C & M Oil Co. v. Citgo Petroleum Corp.
C & M Oil Co. v. Citgo Petroleum Corp.
2007 WL 9751801 (S.D. Fla. 2007)
February 28, 2007
Simonton, Andrea M., United States Magistrate Judge
Summary
CITGO failed to produce audit documents, marketing documents, and anti-trust documents in a timely fashion, and recycled Mr. Jones' computer and “wiped” all of his previously deleted emails, and returned Mr. Watson's hard drive to the manufacturer without preserving it. The Court found that CITGO had an obligation to preserve these ESI, and imposed sanctions accordingly for their bad faith conduct.
C & M OIL COMPANY, Plaintiff,
v.
CITGO PETROLEUM CORPORATION, and SUNSHINE GASOLINE DISTRIBUTORS, INC. Defendants
v.
CITGO PETROLEUM CORPORATION, and SUNSHINE GASOLINE DISTRIBUTORS, INC. Defendants
CASE NO. 04-22901-CIV-HIGHSMITH/SIMONTON
United States District Court, S.D. Florida
Entered on FLSD Docket February 28, 2007
Simonton, Andrea M., United States Magistrate Judge
REPORT AND RECOMMENDATION ON PLAINTIFF’S MOTION FOR SANCTIONS AGAINST DEFENDANT CITGO OIL
*1 Presently pending before this Court is Plaintiff C&M Oil’s Motion for Sanctions against Defendant CITGO (DE # 177), as supplemented in May 2006 (DE ## 389-93), after additional discovery was conducted. Defendant CITGO has filed an Opposition to the Motion for Sanctions (DE # 198) and a Response to Plaintiff’s Motion to Supplement the Record (DE # 394). This matter was referred to the undersigned Magistrate Judge for a Report and Recommendation (DE # 375).
An evidentiary hearing was held on Sepetember 6, 7, and 13, 2006;[1]following which the parties submitted post-hearing briefs (DE ## 434, 436, 438, 439). Thereafter, closing arguments were held on January 16, 2007. The gravamen of Plaintiff’s Motion is that CITGO has failed to comply with the Court’s discovery orders, has obstructed the discovery process, and has allowed for the spoliation of evidence. Plaintiff contends that CITGO has acted willfully and in bad faith, and has prejudiced Plaintiff to such an extent that a default should be entered against CITGO, and that Plaintiff should be awarded attorneys fees and damages. In opposition, CITGO contends that the evidence establishes that it acted in good faith at all times, that any failure to provide discovery was inadvertent, and that Plaintiff has not been prejudiced by any of the matters about which it complains. CITGO contends that C&M is seeking to use discovery sanctions to avoid the weakness in its case on the merits.
Based upon a careful examination of the evidence presented at the hearing, which includes the record of prior proceedings in this Court, the undersigned finds and concludes that CITGO has acted in willful and bad faith disregard of its discovery obligations and the orders of this Court. Throughout this litigation, CITGO resisted discovery and also repeatedly claimed that all relevant documents had been produced, when these representations were undeniably false. CITGO’s claims that its discovery failures were inadvertent is not credible. Based upon the nature of the misconduct and the prejudice suffered by Plaintiff, the undersigned finds and concludes that the least appropriate sanction necessary to compensate Plaintiff, punish CITGO and deter future misconduct, is the entry of a default judgment as to liability with respect to the claims under the Robinson-Patman Act and the Florida Motor Fuel Marketing Practices Act. This will leave for trial against CITGO the issues of damages as to those claims, and liability as well as damages as to the state common law claims. Sunshine is not the subject of the motion for sanctions, and therefore all claims will proceed against Sunshine.[2]
*2 In the discussion which follows, the undersigned sets forth the legal framework for analysis, followed by a chronology of events which explains in detail the discovery process and the events which form the basis for this motion. The opinion then sets forth and summarizes the findings regarding discovery abuse as to each area– the failure to preserve information contained on the laptop computer hard drives of two key witnesses; the failure to produce an adequate corporate representative for deposition; the failure to produce audit documents; the failure to produce marketing and strategic planning documents; and the failure to produce anti-trust documents. Finally, there is an analysis of why the Court recommends the entry of a partial default judgment on liability based upon the determination that Defendant CITGO has engaged in abuse of the discovery process by lodging improper objections, resisting compliance with discovery orders, making false statements, failing to produce documents in a timely fashion, and failing to preserve evidence.
II. FRAMEWORK FOR ANALYSIS
It is clear that CITGO did not timely provide various documents and information requested in discovery. It is also clear that false statements were made to Plaintiff’s counsel and the Court. The primary issues in contention concern the reasons for these actions, and the appropriate remedy. Therefore, it is useful to set forth at the outset the framework by which the events detailed below will be analyzed.
A. Rule 37 of the Federal Rules of Civil Procedure
The primary source of authority for a District Court to issue sanctions against a part for abuse of the discovery process is Rule 37 of the Federal Rules of Civil Procedure. This rule, entitled, “Failure to Make Disclosure or Cooperate in Discovery; Sanctions,” expressly authorizes the court to issue sanctions for discovery violations, and specifies the available sanctions. It provides, in relevant part,
(b) Failure to Comply with Order....
(2) Sanctions by Court in Which Action is Pending. If a party ... fails to obey an order to provide or permit discovery ... the court in which the action is pending may make such orders in regard to the failure as are just, and among others the following:
(A) An order that the matters regarding which the order was made or any other designated facts shall be taken to be established for the purposes of the action in accordance with the claim of the party obtaining the order;
(B) An order refusing to allow the disobedient party to support or oppose designated claims or defenses, or prohibiting that party form introducing designated matters in evidence;
(C) An order striking out pleadings or parts thereof, or staying further proceedings until the order is obeyed, ... or rendering a judgment by default against the disobedient party;
....
In lieu of any of the foregoing orders or in addition thereto, the court shall require the party failing to obey the order or the attorney advising that party or both to pay the reasonable expenses, including attorney’s fees, caused by the failure, unless the court finds that the failure was substantially justified or that other circumstances make an award of expenses unjust.
This rule gives district judges broad discretion to fashion appropriate sanctions for violation of discovery orders. Malautea v. Suzuki Motor Company, Ltd., 987 F.2d 1536 (11th Cir. 1993). Rule 37 sanctions are imposed not only to prevent unfair prejudice to the litigants but also to insure the integrity of the discovery process. Sphinx Int’l, Inc., v. Nat’l Union fire Ins. Co. of Pitt., 2003 WL 24871000, at * 8 (M.D. Fla. March 21, 2003), citing Aztec Steel Co. v. Fla. Steel Corp., 691 F.2d 480, 482 (11th Cir.1982). In determining the appropriate sanction, the Court must consider whether “a less drastic but equally effective remedy could have been fashioned.” Sphinx, at *8, citing Aztec Steel Co. at 481-482.
However, as the Supreme Court has observed, “the most severe in the spectrum of sanctions provided by statute or rule must be available to the district court in appropriate cases, not merely to penalize those whose conduct may be deemed to warrant such a sanction, but to deter those who might be tempted to such conduct in the absence of such a deterrent.” Nat’l Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 643 (1976).
*3 Thus, the magnitude of sanctions awarded is bounded under Rule 37only by that which is “reasonable” in light of the circumstances. Carlucci v. Piper Aircraft Corp., 775 F. 2d 1440 (11th Cir. 1985). Permissible purposes of sanctions include: 1) compensating the court and other parties for the added expense caused by the abusive conduct; 2) compelling discovery; 3) deterring others from engaging in similar conduct; and 4) penalizing the guilty party or attorney. Id. citing Roadway Express v. Piper 447 U.S. 752, 764 (1980); National Hockey League, 427 U.S. at 643; Aztec Steel, 691 F.2d at 482.
In the case at bar, Plaintiff has sought sanctions against Defendant CITGO in the form of an entry of a default judgment as to liability. Federal Rule of Civil Procedure 37(b)(2)(C) clearly authorizes such a remedy. The Eleventh Circuit has explained, however, that although the rule gives broad discretion to impose appropriate sanctions, that discretion is not unbridled. In Malautea, supra. at 1542, the Court provided guidance regarding the imposition of the ultimate sanction: “[A] default judgment sanction requires a willful or bad faith failure to obey a discovery order. Societe Internationale pour Participations Industrielles et Commerciales v. Rogers, 357 U.S. 197, 212 (1958). Violation of a discovery order caused by simple negligence, misunderstanding, or inability to comply will not justify a Rule 37 default judgment or dismissal. In re Chase and Sanborn Corp., 872 F.2d 397, 400 (11th Cir.1989) (inability to comply); Equal Employment Opportunity Comm’n v. Troy State Univ., 693 F.2d 1353, 1357 (11th Cir.1982) (simple negligence or misunderstanding).... The severe sanction of a dismissal or default judgment is appropriate only as a last resort, when less drastic sanctions would not ensure compliance with the court’s orders. See Navarro v. Cohan, 856 F.2d 141, 142 (11th Cir.1988).”
In application of these principles, in Malautea, the Eleventh Circuit affirmed the District Court’s sanction of striking the answers of the defendants and entering a default judgment where the defendants repeatedly abused the discovery process. Id. at 1538. Prior to entering the default judgment, the district judge held a hearing, after which he concluded that the defendants had used a number of techniques to obfuscate the truth, including: 1) improperly objecting to interrogatories on the grounds that certain terms were not defined despite the fact that the terms were unambiguous; 2) resisting compliance with discovery orders by limiting the question to a narrower field; 3) failing to produce certain court-ordered materials; and 4) deliberately covering up damaging evidence by answering certain interrogatories in a misleading, if not false, manner. Id at 1540-41. The appellate court rejected the defendants’ argument that their failure to comply with the trial court’s discovery order was due, in part, to a misunderstanding of the orders and instead, concurred with the district judge that less harsh sanctions would not have changed the defendants’ behavior. Id. at 1543-44.
In contrast, in Southeast Banking Corp. v. Basett, 204 F. 3rd 1322 (11th Cir. 2000), the appellate court reversed the lower court’s entry of a default judgment for discovery violations where the trial court failed to consider lesser sanctions. Id. at 1334. The reviewing court found that the trial court had abused its discretion, particularly since the sanctioned parties had not chosen their own representation, and there was no evidence in the record to indicate that the sanctioned parties, as opposed to their counsel, had participated in any misconduct. Id.
*4 Reviewing courts have also found an abuse of discretion where a trial court dismisses a case for discovery violations where the party’s failure to comply is due to confusion or a misunderstanding of the court’s order rather than bad faith or a callous disregard of an order, if the prejudice to the innocent party is not significant. See E.E.O.C. v. Troy State Univ., 693 F. 2d 1353, 1358 (11th Cir. 1982)(en banc); Accord Searock v. Stripling, 736 F. 2d 650 (11th Cir. 1984) (stating whether other party’s preparation for trial was substantially prejudiced is consideration for dismissal under Rule 37).
