zhu (Director of Office Star Operations—China). Docket no. 79 at 2. This is the same list referenced in the court's order—the list of OS employees deposed by HM. See docket no. 86.

At his deposition, Mora testified the 84-month purge configuration “has been in place, to my knowledge, since I've been” at OS, and this meant he would be unable to find email deleted 85 months ago. Docket no. 205, Ex. V at 8. He sought to distance himself from this testimony in his declaration, stating the 84-month purging capability “has not, to my knowledge, been activated.” Docket no. 211, Mora Decl. ¶ 2. But Mora, who is still OS's IT manager, did not state he actually looked into whether the purge function was activated, and he certainly indicated his understanding at his deposition it was in effect. Moreover, as discussed below, there is an absence of emails recovered from the Source One system that predate 2011, indicating the purge function was indeed in operation, unless this resulted from manual deletions, as also discussed below.

This information was gathered at an April 5, 2016 deposition of EMC Corporation employee, Ryan Johnson. See docket no. 209, Ex. Y. On January 15, 2016, the parties jointly stipulated to this deposition and to the deposition of two former OS employees who were involved with maintaining the company's IT system. Docket no. 134; see docket no. 204, Ex. W, X. The parties agreed to depose these individuals in the hope they could more fully explain what caused the delay in OS's ability to produce the requested discovery. Docket no. 134.

The court notes, and both parties acknowledge, the number of hits returned in a key word search is not strictly indicative of the number of distinct, individual communications on the searched drive. See docket no. 214 at 2.n3 (admitting “many [emails received] were duplicates”); docket no. 211, Goodwin Decl. (documenting OS production of email chains acquired by HM from third parties, missing only a final email in the chain, to which OS was not a party). For example, if three OS employees were copied on a single email message involving five responses, this one chain could result in at least fifteen hits on the system, even if only a single key word was used in a single message on the chain—each of three email mail boxes receiving or sending five different messages would contain that one key word. And the actual number of hits could be substantially higher depending on whether the OS employees sent any of the message out on the chain, thus having both sent and received emails, and the number of key words contained in each message in the chain.

Just how successful an export remains open to question. OS's IT Manager confirmed the EMC Source One drive was not reindexed after the missing email message bodies were copied back to the drive. Docket no. 211, Mora Decl. ¶ 12 (“I believe it is possible that emails may not export if the indexes between the header data and the Files and Folders data are corrupted or missing.”). Notably, emails recovered were dated prior to November 2013 (docket no. 211 at 8), and the missing bodies were from “emails dated before mid-July 2014.” Docket no. 146 ¶ 3.

Although OS claims all responsive documents archived on the EMC Source One drive have been produced, HM states it has only received Source One documents dated after October 2011. Docket no. 214 at 4.

The possible exception to this was OS's search for missing email bodies needed to complete the EMC Source One search. See docket no. 211, Mora Decl. ¶ 9.

HM argues the testimony of Richard Blumenthal, Josh Blumenthal, and Fred Rueda was equally misleading. Docket no. 204 at 15-17. The court finds these arguments somewhat less clear due to the greater nuance surrounding the testimony at issue. See id. docket no. 211 at 13-14. The court will not further analyze these arguments, as “[c]redibility is a matter to be decided by the jury.” U.S. v. Binder, 769 F.2d 595, 602 (9th Cir. 1985).

In 2006, the Ninth Circuit explained the Malone test was specific to sanctions sought under Rule 37, while the Halaco test was applicable to those sought under the court's inherent powers. In re Napster, Inc., 462 F. Supp. 2d at 1075 n.4; see Fed. R. Civ. P. 37; Malone, 833 F.2d at 130; Halaco Eng'g Co., 843 F.2d at 380. But the lines between these two tests are somewhat blurred where, as here, sanctions are sought under both. See, e.g., id. at 1072 (including analysis of willfulness as a required step when considering dismissal under the Rules); Nursing Home Pension Fund v. Oracle Corp., 254 F.R.D. 559, 564 (N.D. Cal. 2008) (discussing differences in the two tests and finding prejudice is not a requirement in the latter); Apple Inc., 888 F. Supp. 2d at 992 (citations and internal quotation marks omitted) (“In considering what spoliation sanction to impose, if any, courts generally consider three factors: (1) the degree of fault of the party who altered or destroyed the evidence; (2) the degree of prejudice suffered by the opposing party; and (3) whether there is a lesser sanction that will avoid substantial unfairness to the opposing party.”).