Lever Your Business Inc v. Sacred Hoops and Hardwood, Inc.

Opinion

O 1 2

4 5 6 UNITED STATES DISTRICT COURT 7 CENTRAL DISTRICT OF CALIFORNIA 8

10 LEVER YOUR BUSINESS, INC., Case No. EDCV 19-1530-CAS (KKx)

11 Plaintiff and Counter Defendant, ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF’S EX 12 v. PARTE APPLICATION FOR SANCTIONS [DKT. 56] INC., 14 Defendant and Counter Claimant. 15 16 17 I. 19 On April 2, 2021, Plaintiff and Counter Defendant Lever Your Business 20 (“LYB”) filed an Ex Parte Application for Sanctions against Defendant and Counter 21 Claimant Sacred Hoops and Hardwood, Inc. doing business as Top 10 Sports (“Top 22 10”) seeking terminating, evidentiary, and monetary sanctions for Top 10’s alleged 23 discovery abuses (“Application”). ECF Docket No. (“Dkt.”) 56. For the reasons 24 discussed below, the Court GRANTS LYB’s request for monetary sanctions and 25 DENIES without prejudice LYB’s request for evidentiary and terminating sanctions. 26 /// 27 /// 1 II. 3 LYB is a California corporation and distributor of “Italian based clothing, 4 accessory, and life-style brands to companies (sellers) throughout the United States,” 5 including Hey Dude brand shoes. Dkt. 1, Compl., ¶ 6. Top 10 is a South Dakota 6 corporation and seller of shoes and accessories, including Hey Dude shoes, to 7 consumers via its own website and an Amazon website. Id., ¶¶ 2-3; dkt. 13 at 3. 8 On August 15, 2019, LYB filed the Complaint in this action. Dkt. 1. The sole 9 remaining claim in the Complaint is for breach of contract alleging Top 10 breached 10 the Minimum Advertising Pricing Policy (“MAP Agreement”) entered into by the 11 parties in February 2017 by selling Hey Dude products at unauthorized prices and on 12 unauthorized websites. See dkt. 23. 13 On March 20, 2020, Top 10 filed its operative First Amended Answer and 14 Countercomplaint (“FAAC”). Dkt. 32. The remaining counterclaims are for breach 15 of implied contract and breach of the implied covenant of good faith and fair dealing 16 based on LYB’s alleged failure to enforce the MAP Agreement against Top 10’s 17 competitors. See dkts. 32, 41. 18 On April 13, 2020, the Court held a Scheduling Conference and issued an 19 Order setting the discovery cut-off for May 3, 2021 and a jury trial for November 3, 20 2021. Dkt. 37. 21 On May 15, 2020, LYB served Top 10 with Requests for Admissions (Set 22 One), Special Interrogatories (Set One), and Requests for Production (Set One) 23 (collectively, the “Discovery Requests”). Dkt. 56-1, Declaration of Christopher L. 24 Walters in Support of Ex Parte Application (“Walters Decl.”), ¶ 4. 25 On June 12, 2020, LYB filed an Answer to the FAAC. Dkt 43. 26 On July 8, 2020, Top 10 served its Responses to the Discovery Requests. Dkt. 27 50-1 at 203-06, Declaration of Christopher L. Walters in Support of Motion to 1 On July 30, 2020, Top 10 served its Supplemental Responses to the Discovery 2 Requests. Walters MTC Decl., ¶ 10, Ex. H. 3 On November 24, 2020, LYB filed a Motion to Compel further responses to 4 the Discovery Requests. Dkt. 50. 5 On January 25, 2021, the Court granted in part and denied in part LYB’s 6 Motion to Compel requiring that no later than February 8, 2021, Top 10 shall serve 7 supplemental responses to certain Discovery Requests, including information 8 regarding all sales postings and data related to Top 10’s sale of Hey Dude shoes on 9 the Amazon website. Dkt. 53. 