URBAN TEXTILE , INC., Plaintiff, v. RUE21, INC., et al., Defendants No. CV 14-8285 ODW (FFMx) United States District Court, C.D. California Filed March 09, 2017 Counsel Chan Yong Jeong, Jeong and Likens LC, Los Angeles, CA, for Plaintiff. Adam J. Thurston, Faegre Drinker Biddle and Reath LLP, Los Angeles, CA, Janet Fries, Pro Hac Vice, Drinker Biddle and Reath LLP, Washington, DC, for Defendant Rue 21, Inc. Adam J.Thurston, Faegre Drinker Biddle and Reath LLP, Ryan S. Fife, Drinker Biddle and Reath LLP, Los Angeles, CA, Janet Fries, Pro Hac Vice, Drinker Biddle and Reath LLP, Washington, DC, for Defendant Mark Edwards Apparel, Inc. Mumm, Frederick F., United States Magistrate Judge RECOMMENDATION RE SANCTIONS FOR FAILURE TO COMPLY WITH DISCOVERY ORDER *1 This recommendation is submitted to the Honorable Otis D. Wright II with respect to the sanctions requested by defendants Mark Edwards Apparel, Inc. and rue21 (“Defendants”). I. PROCEDURAL HISTORY On January 9, 2017, Defendants filed a motion seeking issue and evidence sanctions against plaintiff for failure to comply with a discovery order. Judge Wright referred the matter to the undersigned Magistrate Judge on February 6, 2017 for a recommendation. After reviewing the documents filed before Judge Wright, the Court entered an order allowing defendants to explore at a deposition the accuracy of the Declaration of Tae Chong, executed on April 27, 2016, and attached as Exhibit 2 to the Declaration of Adam J. Thurston. (Dkt. 115-2.) The order limited the deposition to not more than three hours focused solely on Mr. Chong's declaration and on whether plaintiff has or ever had in its possession, custody, or control documents required to be produced by this Court's April 7, 2016, order that have not been produced. The order further required the parties to prepare and submit to the Court a joint stipulation addressing the merits of defendants' motion by February 28, 2017. Finally, the Court set a hearing on the motion for March 7, 2017. On February 28, 2017, the parties filed the joint stipulation required by the Court. The crux of Defendants' contentions is that plaintiff failed to conduct an adequate search for the documents subject to the order and failed to produce or allowed to be destroyed some of the records required by the order after the order was entered. II. DOCUMENTS REQUIRED BY THE APRIL 7, 2016 ORDER In response to Defendants' motion to compel, the Court entered an order on April 7, 2016, compelling plaintiff to produce additional documents. Pertinent to the instant motion, the order provided: [With respect to Request for Production Nos. 4 through 17, seeking documents regarding the publication of plaintiff's fabric designs,] [p]laintiff is required to produce documents relating to the initial publication, the first transmission, and the original marketing of the designs in issue in this case. Plaintiff must produce responsive documents, as limited above, regardless of the nomenclature given to the document (e.g., “look book,” “pattern book,” etc.). [With respect to Request for Production Nos. 1, 2, and 18 seeking documents regarding plaintiff's acquisition of the underlying designs and creation of the designs at issue,] [p]laintiff must produce the metadata associated with the electronic files. Moreover, to the extent the native files contain information that will show that Plaintiff made changes to the purchased designs, such native files must be produced as well. Finally, with respect to the log book, Plaintiff need only produce pages that relate to the fabric designs (or their origin or evolution) at issue. (April 7, 2016 Order on Submitted Matter, Dkt. 91.) Although the Court originally entered the order because it considered plaintiff's creation of the designs relevant to the infringement claims, it since has become clear that responsive documents are also relevant to Defendants' contention that plaintiff published the designs before it registered them as “unpublished works.” Defendants have filed a motion for partial summary judgement that is premised on this precise theory. (See Dkt. 113.) In the motion, Defendants maintain that publishing a work before registering it as an unpublished work invalidates the registration and precludes an infringement suit. *2 Defendants argue that emails sent by plaintiff to customers that include copies of designs as attachments would demonstrate a date of publication of the designs. Defendants refer to an order in a prior infringement action filed by plaintiff finding that the transmission of such an email with the design depicted in an attachment constituted a publication. (See Request for Judicial Notice, Ex. A at 6, Dkt. 114-1.) Defendants further argue that metadata associated with plaintiff's Photoshop files would demonstrate the dates that plaintiff completed the designs. According to testimony[1] in the prior infringement action, plaintiff routinely made designs available for public inspection in “Look Books” upon completion of each design. The prior infringement action included a finding that making a design available for public inspection in this manner also constituted a publication. (See Request for Judicial Notice, Ex. A at 6, Dkt. 114-1.) Thus, emails containing designs as attachments, metadata associated with the Photoshop files, and the “Look Books” all would fall within categories of documents required to be produced by the April 7 order. III. RESPONSIVE DOCUMENTS NOT PRODUCED Although the April 7 order required their production, plaintiff has not produced any emails containing designs as attachments, metadata associated with the Photoshop files, or any “Look Books.” Plaintiff denies that it is withholding any documents; rather, plaintiff contends that it has no such documents.