1

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

SUPERIOR COURT OF CALIFORNIA

COUNTY OF LOS ANGELES

ROBIN SINGH EDUCATIONAL SERVICES, INC., d.b.a. TestMasters, a California Corporation,

Plaintiff, v. BLUEPRINT TEST PREPARATION LLC, a limited liability company, TRENT TETI, an individual, JUSTIN CAPUANO, an individual, MATTHEW RILEY, an individual, JODI TRIPLETT, an individual, and DOES 1 through 20, inclusive

Defendants.

LASC Case No: BC330098

COURT’S RULING RE DEFENDANTS’ MOTIONS TO STRIKE AND PLAINTIFF’S MOTIONS FOR SANCTIONS

I. EXECUTIVE SUMMARY

Defendants’ two Motions To Strike are both denied for reasons stated below. Plaintiff’s

Motion For Nonmonetary Sanctions is granted in part although the request for terminating

sanctions, as such, is denied. Plaintiff’s Motion For Monetary Sanctions is granted in part for the

reasons stated below, but trailed for further briefing (per the Court’s prior order of June 4, 2008)

2

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

to allow Defendants to contest the amounts sought for the issues on which fees will be allowed

(items #1-2, 4 [in part] and 6-7 only).

When the Court awarded some but not all the sanctions sought last December for

Defendants’ abuse of discovery, as then shown to the satisfaction of the Court, the Court allowed

Plaintiff to renew the motion if additional disclosures based on continuing electronic discovery

and follow up thereon showed a greater level of misconduct by Defendants than was known at

the time of the December 2007 ruling. Succinctly put, Plaintiff has obtained substantial

additional discovery, primarily electronic discovery of files which Defendants had heretofore

withheld from Plaintiff when the same kinds of information were sought pursuant to discovery,

which shows how cavalier and dishonest Defendants were in providing prior sworn discovery

responses, particularly in their deposition testimony. Defendants are now shown to have

conspired to maliciously and intentionally withhold key information, to lie about the true facts

surrounding the formation, funding and start-up of Blueprint, and to have attempted to encourage

at least one key third-party witness (Thomas McCarthy) to give false, incomplete and/or

misleading testimony under oath in this case. This is the barest thumbnail of the proven

misconduct of these Defendants, which is discussed in some more detail below and more fully

set forth in the two motions and the supporting papers, including the Plaintiff’s “Compendium

Of Perjury.”

Plaintiff’s motions are only based on the terms of the Discovery Act and the remedies

available thereunder, so Plaintiff has failed to invoke the Court’s inherent authority to punish

egregious misuse of the legal system pursuant to the holding in Stephen Slesinger, Inc. v. Walt

Disney Co. (2007) 155 Cal.App.4th 736. Since no prior court orders have been violated, the

Court has concluded as a matter of law that its available remedies under the Discovery Act are

3

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

limited to the nonmonetary sanctions of issue and evidence preclusion sanctions and to monetary

sanctions. For this reason, the Court declines to impose terminating sanctions. The Court would

also note that this case does not involve the kinds of intentional invasion of an adversary’s

attorney-client privilege such as was specifically at issue in Slesinger. Plaintiff’s having moved

on the record now before the Court and having made the legal arguments it chose to make, this

ruling is intended to be the full measure of the Court’s response to the demonstrated misuse of

discovery to the date hereof. Plaintiff is not allowed to bring a further motion on this same

record attempting to invoke the Court’s inherent authority and to again seek terminating

sanctions.

The Court has chosen to adopt the majority of the nonmonetary sanctions sought by

Plaintiff, but not all of them. In exercising its discretion in this fashion, the Court has limited the

issue and evidence sanctions imposed to those which most directly relate to the demonstrated

misuse of discovery by Defendants. These demonstrated misuses relate to the destruction of

tangible and electronic evidence, the rendering of other evidence conveniently unavailable, and

the making of materially false statements under oath concerning the formation, funding and

participation in Blueprint. The Court reserves its right to comment to the jury on the evidence

and credibility of the parties before deliberations commence as authorized by California

Constitution Art. VI, § 10 beyond the specifics of what is authorized and mandated to occur

based on this ruling.

One of the primary reasons why the Court finds Defendants’ conduct to be an intentional

misuse of the discovery process is that the individual Defendants (with the notable exception of

Defendant Courtney Martin) have made no attempt whatsoever to explain or justify their prior

erroneous testimony about the timeline for the creation of Blueprint (née Orion). Defendant

4

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Martin, to her credit, has provided such an explanation (the death of her father in the summer of

2004), and for this reason the Court denies the Plaintiff’s motions in their entirety as to this

Defendant only. That Defendants might not have retrieved each and every one of the old emails,

word-processing documents and other electronic files and fragments thereof found by KPMG

with its forensic skill might be justified and understandable if Defendants had presented anything

like an honest picture of their activities in the fall of 2004 and winter of 2004-05. Instead they

tried to depict an intentionally false picture of their activities and now have been shown up as

intentional liars. Two examples (of the many, many available) are Plaintiff’s Joint Appendix

(hereafter “J.A.”) Exhibits 39 and 5. Exhibit 39 is a two-page multi-color document stored in the

computer files as “timeline.doc,” created on October 24, 2004, and retrieved by KPMG from

Defendants’ Firewire external storage device first purchased in 2006. This is a document which

Defendants had not voluntarily produced and whose existence was plainly inconsistent with their

sworn testimony about the timeline of the creation of Blueprint. It shows a whole sequence of

deadlines for the period November 1, 2004 to January 1, 2005, a period when each of the

Defendants was still an employee of Plaintiff (the earliest departure was Justin Capuano on

December 31, 2004; Trent Teti and Jodi Triplett left January 7, 2005), but during which they

were to accomplish such tasks as:

Nov. 15 * * * General Course outline completed Logical Reasoning question categories and methods delineated

Dec. 1 Logical reasoning curriculum complete. Begin reading comprehension Basic off-line web site complete Marketing manual for faux franchise employees begun. * * *

Dec. 15 Legal counsel for Phase I secured * * * Reading Comprehension completed. Begin Logic Games Web site has student data base back end

5

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

January 1 Logic Games sections completed. Begin Homework sections and supplementary drills. Course schedules, including full length and weekend course through Dec. complete Web site is able to process merchant transactions.

J.A. Exhibit 5 is an email retrieved by KPMG from the same Firewire device and not

found on the other computers offered in discovery from which it had to have come (unless it

came from some undisclosed computer). This was sent by Teti to McCarthy, Plaintiff’s web-site

designer and computer consultant at the time, and was sent after Teti had previously implored

McCarthy to send him certain files belonging to plaintiff TestMasters with the inducement: “If

you can do it, I’ll blow you so well snot will shout out of your cock.” (J.A. Exhibit 3.) Having

gotten the files, Teti then wrote McCarthy as follows:

You’re a god. A god who will never be cited as the source of the files, but a god

nonetheless. I owe you a hell of a lot more than lunch. Thanks again. I’ll keep you

posted on all development from this end. (J.A. Exhibit 5.)

As noted in more detail below, Defendants would thereafter conspire with McCarthy to

encourage him to provide incomplete, misleading and/or false testimony about his involvement.

This suggests that the Defendants’ discovery misuses were intentional, as do other emails which

evidence the Defendants’ deep-rooted hatred toward TestMasters’ principal Robin Singh.

In sum, Defendants knew full well that they were trying to hide their tracks; they made

their best efforts to do so; for a long time they were successful due to their willing and repeated

dishonesty; and it was only after KPMG scraped contrary proof off their computers and external

hard drives that a truer (though still incomplete) picture of their actual conduct during the

6

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

relevant period emerged. This is most definitely a serious intentional misuse of discovery by all

Defendants (except Martin).

All of the evidentiary objections by both sides are overruled.

II. DEFENDANTS’ MOTION TO STRIKE MOTION FOR TERMINATING

SANCTIONS AND MOTION FOR ATTORNEYS’ FEES FOR FAILURE TO COND UCT

A MEET AND CONFER EFFORT PRIOR TO FILING

RULING: The Court has jurisdiction over the Defendants and has jurisdiction to hear the

Plaintiff’s motions despite the lack of meet and confer before the motions were filed.

The Defendants argue that the Court lacks jurisdiction over the matters at issue due to the

Plaintiff’s failure to conduct a meet and confer before the motions were filed. The Court notes at

the outset that the Court has general jurisdiction over the Defendants due to their general

appearance in the case via the filing of their answer and cross-complaint. The specific issue

encompassed in this motion is whether the Court has jurisdiction to hear the motions for

terminating sanctions and for attorneys’ fees. The answer is yes.

