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Boeing will face an adverse inference instruction at trial because it intentionally deleted e-mails related to a terminated joint bid with the Air Force, the U.S. District Court for the Northern District of Alabama held Mar. 9 ( Ala. Aircraft Indus., Inc. v. Boeing Co. , 2017 BL 73992, N.D. Ala., No. 2:11-cv-03577-RDP, 3/9/17 ).
Judge David Proctor’s decision highlights the harsh sanctions a party can face under Federal Rule of Civil Procedure 37(e)(2), when a court finds that destruction of evidence was intentional. In Boeing’s case, the sanction means that—if the case gets that far—the trial jury will be instructed that it may presume that the lost information was unfavorable to Boeing.
Sanctions under (e)(2) are not common because they require a court to find that the destroying party spoliated ESI with the intent to deprive the other party of the information. But Shook, Hardy & Bacon partner John Barkett—who has published two books on eDiscovery—told Bloomberg BNA that to write an opinion approving of this conduct, the judge “would have to be a contortionist.”
“I can see how Judge Proctor could reach his conclusion based on the facts set forth in the opinion, “Barkett said. “There are too many unanswered questions about the failure to retain documents that were specifically requested by the law department for preservation, but then inexplicably destroyed, for the judge to ignore …. The judge would’ve had to ignore a lot of very unfavorable circumstantial evidence.”
In June 2005, Pemco (now Alabama Aircraft Industries) and Boeing entered an agreement (the MOA) to submit a joint proposal for a contract with the Air Force, in which Boeing would be the prime contractor. However, Boeing later terminated the agreement, citing a change in the Air Force’s contract terms that made the joint bid unfeasible. Pemco and Boeing then submitted separate bids and the Air Force accepted Boeing’s. Pemco protested the Air Force’s award in the Government Accountability Office but was denied.
In 2011, Pemco sued Boeing, alleging that Boeing used Pemco’s proprietary information in preparing its successful bid.
After terminating the agreement in 2006, Boeing instituted a plan calling for the preservation of Pemco-related electronically stored information by Boeing’s legal department.
However, the relevant ESI from Chief Financial Officer Steve Blake’s computer was deleted rather than preserved. In addition, the ESI of a Boeing analyst who provided assistance in writing Pemco out of the joint bid did comply with the preservation plan, but a Boeing attorney misplaced two CDs of potentially relevant ESI that were collected from the analyst.
Eventually, Pemco moved for spoliation sanctions in regard to the destroyed and lost ESI.
Under Federal Rule of Civil Procedure 37(e), the court may issue sanctions if a duty to preserve the missing ESI existed, the party failed to take reasonable steps to preserve the ESI, and the ESI can’t be restored or replaced.
Boeing argued that it didn’t have a duty to preserve documents in 2006 and 2007, when the ESI was destroyed or lost, because it didn’t “reasonably anticipate” litigation with Pemco at that time. The court wasn’t swayed.
“First, there is quite clearly sufficient evidence that Boeing should have reasonably anticipated litigation at that time,” the court said. “Second, shortly after Boeing terminated the [joint bid agreement], the parties began negotiating the Firewall Plan which required the preservation of Pemco-related ESI and also provided that such ESI be delivered to Boeing’s Law Department.”
In addition, the court said that before the Air Force even changed the terms of the contract, Boeing was already evaluating how to drop Pemco and what the likelihood of litigation would be if it did.
“Boeing’s assessment at that time was quite candid: if it opted out of either the MOA or a separate bridge contract, ‘we can expect an ugly, lengthy legal battle,’” the court said.
Boeing argued that if anything should’ve been anticipated, it was a bid protest. But the court said that not all of Boeing’s statements regarding dropping Pemco “fit into such a small cubby hole in the litigation world.”
“Second, to accept Boeing’s assertion that it was only expecting a bid protest would be to ask the court to assume Boeing had its head in the sand … The company was well aware that winning the contract was a ‘bet the farm’ deal for Pemco, and that the loss of the work would likely put it out of business,” the court said. “Even if no one at Boeing actually anticipated litigation over the termination of the MOA (a proposition wholly unsupported by the record evidence), there is more than sufficient evidence to establish that Boeing should reasonably have anticipated litigation.”
Lastly, the court pointed to the fact that Boeing did institute a preservation plan after terminating the joint bid, and then proceeded to delete or lose ESI. The ESI was, according to the opinion, “deliberately” destroyed by Boeing employees. Those same employees then reported to the company’s legal department that the ESI was completely deleted—although they did not claim ownership for the deletion, the opinion said.
The court found that because the data at issue wasn’t identifiable, the allegedly spoliated ESI couldn’t be restored or replaced. Boeing argued that the information was likely already produced, but the court pointed to the fact that the company failed to index the information and was unable to identify with any specificity what ESI was destroyed.
In determining what type of sanction to craft, the court evaluated Boeing’s culpability under FRCP 37(e)(2). To issue the most drastic sanctions, the court said it would have to find that Boeing acted with the intent to deprive Pemco of the information.
“Blake’s Pemco-related ESI was intentionally destroyed by an affirmative act,” the court said. “This type of unexplained, blatantly irresponsible behavior leads the court to conclude that Boeing acted with the intent to deprive Pemco of the use of this information in connection with its claims against Boeing. And, because the information is irretrievably lost, AAI (not to mention this court) is left to speculate as to why the data was destroyed.”
The court granted a permissive adverse inference instruction.
Barkett said the resulting sanctions were easy to “back into” based on the evidence. “Once the judge determined that the company should have anticipated litigation before the destruction of the ESI in contravention of express instructions to preserve it and provide it to the law department, it was in trouble,” Barkett said.
Rumberger Kirk and Caldwell PC represented Pemco.
Kirkland & Ellis LLP represented Boeing.
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Full text at http://src.bna.com/mU2.
This story has been corrected to reflect changes in comments.
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