Opinion

1 2 3 4 5 6 7 8 9 10 UNITED STATES DISTRICT COURT 11 SOUTHERN DISTRICT OF CALIFORNIA 12 13 PACIFIC STEEL GROUP, Case No.: 3:22-cv-00892-L-JLB 14 Plaintiff, ORDER GRANTING PLAINTIFF’S 15 v. MOTION FOR SANCTIONS UNDER FEDERAL RULE OF CIVIL 16 PROCEDURE 37(e)(1) 17 CMC FABRICATORS, INC. dba CMC REBAR, et al., [ECF Nos. 257] 18 Defendants. 19 20 21 22 Before the Court is Plaintiff Pacific Steel Group’s (“Plaintiff”) Motion for 23 Sanctions.1 (ECF No. 257.) Defendants CMC Steel Fabricators, Inc., CMC Rebar West, 24 25 26 1 Plaintiff’s motion requests three different sanctions: (1) an adverse inference 27 instruction or for jurors to be instructed to consider evidence of CMC Rebar’s destruction of evidence in making their decision; (2) monetary sanctions; and (3) an order from the 28 1 and CMC Steel US LLC (collectively “Defendants”) oppose the motion (ECF Nos. 261.) 2 For the reasons set forth below, the Court GRANTS IN PART the motion for sanctions. 3 I. BACKGROUND 4 On June 17, 2022, Plaintiff brought suit in San Diego Superior Court of the State of 5 California against Defendants for damages and injunctive relief for violations of the 6 California Unfair Practices Act, California Business and Profession Code sections 17043. 7 17044 and 17200, et seq. (ECF No. 1-3.2) Defendants promptly removed the action to this 8 Court. (ECF No. 1.) 9 Plaintiff claims that between October 31, 2017, and December 31, 2022, Defendants, 10 who are its competitors in the steel rebar furnishing and installation (“F&I”) market, sold 11 F&I services below cost, and those below-cost services functioned as loss leaders in 12 California, injuring competitors and destroying competition. (See generally, ECF No. 11.) 13 Plaintiff initially filed suit in the Northern District of California, Pacific Steel Group 14 v. Commercial Metals Company, et al., United States District Court for the Northern 15 District of California, Case No. 20-cv-07683-HSG. (“Northern District Action”.) In 16 response to Plaintiff filing the Northern District Action, Defendants’ in-house counsel 17 circulated a “Litigation Hold Notice” (“Notice”) to relevant personnel including “two 18 employees who oversaw the California rebar fabrication business at issue here” (ECF No. 19 261 at 9) and to “CMC’s IT department, represented by Senior Systems Engineer Christy 20 Higgenbotham.”3 (Id.) Only two of the fourteen subsequently agreed-upon defendant 21 22 23 24 James Lorenz referred the sanctions motion to this Court, “with the exception that any 25 relief requested under number (1) is reserved to the District Judge.” (ECF No. 276 at 2.) 2 On April 26, 2022, the Northern District of California court, asserting lack of 26 supplemental jurisdiction, declined to rule on Plaintiff’s state law claims and dismissed 27 those claims without prejudice. (ECF No. 257 at 8-9.) 3 The Litigation Hold Notice itself and the information therein is subject to the 28 1 custodians received the Notice. Upon receipt of the Notice, Ms. Higgenbotham placed a 2 20-year “hold” on the “emails, Teams/Skype messages, and calendars” of relevant 3 personnel,. or extended existing holds where holds were already in place. (Id. at 9-10; see 4 also, ECF No. 261-1, Deposition of Christy Higgenbotham, (“30(b)(6) Depo”), at 123- 5 124.)5 No other ESI was specifically preserved. (ECF No. 257 at 10; see also 30(b)(6) 6 Depo at 201-203.)6 7 On October 10, 2025, Plaintiff filed the instant Motion for Sanctions against 8 Defendants for failure to preserve potentially relevant information contained in text 9 messages on company issued cellphones, stored on laptop computers, and backed up on 10 the associated OneDrive of Defendants’ departing employees. (ECF No. 257.) Plaintiff 11 seeks cost-shifting sanctions for the costs and attorney fees Plaintiff incurred: (1) in 12 bringing its earlier Motion to compel depositions under Federal Rules of Civil Procedure 13 Rule 30 (b)(6); (2) for taking the court-ordered depositions; and (3) for bringing this 14 Motion for Sanctions. (Id. at 7-8.) Additionally, Plaintiff requests the Court order 15 Defendants to: “(1) stop its spoliation and take all appropriate steps to preserve potentially 16 relevant evidence; (2) send a litigation hold to each of the agreed-upon custodians 17 remaining at CMC Rebar tailored to the claims at issue in this litigation; and (3) send a 18 litigation hold to its “Services Delivery” group responsible for “wiping” the laptops and 19 devices of departing CMC Rebar employees to stop any further destruction.” (Id. at 8.) 