Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_17-cv-05351/USCOURTS-cand-3_17-cv-05351-6/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

EMILY FISHMAN, individually and on behalf of

all others similarly situated, and SUSAN FARIA,

individually and on behalf of all others similarly

situated, 

Plaintiffs,

 v.

TIGER NATURAL GAS, INC., an Oklahoma

corporation, COMMUNITY GAS CENTER,

INC., a Colorado corporation, JOHN DYET, an

individual; and DOES 3–100,

Defendants. /

No. C 17-05351 WHA

ORDER RE MOTION FOR

DISCOVERY SANCTIONS

INTRODUCTION

In this putative class action for fraudulent telemarketing, plaintiffs move for discovery

sanctions. For the reasons below, plaintiffs’ motion is GRANTED IN PART AND DENIED IN

PART.

STATEMENT

In the 1990s, California deregulated its natural gas market and permitted non-utility

providers (called “core transport agents” or “CTAs”) to sell natural gas to small business and

residential consumers. Since 2013, defendant Tiger Natural Gas, Inc. has operated as a CTA in

PG&E’s territory, selling natural gas pursuant to a program known as the “core aggregation

program.” PG&E Gas Rule 23, a tariff approved by the California Public Utilities Commission,

provides the basic regulatory framework for the core aggregation program and for Tiger’s

enrollment of customers.

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Gas Rule 23 sets forth several requirements. With respect to the enrollment of

customers, Gas Rule 23.D.1 has, at all relevant times, provided (Dkt. No. 203-2 at 21):

a. The CTA or its authorized agent(s) shall comply with the

Customer Sign-Up Process and obtain the Customer’s

Authorization in accordance with the provisions of Schedule

G-CT – Core Gas Aggregation Service. 

b. The CTA, or its authorized agent(s), shall not make, with

dishonest, fraudulent, or deceitful intent, material verbal or

written misrepresentations in the course of soliciting or

serving core gas aggregation customers.

c. The CTA or its authorized agent(s) shall not with dishonest,

fraudulent, or deceitful intent act to substantially benefit the

CTA or its employees, agents, or representatives, or to

disadvantage customers.

Note well that all three of the foregoing cover the CTA “or its authorized agent(s).” 

When a CTA enrolled a customer by telephone, Gas Rule 23.E.2.i.11 has, at all relevant

times, stated that “[t]he CTA shall retain the audio recording of the sales call for one (1) year

and the TPV [third-party verification] of the Customer’s enrollment for two (2) years” (id. at

27). This provision is central to our dispute. Also note well that, unlike above, this provision

imposes a duty only on the CTA, not both the CTA or its authorized agent. 

Tiger hired defendant Community Gas Center, Inc. to conduct telemarketing. Defendant

John Dyet owned several telemarketing companies, including CGC. Beginning in 2014, CGC

called PG&E customers to promote Tiger’s capped-rate program, pursuant to which program

Tiger’s supply rate for natural gas would be capped at $0.69 per therm (and the gas would be

delivered via the PG&E system). This case stems from alleged misrepresentations made during

these phone solicitations to PG&E’s customers. 

Plaintiff Emily Fishman enrolled in Tiger’s capped-rate program in August 2015. 

CGC’s call to Fishman consisted of two parts: (1) a sales pitch, and (2) a third-party

verification call (“TPV”). During the sales pitch, CGC’s telemarketer made several alleged

misrepresentations to Fishman, including that (a) the California Public Utilities Commission

had processed a request from PG&E to increase its supply rates (as opposed to delivery rates),

(b) Tiger’s capped-rate, or “price-protection,” program was a “free” program that would protect

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customers from PG&E’s supply-rate increases, and (c) Tiger’s rate for natural gas would be “a

variable rate based on the market price.” 

Before CGC stopped marketing Tiger’s program in March 2016, it made tens of

thousands of calls to putative class members. Despite the volume of telemarketing calls made

by CGC, and despite Gas Rule 23 requiring the CTA (Tiger) to retain recordings of these calls,

Tiger produced only one sales pitch recording — the call made to Fishman — the only

recording it claimed to have (since this motion was filed, Tiger has produced four more). 

