Opinion
G044005
11-18-2011
KNOX ENTERPRISES, INC., Plaintiff and Appellant, v. NORTH-SOUTH MACHINERY, INC., Defendant and Respondent.
Law Offices of Edwin Paul, Edwin Paul and Margie L. Jesswein for Plaintiff and Appellant. Conkle, Kremer & Engel, Eric S. Engel and Kevin R. Keegan for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Super. Ct. No. 30-2008-00109481)
OPINION
Appeal from a judgment of the Superior Court of Orange County, David R. Chaffee, Judge. Reversed and remanded with directions.
Law Offices of Edwin Paul, Edwin Paul and Margie L. Jesswein for Plaintiff and Appellant.
Conkle, Kremer & Engel, Eric S. Engel and Kevin R. Keegan for Defendant and Respondent.
INTRODUCTION
Knox Enterprises, Inc. (Knox), sued North-South Machinery, Inc. (NSMI), for breach of contract, alleging a tool grinding machine sold by NSMI did not meet Knox's specific needs as represented to NSMI. After receiving a notice to appear and produce documents and things at trial, Knox sold at auction its equipment and inventory, including a computer, computer program, and steel blades that NSMI contended were relevant evidence falling within the production demands. NSMI also contended those items were responsive to its earlier discovery requests, Knox had failed to produce those items in response to those discovery requests, and Knox misrepresented in its discovery responses it had or would produce all relevant evidence.
At the outset of trial, NSMI brought motions in limine against Knox, requesting terminating sanctions for misuse of the discovery process and spoliation of evidence. After conducting an evidentiary hearing pursuant to Evidence Code section 402, the trial court granted the motions, imposed terminating sanctions against Knox, and dismissed its complaint. Knox appeals from the resulting judgment, including the order denying Knox's motion for reconsideration.
We conclude Knox did not engage in a misuse of the discovery process but did commit spoliation of evidence warranting nonmonetary sanctions. The trial court abused its discretion, however, by imposing terminating sanctions and dismissing Knox's complaint. To reach those conclusions, we address a series of issues leading to the ultimate issue whether the evidence at the Evidence Code section 402 hearing supported imposition of terminating sanctions. Those issues, and our resolutions of them, are:
1. Did Knox timely file a request for a statement of decision? Answer: No. Because the Evidence Code section 402 hearing lasted less than eight hours, Knox had to request a statement of decision before the motions in limine were submitted for decision. Knox untimely filed its request for a statement of decision eight days after the trial court made its decision.
2. Does a trial court have authority to impose nonmonetary sanctions for misuse of the discovery process without a prior violation of a court order compelling discovery? Answer: As a general rule, a trial court does not have statutory authority to impose nonmonetary sanctions for misuse of the discovery process absent the prior violation of a court order compelling discovery. There are two exceptions relevant to this case: (1) the sanctioned party destroyed evidence in response to or in anticipation of discovery requests or (2) the sanctioned party misrepresented it had produced or would produce all relevant documents and things responding to the discovery requests.
3. Did Knox destroy evidence in anticipation of or in response to discovery requests, or misrepresent it had produced or would produce all relevant documents and things responding to NSMI's discovery requests? Answer: No. Knox did not misrepresent it had produced or would produce all documents and things in response to NSMI's discovery requests because the destroyed evidence was not responsive to NSMI's requests, or, at the least, Knox had a good faith reason to believe the destroyed evidence was not responsive to the discovery requests. The trial court therefore could not issue terminating sanctions against Knox for misuse of the discovery process.
4. Did Knox commit spoliation of evidence? Answer: Yes. Substantial evidence supported the trial court's finding Knox committed spoliation of evidence. By selling the evidence at auction, after receiving notice to produce the evidence at trial, Knox destroyed or failed to preserve evidence for another's use in pending litigation.
5. Did the trial court have authority to dismiss Knox's complaint as a sanction for spoliation of evidence? Answer: Yes. An evidentiary inference, read to the jury as an instruction, is a potent and usually satisfactory remedy for spoliation of evidence. A trial court may alternatively issue terminating sanctions when spoliation of evidence also constitutes a misuse of the discovery process. Although Knox did not misuse the discovery process, a trial court also has inherent authority to dismiss an action, without a violation of a discovery order, if a plaintiff engages in deliberate and egregious misconduct, no other remedy could ensure a fair trial, and the trial court considers all relevant circumstances and other potential sanctions.
6. Did the evidence at the Evidence Code section 402 hearing support the imposition of terminating sanctions against Knox for spoliation of evidence? Answer: No. The terminating sanctions were based on an erroneous finding on the meaning and relevance of the evidence Knox sold at auction. The evidence at the section 402 hearing showed the items sold at auction, though potentially relevant, were not essential to NSMI's defense, and NSMI had other sources of evidence available to disprove Knox's claims. Although Knox engaged in deliberate and egregious misconduct, other remedies, including the evidentiary inference, would have ensured a fair trial.
We therefore reverse the judgment and remand with directions to determine an appropriate sanction for Knox's spoliation of evidence, short of terminating sanctions. In light of that disposition, we need not address Knox's motion for reconsideration.
FACTS
I.
Background
Knox manufactures wood molding products of various shapes and sizes. In October 2006, Knox entered into a contract to purchase from NSMI an industrial machine called the New Anca TX7+CNC Tool and Cutter Grinder and Fire Suppression System (the TX7 Machine) and related equipment, training, and software for the price of $328,700.
Knox purchased the TX7 Machine to make and sharpen steel blades used to cut wood into molding with desired profiles. The blades made or sharpened by the TX7 Machine would be mounted in pairs into a cylindrical cutter head, which would be mounted into a device called a measuring stand (the Measuring Stand), which in turn would be mounted into another machine called the Weinig U3000 Moulder (the Weinig Moulder). Knox acquired the Weinig Moulder, the Measuring Stand, and the computer several years before purchasing the TX7 Machine. To create wood molding with the desired profile, wood would be fed into the Weinig Moulder and cut by the spinning steel blades created by the TX7 Machine, or another grinder, to the desired profile.
The purpose of the Measuring Stand was to measure the high and low points of the cutter head so that it could be correctly positioned on the Weinig Moulder. Linked to the Measuring Stand was a computer with a Weinig-installed program, called PowerCom+, which transferred measurement data from the Measuring Stand to the Weinig Moulder for correct positioning of the cutter head. In the course of transmitting data, the PowerCom+ program created and maintained a database of the maximum and minimum diameters of the cutter heads measured on the Measuring Stand. The TX7 Machine, which had an internal computer and hard drive, maintained an electronic database of times the TX7 Machine was used and would indicate "if we made an entry or a change on a particular tooling on a particular date."
Accuracy of the blades to be used in the manufacture of wood molding was important to Knox. The blades created by the TX7 Machine were to be matched so that, at any given point in the profile of a pair of blades, mounted 180 degrees apart from each other in the cutter head, would be in exactly the same position, with a tolerance of two-thousandths of one inch. Blades created from various grinding machines, not just the TX7 Machine, were placed on the Measuring Stand and the measurement data was transmitted by the PowerCom+ program to the Weinig Moulder. NSMI's counsel conceded that the PowerCom+ program would not be able to record which grinder was used to make the blades being measured.
Before purchasing the TX7 Machine, Knox provided NSMI with samples of molding Knox wanted to make with blades made by the TX7 Machine, the dimensions and weight of the longest and heaviest blades it needed, and samples of blades. Knox also provided the NSMI sales representatives access to its toolroom, which held all of Knox's blades.
II.
Allegations of the Complaint
Knox's primary claim is the TX7 Machine did not make blades Knox required, did not meet the needs it communicated to NSMI, and did not perform as represented by NSMI. Knox initiated this lawsuit by filing a complaint against NSMI in July 2008. The operative pleading was the second amended complaint (the Complaint), which asserted causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, fraud, breach of the implied warranty of fitness for a particular purpose, money had and received, and breach of third party beneficiary contract.
The Complaint alleged that Knox entered into a contract with NSMI to purchase the TX7 Machine and related equipment, training, and software for the price of $328,700 and that NSMI breached the contract by "(1) not delivering the training necessary to operate the purchased equipment; (2) not delivering the software necessary to operate the equipment; . . . (3) . . . delivering the equipment that was not capable of doing the work the defendants represented the equipment could do[;] . . . [and] (4) . . . enticing [Knox] to sign a document (the Delivery and Acceptance Certificate) supposedly to show the bank financing the purchase . . . that 'progress was being made' toward getting the equipment to work . . . ."
