INTEX RECREATION CORP., Plaintiff, v. BESTWAY (USA), INC., ET AL. Defendants No. CV 19-8596-JAK(Ex) United States District Court, C.D. California Filed July 30, 2024 Counsel Andrew M. McCoy, Pro Hac Vice, Joshua DeAmicis, Pro Hac Vice, Louis T. Perry, Pro Hac Vice, R. Trevor Carter, Pro Hac Vice, Reid E. Dodge, Pro Hac Vice, Faegre Drinker Biddle and Reath LLP, Indianapolis, IN, David R. Merritt, Pro Hac Vice, Faegre Drinker Biddle and Reath LLP, Minneapolis, MN, Tarifa Belle Laddon, Faegre Drinker Biddle and Reath LLP, Los Angeles, CA, for Plaintiff. Ben M. Davidson, Davidson Law Group ALC, Calabasas, CA, James Cleland, Pro Hac Vice, John S. Artz, Pro Hac Vice, Sharae L. Williams, Pro Hac Vice, Dickinson Wright PLLC, Ann Arbor, MI, Michael David Saunders, Dickinson Wright PLLC, Austin, TX, Oliver F. Ennis, Pro Hac Vice, Dickinson Wright PLLC, Chicago, IL, Steven A. Caloiaro, Dickinson Wright PLLC, Reno, NV, for Defendants. Eick, Charles F., United States Magistrate Judge REPORT AND RECOMMENDATION OF OF UNITED STATES MAGISTRATE JUDGE *1 This Report and Recommendation is submitted to the Honorable John A. Kronstadt, United States District Judge, pursuant to 28 U.S.C. section 636 and General Order 05-07 of the United States District Court for the Central District of California. PROCEEDINGS On June 12, 2024, Defendants filed a “Motion for Sanctions Due to Plaintiff's Spoliation of Evidence and Request for Case Ending Sanctions Pursuant to Fed. R. Civ. P. 37(e)” (“the Motion”). On July 3, 2024, the District Judge referred the Motion to the Magistrate Judge for a report and recommendation. On July 10, 2024, Defendants refiled the Motion under seal. On July 26, 2024, the parties filed supplemental memoranda. The Magistrate Judge has taken the Motion under submission without oral argument. See Minute Order, filed July 17, 2024. BACKGROUND Nonparty Intex Xiamen (“Xiamen”) is a Chinese corporation that operates independently of Plaintiff (Ex. 7 to Declaration of Joshua DeAmicis, filed July 10, 2024). However, in approximately 2013, Xiamen entered into an assignment contract with Plaintiff concerning intellectual property which eventually resulted in patents relevant to this action. See Exhibit E to Declaration of Steven A. Caloiaro, filed October 10, 2023. In the contract, Xiamen promised “to cooperate with [Plaintiff] in every way possible in obtaining evidence and going forward with ... litigation” concerning “any resulting patents” (Doc. 144-6, p. 7). Tony Lin, Xiamen's former Head of Engineering, passed away on August 31, 2016 (Doc. 257-39; 257-41). Although Xiamen thereafter promoted Jason Huang to assume the late Mr. Lin's responsibilities, Mr. Huang was not actually assigned to the late Mr. Lin's desk until 2018 (id.). On April 24, 2018, pursuant to Xiamen's internal policy, Xiamen's computer department removed the late Mr. Lin's former desktop computer, and reformatted the computer (id.). (Mr. Huang uses a laptop computer rather than a desktop computer (id.)). As a result of the reformatting process, electronically stored information (“ESI”) previously retained on the late Mr. Lin's former desktop computer was lost (id.). In accordance with Xiamen's internal policy, the desktop computer itself later was scrapped because the computer was old and obsolete (id.). Plaintiff did not know of the loss of ESI from the late Mr. Lin's former desktop computer until March 22, 2024 (id.; Doc. 257-40). In the present Motion, Defendants argue that Xiamen's 2018 loss of ESI from the late Mr. Lin's former desktop computer warrants sanctions against Plaintiff. Among the sanctions the Motion seeks is the dismissal of this action. GENERAL LEGAL STANDARDS “In the past, two sources provide[d] a court with authority to sanction a party for spoiling evidence: 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.” Nguyen v. Lotus by Johnny Dung, Inc., 2019 WL 1950294, at *4 (C.D. Cal. Mar. 14, 2019) (citation and quotations omitted). *2 However, Rule 37(e) of the Federal Rules of Civil Procedure was amended to establish the findings necessary to support certain curative measures for failure to preserve electronically stored information. This amendment “forecloses reliance on inherent authority or state law to determine when certain measures should be used” to address spoliation of electronically stored information. See Fed. R. Civ. P. 37(e), Advisory Committee Note to 2015 Amendment (emphasis added). Id. at *4; accord Jones v. Riot Hospitality Group LLC, 95 F.4th 730, 735 (9th Cir. 2024) (declining to apply an inherent authority-based analysis regarding terminating sanctions for spoliation of ESI because “we deal here with Rule 37(e)(2)”).