I. INTRODUCTION

*1 Scott Griffith Collaborative Solutions, LLC (“SGCS”) brought case number 19-cv-06104 (the “6104 Case”) against Falck Northern California Corporation; Falck USA, Inc.; and Falck Mobile Health Corp. d/b/a Care Ambulance Service, Inc. (“Care Ambulance”), asserting claims for trademark and copyright infringement and unfair competition. In related case number 19-cv-08171 (the “8171 Case”), those defendants plus an additional affiliate Falck Rocky Mountain, Inc. (collectively, “Falck”), bring claims against SGCS for breach of contract, libel, tortious interference, and other related claims. Falck now moves for sanctions against SGCS for discovery misconduct. The undersigned magistrate judge held a hearing on September 10, 2021. For the reasons discussed below, the undersigned recommends that Falck's motion be DENIED as to terminating sanctions, but GRANTED IN PART with respect to a forensic examination of certain devices and accounts and an in camera review of certain emails designated as work product.

The undersigned's views on this motion are in the form of a report and recommendation under 28 U.S.C. § 636(b)(1)(B), rather than an order, because Falck's request for terminating sanctions is a potentially “dispositive” motion that falls outside the scope of a magistrate judge's authority absence consent of all parties under 28 U.S.C. § 636(c). See Flam v. Flam, 788 F.3d 1043, 1045 (9th Cir. 2015). Any party may filed objections to the recommendations of this report no later than September 24, 2021.

The undersigned will address the parties' currently-pending administrative motions to file under seal in a separate order.

II. BACKGROUND

A. Factual Overview and Procedural History

SGCS provides training services and certifications to first responders, including ambulance companies, marketing its training program under the name “Collaborative Just Culture.” See Order Denying Defs.' Mot. to Dismiss (dkt. 55)[1] at 2 (summarizing SGCS's allegations). It primarily consists of three people: Scott Griffith, Michael Coffin, and Paul LeSage.

SGCS had a contractual relationship with Care Ambulance but not the other defendants, all of whom are corporate affiliates of one another. Id. SGCS claims that Defendants used SGCS's trademark and a copyrighted guide, without SGCS's permission, in applications for contracts with Alameda County, Orange County, and Los Angeles County. Id. On January 6, 2020, Judge Armstrong denied Falck's motion to dismiss or transfer and SGCS's motion for a preliminary injunction. See generally id.

In Falck's view, Care Ambulance had permission to use the material at issue based on its contract with SGCS. Falck filed what is now the 8171 Case in the Northern District of Texas later on the same day that SGCS filed this case in this district. Falck claims that SGCS falsely accused Falck of misusing its material in a cease-and-desist letter dated September 10, 2019, which was subsequently shared with the press, and in a follow-up statement that was also published in the press. The Northern District of Texas granted SGCS's motion to transfer that case here, and on March 31, 2021, Judge Armstrong denied SGCS's motion to strike Falck's complaint under California's anti-SLAPP law and to dismiss under Rule 12(b)(6) on the basis that California's choice-of-law rules, on which SGCS grounded its motion, do not apply. 8171 Case dkt. 82. The anti-SLAPP portion of that decision is currently on appeal before the Ninth Circuit, where briefing has not yet concluded. See Falck N. Cal. Corp. v. SG Collaborative Sols. LLC, No. 21-15754 (9th Cir.).

*2 Falck has maintained throughout these cases that SGCS has collaborated with SGCS's client American Medical Response (“AMR”) to defame Falck so that AMR could win contracts where it competed with Falck, from which SGCS would reap financial benefits.

The undersigned has issued a number of orders in this case resolving discovery disputes, and has repeatedly faulted both sides for pressing unreasonable positions. See, e.g., dkts. 72, 83, 97, 104, 111; see also Oct. 23, 2020 Hr'g Tr. (dkt. 86); Jan. 15, 2021 Hr'g Tr. (dkt. 99).

Fact discovery closed on July 2, 2021, with limited exceptions for certain depositions to be conducted through October 4, 2021. Dkts. 106, 118, 129. Expert discovery remains ongoing. Dkt. 129. The law-and-motion cutoff date is April 12, 2022, and a pretrial conference is set for July 14, 2022. Id.

B. Communications and Conduct at Issue

On September 4, 2019, AMR employee Shannon Marshall sent LeSage an email indicating that Falck had used “our material that you produced for AMR” in bidding for a contract with Alameda County, and speculating that someone at Falck might have obtained the material from an AMR training session. McGarry Decl. (dkt. 120-1) Ex. 141-1. LeSage responded on September 5, 2019 stating that SGCS had “never had a contract with Falck” and that it “intend[ed] on taking legal action,” and asked Marshall to coordinate with Coffin. Id. He sent a second response on September 5, 2019 stating that he would “contact the Dallas Texas office,” referring to Griffith, to “see what they want to do.” McGarry Decl. Ex. 142. Coffin responded the same day that he had confirmed SGCS “has no prior or current business relationship with Falck,” and that he was “directing our IP counsel to contact [Falck] to demand they cease and desist.” McGarry Decl. Ex. 141-1.

