*1 Defendant QBE Specialty Insurance Co. moves for sanctions against Plaintiff Channel Development, Inc.. (MFS, ECF No. 67.) Additionally, Defendant moves for summary judgment and to exclude two of Plaintiff's experts. (MSJ, ECF No. 35; MTE, ECF No. 66.) Plaintiff opposes all three motions. (MFS Opp'n, ECF No. 73; MSJ Opp'n, ECF No. 84-1; MTE Opp'n, ECF No. 75.) Defendant then replied to each of Plaintiff's opposition briefs. (MFS Reply, ECF No. 85; MSJ Reply, ECF No. 87; MTE Reply, ECF No. 86.) The Court heard argument on November 21, 2022. (Mins., ECF No. 93.)

I. BACKGROUND

This case arises from an alleged breach of insurance contract and breach of the implied covenant of good faith. (FAC, ECF No. 1-2.) Plaintiff contracted with Skylane, LLC to build a luxury home in Brentwood Hills, California, with construction beginning in 2015. (SUF ¶¶ 7–8, ECF No. 78.)[1] Barry Simzar and Bijan Javaherian own Channel and are two of three members of Skylane. (Id. ¶¶ 1, 3.) In 2017, Plaintiff secured from Defendant a builder's risk insurance policy, which was originally set to expire on August 31, 2018. (Id. ¶ 10.) Upon Plaintiff's request, Defendant granted four policy extensions between August 2018 and August 2019. (Id. ¶¶ 11–13, 59–60.) On October 28, 2019, the Getty Fire allegedly caused extensive damage to the subject property. (SUF ¶ 63; FAC ¶ 8.) Soon after, in November 2019, Plaintiff filed a claim with Defendant for fire-related losses. (FAC ¶ 9.) Months of claim processing and investigating then ensued. (Id. ¶¶ 10–76.) Ultimately, Defendant advanced $100,000 for Plaintiff's claim, (SUF ¶ 136), though Plaintiff asserts millions of dollars in covered losses resulting from the Getty Fire, (Add'l Facts ¶¶ 24, 26–29, 51, 54, 73, 76, 84, 87, 94, ECF No. 79).

Central to this dispute is the date construction of the Brentwood Hills property completed, as the policy coverage terminates when either “a covered ‘building or structure’ is accepted by the purchaser” or “a covered ‘building or structure’ has been completed for more than 90 days.” (SUF ¶ 17.) Predictably, Defendant asserts that construction completed well before the Getty Fire, (MSJ 9–12), while Plaintiff resists this conclusion, (MSJ Opp'n 9–14). Defendant points primarily to the notice of completion Skylane recorded with the Los Angeles County Recorder “on April 2, 2019, verifying under penalty of perjury that the Property had been completed on March 26, 2019.” (SUF ¶ 18; see also MSJ 4.) Plaintiff, on the other hand, argues that the notice of completion is not conclusive evidence of a completion, as it had not yet “obtained final sign-offs ... for grading, plumbing, the elevator, or the fire sprinklers.” (MSJ Opp'n 2–3; Add'l Facts ¶ 10.) Rather, Plaintiff contends that Javaherian filed the notice of completion to obtain final payment from the bank and to reduce the time for its subcontractors to enforce the mechanic's lien, not to signal a completion for insurance purposes. (MFS Opp'n 11 (citing Javaherian Decl. ¶ 3, ECF No. 73-1).)

*2 To Defendant, the notice of completion is conclusive evidence of a completion. To Plaintiff, the notice is insufficient to establish a completion. However, during the course of discovery, Plaintiff failed to produce the notice in response to Defendant's production request. (Kalunian Decl. ¶ 3, ECF No. 69; Kalunian Decl. Ex. A, at 7, ECF No. 69-1 (requesting “[a]ll DOCUMENTS YOU provided to any governmental entity regarding any proposed or actual construction or improvements at the PROPERTY”).) Instead, the sole documents produced related to the notice of completion were (1) an April 3, 2019 email between Javaherian and Chae Kim of the Bank of Hope, (Kalunian Decl. Ex. D, ECF No. 69-4); and (2) an April 2, 2019 receipt from the Los Angeles Country Recorder for a nondescript “recording fee,” (Kalunian Decl. Ex. E, ECF No. 69-5). The Javaherian email did contain two inline pictures of a hard copy of the notice of completion, but included only a small corner of two pages of the document, leaving Defendant only to guess as to what document Plaintiff actually produced. (Kalunian Decl. Ex. D.) Plaintiff's counsel explained at the hearing that during his review of the production set, but before final document processing, the full notice of completion appeared in the body of the April 2019 email. Counsel blames the nondisclosure of the notice of completion on a file processing error and his firm's failure to review the documents before final production. (Plaza Decl. ¶¶ 2–4, ECF No. 73-5; Shuman Decl. ¶¶ 2, 4, ECF No. 73-3.) In any event, Plaintiff's attorneys take the position that they believed Plaintiff's production included the notice of completion in its entirety. Defense counsel countered at the hearing that the produced emails included not only the incomplete photos in line with the body of the email but also two separate attachments, which were withheld.