Specifically, in July 2016, Fishman (through counsel) sent Tiger a demand letter

alleging that Tiger had made misrepresentations during a telemarketing call and on Tiger’s

website. The letter also stated that Fishman believed her claims were typical of other

consumers (Dkt. Nos. 177-1 Exh. 32A). A preservation letter accompanied this demand:

I am notifying you that Tiger must not destroy evidence in its

possession. I am referring to marketing materials (include

telemarketing scripts), customer acquisition reports, customer

information, pricing analyses supporting alleged savings vs.

PG&E, contents of and records of changes to the Tiger website,

records of customer complaints, and any other documents which

Tiger (and it owners, officers, and employees) knows to be

relevant to potential litigation.

In August 2016, Tiger responded to these letters by sending Fishman copies of the recorded

sales pitch and TPV call that CGC had made to her. Upon receiving Fishman’s July 2016 letter,

Tiger maintained all documents and ESI in its possession.

For almost a year, Fishman and her counsel remained silent. In June 2017, Fishman

reappeared when she sent a second demand letter to Tiger’s counsel. This June 2017 letter

further detailed Fishman’s allegations against Tiger and cited to specific misrepresentations that

Fishman alleged CGC made on the sales call (Dkt. No. 177-1 Exh. 32B). 

Fishman filed her initial complaint herein in August 2017. A month later, a year after

the original demand and preservation letters from Fishman’s counsel, Tiger emailed Dyet and

directed him to preserve all documents and ESI related to the case. At the direction of counsel,

Tiger also sought to obtain relevant documents and other materials (including any recorded

sales calls) from CGC and Dyet (Dkt. Nos. 215-2, 220-1 Exh. 2). 

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Fishman’s counsel sent a second preservation letter to Tiger in October 2017, this time

more specifically referencing recordings of sales calls (Dkt. No. 177-1, Exh. 33):

Recordings of customer acquisition telemarketing calls that

Community Gas Center (“CGC”) made on behalf of Tiger to

prospective customers certainly falls within that broad description

of materials relevant to litigation about Tiger’s natural gas price

protection program. However, I did not expressly include

recordings of the calls because I did not know, on July 8, 2016,

that Tiger/CGC was recording calls without disclosure or consent. 

Therefore, by this letter, I am expressly extending plaintiffs’

demand for preservation of evidence to include recordings of

Tiger/CGC’s sales calls and verification calls to prospective

customers, along the lines of what Mr. Klatt provided me for

Plaintiff Emily Fishman on August 28–29, 2016.

During the course of this litigation, plaintiffs propounded discovery requests on Tiger

which sought copies of sales calls made to putative class members. Ultimately, Tiger stipulated

that it had no sales call recordings in its possession, custody, or control other than the Fishman

recording that had already been produced. Plaintiffs propounded similar discovery requests on

CGC and Dyet. Dyet responded that he “[did] not believe” he had any such recordings or

documents. CGC failed to respond. Plaintiffs also subpoenaed various third-party

telemarketing companies owned by Dyet. Those third parties also failed to respond. 

In contrast to the sales pitches, Tiger has maintained copies of all TPV’s for putative

class members. Recordings of these TPV calls are accordingly not at issue in this motion.

For its part, Tiger also requested sales pitch recordings from CGC in the course of this

litigation. When CGC did not provide the recordings as requested, Tiger learned that CGC may

not have complied with Gas Rule 23's requirements regarding the recording and retention of

sales calls. Tiger asserted that this failure amounted to a breach of the parties’ Master Energy

Marketing Agreement — which required CGC to “comply with all utility federal, state, and

local laws, regulations and rules as well as industry best practices” — and subsequently

terminated the agreement in June 2018, although by then CGC has long since ceased operations

anyway (Dkt. Nos. 214-4, 215-2). 

In light of Tiger’s (and CGC’s) failure to retain the recordings of the sales pitches,

plaintiffs now seek an order prohibiting defendants from introducing any evidence in an attempt

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to show that any putative class member received a sales call different from the sales call

received by Fishman. On October 23, plaintiffs deposed Dyet on the limited issues of

defendants’ preservation efforts and CGC’s and Tiger’s purported joint-defense agreement. 