[1] Rule 37(e) provides: (e) Failure to Preserve Electronically Stored Information. If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court: (1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or (2) only upon finding that the party acted with the intent to deprive another party of the information's use in the litigation may: (A) presume that the lost information was unfavorable to the party; (B) instruct the jury that it may or must presume the information was unfavorable to the party; or (C) dismiss the action or enter a default judgment. DISCUSSION For the reasons discussed herein, the Motion should be denied. I. Any Duty Plaintiff May Have Had to Preserve Xiamen's ESI Did Not Arise Before the ESI Previously Retained on the Late Mr. Lin's Former Desktop Computer was Lost. A party cannot properly be sanctioned for evidence lost before any duty to preserve the evidence arose. See, e.g., United States v. Maxxam, Inc., 2009 WL 817264, at *14 (N.D. Cal. March 27, 2009). There can arise no duty to preserve evidence potentially relevant to a particular future litigation unless and until that future litigation is anticipated to the degree that the litigation becomes “probable.” See, e.g., In re Napster, Inc. Copyright Litigation, 462 F. Supp. 2d 1060, 1068 (N.D. Cal. 2006) (“probable” means “more than a possibility”); see also Fed. R. Civ. P. 37(e) (referencing “anticipation ... of litigation”). Here, Plaintiff began working with Plaintiff's counsel to formulate a plan for the present litigation in June of 2019 (Doc. 257-40). It was then, and not before then, that there occurred “anticipation ... of litigation” within the meaning of Rule 37(e) because it was then, and not before then, that this litigation became “probable.” See id.; see also Martinez v. Equinox Holdings, Inc., 2021 WL 6882152, at *3 (C.D. Cal. Oct. 22, 2021) (“Plaintiffs' duty to preserve evidence that they reasonably should have known was relevant to this suit was likely triggered in July 2020, when they consulted with attorneys regarding this suit”). Thus, Plaintiff had no preservation duty at the time of the ESI's loss in 2018. *3 In arguing for an earlier-arising preservation duty, Defendants, inter alia, point to a 2014 letter. This letter reflected Plaintiff's intent to pursue patent applications, as well as Plaintiff's desire to put Plaintiff's business competitors (Defendants) on notice of Plaintiff's expectation that, once obtained, Plaintiff's patents would be enforced. However, no duty to preserve evidence potentially relevant to this litigation then arose. The foreshadowed patents, and the products accused of infringement in this litigation, did not even exist at the time Defendants argue that a preservation duty arose. “A general concern over litigation does not trigger a duty to preserve evidence.” Realnetworks, Inc. v. DVD Copy Control Ass'n, Inc., 264 F.R.D. 517, 526 (N.D. Cal. 2009); see also In re Napster Inc. Copyright Litigation, 462 F. Supp. 2d. at 1068 (the possibility of litigation does not trigger the duty).[2] II. It is Questionable Whether Plaintiff Ever Had Any Pre-Litigation Duty to Preserve Xiamen's ESI, as Distinguished from a Duty to Produce Xiamen's ESI Responsive to a Rule 34 Request During the Litigation. The parties appear to assume in their papers that a party's duty to produce documents possessed by a nonparty in response to a Rule 34 request necessarily entails a prior duty by the party to regulate the nonparty's pre-litigation preservation of the nonparty's documents. It is true that, in analyzing a party's possible duty to preserve documents possessed by a nonparty, courts sometimes have analogized to Rule 34(a)(1), which requires the production of documents within the responding