*1 Pending before the Court are seven motions for summary judgment (Docs. 329, 332, 333, 338, 365, 453, 455) and Plaintiffs’ Motion for Spoliation Sanctions (Doc. 382). Oral argument was heard on all pending dispositive motions on September 12, 2019, and a transcript was produced of the argument. (Docs. 511, 515.) The Magistrate Judge recommends the District Court, after its independent review of the record, grant summary judgment to Defendants on all claims in Plaintiffs’ Second Amended Complaint and to Plaintiffs on Defendant Impact’s counterclaim. In reaching this recommendation, the Court addresses the substance of only some of the pending motions. Therefore, the Magistrate Judge recommends the District Court deny as moot the remaining motions, or portions thereof, not necessary to full resolution of the case.

SUMMARY JUDGMENT STANDARD

In deciding a motion for summary judgment, the Court views the evidence and all reasonable inferences therefrom in the light most favorable to the party opposing the motion. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1289 (9th Cir. 1987). Summary judgment is appropriate if the pleadings and supporting documents “show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The moving party need not produce evidence of a genuine issue of material fact but may satisfy its burden by “pointing out ... that there is an absence of evidence to support the nonmoving party’s case.” Celotex Corp., 477 U.S. at 325. Material facts are those “that might affect the outcome of the suit under the governing law.” Anderson, 477 U.S. at 248. A genuine issue exists if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id.

DISCUSSION

Plaintiffs in this case are the company J.D. Mellberg Financial (JDM) and its owner Joshua Mellberg (Mellberg); their Second Amended Complaint, filed in April 2015, alleges ten claims. The central allegation underlying those claims is that former JDM employees Defendants Jovan Will, Tree Fine, Fernando Godinez, and Carly Uretz misappropriated trade secrets and confidential information from JDM and used them to start a competing business with Defendant Impact. Additionally, JDM alleges that Defendant Fine destroyed crucial JDM data, thereby preventing JDM from using the data necessary to run its business.

Defendants brought four motions for summary judgment: Defendants Fine and Will’s Motion for Summary Judgment on Claims 1, 5, 6, 7, and 8 (Doc. 329); Defendant Will’s Motion for Summary Judgment on Claim 6 as to Damages (Doc. 453); all Defendants’ Motion for Summary Judgment on Claims 2, 3, 9, and 10 (Doc. 332); and all Defendants’ Motion for Summary Judgment on Damages as to Claims 1-5 and 7-10 (Doc. 455). JDM and Defendants Fine and Godinez filed cross-motions for summary judgment on Claim 4. (Docs. 338, 365.) Plaintiffs brought a Motion for Summary Judgment on Defendant Impact’s Counterclaim. (Doc. 333.) Finally, Plaintiffs filed a Motion for Spoliation Sanctions (Doc. 382); in response to the briefing of that motion, Defendant Impact filed a motion to strike evidence submitted by Plaintiffs and a motion to disqualify Michele Bush as a witness for Plaintiffs (Docs. 448, 450). Each of the motions was fully briefed prior to argument. After oral argument, however, the Court requested supplemental briefing as to Claim 6 (Docs. 513, 516, 517) and Defendants’ request for Rule 37 sanctions regarding JDM’s damages (Docs. 518, 521, 522).[1]

*2 The Court finds this case is most expeditiously resolved by evaluating first Defendants’ Motion for Summary Judgment on Damages. Because Claim 6 is independent of the other claims, the Court next evaluates Defendant Will’s Motion for Summary Judgment as to that claim. The Court touches upon Plaintiffs’ Motion for Spoliation Sanctions, but finds it moot based on the Court’s damages finding. Finally, the Court addresses Plaintiffs’ Motion for Summary Judgment on Defendant Impact’s Counterclaim.

DAMAGES

Defendants argue that JDM is unable to prove damages as to Claims 1-5 and 7-10; therefore, summary judgment should be granted for Defendants as to these claims. Each of these claims from the Second Amended Complaint require proof of damages: Claim 1, violation of the Computer Fraud and Abuse Act (CFAA), see 18 U.S.C. § 1030(g) (allowing a civil action only if a victim sustained damage or loss); Claim 2, misappropriation of trade secrets under the Arizona Uniform Trade Secret Act, and Claim 4, breach of contract, see Firetrace USA, LLC v. Jesclard, 800 F. Supp. 2d 1042, 1054 & n.5 (D. Ariz. 2010); Claim 3, unfair competition, see Smartcomm License Servs. LLC v. Palmieri, No. 1 CA-CV 16-0265, 2018 WL 326510, at *5 (Ariz. Ct. App. Jan. 9, 2018); Claim 5, breach of fiduciary duty, see Wichansky v. Zowine, 150 F. Supp. 3d 1055, 1065 (D. Ariz. 2015); Claim 7, trespass to chattel, see Mobilisa, Inc. v. Doe, 170 P.3d 712, 723, 217 Ariz. 103, 114 (Ct. App. 2007); Claim 8, conversion, see Acheson v. Shafter, 490 P.2d 832, 834, 107 Ariz. 576, 578 (1971); Claim 9, civil conspiracy, see Wells Fargo Bank v. Ariz. Laborers, Teamsters and Cement Masons Local No. 395 Pension Tr. Fund, 38 P.3d 12, 36, 201 Ariz. 474, 498 (2002); and Claim 10, aiding and abetting, see Biltmore Assocs., L.L.C. as Tr. for Visitalk Creditors’ Tr. v. Thimmesch, No. 2:02-CV-2405-HRH, 2007 WL 9723941, at *8 (D. Ariz. Oct. 15, 2007). JDM does not contest Defendants’ argument that it must prove damages; rather, JDM argues that it has presented a genuine issue of material fact as to damages such that summary judgment must be denied.

JDM contends it has evidence to support three categories of damages: JDM’s actual loss caused by Defendants’ improper conduct; unjust enrichment in the form of JDM’s costs to develop its digital marketing trade secrets that Defendant Impact saved through misappropriating the secrets; and, injunctive relief requiring Defendants to return JDM’s information and cease unfair competition. (Doc. 489 at 3.) The Court examines each of the damages categories identified by JDM.

Actual Loss Damages

JDM’s alleged damages for actual loss are based entirely on the expert opinion of Lynton Kotzin, disclosed in March 2017. (See Doc. 489 at 9-12 (identifying only Kotzin’s report as relevant to JDM’s actual loss damages).) Defendants contend the opinion of Kotzin is based on a faulty factual premise – that Defendant Fine destroyed critical data and prevented JDM’s access to it. Defendants contend that Fine did not destroy JDM’s proprietary data, therefore, Kotzin’s opinion is unfounded. JDM counters that, at a minimum, there is a genuine issue of fact regarding Fine’s conduct, and Kotzin’s opinion is based on the totality of Defendants’ wrongful conduct, including misappropriation and the use of JDM’s trade secrets (not just Fine’s destruction of data).

In the Executive Summary of his March 22, 2017 report, Kotzin stated that the report provided “an estimate of the economic damages related to the lost business income suffered by JDM as a result of the Alleged Actions.” (Doc. 459-2, Ex. B at 1.) Kotzin’s report calculated JDM’s lost business income using two methods, a profits methodology and reduction/diminution in the value of JDM. (Id.) Kotzin defined the “Alleged Actions” as Defendants “misappropriation, destruction, and use of trade secrets and confidential information” of JDM. (Id.)

*3 In deposition, Kotzin opined that the deterioration of JDM’s financial condition, as quantified in his report, was due entirely to the loss of JDM’s data and analytics regarding its digital marketing funnel. (Doc. 459-1, Ex. A at 151-53.) In other words, the “underpinning” of Kotzin’s opinion was that JDM did not have access to its own trade secrets due to Defendant’s Fine’s deletion of them, which rendered the company unable to operate its sales funnel. (Id. at 47, 56-57.) At one point, Kotzin testified that “there’s a lot of factors that play into the damages,” but went on to say, “it’s not having access to those analytics that negatively impacted the company’s operations” and “those factors relate to the sales funnel – essentially, the impact of the defendants’ actions on that sales funnel.” (Id.at 121, 152.) Kotzin did not place a value on JDM’s trade secrets and his opinion regarding JDM’s loss did not rest upon the Defendants’ commercialization of JDM’s trade secrets (Id. at 38-39, 44, 45-46); thus, his opinion does not support a finding of actual loss based on misappropriation.

When faced with Defendants’ argument regarding the limitations of Kotzin’s opinion, JDM failed to identify how misappropriation or the use of JDM data by Defendants caused actual loss to JDM. JDM identified only one action that caused loss – Fine’s alleged destruction of JDM’s data. (Doc. 489 at 9.) Although Kotzin defined the “Alleged Actions” broadly to reflect the spectrum of allegations in the Second Amended Complaint, his opinion is unquestionably based solely on Fine’s alleged destruction of data, which precluded JDM’s access to its own trade secrets. The Court next examines if there is a genuine issue of material fact regarding whether Fine destroyed JDM data.

