Advantacare Health Partners, LPv.Access IV

United States District Court, N.D. California, San Jose DivisionAug 17, 2004
Case Number C 03-04496 JF (N.D. Cal. Aug. 17, 2004)

Case Number C 03-04496 JF.

August 17, 2004


ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION FOR SANCTIONS


JEREMY FOGEL, District Judge

I. BACKGROUND

Plaintiffs AdvantaCare Health Partners, LP and Healthcare Pathways Management, Inc. (collectively, "AdvantaCare") provide in-home intravenous services in Monterey, Santa Cruz, San Benito, and Santa Clara Counties. AdvantaCare obtains customers through referrals from hospital discharge planners, home health agencies, and doctors.

Two of AdvantaCare's key employees, Gwen Porter ("Porter") and Gary Dangerfield ("Dangerfield"), resigned in August 2003, but continued working at AdvantaCare until September 4 and 5, respectively. Porter had been with AdvantaCare since 1995 and at the time of her resignation was the company's "Community Liaison," responsible for marketing AdvantaCare to referral sources, developing relationships with those sources, and maintaining records of referral contacts. Dangerfield had been with AdvantaCare since 1997 and at the time of his resignation was the company's "Director of Operations," responsible for overall management of AdvantaCare, including the pharmacy, nursing, reimbursement, materials, and sales departments.

After leaving Advantacare, Porter and Dangerfield immediately began a new business, Access IV, Inc. ("Access IV"), which competes directly with AdvantaCare. AdvantaCare learned of the existence of Access IV on September 10, 2003. AdvantaCare subsequently learned that Porter and Dangerfield had incorporated Access IV in November 2002, leased office space in January 2003, and otherwise began preparations for competing with AdvantaCare during their employment at AdvantaCare. AdvantaCare then hired a computer forensic agency, which has determined that Dangerfield accessed AdvantaCare's computer network and copied a large number of AdvantaCare's files prior to leaving, including files containing company policies and procedures, patient databases, employee lists, and contracts. The forensic agency also determined that Dangerfield tried to conceal his copying activities by deleting copied files from his hard drive. These findings are undisputed.

On September 11, 2003, AdvantaCare sent Access IV a cease and desist letter, demanding that Dangerfield and Porter refrain from using AdvantaCare's proprietary and confidential business information and return all AdvantaCare information and documents in their possession. On September 17, 2003, counsel for Defendants responded, stating that Defendants did not have any property that belonged to AdvantaCare. However, Dangerfield later admitted during his deposition that Defendants had thousands of AdvantaCare files on their computers and that he had personally deleted some of AdvantaCare's property from his office computer shortly after receiving the cease and desist letter.

On October 6, 2003, AdvantaCare filed an application for a temporary restraining order ("TRO"), which this Court granted. The TRO prohibited Defendants from "copying using or destroying any (a) paper, compact disk or other data storage medium containing AdvantaCare data; (b) AdvantaCare account records and/or notes; (c) AdvantaCare's policies and procedures; (d) AdvantaCare provider agreements; (e) AdvantaCare financial information; and (f) AdvantaCare personnel information." In addition, the TRO required Defendants to produce "any and all compact disks containing information obtained from AdvantaCare's computers, computer systems and/or computer network." Finally, the TRO required Defendants to permit AdvantaCare to make forensic copies of "the hard drive and/or network server for any computer used by Defendant Access IV at any time" as well as "the hard drive and/or network server for any personal computer used by Defendant Gary Dangerfield on or after January 1, 2002." The Court also issued a Notice of Expedited Discovery that required Defendants to produce forensic copies of their hard drives on or before October 6, 2003.

