*1 Before the Court is Defendants' Motion for Sanctions for Spoliation (“Motion”) filed on July 13, 2018. (Dkt. No. 271.) The motion has been fully briefed. On July 20, 2018, Plaintiff filed an Opposition to the Motion along with Declarations of David Girdner (“Girdner Decl.”), Shaunna Balady (“Balady Decl.”) and Kirk Hallam (“Hallam Decl.”). (Dkt. No. 272.) On July 25, 2018, Defendants filed a Reply in Support of the Motion (“Reply”). (Dkt. No. 279.) The Court heard oral argument and testimony by Shaunna Balady on August 6, 2018.[1]

For the reasons discussed below, the Motion is GRANTED in part and DENIED in part.

II. FACTUAL AND PROCEDURAL BACKGROUND

A. Allegations of the Operative Pleading

Manufacturing Automation & Software Systems, Inc. (“MASS Group” or “Plaintiff”) commenced this action on December 2, 2016. (Dkt. No. 1.) Plaintiff filed the operative First Amended Complaint (“FAC”) on January 31, 2017. (Dkt. No. 27.) The FAC alleges that Plaintiff and its Founder and CEO, “developed, programmed, produced, marketed and licensed to customers throughout the United States and abroad, a series of internet-based proprietary software programs, products which uniquely allow the customer to track or trace quantities and precise locations of inventories, equipment, materials, documents, even people.” (FAC ¶ 1.)

Plaintiff further alleges that beginning in 2015, Defendants Hughes and Huysentruyt formed a business partnership with Ed Nugent and PcVue with the intent “to copy the Mass Software[2], along with the source and object codes from which that Software is exclusively derived,” and “copied MASS Software in order to produce and market that Software as their own.” (FAC ¶¶ 4-5.) Plaintiff's claims arise from Defendants' allegedly “willful theft of Plaintiff's copyrighted Software and their use of Plaintiff's trade secrets and other intellectual property rights to sell their counterfeit software to MASS Group actual, former and/or probable customers.[.]” (FAC ¶ 6.)

According to the FAC, Defendants Hughes and Huysentruyt were officers and managers of MASS Group, who resigned from MASS Group in March 2016 to launch a partnership with InformaTrac. (FAC ¶¶ 8-14.) The FAC alleges that in April 2016, “Defendants Huysentruyt and Hughes, along with Defendants Nugent and PcVue, issued a joint press release through PcVue's public relations firm, announcing to the world the formation of a ‘business partnership’ between InformaTrac and PcVue[.]” (FAC ¶ 11.) Plaintiff alleges that “both prior to and after their resignations from MASS Group, and as part of their ‘partnership’ with PcVue, [Defendants Hughes and Huysentruyt] deliberately sought to induce the existing and potential customers of Plaintiff to discontinue their use of MASS Software and terminate or fail to renew their licenses with Plaintiff.” (FAC ¶ 14.)

*2 The FAC asserts causes of action for Copyright Infringement (17 U.S.C. § 101, et seq.); Computer Fraud and Abuse (18 U.S.C. § 1030, et seq.); Computer Access and Fraud Act (Cal. Penal Code § 502); Uniform Trade Secrets Act (Cal. Civil Code § 3426, et seq.); Breach of Contract; Inference with Prospective Economic Advantage; Fraud and Deceit; Conversion; Diversion of Corporate Opportunity; and Accounting. Plaintiff seeks injunctive relief, actual damages of not less than $2,000,000, statutory damages for willful infringement, an accounting of revenue derived from the alleged infringement, and attorneys' fees and costs of suit. (FAC (Prayer) at pp. 62-63.) Plaintiff also seeks monetary damages and/or injunctive relief as a remedy for a variety of business torts, including, computer fraud, theft of trade secrets, interference with prospective economic advantage, fraud, conversion, and diversion of corporate opportunities. (Id. at pp. 63-66.)

B. The Parties' Ongoing Discovery Disputes About Document Production

The instant Motion is set against the backdrop of the parties' ongoing discovery disputes related to document production and electronically stored information (“ESI”) in particular, throughout the litigation. These disputes resulted in several discovery motions. (See, e.g., Dkt. Nos. 69 (Plaintiff's motion to compel); 93 (Defendant's motion to compel relating to Alan Davis); 132 (Plaintiff's motion for discovery re: source codes); 158 (Plaintiff's request for production of InformaTrac source code).) In addition, the Court held numerous informal discovery conferences with the parties about document production in the case. (See e.g., Dkt. Nos. 65, 76, 83, 108, 126, 129, 148, 161, 174; and 259.)

With fact discovery now closed, Defendants bring the instant Motion seeking sanctions against Plaintiff for spoliation of evidence. (Notice of Motion at 1.) Defendants request sanctions in the form of legal fees and expenses incurred in preparing for and taking the depositions of Alan Davis, Shaunna Balady and MASS Group as well as for expenses relating to preparing, briefing and arguing this Motion. (Id.)

C. Shaunna Balady's Deposition Testimony about MASS Group Document Retention

Defendants first learned that responsive documents had not been produced in January 2018, when they deposed Shaunna Balady, in her individual capacity and as Plaintiff's Rule 30(b)(6) witness, and Alan Davis, Plaintiff's hired investigator.