Facts Regarding Destruction of Data on Fine’s JDM Computer[2]

Fine testified that, after his November 2013 resignation, Mellberg and JDM employee Rosa directed him to preserve the data on his computer and prepare it to be used by someone else. (Doc. 346-1, Tab 5 at 250; Doc. 385-2, Ex. 10 at 25.) The day of his resignation Fine asked Mark Gailey (from JDM’s IT department) to copy data from the D drive of his computer and to wipe the C drive. (Doc. 341-6, Tab 6 at 52, 103.)

According to Gailey, Fine selected specific files from the D drive of his computer (Gailey believed it was most everything on the drive, all the intellectual property and Fine’s work product), which they copied to the JDM network share. (Id. at 52, 104-05; Doc. 407-5, Ex. 16 ¶ 5.) Fine testified that most documents saved to the D drive of his computer were not saved in another location but working documents for marketing were generally cloud-based. (Doc. 490-1, Ex. 11 at 78-81.) Fine directed Gailey to upload the folder on the D drive that contained all his JDM work in subfolders. (Id. at 75-77.) As Gailey understood it, Fine intended to make sure that his work product was saved to the JDM server in order to preserve the data. (Doc. 456 ¶ 26 (citing Doc. 341-6, Tab 6 at 135-36); Doc. 490 ¶ 26.) Fine testified that, after the uploading process, Gailey informed him that the backup was complete, and Gailey had “confirmed the integrity of the files on the J.D. Mellberg server.” (Doc. 490-1, Ex. 11 at 78.) Gailey testified that he did not question that any data or reports (created by Fine) were placed on the server, but there was so much data that Gailey could not find some of it. (Doc. 336 ¶ 208 (citing Doc. 341-6, Tab 6 at 113); Doc. 405 ¶ 208.) Gailey subsequently reformatted the D drive, which he identified as best practice when a computer is going to be reassigned to a new employee. (Doc. 341-6, Tab 6 at 53-54.)

*4 Gailey stated the C drive contained the operating system and application files not marketing data or creative content. (Id. at 52-53, 104.) Fine testified that he did not save content files to the C drive; he did not know if saving to the D drive was set as a default, but he could not remember saving to the C drive one time. (Doc. 346-1, Tab 5 at 248-49.) Gailey explained to Fine that a 3-pass wipe was common practice for a computer with sensitize data and Fine told him to perform that procedure on the C drive. (Doc. 341-6, Tab 6 at 106.) Gailey testified that he would not have deliberately wiped necessary and proprietary data from Fine’s computer. (Id. at 107.)

Kyle Valencia from JDM testified that, after Fine resigned, JDM did not have, and was unable to restore, the historical marketing data for the pay-per-click advertising campaigns managed by Fine, such as the “database of prior spends.” (Doc. 490-1, Ex. 8 at 41-44, 45-46, 78.) Mellberg stated that Fine maintained on his computer the big data JDM used to make marketing decisions: the “aggregation and analysis of what to buy at what time, which appointments to give to which appointment setter and which leads to give to which advisor or agent in – in a format of the right volume where it’s profitable and time of the day.” (Doc. 407-4, Ex. 11 at 43-44; Doc. 490-1, Ex. 10 at 60.) He explained that Fine “built processes and formulas and techniques to be able to take this raw data from the different media outlets, from the e-mail delivery, from the Sales Force and the Five9 and accounting and other sources of information to identify what is our highest profitable return on investment and, without his data, the information on SQL was no longer accurate.” (Doc. 490-1, Ex. 10 at 58-59.)

Marlene Mellberg conducted a forensic examination of Fine’s JDM computer and concluded it held no recoverable data. (Doc. 490-1, Ex. 15 ¶¶ 2-11, 12, 16, 17.) She averred that JDM had “determined that it would be impossible for us to locate the files that were allegedly uploaded to the J.D. Mellberg network” without a complete list of the file names. (Doc. 330-4, Ex. 4 at 5.) Jeffrey Tye, an expert for JDM, testified that he reasonably believed that uploaded files could be located on the JDM server but “it may take a long time,” which he clarified to mean a matter of hours to days depending on the capability of the server. (Doc. 343-13, Tab 25 at 91-92, 161-62.)

Analysis Regarding Destruction of Data on Fine’s JDM Computer

The Court finds there is no material issue of fact regarding the destruction of data stored on Fine’s JDM-issued computer. Although JDM presented testimony that it lost access to at least some data that Fine had maintained while at JDM, the undisputed evidence establishes that Fine did not direct the deletion of any JDM data. Fine and Gailey’s testimony, that all substantive data on Fine’s JDM-issued computer was uploaded to the JDM server, is undisputed.[3] Even if there was a question of fact regarding whether all the relevant files were uploaded and could be located, Fine’s JDM work materials were stored on the D drive of the computer. The only action he requested from Gailey with respect to the D drive was to upload files from it. After that, Fine left his work files on the D drive; there is no evidence he directed the reformatting of that drive. Even construing the facts in JDM’s favor, there is no evidence Fine is responsible for the destruction of JDM data.

*5 Conclusion Regarding Actual Loss Damages

Without evidence that Fine destroyed JDM data, Kotzin’s opinion (which is premised solely on that factual assumption) is without foundation. Without Kotzin’s opinion, JDM has no evidence that it suffered actual loss from Fine’s alleged data destruction. Because there is no factual premise and no proof of damages, JDM is precluded from recovering on the portions of all claims premised on Fine’s destruction of data: Claims 1, 4 and 5 as to Fine, and Claims 7-10. Defendants are entitled to summary judgment on those portions of the Second Amended Complaint.

Unjust Enrichment

JDM seeks to recover the amount Defendant Impact was unjustly enriched based on saved development costs (calculated by JDM at $27,733,494). In other words, JDM asserts that, by misappropriating its trade secrets, Impact saved the cost of developing its own digital marketing program. See Bourns, Inc. v. Raychem Corp., 331 F.3d 704, 709–10 (9th Cir. 2003 (affirming a jury award for unjust enrichment based on saved development costs when the defendant misappropriated trade secrets and interfered with employment contracts). In turn, Defendants argue that JDM failed to timely disclose computations for this category of damages, and unjust enrichment evidence should be excluded pursuant to Rule 37(c)(1).

A party must disclose, without a discovery request, “a computation of each category of damages claimed by the disclosing party – who must also make available ... the documents or other evidentiary material ... on which each computation is based.” Fed. R. Civ. P. 26(a)(1)(A)(iii). This disclosure must be timely supplemented or corrected if updated information “has not otherwise been made known to the other parties during the discovery process or in writing.” Fed. R. Civ. P. 26(e)(1)(A). If the computation required by Rule 26(a) is not provided “the party is not allowed to use that information or witness to supply evidence on a motion ... unless the failure was substantially justified or is harmless.” Fed. R. Civ. P. 37(c)(1).

Background Facts Relevant to Unjust Enrichment

JDM’s August 2015 Initial Disclosure listed the following damages categories without computations or supporting evidence: $15 million in lost profits due to the theft of trade secrets; $30 million in lost profits as a result of Defendants’ diverting agents/advisors from JDM; $30 million for the development of JDM’s trade secrets that Defendants misappropriated (“estimate based upon the cost to Plaintiffs of development and refining of their marketing and sales funnels from 2009 to 2013); $10 million as the value of information destroyed by Defendant Fine, plus $300,000 per month in increased marketing expenses as a result of the destruction; “[i]n addition to the actual loss caused by misappropriation,” unjust enrichment caused by the misappropriation of JDM’s trade secrets; exemplary damages in an amount up to twice the actual loss and unjust enrichment caused by misappropriation; and punitive damages. (Doc. 311-1 at 9-10.) JDM “anticipate[d] that the computation of damages [would] involve the opinions of experts.” (Id. at 8.)

*6 In March 2017, JDM disclosed one expert on damages, Lynton Kotzin. He estimated JDM’s actual loss at $16,340,000 and provided a computation for his valuation. (Doc. 459-1, Ex. B.) In September 2018, JDM disclosed a damages summary and supporting computations prepared by Paul Crooks of JDM, which included the following: Kotzin’s calculation of impairment based on damage to JDM’s marketing systems and operating tools; $18,970,000 in unjust enrichment damages for theft of a 28,065 name client list; $22,144,000 in unjust enrichment and $9,478,000 impairment damages for theft of 10,000 agent names; $14,546,000 in unjust enrichment damages for the theft of marketing leads; and $14,179,000 in unjust enrichment damages for the theft of digital leads data. (Doc. 457, Ex. C.) Crooks was designated to testify on damages for JDM at the 30(b)(6) deposition, and he stated that he had no opinion on damages that was not stated in the September 2018 disclosure. (Doc. 308, Ex. 6 at 93.)