B. The Inherent Authority of the Court
In addition to the authority expressly provided by Rule 37 with respect to discovery practices, the court has an inherent power to regulate litigation and sanction the parties, as well as their counsel, for abusive practices. Telectron, Inc. v. Overhead Door Corp., 116 F.R.D. 107, 126 (S.D. Fla. 1987), citing Roadway Express, Inc. v. Piper, 447 U.S. 752, 765 (1980). These powers include the inherent authority to enter default judgment for destruction of evidence. As stated by the Court in Telectron, Id. at 127; quoting Wm. T. Thompson v. General Nutrition, 593 F. Supp. 1443, 1455 (C.D. Cal. 1984):
Sanctions may be imposed against a litigant who is on notice that documents and information in its possession are relevant to litigation, or potential litigation, or are reasonably calculated to lead to the discovery of admissible evidence, and destroys such documents and information. While a litigant is under no duty to keep or retain every document in its possession once a complaint is filed, it is under a duty to preserve what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery, and/or is the subject of a pending discovery request.
Accord Banco Latino, S.A.C.A. v. Gomez Lopez, 53 F. Supp. 2d 1273 (S.D. Fla. 1999).
These principles apply equally to the destruction of electronic evidence and its preservation for purposes of litigation, as recognized by the Court in Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004), a case cited by both Plaintiff and CITGO. The Zubulake court described the scope of a party’s obligation to preserve electronic evidence as follows:
Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a “litigation hold” to ensure the preservation of relevant documents. As a general rule, that litigation hold does not apply to inaccessible backup tapes (e.g., those typically maintained solely for the purpose of disaster recovery), which may continue to be recycled on the schedule set forth in the company’s policy. On the other hand, if backup tapes are accessible (i.e., actively used for information retrieval), then such tapes would likely be subject to the litigation hold.
Id. at 217.
However, in the Eleventh Circuit, an adverse inference is drawn from a party’s failure to preserve evidence only when the absence of that evidence is predicated on bad faith. Bashir v. Amtrak, 119 F. 3d 929 (11th Cir. 1997)citing Vick v. Texas Employment Comm’n, 514 F.2d 734, 737 (5th Cir.1975). Mere negligence in losing or destroying the records is not enough for an adverse inference, as it does not sustain an inference of consciousness of a weak case. Id. (citations omitted). As noted by this Court in Banco Latino, S.A.C.A. v. Gomez Lopez, 53 F. Supp. 2d 1273, 1277 n.3 (S.D. Fla. 1999):
*5 [Plaintiff] argues that sanctions are appropriate because [Defendant] was negligent or reckless with respect to the spoliation of the evidence. [Plaintiff] cites several cases from other jurisdictions wherein courts have sanctioned a party for negligence in connection with the preservation of evidence. (Citations omitted). This Court will not, however, disregard Eleventh Circuit precedent which clearly imposes a requirement of bad faith for the imposition of sanctions in connection with the destruction of evidence.
In sum, under both Rule 37 and the inherent authority of the Court, the first determination to be made is whether CITGO’s discovery conduct was undertaken wilfully or in bad faith. If so, the Court must determine whether the appropriate sanction is entry of default, or whether there is a lesser, alternative sanction that will accomplish the “triple objectives of fairly compensating [Plaintiff] for the prejudice worked upon it by [CITGO’s] wrongdoing, punishing [CITGO] for its misconduct, and deterring future similar acts of willful disregard for the rules of discovery.” Telectron, supra.,116 F.R.D. at 135.
Finally, it is important to recognize the strong preference for a determination on the merits of a dispute. “The broad discretion of the district court to manage its affairs is governed, of course, by the most fundamental safeguard of fairness: the Due Process Clause of the Fifth Amendment. To comply with the Due Process Clause, a court must impose sanctions that are both ‘just’ and ‘specifically related to the particular ‘claim’ ”or defense affected by the misconduct. Serra Chevrolet, Inc. v. General Motors Corp., 446 F.3d 1137, 1151 (11th Cir. 2006), (internal citation omitted) quoting Ins. Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 707 (1982). Thus, for example, if there is no nexus between the information destroyed or not produced and Plaintiff’s claim or Defendant’s defense, it would not be appropriate to enter a default.
The following chronology of events. which describes CITGO’s offending conduct, is set forth below with these principles in mind.
III. CHRONOLOGY OF EVENTS
A. Introduction
The resolution of the Motion for Sanctions requires an analysis of when CITGO was on notice of C&M’s claims in the case at bar, as well as when certain discovery items were requested, and were ordered to be produced. The Court’s determination that entry of a default as to liability on Counts I, II and III of the Complaint is based on the progression of events and the persistent misstatements and discovery deficiencies, which continued through the evidentiary hearing on the sanctions motion. It is the series of events, and the totality of the discovery process that has led the Court to conclude, reluctantly, that CITGO has deliberately thwarted the discovery process in an effort to hide relevant information and prevent Plaintiff from exploring relevant areas regarding the functional equivalence and availability of the pricing formula given to Plaintiff’s competitor, and whether CITGO’s motive in offering the challenged pricing formula to the competitor was a good faith offer to meet competition. Therefore, a detailed chronology is set forth below.
B. The Stage is Set in Prior Litigation
Prior to the instant litigation, Plaintiff C&M Oil and Defendant CITGO were involved in litigation wherein C&M Oil sued CITGO for breach of contract for the unreasonable withholding of consent for C&M Oil to assign its Distributor Franchise Agreement to two third parties. (See generally, Case No. 03-23401-CIV-COOKE). The events that occurred in the prior litigation are relevant to the issues presented in the presently pending Motion for Sanctions because those events placed CITGO on notice regarding the need to preserve evidence with respect to the claims made in the present case.
*6 C&M filed its lawsuit in the prior litigation in state court on November 17, 2003. The case was subsequently removed to federal Court based upon diversity of citizenship jurisdiction. In that case, on July 21, 2004, the parties filed a Joint Status Report After Reassignment which stated, “C&M may file related actions or seek to bring additional claims alleging price fixing and/or anti-trust violations.” (Case No. 03-23401-CIV-COOKE, DE # 55 at ¶ 7). On August 6, 2004, Plaintiff C&M Oil sought to amend the complaint to include, inter alia, allegations of violations of the Robinson-Patman Act related to Sunshine Gasoline Distributors and a tortious interference claim against third-party Sunshine. (Case No. 03-23401-CIV-COOKE, DE #62). On September 1, 2004, Defendant CITGO filed an Opposition to Plaintiff’s Motion to Amend Complaint, asserting that in the March 12, 2004 deposition of Max Alvarez, the principal of Sunshine Gasoline Distributors, Plaintiff’s counsel “explored the details of Sunshine’s franshise (sic) relationship with CITGO and the terms under which Sunshine purchased fuel from CITGO for resale” and therefore Plaintiff was aware “[b]y the end of the first deposition ... that the terms at which Sunshine purchased fuel from CITGO were different ... than those for C & M.”(Case No. 03-23401-CIV-COOKE, DE # 75 at 4). On October 14, 2004, the Plaintiff’s motion to amend the complaint was denied. (DE # 101).
On November 1, 2004, after a mediation, the parties entered into a settlement agreement. (Case No. 03-23401-CIV-COOKE, DE #117, Mediation Settlement Agreement). The Settlement Agreement expressly provided that C&M Oil had given notice of its intent to pursue the claims against Sunshine Gasoline Distributors in a separate action. (Case No. 03-23401-CIV-COOKE, DE # 117, Mediation Settlement Agreement at 2).
C. The Claims Asserted in the Case at Bar
In this case at bar, C&M filed its Complaint against CITGO and Sunshine on November 16, 2004, alleging illegal price discrimination in violation of the Robinson-Patman Act, violation of Florida’s Motor Fuel Marketing Act, and other causes of action arising under state law (DE # 1). At present, the operative pleading is a seven-count Amended Complaint against CITGO and Sunshine, seeking damages based upon alleged price discrimination in violation of the Robinson-Patman Act, 15 U.S.C. § 12 et seq. against both defendants (Count 1); unlawful price discrimination in violation of Florida’s Motor Fuel Marketing Practices Act, Fla. Stat. § 526.301 et seq. against both defendants (Count 2); unlawful offers of rebates in violation of Florida’s Motor Fuel Marketing Practices Act, Fla. Stat. § 526.308 against CITGO (Count 3); breach of contract against CITGO (Count 4); tortious interference with the contract between C&M and CITGO against defendant Sunshine (Count 5); tortious interference with a contract between C&M and non-party Perez Certified Auto Center (“Perez Auto Center”) against both defendants (Count 6); and conspiracy to tortiously interfere with the contract between C&M and non-party Perez Auto Center against both defendants (Count 7) (DE # 30).
The Amended Complaint alleges that at all material times, C&M was in the business of distributing CITGO lubricants and CITGO gasoline to retail gasoline stations. This business was accomplished through a Distributor Franchise Agreement (“DFA”) between C&M and CITGO. Defendant Sunshine also distributed CITGO products and was a direct competitor of C&M. During the relevant time period through the end of 2003, C&M also had a contract with Perez Auto Center under which C&M supplied gasoline to Perez Auto Center. Plaintiff alleges that between the years of November 1999 and 2004, Defendant CITGO favored Defendant Sunshine over C&M Oil in the granting of new gas stations and gas prices as part of an overall plan to eliminate competition amongst independent CITGO distributors. (DE # 30 at ¶¶ 29-30, 60, 62-65).[3] These were the same allegations that C&M Oil sought to add to its Complaint in the previous breach of contract action in August of 2004. (03-23401-CIV-COOKE, DE ## 66, 69).