20 21 22 4 The “agreed-upon CMC Rebar custodians” referenced by Plaintiff were “agreed- 23 upon” by the parties later in the discovery process as likely to possess relevant information for purposes of discovery searches and not at the time the Litigation Hold Notice was sent 24 by Defendants. 25 5 Citations to the 30(b)(6) Depo are to the full transcript, filed on the docket at ECF No. 261-1, at 53-228. 26 6 Defendants point out that certain other ESI is stored in common databases on 27 central servers that are preserved as a matter of course and not subject to autodelete functions. (ECF No. 261 at 10-11; see also, 30(b)(6) Depo. at 85-87; Deposition of Adam 28 1 II. PARTIES’ POSITIONS 2 Here, Plaintiff seeks sanctions for Defendants’ “conscious disregard of its 3 preservation obligations.” Specifically, it claims Defendants’ failure to send a litigation 4 hold to the appropriate custodians and the Services Delivery group rendered the hold 5 effectively “meaningless.” (ECF No. 257 at 9.) Relatedly, Plaintiff contends Defendants 6 failed to take basic preservation steps, namely: Defendants took no steps to preserve the 7 documents of the other agreed-upon custodians who did not receive the November 2, 2020, 8 Notice; and Defendants intentionally continued their practice of destroying all laptops, 9 OneDrive information, and cellphones of departing employees. (Id. at 10.) Additionally, 10 Plaintiff argues that Defendants destroyed critical text messages from agreed-upon 11 custodians before they could be requested in discovery, and then Defendants attempted to 12 conceal their destruction. (Id. at 11.) 13 In opposition, Defendants counter that, following their standard practices, 14 reasonable steps were taken to preserve relevant information, and they have “fulfilled 15 [their] obligations to preserve, search for, and produce relevant and responsive 16 information.” (ECF No. 261 at 12.) And Defendants maintain that they have always been 17 candid and transparent about their preservation efforts. (Id. at 14.) As to the destruction 18 of the laptop, cellphone, and OneDrive information of departing employees, Defendants 19 argue that they had no reason to believe that the texts and local laptop information of former 20 employees contained relevant information and therefore had no duty to preserve this 21 information. (Id. at 18.) Further, Defendants contend that the Notice was adequate to 22 protect any relevant information subject to automatic deletion. Finally, Defendants argue 23 that even if the Notice had been sent to more custodians or to the Services Delivery group, 24 it would not have mattered because it would not have altered Defendants’ practice of 25 “wiping” the cell phones, laptops, and OneDrive backups of departing employees because 26 those devices should not contain any business information relevant to this litigation. “In 27 other words, [Defendants’] policy is to preserve the repositories where relevant business 28 1 information resides and not preserve the repositories that employees are unauthorized to 2 use for business purposes, and it followed its policy here.” (Id. at 12.) 3 III. LEGAL STANDARD 4 Under Federal Rule of Civil Procedure 37(e), a party may be sanctioned if (1) 5 Electronically Stored Information (“ESI”) “that should have been preserved in the 6 anticipation or conduct of litigation is lost,” (2) because “a party failed to take reasonable 7 steps to preserve it,” and (3) the ESI “cannot be restored or replaced through additional 8 discovery.” Fed. R. Civ. P. 37(e). If these three prerequisites are satisfied, the court then 9 performs additional analysis. If a court finds that the loss of ESI prejudiced another party, 10 it “may order measures no greater than necessary to cure the prejudice.” Fed. R. Civ. P. 11 37(e)(1). And, if the court finds that the spoiling party “acted with the intent to deprive 12 another party of the information’s use in the litigation” the court may “presume that the 13 lost information was unfavorable to the party,” give the jury an adverse inference 14 instruction or terminate the litigation. Fed. R. Civ. P. 37(e)(2). 