From Kopitar v. Nationwide Mut. Ins. Co., 2010 U.S. Dist. LEXIS 25079 (E.D. Cal. Mar. 17, 2010):

The Ninth Circuit has held that a district court has the authority to impose sanctions for spoliation pursuant to: "the inherent power of federal courts to levy sanctions in response to abusive litigation practices, and the availability of sanctions under Rule 37 against a party who fails to obey an order to provide or permit discovery." Leon v. IPX Sys. Corp., 464 F.3d 951, 958 (9th Cir. 2006) (citing Fjelstad v. Am. Honda Motor Co., 762 F.2d 1334, 1337-38 (9th Cir. 1985); Fed. R. Civ. P. 37(b)(2)(C)). In the present case, because Plaintiff's alleged actions did not violate a discovery order, any sanction must be imposed pursuant to the district court's inherent power.

Defendant has proposed the following sanctions for Plaintiff's spoliation of the evidence contained in Plaintiff's walls and home: dismissal of Plaintiff's claims for alleged mold damages; and precluding Plaintiff from arguing or presenting any evidence concerning the alleged mold damage and related repairs. The exclusion of evidence is tantamount to a terminating sanction. See, e.g., Ware v. Rodale Press, Inc., 322 F.3d 218, 221 (3rd Cir. 2003). All of the sanctions that Defendant seeks are terminating sanctions or the equivalent thereof; making applicable the standard for the imposition of dismissal as a sanction for spoliation.

The Ninth Circuit stated:

Dismissal is an available sanction when a party has engaged deliberately in deceptive practices that undermine the integrity of judicial proceedings because courts have inherent power to dismiss an action when a party has willfully deceived the court and engaged in conduct utterly inconsistent with the orderly administration of justice. Before imposing the harsh sanction of dismissal, however, the district court should consider the following factors: (1) the public's interest in expeditious resolution of litigation; (2) the court's need to manage its dockets; (3) the risk of prejudice to the party seeking sanctions; (4) the public policy favoring disposition of cases on their merits; and (5) the availability of less drastic sanctions.

Leon, 464 F.3d at 958 (citations and quotation marks omitted).

A court need not specifically address all five factors before ordering dismissal, but it must find willfulness, fault, or bad faith, and it must consider lesser sanctions.***

[Footnote 2] In Halaco Eng'g Co. v. Costle, 843 F.2d 376, 382 (9th Cir. 1988), the Ninth Circuit stated that prejudice to the wronged party was an "optional" consideration. However, the Ninth Circuit has subsequently emphasized the similarity between the test for sanctions under a court's inherent powers and the test for sanctions under Rule 37, and prejudice is a "key factor[ ]" in determining sanctions under Rule 37. Henry v. Gill Industries, Inc., 983 F.2d 943, 948 (9th Cir. 1993) (discussing dismissal sanction pursuant to Rule 37). Substantial weight is placed on the prejudice prong. See, e.g., Banga v. Experian Info. Solutions, No. C-08-4147-SBA-EMC, 2009 U.S. Dist. LEXIS 71460, 2009 WL 2407419 at *1 (N.D. Cal. Aug. 04, 2009).