D. The Commencement of Discovery and Pre-trial Proceedings
*7 On February 11, 2005, Plaintiff served its First Request for Production (Ex. WWW)[4] which sought, inter alia, documents referring, reflecting or relating to whether price terms structured similarly to those offered to Sunshine were “functionally equivalent” to price terms offered to distributors who purchases CITGO fuels at rack prices (Item 5.j); considerations, criteria or circumstances as to whether different prices for CITGO branded fuels could be considered functionally equivalent even though the actual price directly charged to two different distributors may differ (Item 5.m); the circumstances and criteria to be considered or utilized in determining whether a price of branded CITGO fuels could be lowered or set below the price offered to other distributors in order to meet competition (Item 5.l); and marketing and strategic plans proposed or in effect for the Southeast Region of the United States including documents that set forth goals for the sale of branded CITGO fuels based upon the amount of gallons to be sold broken down by any and all categories utilized by CITGO, any statement of goals or policies setting forth in general the manner or objectives relating to the sales of CITGO branded fuels, other than strictly by gallons, i.e. by number or characteristic of retail locations, number or characteristic of distributors (Ex. WWW, Item 5.n.).[5]
On March 23, 2005, CITGO served its response, in which it objected to each of these requests on the grounds that the request was “vague, ambiguous, and confusing,” but stated that it would produce responsive documents subject to its General Objections (Ex. BBBB). CITGO lodged nine general objections, many of which were meaningless and served only to confuse what was being produced. For example, CITGO objected “to the extent it purports to impose requirements beyond those required by the Federal Rules of Civil Procedure (Objection 1); “to the extent that it seeks information protected from disclosure by the attorney-client privilege, the work product doctrine, or any other applicable privilege or doctrine” (Objection 5); and “to the extent it seeks documents that are not relevant to the subject matter of the pending action and not reasonably calculated to lead to the discovery of admissible evidence” (Objection 6). CITGO also objected to the extent that Plaintiff sought production of documents reflecting activities that did not relate to C&M’s market, which it defined as the market for light oils in Palm Beach, Miami-Dade, Broward and Monroe Counties (Objection 9). Throughout these proceedings, this was referred to as the “geographic objection.” (Ex. BBBB).
Plaintiff’s First Request for Production also sought numerous documents contained in the files of Jonathan Watson and Rick Jones, including all data stored on the hard drive of their computers, primarily related to the business dealings between Defendants Sunshine and CITGO. (Ex. WWW, Items 8 and 9).[6]
*8 CITGO responded to Requests 8 and 9 by asserting certain general objections, but also agreeing to produce responsive hard copy documents subject to the caveat that “In performing such production, CITGO will retrieve and print e-mails and other electronically generated documents maintained in the ordinary course of its business. CITGO objects to incurring the expense of hiring a computer consultant to retrieve any e-mails and documents that have been deleted from the hard drives of the referenced computers” (Ex. BBBB at 13-14).
On or about March 25, 2005, Mr. Jones turned in his laptop, which had been issued in November of 2002, pursuant to the three-year replacement cycle policy followed by CITGO. (DE # 383, Steele Depo. at 35, 45; DE # 430 at 173).
On April 5, 2005, a trial date was set for October 17, 2005 (DE # 24).
There were several attorneys involved in responding to discovery requests. The Eimer Stahl law firm was employed by CITGO as litigation counsel, and Mike Miller was the lead attorney until he retired from the law firm on December 31, 2005. Two other attorneys in the Eimer Stahl firm–Ryan Hedges and Scott Solberg–also participated in the discovery process. CITGO’s Assistant General Counsel in charge of litigation, Stephen “Jeff” Bednar, was CITGO’s in-house counsel who was involved with the discovery issues in this case (DE # 432, Bednar Test. passim and at 85). Finally, Jennifer Mustain, an attorney employed by the McQueen Rains and Tresh law firm, had the responsibility for coordinating discovery responses, and served as a liaison between the Eimer Stahl firm and CITGO employees. The McQueen law firm was described by Mr. Bednar as a “captive” law firm. When CITGO moved from Tulsa to Houston, there were seven attorneys in the legal department who did not want to move; they stayed behind and formed the McQueen law firm, but continued to do work for CITGO (Bednar Test. at 86). According to the testimony of Ryan Hedges, his practice was to send significant documents, and responses, to CITGO through Jennifer Mustain (Hedges Test. 9/13/06). Mr. Miller also confirmed that discovery matters were sent through Jennifer Mustain; and he had additional conversations directly with Jeff Bednar. With respect to the production of audit documents, the primary responsibility resided with Mike Miller, Scott Solberg and Jeff Bednar. Jeff Bednar arranged for Mr. Miller to have direct contact with the audit department in this regard (Mustain Depo. at 127; Hedges Test. 9/13/06; DE # 432, Bednar Test. at 36).
On April 8, 2005, Jennifer Mustain sent an e-mail to various CITGO employees which attached a memo outlining the document requests (Ex. V). The memo (Ex. D-2) had been prepared by lead counsel Mike Miller (Mustain Depo. at 37). On April 12, 2005, a meeting was convened by CITGO in Tulsa, Oklahoma, for the purpose of explaining the discovery requests to the persons who might have responsive documents (Mustain Depo. at 46).[7] The effectiveness of this meeting is questionable, however, as evidenced by the failure to timely produce numerous documents that were within the scope of the requests. For example, Mr. Jones and Mr. Watson produced only a small fraction of the responsive documents on their computers when they made their initial responses. Many thousands of additional documents were eventually produced only after a search was undertaken by counsel. Mr. Jones testified at the sanctions hearing that he was not given any instructions on how to conduct his search (DE # 430 at 187). No formal written litigation holds were issued to preserve documents; however, all responsible persons, including Mssrs. Jones and Watson, were told to preserve all information.
*9 The first batch of responsive documents was produced on April 20, 2005, with a notation that additional documents were forthcoming (Ex. GG).
On April 29, 2005, Jack Kelsey, the General Manager of Pricing for CITGO executed an Affidavit to support CITGO’s request for a Confidentiality Order (Ex. M; DE # 26, Ex. 17). A review of the Affidavit reveals the types of documents which CITGO expected to be produced during the course of discovery, and as to which CITGO contended it needed the protection of a Confidentiality Order. Mr. Kelsey averred that he and his staff were involved in negotiating prices and preparing marketing plans for CITGO. He explained how the marketing plans are prepared, and their sensitive nature. He also noted that “establishing and maintaining an ongoing relationship with large, competitively successful distributors” like Sunshine, was particularly important since CITGO did not have its own retail outlets; and that disclosure of information regarding the calculation of a formula price to a competitor of CITGO would enable that competitor to tailor a better offer, to CITGO’s disadvantage.
On May 14, 2005, Plaintiff served its Second Request for Production of Documents (Ex. XXX).
On May 16, 2005, Plaintiff filed a Motion to Compel Production of documents sought in its First Request for Production, and to extend pretrial deadlines (DE # 28).
Also on May 16, 2005, Plaintiff filed its Amended Complaint (DE # 30).
On June 16, 2005, Plaintiff took the deposition of Jack Kelsey. Mr. Kelsey described the activities of the alternative pricing committee, which was comprised of himself, Barry Fulda, Sylvia Brown, Michael Charba, Nancy Riggs, and Brad Roach (Kelsey Depo. at 33). This committee is responsible for reviewing, inter alia, proposals for entering into formula pricing agreements such as the one with Sunshine in the case at bar (Kelsey Depo. at 34-36). Mr. Kelsey testified that there was no formal procedure in place to formalize the decision making with respect to whether there is truly a competitive offer that would justify a formula price agreement (Kelsey Depo. at 53). He also testified that a formula price could be determined without a determination of whether there was a competitive offer, and that with respect to Sunshine, they had concluded there was a potential for a competitive offer (Kelsey Depo. at 57-58). In addition, he testified that the formula price offered to Sunshine in 1999 was not materially different than the price available under the rack price with the available IAP incentives (Kelsey Depo. at 61). Mr. Kelsey testified that the pricing department was audited approximately every two years, and that the last time it was audited was in 2004 (Kelsey Depo. at 90-94). During that audit, the procedures and activities of the alternative pricing department were examined. Mr. Kelsey testified that he did not know of an audit regarding the alternative pricing process prior to 2004, but that the prior audits involved “the day-to-day pricing process, the controls around that, to make sure that the customers are billed correctly.” (Kelsey Depo. at 92). He also testified that there were other audits that the pricing department was indirectly associated with, including the distributor franchise agreement audits and customer service audits. (Kelsey Depo. at 93). With respect to distributor franchise agreement audits, he testified that the auditors examined the controls and authorizations to determine that the contracts are signed by the right people (Kelsey Depo. at 93). Mr. Kelsey then confirmed that the alternative pricing committee had only been audited once, and that he was not aware of any audits of the actions of the product manager who had responsibility for those determination prior to the formation of the alternative pricing committee (Kelsey Depo. at 94).
*10 Defendant CITGO filed its Answer and Affirmative Defenses on July 11, 2005 wherein, among other things, it asserted that the CITGO price offered to Defendant Sunshine was a ‘good faith response by CITGO to meet competitive offers made to Sunshine by other companies selling gasoline to the public through distributors (DE # 80 at 15).
Plaintiff served its Third and Fourth Requests for Production on July 1, 2005, and July 27, 2005, respectively. The Third Request for Production sought, inter alia, “All documents from the year 1999 to the present that reflect or refer to any audit of the pricing department or the department that administered IAP payments related to any activities of the Pricing Department including but not limited to formula pricing, and the payment of IAP by Citgo and the administration of the IAP” (Ex. YYY). The Fourth Request for Production sought, inter alia, all documents created by, collected or maintained by Rick Jones and Jonathan Watson, regarding pricing targets and or pricing strategies for light oils, and related to marketing plans (Ex. ZZZ).[8]
On August 2, 2005, a hearing was held on an unrelated emergency motion by the defendants with respect to discovery from a non-party witness (DE # 98). On the same date, a hearing was set for August 10, 2005 on Plaintiff’s Motion to Compel (DE # 100).
On August 10, 2005, a lengthy hearing was held regarding various discovery disputes between Plaintiff and CITGO (Ex. VVV: Transcript DE # 111).[9] The undersigned issued oral rulings, which were incorporated into a written Order dated August 23, 2005 (Ex. IIII: DE # 120). In this order, the court ordered CITGO to produce “any documents which provide guidance or information regarding how CITGO calculates functional equivalence, or which apply to SUNSHINE.” The request for documents containing “any reference to or discussion of any information reflecting that price terms to be offered to or agreed to with Sunshine were based on any considerations as to competition” as well as documents regarding circumstances or criteria to be considered or utilized in order to determine whether a price should be lowered to meet competition, were deemed moot based on CITGO’s representation that all such documents had been produced. CITGO was ordered to produce any marketing or strategic plans for the Southeast Region, but the request was limited to the dates 1997 to the present, rather than the 1989 beginning date that Plaintiff requested.
In addition, based upon a review of the record, the Court determined that there was a good likelihood that there was significant relevant information contained in e-mails which had not been produced, and therefore there were likely to be deleted e-mails residing in the hard drives of the Jones and Watson laptop computers. At that time, the Court did not impute any bad motive for the deletions, but granted the request to compel a search for deleted e-mails on the laptop computers of Jones and Watson (DE # 111 at 122). The parties were directed to consult with respect to reaching agreement on the way that this search would be accomplished. In addition, Plaintiff requested a further discovery hearing with respect to issues concerning the other discovery requests, without the need for formal briefing. Therefore, a status conference was set for August 12, 2005, regarding the need for a further discovery hearing on this matter.