15 IV. DISCUSSION 16 The Court will begin its analysis by assessing if the required Rule 37(e) prerequisites 17 have been met before turning to whether imposition of sanctions is appropriate. 18 A. Defendants had a Duty to Preserve Laptop, Cellphone and OneDrive Information of Departing Employees 19 20 Whether information “should have been preserved” is determined at the time the 21 duty to preserve attaches, which is “when a party reasonably should know that the evidence 22 may be relevant to anticipated litigation.” Scalia v. KP Poultry, Inc., No. CV 19-3546- 23 TJH (PLAx), 2020 WL 6694315, at *4 (C.D. Cal. Nov. 6, 2020). The duty to preserve 24 extends to those employees likely to have relevant information. Apple v. Samsung Elecs 25 Co., 881 F. Supp. 2d. 1132, 1137 (N.D. Cal July 12, 2012). A “party does not [spoliate 26 evidence] when, without notice of the evidence’s potential relevance, it destroys the 27 evidence according to its policy or in the normal course of its business.” Meza-Perez v. 28 Sbarro LLC, No. 23-15702, 2024 WL 4532903, at *3 (9th Cir. Oct. 21, 2024). See also 1 Zunum Aero, Inc. v. Boeing Co., Case No. C21-0896JLR, 2025 WL 664540 (W.D. Wash. 2 Feb. 7, 2024) (no duty to preserve where no evidence nonmovant should have known ESI 3 was relevant). However, routine destruction amounts to spoliation when a party “had some 4 notice that the documents were potentially relevant to the litigation before they were 5 destroyed.” U.S. v. Kitsap Physicians Serv., 314 F.3d 995, 1001 (9th Cir. 2002). 6 Here, the parties do not dispute that the laptop, cellphone and OneDrive information 7 at issue qualifies as ESI and is subject to the provisions of Rule 37(e). The parties also 8 agree that the duty to preserve evidence arose around the time the Northern District Action 9 began, on October 30, 2020. However, they take opposing positions regarding the extent 10 of Defendants’ duty to preserve. (Compare ECF No. 257 with ECF No. 261.) 11 Plaintiff contends that from the outset of this litigation, Defendants had a duty to 12 identify and subsequently preserve the documents of relevant custodians. (ECF No. 269 13 at 4.) It is Plaintiff’s position that “[i]t should have been readily apparent to [Defendants] 14 that its relevant custodians included at least the twenty-seven ‘California F&I Sales 15 Personnel’ it identified.” Id.at 5. 16 Countering, Defendants claim they “had no reason to believe that the former 17 employees’ texts or local laptop information had relevant information, and thus had no 18 duty to preserve them.” (ECF No. 261 at 17.) To support this position, Defendants rely 19 on their Mobile Device Management (“MDM”) system and employee policy requiring 20 employees to save and store all business work and documents on central servers, not on 21 their laptops, and barring employees from texting about substantive business matters. (Id. 22 at 19-22.) They further rely on a presentation slide dated August 16, 2012,7 directing 23 24 25 7 Defendants assert that, even though the slide is dated August 16, 2012, it was part 26 of a 2019 presentation continued to be used in subsequent years. (Id. at 10 n. 8.) However, 27 the Court notes that the slide states, “IT will coordinate with Legal over the next several months to develop a tool set, rule set and training to support the Records Management 28 1 employees to store files on the CMC network storage, not on their local hard drives. (Id. 2 at 10, 262.) Further, Defendants maintain that they had no reason to believe employees 3 were not complying with this policy. (Id.) From this conclusion, Defendants extrapolate 4 that no business information would have been discussed in cellphone text messages or 5 saved on laptops or corresponding OneDrive backup files. (Id.) Defendants, therefore, 6 claim that Plaintiff has failed to demonstrate that “the phones and laptops that were 7 recycled according to [Defendants’] standard policies were more likely than not to have 8 potentially relevant evidence, or that [Defendants] had reason to believe as much and 9 therefore should have preserved them.” (Id. at 22.) Thus, Defendants claim they have 10 produced responsive documents from emails, other Microsoft account files, and centrally 11 maintained servers of all custodians. 