R.S. Creative, Inc. v. Creative Cotton

• Decision Date: 04 October 1999
• Docket Number: No. B124163.,B124163.
• Citation: 89 Cal.Rptr.2d 353,75 Cal.App.4th 486
• Court: California Court of Appeals Court of Appeals
• Parties: R.S. CREATIVE, INC., Plaintiff and Appellant, v. CREATIVE COTTON, LTD., et al. Defendants and Respondents.

89 Cal.Rptr.2d 353

75 Cal.App.4th 486

R.S. CREATIVE, INC., Plaintiff and Appellant, v. CREATIVE COTTON, LTD., et al. Defendants and Respondents.

No. B124163.

Court of Appeal, Second District, Division 4.

October 4, 1999.

Lanahan & Reilley, Paul Raynor Keating, John N. Zarian, Irvine; Carroll, Burdick & McDonough and Donald T. Ramsey, San Francisco, for Plaintiff and Appellant.

Grace & Sater, Gregory J. Sater; Kester & Isenberg and Charles F. Kester, Woodland Hills, for Defendants and Respondents.

EPSTEIN, J.

The trial court imposed terminating sanctions for 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 after the forgery came to light, and had destroyed evidence. We recount the activities of the sanctioned party in detail to illustrate a kind of discovery abuse that is intolerable in civil litigation. We find no abuse of the trial court's discretion, and affirm the judgment (order of dismissal).¹

FACTUAL AND PROCEDURAL SUMMARY

Renee Sebastian is the chief executive officer, secretary, chief financial officer, and sole director of R.S. Creative Inc., a California corporation (RSC). There are no other officers of RSC. RSC's offices are located in Ms. Sebastian's home. RSC is in the business of designing, manufacturing and distributing clothing. Respondents Creative Cotton, Ltd. and its principal, Paul Shafran, also are in the clothing industry.

In July 1995, RSC and Creative Cotton entered into a written contract. At one point neither side to the contract was able to find its copy. Later, Ms. Sebastian purported to have her copy, and sued on the basis of breach. The contract she attached to her complaint, and which she claimed to be the actual written agreement of the parties, was shown to be a forgery. Defendants located their copy of the actual agreement and used it to expose the fraud. RSC ultimately acknowledged that defendants' copy is authentic. Because the authenticity of documents was a key issue in the case, we refer to defendants' copy as the "genuine contract."

In February 1998, RSC and Ms. Sebastian sued Creative Cotton and Mr. Shafran for breach of written contract, declaratory relief, an accounting, and breach of an oral contract. The cause of action for breach of written contract alleged: "Creative is a manufacturer of apparel, specializing in knitwear. On or about July 26 and July 27, 1995, Shafran, individually and on behalf of Creative, entered into a three-year agreement (the `Commission Agreement') with Sebastian, individually and on behalf of RSC. A true and correct copy of the Commission Agreement is attached hereto as Exhibit 1." Plaintiffs alleged that the defendants breached the express terms of the agreement by purporting to terminate it in December 1997 without the required notice.

The fourth cause of action, for breach of oral contract, alleged: "Beginning in or about 1993 Sebastian and Shafran agreed that Shafran would convey ten percent of the outstanding capital stock of Creative to Sebastian in consideration of her services as a sales representative for Creative (the `Stock Agreement'). Shafran reiterated his promise to convey stock to Sebastian on numerous occasions after 1993. Sebastian materially relied upon the promises made by Shafran and continued to do work for Shafran and Creative in reliance thereon until and including 1997." The complaint alleged that Ms. Sebastian had performed her obligations under the terms of the Stock Agreement, but had not been given the promised stock.

Significantly, the first sentence of the agreement incorporated as exhibit 1 of the complaint (the purported contract) is materially different from the genuine contract. The genuine contract expressly provides that Ms. Sebastian relinquished any claim to ownership or profit share in Creative Cotton: "This will confirm our agreement on [Ms. Sebastian's] present, past and future compensation, instead of my getting a percentage ownership or profit sharing in the business." In contrast, the purported contract omits the language precluding an ownership or partnership interest for Ms. Sebastian: "This will confirm the terms of our agreement as we have discussed. You have agreed both personally and as President of Creative Cotton, Ltd. (`CCL') that Renee Sebastian/R.S. Creative, Inc. (`RSC') is entitled to and will receive the following [setting out the commission structure from the genuine agreement]." The alteration in the purported contract enabled Ms. Sebastian to allege an oral agreement giving her an ownership interest.