*11 At the hearing held on August 12th, the parties were directed to file a report on all outstanding discovery issues; and the matter was set for August 17, 2005, for a hearing on those issues (DE # 108).
On August 14, 2005, C&M Oil served its Report to Magistrate Judge of Outstanding Discovery Issues with CITGO (DE #114). With respect to the request for audit documents, C&M argued that production was required because CITGO had been unable to produce any documents setting forth the pricing policies and procedures, and the audit appeared to be the only document that would shed light on how pricing policies were implemented with respect to distributors (DE # 114 at 9). In response, CITGO stated:
These documents simply are not relevant to this dispute. As Jack Kelsey testified in his deposition, any such audits relate to whether these CITGO departments were billing customers correctly. See Kelsey Deposition, attached hereto as Exhibit E, at 90-93. In terms of “how pricing is actually implemented vis-à-vis the distributor,” the only thing such audits will show is if CITGO’s distributors were billed in accordance with the terms of their distributor franchise agreements. The audits [don’t] say anything about the setting of those terms. Simply put, such audits relate to CITGO’s internal controls, which are not the subject of C&M’s price discrimination lawsuit.
(DE # 114 at 9).
On August 17, 2005, a hearing was held on discovery issues related to Plaintiff’s Third and Fourth Requests for Production and the Report on Outstanding Discovery Issues.[10] At that hearing, C&M focused on the following issues.[11] The first issue concerned the completeness of the production of documents that CITGO agreed to produce. In this regard, the parties reached general agreement, and, counsel for CITGO noted that one of the problems with production was that certain data had been stored in a “legacy” computer system that had been replaced (DE # 121 at 65).[12]Another issue concerned the production of documents which would reflect efforts to provide formula pricing to large dealers to enable them to take over markets, and to decrease the total number of distributors (DE # 121 at 69-77). Mr. Miller stated that the testimony of all the witnesses established that there were no such planning documents because it was not CITGO’s plan (Id. at 69-70). The Court orally ordered that if there were any documents that discuss the desirability of providing formula pricing to large dealers to enable them to take over markets generally, those documents needed to be produced (DE # 121 at 71, 77).
*12 Finally, Plaintiff focused on the importance of receiving audit documents. In this regard, Plaintiff introduced as exhibits at the hearing e-mail messages in December 2000, in which the relevant parties discussed Sunshine’s formula pricing, and how the “auditors” would not like a particular formula, but CITGO’s manager stated, “As far as what auditors like, I like keeping and growing 70 million/yr customers and will use that as reasons to look at things differently than they do.” (DE # 121, Ex. 1). Therefore, Plaintiff disputed the claim that the only issue the auditors examined was whether the prices were correctly billed (DE # 121 at 81). Plaintiff also pointed to the deposition testimony of Mr. Kelsey, in which he stated that the audit committee had examined procedures (Id.).
With respect to the 2004 audit referenced in Mr. Kelsey’s deposition, Mr. Miller argued that it was not relevant because it had occurred three or four years after the 2001 re-negotiation of Sunshine’s formula price. He argued specifically, “that audit and what Mr. Kelsey describes as what I would regard as a routine function of an auditor to make certain that the contract calls for the price that is actually charged, is not going to add or detract at all from whether or not a formula price that was extended to Sunshine was one that was extended in good faith to meet it.” (DE # 121 at 88). When the Court questioned Mr. Miller as to whether there were other audits of the alternative pricing process, pointing to the somewhat ambiguous answer given by Mr. Kelsey, Mr. Miller responded that “this is his way of saying there was no audit of the process prior to 2004 (DE # 121 at 89). Mr. Miller acknowledged, however, that he had not reviewed the 2004 audit (DE # 121 at 90). Therefore, the Court ordered Mr. Miller to retrieve this audit and the relevant work papers, and for an attorney to review it to determine whether it was responsive to the request. If it only concerned proper billing procedures, such as whether invoices correctly reflected the proper price, then it did not need to be produced. However, if it concerned the proper setting of formula pricing and the proper procedures being used to determine formula pricing, then production was required (DE # 121 at 90-91). The Court was concerned about the sensitive nature of audit documents, and about the burdensomeness of requiring a company-wide search for audit documents. Therefore, the Court stated:
They are very sensitive documents. It is also burdensome to have to keep looking for things and producing things that are not relevant. However, it seems to me that the audits are easily retrievable. They may be lengthy. So what I am going to require you to do is obtain the audit. Now, it [the discovery request] says here, “All documents that reflect or refer to any audit of the pricing department.” That seems to me that could be very burdensome, but I am going to require you to obtain the audit documents that are maintained by the .... audit department. I am not going to require a search throughout Citgo nationally regarding any documents within anybody else’s possession that refers to any audit of the pricing department.
(DE # 121 at 90). The Court was also concerned about the ability of a non-lawyer to appreciate the relevance of information contained in the audit, and therefore the review was directed to be performed by counsel (DE # 121 at 94).
On September 2, 2005, the Court issued its Omnibus Discovery Order, which set forth the ruling regarding the production of relevant audits:
Item 4 seeks: “All documents from the year 1999 to the present that reflect or refer to any audit of the pricing department or the department that administered IAP payments related to any activities of the Pricing Department including but not limited to formula pricing, and the payment of IAP by Citgo and the administration of the IAP program.”Due to the sensitive nature of this information, and the claim that the audit and audit work papers will contain no relevant information regarding how prices were set, but also considering the exhibits produced at the hearing which indicate that there may be relevant information, and the fact that counsel has not reviewed those documents, counsel for CITGO is directed to retrieve and review the relevant audit report and audit work papers, and consult with counsel for Plaintiff regarding the results of that review. If the audit papers contain information regarding how price is determined, then that information shall be produced; however CITGO shall not be required to produce information such as whether there were sufficient controls to ensure that every invoice was properly prepared and recorded, and C&M has acknowledged that it is not interested in this type of information. The review need not be undertaken by counsel of record in this case, but may be undertaken by in-house counsel for CITGO who is familiar with the issues in this litigation. CITGO shall file a sworn Declaration or Affidavit which sets forth the review that was undertaken and the results of that review. If after the above review and further consultation the parties are unable to reach agreement, these documents may be the subject of a formal motion to compel.
*13 (DE # 130 at 2-3).
On September 6, 2005, the District Court granted a motion for modification of the existing scheduling Order, and reset the discovery deadline for December 8, 2005, and the trial date for March 27, 2006 (DE # 131).
On September 19, 2005, CITGO served on C&M, but did not file, its Status Report on Document Discovery and Request for Instructions. CITGO subsequently filed the Status Report on November 3, 2005 (Ex. R; DE # 169). In the report, counsel for CITGO specifically stated that the court-ordered review of the audit report and work papers had taken place, and that those documents did not review the practices of the pricing department with respect to formula pricing (DE # 169). It is clear now that this was not correct. This misrepresentation was repeated at a discovery hearing held on December 19, 2005; and was also urged at a hearing on February 24, 2006, as a basis for resisting further discovery requests regarding audits; and was repeated again when CITGO resisted producing the unredacted audit when it was subpoenaed for the evidentiary hearing on sanctions. In fact, no attorney reviewed the audit work papers. According to Mr. Miller, he spoke over the telephone to Eladio Perez, an audit manager in Houston, while Mr. Perez purported to examine the work papers. Contrary to the representations regarding the results of the review, as admitted by Mr. Miller at the sanctions hearing, those work papers contained documents which the Court had ordered to be produced. Miller acknowledged that his review of the work papers with Mr. Perez “was obviously not complete” since he had no recollection of discussing certain obviously relevant documents with Mr. Perez (DE # 432 at 170).
The undersigned finds that no significant review of the work papers ever occurred. When Mr. Perez was questioned at his deposition in March 2006, he testified that the first time he had been asked to search for audits was the week prior to his deposition. He responded to the question, “Had anybody ever talked to you at all about any audit documents prior to a week ago in relation to this case?” by answering, “No. No.... I wasn’t aware of any previous request from – to our department (Perez Depo. at 17). As a follow-up, C&M’s counsel asked again “When’s the first time you ever talked to any of the lawyers in this case about the audits that had been performed by the supply and marketing [department]?” Mr. Solberg, on behalf of CITGO, then made a lengthy statement cautioning the witness not to reveal any attorney-client privileged communications, and Perez never answered this question (Perez Depo. at 18-20). The significance of this question did not become apparent until the testimony at the sanctions hearing at which Miller admitted that he did not conduct the court-ordered review of the work papers, but that the review had been performed telephonically, with Mr. Perez being the person who actually looked at the work papers.
Mr. Miller sought to justify what he characterized at the sanctions hearing as “not literal compliance” on two grounds (DE # 432 at 154). First, he claimed that he needed to concentrate his efforts on what he “admit[s] ... was the tardy production of responsive documents from Mr. Jones and Mr. Watson’s files (DE # 432 at 153). Next, he claimed that he believed there would be a further motion to compel and at that time there would be a further determination of whether the documents were producible (DE # 432 at 154).
*14 Between September and November 2005, CITGO produced voluminous documents that were responsive to the earlier requests for production, including more than 10,000 documents which were located in the e-mails from Jonathan Watson’s computer (See Exs. GGG and HHH).
On November 4, 2005, Plaintiff served its Fifth Request for Production of Documents (Ex. AAAA). Plaintiff’s Fifth Request for Documents primarily sought documents that already had been requested in Plaintiff’s earlier requests, but which had not been produced. It also sought information relevant to a determination of whether CITGO had complied with previous discovery requests (DE # 203 at 2). With respect to audits, to clarify that all relevant audits had been requested, and not just the one which Mr. Kelsey had identified at his deposition, Plaintiff expressly sought, in item 10, all audits and work papers primarily related to formula pricing agreements and competitive discounts and offers (Ex. AAAA at 7-8; DE #203, Ex. B, pg. 8). CITGO timely responded to said Request on December 6, 2005 and specifically responded to the audit request stating:
CITGO objects to Request No. 10 on the ground that it is unduly burdensome, duplicative and harassing because the Court has already ruled that (i) the only audit that is relevant to this litigation is the audit of the pricing department that Jack Kelsey identified in his deposition and (ii) the only possibly relevant information contained in that audit and its accompanying audit workpapers is “information regarding how price is determined ....
.... In compliance with the Court’s order, CITGO’s counsel reviewed such audit and workpapers and affirmed that they contained no information regarding determination of formula pricing for CITGO-branded gasoline.
