B. Inherent Authority

District courts also have “the inherent authority to impose sanctions for bad faith, which includes a broad range of willful improper conduct.” Fink v. Gomez, 239 F.3d 989, 992 (9th Cir. 2001). When acting pursuant to its inherent authority to impose a sanction, “the district court must find either: (1) a willful violation of a court order; or (2) bad faith.” America Unites for Kids v. Rosseau, 985 F.3d 1075, 1090 (9th Cir. 2021). This power, however, “must be exercised with restraint and discretion.” Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1991). It is the moving party's burden to demonstrate that the conduct constituted or was tantamount to bad faith. Lofton v. Verizon Wireless (VAW) LLC, 308 F.R.D. 276, 285 (N.D. Cal. 2015).

Moreover, when, as here, terminating sanctions are sought, courts must weigh the following factors prior to imposing the requested sanction: (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. Natural Beverage Distribs., 69 F.3d 337, 348 (9th Cir. 1995). The Court does not need to make explicit findings regarding each of the five factors, but a finding of “willfulness, fault, or bad faith” is required for dismissal or default judgment to be proper. Id. “Where a party so damages the integrity of the discovery process that there can never be assurance of proceeding on the true facts, a case dispositive sanction may be appropriate.” Conn. Gen. Life Ins. Co., 482 F.3d at 1096 (citations omitted).

*3 The Heits allege four instances of misconduct warrant terminating sanctions: Mr. and Ms. Livingston's false statements in their declarations, Ms. Livingstons’ failure to produce the blank email, Mr. Livingston's deletion of text messages, and their failure to respond to discovery requests. At the outset, any claim that the defendants have not fully responded to any discovery request should have been raised pursuant to the Court's discovery dispute procedures and, if necessary, a motion to compel. The Court will not entertain the argument that these alleged failures warrant terminating sanctions when the Heits have failed to comply with these procedures. See Scheduling Order at 4–5, Dkt. 29 (describing procedures for resolving discovery disputes and instructing that parties may not file discovery motions unless they have complied with those procedures).

Additionally, terminating sanctions for spoliation of the text messages is only appropriate if the Heits can meet the requirements of Rule 37(e). This rule, “by its terms, precludes a court from resorting to inherent authority to evade its strictures.” Gregory v. State of Montana, 118 F.4th 1069, 1079 (9th Cir. 2024). Indeed, Rule 37(e) “forecloses reliance on inherent authority or state law to determine when certain measures should be used.” Id. (quoting Fed. R. Civ. P. 37(e) advisory committee's notes to 2015 amendment) (emphasis in original). The Court will begin its analysis with Rule 37(e) before considering sanctions under its inherent authority.

A. Rule 37(e)

Turning first to the analysis under Rule 37(e). The Heits argue that Mr. Livingston's deletion of text messages amounts to spoliation of evidence. For the purposes of this motion, the Court will assume the text messages are lost.[2] Because the Heits seek default judgment as the remedy for spoliation, they must make the additional showing “that the loss was caused by the party's intent to deprive its adversary of the information for use in the litigation.” Rule 37(e)(2). “On its face, that is a demanding specific-intent standard.” Gregory, 118 F.4th at 1080. The Ninth Circuit has instructed that this intent “is most naturally understood as involving the willful destruction of evidence with the purpose of avoiding its discovery by an adverse party.” Jones v. Riot Hospitality Group LLC, 95 F. 4th 730, 735 (9th Cir. 2024). Moreover, negligent or even grossly negligent conduct does not support the imposition of the severe sanctions contemplated in Rule 37(e)(2), including default judgment. Fed. R. Civ. P. 37 advisory committee Notes to the 2015 Amendment.

The Heits cannot meet this standard. At best, they can demonstrate Mr. Livingston's text message management was negligent. Mr. Livingston explains that he accidentally deleted entire text message conversations while attempting to delete single messages to save space. Scott Livingston Decl. at ¶¶ 11–12, Dkt. 36-4. The Heits argue this deletion was intentional. However, nothing in the record supports this conclusion. Certainly, the Heits cannot be expected to produce any direct evidence of intent, as such evidence is rare in cases of spoliation. Jones, 95 F.4th at 735. Nonetheless, there must be circumstantial evidence supporting the conclusion that the destruction was intentional, including the timing of destruction, affirmative steps taken to delete evidence, and selective preservation. Id.

