*1 Before the Court is a Motion for Sanctions filed by Plaintiff Bal Seal Engineering, Inc. (Mot., Doc. 442.) Defendants Nelson Products, Inc. (NPI) and Carl Nelson opposed (Opp., Doc. 449) and Plaintiff replied (Reply, Doc. 450.) After holding oral argument and considering the papers, the Court GRANTS in part and DENIES in part Bal Seal's Motion for Sanctions.[1]

I. BACKGROUND

The facts of this case are well known to the parties, and the Court detailed the factual background and history of this litigation in a recent opinion. (See Summary Judgment Order, Doc. 303.) Thus, the Court recounts here only the facts relevant to the Motion at issue.

Discovery has been quite contentious in this action, and the Magistrate Judge has felt compelled to warn Defendants in particular for their failure to comply with discovery orders. (See March 14, 2018 Order at 4, Doc. 164 (“While the Court will not impose sanctions at this time, NPI is advised that the Court views its conduct in connection with document productions as less than forthcoming. This is now the Court's third order requiring NPI to produce documents. After earlier submitting declarations purporting to affirm that responsive records had been provided, NPI later produced a significant number of additional documents.”).) Since the March Order, NPI has produced more than 70,000 additional documents. (See Ford Decl. ¶¶ 20–35, Doc. 442-1.) Fact discovery closed on April 20, 2018 (Doc. 158) and expert discovery closed on July 31, 2018 (Doc. 276).

On August 27, 2018, Defendants served on Bal Seal an Amended Initial Disclosure identifying four witnesses not previously identified in discovery. (See Ford Decl. ¶ 30 and Exs. 23 & 24.) On September 11, 2018, Defendants served a Second Amended Initial Disclosure identifying another witness not previously disclosed. (See id. ¶ 31 and Ex. 25.) On October 5, 2018, Defendants served a Third Amended Initial Disclosure identifying two more witnesses not previously disclosed. (See id. ¶34 and Ex. 29.) That same day, Defendants produced seventy-nine more documents that related to NPI's alleged reverse engineering of Bal Seal's parts. (See id. ¶ 35.)

On October 16, 2018, Bal Seal sent Defendants a meet and confer letter in regard to the instant Motion, and Defendants responded that they planned to use samples of NPI's springs as evidence in this case. (Id. ¶¶ 36–37.) After the parties filed improper letter briefs before this Court regarding the admissibility of the springs, the Court referred the dispute to Magistrate Judge Scott. (Order, Doc. 432.) The Court need not repeat in detail Judge Scott's Order here, which found that NPI breached its obligation under Rule 26(a) to disclose its intent to rely on the sample springs and breached its obligation to provide full and complete customer sales files. (Scott Order at 11, Doc. 438.) However, the Court will highlight a few facts salient to the instant Motion. Defendants claimed that, in April 2018, they produced boxes of documents to Bal Seal and, within those boxes, they included physical springs stapled to documents. Judge Scott found that “[t]here are holes in NPI's evidence that detract from its credibility.” (Id. at 8.) For example, Judge Scott found credible the declaration of the individual who picked up the boxes and testified that there were no physical springs in them: “if [he] had been asked to scan samples of springs stapled to documents, he would have remembered such an unusual assignment.” (Id. at 7.) Further, Defendants could not explain how they came to realize for the first time in August 2018 – four months after the fact – that Bal Seal did not make copies of the springs in April 2018. (Id. at 8.) Moreover, Defendants provided no declaration from whoever supposedly put the springs in the boxes. (Id.) More broadly, Judge Scott found Defendants' claim that they allowed the springs to be carried away “without any supervision” or recordation to be inconsistent with their position that the springs are “irreplaceable.” (Id.)

*2 While Judge Scott left it to this Court to determine “what sanction (if any) to impose as a result (potentially including the exclusion of the springs as evidence at trial),” Judge Scott ordered Defendants to pay “Bal Seal's reasonable expenses associated with the aborted September 2018 inspection and Bal Seal's reasonable expenses incurred presenting the letter briefing and evidence for the issues discussed in this order.” (Id.)

On November 8, 2018, Bal Seal filed the instant Motion for Sanctions, requesting terminating, evidentiary, issue, and monetary sanctions as well as an adverse jury instruction. (Mot. at i.)

