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Compass Bank v. Morris Cerullo World Evangelism

United States District Court, S.D. California

May 8, 2015

COMPASS BANK, Plaintiff,
v.
MORRIS CERULLO WORLD EVANGELISM, Defendant

For Compass Bank, an Alabama Banking Corporation, doing business as BBVA Compass, Plaintiff, Cross Defendant: Deborah S. Gershon, LEAD ATTORNEY, McGinnis Wutscher Beiramee LLP, Irvine, CA; John McGinnis, Ralph T wutscher, LEAD ATTORNEYS, PRO HAC VICE, McGinnis Wutscher Beiramee, Chicago, IL; Patrick J. Kane, LEAD ATTORNEY, McGinnis Wutscher Beiramee, San Diego, CA; Eric Tsai, Maurice Wutscher LLP, San Francisco, CA; Ernest P. Wagner, PRO HAC VICE, McGinnis Wutscher Beiramee, Chicago, IL.

For Morris Cerullo World Evangelism, a California Corporation, Defendant, Cross Claimant, Cross Defendant: Andrew Edward Hall, LEAD ATTORNEY, Galuppo & Blake, A Prof. Law Corp., Carlsbad, CA; Kyle Ethan Yaege, LEAD ATTORNEY, Steven W. Blake, Galuppo & Blake, A Professional Law Corporation, Carlsbad, CA.

For Compass Bank, an Alabama Banking Corporation, Cross Defendant: Deborah S. Gershon, LEAD ATTORNEY, McGinnis Wutscher Beiramee LLP, Irvine, CA; John McGinnis, Ralph T wutscher, LEAD ATTORNEYS, PRO HAC VICE, McGinnis Wutscher Beiramee, Chicago, IL; Patrick J. Kane, LEAD ATTORNEY, McGinnis Wutscher Beiramee, San Diego, CA; Ernest P. Wagner, PRO HAC VICE, McGinnis Wutscher Beiramee, Chicago, IL.

For Morris Cerullo World Evangelism, a California Corporation, Counter Defendant: Kyle Ethan Yaege, LEAD ATTORNEY, Steven W. Blake, Galuppo & Blake, A Professional Law Corporation, Carlsbad, CA.

ORDER GRANTING DEFENDANT'S MOTION FOR EVIDENTIARY AND MONETARY SANCTIONS AGAINST PLAINTIFF [DOC. NO. 109]

Hon. William V. Gallo, United States Magistrate Judge.

I. INTRODUCTION

A. PROCEDURAL BACKGROUND

On March 17, 2015, Defendant Morris Cerullo World Evangelism (" Defendant" ) filed a Motion for Evidentiary Sanctions against Plaintiff Compass Bank (" Plaintiff" ). (Doc. No. 109.) Specifically, Defendant claims that Plaintiff engaged in spoliation of evidence by failing to preserve a recorded telephone call (" the subject call" ) between Ms. Geraldine Gurley, Plaintiffs' Federal Rule of Civil Procedure (" Rule" ) 30(b)(6) designee, and Mr. Jack Wilkinson, Plaintiff's former branch manager and defaulted Defendant to the instant lawsuit. (Doc. No. 109-1 at 5.) Defendant claims that Plaintiff had a duty to preserve what it knew or should have known would be relevant evidence, and that Plaintiff's failure to preserve the recorded call amounts to willful spoliation of evidence. Id. Defendant seeks terminating sanctions against Plaintiff, or in the alternative, Defendant asks that the Court adopt an adverse inference instruction against Plaintiff, establishing that Mr. Wilkinson admitted to issuing the letter of credit at the center of this litigation. Id. at 16.

On March 19, 2015, the Court issued an Order Setting Briefing Schedule and Motion Hearing. (Doc. No. 114.) On March 26, 2015, Plaintiff filed a Response in Opposition to Defendant's Motion. (Doc. No. 134.) On April 2, 2015, at 9:00 a.m., the Court held an inperson Hearing on Defendant's Motion. Mr. Ernest Wagner and Mr. Patrick Kane appeared on behalf of Plaintiff, and Mr. Steven Blake and Mr. Louis Galuppo appeared on behalf of Defendant. Defense representative, Mr. Lynn Hodge, was also present in the undersigned's courtroom for the Motion Hearing.

