1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 3D SYSTEMS, INC., Case No.: 21-cv-1141-AGS-DDL
12 Plaintiff, ORDER DENYING DEFENDANTS’ 13 v. MOTION FOR SANCTIONS
14 BEN WYNNE, et al., [Dkt. No. 294] 15 Defendants. 16 17 I. 18 INTRODUCTION 19 Defendants move for terminating and other sanctions based on (1) plaintiff 3D 20 Systems Inc.’s (“3D Systems or Plaintiff”) failure to preserve the emails of three former 21 employees relating to an investigation of Defendants following their departure from 3D 22 Systems in 2017 and (2) an alleged lack of candor by 3D Systems in this action regarding 23 the investigation. The Court denies the motion. 24 / / / 25 / / / 26 / / / 27 / / / 28 / / / 1 II. 2 FACTS AND PROCEDURAL HISTORY 3 A. 3D Systems Investigates Defendants In 2017 4 In 2016, 3D Systems hired the five individual defendants (collectively 5 “Defendants”) to “advance [it’s] Figure 4 print engine technology.” Declaration of Andrew 6 Johnson (Dkt. No. 363-27) at ¶ 3.1 Defendants simultaneously resigned their employment 7 in August 2017, and “3D Systems” initiated an internal investigation into their departure. 8 Id. at ¶ 4.2 The investigation included “collecting certain data related to the Figure 4 project 9 that was available on the [Defendants’] company computers” as well as data from their 10 “company email accounts, their company-issued cell phones, their company-issued PC 11 hard drives, certain HR files, [their] employment contracts, company-issued credit card 12 usage and their travel history.” Id. The investigators “review[ed] the data collected to 13 determine whether the [Defendants] had engaged in misconduct when they left 3DS, or 14 whether it was possible to tell from the data what the [Defendants] planned to do after they 15 left 3DS.” Id. at ¶ 5. The issues under investigation included, but were not limited to, 16 “whether they had improperly retained and/or taken any 3DS confidential or trade secret 17 information when they left 3DS.” Id. 18 B. Defendants Seek Discovery Regarding the Investigation 19 Defendants have sought discovery from 3D Systems regarding the 2017 20 investigation. As relevant here, Defendants requested that 3D Systems produce emails sent 21 and received by Michael Jackyra, John McMullen and Jim Ruder, who Defendants contend 22 23 24 1 The Court relies on the facts contained in the Declaration of Andrew Johnson 25 (“Johnson Dec.”), submitted in opposition to Defendants’ motion for summary judgment. Dkt. No. 363-27. 26
27 2 Throughout his declaration, Johnson refers to “3D Systems” and “3DS,” which appears to include both 3DS, Inc. and its corporate parent, 3DS Corporation. The Court 28 1 were part of the 3D Systems investigation team in 2017. However, each of these 2 individuals left 3D Systems before this lawsuit was filed in 2021, and 3D Systems did not 3 preserve their emails. 4 III. 5 DISCUSSION 6 A. Failure To Preserve Emails 7 1. Legal Standards 8 The law imposes upon litigants “a duty to preserve evidence which [they] know[] or 9 reasonably should know is relevant to” pending or reasonably anticipated litigation. In re 10 Napster, Inc. Copyright Litig., 462 F. Supp. 2d 1060, 1067 (N.D. Cal. 2006). Spoliation is 11 a party’s breach of this duty and is sanctionable. See Compass Bank v. Morris Cerullo 12 World Evangelism, 104 F. Supp. 3d 1040, 1052 (S.D. Cal. 2015). Such sanctions serve to 13 cure the prejudice created by the spoliation to the extent possible, and to deter any future 14 spoliation. See Reinsdorf v. Skechers U.S.A., Inc., 296 F.R.D. 604, 626 (C.D. Cal. 2013). 15 Federal Rule of Civil Procedure 37(e) governs the spoliation of electronically stored 16 information (“ESI”).3 The Rule empowers the Court to sanction a spoliating party when 17 ESI “that should have been preserved in the anticipation or conduct of litigation is lost 18 because [the] party failed to take reasonable steps to preserve it, and it cannot be restored 19 or replaced through additional discovery . . . .” Fed. R. Civ. P. 37(e). The Rule further 20 provides that the Court “may order measures no greater than necessary to cure the 21 prejudice,” unless the Court finds that the spoliating party “acted with the intent to deprive 22