After service of the TRO, Defendants, and specifically Dangerfield, sought to destroy evidence that they were in possession of AdvantaCare's proprietary and confidential information. Dangerfield and Access IV were served with a copy of the TRO and Notice of Expedited Discovery at 4:20 pm on October 6, 2003. Early that evening, Dangerfield visited numerous websites, searching for computer data deletion software. At 9:00 pm, Dangerfield upgraded to BC Wipe, one of the strongest computer file deletion programs available. Between October 7, 2003 and October 10, 2003, Dangerfield deleted more than thirteen thousand files from his home computer using BC Wipe. He also deleted files from the office computer and server. Finally, between 6:10 am and 10:08 am on October 9, 2003, Dangerfield deleted more than one hundred files from his home computer, just hours before presenting the hard drive to AdvantaCare for copying pursuant to the TRO.

Starting on October 9, 2003, Mark Alcock ("Alcock"), AdvantaCare's computer forensic expert, copied five of Defendants' hard drives. He found thousands of AdvantaCare files stored on Dangerfield's office computers, home computer, and the hard drive that functioned as Access IV's server. He also discovered that Defendants continued to access and delete AdvantaCare files located on Dangerfield's office computer, the server, and Dangerfield's home computer after the cease and desist letter was sent and after the TRO was issued. Alcock could not recover files deleted with BC Wipe.

On October 6, 2003, the Court granted in part and denied in part Plaintiffs' request for a preliminary injunction. Defendants were ordered to return immediately all material owned by Plaintiffs. Defendants also were enjoined from soliciting any referral sources for a period of forty-five days after the issuance of the TRO, or until November 20, 2003.

The parties agreed that Defendants would comply with the preliminary injunction by using BC Wipe to delete all of AdvantaCare's information and data and that AdvantaCare would re-image Defendants' hard drives to verify compliance. On November 20, 2003, Alcock re-imaged Defendants' hard drives; he found that thousands of AdvantaCare files remained on these drives. These files included confidential, proprietary information such as AdvantaCare's patient database, 2003 budget, employees' wages, referral statistics, forms, marketing materials, and other items. Alcock also found numerous Access IV documents that are identical or nearly identical to AdvantaCare documents that formerly resided on Defendants' hard drives. By letter dated February 2, 2003, AdvantaCare demanded that Defendants immediately comply with the preliminary injunction by deleting all of AdvantaCare's property from their computers. Defendants did not respond. However, Defendants assert that because AdvantaCare has not identified the files by name, directory, and computer, Dangerfield could not ensure that he deleted all of the AdvantaCare files. Defendants also argue that because Dangerfield knew that the hard drives would be subject to reexamination by Alcock, he would not intentionally have left any AdvantaCare files on the Access IV computers. Defendants contend that if any files remained, it could be only because Dangerfield did not know that they existed.

AdvantaCare concluded that it had a statutory obligation to inform its patients that their information had been copied without authorization and sent a notice to that effect on November 5, 2003. It sent a similar notice to physicians for use in the event that a patient was concerned about the matter. On or about November 3, 2003, Defendants sent a letter to physicians in Monterey County denying they had been involved in any compromise of AdvantaCare patient information. In his deposition, however, Dangerfield contradicts this denial.

II. ANALYSIS

A. Timeliness of Plaintiffs' Motion

Plaintiffs learned of Defendants' deletion of files, in violation of the cease and desist letter and TRO, as early as October 21, 2003. Plaintiffs learned of Defendants' failure to delete remaining files, as required by the preliminary injunction, on November 20, 2003. On December 24, 2003, Plaintiffs filed a separate motion for discovery sanctions, in the form of attorney's fees, that was denied by Chief Magistrate Judge Trumbull on January 28, 2004. On February 2, 2003, Plaintiffs wrote a letter to Defendants demanding compliance with the injunction, but received no reply. The present motion for sanctions was filed on April 13, 2004.

Defendants contend that Plaintiffs failed to file the present motion for sanctions in a timely manner. Defendants assert that Civil Local Rule 7-8(c) requires that any motion for sanctions must "comply with any applicable F.R.Civ. P. and must be made as soon as practicable after the filing party learns of the circumstances that it alleges make the motion appropriate."