B. FACTUAL BACKGROUND

1. MS. GURLEY'S DEPOSITION TESTIMONY

During discovery in this case, Defendant issued two sets of document requests which included all audio recordings relating to a letter of credit at the center of the dispute, allegedly issued on behalf of Plaintiff by Mr. Wilkinson. Plaintiff did not produce any audio recordings during discovery. On February 12, 2015, Defendant took the deposition of Ms. Gurley, Plaintiff's Rule 30(b)(6) witness. At her deposition, Ms. Gurley stated that during a phone call with Mr. Wilkinson in February of 2013, Mr. Wilkinson admitted that he issued the letter of credit. Ms. Gurley testified that during the call she asked, " What did you do?" " You have no authority to issue letters of credit." She testified that Mr. Wilkinson responded, " Well, I issued it. It's done." Ms. Gurley testified she was upset that Mr. Wilkinson issued the letter of credit without any authority, and that she chastised him for issuing the letter of credit.

Ms. Gurley also testified that Plaintiff automatically records all of her phone calls in the regular course of business, and automatically records the calls of all Plaintiff's Trade Service Division officers. During her deposition, Ms. Gurley stated, " our lines in international trade services and the letter of credit are recorded 24/7."

Defendant learned of the audio recordings for the first time while deposing Ms. Gurley, and immediately requested that Plaintiff produce the audio recording of the subject call. In a letter dated March 6, 2015, Plaintiff informed Defendant that it could not locate any such recording.

Mr. Wilkinson was deposed after Ms. Gurley's deposition. He testified that he could not remember the subject call. Mr. Wilkinson has been an unreliable witness in this case due to alleged untruthfulness and health problems.

2. DEFENDANT'S DISCOVERY REQUESTS

On April 21, 2014 and October 16, 2014, Defendant propounded Requests for Production of Documents (" RFPs" ) Sets One and Two on Plaintiff. Defendant's first set of RFPs sought: " any and all documents supporting your allegation[s]," " documents referencing... efforts to authenticate the signature of Wilkinson," " referencing Wilkinson's employment history," and " containing communications occurring between January 1, 2012 and the present, between you and Wilkinson." Defendant's second set of RFPs sought: " Any and all documents... related to the termination of Wilkinson," and " related to any investigations conducted by you, including but not limited to any reports, interviews, witness lists, exhibit lists, or memorandums."

In Defendant's RFPs Set One, it set forth the definition of " Document," which included " all internal communications," " discussions," " conversations," " telephone conversations," " transcriptions," " whether transcribed by hand or by some mechanical, electronic... or other means, as well as sound reproductions of oral statements or conversations by whatever means made." (Doc. No. 109-2 at 32) (emphasis added). Further, Defendant indicated that the definition of " YOUR" meant " COMPASS BANK, its agents, employees, employers, insurance companies, attorneys, accountants, investigators, predecessors-in-interest, successors-in-interest and anyone else acting on its behalf." Id. at 33.

Specifically, Defendant's RFPs Set One sought:

14. Any and all documents supporting YOUR allegation that '... local branch employees have no authority to issue standby letters of credit' as alleged in Paragraph 6 of YOUR COMPLAINT."
15. Any and all documents evidencing that YOUR contention that '... local branch employees have no authority to issue standby letters of credit.'
16. Any and all documents supporting YOUR allegation that 'Wilkinson ... was never authorized to sign standby letters of credit on behalf of Compass.'
38. Any and all documents containing communications occurring between January 1, 2012 and the present, between YOU and WILKINSON addressing, referencing, or relating to any of the following topics. ... f. 'Jack Wilkinson'...
i. 'Letter of Credit'

Specifically, Defendant's RFPs Set Two sought:

1. Any and all documents referencing, concerning, or related to the termination of WILKINSON from COMPASS on or around February 15, 2013.
2. Any and all documents referencing, concerning, or related to the termination of WILKINSON from BBVA on or around February 15, 2013.

Defendant claims that both sets of discovery requests required Plaintiff to turn over the audio recording of the subject call between Ms. Gurley and Mr. Wilkinson. Plaintiff did not produce or identify any audio recordings involving Mr. Wilkinson in response to either set of RFPs, nor did Plaintiff inform Defendant at any time that it automatically records all of the phone calls in Ms. Gurley's department.

3. PLAINTIFF'S SEARCH FOR THE RECORDED CALL

In February and March of 2015, after Ms. Gurley's deposition, Defendant repeated its request for the recording of the subject call. Defendant claims that in response, Plaintiff's counsel stated that he could not find the recordings and did not know how to locate them, yet failed to explain how he attempted to search for the recordings.

Through Plaintiff's Opposition, the Court learned that after Ms. Gurley's deposition, Plaintiff conducted a search of the work phone number listed on Ms. Gurley's letterhead, which was 713-499-8640. However, during the Motion Hearing, the Court learned that Ms. Gurley had another work phone number, which was 713-449-8643. At no time did Plaintiff search this phone number for the subject call or any recorded phone calls related to this litigation.