23 3 A majority of courts hold that Rule 37 “provides the exclusive source of sanctions 24 for the loss of ESI and forecloses reliance on [the Court’s] inherent authority.” Fast v. 25 GoDaddy.com LLC, 340 F.R.D. 326, 335 (D. Ariz. 2022) (citing Rule 37(e), advisory committee note to 2015 amendment); see also Gault v. United States, No. 20-10687 PA 26 (PVC), 2022 WL 4292340, at *6 (C.D. Cal. Aug. 23, 2022) (noting that “[t]he weight of 27 authority holds that [t]he 2015 revision to Rule 37(e) provides the sole basis for a court to take action for the failure to preserve electronic evidence”) (second alteration and emphasis 28 1 another party of the information’s use.” Fed. R. Civ. P. 37(e)(1) and (2). In the latter 2 circumstance, the Court may impose harsher sanctions, including “instruct[ing] the jury 3 that it may or must presume the information was unfavorable to the party.” Fed. R. Civ. 4 P. 37(e)(2). 5 Rule 37(e) “establishes three prerequisites to sanctions” for spoliation of ESI. Fast, 6 340 F.R.D. at 335. First, “the ESI should have been preserved.” Id. Second, the ESI 7 “[was] lost through a failure to take reasonable steps to preserve it.” Id. And third, the ESI 8 “cannot be restored or replaced through additional discovery.” Id. The party moving for 9 sanctions bears the burden of proving that the ESI existed and was spoliated. See Belew- 10 Nyquist v. Quincy School Dist. No. 144, No. 2:19-CV-0215-TOR, 2020 WL 6845934, at 11 *11 (E.D. Wash. Nov. 20, 2020) (citation omitted). “The relevant standard of proof . . . is 12 a preponderance of the evidence.” Fast, 340 F.R.D. at 335 (citations omitted). “[O]nce 13 spoliation is shown, the burden of proof logically shifts to the guilty party to show that no 14 prejudice resulted from the spoliation because that party is in a much better position to 15 show what was destroyed and should not be able to benefit from its wrongdoing.” 16 OmniGen Rsch. v. Yongqiang Wang, 321 F.R.D. 367, 372 (D. Or. 2017) (citation omitted). 17 2. Defendants Do Not Meet Their Burden Under Rule 37(e) 18 Defendants’ motion does not cite Rule 37(e) or address its requirements. Rather, 19 Defendants rely solely on Rule 37(B)(2)(A)(ii), which applies when a party fails to obey a 20 discovery order. But as noted above, Rule 37(e) governs where a party seeks sanctions 21 based on spoliation of ESI, as Defendants allege here, Fast, 340 F.R.D. at 335, and 22 Defendants’ failure to address the rule’s requirements is fatal to their motion. Even 23 assuming that emails to and from Jackyra, McMullen and Ruder “should have been 24 preserved” and that the emails were “lost through a failure to take reasonable steps to 25 preserve” them, Defendants have not shown that the emails “cannot be restored or replaced 26 through additional discovery.” Id. 27 “A court may not sanction a party for spoliation under [Rule] 37(e) if the parties can 28 restore or replace the lost ESI through feasible means.” Oracle USA, Inc. v. Rimini St., 1 Inc., No. 2:10-CV-0106-LRH-VCF, 2020 WL 9209714, at *4 (D. Nev. Sept. 21, 2020), 2 report and recommendation adopted, 2021 WL 1224904 (D. Nev. Mar. 31, 2021), on 3 reconsideration, 2021 WL 9333202 (D. Nev. June 9, 2021).