In fact, Civil Local Rule 7-8(c) addresses "Form of Request for Court Order to Change Time." However, Civil Local Rule 11-8 does address sanctions, and Civil Local Rule 11-8(b)(3) states that a motion for sanctions "shall be made as soon as practicable after the alleged violation has taken place." The question, then, is whether Plaintiffs acted "as soon as practicable" in filing the present motion for sanctions on April 13, 2004. The phrase "as soon as practicable" is not defined in the Local Rules.

Defendants note that Plaintiffs had time to send letters to referral sources, bring the motion to recover expert and attorney's fees, and amend their complaint to allege additional facts concerning Defendants' contact with referral sources. They also suggest that the information must lack commercial value because Plaintiffs waited so long to bring the instant motion.

Plaintiffs contend that, since becoming aware of the discovery abuses, they have devoted substantial resources to conducting a thorough investigation of the situation before bringing a motion of this gravity. They also argue that they made previous efforts to resolve the issue with Defendants and through Magistrate Judge Trumbull. Finally, they assert that the nature of the information that Defendants failed to delete is immaterial to Defendants' disobedience of the preliminary injunction. The Court concludes that Plaintiffs filed the present motion as soon as practicable, given the motion practice required by discovery disputes and attempts to resolve the present issue short of litigation.

B. The Court May Sanction Defendants for Discovery Misconduct

District courts may impose sanctions as part of their inherent power "to manage their own affairs so as to achieve the orderly and expeditious disposition of cases." Chambers v. NASCO, Inc., 501 U.S. 32, reh'g denied, 501 U.S. 1269 (1991) (quoting Link v. Wabash R. Co., 370 U.S. 626, 630-31 (1962)); Unigard Sec. Ins. Co. v. Lakewood Eng'g Mfg. Corp., 982 F.2d 363, 368 (9th Cir. 1992). This power includes the "broad discretion to make . . . evidentiary rulings conducive to the conduct of a fair and orderly trial." Unigard, 982 F.2d at 368 (quoting Campbell Indus. v. M/V Gemini, 619 F.2d 24, 27 (9th Cir. 1980)).

The Court's inherent power to sanction may be invoked in response to destruction of evidence. Unigard, 982 F.2d at 365. Courts may sanction parties responsible for spoliation of evidence in four ways that are relevant here. First, a Court may enter a default judgment against the party responsible for destroying evidence. Chambers, 501 U.S. at 45 ("[O]utright dismissal . . . is a particularly severe sanction, yet is within the court's discretion."). Second, a Court may instruct the jury that it may draw an inference adverse to the party responsible for destroying the evidence. Glover v. BIC Corp., 6 F.3d 1318, 1329 (9th Cir. 1993); Akonia v. United States, 938 F.2d 158, 161 (9th Cir. 1991), cert. denied, 503 U.S. 962 (1992). Third, a Court may issue civil contempt sanctions, which coerce a party into compliance with the Court's order and/or compensate the plaintiff for the violation. Whittaker Corp. v. Execuair Corp., 953 F.2d 510, 516 (9th Cir. 1992). Finally, a Court may assess attorney's fees. Chambers, 501 U.S. at 45 (1991); Roadway Express, Inc. v. Piper, 447 U.S. 752, 764 (1980).

Because of their potency, these inherent powers must be exercised with restraint and discretion. Roadway Express, 447 U.S. at 764. A primary aspect of that restraint and discretion is fashioning a sanction appropriate for the specific conduct abusive of the judicial process. Id. at 765. When choosing among possible sanctions, the Court should consider a sanction designed to: (1) penalize those whose conduct may be deemed to warrant such a sanction; (2) deter parties from engaging in the sanctioned conduct; (3) place the risk of an erroneous judgment on the party who wrongfully created the risk; and (4) restore the prejudiced party to the same position he would have been in absent the wrongful destruction of evidence by the opposing party. Nat'l Hockey League v. Metro. Hockey Club, Inc., 427 U.S. 639, 643 (1976); Wyle v. R.J. Reynolds Indus., Inc., 709 F.2d 585, 589 (9th Cir. 1983); West v. Goodyear Tire and Rubber Co., 167 F.3d 776, 779 (2d Cir. 1999).

