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Kische USA LLC v. Simsek

United States District Court, W.D. Washington, Seattle

January 29, 2018

KISCHE USA LLC, Plaintiff,
v.
ALI SIMSEK, et al, Defendants.

          ORDER ON MOTION FOR SANCTIONS AND EVIDENTIARY INFERENCE

          JAMES L. ROBART, UNITED STATES DISTRICT JUDGE.

         I. INTRODUCTION

         Before the court is Plaintiff Kische USA LLC's ("Kische") motion for sanctions and evidentiary inference at trial regarding spoliation of evidence. (Mot. (Dkt. # 116).) Defendants Ali Simsek, Diane Walker, and JD Stellar, LLC ("JD Stellar") (collectively, "Defendants") filed a response to Kische's motion, (Resp. (Dkt. # 125)), Kische filed a reply (Reply (Dkt. # 132)), and Defendants filed a surreply to strike materials that Kische filed in support of its reply (Surreply (Dkt. # 144)). The court has considered the parties' submissions in support of and in opposition to the motions, the relevant portions of the record, and the applicable law. Being fully advised, [1] the court GRANTS in part and DENIES in part Kische's motion.

         II. BACKGROUND

         The court has extensively detailed the factual and procedural background of this case in numerous prior orders. (See, e.g., 6/29/16 Order (Dkt. # 39); 12/13/16 Order (Dkt. # 65); 2/22/17 Order (Dkt. # 74); 9/6/17 Order (Dkt. # 95); 11/2/17 Order (Dkt. # 115); 11/29/17 Order (Dkt. # 130).) Thus, in this order, the court recounts only the facts salient to the instant motion.

         This case involves allegations that Ali Simsek and Diane Walker abused their positions with Kische to misappropriate Kische's assets and form JD Stellar, a competing business. (See SAC (Dkt. # 75); id. f 4.4, Ex. 3 ("OA") (Dkt. # 75-1) at 11.) During the relevant period, Kische-formed by Mehmet Uysal, who resided in Turkey-"engaged in the business of importing high quality and widely known wom[e]n's apparel to the United State[s] since its formation in 2007." (SAC 11.1.) Kische brings claims for trademark infringement in violation of Section 32 of the Lanham Act, 15 U.S .C. § 1114(1); common law trademark infringement; common law unfair competition; breach of contract; breach of fiduciary duty; tortious interference with business relations; conversion; and unjust enrichment. (Id. fl 5.1-12.4.) On September 6, 2017, the court granted summary judgment in Kische's favor on the duty and breach elements of the contract and fiduciary duty claims against Mr. Simsek. (See 9/6/17 Order.) On November 29, 2017, the court denied summary judgment in Kische's favor on its claims that Defendants infringed its trademarks. (See 11/29/17 Order.)

         In the midst of these summary judgment motions, [2] the court received briefing and held a hearing to resolve a discovery dispute between the parties. (See 10/31/17 Order (Dkt. #111); Defs. Disc. Br. (Dkt. # 112); Kische Disc. Br. (Dkt. # 113); 11/2/17 Min. Entry (Dkt. # 114).) The court ordered Defendants to produce electronic data interchange ("EDI") records, QuickBooks files, [3] passwords to those files, and sales data for JD Stellar if those documents are relevant to the remaining claims. (11/2/17 Order at 4.) In response to the court's order, Defendants produced two printed pages of Kische's QuickBooks records and 18, 000 pages of JD Stellar's "entire EDI records, and JD Stellar's QuickBooks reports showing sales and profit data." (Mot. at 3; see Resp. at 2.) Kische also requested that the court order Defendants to produce additional documents, computers, and passwords. (See Kische Disc. Br at 2-5; 11/2/17 Order at 5.) After extensive questioning from the court, Defendants' counsel maintained that Defendants do not have any of the items Kische sought. (11/2/17 Order at 5.) The court, therefore, informed Kische that the court cannot order Defendants to produce materials that do not exist and that the appropriate remedy was for spoliation of evidence. (Id. at 5-6.) The court granted the parties leave to file appropriate discovery motions while encouraging the parties to resolve their remaining discovery disputes without the court's intervention. (Id. at 6, n.6.) Eight days later, on November 10, 2017, Kische filed the instant motion for sanctions and for an evidentiary inference at trial regarding spoliation of evidence. (See Mot.)

         Kische argues that Defendants refuse to produce relevant business records. (See generally id.) Specifically, Kische relies on the findings of its forensic expert, Gordon Mitchell, [4] to claim that: (1) Defendants did not produce one of Kische's computers, which holds some of Kische's QuickBooks files; (2) the computers Defendants have produced include QuickBooks files that were deleted; (3) Defendants did not give Kische some of the user IDs and passwords for online QuickBooks files; and (4) some of Defendants' produced materials show "last accessed" dates of as recent as June 2016, meaning that Defendants improperly altered the files before producing them.[5] (Id. at 4; see 11/10/17 Mitchell Decl. at 2, Exs. F, G.) June 2016 coincides with the time that Kische collected documents and computers from Defendants. (See Resp. at 3-4 ("Defendants handed over possession of these computers on June 22, 2016[, ] and July 12, 2016.").) According to Kische, Defendants have not explained how the requested information went missing, what steps Defendants took to maintain the requested information, or whether Defendants inquired to find the necessary user IDs and passwords. (Mot. at 4.) In addition, Kische argues that Defendants have not provided it with enough information to calculate JD Stellar's profits. (Id.)