LeSage forwarded that email to AMR employee Rob Garrett with the following message:

Id. Garrett responded, still on September 5, 2019, that he would pass it along to another AMR employee because AMR had “lost the Colorado Springs bid to Falck.” Id. In a separate branch of responses from the same conversation, LeSage asked Garrett if “the Colorado Springs proposal” had the same material, noting that “Alameda told us that any fraud will automatically kill the award.” McGarry Decl. Ex. 141-2. LeSage also wrote that if Falck had used SGCS material in its Colorado Springs proposal, “this is a larger scale fraud and we would need to take some pretty serious immediate action – so the sooner you know the better for us (and maybe you...).” McGarry Decl. Ex. 141-3 (ellipsis in original). The next day, on September 6, 2019, Garrett asked LeSage if SGCS could send some sort of notice to the Colorado Springs contract authority warning of Falck's possible misuses of SGCS materials. McGarry Decl. Ex. 141-4. LeSage responded that the “whole mess is in the hands of our IP attorneys, Marger-Johnson,” and that LeSage would “check with them tomorrow to see what the options are.” McGarry Decl. Ex. 141-5.

*3 On September 9, 2019, LeSage received an inquiry from Garrett and texted him a copy of a cease-and-desist letter to Falck that Coffin had prepared. Garrett emailed the letter to others at AMR, and one of those employees forwarded the email to AMR's public relations Daniel Cole. On the morning of September 10, 2019, Coffin sent the letter to Falck. Later that day, Cole, acting on behalf of AMR, sent the letter to various Colorado media outlets, including KRDO and the Colorado Springs Independent.

That afternoon, KRDO and the Independent each ran a story about Falck's purportedly improper use of SGCS materials in its Alameda County bid, noting that Falck was also bidding for a contract in Colorado Springs. The Independent's story indicated that AMR had provided a copy of the letter to the Independent. Homen Decl. (dkt. 125-2) Ex. G (Zubeck Dep.) at 35:12–36:11. A reporter at KRDO emailed SGCS to asked for comment. SGCS contractor Anna Kovacs forwarded that email to Coffin, noting that LeSage had sent her a copy of KRDO's story. LeSage acknowledged at his deposition that he had probably sent Kovacs a link to the story but had probably deleted his email to her, noting that he did not think the issue was important at the time because he “thought Falck would do the right thing and cease and desist at that point.” McGarry Decl. Ex. D (LeSage Dep.) at 112:4–113:14.

On September 12, 2019, Falck's attorney Faisal Zubairi sent SGCS a letter asserting that SGCS had made false statements about Falck's use of SGCS's material, demanding a retraction, reserving the right to seek damages, and presenting the following demand for preservation of documents:

McGarry Decl. Ex. 140. SGCS first retained counsel the same day, September 12, 2019. Coffin Decl. (dkt. 125-1) ¶ 3.

On September 16, 2019, AMR employee Tom Wagner emailed LeSage to ask if he had seen a response from Falck indicating that its Care Ambulance subsidiary had a contract with SGCS. McGarry Decl. Ex. 143. LeSage responded the next day with a statement that SGCS's attorney had provided to the media stating that SGCS had no contract with Care Ambulance that allowed for use of SGCS's intellectual property in bidding for contracts. Id.

On September 26, 2019, SGCS filed the 6104 Case in this Court against Falck, and Falck filed what is now the 8171 Case in Texas against SGCS.

LeSage testified at his deposition that he generally did not recall the circumstances of exchanging emails with AMR, that most of what he wrote in those emails was probably based on conversations he had by telephone with Coffin, that he was not actually in contact with Alameda County or SGCS's lawyers at the time, and that he did not find the emails when he searched for documents in response to Falck's requests for production because he probably deleted the emails soon after exchanging them (based on his belief they were not important), which would have placed them in a “deleted folder” in Gmail to be permanently deleted from Google's servers after thirty days. E.g., McGarry Decl. Ex. 141-1 (LeSage Dep.) at 86:10–17; id. Ex. 141-2 (LeSage Dep.) at 89:15–18; id. Ex. 141-5 (LeSage Dep.) at 172:23–173:8; id. Ex. 143 (LeSage Dep.) at 101:20–102:3. At one point during one of those exchanges, Falck's counsel responded to an answer by stating “I'm glad you find that funny, Mr. LeSage,” McGarry Decl. Ex. 141-3 (LeSage Dep.) at 92:12, which Falck now cites as evidence that LeSage was laughing during his testimony that he did not find relevant documents in his search. Before being presented with emails indicating to the contrary, LeSage testified that he did not know AMR had lost the Colorado Springs bid until weeks afterwards. McGarry Decl. Ex. D (LeSage Dep.) at 82:2–13. Coffin states in a declaration that much the content of LeSage's emails—including that SGCS contacted Alameda County to report Falck's purported misconduct and that SGCS had involved any attorneys in the matter in early September—was inaccurate, and may have been based on misunderstandings of conversations Coffin had with LeSage at the time. Coffin Decl. ¶¶ 6, 8.