According to the notices of motions, the Plaintiff seeks terminating and monetary

sanctions pursuant to CCP § 2023.030. Subsection (a) says that to “the extent authorized by the

chapter governing any particular discovery method” the Court may impose monetary, issue,

evidence, or terminating sanctions against anyone who engaged in conduct that is a misuse of the

discovery process. Making an evasive response to discovery is a misuse of the discovery

process. (CCP § 2023.010(f).) Nowhere in CCP § 2023.030 is there any mention of a meet and

confer requirement. In fact, a meet and confer is only required in certain limited situations. For

instance, a meet and confer is required for motions to compel further responses to interrogatories

7

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

(CCP § 2030.300(b)), requests for production (CCP § 2031.310(b)(2)), and requests for

admission (CCP § 2033.290.(b)). It is also required when a deponent fails to appear for a

deposition (CCP § 2025.450(b)(2)) or when a deponent fails to answer questions (CCP §

2025.480(b)). The Plaintiff is not moving to compel further responses to discovery requests nor

is it moving to compel the attendance of witnesses at a deposition. Rather, the Plaintiff is

moving for sanctions based on alleged discovery abuses including providing false testimony,

destroying evidence, and making evasive discovery responses.

The Defendants cite to no authority in their moving papers which demonstrates that a

meet-and-confer effort was required before the motions were brought. The papers cite solely to

the meet-and-confer requirement in connection with motions to compel further responses, which

as discussed, is not at issue with the motions. The Defendants also cite to Leach v. Superior

Court (1980) 111 Cal.App.3d 902, for the proposition that a meet and confer is required before a

discovery motion can be brought. This is an incorrect statement of the law, and Leach says no

such thing. Rather, Leach held that a meet and confer was not required when there is a total

failure to respond to discovery within the statutorily proscribed time period. That is also not an

issue in this case. The Defendants’ other citations are similarly unpersuasive because cases such

as Volkswagenwerk Aktiengesellschaft v. Superior Court (1981) 122 Cal.App.3d 326, Sabado v.

Moraga (1987) 189 Cal.App.3d 1, and Townsend v. Superior Court (1998) 61 Cal.App.4th 1431,

merely discuss what constitutes a satisfactory meet and confer. As no meet and confer was

required, these cases are irrelevant.

The Defendants’ Motion To Strike For Failure To Meet And Confer is therefore denied.

8

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

III. DEFENDANTS’ MOTION TO STRIKE PLAINTIFF’S “COMPENDIUM OF

PERJURY”

RULING: The Court will accept the Plaintiff’s submission of the “Compendium Of

Perjury” as the document is authorized by the California Rules Of Court.

The Defendants ask the Court to strike the Plaintiff’s submission to the Court entitled

“Compendium of Perjury” on the basis that it is neither a proper pleading nor a proper supporting

memorandum. While it is true that the Compendium is neither of these things, pursuant to Cal.

Rule Ct. 3.1112(b), “other papers may be filed in support of a motion, including declarations,

exhibits, appendices, and other documents or pleadings.” The Compendium constitutes “other

documents” and therefore it will be accepted by the Court. Moreover, the Defendants submitted

their own corresponding “Treatise of Truth” which is offered in rebuttal to the Compendium.

Therefore, the Defendants have had a chance to present their opposition to the Compendium, and

they are not prejudiced by this unconventional document.

The Defendants’ Motion To Strike The Compendium Of Perjury is therefore denied.

IV. PLAINTIFF’S RENEWED MOTION FOR TERMINATING SANCTIONS, OR IN

THE ALTERNATIVE, ISSUE SANCTIONS AND EVIDENCE PRECLUSION

SANCTIONS

A. Question Presented

In this renewed motion for terminating, issue or evidence sanctions, does the totality of

the discovery abuses by the Defendants justify a remedy that is more severe than the remedy that

was ordered in December 2007? If so, what is the appropriate remedy?

B. Relevant Procedural History

9

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

With respect to the instant motion (and notwithstanding the general lengthy procedural

history of this case), the Plaintiff first moved for terminating, issue, or evidence sanctions on

November 2, 2007. The Court held a hearing on that motion on December 12, 2007 and issued a

decision the same day. The Court found that the Plaintiff “has made a sufficient showing that

defendants have intentionally and seriously misused the discovery process and did not timely

comply in good faith with prior discovery requests for disclosure of pre-separation and post-

separation communications and writings, electronic and otherwise.” The Court declined to

impose terminating or evidence sanctions or certain requested jury instructions on the basis that

the Court was not yet satisfied that the Plaintiff had been denied the right to a fair trial. However

the Court specifically said that its ruling was without prejudice to the Plaintiff making a renewed

request for the terminating sanctions or the jury instructions if further discovery (particularly

additional discovery of Defendants’ electronic records) supported such a request. The Court

opted instead to impose certain issue sanctions with respect to the Defendants’ equitable

affirmative defenses. Specifically, the Court struck the Defendants’ “unclean hands,”

“estoppel,” “laches” and “bad faith of Plaintiff” defenses in BC330098.

The Court also awarded the Plaintiff monetary compensation in the form of the actual

past sums incurred by computer forensics KPMG and FIOS and the Hon. John Zebrowski (acting

as a discovery referee), the cost of future services by KPMG not to exceed $200,000, the cost of

future services of court reporters and videographers not to exceed $100,000, and the cost of

bringing the motion for sanctions (as well as an accompanying motion for compliance with

electronic discovery.) On January 24, 2008, the Court issued an order awarding the Plaintiff

$111,150.26 in fees for bringing the sanctions motion and the motion to compel compliance and

$592,260.45 in past electronic discovery costs for a total of $703,410.71. On April 10, 2008 the

Court issued an order awarding the Plaintiff an additional $154,952.85, which reflected the costs

10

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

of electronic discovery and depositions since December 12, 2007. The Defendants appealed the

December 12, January 24, and April 10 orders, and those appeals remain pending.

The Plaintiff filed a renewed motion for terminating, issue or evidence sanctions on May

13, 2008. The current motion builds on the prior motion and is specifically made pursuant to

CCP § 2023.030 on the grounds that the Defendants have misused the discovery process by

destroying evidence, suppressing key documents, concealing knowledgeable witnesses,

presenting perjured testimony at depositions and in verified discovery responses and declarations

to the court, and submitting false discovery responses.

C. Legal Standards for the Motion

1. Generally, Violation Of A Court Order Is Required Before Nonmonetary Sanctions

May Be Awarded.

Traditionally, in order for a court to impose terminating, issue, or evidence sanctions for

discovery abuse, there must be evidence of a violation of a prior court order regarding discovery.

(Mileikowsky v. Tenet Healthsystem (2005) 128 Cal.App.4th 262, and Ruvalcaba v. Government

Employees Ins. Co. (1990) 222 Cal.App.3d 1579.) Mileikowsky and Ruvalcaba noted that

sanctions were available under the general provision of CCP § 2023(b) (now § 2023.030) for a

misuse of discovery, but only “[t]o the extent authorized by the chapter governing any particular

discovery method.” The courts then looked to the specific provisions governing interrogatories

and requests for production and noted that terminating, issue, and evidence sanctions were

available only if a party failed to comply with a court order compelling further responses to the

discovery. (While these cases were decided before the 2005 amendment to the Discovery Act,

the language of former CCP §§ 2030(l) and 2031(m) are substantially similar to the now

operative provisions of CCP § 2030.300(e) and CCP § 2031.310(e).) Thus in order to seek a

11

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

terminating, issue, or evidence sanction under CCP § 2023.030 for misuse of discovery, there

first has to be a violation of a court order. In keeping with this premise, the Ruvalcaba court

stated that “although the actions of appellant and his counsel may demonstrate a history of

discovery abuses, without a disobeyed court order a terminating sanction was improperly

imposed.” (222 Cal.App.3d. 1579 at 1583.) (Accord, Mileikowsky 128 Cal.App.4th 262 at 280.)

2. There Are Exceptions To The General Rule Requiring A Violation Of A Court Order.

(a) Evidence Or Issue Sanctions Are Available For The Intentional Concealment Of

Evidence Or Intentionally Causing The Unavailability of Evidence.

The first exception to the general rule arises when a prior court order compelling

discovery would have been futile, usually because the evidence that would be the subject of the

order compelling production is unavailable. The court in Do It Urself Moving & Storage v.

Brown (1992) 7 Cal.App.4th 27, 36 (superseded on other grounds by the 1992 and 1993

amendments to CCP § 437c), noted that prior cases and treatises had interpreted the Discovery

Act of 1986 and the statutory scheme which preceded it to require that, prior to the imposition of

sanctions harsher than monetary sanctions, a party must have disobeyed a court order compelling

discovery. Nevertheless, the court found that all of those authorities were distinguishable and

said that “[h]ere, it is conceded that plaintiffs are unable to provide the promised items of

discovery. Under the circumstances of this case, a warning to plaintiffs, in the form of a formal

order to comply, would have been futile.” (Ibid.) Under the facts of the case, the plaintiff

argued that it needed to obtain an audit of the defendant’s records in order to prove its case but

the plaintiff later claimed that such an audit was impossible. In light of this admission, the trial

court ordered an evidence sanction precluding the plaintiff from introducing any accounting

evidence.

