*1 Before the Court are two motions: (1) Defendants/Counterclaimaints' OMG Girlz LLC, Grand Hustle LLC, Pretty Hustle, LLC, Tameka Harris, and Clifford Harris (collectively “the Grand Parties”) motion for evidentiary sanctions and permitting adverse inferences against Plaintiff MGA Entertainment, Inc. (“MGA”) for willful failure to preserve evidence, (Dkt. Nos. 190, 205); and (2) MGA's motion to strike the Grand Parties' motion for sanctions. (Dkt. No. 226). The parties appeared for oral argument on January 5, 2023.

For the following reasons, the Court DENIES the motions.

A popular toy company, MGA, known for its successful “Bratz” dolls, released a line of toy dolls that is alleged to have imitated the image and likeness of members of a female vocal group, the “OMG Girlz.” (See generally Third Amended Counterclaims (“TACC”), Dkt. No. 63).

In 2016, MGA released a new line of dolls called “L.O.L. Surprise!” (the “LOL Tots”) In 2019, MGA released another line of dolls called “L.O.L. Surprise! O.M.G.” (the “OMG Dolls”), which are the subject of this action. The Grand Parties allege that the OMG Dolls copied the OMG Girlz's distinctive physical appearance, hair styles, and dress. (TACC ¶ 5). MGA disputes this, explaining that the OMG Dolls were meant to be “big sister” versions of the LOL Tots. (See First Amended Complaint (“FAC”) ¶ 18, Dkt. No. 16).

On December 8, 2020, the Grand Parties sent MGA a cease-and-desist letter, placing MGA on notice of potential trademark and trade dress infringement. (Dkt. No. 169-13). Two weeks later on December 22, 2020, the Grand Parties sued. (Dkt. No. 1).

Originally, discovery was scheduled to close on February 18, 2022 and trial set for June 7, 2022. (Dkt. Nos. 18–19). At the time, the Grand Parties were concerned with the lack of discovery MGA had provided. (Declaration of Erin R. Ranahan (“Ranahan Decl.”), ¶ 5, Dkt. No. 190-1). The Grand Parties moved ex parte for a 58-day extension on fact discovery. (Dkt. No. 82). The Court granted the motion. (Dkt. No. 88). Accordingly, fact discovery was to close on April 13, 2022, and the deadline for law and motion was June 13, 2022. (Id.). Trial was set for August 2, 2022. (Id.).

Between February and April, the Grand Parties continued to seek further documents and depose witnesses, often asking MGA whether MGA had implemented a litigation hold. (See Ranahan Decl. ¶¶ 6–20). MGA continued to produce documents until May 16, 2022. (Opp'n to Mot. Strike 6, Dkt. No. 258).

On May 25, 2022, the Grand Parties moved for sanctions—one month after the close of discovery. (Dkt. No. 190). MGA opposed. (Dkt. No. 225). The Grand Parties replied. (Dkt. No. 257). Additionally, MGA moved to strike the motion for sanctions. (Dkt. No. 226). The Grand Parties opposed. (Dkt. No. 258). MGA replied. (Dkt. No. 281).

Spoliation is “the destruction or significant alteration of evidence, or the failure to preserve property for another's use as evidence, in pending or future litigation.” Kearney v. Foley & Lardner, LLP, 590 F.3d 638, 649 (9th Cir. 2009).

*2 The obligation to preserve relevant evidence attaches when litigation is “pending or reasonably foreseeable.” Sunrider Corp. v. Bountiful Biotech Corp., 2010 WL 4590766, at *29 (C.D. Cal. Oct. 8, 2010) (citing Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 216 (S.D.N.Y. 2003)); see also United States v. Kitsap Physicians Serv., 314 F.3d 995, 1001 (9th Cir. 2002) (finding no spoliation because the defendant was not on notice of a “future, specific” lawsuit). Courts in the Ninth Circuit generally agree that this duty is triggered “[a]s soon as a potential claim is identified.” Apple, Inc. v. Samsung Elecs Co., 888 F. Supp. 2d 976, 991 (N.D. Cal. 2012) (citations omitted). This duty to preserve extends to evidence that parties knew or should have known was relevant or may be relevant to future litigation. Kitsap, 314 F.3d at 1001; Sunrider Corp., 2010 WL 4590766, at *29; see also Wm. T. Thompson v. Gen. Nutrition Corp., 593 F. Supp. 1443, 1455 (C.D. Cal. 1984) (“Sanctions may be imposed against a litigant who is on notice that documents and information in its possession are relevant to litigation, or potential litigation, or are reasonably calculated to lead to the discovery of admissible evidence, and destroys such documents and information.”); In re Napster, 462 F. Supp. 2d at 1066 (“If a party breaches its duty to preserve evidence, the opposing party may move the court to sanction the party destroying evidence.”)