On January 12, 2018, Shaunna Balady, gave a deposition as Plaintiff's 30(b)(6) representative.[3] Balady is MASS Group's Vice President of Business Development, (Ex. 2, Tr. 64:13-24.) When asked about MASS Group's document retention policy, Balady testified that MASS Group typically had a 90 day-email retention period on its servers, but at her direction, sometime between August 2016 and November 2016, MASS Group reduced its company-wide email retention period to 30 days. (Ex. 1, Tr. at 58:23-59:22.) She could not remember exactly when the policy changed, but confirmed that it was no later than November of 2016 and no earlier than August of 2016. (Ex. 1, Tr. 59:23-60:6.) She further testified that MASS Group had a shared folder of sensitive company materials, including trade secrets, but this information is not subject to any deletion policy, the information is kept indefinitely. (Ex. 1, Tr. at 60:8-17.) Balady stated that MASS Group shortened its document retention period because of concerns about “hacking” and “to shorten our exposure and what was out there that someone could get.” (Ex. 1, Tr. at 61:14-62:12.)

*3 Balady did not communicate with MASS Group employees about a litigation hold until the summer of 2017, months after the litigation began and only after receiving Defendants' discovery requests. (Ex. 1, Tr. at 60:19-61:4; and see 282:12-14 (“we had a different document retention policy after we had to produce documents”).) Balady also testified that she communicated with Alan Davis about his investigation through her personal Gmail account that she “sanitize[d] basically every day.” (Ex. 1, Tr. at 283:6-17.) Balady admitted that by “sanitize” she meant that she deleted, not just archived, her personal emails daily. (Ex. 1, Tr. at 283:10-17.)

The MASS Group 30(b)(6) deposition occurred just one day before the original discovery cut-off date. On February 14, 2018, the undersigned Magistrate Judge held a telephonic conference with Plaintiffs and Defendants counsel regarding Defendants' concerns that Balady's and Davis's testimony indicated possible spoliation of evidence had occurred. [Dkt. No. 126.] The Magistrate Judge, however, declined to address the issue because the fact discovery cut-off had passed and she informed the parties that they would need to seek an extension of the fact discovery to permit her to hear any additional discovery motions. (Id.) Judge Stevenson directed Defendants to bring any motion for case dispositive sanctions concerning spoliation before Judge Snyder, the presiding district judge. (Id.at 4, 6.)

D. Judge Snyder's April 30 Order

On March 30, 2018, consistent with Judge Stevenson's directions, Defendants filed a Notice of Motion and Motion to Dismiss Case for Intentional Spoliation (“Motion to Dismiss”). [Dkt. No. 154.] On April 9, 2018, Plaintiff filed an Opposition to the Motion to Dismiss [Dkt. No. 168] and on April 16, 2018, Defendants filed a Reply [Dkt. No. 185]. In the Motion to Dismiss, Defendants sought terminating sanctions, arguing that Plaintiff “intentionally, selectively, and systematically destroyed material evidence, both while investigating this case and for seven months after the case was filed.” (Id.; Motion to Dismiss at1.)

On April 30, 2018, Judge Snyder issued an order denying the Motion to Dismiss (the “April 30 Order”). [Dkt. No. 194.] Judge Snyder concluded that Defendants' request for terminating sanctions was premature because Defendants had not first filed a motion to compel the missing electronically stored information or subpoenaed the missing emails from alternate sources. (Id. at 11.) On that basis, Judge Snyder denied the Motion to Dismiss. (Id. at 12.) But she granted a sixty day extension of fact discovery and ordered Plaintiff “to retrieve all deleted emails through forensic retrieval, subpoena, or other possible means, and produce all recovered emails responsive to defendants' discovery requests on or before June 14, 2018.” (Id. (emphasis added).)

Judge Snyder stated at the April 30 hearing, that if Plaintiff could not produce what had been deleted, she would “want a very clear explanation as to why it's not possible.” (Reporters Transcript of April 30, 2018 Hearing, Declaration of Thomas F. Foley in Support of Spoliation Motion, Ex. A. at 15: 11-12.)

III. MASS Group's Email Recovery and Further Production

In response to the April 30 Order, MASS Group took steps to recover emails deleted from both the MASS Group company server and from Shaunna Balady's personal Gmail account and, on June 14, 2018, produced additional documents located in the search. (Hallam Decl. ¶ 6.) MASS Group represents that as the result of an “exhaustive search” of the company's deleted email folders it produced “665 pages of emails and attached documents, all of which are responsive to Defendants' requests” and only 5 documents were withheld as privileged. (Opposition at 5-6; and see Hallam Decl. ¶ 6.)

A. Recovery of Emails Deleted from MASS Group Servers

*4 To recover deleted information on the company server, MASS Group retained the services of David Girdner, Co-founder and Managing Partner of Antropy, Inc., a company that provides information technology services, including back-up and disaster recovery. (Girdner Decl. ¶ 1.) Girdner was “provided with full administrative rights ... to independently access, analyze, and retrieve emails from the Company's Microsoft Office 365 Account.” (Id.¶ 8.) Shaunna Balady provided Girdner with key search terms and Girdner used “a built-in utility within Microsoft Office 365 called eDiscovery” to search “all the mailboxes and folders of Mass Group's Microsoft Office 365 account at the server level for all those search terms for “the time period requested.” (Id. ¶ 9.) In his declaration, Girdner did not identify exactly what that time period was.

