2017-00222172-CU-MC

Decotech Systems, Inc. vs. Felicia L. Joubert

Nature of Proceeding: Motion for Terminating Sanctions

Filed By: Ongaro, David

Plaintiff and Cross-Defendant DecoTech Systems, Inc. (“DSI”) and Cross-Defendant David Dickstein’s (“Dickstein”) (collectively “DecoTech”) motion for terminating sanctions, or in the alternative, other appropriate sanctions is ruled upon as follows.

Overview

In this action, DSI alleges that its former Vice President, Sales and Marketing, and corporate officer, Felicia Joubert (“Joubert”) secretly established co-defendant Emergent Technology Services, Inc. (“Emergent”) to compete with DSI. Joubert resigned in October 2017. After she resigned, DSI accessed her company email account and discovered that she deleted all the email in her “sent” email folder prior to her resignation. DSI alleges that pursuant to DSI Mirror Stock Plan, upon resignation Joubert was required to turn in all of her papers and electronic files pertaining to her employment. Despite having worked from home during her 13 years of employment, Joubert only turned in a few folders of old, outdated documents. DSI alleges that Joubert interfered with an anticipated contract with the Modesto City Schools District, and the contract was transferred to Emergent.

DSI further alleges that Joubert hired her son, co-defendant Cameron Watson (“Watson”), but concealed the fact that he was taking personal trips which exceeded his accrued vacation, and not charging it against his vacation hours.

DSI’s complaint asserts causes of action for: (1) breach of fiduciary duty; (2) breach of contract; (3) intentional interference with prospective economic relationship; (4) violation of penal code section 502; (5) fraud and deceit – concealment; and (6) unfair competition.

Joubert filed a cross-complaint against DSI and Dickstein, DIS’s CEO and owner for violations of the Labor Code and B&P §17200.

On 11/16/2017, the Court denied DSI’s ex parte application for a temporary restraining order. The ex parte application was supported by DSI’s forensic computer expert, Aaron Reyes (“Reyes”), who opined that the day before Joubert’s resignation, an external storage device (“WD My Passport”) was plugged into Joubert’s laptop which contained a document titled “Modesto City Schools” an a subfolder titled “POs” that contained a PDF document with the filename of “PO 181279 Modesto.pdf.” The Court found the evidence insufficient to justify ex parte relief.

DecoTech moves for terminating sanctions against Joubert and Emergent (on the complaint and cross-complaint). In the alternative, DecoTech seeks issue sanctions and/or monetary sanctions in the amount of $27,187.50.

Legal Standard

The sanctions the Court may impose are such as are suitable and necessary to enable the party seeking discovery to obtain the objects of the discovery he seeks but the Court may not impose sanctions which are designed not to accomplish the objects of the discovery but to impose punishment.” (Caryl Richards, Inc. v. Superior Court (1961) 188 Cal. App. 2d 300, 304 .) “The penalty 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. (Deyo v. Kilbourne (1978) 84 Cal. App. 3d 771, 793.) The discovery sanction cannot put the propounding party in a better position than they would have been in if they had received the discovery. (Puritan Insurance Co. v Superior Court (1985) 171 Cal. App.3d 877, 884.)

Courts consider the totality of circumstances in deciding whether to impose terminating sanctions, including such factors as whether the offending party’s conduct was willful, the detriment to the moving party, and the number of formal and informal attempts made to obtain the discovery. (Lang v. Hochman (2000) 77
Cal.App.4th 1225, 1245-46.) “[W]here a violation is willful, preceded by a history of abuse, and the evidence shows that less severe sanctions would not produce compliance with discovery rules, the trial court is justified in imposing the ultimate sanction.” (Doppes v. Bentley Motors, Inc. (2009) 174 Cal.App.4th 967, 992 [quoting Mileikowsky v. Tenet Healthsystem (2005) 128 Cal.App.4th 262, 280].) In ordering sanctions, the Court has broad discretion in the selection of the appropriate sanction to be applied under the factual circumstances. ( Doppes, supra, at pp. 991-992.)