The moving party bears the burden to show spoliation by a preponderance of the evidence. See United States v. Kitsap Physicians Serv., 314 F.3d 995, 1001 (9th Cir. 2002); Colonies Partners L.P. v. Cty. of San Bernardino, No. 5:18-cv-00420, 2020 U.S. Dist. LEXIS 56922, at *6 (C.D. Cal. Feb. 27, 2020).

Upon a finding of spoliation, courts have discretion to employ a variety of sanctions, including monetary sanctions, evidentiary sanctions, civil contempt sanctions, and contempt sanctions. In re Napster, 462 F. Supp 2d 1060, 1066 (N.D. Cal. 2006) (citations omitted); see also Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, 685 F. Supp. 2d 456, 469 (S.D.N.Y. 2010) (“The choices include—from least harsh to most harsh—further discovery, cost-shifting, fines, special jury instructions, preclusion, and the entry of default judgment or dismissal (terminating sanctions).”). But a party's “motive or degree of fault is relevant to determine what sanction to impose.” In re Napster, 462 F. Supp 2d at 1066. Spoilation sanctions should be “commensurate” to the party's motive or degree in fault. See Apple, 888 F. Supp. 3d at 992–93.

The Grand Parties seek an adverse-inference instruction and preclusion sanctions based on missing documents related to the design of the OMG Dolls. (Mot. 24–26, Dkt. No. 190).

MGA argues that the Grand Parties' motion for sanctions is untimely for the following two reasons. First, assuming the motion is a discovery motion, the motion should be considered late because was filed after the close of discovery and discovery motion deadlines. (Mot. Strike 8, Dkt. No. 226). Second, assuming that the motion is not a discovery motion, it should still be considered late because it is set to be heard after the last day to hear motions. (Id. at 10).

District judges have the authority to decide spoliation motions even though the Magistrate Judge typically handles a majority of discovery issues. E.g., Karma Auto. LLC v. Lordstown Motors Corp., No. 8:20-cv-02104 (C.D. Cal. Sept. 21, 2022). The remedies that a moving party seeks in a spoliation motion can be case-dispositive and therefore involve substantive questions of litigation misconduct to be resolved by a district judge. See id.

The deadline by which parties must bring a spoilation motion is unsettled within the Ninth Circuit. Compare Mannion v. Ameri-Can Freight Sys., 2020 U.S. Dist. LEXIS 12695, at *9 (D. Ariz. 2020) (“Spoliation is a discovery offense, so issues surrounding alleged spoliation should be resolved during discovery—not on the eve of trial.”); In re Rhabarian, No. 2:10-cv-00767, 2014 U.S. Dist. LEXIS 17265, at *7 (E.D. Cal. Feb. 7, 2014) (“[T]he time to raise these issues was during discovery, and not after the deadline for dispositive motions.”); EEOC v. Autozone, Inc., No. CV 06-926, 2008 U.S. Dist. LEXIS 69472, at *16 (D. Ariz. Sep. 10, 2008) (denying spoilation motion that “came well after” discovery deadline”), with Mahboob v. Educ. Credit Mgmt. Corp., No. 15-cv-0628, 2021 U.S. Dist. LEXIS 38309, at *4 (S.D. Cal. Mar. 1, 2021) (adopting more “permissive” standard that spoliation motions “should be filed as soon as reasonably possible after discovery of the facts that underlie the motion”), Sherwin-Williams Co. v. JB Collision Servs., No. 13cv1946, 2015 U.S. Dist. LEXIS 87439, at *4 (S.D. Cal. July 3, 2015); and Wine Educ. Council v. Ariz. Rangers, No. CV-19-02235, 2021 U.S. Dist. LEXIS 151140, at *5 (D. Ariz. Aug. 11, 2021) (declining to specify the operative standard but striking the motion under either stricter or permissive test).