Under the cause of action for negligent misrepresentation, the Complaint alleged NSMI represented to Knox the TX7 Machine would produce "moldings of the size and type [Knox] wished to manufacture, samples of which were given to [NSMI]." Under the cause of action for breach of the implied warranty of fitness for a particular purpose, the Complaint alleged NSMI knew that Knox intended to use the TX7 Machine for the manufacturing of specific shapes of molding because Knox "provided [NSMI] with samples of the molding which [Knox] wished to manufacture." Knox alleged NSMI breached the implied warranty of fitness for a particular purpose because "[t]he machinery, equipment and software selected by [NSMI] were not suitable for manufacturing molding of the specific size and shape as the samples which were provided to [NSMI] by [Knox]." The Complaint alleged Knox suffered damages in the amount of the price paid for the TX7 Machine and for lost profits.
III.
NSMI's Discovery Requests
A. NSMI's First Set of Requests for
Production of Documents
In October 2008, NSMI propounded its first set of requests for production of documents on Knox. Relevant here are request Nos. 6, 9, 24, 25, and 28. Request No. 6 requested, "[e]ach and every WRITING CONCERNING the contention in YOUR COMPLAINT at ¶ 6, line 23, that 'Defendants . . . breached the agreement.'" Request No. 9 requested, "[e]ach and every WRITING CONCERNING the contention in YOUR COMPLAINT at ¶ 6, lines 25-27, that the equipment 'was not capable of doing the work the defendants represented the equipment could do.'" Knox responded to request Nos. 6 and 9: "Objection the term 'Concerning' is defined so broadly as to make this request vague and ambiguous. Subject to said objection, plaintiff will produce those documents that are in plaintiff's possession, custody or control."
NSMI's request for production of documents No. 24 requested, "[e]ach and every WRITING CONCERNING any 'samples' which YOU contend in YOUR COMPLAINT at ¶ 12, lines 19-22, 'were given to Defendants.'" Knox responded: "Plaintiff is unable to produce any writing concerning samples that were given to defendant, plaintiff has some samples that are signed and dated by defendant's agent but plaintiff will not produce them at the office of defense counsel for fear they would become lost, and because it is too burdensome and expensive to personally produce them at defense counsel's office, but inspection of said samples may be made at the office of plaintiff's counsel at defense counsel's convenience."
NSMI's request for production No. 25 requested: "Each and every sample which YOU contend in YOUR COMPLAINT at ¶ 12, lines 19-22, 'were given to Defendants.'" Knox responded: "Plaintiff has some samples that are signed and dated by defendant's agent but plaintiff will not produce them at the office of defense counsel for fear they would become lost, and because it is too burdensome and expensive to personally produce them at defense counsel's office but inspection of said samples may be made at the office of plaintiff's counsel at defense counsel's convenience."
NSMI's request for production No. 28 requested: "Each and every WRITING CONCERNING how YOU manufactured and sharpened knives between December 2006 and the present." Knox responded: "Plaintiff is unable to produce this category because plaintiff has been unable to manufacture or sharpen knives between December 2006 and the present."
NSMI did not move to compel further responses to the first set of requests for production. In December 2008, in response to the requests for production, Knox provided some documents and three wood molding samples and, in February 2009, produced three more wood molding samples and eight steel blade samples.
B. Inspection of Knox's Facility
In March 2009, representatives of NSMI, including its trial counsel, went to Knox's facility to inspect the TX7 Machine. During the inspection, which lasted for five to six hours, the NSMI representatives took hundreds of photographs, including photographs of the TX7 Machine and panoramic shots of the shop area. One of the photographs showed the Measuring Stand near the TX7 Machine. A representative from NSMI downloaded all the files from the hard drive of the TX7 Machine.
Knox did not offer, and none of the NSMI representatives asked to see, the Measuring Stand, the Weinig Moulder, or the computer on which the PowerCom+ program and database had been loaded. NSMI contended it did not know of the computer and the PowerCom+ program at the time of the inspection and did not learn of their existence until September 2009.
C. NSMI's Second Set of Requests for
Production of Documents
NSMI served a second set of requests for production of documents in April 2009. Among other things, these requests asked for production of all "DFX files" delivered to the manufacturer of the TX7 Machine, all DFX files delivered to NSMI, and all "DFX files for blades YOU expected the [TX7 Machine] to be able to produce." A dispute arose over the definition of DFX files, prompting NSMI to move to compel their production. In the motion, NSMI offered this definition of DFX files: "'DFX files' are a standard two dimensional computer file format for CAD (Computer Aided Design) data. 'DFX files' are a common file format . . . for programming . . . machines. These files essentially contain an electronic blueprint that describes a particular part or tool to be created by a machine like the [TX7 Machine]."
The trial court modified the request and ordered Knox to produce "the DFX files that [Knox] delivered to [NSMI] prior to the purchase of the [TX7 M]achine." Knox produced the DFX files on a memory card in August 2009.
D. David Knox's Deposition
David Knox, the owner of Knox, testified in his deposition in July 2009 that before Knox purchased the TX7 Machine, it had shown NSMI more than the six wood molding samples and eight steel blade samples. Mr. Knox testified that before buying the TX7 Machine, "I just basically showed them everything. . . . Over a two-week period we showed them every profile. We showed them the files. We showed them how we made the files with the old machine." Following the deposition, NSMI objected to Knox's failure to produce all of the samples in response to discovery requests and demanded that Knox produce all responsive items, including all samples. Later in July 2009, Knox produced three boxes of wood molding samples.
NSMI propounded a supplemental document request on Knox, asking it to review its production in responses to NSMI's first set of requests for production of documents and produce any responsive items not already produced. In August 2009, Knox responded by stating it would produce all such documents.
E. NSMI's Third Set of Requests
for Production of Documents
The discovery cutoff was September 4, 2009, and trial was scheduled to commence on October 5, 2009. On September 25, the trial court granted Knox's motion to file the Complaint, which added the cause of action for breach of third party beneficiary contract. The court continued the trial for seven months and reopened discovery, limited to this new cause of action.
In October 2009, NSMI served a third set of requests for production of documents. Pertinent here are request Nos. 61 through 65, which were:
"DEMAND FOR PRODUCTION NO. 61: [¶] Each and every WRITING CONCERNING 'the particular purpose for which Knox Enterprises was to use the machine' as identified in YOUR COMPLAINT at ¶ 37 lines 20-21.
"DEMAND FOR PRODUCTION NO. 62: [¶] Each and every WRITING CONCERNING the 'blades of specific and exact shapes' as identified in YOUR COMPLAINT at ¶ 38 lines 22-24.
"DEMAND FOR PRODUCTION NO. 63: [¶] All 'blades of specific and exact shapes' identified in YOUR COMPLAINT at ¶ 38 lines 22-24.
"DEMAND FOR PRODUCTION NO. 64: [¶] Each and every WRITING CONCERNING the 'specific shapes of moldings' identified in YOUR COMPLAINT at ¶ 38 lines 24-25.
"DEMAND FOR PRODUCTION NO. 65: [¶] All 'specific shapes of moldings' identified in YOUR COMPLAINT at ¶ 38 lines 24-25."
Knox responded to request Nos. 61 through 65 as follows: "Plaintiff has already produced all such documents or defendant North South Machinery Inc. has already produced all such documents."
IV.
Foreclosure on Knox's Business Premises
By September 2009, Knox was in financial straits and its business premises were foreclosed upon. Knox had to vacate the premises and was locked out, without access to its machinery, inventory, and equipment. NSMI's counsel was notified of the foreclosure and lockout by letter dated September 10, 2009. Knox obtained access to the premises to prepare for and conduct an auction of its machinery, inventory, and equipment. The auction was conducted on November 12, 2009.
V.
Refusal to Produce PowerCom+ Program
In the second session of his deposition, on September 16, 2009, David Knox testified the computer connected to the Measuring Stand maintained a log of the differential measurements of blades measured on the Measuring Stand. Knox's retained expert, David Miller, testified in his deposition on September 21, 2009 about the PowerCom+ program and its capabilities. NSMI contended it first learned of the computer log and PowerCom+ program during the David Knox and Miller depositions.