During that deposition, Dyet represented that although some sales pitches were recorded, CGC

may not have been recording them as a matter of course (Dkt. Nos. 196, 218-8). This order

follows full briefing and oral argument. 

ANALYSIS

FRCP 37(e) sanctions are available when “electronically stored information that should

have been preserved in the anticipation or conduct of litigation is lost because a party failed to

take reasonable steps to preserve it, and [the information] cannot be restored or replaced

through additional discovery.” Two categories of sanctions exist. First, where the district court

finds that the loss of information has prejudiced the moving party, the district court may order

“measures no greater than necessary to cure the prejudice.” FRCP 37(e)(1). Second, where the

district court finds that the offending party “acted with the intent to deprive another party of the

information’s use in the litigation,” the district court may require an adverse evidentiary

presumption, dismiss the case, or enter default judgment. FRCP 37(e)(2). The issue presented

is the extent to which CGC’s call to Fishman should be considered representative of calls made

to all putative class members.

1. ANTICIPATION OF LITIGATION.

“Many court decisions hold that potential litigants have a duty to preserve relevant

information when litigation is reasonably foreseeable. Rule 37(e) is based on this common-law

duty.” FRCP 37(e) Advisory Committee’s Note to 2015 Amendment. This order finds that

litigation was reasonably foreseeable in July 2016 when Fishman sent her first demand and

preservation letter. A reasonable party in Tiger’s position would have foreseen putative class

litigation regarding misleading telemarketing calls. The issue accordingly becomes whether or

not Tiger took reasonable steps to preserve relevant evidence.

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2. REASONABLE STEPS.

As an initial matter, where a customer enrolled in Tiger’s program over the phone, Tiger

had an obligation under Gas Rule 23 to “retain the audio recording of the sales call for one (1)

year and the TPV of the Customer’s enrollment for two (2) years” (Dkt. No. 230-2 at 27). 

Although Tiger maintained copies of all TPV recordings, it has eventually developed that Tiger

did not retain recordings of the sales pitches made to putative class members. Attempting to

skirt this responsibility under Gas Rule 23, Tiger argues that it operated on the understanding

that CGC retained copies of the sales pitches. In support, Tiger points to a provision in its

marketing agreement with CGC by which both parties agreed to “comply with all utility,

federal, state, and local laws, regulations and rules as well as industry accepted business

practices.” But nothing in Gas Rule 23 indicated that Tiger’s responsibility to maintain

recordings was delegable. In fact, the text of Gas Rule 23 indicated the opposite. Certain

provisions of Gas Rule 23, such as Rule 23.D.1’s consumer protection provisions, imposed

obligations on “the CTA or its authorized agent(s).” Rule 23.E.2.i, by contrast, imposed its

obligations directly on the CTA (and the CTA only) to retain audio recordings. 

The record further demonstrates that Tiger failed to take reasonable steps to obtain and

to preserve the recordings. To be sure, Tiger may have at all times maintained relevant

documents and ESI in its immediate possession. Nonetheless, Tiger blithely assumed that CGC

and Dyet would preserve evidence within their possession. After receiving Fishman’s demand

and preservation letter in July 2016, Tiger quickly obtained a recording of Fishman’s sales call

from Dyet and CGC. Yet while Fishman’s earliest letter made reference to a potential class

action, Tiger made no efforts to obtain or otherwise preserve any other sales pitches. Instead, it

sadly appears that Tiger waited until September 2017, after Fishman’s filing of her original

complaint in this action, to email Dyet and direct him to preserve materials relevant to this case. 

This delay has turned out to be a mortal mistake. From what can be gleaned from the

current record, CGC was a telemarketing company of little substance, and Dyet has since

moved on to establish a string of such companies. During that delay, it appears that Dyet and

CGC may have destroyed all but a few other recordings of sales pitches, thus explaining why

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one of the only ones to survive was the recording provided to Fishman a year earlier. Once

litigation loomed on the horizon, all others vanished. 

Tiger, not CGC, had a responsibility to obtain and maintain recordings of sales pitches

under Gas Rule 23. Moreover, Tiger failed to take any steps in July 2016 to ensure that, to the

extent CGC possessed any such recordings, those recordings were not subsequently destroyed.