12 The Court is not persuaded by Defendants’ reliance on the MDM system and 13 employee policy to excuse their duty to preserve. A review of the employee handbook 14 references how employees should access company information. (See ECF No. 261-1 at 15 338). Messages sent through the MDM are preserved whereas text messages are not 16 managed by the MDM and are therefore not preserved8. (ECF No. 261 at 11-12.) Neither 17 are any steps taken to preserve company-issued cellphones9. Aside from the employee 18 handbook and a presentation slide provided to the Court without meaningful context, 19 Defendants have not produced any evidence identifying other ways in which employees 20 21 22 tool set, rule set, or training, which suggests that perhaps they were never developed or 23 rolled out. 8 30(b)(6) Depo: Q: “As you sit here today, are you aware of any steps that CMC has 24 taken to preserve the text messages of its current California F&I personnel?” A: “Not so 25 far as I am aware.” (ECF No. 261-1 at 178.) Q: “But what steps does CMC take to preserve the text messages on the personal cellphones of CMC or CMC Rebar personnel when they 26 leave the firm . . ..?” A: “We don’t preserve text messages.” (Id. at 223) 27 9 30(b)(6) Depo: Q: “Did CMC take any steps to preserve the cellphones of any of those former California F&I personnel . . ..?” A: “[N]ot to my knowledge.” (ECF No. 261- 28 1 are instructed or required to use the MDM system for all business communications or how 2 the Defendants ensure the policy is followed. 3 Defendants’ contention that employees did not use their cellphones to discuss 4 business matters is not supported by the evidence or common experience. As Plaintiff has 5 noted (ECF No. 257 at 10-11; ECF No. 269 at 5-6), the text messages submitted within the 6 briefing papers suggest employees’ cellphones could contain text messages between 7 Defendants’ California F&I employees about business matters such as bidding, pricing, 8 and actions that form the basis of the allegations of noncompetitive and illegal behavior in 9 the current action. Although Plaintiff relies on texts evidencing predatory practices sent 10 from the personal cell phones of custodians, Plaintiff also produced evidence of other 11 employees communicating about business matters more generally via text on their work 12 cellphones. The existence of such texts indicates that it was not reasonable for Defendant 13 to assume that custodians were not using their work phones to exchange work-related 14 messages. Indeed, Defendants’ 30(b)(6) witness testified that there is no policy prohibiting 15 texting.10 16 As Defendants did not prohibit texting about business matters, and did not, 17 apparently, make any effort to inquire or assess whether business matters were being 18 communicated by text, Defendants should have ensured that texts from work cell phones 19 were preserved. 20 As to the work laptops, Defendants’ argument that their locating and producing all 21 but a de minimis number of relevant pricing templates serves as confirmation that the 22 unpreserved laptops did not have any relevant information, the Court is not persuaded. See 23 24 25 10 30(b)(6) Depo Q: “[I]f I am a CMC Rebar F&I personnel in California, am I allowed to use my CMC-issued phone to text about work, my job?” A: “Well, we don’t 26 prevent people from using text, we don’t. We [] do not support working outside of 27 company-sanctioned business apps such as Microsoft Office; but no. we don’t prevent texting.” (ECF No. 261-1 at 161.) 28 1 Jones v. Riot Hosp. Grp. 95 F.4th 730, 736 (9th Cir. 2024) (“production of some evidence 2 does not excuse destruction of other relevant evidence”). Rather, as Defendants have 3 conceded, it is possible for some pricing templates to be stored on personnel laptops. See 4 257-19 at 1; see also ECF No. 115 at 1; ECF No. 115-1. This concession, along with the 5 seemingly weakly communicated and enforced policies discouraging maintaining work- 6 related documents on local computer drives, supports the conclusion that it was not 7 reasonable for Defendants to assume that custodians were not saving business related 8 documents, including pricing templates, on their laptops. Indeed, in light of the importance 9 of the templates to Plaintiff’s claims and its experts reliance on them to opine whether 10 Defendants submitted below-cost bids, the issue surrounding the steps Defendants did/did 11 not take to look for the missing pricing templates and their procedures regarding wiping 12 laptops ultimately led Judge Butcher to grant Plaintiff’s request for 30(b)(6) deposition 13 testimony on the topic. 