A party's destruction of evidence need not be in "bad faith" to warrant the imposition of sanctions. Glover, 6 F.3d at 1329; Unigard, 982 F.2d at 368 n. 2. The Court may impose sanctions against a party that merely had notice that the destroyed evidence was potentially relevant to litigation. Glover, 6 F.3d at 1329; Akonia, 938 F.2d at 161. However, a party's motive or degree of fault in destroying evidence is relevant to what type of sanction is imposed. Baliotis v. McNeil, 870 F. Supp. 1285, 1291 (M.D. Pa. 1994); see also Schmid v. Milwaukee Elec. Tool Corp., 13 F.3d 76, 79 (3d Cir. 1994) (Courts should choose "the least onerous sanction corresponding to the willfulness of the destructive act and the prejudice suffered by the victim.").

C. Default Judgment

Default judgment is a particularly severe sanction, Roadway Express, Inc., 447 U.S. at 764, and it should be entered against a party only if lesser sanctions would be ineffective. Halaco, 843 F.2d at 381. A default judgment most often is appropriate where a "pattern of deception and discovery abuse made it impossible" for the district court to conduct a trial "with any reasonable assurance that the truth would be available." Anheuser-Busch, Inc. v. Natural Beverage Distribs., 69 F.3d 337, 352 (9th Cir. 1995).

The Court should consider four factors before imposing default judgment as a sanction for destruction of evidence: (1) the existence of certain extraordinary circumstances; (2) the presence of willfulness, bad faith, or fault; (3) the efficacy of lesser sanctions; and (4) the relationship between the misconduct and the matters in controversy. Halaco Eng'g Co. v. Costle, 843 F.2d 376, 379-80 (9th Cir. 1988). The Court may also consider, at its discretion, prejudice to the victim of the misconduct and any government interests at stake. Id.

Case law is unclear on when extraordinary circumstances exist. In Valley Eng'rs, Inc. v. Elec. Eng'g Co., 158 F.3d 1051, 1057-58 (9th Cir. 1998), the Ninth Circuit suggests that extraordinary circumstances exist where there is a pattern of disregard for Court orders and deceptive litigation tactics that threaten to interfere with the rightful decision of a case. This suggestion is bolstered by an examination of the circumstances in other cases, under which the sanction of default judgment was granted. Wyle, 593 F.2d at 591; Wm. T. Thompson Co. v. General Nutrition Corp., 593 F. Supp. 1443 (C.D. Cal. 1984). In the present case, Defendants failed to preserve evidence that they knew or reasonably should have known would be relevant to a potential action and might be sought in discovery. Thompson, 593 F. Supp. at 1455. However, these actions do not eclipse entirely the possibility of a just result, suggesting that extraordinary circumstances do not exist. An alternative sanction could be equally effective and yet less drastic, as discussed below.

The Court must find that Defendants' destruction of evidence was due to willfulness, fault, or bad faith. Halaco, 843 F.2d at 380. Defendants exhibit all three of these characteristics, for "disobedient conduct not shown to be outside the control of the litigant is sufficient to demonstrate willfulness, fault, and bad faith." Jorgensen v. Cassiday, 320 F.3d 906, 912 (9th Cir. 2003). Here, Defendants engaged in affirmative misconduct: Dangerfield's intentional destruction of files in response to the cease and desist letter, his search for deletion software after receiving the TRO, and his use of BC Wipe to delete thousands of computer files. Defendants also engaged in passive refusal to act in failing to delete files in compliance with the preliminary injunction. Defendants concede that they intentionally deleted files. However, Defendants argue that because AdvantaCare remained in possession of the files, Defendants' action caused no harm. Yet the harm or lack thereof accomplished by Defendants' actions is separate from an inquiry about the wilfulness, fault, or bad faith of those actions.

