Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_11-cv-00369/USCOURTS-azd-2_11-cv-00369-0/pdf.json

Nature of Suit Code: 840
Nature of Suit: Trademark
Cause of Action: 15:1125 Trademark Infringement (Lanham Act)

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Aviva USA Corporation, an Iowa

corporation; and Aviva Brands Limited, a

United Kingdom limited company, 

Plaintiffs, 

vs.

Anil Vazirani, an individual; Vazirani &

Associates Financial, LLC, an Arizona

limited liability company; Secured

Financial Solutions, LLC, an Arizona

limited liability company; James Regan, an

individual; and Regan & Associates, LLC,

an Arizona Limited liability Company

Defendants. __________________________________

Anil Vazirani, an individual; Vazirani &

Associates Financial, LLC, an Arizona

limited liability company; and Secured

Financial Solutions, LLC, an Arizona

limited liability company,

Counterclaimants,

Aviva USA Corporation, an Iowa

corporation; and Aviva Brands Limited, a

United Kingdom limited company,

Counterdefendants.

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No. CV 11-0369-PHX-JAT

ORDER

Pending before the Court are: (1) Plaintiffs’ Motion to Dismiss Vazirani Defendants’

Counterclaims for Failure to State a Claim Upon Which Relief Can be Granted (Doc. 53),

Case 2:11-cv-00369-JAT Document 101 Filed 01/10/12 Page 1 of 16
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(2) Plaintiffs’ Motion for Entry of Partial Final Judgment on Liability as Sanctions for

Spoliation of Evidence (Doc. 66), and (3) Defendant James Regan’s Motion for Sanctions

for Discovery Abuse (Doc. 73). The Court now rules on these Motions. 

I. BACKGROUND

Plaintiffs Aviva USA Corporation and Aviva Brands Limited (collectively “Aviva”)

filed an Amended Complaint (Doc. 42) against Defendants Anil Vazirani, Vazirani &

Associates Financial LLC, Secured Financial Solutions, LLC (collectively the “Vazirani

Defendants”), James Regan, and Regan and Associates, LLC (collectively the “Regan

Defendants”) on June 14, 2011. 

Plaintiff Aviva USA is an Iowa Corporation that serves customers in the life insurance

and annuity sector. (Doc. 42 at 4, ¶ 7). Defendant Vazirani has two limited liability

corporations: Vazirani & Associates, LLC and Secured Financial Solutions, LLC, an

independent marketing organization that contracts with insurance companies to perform

distribution and other marketing functions for one or more of the insurance companies’

products or product lines. (Doc. 75 at 4). From approximately 2005 to January 2009,

Defendant Vazirani and his companies worked as agents of Aviva, marketing Aviva’s life

insurance and annuity products. (Id.). Defendant Regan worked with Defendant Vazirani

and his company, Defendant Secured Financial Solutions, LLC, and also worked as an agent

marketing Aviva’s life insurance and annuity products. (Doc. 73 at 3). 

In January 2009, Aviva terminated its contract with Defendants Regan, Vazirani and

Secured Financial Solutions, LLC. (Doc. 75 at 4-5). Thereafter, Defendant Vazirani

initiated lawsuits against Aviva’s executive vice-president, a former Aviva executive, and

an Aviva subsidiary relating to this termination. (Doc. 66 at 5). 

A. The Amended Complaint

Plaintiffs allege that, in July 2010, Defendant Vazirani’s lawyer emailed Aviva

claiming that Defendants would hire a public relations firm to launch an internet smear

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 The email at issue states, “In light of Mr. Tripses’ threat, we plan to send a letter to

all of the insurance carriers that Mr. Vazirani does business with that includes various nonconfidential disclosure documents that demonstrate that it is not Mr. Vazirani who has

engaged in misconduct, but these defendants. We have also retained a PR firm to publicize

the injustices suffered by Mr. Vazirani at the hands of your clients and Aviva. Prior to taking

these actions, we wanted to give your clients the opportunity to discuss a fair and equitable

settlement with Mr. Vazirani and/or to participate in an early mediation. If we don’t hear

from you by close of business Monday, August 3, 2010, we will be left with no choice but

to take the actions outlined above.” (Doc. 66, Exhibit 13). 