Defendants noticed Ms. Sebastian's deposition for April 8, 1998. She was asked to produce numerous documents at her deposition, including all documents "which ... constitute, refer to, provide evidence of, or reflect Exhibit 1 to the COMPLAINT [the purported contract]." Ms. Sebastian was also asked to produce all documents which "provide evidence of, refer or relate to, or reflect in any manner the negotiation, preparation, creation, drafting, editing, revising, execution, performance, waiver, modification, repudiation, or breach of Exhibit 1 to the COMPLAINT." The definition of "document" in the notice of deposition included computer tapes, discs and any information stored in a computer.

Michael Echevarria, counsel for plaintiffs, telephoned Gregory J. Sater, counsel for defendants, and asked for a three-week continuance of Ms. Sebastian's deposition because she would be traveling out of town for that time. When Mr. Sater replied that his clients were unlikely to agree to the postponement, Mr. Echevarria said that Ms. Sebastian was too ill to be deposed. The parties finally stipulated that the deposition would be continued until April 29 and 30, 1998; that Ms. Sebastian would produce the documents requested by defendants unless objections were made on privilege or privacy grounds; that defendants would not be required to file a responsive pleading until the conclusion of Ms. Sebastian's deposition; and that plaintiffs would not serve or conduct any discovery until ten days after the conclusion of Ms. Sebastian's deposition. On April 3, 1998, the trial court entered an order in the terms of the stipulation.

Ms. Sebastian's deposition began on April 29, 1998. Plaintiffs produced another copy of the purported contract (Exhibit B to Ms. Sebastian's deposition). Counsel for defendants asked to see the original of the purported contract. Plaintiffs' counsel stated that he did not have an original with him and did not know whether his client had the original. Plaintiffs did not produce any computer records at the deposition.

Ms. Sebastian testified that she and Mr. Shafran signed Exhibit B at the same time and that he took the original and she kept a copy. She said that she had typed the contract on the desktop computer at the Creative Cotton showroom in Los Angeles. Ms. Sebastian later took the computer home. When asked if she had altered Exhibit B, Ms. Sebastian said it was the agreement both she and Mr. Shafran had signed. She also testified that the contract attached to the complaint was a true copy of the commission agreement with Creative Cotton. Ms. Sebastian denied having altered the genuine contract to produce the copy attached to the complaint, or the copy marked as Exhibit B at her deposition.

A copy of the genuine contract was marked as Exhibit YY on the second day of this deposition. Ms. Sebastian identified both her signature and that of Mr. Shafran on the document. She asked to see Exhibit B, the altered document, while she examined Exhibit YY. She testified that she had prepared Exhibit YY on her home computer. She was unable to explain how the signatures on Exhibit B and Exhibit YY could be in identical positions. When asked to explain the differences in the first sentence of the two versions, Ms. Sebastian said she did not know, and said that there were several documents that went back and forth.

During Ms. Sebastian's deposition on April 29, counsel for defendants sought a stipulation that she would not use her laptop or desktop computer until a computer expert for defendants had an opportunity to examine them. Absent a stipulation, counsel for defendants stated that he intended to seek an emergency order from the court the following morning to seek production of the two computers, and all disks, floppy disks, and hard drives, in order to determine the source of the two versions of the contract.

Ms. Sebastian stipulated that the computers and diskettes would not be operated or touched from April 29, 1998 until defendants' computer expert could examine them.

Ronald Kaplan, a computer expert for defendants, was available to conduct the inspection of Ms. Sebastian's computers on May 2, 3, and 4, 1998 but was not allowed to inspect them until May 5, 1998. His examination revealed that the desktop computer had been used on Saturday, May 2 and Sunday, May 3, and that the laptop had been used on April 30, May 2, and May 4. A word processing file was deleted from the desktop computer on May 3. Although Mr. Kaplan was told that the plaintiffs had used the desktop computer between 1995 and 1997, it held no word processing file dated prior to 1998. The hard disk either had been wiped clean of all data, or a different hard disk had been installed in the desktop computer. Mr. Kaplan could not pinpoint when this occurred; he was able to determine only that the deletion was made between February 1998 and his inspection on May 5. The desktop computer revealed that a floppy disk had been loaded onto the hard drive at some point. When Mr. Kaplan asked Ms. Sebastian where her floppy disks were so that he could inspect them, Ms. Sebastian said that she did not have any and had never used them. Mr. Kaplan observed a large plastic container next to the desktop which was of the sort used to store floppy...