In cases involving intentional spoliation of evidence, terminating sanctions are appropriate in the first instance-without a violation of prior court orders-“in egregious cases of intentional spoliation of evidence.” (Williams v. Russ (2008) 167 Cal. App.4th 1215, 1223.) Additionally, “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, Inc. v. Superior Court (2008) 168 Cal.App.4th 1403, 1426.)

Decotech’s Position

According to DecoTech, although the parties agreed to preserve evidence Joubert: (1) deleted DSI emails and retained DSI documents, and (2) destroyed the WD My Passport onto which she transferred DSI documents and emails.

There is no dispute that Joubert disposed of the WD My Passport after the parties agreed to preserve evidence. (Declaration of Michael Beuselinck (“Beuselinck Decl.”), Ex. E, Response to RFP no. 1.) On May 8, 2018, DSI served a demand for production on Joubert/Emergent which specifically requested the WD My Passport and all external storage devices plugged into the laptop. In response to the demand Joubert/Emergent stated, in part:

The My Passport USB was disposed of on or around March 2018 at the Bubbles Car Wash in Elk Grove, California. The last time Defendant Lisa Joubert successfully accessed the My Passport USB was Monday morning, October 16, 2017, while she was still working for Plaintiff Decotech. Ms. Joubert separated from Decotech by Noon on October 16, 2017 and stopped using the My Passport drive once she was separated. Ms. Joubert does not have a specific recollection of plugging in any other external storage device into the COMPANY-ISSUED LAPTOP in 2016 or 2017.

Joubert/Emergent explained that “the first time post-separation that Ms. Joubert attempted to access the My Passport USB was on November 15, 2017, in response to Plaintiffs unsuccessful TRO Petition. Ms. Joubert attempted to access the drive by plugging it into her Surface Pro laptop, but the external drive would not open.” (Beuselinck Decl., Ex. E, Response to RFP no.2.)

After the ex parte application was denied, another forensic analysis of Joubert’s work laptop was conducted. The analysis shows that Joubert placed a large number of files and folders (approximately 185 entries) from the laptop to the WD My Passport. (Declaration of Lars Shou (“Shou Decl.”), ¶¶ 7-9, Ex. B.) A number of files were created on the created on the WD My Passport drive immediately prior to Joubert’s October 16th resignation, including a folder labeled “Email” created on October 12, 2017, folders relating to paystubs and commissions which were created on October 11, and October 15, 2017, and a folder entitled “Modesto City Schools” which was created on October 15, 2017. (Id.) DecoTech believes that the forensic analysis shows that Joubert “took a large number of [DSI] files and folders, including her emails, and information on a number of school districts that [DSI] was serving and which Joubert subsequently transferred to Emergent. (Motion, 6:13-16.) However, the forensic analysis could not identify an “untold number of other critical documents that may have been copied or transferred.” (Shou Decl., ¶ 9.) Moreover, one other external device was connected to her laptop, but Joubert/Emergent claim they do not have “any “specific recollection plugging in any other external storage device” into her laptop in 2016 or 2017. (Shou Decl., ¶ 10.)

DecoTech further maintains that in her declaration in opposition to DSI’s ex parte application for a temporary restraining order, Joubert admitted that before she returned DSI’s laptop, she deleted all her personal emails. (Declaration of Felica Joubert in opposition to ex parte application (“Joubert Ex Parte Decl., ¶ 6.) In her declaration, Joubert also stated that “[t]he only DECOTECH information I currently possesses are copies of Purchase Orders . . . did not download, nor do I maintain, any other DECOTECH information.” (Joubert Ex Parte Decl., ¶ 14.) DecoTech advances that this representation was false given the forensic analysis report.

DecoTech also questions Joubert/Emergent’s representation in discovery that the WD My Passport could not be accessed post-separation since “Joubert miraculously was still able to retain and use the purchase orders to support her own claims as outlined in her counsel’s letter dated February 12, 2018, and enclosed Excel spreadsheet created by Joubert on November 20, 2017.” (Motion, 9: 8-11; (Beuselinck Decl., Ex. D.)