10 On February 8, 2021, Top 10 served Second Supplemental Responses to 11 Plaintiff’s Special Interrogatories and Requests for Production. Walters Decl., ¶ 5, 12 Exs. B, E. In its verified response to Interrogatory Nos. 10 and 12, Top 10 states, 13 “Responding Party no longer sells products on Amazon or Wal-Mart and has been 14 denied access to both the Amazon and Wal-Mart retail client portals. As a result 15 Responding Party is not in possession of any additional information . . . .” Id., Ex. B. 16 In its verified response to Interrogatory No. 11, Top 10 states, “Responding Party 17 closed its accounts with Amazon and Yahoo. Furthermore, Responding Party closed 18 its account with Zentail, which was Responding Party’s inventory management 19 system.” Id. Top 10’s co-founder and director of operations, Cody Bertram, 20 however, admits that on February 8, 2021, the Amazon account was not actually 21 closed, but rather in “sleep mode.” Dkt. 61, Declaration of Cody Bertram (“Bertram 22 Decl.”), ¶ 7. 23 On February 10, 2021, LYB’s counsel sent Top 10’s counsel an email 24 explaining that he believed Top 10 still maintained Hey Dude shoe listings on the 25 Amazon website based on screen shots he took of the website. Walters Decl., ¶ 6, 26 Ex. C. Top 10’s counsel responded by email stating she “do[es] not believe [Top 10] 27 has any duty not to sell its remaining Hey Dude Shoes on Amazon.” Id., ¶ 7, Ex. F. 1 On March 12, 2021, Top 10 served Third Supplemental Responses to Special 2 Interrogatories. Id., ¶ 8, Ex. D. In response to Interrogatory Nos. 10-12, Top 10 3 states, “Responding Party is no longer selling Hey Dude Shoes on either Amazon or 4 Walmart. Responding Party terminated its Amazon agreement on or around March 8, 5 2021. . . . As a result, Responding Party is not in possession of any additional 6 information . . . .” Id. 7 On April 2, 2021, LYB filed the instant Application seeking terminating, 8 evidentiary, and monetary sanctions for Top 10’s alleged failure to comply with the 9 Court’s January 25, 2021 Order and destruction of evidence. Dkt. 56. On April 20, 10 2021, Top 10 filed an Opposition.1 Dkt. 58. On April 27, 2021, LYB filed a Reply. 11 Dkt. 62. 12 The matter is thus submitted and ready for decision. 15 A. LYB HAS NOT ESTABLISHED TOP 10 DESTROYED MATERIAL 17 1. Applicable Law 18 Spoliation is “the destruction or significant alteration of evidence, or the failure 19 to preserve property for another’s use as evidence, in pending or future litigation.” 20 Kearney v. Foley & Lardner, LLP, 590 F.3d 638, 649 (9th Cir. 2009); Silvestri v. Gen. 21 Motors Corp., 271 F.3d 583, 590 (4th Cir. 2001) (Spoliation “refers to the destruction 22 1 Top 10 also filed Objections to paragraphs 6, 7, and 9-12 of the declaration of 23 LYB’s counsel filed in support of the Application on the grounds of lack of foundation. Dkt. 60. To the extent LYB is relying on screenshots of Amazon 24 website pages attached to LYB’s counsel’s declaration to prove Top 10’s Amazon account was still active or that Top 10 failed to produce data, information, and 25 documents regarding all of its online sales of Hey Dude shoes, Top 10’s objections are SUSTAINED. However, LYB appears to correct this issue through the 26 declaration of Oscar Daniel Ramirez filed in support of LYB’s Reply because Mr. Ramirez’s job duties as a consultant assisting with Hey Dude shoe sales managing the 27 Amazon.com Seller Central store and advising on Amazon-related issues provides 1 or material alteration of evidence or to the failure to preserve property for another’s 2 use as evidence in pending or reasonably foreseeable litigation.”). “Sanctions that a 3 federal court may impose for spoliation include assessing attorney’s fees and costs, 4 giving the jury an adverse inference instruction, precluding evidence, or imposing the 5 harsh, case-dispositive sanctions of dismissal or judgment.” Montoya v. Orange Cnty. 6 Sheriff’s Dep’t, No. SACV 11-1922-JGB, 2013 WL 6705992, at *4 (C.D. Cal. Dec. 18, 7 2013) (citing Apple Inc. v. Samsung Elecs. Co., Ltd., 881 F.Supp.2d 1132, 1135 (N.D. 8 Cal. 2012); In re Napster, Inc. Copyright Litig., 462 F. Supp. 2d 1060, 1065 (N.D. Cal. 9 2006)). 