Balady says she instructed Girdner “to utilize the search terms for the period November 2016 to January 12, 2018[.]” (Balady Decl. ¶ 8.) At Balady's direction, Girdner conducted a search of “all of the emails in the Company's deleted email folders, and encompassed a total of 29 mailboxes representing both individual employees and Company shared mailboxes.” (Id.) The search identified approximately 12,000 emails that contained at least one of the key search words. (Id.) Girdner than downloaded the search results “in native format as PST files, and saved all of the PST[4] files onto a USB drive[5]” that he gave to Gamal Balady. (Girdner Decl. ¶ 10.) Shaunna Balady and her husband, Gamal Balady, reviewed the 12,000 recovered emails, excluded emails that were unrelated to the search terms, Balady made her own determinations of relevance and provided the relevant emails to Plaintiff's counsel for privilege review and production. (Balady Decl. ¶ 9.) During oral argument, counsel for MASS Group stated that Balady also determined whether any of the recovered emails were duplicates:

(Hearing Tr. 32:15-23.)

At the Motion hearing, Balady testified that MASS Group also has a “development server” in Las Vegas, Nevada. (Hearing Tr. 72:24-73:1.) Balady said that she had searched that server herself for documents responsive to earlier fact discovery requests, but Girdner did not search the Las Vegas server as part of MASS Group's compliance with the April 30 Order because no emails are stored on that server. (Id. at 73:2-10; 74:3-11.) Balady testified that emails for the entire company are stored in the cloud with Microsoft. (Id. at 74:6-11.)

B. Recovery of Emails Deleted from Balady's Gmail Account

Balady did not engage any outside assistance to recover emails deleted from her Gmail account. She undertook her own retrieval efforts, which included contacting Yahoo! and Google by email to “ask for their assistance.” (Balady Decl., ¶ 10.) Balady says she “personally reached out to Google 4 times over the course of 2 weeks to make sure that everything they possibly could restore was back in [her] Gmail account for review.” (Id.) She does not say how many emails were restored, but states that “[a]ll of the restored emails contained one or more of the search terms were related to Alan Davis” and she provided those emails to MASS Group's counsel for privilege review and production. (Id.) At the hearing, Balady testified that prior to this lawsuit she had never conducted any kind of forensic retrieval of emails herself. (Hearing Tr. 73: 17-19.)

*5 In light of Girdner's recovery efforts and her own communications with Google and Yahoo!, Balady maintains that “to my knowledge no other previously deleted but relevant emails exist, beyond those we already have produced or withheld and identified on grounds of privilege.” (Balady Decl. ¶ 12.)

IV. The Spoliation Motion

Defendants argue that “MASS Group admits that it intentionally deleted and failed to preserve relevant documents while preparing for, and during, this litigation.” (Motion at 1.) Further, Defendants argue that MASS Group only produced an additional 194 documents and this production was wholly deficient and did not comply with the April 30 Order.[6] (Motion at 9.) Defendants insist that MASS Group's recovery efforts, as described by Balady, were deficient and even if MASS Group “used sufficient means to recover deleted emails, there are at least several categories of missing documents.” (Id. at 9.)

According to Defendants, only two of the 194 recently produced emails reflect any communications with Teledyne, a key MASS Group customer and no emails were produced showing correspondence with customers from February 2015 through December 2016, when MASS Group filed the complaint. (Id. at 10-11.) Further, Defendants argue that even if MASS Group lacked intent to deprive Defendants of use of the information in the litigation, sanctions are nonetheless appropriate because Rule 37(e)(1) permits sanctions as necessary to cure any prejudice, even without a showing of intent to deprive. (Id. at 14.)

In the Opposition, Plaintiff insists that Defendants have not satisfied their burden under Rule 37(e) to obtain sanctions. (Opposition at 3-4.) Plaintiff argues that sanctions are not warranted because it fully complied with the April 30 Order by retaining a document retrieval expert who “successfully retrieved Plaintiff's deleted emails from backup cloud servers.” (Opposition at 5.) Plaintiff maintains that Defendants' contention that there remain “large and obvious gaps” in Plaintiff's document production, is based on nothing more than “pure speculation.” (Id. at 7.) Plaintiff explains that the reason for any allegedly missing email communications with customers is that MASS Group employees, Jan McCullom and Gene Ironhill, who provided software implementation services and new customer training, provided these technical support services to MASS Group customers “either over the telephone, on site or via a web-hosted service, and not through emails.” (Id., at 7 (citing Balady Decl. ¶ 14).)

Plaintiff also points out that many of the customer-related documents that Defendants claim are missing from the June 14 production were already produced in discovery, “including MASS Group's sales pipeline documents and emails related to prospective customers.” (Id. at 8 (citing Hallam Decl. ¶ 15).) Finally, Plaintiff argues that Defendants themselves “had greater access to these documents than Plaintiff, since as alleged in the First Amended Complaint, Defendants' tortious interference with Plaintiff's actual and prospective customers primarily resulted from Defendants' communications and dealings, both before and after their departure from MASS Group[.]” (Opposition at 8.)