JDM had disclosed Mellberg as an expert witness to testify on JDM’s trade secrets and their value, the fact that JDM spent millions of dollars developing its trade secrets, and JDM’s losses as a result of Defendants’ alleged actions. (Doc. 317-1, Ex. 2 at 5-9.) During his September 2018 deposition, Mellberg confirmed that he would be testifying at trial about the cost for JDM to develop its trade secrets (Doc. 507-2, Ex. 2 at 122); however, his subsequent testimony regarding damages did not mention Impact’s saved development costs (id. at 122-50). He provided only general damages numbers for theft of JDM’s client list and advisor lists, the cost for JDM to train agents stolen by Defendants, the value of the data stolen by Fine, and theft of JDM client leads. (Id. at 121-50.) Mellberg stated he could not identify any other damages (id. at 149), and he did not mention $27 million in unjust enrichment based on JDM’s cost to develop the entirety of its trade secrets (id. at 121-50). Regarding calculations to support his numbers, Mellberg deferred to Kotzin’s report and the September 2018 Crooks computations. (Id. at 135, 145-46.)

Defendants moved to exclude Crooks as a witness because JDM’s disclosure of his computations and expert testimony were untimely. In ruling on that motion, Judge Jorgenson also noted that the only damages computations timely disclosed by JDM were those in the Kotzin report. (Doc. 442 at 2, 15.) Judge Jorgenson then noted that Mr. Kotzin was the only expert disclosed prior to the expert witness disclosure deadline and that his report covered only two categories of damages; thus, she concluded that “Plaintiffs were keenly aware that [the] majority of their damages categories still required additional input.” (Id. at 14.) As a Rule 37(c)(1) sanction for untimely disclosure, Judge Jorgenson excluded Mr. Crooks’s testimony “in the form of the September 2018 disclosure” and precluded him from testifying as a lay or expert witness. (Id. at 14-17.)

In a new declaration, drafted in response to Defendants’ motion for summary judgment, Kotzin clarified that added together payroll, digital marketing expenses, and advertising and marketing expenses, for the years 2009 to 2013, totals $30,425,512 that JDM spent to develop its trade secrets and confidential information. (Doc. 495, Ex. 4 ¶ 7.) Mellberg averred, in a new declaration also drafted in response to Defendants’ motion for summary judgment, that payroll for testing and analysis of data was part of the expense to develop JDM’s trade secrets. (Id., Ex. 13 ¶¶ 5, 9.) Mellberg further stated that 80% of JDM’s payroll was attributable to development of the trade secrets. (Id. ¶ 14.) After apportioning payroll, Mellberg calculated JDM’s trade secret development costs as totaling $27,733,494. (Id. ¶ 15.)

Unjust Enrichment Computation Disclosure

Rule 26(a)(1)(A)’s computation provision requires “some sort of analysis or assessment” beyond lump-sum estimates of damages. See Kloberdanz v. Arpaio, No. 2:13-CV-02182 JWS, 2016 WL 9108744, at *1 (D. Ariz. Aug. 8, 2016) (requiring an explanation of the damages amount claimed with supporting documentation); City and Cty. of San Francisco v. Tutor-Saliba Corp., 218 F.R.D. 219, 221 (N.D. Cal. 2003). Contrary to JDM’s representation in their response to Defendants’ motion (Doc. 489 at 6-7), their initial disclosure statement did not provide a computation for unjust enrichment damages (Doc. 311-1 at 9-10; Doc. 442 at 2). Counsel conceded this point at oral argument. (Doc. 515 at 108-09.)

*7 Instead, JDM argued that it provided a computation during Kotzin’s deposition. JDM’s counsel stated that Kotzin was asked about unjust enrichment and explained that “if you add up all that amount that’s been spent on advertising, I believe it’s approximately 30 million.” (Id. at 107, 109.) In fact, this portion of Kotzin’s deposition does not mention unjust enrichment; defense counsel was exploring with Kotzin how much time and money JDM spent developing the data allegedly destroyed by Fine. (Doc. 459-1, Ex. A at 121-26.) The data Fine was alleged to have destroyed was only a part of JDM’s alleged trade secrets; for example, it did not include JDM’s client or advisor lists. However, Kotzin testified that for JDM to develop all its trade secrets and “know-how” cost “probably in excess of $30 million,” which is the amount JDM spent on advertising between 2009 and 2013. (Id. at 123-26.) Kotzin indicated he had calculated the $30 million figure previously but could not replicate the calculation during his deposition. (Id. at 124-26.) Kotzin testified he was not offering an opinion on an unjust enrichment valuation.[4] (Id. at 37.) And, although Kotzin opined that JDM’s trade secrets were “a significant component” of the company’s $16 million value, he did not have an opinion on the value of JDM’s trade secrets individually or in the aggregate. (Id. at 38-39, 41-44.) This testimony by Kotzin did not satisfy JDM’s obligation to disclose a computation for unjust enrichment.

JDM also relies on its disclosure of JDM financial documents, directly to Defendants and as attachments to Kotzin’s report, as providing the necessary data for the computation. During discovery, JDM disclosed to Defendants, JDM’s balance sheets and profit and loss statements reflecting expenses for advertising, marketing, and payroll from 2008 to 2013. (Doc. 495, Ex. 3.) Also, Kotzin attached to his report JDM Historical Income Statements from 2008 to 2015. (Doc. 459-2, Ex. B, Ex. 7.) On its face, Rule 26 requires a computation AND supporting documentation; merely providing financial statements absent identification of the relevant information does not satisfy the obligation to provide a computation. See Design Strategy, Inc. v. Davis, 469 F.3d 284, 295 (2d Cir. 2006) (“by its very terms Rule 26(a) requires more than providing—without any explanation—undifferentiated financial statements; it requires a “computation,” supported by documents.”); Schedler v. Fieldturf USA, Inc., No. 3:16-cv-0344-JR, 2018 WL 5083883, at *6 (D. Or. Oct. 18, 2018) (“Plaintiff is not obligated to scour the entirety of Defendants’ document production to try to determine what documents might be relevant to damages.”). JDM’s production of financial records did not satisfy its obligation to provide a computation.

Next, JDM argues that Defendants have understood for the entirety of the case that the money JDM spent on advertising and payroll was needed to develop its trade secrets. (Doc. 515 at 107-08.) While JDM claimed from the beginning that it spent $30 million developing its digital marketing program, it did not consistently pursue unjust enrichment based on Impact’s saved development costs for the trade secrets. The initial disclosure stated that JDM valued its misappropriated trade secrets at $30 million, but it did not state JDM was claiming unjust enrichment in that amount. (Doc. 311-1 at 9.) Rather, JDM identified unjust enrichment as a category separate from actual loss (the category that included JDM’s $30 million development cost) and indicated it would rely upon discovery from Defendant Impact to prove unjust enrichment. (Id.) JDM also expressed its intent to rely upon experts for its computations. (Id. at 8.) In disclosing Kotzin as an expert, JDM indicated that he might offer a subsequent opinion on unjust enrichment based on disclosure yet to be obtained from Defendants (specifically, financial data). (Doc. 317-1, Ex. 2 at 2.) These disclosures communicated that JDM’s pursuit of unjust enrichment would be tied to Defendants’ profits. See Lindy Pen Co. v. Bic Pen Corp., 982 F.2d 1400, 1407 (9th Cir. 1993) (noting that damages may be awarded based on the theory of unjust enrichment in an amount of defendant’s profits), abrogated on other grounds by SunEarth, Inc. v. Sun Earth Solar Power Co., 839 F.3d 1179 (9th Cir. 2016). And, if JDM chose to pursue unjust enrichment, it would do so through expert testimony. JDM timely disclosed only one expert, Kotzin, who confirmed that he was not offering an opinion on unjust enrichment. JDM never disclosed a supplemental report or opinion by Kotzin. Thus, neither the initial disclosure, nor Kotzin’s report or testimony put Defendants on notice to defend against a claim for unjust enrichment based on saved development costs for the trade secrets.[5] See Nihart v. Nat’l Park Serv., No. 2:12-CV-00291-APG, 2014 WL 1415198, at *2 (D. Nev. Apr. 10, 2014) (“even if Nihart had communicated her intent to call her treating physicians as experts, her affirmative designation of Dr. Gary J. La Tourette as an expert witness implied that she chose not to designate her treating physicians as experts.”)

*8 Next, JDM designated Crooks to testify as to damages for its 30(b)(6) deposition and he did not identify $27 million in unjust enrichment nor any computation tied to saved development costs for the entirety of JDM’s trade secrets. Similarly, when deposed, Mellberg deferred to Crooks’s computations and did not disclose a $27 million unjust enrichment category based on Impact’s saved development costs. Thus, review of the course of discovery in this case does not support JDM’s argument that Defendants were always on notice of JDM’s current unjust enrichment theory and its underlying computation. Regardless, Defendants ability to surmise that the development of JDM’s trade secrets required the company to spend unspecified sums of money on advertising and payroll in no way equates to JDM disclosing a computation for unjust enrichment.[6]

The record reveals that JDM did not disclose an unjust enrichment computation during the discovery period (which closed in April 2018, with limited exceptions not applicable here). JDM first provided a basic computation in June 2019, in response to Defendants’ motion for summary judgment on damages. JDM’s counsel conceded that part of the computation, Mellberg’s allocation of 80% of payroll to trade secret development, was disclosed for the first time in responding to Defendants’ motion for summary judgment. (Doc. 515 at 121.) The Court concludes that JDM violated Rules 26(a)(1)(iii) and 26(e)(1)’s requirement to timely disclose and supplement damages computations.