The Ninth Circuit has stated repeatedly that a district court must consider "less drastic sanctions" before it enters default judgment. Halaco, 843 F.2d at 381; United States v. Nat'l Med. Enters. Inc., 792 F.2d 906, 912-13 (9th Cir. 1986). Rejection of lesser sanctions is appropriate under two circumstances: (1) when no lesser sanction could both punish Defendants and deter other similarly tempted and (2) when the facts show that deceptive conduct has occurred and will continue. Computer Assoc. Int'l v. Am. Fundware, Inc., 133 F.R.D. 166 (D. Col. 1990); TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917 (9th Cir. 1987); Chism v. Nat'l Heritage Life Ins. Co., 637 F.2d 1328, 1332 (9th Cir. 1981).

A lesser sanction, such an evidence or issue ruling, could both punish Defendants and deter others similarly tempted. The Court could instruct the jury that it may draw an inference adverse to the party responsible for destroying the evidence. Glover, 6 F.3d 1318, 1329 (9th Cir. 1993); Akonia, 938 F.2d at 161. The inference that Defendants copied all of AdvantaCare's files, for example — as suggested by both Plaintiffs and Defendants — would address Defendants' deletion of files following the cease and desist letter and TRO. It would restore Plaintiffs to the position in which they would have been had Defendants not engaged in misconduct, in that confusion as to which files Defendants did in fact copy goes to the heart of Plaintiffs' claims. West, 167 F.3d at 779. In fact, the inference may even place Plaintiffs in a more advantageous position than if Defendants had never deleted files to begin with. Such an advantage is permissible, as it places the risk of an erroneous judgment on the party that wrongfully created the risk. Id. It thus both penalize Defendants for their misconduct and deter those similarly tempted to destroy evidence. Id.; Hockey League, 427 U.S. at 643. While resolution does not address Defendants' failure to delete files as instructed by the preliminary injunction, such failure could be addressed through monetary sanctions, and civil contempt sanctions could coerce Defendants into compliance with Court orders in the future. Whittaker, 953 F.2d at 516.

The facts in the record not demonstrate that Defendants' behavior will continue in a way that will meaningfully affect the Court's ability to decide or try the case on the merits. Defendants' behavior to date certainly has been egregious. With regard to deletion of files, the evidentiary presumption allows for progress in the case regardless of Defendants' future behavior. In any event, Plaintiffs now want the files deleted.

Destruction of evidence must go to the heart of the case. In the Ninth Circuit, spoliation of evidence raises a presumption that the destroyed evidence goes to the merits of the case, and further, that such evidence was adverse to the party that destroyed it. Phoceene Sous-Marine, S.A. v. U.S. Phosmarine, Inc., 682 F.2d 802, 806 (9th Cir. 1982) (discussing Hammond Packing Co. v. Ark., 212 U.S. 322, 349-54 (1909); Nat'l Ass'n of Radiation Survivors v. Turnage, 115 F.R.D. 543, 557 (N.D. Cal. 1987); Computer Assoc. Int'l, 133 F.R.D. at 170.

In Phoceene, the Ninth Circuit found that the defendant's misconduct — falsely claiming he was too ill to appear in court — was peripheral to the merits of the case. Phoceene Sous-Marine, 682 F.2d at 806. Here, Defendants narrowly define the issue as ability of the parties to solicit business, minimizing the effect of the spoliation. However, while Defendants' behavior does not affect solicitation of business, the deleted computer files are relevant to Plaintiffs' other claims of computer fraud, unfair competition, misappropriation, and breach of contract. Defendants further claim that they did not destroy any evidence because AdvantaCare remains in possession of all copied files. According to the plain language of the TRO, however, the deleted files were "evidence." Furthermore, without knowledge of which files Defendants deleted, it is impossible to determine which files they copied in the first place.

