American Career College, Inc., et al. v. Mario Oswaldo Medina, Sr., et al Case No. CV 21-698 PSG (SKx) United States District Court, C.D. California Filed July 06, 2022 Counsel Edward M. Cramp, Karen Lehmann Alexander, Keith Zakarin, Meagan E. Garland, Sarah Alexis Gilbert, Ayad Mathews, Duane Morris LLP, San Diego, CA, Bryce Aaron Young, San Diego, CA, Deanna Jean Lucci, Patricia P. Hollenbeck, Duane Morris LLP, Los Angeles, CA, for American Career College, Inc., et al. Alexandra de Rivera, Los Angeles City Attorney's Office, Los Angeles, CA, Nicholas D. Jurkowitz, Fenton Law Group LLP, Los Angeles, CA, Jonathan J. Coleman, Robert Scott Harlan, Roy J. Jimenez, Tredway Lumsdaine and Doyle LLP, Long Beach, CA, for Mario Oswaldo Medina, Sr., Roger Adolfo Ortiz, Rolando Valdivia, Unete Healthcare Associates, L.L.C. Gutierrez, Philip S., United States District Judge Proceedings (In Chambers): Order MODIFYING the scheduling order and DENYING WITHOUT PREJUDICE Plaintiffs' spoliation motion, Plaintiffs' motion for partial summary judgment, and Defendants' motion for partial summary judgment. *1 Before the Court are three motions. The first is a spoliation of evidence motion filed by Plaintiffs American Career College, Inc. and West Coast University, Inc. (“Plaintiffs”). See generally Dkt. # 108 (“Mot.”). Defendants Mario Medina (“Medina”); Roger Ortiz (“Ortiz”); Rolando Valdivia (“Valdivia”); and Únete Healthcare Associates, LLC, d/b/a Pronto Wellness (“Pronto”) (collectively, “Defendants”) opposed. See generally Dkt. # 137 (“Opp.”). Plaintiffs replied. See generally Dkt. # 166 (“Reply”). The second is a motion for partial summary judgment filed by Plaintiffs. See generally Dkt. # 112. Defendants opposed. See generally Dkt. # 155. Plaintiffs replied. See generally Dkt. # 165. The third is a motion for partial summary judgment filed by Defendants. See generally Dkt. # 116. Plaintiffs opposed. See generally Dkt. # 153. Defendants replied. See generally Dkt. # 163. The Court finds these matters appropriate for decision without oral argument. See Fed. R. Civ. P. 78; L.R. 7-15. Having considered the moving, opposing, and reply papers for each motion, as well as the arguments at the hearing, the Court MODIFIES the scheduling order and DENIES WITHOUT PREJUDICE Plaintiffs' spoliation of evidence motion, Plaintiffs' motion for partial summary judgment, and Defendants' motion for partial summary judgment. I. Background Plaintiffs are higher education institutions offering various degree programs in the healthcare industry. Third Amended Complaint, Dkt. # 26 (“TAC”), ¶¶ 13, 15. Students in Plaintiffs' degree programs must complete a “clinical rotation” at a healthcare facility that provides hands-on patient care. Id. ¶¶ 24–26. Before students can do a clinical rotation, they must pass a comprehensive background and qualification check. Id. ¶ 26. Pronto temporarily provided that service to Plaintiffs until they discovered that Pronto was run by some of Plaintiffs' own employees who were allegedly abusing their positions of trust and defrauding Plaintiffs into using Pronto's services. See id. ¶¶ 56–57. Plaintiffs sued in Los Angeles County Superior Court in December 2020, asserting claims for fraud, violation of the Racketeer Influenced and Corrupt Organizations Act, and misappropriation of trade secrets, among other things. See generally Dkt. # 1-1. Defendants removed shortly thereafter. See generally Dkt. # 1. Defendants answered the complaint and asserted counterclaims for interference with contractual relations, interference with prospective economic advantage, unfair competition, and civil conspiracy. See generally Dkt. # 19. In August 2021, Defendants filed a motion for judgment on the pleadings, see generally Dkt. # 36, which the Court denied in its entirety, see generally Dkt. # 39. Around the same time, the Court entered a scheduling order, setting an April 29, 2022 discovery cut-off date; a May 13, 2022 motion cut-off date; and an August 4, 2022 trial date. See generally Dkt. # 32. The scheduling order has never been modified. In the early stages of discovery, Defendants produced various e-mail communications containing links to Plaintiffs' students' confidential information, including driver's licenses, education records, and medical records. See Dkt. # 61-2 ¶ 2. Plaintiffs allege that this personal information was available online—without any sort of encryption or password protection—to anyone with a link, leaving Plaintiffs' students vulnerable