JDM argues that, if their disclosure was insufficient, Defendants could have asked for further discovery regarding a computation. (Doc. 515 at 111; Doc. 522 at 2.) By its very terms, Rule 26(a) operates without obligation on the opposing party. See In re Gorilla Cos., LLC, 454 B.R. 115, 119 (D. Ariz. 2011) (citing the Advisory Committee note’s description of the disclosure obligation as “the functional equivalent of court-ordered interrogatories”) (quoting Fed. R. Civ. P. 26(a)(1), Adv. Comm. Note (1993)); City and Cty. of San Francisco, 218 F.R.D. at 220 (noting that Rule 26 operates as the “functional equivalent of a Standing Request for Production under Rule 34.”) (quoting West’s Fed. R. Decisions, 1993 Adv. Comm. Notes to Rule 26, 146 F.R.D. 401 at 631–32 (1993)). Prior to seeking sanctions under Rule 37(c)(1), a party is not required to confer with the opposing party as is often required prior to raising discovery disputes before a court. See Hoffman v. Constr. Protective Servs., 541 F.3d 1175, 1179 (9th Cir. 2008).

The cases cited by JDM to support its argument that sanctions are not warranted because Defendants did not alert them to a deficiency, Lemon and Excel Fortress, are inapposite and neither involve Rule 37(c)(1) sanctions. This is an important distinction because the Ninth Circuit allows courts wide latitude to impose sanctions under Rule 37(c)(1) because the rule was intended to broaden the court’s sanctioning power to induce compliance with disclosure requirements.[7] See Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106 (9th Cir. 2001). In Lemon, this Court denied the plaintiff’s motion in limine to preclude evidence because the defendants produced relevant information in response to discovery requests and plaintiff neither inquired about the documents during depositions nor challenged the adequacy of the production. Lemon v. Harlem Globetrotters, Int’l, Inc., Nos. CV 04-0299-PHX-DGC, CV 04-1023-PHX-DGC, 2006 WL 3524379, at *5 (D. Ariz. Dec. 6, 2006). Here, JDM did not timely produce the relevant computation. Further, Defendants had no requirement to challenge the adequacy of the disclosure because JDM’s obligation to produce the computation was automatic. See Ingenco Holdings, LLC v. ACE Am. Ins. Co., No. C13-543RAJ, 2016 WL 4703758, at *3 (W.D. Wash. Sept. 7, 2016) (rejecting argument that defendants were at fault for not seeking a computation and finding it was plaintiffs’ burden to comply with Rule 26).

*9 In Excel Fortress, this Court declined to exclude the plaintiffs’ damages based on late disclosure of their computations because the defendants did not request supplementation despite awareness that the initial disclosure was inadequate. Excel Fortress Ltd. v. Wilhelm, No. CV-17-04297-PHX-DWL, 2019 WL 2503684, at *3-4 (D. Ariz. June 17, 2019). Perhaps because exclusion was sought under Rule 37(b) in that case, the Court found the defendants were obliged to seek clarification prior to pursuing sanctions. In contrast, Rule 37(c)(1) provides that if a party fails to comply with disclosure obligations, it cannot use the non-disclosed evidence. The opposing party bears no burden. Additionally, the factual circumstances in Excel Fortress are distinguishable. Here, Defendants were not on notice to request further computations. JDM disclosed one expert with computations (Kotzin), and Defendants deposed him, and Mellberg, and Crooks. Defendants explored the scope of each witness’s testimony on JDM’s damages. Defendants reasonably relied on the reports and testimony of those witnesses as encompassing the full scope of JDM’s damages. They had no reason to believe JDM was pursuing $27 million in unjust enrichment, based on saved development costs for the entirety of JDM’s trade secrets, when none of those witnesses disclosed that theory, that number, or a supporting computation.

Contrary to JDM’s assertion, Defendants are not using the initial disclosure requirements as a weapon. Defendants’ motion for summary judgment was premised on damage computations disclosed up to that time, which was solely those provided by Kotzin. They sought exclusion only when JDM disclosed the new computation in response to their motion. In Excel Fortess, the computation was proffered late but during the discovery period, 2019 WL 2503684, at *1-2; here, JDM produced a new computation more than a year after discovery closed. The absence of a request by Defendants, for disclosure that JDM was obligated to provide, does not indicate sanctions are unwarranted.

Substantial Justification and Harmlessness

The potential harshness of an exclusion sanction under Rule 37(c)(1) is ameliorated by the rule’s exceptions if the late disclosure was substantially justified or harmless. See Yeti by Molly, Ltd., 259 F.3d at 1106. JDM has provided no justification for the late disclosure; rather, it contends the disclosure was completed timely. When a party represents its inadequate disclosures to be in proper compliance with Rule 26(a)(1)(iii), it fails to establish a substantial justification for the violation. See Torrez v. D. Las Vegas, Inc., 773 F. App’x 950, 951 (9th Cir. 2019); see also Quevedo v. Trans-Pacific Shipping, Inc., 143 F.3d 1255, 1258 (9th Cir. 1998) (upholding exclusion when party first satisfied a Rule 26 obligation in responding to a motion for summary judgment, without justification for the delay).

In their initial disclosure, JDM acknowledged the need to supplement with computations of the disclosed damages categories. (Doc. 311-1 at 8, 9.) Despite that acknowledgment, no calculation was forthcoming during the discovery period. The computation ultimately disclosed was merely the sum of line items from JDM’s 2009-2014 financials; thus, it had been available to JDM since before its August 2015 initial disclosures. Nothing that occurred during discovery interfered with JDM’s ability to provide a timely computation with supporting documentation. See Popovic v. Spinogatti, No. CV-15-00357-PHX-JJT, 2016 WL 2893426, at *9 (D. Ariz. May 18, 2016) (finding violation not substantially justified when party erroneously contended it complied with Rule 26, despite having acknowledged the need to supplement, and there was no barrier to timely providing the damages). JDM’s late disclosure was not substantially justified.

JDM bears the burden of establishing harmlessness. See Yeti by Molly, Ltd., 259 F.3d at 1107. The late disclosure is not harmless as Defendants are prejudiced. JDM suggests that Defendants were not surprised by the computation because JDM alleged in the complaint that it spent $30 million developing its trade secrets. While true, an allegation is only an allegation. It is during discovery that a plaintiff is required to disclose the evidence it intends to rely upon to prove its alleged damages. In turn, a defendant may examine the evidence, depose the witnesses identified as supporting a plaintiff’s damages claim, and obtain rebuttal evidence. Here, Defendants were denied that opportunity as to the newly-disclosed $27 million computation. Discovery is closed, and Defendants are unable to serve written discovery, conduct further depositions of Mellberg, Kotzin, and JDM, or depose JDM employees with knowledge of its financials. See Popovic, 2016 WL 2893426, at *10 (finding late disclosure not harmless when the close of discovery prevented the defendant from challenging the new disclosure). Further, Defendants are unable to retain an expert to refute the new computation.

*10 As Defendants point out, Mellberg and Kotzin’s computation apportions all advertising expenses for a period of five years as JDM’s cost to develop its trade secrets. (Doc. 506 at 14.) Defendants contend that the failure to employ any cost allocation renders the computation unreliable. Additionally, Mellberg provided no explanation for allocating 80% of payroll to the development of trade secrets. If Mellberg and Kotzin were allowed to testify as to this computation, Defendants have identified areas of their opinion they could challenge, but they have been denied the opportunity to develop this defense. Thus, to allow the new computation would prejudice Defendants.

The Ninth Circuit holds that, if allowing the late-disclosed computation would require the re-opening of discovery and delay of the Court’s schedule, then the failure to disclose is not considered harmless. See Hoffman, 541 F.3d at 1180; Ollier v. Sweetwater Union High Sch. Dist., 768 F.3d 843, 863 (9th Cir. 2014) (finding late disclosure of witnesses not harmless because “reopening discovery before trial would have burdened Plaintiffs and disrupted the court’s and the parties’ schedules”); Wong v. Regents of Univ. of Cal., 410 F.3d 1052, 1062 (9th Cir. 2005) (finding delayed disclosure not harmless because it would have required alteration of the Court’s schedule, although the ultimate trial date was months away); Yeti by Molly, Ltd., 259 F.3d at 1107 (finding late disclosure not harmless because it would have required an untimely deposition and unanticipated preparation by the opposing party). Because Defendants are prejudiced by the late disclosure and it would require an extension of the Court’s schedule, it was not harmless.

Because JDM failed to disclose the computation in compliance with Rule 26(a) and the failure was not harmless or substantially justified, Rule 37(c)(1) directs that JDM is precluded from using the evidence in responding to Defendants’ motion for summary judgment on damages. However, precluding the computation and related testimony threatens a total failure of some of JDM’s claims. Therefore, the Court must consider if JDM’s noncompliance with Rule 26(a) “involved willfulness, fault, or bad faith” and must consider the availability of lesser sanctions.” R&R Sails, Inc. v. Ins. Co. of Penn., 673 F.3d 1240, 1247 (9th Cir. 2012).