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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 3D SYSTEMS, INC., Case No.: 21-cv-1141-AGS-DDL
12 Plaintiff, ORDER DENYING DEFENDANTS’ 13 v. MOTION FOR SANCTIONS
14 BEN WYNNE, et al., [Dkt. No. 294] 15 Defendants. 16 17 I. 18 INTRODUCTION 19 Defendants move for terminating and other sanctions based on (1) plaintiff 3D 20 Systems Inc.’s (“3D Systems or Plaintiff”) failure to preserve the emails of three former 21 employees relating to an investigation of Defendants following their departure from 3D 22 Systems in 2017 and (2) an alleged lack of candor by 3D Systems in this action regarding 23 the investigation. The Court denies the motion. 24 / / / 25 / / / 26 / / / 27 / / / 28 / / / 1 II. 2 FACTS AND PROCEDURAL HISTORY 3 A. 3D Systems Investigates Defendants In 2017 4 In 2016, 3D Systems hired the five individual defendants (collectively 5 “Defendants”) to “advance [it’s] Figure 4 print engine technology.” Declaration of Andrew 6 Johnson (Dkt. No. 363-27) at ¶ 3.1 Defendants simultaneously resigned their employment 7 in August 2017, and “3D Systems” initiated an internal investigation into their departure. 8 Id. at ¶ 4.2 The investigation included “collecting certain data related to the Figure 4 project 9 that was available on the [Defendants’] company computers” as well as data from their 10 “company email accounts, their company-issued cell phones, their company-issued PC 11 hard drives, certain HR files, [their] employment contracts, company-issued credit card 12 usage and their travel history.” Id. The investigators “review[ed] the data collected to 13 determine whether the [Defendants] had engaged in misconduct when they left 3DS, or 14 whether it was possible to tell from the data what the [Defendants] planned to do after they 15 left 3DS.” Id. at ¶ 5. The issues under investigation included, but were not limited to, 16 “whether they had improperly retained and/or taken any 3DS confidential or trade secret 17 information when they left 3DS.” Id. 18 B. Defendants Seek Discovery Regarding the Investigation 19 Defendants have sought discovery from 3D Systems regarding the 2017 20 investigation. As relevant here, Defendants requested that 3D Systems produce emails sent 21 and received by Michael Jackyra, John McMullen and Jim Ruder, who Defendants contend 22 23 24 1 The Court relies on the facts contained in the Declaration of Andrew Johnson 25 (“Johnson Dec.”), submitted in opposition to Defendants’ motion for summary judgment. Dkt. No. 363-27. 26
27 2 Throughout his declaration, Johnson refers to “3D Systems” and “3DS,” which appears to include both 3DS, Inc. and its corporate parent, 3DS Corporation. The Court 28 1 were part of the 3D Systems investigation team in 2017. However, each of these 2 individuals left 3D Systems before this lawsuit was filed in 2021, and 3D Systems did not 3 preserve their emails. 4 III. 5 DISCUSSION 6 A. Failure To Preserve Emails 7 1. Legal Standards 8 The law imposes upon litigants “a duty to preserve evidence which [they] know[] or 9 reasonably should know is relevant to” pending or reasonably anticipated litigation. In re 10 Napster, Inc. Copyright Litig., 462 F. Supp. 2d 1060, 1067 (N.D. Cal. 2006). Spoliation is 11 a party’s breach of this duty and is sanctionable. See Compass Bank v. Morris Cerullo 12 World Evangelism, 104 F. Supp. 3d 1040, 1052 (S.D. Cal. 2015). Such sanctions serve to 13 cure the prejudice created by the spoliation to the extent possible, and to deter any future 14 spoliation. See Reinsdorf v. Skechers U.S.A., Inc., 296 F.R.D. 604, 626 (C.D. Cal. 2013). 15 Federal Rule of Civil Procedure 37(e) governs the spoliation of electronically stored 16 information (“ESI”).3 The Rule empowers the Court to sanction a spoliating party when 17 ESI “that should have been preserved in the anticipation or conduct of litigation is lost 18 because [the] party failed to take reasonable steps to preserve it, and it cannot be restored 19 or replaced through additional discovery . . . .” Fed. R. Civ. P. 37(e). The Rule further 20 provides that the Court “may order measures no greater than necessary to cure the 21 prejudice,” unless the Court finds that the spoliating party “acted with the intent to deprive 22