II. LEGAL STANDARD

Under Federal Rule of Civil Procedure 37, a court may issue sanctions “against a party who ‘fails to obey an order to provide or permit discovery.’ ” Leon v. IDX Sys. Corp., 464 F.3d 951, 958 (9th Cir. 2006) (quoting Fed. R. Civ. P. 37(b)(2)(A)). Rule 37 authorizes district courts to issue a “wide range of sanctions when a party fails to comply with the rules of discovery or with court orders enforcing those rules.” Wyle v. R.J. Reynolds Indus., Inc., 709 F.2d 585, 589 (9th Cir. 1983); Fed. R. Civ. P. 37. Under Rule 37(b)(2)(A), the Court may strike an offending party's pleading, dismiss that party's action, or enter a default judgment against a party. Fed. R. Civ. P. 37(b)(2)(A), 37(d). Federal Rule of Civil Procedure 41(b) provides for dismissal of an action if the plaintiff “fails to prosecute or to comply with ... a court order.” Fed. R. Civ. P. 41(b). District courts also “possess[ ] an inherent power to sanction litigants for abusive litigation practices that are taken in bad faith.” Wm. T. Thompson Co. v. Gen. Nutrition Corp., 593 F. Supp. 1443, 1455 (C.D. Cal. 1984).

“[T]erminating sanctions are considered very severe and are only justified where the failure to produce stems from the ‘willfulness or bad faith’ of the offending party.” Bump Babies Inc. v. Baby The Bump, Inc., 2011 WL 5037070, at *4 (C.D. Cal. Sept. 7, 2011) (quoting Dreith v. Nu Image, Inc., 648 F.3d 779, 788 (9th Cir. 2011)). “Due process requires that neither dismissal nor preclusion of evidence that is tantamount to dismissal may be imposed when failure to comply is due to circumstances beyond the recalcitrant's control.” Sigliano v. Mendoza, 642 F.2d 309, 310 (9th Cir. 1981). “Before imposing the harsh sanction of dismissal, the district court must weigh several factors: (1) the public's interest in expeditious resolution of litigation; (2) the court's need to manage its dockets; (3) the risk of prejudice to the party seeking sanctions; (4) the public policy favoring disposition of cases on their merits; and (5) the availability of less drastic sanctions.” Anheuser-Busch, Inc. v. Nat. Beverage Distribs., 69 F.3d 337, 348 (9th Cir. 1995) (citation omitted). “The first two of these factors favor the imposition of sanctions in most cases, while the fourth cuts against ... dismissal sanction[s]. Thus 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)). This five-factor analysis applies to dismissal under Rule 41(b) as well. Henderson v. Duncan, 779 F.2d 1421, 1423 (9th Cir. 1986). When addressing the fifth factor, courts should consider (1) “the alternative of lesser sanctions,” (2) whether lesser sanctions were previously implemented, and (3) whether it “warned the offending party of the possibility of [terminating sanctions].” Comput. Task Grp., Inc. v. Brotby, 364 F.3d 1112, 1116 (9th Cir. 2004) (citing Anheuser-Busch, 69 F.3d at 352).

III. DISCUSSION

*3 Bal Seal argues that a terminating sanction in the form of default judgment against Defendants is warranted. Though Defendants have breached their discovery obligations and have at times been less than forthcoming with the Court, the Court finds that a number of considerations counsel against imposing terminating sanctions in this case. Rather, evidentiary and monetary sanctions addressing Defendants' precise misconduct are more appropriate.

“When addressing whether the disobedient party's actions have created a ‘risk of prejudice to the party seeking sanctions,’ courts consider whether the discovery violations ‘make it impossible for a court to be confident that the parties will ever have access to the true facts.’ ” Sentinel Offender Services, LLC v. G4S Secure Solutions (USA) Inc., Case No. SACV 14–298–JLS (JPRx), 2016 WL 9454422, at *3 (C.D. Cal. Jan. 21, 2016) (quoting Conn. Gen. Life Ins. Co. v. New Images of Beverly Hills, 482 F.3d 1091, 1096– 97 (9th Cir. 2007)). “[F]ailure to produce documents as ordered may be sufficient to satisfy this factor.” Id.