Fault, Willfulness, or Bad Faith

“ ‘[D]isobedient conduct not shown to be outside the control of the litigant’ is all that is required to demonstrate willfulness, bad faith, or fault.” Henry v. Gill Indus., Inc., 983 F.2d 943, 948 (9th Cir. 1993) (quoting Fjelstad v. Am. Honda Motor Co., Inc., 762 F.2d 1334, 1341 (9th Cir. 1985)). JDM argues that, at most, they erroneously interpreted Rule 26(e)’s obligation to supplement their damages disclosures because they believed that the computations had been otherwise disclosed. Rules 26(a) and (e) unambiguously require a computation of damages and supplementation of incomplete or incorrect disclosures; therefore, JDM cannot have interpreted the rule erroneously. See Alfaro v. D. Las Vegas, Inc., No. 2:15-cv-02190-MMD-PAL, 2017 WL 3172539, at *3 (D. Nev. July 26, 2017) (rejecting party’s argument that the rule was ambiguous because the rule’s disclosure requirements were clear and had not been met). Rather, the Court interprets the argument to be that JDM believed in good faith it had satisfied the rule’s requirements.

JDM argues there is no bad faith because Defendants have been on notice from the start of the case that JDM was seeking approximately $30 million in unjust enrichment based on the cost to develop JDM’s trade secrets. As discussed above, in the section titled Unjust Enrichment Computation Disclosure, the amount and computation of JDM’s damages has not stayed consistent throughout the case. Regardless, if it was always JDM’s intent to rely on this theory of damages, then it was aware that a true computation underlying that number was required. (See Doc. 442 at 14 (finding that, as of May 2017 when Plaintiffs disclosed Kotzin’s report, they “were keenly aware that [the] majority of their damages categories still required additional input.”).) The financials underlying the computation were within JDM’s control from the day the case was initiated. JDM had repeated opportunities to identify the $27 million computation for unjust enrichment based on saved costs to develop the trade secrets: initial disclosures, expert disclosures, the 30(b)(6) deposition of Mellberg or Crooks, or a supplemental disclosure at any time during discovery. The company knowingly failed to disclose the computation during discovery.

*11 It is evident to the Court that JDM’s original intent was not to premise its damages claim on testimony from Mellberg and “simple math.” It does so now, only because the Court precluded JDM from relying on Crooks’ testimony and sophisticated calculations. See supra note 5. Counsel for JDM conceded that the allocation of 80% of payroll to development costs was first disclosed in response to Defendants’ motion for summary judgment. See Ingenco Holdings, LLC, 2016 WL 4703758, at *4 (finding fault and willfulness because counsel admitted damages not valued until the discovery deadline); see also Fjelstad, 762 F.2d at 1342 (finding deliberate failure to supplement witness identifications because only a small portion of the 240 listed witnesses were disclosed in response to interrogatories or during depositions). JDM and its counsel made an intentional decision during the discovery period about how they would prove damages, which involved Kotzin and, later, Crooks; relying on Mellberg’s computation was an untimely attempt to rectify the loss of Crooks. Because JDM violated Rule 26 and had the ability to comply, the requirement of willfulness is satisfied. See Torrez, 773 F. App’x at 951 (finding willfulness when the party continued to insist that it had fulfilled its obligation despite clear evidence that the disclosure was inadequate).

Alternative Sanctions

The Court must evaluate whether a sanction less severe than preclusion is appropriate.[8] In the Ninth Circuit, a court properly considers the entirety of a party’s conduct when imposing a sanction, including prior conduct already sanctioned by the Court. See Henry, 983 F.2d at 947. In 2018, the Court denied numerous discovery requests by JDM due to its failure to engage in reasonable negotiations with opposing counsel and the violation of deadlines. Then, the Court concluded exclusion of Crooks was the appropriate sanction based on prejudice to Defendants, Plaintiffs’ extensive history of discovery violations, Plaintiffs’ lack of explanation for the untimely disclosure, and the “extreme untimeliness” of the disclosure. (Doc. 442 at 15-17 (citing prior Orders documenting Plaintiffs’ violations of deadlines and Court orders).) JDM’s history of violations supports precluding the evidence rather than a lesser sanction. Further, if the Court permitted JDM to offer an untimely computation to replace, in part, Crooks’s untimely computations, JDM would circumvent the Court’s sanction precluding Crooks.

A limited sanction, such as issuing JDM or their counsel a warning or reprimand, is insufficient under the current circumstances. Although the Court penalized JDM’s repeated failures to meet discovery deadlines in 2018, that did not deter the late disclosure of Crooks and the current computation. Additionally, given the amount of money Plaintiffs have been willing to expend in prosecution of this case, subjecting them to a fine or payment of Defendants’ expenses would be unlikely to make a meaningful impression.

JDM contends that a narrow sanction that allows the limited reopening of discovery is feasible. Any sanction that does not preclude the evidence would require the re-opening of discovery to mitigate the prejudice to Defendants from the late disclosure. Discovery in this case was protracted and the Court spent an inordinate amount of time overseeing discovery. The Court met telephonically with counsel almost monthly for over a year, issuing written rulings after most of those conferences. Additional discovery would be unlikely to proceed without further disputes and burden on the Court. The fact that discovery has been closed for more than a year and the parties have completed briefing and argument on seven dispositive motions also counsels against imposing a sanction other than preclusion. See Silvagni v. Wal-Mart Stores, Inc., 320 F.R.D. 237, 243 (D. Nev. 2017) (finding exclusion to be a more likely sanction if the damages computation is first disclosed substantially after discovery has closed); Jones v. Wal-Mart Stores, Inc., No. 2:15-CV-1454-LDG-GWF, 2016 WL 1248707, at *4 (D. Nev. Mar. 28, 2016) (same). Further, any delay would be substantial. Defendants estimate at least a six-month period to re-take numerous depositions, depose additional JDM employees, hire a rebuttal expert, and brief a new summary judgment motion on damages. The Court is concerned that allowing Mellberg to offer new deposition testimony in support of the late-disclosed computation would reward him for his failure to offer this testimony in his first deposition when asked repeatedly about the breadth of his knowledge on JDM’s damages (Doc. 507, Ex. 2 at 121-50). See Tablizo v. City of Las Vegas, No. 2:14-cv-00763-APG-VCF, 2018 WL 4258504, at *1 (D. Nev. Sept. 6, 2018) (finding that reopening discovery after an extended period would reward the party’s late disclosure, which was contrary to the spirit of the federal rules), appeal docketed No. 18-16913 (9th Cir. Oct. 4, 2018).

*12 In sum, opening discovery is highly unfavorable because it would burden the Court and Defendants, render Defendants’ motion for summary judgment moot in part, involve further expense, and delay resolution of this five-year-old case. See Torrez, 773 F. App’x at 951 (rejecting other sanctions, in part, because they would result “in the undoing of the scheduling order without good cause, imposition upon the defense, and untoward delay.”); Jones, 2016 WL 1248707, at *7 (“Lesser sanctions and other measures are generally more appropriate than evidence preclusion when the disclosure is provided during the discovery period and the delay can be remedied during the existing discovery period or with a limited and brief extension of discovery.”); Cohen v. Hansen, No. 2:12-CV-01401-JCM, 2014 WL 1873968, at *14 (D. Nev. May 8, 2014) (finding prejudice and precluding damages evidence because “[t]he only potential remedy other than preclusion would require reopening discovery, cost the Defendants more time and money, render the work done on the summary judgment motion largely worthless and further delay resolution of this case on its merits.”) Because reopening discovery is unduly burdensome on Defendants and the Court, and JDM has proposed no other viable sanction, preclusion is warranted. See Ingenco Holdings, LLC v. Ace Am. Ins. Co., 921 F.3d 803, 822 (9th Cir. 2019).

Conclusion

Although the preclusion of Mellberg’s damages computation and related testimony will result in the dismissal of several claims on grounds unrelated to their merit, JDM made the decision not to disclose this readily available computation until long after discovery closed. The computation is related to the heart of its allegation of misappropriation; thus, JDM was long on notice of the need to disclose any and all computations for damages arising from these allegations. As this late-disclosed computation is the only support JDM has proffered to prove monetary damages as to Defendants’ alleged misappropriation, the entirety of Claims 1-5 and 7-10, that are not premised on Fine’s destruction of data, fail.

Punitive Damages

JDM requested punitive damages, but a party cannot recover punitive damages absent proof of actual damages. See Koepnick v. Sears Roebuck & Co., 762 P.2d 609, 619, 158 Ariz. 322, 332 (Ct. App. 1988). Because JDM is unable to prove actual damages, their request for punitive damages fails.

Injunctive Relief

JDM requests injunctive relief as to Claims 2 and 3.[9] As to Claim 2, JDM alleges: “the Individual Defendants’ continued relationship with Defendant Impact poses a real and substantial threat that the Individual Defendants will continue to disclose Plaintiff’s trade secrets.” (Doc. 54 ¶ 194.) The request is premised on A.R.S. § 44-402(A), which provides that “[a]ctual or threatened misappropriation may be enjoined.” As to Claim 3, JDM alleges: “Defendants’ acts of unfair competition will be ongoing unless ... the Court makes such orders as necessary to prevent the use or employment by Defendants of any act or practice which constitutes unfair competition in the future.” (Doc. 54 ¶ 205.) JDM seeks a permanent injunction enjoining Defendants from using or disclosing JDM’s trade secrets and confidential information to compete with JDM or solicit agents associated with JDM; and, an order requiring Defendants to return JDM’s trade secrets and confidential information. (Doc. 54 at 45 ¶¶ F, G.)