12

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Similarly, in Vallbona v. Springer (1996) 43 Cal.App.4th 1525, the court imposed an

evidence sanction when it discovered that the defendant had initially failed to comply with the

plaintiffs’ request for production and then later claimed that the documents were stolen during

the course of the litigation. The defendant argued that the court could not impose the sanction in

the absence of a prior court order compelling production of the documents. The court disagreed

and citing to Do It Urself said, “Requiring plaintiffs here to seek a formal order to compel

defendants to comply with discovery would have been similarly futile since Dr. Springer had

claimed the requested documents were stolen.” (Id. at 1546.)

The court in Karlsson v. Ford Motor Co. (2006) 140 Cal.App.4th 1202, 1214-1215,

summed up the general principles in Vallbona and Do It Urself by stating that these decisions

have held that a “violation of a discovery order is not a prerequisite to issue and evidentiary

sanctions when the offending party has engaged in a pattern of willful discovery abuse that

causes the unavailability of evidence.” In Karlsson, evidence sanctions were imposed because of

the defendant’s: failure to designate a proper warnings PMK,…[its] failure to produce drawings and prototypes of three-point belt systems, its concealment of relevant documents in the passive restraint reading room, its concealment of an existing four-point belt system, and its failure to produce a Ford employee to conclude her deposition. (Id. at 1215.)

The referee found that this conduct amounted to a “pattern of discovery abuse” and that the

defendant had both violated court orders and had misused the discovery process. (Ibid.) The

court held that “the trial court reasonably exercised its discretion in imposing sanctions for an

abusive discovery pattern that resulted in the loss of evidence.” (Id. at 1216.)

In addition to intentional concealment of evidence, if a party has spoiled evidence

through intentional destruction, this would constitute a misuse of the discovery process that is

13

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

sanctionable under CCP § 2023.030. The Supreme Court in Cedars-Sinai Med. Ctr. v. Superior

Court (1998) 18 Cal.4th 1, determined that there was no tort remedy for intentional spoliation of

evidence. It came to this decision in part because there were available non-tort remedies to

punish and deter the intentional spoliation of evidence. These include an evidentiary inference

that evidence which a party destroyed or rendered unavailable was unfavorable to that party as

well as sanctions for misuse of the discovery process. The Court stated, “[d]estroying evidence

in response to a discovery request after litigation has commenced would surely be a misuse of

discovery within the meaning of section 2023, as would such destruction in anticipation of a

discovery request.” (Id. at 12.)

But Cedars-Sinai did not hold that spoliation alone was sufficient to warrant terminating

sanctions. Thus it is questionable whether such sanctions may be imposed for only spoliation of

evidence and not for spoliation combined with a violation of a court order with respect to other

discovery. The court in R.S. Creative v. Creative Cotton (1999) 75 Cal.App.4th 486, 494, noted

that it was the “first reported California case to consider terminating sanctions for spoliation of

evidence after the Supreme Court's decision in Cedars-Sinai.” The court ultimately did decide to

impose terminating sanctions. However it did not base its decision on the spoliation alone.

Instead, it was based upon the “misuse of discovery and violations of court orders after it became

evident that plaintiffs had incorporated a forged contract in their complaint, had refused to allow

the completion of a principal's deposition [in violation of a stipulated order signed by the court]

after the forgery came to light, and had destroyed evidence.” (Id. at 487-488.) Therefore there

were several reasons for imposing the terminating sanctions, including the violations of the court

order and the spoliation of evidence. Indeed the court in Mileikowsky said, “at the time sanctions

were imposed, there was an outstanding order requiring a party to appear at a deposition. Thus,

R.S. Creative does not represent an example of a situation where sanctions were imposed without

14

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

evidence of violation of a court order.” (128 Cal.App 4th 262 at 280.) (Accord, Electronic Funds

Solutions, LLC v. Murphy (2005) 134 Cal.App.4th 1161, 1184, where the court ordered

terminating sanctions after the court ordered the defendants to produce responsive materials in

their entirety but afterward the defendants destroyed emails that were responsive.)

So it is clear from the foregoing authorities that if evidence has been made unavailable,

no court order would be needed compelling its production since such an order would be futile.

In such a situation, evidence or issue sanctions are clearly available. (See also Biles v. Exxon

Mobil Corp. (2004) 124 Cal.App.4th 1315, 1327, fn. 8, citing to Vallbona and Do It Urself and

stating, “A few cases have approved the imposition of evidence and issue sanctions without a

court order violation, but those cases involved egregious discovery abuses going far beyond the

failure to supplement or amend a response in a timely fashion.”) As for whether terminating

sanctions can be imposed simply for rendering evidence unavailable, this Court has not found

any cases where terminating sanctions were imposed pursuant to the Discovery Act where there

was not at least some prior violation of a court order coupled with the destruction of the

evidence.

(b) Evidence Sanctions Are Available For Willfully Providing False Responses To

Discovery.

A second exception to the general rule is when a party willfully provides false answers in

response to discovery. In such a situation, an evidence sanction may be appropriate. In Thoren

v. Johnston & Washer (1972) 29 Cal.App.3d 270, during the trial, the trial court precluded a

witness from testifying when it determined that the name of the witness had been willfully

withheld from an interrogatory asking for the names of witnesses. The Court of Appeal affirmed

the exclusion stating:

15

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

An order which bars the testimony of a witness whose name was deliberately excluded in an answer to an interrogatory seeking the names of witnesses protects the interrogating party from the oppression otherwise flowing from the answer. One of the principal purposes of civil discovery is to do away with the sporting theory of litigation--namely, surprise at the trial. (Id. at 274.)

When the false response to discovery occurs before trial, “the trial court has other options

available to it than suppression of evidence to deal with the abuse as well as to ensure all parties

receive a fair trial.” (Pate v. Channel Lumber Co. (1997) 51 Cal.App.4th 1447, 1455.) However

nothing in Pate says that a trial court cannot award evidence sanctions if willfully false discovery

responses are discovered before the trial commences. The only concern is that the evidentiary

sanction should be an appropriate means to redress the disadvantage and should not place a party

in a better position than it would have been had the other party properly responded to the

discovery requests. (See Id. at 1454-1455.)

(c) Terminating Sanctions Are Available Under The Inherent Authority Of The

Court.

The third and final exception to the general rule is when the court exercises its inherent

powers. This premise was articulated by the court in Stephen Slesinger, Inc. v. Walt Disney Co.

(2007) 155 Cal.App.4th 736. In that case, the court held that when a party’s misconduct is

deliberate and egregious and no lesser sanctions are adequate to ensure a fair trial, the trial court

has the inherent power to impose a terminating sanction. No violation of a court order is

required. The court said:

a court's exercise of inherent power to dismiss for misconduct need not be preceded by violation of a court order. The essential requirement is to calibrate the sanction to the wrong. Whether the misconduct violates a court order is relevant to the exercise of inherent power, but it does not define the boundary of the power. The decision whether to exercise the inherent power to dismiss requires consideration of all relevant circumstances, including the nature of the

16

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

misconduct (which must be deliberate and egregious, but may or may not violate a prior court order), the strong preference for adjudicating claims on the merits, the integrity of the court as an institution of justice, the effect of the misconduct on a fair resolution of the case, and the availability of other sanctions to cure the harm. (Id. at 763-764, internal citations omitted.)

Thus the court is to consider the situation in its totality and if the court believes that a terminating

sanction is the only viable remedy, it may impose a terminating sanction.

Thus the general legal standard to be applied in this case can be summed up in the

following manner: a trial court has broad discretion to impose discovery sanctions, but two facts

are generally a prerequisite to the imposition of nonmonetary sanctions: 1) there must be a

failure to comply with a court order, or in the limited situations articulated above, a mere failure

to comply with discovery obligations and 2) the failure must be willful. (Do It Urself 7

Cal.App.4th 27 at 36; Biles 124 Cal.App.4th 1315 at 1327.) Here, the Plaintiff is not moving for

sanctions on the basis that the Defendants failed to comply with any court order. Moreover, the

Plaintiff is not moving for sanctions based on the inherent power of the court. Thus the

Plaintiff’s remedies are limited to those provided by the Discovery Act and not the inherent

powers of the court. Therefore, the Plaintiff is required to show that the Defendants failed to

comply with their discovery obligations by demonstrating either that the Defendants

intentionally made evidence unavailable or that they submitted false responses to discovery. The

Court also concludes that the remedies available are limited to evidence, issue and/or monetary

sanctions only.

