*1 Before the Court is Defendant's Motion for Sanctions for Violation Court Order, filed on June 6, 2018 (“Sanctions Motion”). (Dkt. No. 239.) On June 19, 2018, Plaintiff filed a Memorandum in Opposition to the Sanctions Motion, along with a Declaration of Kirk M. Hallam (“Hallam Decl.”). (Dkt. No. 252.) On June 25, 2018, Defendants filed a Reply in support off the Sanctions Motion. (Dkt. No. 255.) On June 27, 2018, the Court held oral argument on the Sanctions Motion and took the matter under submission. (Dkt. No. 260.)

Having carefully considered the parties' briefs, exhibits, as well as the evidence and argument of counsel presented at the hearing, for the reasons discussed below, the Court denies the Sanctions Motion.

A. The FAC's Allegations and the Davis Investigation

The parties are familiar with the facts and allegations in the operative First Amended Complaint (“FAC”) litigation, as set forth in the Court's December 1, 2017 Order on Defendants' Motion to Compel Discovery Relating to Alan Davis. [Dkt. No. 106.][1] Therefore, the Court will only repeat the FAC allegations as necessary for the resolution of the instant motion.

Plaintiff commenced this action on December 2, 2016 against defendants Kristopher Hughes, James Huysentruyt, Informatrac, Inc., PcVue, Inc., Edward Nugent, and Does 1-10 (together, “Defendants”). Plaintiff filed the operative FAC on January 31, 2017. (Dkt. No. 27.) Plaintiff alleges that MASS Group “developed, programmed, produced, marketed and licensed to customers throughout the United States and abroad, a series of internet based proprietary software programs, products which uniquely allow the customer to track or trace quantities and precise locations of inventories, equipment, materials, documents, even people.” (FAC ¶ 1.)

Plaintiff further alleges that beginning in 2015, Defendants Hughes and Huysentruyt formed a business partnership with Ed Nugent and PcVue with the primary purpose “to copy the MASS Software, along with the source and object codes from which that Software is exclusively derived,” and “copied MASS Software in order to produce and market that Software as their own.” (FAC ¶¶ 4-5.) Defendants Hughes and Huysentruyt are former officers and managers of MASS Group, who resigned from MASS Group to launch a partnership with InformaTrac. (FAC ¶¶ 8-14.) Plaintiff claims that Defendants “both prior to and after their resignations from MASS Group, and as part of their ‘partnership’ with PcVue, deliberately sought to induce the existing and potential customers of Plaintiff to discontinue their use of MASS Software and terminate or fail to renew their licenses with Plaintiff.” (FAC ¶ 14.) Plaintiff seeks to recover damages against Defendants for, inter alia, copyright infringement and misappropriation of trade secrets.

B. Defendants' Motion to Compel Documents Relating to Alan Davis's Investigation

*2 Early in discovery, Defendants learned that MASS Group had hired a software consultant, Alan Davis (“Davis”), to conduct a clandestine investigation to uncover information about Defendants' alleged misappropriation of Plaintiff's source code and client information. (Dkt No. 93-1 [Motion to Compel at 2].) In August 2017, Defendants served a First Request for Production of Documents (“RFP”) seeking documents relating to Davis's investigation (Dkt No. 93-2 [Ex. E]), and issued a subpoena duces tecum to Davis to obtain documents and communications from Davis's files relating to the investigation and his clandestine contacts with Defendants. (Dkt. No. 93-2 [Ex. B].) When Plaintiff and Davis objected to producing certain documents responsive to the RFP and the subpoena on grounds of attorney-client privilege and/or work product, Defendants filed a Motion Compel Discovery Relating to Alan Davis, (the “Motion to Compel”), which challenged the privileges asserted on Plaintiff's privilege log as to the Davis-related documents. (See Dkt. No. 93.) Plaintiff opposed the Motion to Compel. (Dkt. No. 94.) On December 1, 2017, after full briefing and oral argument, the Court issued a Memorandum Decision and Order in which it granted in part and denied in part the Motion to Compel (the “December 1 Order”). (Dkt. No. 106.)

C. The December 1, 2017 Order

In the Motion to Compel, Defendants raised two separate, but related issues: (1) Plaintiff's written responses and production of documents concerning Davis's clandestine investigation, including Davis's communications with Defendants, which apparently involved email, telephone, and in-person contacts with Defendants;[2] and (2) Davis's responses to the August 2017 subpoena duces tecum that sought documents from his own files regarding his undercover investigation, including his communications with Plaintiff about the results of his investigation. (See Motion to Compel at 1-3.) Plaintiff had tried to shield the Davis documents from production by asserting the attorney client privilege and work product protection.[3]

In opposing the Motion to Compel, Plaintiff filed a declaration from Davis in which Davis represented that in response to Defendants' subpoena, he

(Declaration of Alan Davis in Support of Opposition to Defendants” Motion to Compel Discovery Related to Alan Davis ¶ 9 [Dkt. No. 94-1].) Davis also stated that he had reviewed each of the documents that had been withheld on grounds of privilege that were the subject of this discovery dispute and confirmed that those documents were “generated either in anticipation of the litigation ... or was prepared after the litigation commenced for purposes of assisting in the preparation of MASS Group's case for trial.” (Id. at ¶ 11.)