23 3 A majority of courts hold that Rule 37 “provides the exclusive source of sanctions 24 for the loss of ESI and forecloses reliance on [the Court’s] inherent authority.” Fast v. 25 GoDaddy.com LLC, 340 F.R.D. 326, 335 (D. Ariz. 2022) (citing Rule 37(e), advisory committee note to 2015 amendment); see also Gault v. United States, No. 20-10687 PA 26 (PVC), 2022 WL 4292340, at *6 (C.D. Cal. Aug. 23, 2022) (noting that “[t]he weight of 27 authority holds that [t]he 2015 revision to Rule 37(e) provides the sole basis for a court to take action for the failure to preserve electronic evidence”) (second alteration and emphasis 28 1 another party of the information’s use.” Fed. R. Civ. P. 37(e)(1) and (2). In the latter 2 circumstance, the Court may impose harsher sanctions, including “instruct[ing] the jury 3 that it may or must presume the information was unfavorable to the party.” Fed. R. Civ. 4 P. 37(e)(2). 5 Rule 37(e) “establishes three prerequisites to sanctions” for spoliation of ESI. Fast, 6 340 F.R.D. at 335. First, “the ESI should have been preserved.” Id. Second, the ESI 7 “[was] lost through a failure to take reasonable steps to preserve it.” Id. And third, the ESI 8 “cannot be restored or replaced through additional discovery.” Id. The party moving for 9 sanctions bears the burden of proving that the ESI existed and was spoliated. See Belew- 10 Nyquist v. Quincy School Dist. No. 144, No. 2:19-CV-0215-TOR, 2020 WL 6845934, at 11 *11 (E.D. Wash. Nov. 20, 2020) (citation omitted). “The relevant standard of proof . . . is 12 a preponderance of the evidence.” Fast, 340 F.R.D. at 335 (citations omitted). “[O]nce 13 spoliation is shown, the burden of proof logically shifts to the guilty party to show that no 14 prejudice resulted from the spoliation because that party is in a much better position to 15 show what was destroyed and should not be able to benefit from its wrongdoing.” 16 OmniGen Rsch. v. Yongqiang Wang, 321 F.R.D. 367, 372 (D. Or. 2017) (citation omitted). 17 2. Defendants Do Not Meet Their Burden Under Rule 37(e) 18 Defendants’ motion does not cite Rule 37(e) or address its requirements. Rather, 19 Defendants rely solely on Rule 37(B)(2)(A)(ii), which applies when a party fails to obey a 20 discovery order. But as noted above, Rule 37(e) governs where a party seeks sanctions 21 based on spoliation of ESI, as Defendants allege here, Fast, 340 F.R.D. at 335, and 22 Defendants’ failure to address the rule’s requirements is fatal to their motion. Even 23 assuming that emails to and from Jackyra, McMullen and Ruder “should have been 24 preserved” and that the emails were “lost through a failure to take reasonable steps to 25 preserve” them, Defendants have not shown that the emails “cannot be restored or replaced 26 through additional discovery.” Id. 27 “A court may not sanction a party for spoliation under [Rule] 37(e) if the parties can 28 restore or replace the lost ESI through feasible means.” Oracle USA, Inc. v. Rimini St., 1 Inc., No. 2:10-CV-0106-LRH-VCF, 2020 WL 9209714, at *4 (D. Nev. Sept. 21, 2020), 2 report and recommendation adopted, 2021 WL 1224904 (D. Nev. Mar. 31, 2021), on 3 reconsideration, 2021 WL 9333202 (D. Nev. June 9, 2021). This is because ESI “often 4 exists in multiple locations” such that “loss from one source may . . . be harmless when 5 substitute information can be found elsewhere.” Fed. R. Civ. P. 37(e), advisory committee 6 notes to 2015 amendment. On the current record, Defendants have not carried their burden 7 to show that the emails are irretrievably lost. See Garrison v. Ringgold, No. 19-cv-0244 8 GPC-DEB, 2020 WL 6537389, at *6 (S.D. Cal. Nov. 6, 2020) (noting that “[t]he moving 9 party has the burden to show that the ESI was in fact lost”); RG Abrams Ins. v. L. Offs. of 10 C.R. Abrams, 342 F.R.D. 461, 506 (C.D. Cal. 2022) (“The showing that ESI actually was 11 lost, or likely lost, must be made through competent evidence, which could take the form 12 of expert testimony or other evidence.”) (citation and quotations omitted). Defendants’ 13 failure to acknowledge or satisfy Rule 37(e)’s requirements compels denial of their motion. 