14 In sum, the Court agrees with Plaintiff that the ESI in question should have been 15 preserved. Defendants had a duty to evaluate which employees were key players at the 16 outset of the litigation and take reasonable steps to preserve their potentially relevant ESI. 17 Defendants also had control over the returned cellphones and laptops of departing 18 employees and should not have actively wiped them and removed the data. As noted by 19 Plaintiff, Defendant CMC is a sophisticated public company that is not a stranger to 20 litigation or their litigation hold obligations. 21 B. Defendants Failed to Take Reasonable Steps to Preserve 22 Once litigation is anticipated or commenced, reasonable steps should be taken to 23 preserve potentially relevant information, including ESI. Estate of Schuck v. Cnty. of San 24 Diego, Case No. 3:23-cv-00785-DMS-AHG, 2025 WL 2180987, at *7 (S.D. Cal. 25 Aug. 1, 2025). Reasonable steps include requiring a party to “suspend any existing policies 26 related to deleting or destroying files and preserve all relevant documents related to the 27 litigation.” Colonies Partners, L.P. v Cnty. of San Bernardino, No. 5:18-420, 2020 WL 28 1496444, at *8 (C.D. Cal. Feb. 7, 2010) (citing Apple Inc. v. Samsung Elecs. Co., 888 F. 1 Supp. 2d 976, 991 (N.D. Cal. 2012)). The failure to prevent destruction of information, 2 such as by backing up phones to the cloud or disabling automatic deletion functions, may 3 amount to spoliation if the information lost is likely to be relevant. Youngevity Int’l v. 4 Smith, Case No. 3:16-cv-704-BTM-JLB, 2020 WL 7048687, at *2 (S.D. Cal. 5 July 28, 2020). 6 Plaintiff identifies two ways in which Defendants failed to take reasonable steps to 7 preserve this ESI: (1) not affirmatively pausing the policy to routinely “wipe and recycle” 8 the cellphones and laptops of former employees and to destroy any OneDrive back-ups, 9 and (2) failing to send the Notice to all likely custodians of relevant ESI. (ECF No. 257 at 10 9-11, 15, 16.) Specifically, Plaintiff argues that, in response to the litigation hold, 11 Defendants only put on hold the mailboxes of 14 custodians; took no steps to preserve the 12 documents of other custodians who were subsequently agreed upon by the parties; and 13 failed to preserve documents in common repositories, as evidenced by the 30(b)(6) witness 14 deposition. (ECF No. 257 at 10.) Plaintiff also highlights that Defendants’ Rule 30(b)(6) 15 witness testimony revealed that Defendants routinely destroyed ESI on company-issued 16 laptops and the associated OneDrive back-up information of departing employees, pointing 17 out that eight of the fourteen subsequently agreed-upon custodians left the company after 18 Defendants had notice of the need to preserve evidence.11 19 Pursuant to their “standard practice” Defendants “wiped and recycled” 20 departing employees cellphones and laptops so that these devices could be “repurposed.”12 21 22 23 11 “Our policy is never to maintain laptop – laptops and OneDrive information because we don’t expect to have business information on them . . .. (30(b)(6) Depo at 142.) 24 Q: “[W]ere the laptops of these 12 California F&I personnel also wiped and recycled?” A: 25 “Per our normal practices, I have no reason to believe they weren’t.” (Id.); see also ECF No. 257-4 at 2. 26 12 The 30(b)(6) witness testified that the cellphones of departing employees were 27 routinely “wiped and recycled” so that their contents were destroyed: “We don’t have a policy of preserving cellphones, so cellphones get turned in, and they get repurposed.” 28 1 Defendants’ 30(b)(6) witness was unable to point to any written policy detailing this 2 practice or identify a precise timeframe when the repurposing occurred, estimating that the 3 repurposed cellphones and laptops go back into service within six months of the former 4 employee’s departure. (See ECF No. 261-1 at 83-85, 131-132.) 