DecoTech claims that all of the above conduct was willful and egregious, especially since the spoliation occurred after being advised to preserve all evidence. According to DecoTech, the spoliation prevents DSI from proving its claim and from defending against the cross-complaint as follows:

· Showing that Joubert concurrently acted against DecoTech’s interests and illegally competed because the evidence would have been contained in the emails and files, such as failing to respond to requests for proposals for DecoTech from existing and prospective customers of DecoTech, and her concurrent illegal competition and development of Emergent’s business. They would have also shown her knowledge and assistance to Watson with regard to Watson’s personal trips.

· Showing that Joubert/Emergent solicited DSI’s employees to work for Emergent while they were employed at DSI.

· Showing that Joubert failed to return DSI’s documents and copies of documents.

· Showing that Joubert took DSI’s customer information and that she was preparing to transfer DSI’s customers to Emergent while still employed at DSI.

· Showing that Joubert took data from her DSI computer, the times at which she took it, to what devices the data was transferred, and how it was used post-termination.

· In relation to the cross-complaint, showing that DSI never made any written representation that Dickstein promised her an enhanced commission, and that Joubert never incurred or paid certain business expenses.

Joubert/Emergent’s Position

In opposition, Joubert/Emergent describe Joubert’s conduct as “error, but one committed without willful disregard for the discovery process.” (Opposition, 1:15-18.) Joubert/Emergent also claims that the information on the WD My Passport and the deleted emails are still available on DSI’s server, in DSI’s employee emails accounts, and with third parties, thus, there has been no permanent loss of evidence. (Opposition, 1:10-13.)

Joubert concedes that on October 15, 2017 she used the WD My Passport to copy purchase order information to prove the commissions owed to her. A few days later, she used the information to create a spreadsheet entitled “unpaid commissions xls.” (Declaration of Felicia Joubert (“Joubert Decl.”), ¶ 18, 24.) She also transferred her personal information that she kept on the laptop to the WD My Passport. This personal folder contained multiple years of personal and family tax returns, mortgage contracts, and sales of purchase, user ID and passwords for various mortgage, credit card, and student loan accounts, confidential medical information, credit reports, family photographs, and insurance policy information. (Id. at ¶ 18.) In conjunction with DSI’s ex parte application, she attempted to access the WD My Passport, but was unable to access the information contained in it. (Id. at ¶ 29.) She was also unable to access the drive on her husband’s laptop. The drive would not “mount or load.” (Id.) She later reached out to a “tech savy friend” named Kao, who stated that “there is a slim chance [to recover data from the drive], but I would need to connect up to the computer and check out.” (Id. at Ex. 2.) Joubert, therefore, believed that the WD My Passport was “worthless,” and when she was at the car wash, she emptied the trash in her car (as is her custom and practice), and threw it away with the rest of the trash in her car. (Id. at ¶ 34.)

In March 2018, Joubert’s former counsel, Mary Farrell (“Farrell”) was no longer concerned with Joubert preserving the WD My Passport for various reasons. First, DSI had only inquired about the WD My Passport which she perceived to be related to its misappropriation of trade secrets cause of action, and DSI filed an amended complaint dropping its cause of action for misappropriation of trade secrets. (Declaration of Mary Farrell, ¶¶ 12-15.) Second, Farrell believed that Reyes’ analysis “corroborated Ms. Joubert’s statements that the only Decotech documents she made copies of for herself were documents related to purchase orders to demonstrate the commissions owed to her were still unpaid.” (Id. ¶ 7.) Third, Farrell believed that any DSI information that Joubert copied onto the WD My Passport was not lost, but still remained on the DSI laptop which Joubert returned. (Id. ¶ 9.)