(FFFF at 8-9).
On November 14, 2005, Plaintiff filed a Motion for Sanctions against CITGO for its failure to comply with discovery requests and also filed a Request for Evidentiary Hearing regarding same (DE ## 176, 177). In its Motion, Plaintiff alleged that CITGO had spoiled evidence, deliberately obstructed and delayed the discovery process, and failed to comply with this Court’s orders (DE # 177). Plaintiff sought sanctions specifically in the form of entry of default judgment and an award of attorneys’ fees. In its Request for Evidentiary Hearing, Plaintiff requested that the Court order CITGO to produce several witnesses, including lead trial counsel, and produce documents that pertained to the procedures used by CITGO in responding to Plaintiff’s discovery requests.
On December 8, 2005, Plaintiff filed its Second Motion to Compel seeking documents responsive to Plaintiff’s Fifth Request for Documents and to compel better answers to Plaintiff’s Interrogatories (DE # 203). On December 23, 2005, Defendant CITGO filed its response to Plaintiff’s Second Motion to Compel (DE # 232).
On December 19, 2005, the Court held a hearing on various pending discovery issues concerning both Sunshine and CITGO (DE #234). Although the issue concerning compliance with the Fifth Request for Production was deferred, with respect to the production of audit documents, Mr. Miller emphasized that he had “fully complied with the terms of the order in regard to the verification of what is in that audit and what is not in that audit,” and that he found it “a little disturbing, on a personal level, to have my integrity impugned by suggesting that I am somehow covering up.” (DE # 234 at 68). This statement belies his testimony at the evidentiary hearing that he believed the issues regarding his noncompliance would be resolved in connection with an anticipated motion to compel. The rulings made at this hearing were set forth in a subsequent written order (DE # 302).
*15 On January 13, 2006, the parties filed cross-motions for partial summary judgment (DE ## 257, 258), which were subsequently denied (DE # 437).
On February 24, 2006, the Court held a hearing on various discovery issues including Plaintiff’s Second Motion to Compel related to Plaintiff’s Fifth Request for Production of Documents (DE # 388). On February 27, 2006, the Court issued its Order on Discovery Motions granting in part Plaintiff’s Second Motion to Compel and ordering CITGO to, inter alia, produce all audits and work papers related to formula pricing and competitive discounts as to the relevant geographic area and to produce a Rule 30(b)(6) deponent to testify about various discovery compliance issues. (DE # 345).
Subsequent to the hearing, in March 2006, Plaintiff deposed several 30(b)(6) corporate representatives, and Defendant CITGO produced two redacted audit reports. The first, dated August 20, 2003, is entitled, “Branding & Image Improvement Programs and Branded Sales Operations Audits” (Ex. Z). The scope of this audit included Branding and Image Allowance Program (IAP) activities during the period January 2001 through December 2002, and Branded Sales Operations during January 2001 to March 2003 (Ex. Z at CIT-AUD-0002). This audit report was distributed, inter alia, to Jeff Bednar, Marty Sedlacek and Jonathan Watson (Ex. Z at CIT-AUD-0001).
The second audit, dated April 3, 2005, is entitled “Distributor Franchise Agreements Audit” (Ex. AA). The scope of this audit included activities and transactions from January 1, 2003 to September 2004. The objectives included, inter alia, determining whether “branded marketers profit margins were adequately calculated, analyzed, reported, monitored, and evaluated;” whether “the economic analyses for Formula Pricing Marketers were performed on a timely basis to ensure proper CITGO’s profitability and to respond to market changes;” and to determine that “DFAs, Addendums and Amendments were properly approved, documented, and accurately transmitted to the Marketers” (Ex. AA at CIT-AUD-0145). The audit included specific information regarding the economic analysis required to be performed prior to entering into formula pricing agreements (CIT-AUD-0148), and included specific references to Sunshine (See, e.g., CIT-AUD-0191 to -0200). This audit was transmitted on April 3, 2005, by Eladio Perez to, inter alia, Jeff Bednar, Sylvia Brown, Michael Charba, Barry Fulda, Jack Kelsey, Marty Sedlacek and Brad Roach;[13] these are the same persons who were identified by Jennifer Mustain, that same month, as persons who should assist in gathering documents responsive to the discovery requests in the case at bar, and most of whom attended the discovery meeting in Tulsa on April 12, 2005.
This audit included specific recommendations regarding formula pricing agreements. For example, it stated, “we recommend that Management, prior to approving any Competitive Allowance Agreements, ensure that the information related to the offer received by the Marketer is included in the agreement in order to ensure the proper documentation of the discounts approved and also to obtain the respective certification from the Marketers that they actually received the referred offer” (Ex. AA at CIT-AUD-0163; Perez Depo. at 35). The work papers which related to this finding were not produced, although at the Perez deposition, counsel for CITGO represented that they had reviewed all audit documents and had produced those that were responsive (Perez Depo. at 39-40). The audit also included a checklist for approving formula prices, bearing a revision date of 5/9/2003 (Ex. AA at CIT-AUD-0321).
*16 Eladio Perez testified that these types of audits were prepared regularly, in accordance with a cycle (Perez Depo. at 27). When asked if there was an audit that preceded these two audits, he testified that he did not know because it preceded his time in the audit department (Perez Depo. at 61-62). However, no effort was made to locate these earlier audits until immediately before the sanctions hearing, when the Court ordered production of a list of all audits from 1998 to the present.
On April 7, 2006, the District Court entered an Order resetting the trial for November 6, 2006. The Order expressly stated that all expired deadlines remained in place (DE # 376).
On May 18, 2006 Plaintiff filed its Motion to Supplement the Record regarding its Motion for Sanctions, as well as filing various exhibits (DE ## 389-393). CITGO did not oppose supplementation of the record, although it maintained its position that sanctions were not warranted (DE # 389). The motion to supplement the record was granted (DE # 396). An evidentiary hearing was set, and was continued twice at the request of CITGO due to conflicts (DE ## 410, 411, 418, 419).
On August 23, 2006, C&M Oil issued subpoenas to CITGO for the production of documents and noticed certain witnesses for the evidentiary hearing. The requested documents included unredacted copies of certain audits performed by CITGO which had been produced in redacted form. CITGO filed a motion to quash the subpoena, objected to certain witnesses, and objected to the production of certain audit documents (DE ## 414, 415, 416). Plaintiff then filed an Emergency Motion to Compel Production of Documents (DE # 417).
On September 1, 2006, after a telephonic hearing, the Court ordered Defendant CITGO to produce, by the close of business, the audit documents listed in Plaintiff’s Emergency Motion to Compel Production of Documents (DE # 423). Defendant CITGO then produced four unredacted audits and work papers. Two of the audits had been produced initially in March 2006 in connection with the discovery ordered following the initial Motion for Sanctions–the previously discussed Branding & Image Improvement Programs and Branded Sales Operations Audits, dated August 20, 2003 (Ex. TTT-1);[14] and, the Distributor Franchise Agreements Audit, dated April 3, 2005 (Ex. TTT-2).[15]
In addition, CITGO produced the Light Oils Pricing Audit report dated September 28, 2004, which was the audit previously ordered by the Court in August 2005 to be reviewed for responsiveness (Ex. LLLL). The fourth audit produced was a Billing, Pricing and Refined Product Purchases and Sales Audit report dated March 20, 2001, which had not previously been produced (excerpts of which are contained in Ex. KKKK-1 through KKKK-10). Both of these audits contained information responsive to Plaintiff’s third and fifth requests for production, and should have been produced prior to the close of discovery in this case.
*17 Despite Mr. Miller’s claim to the contrary, even a cursory review of the 2004 Light Oils Pricing Audit demonstrates that it was clearly within the scope of the request for production granted by the Court in August 2005. The audit examined activities from January 2001 through June 2003. The objectives included examination of whether price and pricing changes were properly approved and documented and whether CITGO’s pricing strategies were being met (Ex. LLLL at CIT-AUD-0721). The background section of the audit described the formula pricing process, which applied to Sunshine as well as other distributors (Ex. LLLL at CIT-AUD-0722). Mr. Miller sought to justify his failure to turn over the audit report based upon his determination that Sunshine was not included in the test sample and that there were no findings that the process was not being followed by the alternative pricing committee or the pricing department (DE # 432 at 174). Mr. Miller claimed that even though the audit report provided general information on how formula pricing was determined, and that those procedures would apply to Sunshine, and that the time frame of the audit was within the time frame of this litigation, the audit report did not fall within the scope of the request for production (DE # 432 at 175). The Court concludes that Mr. Miller decided to disregard the Court’s order because he did not agree with it (DE # 432 at 179). Moreover, the fact that the audit report clearly shows that the process for determining formula prices was examined makes the failure to examine the work papers even more egregious.
In addition, a list of audits from 1998 to the present was produced (Ex. UUU). Mr. Hedges testified that this list was compiled in September 2006, based upon this Court’s Order. As a result of compiling and reviewing this list, they discovered the audit marked as Exhibit KKKK-1 through KKKK-10 (DE # 433 at 60). Mr. Hedges reviewed the list of audits telephonically with Mr. Perez, but did not know if Mr. Perez examined the audits to determine if they contained responsive information, or whether Mr. Perez relied upon his familiarity with the audits (DE # 433 at 86-87).[16] Exhibit KKKK-10 was not produced until September 12, 2006, in the middle of the sanctions hearing. This document, which reflects an anti-trust meeting with Jeff Bednar on July 25, 2000, and includes a discussion of training with respect to compliance with anti-trust laws, and references Sunshine and its formula pricing benchmark, was located in storage at an off-site (DE # 433 at 96-97). It is troubling that CITGO was aware of this 2001 audit prior to the September 1, 2006, hearing on their motion to quash the subpoena, but did not disclose its existence until after that hearing, although Mr. Hedges testified that CITGO intended to produce it prior to the sanctions hearing. It is also troubling that although CITGO had a record that documents which were part of this 2001 hearing were located in storage, and that Mr. Perez had made a request to obtain those documents, it was not until September 12, 2006, that the documents were disclosed (DE # 433 at 97).
Mr. Hedges testified that CITGO was very concerned about disclosing highly confidential information regarding formula pricing due to the absence of a formal confidentiality order and also because they were concerned “that Mr. Xanttopoulos had been fishing for a class action lawsuit” (DE # 433 at 114, 120-21). Similar concerns had been expressed by Mr. Jones when he testified as to certain contacts by distributors, believing that Mr. Xanttopoulos was trying to have them join this lawsuit.