To obtain a permanent injunction, JDM needs to demonstrate:

*13 eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006).

The dispositive question is whether JDM presented evidence of an actual or threatened irreparable injury to JDM. See Ariz. Dream Act Coal. v. Brewer, 757 F.3d 1053, 1068 (9th Cir. 2014) (defining irreparable harm as one “for which there is no adequate legal remedy, such as an award of damages). Defendants argue there is no threat of future harm because Annuity Angel, their competing entity, stopped operating in 2014. The Court agrees that any harm arising from Defendants’ alleged actions related to Annuity Angel are complete and the only remedy available is monetary damages. See TDBBS LLC v. Ethical Products Inc., No. CV-19-01312-PHX-SMB, 2019 WL 1242961, at *7 (D. Ariz. Mar. 18, 2019) (noting that injunctions are to “prevent future use of trade secret information” not to remedy a past wrong); KWB and Assocs., Inc. v. Marvin, No. ED CV 18-289-DMG (KKx), 2018 WL 5094927, at *7 (C.D. Cal. Apr. 18, 2018) (denying injunctive relief because there was no “present or imminent risk of likely irreparable harm”).

JDM argues, however, that Defendants still possess JDM’s confidential information and trade secrets; and, Defendants Will and Godinez are performing digital marketing work for Defendant Impact in a different venture.[10] Plaintiffs present the following undisputed facts regarding Will and Godinez’s work since Annuity Angel closed in Fall 2014. (Doc. 490-1, Ex. 12 at 10.) In January 2015, Defendants Will and Godinez formed a company called Advisor Internet Marketing. (Id. at 11-12.) Formula Folios, a registered investment advisor firm founded before Annuity Angel and owned in part by Defendant Impact, hired Advisor Internet Marketing as a consultant to do digital marketing. (Id. at 8-9.) Advisor Internet Marketing does work “similar to lead generation,” website creation, videos, and copy. (Id. at 13-14.) Their marketing is geared to financial advisors not “consumer-facing marketing,” and does not involve a call center (Id. at 9-10, 14.)

Based on the above-cited evidence, JDM contends Defendants may use its trade secrets going forward. Some courts have found a genuine issue of fact regarding whether a defendant poses a risk of future harm when the party continues to possess the plaintiffs’ trade secrets and could use them to compete in the future. See, e.g., Allergan, Inc. v. Merz Pharms., No. SACV 11-446 AG (Ex), 2012 WL 13134616, at *6-7 (C.D. Cal. Feb. 1, 2012) (denying summary judgment as to injunctive relief because defendants could pose a threat based on their continued possession of trade secrets eighteen months after leaving plaintiff’s employ); Applied Materials, Inc. v. Advanced Micro-Fabrication Equip. (Shanghai) Co., Ltd., No. C 07-05248 JW, 2009 WL 10709718, at *5 (N.D. Cal. Nov. 24, 2009) (noting that the defendants actively used plaintiffs trade secrets only a year prior). However, JDM has not presented evidence that, since the closing of Annuity Angel, any Defendant has used or disclosed JDM’s confidential information or trade secrets. Although some Defendants have worked together in digital marketing, there is no evidence that, in the last five years, any Defendant competed directly against JDM unfairly or solicited an agent he knew to be associated with JDM. Cf. Zitan Techs., LLC v. Liang Yu, No. 3:18-cv-00395-RCJ-WGC, 2018 WL 5045207, at * 4 (D. Nev. Oct. 17, 2018) (collecting cases finding irreparable harm based on “evidence of specific, manifest acts by defendant, such as evidence of utilization or attempted utilization of a plaintiff’s trade secrets, evidence of competition with a plaintiff after acquiring a plaintiff’s trade secrets, or evidence of solicitation of customers, especially a plaintiff’s, after obtaining a plaintiff’s trade secrets.”); Gallagher Benefit Servs., Inc. v. De La Torre, 283 F. App’x 543, 546 (9th Cir. 2008) (finding irreparable injury due to potential loss of customers and goodwill but limiting injunction to the one customer for which there was evidence of wrongful solicitation). Considering the significant time that has passed since the 2014 filing of this case and Defendants’ last alleged use of JDM’s material in 2014, the Court finds JDM’s vague allegations that Defendants could use their trade secrets in the future insufficient because “speculative injury does not constitute irreparable injury.” Colo. River Indian Tribes v. Town of Parker, 776 F.2d 846, 849 (9th Cir. 1985) (citing Goldie’s Bookstore, Inc. v. Superior Ct. of State of Cal., 739 F.2d 466, 470, 472 (9th Cir. 1984) (finding no irreparable harm because alleged loss of good will and “untold” customers was unfounded)); cf. Farmer Bros. Co. v. Albrecht, No. 2:11-CV-01371-PMP-CWH, 2011 WL 4736858, at *3 (D. Nev. Oct. 6, 2011) (finding likelihood of irreparable harm based on lost customers and goodwill “not speculative” because the defendant had solicited and obtained the plaintiff’s customers). Defendants have been in possession of JDM’s documents for more than six years and JDM fail to demonstrate harm is occurring now or is imminent; therefore, injunctive relief is not warranted. See Oakland Tribune, Inc. v. Chronicle Pub. Co., Inc., 762 F.2d 1374, 1377 (9th Cir. 1985).

*14 The Court’s finding is supported by JDM’s failure to pursue a preliminary injunction at the time they filed the suit, which undermines their allegation of irreparable harm today. See Lydo Enters., Inc. v. City of Las Vegas, 745 F.2d 1211, 1213 (9th Cir. 1984) (considering 5-year delay in filing suit as one factor undermining a request for urgent injunctive relief); Open Text, S.A. v. Box, Inc., 36 F. Supp. 3d 885, 909 (N.D. Cal. 2014) (finding delay in seeking relief, without explanation, undermined claim of irreparable harm); Halo Elecs., Inc. v. Pulse Elecs., Inc., No. 2:07-cv-00331-PMP-PAL, 2013 WL 3043668, at *6 (D. Nev. June 17, 2013) (considering plaintiff’s failure to request a preliminary injunction as one factor in evaluating irreparable harm for a permanent injunction).

JDM fails to establish it will suffer irreparable harm without a permanent injunction. Therefore, JDM would not be entitled to injunctive relief even if it established that Defendants misappropriated trade secrets or confidential information in 2013 and/or 2014.

CLAIM 6

Claim 6 is distinct in that it is the only claim brought by Plaintiff Joshua Mellberg, not JDM. In August 2010, Defendant Will and Mellberg formed Alpha Advisors Academy, LLC (AAA); Will was the manager, and he and Mellberg were the only two members. (Doc. 54 ¶ 46.) A written operating agreement was drafted for AAA; however, it was never signed by Will.[11] (Doc. 378-10, Ex. 64; Doc. 330-5, Ex. 5 at 30-32; Doc. 407-4, Ex. 12 at 184-85.)

In the Second Amended Complaint, Mellberg alleged that Will breached his duty to Mellberg as the other member of AAA. (Doc. 54 at 40-41.) Will argues that, under Arizona law, members of an LLC do not owe one another fiduciary duties. (Doc. 329 at 11-12.) In response, Mellberg altered his theory and argued that Will owed a duty not as a member but as the manager of AAA. (Doc. 406 at 14-16.) Mellberg’s response was vague on whether he was arguing that Will owed a duty to the LLC only or also owed a duty to Mellberg. (See id.) In supplemental briefing, Mellberg stated that Will as AAA’s manager owed a duty to Mellberg directly, and Mellberg is not bringing a derivative claim on behalf of the LLC.[12] (Doc. 517 at 2.)

*15 The Court first examines whether Will as manager of AAA owed Mellberg a duty as a member. In a case decided this year, the Arizona Supreme Court addressed the fiduciary duties arising in LLCs. See In re Sky Harbor Hotel Properties, LLC, 443 P.3d 21, 246 Ariz. 531 (2019). The court held that Arizona’s LLC Act did not expressly impose fiduciary duties on members or managers (in contrast to the current Arizona statute applicable to LLCs formed during or after September 2019, see A.R.S. § 29-3409). Id. at 22, 246 Ariz. at 532. However, because the law of agency applied to the LLC Act, the court looked to common law agency principals to determine the fiduciary duties owed to an LLC. Id. at 22-23, 246 Ariz. at 532-33 (citing A.R.S. § 29-854(B)). An agent is a fiduciary and owes a duty to the principal on whose behalf the agent acts. Id. at 23, 246 Ariz. at 533; A.R.S. 29-654(B)(2) (“Each manager is an agent of the limited liability company for the purpose of carrying on its business in the usual way.”) Therefore, agency law directs that Will as the manager owed AAA a fiduciary duty as its agent. See id. Agency law, however, does not impose a duty running from Will to Mellberg (who was a co-member and not Will’s principal).