Finally, the Ninth Circuit has recognized that "prejudice" is an optional consideration in deciding whether default judgment is appropriate. Halaco Eng'g, 843 F.2d at 382. Plaintiffs clearly were prejudiced by the destruction of the computer files. As noted above, the information maintained on Defendants' computer was central to the merits of AdvantaCare's claims.

Defendants' behavior, from the very inception of this case, has demonstrated wilfulness, fault, and bad faith. In addition, Defendants' behavior went to the heart of many of Plaintiffs' claims, causing prejudice to Plaintiffs on the merits of the case. Yet it is unclear whether these circumstances are extraordinary. Most importantly, however, lesser sanctions promise to be as effective as default judgment. On balance, then, Defendants' actions, while culpable, do not warrant granting the sanction of default judgment.

D. Evidence Sanctions

Federal district courts have "the inherent discretionary power to make appropriate evidentiary rulings in response to the destruction or spoliation of evidence." Akonia, 938 F.3d at 161; Glover, 6 F.3d at 1329. The adverse inference is based on two rationales, one evidentiary and one not. Akonia, 938 F.3d at 161. The evidentiary rationale is the common sense observation that a party who has notice that a document is relevant to litigation and who destroys the document is more likely to have been threatened by the document than is a party in the same position who does not destroy the document. Id. The other rationale relates to sanctions' punitive and preventative effects. Id.

The evidentiary rationale applies here. The record clearly indicates that Defendants destroyed evidence in response to impending litigation. This behavior suggests that the evidence would have been threatening to the defense of the case and that it is therefore relevant in an evidentiary sense.

The punitive and deterrent rationale applies here as well. A party should be penalized for destroying documents only if it was wrong to do so, as it was in this case. Id. Defendants had clear notice from the TRO that the files potentially were relevant to litigation. They therefore had a duty to preserve those files, justifying an evidentiary presumption against them. See Nation-Wide Check, 692 F.2d at 218 ("The inference depends . . . on a showing that the party had notice that the documents were relevant . . ."). The punitive and deterrent effects of this sanction also were discussed in the context of default judgment.

Defendants twice concede that their destruction of evidence could give rise to "a presumption that Dangerfield copied every file on the AdvantaCare system." Plaintiffs argue that this presumption, in the event that default judgment is not ordered, should be adopted in this case. The Court agrees that this presumption is appropriate.

E. Civil Contempt Sanctions

1. Civil Contempt Sanctions Are Appropriate

Under its civil contempt power, the Court has the authority to sanction Defendants specifically for their failure to comply with the preliminary injunction. Whittaker, 953 F.2d at 517-18. Plaintiffs argue that the Court should issue an order prohibiting Defendants' from operating until they can demonstrate compliance. They also recommend the appointment of a special master to oversee compliance.

Civil contempt sanctions are wholly remedial. Falstaff Brewing Corp. v. Miller Brewing Co., 702 F.2d 770, 778 (9th Cir. 1983). They are employed for two purposes: to coerce the defendant into compliance with the Court's order and to compensate the complainant for losses sustained. United States v. United Mine Workers of Am., 330 U.S. 258, 303-04 (1947); Shuffler v. Heritage Bank, 720 F.2d 1141 (9th Cir. 1983); Falstaff, 702 F.2d at 778. Generally, the minimum sanction necessary to obtain compliance should be imposed. Whittaker, 953 F.2d at 517. When determining the size and duration of the sanction, courts must "consider the character and magnitude of the harm threatened by continued contumacy, and the probable effectiveness of any suggested sanction in bringing about the result desired." Id. Further, they always must give to the alleged contemnor the opportunity to bring himself into compliance; the sanction must come to an end when he ceases to act in contempt of court. Id. (citing Lance v. Plummer, 353 F.2d 585, 592 (5th Cir. 1965)).