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campaign if Aviva did not pay Defendant Vazirani off. (Doc. 42 at 7, ¶ 20).1

 Plaintiffs

allege that when Aviva did not pay, Defendants hired Eric Starkman and his public relations

firm, Starkman & Associates, Inc., to develop a commercial website that infringed Aviva’s

trademark and trade dress rights and disparaged Aviva. (Id. at ¶ 21). Plaintiffs allege that

Defendants then made the website available to the public at various domain names, including

insideaviva.com, aviva-exposed.com, avivauncovered.com, and aviva-uncovered.com. (Id.

at 8, ¶ 31). 

Plaintiffs allege that these websites create a likelihood of confusion with Aviva’s

marks and trade dress, inflict commercial harm on Aviva, and unjustly capitalize on the

goodwill associated with the Aviva mark and Aviva’s protectable trade dress and other

trademark rights. (Id. at 8-9, ¶¶ 35, 36). Plaintiffs allege that Defendants’ websites contain

an identical design of Aviva’s AVIVA mark. (Id. at 15, ¶ 75). Plaintiffs allege that

Defendants use the AVIVA mark in close connection with advertising their products and

services in competition with Aviva (Id. at ¶ 76). Plaintiffs allege that Defendants copied

Aviva’s Trade Dress by using: (1) a yellow, blue, and green color scheme; (2) the appearance

of a ray of light emanating from the yellow background; and (3) a blue, serif, all capitals font

for the AVIVA mark in close connection with the advertising of Defendants’ products and

services. (Id. at 15-16, ¶ 78). 

Plaintiffs further allege that Defendants impersonated an officer of Creative Marketing

International Corporation, an Aviva affiliate, and electronically submitted false and

fraudulent information corresponding to that officer’s identity to register certain domain

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2

 The Court notes that its summary of facts in not intended to be all-inclusive and is

not intended to limit Plaintiffs’ allegations in any way. 

3

 The Court notes that, in their prayer for relief, Plaintiffs request “a temporary

restraining order, preliminary, and then permanent injunction.” (Doc. 42 at 27, ¶ 1). If

Plaintiffs seek immediate relief, Plaintiffs must file a separate motion for injunctive relief.

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names. (Id. at 9, ¶ 39). Plaintiffs allege that Defendants launched a campaign of “blast

emails,” directed at Aviva’s agents, potential agents, and consumers, which disparaged

Aviva. (Id. at 11, ¶ 56). Plaintiffs allege that, in an attempt to hide their misconduct,

Defendants failed to preserve evidence and removed aspects of Aviva’s trade dress from one

of the websites. (Id. at 11, ¶ 58).

Plaintiffs allege that after the lawsuit was filed, Defendants began ten new websites

and registered these domain names with foreign registrars to evade the jurisdiction of the

U.S. Courts. (Id. at 12, ¶ 59). Plaintiffs allege that these fraudulently registered domain

names include aviva-lawsuit.com, aviva-problems.com, aviva-litigation.com,

avivacomplaints.com, avivaplcsucks.com, avivasucksusa.com, anilvsaviva.com,

anilvaziranivsaviva.com, avivavsanil.com, and avivavsanilvazirani.com. (Id. at 10, 21, ¶¶

110, 118). 

Based on the above facts,2

 Plaintiffs allege that Defendants have (1) engaged in

trademark infringement in violation of section 32 of the Lanham Act, 15 U.S.C. § 1114

(Count One) (Doc. 42 at 18-19, ¶¶ 90-98); (2) engaged in trademark infringement, trade dress

infringement, and unfair competition in violation of section 43 of the Lanham Act, 15 U.S.C.

§1125(a) (Count Two) (Id. at 19-21, ¶¶ 99-108); (3) engaged in Federal Cyberpiracy and

violated § 43(D) of the Lanham Act, Anti-Cybersquatting Protection Act, 15 U.S.C. §

1125(d) (Count Three) (Id. at 21-22, ¶¶ 109-124); (4) engaged in unfair competition in

violation of Arizona common law (Count Four) (Id. at 22-23, ¶¶ 125-133); (5) engaged in

Federal Racketeering prohibited by 18 U.S.C. § 1964 (Count Five) (Id. at 24-25, ¶¶ 134-

142), and (6) Violated Arizona Revised Statutes section 13-2301, et seq.(Organized Crime,

