Opinion
No. CIV-04-2001-PHX-SMM.
February 11, 2008
ORDER
Pending before the Court is Defendant/Counterclaimant Exel Transportation Services, Inc.'s ("Exel") motion to hold Plaintiff/Counterdefendant Robert Liss ("Liss") in contempt for failure to abide by the Court's April 29, 2005 order to produce "Crossdockers" documents and for failure to fulfill his discovery obligations (Dkt. 230, Exel's Mot. for Sanctions). Exel seeks an adverse jury instruction and attorneys' fees in addition to holding Liss in contempt. Exel has also filed a motion to exclude from the record certain portions of the declarations of Stanley Lerner and Robert Shely filed in support of Liss's response to the motion for sanctions (Dkt. 270, Exel's Mot. to Exclude). Having considered the parties' contentions, the Court issues this Order.
BACKGROUND
For a thorough review of the factual and procedural background, see the memorandum of decision and order in Liss's motion to dismiss (Dkt. 58), or the background provided in the order for partial summary judgment (Dkt. 212).
This motion arises from Liss's responses to discovery requests and alleged refusal to comply with a Court order dated April 28, and May 4, 2005. The Court ordered Liss to produce the computer he used while employed by Commercial Property Management ("CPM computer") communications regarding "Crossdockers," and related materials. (Dkt. 49, Order dated May 4, 2005 at 2.) Exel contends that Liss has continuously refused to produce the materials identified in that Order. (Dkt. 230, Exel's Mot. for Sanctions 2.) Exel requests that the Court find Liss in contempt for failure to abide by the Order, issue an adverse inference jury instruction, and award attorney's fees. (Id. at 17-18.) Liss responds that he has produced everything in his possession and control, and that Exel failed to follow up with CPM to obtain the sought documents. (Dkt. 255, Liss's Resp. to Mot. 2-3.) Liss also contends that the documents are not relevant to any remaining claims, and that Exel has not proved that he violated a court order by clear and convincing evidence. (Id. at 3.)
Although two dates appear in discussing the background of this matter and the order issued, both dates pertain to the same dispute. The Court issued its order orally at a discovery dispute hearing dated April 28, 2005. (See Dkt. 236, Disc. Dispute Hr'g Tr., Apr. 28, 2005.) The Court then issued a written order memorializing the oral order. (Dkt. 49, Order dated May 4, 2005.)
Counsel for Liss requested an evidentiary hearing if the Court wished to inquire further into the factual allegations. (Id. at 4 n. 2.) An evidentiary hearing was to be held on Friday, February 22, 2008 at 1:30 p.m. The Court has since determined that this motion can be decided without further inquiry into the factual allegations, and will therefore vacate the evidentiary hearing.
The Court has jurisdiction over this case pursuant to 28 U.S.C. § 1332(a)(1), as Liss is a citizen of Arizona, Exel is a Delaware corporation with its principal place of business in Tennessee, and the amount in controversy exceeds $75,000.
STANDARD OF REVIEW
District courts have broad equitable power to order appropriate relief in civil contempt proceedings. McComb v. Jacksonville Paper Co., 336 U.S. 187, 193 (1949); Neebars, Inc. v. Long Bar Grinding, Inc., 438 F.2d 47, 48 (9th Cir. 1971) (per curiam). A district court may impose civil contempt sanctions to coerce obedience to one of its orders, or to compensate the party pursuing the contempt action for injuries resulting from the contemptuous behavior, or both. Whittaker Corp. v. Execuair Corp., 953 F.2d 510, 517 (9th Cir. 1992). Generally, however, a court should only impose the minimum sanction necessary to obtain compliance. Id. Unlike the punitive nature of criminal sanctions, civil sanctions are wholly remedial. Id. In determining the amount and duration of a coercive fine, a court must "consider the character and magnitude of the harm threatened by continued contumacy, and the probable effectiveness of any suggested sanction in bringing about the result desired." Id. at 516 (quoting United States v. United Mine Workers of Am., 330 U.S. 258, 304 (1947)).
