INTRODUCTION

On March 28, 2017, Plaintiff Chelsea Addison (“Addison” or “Plaintiff”) filed a Motion for Terminating Sanctions (“Motion”) against Defendants Monarch & Associates (“Monarch”) and Tina Coca (“Coca”). (ECF No. 184.) On April 25, 2017, the Court heard the Motion at a regularly-noticed hearing, in which both Coca and counsel for Addison appeared. (ECF No. 186.) After assessing the parties' arguments, and reviewing the pleadings, transcripts, and other parts of the record, the Court recommends that the Motion be granted and default judgment and other relief be entered consistent with the Recommendation below.

On February 25, 2014, Addison filed this lawsuit against Monarch. (ECF No. 1.) On February 28, 2014, Addison sent a preservation letter to Monarch. (Preston Decl. ¶ 2.)[1] Addison served Monarch with her complaint on March 10, 2014. (Preston Decl. ¶ 4, Apr. 1, 2014, ECF No. 10-1.)

Coca operated Monarch, a debt collector, which (Addison alleges) routinely violated the Fair Debt Collection Practices Act (“FDCPA”) (15 U.S.C. §§ 1692-1692p). Addison asserts that Monarch called her in September 2013, falsely represented itself as a process server seeking her address to serve legal process, and extorted a payment of $200 from her to stop service of that process. (See Addison Decl. ¶¶ 2-5, July 6, 2015, ECF No. 60-3.) Coca was added as a defendant in the First Amended Complaint on April 20, 2015. (ECF Nos. 43, 45.)

Prior to starting Monarch, Coca was a middle-level manager in a group of companies, which the FTC sued and shut down for violating the FDCPA under the caption Federal Trade Commission v. Rincon Management Services, LLC, No. 11-01623. (Preston Decl. ¶¶ 6-9, Mar. 29, 2016, ECF No. 102-4.) The FTC produced evidence that the Rincon defendants used illegal collection tactics that are strikingly similar to those that Addison alleges Monarch used. (Id. ¶¶ 4, 8.)

On July 6, 2016, Addison filed a motion to sanction various discovery-related misconduct by Coca and Monarch. (ECF No. 60.) On January 26, 2016, the Court granted that motion in part (“January 2016 Order”). (ECF No. 83.) On May 19, 2016, Addison filed another motion for sanctions that sought, among other relief, a default judgment against Coca and Monarch for continuing discovery misconduct and violation of the Court's January 2016 Order, as well as production of withheld evidence. (ECF No. 116.) In response, the Court entered two subsequent orders on June 9, 2016, and September 6, 2016, which required Coca to produce various computer media. (ECF Nos. 127, 139.) On February 3, 2017, the Court entered an order, which recognized “there already are pending motions for sanctions” but nonetheless “instruct[ed] Plaintiff to proceed with a new, formal noticed motion for sanctions against Coca” that was to be self-contained. (ECF No. 179.)

RELEVANT FEDERAL LAW

*2 The Court “has the inherent authority to impose sanctions” on Monarch and Coca for acting in “bad faith, which includes a broad range of willful improper conduct,” or for “conduct tantamount to bad faith.” Fink v. Gomez, 239 F.3d 989, 992, 994 (9th Cir. 2001). “Upon a finding of bad faith, courts can levy an assortment of sanctions under their inherent power, including monetary awards, attorneys' fees, adverse inference jury instructions, and even dismissal of claims [or default].” Knickerbocker v. Corinthian Colleges, 298 F.R.D. 670, 677 (W.D. Wash. 2014) (citing Apple Inc. v. Samsung Elecs. Co., Ltd., 881 F. Supp. 2d 1132, 1135 (N.D. Cal. 2012) (internal citations omitted)); see also Leon v. IDX Sys. Corp., 464 F.3d 951, 958, 961 (9th Cir. 2006) (district court had inherent authority to dismiss claim).