*4 LeSage testified at his deposition that he exchanged text messages with Rob Garrett at AMR regarding the events at issue (including sending Garrett a copy of SGCS's cease-and-desist letter to Falck on September 9, 2019, one day before SGCS sent it to Falck), but he “delete[s] [his] text messages regularly judge like [his] e-mail,” and he replaced his iPhone since the events at issue and “[p]robably recycled” the old one. McGarry Decl. Ex. D (LeSage Dep.) at 10:3–11, 60:10–61:13, 72:4–22, 176:5–21.

LeSage testified at his June 23, 2021 deposition that he was no longer in touch with Garrett and had not communicated with him in at least a year. McGarry Decl. Ex. D (LeSage Dep.) at 169:25–170:5. Garrett, who no longer works at AMR, testified at his July 2, 2021 deposition that he and LeSage were personal friends in addition to their professional relationship, that Garrett reached out to LeSage the previous week about Garrett's deposition, that he had previously spoken to him two or three months earlier and was typically went similar intervals without talking to LeSage, and that the two communicated by telephone and text message. McGarry Decl. Ex. F (Garrett Dep.) at 27:20–29:20.[2]

Falck also raises issues with respect to possible communications between SGCS and Orange County or Los Angeles County, missing documents regarding SGCS's copyright and trademark applications, and a lack of documentation of SGCS's corporate structure. Falck has not argued or shown that any such documents actually existed at a time when SGCS had any obligation to preserve them. This report therefore does not address the circumstances pertaining to those purportedly missing documents.

On October 23, 2020, the undersigned ordered SGCS to “produce all communications with third parties related to [Falck's] alleged use of material protected by [SGCS's] copyrights and trademarks,” as well as all documents regarding AMR's failed effort to obtain a contract in Alameda and any other contracts AMR allegedly lost due to Falck's alleged conduct. Dkt. 83. The undersigned admonished Falck for pursing “bizarrely broad and ... just outrageous” requests, while also warning SGCS, “if I get the whiff of continued obstructionist conduct, and there has been obstructionist conduct in here, there will be penalties.” Oct. 23, 2020 Hr'g Tr. at 11:2–8, 27:25–28:6.

In the most recent discovery order issued June 21, 2021, the undersigned denied Falck's request for a forensic examination of LeSage's devices and email account without prejudice— stating that “[t]he fact that a party did not produce a few emails or other documents purportedly sent to or involving a third party, and which were located in a third party's possession, does not justify such an extreme remedy”—but required SGCS “to file a declaration with the court detailing its reasonable search for ‘communications with third parties related to defendants' alleged use of material protected by plaintiff's copyrights and trademarks.’ ” Dkt. 111. SGCS's chief operating officer Michael Coffin filed a responsive declaration stating that he searched his email account for responsive documents, instructed SGCS's “other two members”[3] Griffith and LeSage to search their accounts for responsive documents, and “ensured” that SGCS's only other email account “was searched for responsive documents.” See generally Coffin Responsive Decl. (dkt. 115).

C. The Parties' Arguments

*5 The parties have filed substantially identical briefs in the 6104 Case and the 8171 Case. Falck moves for “terminating sanctions,”[4] or in the alternative, that SGCS be deemed to have waived work product protection as to documents created between September 5, 2019 and September 26, 2019 based on its “willful destruction of evidence” and that it be required to submit to forensic examination. Mot. (dkt. 120) at 1–2, 20. Falck contends that a forensic examination would not be a sufficient remedy because SGCS has destroyed at least one relevant device and has “permanently deleted responsive documents from cloud-based platforms.” Id. at 1. Falck requests a “scheduling conference” to consider other sanctions, including “evidence, issue and/or monetary” sanctions. Id. at 2.

Falck argues that LeSage deleted relevant emails at a time when he knew SGCS was contemplating litigation and made no effort to preserve them after both the 6104 Case and the 8171 Case were actually filed. Id. at 14. Falck contends that emails LeSage deleted but Falck has since obtained from AMR contradict: (1) LeSage's testimony that he did know if SGCS contacted Alameda County about Falck's alleged misconduct; (2) Coffin's testimony (as SGCS's person-most-knowledgeable) that his only contact with Alameda County was to request public records regarding Falck's proposal; (3) LeSage's testimony that he did not know Falck had won a contract over AMR with Colorado Springs as of early September, 2019; (4) SGCS's litigation position that there is no evidence SGCS knew Falck was bidding for the Colorado Springs contract. See id. at 5–7. Falck also raises arguments regarding purported inconsistencies as to SGCS's revenue, the strength of its relationship with AMR, whether it provides certifications to any clients besides AMR, its prosecution of copyright and trademark applications, and its corporate structure, among other issues. Id. at 7–11.