to identity theft. Id. Following this alleged data breach, Plaintiffs filed an application for a temporary restraining order (“TRO”), seeking an order compelling Defendants (1) to cut off public internet access to their servers and databases pending a forensic investigation and (2) to provide identity theft protection services to Plaintiffs' students. Dkt. # 59, 2:17–4:5. The Court denied the application because the Court lacked authority to grant a TRO based on facts and claims not pleaded in the complaint. Dkt. # 60 at 5 (citing Pac. Radiation Oncology, LLC v. Queens Med. Ctr., 810 F.3d 631, 633 (9th Cir. 2015)). Plaintiffs amended their complaint with the Court's leave to add additional causes of action related to the alleged data breach, see generally Dkt. # 65, and renewed their TRO application, see generally Dkt. # 67. The Court denied the TRO application again, this time because Plaintiffs' various theories of irreparable injury were too speculative to justify the extraordinary remedy they requested. Dkt. # 68 at 3–4. *2 On April 7, 2022, Plaintiffs filed an ex parte application to modify the scheduling order, claiming that Defendants had “derailed” the discovery process. See generally Dkt. # 87-1. Specifically, Plaintiffs alleged that Defendants (1) refused to timely produce Ortiz, Validvia, and Medina for depositions, and (2) failed to properly and timely respond to production requests, in part because Defendants self-collected and produced responsive documents without attorney assistance or supervision. See id. 3:1–5:13. Plaintiffs explained that they filed a motion to compel seeking various e-mail communications and financial documents, expected a “favorable outcome,” but needed more time to review documents they assumed would be forthcoming. Id. 6:1–12, 7:19–25. The Court denied the ex parte application an hour after it was filed. See generally Dkt. # 88. It was abundantly clear that Plaintiffs failed to satisfy either prong of the test announced in Mission Power Engineering Co. v. Continental Casualty Co., 883 F. Supp. 488, 492 (C.D. Cal. 1995). Based on the extensive discovery requested in their motion to compel, Plaintiffs could and should have filed a regularly noticed motion to modify the scheduling order at the same time.[1] By April 13, 2022, the Court ruled on Plaintiffs' motion to compel various e-mail communications that Plaintiffs said Defendants improperly withheld. Relevant here, the Court ordered Defendants to, with the supervision of counsel, (1) identify all pertinent e-mail accounts; (2) preserve the purely business and commingled business and personal accounts; (3) produce all communications contained in the business and commingled accounts; and (4) confirm that any personal accounts were purely personal and, if so, treat them as “off limits.” Motion to Compel Hearing Transcript, Dkt. # 130 (“Mot. to Compel Transcript”), 40:13–44:17. On May 13, 2022, the last day to file a motion under the scheduling order, see generally Dkt. # 32, Plaintiffs filed the instant motions for spoliation of evidence and partial summary judgment, see generally Mot.; Dkt. # 112. Plaintiffs claim that Defendants failed to comply with the Court's order on the motion to compel to produce all documents before discovery cut-off. Mot. 8:20–9:7. Specifically, they say that two weeks after discovery cut-off—i.e., a month after the Court's motion to compel order—Defendants produced nearly 5,000 pages of previously-undisclosed e-mails. Declaration of Patricia Hollenbeck in Support of Plaintiffs' Reply, Dkt. # 166-1 (“Hollenbeck Reply Decl.”), ¶ 8. And by June 10, Defendants produced over 33,000 additional pages. Id. ¶ 10. In other words, Defendants withheld 95% of responsive e-mail communications until after the motion filing deadline, see id. ¶ 11, even though Plaintiffs requested the information a year ago, Declaration of Patricia Hollenbeck in Support of Plaintiffs' Motion, Dkt. # 108-2 (“Hollenbeck Mot. Decl.”), ¶ 3, and were told it did not exist or that all documents would be produced, Dkt. # 108-3, Exs. A–C. Plaintiffs also claim there is additional discovery that Defendants have not yet produced as the Court ordered. Hollenbeck Reply Decl. ¶ 43. They say that there are several e-mail accounts Defendants claim they no longer have access to, presumably because there was apparently never a “litigation hold” put in place to preserve evidence in this case. Id. ¶¶ 15, 34. And there are three “personal” e-mail accounts that may not have