CALL DELIVERY SYSTEMS, LLC, Plaintiff, v. DARYL MORGAN, et al., Defendants Case No.: 2:20-cv-04637-CBM-PDx United States District Court, C.D. California Signed September 21, 2022 Counsel Alton G. Burkhalter, Daniel Kessler, Joshua A. Waldman, Burkhalter Kessler Clement and George LLP, Irvine, CA, Dana B. Hasness, Pro Hac Vice, Hope Steidle Kildea, Pro Hac Vice, Jonathan Landesman, Pro Hac Vice, Marc B. Cytryn, Pro Hac Vice, Cohen Seglias Pallas Greenhall and Furman PC, Philadelphia, PA, for Plaintiff. Jesse T Farris, Ashland, NH, Michael P Ring, Michael P Ring and Associates, Santa Barbara, CA, for Defendants. Marshall, Consuelo B., United States District Judge ORDER RE: PLAINTIFF'S MOTION FOR SANCTIONS [228] *1 The matter before the Court is Plaintiff Call Delivery Systems, LLC's (“Plaintiff” or “CDS”) Motion for Sanctions (Dkt. No. 228.) The Motion is fully briefed. (Dkt. Nos. 231, 235.) Plaintiff moves for sanctions under Federal Rule of Civil Procedure 37 based on Defendant Daryl Morgan's alleged spoliation of evidence and Defense Counsel's allegedly intentional misrepresentations. I. BACKGROUND This case concerns claims for trade secret misappropriation brought by Plaintiff against Defendants Daryl Morgan and Call Haven Partners (“Defendants”). Defendants also alleged several wage-and-hour counterclaims. The Court held an eight-day trial in April 2022. Mr. Morgan's employment with CDS ended in March 2020. CDS' president, Scott Richards, testified during trial that when Mr. Morgan left, Mr. Richards did not ask him to return his Surface Pro laptop. (Trial Transcript, Ex. 2 to Ring Decl. – Dkt. No. 233 at 253:18–254:1.) CDS filed this civil action on May 22, 2020. Mr. Morgan testified during trial that he conducted a factory reset of the Surface Pro laptop in March 2020. (Trial Transcript, Ex. 3 to Ring Decl. – Dkt. No. 233 at 54:18–20.) During subsequent discovery, CDS requested that Mr. Morgan produce a forensic image of the Surface Pro computer issued to him by CDS during his employment. Mr. Maryman, the digital forensics expert hired by Defendants to create the forensic image, testified during trial that (1) Defense Counsel first contacted him about the imaging on October 7, 2020 (Trial Transcript, Ex. A to Mot. – Dkt. No. 228-1 at 20:5), (2) the computer reflected that Mr. Morgan performed a factory reset on the device on October 10, 2020 (id. at 21:19), and (3) Mr. Morgan dropped off the device at Mr. Maryman's office for imaging on October 26, 2020 (id. at 20:22). Mr. Maryman further testified that the factory reset “will perform a wipe and return everything to its original natural state as if it was coming from the factory .... It will remove all content, user-generated content, as well as any logs, system artifacts, this type of thing.” (Id. at 22:12–16.) Mr. Morgan testified at trial that he was unable to produce any text messages exchanged with CDS's buyers and suppliers in the weeks leading up to his resignation because his phone was “broken” or “smashed,” and he “donated” it. (Trial Transcript, Ex. B to Mot. – Dkt. No. 228-2 at 74:23–25.) During his closing argument, Defense Counsel made the following statement: Another interesting question, if all of these people that Mr. Morgan is accused of stealing away, and text messages with Mr. Morgan, and emails with Mr. Morgan about all this advanced planning that he's competing with his business while employed, where are all the documents from the recipients side? All they have to do is say, hey, Mr. Liff, show me the documents. Hey, Mr. Booth, show me the documents. Hey, Mr. Shepard, show me the documents. Where are they? (Trial Transcript, Ex. C to Mot. – Dkt. No. 228-3 at 45:3–11.) Defense Counsel was aware that CDS had issued subpoenas to each of the witnesses he referred to in his closing argument, despite the fact that CDS never received the documents. (See Subpoenas, Ex. D to Mot. – Dkt. No. 228-4.) II. STATEMENT OF THE LAW *2 “A district court may sanction a party who has despoiled evidence under: (1) the power granted by Federal Rule of Civil Procedure 37(b)(2) to sanction “a party or a party's officer, director, or managing agent” who “fails to obey an order to provide or permit discovery”; or (2) the inherent power of federal courts to levy sanctions in response to abusive litigation practices.” Env't World Watch v. Walt Disney, 630 Fed. Appx. 687, 690 (9th Cir. 2015) (citing Leon v. IDX Sys. Corp., 464 F.3d 951, 958 (9th Cir. 2006)). “Before awarding sanctions pursuant to its inherent power, ‘the court must make an express finding that the sanctioned party's behavior constituted or was tantamount to bad faith.’ ” Haeger v. Goodyear Tire & Rubber Co., 793 F.3d 1122, 1132 (9th Cir. 2015) (quotation and citation omitted). “Under its inherent powers, a district court may ... award sanctions in the form of attorneys' fees against a party or counsel who acts in bad faith, vexatiously, wantonly, or for oppressive reasons.” Leon, 464 F.3d at 961 (citation and quotation marks omitted). Bad faith includes a “broad range of willful improper conduct.” Fink v. Gomez, 239 F.3d 989, 992 (9th Cir. 2001). An attorney demonstrates bad faith by making “reckless misstatements of law or fact” “when combined with an additional factor such as frivolousness, harassment, or an improper purpose.” Id. A district court may impose sanctions equaling the total amount of another party's litigation costs. Chambers v. NASCO, Inc., 501 U.S. 32, 57 (1991). III. DISCUSSION 1. Spoliation CDS contends that sanctions are warranted because it is “undisputed” that Mr. Morgan destroyed electronic evidence. First, as to the Surface Pro laptop, CDS contends that, as CDS's former Chief Technology Officer, Mr. Morgan “understands technology” and knew that the factory reset would render the computer data difficult, if not possible, to recover. Furthermore, CDS cites to Mr. Maryman's testimony in which he stated that the factory reset of the Surface Pro laptop occurred on October 10, 2020 — approximately five months after CDS filed suit, and three days after Defense Counsel contacted Mr. Maryman about imaging the computer data. Mr. Morgan, however, testified that he first factory reset the Surface Pro computer in March 2020. Accordingly, the Court finds that there is no evidence from which the Court could conclude that Mr. Morgan's action constituted intentional spoliation. Second, as to Mr. Morgan's cell phone, CDS contends that the evidence demonstrates that Mr. Morgan destroyed the cell phone in an effort to destroy electronic evidence, namely, text messages between Mr. Morgan and CDS buyers and suppliers. Mr. Morgan's employment with CDS concluded in March 2020, and he testified that his cell phone was subsequently “smashed” and donated. However, the exact date of when the phone was destroyed is unclear — Mr. Morgan testified that it occurred in May or June, and later testified that it occurred in April or May. Thus, it is unclear whether the phone was destroyed and donated before or after the Complaint was filed on May 22, 2020. Accordingly, the Court finds that there is no evidence from which the Court could conclude that Mr. Morgan intentionally destroyed the phone. Furthermore, as to both the Surface Pro computer and Mr. Morgan's cell phone, the Court issued the following spoliation jury instruction at trial: The parties in this case are not permitted to destroy or hide evidence. If you find that Daryl Morgan willfully deleted or destroyed text messages, emails, or other files in his cell phone or Surface Pro computer in order to prevent these files from being presented in this trial, you may infer that the destroyed evidence would have been unfavorable to Daryl Morgan and Call Haven. *3 (Court's Jury Instruction No. 7.) Thus, the jury was instructed, and were required to consider, whether Mr. Morgan's conduct was unfavorable to his defense, however the jury rendered a verdict in favor of Defendants. Accordingly, the Court denies the Motion as to the alleged spoliation of the Surface Pro and cell phone data. 2. Intentional Misrepresentations CDS contends that sanctions are warranted on the grounds that Defense Counsel intentionally misrepresented to the jury during his closing argument that the Surface Pro and cell phone data was unavailable because CDS failed to ask defense witnesses to produce the destroyed files and communications, when in fact CDS had issued subpoenas seeking the production of said files and communications. The Court finds that Defense Counsel's statements during his closing argument do not rise to the level of bad faith necessary to warrant sanctions under Federal Rule of Civil Procedure 37. Accordingly, the Court denies the Motion as to Defense Counsel's allegedly intentional misrepresentations. IV. CONCLUSION Accordingly, the Court DENIES Plaintiff's Motion for Sanctions. IT IS SO ORDERED.