Acknowledging Trial Court’s Efforts to Fashion an Appropriate Sanction, Appellate Court Rejects Argument that Sanction was Punitive and Affirms Award of $90,000

Oz Optics, Ltd. v. Hakimoglu, 2009 WL 1017042 (Cal. App. Apr. 15, 2009) (Unpublished)

In this case arising from defendant/appellant Hakimoglu’s breach of her employment contract, the trial court awarded $90,000 in monetary sanctions upon finding that Hakimoglu violated a court order to produce her laptop and spoliated evidence by using wiping software to delete potentially relevant data.  Upon appeal of this issue, among others, the appellate court affirmed.

In the course of course of discovery, plaintiffs/appellants, Oz Optics Ltd. and Oz Optics, Inc. (“Oz”), sought to inspect Hakimoglu’s computers and computer storage devices.  Upon a motion to compel, Hakimoglu was ordered to respond to Oz’s requests for production and subsequently produced two laptops to Andrew Crain, Oz’s forensic expert.  Crain determined that Hakimoglu used wiping software to delete various files from the computer utilized in the course of her employment at Oz.  Crain also determined that the laptop had, at one time, contained a document entitled “Executive Summary,” believed to have been highly relevant to the case.  As to the second laptop, while the nature of the deleted files could not be determined, it was established that 76,000 files had been deleted (not scrubbed) prior to production, including ten files deleted on the morning the computer was delivered to Crain.  Hakimoglu argued the deletions were “insignificant and innocent.”

Oz filed for terminating sanctions.  The motion was denied upon a finding that Oz had not established that Hakimoglu’s conduct would prevent them from establishing any of their claims or defenses.  Oz also filed a separate motion for monetary sanctions.  In that motion, Oz argued that Hakimoglu had knowingly destroyed critical evidence “in direct contravention” of the court’s order to produce “responsive documents and things.”  The trial court granted the motion and ordered the parties to provide briefing on the issue of the amount of monetary sanctions to be awarded.

Accordingly, Oz contended that sanctions amounting to $230,000 would be reasonable in light of its expenditure of $39,391.16 paid to the forensic expert and the expenditure of approximately $195,000 “in attorney’s fees and costs on matters ‘related to Hakimoglu’s continued abuse of the discovery process.”  Conversely, Hakimoglu argued she could not afford to pay such sanctions and noted that her insurance carrier would withdraw from her defense if sanctions were awarded against her.

The trial court found that Oz was entitled to recover “reasonable fees and costs incurred as a result of [Hakimoglu’s] deletion and scrubbing of files from the hard drive of her computer at a time when she was under the Court’s order to produce the computer.”  Accordingly, the trial court awarded monetary sanctions in the amount of $90,000.  Explaining its ruling, the court reasoned that plaintiffs “did not incur attorney’s fees and costs as a result of [Hakimoglu’s] deletion and possible scrubbing of files from her computer until [Hakimoglu] delivered the file to plaintiffs’ forensic experts and the deletions and possible use of a scrubbing program were discovered.”  The court also concluded that “OZ could not recover the entirety of the expert fees billed by Crain because ‘it is apparent that [p]laintiffs hired Crain to conduct a forensic analysis of the hard drive before [it] knew of [Hakimoglu’s] improper conduct.’”  Addressing Oz’s responsibility for its own costs, the court noted that “a substantial portion of plaintiffs’ attorney fees were attributable to Oz’s decision to move for terminating sanctions without including an alternative request for monetary sanctions.”  Finally, the court opined “that an award of more than $90,000 would be ‘unjust’ and ‘could create a burden that might prevent [Hakimoglu] from defending against [Oz’s] claims[.]’”

Hakimoglu challenged the award on appeal arguing that the court had abused its discretion because she did not intentionally disobey the court’s order and because the amount of sanctions was punitive.  Oz appealed the award arguing the court had abused its discretion in limiting the sanction to $90,000.

On appeal, the appellate court affirmed the award.  Addressing Hakimoglu’s argument first, the court established that the purpose of discovery sanctions “is not ‘to provide a weapon for punishment, forfeiture, and avoidance of a trial on the merits,’…but to prevent abuse of the discovery process and correct the problem presented…”  Thus, “[m]onetary sanctions encourage ‘voluntary compliance with the discovery procedures by assessing the costs of compelling compliance against the defaulting party.”  The court also established that “willful conduct is not required for the imposition of monetary sanctions.”  Pursuant to the abuse of discretion standard, the appellate court found there was “substantial evidence” supporting the trial court’s finding that Hakimoglu violated its order and the inference that her deletions “obstructed discovery.”

Rejecting Hakimoglu’s argument that the sanctions were punitive, the appellate court relied upon the trial court’s significant reduction in the amount of sanctions requested and its explicit recognition that a larger award was inappropriate because it could prevent Hakimoglu from defending the action.

For substantially the same reasons discussed above, the appellate court rejected Oz’s arguments that the trial court abused its discretion in limiting the award.

On appeal, the court also affirmed the trial court’s decisions to:  a) allow expert testimony regarding Hakimoglu’s spoliation, and b) deny Oz’s request for a special jury instruction related to the spoliation (particularly because a standard adverse inference instruction was given), among other things.