10 2. Analysis 11 Here, LYB argues Top 10 destroyed the documents and data regarding Top 12 10’s Amazon website activity. Dkt. 62. However, it appears the information may still 13 be available directly from Amazon or from Top 10. 14 First, while Top 10 states it terminated its agreement with Amazon on March 8, 15 2021 and claims it no longer has access to its Amazon data, there is nothing in the 16 record regarding whether either party has sought the information directly from 17 Amazon. Second, LYB also argues Top 10 has not actually closed its Amazon 18 account, but merely changed the name of its storefront from Top 10 to Back Alley 19 Apparel. LYB supports this argument with the declaration of Oscar Daniel Ramirez, 20 a consultant whose job duties include “management of the Amazon.com Seller 21 Central store and advising on Amazon-related issues.” Dkt. 62-1, Declaration of 22 Oscar Daniel Ramirez (“Ramirez Decl.”), ¶ 2. Mr. Ramirez states, “It is impossible to 23 have a different stores[’] information on your seller profile page unless there is a 24 connection in Amazon’s back-end system.” Id., ¶ 8. Mr. Ramirez, therefore, 25 concludes “Back Alley Apparel” is the same store as “Top 10 Sports.” Id. In 26 addition, Mr. Ramirez explains, “even if a seller was to update their store name, 27 Employer Identification Number (EIN) and entity details, the sales history, account 1 marketing campaigns, inventory history and historical listings (unless manually 2 deleted) would still show up in the account.” Id. 3 Therefore, based on the information before the Court, it appears the Amazon 4 sales information is still available directly from Amazon through subpoena and/or 5 from Top 10. Hence, without more information, the Court is unable to conclude any 6 spoliation occurred. 7 B. TOP 10 ENGAGED IN DISCOVERY MISCONDUCT AND 8 VIOLATED THE COURT’S JANUARY 25, 2021 ORDER 9 While the Court cannot conclude Top 10 destroyed material evidence, it is clear 10 that Top 10 engaged in discovery misconduct and violated this Court’s January 25, 11 2021 Order. 12 On January 25, 2021, the Court ordered Top 10 to provide further discovery 13 responses regarding its Hey Dude shoe sales, including information relating to 14 Amazon sales. Dkt. 53. Subsequently, on February 8, 2021, Top 10 served Second 15 Supplemental Interrogatory Responses stating no additional information exists 16 because it had “closed” its Amazon account. Walters Decl., Ex. B. On March 12, 17 2021, Top 10 served Third Supplemental Interrogatory Responses stating Top 10 18 “terminated” its Amazon account on March 8, 2021. Id., Ex. D. Mr. Bertram now 19 attempts to explain the apparent discrepancy in the February 8, 2021 and March 12, 20 2021 responses by stating the Amazon account was in “sleep” mode on February 8, 21 20212 and not “terminated” until March 8, 2021. Bertram Decl., ¶ 6. 22 The Court is not pleased with Top 10’s deliberate attempt to avoid compliance 23 with the Court’s January 25, 2021 Order. Rather than produce the documents and 24 data as ordered, Top 10 apparently closed its Amazon account instead. Notably, Mr. 25 Ramirez explains “[a] seller is able to conduct an order report download prior to 26

27 2 Notably missing from Mr. Bertram’s declaration is any mention of when the 1 closing the account. This permits the seller to have data regarding sales, which is 2 useful for business planning purposes and also permits an accurate accounting 3 (including returns).” Ramirez Decl., ¶ 13. Therefore, regardless of when Top 10 put 4 its Amazon account in “sleep” mode or closed the account, Top 10’s failure to 5 conduct an “order report download” prior to terminating its account is a flagrant 6 violation of the Court’s January 25, 2021 Order. Moreover, Mr. Ramirez also states 7 he has never heard of “sleep” mode, but rather “vacation” mode which allows a Seller 8 account to remain open yet dormant. Id., ¶ 12. Top 10’s supplemental discovery 9 responses, therefore, are also misleading and untruthful. 