*4 Here, it is unclear when the texts were deleted. While Mr. Livingston did take affirmative steps to delete the messages, i.e. he deleted them rather than failed to save them from automatic deletion, there is no evidence he selectively preserved evidence. Indeed, the statements of an attorney associated with defense counsel confirm the Mr. Livingston seems to have deleted a large number of entire text histories with his contacts. Owens Decl. at ¶ 4, Dkt. 33-2. The number of deleted conversations suggests that Mr. Livingston did not intend to delete his messages with Mr. Wells to deprive the Heits of access to those messages, but rather out of carelessness or negligence. Accordingly, the Heits’ motion for terminating sanctions pursuant to Rule 37(e) is denied.

B. Inherent Authority

Turning next to the Court's inherent authority to impose sanctions. The Heits claim that the Court should strike the Livingstons’ answer and enter a default judgment against them pursuant to its inherent authority. As discussed above, the relevant conduct for the purposes of this motion is Mr. and Ms. Livingston's signing of declarations containing inaccurate statements and Ms. Livingston's failure to produce an email between her and Mr. Wells. The Court will consider whether this conduct was willfully disobedient or in bad faith before turning to the Anheuser-Busch factors.

1. Willful Disobedience or Bad Faith

When imposing a sanction pursuant to its inherent authority, “the district court must find either: (1) a willful violation of a court order; or (2) bad faith.” America Unites for Kids, 985 F.3d at 1090. Bad faith includes “conduct done vexatiously wantonly, or for oppressive reasons,” and “requires proof of bad intent or improper purpose.” Id. In contrast, willful disobedience “does not require proof of mental intent such as bad faith or improper motive, it is enough that a party acted deliberately.” Evon v. Law Offices of Sidney Mickell, 688 F.3d 1015, 1035 (9th Cir. 2012) (defendant “knew the protective order was in place and that filing without redacting the confidential information constituted a violation.”).

The Heits do not identify any Court order that the Livingstons allegedly violated. That means any claim for sanctions must be based on conduct that “constituted or was tantamount to bad faith.” Primus Auto. Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 648–50 (9th Cir. 1997) (quoting Roadway Exp., Inc. v. Piper, 447 U.S. 752, 767 (1980)). “[M]ere recklessness, without more, does not justify sanctions under a court's inherent power.” Fink, 239 F.3d at 993–94.

The Heits have not demonstrated that the Livingstons’ conduct constituted or was tantamount to bad faith. Indeed, the context surrounding the signing of the declaration belies any claim of bad faith. To resolve an ongoing discovery dispute, the Livingstons volunteered to sign declarations that they produced all the relevant material in their possession. George Decl. at ¶ 9, Dkt. 33-1. When defense counsel sent the proposed declarations to Mr. Heit, he modified the declarations to include specific statements that at the time he knew to be false. George Decl., Exhibit F, Dkt. 33-1. When the Livingstons signed the declarations, the Heits brought the present motion. The Court cannot conclude that by signing the declarations, the Livingstons acted in bad faith. The Heits, again, have not pointed to any evidence that supports the conclusion that the Livingstons’ conduct was anything other than carelessness. To be sure, the Livingstons and, to an extent, defense counsel were somewhat careless with how they handled these declarations. They should have been modified or not signed. Nonetheless, this carelessness is a far cry from the type of bad faith that warrants terminating sanctions.

*5 The same is true of Ms. Livingston's failure to produce the blank emails between her and Mr. Wells. Ms. Livingston explains she did not think she needed to produce the email since there were no text in the body of the email and the contract attached to the emails were already produced. Shari Livingston Decl. at ¶¶ 3–6, Dkt. 33-4. There is no indication the failure to produce these emails was the result of bad faith.