*3 The Court concludes a party seeking sanctions based on spoilation after the close of discovery and discovery deadlines must file within a reasonable time after the discovery of facts that underlie the motion. Mahboob, 2021 U.S. Dist. LEXIS 38309, at *4. Accordingly, the Court declines to strike the Grand Parties' motion for sanctions for untimeliness. While the Grand Parties certainly delayed in bringing the motion, it was not brought on the eve of trial and was brought within a reasonable time after discovering the “facts that underlie the motion.” Id. The Grand Parties explain their delay as reasonable because it was filed “just over one week” after MGA finished producing documents on May 16. (Opp'n Mot. Strike 6, Dkt. No. 258). The basis for the Grand Parties' spoilation claim is that MGA failed to institute a litigation hold and performed a shoddy job searching and collecting relevant records, resulting in the Grand Parties' inability to discover necessary information. (See Mot. Sanctions, Dkt. No. 190). Therefore, it is not unreasonable for the Grand Parties to have waited until after MGA completed production to have brought its motion. The Court finds the one-week delay insufficient to strike the Grand Parties' motion as untimely.

MGA contends that Federal Rule of Civil Procedure 37(e), which governs sanctions based on lost electronically stored information (“ESI”) such as e-mails and text-messages, exclusively governs the instant motion, rather than the Court's inherent authority. Thus, it argues, the motion should be denied entirely. (See Opp'n 7).

Courts have consistently held that a party that has despoiled evidence can be sanctioned by a district court under two sources of authority: “the inherent power of federal courts to levy sanctions in response to abusive litigation practices, and the availability of sanctions under Rule 37 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) (internal quotations and citations omitted).

Rule 37(e) was amended in 2015,[1] which conditioned granting an adverse inference instruction “only upon finding that the party acted with the intent to deprive another party of the information's use in the litigation.” Fed. R. Civ. P. 37(e)(2). The Advisory Notes state that the amendment “therefore forecloses reliance on inherent authority ... to determine when certain measures should be used [to employ if electronically stored information that should have been preserved is lost].” Fed. R. Civ. P. 37(e) advisory committee's note to 2015 amendments. They also state that “negligent or even grossly negligent behavior” cannot support an adverse-inference instruction. Id.

Whether a party may bring a spoliation motion under the courts' inherent authority, even after the 2015 amendment to the Federal Rules, is an unresolved question within the Ninth Circuit. The Ninth Circuit in an unpublished decision in Newberry v. County of San Bernardino, 750 F. App'x 534, 537 (9th Cir. 2018) did not answer the question directly but analyzed the party's spoliation claim under Rule 37(e), despite acknowledging that the parties framed the issue under the court's “inherent authority.” The courts within the Central District are split as to what authority a party may bring sanctions under. See Colonies Partners L.P. v. Cty. of San Bernardino, No. 5:18-cv-00420, 2020 U.S. Dist. LEXIS 56922, at *5 n.2 (C.D. Cal. Feb. 27, 2020) (collecting cases).

The Court disagrees with MGA that the entire motion must be denied because it is “premised and analyzed under an outdated standard.” (Opp'n 7). The Court generally agrees with Hugler v. Southwest Fuel Management, No. 16 CV 4547, 2017 U.S. Dist. LEXIS 225593, at *22–23 (C.D. Cal. May 2, 2017) that “the Supreme Court's authority cannot be limited by a body such as the Advisory Committee.” The Supreme Court has “long recognized” federal courts' inherent power impose sanctions for the bad-faith conduct cannot be “displace[d].” Chambers v. NASCO, 501 U.S. 32, 46 (1991). Therefore, the Court has the authority to review the motion subject to either Rule 37(e) or its inherent authority.

*4 Nevertheless, the Court agrees with the Advisory Notes that “[n]egligent or even grossly negligent behavior” does not logically support an adverse-inference instruction, which is premised on a party's bad faith conduct of intentionally losing or destroying evidence. See Fed. R. Civ. P. 37(e) advisory committee's note to 2015 amendments. Indeed, the plain language of the revised amendment states that “only upon finding that the party acted with intent” should the Court provide an adverse-inference instruction. Fed. R. Civ. P. 37(e)(2) (emphasis added). Thus, Court agrees with MGA that a finding of negligence or even gross negligence, which would have satisfied the imposition of sanctions prior to the 2015 amendment, is insufficient to support an adverse-inference instruction.