On June 16, 2022, Barry Simzar, the second Channel owner, testified as a Rule 30(b)(6) witness on behalf of Skylane, of which he is a member. (Kalunian Decl. Ex. C, at 21, ECF No. 69-3.) During his deposition, defense counsel asked, “Do you know if a notice of completion was issued for the project?” (Id. at 22.) Simzar replied, “We don't have such, a notice of completion.” (Id.) Neither Simzar nor Plaintiff's counsel corrected the record during or after the deposition. Instead, counsel argues that Simzar's testimony is accurate because (1) Channel holds the notice of completion, not Skylane; and (2) Simzar was representing Skylane and not Channel during that deposition. (MFS Opp'n 7.) When pressed at the hearing, counsel refused to admit any wrongdoing.

On September 22, 2022, less than one month before the deadline to file its summary judgment motion, (Order Re: Jury Trial § I, ECF No. 13), Defendant independently obtained a copy of the notice of completion from the Los Angeles County Recorder's Office after realizing that the April 2, 2019 receipt and the April 3, 2019 Javaherian email were related, (Kalunian Decl. ¶ 16).

Based on Plaintiff's failure to disclose the notice of completion and Simzar's false deposition testimony, Defendant moves for terminating sanctions or, in the alternative, issue preclusive and evidentiary sanctions, along with attorneys' fees. (MFS 22–23.)

II. REQUEST FOR JUDICIAL NOTICE

In support of its motion for sanctions, Defendant requests judicial notice of the notice of completion Javaherian recorded on April 2, 2019. (RJN, ECF No. 68.) The Court may consider the notice of completion, (RJN Ex. A, ECF No. 68-1), which is a public record not subject to reasonable dispute, Fed. R. Evid. 201(b); see Reyn's Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 2006) (“We may take judicial notice of court filings and other matters of public record.”).

III. LEGAL STANDARD

District courts have inherent power to order terminating sanctions when “a party has engaged deliberately in deceptive practices that undermine the integrity of judicial proceedings,” including “when a party has willfully deceived the court and engaged in conduct utterly inconsistent with the orderly administration of justice.” Anheuser-Busch, Inc. v. Nat. Beverage Distribs., 69 F.3d 337, 348 (9th Cir. 1995) (internal quotation marks omitted). The Ninth Circuit has stated that “[t]he requirements of due process limit the court's exercise of its inherent power.” Wyle v. R.J. Reynolds Indus., Inc., 709 F.2d 585, 589 (9th Cir. 1983). Before imposing dismissal, courts weigh the following factors:

*3 Halaco Eng'g Co. v. Costle, 843 F.2d 376, 380 (9th Cir. 1988). A district court's decision to impose sanctions under its inherent powers is discretionary. Id.

IV. DISCUSSION

A. Terminating Sanctions

As a threshold matter, the Court finds that Plaintiff's principal, Barry Simzar, falsely testified at deposition, and Plaintiff's counsel's is at fault for perpetuating the deception. “Dismissal under a court's inherent powers is justified in extreme circumstances, in response to abusive litigation practices, and to insure the orderly administration of justice and the integrity of the court's orders.” Id. (citations omitted) (collecting cases).

Plaintiff contends that Simzar's deposition response “was, strictly speaking, accurate” because he was testifying in his capacity as Skylane's representative and not Channel's. (MFS Opp'n 7.) However, the Court finds this argument disingenuous. Javaherian signed the notice of completion in his capacity as a member of Skylane. (RJN Ex. A.) Even if Javaherian had provided the notice of completion to the Bank of Hope from a Channel email account, (Kalunian Decl. Ex. D), it is incredible that Simzar did not have the notice of completion in his capacity as a Skylane member. Further, Simzar is both a member of Skylane and an owner of Channel. (SUF ¶¶ 1, 3.) Whether representing Skylane or Channel, Simzar knew or must have known that a notice of completion was recorded. At best, Simzar's response is misleading, and at worst, it is an outright lie aimed at preventing the discovery of key evidence on a topic essential to the defense.