Falck contends that SGCS's conduct meets the elements of spoliation because it had an obligation to preserve documents when it contemplated litigation in September of 2019, inconsistencies in LeSage's testimony indicate a culpable state of mind, and the destroyed evidence is relevant. Id. at 12–15. Falck argues that each factor the Ninth Circuit has identified as relevant to terminating sanctions supports imposing such sanctions here. Id. at 16–20. In the alternative if terminating sanctions are not granted, Falck argues that SGCS's invocation of work product protection in early September should be waived because it is inconsistent with its failure to preserve documents, id. at 21–22, that forensic examination of LeSage's devices is warranted, id. at 22–23, and that the Court should take further briefing on other forms of sanctions, including evidentiary and monetary sanctions, id. at 23–25.

SGCS contends that Falck has not learned anything new from AMR's production of the missing emails and that Falck was not diligent in waiting to depose LeSage until the end of fact discovery. Opp'n (dkt. 125) at 2–3. It argues that the emails LeSage deleted “have nothing to do with the intellectual property infringement claims SGCS was contemplating” and that he “had no way of knowing the Court would order production of any third-party communication touching on Falck's misuse over a year later.” Id. at 4. In SGCS's view, the inconsistencies between LeSage's emails and his later testimony stem from misunderstandings at the time he sent the emails and understandably limited recollection of events in 2019 during his 2021 testimony. See id. at 4–15. SGCS argues that Rule 37(e) of the Federal Rules of Civil Procedure is inapplicable because no relevant documents were actually “lost” and LeSage had no reason to know that the documents he deleted would be relevant. Id. at 15–17. SGCS also argues that it has not disobeyed a court order, id. at 18–19, and that Falck has not established any of the elements of spoliation: duty to preserve, culpable state of mind, or relevance, id. at 19–21. Even if the Court finds spoliation, SGCS contends that the sanctions Falck seeks are not warranted and Falck should not be permitted to evade the Court's page limits by submitting further briefing on other potential sanctions. Id. at 21–25.

III. ANALYSIS

A. Legal Standard

*6 “Federal courts have the authority to sanction litigants for discovery abuses both under the Federal Rules of Civil Procedure and pursuant to the court's inherent power to prevent abuse of the judicial process.” Network Appliance, Inc. v. Bluearc Corp., No. C 03-5665 MHP, 2005 WL 1513099, at *2 (N.D. Cal. June 27, 2005) (citing Chambers v. NASCO, Inc., 501 U.S. 32, 45–46 (1991); In re Yagman, 796 F.2d 1165, 1187 (9th Cir. 1986)). Rule 16(f) of the Federal Rules of Civil Procedure allows a court to order sanctions where a party or its attorney fails to obey a pretrial order. Rule 37(b)(2)(A) specifically addresses sanctions that may be imposed on a party that has failed to comply with a discovery order, including striking pleadings in whole or in part, dismissal, entry of default judgment, contempt of court, and an order “directing that the matters embraced in the order or other designated facts be taken as established for purposes of the action, as the prevailing party claims.” See Fed. R. Civ. P. 37(b)(2)(A)(i).

Rule 37(e) provides that “[i]f electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery,” a court that finds prejudice to another party as a result may “order measures no greater than necessary to cure the prejudice,” and a court that finds “that the party acted with the intent to deprive another party of the information's use in the litigation may” presume that the information was unfavorable, instruct the jury that it may or must so presume, or enter judgment against the culpable party. Fed. R. Civ. P. 37(e).

A district court also has inherent authority to impose sanctions for spoliation of evidence. Leon v. IDX Sys. Corp., 464 F.3d 951, 958 (9th Cir. 2006); Glover v. BIC Corp., 6 F.3d 1318, 1329 (9th Cir. 1993). The majority of courts use a three-part test to determine whether spoliation occurred, consisting of the following elements: “ ‘(1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed with a “culpable state of mind;” and (3) that the evidence was “relevant” to the party's claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.’ ” Apple Inc. v. Samsung Elecs. Co., 881 F. Supp. 2d 1132, 1138 (N.D. Cal. 2012) (quoting Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 215 (S.D.N.Y. 2003)) (footnotes omitted). “[T]he ‘culpable state of mind’ factor is satisfied by a showing that the evidence was destroyed knowingly, even if without intent to breach a duty to preserve it, or negligently.” Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 108 (2d Cir. 2002) (cleaned up); see Miranda v. Wyatt, 677 F. App'x 432, 432–33 (9th Cir. 2017) (citing Residential Funding with approval and noting the parties' agreement that it “provides an appropriate test for determining when an adverse inference instruction can be given”); Katzman v. L.A. Cty. Metro. Transp. Auth., No. 13-cv-00438-LHK, 2015 WL 13861765, at *9–10 (N.D. Cal. Mar. 26, 2015) (applying the Residential Funding test).