For the above reasons, Farrell did not convey to Joubert the need to preserve the WD My Passport. (Declaration of Mary Farrell, ¶¶ 12-15.) Joubert avers that “[a]t no time prior to March 19, 2018 (the date I threw away the WD My Passport drive) was I aware of any written discovery propounded by Decotech. At no time prior to March 19, 2018 was I aware of any request for inspection or production of the external drive.” (Id. at ¶ 35.)

Joubert also deleted her personal emails on her DSI email account, as well as emails from other DSI employees complaining about Dickstein. (Id. at ¶¶ 18, 23-24.) She deleted the emails because she was concerned that Dickstein would retaliate against these employees if he saw these emails. (Id.)

On her last day of employment, Joubert returned all DSI property of which she was aware that she possessed (other than copies of the purchase order documents evidencing commissions owed). (Id. ¶ 22.) At the time she executed her declaration in opposition to DSI’s ex parte application, she had forgotten that during the course of her employment with DSI, she occasionally used her personal Microsoft Surface Book for work purposes, and that a few insignificant DSI related documents still existed on my personal laptop. (Id. at ¶ 21.) To the best of her knowledge, she has now produced to DSI as part of this litigation, all documents related to her employment with DSI, including the one discovered on her personal lap top following the TRO proceedings. ( Id.)

Joubert/Emergent explain that any information deleted in the emails or lost from the WD My Passport was not permanently destroyed because “while a forensic review of Joubert’s Decotech laptop may not show everything that was transferred to the WD My Passport from her Decotech laptop, there would nevertheless be digital information on the DecoTech systems showing the existence and/or accessing of files that Decotech now claims may be missing from the destroyed WD My Passport drive.” (Declaration of Don Vilfer, ¶ 10.) “Further, it is highly unlikely in this day age that there was a file on the WD Passport that does not exist on another electronic device. For example, DecoTech is in possession of the laptop that had the files reportedly transferred to the WD Passport and thus retains those files or has forensically recovered them. Additionally, any emails (and presumably files) would also have been backed up by DecoTech following their normal data security practices.” (Id.) And “generally speaking, any emails that Joubert deleted from her DecoTech email account on or around October 15, 2017 should have still been present and obtainable from the DecoTech server for a period of time depending on their server’s deletion protocols.” ( Id. ¶ 11.)

Joubert/Emergent claims that sanctions are inappropriate given that none of Joubert’s conduct was willful, egregious or in bad faith. They further argue that Decotech has not suffered real prejudice since no evidence has been permanently destroyed, thus, Decotech has not been prejudiced in its ability to establish any of its claims.

Analysis

1. Joubert’s conduct was willful

Here, the Court agrees with DecoTech that Joubert’s conduct was willful.

DecoTech has shown inconsistencies/misrepresentations in Joubert’s story regarding which documents she transferred onto the WD My Passport. As further evidence of her changing story, DecoTech notes that DSI served a supplemental demand for production of documents on Emergent. Demand No. 3 requested “All DOCUMENTS which YOU ever stored on the Western Digital My Passport 259F External USB with device serial number 75853314542354131565830 and volume serial number 8C7626A9 from January I, 2016, to October 16, 2017.” (Declaration of Amelia Winchester, Ex. A.) In response, Emergent produced over 1300 documents, including hundreds of pages marked DecoTech, such as DecoTech’s balance and profit and loss sheets, and DecoTech’s reports and profitability details for a number of school districts. (Id. ¶ 3.)

DecoTech has also demonstrated inconsistencies/misrepresentations in Joubert’s story regarding when she last accessed the WD My Passport. In her response to discovery, Joubert stated that the last time she successfully accessed the My Passport USB was Monday morning, October 16, 2017. However, Joubert/Emergent’s own expert, Don Vilfer (“Vilfer”), shows otherwise. Vilfer examined Joubert’s personal laptop and her husband’s computer. He determined that:

On October 17, 2017, 19:37 UTC, an event log reported that the WD My Passport drive was OK (partition diagnostics in evt log). On this date. Emergent Technologies/Synnex shortcuts were created on the G-drive. This was followed by printing and creating signatures for email and unpaid commissions xls.