V. LEGAL STANDARD

*6 Spoliation is “the destruction or significant alteration of evidence, or the failure to preserve property for another's use as evidence, in pending or future litigation.” Kearney v. Foley & Lardner, LLP, 590 F.3d 638, 649 (9th Cir. 2009): and see Hynix Semiconductor Inc. v. Rambus, 897 F. Supp. 2d 939 9756 (N.D. Cal. 2012). Rule 37(e) of the Federal Rules of Civil Procedure governs when a court may sanction a party that fails to preserve electronically stored information (“ESI”):

FED. R. CIV. P. 37 (e). The 2015 amendments to Rule 37(e) sought to “foreclose reliance on inherent authority or state law to determine when certain measures should be used” when ESI that should have been preserved is lost. FED. R. CIV. P. 37(e), Advisory Committee Note to 2015 Amendment; see also, Spencer v. Lunada Bay Boys, Case No. CV 16-02129-SJO (RAOx), 2018 WL 839862, at *1 (C.D. Cal. Feb. 12, 2018)(finding monetary sanctions appropriate given a finding of prejudice for loss of text messages).

Thus, before the Court can impose any sanction under Rule 37(e) the Court must make three findings: (1) that the ESI is information the party had a duty to preserve; (2) the information must have been lost because the party failed to preserve it; and (3) the lost ESI must be irreplaceable. See Security Alarm Financing Enterprises, L.P. v. Alarm Protection Technology, LLC, No. 3:13-cv-00102, 2016 WL 75115911, at *3 (D. AK Dec. 6, 2016). The most severe sanctions under Rule 37(e)(2) are available only upon a showing that the party acted with “the intent to deprive another party of the information's use in the litigation.” FED. R. CIV. P. 37(e)(2).

VI. ANALYSIS AND DECISION

As an initial matter, the Court first addresses Plaintiff's contention that this Court is charged solely with “finding whether Plaintiff has complied with Judge Snyder's Order.” (See Opposition at 3.) Plaintiff's argument is baseless. The Federal Rules of Civil Procedure fully authorize this Court to impose sanctions should the Court find that the legal standards for sanctions has been established consistent with Rule 37. Further, the April 30 Order specifically directed that “[a]ll further matters concerning compliance with this order shall be referred to Judge Stevenson.” (April 30 Order at 12 [Dkt. No. 194 at Page ID 5322] (emphasis added).) Further, Rule 37(b) expressly provides for sanctions where a party fails to comply with a court order. FED. R. CIV. P. 37(b)(2).

A. MASS Group Did Not Take Reasonable Steps to Preserve ESI

The Court now turns to the first question in the Rule 37 spoliation analysis – i.e., whether Plaintiff took reasonable steps to preserve potentially relevant ESI. The 2015 Advisory Committee Note regarding Rule 37(e) recognized that given the “ever-increasing volume of [ESI] and the multitude of devises that generate such information, perfection in preserving all relevant [ESI] is often impossible.” FED. R. CIV. P. 37(e), Advisory Committee Note to 2015 Amendment. Nonetheless, a party must take reasonable efforts to preserve potentially relevant information. Here, MASS Group's preservation efforts were insufficient.

*7 Balady testified at the Motion hearing that: (1) MASS Group's email deletion was not suspended until after the lawsuit commenced; and (2) she never issued any written litigation hold directive to MASS group employees, but simply told them verbally to save documents. (Hearing Tr. at 53:14-54:1.) Plaintiff's counsel confirmed during oral argument that “there was not a formal instruction to retain all documents until the first discovery was served around June of 2017.” (Hearing Tr. at 27:5-7.) To make matters worse, between August 2016 and November 2016, in the run up to filing this lawsuit, Balady deliberately shortened the company's email retention period from 90 days to just 30 days. (Ex. 2, Tr. at 58:23-59:22.) Even then, MASS Group did not suspend its email deletion policy until after receiving Defendants' initial discovery requests in the summer of 2017, months afterthe lawsuit had been filed. (Ex. 2, Tr. at 60:19-61:4.)

Accordingly, the Court finds that MASS Group and its counsel wholly failed to preserve relevant evidence, as evidenced by Balady's testimony that MASS Group did not cease routine destruction until nearly seven months after litigation commenced and only upon receiving discovery requests from Defendants. On the record before the Court, it is unclear whether the failure was due to ineptitude or sheer negligence by MASS Group and its counsel. Either way, it appears that MASS Group's counsel did not effectively engage with MASS Group about its duties to preserve, including implementing a timely litigation hold, until after MASS Group received Defendants' discovery requests.[7]

As a result, MASS Group deleted ESI that may have been both relevant to the litigation and responsive to Defendants' discovery requests.

B. MASS Group's Duty to Preserve Arose No Later Than August 1, 2016

The duty to preserve potentially relevant information when a party knows or should know that the information is relevant to pending or future litigation is well established. Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 216 (S.D.N.Y. 2003). A party's duty to preserve arises when litigation is “reasonably foreseeable,” and the party in possession of the information has “some notice that the documents were potentially relevant to the litigation.” United States v. Kitsap Physicians Serv., 314 F.3d 995, 1001 (9th Cir. 2002); and see Surowiec v. Capital Title Agency, Inc., 790 F. Supp.2d 997, 1005 (D. Ariz. 2011) (“the duty to preserve arises when a party knows or should know that certain evidence is relevant to pending or future litigation.”) (internal citation and quotation marks omitted). The duty is “triggered not only when litigation actually commences, but also extends to the period before litigation when a party could reasonably know that evidence may be relevant to anticipated litigation.” Pettit v. Smith, 45 F. Supp. 3d 1099, 1105 (D. AZ 2014) (internal citation and quotation marks omitted). “As soon as a potential claim is identified, a litigant is under a duty to preserve evidence which it knows or reasonably should now is relevant to the action.” In re Napster, Inc. Copyright Litig., 462 F. Supp. 2d 1060, 1067 (N.D. Cal. 2006).