In the instant case, the Court issued a preliminary injunction on October 23, 2003, ordering Defendants to return all of AdvantaCare's property. The injunction was issued in light of the Court's finding that AdvantaCare was likely to succeed on its misappropriation of trade secrets and unfair competition claims. Defendants clearly violated the preliminary injunction. Alcock states that he reviewed the November 2003 version of Defendants hard drives and found thousands of computer files belonging to AdvantaCare, some of which had been accessed as late as November 18, 2003, two days before he was on-site to copy the hard drives. Alcock Decl. at 11:4-6. McCarter describes, among other things, a sample of Defendants' documents that were derived primarily from Plaintiffs' property. Declaration of Duncan McCarter in Support of Plaintiffs' Motion for Sanctions ("McCarter Decl.") at 6:4-11. These violations exacerbate the unfair advantage that the Court sought to remedy by granting the preliminary injunction.

Defendants contend that their efforts to comply with the order were thwarted by Plaintiffs' refusal to furnish them with a list of files to be deleted. They assert that Dangerfield believed he had deleted all AdvantaCare files from the Access IV system; because he knew that the hard drives were subject to inspection, he had no motivation to leave files on them. They also urge that AdvantaCare should provide a list of the "missed files" to facilitate their deletion.

This argument is without merit for three reasons. First, as noted above, some of the files that were not deleted were accessed as late as November 18, 2003, two days before Alcock was on-site to copy the hard drives; they could not have been "unknown" files that Dangerfield accidentally missed. Second, the presence of files bearing Access IV's mark but clearly based upon AdvantaCare's model documents suggest intentional rather than unknowing circumvention of the terms of the injunction. Finally, it is unreasonable to shift the blame for blatant disregard of the preliminary injunction to Plaintiffs. If Plaintiffs' cooperation were essential to Defendants' compliance with the injunction, Defendants easily could have brought that fact to the attention of the Court.

At this point, the least obtrusive way to ensure that Defendants have returned all of Plaintiffs' property and are not using Plaintiffs' property to operate a business is to require Defendants to demonstrate compliance affirmatively. Accordingly, the Court orders that counsel for the parties meet and confer to determine which files remain to be deleted. Within a reasonable time thereafter, Plaintiffs then may examine Defendants' hard drives to ensure that the files have been deleted. Defendants' failure to delete the files will result in default judgment against Defendants.

2. Appointment of a Special Master

Plaintiffs contend that the Court should appoint a special master to oversee and ensure compliance with the preliminary injunction. Special masters are to be used sparingly and only where the use of the Court's time is not justified. Nat'l Ass'n of Radiation Survivors, 115 F.R.D. at 560. The appointment of a special master is appropriate where "parties have failed to comply with Court orders, displayed intransigence in the litigation, or require close supervision." Id.

The Court is not persuaded that appointment of a special master is warranted. Although Defendants clearly disregarded the preliminary injunction, the Court expects counsel to address remaining compliance issues professionally and promptly.

F. Monetary Sanctions

The "American Rule" prohibits fee-shifting in most cases. Chambers, 501 U.S. at 45. However, it is permitted in response to a party's willful disobedience of a court order. Id. at 45. A court's discretion to determine the degree of punishment for contempt allows the court to impose attorney's fees representing the entire cost of the litigation. Id. It also is permitted when a party has "acted in bad faith, vexatiously, wantonly, or for oppressive reasons." Id. at 45-46. In doing so, the court can vindicate judicial authority and make the prevailing party whole. Id.