been produced yet, either. Id. ¶ 43. Of course, the Court's motion to compel order denied Plaintiffs' request for purely personal e-mail accounts, Mot. to Compel Transcript 43:22–24, but a June 13 e-mail from Defendants' counsel indicates that additional productions related to these accounts are forthcoming, see Dkt. # 166-2, Ex. A. This suggests these e-mail accounts are commingled personal and business accounts within the scope of the Court's order. *3 Two weeks after filing the instant motions, Plaintiffs again filed an ex parte application that requested an array of additional relief—i.e., reopening discovery and granting leave to amend their spoliation of evidence and partial summary judgment motions. See generally Dkt. # 127. The Court denied the ex parte application for failure to meet the Mission Power standard. See generally Dkt. # 132. Again, there was no reason Plaintiffs could not have requested such relief in a regularly noticed motion. See id. at 2. II. Discussion Plaintiffs now seek relief from Defendants' alleged spoliation of evidence under Federal Rule of Civil Procedure 37(e). Mot. 9:19–10:8. They ask for default judgment in their favor, Reply 11:6–12:13, or an adverse inference instruction at trial, Mot. 16:9–10. They also ask for attorneys' fees, a trial continuance, an opportunity to refile their pending motions, a chance to amend their expert disclosures, and an order reopening discovery. Reply 11:6–12:13. Federal Rule of Civil Procedure 37(e) provides a framework for establishing spoliation of electronically stored information (“ESI”) and applies only if the spoliating party was under a duty to take reasonable steps to preserve ESI in anticipation of or during litigation. Assuming reasonable steps to preserve ESI were not taken, sanctions are available only if the lost ESI “cannot be restored or replaced through additional discovery.” See Fed. R. Civ. P. 37(e). The Court discusses in turn (A) Defendants' duty to preserve ESI and (B) whether the ESI can be restored or replaced through additional discovery. A. Duty to Preserve ESI Plaintiffs argue that Defendants were under a duty to preserve (1) three e-mail accounts that Defendants say they no longer have access to (the “lost e-mail accounts”),[2] and (2) Valdivia's cell phone which was apparently lost or destroyed just days before his deposition. Mot. 12:1–13:10. “The duty to preserve material evidence arises not only during litigation but also extends to that period before the litigation when a party reasonably should know that the evidence may be relevant to anticipated litigation.” CTC Glob. Corp. v. Huang, No. SACV 17-02202 AG (KESx), 2019 WL 6357271, at *2 (C.D. Cal. July 3, 2019) (internal quotation marks omitted). Rule 37(e) does not insist on perfection; instead, “ ‘reasonable steps’ to preserve” ESI are sufficient to satisfy a litigant's duties. Fed. R. Civ. P. 37(e) advisory committee's note to the 2015 amendment. Here, Defendants were duty-bound to take reasonable steps to preserve the information on Valdivia's cell phone. Valdivia testified that, just days before his deposition—i.e., during the course of litigation—he lost all of the information on his phone and that it was not backed up in the cloud for personal use or separately for litigation purposes. Dkt. # 108-3, Ex. J, at 306:3–22. There was relevant ESI on the phone—and Valdivia knew it—because, in preparation for his deposition, he screenshotted a selection of text messages and e-mails that he failed to produce when Plaintiffs asked for it more than six months beforehand. See Hollenbeck Mot. Decl. ¶ 16; Dkt. # 108-3, Ex. L. Defendants were also duty-bound to preserve the information in their lost e-mail accounts that they used to conduct Pronto business. See Hollenbeck Reply Decl. ¶ 14. The e-mail accounts were in use approximately one or two months before the complaint was filed and so certainly were not rendered inactive—i.e., due to extensive non-use—by the time litigation commenced. See id. ¶ 35. Defendants also knew or should have known there was potentially relevant evidence in these accounts, which contained e-mails directly referencing Plaintiffs and, for example, instructing Pronto employees “to avoid ccing” Ortiz on e-mails to Plaintiffs. See id. ¶¶ 18–23 & Ex. E. *4 Despite their duty to take reasonable measures to preserve ESI on Valdivia's cell phone and the three lost e-mail accounts, Defendants failed to take any preservations measures—much less reasonable ones. See Dkt. # 