Following the David Knox and Miller depositions, counsel engaged in a lengthy exchange of inimical letters over production of the PowerCom+ program files. After counsel for Knox and NSMI conferred by telephone on October 15, NSMI's counsel wrote in a letter dated October 16: "During our telephone conversation on October 15, 2009 you mentioned that . . . Knox . . . plans to auction its equipment in early November 2009. [1] This letter is to put your client, Knox, on notice that it is not to dispose of, transfer, destroy, conceal or alter any tangible evidence, paper or electronic files, records, or data that it has created or received and that may relate to any fact or issue involved in the current dispute . . . . [¶] Tangible evidence that must be preserved by Knox includes blades, wood samples and other physical evidence that relates in any way to the claims of Knox against [NSMI] . . . . [¶] Electronic files, records or data that must be preserved by Knox includes all forms of stored or recorded data." The letter demanded "Electronic Data must be preserved regardless of the media on which it is stored" and requested "copies on paper, to the extent they exist, as well as the Electronic Data in its original media, format and condition."
In a letter dated October 19, 2009, Knox's counsel tersely responded: "The request is rejected. Discovery cut off is long past [sic], and the court reopened discovery only on the third party beneficiary contract."
VI.
NSMI'S NOTICE TO APPEAR AND PRODUCE AT TRIAL
On October 28, 2009, NSMI served on Knox a notice to appear and produce documents and things at the trial scheduled to commence in May 2010. Request for production No. 26 asked for "[t]he electronic data log from the 'PowerCom Plus' program on the PC computer that was attached to Knox Enterprises, Inc.'s Weinig measuring stand and the Weinig U3000 moulder at any time during 2006 to present." Request No. 29 asked for "[t]he complete PC computer that was attached to Knox Enterprises, Inc.'s Weinig measuring stand and the Weinig U3000 moulder, on which the 'PowerCom Plus' program was operated at any time during 2006 to present." In addition, NSMI demanded production at trial of every steel blade and wood molding sample ever shown to NSMI in 2006 and 2007 and every steel blade ever created or attempted to be created by Knox using the TX7 Machine.
Knox responded to request Nos. 26 and 29 by asserting, among other things, the requests did not describe the things to be produced at trial with the particularity required by Code of Civil Procedure section 1987, subdivision (c) and were in the nature of discovery requests.
In November 2009, Knox moved forward with the auction of its inventory, equipment, and machinery. NSMI's counsel sent to Knox's counsel, by facsimile on November 11, 2009, a letter warning: "If the sale of the items we described [in our October 16, 2009 letter] proceeds, so that Knox cannot produce them as evidence for trial, we expect that very serious claim, issue and evidentiary sanctions will be imposed against Knox by the Court."
By letter on the same date, Knox's counsel explained: "Mr. Knox has lost the commercial property in which his business was located, to foreclosure, which you know. The lender has sold the property to a third party, and the third party has demanded that Knox remove all of the equipment and other personal property from the premises. You insist that the equipment be 'preserved as evidence' for the trial. Mr. Knox cannot preserve the equipment for trial or for any other purpose. He has no place to store it, and he cannot afford to rent another building nearly as big as his former premises . . . . [¶] He is having an a[u]ction to sell the equipment because he has no other choice. I do not believe the court will issue any sanctions against Knox . . . for doing the only thing it could do under the circumstances."
The auction proceeded as planned on November 12, 2009. Among the items sold were the Measuring Stand, the computer with the PowerCom+ program, the Weinig Moulder, mold heads, and steel blades.
In April 2010, NSMI filed its motion to compel Knox to produce documents and things at trial in response to the October 2009 requests for production. The motion sought to compel Knox to produce documents in response to request Nos. 5 through 29 of NSMI's request to produce documents at trial. Knox opposed the motion.
The trial court granted the motion as to 10 of the requests, including Nos. 26 and 29, but ordered Knox to produce at trial only the steel blades and wood molding samples that had been produced during discovery. The order stated: "Many of the categories described by Plaintiff are not 'exact' and are too general to compel. Where they are inexact but supported by references, they have been granted despite the inadequacy of the description."
During the hearing on the motion to compel, Knox's counsel stated Knox's equipment, machinery, and inventory, including the computer connected to the Measuring Stand and the PowerCom+ program, had been sold at auction and could not be produced at trial. Before the Measuring Stand was sold at auction, Knox downloaded onto a thumb drive what it claimed to be the data from the computer connected to the Measuring Stand. Knox produced the thumb drive on the first day of trial.
VII.
Dismissal of the Complaint
A. Motions in Limine and Evidence Code
Section 402 Hearing
In April 2010, shortly before trial, NSMI served Knox with two motions in limine (motion in limine No. 1 and motion in limine No. 4) seeking sanctions for alleged spoliation of evidence and discovery abuses. In motion in limine No. 1, NSMI argued Knox committed spoliation of evidence by failing to produce and intentionally disposing of the PowerCom+ program and the sample steel blades Knox had shown to NSMI representatives before purchasing the TX7 Machine. The notice of motion requested "evidentiary sanctions for destruction of evidence" against Knox, while the memorandum of points and authorities urged the court to issue terminating sanctions. In motion in limine No. 4, NSMI sought an order precluding Knox "from referring to or commenting on, or attempting to introduce into evidence any documents, testimony or information regarding any evidence of steel blades that were allegedly shown to [NSMI]." Knox opposed both motions.
The trial court ordered an Evidence Code section 402 hearing on motion in limine Nos. 1 and 4. The hearing was conducted over two days; four witnesses, including David Knox, testified; and the trial court received 11 exhibits in evidence.
On May 6, 2010, at the conclusion of the hearing, the trial court found Knox had committed spoliation of evidence and granted motion in limine No. 1. After considering whether to impose an evidentiary sanction or a terminating sanction, the trial court decided to impose terminating sanctions against Knox and dismissed its lawsuit. The court found NSMI provided Knox ample notice the PowerCom+ program, the computer, and the sample blades were critical evidence that had to be preserved for trial, despite the notice Knox went forward with the auction and sold the evidence, and NSMI had no adequate remedy other than terminating sanctions for the prejudice caused by the destruction of the evidence.
NSMI prepared and served a proposed order of dismissal by overnight delivery on May 11, 2010. Three days later, Knox requested a statement of decision. The trial court denied the request. On May 18, NSMI filed a notice stating that, as of that date, it had not received objection from Knox to the proposed order. Two days later, Knox filed objections to the proposed order. On May 28, the trial court signed the proposed order submitted by NSMI and ordered the action dismissed.
B. Knox's Motion for Reconsideration
Knox filed a motion for reconsideration in June 2010. The motion was supported by declarations from Knox's counsel and from Knox's expert witness, a lengthy request for judicial notice, and transcripts of the Evidence Code section 402 hearing. The trial court denied the motion for reconsideration in a minute order stating: "In light of the filing of the 5-28-10 Order of Dismissal, the Court does not have jurisdiction to entertain a motion for reconsideration. [¶] Even if jurisdiction remained, the motion must still be denied. All of the new facts [Knox] relies on are information that [Knox] could have, through the exercise of diligence, presented at the prior hearing or were not of a nature that would warrant a different ruling."
STANDARD OF REVIEW
We review an order imposing terminating sanctions for misuse of the discovery process or spoliation of evidence under the abuse of discretion standard. (Doppes v. Bentley Motors, Inc. (2009) 174 Cal.App.4th 967, 992 (Doppes); Williams v. Russ (2008) 167 Cal.App.4th 1215, 1224 (Williams).) We resolve all evidentiary conflicts most favorably to the trial court's ruling and uphold the trial court's findings if supported by substantial evidence. (Williams, supra, 167 Cal.App.4th at p. 1224; see Costco Wholesale Corp. v. Superior Court (2009) 47 Cal.4th 725, 733.)
DISCUSSION
I.
Knox's Request for a Statement of Decision Was Untimely.
First, we address Knox's contention the trial court erred by denying Knox's request for a statement of decision. Failure to prepare a statement of decision on factual issues, when timely and correctly requested, is reversible error. (Karlsen v. Superior Court (2006) 139 Cal.App.4th 1526, 1530-1531.)
Under Code of Civil Procedure section 632, a request for a statement of decision must be made within 10 days after the trial court announces its tentative decision "unless the trial is concluded within one calendar day or in less than eight hours over more than one day in which event the request must be made prior to the submission of the matter for decision." California Rules of Court, rule 3.1590(n) states: "When a trial is completed within one day or in less than eight hours over more than one day, a request for statement of decision must be made before the matter is submitted for decision and the statement of decision may be made orally on the record in the presence of the parties."