On September 6, 7, and 13, 2006, the court held an evidentiary hearing on Plaintiff’s Motion for Sanctions. At the hearing, Plaintiff presented the testimony of Stephen “Jeff” Bednar, Michael Miller, Richard Jones, Arieh Davidoff and Ryan Hedges. In addition, Plaintiff relied upon the deposition testimony of Jennifer Mustain, Eladio Perez, Jack Kelsey, and Jonathan Watson, as well as numerous exhibits. CITGO relied upon its cross-examination of the above witnesses, and the deposition testimony of Brian Steele and Sylvia Brown, as well as various exhibits. It is clear beyond cavil that documents which were requested in discovery, and which the Court ordered to be produced, were not timely produced; that inaccurate statements were made to the Court and Plaintiff’s counsel; and, that additional responsive documents were produced as late as during the middle of the evidentiary hearing (See DE # 433 at 96). It is also clear that the hard drives on the laptop computers of CITGO employees Jonathan Watson and Rick Jones were not preserved for forensic examination, but were recycled. The dispute centers on the reasons for the nonproduction, whether there is any resulting prejudice, and the appropriate sanction, if any. The testimony of the relevant witnesses, and credibility determinations, are discussed in connection with each of the alleged areas about which Plaintiff complains.
*18 At the conclusion of the hearing, a post-hearing briefing schedule was established, and closing arguments were set for October 6, 2007. This date was continued at the request of the parties until October 10, 2007 (DE # 435). Thereafter, the hearing was cancelled due to an extended illness of the undersigned Magistrate Judge, and was finally heard on January 16, 2007.
On October 18, 2006, the District Court continued the trial in this case until March 5, 2007, based upon the pendency of the Motion for Sanctions (DE # 451).
IV. FINDINGS REGARDING DISCOVERY ABUSES
The areas which form the basis for the motion for sanctions are: the failure to preserve the hard drives which would enable recovery of potentially responsive deleted e-mails of Rick Jones and Jonathan Watson; the failure to comply with orders to review and produce audit documents; and the withholding of planning, marketing and anti-trust documents, which was compounded by the failure of CITGO to produce an adequate 30(b)(6) witnesses.
A. Failure to Preserve Hard Drives and Deleted E-Mails of Mr. Jones and Mr. Watson
1. Introduction
Throughout the course of discovery, C&M has alleged that the Defendant CITGO failed to preserve the hard-drives and e-mails contained therein of Mr. Jones and Mr. Watson despite the fact that Defendant was on notice that such information would be relevant to this case.
As noted above, Plaintiff filed its First Request for Production on February 11, 2005 which specifically requested the data on the hard drives of Mr. Jones’ and Mr. Watson’s laptops. On March 7, 2005, all parties, including Defendant CITGO served their respective Initial Disclosures pursuant to Fed. R. Civ. Pro. 26(a)(1), wherein each party identified Rick Jones and Jonathan Watson as two of five CITGO employees possessing potentially discoverable information.
On March 23, 2005, Defendant CITGO served its responses to Plaintiff’s First Request for Production and provided the following objection in response to the requests pertaining to Mr. Watson’s and Mr. Jones’ hard drives:
Subject to the foregoing, and to the above-stated General Objections, CITGO will produce hard copy documents responsive to [the request] that are in its possession, custody, or control. In performing such production, CITGO will retrieve and print e-mails and other electronically generated documents maintained in the ordinary course of its business. CITGO objects to incurring the expense of hiring a computer consultant to retrieve any e-mails and documents that have been deleted from the hard drives of the referenced computers.
CITGO stood on this objection until the hearing on the Plaintiff’s Motion to Compel on August 10, 2005. At the hearing the Court directed that the parties confer in an effort to recover deleted e-mails as the Court found that there was a likelihood that there was relevant information contained in the deleted e-mails. (DE # 111 at 122). The Court restated this directive in its August 23, 2005 Order (DE # 120). The facts regarding the preservation of each laptop computer’s hard drive are set out separately below.
2. Richard Jones’ Laptop
Richard Jones began working for CITGO in 1998 and since 2000 has served as the Territory Sales Manager for the Light Oils Division in Dade, Broward, Palm Beach and Monroe counties in Florida. (DE # 327, Jones Aff. at 1). According to Plaintiff’s Original and Amended Complaints, beginning in November of 2001, Mr. Jones was involved in negotiations which sought to make Sunshine the supplier of gasoline in the Little Havana area rather than C&M Oil. (DE # 30, Amended Complaint, ¶¶ 86-114).
*19 According to Mr. Jones, prior to May 2004, he routinely deleted some e-mails from his laptop after he read them. (DE # 327, Jones Corrected Aff. at 2). Mr. Jones stated that beginning in May of 2004, he did not delete any e-mails due to the allegations made by opposing counsel in the prior lawsuit between CITGO and C&M OIL. (DE # 327, Jones Aff. at 3).
The records maintained by CITGO indicate that on or about March 25, 2005, Mr. Jones turned in his laptop, which had been issued in November of 2002, pursuant to the three-year replacement cycle policy followed by CITGO. (DE # 383, Steele Depo. at 35, 45). The testimony from the CITGO Information Technology (IT) Department confirms that after a laptop is returned as part of the replacement cycle, its hard-drive is wiped clean prior to returning it to the manufacturer, thereby preventing the retrieval or re-imaging of any previously deleted and emptied e-mails. (DE# 383, Steele Depo. at 30). According to Brian Steele, CITGO’s IT service manager in Houston, Texas, Mr. Jones’ laptop was returned by CITGO to the manufacturer on May 3, 2005, after it had been “wiped” cleaned of all previously erased e-mails. (DE# 383, Steele Depo. at 9, 35). Mr. Steele stated that he was never advised of a “litigation hold” placed on Mr. Jones’ lap top. (DE# 383, Steele Depo. at 55).
During the months of October and November 2005, CITGO produced to Plaintiff several thousand e-mails that were downloaded from Mr. Jones’ laptop. CITGO asserts that Mr. Jones maintained all of his e-mails since May 2004 and therefore, as this suit was not filed until November of 2004, all of Mr. Jones’ e-mails that CITGO had an obligation to produce have, in fact been produced. In Plaintiff’s Fifth Request for Production, served on CITGO on December 7, 2006, C&M requested “all documents reflecting any problems or malfunction of any laptop computers that has been issued to either Rick Jones an/or (sic) Jonathan Watson.”
Defendant responded that all such responsive information was contained in various documents that had already been produced. No documents to which CITGO referred Plaintiff contained any mention of any malfunction of Mr. Jones’ laptop.
However, in March 2006, Brian Steele, CITGO’s designated corporate representative for IT issues surrounding Mr. Jones’ laptop, testified that in December of 2003, Mr. Jones’ laptop suffered a severe software failure that necessitated the replacement of the hard drive with a re-imaged new hard drive. (DE# 383, Steele Depo. at pp. 16-17, 66-67). The process to restore the computer was the same as that used in a hard drive replacement and thus resulted in the complete and unrecoverable loss of previously deleted e-mails. (DE# 383, Steele Depo. at 67-68, 74). This was the first time, in the course of discovery in this case, that any information regarding a malfunction of Mr. Jones’ laptop had been presented.
The practical effect of the foregoing is that there are e-mails that were deleted from Mr. Jones’ laptop that will never be retrieved. However, as CITGO had no obligation to preserve any documents prior to knowledge of the instant lawsuit, and assuming that CITGO’s recycling policy required routine replacement of employees’ laptops on a three-year cycle, then the earliest date that all of Mr. Jones’ e-mails, deleted or not, should have been available to Plaintiff should have been sometime in late November 2002. Thus, under ordinary circumstances there would be two and one-half years of e-mails (from November 2002 through March 2005) that may have been deleted which are now unrecoverable as the hard drive has been returned to the manufacturer. Clearly, CITGO should have preserved the hard drive and produced it to Plaintiff.
*20 Defendant CITGO attempts to minimize the significance of Mr. Jones’ unrecoverable deleted e-mails by arguing that there is only a small window of time in which any discoverable e-mails from Mr. Jones were potentially erased as Mr. Jones’ computer was “wiped” in December of 2003 and Mr. Jones preserved all e-mails as of May 2004. Thus, in reality, the universe of e-mails is more limited than would otherwise be the case. The undersigned credits the testimony of Mr. Jones that he preserved all of his e-mails as of May 2004; and also credits his testimony that he believed when his computer was replaced the new computer would have all the information that had been present on the recycled computer; i.e., that Mr. Jones was unaware of the process by which deleted e-mails could be recovered through a forensic examination of the hard drive.
However, Mr. Bednar and the IT department, as well as Mr. Miller and the other attorneys involved in this litigation were aware of this; and, knowing the recycling policy, it was, at a minimum, reckless not to advise Mr. Jones and the IT department that his computer’s hard drive should not be recycled, but preserved.
There are five months of e-mails that may have been erased that CITGO had an obligation to preserve through maintaining the hard drive. CITGO’s failure to maintain the hard drive is compounded by the fact that CITGO did not return the computer to the manufacturer until May 3, 2005 and therefore CITGO remained in possession of the computer well after discovery in this matter was fully under way, and after CITGO was aware that Plaintiff was seeking to recover deleted documents from the hard drive. It is impossible to know what could have been recovered from the hard drive if it had been preserved. Although CITGO downplays the likelihood that any responsive documents would have been recovered, given the litigation scenario that was occurring during that time, it is certainly possible that relevant e-mail communications between Mr. Jones and other CITGO employees occurred during that time.
Based upon the circumstances, however, the undersigned finds that the failure to preserve the specifically identified computer of Mr. Jones, while reckless, was not done with an intent to destroy relevant information. However, the circumstances do evidence a callous disregard for discovery obligations. It is disturbing that at the evidentiary hearing, Mr. Miller initially testified that he was not aware at the time of the initial discovery request that deleted e-mails were requested; but then acknowledged that in his initial response, he objected to the recovery of deleted e-mails from the hard drive, stating that CITGO objected to incurring that expense. It is also troubling that Mr. Miller made this assertion without determining what that expense would be. Finally, it is troubling that in the initial responses and arguments concerning the production of deleted e-mails, there was no reference to the fact that the hard drive had been replaced in March 2005, nor that it had crashed in 2003. Although the Court credits the present testimony regarding the sequence of events concerning the dates and circumstances under which Mr. Jones laptops have been replaced, these troubling items cause the Court to have even greater concerns regarding the reliability of other information provided to the Court, and demonstrate a callous disregard for discovery obligations.
3. Jonathan Watson’s Laptop
In 1990, Mr. Watson began working for CITGO and was issued a lap top computer at that time (DE # 326, Watson Aff. at 1). In 1995, Mr. Watson took over a new territory which included Southern Florida. In 1999, Mr. Watson was involved in negotiations between Sunshine and CITGO (DE # 326, Watson Aff. at 2). In 2000, Mr. Watson became regional manager for CITGO Latin America and in November of 2002 returned as the Regional Sales Manager of CITGO’s Southeast Region (DE # 326, Watson Aff. at 4).