If spoliation is found, courts often consider three factors to determine whether and what type of sanctions to issue: “(1) the degree of fault of the party who altered or destroyed the evidence; (2) the degree of prejudice suffered by the opposing party; and (3) whether there is a lesser sanction that will avoid substantial unfairness to the opposing party.” Nursing Home Pension Fund v. Oracle Corp., 254 F.R.D. 559, 563 (N.D. Cal. 2008) (quoting Schmid v. Milwaukee Elec. Tool Corp., 13 F.3d 76, 79 (3d Cir. 1994)). Among other sanctions, trial courts have “the broad discretionary power to permit a jury to draw an adverse inference from the destruction or spoliation against the party or witness responsible for that behavior” so long as the party responsible had “simple notice of ‘potential relevance to the litigation,’ ” with no requirement to prove bad faith. Glover, 6 F.3d at 1329 (quoting Akiona v. United States, 938 F.2d 158, 161 (9th Cir. 1991)).

B. Falck Has Overreached, but Has Shown Spoliation

*7 Falck's briefing includes a number of leaps of logic and questionable inferences, ranging from the at-best-plausible but far-from-proven assertion that LeSage's “text messages were deleted because they would confirm that SGC knew the letter was being transmitted for the purpose of publication to the media,” to the wholly speculative assertion that “Coffin's lack of knowledge regarding SGC's alleged trademark and copyright applications suggests that he likely exchanged multiple drafts with AMR and/or counsel,” contrary to his testimony that he wrote the letter alone. See Reply at 8 (emphasis added). For the assertions that “[t]here is evidence SGC also reached out to Orange and Los Angeles Counties,” Falck cites AMR's Scott Lenn's hearsay testimony that he heard of such contact “through conversations”—with whom, he could not recall—and, more strangely, LeSage's testimony that he did not recall any communication with Coffin about outreach to Los Angeles County or Orange County. Reply at 9 (citing McGarry Decl. Ex. E (Lenn Dep.) at 72:10-73:17; id. Ex. D (LeSage Dep.) at 165:13-168:11). On other topics, like confusion and lack of evidence regarding what exactly SGCS submitted to its then-attorney (who no longer has her file) with respect to a 2014 copyright registration and denied trademark applications, at times when there is no argument that SGCS had an obligation to preserve evidence, Falck's insistence that any inconsistency or missing documentation is proof of misconduct is similarly speculative. See Reply at 9–10. Still other purportedly missing documents, such as those pertaining to SGCS's corporate structure and Griffith, Coffin, and LeSage's partnership agreements (if any), do not seem to be particularly important to any issue in the case, and again, Falck has not shown that any responsive documents that have not been produced actually existed, at least at a time when SGCS had a duty to preserve them. See id. at 10. On many of these topics, Falck's contentions regarding purported inconsistencies and lack of corroborating documentation are perhaps fodder for cross-examination and impeachment at trial, but do not show litigation misconduct or the need for discovery sanctions.

On the other hand, SGCS simply ignores or hand-waves the most concerning conduct at issue. SGCS's position that emails LeSage exchanged with AMR concerning SGCS's discovery of Falck's alleged infringement were not potentially relevant to SGCS's claims in the 6104 Case—much less Falck's claims in the 8171 Case—is untenable. See Opp'n at 16. Those emails themselves make clear that LeSage knew SGCS was contemplating litigation at the time he sent and received them, and there is no question that SGCS was in fact contemplating litigation because it has claimed work product protection as to other contemporaneous documents. LeSage should have known that his emails with AMR were potentially relevant to SGCS's nascent claims against Falck. Even more clearly, once SGCS actually brought the 6104 Case against Falck, and especially once Falck brought the 8171 Case against SGCS accusing it of publicizing purportedly false allegations of infringement by “shar[ing] the [cease-and-desist] letter with one or more competitors of Falck,” Falck's Compl. (8171 Case dkt. 1) ¶ 18, LeSage should have taken steps to insure the relevant emails in his “deleted” folder were not permanently removed from Google's servers. That said, with the minor exception of LeSage's email forwarding the KRDO story to Kovacs, is not clear that any relevant emails have been “lost” such that they were not recoverable from AMR or Garrett. Sanctions under Rule 37(e) are therefore not appropriate for the loss of emails exchanged with AMR, but sanctions under the Court's inherent power may be warranted due to the substantial effort needed by Falck to obtain emails that SGCS should have retained and produced itself.

Besides reciting it in its factual chronology, id. at 11, SGCS does not address in any way LeSage's deletion of text messages and disposal of his iPhone, despite all parties now apparently agreeing that LeSage's missing September 9, 2019 text message to Garrett was the first step by which SGCS's cease-and-desist letter reached the press the next day, and apparently the only instance in which someone at SGCS sent it to anyone except Falck. Again, one of the key allegations of Falck's September 26, 2019 complaint against SGCS is that SGCS shared the letter with one of Falck's competitors. Falck's Compl. ¶ 18. LeSage's text message to Garrett was the means by which that in fact occurred. There is no question that his message, as well as Garrett's request that prompted it and any other messages that might have been exchanged as part of the same conversation, are relevant. It is not clear exactly when LeSage deleted those messages, but as discussed above, LeSage knew that SGCS was contemplating several days earlier, and certainly by the time he saw the draft cease-and-desist letter. Falck might now have lost any ability to review LeSage and Garrett's messages to determine whether they evince intent to share the letter beyond AMR. This deletion therefore meets the test of Rule 37(e)(1), in that the text messages were “electronically stored information that should have been preserved in the anticipation ... of litigation,” they have been “lost because a party failed to take reasonable steps to preserve” them, it does not appear that they can be restored or replaced through the normal course of additional discovery, and Falck has been prejudiced.