Tiger argues that nothing in the parties’ marketing agreement “grants Tiger the right to

obtain access to or exert possession over any records in CGC’s possession.” This ignores that

CGC agreed (in the same agreement) to “[s]ubmit to [Tiger] the applicable Customer Contracts

executed by Customer(s),” with the agreement defining “Customer Contracts” to include “a

verbal recorded telephonic process serving as an oral enrollment method, utilizing a third party

verification (TPV) company as necessary, indicating Customers’ authorization to receive

services(s) from [Tiger].” The record is also clear that when Tiger asked CGC for copies of the

Fishman recording, CGC provided it. The deposition testimony of Rachel Harvick Strealy,

Tiger’s Marketing Coordinator, also indicates that Tiger received copies of sales call recordings

upon request when a customer complaint arose (Dkt. Nos. 214-4, 215-1).

It is no excuse that Fishman’s earliest preservation letter did not specifically direct Tiger

to preserve sales pitches. It is also not dispositive that Fishman waited until October 2017 to

specifically request that Tiger preserve recordings of sales calls. A reasonable party in Tiger’s

position would have understood such evidence to be relevant based on the earliest letter’s

allegations concerning misleading telemarketing calls, a letter that referenced a putative class

action and which demanded preservation of evidence. Indeed, by quickly obtaining a copy of

Fishman’s sales call and turning it over to plaintiffs’ counsel, Tiger’s own pre-litigation conduct

demonstrates that it viewed such evidence as relevant. Moreover, is it of no moment that Tiger

terminated its marketing agreement with CGC in 2018 upon learning of CGC’s failure to

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 Tiger also argues that plaintiffs themselves have failed to preserve evidence. That may very well be

so. Plaintiffs’ failures, however, do not excuse Tiger’s. To the extent appropriate, Tiger should bring its own

FRCP 37(e) motion to remedy any spoliation by plaintiffs. 

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maintain recordings of sales calls. This post hac decision fails to speak to the reasonableness of

Tiger’s failure to preserve evidence before that point.1

3. PREJUDICE.

As plaintiffs’ parallel motion for class certification demonstrates, plaintiffs have been

prejudiced by Tiger’s failure to take reasonable steps to preserve recorded sales calls. This

order rejects Tiger’s argument that plaintiffs have failed to show that these recordings “cannot

be restored or replaced through additional discovery,” FRCP 37(e), as Tiger offers no

suggestions as to an evidentiary substitute. Although Tiger has produced telemarketing scripts

it contends were used by CGC during sales pitches, the call to Fishman indisputably deviated

from those scripts, rendering them suspect. 

* * *

To ameliorate the prejudice to plaintiffs, this litigation will proceed as follows. At trial,

jury will be informed of the foregoing destruction of evidence (either by evidence put on by

counsel or via an instruction) and the jury will be permitted to decide whether or not the call

made to Fishman was representative of the sales pitches made to the putative class members

(both in terms of content and the fact that the call was recorded). The jury could alternatively

decide, for example, that the telemarketing scripts produced by Tiger are more representative of

the calls made to the putative class. Whether the same course of conduct occurred class-wide

will be for the jury to determine (and in the Court’s view it would be reasonable to so find). 

Moreover, the Fishman sales pitch arguably failed to request consent to record as required by

Section 632 of the California Penal Code. The jury will likewise be allowed to infer that the

other sales calls, had they been preserved, would have similarly been recorded without consent

obtained up front. To this extent, plaintiffs’ motion for discovery sanctions is GRANTED. 

Because the record thus far fails to demonstrate that Tiger “acted with the intent to deprive

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 Tiger objects to numerous statements made in Attorney Daniel Balsam’s and Attorney Jacob

Harker’s reply declarations (Dkt. No. 224). Because this order does not rely on any of the testimony objected

to, Tiger’s objections are OVERRULED AS MOOT. 

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another party of the information’s use in the litigation,” FRCP 37(e)(2), the motion is otherwise

DENIED, subject to revisiting if the trial evidence proves to be stronger.2

CONCLUSION

To the extent described above, plaintiffs’ motion for discovery sanctions is GRANTED. 

IT IS SO ORDERED.

Dated: November 20, 2018. 

WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

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