Plaintiffs filed a lawsuit for patent infringement, unfair competition and breach of fiduciary duty against several defendants, including AIM Sports. Plaintiffs design, develop and distribute firearm related tools, accessories and sporting optics. Defendants and plaintiffs had a business relationship that permitted Defendants to access trade secret information that belonged to the plaintiffs, including trade secrets regarding manufacturing, product development and plaintiffs' patented products. After the plaintiffs sued defendants for patent infringement and settled the lawsuit, plaintiffs discovered that defendants had formed a new company that continued to infringe the patent and violated the settlement agreement.

After both parties filed motions to compel the production of documents, the Magistrate Judge granted both motions in part and denied both motions in part. Plaintiffs' motion with respect to two of the requests was denied because the defendants represented in declarations signed under penalty of perjury that they had no responsive documents. Plaintiffs then conducted fact witness depositions and alleged, after conducting these depositions, that defendants had withheld responsive documents and that declarations filed with the district court were false. At this point, the Magistrate Judge granted plaintiffs' motion, ordered the production of the responsive documents and ordered defendants to file new declarations. When the defendants failed to produce the financial and design documents sought and filed no new declarations, the plaintiffs moved for monetary sanctions and evidentiary sanctions.

After analyzing the scope of the production of each defendant, including whether they had produced, among others, sales and financial documents, design documents and images of the accused devices, the district court examined whether defendants had spoliated evidence. The district concluded that, although one of the defendants had destroyed documents, it was not apparent that the documents destroyed pertained specifically to the accused products in the litigation. Therefore, the district court did not issue sanctions against defendants for the destruction of documents.

The district court next turned to the issue of monetary sanctions. Based on defendants' conduct of misrepresenting its document production, the district court granted the request for monetary sanctions and awarded attorneys' fees associated with the motion to compel and the motion for sanctions.

Next addressing the issue of evidentiary sanctions, the district court considered the five-part test for evaluating whether evidentiary sanctions were warranted under the Ninth Circuit's decision in Anheuser-Busch, Inc. v. Natural Beverage Distribs., 69 F.3d 337, 348 (9th Cir. 1995). "The factors of that test are as follows: (1) the public's interest in expeditious resolution of litigation; (2) the court's need to manage its dockets; (3) the risk of prejudice to the party seeking sanctions; (4) the public policy favoring disposition of cases on their merits; and (5) the availability of less drastic sanctions."

The district court found that the first two factors weighed in favor of evidentiary sanctions as the Court has an interest in managing its docket and the public has an interest in expeditious resolution of the litigation, both of which were thwarted by defendants' failure to produce documents and by submitting false declarations. With respect to the third factor, the risk of prejudice to plaintiffs, the district court found that this factor also weighed in favor of evidentiary sanctions as the failure to provide sales documents, design documents and financial documents would prejudice plaintiffs and cause plaintiffs difficulty in preparing for trial. The fourth factor weighed against evidentiary sanctions as the sanctions would impair the defendants' ability to defend itself at trial. The district court then considered whether less drastic sanctions were available and found that the Magistrate Judge had already given the defendants two different opportunities to produce the documents, so that the fifth factor weighed in favor of evidentiary sanctions as well. As a result of this analysis, the district court determined that evidentiary sanctions were appropriate.

In terms of the evidentiary sanctions requested, the district court determined that plaintiffs' request for a sanction preventing defendants from introducing opinion testimony or evidence contradicting plaintiffs' technical expert would be granted because defendants had failed to produce responsive design and engineering documents. The district court also granted plaintiffs' request to preclude defendants from contradicting plaintiffs' damage expert on the issue of sales and profits because defendants had withheld responsive sales and financial documents. Finally, the district court declined to provide a jury instruction informing the jury of the defendants' discovery misconduct, determining that the evidentiary sanctions were sufficient to remedy the prejudice to plaintiffs.

Cheng v. AIM Sports, Inc., Case No. CV 10-3814 (PSG) (PLAx) (C.D. Cal. Aug. 23, 2011)