MGA's duty to preserve relevant evidence attached on December 8, 2020, when it received the cease-and-desist letter from the Grand Parties alleging infringement and misappropriation. See Blumenthal Distrib., Inc. v. Herman Miller, Inc., No. 14-1926, 2016 U.S. Dist. LEXIS 184932, at *33 (C.D. Cal. July 12, 2016) (finding that the duty attached once the party received a cease-and-desist letter alleging trade dress infringement). The twenty-page letter specifically alerted MGA to its potential liability under the Lanham Act and California Unfair Competition Laws and detailed the claims against it regarding the OMG Girlz line of dolls. (See Declaration of Tameka “Tiny” Harris (“Harris Decl.”), Ex. 13, Dkt. No. 169-13). This was sufficient to place MGA on notice of “future, specific” claims of trademark and trade dress liability.

Accordingly, MGA had a duty to take reasonable steps to preserve material, relevant evidence it should have known would be relevant to litigation.

The Grand Parties do not contend that MGA destroyed or altered any evidence. (See generally Mot. Sanctions, Dkt. No. 190). For instance, they do not argue that emails or digital files were deleted. Rather, they argue that evidence was lost. Specifically, they argue MGA's failure to preserve evidence via a litigation hold, failure to collect evidence, and continued refusal to search for relevant documents conceivably led to the loss of documents. The categories of documents they contend were spoliated are: (1) “inspiration images, including mood boards, for all of the OMG Dolls” in the form of digitally stored reference images; and (2) “consumer and brand surveys and research MGA conducted.” (Reply 5, 14, Dkt. No. 265).

First, the Grand Parties argue that MGA's failure to institute a litigation hold resulted in the spoilation of evidence.

A litigation hold is “often the most appropriate mechanism” to preserve and prevent the unintentional or intentional loss of relevant documents. Colonies Partners L.P. v. Cty. of San Bernardino, No. 5:18-cv-00420, 2020 U.S. Dist. LEXIS 56922, at *21 (C.D. Cal. Feb. 27, 2020) (citing Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003)). This includes suspending any existing policies related to deleting or destroying files. UMG Recordings, Inc. v. Hummer Winblad Venture Partners (In re Napster, Inc. Copyright Litig.), 462 F. Supp. 2d 1060, 1070 (N.D. Cal. 2006).

A company cannot merely instruct its employees to not delete files and call it a day; it must take meaningful steps to ensure that its preservation and retention policies are carried out. See, e.g., Apple Inc., 888 F. Supp. 2d at 992 (finding that sending out litigation hold notices and conducting training with key employees “fell short” of its duty to preserve evidence because the company failed to ensure that its employees complied with instructions and failed to suspend its automatic destruction policy); In re Napster, 462 F. Supp. 2d at 1070 (“The obligation to retain discoverable materials is an affirmative one ....”); Ramos v. Swatzell, No. 121089, 2017 WL 2857523, at *6 (C.D. Cal. June 5, 2017) (noting that a party must take appropriate steps to carry out its litigation hold); see also Montoya v. Orange Cty. Sheriff's Dep't, No. 11-1922, 2013 U.S. Dist. LEXIS 180682, at *26 (C.D. Cal. Oct. 15, 2013).

*5 The failure to institute a litigation hold has been found to be negligent or even grossly negligent. See, e.g., Physicians Healthsource, Inc. v. Masimo Corp., No. 14-00001, 2019 U.S. Dist. LEXIS 228607, at *45 (C.D. Cal. Nov. 21, 2019); Blumenthal Distrib., Inc. v. Herman Miller, Inc., No. 14-1926, 2016 U.S. Dist. LEXIS 184932, at *54 (C.D. Cal. July 12, 2016); Montoya, 2013 U.S. Dist. LEXIS 180682, at *25–26; Qualcomm Inc. v. Broadcom Corp, 2008 WL 66932, at *9 (S.D. Cal. Jan. 7, 2008). Compare Montoya, 2013 U.S. Dist. LEXIS 180682, at *25–26, 39 (finding failure to implement litigation hold or take any action at all to preserve evidence as grossly negligent); Richard Green (Fine Paintings) v. McClendon, 262 F.R.D. 284, 290 (S.D.N.Y. 2009) (“[T]he failure to implement a litigation hold is, by itself, considered grossly negligent behavior”); with Surowiec v. Capital Title Agency, Inc., 790 F. Supp. 2d 997, 1007 (D. Ariz. 2011) (declining to find that the failure to issue a litigation hold constitutes gross negligence per se).