Fraud, and Terrorism) (Count Six) (Id. at 25-27, ¶¶ 143-154).3

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In their Answer and Counterclaim to Plaintiffs’ Amended Complaint (Doc. 50), the

Vazirani Defendants asserted affirmative defenses and counterclaims. The counterclaims

are: (1) Non-Infringement of § 32 of the Lanham Act, 15 U.S.C. § 1114 (Count One) (Id. at

10, ¶¶ 8-12); (2) Non-Infringement of Alleged Trade Dress Rights and Unfair Competition

(Count Two) (Id. at 11, ¶¶ 13-17); and (3) Lack of Federal Cyberpiracy, Violations of § 43(d)

of the Lanham Act and the Anti-Cyber Squatting Protection Act, 15 U.S.C. § 1125(d) (Count

Three) (Id. at 11-12, ¶¶ 18-22). For relief, the Vazirani Defendants request the following

judicial declarations: (1) that counterclaimants have not infringed counterdefendants’

trademark rights or violated § 32 of the Lanham Act, 15 U.S.C. § 1114; (2) that

counterdefendants alleged trade dress rights are not protectable; (3) that counterclaimants

have not infringed counterdefendants’ trademark rights in connection with

counterdefendants’ alleged trade dress rights and have not violated § 43(a) of the Lanham

Act, 15 U.S.C. § 1125 (a); and (4) that counterclaimants have not infringed upon

counterdefendants’ trademark rights, have not violated § 43(b) of the Lanham Act. and have

not violated the Anti-Cyber Squatting Protection Act, 15 U.S.C. § 1125(d). (Id. at 12, ¶¶ CF). 

II. PLAINTIFFS’ MOTION TO DISMISS VAZIRANI DEFENDANTS’

COUNTERCLAIMS FOR FAILURE TO STATE A CLAIM UPON

WHICH RELIEF CAN BE GRANTED. (Doc. 53).

Plaintiffs seek an order dismissing the Vazirani Defendants’ counterclaims for failure

to state a claim upon which relief can be granted under Federal Rule of Civil Procedure

12(b)(6). Plaintiffs argue that the Vazirani Defendants’ counterclaims seeking declaratory

relief are inappropriate because they “are redundant of their denials and affirmative defenses”

and “ask the Court to decide the same issues as Aviva’s first, second, third, and fourth causes

of action.” (Doc. 53 at 3, 4). In response, the Vazirani Defendants argue that “finding in

favor of defendants on plaintiffs’ principal claims herein would not necessarily constitute an

affirmative declaration on any of the specific items as to which defendants seeks a

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4

 Federal Rule of Civil Procedure 41(a) provides, “the plaintiff may dismiss an action

without a court order by filing: (i) a notice of dismissal before the opposing party serves

either an answer or motion for summary judgment; or (ii) a stipulation of dismissal signed

by all parties who have appeared.” FED.R.CIV. P. 41(a)(1)(A)(i)(ii). Otherwise, “an action

may be dismissed at the plaintiff’s request only by court order, on terms that the court

considers proper.” Id. at 41(a)(1)(B). 

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declaration in their Counterclaims” (Doc. 59 at 3). The Vazirani Defendants also argue that

their counterclaims “may become important for defendants’ protection if plaintiffs seek to

dismiss one or more of their principal claims.” (Id.). 

A. Legal Standard & Analysis

“The Declaratory Judgment Act provides courts with discretion to either grant or

dismiss a counterclaim for declaratory judgment.” Southwest Windpower, Inc. v. Imperial

Electric, Inc., No. CV-10-8200-SMM, 2011 WL 486089 (D. Ariz. Feb. 4, 2011). There is

a split among district courts in the Ninth Circuit as to how to handle counterclaims for

declaratory relief if such claims are repetitious of issues already before the court via the

complaint or affirmative defenses. See id. (citing cases that dismiss such counterclaims); 6

CHARLES ALAN WRIGHT,ET.AL.,FEDERAL PRACTICE AND PROCEDURE §1406(3d ed.2011)

(discussing the split among courts and citing cases). Some courts have concluded that

Federal Rule of Civil Procedure 41(a)4

 “contains sufficient protection for defendant against

plaintiff’s withdrawal and therefore a counterclaim for a declaratory judgment involving the

same transaction as plaintiff’s claim is wholly redundant and does not serve any useful

purpose.” 6 CHARLES ALAN WRIGHT, ET. AL., FEDERAL PRACTICE AND PROCEDURE § 1406

(3d ed. 2011). However, this conclusion has not been widely accepted because it “ignores

the possibility that it is very difficult to determine whether the declaratory judgment

counterclaim really is redundant prior to trial.” Id. 