On October 18, 2017, an event regarding diagnostics of the WD My Passport drive noted (evt 169 Partition Diagnostics Event ID 1006). Close in time to access to Unpaid Commissions xls.

November 9, 2017 is the last evt log for the WD My Passport drive on the Surface Book. That same date, files went to the recycle bin, access was made to OneDrive from the laptop around the time of event and new folders were created on the desktop.

(Declaration of Don Vilfer, ¶¶ 5-7.)

The Court also questions whether the WD My Passport was “unusable” as Joubert suggests. First, there is no declaration from her “tech savy friend” named Kao, nor any expert declaration opining that the WD My Passport was indeed “unsuable.” Second, Kao did not affirmatively say that the WD My Passport was “unusuable.” Instead, he said “there is a slim chance [to recover data from the drive], but I would need to connect up to the computer and check out.” (Joubert at Ex. 2.) There is no evidence that Kao or any expert determined that the WD My Passport was “unusuable.”

Moreover, the Court gives little weight to Farrell’s explanation as to why she was was no longer concerned with Joubert preserving the WD My Passport. As DecoTech observes, the fact that it eliminated the misappropriation of trade secrets cause of action is of no import because the amended complaint expressly referenced Joubert’s use of the WD My Passport to transfer information from her work laptop. The use of the WD My Passport also supports DSI’s allegations that Joubert violated Penal Code §502. Second, DecoTech’s counsel specifically asked about the WD My Passport in February 2018. Third, it is clear that Joubert did not only transfer purchase orders to the WD My Passport.

2. Given Joubert’s willful conduct, what sanctions are appropriate?

Since the Court has determined that Joubert’s conduct was willful, the Court now turns to what sanctions are appropriate: terminating, issue, and/or monetary.

a. Terminating Sanctions

Given the totality of circumstances, the Court concludes that although Joubert’s conduct was willful, it was not so egregious, like in Williams v. Russ (2008) 167 Cal. App.4th 1215, 1223, to warrant terminating sanctions. In Williams, the plaintiff who sued his counsel for legal malpractice. (Id. at 1218.) After the plaintiff obtained his client files from counsel, he failed to pay the storage facility holding the files on his behalf. (Id .) The storage facility repeatedly warned plaintiff that his default could lead to the sale of the item in the storage unit. No bid was made to purchase the unit, therefore, the files were destroyed as a result. However, the plaintiff did not so inform his counsel and concealed the fact for two years. (Id. at 1218-1219, 1222.) In addition, after the plaintiff obtained his client files, and after the files were destroyed, he amended his complaint to add allegations based on the contents of the files. (Id. at 1218-1220.) The trial court dismissed the action, and the Court of Appeal affirmed. (Id. at 1222-1223.)

The motion for terminating sanctions is DENIED.

b. Issue Sanctions

DecoTech seeks the following issue sanctions for each cause of action and the cross-complaint.

1. With respect to the First Cause of Action for Breach of Fiduciary Duty, that following facts are established:

· Joubert knowingly acted against DecoTech’s interests in connection with her development of Emergent while she was a DecoTech officer.

· Joubert acted on behalf of Emergent, whose interests were adverse to DecoTech while she was a DecoTech officer, and

· Joubert intentionally failed to disclose facts (that her son, Cameron Watson, was taking personal vacations while representing to DecoTech that he was working) to DecoTech

· Joubert breached her fiduciary duty to DecoTech by concealing these facts.

2. With respect to the Second Cause of Action for Breach of Contract, that the following facts are established with respect to the Mirror Stock Plan:

· Joubert solicited DecoTech employees for Emergent while she was employed at DecoTech and failed to return DecoTech documents and copies of those documents after her employment ended.

3. With respect to the Third Cause of Action for Intentional Interference with Prospective Economic Advantage, that the following facts are established:

· Joubert engaged in wrongful conduct by utilizing DecoTech property, including confidential and proprietary information, which she obtained in her role as an officer of DecoTech to obtain customers for Emergent.