         Conversely, Defendants maintain that the only non-moot issue is Kische's QuickBooks records because Defendants already produced 18, 000 pages of JD Stellar's business records in response to the court's discovery order[6] and because Defendants have disclosed all of Kische's property, user IDs, and passwords that were in Defendants' possession. (Resp. at 2-3; see 11/2/17 Order.) Further, Defendants argue that Mr. Uysal had access to Kische's records until mid-2013 and that Mr. Uysal could have audited his business records at any time, thus negating Defendants' obligation to produce any missing records. (Resp. at 4-6.)

         Kische requests that the court enter an order: (1) striking Defendants' counterclaims and affirmative defenses that relate to the despoiled evidence[7] (id. at 10-11); (2) issuing a jury instruction that the despoiled evidence would have weighed against the Defendants (id. at 12); or (3) excluding certain evidence (id.). In response, Defendants request that the court exclude the testimony and opinions of Mr. Mitchell. (Resp. at 12.) Defendants have since filed a motion to exclude Mr. Mitchell's testimony, as well as the testimony of Kische's other expert, Douglas McDaniel. (See Mot. to Exclude (Dkt. # 148).) The court therefore withholds ruling on Defendants' motion to exclude at this time and will instead address the matter when deciding Defendants' pending motion to exclude.[8] The court notes, however, that considering Defendants' exclusion argument as presented in their response brief (see Resp. at 12), the court finds that Mr. Mitchell's testimony is relevant and reliable for the instant motion. See Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 147 (1999); Daubert v. Merrell Dow Pharm., 509 U.S. 579, 589 (1993). The court now addresses the issue of spoliation.

         III. ANALYSIS

         A. Surreply

         As an initial matter, Defendants filed a surreply requesting that the court strike materials that Kische filed in support of its reply brief. (See Surreply.) Defendants argue that, pursuant to LCR 7(b)(1), Kische can only file supporting documents with its original motion because Defendants must have an opportunity to substantively respond to all evidence. (Surreply at 2); see Local Rules W.D. Wash. LCR(7)(b)(1).

         The Local Civil Rules limit the filing of a surreply. See Local Rules W.D. Wash. LCR 7(g). A party "may file a surreply requesting that the court strike" "material contained in or attached to a reply brief." Id. The surreply "shall be strictly limited to addressing the request to strike, " and "[e]xtraneous argument or a surreply filed for any other reason will not be considered." Id. LCR 7(g)(2).

         Contrary to Defendants' assertion, the Local Civil Rules expressly contemplate submitting new evidence with a reply brief. See Local Rules W.D. Wash. LCR 7(b)(3) ("The moving party may ... file ... a reply brief in support of the motion, together with any supporting material of the type described in subsection (1)."). Additional evidence can be presented in support of a reply brief where "[t]he Reply Brief addressed the same set of facts supplied in [respondent's] opposition to the motion but provides the full context to [respondent's] recitation of the facts." Terrell v. Contra Costa Cty., 232 Fed.Appx. 626, 629 n.2 (9th Cir. 2007). In other words, "[evidence submitted in direct response to evidence raised in the opposition is not 'new.'" Crossfit, Inc. v. Natl Strength & Conditioning Ass 'n, Case No. 14-CV-1191 JLS (KSC), 2017 WL 4700070, at *3 n.3 (S.D. Cal. Oct. 19, 2017).

         Here, Defendants move to strike evidence that they claim is "new" (see Surreply): (1) a declaration by Kische's counsel, Dubs Herschlip, that attaches deposition excerpts from Mr. Simsek and Ms. Walker showing that Kische's bookkeeper, Ester Aure, kept passwords on the computers, and that Mr. Simsek order Kische's computers to be decommissioned (12/01/17 Herschlip Decl. (Dkt. # 133)); (2) a declaration from Mr. Mitchell supporting his credibility and expertise (12/01/17 Mitchell Decl. (Dkt. # 134)); (3) an affidavit by Ms. Aure alleging that Mr. Simsek and Ms. Walker had possession and control of Kische's business records and passwords (Aure Aff. (Dkt. # 135)); and (4) a declaration of Mr. Uysal discussing his amount of access to and control over Kische's business records (Uysal Decl. (Dkt. # 136)). The court grants Defendants' motions to strike as to the first and third entries, but denies their motion as to the second and fourth.

         Defendants' response does not posit that they did not have access or control over Kische's computers or passwords, nor does it contest that Mr. Simsek decommissioned Kische's computers. (See generally Resp.) Therefore, Mr. Herschlip's declaration and Ms. Aure's affidavit constitute improper "new" evidence. See Terrell, 232 Fed.Appx. at 628-29. However, Mr. Mitchell's declaration explains his collection methodologies, which Defendants attacked (id. at 12), and Mr. Uysal's declaration explains his level of access to and control over Kische's documents, which Defendants raised (id. at 10). These declarations are therefore not "new" evidence and are allowed by the Local Civil Rules. See Terrell, 232 Fed.Appx. at 628-29, n.2; Provenz v. Miller, 102 F.3d 1478, 1483 (9th Cir. 1996); Local Rules W.D. Wash. LCR 7(b)(3). Thus, the court strikes Mr. Herschlip's declaration (Dkt. # 133) and Ms. Aure's affidavit for the purposes of this motion (Dkt. #135), [9] but will consider the declarations from Mr. Mitchell and Mr. Uysal (Dkt. ## 134, 136).

         B. ...


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