The amount of time spent in trial is calculated based on "the time that the court is in session, in open court, and also includes ordinary morning and afternoon recesses when the parties remain at the courthouse." (In re Marriage of Gray (2002) 103 Cal.App.4th 974, 980.) The time spent in trial excludes "time spent by the judge off the bench without the parties present—lunch, for example—except for such routine recesses as occur during the day." (Ibid.)
The court minutes in this case reflect the trial commenced at 9:00 a.m. on May 4, 2010 with argument on motions in limine. Counsel did not argue NSMI's motion in limine Nos. 1 and 4 at that time; instead, the trial court ordered an evidentiary hearing on those motions. The Evidence Code section 402 hearing on NSMI's motion in limine Nos. 1 and 4 commenced at 2:00 p.m. on May 4, 2010, and the court recessed for the day at 4:20 p.m. The hearing resumed on May 6 at 9:55 a.m. The court recessed for lunch at 12:00 noon. The hearing resumed at 1:37 p.m. and concluded at 3:05 p.m. The section 402 hearing on NSMI's motion in limine Nos. 1 and 4 thus lasted two hours and 20 minutes on May 4 and three hours and 33 minutes on May 6, for a total of five hours and 53 minutes. The trial court made its ruling at the end of the hearing on May 6.
Because the Evidence Code section 402 hearing lasted less than eight hours, Code of Civil Procedure section 632 and California Rules of Court, rule 3.1590(n) required Knox to request a statement of decision before the matter was submitted. Knox's request for a statement of decision, filed on May 14, 2010, was therefore untimely, and the trial court did not err by denying it. Nonetheless, the order of dismissal signed by the trial court made extensive factual findings and served in effect as a statement of decision, though not covering all of the issues raised in Knox's request for a statement of decision.
II.
Does a Trial Court Have Authority to Impose Terminating
Sanctions for Misuse of the Discovery Process Without a
Prior Violation of a Court Order Compelling Discovery?
Knox's primary argument for reversing the sanctions order is a purely legal one. Relying on New Albertsons, Inc. v. Superior Court (2008) 168 Cal.App.4th 1403 (New Albertsons), Knox argues a trial court has no statutory authority to impose terminating sanctions for misuse of the discovery process or spoliation of evidence unless the party being sanctioned has disobeyed a court order compelling discovery. When the trial court imposed terminating sanctions against Knox, it had never disobeyed a court order compelling discovery, and the trial court had never issued an order compelling Knox to produce the Measuring Stand computer, the PowerCom+ program, or the sample steel blades in response to a discovery request. Knox argues the trial court therefore could not as a matter of law impose terminating sanctions against it.
In Doppes, supra, 174 Cal.App.4th at page 992, footnote 5, we noted the New Albertsons case but did not reach the issue of a court's authority to impose terminating sanctions without a prior violation of an order compelling discovery because the sanctioned party had failed to obey several discovery orders.
The trial court granted NSMI's motions against Knox to compel further responses to NSMI's request for production Nos. 33 through 35, NSMI's motion to compel further responses to form interrogatories, and NSMI's motion to compel further responses to requests for admission. There is no evidence Knox violated any of those orders to compel discovery, and none concerned the evidence that became the subject of the motions in limine seeking terminating sanctions.
A. Statutory Framework
Before addressing the New Albertsons case, and as background to it, we review the statutory framework for imposition of discovery sanctions.
"California discovery law authorizes a range of penalties for conduct amounting to 'misuse of the discovery process.' [Citations.] . . . [M]isuses of the discovery process include '[fjailing to respond or to submit to an authorized method of discovery' (Code Civ. Proc., § 2023.010, subd. (d)); '[mjaking, without substantial justification, an unmeritorious objection to discovery' (id., § 2023.010, subd. (e)); '[mjaking an evasive response to discovery' (id., § 2023.010, subd. (f)); and '[djisobeying a court order to provide discovery' (id., § 2023.010, subd. (g)). [¶] . . . [Code of Civil Procedure s]ection 2023.030 authorizes a trial court to impose monetary sanctions, issue sanctions, evidence sanctions, or terminating sanctions against 'anyone engaging in conduct that is a misuse of the discovery process.'" (Doppes, supra, 174 Cal.App.4th at p. 991.)
Code of Civil Procedure section 2031.310, subdivision (h) authorizes the trial court to impose monetary sanctions against a party who unsuccessfully makes or opposes a motion to compel further response to a demand for inspection of documents or things. As for nonmonetary sanctions, section 2031.310, subdivision (i) provides, in relevant part, "[e]xcept as provided in subdivision (j), if a party fails to obey an order compelling further response, the court may make those orders that are just, including the imposition of an issue sanction, an evidence sanction, or a terminating sanction."
Code of Civil Procedure section 2031.320, subdivision (b) likewise authorizes the trial court to impose a monetary sanction against a party who unsuccessfully makes or opposes a motion to compel compliance with an inspection demand, unless the court finds the party acted with substantial justification or other circumstances make the imposition of the sanction unjust. As for nonmonetary sanctions, section 2031.320, subdivision (c) provides, in relevant part: "Except as provided in subdivision (d), if a party then fails to obey an order compelling inspection, copying, testing, or sampling, the court may make those orders that are just, including the imposition of an issue sanction, an evidence sanction, or a terminating sanction under Chapter 7 (commencing with Section 2023.010)."
"The trial court has broad discretion in selecting discovery sanctions, subject to reversal only for abuse. [Citations.]" (Doppes, supra, 174 Cal.App.4th at p. 992.) "The discovery statutes evince an incremental approach to discovery sanctions, starting with monetary sanctions and ending with the ultimate sanction of termination. 'Discovery sanctions "should be appropriate to the dereliction, and should not exceed that which is required to protect the interests of the party entitled to but denied discovery."' [Citation.] If a lesser sanction fails to curb misuse, a greater sanction is warranted: continuing misuses of the discovery process warrant incrementally harsher sanctions until the sanction is reached that will curb the abuse. 'A decision to order terminating sanctions should not be made lightly. But where a violation is willful, preceded by a history of abuse, and the evidence shows that less severe sanctions would not produce compliance with the discovery rules, the trial court is justified in imposing the ultimate sanction.' [Citation.]" (Ibid., fn. omitted.)
B. Case Law
1. New Albertsons
In New Albertsons, the plaintiff suffered injuries after falling in the snack aisle of a supermarket and sued the supermarket, based on claims of negligence and premises liability. (New Albertsons, supra, 168 Cal.App.4th at pp. 1408, 1409.) Six months after the incident, the plaintiff served an inspection demand requesting the production of all photographs or "'other visual or digital recordations taken or made'" over a 24-hour period on the day in which the injury occurred and showing the condition of "any aisle" on the supermarket premises. (Id. at p. 1411.) The supermarket objected to the request but agreed to produce seven previously identified photographs of the snack aisle taken after the incident. (Id. at p. 1412.) The plaintiffs did not move to compel a further response.
A store employee testified in his deposition he took eight to 10 photographs of the incident scene and confirmed he took the seven photographs produced to the plaintiffs. The store employee testified the store surveillance system included 48 video cameras, none of which viewed the snack aisle, and the recordings were stored for six months. (New Albertsons, supra, 168 Cal.App.4th at p. 1412.)
The plaintiffs served another set of inspection demands requesting the production of every photograph showing the presence of a bag of ice in the snack aisle and taken within three hours of the incident. (New Albertsons, supra, 168 Cal.App.4th at p. 1412.) The supermarket responded no such photographs existed. The plaintiffs served a third set of inspection demands narrowing their request for videotape recordings to a four-hour time period. (Ibid.) The supermarket responded it could not produce a videotape but would produce a CD showing a portion of the premises during the time period requested. (Ibid.)
The supermarket store director testified in his deposition the store was equipped with 48 functioning digital video cameras but none of the cameras viewed the snack aisle. (New Albertsons, supra, 168 Cal.App.4th at pp. 1412-1413.) He testified the recordings were stored until the memory was full, which was about four to six months, at which time they were recorded over. (Id. at p. 1413.)
The plaintiffs moved for discovery sanctions under Code of Civil Procedure section 2023.010, arguing the supermarket had willfully destroyed the video recordings and a photograph of the incident scene after the plaintiffs demanded their production. (New Albertsons, supra, 168 Cal.App.4th at p. 1413.) They argued the supermarket had a duty to preserve the evidence and sought evidence and issue sanctions for intentional spoliation of evidence. (Ibid.) The trial court granted the motion and, as sanctions, ordered (1) the supermarket be precluded from offering into evidence or referring to any portion of the videotape and (2) a jury instruction that the supermarket intentionally destroyed the videotape recordings after receiving notice to preserve them and that the jury may infer the destroyed videotape recordings were unfavorable to the supermarket. (Id. at p. 1416.)