4. With respect to the Fourth Cause of Action for Violation of Penal Code section 402, that the following facts are established:

· Joubert knowingly accessed and without permission took, copied, or made use of any data from DecoTech’s computer, computer system, or computer network, or took or copied any supporting documentation, whether existing or residing internal or external to a DecoTech computer, computer system. or computer network, and/or

· Joubert knowingly accessed and without permission added, altered, damaged, deleted, or destroyed DecoTech data, computer software, or computer programs which resided or existed internal or external to a computer, computer system, or computer network.

5. With respect to the Fifth Cause of Action for fraud and deceit, that the following facts are established:

· Joubert intentionally failed to disclose facts (that her son Cameron Watson, was taking personal vacations while representing to DecoTech that he was working) to DecoTech and Joubert intended to deceive DecoTech by concealing these facts.

6. With respect to the Sixth Cause of Action for Unfair Business Practices, that the following facts are established:

· Joubert engaged in unlawful conduct as set forth above.

7. With respect to the Cross-Claims, that

· Joubert was timely paid all wages due by DecoTecho, and

· that Joubert was reimbursed for all reasonable and necessary business expenses by DecoTech.

The motion for issue sanctions is DENIED. The Court concludes that requested sanctions are overbroad and not tailored to Joubert/Emergent’s conduct. “Discovery sanctions must be tailored in order to remedy the offending party’s discovery abuse, should not give the aggrieved party more than what it is entitled to, and should not be used to punish the offending party.” (Karlsson v. Ford Motor Co. (2006) 140 Cal.App.4th 1202, 1217.) Moreover, the Court disagrees with DecoTech that the destruction of WD My Passport and emails prevent DecoTech from proving its claims for defending against the cross-complaint. Here, it is undisputed that DecoTech is in possession Joubert’s work laptop. There is no evidence that Joubert deleted any documents from her work laptop. DecoTech’s forensic analysis simply shows that certain documents were transferred from Joubert’s laptop to the WD My Passport. Nor has DecoTech shown that it is unable to retrieve the documents from Joubert’s laptop. DecoTech also has not shown that it is unable to retrieve Joubert’s emails with other DSI employees, since it should be able to retrieve the emails from the other employees’ accounts. Joubert’s solicitation of DSI’s employees may also be discovered via depositions of the employees. With respect to the solicitation of DSI’s clients, the forensic analysis of the documents transferred onto the WD My Passport and the documents on Joubert’s laptop may show any such interactions. Third-party discovery is also available to DecoTech to obtain the information. While DecoTech insists that the third-party discovery requires it to engage in a fishing expedition as to whom those clients may be, a cursory review of Shou’s forensic analysis report identifies certain school districts in the file names. DecoTech’s own records and additional discovery are available to support DecoTech’s claims and defenses.

c. Monetary Sanctions

DecoTech’s request for monetary sanctions is GRANTED in the amount of $20,510. DecoTech seeks monetary sanctions for obtaining forensic reports, attorneys’ fees and costs for bringing the motion and investigating the facts. The Court notes that there is a discrepancy in the amount of monetary sanctions sought in DecoTech’s notice of motion and in Mr. Beuselinck. The notice of motion seeks $27,187.50, but Mr. Beuselinck seeks $20,510. The Court will award $20,510 since it is supported by Mr. Beuselinck’s declaration.

d. Other Requested Relief

DecoTech’s request “to be compensated for future forensics costs to attempt to recover any potential relevant evidence that may exist on other devices, if any, that have not yet been destroyed” is DENIED. The Court declines to rule in a vacuum.

DecoTech’s request that “if this case proceeds to jury trial, that the jury be given CACI

jury instruction No. 204 on willful suppression of evidence in DecoTech’s favor” is DENIED without prejudice for the discretion of the trial court.

The Court declines to rule on either parties’ objections to evidence since the Court relied only on admissible evidence.

The minute order is effective immediately. No formal order pursuant to CRC Rule 3.1312 or further notice is required.