*8 Defendants argue that the duty to preserve ESI was triggered in March 2016, when Defendants believe MASS Group already had a reasonable expectation of litigation. (Motion at 12.) During oral argument on the Motion, counsel for MASS Group argued that litigation was not reasonably anticipated in March 2016, and the duty to preserve did not arise until sometime after October 2016. (Hearing Tr. at 25:9-17.) At her deposition, Balady testified that MASS Group's suspicions were aroused about possible misappropriation of MASS Group's proprietary information and diversion of MASS Group customers as early as March 2016, shortly after Hughes and Huysentruyt left the company. (Ex. 1, Tr. at133:2-134:22.) When she was asked at her deposition, “When did you first expect that any of the defendants in this case may have committed copyright infringement?”, Balady answered, “March 3rd and 4th, [2016].” (Id. at 134: 14-122.) But at the hearing, Balady stated that despite concerns about Hughes's and Huysentruyt's conduct in March 2016, the company was not contemplating litigation until sometime in the fall of 2016:

(Hearing Tr. at 50:18-24.) At the Rule 30(b)(6) deposition, Balady testified that MASS Group first contacted Davis in late November 2016. (Ex. 1, Tr. at 77:11-15.) MASS Group filed its complaint on December 2, 2016. (Dkt. No. 1.)

In arguing that the duty to preserve arose in March 2016, Defendants equate the date when Plaintiff first suspected Defendants of misconduct with the earliest date that Plaintiff “reasonably anticipated litigation” might ensue. But Balady testified that her husband, Gamal Balady, was reluctant to move forward with litigation after Hughes and Huysentruyt left MASS Group in early 2016 and it was Balady who made the decision to commence the lawsuit after she joined the company in September 2016. (Ex. 2, Tr. at 117:17-24.) Moreover, March 2016 is immediately after Hughes and Huysentruyt left their employment at MASS Group and it hardly seems likely that litigation was reasonably anticipated just days following Defendants' resignation from MASS Group.

That said, the Court is also unpersuaded by MASS Group's argument that litigation was not reasonably anticipated until November 2016. It does not seem credible that the possibility of litigation against Defendants Hughes and Huysentruyt was not contemplated until MASS Group hired Davis in late November 2016 to conduct his pretextual investigation. It is much more plausible that the possibility of litigation against Hughes and Huysentruyt was already under consideration and the Davis investigation was designed to obtain information and evidence that could be used in that litigation. When asked at her deposition why MASS Group filed its complaint before Davis finished his investigation, Balady testified: “We had a lot of other information prior to Mr. Davis concluding his engagement. Mr. Davis was, in my mind, kind of the cherry on top of the sundae.” (Ex. 2, Tr. at 114:16-20.)

At the hearing, MASS Group's counsel stated that “litigation was never contemplated until Mrs. Balady came to work for her husband's company on September 28, 2016 and she started to look at the indications that the defendants had, in fact, stolen the copyrights, the source codes, the confidential data, et cetera[.]” (Hearing Tr. at 25:9-13.) But this is not consistent with Balady's deposition testimony, which shows that even though she was not formally employed as MASS Group until September 2016, the company was actively investigating the events surrounding Huysentruyt's and Hughes's departure from MASS Group and their misuse of MASS Group's proprietary information in the late spring of 2016. (See e.g., Ex. 2, Tr. at 115:11-25.) Balady testified that by the end of May 2016, MASS Group knew of 22 offerings Defendants Hughes and Huysentruyt had made allegedly using MASS Group's marketing material, customer testimonials, brochures and other information. (See Ex. 2, Tr. 246:17-247:24.)

*9 Significantly, even though Balady was not officially employed at MASS Group until September, she was closely involved enough with the company that she put in place the accelerated email deletion procedure sometime after August 2016. (Ex. 1, Tr. at 58:23-59:22.) Indeed, Balady admitted that she shortened the company's email deletion period because of a concern about possible litigation, saying: “we were potentially moving to maybe acting on all of our suspicions and filing a lawsuit[.]” (Ex. 2, Tr. 61:7-62:12.)

Given Balady's testimony, the Court concludes that MASS Group's duty to preserve arose no later than August 1, 2016 – just four months before filing the complaint. Yet for months after this date and despite admitted concerns about possible litigation, MASS Group did not take any steps to preserve potentially relevant emails on its company network or in the personal email accounts of Gamal and Shaunna Balady. Plaintiff cannot credibly assert that MASS Group had no duty to preserve emails deleted from the MASS Group's network servers and/or Balady's personal Gmail account between August 1, 2016 and December 2, 2016. Not only did MASS Group fail to take reasonable steps to preserve potentially relevant emails, but the company deliberately shortened its e-mail retention period and continued deleting emails for six months after the commencement of litigation. (Hearing Tr. at 27:5-11.)

C. Potentially Relevant Emails Between August 1, 2016 and November 2016 Were Not Recovered and Are Now Irreplaceable

The next step in the analysis is to determine whether information was lostbecause of the failure to preserve it and if so, whether the information is replaceable. Security Alarm Financing Enterprises, L.P. v. Alarm Protection Technology, LLC, No. 3:13-cv-00102, 2016 WL 75115911, at *3. Rule 37(e)(1) allows the Court to take appropriate remedial measures “only if the information was lost because the part failed to take reasonable steps to preserve the information.” FED. R. CIV. P. 37(e)(1).