With a motion for civil contempt, the moving party has the initial burden of demonstrating by "clear and convincing evidence" that a specific and definite order of the court has been violated. FTC v. Enforma Natural Products, Inc., 362 F.3d 1204, 1211 (9th Cir. 2004). In determining whether the nonmoving party violated the order, the focus is not on subjective beliefs or intent in complying with the order, but whether in fact the conduct complied with the order at issue. In re Dyer, 322 F.3d 1178, 1191 (9th Cir. 2003).
Once the moving party makes its initial showing, the burden shifts to the party violating the order to demonstrate why they were unable to comply. Enforma Natural Products, 362 F.3d at 1211. The U.S. Circuit Court of Appeals for the Ninth Circuit has long held that the rule in civil contempt has "been whether defendants have performed `all reasonable steps within their power to insure compliance' with the court's orders." Stone v. City and County of San Francisco, 968 F.2d 850, 856 (9th Cir. 1992) (quoting Sekaquaptewa v. MacDonald, 544 F.2d 396, 404 (9th Cir. 1976)). A party may not disobey a court order and later argue there were "exceptional circumstances" for doing so. Peterson v. Highland Music, Inc., 140 F.3d 1313, 1323 (9th Cir. 1998). However, a party attempting to avoid civil contempt may raise a "substantial compliance" defense: "If a violating party has taken `all reasonable steps' to comply with the court order, technical or inadvertent violations of the order will not support a finding of civil contempt." Gen. Signal Corp. v. Donallco, Inc., 787 F.2d 1376, 1379 (9th Cir. 1986). But intent is irrelevant to a finding of civil contempt and, therefore, good faith is not a defense. Stone, 968 F.2d at 857.
A trial court also has the broad discretionary power to permit a jury to draw an adverse inference from the destruction or spoliation against the party or witness responsible for that behavior. Akiona v. United States, 938 F.2d 158 (9th Cir. 1991). A finding of "bad faith" is not a prerequisite to this corrective procedure. Unigard Sec. Ins. Co. v. Lakewood Eng'g Mfg. Corp., 982 F.2d 363, 368-70 n. 2 (9th Cir. 1992). A finding of bad faith will suffice, but so will simple notice of "potential relevance to the litigation." Akiona, 938 F.2d at 161; Glover v. BIC Corp., 6 F.3d 1318, 1329 (9th Cir. 1993).
DISCUSSION
Exel claims that it has been unfairly prejudiced by Liss's failure to produce relevant documents. Exel's motion centers on Liss's failure to produce correspondence relating to Crossdockers, a project Liss worked on while employed by CPM. This information is relevant to Exel's counterclaim for breach of Liss's employment contract with Exel because Liss allegedly used Exel's confidential information to create Crossdockers. Liss's discovery responses caused Exel to seek and obtain an order requiring Liss to provide correspondence and recipient lists relating to Crossdockers. (Dkt. 49, Order dated May 4, 2005.) Liss was further ordered to produce the CPM computer for copying or imaging. (Id.) Exel asserts that Liss failed to comply with these provisions of the order, and seeks the following remedies: finding of contempt, adverse jury instruction, and attorney's fees.
A. Crossdockers Correspondence
Early in this litigation Exel requested documents relating to Crossdockers. (Dkt. 230, Exel's Mot. at 5.) Liss responded by stating that he had no documents responsive to those requests. (Id.) Exel was later made aware, by a third party, of a communication ("Exel 288-291") Liss sent regarding Crossdockers and that Liss had not produced. This disclosure ultimately led to the Court ordering Liss to produce "a list of all recipients" of Exel 288-291. (Dkt. 49, Order dated May 4, 2005.) Liss was further ordered to produce "any similar communications, which [Exel] would consider a violation of [Liss's] covenant not to compete, as well as their recipients." (Id.) The deadline for producing these lists and communications was 5:00 pm on May 13, 2005.