MGA admits to the failure of instituting a litigation hold at the outset of this lawsuit. (Declaration of Ben Johnson (“Johnson Decl.”) ¶ 7, Dkt. No. 272-1). It argues that a litigation hold was unnecessary because of its existing policy of preserving emails and documents. (Id.). MGA's server “never automatically deleted emails.” (Id. ¶ 6). MGA's duty to preserve evidence extended to any evidence directly relevant to trade dress claims. In addition to emails, this includes text messages, digital reference photographs, physical reference photographs, or any documents relating to the inspiration of the OMG Dolls' design. Such evidence is relevant because it tends to show whether MGA misappropriated image and likeness of members the OMG Girlz when designing the dolls.

The evidence cited by the Grand Parties suggests that MGA made little to no effort to ensure that relevant evidence was preserved and recovered in any systematic manner. MGA did not tell witnesses where or how to store or save relevant documents. (Ranahan Decl., Ex. Q, at 200:22–201:14; id. Ex. V, at 121:16–23; id. Ex. X, at 79:15–22.). MGA designers testified [redacted]

As a result, OMG Dolls' designers haphazardly stored documents in a myriad of ways: [redacted] One witness testified [redacted] Others testified [redacted]

Despite knowing this, MGA looked only in two kinds of folders on employees' work computers. (See generally id., Ex. U). No efforts were undertaken to recover digital files elsewhere, including asking designers to turn over documents they [redacted] or searching for [redacted] that designers used. (See generally id. Ex. V; id. Ex. X).

Based on the foregoing evidence, the Court concludes that MGA's conduct was at least negligent.

Second, the Grand Parties argue that MGA willfully failed to search for responsive documents by running only 16 search terms against witnesses, which omitted witnesses from MGA's initial disclosures. (See Mot. 21; Ranahan Decl. ¶¶ 7–8). They contend that this constituted a willful failure to search for relevant documents because MGA should have agreed to conduct “independent collections outside of its search terms,” given that MGA should have known that running the terms across an improperly preserved and collected pool of documents would also produce incomplete results. (Mot. 21).

Even assuming that the foregoing conduct amounted to gross negligence, Grand Parties have failed to establish that it was more likely than not that MGA's failure to preserve evidence actually led to lost or destroyed evidence. At most, they show only the mere potential of missing or lost evidence, which is too attenuated to support a finding of spoilation of evidence.

*6 Spoliation is “the destruction or significant alteration of evidence, or the failure to preserve property for another's use as evidence, in pending or future litigation.” Kearney, 590 F.3d at 649. “Mere speculation” that “other deleted documents may exist that might be helpful to a party's case is ... an insufficient basis for a finding of spoliation.” Reinsdorf v. Skechers U.S.A., Inc., 296 F.R.D. 604, 631 (C.D. Cal. 2013); see also Tri-County Motors, Inc. v. American Suzuki Motor Corp., 494 F. Supp. 2d 161, 177 (E.D. N.Y. 2007) (“[S]peculative assertions as to the existence of documents” do not support a spoliation finding).

A finding of spoilation requires some showing of “lost” or “missing” evidence resulting from the failure to preserve evidence, not just the mere possibility of lost evidence. See Asfaw v. Wal-Mart Stores, Inc., No. 2:19-cv-01292, 2021 U.S. Dist. LEXIS 95014, at *3–7 (D. Nev. May 19, 2021) (declining to find spoliation when a defendant failed to preserve video footage and plaintiff argued that the failure to preserve “would likely have shown [relevant] evidence”); U.S. E.E.O.C. v. Wedco, Inc., 2014 U.S. Dist. LEXIS 130929, 2014 WL 4635678, at *4 (D. Nev. Sept. 15, 2014) (“A party moving for spoliation sanctions is not entitled to have the Court agree with broad inferences of spoliation based on nothing more than speculation.”).