D. Merits Of The Motion

1. The Defendants Failed To Comply With Their Discovery Obligations By Destroying

Evidence, By Encouraging Third Parties To Destroy Evidence, And By Purposefully

Making Evidence Unavailable.

17

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

The evidence presented by the Plaintiff is voluminous. While the following discussion

relies on certain specific pieces of evidence, in conducting its analysis, the Court has considered

all of the evidence presented. It is clear that the Defendants destroyed and disposed of evidence,

including handwritten materials, computers, computer files, and scantron sheets at a time when

the lawsuit was pending or when the Defendants had reason to anticipate that the lawsuit would

be filed. As Cedars-Sinai said, destroying evidence after litigation has commenced is a misuse

of the discovery process as is destroying evidence in anticipation of a discovery request. (18 Cal.

4th 1 at 12.) Therefore a party’s duty to preserve evidence attaches not just after a lawsuit is

filed but when the party has reason to anticipate that it will be sued.

(a) The Defendants Intentionally Destroyed Tangible Evidence Such As

Handwritten Drafts Of The Blueprint Course Material And Scantron Sheets.

Teti testified that there were handwritten drafts of Blueprint’s student course materials

but that he destroyed them. Specifically, he testified that thousands of pages of paper were

generated, including preliminary proofs of the company website and the course materials. He

said that he threw “a lot of them” out, primarily because his apartment was only 1,500 square

feet and he had no room to keep all the papers. (J.A. Exhibit 222 at 904.) However at the time

that Teti threw these drafts out, he was already under a duty to preserve the drafts as evidence.

Teti testified that the drafts were made in February and March 2005 (J.A. Exhibit 222 at 902),

and thus he would have thrown them out subsequently. He further testified that he was aware

that the Plaintiff had filed its lawsuit around the same time (March 10, 2005).

If the drafts were thrown out in March 2005 as Teti stated, then they were destroyed after

he knew he had been sued by the Plaintiff. If they were thrown out before the lawsuit was filed,

Teti admitted that he anticipated that the Plaintiff would likely sue himself and the other

18

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Defendants. He testified that he “wanted to avoid the eventuality of litigation from Mr. Singh.”

J.A. Exhibit 222 at 910.) Teti knew that it was practically a foregone conclusion that the

Plaintiff would sue the Defendants, as the Plaintiff had done previously with other former

employees who started their own LSAT test preparation companies. Thus Teti was under a duty

to preserve the handwritten drafts even before the lawsuit was filed and he implicitly

acknowledged this duty when he testified that it was constantly on his mind that he needed to

keep evidence showing that he (and the other Defendants) created the course material

independently. (J.A. Exhibit 222 at 902.)

Martin admitted that scantron sheets of Blueprint students’ diagnostic tests were

shredded. She did not remember who exactly did the shredding and would only say that “we”

did the shredding. (Plaintiff’s Req. Jud. Notice, Exhibit 1, Exhibit 30 to Zavareei Dec.) The

shredding occurred around the time that Blueprint moved offices, and while the exact timeline of

the office move is not clear, it is apparent that the move was after the lawsuit was filed. Martin

also testified that the data from the scantrons had been scanned into PDF form (Id.) but this does

negate that fact that the Defendants had a duty to preserve the scantrons themselves, especially

since they knew that the scantron sheets were relevant to the Plaintiff’s claims regarding false

advertising.

(c) The Defendants Intentionally Destroyed Electronic Evidence From Their 2005

Computers.

In 2006, Teti purchased a Firewire external drive for Blueprint’s usage. The Firewire

drive is just a data receptacle, so any data that was located on the drive must have been

transferred from another source. When computer forensic KPMG imaged the Firewire drive, it

discovered emails in the unallocated space of the drive that it did not find on any of the

19

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Defendants’ 2005 computers. (Carter Dec. ¶8.) The Plaintiff’s expert, Mr. Carter, and the

Defendants’ expert, Mr. Gralnik, present two very different versions for how the emails ended up

in the unallocated space of the Firewire drive. Mr. Carter posits that the emails were copied

from the Defendants’ 2005 computers to the Firewire drive and then they destroyed the emails

from the original hard drives using the “secure delete” function. (Carter Dec. ¶8.) Mr. Gralnick

suggests instead that the “migration assistant” function on the Macintosh operating system

copied files that had been put in the trash can of Teti’s disposed-of 2004 computer and

transferred those files to the trash can of his 2005 computer. (Gralnick Dec. ¶33.) Teti declares

that this is exactly what he did. (Teti Dec. ¶21.) Mr. Gralnick then suggests that when Teti’s

2005 computer was hooked up to the Firewire drive, the “data backup” utility that came with the

Firewire drive automatically transferred the contents of the trash can on the 2005 computer to the

trash can on the Firewire drive. When the trash can of the Firewire drive was emptied, the

emails then appeared in the unallocated space of the Firewire Drive. (Gralnick Dec. ¶33.)

But the problem with Mr. Gralnick’s theory is that even assuming Teti placed emails into

the trash can of his 2004 computer and used the mitigation assistant to transfer the entire contents

of the 2004 computer to the 2005 computer and then unknowingly transferred the emails to the

Firewire drive, this does not explain why the emails were not found on his 2005 computer when

it was imaged. Moreover, assuming the migration assistant transferred all of the 2004 files onto

the 2005 computer, that alone does not justify Teti’s disposal of his 2004 computer. The data

backup utility on the Firewire drive merely copies files onto the Firewire drive. It does not erase

the data from the computer that the data was transferred from. The Defendants have failed to

provide an explanation for why the emails appear on the Firewire drive but none of them appear

on Teti’s (or anyone else’s) 2005 computer. The only conclusion that can be drawn is that the

emails were deleted from some 2005 computer after they were transferred to the Firewire drive.

20

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

As the Firewire drive was not purchased until 2006, which is well into the pendency of the

lawsuit and well after the Plaintiff engaged in focused discovery efforts to obtain electronic

evidence, the destruction of the emails was in violation of the Defendants’ discovery obligation

to preserve evidence as articulated by Cedars-Sinai.

(d) Defendant Teti Encouraged A Third Party To Intentionally Destroy Email

Communications Between Them.

Teti encouraged former Testmasters’ employee and web designer Tom McCarthy, from

whom Teti received files which were used to build the Blueprint course materials, to destroy the

email communications between them. Teti wrote on November 7, 2004, “Don’t save these e-

mails, for your sake and mine as well. They might be misconstrued if they were discovered by

those looking for things to misconstrue.” (J.A. Exhibit 54.) It is unknown if McCarthy did in

fact destroy all the email communications. Nevertheless Teti was encouraging McCarthy to

destroy emails at a time when Teti knew that he was under a duty to preserve evidence.

(e) Defendants Teti, Triplett, and Capuano Rendered Tangible Evidence

Unavailable By Disposing Of Their 2004 Computers.

Certain of the individual Defendants disposed of their personal computers from 2004 at a

time when the lawsuit was pending or when the Defendants had reason to believe that they

would be sued by the Plaintiff in connection with the formation of Blueprint. As highlighted in

the Plaintiff’s initial motion, Teti testified that he disposed of his 2004 computer in early 2005 or

late 2004 because it was not working properly anymore but he did not remember exactly what

happened to it. (Plaintiff’s Req. Jud. Notice, Exhibit 1, Exhibit 22 to Zavareei Dec.) Triplett

also testified that she got a new laptop around January 2005 and that she did not know what

happened to the old laptop she was using during 2004 but she thought that Teti sold it. It was no

21

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

longer in her possession after she got the new laptop. (Plaintiff’s Req. Jud. Notice, Exhibit 1,

Exhibit 24 to Zavareei Dec.) Capuano testified that when he moved out of his apartment in

2006, well into the pendency of the lawsuit, he left the primary laptop that he was using in 2004

behind. (Plaintiff’s Req. Jud. Notice, Exhibit 1, Exhibit 25 to Zavareei Dec.)

While these Defendants did not destroy their computers in the same way that the other

evidence discussed above was destroyed, through their actions, at times when they knew that

they needed to preserve evidence, the computers are no longer available for production.

Moreover, the explanations offered by the Defendants regarding what happened to their

computers are incredible. As people who claim to have used their laptops extensively to create

the Blueprint course materials, it strains credulity to believe that Teti and Triplett do not know

what happened to their laptops and to believe that Capuano left his laptop behind when he moved

out of his apartment.

2. The Defendants Made Materially False Statements Under Oath With Regard To The

Timing Of Blueprint’s Formation, The Timing Of The Creation Of Blueprint’s Course

Materials, The Timing of Defendant Riley’s Participation in Blueprint, And The

Sources Of Blueprint’s Funding.