Rule 37(b)(2) also authorizes the Court to enter sanctions (“just orders”) where a litigant “fails to obey an order to provide or permit discovery.” Fed. R. Civ. P. 37(b)(2)(A). As set forth below, Coca has violated the Court's orders requiring her to disclose all computer media with documents relevant to Monarch. (Cf. ECF No. 83, 127, 139.) The scope of Rule 37(b)(2) is very broad, and certainly includes these orders. In particular, “a motion to compel under [Rule] 37(a) is not a prerequisite to the imposition of sanctions under Rule 37(b).” Wm. T. Thompson Co. v. Gen. Nutrition Corp., Inc., 104 F.R.D. 119, 121 (C.D. Cal. 1985). Rule 37(b)(2) expressly authorizes “rendering a default judgment against the disobedient party.” Fed. R. Civ. P. 37(b)(2)(A)(vi); see also Computer Task Grp., Inc. v. Brotby, 364 F.3d 1112, 1115 (9th Cir. 2004) (affirming default as Rule 37(b) sanction); Valley Eng'rs Inc. v. Elec. Eng'g Co., 158 F.3d 1051, 1056-57 (9th Cir. 1998) (dismissal). Rule 37(b)(2) also authorizes the Court to award “the reasonable expenses, including attorney's fees, caused by the failure” to obey such order. Fed. R. Civ. P. 37(b)(2)(C). Notably, Rule 37 “does not require a finding of bad faith as a prerequisite to an award of reasonable expenses to the moving party.” Green v. Baca, 225 F.R.D. 612, 614 (C.D. Cal. 2005) (punctuation, citations omitted).

Moreover, the Court has both inherent authority and authority under Rule 37(b)(2) to order class certification as a form of discovery sanction. See Small v. Univ. Med. Ctr. of S. Nev., No. 13-00298, 2014 WL 4079507, at *31-37 & n.121 (D. Nev. Aug. 18, 2014). Where Coca's “own conduct has rendered the preparation and filing of a motion for Rule 23 class certification impracticable, certification is an appropriate sanction[.]” Id. at *36 n.121 (class certification as a discovery sanction; citing cases). Indeed, this case was brought as a class action and, as Addison has argued, sanctions in the form of an individual judgment would effectively defeat this lawsuit.

BACKGROUND

The January 2016 Order already sanctioned Coca for spoliating evidence after she knew about possible FDCPA claims against Monarch. (See ECF No. 83.) Below, the Court summarizes the January 2016 Order, the record supporting it, and evidence of spoliation that Addison has subsequently uncovered and presented:

The January 2016 Order found that Coca knew about claims that Monarch violated the FDCPA when she supposedly destroyed Monarch's documents and that “such conduct may constitute sanctionable spoliation of evidence.” (ECF No. 83 ¶ 5.)[3]

The January 2016 Order found “Coca misrepresented that, at the time of her deposition, Monarch was only collecting against the fifty-one individuals ....” (ECF No. 83 ¶ 4.)

The Court's January 2016 sanctions order found that “Coca failed to produce a complete copy of Monarch's QuickBooks account” and that “the copy [of the QuickBooks account] provided to Plaintiff did not contain” the “complete record of payments made by Monarch's debtors and also a complete record of Monarch's payments to its employees,” despite Coca's testimony that the QuickBooks file contained such data. (ECF No. 83 ¶ 1.)

Moreover, the Court's January 2016 sanctions order required Coca to disclose “any other computer media which she owns or controls and which contains documents or data relevant to this case.” (ECF No. 83 ¶ 6.) However, the record indicates by clear and convincing evidence that Coca continued to spoliate and/or conceal relevant documents, and to flout the Court's orders requiring disclosure of relevant documents:

On May 19, 2016, Addison filed her first motion for terminating sanctions. (ECF No. 116.) On June 9, 2016, the Court entered an order that deferred sanctions and required Coca, e.g., to “produce all documents (including all computer media which contains Monarch's records) relevant to this case (including Monarch's operations, any assets or transfers over $10,000 by Coca or Monarch since January 1, 2011 and Coca's current businesses)[.]” (ECF No. 127 at 1.)

On August 9, 2016, Addison filed a motion for an order for Coca to show cause why she should not be held in contempt of the Court's June 2016 order. (ECF No. 133.) On September 6, 2016, the Court entered an order that required Coca to “make a reasonable effort to search for and obtain” “any computer media or documents for Monarch, Tiden and Timarie.” (ECF No. 139 at 1.) The Court's order further specified, “If the computers are not currently in her possession but nonetheless within her ‘control’ to obtain them from a third party, she must do so.” (Id.) The Court's order also required Coca to file a declaration “under oath and subject to penalty of perjury that the computers are not in her possession, custody or control, together with an explanation for each computer identified above of what efforts were made to search for each computer, what its current location is and if it cannot be produced, why not.” (Id. at 2.) Again, the record shows by clear and convincing evidence that Coca continued to flout the Court's orders:

9. In response to the Court's June 2016 order, Coca produced a USB drive and iPad. (Preston Decl. ¶ 39.) Again, Addison's expert witness found no evidence, e.g., that these computer media ever contained email from Coca's admin@monarchassociates.org email account. (Zbikowski Decl. ¶¶ 6-14, Aug. 6, 2016; see also Preston Decl. ¶¶ 40-42.)