After a thorough review of the applicable legal standards, the Court concluded that Davis was a third party fact witness subject to discovery and emphasized that factual information in his possession, custody and control is not protected by the attorney-client privilege. (December 1 Order at 16-19.) The Court also found that to the extent Davis's investigative communications might be subject to work product protections, any such protection had been waived because Plaintiff used some of Davis's email communications with Defendants during a deposition of non-party witness Vic Flores. (Id. at 18.)

*3 Thus, the December 1 Order directed as follows:

(Id. at 26.) In addition, the Court ordered both Davis and Plaintiff to provide supplemental written responses to the subpoena and RFP, respectively. (Id. at 26-27.)[4]

Following the December 1 Order, Davis produced 26 additional documents on December 18 and after the Court's in camera review, Davis produced 12 more documents on December 22, 2017. (See Declaration of Eric Belt in Support of [the Sanctions Motion] (“Belt Decl.”) ¶¶ 2-3.)

The Sanctions Motion seeks monetary sanctions against Plaintiffs for violating the December 1 Order. Specifically, Defendants contend that Plaintiff only recently produced additional documents from MASS Group and Davis that are responsive to requests that were at issue in the Motion to Compel and the belated production of documents violates the December 1 Order and prejudiced Defendants by forcing them to engage in multiple rounds of expensive motion practice. (Sanctions Motion at 1-2.)

D. Davis and MASS Group 30(b)(6) Depositions Reveal Additional Responsive Documents Just Before the Initial Fact Discovery Cut-Off

Defendants argue that they learned of additional responsive documents during the deposition of Alan Davis on January 9 and 11, 2018. (Sanctions Motion at 8.) The additional documents include emails that Davis sent to MASS Group executive, Shauna Balady, about his surreptitious investigation. Defendants requested production of these documents during Davis's deposition on January 9, 2018 and represent that MASS Group's counsel “agreed to produce documents by January 10, and to continue the Davis deposition after their production.” (Id. at 9.)

When Davis's deposition resumed on January 11, 2018, Davis produced an additional 17 documents, testified about other responsive documents that had not been produced, and acknowledged that he did not save outgoing emails. (Id. (citing Belt Decl., ¶ 7, Ex. A, Davis Tr. 217: 19-218:2; 116:10-16).) Davis also admitted that despite his promise in the declaration that he submitted to the Court in connection with the Motion to Compel that he would search for additional documents responsive to the August 2017 subpoena, he never searched for those documents because he “forgot to do it.” (See Belt Decl., Ex. A, Davis Tr. 228:25 [Dkt. No. 239-2].))

*4 In addition, when Defendants took the deposition of Shauna Balady as Plaintiff's Rule 30(b)(6) witness on January 12, 2018, Balady testified that she communicated with Davis through a personal Gmail email account from which she deleted messages daily. (Sanctions Motion at 9; and see. e.g., Dkt. No. 155-1 (MASS Group 30(b)(6) Tr. 6-17).) The deadline for completion of fact discovery expired on January 12, 2017, the same day as the Balady deposition. (See Dkt. No. 116 (Order extending fact discovery cut-off from December 22, 2017 to January 12, 2018 for limited purpose of deposing Davis and Balady).)

On February 14, 2018, the Court held a telephonic conference with the parties regarding Defendants' concerns that Plaintiff and Davis had not complied with the December 1 Order and had spoliated evidence. (Dkt. No. 126.) The Court advised the parties that because the deadline for fact discovery had passed, the Magistrate Judge lacked jurisdiction to hear or rule on any additional discovery motions unless the parties sought an extension of the fact discovery period before the presiding district judge, the Honorable Christina A. Snyder. (Id.) Defendants did not seek to re-open fact discovery.

Instead, after the February 14, 2018 teleconference with Magistrate Judge Stevenson, Defendants filed a motion before Judge Snyder on March 30, 2018 seeking terminating sanctions against Plaintiff in the form of dismissal for intentional spoliation of evidence based on the deposition testimony by Davis that he “forgot” to search for additional documents (see Belt Decl., Ex. A, Davis Tr. 228:25) and Balady's statements that she routinely “sanitized” the Gmail account that she used to communicate with Davis. (Dkt No. 154.)

E. Judge Snyder's April 30 Order Further Extends Fact Discovery

On April 30, 2018, Judge Snyder denied Defendants' motion to dismiss for intentional spoliation and reopened discovery for an additional sixty days for the limited purpose of allowing Defendants to bring a discovery motion before Magistrate Judge Stevenson to address Plaintiff's compliance with the December 1 Order. (Dkt. No. 194.)

