I. INTRODUCTION

*1 On January 13, 2021, Equate Media, Inc., Budget Van Lines, Inc., Quote Runner, LLC, and Home Expert, Inc. (collectively, “Plaintiffs”) filed a lawsuit against Disha Virendrabhai Suthar (“Disha”), Varunkumar Suthar (“Varun”), and Prime Marketing, LLC (“Prime”) (collectively, “Defendants”). Plaintiffs seek damages and injunctive relief for (1) violations of the Defend Trade Secrets Act (18 U.S.C. § 1836 et seq), (2) violations of the California Uniform Trade Secrets Act (Cal. Civ. Code § 3426 et seq), (3) breach of contract, (4) breach of the duty of loyalty, (5) tortious interference with prospective economic relations, (6) tortious interference with contractual relations, (7) civil conspiracy, and (8) unfair competition. (Compl., ECF No. 1.)

Presently before the Court is Plaintiffs' Motion for Sanctions. (ECF No. 63.) For the following reasons, the Court DENIES Plaintiffs' Motion.

II. FACTUAL BACKGROUND

Plaintiffs allege the following:

Plaintiffs are four internet marketing businesses that specialize in moving services. Their services match consumers to moving companies based on the route, date, and size of a move. Charlie Katz, Plaintiffs' founder, hired Disha in 2011 as a software engineer. Disha later became Plaintiffs' Information Technology (“IT”) Manager and oversaw an IT department. Plaintiffs hired Varun as a project manager. Disha and Varun's positions accorded them access to sensitive, proprietary information and required that they sign a “Confidentiality, Work for Hire and Non-Solicitation Agreement,” agreeing to use confidential information in only an authorized manner. In 2020, Disha and Varun resigned.

Disha and Varun used Plaintiffs' confidential information to create and operate Prime, which directly competes with Plaintiffs and uses the same proprietary “strategies to sell the same product offerings to the same top customers.” (Compl. ¶ 22.) Disha and Varun began orchestrating their plan in 2018—two years before their resignations. Before their departure, they attempted to delete all data from their company devices. Even so, a forensic specialist discovered that on the day before Varun resigned, he downloaded Plaintiffs' “entire customer database, including customer information related to contacts, pricing, and other customer preference information collected by [Plaintiffs] over 15 years.” (Compl. ¶ 119.)

III. DISCUSSION

Plaintiffs ask the Court to sanction Defendants for a plethora of alleged misconduct under Federal Rule of Civil Procedure (“Rule”) 37 and under the Court's inherent power to sanction litigation abuses. The Court finds that sanctions are not warranted for any of the alleged misconduct.

A court can impose certain sanctions if “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.” Fed. R. Civ. P. 37(e). Plaintiffs argue that Defendants failed to preserve electronically stored information (“ESI”) and request that the Court enter default judgment against Defendants or alternatively, “instruct the jury that it may or must presume the [lost] information was unfavorable” to Defendants. See Fed. R. Civ. P. 37(e)(2)(B–C). To grant this request, the Court must find that Defendants “acted with the intent to deprive [Plaintiffs] of the information's use in the litigation.”[1] Fed. R. Civ. P. 37(e)(2). However, “[f]inding an intent to deprive another party of the lost information's use in the litigation does not require a court to adopt any of the measures” that Plaintiffs request. Fed. R. Civ. P. 37 advisory committee notes to 2015 amendment.

*2 Plaintiffs accuse Disha of depriving them of ESI by:

(Sanctions Mot. at 27–28.) Plaintiffs also accuse Varun of depriving them of ESI by (1) reinstalling the operating system on his company-issued laptop, as well as emptying its backup folder and recycling bin; and (2) failing to suspend auto-deletion on his personal email account until February or March 2021, one to two months after litigation began. (Id.)