[2] The first issue raised by the instant motion, therefore, is whether Defendants have demonstrated that plaintiff has or had possession, custody, or control of these documents. A. The “Look Books” In the prior action, plaintiff testified as to what “Look Books” are, how they were put together, and how customers would peruse them at plaintiff's shop. Plaintiff also produced, at least, the “Chevron Prints” Look Book and the “Ethnic Prints” Look Book. As shown in Defendants' pending motion for partial summary judgment, each of the designs comprising the subject matter of the instant action is contained in these previously produced Look Books. (See SUF 14 in Defendants' Separate Statement of Uncontroverted Facts, Dkt. 113-46.) Having lost the prior litigation, in part, because of its publication of its designs in the Look Books, plaintiff now contends[3] that it does not know what Look Books are and does not maintain any collection of designs for customers' perusal.[4] Plaintiff did produce pages from the “log book” that correspond to 13 designs involved in this litigation. However, plaintiff continues to argue, as counsel did at the hearing on March 7, 2016, that the log book is not a catalog and is not used by clients to select a pattern. Counsel stated that what Defendants were referring to as a Look Book was merely pages of loose documents that plaintiff's principal did not want to throw away so he kept them in folders. (Electronic recording of March 7, 2017 hearing (“ER”) at 11:55:18 - 11:56:00.) *3 Defendants have lodged with the Court the Look Books that were produced in the prior litigation. Those documents are clearly different from the log book pages that have been produced in this litigation by plaintiff. Moreover, they are accompanied by cover pages (“Chevron Prints” and “Ethnic Prints”), demonstrating subsets of a collection. Sworn testimony from plaintiff in the previous action was to the effect that the “Look Book” designs were kept in binders, not that some pages were kept in disparate folders. The Court concludes that the “Look Books” did exist, at least as of the date of their production in the prior litigation. Accordingly, plaintiff either has withheld them or has dispossessed itself of them at some point. The fact that plaintiff continues to deny that they ever existed and has never attempted to demonstrate that they were lost, however, suggests that plaintiff has spoliated this material evidence. B. The Metadata Mr. Chong testified that plaintiff uses Photoshop to create and modify its designs and that it saves the designs electronically on its computer system and on a backup server. (Exhibit 1 to Joint Stipulation at 63:25-64:12, 78:10-25, Dkt. 133-2 at 30 and 36 of 50.) Metadata associated with those files should reveal information regarding the dates the files were created and modified. In the Joint Statement, plaintiff took the position that Mr. Chong did not know what metadata was and therefore did not look for it. (Dkt. 133 at 19-20 of 27.) At the hearing, counsel for plaintiff argued that plaintiff's files are not well organized, that plaintiff has tens of thousands of designs, that the designers who would have been involved in the designs relevant to this action no longer work for the company, and that the designs are constantly changed making it nearly impossible to locate the appropriate Photoshop files. (ER at 11:28:00-11:29:31.) Plaintiff has offered no evidence to support the contention that it would be nearly impossible to find the correct Photoshop files. As stated, Mr. Chong testified that all the designs were created/modified on Photoshop and that those files were saved on a computer system and on a backup server (see supra). Plaintiff has conceded that it conducted no search for the Photoshop files or metadata associated therewith. The Court therefore finds that plaintiff failed to comply with the Court's order. Because the metadata should have shown the created on and modified on dates of the files, its production could have conclusively demonstrated the dates of creation of the designs. Given the prior testimony that the designs were placed in a Look Book after creation, the metadata could have shown an approximate date of publication. C. The emails Mr. Chong testified that plaintiff sends copies of its designs as attachments to emails to prospective customers.