The Court of Appeal concluded the evidence and issue sanctions were unauthorized because Code of Civil Procedure sections 2031.310 and 2031.320 permit nonmonetary sanctions only if a party fails to obey an order either compelling further response to an inspection demand or compelling an inspection. (New Albertsons, supra, 168 Cal.App.4th at pp. 1423-1424, 1428.) "Neither the failure to produce video recordings in response to the first set of inspection demands nor the destruction of the recordings in these circumstances justifies an evidence or issue sanction absent a failure to obey an order compelling discovery. Sections 2031.310, subdivision [(i)] and 2031.320, subdivision (c) authorize an evidence or issue sanction only if a party fails to obey an order compelling a further response or an order compelling an inspection. There was no such order here, and the [plaintiffs] waived the right to compel a further response or inspection." (Id. at p. 1428.)
Yet, the New Albertsons court recognized significant exceptions to the rule that discovery statutes do not permit the imposition of nonmonetary sanctions absent the violation of an order compelling discovery. After surveying case law, the New Albertsons court stated: "The general rule that we glean from these opinions is that if it is sufficiently egregious, misconduct committed in connection with the failure to produce evidence in discovery may justify the imposition of nonmonetary sanctions even absent a prior order compelling discovery, or its equivalent. Furthermore, a prior order may not be necessary where it is reasonably clear that obtaining such an order would be futile." (New Albertsons, supra, 168 Cal.App.4th at p. 1426.) Nonmonetary sanctions for misuse of the discovery process might be warranted absent a failure to obey a court order when (1) the sanctioned party had represented to the court it would provide the requested discovery; (2) the sanctioned party misrepresented the existence or availability of the requested discovery and did not object to the inspection demand; (3) an order to compel the discovery would have been futile because the requested discovery did not exist or had been destroyed; or (4) the sanctioned party engaged in a pattern of willful discovery abuses based in part on disobeying discovery orders. (Id. at pp. 1428-1429.)
2. Cedars-Sinai Medical Center v. Superior Court, Williams, and Pate v. Channel Lumber Co.
Three of the cases discussed in New Albertsons recognize relevant exceptions to the general rule requiring violation of an order compelling discovery as a prerequisite to nonmonetary sanctions for misuse of the discovery process. One such exception, recognized in Cedars-Sinai Medical Center v. Superior Court (1998) 18 Cal.4th 1, 11 (Cedars-Sinai), is destroying evidence in response to a discovery request. The California Supreme Court concluded: "Destroying evidence in response to a discovery request after litigation has commenced would surely be a misuse of discovery within the meaning of [Code of Civil Procedure former] section 2023, as would such destruction in anticipation of a discovery request." (Id. at p. 12.)
In Williams, supra, 167 Cal.App.4th at page 1223, the appellate court upheld the dismissal of the complaint as a discovery sanction for spoliation of evidence and concluded, "[a] terminating sanction is appropriate in the first instance without a violation of prior court orders in egregious cases of intentional spoliation of evidence." The plaintiff had sued his former lawyer who had represented the plaintiff in an earlier, unsuccessful malpractice action. (Id. at p. 1218.) As required by the rules of professional conduct, the former lawyer turned over the entire client file to the plaintiff, who placed the file in a rented storage facility. (Ibid.) The plaintiff defaulted on his payments to the storage facility, and the client file was subsequently destroyed. (Id. at p. 1219.) When the plaintiff informed the former lawyer the entire file could not be produced in response to a discovery request, the former lawyer moved to dismiss the lawsuit as a discovery sanction for allowing the client file to be destroyed. (Ibid.) In opposition to the motion, the plaintiff submitted a declaration stating he had missed rental payments to the storage facility because he was in financial trouble and had been recovering from back surgery. (Id. at p. 1220.)
A discovery referee found the plaintiff had been negligent in allowing the client files to be destroyed and recommended the jury be instructed it could draw an inference adverse to the plaintiff about the contents of the missing files. (Williams, supra, 167 Cal.App.4th at p. 1221.) The trial court, however, disagreed with the referee and found the plaintiff had intentionally caused a large portion of the client files to be destroyed and had concealed their destruction. (Id. at pp. 1221-1222.) Finding the spoliation was highly prejudicial to the former lawyer's defense, the trial court dismissed the complaint as a sanction. (Id. at p. 1222.)
Despite the lack of a prior discovery order, the Court of Appeal affirmed, holding a party moving for discovery sanctions based on spoliation of evidence must make an initial prima facie showing the responding party had destroyed evidence that had a "substantial probability of damaging the moving party's ability to establish an essential element of his claim or defense." (Williams, supra, 167 Cal.App.4th at p. 1227.) Once the moving party meets that burden, the burden shifts to the responding party to prove the moving party did not suffer prejudice from the loss of the documents. (Id. at pp. 1225, 1227.) The Court of Appeal concluded substantial evidence supported the trial court's finding the plaintiff had intentionally allowed the client file to be destroyed, and the trial court did not abuse its discretion by imposing a terminating sanction. (Id. at pp. 1224-1227.)
In Pate v. Channel Lumber Co. (1997) 51 Cal.App.4th 1447, 1451 (Pate), the plaintiffs propounded discovery requesting the defendant produce all documents relating to common area maintenance expenses of a shopping center. In response, the defendant represented that five boxes of documents produced for inspection were all the relevant documents in the defendant's possession. (Ibid.) At trial, after the plaintiffs completed their case-in-chief, it was revealed the defendant had not produced all relevant documents responsive to the plaintiffs' discovery requests. (Id. at pp. 1452-1453.) As a sanction for misuse of the discovery process, the trial court precluded the defendant from introducing any documents that had not been produced to the plaintiffs before trial. (Id. at p. 1453.)
Upholding the sanction, the Court of Appeal described as "specious" the defendant's argument the trial court had no authority to impose evidentiary sanctions because the plaintiffs did not move to compel production of documents before trial. (Pate, supra, 51 Cal.App.4th at p. 1456.) The court stated: "Defendant has cited no case which holds a party who has received repeated assurances that all relevant documents have been produced must nonetheless file a motion to compel further responses in order to establish a right to sanctions should it turn out the assurances were false." (Ibid.) The plaintiffs were not required to move to compel further responses as a prerequisite to the imposition of a nonmonetary discovery sanction because the defendant had provided them repeated assurances that all relevant documents responding to their inspection demands had been produced. (Ibid.)
C. Synthesis
The general rule, as stated in New Albertsons, is that Code of Civil Procedure sections 2031.310, subdivision (i) and 2031.320, subdivision (c) authorize a nonmonetary sanction for misuse of the discovery process relating to production of documents and things only if a party fails to obey an order compelling a further response or an order compelling production. The rule is subject to significant exceptions. As relevant here, nonmonetary sanctions for misuse of the discovery process might be warranted absent a failure to obey a court order when (1) the sanctioned party destroyed evidence in response to or in anticipation of discovery requests (Williams) or (2) the sanctioned party misrepresented it had produced or would produce all relevant documents responding to the discovery requests (Pate).
When the sanctioned party has destroyed evidence, a motion to compel would be futile because the documents or things no longer exist and their production cannot be compelled. A party moving for discovery sanctions in that situation must make an initial prima facie showing the responding party's destruction of evidence has created a substantial probability of damaging an essential element of the moving party's claim or defense. (Williams, supra, 167 Cal.App.4th at p. 1227.) When the sanctioned party misrepresented it had produced or would produce all relevant documents, a motion to compel is not authorized by the discovery statutes because the discovery response was adequate and complete on its face.
Thus, the fact Knox did not violate an order compelling discovery does not mean as a matter of law the trial court abused its discretion by imposing terminating sanctions. Accordingly, we must address whether Knox engaged in a misuse of the discovery process falling into an exception to the rule, and, if so, whether terminating sanctions were justified.
III.
Did Knox Destroy Evidence in Anticipation of or in
Response to Discovery Requests or Misrepresent It
Had Produced All Relevant Documents and Things
Responding to NSMI's Discovery Requests?
Although Knox did not violate a court order compelling discovery, the trial court could impose a terminating sanction against it for misuse of the discovery process if (1) Knox destroyed evidence in anticipation of or in response to discovery requests and NSMI suffered prejudice from the loss of the evidence or (2) Knox misrepresented it had produced all relevant documents and things responding to NSMI's discovery requests.