Here, there is no evidence to suggest that MGA's negligence actually led to the loss of any evidence. The Court is left only with broad inferences of spoliation or the possibility of lost relevant evidence. The only evidence the Grand Parties cite is the discovery of a survey produced through a third party, (Declaration of Erin Ranahan (“Ranahan Decl.”), Ex. BB, Dkt. No. 205-13), which the Grand Parties suggest was destroyed by MGA. They also cite [redacted]

First, MGA confirms that this survey was not destroyed, lost, or deleted. (Opp'n 12). It explains that this document was not produced because it did not believe it was responsive to the Grand Parties' request for production, which did not include the word “consumer insight report” but only “survey” (among other things), whereas the subpoena served on the third party included the word “consumer insight survey.” (Compare Ranahan Decl., Ex. A, at 12, Dkt. No. 190-2 (RFP served on MGA), with Declaration of Elizabeth Lachman (“Lachman Decl.”), Ex. D, at 12, Dkt. No. 228-4). Even if it were responsive, it argues, the document was not relevant because the survey focused on “Rainbow High,” a separate line of dolls brand sold and manufactured by MGA. [redacted]

Having considered MGA's response, the evidence, and the parties' oral arguments, it is apparent that the Grand Parties have failed to show spoliation. The only purported “lost” document was not actually lost. And the Grand Parties also fail to explain why the survey is relevant. The entire survey focused on an entirely different line of dolls with the exception of a single page, featuring a [redacted] (See Ranahan Decl., Ex. BB, at 21).

Nor is there evidence that other documents were lost. Inferences of “questionable” conduct is not enough. The lack of any systematic practices or policies, the scattered storage of relevant documents, or the negligent collection of documents could have possibly led to the Grand Parties' inability to recover evidence relevant to their claims of trade dress infringement. But the Court finds, based on the evidence presented, that such conduct did not likely lead to any spoliation of evidence.

*7 A party may be entitled to an adverse-inference instruction which permits a jury to “draw an adverse inference from the destruction or spoilation” of evidence against the spoilation party responsible for that behavior. Glover v. BIC Corp., 6 F.3d 1318, 1319 (9th Cir. 1993). Courts within the Ninth Circuit apply the three-part test adopted from the Second Circuit when addressing claims of destruction of evidence. See, e.g., Meta Platforms, Inc. v. BrandTotal Ltd., No. 20-cv-07182, 2022 U.S. Dist. LEXIS 100679, at *15–16 (N.D. Cal. May 27, 2022); Reinsdorf, 296 F.R.D. at 626; accord Garcia Miranda v. Wyatt, 677 F. App'x 432, 433 (9th Cir. 2017) (adopting the Second Circuit's test).

A party seeking to impose an adverse-inference instruction based on spoliation of evidence must establish: (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.” Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 101 (2d Cir. 2002).

A court's decision to give an adverse inference jury instruction “is made on a case-by-case basis and commensurate to the spoliating party's motive or degree of fault in destroying the evidence.” Garcia Miranda, 677 F. App'x at 433 (citations and internal quotations omitted). An adverse inference instruction “can take many forms, again ranging in degrees of harshness.” Apple, 881 F. Supp. 2d at 1150 (quoting Pension Comm., 685 F. Supp. 2d at 470). The “more egregious the conduct, the more harsh the sanction.” Id. When relevant evidence is not intentionally lost, a district court may reject an adverse evidentiary inference from the loss. Med. Lab. Mgmt. Consultants v. ABC, 306 F.3d 806, 824 (9th Cir. 2002) (collecting cases).

Here, the Grand Parties are not entitled to an adverse-inference instruction because they have not met their burden in showing that MGA had a “culpable state of mind” when it declined to institute a litigation hold, failed to implement better record-keeping and collection efforts, or failed to search more diligently for relevant records. See BlackBerry Ltd. v. Facebook, Inc., No. 18-1844, 2019 U.S. Dist. LEXIS 239662, at *23 (C.D. Cal. Sep. 30, 2019) (finding lack of intent even though Facebook failed to implement a mandatory litigation hold). At most, it could be said that the Grand Parties acted with gross negligence. But a “culpable state of mind” requires more than a showing of negligence or gross negligence. See Fed. R. Civ. P. 37(e) (specifically requiring a showing of intent with the loss of ESI); Small v. Univ. Med. Ctr., No. 2:13-cv-0298, 2018 U.S. Dist. LEXIS 134716, at *1 (D. Nev. July 31, 2018). Furthermore, it is “improper” to infer “nefarious intent or bad faith” from “ordinary discovery errors.” Reinsdorf, 296 F.R.D. at 615.