5 By providing examples of former employee text messages (ECF Nos. 257-7, 269-9, 6 322-1), the Court finds that Plaintiff has met its burden to show that the information 7 contained on former employees’ cellphones may have contained substantive business 8 information regarding Defendants’ California F&I bidding and pricing that is relevant to 9 this action. As Plaintiff suggests, it is quite possible that other company employees also 10 sent relevant texts regarding Defendants’ business practices. Rather than continue its 11 practice of wiping and recycling company cellphones, Defendants should have paused this 12 practice. If they had done so, potentially relevant texts, including those from now deceased 13 former employee Steven Davis13, would have been preserved. Similarly, Plaintiff has met 14 its burden to show that the local storage drives of employee laptops may have contained 15 relevant information. This conclusion is supported by Defendants’ own admission that it 16 found eight missing pricing templates on one California F&I salesperson’s laptop. (ECF 17 No. 158 at 8.)14. 18 19 20 13 Davis is a key player in the events giving rise to this litigation who left Defendants’ 21 employment 70-days before the Northern California Action was filed. 14 The parties have been involved in a discovery dispute relating to Defendants’ 22 production of “pricing templates” which are industry standard pricing forms supporting 23 F&I bids. For Plaintiff, these templates are key to its claims as the templates are relied upon by its experts to opine on the topic of Defendants’ submission of below-cost bids. 24 (See, e.g., Plaintiff’s Motion to Shift Expert Costs, ECF No. 101 (“Cost Shifting Motion,”); 25 and Order thereon, ECF No. 167.) In the Cost Shifting Motion, Plaintiff argued that, based on other documents that were produced, Defendants’ production of pricing templates was 26 deficient and that some pricing templates were missing. (ECF No. 101 at 8.) At the 27 February 28, 2025, hearing on the Cost Shifting Motion, Defendants represented to the Court that if they were ordered to search individual laptops for the missing pricing 28 1 As to Defendants’ failure to send the Notice to all likely custodians of relevant ESI, 2 the Court agrees with Plaintiff that, at a minimum, Defendants were required to notify all 3 the subsequently agreed-upon custodians of the duty to preserve. See Apple, 881 F. Supp. 4 2d at 1137 (“the duty to preserve extends to those employees likely to have relevant 5 information”). Although the agreed-upon list of custodians was settled after the initial 6 Notice, ECF No. 320, fn 4, Defendants should have independently identified these 7 custodians and included them on the Notice. Defendants’ failure to do so substantially 8 reduced the value and effectiveness of the Notice. See Ramos v. Swatzell, No. EDCV-12- 9 1089-BRO, SPx, 2017 WL 2857523, at *6 (C.D. Cal. June 5, 2017) (finding spoliation and 10 ordering an adverse inference, noting that “[a]lthough [Defendant] properly imposed a 11 litigation hold, it failed to take appropriate steps to carry it out. . . . By failing to notify the 12 appropriate records personnel of the hold, the hold was meaningless.”). 13 Based on the foregoing, the Court concludes that Defendants should have suspended 14 their existing policies and practices of routinely deleting and/or destroying the ESI on 15 company issued cellphones and laptops and corresponding OneDrive information. See 16 Estate of Schuck, 2025 WL 2180987 at *7; Gonzalez, 2024 WL 589147 at *3; Deerpoint 17 Grp., Inc. v. Agrigenis, LLC, No. 1:18-cv-00536-AWI-BAM, 2022 WL 16551632, at *11. 18 (E.D. Cal. Oct. 31, 2022) (“Once a duty attaches a party mist ensure all policies related to 19 deleting or destroying files are suspended.”). Defendants’ failure to do so resulted in the 20 destruction of potentially relevant evidence. Such destruction could have been avoided 21 relatively easily by backing up the repurposed cellphones and laptops before they were 22 wiped and recycled. See Paisley Park Enters., Inc. v. Boxill, 330 F.R.D. 226, 233 (D. 23 Minn. 2019) (failure to take advantage of relatively simple options to ensure [] text 24 messages were backed up to cloud storage” is “sufficient to show that Defendants acted 25 unreasonably.”). Moreover, additional possibly relevant ESI could have been preserved if 26 Defendants had sent the Notice to a larger group of custodians. Thus, the Court finds that 27 Defendants failed to take reasonable steps to preserve the contents of the cellphones, 28 laptops and OneDrive. 