Plaintiffs, however, fail to sufficiently demonstrate that Defendants acted with the intent to “deprive [Plaintiffs] of the information's use in the litigation.” See Fed. R. Civ. P. 37(e)(2). They offer no additional evidence—beyond the mere fact of deleting some personal emails and WhatsApp messages, and resetting old devices—that would lead the Court to infer that Defendants purposefully destroyed Plaintiffs' evidence. Furthermore, additional facts undercut a finding of intent. For instance, Disha deleted personal emails months before litigation began and explained that she deleted WhatsApp messages because she has “a lot of pictures coming up unnecessarily.” (Gutenplan Decl., Ex. 5 at 179:4– 5, 215:8–10, ECF No. 63-21.) Also, Disha and Varun's actions involving their company-issued laptops were not inconsistent with the agreements that they signed when receiving the laptops, which simply state, “I will return the item(s) issued to me in proper working order (excluding normal wear & tear) ....” (Gutenplan Decl., Ex. 3, ECF No. 63-19.) As such, the Court cannot find that Defendants acted with the intent necessary to justify the sanctions that Plaintiffs request.

Plaintiffs also request sanctions pursuant to the Court's inherent power because Defendants allegedly (1) failed to produce the entire source code for their websites; (2) intentionally withheld documents from discovery; (3) violated an order by Magistrate Judge Rosenberg; and (4) made too many objections at Varun's deposition. A court has the inherent power to sanction litigation abuses when “neither the statute nor the Rules are up to the task.” Chambers v. NASCO, Inc., 501 U.S. 32, 50– 51 (1991). “A specific finding of bad faith, however, must ‘precede any sanction under the court's inherent powers.’ ” United States v. Stoneberger, 805 F.2d 1391, 1393 (9th Cir. 1986).

Here, the Court finds no bad faith. Plaintiffs assert that Defendants have failed to produce their complete source code, while Defendants maintain that they have produced all of the source code that is in Defendants' “custody, control, or possession.” (Defs.' Opp'n at 8–9.) Plaintiffs also assert that Defendants have failed to produce all documents required by Judge Rosenberg's order (ECF No. 47, ECF No. 70.), while Defendants maintain that they have produced everything required by that order.[2] Because there seem to be genuine factual disputes regarding Defendants' control of the source code, as well as the scope of discovery, the Court cannot find that Defendants have acted in bad faith.

*3 Furthermore, if Plaintiffs believe that Defendants intentionally withheld documents from discovery, then Plaintiffs should have remedied their concerns during the discovery period. Plaintiffs assert that by the time they “were able to prove Defendants' obstruction of the discovery process, it was too late to file a motion to compel.” (Sanctions Mot. at 26.) But this assertion is unsupported by any evidence. Even if it were true, however, Plaintiffs' own lack of diligence caused their dilemma. The Court has already found, “The parties held their Rule 26(f) conference (a prerequisite to begin discovery) on April 30, 2021. Yet Plaintiffs did not serve their first discovery requests until July 19, 2021—nearly three months after the parties' Rule 26(f) conference, two months after the scheduling conference, and three weeks after the deadline to move to amend the pleadings.” (Order re Mot. Modify at 3, ECF No. 95 (internal citations omitted).) Last, the Court cannot find bad faith simply because Plaintiffs think that Defendants made too many objections during a deposition.

Sanctions are therefore not justified.[3]

IV. CONCLUSION

For these reasons, the Court DENIES Plaintiffs' Motion.

IT IS SO ORDERED.

Per Rule 37, the Court must also find that (1) the lost information cannot be recovered; and (2) Defendants acted after a duty to preserve the information arose. Fed. R. Civ. P. 37(e). However, the Court declines to address these two threshold issues because it ultimately finds that Plaintiffs fail to establish that Defendants acted with the required intent.

Judge Rosenberg granted Plaintiffs' motion to compel the production of documents responsive to two of Plaintiffs' document requests to Varun (Nos. 37 and 45). (ECF No. 47 at 2.)

The Court reminds the parties that “this Court is not a sandbox for [the parties] to play in and throw sand at opposing counsel.” Grimsley v. Palm Beach Credit Adjusters, Inc., No. 15-81263-CIV, 2016 WL 269562, at *7 (S.D. Fla. Jan. 20, 2016).