party's “control.” See, e.g., Goodman v. Praxair Services, Inc., 632 F. Supp. 2d 494, 515 (D. Md. 2009) (“the concept of control ... in the context of Rule 34 provides the closest analogy to control in connection with a spoliation issue ...”); see generally “To Have (or Not) and to Hold” 55 No. 12 DRI For Def. 50 (2013). However, the Magistrate Judge is not confident that an analogy to Rule 34 “control” is apt here. This Court previously found the existence of Rule 34 “control” by Plaintiff because of Xiamen's contractual obligation “to cooperate with [Plaintiff] in every way possible in obtaining evidence and going forward with ... litigation” concerning “any resulting patents.” See Minute Order, filed October 30, 2023; Minute Order, filed March 11, 2024. The Court did not find that the contract empowered Plaintiff to compel Xiamen to alter its internal document preservation policies months or years before any “litigation” ever went “forward” concerning “any resulting patents.” Even so, for the reasons discussed in Section I supra, the Court need not and does not determine whether there exists any material difference between Plaintiff's “control” for purposes of Rule 34 and Plaintiff's power to alter Xiamen's document preservation policies for purposes of Rule 37(e). III. Rule 37(e)(2) Sanctions are Unavailable for the Additional Reason that Plaintiff Did Not “Act[ ] with the Intent to Deprive [Defendants] of the Information's Use in the Litigation.” Even if, in 2018, Plaintiff had the duty and the power to preserve the late Mr. Lin's ESI for this future litigation, Rule 37(e)(2) sanctions would still be unavailable. Such sanctions are possible “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). On the evidence presented, the Court is unable to find that Plaintiff acted with any such intent. *4 “Rule 37(e) does not define ‘intent,’ but in context, the word 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 at 735. Here, there is no persuasive evidence that such an intent underlay Plaintiff's failure to attempt to command Xiamen to alter its document preservation policies in 2018. It seems unlikely Plaintiff gave the matter any thought in 2018. However, assuming arguendo Plaintiff did give the matter thought at that time, Plaintiff's failure to act likely resulted from Plaintiff's belief (expressed consistently during this litigation) that Plaintiff did not have the right to direct Xiamen's actions. Even if mistaken, Plaintiff's belief would not satisfy the “intent” requirement of Rule 37(e)(2). See Gelazela v. Santa Ana Police Dep't, 2024 WL 1136338, at *2 (C.D. Cal. Feb. 16, 2024) (the requisite intent was lacking where the digital evidence was deleted automatically in accordance with policy; the parties' “alleged failure to halt their automatic deletion process, without more, does not rise to a reasonable inference of intent”); Porter v. City & County of San Francisco, 2018 WL 4215602, at *4 (N.D. Cal. Sept. 5, 2018) (no requisite intent where the digital evidence was erased pursuant to an ESI retention policy; “there is no evidence that [the party] decided to erase the [evidence] when [the party] was under pressure to produce it”); Brooks v. Phoenix Metals Co., 2017 WL 11093573, at *9 (N.D. Ga. May 22, 2017), adopted, 2017 WL 11093677 (N.D. Ga. June 28, 2017) (the documents “were deleted by a third-party vendor as a matter of routine maintenance.... [The party] took no affirmative act to cause the [third-party] records to be lost”); see also Hernandez v. Tulare County Corr. Ctr., 2018 WL 784287, at *4 (E.D. Cal. Feb. 8, 2018) (negligence, or even gross negligence, is insufficient to warrant imposition of the remedies provided in Rule 37(e)(2)). Defendants' many arguments that the Court should infer intent from various aspects of Plaintiff's conduct before and during this litigation are entirely unpersuasive. Accordingly, Rule 37(e)(2) sanctions would be unavailable even if Plaintiff had some duty in 2018 to preserve Mr. Lin's ESI for purposes of this litigation. IV. If the District Judge Disagrees With the Discussion in Section I, supra, then the Magistrate Judge Would Recommend that Any Consideration of Rule 37(e)(1) “Measures” be Deferred