10 Accordingly, the Court finds Top 10 intentionally engaged in discovery 11 misconduct and willfully violated the Court’s January 25, 2021 Order. 14 1. Relevant Law 15 Rule 37(b)(2)(A)(v) of the Federal Rules of Civil Procedure authorizes the 16 sanction of dismissal against parties who disobey a court’s discovery orders. See Nat’l 17 Hockey League v. Metro. Hockey Club, Inc., 427 U.S. 639 (1976); Sigliano v. 18 Mendoza, 642 F.2d 309, 310 (9th Cir. 1981). To justify the imposition of case- 19 dispositive sanctions, the Court must find that the discovery violations were due to 20 “willfulness, bad faith, or fault of the party.” Commodity Futures Trading Comm’n v. 21 Noble Metals Int’l, Inc., 67 F.3d 766, 770-71 (9th Cir. 1995), cert. denied, 519 U.S. 22 815 (1996) (citations and internal quotations omitted); see also Societe Internationale 23 v. Rogers, 357 U.S. 197, 212 (1958). Disobedient conduct not outside the control of 24 the litigant is all that is required to demonstrate willfulness, bad faith, or fault. Henry 25 v. Gill Indus., Inc., 983 F.2d 943, 948-49 (9th Cir. 1993). In evaluating the propriety 26 of sanctions, the Court considers “all incidents of a party’s misconduct.” Adriana Int’l 27 Corp. v. Thoeren, 913 F.2d 1406, 1411 (9th Cir. 1990), cert. denied, 498 U.S. 1109 1 Courts apply a five-part test to determine whether a case-dispositive sanction is 2 just: 3 (1) the public’s interest in expeditious resolution of litigation; (2) the 4 court’s need to manage its dockets; (3) the risk of prejudice to the party 5 seeking sanctions; (4) the public policy favoring disposition of cases on 6 their merits; and (5) the availability of less drastic sanctions. The sub- 7 parts of the fifth factor are whether the court has considered lesser 8 sanctions, whether it tried them, and whether it warned the recalcitrant 9 party about the possibility of case-dispositive sanctions. This “test” is 10 not mechanical. It provides the district court with a way to think about 11 what to do, not a set of conditions precedent for sanctions or a script 12 that the district court must follow. 13 Conn. Gen. Life Ins. Co. v. New Images of Beverly Hills, 482 F.3d 1091, 1096 (9th 14 Cir. 2007) (citations omitted) (affirming default judgment against defendants after 15 “years of evasion of discovery obligations”). “The first two of these factors favor the 16 imposition of sanctions in most cases, while the fourth cuts against a default or 17 dismissal sanction. Thus, the key factors are prejudice and availability of lesser 18 sanctions.” Wanderer v. Johnston, 910 F.2d 652, 656 (9th Cir. 1990). 19 2. Analysis 20 LYB seeks to have Top 10’s FAAC dismissed as a sanction for disobeying the 21 Court’s January 25, 2021 Order. While it is clear Top 10 blatantly violated the Court’s 22 January 25, 2021 Order, Top 10 has not wholly failed to cooperate in discovery, nor 23 does it appear LYB has made any effort to obtain the information directly from 24 Amazon. Further, the Court has not had an opportunity to determine whether less 25 drastic sanctions such as monetary sanctions would be effective. It is therefore 26 unclear whether LYB will be irreparably prejudiced or whether less drastic sanctions 27 may yet be effective. See Dreith v. Nu Image, Inc., 648 F.3d 779, 788 (9th Cir. 2011) 1 plaintiff because it makes it “impossible for [p]laintiff to adequately prepare itself for 2 trial”); Wanderer, 910 F.2d at 656 (affirming default judgment against defendants 3 where defendants’ failure to appear at depositions, compounded by “repeated 4 noncompliance with court orders to produce documents,” prejudiced “plaintiffs’ 5 ability to prove the claims and to obtain a decision in the case”). Thus, at this stage of 6 the case, application of the above factors weighs against terminating sanctions. 