(a) The Defendants Falsely Maintained That They Did Not Do Any Work Towards

Creating Blueprint Or Its Course Materials While They Were Still Employed By

The Plaintiff.

The Defendants have repeatedly maintained that they were not working to establish

Blueprint or creating any course materials while working for the Plaintiff. Capuano resigned on

December 31, 2004, Teti and Triplett resigned on January 7, 2005, Riley resigned on February 3,

2005, and Martin resigned on February 17, 2005. For instance, Teti testified that other than

22

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

doing some research, meeting with a Mr. Spottl and attorney Helen Sabo, he did not take any

steps toward starting Blueprint before late December 2004. (Teti Deposition, Vol. 3, pages 574

to 576, Volume 1 of the Compendium of Perjury.) He also stated that he “absolutely” did not

write course materials before he resigned and “we did not mean to actually author course

materials for a significant time after that date.” (Teti Deposition, Vol. 3, page 597, Volume 2 of

the Compendium of Perjury.) Triplett testified that she and Teti did not actively pursue starting a

new venture (i.e. forming Blueprint) until January 2005 and did not create a business plan for the

new venture until the same time. (Triplett Deposition, Vol. 4, pages 744, 747-748, Volume 2 of

the Compendium of Perjury.) Capuano also testified that the business plan was created in

January 2005. (Capuano Deposition Vol. 2 (Confidential), page 7, Volume 1 of the

Compendium of Perjury.) He further testified that he was almost a hundred percent certain that

there was no conceptual structuring of the Blueprint course in November 2004. In fact, he stated

that the conceptualizing probably occurred in late December 2004 or early January 2005.

(Capuano Deposition Vol. 10, page 1842, Volume 1 of the Compendium of Perjury.) Riley

testified that work on the curriculum, such as “writing stuff up, [and] putting questions where

they go” was done in early to mid February 2005. (Riley, Deposition, Vol. 8, page 1856,

Volume 2 of the Compendium of Perjury.)

This testimony is all demonstrably false. J.A. Exhibit 39 is a document entitled

“timeline.doc” and was created on October 24, 2004. It reveals that by November 1, 2004, the

working draft of the business plan was to be completed, that by November 15 the business plan

was to be finalized and the general course outline was to be completed, that by December 1 the

logical reasoning section of the curriculum was to be completed, that by December 15 the

reading comprehension section was to be completed, and that by January 1 the logic games

section was to be completed. Therefore before any of the Defendants had resigned from the

23

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Plaintiff’s employment, they anticipated that the business plan would be entirely completed as

well as each of the individual sections of the course curriculum.

Other evidence shows that these dates were not merely targets. Exhibit A to the Che

Declaration is a spreadsheet recovered by KPMG and created on November 5, 2004 which lists

the logical reasoning sections from fourteen different LSAT tests. It shows that the Defendants

were structuring the preparatory tests for their curriculum well before any of them resigned from

Testmasters. Also, a detailed working business plan of Blueprint (whose name was originally

Orion Test Preparation) was completed by November 19, 2004. (J.A. Exhibit 44.)

Additionally, a document dated December 31, 2004 and entitled “Blueprint meeting

agenda” was recovered by KPMG. (J.A. Exhibit 214.) This document shows that Teti was

going to discuss logical reasoning, Capuano and Riley were going to discuss logic games, and

Triplett was going to discuss reading comprehension. This demonstrates that the curriculum was

being developed in 2004 and when read in conjunction with the timeline document, shows that in

fact the curriculum was well on its way. The agenda also shows that the Defendants were

discussing logistical matters such as company bank accounts, merchant accounts, meeting rooms

for classes, and legal matters such as choosing an attorney, filing the LLC, and obtaining

insurance. Thus more work than just the formation of the course materials was going on in 2004.

(b) The Defendants Falsely Maintained That Defendant Riley Did Not Become A

Member Of Blueprint Until After He Resigned From TestMasters.

The Defendants have also repeatedly maintained throughout the litigation that Riley did

not join Blueprint until after he resigned from TestMasters on February 3, 2005. For instance,

Teti testified that in between December 2004 and February 4, 2005, he did have frequent

24

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

discussions with Riley about Blueprint but they never discussed Riley joining Blueprint. (Teti

Deposition, Vol. 3, page 604, Volume 3 of the Compendium of Perjury.) Triplett testified that

Riley did not do any work for Blueprint prior to becoming one its owners, which was in February

2005. (Triplett Deposition, Volume 4, page 767, Volume 3 of the Compendium of Perjury.)

Capuano testified that he and Teti discussed that they were absolutely not going to talk about

Riley joining them until after he left TestMasters and that Riley in fact only joined Blueprint

after he stopped working for the Plaintiff. (Capuano Deposition, Vol. 2, pages 497-498, Volume

3 of the Compendium of Perjury.) Finally, Riley himself testified that he only learned about

Blueprint’s existence approximately two weeks before he resigned from TestMasters and he

stated that he did not do any work on the Blueprint curriculum while working for the Plaintiff.

(Riley Deposition, Vol. 3, pages 859 and 1897, Volume 3 of the Compendium of Perjury.)

This testimony is all demonstrably false. It is clear that Riley was involved with

Blueprint well before he left the Plaintiff’s employment. The “Blueprint meeting agenda” from

December 31, 2004 (J.A. Exhibit 214) shows that Riley was supposed to report on such topics as

“more legal referrals/general advice”, “logic games”, “supplementary drills/seminar material”,

“google” marketing, “chat rooms” marketing, and the “bank account.” Thus clearly Riley was

involved both in the business aspect of starting Blueprint and he was involved in developing the

curriculum well before his February 3, 2005 resignation. The evidence also suggests that Riley

was in fact already a partner in Blueprint before his resignation. The meeting agenda document

shows that the Defendants were going to discuss filing for the Blueprint LLC but “without Matt

officially.” This document reveals that Riley was a partner in 2004 but apparently in an effort to

avoid trouble, the Defendants decided to leave his name off the LLC filing, a public filing made

with the State of California under penalty of perjury. Moreover, Riley forwarded a draft email

dated December 21, 2004 to Teti and Capuano regarding a letter he was going to send to Jerry

25

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Nelson. In the proposed letter to Nelson, Riley stated, “I have talked with my partners and

hammered out the exact financial details we are offering.” (J.A. Exhibit 87.) This statement by

Riley himself shows that he believed he was a Blueprint partner in December 2004.

(c) Defendant Triplett Falsely Maintained That Only The Members Of Blueprint

Contributed Toward Its Start-Up Capital.

Until the Plaintiff discovered the existence of Jerry Nelson, Triplett repeatedly

maintained that the Defendants were the only ones who provided the start up capital for the

business. Triplett testified that she, Teti, Capuano, and Riley did not get any money to fund the

business aside from the $5,000 that they each put in. (Triplett Deposition, Volume 1, pages 191-

192, Volume 4 of the Compendium of Perjury.)

This testimony is demonstrably false. This statement was untrue because the Defendants

did in fact receive $150,000 from Jerry Nelson. In an undated letter from Riley to Nelson, Riley

wrote, “We paid back your original loan of $150,000 in just over a year with about $30,000 in

interest accrued.” *** “Jerry, your generosity allowed us the opportunity to build a successful

business from scratch.” (J.A. Exhibit 181.) Nelson and Teti also signed a document dated

January 5, 2005 entitled “Partnership Agreement” which stated that Nelson was loaning

Blueprint $150,000 that would be available on January 5, 2005. (J.A. Exhibit 242.) The parties

have vigorously disputed whether Nelson was a partner in Blueprint or just a lender. However

his status can be characterized is immaterial to the fact that Triplett lied under oath when she said

that only the Defendants provided Blueprint’s start up capital.

3. With The Exception Of Defendant Martin, The Defendants Willfully Failed To Comply

With Their Discovery Obligations And Willfully Gave False Discovery Responses.

26

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

The conduct by the Defendants in terms of destroying or rendering evidence unavailable

and giving patently untrue deposition testimony was more than just oversight or negligence.

Rather, it is clear that the Defendants intended to destroy evidence and intended to lie during

their depositions.

(a) Defendant Teti’s Willingness To Conceal McCarthy’s Assistance And His

Sanctioning of McCarthy’s False Testimony Creates An Inference That Teti Himself

Willfully Destroyed Evidence And Willfully Lied Under Oath.