Plaintiffs argue nothing was lost because any deleted emails that could be recovered were recovered, reviewed, and, if responsive, produced. With the services of data recovery specialist, Girdner, some 12,000 emails were recovered from deleted files of 29 MASS Group custodians. (Balady Decl. ¶¶ 7-9.) Girdner provided a cursory two-page declaration describing how recovered deleted emails from MASS Group's active network using a “utility within Microsoft Office 365 called eDiscovery.” (Girdner Decl. ¶¶ 9-10.) Notably, Girdner's two-paragraph description of his search procedures does not identify the search terms he used or state whether he examined, or even considered examining, any data stored anywhere other than on MASS Group's active network. He does not mention any archived data, whether he looked at back-up tapes, or whether he ever asked if such information should have been considered for search. Also, at Balady's direction, Girdner did not search for emails deleted between August 1, 2016 and November 2016. Thus, any potentially relevant emails that existed during that period were never searched pursuant to the April 30 Order. These emails were deliberately deleted and are irretrievably lost.

D. Compliance with Judge Snyder's Order

Plaintiff maintains that “the evidence indisputable establishes Plaintiff has fully complied” with the April 30 Order. (Opposition at 3 (emphasis in original).) But after a thorough review of the evidence, the Court concludes that Plaintiff has not fully complied with the April 30 Order. As discussed above, the search period to recover deleted email was for an arbitrarily short period of time before the filing of the lawsuit. Balady only instructed Girdner to search for and recover deleted emails starting in November 2016. This time frame did not recover emails deleted after August 1, 2016, a time when MASS Group was uncovering the alleged theft of its proprietary information by Defendants, believed that Defendants were already making active use of MASS Group's proprietary information to divert existing and potential MASS Group customers and MASS Group was already concerned about a possible lawsuit.

*10 Hence, the Court concludes that by failing to search for emails deleted between August 1, 2016 and November 2016, Plaintiff did not fully comply with Judge Snyder's order. The April 30 Order instructed MASS Group to search for and recover “all deleted emails through forensic retrieval, subpoena, or other possible means, and produce all recovered emails responsive to defendants' discovery requests[.]” (Dkt. No. 194 (emphasis added).] Plaintiff did not do this and they have not, as Judge Snyder also required, provided a good explanation for why they failed to do so.

Therefore, having determined that: (1) the deleted ESI was information that MASS Group had a duty to preserve; (2) the forensic search that MASS Group conducted pursuant to Judge Snyder's order only included a portion of the deleted emails that were potentially relevant to the litigation; and (3) emails deleted between August 1, 2016 and November 2016 are now irreplaceable, the Court must address the appropriate remedy for Plaintiff's spoliation.

VII. Sanctions

Defendants seek sanctions for MASS Group's intentional destruction of potentially relevant information. (Motion at 1.) Defendants argue that MASS Group's discovery failures are “egregious” and have caused “overwhelming prejudice” to Defendants. (Motion at 17.) Defendants urge that the highest level of sanctions under Rule 37(e)(1) and (2) are warranted, including monetary sanctions and a recommendation of dismissal. (Id. at 16, n.2.) In addition, Defendants request separate additional sanctions for MASS Group's “failure to pursue all means to recover the deleted emails,” in order to fully comply with the April 30 Order. (Motion at 19.)

Plaintiff responds that Defendants are not entitled to any monetary sanctions because they have no proof that Plaintiff intentionally tried to destroy exculpatory evidence, “regardless of whether it technically violated the Federal Rules for preservation of evidence.” (Opposition at 10-12.) The Court disagrees.

A. Failure to Comply with the April 30 Order

When a party fails to comply with a court's discovery order, a court “may issue further just orders” to sanction noncompliance, unless the failure was substantially justified or other circumstances make the sanction unjust. FED. R. CIV. P. 37(b)(2)(A).

Defendants argue that Plaintiffs have not fully complied with the April 30 Order because there is no evidence that MASS Group or Balady served any subpoenas on third party service providers or MASS Group's customers to recover the missing documents. (Motion at 2.) The Court disagrees. The Court does not read the April 30 Order to have required MASS Group to issue subpoenas to service providers, but to undertake a forensic search to recover the deleted emails “through forensic retrieval, subpoena, or other possible means.” (Dkt. No. 194.) Subpoenas were one of the possible means to retrieve the deleted emails.

Nevertheless, the Court finds that Plaintiff did not fully comply with Judge Snyder's order because they failed to search for any emails between August 1, 2016 and November 2016. As discussed above, Plaintiff's unilateral decision to start the forensic search period just one month prior to filing their complaint, meant that potentially relevant emails were not recovered.

Here, the responsibility for complying with the April 30 Order rested with both MASS Group and its counsel. The failure to fully comply was not substantially justified. While any initial failure to preserve emails from August 2016 to November 2016, might charitably be attributed to MASS Group's lack of experience with litigation, and Balady's lack of litigation knowledge in particular, by April 2018, MASS Group had had the services of experienced litigation counsel for over a year. Mr. Hallam had a professional duty to make sure that all of MASS Group's relevant emails were searched, as Judge Snyder had ordered.