1 C. The Information Contained on the Cellphones, Laptops and OneDrive Cannot be Restored or Replaced through Additional Discovery. 2 3 The final prerequisite for Rule 37(e) sanctions is that the ESI “cannot be restored or 4 replaced through additional discovery.” Fed. R. Civ. P. 37(e). Sanctions may not be 5 awarded if the ESI has been lost but “the very same information is recoverable from a third 6 party or from a back-up source.” Sec. Alarm Fin. Enters., v. Alarm Prot. Tech., LLC, No. 7 3:13-cv-001012-SLG, 2016 WL 7115911, at 4 (D. Alaska Dec. 6 ,2016). 8 Plaintiff contends, and Defendants’ do not dispute, that the ESI at issue cannot be 9 restored or replaced through additional discovery. Indeed, Defendants’ 30(b)(6) witness 10 offered testimony that the information stored locally on former employee cellphones, 11 laptops that have been “wiped” is lost and cannot be restored. (30(b)(6) Depo, at 1421- 12 143.) Once a former employee’s laptop was “wiped” the OneDrive backups were also 13 automatically deleted or “orphaned.” Id. Additionally, when asked, “Were the cellphones 14 of the 12 former California F&I personnel that you testified about that were recycled, is 15 there a way to restore those text messages,” she responded, “Not that I know of.” (30(b)(6) 16 Depo at 171-172.) 17 As no party has suggested that the lost information contained on the wiped 18 cellphones, laptops, or OneCloud backup is available from any other source, the Court 19 finds that this ESI cannot be restored or replaced through discovery. 20 D. Plaintiff was Prejudiced by the Loss of the Information 21 As set forth above, the Court has concluded that the prerequisites to sanctions under 22 Rule 37(e) are satisfied. The Court must next determine whether the additional 23 requirements for the imposition of specific sanctions under Rule 37(e)(1) have been 24 fulfilled.15 25 26 27 15 The Court limits its analysis to 37(e)(1) sanctions as the District Judge has reserved 28 1 For this Court to award sanctions, it must find Plaintiff was prejudiced by the loss 2 of information. See Fed. R. Civ. P. 37(e)(1). “Once spoliation is shown, the burden of 3 proof logically shifts to the guilty party to show that no prejudice resulted from the 4 spoliation because that party is in a much better position to show what was destroyed and 5 should not be able to benefit from its wrongdoing.” 3D Systems, Inc. v. Wynne, No. 21- 6 cv-1141-AGS-DDL, 2024 WL 3896454, at 3 (S.D. Cal. Aug. 21, 2024); see also see also 7 Youngevity Int’l, 2020 WL 7048687 at 3 (“Although Federal Rule of Civil Procedure 37(e) 8 does not place the burden of proving or disproving prejudice on either party, if spoliation 9 is proven, the burden shifts to the spoliating party to prove the lost information is not 10 prejudicial.”). 11 Here, the record demonstrates that Plaintiff was prejudiced by the deletion of 12 information on the cellphones, laptops and OneCloud backup at issue. While it is not 13 possible to determine the exact content of the deleted information, the removed ESI was 14 potential evidence Plaintiff could have used to support its claims. See Hollis v. CEVA 15 Logistics U.S., Inc., 603 F. Supp. 3d 611, 623 (N.D. Ill. 2022) (“Prejudice under Rule 37(e) 16 includes the thwarting of a party’s ability to obtain the evidence it needs for its case.”). 17 Given that it is impossible to determine precisely what the destroyed ESI contained or the 18 impact the deleted evidence may have had on Plaintiff’s case, the court is not persuaded by 19 Defendants’ argument that the loss of information is not prejudicial. (ECF No. 261 at 23- 20 25). Indeed, Defendants’ concession that it is possible that some pricing templates were 21 stored on personnel laptops, and the fact that it found eight missing pricing templates on 22 one laptop, supports the opposite conclusion. The importance of Defendants’ pricing 23 templates to Plaintiff’s claims and its experts’ opinions regarding below-cost bids is not in 24 dispute. This is further underscored by Judge Butcher: (1) granting Plaintiff’s request for 25 30(b)(6) deposition testimony on the topic; and (2) awarding cost-shifting sanctions against 26 Defendants for the cost of Plaintiff’s experts revising their reports to incorporate the 27 templates Defendants have produced since October 2024. 