Judge: Joseph Lipner, Case: 21STCV08425, Date: 2023-11-14 Tentative Ruling

Case Number: 21STCV08425    Hearing Date: December 5, 2023    Dept: 72

SUPERIOR COURT OF CALIFORNIA

COUNTY OF LOS ANGELES

DEPARTMENT 72

TENTATIVE RULING

Defendant and Cross-Claimant C J Concrete Construction Inc. (“CJ”) moves for sanctions against Plaintiff and Cross-Defendant Debra Felipe and Cross-Defendant Construction Paper, Inc. (“Construction Paper”) (collectively, “Cross-Defendants”). Defendant seeks issue sanctions, evidentiary sanctions, and monetary sanctions consisting of $8,910.00 in attorney’s fees.

The Court DENIES CJ’s request for terminating sanctions. 

The Court GRANTS CJ’s request for issue sanctions as follows.  The following facts will be established for all purposes in this lawsuit.  (a) Plaintiff operated Construction Paper as her alter ego; and (b) Plaintiff carried out operations of Construction Paper during part of the time she was working for CJ.  The Court denies the other requests for issue sanctions.

The Court GRANTS CJ’s request for evidentiary sanctions as follows.  Plaintiff is precluded from offering at trial any evidence and any testimony referring to or regarding:  (a) the destroyed documents for any purpose; (b) the operational or nonoperational status of Construction Paper, Inc.; (c) the hours Debra Felipe spent working on Construction Paper, Inc.; or (d) the destroyed documents to either support her wage and hour claims against the Defendants or to defend against cross claims by the Defendants.  The Court denies the other requests for evidentiary sanctions.

The Court will give CACI Instruction 204-Willful Suppression at the time of trial at CJ’s request.

The Court GRANTS CJ’s request for monetary sanctions in the amount of $8,910.00.  Cross-Defendants shall pay that amount to CJ’s counsel within 30 days.

Background

This action arises out of Plaintiff’s employment at CJ.

Plaintiff filed this action on March 3, 2021 against Defendants CJ and John C. Sarno (collectively, “Defendants”), stating claims for (1) wrongful termination in violation of public policy; (2) retaliation; (3) failure to pay wages due on termination; (4) failure to pay hourly and overtime wages in violation of the California Labor Code; (5) failure to pay overtime wages in violation of the Fair Labor Standards Act; (6) failure to provide meal periods; (7) failure to provide rest periods; (8) violation of Business and Professions Code section 17200, et seq.; (9) failure to issue accurate itemized wage statements; (10) intentional infliction of emotional distress; and (11) fraud.

Defendants filed an answer on April 13, 2021.

CJ filed a cross-complaint against the Cross-Defendants on April 12, 2021. The operative cross-complaint is now the First Amended Cross-Complaint (“FACC”), filed on May 28, 2021, which alleges (1) fraudulent concealment; (2) fraud and deceit; (3) violation of the Consumer Legal Remedies Act; (4) breach of fiduciary duty; (5) negligent misrepresentation; (6) conversion; and (7) violation of Business & Professions Code section 17200, et seq.

The causes of action in the cross-complaint arise out of Plaintiff’s employment with CJ and her operation of Construction Paper. CJ alleges that Plaintiff used her position at CJ to channel money from CJ to Construction Paper.

This motion concerns Cross-Defendants’ destruction of electronically stored information (“ESI”) stored on servers previously operated by Construction Paper.

Between 2018 and 2021, Cross-Defendants maintained on-premises servers (the “Servers”) run by MicroNet Computer Consultants, Inc. (“Micronet”).

On June 14, 2021, approximately 60 days after CJ filed its cross-complaint against Felipe and Construction Paper, Felipe asked MicroNet to shut down the Servers. MicroNet repeatedly suggested that Felipe back up the email records on the server elsewhere, but Felipe did not do so.

On June 28, 2021, CJ’s counsel sent Cross-Defendants a notice to preserve ESI, stating that it expected that it anticipated that their phone, email, and banking records would be important in this litigation.

On July 20, 2021, Felipe gave the server away without backing up the data or migrating it elsewhere. As a result, Cross-Defendants are unable to produce emails from the Servers. 

Legal Standard

Where a party misuses the discovery process, courts have discretion to impose terminating, issue, evidence, or monetary sanctions. (Code Civ. Proc. §§ 2023.010(g), 2030.290(c); R.S. Creative, Inc. v. Creative Cotton, Ltd. (1999) 75 Cal.App.4th 486, 495.) Misuse of the discovery process includes failure to respond to an authorized method of discovery or disobeying a court order to provide discovery. (Code Civ. Proc., §§ 2023.010(d), (g).)     

Ultimate discovery sanctions are justified where there is a willful discovery order violation, a history of abuse, and evidence showing that less severe sanctions would not produce compliance with discovery rules. (Van Sickle v. Gilbert (2011) 196 Cal.App.4th 1495, 1516.) “[A] penalty as severe as dismissal or default is not authorized where noncompliance with discovery is caused by an inability to comply rather than willfulness or bad faith.” (Brown v. Sup. Ct. (1986) 180 Cal.App.3d 701, 707.) Further, preventing parties from presenting their cases on the merits is a drastic measure; terminating sanctions should only be ordered when there has been previous noncompliance with a rule or order and it appears a less severe sanction would not be effective. (Link v. Cater (1998) 60 Cal.App.4th 1315, 1326.) 