Here, as noted above, the Court has already found that Defendants failed to produce the physical springs and breached their discovery obligations. Since the March 14, 2018 Order which noted that Defendants had been less than forthcoming with their document production, Defendants have produced 70,000 more documents. Bal Seal claims that these productions violated three orders:

Defendants also produced seventy-nine documents related to reverse engineering on October 5, 2018, which Bal Seal claims should have been produced earlier.[2] Further, Bal Seal argues that NPI has improperly amended its Initial Disclosures to include seven witnesses who were not previously identified in discovery: David Nelson, Sergio Soria, Mike Thomas, Gerald Peak, John Roberts, Chris Olson,[3] and Mark Litherland. (See Ford Decl. at ¶44.) With regard to the first five of these witnesses, Bal Seal argues that it “had no reason to believe that these individuals had information to support NPI's defense and/or that NPI would call them at trial.” (Mem. at 21.) Mark Litherland is a former Bal Seal distributor whom Bal Seal argues “had access to Bal Seal's trade secret engineering designs, has shared them with NPI and NPI now knowingly profits off these designs.” (Id.) Bal Seal argues that, had it known that Defendants intended to call Litherland as a witness, it would have gone through the Letters Rogatory process to obtain his deposition, as Litherland lives in the United Kingdom and is not subject to the subpoena power of this Court. (Id.) However, because Defendants first identified Litherland as a witness on August 27, 2018, Bal Seal did not undertake the “time consuming and costly” Letters Rogatory process. (Id.)

*4 First, with regard to the physical springs and reverse engineering documents, Defendants argue that they only realized they would need such evidence for their reverse engineering defense after the Court's August 3, 2018 Summary Judgment order. (Opp. at 9.) However, as Judge Scott noted, this assertion is implausible because “[i]f NPI had truly been able to reverse engineer the disputed springs from samples provided by customers ... NPI would have known about those reverse engineering efforts and known that the samples and all other evidence related to the reverse engineering process were relevant evidence.” (Scott Order at 10.) Defendants also argue that they have offered to allow Bal Seal to inspect the springs now and that will cure any prejudice. (Id. at 9–10.) Defendants dispute that they violated Court Orders concerning production of documents. (Opp. at 7.) However, they do not actually claim that the documents produced after the deadlines set in those Orders should not have been produced earlier. Further, Defendants argue that the new witnesses are Bal Seal's customers and that since Bal Seal “introduced” them into the case and subpoenaed the companies for which the witnesses work, the witnesses were not truly undisclosed. (Opp. at 10–11.) Defendants also argue that “NPI and the customers themselves timely produced correspondence with the subject individuals before the fact discovery cutoff.” (Id. at 11.) However, as Bal Seal notes in Reply, the witnesses were barely mentioned in the many documents filed in this case. (Reply at 15–17.)

In light of Defendants' repeated failures to fully satisfy its document production and disclosure obligations, the Court finds that evidentiary sanctions are necessary to address Defendants' misconduct and its resulting prejudice. Accordingly, the Court finds the following sanctions appropriate:

First, the Court excludes from trial the springs that Defendants failed to produce in discovery.[4] The Court concludes that such evidentiary sanctions are warranted because of Defendants' lack of candor regarding the spring disclosure. Not only did they fail to produce the springs, they manufactured an unconvincing narrative to conceal their failure to produce. (See Scott Order at 8.) Accordingly, Defendants did not just commit a discovery violation – they intentionally misrepresented facts to the Court. The appropriate remedy is not to further protract this action to allow for a belated spring inspection, but instead to exclude the springs from trial. Relatedly, the Court finds it appropriate to exclude the reverse engineering documents that Defendants produced on October 5, 2018; Defendants knew or should have known that such documents were highly relevant during discovery yet failed to produce them. (See Judge Scott Order at 10.)