Teti’s conduct with respect to concealing McCarthy’s identity and being part of an

arrangement for McCarthy to lie under oath creates an inference that Teti himself intended to

destroy documents and lie at deposition. Teti’s communications with McCarthy reveal that Teti

intended to conceal McCarthy’s role in the formation of Blueprint. McCarthy was never a

member of Blueprint but he did play an instrumental role in helping the Defendants prepare the

course curriculum. In fact, Teti was extremely anxious to get his hands on certain of

TestMasters’ files that McCarthy had access to. Teti wrote to McCarthy, “If you can do it, I’ll

blow you so well snot will shout out of your cock.” (J.A. Exhibit 3.) After receiving the files in

September 2004, Teti wrote to McCarthy, “You’re a god. A god who will never be cited as the

source of the files, but a god nonetheless. I owe you a hell of a lot more than lunch. Thanks

again. I’ll keep you posted on all developments from this end.” (J.A. Exhibit 5.) If Teti would

knowingly keep McCarthy’s existence a secret, he would likely knowingly attempt to keep other

damaging evidence, such as documents in the 2004 and 2005 computers, a secret.

Evidence also shows that Teti and McCarthy were part of a plan whereby McCarthy

would give false testimony at his deposition. McCarthy stated:

27

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

I thought I should tell you that that worthless fuck’s Robin’s Boston thugs lawyers are coming to ass-rape depose me in a couple of week. Toby too. I suppose it’s just part of their use the law as a massive dildo legal strategy. Whatever. They’ll have better luck getting sperm from a cow blood from stone than they will get any more info out of me.

To this Teti responded, “I’m really sorry to hear that. I will have Matt contact you to talk about

particulars. Really.” McCarthy then wrote back and said, “Don’t worry about it. My memory is

as good as Reagan’s was, and that’s when I really want to remember something. If I really don’t

want to, well fuck, I am lucky I can remember to breathe.” (J.A. Exhibit 157.)

McCarthy was colorfully saying that he was not planning on giving the Plaintiff’s

attorneys any useful information and Teti then responded by saying that Riley would contact

McCarthy to go over McCarthy’s testimony. Thus Teti knew that McCarthy planned to lie under

oath and he appears to even be sanctioning the lying. Such conduct strongly suggests that Teti’s

own untruthful statements under oath were deliberate lies as well.

(b) Emails Between The Defendants and Emails Between Defendant Teti and

McCarthy Reveal That The Defendants Harbor Deep Rooted Animosity Toward

Robin Singh.

Numerous email communications reveal that the Defendants and McCarthy have strong

personal animosity toward Robin Singh. For instance, McCarthy said to Teti in a 2004 email

retrieved by KPMG that he was happy to help Teti out by providing the files because, “You need

to get out of that hellhole, and have for a while. This is a great way to do it, because it gets you

out and fucks Robin at the same time; it’s both efficient and commendable.” (J.A. Exhibit 7.)

On another occasion in November 2004 in an email retrieved by KPMG, Teti wrote to McCarthy

and said, “I’m going to take LA from that bastard…Oh, yeah, I almost forgot, all of his best

teachers want to come with me…It’s already way better than what he’s got, and its only getting

28

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

better.” (J.A. Exhibit 49.) McCarthy responded to this email by stating, “Fucking A man! You

are going to eat his lunch, I know it, and barf it right back to him. This is so cool. Payback is

awesome, especially when it is so very richly deserved. It seems like bad people never get what’s

coming to them, so when they do, it’s so much better.” (J.A. Exhibit 49.) So back when all the

Defendants were still working for the Plaintiff, it is clear that Teti despised Singh on a personal

level and was determined to harm his business. The hatred which Teti has toward Singh makes it

far more likely than not that Teti intentionally destroyed the handwritten course materials, the

2004 computers, and the files on the 2005 computer all to cover up the Defendants’ activities in

late 2004 and early 2005. Additionally, it can be inferred that Teti knowingly lied during his

depositions when he said that he did not begin working on any aspect of Blueprint until he left

the Plaintiff’s employment and when he made the same statements about Riley’s participation.

Riley and Triplett also strongly dislike Singh and they essentially admit in emails

between each other retrieved by KPMG that they tried to use the deposition process to thwart the

Plaintiff’s prosecution of this case. In November 2006, Riley wrote to Triplett that:

Robin is getting very antsy about the money in the lawsuit. He made a comment at a depo earlier in the week and they are giving big concessions to avoid filing motions, most likely because of the expense. We need to push really hard during the slow time of the year. He is bleeding all over the place right now but we know the money starts to come in again as of March. To that end, I am going to try to schedule the remainder of our depos for January and I am actually going to let them depose some other people that we could probably get rid of just so they have to pay for it, despite the hassle on our end. I think it might have been a good thing that we let him get to used to having his insurance cover a lot of costs for a while. He committed himself to a litigation strategy that is insanely expensive and now he has to pay for it all. Anyway, good news.

Triplett responded, “Perhaps we should push for December depositions so he feels it sooner

rather than later?” (J.A. Exhibit 266.) Clearly Riley and Triplett did not intend to use future

depositions as a method of ascertaining the truth, but rather they wanted to cram as many

29

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

depositions into a short period of time in order to damage the Plaintiff financially. The

contemplation of using depositions from 2007 and onward for an improper purpose strongly

suggests that any prior deposition testimony given by these defendants was also for an improper

purpose i.e. lying about the timing of the formation of Blueprint and their involvement therewith.

(c) The Defendants Knowingly Chose To File Their Business LLC Without Naming

Defendant Riley, Despite The Fact That He Was Obviously A Blueprint Member At

The Time The LLC Was Filed.

Further proof of the willfulness of the falsity of the Defendants’ testimony, especially

with regard to their stance that Riley was not involved with Blueprint until his resignation from

TestMasters, is shown by their decision to file for a LLC for Blueprint without naming Riley as a

partner. When they were deposed, the Defendants did not simply forget that Riley became a

partner in December 2004 but instead, they consciously chose to say that he joined Blueprint

only upon his resignation from TestMasters. In the Blueprint meeting agenda, the Defendants

planned to discuss filing for an LLC but “without Matt officially” (J.A. Exhibit 214) because

Riley was still working for TestMasters. The Defendants did in fact file the LLC, which is a

filing made under oath, on January 10, 2005 and only Capuano, Teti, and Triplett were listed as

managers. (J.A. Exhibit 215.) (Riley was later added as a manager to the LLC that was filed on

February 14, 2005 after Riley’s resignation.) This is despite the fact that Riley was clearly

already an owner in Blueprint as he even referred to himself as a Blueprint partner in the email

he sent to Jerry Nelson. Moreover, this letter was given to Capuano and Teti to review so they

would have known that Riley was referring to himself as a partner in December 2004. (J.A.

Exhibit 87.) They have no presented any evidence showing they replied to Riley and stated he

was not a partner.

30

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

(d) The Evidence Does Not Confirm That Defendant Martin’s Conduct Was

Willful.

The only Defendant whose conduct is not obviously willful is Martin’s. In her

declaration in opposition to the motion, she declares that her father died in the summer of 2004

and that this was a very hard time for her and her memory as to events which occurred in the fall

of 2004 is very poor. (Martin Dec. ¶15.) This could explain why she was unable to remember

which of the Defendants actually shredded the scantron sheet. Moreover, the lawsuit against

Martin (BC346066) was not filed until January 2006. As she was not a party to any lawsuit at

the time of the shredding and arguably did not know she would be named as a defendant many

months later, it is possible that Martin did not fail to comply with her discovery obligations. It is

also telling that none of the other Defendants provided an explanation for why their deposition

testimony is in conflict with later discovered documentary evidence.

4. Remedy For The Defendants’ Willful Failure To Comply With Discovery Obligations

The applicable test is set forth in Biles, supra, 124 Cal. App. 4th 1315 at 1327:

[W]here nonmonetary sanctions are called for, they 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. 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 discovery but to impose punishment. (Internal citations omitted.)

For reasons previously noted above, the Court is limited to imposing evidence and issue

sanctions (not terminating sanctions), and the Court will now exercise its discretion to impose

such sanctions as are necessary to protect the Plaintiff.

31

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

The Court is convinced, in a way that it was not in December 2007, that with the

exception of Martin’s conduct, the destruction and/or rendering unavailable of certain evidence

and the false testimony given during depositions was willful as opposed to merely negligent.

Thus the Court finds it compelled to exercise its discretion to impose sanctions beyond what the

Court imposed in December 2007. Yet despite the Defendants’ intentional destruction of

evidence and evasive and/or false responses during deposition, terminating sanctions are not

available. As discussed at length in the legal standards section, outside of the inapplicable

Slesinger context, no court has imposed terminating sanctions in the absence of a violation of a

court order. Therefore the Plaintiff’s only remedy is issue and/or evidence sanctions.

The Court is mindful that the object of a nonmonetary sanction is not to punish the

offending party but rather it is to protect the other party who was entitled to certain discovery by

creating a satisfactory remedy. Thus the Court chooses to impose the following sanctions against

the Defendants (which is only a portion of the remedies sought by Plaintiff):

1. A finding and jury instruction that the Individuals Defendants, with the exception of

Martin, breached their duty of loyalty to the Plaintiff by conspiring with one another to cause damage to Plaintiff while Plaintiff’s employees. (Plaintiff’s Request No. 10 as modified.)