On May 9, 2005, Liss produced a seven-page document entitled "CPM — Crossdockers Main Vendor List" listing 472 vendors. (Dkt. 231, Ricketts Decl., Ex. 10.) The cover letter identifies this document as "a confidential list of persons to whom Robert Liss directed those matters identified as Exel 288-291." (Id.) Other Court-ordered materials were also produced. However, no similar communications and no recipients of similar communications were produced by the May 13, 2005 deadline. On February 22, 2006 — seven months after the deadline — Liss produced additional documents. (Id. at Ex. 16.) Those documents included emails sent September 16, 2004, January 10, 2005, February 3, 2005, and May 5, 2005. (Id.)
These emails fell within the scope of the Court's Order to produce similar communications. The September 16, 2004 email is from Liss, and responds to a reply to a fax inquiry. The subject line of the email is "crossdockers." The body the email describes steps already taken to build Crossdockers, and further steps the recipient should take in order to become part of the Crossdockers initiative. The January 10, 2005 email reflects Liss as both the sender and the recipient, and contains "Crossdockers Update — Request for final data verification" in the subject line. Other than omitting the salutation "Dear Joe," the body of the January 10, 2005 email is identical to Exel 288-291. The February 3, 2005 email contains a chain of correspondence between Liss and a company named Centerline Cartage. The subject line is "Crossdockers infrastructure: next steps," and the exchange results in an updated list of "the name and/or zip codes of every city that is in delivery radius . . . as well as the distance from [Centerline Cartage's] facility to each city." The May 5, 2005 email has a subject line of "Crossdocker Update." In that email, Liss requests the recipients to proofread and provide comments on a "mass e-mail to all Crossdocker Vendors that I plan to send out next week."
Other materials provided on February 22, 2006 and on October 13, 2006 similarly should have been produced by the May 13, 2005 deadline. The February 22, 2006 disclosure includes a CPM "Contact Worksheet" dated November 4, 2004. That worksheet contains the following handwritten comment: "Emails were sent to every company that voluntarily decided to fill out this form, and then judged by its contents, deemed as a viable candidate . . . [illegible] vendor for Crossdockers." (Ricketts Decl., Ex. 16.) Those emails were not provided, nor is an explanation provided to connect the handwritten comment and any emails produced. On October 13, 2006, Liss produced emails entitled "Crossdockers Updates" and dated April 25, May 11, and June 29 of 2005. Exel believes these emails are part of Liss's "monthly memos" sent to Crossdockers vendors. (See id. at Ex. 14.) Although the April 25, 2005 email falls within the temporal scope of the May 4, 2005 Order, the Court cannot determine whether it should have been produced because Exel did not provide a copy of the email.
Liss "readily acknowledges that there were documents . . . which had not yet been produced." (Liss's Resp. at 6.) Nonetheless, he asserts two reasons why he discharged his discovery and disclosure obligations. First, his confidentiality agreement with CPM caused him to first permit CPM's counsel to review the documents. (Id.) Second, Exel was aware that CPM's counsel possessed the documents, but did not contact CPM to obtain these documents. (Id. at 7.) In Liss's view, "any `fault' with regard to production of these documents . . . rests with Exel." (Id.)
These purported justifications for non-production are without merit. The communications described above are clearly within the scope of the May 4, 2005 Order, and the handwritten comment on the Contact Worksheet indicates that additional emails were not produced. Concerns regarding his confidentiality agreement with CPM should have been handled by seeking a protective order from the Court, or by submitting a privilege log. See Fed.R.Civ.P. 26(c), 26(b)(5). Liss did not avail himself of these options, electing instead to produce the communications seven months after the Court-ordered deadline passed. The fact that these communications were ultimately produced does not excuse Liss's failure to comply with a court order. Additionally, the Order was directed at Liss, and attempts to shift responsibility to the opposing party and a third party are also meritless. Liss's assertion that he "made a good faith effort" to produce the communications is also unavailing (Liss's Resp. at 7); good faith is not a defense. Stone, 968 F.2d at 857. The remedy for this violation will be taken up below.