2. Anheuser-Busch Factors

Even if the Livingstons acted in bad faith, the Anheuser-Busch factors clearly militate against imposing terminating sanctions. Before imposing terminating sanctions, the Court must consider: (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, 69 F.3d at 348.

Here, the alleged misconduct has not resulted in any delays to this litigation, nor has it significantly burdened the courts dockets, both of which weigh against imposition of terminating sanctions. The fourth factor, as it always does, weighs against terminating sanctions. Dreith v. Nu Images, Inc., 648 F.3d 779, 788 (9th Cir. 2011). Although the Heits claim they will suffer prejudice in the absence of severe sanctions, the Court is not convinced. Any misconduct is limited and, in part, manufactured by the plaintiff. The Livingstons have produced other material related to the separate tram. There is no prejudice resulting from Ms. Livingstons failure to produce the blank emails as they have now been produced. See George Decl. Ex. G, Dkt. 33-1. Moreover, any prejudice resulting from the declarations is rather limited because the Heits appears to have been aware that some of the statements in the declaration were untrue at the time they proposed the changes and, as such, did not rely on the declarations. George Decl. Ex. F, Dkt. 33-1. To the extent the Heits will suffer some prejudice it is not sufficient to outweigh the other factors.

The final factor, the availability of less drastic sanctions, weighs against terminating sanctions. Default judgment is a drastic remedy. The Heits have not raised any discovery disputes with the Court and there does not appear to be any pattern of abuse. This motion comes down to the failure to produce one email and the signing of inaccurate declarations at the Heits’ insistence. This misconduct, without more, simply does not justify terminating sanctions. That said, the rather lax approach Mr. and Ms. Livingston appear to have taken to signing the declarations is certainly concerning to the Court and may be relevant to the Livingstons’ credibility. Nonetheless “the ordinary adversary process of litigation is an adequate remedy’ for [their] purported lies.” Chrome Dex, Inc. v. Elysium Health, Inc., 535 F. Supp. 3d 906, 912 (C.D. Cal. 2021) (finding impeachment at trial an adequate remedy where perjured deposition testimony about cocaine use by Plaintiff's co-founders lacked nexus to fraudulent inducement and patent claims). At trial, the Heits would have the opportunity to cross examine Mr. and Ms. Livingston about their declarations and the accuracy of their statements.[3] The jury can then assess credibility and decide the proper weight to accord their testimony. “This is sufficient ‘to protect the orderly administration of justice and the integrity of these proceedings.’ ” Tsatas v. Airborne Wireless Network, Inc., No. 2:20-cv-02045-RFB-BNW, 2024 WL 4892571, at *5 (Nov. 26, 2024).

*6 Default judgment is a “sanction[ ] of last resort” and “run[s] counter to the strong public policy of deciding cases on their merits and affording litigants their fair day in court.” General Atomic Co. v. Exxon Nuclear Co., 90 F.R.D. 290, 307 (S.D. Cal. 1981). The Heits have not established such a severe sanction is warranted in this case. Accordingly, the Court will deny the motion.

C. Attorney's Fees

Finally, the Livingstons’ request the Court award them their reasonable attorney's fees incurred in responding to this motion. They argue the Heits’ brought their motion based, in part, on Rule 37 which authorizes attorney fees for the prevailing party on a motion under the Rule. Indeed, Rule 37(a)(5)(B) and Rule 37(b)(2)(C) permit the Court to award the party opposing a motion to compel disclosure or discovery or motion for sanctions for failure to comply with a court order unless “the motion was substantially justified or other circumstances make an award of expenses unjust.” Fed. R. Civ. 37(a)(5)(B). While the Heits’ motion relied, in part, on Rule 37(e), it is unclear whether this subsection provides for fee shifting to the prevailing party. Nonetheless, even if such fee-shifting is appropriate, the Court finds that the Heits’ motion under Rule 37(e) was substantially justified. Mr. Livingston clearly deleted the text messages, even if that conduct does not ultimately warrant terminating sanctions. Accordingly, the request for fees is denied.

IT IS ORDERED that Plaintiffs’ Motion for Default Judgment (Dkt. 32) is DENIED.