INTEX RECREATION CORP., Plaintiff, v. BESTWAY (USA), INC., ET AL., Defendants No. CV 16-3300-JAK(Ex) United States District Court, C.D. California Filed November 21, 2024 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 October 28, 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”). The Motion includes a Joint Stipulation containing the briefing and the evidence submitted by all parties. On November 7, 2024, Defendants refiled the Motion under seal. On November 8, 2024, Defendants filed a Supplemental Memorandum. On November 12, 2024, the District Judge referred the Motion to the Magistrate Judge for a report and recommendation. The Magistrate Judge has taken the Motion under submission without oral argument. The Motion raises issues similar, though not identical, to the issues raised in a motion filed by Defendants on June 12, 2024, in Intex Recreation Corp. v. Bestway (USA), Inc., et al., CV 19-8596-JAK(Ex) (“the 2019 case”). On July 30, 2024, the Magistrate Judge filed a Report and Recommendation in the 2019 case, recommending that the prior, similar motion be denied. BACKGROUND Some of the factual background set forth in the July 30, 2024 Report and Recommendation in the 2019 case is equally pertinent here. Nothing filed in connection with the present Motion alters the following findings made in the 2019 case: 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 [the 2019 case as well as the present case]. 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). *2 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 in this action. 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). 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 Gregory v. Montana, 118 F.4th 1069, 1079 (9th Cir. 2024) (“Given Rule 37(e)'s careful specification of the findings that must be made before any sanction may be imposed for a covered loss of information, it is clear that the rule, by its terms, precludes a court from resorting to inherent authority to avoid its strictures”); 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 *3 (C) dismiss the action or enter a default judgment. DISCUSSION I. Timeliness of Motion Defendants first learned of the loss of the late Mr. Lin's ESI in April of 2024. See ECF 570-1, p. 4. Defendants did not file the present Motion until approximately seven months later. Defendants could have filed the present Motion sooner, as demonstrated by the fact that Defendants filed a similar motion in the 2019 case on June 12, 2024. Plaintiff argues that the present Motion should be denied as untimely based on Defendants' failure to file the Motion sooner. As another judge of this Court recently stated, “[t]he deadline by which parties must bring a spoliation motion is unsettled within the Ninth Circuit.” MGA Ent., Inc. v. Harris, 2023 WL 2628225, at *2 (C.D. Cal. Jan. 5, 2023). Undoubtedly, however, a court has discretion to deny such a motion as untimely if the motion was not brought within a “reasonable time.” See id. Contrary to Plaintiff's argument, Defendants cannot properly be faulted for failing to file the present Motion prior to the July 29, 2022 close of discovery in this case. Again, Defendants did not learn of the loss of the late Mr. Lin's ESI until April of 2024. Plaintiff cannot plausibly suggest that Defendants should have learned of the loss sooner; Plaintiff itself did not learn of the loss until March 22, 2024. If Defendants' approximately seven-month delay in bringing the present Motion had prejudiced Plaintiff in some significant manner, the Magistrate Judge might recommend that the Court exercise its discretion to deny the present Motion as untimely. Id. (motion for spoliation should be filed “within a reasonable time after the discovery of facts that underlie the motion.”). However, contrary to Plaintiff's arguments, and notwithstanding the press of other proceedings in this case, Plaintiff has failed to demonstrate any significant prejudice resulting from Defendants' delay. II. Plaintiff's Duty to Preserve Xiamen's ESI In the July 30, 2024 Report and Recommendation in the 2019 case, the Magistrate Judge found that no duty to preserve evidence potentially relevant to the 2019 case arose prior to the 2018 loss of the late Mr. Lin's ESI. The Magistrate Judge stated: The foreshadowed patents, and the products accused of infringement in [the 2019 case], 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). The facts material to the preservation issue in the present case are materially different from those in the 2019 case. The present case was not merely a “possibility” at the time of the ESI's loss; the present case then was extant. In fact, prior to the time of the ESI's loss, Defendants had propounded relevant discovery requests in the present case and Plaintiff had represented it would produce in the present case responsive documents within Plaintiff's possession, custody or control. See ECF 570, pp. 18-21. As this Court previously ruled, Plaintiff then had control of Xiamen's ESI. See ECF 570-21; ECF 570-22. Therefore, Plaintiff's duty to preserve Xiamen ESI potentially relevant to the present case arose before the 2018 loss of the late Mr. Lin's ESI. III. Rule 37(e)(2) Sanctions *4 Rule 37(e)(2) sanctions (including terminating sanctions and jury instructions presuming the unfavorability of the lost information) 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 here, (as well as the evidence presented in the 2019 case), the Court is unable to find that Plaintiff acted with any such intent. “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, as in the 2019 case, there is no persuasive evidence that such an intent underlay Plaintiff's failure to command Xiamen to alter its document preservation policies prior to the loss of the ESI. Plaintiff consistently has expressed its belief that Plaintiff did not have the right to direct Xiamen's actions (under the assignment contract or otherwise). Plaintiff's failure to act likely resulted from this belief, rather than from any supposed intent to deprive Defendants of the use of the ESI in this case. Even if mistaken, Plaintiff's belief that Plaintiff lacked any right to control Xiamen with respect to the ESI 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 (here and in the 2019 case) that the Court should infer intent from various aspects of Plaintiff's conduct are entirely unpersuasive. Accordingly, Rule 37(e)(2) sanctions are unavailable. IV. Rule 37(e)(1) “Measures” It follows from the foregoing discussion that the lost ESI “should have been preserved in the ... conduct of [the present] litigation, and Plaintiff “failed to take reasonable steps to preserve it,” within the meaning of Rule 37(e). Therefore, the Court may order Rule 37(e) “measures” if: (a) the loss of the ESI prejudiced Defendants in this case; and (b) the lost ESI “cannot be restored or replaced through additional discovery.” Fed. R. Civ. P. 37(e). For several reasons, the existence of any significant prejudice to Defendants in this case from the loss of the ESI appears doubtful. In the present case, unlike in the 2019 case, Defendants never moved for an order compelling Plaintiff to produce documents possessed by Xiamen. Unlike in the 2019 case, Defendants never tested in court the correctness of Plaintiff's belief that Plaintiff lacked control of Xiamen's documents, including Xiamen's ESI. Thus, even if the late Mr. Lin's ESI had been preserved, Defendants would not have gained possession of such ESI prior to the 2022 close of discovery in this case. The ESI order in the 2019 case severely restricts Defendants' ability to use in the present case Xiamen ESI produced in the 2019 case. See ECF 570-29, p. 15. Moreover, it is uncertain whether the lost ESI was materially different from other discovery available to Defendants. A similar lack of clarity attends the issue of whether the lost ESI effectively could be (or has been) “restored or replaced through additional discovery.” *5 Because of these presently doubtful uncertainties, the Magistrate Judge believes that, in this case as well as in the 2019 case, the District Judge will be in a better position, in the context of pretrial or trial, to evaluate: the nature and extent of any restoration or replacement of the lost ESI by other comparable information; the nature and extent of any remaining prejudice to Defendants; and the need for, and the nature of, any “measures” appropriate under Rule 37(e)(1). See Two Canoes LLC v. Addian Inc., 2024 WL 2939178, at *9-10 (D.N.J. April 30, 2024), adopted, 2024 WL 347085 (D.N.J. July 19, 2024) (deferring until trial the disputed issues regarding Rule 37(e)(1) sanctions); 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 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: ________. 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 and Gregory v. Montana, 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.