*8 The undersigned finds that SGCS spoliated evidence through LeSage's deletion of his September 2019 emails with AMR, his email forwarding the KRDO story to Kovacs, and—most significantly—his text messages with Garrett regarding Falck's purported infringement and SGCS and AMR's response thereto.

C. Terminating Sanctions Are Not Warranted

The Ninth Circuit looks to the following factors in considering whether a case-dispositive sanction is appropriate:

Conn. Gen. Life Ins. Co. v. New Images of Beverly Hills, 482 F.3d 1091, 1096 (9th Cir. 2007) (quoting Jorgensen v. Cassiday, 320 F.3d 906, 912 (9th Cir. 2003)). This test applies to terminating sanctions regardless of whether they are sought under Rule 37 or a court's inherent power. Leon, 464 F.3d at 958 n.4. Because the first, second, and fourth factors carry relatively static weight with little variance based on the facts of a particular case, “ ‘the key factors are prejudice and the availability of lesser sanctions.’ ” Henry v. Gill Indus., Inc., 983 F.2d 943, 948 (9th Cir. 1993) (quoting Wanderer v. Johnston, 910 F.2d 652, 656 (9th Cir. 1990)). The “availability of lesser sanctions” factor includes “whether the court has considered lesser sanctions, whether it tried them, and whether it warned the recalcitrant party about the possibility of case-dispositive sanctions.” Conn. Gen. Life Ins., 482 F.3d at 1096.

The prejudice to Falck is potentially significant, particularly with respect to the missing text messages. There is no way to tell at this point whether LeSage and Garrett's text messages are damning, and Falck may have lost the opportunity to discover the circumstances by which a purportedly defamatory letter was publicized.

The other key factor, however, weighs against terminating sanctions: there is no reason to believe lesser sanctions will not be sufficient. For one thing, it is conceivable that the missing messages could be recovered through a forensic examination. As discussed below, Coffin's declaration regarding SGCS's discovery efforts is inadequate to show that SGCS conducted a diligent search. It is a possible that a professional search of LeSage's devices and accounts could recover relevant information not yet produced.

As another option, Falck has not addressed whether an adverse inference or jury instruction could be sufficient. Those measures are not directly before the Court at this time, as Falck has not sought them in its motion, but they are likely a more appropriate response to the conduct at issue. The Ninth Circuit has held that bad faith need not be shown for an adverse inference instruction, so long as the party responsible for spoliation knew of the documents' “potential relevance to the litigation.” Glover, 6 F.3d at 1329–30. Cases imposing terminating sanctions tend to involve conduct that could fairly be characterized as bad faith, even when courts have not used that particular term. See, e.g., Computer Task Grp., Inc. v. Brotby, 364 F.3d 1112, 1115–16 (9th Cir. 2004) (noting “fabricated” productions, “unbelievable” excuses, and failure to follow court orders); Payne v. Exxon Corp., 121 F.3d 503, 508 (9th Cir. 1997) (noting that “Plaintiffs ignored at least four separate orders by the district court and never fully complied with their discovery obligations,” even after repeated imposition of lesser sanctions); OmniGen Rsch. v. Yongqiang Wang, 321 F.R.D. 367, 373 (D. Or. 2017) (noting deletion of documents after a court order to produce them). Here, while there is some tension between LeSage's deposition testimony and his deleted emails that were obtained from AMR, it is not so clear that the discrepancies were intentional, as opposed to mere faulty recollection, to depart from the usual process of allowing a jury to weigh LeSage's credibility. It is also not clear that LeSage deleted any relevant documents for the purpose of preventing their use in litigation, as opposed to applying his usual process of deleting emails and text messages he did not believe were important based on a negligent failure to recognize that he was obligated to preserve them.

*9 The Ninth Circuit instructs that in evaluating the potential for lesser sanctions, a district could should take into account “whether it tried them, and whether it warned the recalcitrant party about the possibility of case-dispositive sanctions.” Conn. Gen. Life Ins., 482 F.3d at 1096. Here, the Court has not thus far imposed lesser sanctions, and while the undersigned has warned both parties about the potential for sanctions generally, the undersigned has not specifically warned either party about the “the possibility of case-dispositive sanctions.” See id.

Because other sanctions are available, other sanctions have not yet been tried, and SGCS received no warning of the potential for terminating sanctions, the undersigned recommends that the Court DENY Falck's motion for that extreme form of relief. As discussed below, the Court recommends that the Court instead require a forensic examination of LeSage's devices and email accounts, and that while the question of an adverse inference or jury instruction has not yet been briefed, the Court consider such relief in the context of summary judgment or crafting jury instructions for trial if the material at issue cannot be recovered.