Before any sanctions may be imposed the court must make an express finding that there has been a willful failure of the party to serve the required answers. (Fairfield v. Superior Court for Los Angeles County (1966) 246 Cal.App.2d 113, 118.) Lack of diligence may be deemed willful where the party understood its obligation, had the ability to comply, and failed to comply. (Deyo v. Killbourne (1978) 84 Cal.App.3d 771, 787.) The party who failed to comply with discovery obligations has the burden of showing that the failure was not willful. Id. at 788.) 

Discussion

Cross-Defendants do not contest any of the foregoing facts and concede that sanctions for spoliation of evidence are appropriate, disputing only the type and severity of the sanctions.

Terminating Sanctions

          As discussed above, terminating sanctions are justified where there is a willful discovery order violation, a history of abuse, and evidence showing that less severe sanctions would not produce compliance with discovery rules. (Van Sickle v. Gilbert, supra, 196 Cal.App.4th at p. 1516.) Furthermore, terminating sanctions should only be ordered when there has been previous noncompliance with a rule or order and it appears a less severe sanction would not be effective. (Link v. Cater, supra, 60 Cal.App.4th at p. 1326.) 

Here, there has been no previous noncompliance with a rule or order. Cross-Defendant’s destruction of the ESI in question is the first instance of discovery abuse, and although CJ sent Cross-Defendants a notice to preserve the ESI, that notice was not a court order.

“[T]he trial court may impose terminating sanctions as a first measure in extreme cases, or where the record shows lesser sanctions would be ineffective. (Department of Forestry & Fire Protection v. Howell (2017) 18 Cal.App.5th 154, 191–192.) In Department of Forestry & Fire Protection v. Howell, the trial court found that “[plaintiff’s] willful, repeated and egregious misuses of the discovery process permeated nearly every single significant issue in this case to an extent that threatened the integrity of the judicial process and made it implausible that defendants could ever receive a fair trial. (Id. at 197 [internal quotations omitted].)

Here, however, the conduct is not so extreme as to warrant terminating sanctions in the first instance, nor does the record show that lesser sanctions would be unlikely to produce compliance. Cross-Defendants admit that their conduct was wrongful and acknowledge that sanctions are appropriate. This is not the kind of severe and incorrigible behavior that terminating sanctions are meant to respond to. The fact that Cross-Defendants previously served late and incomplete discovery responses on Defendants does not elevate their conduct to “willful, repeated and egregious misuses of the discovery process” “permeat[ing] every single significant issue in this case.” (Department of Forestry & Fire Protection v. Howell, supra, 18 Cal.App.5th at 197.)

Defendants argue that the contents of the Servers are relevant to Felipe’s alleged embezzlement, witness information, and the allocation of Felipe’s working hours between CJ and Construction Paper. CJ additionally argues that the ESI will show that Felipe was an independent contractor, rather than an employee, under California’s ABC test. However, these are narrow factual issues. More targeted sanctions are thus capable of remedying the impact on Defendants.

The Court therefore denies terminating sanctions.

Issue Sanctions

          Cross-Defendants admit that the following issue sanctions are warranted:

(a) Plaintiff operated Construction Paper, as her alter ego; and

(b) Plaintiff carried out operations of Construction Paper, during part of the time she was working for CJ.

CJ requests additional issue sanctions establishing that:

(c) Felipe has no evidence to support her estimate of the work hours she spent per week performing services for CJ;

(d) Felipe provided services to CJ through her business entity Construction Paper; and

(e) Construction Paper was customarily engaged in the type of work Felipe was performing for CJ.

           The Court finds that sanctions (a) and (b) are appropriate here, but that the remaining issues are better dealt with by lesser sanctions.

Evidentiary Sanctions

Cross-Defendants admit that it would be warranted to prohibit Plaintiff from offering at trial any evidence and any testimony referring to or regarding:

(a) the destroyed documents for any purpose;

(b) the operational or nonoperational status of Construction Paper, Inc.; or

(c) the hours Debra Felipe spent working on Construction Paper, Inc.

CJ additionally requests that the Court prohibit Felipe from offering at trial any evidence referring to or regarding:

(d) the destroyed documents to either support her wage and hour claims against the Defendants or to defend against cross claims by the Defendants;

(e) the hours she allegedly worked for Defendants; and

(f) any dispute by Felipe that good cause existed for any adverse employment actions taken against Felipe by Defendants.

The Court finds that sanctions (a)-(d) are appropriate, but that (e) and (f) are overly broad, and best handled by a jury instruction.

Jury Instruction

Cross-Defendants would also agree to a jury instruction on CACI Instruction 204-Willful Suppression at time of trial. The Court finds that this instruction is appropriate as to the issues of the hours Felipe worked for CJ; whether Felipe provided services to CJ through her business entity Construction Paper; whether Construction Paper was customarily engaged in the type of work Felipe was performing for CJ; and whether good cause existed for any adverse employment actions taken against Felipe by Defendants.

Attorney’s Fees

CJ requests attorney’s fees in the amount of $8,910.00 for the time spent on this motion. Terence Liao has a billing rate of $405.00 per hour and anticipates spending a total of 22 hours on this motion, 18 hours of which have already been spent. (Liao Decl. ¶ 20.)

Cross-Defendants do not respond to CJ’s request for attorney’s fees. The Court grants the request for attorney’s fees.