It appears that all of the Vazirani Defendants’ requests for declaratory judgment

would be resolved upon the Court’s determination of the issues contained in the Complaint

and the affirmative defenses. However, the Vazirani Defendants have met the 12(b)(6)

standard of stating a claim upon which relief can be granted. The Vazirani Defendants assert

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that the relief they request will not be duplicative of the issues before the Court and

Plaintiffs’ assertion that allowing the counterclaims to proceed will expand discovery bolsters

the Vazirani Defendants’ argument that its counterclaims are somehow different than the

issues raised in the complaint and affirmative defenses. See Doc. 62 at 2-3. (“In opposition

to Plaintiffs’ motion, the Vazirani Defendants suggest that this Court should delay dismissal

until after the Parties—and this Court—have spent substantial time and resources in

discovery and motion practice.”). Accordingly, the Court finds that the safest course is to

deny the motion to dismiss the counterclaim. See 6 CHARLES ALAN WRIGHT, ET. AL.,

FEDERAL PRACTICE AND PROCEDURE § 1406 (3d ed. 2011) (“the safer course for the court to

follow is to deny a request to dismiss a counterclaim for declaratory relief unless there is no

doubt that it will be rendered moot by the adjudication of the main action.”). 

Perhaps Plaintiffs did not intend to imply that allowing the counterclaims to go

forward would require more discovery than would already be necessary, but, at this stage,

the Court finds that the best course is to deny Plaintiffs’ Motion to Dismiss the Vazirani

Defendants’ Counterclaims without prejudice. Plaintiffs may re-raise this issue on summary

judgment if the evidence supports their original arguments. 

III. PLAINTIFFS’ MOTION FOR ENTRY OF PARTIAL FINAL

JUDGMENT ON LIABILITY AS SANCTIONS FOR SPOLIATION

OF EVIDENCE. (Doc. 66).

Plaintiffs argue that they are entitled to sanctions due to Defendant Vazirani’s and

Defendant Regan’s alleged spoliation of evidence. Plaintiffs argue that Defendants’ actions

entitle them to a determination of liability, leaving their remedies as the only remaining

issues for discovery, dispositive motions, and trial. 

A. Evidence of Spoliation

Plaintiffs argue that Defendants Vazirani and Regan have both perjured themselves

and destroyed evidence. Plaintiffs argue that the following facts show that Defendants

Vazirani and Regan have destroyed or failed to preserve evidence relevant to this litigation:

• Although Plaintiffs have obtained numerous emails and text messages relevant to the

litigation from third-parties Eric Starkman and his firm, Starkman & Associates, Inc.

(collectively “Starkman”), neither Vazirani or Regan has produced any of these

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 Defendant Regan argues that his answers to his deposition only related to one of the

Aviva websites and Plaintiffs have misconstrued his answers to make it seem as if he is lying.

The Court has read the relevant portions of Defendant Regan’s deposition and finds the

assertion that Defendant Regan was only referring to one of the websites unconvincing.

Further, even if Defendant Regan was only referring to one of the websites, many of his

answers are still disproved by the emails produced by Starkman. 

6

 The bolded and underlined words are links to the folder containing the emails that

matched the keyword searches that were placed in the trash folder. 

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emails or texts in response to discovery requests, even though the emails and texts

show that they were either senders or recipients of the emails and texts. (Doc. 66 at

3, 4). 

• Before the emails and texts were produced in this litigation, Defendant Regan’s

deposition was taken in another lawsuit. During that deposition, Defendant Regan

swore he never discussed anti-Aviva websites with Starkman, that he never sent antiAviva documents to Starkman, that the first time he saw the emails posted on the

alleged infringing websites was when he looked at those websites, that he first learned

that Defendant Vazirani had surreptitiously recorded Aviva employee, Jordan

Canfield, when he heard the recording on the websites and that he didn’t know of

Greg Lowney doing any work for Defendant Vazirani besides work in 2011 relating

to a virus on Defendant Vazirani’s computer. (Doc. 66 at 9, Exhibit 32). Each of

these assertions was disproved by Starkman’s document production. (Id. at 10 (citing

exhibits)).5

 

• The emails and texts that were produced by Starkman indicate that Defendant Regan

sometimes avoided email in favor of telephone, fax, and text communications to hide

what was being discussed. (Id. at 11 (citing exhibits)). 