The Grand Parties dispute that gross negligence is insufficient to warrant an adverse-inference instruction. (Reply 12). They cite multiple decisions within this District suggesting that gross negligence remains the standard—including of this Court. (Id.). First, Blumenthal Distrib., Inc. v. Herman Miller, Inc., No. 14-1926, 2016 U.S. Dist. LEXIS 184932, at *59 (C.D. Cal. July 12, 2016) did find that the spoliating party “acted willfully and in bad faith.” The same goes for Glaukos Corp. v. Ivantis, Inc., No. 18620, 2020 WL 5914552, at *4–5 (C.D. Cal. July 30, 2020). There, this Court inferred an intent to deprive the moving party of relevant emails—which were destroyed—based on a relevant sequence of events that tended to support such intent. Id. Second, while this Court in Physicians Healthsource, Inc. v. Masimo Corp., No. 14-00001, 2019 U.S. Dist. LEXIS 228607, at *45 (C.D. Cal. Nov. 21, 2019) found that an adverse instruction was warranted even though it found only “gross negligence,” there was evidence of destroyed email accounts and deleted emails. No such evidence exists here. Third, Ramos v. Swatzell, No. 121089, 2017 WL 2857523, at *6 (C.D. Cal. June 5, 2017) fashioned an adverse instruction “somewhere in the lower and middle levels” to account for the lack of deliberate intent but a clear showing of reckless disregard. Id. In that case, the spoliating party failed to preserve an indisputably key document that it should have known would be essential to the case. See id. This Court finds each of these cases sufficiently distinguishable.

*8 Whether or not Rule 37(e) or the Court's inherent power governs this analysis, the logic remains the same: an adverse inference is premised on a party's intentional, bad-faith conduct. This requires more than gross negligence. There must be evidence of intent, such as a willful and conscious disregard of preservation of evidence. The “better rule” for the negligent or grossly negligent loss is “to preserve a broad range of measures to cure prejudice caused by its loss, but to limit the most severe measures to instances of intentional loss or destruction.” Fed. R. Civ. P. 37(e) advisory committee's note to 2015 amendments. Based on the evidence submitted, the Court is not persuaded by the preponderance of evidence that MGA's conduct was undertaken with the intent to deprive the Grand Parties of relevant evidence. At best, it reflects MGA's incompetence.

The Grand Parties are free to present evidence to the jury concerning MGA's failure to institute a litigation hold and lack of systematic practices of collecting records. Likewise, they are free to argue to the jury that such conduct likely led to the loss of relevant information. But the jury is not required to assume that MGA acted with intent and that the loss of information was unfavorable to it. Any adverse inference should be conditioned on a finding of intent, whether the intent finding is made by the jury or the Court.

The Grand Parties also move to preclude MGA from using the “incomplete production of mood boards and other incomplete, nonsystematic collection of reference collection of reference photos to argue that these mean that the OMG Girlz were never referenced by the designers who designed the OMG Dolls.” (Mot. 26). They argue that MGA's conduct prevented them from fully developing their claims and defenses. (Id.).

In order to grant a preclusion sanction, the Court must find that, “given the spoliation, the evidence to be excluded would unfairly prejudice an opposing party.” In re Napster, 462 F. Supp. 2d at 1077 (internal quotations omitted).

The Court finds that preclusion sanctions are unnecessary at this time. In light of the evidence, no spoliation of evidence occurred. At most, it could be said that MGA's negligence in failing to institute a systematic process in preserving reference photos or failure to search for them more rigorously possibly caused the Grand Parties' inability to discover reference photos to support their misappropriation claims.

For the foregoing reasons, the Court DENIES the motions. However, the Court may revisit this issue at trial, when the Court is afforded a fuller factual context to determine the significance of MGA's conduct.

IT IS SO ORDERED.