Mellberg cites only out-of-state law for his argument that Will owed him a duty. This is because there is no Arizona case holding that a manger owes fiduciary duties to members of an LLC. This was recognized by the Ninth Circuit when it upheld a finding that the LLC Act did not impose a fiduciary duty on a member-manager of an LLC to other LLC members and no Arizona case law imposed such a duty. In re Ratliff, No. ADV. 09-00275-JMM, 2010 WL 6259955, at *11 (B.A.P. 9th Cir. Oct. 13, 2010), aff’d on this ground, rev’d on other grounds and remanded, 490 F. App’x 896 (9th Cir. 2012) (citing Terence Thompson, et. al., 6 Ariz. Prac., Corporate Practice § 12:65 (2009-10 ed.)). Instead, members of an LLC may delineate duties owed to one another in an operating agreement. TM2008 Invs., Inc. v. Procon Capital Corp., 323 P.3d 704, 708, 234 Ariz. 421, 425 (Ct. App. 2014). AAA had no governing operating agreement, and the unsigned one imposes no fiduciary duties on Will as manager. (Doc. 378-10, Ex. 64.) Ultimately, Mellberg fails to establish that, under Arizona law, Will owed him a fiduciary duty with respect to AAA.[13] Absent any authority creating or finding such a duty, this Court will not impose one.

Even if Will owed Mellberg a duty, the Court must assess whether Mellberg personally suffered any loss due to Will’s alleged wrongful actions, or if any loss was incurred solely by AAA. The Second Amended Complaint alleges that Will improperly withdrew funds from the AAA bank account and used the company’s merchant account for his personal benefit. (Doc. 54 at 12.) Mellberg contends the damages he seeks to recover are his “personal investment in AAA, funds he lent to AAA, and income streams to which he was personally entitled.” (Doc. 517 at 4.) Mellberg quantified three categories of damages: $30,000 of AAA funds stolen from bank accounts; destruction of Plaintiffs’ $150,000 investment in AAA; and loss of a $20,000 per month income stream ($480,000 over two years). (Doc. 311-1 at 9.)

“A claim is derivative rather than direct if it alleges injury to the LLC or to its property as a whole.” Rose Goodyear Props., LLC v. NBA Enters. Ltd. P’ship, 235 Ariz. 339, 345, 332 P.3d 86, 92 (Ct. App. 2014); Funk v. Spalding, 246 P.2d 184, 186, 74 Ariz. 219, 221 (1952). Direct actions are appropriate when “the injuries or damages were sustained by individual shareholders rather than by the corporation.” Albers v. Edelson Tech. Partners L.P., 31 P.3d 821, 826, 201 Ariz. 47, 52 (Ct. App. 2001). Mellberg alleges he was personally injured by Will’s actions. However, the cases upon which he relies are not analogous. Mellberg cites a case in which this Court allowed a hotel manager to sue personally for the loss of hotel customers, although the hotel was owned by an LLC. See Best W. Int’l, Inc. v. Furber, No. CV-06-1537-PHX-DGC, 2008 WL 5102064, at *1 (D. Ariz. Dec. 2, 2008). Because the hotel manager was entitled to three percent of hotel room sales, he had an individual interest in the sales revenue apart from his membership in the LLC as one of its two members. Id. Here, Mellberg has presented no interest in AAA’s assets separate from his 50% ownership stake in the LLC. In the Funk case, Spalding held an individual right, based on his contract with the only other corporate shareholder, that Funk would pay Spalding his share of the profits. 246 P.2d at 186-87, 74 Ariz. at 223-24 (finding profits were an obligation owed to the shareholders not a corporate asset). In Facciola v. Greenberg Traurig LLP, No. CV-10-1025-PHX-FJM, 2011 WL 2268950, at *8 (D. Ariz. June 9, 2011) (citing Funk, 246 P.2d at 186, 74 Ariz. at 223), the plaintiffs possessed individual claims because they were based on a fraudulent inducement to invest, which was distinct from a general claim of mismanagement causing injury to the corporation. Finally, in Lapidus v. Hecht, 232 F.3d 679, 683 (9th Cir. 2000), the court found a claim based on impairment of contractual voting rights was individual and distinct from a claim that a defendant’s actions caused corporate injury by way of share diminution. None of these claims are factually like Mellberg’s claim against Will.

*16 The assets Mellberg seeks to recover belong to AAA: money invested into the business, the business’s bank account, and future earnings the company could have made if it had continued to operate.[14] See Lloyd v. Lakritz, No. CV-15-02478-PHX-DLR, 2016 WL 2865873, at *7 (D. Ariz. May 17, 2016) (finding action seeking to recover the LLC’s funds alleged to have been withdrawn by a member for personal benefit was derivative and could not be brought by a member on her own behalf). As an initial matter, Mellberg alleged in the Second Amended Complaint and averred in a June 2019 declaration (filed in response to Will’s Motion for Summary Judgment on Claim 6) that JDM funded AAA and paid its expenses. (Doc. 54 at 10; Doc. 494, Ex. A ¶ 7.) Accepting Mellberg’s uncontroverted avowal, JDM might possess a claim to funds invested in AAA, but Mellberg would not. Even if Mellberg personally put money into AAA, he points to no evidence of a loan or arms-length transaction with AAA, as opposed to a member’s capital contribution to the company. Thus, his reliance on A.R.S. § 29-608 is misplaced:

To the extent Mellberg or JDM invested in the company, the funds became the property of AAA and a claim based on their wrongful loss belongs to AAA. Although Mellberg had an ownership interest in the company, any harm he suffered due to the alleged loss of AAA’s property was derivative of the harm to AAA. See Leroy v. Seattle Funding Group of Ariz., LLC, No. 1 CA-CV 10-0714, 2012 WL 75644, at *5 (Ariz. Ct. App. Jan. 10, 2012).

Finally, Mellberg’s claim to future earnings of the LLC is incompatible with his factual representation that, in July 2013, he and Will agreed to wind down AAA and cease its operation. (Doc. 330 ¶ 27 (citing Doc. 54 ¶¶ 54, 55); Doc. 407 ¶ 27.) Mellberg did not allege that Will stopped operating AAA in violation of an agreement with Mellberg or that the shutting down of AAA was improper or unlawful. Thus, there appears to be no factual support for Mellberg’s claim to future earnings of the LLC to which Will wrongfully deprived him.

The Court finds that the claim brought by Mellberg is a derivative one belonging to AAA. He does not have the right to bring this claim unless he made a demand on Will, as AAA’s manager, and Will refused to bring the claim. A.R.S. § 29-831(2)-(3). Contrary to Mellberg’s argument (Doc. 517 at 3 n.2), there is no futility exception to the statutory requirement to make a demand on the manager of an LLC. See Lloyd, 2016 WL 2865873, at *7 (denying futility exception even though member alleged wrongdoing against only other member of LLC); Albers, 31 P.3d at 829, 201 Ariz. at 55 (construing statute governing shareholder derivative lawsuits and finding no futility exception). Mellberg has never made a demand on Will (see Doc. 517 at 3 n.2 (arguing a demand would have been futile); therefore, a derivative suit is improper.

Because Will did not owe Mellberg a fiduciary duty as to AAA, and the claims as alleged are derivative and belong to AAA, Will is entitled to summary judgment on Claim 6. Will also filed a motion for summary judgment on Claim 6 related solely to damages; the above ruling renders the related damages motion moot.

SPOLIATION

JDM seeks sanctions against Defendants for spoliation of evidence and request that the Court draw several adverse inferences in ruling on the pending motions for summary judgment. (Doc. 382.) JDM requests inferences that the spoliated evidence would have established that Defendants misappropriated JDM’s trade secrets and confidential information, they intended to do so, they knew the information was improperly acquired, and they conspired to steal the information. (Doc. 382 at 17.) Plaintiffs contend the inferences are warranted as to Defendants’ alleged misappropriation of JDM’s trade secrets. (Doc. 382 at 8-9 (citing A.R.S. § 44-401, Arizona’s Uniform Trade Secrets Act); Doc. 427 at 21-22.) Because the Court found JDM’s alleged damages arising from misappropriation should be precluded, the claims premised on misappropriation fail because JDM cannot prove the essential element of damages. See Celotex Corp., 477 U.S. at 322-23 (holding that “a complete failure of proof concerning an essential element of the nonmoving party’s case necessarily renders all other facts immaterial” and entitles the movant to summary judgment). The Court is not reaching the merits of whether Defendants misappropriated JDM’s property, therefore, the requested adverse inferences are not material. For that reason, JDM’s motion for spoliation sanctions, and Defendants’ subsidiary motions to strike and disqualify Michele Bush, are moot.