• On February 24, 2011, the same day that Plaintiffs filed their Complaint, Defendant

Regan sent an email to Starkman and Associates requesting that they “remove all

indication of dates for updates on the site.” (Doc. 66 at Exhibit 59). 

• Defendant Regan produced screenshots of searches of keywords in his google email

account to demonstrate that he did not have any emails that he was not producing in

response to the subpoenas. However, many of the screenshots actually demonstrated

that emails containing the keywords were placed in the “trash” folder of Defendant

Regan’s email account. (See Doc. 66 at Exhibit 75 (At the bottom of screenshots

depicting the search results to some “keywords,” a message read, “Deleted messages

match your search View them6

 or go to Trash to delete forever.”)). 

• Both Defendant Vazirani and Greg Lowney, an internet computer specialist who

worked on Vazirani’s computer and was involved in registering domain names for

Defendants, displayed significant gaps in their memories during their depositions,

although many of the events they were questioned about occurred within the last two

years. Defendant Vazirani equivocated throughout his deposition and claimed not

even to know his own opinions in answer to various questions. 

In response to these allegations, Defendants argue that they have not destroyed

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 Plaintiffs respond that they were only able to obtain some of the destroyed emails

from Starkman. 

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evidence relevant to the case. They further argue that the alleged spoliation does not hamper

Plaintiffs’ ability to prosecute their case because they have the emails and texts that were

allegedly destroyed.7

 The Vazirani Defendants further argue that because Defendant

Vazirani admits to being involved in creating at least one of the websites, Plaintiffs have

enough information to prosecute this case. The Vazirani Defendants finally argue that, if the

Court believes Vazirani engaged in wrongdoing, an appropriate sanction would be a ruling

that Defendant Vazirani is responsible for the anti-Aviva messages on the websites on which

Defendant Vazirani disputes ownership. 

B. Legal Standard and Analysis

The Court has discretion under its inherent powers to sanction a party who causes the

spoliation of evidence. See Leon v. IDX Sys. Corp., 464 F.3d 951, 958 (9th Cir. 2006). This

discretion is broad and can range from minor sanctions, such as the awarding of attorneys’

fees, Leon, 464 F.3d at 961, to more serious sanctions, such as dismissal of claims, Id. at 958,

or instructing the jury that it may draw an adverse inference, In re Oracle Corp. Sec. Litig.,

627 F.3d 376, 386-387 (9th Cir. 2010). Sanctions under these “inherent powers must be

exercised with restraint” and should be appropriate to the conduct that triggered the sanction.

Chambers v. NASCO, Inc., 501 U.S. 32, 44-45 (1991). 

Destruction of evidence or the failure to preserve property for another’s use as

evidence in pending litigation constitutes spoliation. See United States v. Kitsap Physicians

Serv., 314 F.3d 995, 1001 (9th Cir. 2002). Specifically, failure to “preserve electronic or

other records, once the duty to do so has been triggered, raises the issue of spoliation of

evidence and its consequences.” Surowiec v. Capital Title Agency, Inc., 790 F.Supp.2d. 997,

1005 (D. Ariz. 2011) (quoting Thompson v. U.S. Dep’t. of Hous. & Urban Dev., 219 F.R.D.

93, 100 (D. Md. 2003)); see also Leon, 464 F.3d at 959 (noting willful destruction of

electronic files constituted spoliation).

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“A party seeking sanctions for spoliation of evidence must prove the following

elements: (1) the party having control over the evidence had an obligation to preserve it when

it was destroyed or altered; (2) the destruction or loss was accompanied by a ‘culpable state

of mind;’ and (3) the evidence that was destroyed or altered was ‘relevant’ to the claims or

defenses of the party that sought the discovery of the spoliated evidence[.]” Surowiec, 790

F.Supp.2d at 1005 (quoting Goodman v. Praxair Servs., Inc., 632 F.Supp.2d 494, 509 (D.