Plaintiffs contend that they are entitled to monetary sanctions including specific amounts for: (1) all fees and costs incurred related to the motion for sanctions; (2) fees and costs incurred to uncover Defendants' destruction of evidence and AdvantaCare's attempts to reconstruct deleted files; and (3) fees and costs incurred in AdvantaCare's efforts to ensure compliance with the Court's October 23, 2003 order that required Defendants to return all of AdvantaCare's property. In the alternative, Plaintiffs suggest an approach followed in Nat'l Ass'n of Radiation Survivors, in which the court ordered the defendants to pay specified categories of fees and costs and required the parties to meet and confer on the amount to be paid in each of the categories.

Defendants note that Plaintiffs previously have brought motions for both expert witness fees and attorney's fees. Although Magistrate Judge Trumbull denied fees of $42,800.00 for Alcock's services on January 27, 2004, Alcock's services are included in the present request for $64,178.16. Defendants also note that Judge Trumbull previously refused to grant attorney's fees of $9,370.50 and the same fees are included in the present request for $19,588.50. However, Judge Trumbull's order on Plaintiffs' original motion for discovery costs expressly was without prejudice to Plaintiffs bringing a motion for sanctions based on the destruction of evidence. In fact, the Court may properly consider "all of a party's discovery misconduct in weighing a motion to dismiss, including conduct which has been the subject of earlier sanctions." Payne v. Exxon Corp., 121 F.3d 503, 508 (9th Cir. 1997).

Defendants also object to the amount requested for Alcock's expert services. Defendants cite Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437 (1987), in which the prevailing defendants moved to recover expert witness fees under Federal Rule of Civil Procedure 54(d). The Supreme Court affirmed denials of their motions, explaining that, absent statutory or contractual authorization to the contrary, 28 U.S.C. § 1821 limits the amount granted for witness fees to $40 per day, and that 28 U.S.C. § 1920 allows a Court to tax such fees as costs only within those limits. At $40 per day, a sum of $64,178.16 would require of Alcock a total of 1,604.454 work days — impossible in the instant case. Also based on Rule 54(d), Defendants argue that costs cannot be properly assessed because the matter has not yet been brought to judgment. However, Defendants do not explain the relationship between Rule 54(d) and the instant case in either argument. In fact, Rule 54(d)(2)(E) specifically states that Rule 54(d)(2)(A)-(D) does not apply to claims for fees and expenses as sanctions for violations of the Federal Rules of Civil Procedure or under 28 U.S.C. § 1927. Therefore, Defendants' reliance on Crawford specifically and Rule 54 generally is not persuasive.

Defendants next assert that attorney's fees are inappropriate. They argue that even if their actions do constitute spoliation of evidence, their actions can be remedied with sanctions other than attorney's fees, such as admitting evidence of the circumstances of the spoliation or instructing the jury that it may make a negative inference as to the nature of the destroyed evidence. The Court agrees that Defendants should be sanctioned through a negative inference that they copied all of AdvantaCare's files. However, Defendants do not explain why the Court should order evidence sanctions instead of attorney's fees, rather than in addition to them.

Finally, Defendants object to paying administrative costs, arguing that because there is no authority cited for the $7,700.00 total, the request is "inappropriate." However, Plaintiffs respond that they will promptly submit any evidence required by the Court.

The Court is not inclined to award Plaintiffs all of the monetary sanctions they seek. However, given Defendants' egregious disregard for court orders, some exemplary award is appropriate. Under the totality of circumstances, the Court will assess a total monetary sanction of $20,000.

III. ORDER

Good cause therefore appearing, IT IS HEREBY ORDERED that:

1. The request for entry of default judgment is denied;

2. Evidence sanctions are granted; the trier of fact shall find that Defendants copied all of the files on Plaintiffs' computers;

3. Counsel shall meet and confer to determine which files remain to be deleted, and shall agree upon a date on which Plaintiffs may again examine Defendants' hard drives to ensure that all files have been deleted. Failure to delete any remaining files by the date of the examination will result in default judgment against Defendants;

4. Defendants shall pay monetary sanctions of $20,000 within thirty (30) days.