2. A finding and instruction that the Individual Defendants, with the exception of Martin, breached their oral employment contracts with Plaintiff by conspiring with one another to cause damage to Plaintiff while in Plaintiff’s employ. (Plaintiff’s Request No. 11 as modified.)

3. Defendants, with the exception of Martin, are barred from offering evidence to establish that they did not conspire with one another to cause damage to Plaintiff while in Plaintiff’s employ. (Plaintiff’s Request No. 12 as modified.)

4. A finding and jury instruction that Riley was a Blueprint owner or partner while he was an employee of the Plaintiff. (Plaintiff’s Request No. 13 as modified.)

5. Defendants are barred from offering evidence to try to establish that Riley was not a Blueprint owner or partner while he was an employee of the Plaintiff. (Plaintiff’s Request No. 14 as modified.)

6. A finding and jury instruction that Capuano was a Blueprint owner or partner while he was an employee of the Plaintiff. (Plaintiff’s Request No. 15 as modified.)

32

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

7. Defendants are barred from offering evidence to try to establish that Capuano was not a Blueprint owner or partner while he was an employee of the Plaintiff. (Plaintiff’s Request No. 16 as modified.)

8. A finding and jury instruction that Teti was a Blueprint owner or partner while he was an employee of the Plaintiff. (Plaintiff’s Request No. 17 as modified.)

9. Defendants are barred from offering evidence to try to establish that Teti was not a Blueprint owner or partner while he was an employee of the Plaintiff. (Plaintiff’s Request No. 18 as modified.)

10. A finding and jury instruction that Triplett was a Blueprint owner or partner while she was an employee of the Plaintiff. (Plaintiff’s Request No. 19 as modified.)

11. Defendants are barred from offering evidence to try to establish that Triplett was not a Blueprint owner or partner while she was an employee of the Plaintiff. (Plaintiff’s Request No. 20 as modified.)

12. A finding and jury instruction that the Defendants received funding from Jerry Nelson no later than January 5, 2005, when all Defendants except for Capuano and Martin were still employed by the Plaintiff. (Plaintiff’s Request No. 23 as modified.)

13. Defendants are barred from offering evidence to try to establish that Defendants did not receive funding from Jerry Nelson until after January 5, 2005. (Plaintiff’s Request No. 24 as modified.)

14. A finding and jury instruction that Defendants Teti, Triplett, and Capuano tried to conceal evidence tending to show their liability for causes of action against them in the Consolidated Action. (Plaintiff’s Request No. 28 as modified.)

15. A finding and jury instruction that the concealment of the 2004 computers by Defendants Teti, Triplett, and Capuano, either by destruction or rendering them unavailable, can be considered by the jury when drawing inferences from the evidence. (Plaintiff’s Request No. 29 as modified.)

16. A finding and jury instruction that Defendant Teti’s destruction of handwritten copies of the Blueprint course materials tends to show liability for the causes of action against him in the Consolidated Action. (Plaintiff’s Request No. 30 as modified.)

17. A finding and jury instruction that the Defendants, excluding Martin, deleted files from their 2005 computers which tends to show liability for the causes of action against them in the Consolidated Action.. (Plaintiff’s Request No. 30 as modified.)

18. A finding and jury instruction that the fact that Defendant Teti destroyed handwritten copies of the Blueprint course materials can be considered by the jury. (Plaintiff’s Request No. 31 as modified.)

19. A finding and jury instruction that the fact that the Defendants, excluding Martin, deleted files from their 2005 computers can be considered by the jury. (Plaintiff’s Request No. 31 as modified.)

20. A finding and jury instruction that the Defendants, with the exception of Martin, conspired with Plaintiff’s former web designer Thomas McCarthy, while Defendants were still employed by the Plaintiff, to steal TestMasters’ course materials, in breach of their duties of loyalty to the Plaintiff. (Plaintiff’s Request No. 34 as modified.)

21. Defendants, with the exception of Martin, are barred from offering evidence to try to establish that the Defendants did not conspire with Thomas McCarthy, while the Defendants were still employed by Plaintiff, to steal TestMasters’ course materials. (Plaintiff’s Request No. 35 as modified.)

33

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

22. A finding and jury instruction that the Defendants, with the exception of Martin, conspired with Plaintiff’s former web designer, Thomas McCarthy, while the Defendants were still employed by the Plaintiff, to develop Blueprint’s web site and course materials, in breach of their duties of loyalty to the Plaintiff. (Plaintiff’s Request No. 36 as modified.)

23. Defendants, with the exception of Martin, are barred from offering evidence to try to establish that the Defendants did not conspire with Thomas McCarthy, while the Defendants were still employed by the Plaintiff, to develop Blueprint’s web site and course materials. (Plaintiff’s Request No. 37 as modified.)

24. A finding and jury instruction that the Defendants, with the exception of Martin, gave willfully false deposition testimony. (Plaintiff’s Request No. 38 as modified.)

25. A finding and jury instruction that the fact that the Defendants, with the exception of Martin, gave willfully false testimony can be considered by the jury. (Plaintiff’s Request No. 39 as modified.)

26. Defendants are barred from offering evidence to establish their 3rd Affirmative Defense of “Failure to Mitigate Damages” in the Answer filed in Case No. BC347174. (Plaintiff’s Request No. 40 as modified.)

27. Defendants are barred from offering evidence to establish their 4th Affirmative Defense of “Waiver” in the Answer filed in Case No. BC330098. (Plaintiff’s Request No. 42 as modified.)

28. Defendants are barred from offering evidence to establish their 5th Affirmative Defense of “Waiver” in the Answer filed in Case No. BC347174. (Plaintiff’s Request No. 42 as modified.)

29. Defendants are barred from offering evidence to establish their 6th Affirmative Defense of “Unjust Enrichment” in the Answer filed in Case No. 330098. (Plaintiff’s Request No. 43 as modified.)

30. Defendants are barred from offering evidence to establish their 7th Affirmative Defense of “Unjust Enrichment” in the Answer filed in Case No. BC347174. (Plaintiff’s Request No. 43 as modified.)

31. Defendants are barred from offering evidence to establish their 11th Affirmative Defense of “No Improper or Unlawful Conduct” in the Answer filed in Case No. BC330098. (Plaintiff’s Request No. 45 as modified.)

32. Defendants are barred from offering evidence to establish their 12th Affirmative Defense of “No Improper or Unlawful Conduct” in the Answer filed in Case No. BC347174. (Plaintiff’s Request No. 45 as modified.)

5. Conclusion

The Court will award the Plaintiff the above listed issue and evidence sanctions as a

remedy for the Defendants’ knowing, intentional, and egregious misuse of the discovery process.

The Plaintiff has sufficiently demonstrated that with the exception of Martin, the Defendants

intentionally destroyed evidence and intentionally rendered other evidence unavailable at a time

34

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

when they were under a duty to preserve such evidence. The Plaintiff has also sufficiently

demonstrated that with the exception of Martin, the Defendants intentionally gave false

deposition testimony with respect to various issues that are material to the case. No sanction of

any type is imposed against defendant Martin.

V. PLAINTIFF’S MOTION FOR MONETARY SANCTIONS

A. Question Presented

Should the Court award any or all of the monetary sanctions requested by the Plaintiff as

compensation for the fees and costs incurred by the Plaintiff as a result of the Defendants’

discovery misuses?

B. Legal Standards For The Motion: Violation Of Court Order Not Required.

Unlike the motion for terminating, issue, or evidence sanctions, when only monetary

sanctions are sought, violation of a court order is not a prerequisite to recovering such sanctions.

(Biles (2004) 124 Cal.App.4th 1315, 1327.) Rather, "[t]he power to impose discovery sanctions

is a broad discretion subject to reversal only for arbitrary, capricious or whimsical action.”

(Young v. Rosenthal (1989) 212 Cal. App. 3d 96, 114.) The case of Pate v. Channel Lumber Co.

(1997) 51 Cal. App. 4th 1447 is illustrative. The trial court issued an evidentiary sanction

finding that the:

defendant had "played fast" with the rules of discovery. The court later amplified this finding, stating its belief the defense had "played games" with plaintiffs "regarding documentation [defendant] knew or should have known was relevant to [plaintiffs'] inquiry." The court concluded the defense had made an "absolute and deliberate attempt to thwart discovery for the purpose of gaining a tactical advantage at . . . trial." (Id. at 1454.)