D. SGCS Should Submit to a Forensic Examination of LeSage's Documents

The undersigned previously denied Falck's request for a forensic examination, finding the request unsupported by the record presented on the parties' joint discovery letter brief, but ordering SGCS to file a declaration “detailing its reasonable search for ‘communications with third parties related to defendants' alleged use of material protected by plaintiff's copyrights and trademarks.’ ” Dkt. 111 (emphasis added).

Coffin's declaration in response to that order is inadequate, and it does not assuage the legitimate concerns that Falck has raised. Coffin states as follows:

Coffin Responsive Decl. ¶¶ 3–5. Coffin states that those are the only email accounts SGCS maintains, and that SGCS repeated the same process after the undersigned's October 23, 2020 order to produce documents regarding Falck's alleged use of SGCS's intellectual property and turned over all responsive documents to its attorneys. Id. ¶¶ 6–12.

This declaration does not detail the steps that SGCS took. It says nothing about how Coffin, Griffith, and LeSage searched for responsive documents in their email accounts. It says even less about who searched the “info” account overseen by Kovacs or how they did so. The declaration suggests that SGCS did not search anywhere except for these email accounts. As one perhaps particularly relevant omission, it says nothing of text messages, despite the central role that certain text messages played in the events at issue. The declaration also potentially raises concerns in that interested parties were responsible for searching their own accounts—including LeSage, who previously deleted a number of potentially relevant documents while litigation was contemplated, took no steps to prevent their permanent deletion after both cases were filed, and has testified to facts inconsistent with contemporaneous emails and other witnesses' testimony.

*10 Based on LeSage's conduct, there is at least some reason to question his testimony indicating that the emails and text messages from September of 2019 are no longer recoverable. Coffin's declaration leaves open questions as to how LeSage and others searched their accounts and whether a professional search might be more fruitful. While a forensic examination will be burdensome, the undersigned finds that burden warranted based on SGCS's failure to take sufficient steps to secure relevant documents. Such relief is warranted under Rule 37(e)(1) to potentially cure Falck's prejudice from documents that currently appear to be lost, including LeSage's text messages with Garrett and his email to Kovacs regarding the KRDO story. Such relief is also warranted under the Court's inherent power in light of LeSage's at-least-negligent deletion of relevant emails he exchanged with AMR and testimony that such deletion was his usual practice, which raise serious questions as to whether additional relevant material was lost through the same practice.

The undersigned recommends that the Court ORDER SGCS to submit to a forensic examination of any smartphones, computers, or similar devices in its or LeSage's possession that LeSage has used for his work with SGCS, as well as a third-party search of LeSage's email account and any other relevant cloud services, at SGCS's expense. The undersigned recommends that the parties be required to meet and confer to determine a search protocol and to select a contractor to conduct the examination, with those issues to be resolved no later than October 8, 2021. The undersigned recommends that SGCS be required to reimburse Falck's reasonable attorneys' fees for that meet-and-confer process, but admonishes Falck that any unreasonableness in a request for fees—whether as to billing and staffing discretion, or the choice of disputes to pursue and failure to compromise on a search protocol—may be grounds for denial of its attorneys' fees in their entirety. The parties are strongly encouraged to stipulate to an award of fees for this process.

E. Waiver of Work Product Protection Is Not Warranted

Falck also seeks a sanction of deeming SGCS's work product protection waived as to the period at issue from September 5, 2019 until the commencement of litigation on September 26, 2019.

The work product doctrine, codified in Rule 26(b)(3) of the Federal Rules of Civil Procedure, protects from discovery “documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative.” See In re Grand Jury Subpoena, 357 F.3d 900, 906 (9th Cir. 2004). “Proper preparation of a client's case demands that [an attorney] assemble information, sift what he considers to be the relevant from the irrelevant facts, prepare his legal theories and plan his strategy without undue and needless interference.” Hickman v. Taylor, 329 U.S. 495, 511 (1947). This doctrine is distinct from the attorney-client privilege, and is in fact “not a privilege but a qualified immunity protecting [certain material] from discovery.” See Admiral Ins. Co. v. U.S. Dist. Court, 881 F.2d 1486, 1494 (9th Cir. 1989).

“[D]isclosure of a document to a third person does not waive work-product immunity, unless it has substantially increased the opportunity for the adverse party to obtain the information,” because the purpose of the work product doctrine is to shield litigation strategy from disclosure to a litigation adversary. Skynet Elec. Co., Ltd. v. Flextronics Int'l, Ltd., No. C 12-06317 WHA, 2013 WL 6623874, at *3 (N.D. Cal. Dec. 16, 2013); see also Nidec Corp. v. Victor Co. of Japan, 249 F.R.D. 575, 580 (N.D. Cal. 2007) (“The work product [doctrine] provides protection against adversaries and is not as easily waived as the attorney-client privilege.”).