Until Pretrial or Trial. Discovery is still ongoing, and discovery conceivably may, to some extent, restore or replace the lost ESI or otherwise cure any significant prejudice to Defendants resulting from the loss of Mr. Lin's ESI. Additionally, the nature and extent of any remaining prejudice will be more readily and accurately determinable at a later stage in the litigation. After the completion of discovery, and in the context of pretrial or trial, the Court will be in a better position to evaluate the extent of the restoration or replacement, the nature and extent of any remaining prejudice, and the need for, and the nature of, any “measures” appropriate under Rule 37(e)(1). Therefore, if the District Judge disagrees with the discussion in Section I, supra, then the Magistrate Judge recommends that any consideration of Rule 37(e)(1) “measures” be deferred until pretrial or trial. See Nuvasive, Inc. v. Kormanis, 2019 WL 1171486, at *12 (M.D.N.C. Mar. 13, 2019), adopted, 2019 WL 1418145 (M.D.N.C. Mar. 29, 2019) (deferring until trial the issue of proper non-monetary remedies for spoliation under Rule 37(e)(1)); Tesoriero v. Carnival Corp., 2017 WL 8895347, at *24 (S.D. Fla. Sept. 22, 2017), adopted, 2018 WL 1894717 (S.D. Fla. Mar. 23, 2018), aff'd on other grounds, 954 F.3d 1170 (11th Cir. 2020), cert. denied, 141 S. Ct. 2516 (2021) (request for spoliation sanctions more appropriately determined by trial judge after resolution of summary judgment motion, “and perhaps within the context of the admitted evidence and credibility of witnesses as offered at trial”); see also First American Title Ins. Co. v. Northwest Title Ins. Agency, LLC, 2016 WL 4548398, at *4 (D. Utah Aug. 31, 2016) (denying spoliation motion because, inter alia, the court was then unable to determine “that a significant portion of the lost ESI cannot be restored or replaced through additional discovery”) (quotations and citation omitted). CONCLUSION For the reasons discussed herein, the Court should issue an order: (1) accepting and adopting this Report and Recommendation; and (2) denying the Motion. NOTICE Reports and Recommendations are not appealable to the Court of Appeals, but may be subject to the right of any party to file objections as provided in the Local Rules Governing the Duties of Magistrate Judges and review by the District Judge whose initials appear in the docket number. No notice of appeal pursuant to the Federal Rules of Appellate Procedure should be filed until entry of the judgment of the District Court. ORDER ADOPTING FINDINGS, CONCLUSIONS AND RECOMMENDATIONS OF UNITED STATES MAGISTRATE JUDGE *5 Pursuant to 28 U.S.C. section 636, the Court has reviewed all of the records herein and the attached Report and Recommendation of United States Magistrate Judge. Further, the Court has engaged in a de novo review of those portions of the Report and Recommendation to which any objections have been made. The Court accepts and adopts the Magistrate Judge's Report and Recommendation. IT IS ORDERED that Defendants' “Motion for Sanctions Due to Plaintiff's Spoliation of Evidence and Request for Case Ending Sanctions Pursuant to Fed. R. Civ. P. 37(e)” is denied. DATED: _____, 2024. JOHN A. KRONSTADT UNITED STATES DISTRICT JUDGE Footnotes [1] Prior to Jones v. Riot Hospitality Group LLC, there was some disagreement in this district regarding whether Rule 37(e) now provides the exclusive authority for the imposition of sanctions for the spoliation of ESI. See Colonies Partners, L.P. v. County of San Bernardino, 2020 WL 1496444, at *2 n.2 (C.D. Cal. Feb. 27, 2020), adopted, 2020 WL 1491339 (C.D. Cal. Mar. 27, 2020) (citing cases); see also MGA Ent., Inc. v. Harris, 2023 WL 2628225, at *3-4 (C.D. Cal. Jan. 5, 2023). After Jones v. Riot Hospitality, there should be no further disagreement. See also Advisory Committee Note to 2015 Amendment to Rule 37. Rule 37(e) provides the exclusive authority for the imposition of sanctions for the spoliation of ESI. [2] Defendants' argument that Xiamen had some independent preservation duty adds nothing material to the analysis of this Motion. Moreover, the Court could not properly sanction Plaintiff for any alleged breach of duty by Xiamen.