To determine whether Knox engaged in either type of misconduct, we must determine whether the destroyed evidence was responsive to NSMI's requests for production. In this regard, the trial court found: "[NSMI] served discovery requests on Knox, such as Requests for Production Sets One and Three, long before November 2009. . . . Knox failed to respond fully to the discovery requests served by [NSMI]. . . . Specifically, Knox's discovery responses omitted critical information about and from a computer that was connected to a machine that Knox owned called a 'measuring stand' . . . which permanently recorded on a hard disk data concerning the library of blade profiles used by Knox and the accuracy of blades measured. . . . Knox also failed to produce all of the blades . . . requested by [NSMI]."
A. The Evidence Sold at Auction
Are these findings supported by substantial evidence? We start by reviewing the evidence Knox sold at auction. That evidence was (1) the computer connected to the Measuring Stand, (2) the PowerCom+ program, and (3) the steel blade samples.
1. The Computer
The computer sold at auction by Knox was connected to the Measuring Stand and linked it to the Weinig Moulder. The evidence at the Evidence Code section 402 hearing established the Measuring Stand is not the same thing as the TX7 Machine sold by NSMI. The TX7 Machine makes (literally, grinds) the steel blades used to cut the wood moldings. The Measuring Stand positions the blades to the desired measurements and measures the positioning points. The Measuring Stand does not measure the contours of the steel blades but positions the blades in a cutter head, measures the relative positions, and transmits the positional dimensions to the Weinig Moulder via the computer.
2. The PowerCom+ Program
The PowerCom+ program, including a database, is installed on the hard drive of the computer linking the Measuring Stand and the Weinig Moulder. A critical finding by the trial court was the PowerCom+ program maintained a database or "library" of blade profiles that would be important to establish the particular purposes for which Knox intended to use the TX7 Machine. At the Evidence Code section 402 hearing, David Knox testified the PowerCom+ program measures, records, and maintains a database of the maximum and minimum diameters of a cutter head with the blades installed. When asked whether a library of blade profiles was stored on the Measuring Stand, David Knox testified: "I don't know if it's actually stored on the measuring stand or if it's stored on the main computer and then is brought back up through that. I'm not sure what hard drive it's stored on. I don't know." He testified the blade library was stored "on one of the computers in the system" and there were "a whole lot of electronics and interfaces and a whole bunch of stuff behind the Measuring Stand.
Later, David Knox was shown a passage from the deposition of David Miller, a Knox retained expert, concerning the PowerCom+ program and testified he had no reason to disagree with it. In this passage, Miller confirmed the PowerCom+ program transmitted measurement data from the Measuring Stand to the Weinig Moulder and, in doing so, created "a record . . . in the memory of the PC of the blades that were being measured." When asked in what form the record was kept, Miller answered: "I'm not certain. I don't know if it's a spreadsheet. I know it had the capability of handling something like 10,000 different profiles. It would also record the data of a tremendous amount of cutter heads." He then clarified he meant the PowerCom+ program "would retain the information required for up to 10,000 different profiles." A few moments later, Miller testified that when a steel blade is ground, "that data was entered into the PC or the PowerCom+ program."
This testimony did not establish the PowerCom+ database maintained a library of blade profiles. Although David Knox believed there was a library of blade profiles, he did not know on which computer it was stored. Miller did not testify PowerCom+ maintained a database of blade profiles but testified it could handle and retain "information" for perhaps 10,000 blade profiles, meaning the maximum and minimum diameters of a cutter head with the blades installed.
3. Steel Blade Samples
Before Knox purchased the TX7 Machine, it provided NSMI samples of wood molding and samples of steel blades used to create moldings. Knox also gave the NSMI sales representatives access to its toolroom, which held all of its steel blades.
B. NSMI's Discovery Requests
Next, we return to NSMI's requests for production of documents and things to see whether any sought production of the evidence sold at auction.
NSMI's request for production No. 6 asked for "[e]ach and every WRITING CONCERNING the contention in YOUR COMPLAINT at ¶ 6, line 23, that 'Defendants . . . breached the agreement.'" Request for production No. 9 requested: "Each and every WRITING CONCERNING the contention in YOUR COMPLAINT at ¶ 6, lines 25-27, that the equipment 'was not capable of doing the work the defendants represented the equipment could do.'" NSMI's request for production No. 28 requested: "Each and every WRITING CONCERNING how YOU manufactured and sharpened knives between December 2006 and the present."
The requests for production of documents defined "writing" to include everything within Evidence Code section 250 and to include "computer files" and "internal memory." Section 250 is drafted broadly enough to define "writing" to include information stored on a computer hard drive. (Cf. Aguimatang v. California State Lottery (1991) 234 Cal.App.3d 769.)
"'Writing' means handwriting, typewriting, printing, photostating, photographing, photocopying, transmitting by electronic mail or facsimile, and every other means of recording upon any tangible thing, any form of communication or representation, including letters, words, pictures, sounds, or symbols, or combinations thereof, and any record thereby created, regardless of the manner in which the record has been stored." (Evid. Code, § 250.)
The computer connected to the Measuring Stand is not a writing. The Measuring Stand is not a writing and did not make or sharpen the steel blades or affect how Knox manufactured blades. The PowerCom+ program was a writing, but it did not concern whether NSMI breached the agreement, whether the TX7 Machine was capable of performing as NSMI represented, or how Knox manufactured and sharpened knives. While the word "concerning" in the requests for production arguably could be construed to broaden the requests to include the computer and PowerCom+ program, Knox objected to the word "concerning" as overbroad, vague, and ambiguous, and made its response subject to the objections. NSMI never challenged the objections.
NSMI's request for production of documents No. 24 requested: "Each and every WRITING CONCERNING any 'samples' which YOU contend in YOUR COMPLAINT at ¶ 12, lines 19-22, 'were given to Defendants.'" NSMI's request for production No. 25 requested: "Each and every sample which YOU contend in YOUR COMPLAINT at ¶ 12, lines 19-22, 'were given to Defendants.'" Paragraph 12 of the Complaint refers to samples of wood moldings, not samples of steel blades. In response to request for production Nos. 24 and 25, Knox had no obligation to produce the steel blades given as samples to the NSMI sales representatives.
NSMI's request for production No. 61 requested, "[e]ach and every WRITING CONCERNING 'the particular purpose for which Knox Enterprises was to use the machine' as identified in YOUR COMPLAINT at ¶ 37 lines 20-21" and request for production No. 62 asked for "[e]ach and every WRITING CONCERNING the 'blades of specific and exact shapes' as identified in YOUR COMPLAINT at ¶ 38 lines 22-24." Paragraph 37 of the Complaint alleged: "The contract between [NSMI] and US Bancorp provided that [NSMI] warranted to both US Bancorp and to Knox . . . that the machine would conform to plaintiff's specification, that the machine was merchantable and fit for the particular purpose for which Knox . . . was to use the machine, and that the machine was free from defects." The first sentence of paragraph 38 of the Complaint alleged NSMI knew that Knox intended to use the TX7 Machine to manufacture and resharpen blades of "specific and exact shapes in order to use in the manufacture of specific shapes of moldings, as well as to sell and resharpen the blades for sale to others."
The PowerCom+ program did not directly concern the particular purpose for which Knox was to use the TX7 Machine or of the intended use of making blades of "specific and exact shapes." As previously explained, the PowerCom+ program was not involved in the manufacturing of blades but was the link between the Measuring Stand and the Weinig Moulder. Knox objected to the word "concerning" as overbroad, vague, and ambiguous, and NSMI never challenged the objection.
NSMI's request for production No. 63 asked for "[a]ll 'blades of specific and exact shapes' identified in YOUR COMPLAINT at ¶ 38 lines 22-24." This request would encompass the steel blade samples shown to the NSMI sales representatives. Knox produced those eight blades in February 2009. Arguably, this request would include Knox's entire collection of steel blades; however, NSMI did not move to compel further response to this request for production.
NSMI's request for production No. 64 asked for "[e]ach and every WRITING CONCERNING the 'specific shapes of moldings' identified in YOUR COMPLAINT at ¶ 38 lines 24-25," and request for production No. 65 requested, "[a]ll 'specific shapes of moldings' identified in YOUR COMPLAINT at ¶ 38 lines 24-25." The PowerCom+ program, at least arguably, did not concern the specific shapes of moldings mentioned in the Complaint because the PowerCom+ program did not maintain a database of blade profiles.