7 Accordingly, LYB’s request for terminating sanctions is DENIED without 8 prejudice. 11 1. Relevant Law 12 When a party fails to obey an order to provide or permit discovery, Federal 13 Rule of Civil Procedure 37(b)(2)(A)(I) permits courts to issue an order “directing that 14 the matters embraced in the order or other designated facts be taken as established for 15 purposes of the action, as the prevailing party claims.” FED. R. CIV. P. 37(b)(2)(A)(I). 16 2. LYB’s Requests 17 LYB seeks an order prohibiting Top 10 from 18 arguing or presenting evidence regarding its activity on Amazon, 19 Walmart, or any other marketplace for which [Top 10] has failed to 20 produce documents. Further, [Top 10] should be barred from 21 presenting any evidence or argument relating to the activity of [LYB] or 22 any vendor of Hey Dude shoes on Amazon, Walmart, or any other 23 marketplace for which [Top 10] has failed to produce documents. 24 Dkt. 56 at 27. 25 3. Analysis 26 Here, the evidentiary sanctions requested are tantamount to terminating 27 sanctions that the Court does not find warranted at this stage. Therefore, and for the 1 DENIED without prejudice. In addition, as detailed below in section III.F., the 2 Court will grant LYB an extension of the discovery cut off to conduct any further 3 discovery, thus minimizing any potential prejudice. 5 1. Relevant Law 6 When a party fails to obey an order to provide or permit discovery, “the court 7 must order the disobedient party, the attorney advising that party, or both to pay the 8 reasonable expenses, including attorney’s fees, caused by the failure, unless the failure 9 was substantially justified or other circumstances make an award of expenses unjust.” 10 FED. R. CIV. P. 37(b)(2)(C). “[A]n evasive or incomplete disclosure, answer, or 11 response must be treated as a failure to disclose, answer, or respond.” FED. R. CIV. P. 12 37(a)(4). 13 When an award of attorney’s fees is authorized, a court must calculate the 14 proper amount of the award to ensure that it is reasonable. Hensley v. Eckerhart, 461 15 U.S. 424, 433-34 (1983). Reasonableness is generally determined using the “lodestar” 16 method, where a court considers the work completed by the attorneys and multiplies 17 “the number of hours reasonably expended on the litigation by the reasonable hourly 18 rate.” Gracie v. Gracie, 217 F.3d 1060, 1070 (9th Cir. 2000). The moving party has 19 the burden to produce evidence that the rates and hours worked are reasonable. See 20 Intel Corp. v. Terabyte Int’l, 6 F.3d 614, 623 (9th Cir. 1983). 21 In addition, under its “inherent powers,” a district court may also award 22 sanctions in the form of attorneys’ fees against a party or counsel who acts “in bad 23 faith, vexatiously, wantonly, or for oppressive reasons.” Primus Auto. Fin. Servs., Inc. 24 v. Batarse, 115 F.3d 644, 648 (9th Cir. 1997) (discussing a sanction against an 25 attorney) (citation omitted). Before awarding such sanctions, the court must make an 26 express finding that the sanctioned party’s behavior “constituted or was tantamount 27 to bad faith.” Id. (citation omitted). A party “demonstrates bad faith by delaying or 1 (internal quotation marks and citation omitted). The bad faith requirement ensures 2 that the district court’s exercise of its broad power is properly restrained, and 3 “preserves a balance between protecting the court’s integrity and encouraging 4 meritorious arguments.” Id. 5 2. Analysis 6 Here, Top 10’s discovery conduct, discussed above in Section III.B, particularly 7 the blatant disregard of the Court’s January 25, 2021 Order, was not substantially 8 justified and there are no circumstances making an award of expenses unjust. See 9 FED. R. CIV. P. 37(b)(2)(C). Hence, pursuant to Rule 37(b)(2)(C) and the Court’s 10 inherent authority, the Court finds an award to LYB of the reasonable expenses 11 resulting from Top 10’s discovery misconduct is warranted. 