*11 Accordingly, separate monetary sanctions in the amount of $4,500 are warranted under Rule 37(b) against Plaintiff and its counsel for failure to fully comply with the April 30 Order. See Sali v. Corona Regional Medical Center, 884 F.3d 1218 (9th Cir. 2018) (affirming sanctions against party and its counsel for failure to comply discovery order).

B. Prejudice

Once spoliation is established, upon a showing of prejudice to another party from the loss of ESI that cannot be restored or replaced through additional discovery, Rule 37(e)(1) provides that the Court “may order measures no greater than necessary to cure the prejudice.” FED. R. CIV. P. 37(e)(1). When, as here, spoliation is shown, the burden shifts to the guilty party to demonstrate that no prejudice resulted from the spoliation. Czuchaj v. Conair Corp, No. 13-1901, 2016 WL 4130946, at *2 (S.D. Cal. May 3, 2016)(citing Apple Inc. v. Samsung Electronics Co., 888 F. Supp. 2d at 998).

Defendants argue that they have been “effectively hobbled” in this litigation by MASS Group's destruction of evidence. (Motion at 17.) But there is little evidence before the Court to support Defendants' claim. Despite Defendants' complaints about the adequacy of the retrieval process, Plaintiff partially complied with the April 30 Order. Emails deleted between November 2016 and January 2018, appear to have been searched and produced in compliance with the April 30 Order.

As a result of the additional search, Plaintiff produced additional documents on June 14, 2016. Defendants argue that these documents are largely irrelevant and there remain “wide gaps” in Plaintiff's document production where Defendants' contend there should be more email communications with current and/or potential customers. (Motion at 6-8.) This is pure speculation. Plaintiff provided some explanation for why more customer-related emails were not identified in the recovery effort, i.e., that the primary MASS employees dealing with customer support, Jan McCullom and Gene Ironhill, did not use email as their main form of communication. (Balady Decl. ¶ 14.)

The Court concluded that spoliation only occurred with respect to emails deleted between August 1, 2016 and November 2016. Plaintiff never even attempted to recover these emails. At this point, it is impossible to know whether any additional relevant and responsive emails existed during those additional three months. But given Balady's testimony about MASS Group's follow-up regarding Hughes' and Huysentruyt's suspicious conduct after their departure from MASS Group as well as MASS Group's deliberate shortening of its email retention period, it seems likely. See OmniGen Research v Yongqiang Wang, 321 F.R.D. 367 (D. Or. 2017) (“destruction of evidence qualifies as willful if the party has ‘some notice that the documents were potentially relevant to the litigation before they were destroyed.’ ”) (quoting Leon v. IDX Sys. Corp., 464 F.3d 951, 958 (9th Cir. 2006) ). The loss of MASS Group emails from August 2016 to November 2016 creates an unexplained gap in Plaintiff's document production that cannot be cured. At the hearing, Plaintiff maintained that no prejudice could arise from these emails because they were wholly irrelevant and MASS Group was free to destroy evidence that fell outside the period when MASS Group “reasonably anticipated” litigation. (See e.g., Hearing Tr. at 27:11-21 (“it wasn't until late October or November that there was any contemplation of litigation whatsoever. So, anything that predated that has nothing to do with spoliation ...”.). As noted above, the Court concludes otherwise.

*12 Because Plaintiff has not carried its burden to establish that there was no prejudice to Defendants from the loss of emails between August 1, 2016 and November 2016, the Court finds that an award of monetary sanctions is appropriate under Rule 37(e)(1).

C. Intent to Deprive

A finding of “bad faith” is not required before the Court may award sanctions for the destruction or spoliation of evidence under Rule 37(e)(1). Glover v. BIC Corp, 6 F.3d 1318, 1329 (9th Cir. 1993). It is enough that the spoliator had “simple notice of ‘potential relevance to the litigation.’ ” Id. (internal citation omitted). Here, MASS Group has admitted it deleted information to prevent others from getting hold of it.

Balady testified she specifically shortened the email retention period from the usual 90 retention period to 30 days because to make the information on MASS Group's network harder for others to obtain:

(Ex. 2, Tr. 61:7-62:12 (emphasis added).)

Balady's explanation that she deleted emails in an effort to prevent “hacking” of MASS Group's network systems by Defendants Huysentruyt and Nugent after they left MASS Group makes little sense. At the hearing, Balady testified that when she suspected that that there were efforts to make unauthorized intrusions into MASS Group's network, she took steps to strengthen the company's firewall, changed passcodes and took other technical steps to prevent such network intrusions. (Hearing Tr. at 52: 23-53:3.) But even taking Balady's hacking concerns at face value, deleting emails on the network server would not prevent a cyber intruder's effort to “hack” into MASS Group's network. Furthermore, Balady confirmed that other sensitive trade secret information is also stored on MASS Group's shared network folder, but she did not delete any of that information to prevent it from being stolen by hackers. (Hearing Tr. at 60:1-7.) Indeed, MASS Group retained this information on its servers indefinitely. (Ex. 2, Tr. at 50:8-12.)

MASS Group maintains that the loss of any ESI was “inadvertent” and “simply [an] attempt, however, misguided, to protect MASS Group and its confidential data and attorney-client communications from further theft, diversion and destruction by Defendants.” (Balady Decl. ¶ 2.) While the Court has some sympathy for Balady's lack of litigation experience and the clear lack of direction from counsel on appropriate preservation protocols, MASS Group's explanation rings hollow. In the end, neither MASS Group's wrongheaded belief nor the sheer ineptitude of MASS Group and its counsel in managing ESI preservation excuse the failure to preserve potentially relevant email between August 1, 2016 and November 2016.