A comparison of the items of destroyed evidence and the requests for production of documents leads to the conclusion Knox did not engage in a misuse of the discovery process. Knox did not misrepresent it had produced or would produce all relevant documents and things in response to NSMI's discovery requests because the computer connected to the Measuring Stand, the PowerCom+ program and database, and the sample steel blades were not responsive to the requests or, in the case of the blade samples, were produced. Knox objected to the word "concerning" in the requests as overbroad, vague, and ambiguous, and NSMI never challenged the objections. At the very least, it could be said Knox had a good faith reason to conclude it was not required to produce the computer, the PowerCom+ program, and the steel blades in response to NSMI's requests for production.
By selling the computer, the PowerCom+ program and database, and the steel blades at auction, it cannot be said that Knox destroyed evidence in response to discovery. Unlike Williams or Pate, in which the sanctioned party destroyed or failed to produce evidence squarely covered by discovery requests, NSMI's requests for production did not ask for the computer and PowerCom+ program, and Knox produced the eight sample steel blades. There is no evidence Knox concealed any of those items; to the contrary, it permitted NSMI to inspect its facility, where the Measuring Stand was in plain sight, and NSMI downloaded the files from the hard drive of the TX7 Machine's internal computer.
At any rate, NSMI failed to make an initial prima facie showing Knox's destruction of evidence created a substantial probability of damaging an essential element of a defense. (Williams, supra, 167 Cal.App.4th at p. 1227.) One of NSMI's defenses was the TX7 Machine did make steel blades meeting Knox's specific needs as represented to the NSMI's sales representatives. The evidence at the Evidence Code section 402 hearing did not establish the PowerCom+ program maintained a library of blade profiles, and NSMI's counsel conceded the PowerCom+ program does not identify which grinder—the TX7 Machine or another machine—made the steel blade.
Knox did sell the evidence at auction after being served with NSMI's notice to appear at trial and produce documents pursuant to Code of Civil Procedure section 1987, subdivisions (b) and (c). Section 1987 is not part of the Civil Discovery Act, section 2016.010 et seq., and, therefore, destruction of evidence in anticipation of or in response to the notice to appear and produce at trial, though egregious, could not be a misuse of the discovery process under Code of Civil Procedure section 2023.010.
IV.
Did Knox Commit Spoliation of Evidence?
Our conclusion Knox did not engage in a sanctionable misuse of the discovery process does not resolve the ultimate question whether the trial court abused its discretion by imposing a terminating sanction because spoliation of evidence is a separate and independent basis for sanctions.
"Spoliation of evidence means the destruction or significant alteration of evidence or the failure to preserve evidence for another's use in pending or future litigation." (Williams, supra, 167 Cal.App.4th at p. 1223.) Destruction of evidence is condemned because it increases the risk of an erroneous decision on the merits and increases litigation costs as the parties attempt to reconstruct the destroyed evidence or to develop other evidence. (Cedars-Sinai, supra, 18 Cal.4th at p. 8.)
The trial court found Knox committed spoliation of evidence and made these express findings in the order of dismissal: "Evidence established that the computer connected to Knox's measuring stand was in good working condition during the summer of 2009, with data about blade profiles and measurements recorded on the computer's hard disk. As of May 6, 2010, Knox was not able to produce the actual computer connected to the measuring stand, nor any reliable and verifiable download of all data stored on that computer, nor the physical blades as requested by [NSMI]. Knox disposed of each of these items through sale at an auction organized by Knox in November 2009, well after [NSMI]'s discovery requests and Notice to Appear at Trial were served on Knox. [¶] . . . [NSMI] did everything, or nearly everything, in its power to put Knox on notice that [NSMI] believed that the blades and computer data were important to issues in the litigation and must be preserved. These efforts included numerous written requests from [NSMI], including warnings of potential sanctions which [NSMI] would seek if Knox proceeded to dispose of the items at auction. All of these requests were made prior to Knox's November 2009 auction."
The trial court concluded: "Knox willfully and intentionally disposed of the subject computer, its recorded data, and the blades. During November 2009, the computer, the information contained on the computer hard drive, and the blades were all sold at auction and put out of Knox's possession and control."
Substantial evidence supported those findings. There is no question Knox sold the computer, PowerCom+ program, and blades at auction in November 2009. NSMI served notice on Knox to appear at trial and produce evidence including, quite specifically, the computer connected to the Measuring Stand, the PowerCom+ program stored on that computer's hard drive, and steel blades that had been shown to the NSMI sales representatives. In support of motion in limine No. 1, NSMI submitted a copy of its October 28, 2009 notice to appear and produce documents at the trial. Those requests asked for the steel blades shown to NSMI in 2006 and 2007, "[t]he electronic data log from the 'PowerCom Plus' program" on the computer attached to the Measuring Stand, and "[t]he complete PC computer" attached to the Measuring Stand.
In a letter dated November 11, 2009, NSMI warned Knox's counsel that if Knox proceeded with the auction, "we expect that very serious claim, issue and evidentiary sanctions will be imposed against Knox by the Court." Knox did not mistakenly or negligently sell the computer, PowerCom+ program, and steel blades at auction: Knox intentionally allowed those items to be sold at auction knowing they were the objects of notices to produce at trial and after being warned by NSMI it would seek sanctions against Knox if the auction were conducted.
Knox argues the motion to produce at trial was defective and NSMI delayed moving to compel production until months after the auction was conducted. The notice to produce at trial placed Knox on notice the computer, PowerCom+ program, and steel blades were relevant evidence and, if not produced at trial, might be the subject of a motion to compel. Knox proceeded at its own peril with auctioning off this evidence.
In opposition to motion in limine No. 1, Knox presented evidence it had to conduct the auction because it had lost its business premises at foreclosure, had no place to store the computer, PowerCom+ program, and steel blades, and could not afford to rent another building. The trial court could reject that evidence or find not credible the assertion Knox had no place to store the evidence. In Williams, supra, 167 Cal.App.4th at page 1224, the Court of Appeal stated the trial court was free to disregard the assertion the defendant allowed evidence to be lost because he was bedridden from back surgery and could not afford to pay the rental fee for storage space. Similarly here, the trial court could reject the assertion Knox had no option but to sell the evidence at auction.
V.
Did the Trial Court Have Authority to Dismiss the
Complaint as a Sanction for Spoliation of Evidence?
While there is no tort cause of action for destruction of evidence after litigation has commenced, several remedies are available to deter and punish intentional spoliation of evidence committed by a party to the litigation. (Cedars-Sinai, supra, 18 Cal.4th at p. 11.) "Chief among these is the evidentiary inference that evidence which one party has destroyed or rendered unavailable was unfavorable to that party." (Ibid.) The inference is contained in Evidence Code section 413, which reads: "In determining what inferences to draw from the evidence or facts in the case against a party, the trier of fact may consider, among other things, the party's failure to explain or to deny by his testimony such evidence or facts in the case against him, or his willful suppression of evidence relating thereto, if such be the case." Additional remedies for spoliation of evidence by a party to the litigation are discovery sanctions when spoliation amounts to a misuse of the discovery process, State Bar disciplinary action, and criminal penalties. (Cedars-Sinai, supra, 18 Cal.4th at pp. 11-13.)
A finding Knox committed spoliation of evidence would entitle NSMI to the evidentiary inference of Evidence Code section 413. That inference in itself would have been a potent remedy. CACI No. 204 instructs the jury on the inference as follows: "You may consider whether one party intentionally concealed or destroyed evidence. If you decide that a party did so, you may decide that the evidence would have been unfavorable to that party." The trial court was free to adapt the instruction to "fit the circumstances of the case, including the egregiousness of the spoliation and the strength and nature of the inference arising from the spoliation." (Cedars-Sinai, supra, 18 Cal.4th at p. 12.)
At oral argument on appeal, Knox's counsel suggested the jury should be permitted to consider the evidence regarding the sale of the computer, PowerCom+ program, and steel blades and decide whether Knox committed spoliation of evidence. The trial court found Knox intentionally destroyed evidence, and that finding is supported by substantial evidence. Therefore, upon remand, the trial court may, consistently with its express findings, instruct the jury that Knox intentionally destroyed evidence. The trial court may, in its discretion, decide whether to instruct the jury that the destroyed evidence would have been unfavorable to Knox or may leave that determination to the jury.