B. CPM Computer
The Court also ordered Liss to produce the CPM computer. (Dkt. 49, Order dated May 4, 2005 at 2.) Like the Crossdockers communications, Liss was to produce the CPM computer by May 13, 2005. (Id.) As of the discovery dispute hearing, the CPM computer was being imaged by a third party and a word search conducted. (Dkt. 236, Hr'g Tr. at 8:10-17.) The oral order was directed to Liss personally, "because Mr. Liss [had] control of the CPM computer." (Id. at 13:8-13.) However, the written order permitted Liss to "make imaging available to [Exel]." (Dkt. 49, Order dated May 4, 2005.)
On May 16, 2005, CPM produced materials reflecting "hits" that resulted from the imaging and word search. Exel asserts that Liss failed to comply with the Order by relying upon CPM to produce that over which Liss has control. (Dkt. 268, Exel's Reply at 6.) As Exel does not appear to have suffered any prejudice, and as the production by CPM arguably complies with the written order, the Court will excuse the minor technical violation of a three-day delay in production. However, because Liss relied on CPM to image and produce the CPM computer, he will be precluded from objecting to the authenticity or other foundational grounds for the materials produced by the word search.
C. Relevance of the Sought Materials to Remaining Issues
In addition to arguing that he satisfied his discovery obligations, Liss asserts that the sought documents relate only to whether Liss competed with Exel. (Liss's Resp. at 9.) The materials are no longer relevant to the issues remaining for trial because the Court deemed the non-competition covenant, § 4.02 of the Employment Agreement, unreasonable as a matter of law. (Id.) Exel replies that the documents are "relevant and discoverable as they relate to Exel's remaining counterclaims and affirmative defenses; namely, to Exel's claims that Mr. Liss improperly used Exel's confidential, proprietary, and trade secret information." (Exel's Reply at 7.)
The sought materials are relevant to remaining issues. In finding § 4.02 unenforceable, the Court expressly preserved §§ 4.01 and 4.03 — the confidentiality and restrictive covenant provisions, respectively. "Although Section 4.02 is unenforceable, this finding has no impact on the other covenants contained in Part 4 of the Employment Agreement. Liss has not demonstrated that sections 4.01 and 4.03 are unreasonable by themselves. Thus, . . . the Court will simply delete Section 4.02 and allow the other covenants of Part 4 to stand." (Dkt. 212, Order dated Mar. 21, 2007 at 13.) The sought documents therefore remain relevant and discoverable to Exel's counterclaims. See Fed.R.Civ.P. 26(b)(1) ("Parties may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party.").
D. Appropriate Sanctions
If a party fails to obey an order to provide or permit discovery, the court may issue further just orders. Fed.R.Civ.P. 37(b)(2)(A). A district court has great latitude in imposing sanctions under Rule 37. Lew v. Kona Hosp., 754 F.2d 1420, 1425 (9th Cir. 1985). That latitude encompasses "the broad discretionary power to permit a jury to draw an adverse inference when a party fails to produce relevant evidence within its control." See Akiona v. United States, 938 F.2d 158, 160-61 (9th Cir. 1991). Additionally, a court can prohibit the disobedient party from opposing designated claims or defenses, or from introducing designated matters in evidence. Fed.R.Civ.P. 37(b)(2)(A)(ii). Finally, a court must order the disobedient party, its attorney, or both to pay the reasonable expenses caused by the failure to comply with a court order, unless the failure was substantially justified or other circumstances make an aware of expenses unjust. Id. at 37(b)(2)(C). These expenses include attorney's fees. Id.