Md. 2009)). The Court will now examine each of these elements to determine if Plaintiffs

have sufficiently established that Defendants Regan and Vazirani engaged in conduct that

led to the spoliation of evidence and warrants sanctions.

i. Obligation to Preserve

“It is well established that the duty to preserve arises when a party knows or should

know that certain evidence is relevant to pending or future litigation.” Id. (internal citation

and quotation omitted). “Stated differently, the duty to preserve is triggered not only during

litigation, but also extends to the period before litigation when a party should reasonably

know that evidence may be relevant to anticipated litigation.” Id. (internal citations omitted).

At the very latest, Defendant Vazirani’s duty to preserve his computer’s hard drive and

electronic data arose when he was served with Plaintiffs’ Complaint on February 25, 2011.

Although Defendant Regan was not named as a Defendant in the original Complaint, at the

very latest, his duty to preserve evidence arose on April 4, 2011 when he received a subpoena

in this matter. 

From the facts presented, it appears that Defendants Vazirani and Regan have engaged

in a pattern of hiding and/or failing to preserve relevant evidence. For instance, Defendant

Regan ordered a Starkman employee to delete information from one of the websites that is

the subject of this lawsuit the day the Complaint was filed. Although Defendant Regan was

not then a party to this action, the totality of the facts presented suggest that Defendants

worked together with third parties to destroy and/or hide evidence. It would be a perversion

of justice to allow Defendants to claim they are not personally responsible for the destruction

of relevant evidence when third parties were acting at their behest. Accordingly, Plaintiffs

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have made a showing that at least some of the spoliation occurred after Defendants’ duty to

preserve had arisen. 

ii. Culpable State of Mind

“Courts have not been uniform in defining the level of culpability—be it negligence,

gross negligence, willfulness, or bad faith—that is required before sanctions are appropriate.”

Id. at 1006 (internal quotation and citation omitted). “Nor is there consensus as to how the

level of culpability is to be determined, or what prejudice, if any, may be presumed from

culpable conduct.” Id. at 1006-1007. However, it is clear that “[a]n allegedly spoliating

party’s culpability must be determined case-by-case.” Id. at 1007. 

In this case, Defendants have provided no reasonable explanation for their failure to

preserve. The totality of the facts presented shows that Defendants Regan and Vazirani

deleted relevant records relating to this lawsuit. Further, the evidence suggests that as the

lawsuit progressed, Defendants began communicating through telephone and faxes to avoid

creating a record through email and text messaging technology that could later be discovered

through forensic imaging. Moreover, although it appears from the evidence that Defendant

Vazirani and Greg Lowney have significant knowledge that would be responsive to questions

asked during their depositions, both displayed significant, unexplained gaps in memory

regarding the events related to this lawsuit during those depositions. Finally, the evidence

shows that Defendant Regan lied in his deposition about the events relating to this lawsuit.

Accordingly, the Court finds that Defendants acted in bad faith and, thus, with a culpable

state of mind.

iii. Relevance to the Claims 

Plaintiffs have shown that the evidence destroyed was likely relevant to their claims.

Starkman produced numerous emails that were also sent to Defendants Regan and Vazirani.

Defendants Regan and Vazirani did not produce any of these emails. Further, the screenshots

of Defendant Regan’s email account show that information related to the relevant “keyword”

searches were placed in the trash folder of his email and never produced. Accordingly, the

Court finds that Defendants destroyed and/or hid information relevant to this case. 

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iv. Appropriate Sanction

Plaintiffs argue that Defendants’ actions entitle them to a determination of liability,

leaving Aviva’s remedies as the only remaining issues for discovery, dispositive motions,

and trial. In the alternative, Plaintiffs request a determination that Aviva has established a

prima facie case on each of its claims, thereby shifting the burden of proof on liability on

each of those claims to Defendants, or a ruling that Aviva is entitled to adverse inference

instructions on each element of each of its claims in this case. Aviva also requests an award

of attorneys’ fees and costs incurred in connection with seeking the spoliated evidence and

incurred in connection with this motion. The Court “must determine which sanction best (1)

deters parties from future spoliation, (2) places the risk of an erroneous judgment on the

spoliating party, and (3) restores the innocent party to their rightful litigation position.” Id.

at 1008 (internal quotation and citation omitted).