Second, the Court finds it appropriate to exclude the previously undisclosed witnesses from trial. Under Federal Rule of Civil Procedure 26(a), a party's initial disclosures must identify witnesses who are “likely to have discoverable information ... that the disclosing party may use to support its claims or defenses.” There is also an affirmative obligation to supplement these initial disclosures “in a timely manner” if they become incomplete or incorrect. Fed. R. Civ. Pro. 26(e)(1)(A). Supplementation, however, is not mandatory “if the additional or corrective information has [ ] been made known to the other parties during the discovery process or in writing.” Id. Defendants argue that they did not violate Rule 26 because the witnesses' names were mentioned in discovery. However, with regard to David Nelson, Sergio Soria, Mike Thomas, Gerald Peak, and John Roberts, “[e]ven though the names of these [five] individuals appear to have come to light during the course of discovery, the information [Bal Seal] learned about them at the time was insufficient to indicate to [Bal Seal] that they possessed information that supported Defendants' claims or defenses.” Vieste, LLC v. Hill Redwood Development, No. C–09–04024 JSW (DMR), 2011 WL 2181200, at *2 (N.D. Cal. June 3, 2011). Though Bal Seal may have known that Litherland possessed information relevant to Defendants' claims or defenses based on documents produced in discovery (Reply at 19), it opted to not go through the lengthy Letters Rogatory process to depose Litherland because Defendants had not disclosed Litherland as a witness. Thus, Bal Seal was clearly prejudiced by Defendants' failure to timely disclose their intention to call Litherland at trial, and the Court finds it appropriate to exclude Litherland's testimony as well.

*5 However, the Court will not bar Defendants from “introducing or seeking to rely upon testimony that states, suggests or implies that Defendants reverse engineered or independent developed any of the subject products.” (Mem. at 26.) Exclusion of the springs, October 5, 2018 documents, and the belatedly-disclosed witnesses is more appropriate because it specifically addresses Defendants' discovery violations. Barring Defendants from making any arguments about reverse engineering would be a step too far. Likewise, the Court will not give the adverse jury instruction that Bal Seal requests. The instruction is far too broad and again, exclusion of the springs and witnesses sufficiently addresses Defendants' misconduct. With regards to Bal Seal's request for monetary sanctions, the Court finds it appropriate to order Defendants to pay Bal Seal's attorneys' fees for this Motion. See Sentinel, 2016 WL 9454422, at *5.[5]

IV. CONCLUSION

Accordingly, the Court GRANTS in part and DENIES in part Bal Seal's Motion for Sanctions. No later than fourteen (14) days from the date of this Order, Bal Seal shall submit evidence supporting its request for the attorneys' fees incurred in bringing this Motion. Defendants may file an objection to the amount requested within seven (7) days of Bal Seal's filing. The matter of the amount of fees awarded will be deemed under submission at that time.

The Court DENIES Defendants' Request for a Sur-Reply (Doc. 460) and DENIES Plaintiff's Application for In Camera Review (Doc. 462.)

NPI has since reduced this production to five documents. (See Opp. at 14.)

As Bal Seal notes, Olson was on NPI's First Amended Initial Disclosure and has since been removed. (Ford Decl. ¶ 45.) “Bal Seal believes this indicates Defendants have decided that they no longer intend to call him at trial and this individual is no longer at issue.” (Mem. at 21.) Defendants do not address Olson in their Opposition, and Olson does not appear on the parties' jointly filed witness list. (See Doc. 453.)

This includes the “accused” and “reverse engineering” springs to which the parties refer. (See Reply at 9.) Defendants may not introduce or rely upon any physical springs at trial.

Although a close call, the Court has determined not to impose terminating sanctions. The type of willful misconduct warranting such sanctions “includes knowingly deceiving the court with manipulated or fabricated evidence ... or engaging in a ‘consistent, intentional, and prejudicial practice of obstructing discovery.’ ” Sentinel, 2016 WL 9454422, at *4 (citing Conn. Gen. Life Ins., 482 F.3d at 1094–95; Consumer Fin. Prot. Bureau v. Morgan Drexen, Inc., 101 F. Supp. 3d 856, 869–72 (C.D. Cal. 2015)) (quoting Comput. Task Grp., 364 F.3d at 1114–17 (terminating sanctions warranted for violating five court orders to comply with discovery requests, failing to pay monetary sanctions, providing fabricated documents, and failing to heed multiple warnings that a continued failure to cooperate in discovery would result in terminating sanctions)). Here, while Magistrate Judge Scott did warn of possible sanctions if Defendants' conduct continued, the Court has not specifically warned of terminating sanctions. Further, the Court finds that any prejudice from the belated disclosures and failure to produce the physical springs can be remedied by lesser sanctions.