*21 In July of 2003, Mr. Watson experienced problems with his laptop involving his e-mail (DE# 383, Steele Depo. at 43-44). A year later, on July 29, 2004, Mr. Watson turned in his laptop, and it was replaced pursuant to the regular CITGO three year recycling program with Dell (Steele Depo. at 45). Mr. Watson received a new computer on August 4, 2004 (DE # 383, Steele Depo. at 44). Mr. Watson’s laptop was returned to the manufacturer on September 13, 2004 (DE # 383, Steele Depo. at 52, (CIT CPU-0055)).
In the Status Report on Document Discovery and Request for Instructions filed on November 3, 2005, but served on September 19, 2005 (Ex. R; DE # 169), CITGO reported that it was in the process of compiling information responsive to C&M’s First Request for Documents and in response to the Court’s Order granting, in part, C&M’s Motion to Compel. In the Report, CITGO stated that data on Jonathan Watson’s hard drive had been lost in July of 2003 because of an unknown problem (Ex. R at 2). The Report also stated the following:
Any e-mails that [Watson] deleted from the Deleted Mail folder on his computer relating to the 1999 negotiations were lost in 2003, long before any claim of price discrimination was made by the plaintiff. (DE # 169 at 3).
In support of the statements contained in the Report, CITGO included the Declarations of Jonathan Watson and Roger Meyer, the Senior Technical Analyst in the IT Department of CITGO (DE ## 326, 327). In his Declaration, Mr. Watson stated that in July 2003 he noticed that files and documents previously on his computer were missing and that the Information Technology Department was unable to restore the missing data (DE # 326 at 4). In his Declaration, Mr. Meyer stated that he reviewed the records related to Mr. Watson’s laptop which indicated that in July 2003, the IT Department was notified that Mr. Watson’s e-mails had “disappeared” and that Mr. Meyers did not have records or other information sufficient to state with certainty what happened at that time (DE # 326 at 2-3). Further, at the February 24, 2006 Court hearing, Counsel for CITGO stated that in July of 2003, Mr. Watson’s computer lost all of its e-mails (DE# 388 at 28).
However, on March 15, 2006, the IT services manager for the Houston office, Brian Steele, was deposed. Mr. Steele was deposed in the capacity of CITGO’s 30(b)(6) Corporate Representative as to the issuance of the laptop of Jonathan Watson. According to Mr. Steele, although Mr. Watson did have a problem with his e-mail on the laptop in July of 2003, there is no indication that the data on Mr. Watson’s hard drive would have been lost because of this problem (DE # 383, Steele Dep. at 54).
B. Failure to Produce and Adequate 30(b)(6) Representative
Although Plaintiff has not relied upon the adequacy of the 30(b)(6) witness as an independent basis for imposing sanctions, a review of the adequacy of this representative with respect to discovery production is useful because it illustrates the deficiencies which permeate this case. At the February 24, 2006 hearing, the Court directed CITGO to produce for deposition the person with knowledge about the thoroughness of CITGO’s search for documents responsive to C&M Oil’s Requests for Production. (DE # 388 at 90). Pursuant to that Order, CITGO produced Jennifer Mustain for deposition as the person responsible for overseeing the production of documents responsive to Plaintiff’s Requests to Produce.
Plaintiff asserts that Ms. Mustain had limited knowledge of the subjects for which she was designated to testify. Specifically, she had no knowledge about efforts to preserve the hard drives nor knowledge of the initial review of documents undertaken in order to respond to C&M’s First Request to Produce. Defendant counters that C&M has waived any deficiencies in Ms. Mustain’s testimony as Plaintiff did not reserve its right to call another 30(b)(6) witness, but instead simply concluded the deposition of Ms. Mustain.
*22 Based upon a review of the deposition transcript of the 30(b)(6) witness, it appears that Ms. Mustain was not very knowledgeable about the actual steps taken by CITGO in responding to Plaintiff’s requests, particularly at the critical initial stage of the litigation. According to Ms. Mustain, she joined her current firm on February 21, 2005, after leaving her previous job on February 11, 2005. Thus, she wasn’t employed at the firm at the time that the law suit was filed nor at the time that C&M’s First Request for Production was served. As previously stated, Ms Mustain’s current firm of McQueen, Rains & Tresch is closely aligned with CITGO since it was comprised of former in-house counsel who formed their own law firm when CITGO moved to Houston, and has been characterized as a “captive” law firm of CITGO. In this matter, the firm acted primarily as a liaison firm between CITGO and outside counsel, Eimer Stahl. (DE # 383 at 11-14).
In addition, Ms. Mustain testified that it was CITGO’s lead counsel, Mr. Miller of Eimer Stahl, who “came up with a laundry list” and drafted the memo about the categories of documents that were to be produced in response to C&M’s First Request for Production (DE # 383, Mustain dep. at 37). Ms. Mustain first saw Mr. Miller’s memo on categories of documents to be produced in late March of 2005 (DE # 383 at 50). Ms. Mustain recalled having her first meeting about the Response to Plaintiff’s First Request to Produce sometime in late-March. Significantly, CITGO’s response to Plaintiff’s First Request was served on March 22, 2005.
Ms. Mustain didn’t recall what discussions were held about the preservation of the hard drives of Mr. Watson and Mr. Jones (DE # 383 at 69). Ms. Mustain doesn’t know how the key individuals, including Mr. Watson and Mr. Jones were made aware of the pending law suit, but stated that there was no formal written litigation hold in place for the instant litigation (DE # 383 at 43). Ms. Mustain stated that she notified key individuals to maintain and preserve documents around the second week of April of 2005 (DE # 383 at 45-46). Ms. Mustain testified that she didn’t believe that she was called as a witness for what was contained on Mr. Jones’ or Mr. Watson’s hard drive, but rather believed that other individuals would testify to that subject (DE # 383 at 71).
She stated that on the issue of audit files, Mike Miller and Stephen Bednar, assistant general counsel for CITGO, communicated directly about the production of those documents (DE # 383 at 127). She further stated that she was not directly involved in the compilation of the audit documents (DE # 383 at 127).
Generally, throughout her testimony, Ms. Mustain seemingly had very little knowledge about what was done in the actual search for documents and did not have a good recollection of what was specifically said when she was speaking with individuals regarding C&M’s Requests for Production. Ms. Mustain basically determined, in conjunction with Mr. Miller, which persons might have certain documents, but has no knowledge of what those persons would have done to search for the documents (DE # 383 at 123-25).
In short, Ms. Mustain’s testimony shed relatively little light on the procedures followed for the production of documents at the core of Plaintiff’s Motion for Sanctions.
C. Failure to Produce Audit Documents
Pursuant to the Court’s oral directives at the February 24, 2006 hearing, and the Order regarding same (DE #s 388, 345), CITGO produced two redacted audit reports. As previously discussed, the Distributor Franchise Agreement Audit dated April 3, 2005, examined activities between January 1, 2003 and September 2004, and included an analysis of alternative formula pricing which affected the rack rate paid by distributors (Ex. AA at CIT AUD 0140-0163). The second audit, entitled “Branding and Image Improvement Programs and Branded Sales Operations Audit involved Branding and Image Allowance Programs (IAP) activities from January 2001 through December 2002, and Branded Sales Operations from January 2001 through March 2003 (Ex. Z).
*23 After the Court’s September 1, 2006 Order, CITGO produced unredacted audits which contained additional responsive information, as well as the two additional audits which were discussed at length, infra. (Ex. KKKK and Ex. LLLL).
Plaintiff C&M asserts that these documents were specifically requested in Plaintiff’s Third Request for Production, Item 4 regarding all audit documents from 1999 to present and therefore, should have been produced earlier. (Pl’s Mot. Sanctions, DE# 177 at 10). Moreover, Plaintiff sought all audit documents related to formula pricing and competitive discounts in its Fifth Request for Production of Documents and in response to CITGO’s production to Plaintiff’s Third Request for Production.
Defendant asserts that the Court’s September 2, 2005 Omnibus Discovery Order regarding Plaintiff’s Third Request for Production only directed CITGO to “retrieve and review the relevant audit report and audit work papers,” referring to only one audit referenced by Jack Kelsey in his deposition. (DE #130, Omnibus Disc. Order at 2). CITGO states that it fully complied with that directive and was not compelled to produce any other audit reports until the Court’s February 27, 2006 Order, where the Court directed CITGO to produce “any audits ... which involve the relevant geographic area ....” (DE # 345 at 5). CITGO submits that pursuant to that Order, it produced the audit documents that Plaintiff now points to as the basis for its Motion for Sanctions.
Defendant CITGO predicated its objection to producing additional audit documents pursuant to Plaintiff’s Fifth Request for Production on these same grounds.
It is significant that although the documents submitted by CITGO are “audit” documents, they are not only significant as such; but are also significant because of the underlying information about CITGO’s operations which they contain. The documents reflect comparisons between the rack price and the formula price and discuss the number of marketers who were offered alternative formula pricing. The document also contained recommendations regarding meeting competitive offers and implications of the Robinson Patman Act. (See, e.g. CIT-AUD-0163). The most recent audit was distributed on April 3, 2005 to various CITGO employees who were directly tasked with locating responsive documents. It is abundantly clear that these audits should have been produced in September 2005, at the latest.
First, as to CITGO’s argument that the Court’s September 2, 2005 Omnibus Order limited audit production and review to Ex. LLLL, as stated by the Court in the February 24, 2006 hearing, “... it was really clear that although there was one particular audit that was referenced in the deposition that most of the hearing focused on, what we were really looking at were audits of the pricing department.” (DE # 388 at 52). Thus, the recently produced audit documents should have been produced notwithstanding the exact written language of the September 2, 2005 Omnibus Order. In addition, it is clear that this Court focused its September 2, 2005 Omnibus Order on production of one particular “audit” because there was no indication from Defendant CITGO that any other audit responsive to C&M’s requests existed. Mr. Miller expressly testified that he had confirmed with CITGO that no other responsive audit documents existed (DE # 432 at 137, 147, 150).
*24 Second, it is clear that CITGO did not comply with the Court’s September 2, 2005 Order, which states, in relevant part, “CITGO shall file a sworn Declaration or Affidavit which sets forth the review that was undertaken and the results of that review. If after the above review and further consultation the parties are unable to reach agreement, these documents may be the subject of a formal motion to compel.” (DE # 130 at 3). At the August 17, 2005 hearing on this issue, the Court directed that after a review of the audit, CITGO counsel was to submit a sufficiently detailed affidavit of what review was undertaken and the results of that review (DE # 121 at 95). The Court stated that if the affidavit was not sufficiently detailed an evidentiary hearing would be held. Id. The affirmation filed by CITGO counsel consisted of two sentences of substance and in no way provided any detail about the review undertaken (DE# 169 at 6).