There is a five-part test to determine whether a sanction determining liability in favor

of one party is just: “(1) the public’s interest in expeditious resolution of litigation; (2) the

court’s need to manage its docket; (3) the risk of prejudice to the other party; (4) the public

policy favoring the disposition of cases on their merits; and (5) the availability of less drastic

sanctions.” Dreith v. Nu Image, Inc., 648 F.3d 779, 788 (9th Cir. 2011) (internal citation

omitted). 

The first two factors favor judgment for Plaintiffs on liability. Because the Court and

the public have a strong interest in judicial efficiency and the prompt resolution of litigation,

Defendants’ failure to preserve evidence, and the resulting delay caused by discovery

disputes and the instant motion for sanctions, weigh in favor of judgment for Plaintiffs on

liability. See Surowiec, 790 F.Supp.2d at 1009. Nonetheless, the Court finds that the final

three factors weigh against a liability-determining sanction. The third factor, prejudice,

“looks to whether the spoliating party’s actions impaired the non-spoliating party’s ability

to go to trial or threatened to interfere with the rightful decision of the case.” Leon, 464 F.3d

at 959 (citation and brackets omitted). While it is apparent that Plaintiffs have been

prejudiced by the spoliation, the Court finds that a lesser sanction would correct any

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 The Court is aware that Defendants have already moved for summary judgment on

Plaintiffs’ Rico cause of action. Accordingly, the Court will strike Plaintiffs’ Response and

Defendants’ Reply in Support of that motion to give Plaintiffs the opportunity to respond in

accordance with this Order. 

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interference with a rightful decision of the case attributed to the spoliation. See id. (quoting

Rimkus Consulting Group, Inc.v. Cammarata, 688 F.Supp.2d at 618 (S.D. Tex. 2010))

(“When a party is prejudiced, but not irreparably, from the loss of evidence that was

destroyed with a high degree of culpability, a harsh, but less extreme sanction than dismissal

or default is to permit the fact finder to presume that the destroyed evidence was

prejudicial.”). Accordingly, the Court finds that a sanction granting judgment for Plaintiffs

on liability would be inappropriate in this case. 

Plaintiffs have requested alternative sanctions of a determination that Aviva has

established a prima facie case on each of its claims, thereby shifting the burden of proof on

liability on each of those claims to Defendants or a ruling that Aviva is entitled to adverse

inference instructions on each element of each of its claims in this case. The Court finds

adverse inference instructions to be warranted to the extent Defendants’ spoliation affects

Plaintiffs’ ability to prove their claims. The Parties shall submit proposed adverse inference

instructions with the other jury instructions to be filed before trial. 

If Plaintiffs believe that Defendants’ spoliation affects their ability to dispute summary

judgment, Plaintiffs may propose an appropriate adverse inference in response to any motion

for summary judgment.8

 If Plaintiffs propose inferences in response to a summary judgment

motion, they must specify how Defendants’ spoliation has prevented them from disputing

specific facts, the discovery they have undertaken to obtain those facts, and how an inference

in their favor would prevent summary judgment as a matter of law. 

Accordingly, Plaintiffs’ Motion for Entry of Partial Final Judgment on Liability as

Sanctions for Spoliation of Evidence is denied with respect to judgment for Plaintiffs on

liability, but granted as to the request for adverse inference instructions. 

C. Attorneys’ Fees

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Plaintiffs also request an award of attorneys’ fees and costs incurred in connection

with seeking the spoliated evidence and incurred in connection with this motion. “Under its

‘inherent powers,’ a district court may also award sanctions in the form of attorneys’ fees

against a party or counsel who acts in bad faith, vexatiously, wantonly, or for oppressive

reasons.” Leon, 464 F.3d at 961 (internal quotation and citation omitted). “Before awarding

such sanctions, the court must make an express finding that the sanctioned party’s behavior

constituted or was tantamount to bad faith.” Id. (citation omitted). “A party demonstrates

bad faith by delaying or disrupting the litigation or hampering enforcement of a court order.”

Id. (internal citation omitted). “The bad faith requirement ensures that the district court’s

exercise of its broad power is properly restrained, and preserves a balance between protecting

the court’s integrity and encouraging meritorious arguments.” Id. (internal quotation and

citation omitted). “Additionally, the amount of monetary sanctions must be reasonable.”