Since the issue arose after the plaintiffs had made their case-in-chief at trial, the trial court

concluded that no other sanction i.e., monetary, continuance, etc. would have served any useful

35

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

purpose. The Court of Appeal agreed but it noted that “[w]hen such misuse is discovered

pretrial, the trial court has other options available to it than suppression of evidence to deal with

the abuse as well as to ensure all parties receive a fair trial.” (Ibid, citing to CCP § 2023(b) now

CCP § 2023.030.) As the only lesser sanctions than evidentiary are issue or monetary, this

statement necessarily implies that a monetary sanction is an appropriate remedy when a party

“plays fast” with the discovery rules and attempts to thwart discovery.

C. Merits Of The Motion

1. The Plaintiff Seeks Monetary Sanctions For Discovery Abuses With Respect To Seven

Categories of Alleged Abuses.

The Plaintiff moves for monetary sanctions pursuant to CCP § 2023.010 et seq. It asks

the Court to award it $2,264,651.76 as a monetary sanction for the Defendants’ discovery abuses.

It seeks fees and costs in connection with the following alleged abuses: 1) efforts to uncover

Blueprint’s ownership (i.e. Jerry Nelson and Riley); 2) efforts to uncover the true timing and

formation of Blueprint; 3) electronic discovery above and beyond what the Court has already

ordered was recoverable; 4) Defendants’ interference with third-party discovery; 5) Defendants’

internet defamation campaign; 6) preparation of the instant motion and the renewed motion for

terminating sanctions; 7) efforts related to the shredding of the scantron sheets.

2. The Plaintiff Has Proven Several Categories Of Abuses To The Court’s Satisfaction

Such That Monetary Sanctions Will Be Awarded.

(a) The Plaintiff May Recover Monetary Sanctions For Its Efforts To Uncover

Blueprint’s Ownership And Funding, Its Efforts To Uncover The Timing And

Formation Of Blueprint, Its Efforts Related To The Shredding Of The Scantron

Sheets, And Its Efforts Related To The Deposition of Thomas McCarthy.

36

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

As discussed above in connection with the motion for terminating, issue, or evidence

sanctions, the Court has found that the Defendants, with the exception of Martin, willfully

destroyed or concealed evidence in the form of disposing of their 2004 computers, deleting files

from their 2005 computers, destroying handwritten drafts of course materials, and shredding

scantron sheets. They engaged in these actions at a time when litigation was pending or when

they were in a position to reasonably anticipate that there would be litigation, in violation of their

duty to preserve evidence under Cedars-Sinai Med. Ctr. v. Superior Court (1998) 18 Cal. 4th 1.

Additionally, the Court has already found that the Defendants, with the exception of Martin,

knowingly lied under oath at depositions concerning the timing of the formation of Blueprint, the

ownership structure of Blueprint, and the source of the start-up funding for Blueprint. Finally,

the Court has already found that the Defendants, with the exception of Martin, conspired with

Tom McCarthy for him to provide false testimony. Thus the Defendants clearly engaged in

conduct that was designed to thwart discovery and the Court believes that the Plaintiff should be

compensated for expenses incurred to uncover the destruction of this evidence, the misstatements

under oath, and with respect to McCarthy’s deposition.

(b) The Plaintiff May Also Recover Monetary Sanctions For The Fees Incurred In

Connection With Both Sanctions Motions.

Since the Plaintiff successfully moved for certain issue sanctions and jury instructions

and will be partially successful in its request to recover monetary sanctions, the Court chooses to

exercise its discretion to compensate the Plaintiff for the cost of bringing both of these motions.

The further discovery obtained by the Plaintiff in between the December 12, 2007 order and the

present did support the Plaintiff’s renewed request for terminating, issue, or evidence sanctions

and the Plaintiff was successful in obtaining harsher sanctions than were issued in the previous

order.

37

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

3. Certain Categories Of Fees Will Not Be Awarded By the Court

(a) No Fees Will Be Awarded For Electronic Discovery Above And Beyond What

Has Already Been Awarded Because The Court Is Impermissibly Being Asked To

Reconsider A Prior Ruling.

The Court declines to award the Plaintiff any sanctions in connection with its electronic

discovery efforts because the Court views this portion of the motion as an improper attempt at

reconsideration. In the December 12, 2007 decision, the Court awarded the Plaintiff the past

costs associated with the electronic discovery and future costs not to exceed $200,000. The

Court specifically recognized that the fees and costs it was awarding would not wholly reimburse

the Plaintiff because the Court decided not to pass onto the Defendants the “cost of legal services

incurred by Plaintiff in working with KPMG, the prior computer forensic, and with Former

Discovery Referee the Hon. John Zebrowski.” The Court did recognize that “it could reasonably

have added this to the charge.” Thus it was clear that the Court did not permit the Plaintiff to

recover legal fees incurred in connection with electronic discovery. The Plaintiff’s current

request is to recover all costs incurred to facilitate electronic discovery, including attorneys’ fees,

fees of its independent forensic consultant, and all fees charged by KPMG above the $200,000

authorized by the Court. This improperly asks the Court to reconsider its decision not to award

attorneys’ fees in connection with electronic discovery and its decision to only award $200,000

in future KPMG costs.

CCP §1008(a) requires any motion for reconsideration to be made within ten days of

service of the notice of entry of the order and the motion must be based upon new or different

facts, law, or circumstances. The ten day limit is jurisdictional and here it is clear that more than

ten days have past. The Court recognizes that it possesses the inherent power to reconsider its

38

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

prior interim orders pursuant to Le Francois v. Goel (2005) 35 Cal.4th 1094. However it does

not believe that there is any reason for it to change its well considered prior decision despite its

current finding that the Defendants’ conduct was more egregious than that presented to the Court

in December 2007.

(b) No Fees Will Be Awarded For The Defendants’ Alleged Interference With

Third Party Discovery And The Defendants’ Alleged Internet Defamation

Campaign Because The Plaintiff Has Not Proven These To The Satisfaction Of The

Court.

The Court will not award fees in connection with these categories because the Plaintiff

has failed to demonstrate to the satisfaction of the Court that the Defendants interfered with third

party discovery (with the exception of McCarthy) or that they engaged in internet defamation

and then lied about it. With respect to the third party discovery, the Plaintiff’s evidence does not

show that the Defendants intended to predispose third party witnesses against TestMasters, that

the Defendants concealed third party witnesses, or that they coerced such witnesses into

recanting prior testimony. Moreover, the Plaintiff’s contention that third party depositions, other

than McCarthy’s, were rendered useless because the Defendants destroyed or concealed evidence

is purely speculative.

With respect to the internet defamation, the Plaintiff failed to show that there was any

conspiracy between the Defendants to orchestrate a defamation campaign against it on pre-law

internet discussion boards. The Plaintiff cites to a single email from Martin to Teti, Triplett, and

Capuano. This email talks about how the Defendants should actively monitor discussion boards

and should perhaps make postings on them. It alone does not prove that there was any

conspiracy to defame TestMasters. The Plaintiff also claims that the Defendants submitted false

39

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

interrogatory responses regarding internet posts made by the Defendants. However in its brief,

the Plaintiff fails to show which interrogatory responses it believes are false. Without being able

to show that any interrogatory responses are false, the Plaintiff is not entitled to fees incurred in

subpoenaing and deposing webmasters and various internet service providers in an effort to

prove the Defendants’ alleged perjury.

4. The Court Cannot Yet Determine The Precise Amount Of Fees It Will Award Because

Further Briefing Is Required.

Of the categories of fees that the Court intends to award the Plaintiff, it seeks

$172,250.97 in connection with the ownership and funding of Blueprint, $625,490.02 with

respect to the timing and formation of Blueprint, $24,182.30 for efforts related to the shredding

of the Scantron sheets, $87,804.44 for the preparation of the instant motion and the renewed

motion for terminating sanctions, and a precise amount currently unknown for efforts relating to

the deposition of McCarthy. However the Court is not currently in a position to determine

whether the amount of the fees requested by the Plaintiff is reasonable. This is because pursuant

to the Court’s June 4, 2008 order, the Court ruled that if it decided to award attorneys’ fees,

which it has, it would accept further briefing and declarations from the Defendants with respect

to the reasonableness of the fees.

D. Conclusion

The Court will award the Plaintiff monetary sanctions, in an amount to be determined at a

future date against all Defendants except for Martin with respect to the following categories: the

ownership and funding of Blueprint, the timing and formation of Blueprint, efforts related to the

shredding of scantron sheets, efforts relating to deposing McCarthy, and the preparation of the

instant motion and the renewed motion for terminating sanctions. The Plaintiff is to provide the

40

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Court and the Defendants with a precise amount that it is seeking for efforts relating to the

McCarthy deposition. The Defendants are then instructed to file a supplemental opposition and

supporting declarations to the motion for monetary sanctions addressing the specific categories

for which the Court has ordered compensation. The Plaintiff may then file a supplemental reply

and a hearing on the amount of the fees will be set for a future date.

Dated: August 7, 2008 _________________________ William F. Highberger Judge of the Superior Court