*13 Accordingly, the Court finds that sanctions in the form of legal fees and expenses incurred in bringing the present Motion are appropriate. FED. R. CIV. P. 37(e)(1). However, the Court declines Defendants' request for an award of the costs associated with taking the depositions of Alan Davis, Shaunna Balady, and MASS Group. These depositions had to be taken in this lawsuit regardless of whether any spoliation occurred or not.

D. A Recommendation of Dismissal is Not Warranted

Defendants contend that dismissal is appropriate because of the “scope of the spoliation” and ask the Court to make a recommendation to that effect. (Motion at 18.) Dismissal is an available sanction when a party has engaged in conduct that “deliberately undermine[s] the integrity of judicial proceedings.” Leon v. IDX Systems, Corp., 464 F.3d at 958 (internal citation omitted).

Before resorting to this harsh sanction, however, a district court should consider several factors, “(1) the public's interest in expeditious resolution of litigation; (2) the court's need to manage its dockets; (3) the risk of prejudice to the party seeking sanctions; (4) the public policy favoring disposition of cases on their merits; and (5) the availability of less drastic sanctions.” Anheuser-Busch, Inc. v. Natural Beverage Distributor., 69 F.3d 337, 348 (9th Cir. 1995). Further, the district court must consider less severe alternative sanctions.

In this case, it is impossible to determine the actual “scope” of the spoliation, i.e., the quantity of potentially relevant, non-privileged emails that were deleted between August 1, 2016 and November 2016 but never retrieved in response to the April 30 Order. Nevertheless, the Court finds that the availability of less severe sanctions in the form of monetary sanctions and the policy favoring disposition of litigation on its merits weigh against a recommendation that this action be dismissed because of Plaintiff's spoliation.

VIII. CONCLUSION

For the foregoing reasons, Defendants' Motion for Spoliation is GRANTED in part and DENIED in part. IT IS HEREBY ORDERED that the Motion for Spoliation is GRANTED insofar as Defendants are awarded monetary sanctions against Plaintiff MASS Group in the form of reasonable attorneys' fees incurred by Defendants in bringing the Motion for Spoliation. Defendants shall submit a declaration in support of reasonable attorneys' fees and costs within fourteen days of the date of this Order, and Plaintiff shall file any response to the declaration within ten days of service of Defendants' declaration. Further, the Motion is GRANTED insofar as Defendants are awarded separate monetary sanctions in the amount of $4,500 against MASS Group and its counsel, for the failure to fully comply with the April 30 Order.

Defendants' Motion for Spoliation is DENIED with respect to: (1) Defendants' request for a recommendation of dismissal of the action; and (2) for an award of costs association with preparing for and taking the depositions of Shaunna Balady, Alan Davis, and MASS Group's Rule 30(b)(6) deposition.

IT IS SO ORDERED.

The Court ordered Plaintiff's forensic computer consultant, David Girdner to appear at the hearing on the Motion, but Girdner was unavailable to testify because of pre-paid family travel. (See Dkt. Nos. 277, 290.)

Plaintiff identifies “eight works of art” that is alleges are “original to MASS Group” and protected by copyright and refers to these works as the “MASS Software.” (FAC ¶ 1.)

Transcripts of the MASS Group 30(b)(6) deposition and Balady's individual deposition were admitted into evidence at the hearing on the Motion as Exhibits 1 and 2, respectively. (See Transcript of August 6, 2018 Motion Hearing (“Hearing Tr.”) at 64-66.) For ease of reference, the Court cites to the January 12, 2018 MASS Group 30(b)(6) transcript as “Ex.1, Tr.” and to the transcript of Balady's January 11, 2018 individual deposition as “Ex. 2, Tr.”

PST refers to a “Personal Storage Table “(.pst), a proprietary file format used in Microsoft Outlook to store email messages and other Outlook items on a local computer as opposed to the server. The .pst files are used to store archived items. Seehttps://support.office.com/en-us/article/Introduction-to-Outlook-Data-Files-pst-and-ost-222EAF92-A99.... (last visited August 10, 2018).

USB stands for Universal Serial Bus, a mechanism for connecting peripheral devices to computers, such as key boards, printers, and portable storage devices. A “USB drive” commonly refers to portable memory device that can store information and files downloaded from another device.

The Court assumes that the “665 pages” described by Plaintiff are the entirety of the “194 documents” described by Defendants, because the parties have raised no dispute about this.

The Court notes that MASS Group's counsel failed to meet his obligation to properly oversee his client's preservation efforts and the issuance of a timely litigation hold notification to MASS Group's employees. It is well recognized that “Attorneys have a professional and ethical obligation to understand all phases of discovery, including the identification, preservation, collection, processing, review, and production of relevant electronically stored information (ESI).” Jonathan Redgrave et al., Expectations of Conduct by Counsel, in THE FEDERAL JUDGES' GUIDE TO DISCOVERY 42, 42 (Robert D. Owen, et al. eds., Edition 3.0, The Electronic Discovery Institute 2017). MASS Group's counsel appears to have had little understanding of what his client was doing in terms of data collection and little or no involvement in either helping his client to understand its preservation obligations or developing a litigation hold protocol that was consistent with well-established eDiscovery best practices.