Id. (internal quotation and citation omitted). The Court has already found that Defendants

Regan and Vazirani acted in bad faith. Accordingly, Plaintiffs are entitled to their

reasonable attorneys’ fees incurred in connection with this motion and seeking spoliated

evidence. 

The Parties are directed to confer in good faith to resolve any disputes concerning the

amount of reasonable expenses and fees. See LRCiv 54.2(d)(1). If the Parties are unable

to agree, Plaintiffs may file a motion pursuant to Local Rule 54.2. Any such motion shall be

filed, with a supporting memorandum, on or before February 6, 2012, with the response and

reply briefs due in accordance with the time periods provided in Local Rule 54.2(b)(3) and

(4). 

IV. DEFENDANT JAMES REGAN’S MOTION FOR SANCTIONS FOR

DISCOVERY ABUSE (Doc. 73).

Defendant Regan alleges that, in response to discovery requests by Aviva, he allowed

Aviva’s computer expert to attempt to obtain discoverable information from the hard drive

of his computer. Defendant Regan alleges that, when Aviva’s computer expert returned his

computer to him, it was severely damaged and he had to replace it. Defendant Regan further

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alleges that he has submitted his $900 bill for the damage to his computer to Aviva and

Aviva has refused to pay it. Defendant Regan “asks that the Court award him an

immediately payable sanction of $900 to pay for the computer destroyed by Aviva’s

computer ‘expert.’” (Doc. 73 at 10). In their Response to the request for sanctions,

Plaintiffs argue that their expert did not damage Defendant Regan’s computer. (Doc. 81).

This is not the type of situation where a sanction would be appropriate or warranted.

The substance of Defendant Regan’s motion convinces the Court that he is not seeking a

sanction for an abuse of discovery, but is seeking a sanction for damage to property that

allegedly occurred during the discovery process. These two situations are not equivalent.

For example, if Plaintiffs’ expert intentionally destroyed evidence relevant to the case, at

Plaintiffs’ direction or to assist Plaintiffs in obstructing the discovery process, a sanction for

abuse of discovery would be appropriate. Conversely, if Plaintiffs’ expert and Defendant

were involved in a car accident in the parking lot of the law firm where Defendant’s

deposition was to take place, this Court could not order Plaintiffs (or their expert) to pay for

the damage to Defendant’s car as a sanction for abuse of the discovery process. The conduct

at issue here is akin to the latter example.

Further, the alleged damage is not attributable to Plaintiffs, but to their expert.

Defendant Regan may have a separate cause of action against Plaintiffs’ expert for the

damage done to his computer, but the Court does not have jurisdiction within this case over

a claim between Defendant Regan and a third-party involving issues and facts distinct from

the issues and facts necessary to the resolution of the dispute in this case. Accordingly,

Defendant Regan’s Motion for Sanctions for Discovery Abuse is denied. 

Based on the foregoing,

IT IS ORDERED that Plaintiffs’ Motion to Dismiss the Vazirani Defendants’

Counterclaims (Doc. 53) is denied without prejudice. Plaintiffs may re-raise this issue on

summary judgment if the evidence supports their original arguments. 

IT IS FURTHER ORDERED that Plaintiffs’ Motion for Entry of Partial Final

Judgment on Liability as Sanctions for Spoliation of Evidence (Doc. 66) is granted in part

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and denied in part as set forth in this Order. As set forth in this Order, Plaintiffs must file any

reasonable request for attorneys’ fees before February 6, 2012. 

IT IS FURTHER ORDERED that the Clerk of the Court shall strike Plaintiffs’

Response to Vazirani Defendants’ Motion for Judgment on the Pleadings (Doc. 84) and the

Vazirani Defendants Reply Memorandum in Support of Motion for Judgment on the

Pleadings on Plaintiffs’ RICO Cause of Action (Doc. 87). Plaintiffs shall file their Response

within fourteen days of the date of this Order. If Plaintiffs do not wish to make changes to

their Response, Plaintiffs may re-file their current response. Defendants shall file their Reply

within seven days of Plaintiffs’ Response. 

IT IS FINALLY ORDERED that Defendant Regan’s Motion for Sanctions for

Discovery Abuse (Doc. 73) is denied. 

DATED this 10th day of January, 2012.

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