108-3, Ex. E (Defendants' interrogatory response stating that they were not aware that any litigation hold was placed on any potentially relevant evidence); Dkt. # 108-3, Ex. F (e-mail from Defendants' counsel suggesting that Defendants self-produced the majority of evidence in this case without attorney supervision); Dkt # 108-3, Ex. K, at 52:6–8, 57:22–58:10 (Medina's deposition testimony indicating that Pronto does not have a chief information officer or an information technology department). Accordingly, Defendants had a duty to preserve the lost e-mail accounts and Valdivia's phone but failed to take any reasonable preservation measures. B. Availability of ESI Through Additional Discovery Plaintiffs maintain that the ESI on Valdivia's phone and the three lost e-mail accounts cannot be “restored or replaced” through additional discovery. Mot. 10:21–11:26. Spoliation sanctions are appropriate only if evidence “cannot be restored or replaced through additional discovery.” Fed. R. Civ. P. 37(e). This is primarily because ESI is often stored in multiple locations, so the destruction of one source may be harmless if the ESI is available from another source. See Fed. R. Civ. P. 37(e) advisory committee notes to the 2015 amendment. Rule 37(e)'s advisory committee notes also explain that “[n]othing in the rule limits the court's powers under Rules 16 and 26 to authorize additional discovery” and that reopening discovery should be “proportional to the apparent importance of the lost information to claims or defenses in the litigation.” See id. Here, it is difficult, if not impossible, to know whether the unpreserved ESI can be replaced or restored—and whether it is essential to Plaintiffs' claims or defenses. The wealth of information Defendants produced after discovery cut-off and the motion filing deadline may well “restore or replace” whatever ESI was not preserved from the lost e-mail accounts and Valdivia's phone. But Plaintiffs did not have the chance to review those documents before the scheduling order required them to file the instant motions. See generally Dkt. # 32. And if what Defendants have produced thus far does not shore up any gaps created by Defendants' unpreserved ESI, Plaintiffs indicate that third-party discovery may yet fill the void. See Mot. 11:19–26; Reply 8:27–9:13. Accordingly, there is good cause to modify the scheduling order to permit the parties to seek further discovery and to incorporate substantial, belatedly produced evidence into their currently pending motions. See Fed. R. Civ. P. 16(b); Fed. R. Civ. P. 37(e) advisory committee notes to the 2015 amendment (suggesting that courts may authorize additional discovery under Rule 16); see also Dkt. # 127-3, Ex. I (indicating that both parties are amenable to allowing Plaintiffs to refile their pending motions). III. Conclusion For the foregoing reasons, the Court MODIFIES the scheduling order as follows: Event Discovery cut-off Opening expert witness disclosures Last day to file a motion Rebuttal expert witness disclosures Expert discovery cut-off Final pretrial conference Jury trial (5 day estimate) Original Date April 29, 2022 May 6, 2022 May 13, 2022 June 3, 2022 July 1, 2022 July 22, 2022 August 4, 2022 New Date January 13, 2023 January 20, 2023 January 27, 2023 February 10, 2023 March 3, 2023 April 14, 2023 at 2:30 p.m. April 27, 2023 at 9:00 a.m. The parties are also ORDERED to appear for a discovery status conference with Magistrate Judge Kim no later than August 31, 2022. They are also ORDERED to complete mediation before Magistrate Judge Kim no later than February 28, 2023. *5 Given that additional discovery is warranted and that terminating or adverse inference sanctions may be appropriate pending the outcome of further discovery, the Court DENIES WITHOUT PREJUDICE Plaintiffs' spoliation of evidence motion and both parties' motions for partial summary judgment. And because trial is now many months away, the Court STRIKES the pending motions in limine, which can be refiled as needed closer to trial. IT IS SO ORDERED. Footnotes [1] Hearing dates before discovery cut-off were widely available throughout February and mid-March, including on March 16—the day Plaintiffs filed their motion to compel. See generally Dkt. # 74. The Court did not close the last two hearing dates before discovery cut-off until March 17. [2] These include Oswald@prontowellness.com, M.Oswald@prontowellness.com, and an “Angela Tamm” e-mail account. See Hollenbeck Reply Decl. ¶¶ 13, 15.