Plaintiff's counsel, who also represented Simzar in his capacity as Skylane's Rule 30(b)(6) deponent, bears fault in Simzar's deceptive representation to Defendant. For one, counsel failed to correct Simzar's plainly misleading response. At the hearing, Steven Shuman, counsel for Plaintiff, argued that Simzar's testimony as Skylane's Rule 30(b)(6) representative rendered his response truthful, but the Court finds incredible that counsel viewed Simzar's testimony as proper. Counsel knew that Javaherian had recorded a notice of completion, given that such document was purportedly produced— albeit in incomplete form—months before the deposition. (Shuman Decl. ¶¶ 2, 4; Kalunian Decl. Ex. D.) Additionally, Javaherian signed the notice as a member of Skylane. (RJN Ex. A.) Assuming that counsel reviewed the notice of completion before its purported production in incomplete form, the Court strongly doubts the sincerity of counsel's contention that only Channel held the document. And further supporting the incredulity of counsel's position, the opposition papers admit that “Skylane recorded the Notice of Completion.” (MFS Opp'n 11; accord Javaherian Decl. ¶ 3 (“[O]n behalf of Skylane, LLC, I recorded a Notice of Completion ....”).) Despite these facts, counsel refused to correct the record, committing to this duplicitous argument at the hearing.

Based on the above, the Court finds that Plaintiff's counsel is at fault for allowing Simzar's deceptive testimony and disclaiming any deception, undermining the integrity of judicial proceedings and casting serious doubt about whether counsel and Plaintiff's principals would obey the Court's orders. These extraordinary circumstances have rendered it impossible for the Court to lend credence to any of Plaintiff's positions or the good faith of counsel. Thus, the Court considers the propriety of terminating sanctions, weighing the other Halaco factors. 843 F.2d at 380.

*4 As to the lesser sanctions inquiry, courts consider (1) the feasibility of less drastic sanctions and why such alternate sanctions would be inappropriate, (2) whether alternative sanctions had been implemented before dismissal, and (3) whether the court already warned the party of the possibility of dismissal. See Anheuser-Busch, 69 F.3d at 352. However, a district court need not consider alternative sanctions or any prior warnings where the conduct is egregious. Malone v. U.S. Postal Serv., 833 F.2d 128, 132 (9th Cir. 1987).

The Court has not had occasion to warn Plaintiff that procedural misconduct would result in terminating sanctions, nor has the Court previously ordered sanctions. See Anheuser-Busch, 69 F.3d at 352. While the absence of prior warnings or sanctions supports lesser sanctions, the Court finds the circumstances here to be adequately egregious to merit dismissal. See Malone, 833 F.2d at 132. Counsel's refusal to correct Simzar's blatantly misleading deposition testimony at the deposition, during the course of litigation, or at the hearing constitutes an egregious pattern of deception rendering it impossible to conduct “trial with any reasonable assurance that the truth would be available.” Anheuser-Busch, 69 F.3d at 352.

In any event, less drastic sanctions would be inappropriate in this matter. If the Court were to exclude the testimony of Simzar at trial, Plaintiff would still retain the benefit of Javeherian's testimony. Given Javaherian's position as member of Skylane and co-owner of Channel, (Kalunian Decl. Ex. C, at 21; Kalunian Decl. Ex. F, at 37, ECF No. 69-6), Javaherian could ostensibly testify as to most if not all of the same topics to which Simzar could testify. In other words, exclusion of Simzar would be no sanction at all without the exclusion of Javaherian. But excluding Javaherian's testimony would be inappropriate, as Defendant has not alleged any wrongdoing by Javaherian. Thus, striking Simzar's testimony is an inadequate sanction.

Defendant also suggests the lesser sanctions of issue preclusion and adverse jury instructions “if this case survives summary judgment and goes to trial.” (MFS 20–21.) Specifically, Defendant requests the Court to “deem it conclusively established that the ‘building or structure’ at 12255 Sky Lane was completed no later than March 26, 2019, and preclude Channel from arguing or introducing any evidence ... of any later date of completion.” (Id. at 20.) However, completion on March 26, 2019 would effectively foreclose any possibility of insurance coverage existing on October 28, 2019, the date of the Getty Fire, because both parties agree that coverage ceased 90 days after the completion of construction. (See MFS 8; MFS Opp'n 11.) And as to an adverse jury instruction, the Court finds that such a sanction would be inadequate to cure the prejudice to Defendant given the lack of certainty that Plaintiff's principal or counsel would make the truth available at trial. See Anheuser-Busch, 69 F.3d at 352. Accordingly, neither issue preclusion nor an adverse jury instruction is an appropriate alternative to dismissal.

Exclusion of testimony “would only unburden [Defendant] of their difficult cross-examination,” and ordering issue preclusion “would not compensate [Defendant] for the extensive resources it expended” proving up the date of completion before discovering the notice of completion. Englebrick v. Worthington Indus., Inc., 620 F. App'x 564, 567 (9th Cir. 2015) (affirming dismissal as a sanction for perjury committed during pretrial proceedings about a topic essential to the defense); cf. Combs v. Rockwell Int'l Corp., 927 F.2d 486, 488 (9th Cir. 1991) (“Dismissal is an appropriate sanction for falsifying a deposition.”). Accordingly, the egregiousness of counsel's conduct along with the futility of lesser sanctions render this factor in favor of dismissal.