10. In late September 2016, in response to the Court's order, Coca produced another computer to Addison's counsel and filed a short declaration that failed to identify any computers—other than the one she had produced. (ECF No. 141; see also Preston Decl. ¶ 44.)

*5 11. Addison's computer expert has examined the latest computer that Coca produced, and her counsel has examined the documents found on that computer. (Zbikowski Decl. ¶ 2, Feb. 1, 2017; Preston Decl. ¶¶ 47-48.) While the September 2016 computer contains a few documents related to Monarch (mostly related to this litigation), Coca still has not produced Monarch's business records (the accounting records, collection records, and emails) that would be essential to a fair trial on Addison's class claims. (Id. ¶ 48.) However, the computer contains evidence that Coca has maintained but has failed to produce documents which are responsive to the Court's June 9, 2016 order. (Zbikowski Decl. ¶¶ 4-13, Feb. 1, 2017.)

FINDINGS

The Court finds that Coca spoliated evidence and violated Court orders (ECF Nos. 83, 127, 139) in violation of Rule 37(a) and (b). Her failure to comply with Court orders was not substantially justified nor do other circumstances make an award of expenses unjust. The Court further finds that Coca's conduct above was done in bad faith; that the conduct was extremely prejudicial to Addison; that the conduct ensures there is no way to ever guarantee that Addison could have a fair trial or access to the true facts or all the relevant evidence; that lesser sanctions are futile (not least because Addison would be helpless to rebut any evidence that Coca might present to overcome an evidentiary presumption); and that the public's interest in expeditious resolution of litigation and the Court's need to manage its dockets weigh in favor of default. The Court finds that Coca acted wrongfully, without justification, excuse, or mitigating circumstances, and she intended her conduct above would deprive Addison and the class of their interest in a fair proceeding and a recovery under the claims alleged by Addison in her complaints. Moreover, the Court finds that Coca's actions were reasonably certain to injure Addison and the class by depriving them of their interest in a fair proceeding and a recovery under the claims alleged by Addison in her complaints. The Court, therefore, finds by clear and convincing evidence that Coca willfully and maliciously injured Addison, the class, and Addison's counsel through her spoliation of evidence and other discovery misconduct described above. The Court also finds that terminating sanctions here are necessary to protect the integrity of the Court and to deter others who might be tempted to follow Coca—i.e., spoliate their way to victory.

The USAePay records show Monarch had $2.1 million revenue in card payments alone from roughly 1,500 to 3,000 consumers. (Preston Decl. ¶ 16.) The class of consumers identified in these USAePay records is ascertainable; is sufficiently numerous under Rule 23(a); and satisfies the commonality and typicality requirements under Rule 23(a). Moreover, Addison is an adequate class representative, Ethan Preston of Preston Law Offices and David C. Parisi of Parisi & Havens LLP are adequate class counsel. Finally, the class can be certified under Rule 23(b)(1) because there is a limited fund to which the class is entitled and (in the addition or the alternative) the class can be certified under Rule 23(b)(3) because the common material facts (especially Coca's spoliation of evidence) predominate over any individual issues.

RECOMMENDATION

IT, THEREFORE, IS RECOMMENDED that the District Court issue an Order: (1) accepting this Report and Recommendation; (2) granting the Motion; (3) certifying the class identified below, as well as designating Plaintiff Chelsea Addison as class representative and designating Ethan Preston of Preston Law Offices and David C. Parisi of Parisi & Havens LLP as class counsel for the class defined as:

(4) entering a default against Coca and Monarch in favor of Addison and the foregoing class for the misconduct set forth above; and (5) directing Addison to submit evidence to the Court of all fees and expenses incurred in making the Motion within thirty (30) days of the Order, whereupon the Court shall thereafter enter an order and judgment setting Addison's reasonable fees and expenses in making this Motion, for which Coca and Monarch shall be liable.

Except where specified otherwise, all citations to “Preston Decl.” refer to the declaration of Ethan Preston at ECF No. 184-2, dated March 28, 2017.

(See also Coca Depo. Tr. at 128:5-23; 131:15-17; 195:12-196:14; 216:8-218:18; ECF No. 9.)

Coca conceded that she knew that a number of consumers alleged Monarch violated the FDCPA at the time she allegedly purged Monarch's records. (Coca Depo. Tr. 181:21-22, 201:5-202. See also id., 181:7-182:2; 191:3-192:5.)