1. Adverse inference jury instruction
The rule permitting a jury to draw an adverse inference is based on two rationales. Akonia, 938 F.2d at 160-61. The "evidentiary rationale" recognizes the common sense proposition that a party who destroys a document relevant to litigation is more likely to have been threatened by the document than someone who does not destroy it. Id. at 161. The "deterrence rationale" involves prophylactic and punitive effects, and presumes that an adverse presumption will deter parties from destroying relevant evidence before it can be introduced at trial. Id. Neither rationale exists unless the party had some notice that the document was potentially relevant. Id.; see also Park Inns Int'l, Inc. v. Pacific Plaza Hotels, Inc., 5 F. Supp. 762, 765 n. 2 (D. Ariz. 1998).
The Court finds that Liss's failure to comply with the Court's Order warrants an adverse jury instruction. Liss's prolonged refusal to produce the Crossdockers communications supports the "common sense proposition" that those communications were unhelpful to his case. Through his counsel, Liss clearly had notice that the communications were potentially relevant because the Court ordered those communications be produced. Both the evidentiary and deterrence rationales being present, the Court will issue an adverse inference instruction based on the template proposed by Exel. (See Dkt. 230, Exel's Mot., App. II.)
The Court leaves to another day to determine whether Liss is estopped from denying knowledge of the Order.
2. Additional sanctions
The Court will include additional sanctions to remedy Liss's failure to abide by the Court's Order. Liss will be precluded from objecting to the authenticity of, or on other foundational grounds for, the materials produced by the word search of the CPM computer. This objection preclusion is warranted by Liss's reliance on CPM to produce the CPM computer even though the order to produce was directed at Liss personally. Furthermore, the Court is required to award expenses, including attorney's fees, caused by the failure to comply. See Fed.R.Civ.P. 37(b)(2)(C). The failure was not substantially justified, nor do any other circumstances make an award of expenses unjustified. See id. Liss will be personally responsible for these expenses because his current counsel appeared in this matter only after the events occurred which gave rise to the sanctions motion. See Toth v. Trans World Airlines, Inc., 862 F.2d 1381, 1387 (9th cir. 1988) ((noting that the party "voluntarily chose this attorney as his representative in the action") (quoting Link v. Wabash Railroad Co., 370 U.S. 626, 633-34 (1962)). These sanctions being sufficient to remedy Liss's failure to comply, Exel's motion to hold Liss in contempt of court will be denied.
CONCLUSION
Liss failed to comply with the Court's order when he failed to produce the Crossdockers communications by the May 13, 2005 deadline. These communications were clearly within the scope of the Order, and Liss's justifications for non-production are without merit. The Court will therefore issue an adverse inference instruction, and Exel is entitled to recover from Liss the expenses incurred as a result of the failure to comply. Because Liss relied on CPM to produce imaging of the CPM computer, Liss will be precluded from objecting on authenticity or foundational bases to the materials obtained from the CPM computer. Accordingly, IT IS HEREBY ORDERED granting Defendant Exel's motion for sanctions (Dkt. 230). The Court shall instruct the jury that they may draw an adverse inference from Plaintiff Liss's failure to produce Crossdockers communications by the Court-ordered deadline of May 13, 2005.
IT IS FURTHER ORDERED that Plaintiff Robert Liss shall be personally liable for the expenses, including attorney's fees, incurred by Exel on account of Liss's failure to abide by the Court's order. This amount shall include the expenses incurred in bringing the motion for sanctions (Dkt. 230).
IT IS FURTHER ORDERED that Plaintiff Liss shall be precluded from objecting on authentication or other foundational bases to materials received from the CPM computer.
IT IS FURTHER ORDERED denying Exel's motion to hold Plaintiff Liss in contempt of court.
IT IS FURTHER ORDERED denying as moot Defendant Exel's motion to exclude from the record portions of the declarations of Stanley Lerner and Robert Shely (Dkt. 270).
IT IS FURTHER ORDERED vacating the evidentiary hearing set in this matter for Friday, February 22, 2008 at 1:30 p.m.
IT IS FURTHER ORDERED setting a hearing to address the parties' motions in limine, and remaining miscellaneous matters, for Friday, February 22, 2008 at 1:30 p.m. A final pretrial conference date shall be set at the motions in limine hearing.