28 1 Thus, the Court finds that corrective measures are appropriate in this instance, but 2 such measures must be “no greater than necessary to cure the prejudice.” Fed. R. Civ. P. 3 37(e)(1). 4 E. Appropriate Remedies 5 While Plaintiff seeks three different sanctions, per the directive from the district 6 judge, only two are currently before this Court, namely: Plaintiff’s request for monetary 7 sanctions; and an order directing Defendants to cease spoliating evidence and requiring 8 them to take reasonable steps to preserve potentially relevant information. 9 Given the Court’s determination that Defendants spoliated evidence that warrants 10 sanctions under Rule 37(e)(1), the Court finds that Plaintiff “is entitled to an award of 11 reasonable attorneys’ fees and costs that [it] incurred in preparing the briefings related to 12 the sanctions motion.” Porter v. City & Cnty. of S.F., No. 16-CV-03771-CW(DMR), 2018 13 WL 4215602, at *5 (N.D. Cal. Sept. 5, 2018). In addition, the Court finds that Defendants’ 14 lack of forthrightness regarding its routine destruction of ESI necessitated the taking of two 15 30(b)(6) depositions. This was a situation that could have been avoided if Defendants had 16 simply paused their practice of deleting the contents of repurposed laptops and cellphones 17 and searched the backups for potentially relevant evidence. Accordingly, cost shifting 18 sanctions to cover the costs of preparing and conducting these depositions are also 19 appropriate. See Youngevity Int’l, 2021 WL 2559456 at 4 (ordering spoliating party to pay 20 the fees related to the depositions of witnesses regarding the spoliator’s failure to preserve). 21 Further, the Court orders Defendants to cease spoliation, as set forth more specifically 22 below. 23 V. CONCLUSION 24 For the foregoing reasons, the Court GRANTS IN PART Plaintiff’s motion for 25 sanctions (ECF No. 257) and ORDERS as follows: 26 1. Plaintiff shall recover its reasonable attorneys’ fees and costs incurred 27 bringing this sanctions motion and taking the two 30(b)(6) depositions. 28 1 a. Plaintiff has up to and including May 19, 2026, to share with the 2 Defendants the amount of fees and costs it seeks to recover along with 3 supporting documentation. 4 b. The parties shall meet and confer on the reasonable costs and fees 5 incurred by Plaintiff in moving for sanctions and taking the two 30(b)(6) 6 depositions by June 2, 2026. 7 c. By June 2, 2026, the parties are to place a joint call to chambers 8 advising the Court if the parties have reached an agreement with respect to the 9 fees and costs. If the parties have reached an agreement, the agreed-upon 10 amount shall be paid on or before June 16, 2026. 11 d. If the parties do not reach an agreement, by June 16, 2026, Plaintiff 12 shall file a declaration attaching sufficient evidence to show the hourly rates 13 of their attorneys and whether those hourly rates are reasonable rates in the 14 Southern District of California for work of similar complexity by attorneys 15 with comparable skill and reputation. As part of any such declaration, 16 Plaintiff must include any appropriate documentation substantiating the actual 17 fees and costs expended in filing the motion for sanctions as well as the fees 18 and costs expended in preparing the to-be-filed declaration and any exhibits 19 thereto. 20 e. Defendants shall file any opposition to the imposition of a monetary 21 award on or before June 30, 2026. 22 2. Defendants shall send a Litigation Hold Notice to each of the agreed-upon 23 custodians still working for Defendants tailored to the claims at issue in this 24 litigation. 25 3. Defendants shall send a litigation hold notice to the Services Delivery group 26 tailored to the claims at issue in this litigation. 27 28 1 4. For any custodians of information relevant to this litigation, Defendants shall 2 halt the routine wiping of cellphones, laptops, and OneDrive backups upon 3 the custodian’s departure. 4 IT IS SO ORDERED. 5 || Dated: May 15, 2026 - n. Jill L. Burkhardt 7 ited States Magistrate Judge 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28