Thus, Defendants' Sanctions Motion argues that Plaintiff has failed to produce all responsive documents consistent with the December 1 Order and, therefore,

(Sanctions Motion at 2.)

F. Plaintiff Contends it Fully and Timely Complied With the December 1 Order

In the Opposition, Plaintiff argues that the December 1 Order “did not require it to produce documents for which no privilege log had been produced, and for which no attorney client privilege or work product claims had yet been asserted or adjudicated.” (Opposition at 1.) Plaintiff further argues that even if MASS Group and Davis did not fully comply with the December 1 Order an award of sanctions under Rule 37 “would be improper because MASS Group's actions have been substantially justified and, because an award of sanctions under the circumstances would be unjust.” (Id.) Alternatively, Plaintiff also asserts that an award of sanctions under the Court's inherent power would be improper because there is no evidence that Plaintiff acted in bad faith. (Id.)

*5 Central to Plaintiff's argument is the contention that the December 1 Order only concerned documents that MASS Group and/or Davis previously withheld from production based on attorney-client privilege or work product objections asserted on Plaintiff's privilege log as of November 2017. (Opposition at 2-4.) On that basis, Plaintiff argues that additional responsive documents identified during the Davis deposition in January 2018 and/or during the MASS Group Rule 30(b)(6) deposition were not and could not have been subject to the December 1 Order. (Id. at 6.) Because the parties had no agreement to produce documents that post-dated the commencement of the litigation, Plaintiff argues, the late-produced documents were not subject to the December 1 Order. (Id.)

In their Reply, Defendants maintain that Plaintiff's failure to produce all responsive documents in compliance with the December 1 Order was “never justified” because the December 1 Order called for “all documents” responsive to both the RFP and the Davis subpoena regardless of whether they were identified on Plaintiff's then-existing privilege log or not. (Reply at 3.)

Under Rule 37, the Court has broad authority to impose monetary sanctions when a party fails to comply with a court order compelling discovery. Valley Engineers Inc. v. Electric Eng'g Co., 158 F.3d 1051, 1059 (9th Cir. 1998). Rule 37(b) provides that when a party fails to obey a discovery order “to provide or permit discovery ... the court where the action is pending may issue further just orders” that may include ordering “the disobedient party, the attorney advising that party, or both to pay the reasonable expenses, including attorney's fees, caused by the failure unless the failure was substantially justified or other circumstances make an award of expenses unjust.” FED. R. CIV. P. 37(b)(2)(C).

A. Plaintiff's and Davis's Belated Productions Did Not Violate the December 1 Order

The Motion to Compel addressed documents that Plaintiff and Davis withheld form production based on improper assertions of attorney-client privilege and/or the work product doctrine as indicated on the then-existing privilege log. Indeed, at the conclusion of oral argument on the Motion to Compel, the Court emphasized that “the issue before the Court with respect to the motion is whether a privilege applies and whether that privilege has been waived.” (Declaration of Kirk Hallam (“Hallam Decl.”), Ex. 1, November 22, 2017 Hearing Tr. at 54:20-22.) Furthermore, the [Proposed] Order that Defendants themselves submitted with the Motion to Compel reflected that the Motion to Compel was directed at obtaining those documents for which a privilege had been asserted, stating: “The requested documents are not protected from disclosure by attorney-client privilege, work product protection, or any other applicable privilege or protection.” ([Proposed] Order on Defendants' Motion to Compel Discovery Relating to Alan Davis at 1 [Dkt. No. 93-4].)

The Court, thus agrees with Plaintiff that the late-produced documents identified during the first session of Davis's deposition and the Mass Group 30(b)(6) deposition were not documents for which any privilege had been previously asserted and, therefore, could not have been the subject of the December 1 Order. (Opposition at 6.)[5]

B. Rule 37 Sanctions Do Not Apply to Davis's Belated Production in Response to the Subpoena Duces Tecum

*6 Even if the late-produced documents identified during the Davis deposition were subject to the December 1 Order, Rule 37 does not provide a basis for an award of sanctions against Plaintiff or Plaintiff's counsel for Davis's failure to produce the documents. Rule 37(b)(2) authorizes an award of attorneys' fees incurred due to a party's failure to obey a discovery order. Fed. R. Civ. P. 37(b)(2)(A). Davis, a nonparty, was issued a subpoena duces tecum pursuant to Rule 45. (See Motion to Compel, Belt Decl., Ex. B [Dkt. No. 93-2].) “The only authority in the Federal Rules of Civil Procedure for the imposition of sanctions against a nonparty for failure to comply with a subpoena duces tecum is Rule 45(f).” Pennwalt Corp. v. Durand-Wayland, Inc., 708 F.2d 492, 494 (9th Cir. 1983). Here, Defendants have not sought sanctions against Davis under Rule 45. (See Sanctions Motion at 1.)

For the foregoing reasons, the Court concludes that Plaintiff did not violate the December 1 Order and the Sanctions Motion is DENIED.

IT IS SO ORDERED.