II. DEFENDANT'S ARGUMENT

A. PLAINTIFF FAILED TO PRESERVE RELEVANT EVIDENCE

Defendant argues that parties to litigation have a duty to preserve all evidence that may be relevant, even if they would normally delete the evidence. It argues that the duty arises even before litigation begins, when litigation is reasonably anticipated. It argues that a party must take affirmative steps to monitor compliance and place the documents on a litigation hold, and sanctions may be imposed if a party violates this duty. Defendant asserts that the recording of Mr. Gurley's phone conversation with Mr. Wilkinson in February of 2013 was relevant to this litigation, yet Defendant failed to preserve the recording.

Defendant claims that the subject call is at the heart of this litigation, as Plaintiff argues that it did not issue the letter of credit, yet Ms. Gurley testified that Mr. Wilkinson contradicted that assertion during the subject call. Defendant notes that while Mr. Wilkinson, a suspect in a criminal investigation, does not admit to issuing the letter of credit nor does he remember the conversation with Ms. Gurley, he was terminated for accepting money from Mr. Christopher Hammatt, another defaulted Defendant to this lawsuit.

At the Motion Hearing, Defendant argued that Plaintiff filed this lawsuit in March of 2013, and the relevant time frame for the litigation is from September of 2012 through February of 2013. Defendant noted that it presented the letter of credit to Plaintiff one month before the lawsuit was filed, and therefore, Plaintiff had an unqualified duty to preserve evidence for this litigation starting in February of 2013, which is when the subject call occurred. Defendant argues that while Plaintiff has represented that it was taking steps towards litigation in February of 2013, there is no evidence that Plaintiff's counsel took any action to advise his client of its duty to preserve evidence.

Defendant notes that Ms. Gurley has been in the banking business for over 45 years, and is the person in charge of letters of credit at the Plaintiff bank. Defendant asserts that Ms. Gurley received phone calls related to this litigation in February of 2013, was named by Plaintiff in the Complaint, and was designated by Plaintiff as a Rule 30(b)(6) witness. Defendant specifically asked for recordings during discovery, and in the two years since this case was filed, Defendant was never told that Plaintiff records phone calls. Defendant argues that it is highly prejudiced by not having this evidence.

Defendant argues that Plaintiff has identified two phone numbers for Ms. Gurley, and while Plaintiff has produced redacted records for one of Ms. Gurley's phone numbers, it has failed to produce any records for her other phone number. Thus, Defendant argues, Plaintiff's Opposition is insufficient to show that the subject call did not occur. Defendant argues that the phone records do show that Ms. Gurley made several calls to individuals related to this litigation during the time period that she testified the subject call occurred. Defendant notes that those calls were all made from Ms. Gurley's 8640 number, the number that Plaintiff searched. Defendant asserts that Ms. Gurley called Plaintiff's in-house counsel, a Secret Service Agent, a fraud investigator, and Defense representative Mr. Hodge. Defendant argues that all of those phone calls were recorded by Plaintiff, but Defendant was unaware of the recordings and none were produced. Defendant asserts that it was never told about any of those recordings until it filed the instant Motion.

B. SANCTIONS REQUESTED

Defendant argues that Plaintiff's Complaint should be stricken, monetary sanctions should be imposed, and default judgment should be entered against Plaintiff. Further, Defendant asks that there be a finding by the Court that Mr. Wilkinson issued the letter of credit. At the Hearing, the Court inquired whether an appropriate sanction for spoliation would be an instruction that the conversation between Ms. Gurley and Mr. Wilkinson did occur and that Mr. Wilkinson told Ms. Gurley that he issued the letter of credit. Defendant responded that sanction was " a step in the right direction, absolutely."

1. TERMINATING SANCTIONS

Defendant asks the Court to dismiss Plaintiff's Complaint. It asserts that a finding of willfulness, fault, or bad faith is enough for dismissal, and there is no requirement of a prior order when there was a serious or total failure to respond to discovery. Defendant argues that Plaintiff's destruction of evidence was willful. It notes that Defendant asked for the recordings on multiple occasions, and Plaintiff failed to respond to the discovery requests.

Defendant also argues that Plaintiff's spoliation of evidence prejudiced Defendant. While Defendant notes that this is an optional factor for the Court to consider, it claims that Plaintiff's failure to obey Court Orders compelling compliance with discovery is in itself ample ground for prejudice. Defendant claims it is also prejudiced because Plaintiff has impaired Defendant's ability to go to trial, and it must rely on incomplete evidence because there is no way to recreate the contents of the recording. Defendant contends that the recording would allow for summary judgment and ...


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