[5] At the special deposition taken pursuant to this Court's order, Mr. Chong testified that the designs comprising the subject matter of this action were only sent to California Blue (i.e., the emails that were previously produced, at least in the prior action if not in this action), not to any other customer. (Exhibit 1 to Joint Stipulation Regarding Defendants' Motion for Sanctions at 40:24-41:4, 43:15-19, Dkt. 133-2 at 12 and 15 of 50.) Mr. Chong also testified that he “searched through the emails” to see if the designs had been sent to other customers to no avail. (Id at 41:2-4, Dkt. 133-2 at 13 of 50.) *4 However, Mr. Chong also testified that he only searched three email accounts. The accounts he searched did not even include the account from which the designs admittedly had been sent to California Blue. At the hearing, counsel for plaintiff stated that plaintiff did not have access to the email accounts of its employees. This assertion, made without any evidentiary support, is simply incredible. The Court finds that the evidence shows that plaintiff failed to conduct a diligent search in response to the Court order. IV. STANDARD FOR DETERMINING AN APPROPRIATE SANCTION Federal Rule of Civil Procedure 37(b)(2) provides, in part: (A) For Not Obeying a Discovery Order. If a party or a party's officer, director, or managing agent ... fails to obey an order to provide or permit discovery, including an order under Rule 26(f), 35, or 37(a), the court where the action is pending may issue further just orders. They may include the following: (i) directing that the matters embraced in the order or other designated facts be taken as established for purposes of the action, as the prevailing party claims; (ii) prohibiting the disobedient party from supporting or opposing designated claims or defenses, or from introducing designated matters in evidence; (iii) striking pleadings in whole or in part; (iv) staying further proceedings until the order is obeyed; (v) dismissing the action or proceeding in whole or in part; (vi) rendering a default judgment against the disobedient party; or (vii) treating as contempt of court the failure to obey any order except an order to submit to a physical or mental examination. .... (C) Payment of Expenses. Instead of or in addition to the orders above, the court must order the disobedient party, the attorney advising that party, or both to pay the reasonable expenses, including attorney's fees, caused by the failure, unless the failure was substantially justified or other circumstances make an award of expenses unjust. Fed. R. Civ. P. 37. Only two conditions are required to put into consideration the array of sanctions specified in Rule 37(b): (1) a prior order and (2) a violation of the order. A failure by a party to comply with a court order is sanctionable under this rule, regardless of the reasons. See Societe Internationale Pour Participations Industrielles Et Commerciales, S. A. v. Rogers, 357 U.S. 197, 208, 78 S. Ct. 1087, 1094, 2 L. Ed. 2d 1255 (1958) (“Whatever its reasons, petitioner did not comply with the production order. Such reasons, and the willfulness or good faith of petitioner, can hardly affect the fact of noncompliance and are relevant only to the path which the District Court might follow in dealing with petitioner's failure to comply.”); see also David v. Hooker, Ltd., 560 F.2d 412, 420 (9th Cir.1977) (“[I]n view of the possibility of light sanctions, even a negligent failure [to obey an order] should come within [Rule 37].”). With respect to the sanctions under consideration, except for the sanction of dismissal, an imposition of sanctions under Rule 37(b)(2) does not require willfulness, fault, or bad faith. Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106 (9th Cir. 2001). The Court has wide discretion to select an appropriate sanction, but the sanction should be targeted to address the misconduct or prejudice resulting from the misconduct. With respect to monetary sanctions, once a violation is demonstrated, the disobedient party bears the burden of showing that the failure was justified or that special circumstances make an award of expenses unjust. Apple Inc. v. Samsung Elecs. Co., Ltd., 2012 WL 2862613, at *1-2 (N.D. Cal. July 11, 2012). *5 The Ninth Circuit has set forth five factors to be considered by the court in selecting the appropriate 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.” Valley Engineers Inc. v. Electric Engineering Co., 158 F.3d 1051, 1057 (9th Cir. 1998). As explained in Apple: The Ninth Circuit has held that a party's failure to produce documents as ordered is considered sufficient prejudice to establish sanctionable conduct. Moreover, in the Ninth Circuit prejudice from unreasonable delay is presumed. Apple, 2012 WL 2862613, at *6. V. APPLICATION OF THE FACTORS Factors 3 (the risk of prejudice to the party seeking sanctions) and 5 (the availability of less drastic sanctions) become particularly important in considering whether to impose issue, evidence, or case terminating sanctions. As shown above, Defendants have been prejudiced in their ability to ascertain the precise date of publication of each design. The motion for partial summary judgment must rely on plaintiff's asserted practice in completing the designs within a day of purchasing them and placing them in a Look Book promptly thereafter. Defendants have been able to establish the dates of purchase of the various designs. But given plaintiff's failure to produce documents admittedly in their possession at the time the Court entered the order granting