12 LYB seeks an award of $15,642 in attorneys’ fees incurred in researching, 13 preparing, drafting, and filing the Application. Walters Decl., ¶13; dkt. 62-2, Walter’s 14 Supplemental Declaration in Support of Reply (“Walters Suppl. Decl.”), ¶ 4. In 15 support of this request, LYB has submitted Mr. Walters’ declarations, which establish 16 (1) Attorney Brandon T. Willenberg, an attorney with 20 years of 17 business/commercial litigation experience, spent 9.8 hours (at a rate of $415 per hour) 18 researching and drafting the Application and supporting papers; (2) Mr. Walters, an 19 attorney with 22 years of business/commercial litigation experience, spent 7.9 hours 20 (at a rate of $450 per hour) reviewing and revising the Application and supporting 21 papers and 13.2 hours analyzing Top 10’s Opposition and preparing the Reply brief; 22 and (3) Dominic Giovanniello, a paralegal with 15 years of litigation experience, spent 23 6.9 hours (at a rate of $200 per hour) in preparing exhibits and filing the Application 24 and 3.5 hours finalizing and filing the Reply brief. Id.; see also Henry v. Gill Indus., 25 Inc., 983 F.2d 943, 946 (9th Cir. 1993) (“[A]n award of attorney’s fees may be based 26 on the affidavits of counsel, so long as they are ‘sufficiently detailed to enable the 27 court to consider all the factors necessary in setting the fees.’”). Top 10 does not 1 Court finds both the hours spent preparing the Application and Reply as well as the 2 hourly rate to be reasonable. See Leon v. IDX Sys. Corp., 464 F.3d 951 (9th Cir. 3 2006) (affirming award of $65,000 as monetary sanctions where sanctioned party’s 4 conduct amounted to willful spoliation and bad faith and the amount was reasonable 5 to cover moving parties’ attorney fees); Infanzon v. Allstate Ins. Co., 335 F.R.D. 305, 6 315 (C.D. Cal. 2020) (awarding $38,932 in reasonable attorneys’ fees that defendant 7 “needlessly incurred as a result of [plaintiff’s] discovery abuses”). 8 Accordingly, LYB’s request for payment of its reasonable expenses is 9 GRANTED. Top 10 and Top 10’s counsel, jointly and severally, shall pay to LYB the 10 sum of $15,642, which represents the reasonable expenses incurred by LYB in 11 bringing this Application. 14 Finally, LYB requests the Court continue the July 6, 2021 discovery cut-off for 15 LYB and all related pending trial dates for 120 days. Dkt. 56 at 31. It appears LYB 16 may need to subpoena Amazon and/or Walmart to obtain additional discovery 17 regarding Hey Dude shoes sales and then take appropriate depositions regarding the 18 additional discovery. See dkt. 56 at 12. The Court finds good cause for a 60-day 19 extension of the discovery cut-off for LYB and therefore continues the discovery cut- 20 off for LYB only to September 6, 2021. The Court, however, declines continue the 21 pending trial and pretrial dates at this time. 22 IV. 24 IT IS THEREFORE ORDERED LYB’s Application is GRANTED IN 25 PART and DENIED IN PART as follows: 26 1. LYB’s requests for terminating and evidentiary sanctions are DENIED 27 without prejudice. 1 2. LYB’s request for monetary sanctions is GRANTED. Within thirty 2 days of the date of this Order, Top 10 and its counsel, jointly and 3 severally, shall pay to LYB the sum of $15,642. 4 3. LYB’s request to continue the discovery cut-off, trial, and pre-trial dates 5 for 120 days is GRANTED IN PART. The discovery cut-off shall be 6 continued, for LYB only, to September 6, 2021. 7 ae 8 | Dated: May 24, 2021 Atta Hu a Argde—_ 9 HONORABLE CHRISTINA A. SNYDER □ 10 United States District Judge 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28