14 See Gault, 2022 WL 4292340, at *8 (finding motion for sanctions “fail[ed]” for the 15 “fundamental reason” that the moving party could not show that ESI was lost or destroyed); 16 Belew-Nyquist, 2020 WL 6845934, at *10 (noting that sanctions are available “if the 17 moving party satisfies all three elements” of Rule 37(e)) (emphasis added). 18 B. Alleged Lack of Candor Re 2017 Investigation 19 Defendants also seek terminating and other sanctions under the Court’s inherent 20 authority and under 28 U.S.C. § 1927 based on Plaintiff’s alleged lack of candor to the 21 Court and to Defendants regarding the 2017 investigation. 22 1. Legal Standards 23 A district court may impose sanctions, including terminating sanctions, for “a broad 24 range of willful improper conduct.” Fink v. Gomez, 239 F.3d 989, 992 (9th Cir. 2001). 25 When considering whether terminating sanctions are appropriate, the Ninth Circuit directs 26 district courts to consider “(1) the existence of certain extraordinary circumstances, (2) the 27 presence of willfulness, bad faith, or fault by the offending party, (3) the efficacy of lesser 28 sanctions, [and] (4) the relationship or nexus between the misconduct drawing the dismissal 1 sanction and the matters in controversy in the case . . . .” Halaco Eng’g Co. v. Costle, 843 2 F.2d 376, 380 (9th Cir. 1988). 3 Section 1927 empowers the Court to require that an attorney “who so multiplies the 4 proceedings in any case unreasonably and vexatiously” must “satisfy personally the excess 5 costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.” 28 6 U.S.C. § 1927. Conduct that “unreasonably and vexatiously multiplies [the] proceedings” 7 is sanctionable under the statute. Gomez v. Vernon, 255 F.3d 1118, 1135 (9th Cir. 2001) 8 (citation omitted). Section 1927 obligates counsel “to avoid dilatory tactics throughout the 9 entire litigation.” Byrne v. Nezhat, 261 F.3d 1075, 1106 (9th Cir. 2001). 10 2. Sanctions Are Not Warranted 11 Defendants argue that sanctions are warranted because 3D Systems failed to timely 12 disclose the existence of the 2017 investigation, erroneously informed the Court that the 13 investigation wasn’t “big,” failed to timely comply with the Court’s order to produce 14 documents pertaining to the investigation and incorrectly represented to the Court on two 15 occasions that the production was complete. These allegations do not support sanctions 16 under the Court’s inherent authority or under § 1927 based on the record and the Court’s 17 familiarity with discovery proceedings in this case. 18 Defendants served written discovery in October 2022, and 3D Systems produced 19 documents pertaining to the 2017 investigation beginning in March 2023. In May 2023, 20 3D Systems provided a privilege log for documents pertaining to the 2017 investigation as 21 to which 3D Systems asserted the attorney-client privilege and work product doctrine. And 22 regardless of whether 3D Systems produced every document pertaining to the 2017 23 investigation by the deadline of July 7, 2023, the record reflects that all such documents 24 have been produced or are included on 3D Systems’s privilege log. Dkt. No. 435 at 11-13. 25 Finally, counsel’s statements at a discovery hearing on May 31, 2023, do not warrant 26 sanctions. At that hearing, counsel acknowledged the 2017 investigation but discounted 27 its breadth, stating “this notion that there was this big investigation when they left, it just 28 doesn’t pan out.” Dkt. No. 217 at 46-47. Whether or not the 2017 investigation is properly 1 || characterized as “big,” counsel’s argument did not display a lack of candor or an intent to 2 ||mislead the Court. As such, no sanctions are warranted under either the Court’s inherent 3 || authority or § 1927. 4 IV. 5 CONCLUSION 6 For the foregoing reasons, the Court DENIES Defendants’ motion for sanctions. 7 IT IS SO ORDERED. 8 ||Dated: February 21, 2024 _— 9 Tbe! Lh. we
11 United States Magistrate Judge 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28