*5 Due process requires courts to consider whether there is “a relationship between the sanctioned party's misconduct and the matters in controversy such that the transgression threatens to interfere with the rightful decision of the case.” Anheuser-Busch, 69 F.3d at 348 (internal quotation marks omitted); see also Halaco, 843 F.2d at 381. Here, there is a “close nexus” between Simzar's misleading testimony, counsel's misconduct, and the merits of Plaintiff's case. Anheuser-Busch, 69 F.3d at 355. Whether Plaintiff had ever obtained a notice of completion is germane, if not dispositive, to whether construction had completed. See N. Am. Capacity Ins. Co. v. Claremont Liab. Ins. Co., 177 Cal. App. 4th 272, 285–87 (2009). Even if Plaintiff would not present the notice of completion as affirmative evidence in its case-in-chief, there can be little doubt that the document implicates the merits of its case, as the notice of completion is key evidence for Defendant. Simzar's deceptive deposition testimony, which Plaintiff's counsel effectively propagated, allows the reasonable inference that Plaintiff's “case is lacking in merit.” Anheuser-Busch, 69 F.3d at 366 (internal quotation marks omitted). Therefore, due process concerns are not implicated in the imposition of terminating sanctions. See id.

While this factor is “purely optional” in this analysis, Halaco, 843 F.2d at 382, “it is an important factor that the district court should weigh before granting the extreme sanction of dismissal,” United States v. Nat'l Med. Enters., Inc., 792 F.2d 906, 913 (9th Cir. 1986). The prejudice inquiry “looks to whether the [opposing party's] actions impaired [the movant's] ability to go to trial or threatened to interfere with the rightful decision of the case.” United States ex rel. Wiltec Guam, Inc. v. Kahaluu Constr. Co., Inc., 857 F.2d 600, 604 (9th Cir. 1988). The notice of completion serves as key evidence, which is sufficient to resolve the factual question of the date a construction project is completed. N. Am. Capacity Ins. Co., 177 Cal. App. 4th at 285–87. Counsel's apparent ratification of Simzar's deceptive deposition prevented Defendant from locating and obtaining the notice of completion but for Defendant's own fortuitous investigation. (MFS 12–14.) Without the notice of completion, Defendant may have been left without key evidence in support of its motion for summary judgment and defense-in-chief. Thus, Simzar's and counsel's conduct threatened to interfere with the rightful decision of the case. The prejudicial factor weighs strongly in favor of dismissal.

Defense counsel stated at the hearing that by filing a notice of completion, Simzar and Javaherian were either “defrauding the bank by getting their last payment and defrauding all their subcontractors by shortening their mechanic lien time, or they're defrauding QBE.” While the Court stops short of imputing fraud on the part of Plaintiff, it appears that defense counsel raised a salient point. Weighing the Halaco factors and the conduct of counsel in light of Simzar's plainly misleading deposition testimony, the Court finds that terminating sanctions are warranted.

B. Attorneys' Fees

District courts possess the inherent power to award attorneys' fees “in response to attorney misconduct in litigation.” Toombs v. Leone, 777 F.2d 465, 471 (9th Cir. 1985) (citing Roadway Express, Inc. v. Piper, 447 U.S. 752, 766 (1980)). Monetary sanctions are appropriate where counsel “willfully abuse judicial processes.” Roadway Express, 447 U.S. at 766. The decision to impose sanctions is discretionary. Air Separation, Inc. v. Underwriters at Lloyd's of London, 45 F.3d 288, 291 (9th Cir. 1995). Before imposing a monetary sanction, a court must afford an opportunity to demonstrate the sanctionable actions were “not undertaken recklessly or willfully.” Toombs, 777 F.2d at 472.

In its discretion, the Court declines to award attorneys' fees and costs. The severe sanction of dismissal is adequate to remedy counsel's blameworthy and misleading conduct. As to the allegedly spoliated production, the Court accepts as true that Plaintiff's counsel's error was a careless oversight rather than a bad faith attempt to withhold key evidence.[2] Without more, the Court is unpersuaded to use its inherent power to impose the additional sanctions of attorneys' fees and supplant the American Rule in this action. See Chambers v. NASCO, Inc., 501 U.S. 32, 50 (1991).

V. CONCLUSION

*6 Defendant's motion for terminating sanctions is granted in significant part, and the action is dismissed with prejudice. The Court declines to impose monetary sanctions on Plaintiff. Defendant's motion for summary judgment and motion to exclude are denied as moot. The Clerk is directed to enter judgment against Plaintiff and close the case.

IT IS SO ORDERED.