Work product material that concerns factual matters, as opposed to an attorney's opinions or legal theories, may be discovered if the party seeking it demonstrates a “substantial need” for the material and there is no other means for obtaining that information without undue hardship. Fed. R. Civ. P. 26(b)(3)(A). In its original discussion of the work product doctrine, the Supreme Court addressed circumstances warranting production of protected material as follows:

Hickman, 329 U.S. at 511–12.

Some courts have held that spoliation can, in appropriate circumstances, waive work product protection or attorney-client privilege. See Saniefar v. Moore, No. 1:17-cv-00823-LJO-BAM, 2019 U.S. Dist. LEXIS 180954, at *6–8 (E.D. Cal. Oct. 18, 2019); Magnetar Techs. Corp. v. Six Flags Theme Park Inc., 886 F. Supp. 2d 466, 490 (D. Del. 2012), magistrate judge's decision aff'd, 2014 WL 545440 (D. Del. Feb. 7, 2014).[5] Here, the undersigned finds that any production of work product documents is best viewed through the lens of substantial need rather than waiver—and in the particular context of the present motion (brought after the close of discovery), whether SGCS's spoliation of documents caused a substantial need for production of factual work product.

SGCS's privilege log indicates that it claimed work product protection as to a number of emails sent during the time period at issue. See Joint Discovery Letter (dkt. 110) Falck Ex. 27. SGCS states that it does not oppose in camera review of those documents. Opp'n at 24. The undersigned recommends that the Court require SGCS to lodge for in camera review, no later than October 8, 2021, the emails dated from September 5, 2019 through September 26, 2019 that SGCS withheld based solely on work product protection.[6] The undersigned will review those emails and order production of any that provide otherwise-unavailable relevant factual information regarding LeSage's text messages with Garrett, unproduced emails exchanged with AMR, or other purportedly missing non-work-product documents at issue in the present motion.

F. Monetary Sanctions Should Be Denied

Falck's motion includes, in its discussion of possible further briefing, a cursory reference to monetary sanctions for its having “spent over $50,000 defending against SGC's frivolous preliminary injunction motions and $65,000 on the two successive anti-SLAPP motions all undermined by evidence SGC destroyed or otherwise withheld; over $100,000 conducting extensive third-party discovery to uncover the extent of SGC's destruction of evidence and obstruction, including repeated requests to the Court, countless meet and confers and third party subpoenas and depositions; and over $20,000 with bringing this motion.” Mot. at 24 (citing no evidence). Falck's reply includes for the first time a request for monetary sanctions, seeking the same amounts except increasing the fees for the present motion to “at least $40,000.” Reply at 15 (citing McGarry Supp'l Decl. ¶¶ 5–9).

The undersigned does not recommend granting such relief with minimal briefing and no clear request in Falck's motion to which SGCS could be expected to respond, much less based on five conclusory paragraphs of an attorney's declaration submitted for the first time with the reply.[7] Moreover, while the undersigned recommends granting in part Falck's present motion for discovery sanctions, the undersigned does not recommend awarding Falck its attorneys' fees for this motion in light of its significant overreach in seeking unwarranted terminating sanctions and its kitchen-sink approach of presenting numerous minor disputes on the merits of the evidence as purported litigation misconduct.

*12 At the hearing, Falck suggested that it should be entitled to monetary sanctions for purportedly improper designation of discovery materials as attorneys'-eyes-only. Such designations were made by AMR, not SGCS, and fall outside the scope of Falck's present sanctions motion against SGCS.

G. The Court Should Not Invite Further Briefing on Other Sanctions

Falck seeks “a scheduling conference to determine a briefing schedule on any lesser evidence, issue and monetary sanctions [the Court] deems appropriate.” Mot. at 25. If Falck believed other sanctions were warranted, it could have briefed those issues in its present motion, rather than swinging for the fences with its largely unfounded request for terminating sanctions, and clouding the issue with speculation about other categories of missing documents for which there is no evidence of spoliation, and seeking to elevate every potential inconsistency in the evidentiary record to the level of sanctionable misconduct. While the undersigned recommends considering an adverse inference at summary judgment or a jury instruction at trial, those matters can be addressed in the normal course of briefing summary judgment motions and jury instructions. Further briefing on alternative sanctions at this time is not necessary, and any lost opportunity for such sanctions is solely attributable to Falck's failure to seek and brief them in its present motion.

IV. CONCLUSION

For the reasons discussed above, the undersigned recommends that Falck's motion be DENIED as to terminating sanctions and monetary sanctions, but GRANTED as to forensic examination of LeSage's devices and a third-party search of his accounts, at SGCS's expense. The undersigned further recommends that SGCS be required to lodge its work product emails from September 5, 2019 through September 26, 2019 for in camera review to determine whether its spoliation of evidence caused substantial need for their production. The undersigned recommends that the Court DENY Falck's request for further briefing as to alternative sanctions, but that the Court consider whether an adverse inference or jury instruction is appropriate at summary judgment or trial.