Defendants' motion to compel, the exact date of publication remains elusive. In that plaintiff is the only party who had access to the missing information, the Court recommends that a sanction be imposed to prevent plaintiff from taking advantage of its own conduct in preventing the disclosure of the information. Because no evidence has been submitted correlating the date that a design is completed with its subsequent transmission to a customer via email, the Court recommends that the order be directed toward the harm caused by the failure to produce the metadata and the Look Books. Thus a presumption that plaintiff completed its design and placed the design in a Look Book within two business days of purchasing the design would appear to avoid the prejudice Defendants otherwise would suffer. The Court has considered less drastic sanctions and finds none of them to be sufficient to avoid prejudice to Defendants. RECOMMENDATION For the foregoing reasons, the Court recommends that Defendants' motion for sanctions be granted and that an order be entered establishing a presumption that plaintiff placed a copy of each design in the Look Book within two business days of obtaining the design from the vendor. Footnotes [1] Plaintiff's principal, Tae O. Chong (also known as Matthew Chong), testified on May 13, 2015, as follows: Q: [W]hen you create a design, you put it in your design book; right? A: Correct. I would divide them [into] different kinds. Q: And by that you mean you've got a geometric look book, you've got a chevron look book, and what's the third one, sir? A: Ethnic. I do not recall that well. Q: And those are in your studio for your customers to look at; right? A: Yes. Q: How often do your customers come to your studio? A: Almost every day, yes. Q: And that holds true for all the designs you create; once you create them, you put them in the design book. Right? A: Right. Exhibit S to Motion for Summary Judgment at 73:2-19 in Urban v. Cato, CV 14-6967, Dkt. 55-11 at 37 of 96. [2] As noted below, at the hearing on this motion plaintiff's counsel also argued that it would be nearly impossible to find the proper Photoshop files and that plaintiff did not have access to the email accounts of the designers. [3] Plaintiff's counsel pointed out at the hearing that Mr. Chong's testimony disavowing the existence of the Look Books was adduced at a deposition before the Court had entered judgment in the Cato case. Plaintiff's counsel is correct in that the deposition took place on February 5, 2016; whereas, the order granting Cato's motion for summary judgment was entered on April 1, 2016. However, the Court notes that the motion for summary judgment was filed on October 29, 2015, well before the February 5 deposition. The Court further notes that the testimony describing an, at least then, current practice of placing the designs in a design book was adduced on May 13, 2015, well after the dates material to this action. (See note 1, supra.) [4] Mr. Chong testified as the person most knowledgeable of Urban on February 5, 2016, as follows: Q: Does Urban place its designs once it's made them into any kind of a form where somebody who is a potential customer coming into Urban can look at the pictures of the patterns and decide whether they might be interested in purchasing them? A: No. This was a book that was created for us to find pattern numbers. [Apparently referring to what plaintiff has produced as a “log book” or “pattern book.”] Q: So if a customer comes into Urban's offices to look at fabrics that they might be interested in buying, the only thing you ever show them is the fabric samples that you have on the premises? A: If customer wants to look at the design in the large form, that's the only way. Exhibit 6 to Motion for Sanctions at 116:4-16, Dkt. 115-8 at 11 of 11. In this same vein, plaintiff's counsel stated in correspondence to defense counsel that: Plaintiff does not have a catalog nor a “look-book” for the customers to look [sic]. There is an index-reference book that the Plaintiff uses to find artworks' numbers but that is not intended for customers because they only show a small part of the artwork. Exhibit 5 to Motion to Compel, Dkt. 69-6 at 2 of 6. [5] Mr. Chong testified on February 6, 2015, as follows: Q: How do customers learn of the designs that are being offered in any given month by Urban in the 2012 time frame? A: For example, when a customer makes a request, manufactures would ask these questions. Do you guys have paisley or Ikat or Navajo? Send us samples. On those occasions we send our samples. We don't deliver samples at that point. We send our designs via email at that point. Q: So if I understand your testimony correctly, a customer requests a type of design, an Ikat or chevron or paisley, and in response to that request your company through the designer@urbantextile.com email address will email pictures of the designs to the company. A: Yes. Q: In the 2012 time frame, were there any other ways that Urban marketed its design? A: They're sample roll work and another manner which email containing sample pictures was sent to customers. That's about all the marketing work. Exhibit 6 to Motion for Sanctions at 109:17-110:11, Dkt. 115-8 at 9-10 of 11.