The trial court's choice of sanction in this case raises the question whether terminating sanctions may be imposed for spoliation of evidence not amounting to a misuse of the discovery process. Cedars-Sinai has been cited for the proposition that sanctions under the discovery statutes are the "traditional remedy" for spoliation of evidence. (R.S. Creative, Inc. v. Creative Cotton, Ltd. (1999) 75 Cal.App.4th 486, 497; see also Williams, supra, 167 Cal.App.4th at p. 1223 [intentional destruction of evidence after litigation has commenced is "a misuse of the discovery process that is subject to a broad range of punishment"].) Cedars-Sinai did not go so far: It stated that in addition to the evidentiary inference, "our discovery laws provide a broad range of sanctions for conduct that amounts to a 'misuse of the discovery process.'" (Cedars-Sinai, supra, 18 Cal.4th at p. 12, italics added.) Responding to the facts of the case, the Cedars-Sinai court stated, "[d]estroying evidence in response to a discovery request after litigation has commenced would surely be a misuse of discovery within the meaning of [Code of Civil Procedure former] section 2023, as would such destruction in anticipation of a discovery request." (Ibid.) Cedars-Sinai did not hold that spoliation of evidence always constitutes a misuse of the discovery process or that discovery sanctions may be imposed for spoliation not otherwise amounting to a misuse of the discovery process.
Although spoliation of evidence is not necessarily a misuse of the discovery process, it does constitute litigation misconduct which in egregious circumstances may be sanctioned by dismissal of the complaint. In Stephen Slesinger, Inc. v. Walt Disney Co. (2007) 155 Cal.App.4th 736, 762 (Stephen Slesinger), the Court of Appeal concluded a trial court has inherent authority to dismiss an action for litigation misconduct if a party engaged in "deliberate" and "egregious" misconduct that "renders any sanction short of dismissal inadequate to protect the fairness of the trial." In that case, the plaintiff sued for breach of a licensing agreement and fraud. (Id. at p. 741.) The plaintiff hired a private investigator who obtained confidential documents from the defendant's private offices, trash dumpsters, and the facility of a contracted document disposal company. (Id. at p. 740.) The defendant moved for a terminating sanction based on that misconduct, though it did not involve a misuse of discovery. (Id. at p. 750.) After an evidentiary hearing, the trial court found the private investigator had taken confidential documents from several locations and the plaintiff had authorized those activities and attempted to conceal that misconduct. (Id. at pp. 755-756.) The trial court, concluding a lesser sanction could not ensure a fair trial, dismissed the action. (Id. at p. 756.)
The Court of Appeal, affirming, concluded the trial court's inherent power to control the litigation before it included the discretion to dismiss the action for deliberate and egregious misconduct if no other remedy could ensure a fair trial. (Stephen Slesinger, supra, 155 Cal.App.4th at pp. 762, 764.) Dismissal need not be preceded by the violation of a court order if the sanctioned conduct was sufficiently deliberate and egregious to justify dismissal and the trial court considered other potential sanctions and all relevant circumstances before imposing the sanction. (Id. at pp. 763-764.) "The decision whether to exercise the inherent power to dismiss requires consideration of all relevant circumstances, including the nature of the misconduct (which must be deliberate and egregious, but may or may not violate a prior court order), the strong preference for adjudicating claims on the merits, the integrity of the court as an institution of justice, the effect of the misconduct on a fair resolution of the case, and the availability of other sanctions to cure the harm." (Id. at p. 764.)
We agree with Stephen Slesinger and likewise conclude a trial court has inherent authority to dismiss an action, without a prior violation of a court order, if the plaintiff engaged in deliberate and egregious misconduct, no other remedy could ensure a fair trial, and the court considers all relevant circumstances and other potential sanctions.
VI.
Did the Evidence at the Evidence Code Section 402 Hearing
Support the Imposition of Terminating Sanctions Against
Knox for Spoliation of Evidence?
As explained earlier, substantial evidence supported the trial court's finding that Knox committed intentional spoliation of evidence. The trial court also found, "Knox's intentional sale of these critical items is particularly egregious in view of the repeated requests and warnings by [NSMI] not to dispose of these items, and the repeated requests by [NSMI] that such items be preserved for use as evidence in the action and produced for inspection by [NSMI]." Substantial evidence, in particular the notice to appear and produce at trial and letters from NSMI's counsel, supported that finding too.
The trial court found: "The Court considered other potentially available remedies for spoliation of evidence. Under the facts presented in this case, the alternatives are not adequate and terminating sanctions is the only appropriate remedy. Lesser sanctions cannot compel Knox to produce the destroyed evidence, and would not be adequate to avoid the prejudice to [NSMI] that occurred as a result of Knox's disposal of the evidence. The Court will not require [NSMI] to go forward with a trial when Knox willfully destroyed very important evidence for which there is no adequate substitute."
While the trial court properly considered other sanctions, its decision to impose terminating sanctions was premised on erroneous findings on the significance of the PowerCom+ program. The trial court found the computer connected to the Measuring Stand and the PowerCom+ program maintained "the library of blade profiles and actual measurements of blades recorded by the computer at Knox" that "could be important to establish the particular purposes for which Knox intended to use the TX7 [Machine]" and that "[t]here is no alternative source of evidence through which [NSMI] could reconstruct the information which was recorded on the hard disk of the measuring stand computer, which was likely the most reliable, complete and objective source of information regarding Knox's use of blades before and after the TX7 [Machine]."
The evidence presented at the Evidence Code section 402 hearing did not support those findings. The evidence did not support a finding the PowerCom+ program maintained a library of blade profiles. Instead, the PowerCom+ program maintained a record of the maximum and minimum diameters of the cutter heads. At the section 402 hearing, NSMI contended the computer and PowerCom+ database were necessary to show "the types of blade[s] that were used by Knox," when the blades were used, "if Knox used blades in the moulder after the acquisition of . . . [the] TX7 [Machine]," and "would show the dimension of the blades, the variability between the blades." The PowerCom+ program would not show the dimensions or profiles of the blades, and alternative sources of evidence existed to prove the other contentions. The TX7 Machine had an internal computer and hard drive, the contents of which were downloaded by NSMI. Knox produced in discovery the DFX files, which contain an electronic blueprint describing a particular part or tool to be created by the TX7 Machine, and the wood molding samples shown to the NSMI representatives, from which blade shapes and profiles could be determined.
Knox claimed it downloaded the contents of the PowerCom+ program onto two USB thumb drives which it produced just before the Evidence Code section 402 hearing. The trial court found the thumb drives were both unreliable and insufficient as alternative evidence because they were created "without the involvement of any computer expert, and without the involvement of [NSMI]," their source was "unclear and suspect," and "their accuracy and completeness cannot be determined or assured."
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The trial court also found that Knox preserved only a small number of steel blades, failed to give NSMI an opportunity to inspect other blades, and did not let NSMI participate in the decision of which blades to preserve. The court found: "As such, the blades selected by Knox for preservation could not be regarded as a representative sample of blades. The blades that were disposed of would be evidence of the items shown to [NSMI], the types and accuracy of blades in use at Knox, and whether Knox had any alternative sources of blades." But the trial court, in ruling on NSMI's motion to compel production at trial, ordered Knox only to produce the eight steel blades it had previously produced during discovery and did not order Knox to produce all of the sample blades shown to the NSMI representatives in 2006 and 2007. Knox cannot be sanctioned for disposing of items the trial court found it did not have to produce at trial.
These erroneous factual findings undermine the trial court's decision to impose terminating sanctions against Knox. Although selling the computer, PowerCom+ program, and the steel blades at auction constituted deliberate and egregious misconduct, lesser sanctions, including but not limited to the evidentiary inference, would have ensured a fair trial. NSMI's primary defense was the TX7 Machine performed as represented to Knox and met its needs. The PowerCom+ program, though potentially relevant to that defense, was not necessary to prove it because other sources of evidence, including the DFX files, information downloaded from the TX7 Machine, and the steel blades produced to NSMI, were available to provide information about blade profiles. In addition to the evidentiary inference, the trial court also could impose monetary sanctions and other issue sanctions.
The trial court erred by imposing terminating sanctions, and, therefore, we reverse and remand for the trial court to reconsider whether to impose the evidentiary inference of Evidence Code section 413 and/or another authorized monetary or nonmonetary sanction other than dismissal of the Complaint.
DISPOSITION
The judgment is reversed and the matter is remanded to the trial court to determine which sanctions, short of a terminating sanction, to impose against Knox for spoliation of evidence in the new trial. In the interest of justice, no party may recover costs incurred on appeal.
FYBEL, J.
WE CONCUR:
BEDSWORTH, ACTING P. J.
ARONSON, J.