*17 COUNTERCLAIM

Defendant Impact Partnership has alleged a false advertising counterclaim under the Lanham Act, based on a press release issued by Plaintiffs. (Doc. 86 at 28-34.) On March 17, 2014, Plaintiffs issued a press release titled “JD Mellberg Financial Files Lawsuit Against Impact Partnership for $30 Million in Damages,” which purported to summarize the allegations in the original complaint filed in this action. (Id., Ex. A.) It subsequently quoted Mr. Mellberg as saying:

(Doc. 86 at 31 ¶ 25 (emphasis added in counterclaim).) The press release concluded with a statement about the types and quality of JDM’s services. (Doc. 86, Ex. A.) Plaintiffs distributed two versions of the press release, which the Court evaluates separately.

First Version of the Press Release

The original press release, which contains the above-quoted paragraph in entirety, was distributed in-person the day it was released. On behalf of Plaintiffs, Christopher Stanton made one hundred copies of the press release to take with him to Impact’s office. (Doc. 334-2, Ex. 3 at 37, 54-55.) Stanton took “a few” of those copies into Impact’s office and he remembered distributing three of them in the lobby to people he believes were Impact employees. (Id. at 48, 53-54, 58-59.) Impact’s CFO was aware of six Impact employees that received the press release when it was distributed at Impact’s office. (Doc. 334-2, Ex. 4 at 74; Doc. 370-4, Ex. 3 at 80.) Stanton threw away the copies he did not distribute. (Doc. 370-3, Ex. 2 at 41-42.) Impact argues there is a question of fact as to how many people received the distribution. There is no evidence that more than six people, all Impact employees, received the press release in person. To find that Stanton distributed the release to additional people would be mere speculation; therefore, the facts are undisputed.

To qualify as commercial advertising, the representations “must be disseminated sufficiently to the relevant purchasing public to constitute ‘advertising’ or promotion’ within that industry.” Coastal Abstract Serv., Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 734-35 (9th Cir. 1999). JDM posited that the relevant market consisted of consumers of financial products and advisors that market and sell financial products. (Doc. 333 at 16.) Impact did not dispute this summary, however, it emphasized that the direct competition between Impact and JDM was in relation to independent advisors and agents, not direct consumers. (Doc. 368 at 2, 4-5.) For purposes of this motion, the Court will construe the relevant market as the narrower category – the nationwide pool of individual financial advisors and agents, which numbers in the thousands. Internal employees of Impact are not the relevant purchasing public. Even if they were part of the target market or some minimal number of advisors received the press release, that would not qualify as dissemination. Distribution to a limited number of consumers as low as six can be sufficient dissemination when a market is small, but that number is insufficient when the market numbers in the thousands. See eMove Inc. v. SMD Software Inc., No. CV-10-02052-PHX-JRG, 2012 WL 1379063, at *8-9 (D. Ariz. Apr. 20, 2012). Therefore, distribution of the initial press release did not qualify as commercial advertising or promotion. Plaintiffs are entitled to summary judgment regarding the press release hand-delivered on March 17, 2014.

*18 Second Version of the Press Release

Plaintiffs emailed and distributed online a second version of the press release. The press release distributed by these methods did not contain the final sentence quoted above (“my competitors who should not be permitted to piggyback off our millions of dollars of research through wholesale theft of our valuable trade secrets”), which is the second of the two statements Defendants challenge as violating the Lanham Act.[15] (Doc. 369-1, Ex. 1 at Ex. 1.) The Court finds that materiality is dispositive as to the second version of the press release.

To prove a Lanham Act violation, Impact must establish materiality, which requires it to show “the defendant’s deception is likely to influence the purchasing decision.” Skydive Ariz., Inc. v. Quattrocchi, No. CV 05-2656-PHX-MHM, 2009 WL 6597892, at *27 (D. Ariz. Feb. 2, 2009); Cook, Perkiss and Liehe, Inc. v. N. Cal. Collective Serv., Inc., 911 F.2d 242, 244 (9th Cir. 1990). A showing of materiality is required, even if the statement at issue is literally false as Impact contends is the case with the press release. Skydive Ariz., Inc., 2009 WL 6597892, at *27; Johnson & Johnson Vision Care, Inc. v. 1-800-Contacts, Inc., 299 F.3d 1242, 1250 (11th Cir. 2002). Materiality can be proven through consumer surveys or consumer testimony. Skydive Ariz., Inc. v. Quattrocchi, 673 F.3d 1105, 1111 (9th Cir. 2012).

Impact relies upon one person’s testimony, Stephen Abraham Ashton, to establish materiality. Ashton is a licensed insurance agent who began working with Impact in 2011. (Doc. 371-7, Ex. 13 ¶¶ 4, 8.) Ashton received the press release from JDM by email in March 2014. (Id. ¶ 10.) He avers that if he had not already developed his positive opinion about Impact, he would not have considered working with Impact due to the accusations against it. (Id. ¶ 13.) He is certain that other agents decided not to work with Impact because of the accusations in the press release. (Id. ¶¶ 15, 16.)

*19 In Skydive Arizona, this Court found one consumer’s testimony, that he relied upon a misrepresentation in making his purchase, sufficient to grant summary judgment to a Lanham Act plaintiff. See id. However, there are two reasons Ashton’s declaration is insufficient to establish even a question of fact regarding materiality. First, the press release did not influence Ashton’s decision-making. He was already associated with Impact and he continued that affiliation after reading the press release. Although he concludes that others would have been influenced by the press release, he has no evidence to support that belief. (Doc. 371-7, Ex. 13 ¶¶ 15-16.) Second, Ashton indicates that the portion of the press release that would have influenced him or others are the “accusations.” (Id. ¶¶ 10, 13-16.) However, the first several paragraphs of the press release reasonably represented the contents of Plaintiffs’ complaint. That portion of the press release was not commercial speech (see supra note 15) and, therefore, not actionable under the Lanham Act. See Farah v. Esquire Magazine, 736 F.3d 528, 541 (D. D.C. 2013) (citing Bosley Med. Inst., Inc. v. Kremer, 403 F.3d 672 (9th Cir. 2005)). The relevant speech from the second version of the press release is Mellberg’s statement that he spent millions of dollars on developing an advertising system based on trade secrets. Ashton does not state that he or others would have decided to work with a company other than Impact based on that representation. For these reasons, Impact fails to establish the second version of the press release was material and likely to influence consumer decision-making. Therefore, JDM is entitled to summary judgment regarding the press release that was emailed and distributed online.

CONCLUSION

JDM relied on three categories of damages to support that required element for Claims 1-5 and 7-10 of the Second Amended Complaint: JDM’s actual loss caused by Defendants’ improper conduct; unjust enrichment in the form of JDM’s costs to develop its digital marketing trade secrets that Defendant Impact saved by misappropriating them; and injunctive relief requiring Defendants to return JDM’s information and cease unfair competition. The Court determined Defendant Fine did not destroy JDM’s data; therefore, there was no factual support for JDM’s actual loss damages. Because JDM failed to timely disclose a computation for its requested unjust enrichment, the Court finds that evidence should be precluded pursuant to Rule 37(c)(1). Finally, Defendants have proven, as a matter of law, that JDM is not entitled to injunctive relief because it cannot prove irreparable harm. Because JDM is unable to prove compensatory damages, it cannot recover punitive damages. Because JDM has no admissible evidence of damages as to Claims 1-5 and 7-10, these claims fail. Therefore, Plaintiffs’ claim for spoliation sanctions in the form of an adverse inference is moot.

The Court determined that Defendant Will is entitled to summary judgment on Claim 6 because, as a matter of law, Will did not owe Mellberg a fiduciary duty as a member of AAA, and the claim brought by Mellberg is derivative.

Plaintiffs are entitled to summary judgment on Impact’s counterclaim because the hand-delivered version of the press release was not disseminated to the relevant purchasers, and the email and online version of the press release was not material.

RECOMMENDATION

Based on the foregoing, the Magistrate Judge recommends that the District Court enter an order Granting Defendants’ Motion for Summary Judgment on Damages as to Claims 1-5 and 7-10 (Doc. 455), and Plaintiffs’ Motion for Summary Judgment on Defendant Impact’s Counterclaim (Doc. 333). The Magistrate Judge further recommends that the District Court enter an order Granting Defendants Fine and Will’s Motion for Summary Judgment as to Claim 6 and Denying as moot the remainder of the motion as to Claims 1, 5, 7, and 8 (Doc. 329). The Magistrate Judge further recommends that the District Court enter an order Denying as moot Defendants’ Motion for Summary Judgment on Claims 2, 3, 9, and 10 (Doc. 332); Defendant Will’s Motion for Summary Judgment on Claim 6 as to Damages (Doc. 453); JDM and Defendants Fine and Godinez’s cross-motions for summary judgment on Claim 4 (Docs. 338, 365); Plaintiffs’ Motion for Spoliation Sanctions (Doc. 382); and Defendant Impact’s Motion to Strike (Doc. 448) and Motion to Disqualify a witness (Doc. 450).

Pursuant to Federal Rule of Civil Procedure 72(b)(2), any party may serve and file written objections within fourteen days of being served with a copy of the Report and Recommendation. A party may respond to the other party’s objections within fourteen days. No reply brief shall be filed on objections unless leave is granted by the District Court. If objections are not timely filed, they may be deemed waived.

*20 Dated this 25th day of November, 2019.