At the December 19, 2005 hearing, counsel for CITGO, in commenting on the scope of the Court’s September 2, 2005 Order regarding the production of audits, stated “I believe that I have fully complied with the terms of the order in regard to the verification of what is in the audit and what is not in that audit.” (DE # 234 at 68).
Third, in the February 24, 2006 hearing, counsel for CITGO stated that all of the audit documents that related to the localized market had been produced (DE # 388 at 55, 59-60). However, the audit documents that were produced after the February 24, 2006 hearing, while not specifically identifying the South Florida region, clearly related to the South Florida region and included an analysis of pricing formulas available to certain distributors in this region. Accordingly, counsel’s statement was, at least, misleading.
Fourth, it is hard to fathom how an audit that was distributed in April 2005 that analyzed the net margin of rack price distributors with those distributors who received alternative pricing formulas, conditions under which competitive offers are met with formula pricing plans and the basis for decisions made by the Alternative Pricing Committee would not be relevant to the instant litigation and not responsive to several of Plaintiff’s First Request for Production. (e.g., 5(l) of Plaintiff’s First Request for Production seeking circumstances to be considered in determining whether the price of CITGO branded fuel may be lowered in order to meet competition). CITGO seemingly concedes this point in its Response to Plaintiff’s Motion to Supplement the Record, stating,
Even assuming a small fraction of this audit material (some of which was buried deep in the work papers) is arguably responsive to certain of C&M’s other requests for production and further assuming such material should have been produced earlier in discovery, any such delay was unintentional and does not provide a basis for sanction against CITGO. (DE # 394 at 11).
Accordingly, it is manifest that CITGO should have produced the April 2005 audit, at the latest, in response to the Third Request for Production.
Finally, Mr. Bednar attempted to justify the failure to produce the March 20, 2001 Billing Pricing and Refined Product Purchases and Sales Audit, on the grounds that it was “overlooked” until immediately prior to the sanctions hearing (Ex. KKKK-1; DE # 432 at 48-49). Moreover, he claimed that he had a conversation with auditor Michael Charba who worked on the audit, and that Mr. Charba told him that the audit was not responsive because it only looked at invoices to see if they were properly billed (Id.). The audit was clearly responsive. The scope of the audit included transactions and activities occurring in 1999 and 2000 (Ex. KKKK-2). The audit included recommendations regarding the need to follow written guidelines to ensure compliance with anti-trust laws and it reviewed procedures regarding the approval of formula pricing. Mr. Bednar’s claim that this audit was “overlooked” is simply not credible when considered in light of the history of this case. There were numerous objections lodged throughout the discovery process that information which post-dated 2003 was not relevant, which is at least an implicit acknowledgment that the earlier information is particularly pertinent. There was also a recognized need to search legacy systems for responsive documents. Thus, the claim that this was overlooked because it was located in a legacy system rings hollow. Rather, it appears that the failure to produce this audit was the result of a decision that audit documents were too sensitive to be produced, and that general information regarding the procedures followed by CITGO was not relevant, despite the Court’s contrary determination. It was only after it became clear that the Court did not trust the production that had been made, and ordered a list of audits to be produced that this audit came to light. Even a minimally good faith attempt to comply with this Court’s orders would have resulted in the earlier production.
D. Failure to Produce Marketing and Strategic Planning Documents
*25 Plaintiff asserts that Defendant CITGO belatedly produced planning documents which Plaintiff sought in order to rebut CITGO’s defense that it offered Sunshine formula pricing in order to meet a competitive offer (DE# 226, Pl’s Reply Mem. Supp. Sanctions at 4). Under the Robinson Patman Act, discriminatory pricing is not a violation of the Act if the pricing is done in “good faith” to meet a competitive offer. (Robinson Patman Act 15 U.S.C. 2(b) § 13(b)).
Plaintiff originally requested these documents in its First Request for Production (Ex. WWW, First Request for Production, 5(n)). CITGO objected to this request on several grounds including, CITGO’s general objection that CITGO should not produce documents that related to activities outside of C&M’s market and noted that the time frame (1989-present) contained in Plaintiff’s Request was a typographical error (DE# 179, Docs. Supp. Pl’s Mot. Sanctions, Ex. C, at 10-11). CITGO also objected that the request was vague, ambiguous and confusing. CITGO did, however, produce an Integrated Marketing plan for the South Florida market.
At the August 10, 2005, hearing on the Plaintiff’s Motion to Compel, the Court overruled CITGO’s objections and ordered CITGO to produce marketing and strategic plan documents from 1997 to the present for the Southeast Region (DE #120 at 6). The Court then issued an order directing the same on August 23, 2005 (DE # 120 at 6).
In the Status Report on Document Discovery and Request for Instructions served by CITGO on September 19, 2005, CITGO stated, “Documents responsive to numbered paragraphs 1-7 of Plaintiff’s First Request for Production of Documents, as modified in the August 23, 2005 order have either been produced or will be produced within the next seven days to the plaintiff.” (DE # 169 at 1).
According to Plaintiff, and undisputed by CITGO, on October 21, 2005, Defendant produced many documents including a five-page document entitled “Account Plan” dated February 23, 1999, which outlined the market, geographic, price and account strategy with respect to Defendant Sunshine as a primary CITGO marketer in Dade and Broward Counties (Ex. E-2 (CIT-BR2-004018-422)). CITGO states that it did not produce this document earlier to Plaintiff as it stood on its objection, including the incorrect time frame contained in the request (DE # 198 at 11-12).
The geographic objection that CITGO relies on is of no matter in this instance as the document produced related specifically to Sunshine in the Miami, Florida area. Further, even if the time frame were incorrect in the Plaintiff’s request, and CITGO properly objected thereto, it is unclear why the documents were not produced for more than two months after the hearing and Order on the matter, and over one month after CITGO served its Status Report on Compliance with the Court’s Orders. It is worth noting that at the time of this Court’s August 10, 2005 hearing, the matter was set for trial in October 2005. Thus, CITGO’s failure to produce the documents earlier would have seriously prejudiced Plaintiff had the trial not been continued.
Further, in the Court’s August 23, 2005, Order, the Court ruled that several of Plaintiff’s requests for certain documents were rendered moot as CITGO had produced all responsive documents. One such area involved information related to considerations of price terms with Sunshine based upon competition between Sunshine and any other party (Ex. WWW, Item 5(k)). Thus, even with CITGO’s general geographic objection, the documents were responsive to Plaintiff’s First Request for Production 5(k) and should have been produced. Even a cursory glance at the documents at issue yields the conclusion that the documents should have been produced in response to Plaintiff’s First Request for Production.
*26 Defendant however has continually asserted that documents of this nature are irrelevant to a pricing discrimination claim as Defendant’s motive is not at issue (See, Deft’s Opposition to Pl’s Mot. Sanctions at 14). This assertion is patently incorrect as the defense of “meeting competition” to justify price discrimination has at its heart the good faith belief of the defendant and the defendant’s purpose in creating the price discrimination. See Alan’s of Atlanta v. Minolta Corp., 903, F.2d 1414, 1425-1426 (11th Cir. 1990).
Finally, CITGO produced several other documents on or around October 21, 2005, which are subject to the foregoing analysis, as many were responsive to C&M Oils’ First Request for Production, Item 5 (See Ex. E-3, -9, -11). CITGO has offered no explanation for why those documents were not produced earlier.
E. Failure to Produce Anti-Trust Documents
In its Motion to Supplement the Record, Plaintiff asserts that CITGO failed to produce anti-trust documents which were responsive to Item 5(l) of its First Request for Production until March 10, 2006 (Pl’s Mot. Supp. R. at 16-17). Defendant CITGO failed to address this argument in its Response to Plaintiff’s Motion.
Plaintiff’s 5(l) request seeks documents that indicate the criteria used for lowering a price to meet competition (Ex. WWW, Item 5(l)). The request did not specifically ask for policies or procedures related to anti-trust laws. Rather, it was Plaintiff’s Fifth Request for Production that sought those specific documents. CITGO objected to that request asserting that the Plaintiff had already deposed CITGO employees on that matter and the documents were not relevant to the instant litigation.
At the August 10, 2005 hearing on Plaintiff’s First Motion to Compel, CITGO’s counsel represented that everything had been produced responsive to item 5(l) of Plaintiff’s First Request for Production (DE # 111, at 101-102). Accordingly, the Court ruled that the Motion as to Item 5(l) was “DEEMED MOOT,” based on the representation by CITGO that all documents have been produced (DE #120 at 5).
At the February 24, 2006 hearing on Plaintiff’s Second Motion to compel, CITGO counsel stated that all of the CITGO witnesses had testified that there was no written CITGO policy on meeting a competitive offer (DE # 388 at 76-78.) The Court ultimately directed that CITGO was to produce anti-trust documents that related to the Robinson-Patman Act (DE # 345 at 6-7).
On March 10, 2006, CITGO produced numerous redacted documents to Plaintiff that referenced Anti-Trust Compliance Guidelines (DE # 384 Bednar Depo. Exs. 2-7). The documents included references to discriminatory pricing, (CIT-TRN 0239, 0198), meeting the competition defense (CIT-TRN 0237, 0275) and the Robinson-Patman Act. (CIT-TRN 0192-0195).
At the deposition of Mr. Bednar taken on March 14, 2006, Mr. Bednar testified that the materials that had been produced on March 10, 2006 were “training materials” and were not CITGO’s general policy on the Clayton Act (DE # 384, Bednar Depo. at 92, 98). However, Mr. Bednar admitted that the materials represented CITGO’s general policy on the Clayton Acts (DE # 384, Bednar Depo. at 9-98, 99). Mr. Bednar further admitted that the procedures outlined in CIT-TRN 0272-0278 were consistent with CITGO’s policies, including its policy on lowering a price to meet a competitor’s offer (DE# 384, Bednar Depo. at 103-107).
It is manifest that CITGO should have produced, earlier in this litigation, the documents that were produced for Mr. Bednar’s deposition. It is hard to fathom how CITGO did not view those documents as responsive to Plaintiff’s First Request for Production 5(l) served on CITGO a year before the Bednar Deposition. Further, it is clear that in the August 10, 2005 hearing, CITGO misled the Court about the production of all documents related to this Request.
IV. LEGAL ANALYSIS
*27 In the case at bar, similar to the defendants in Malautea, Defendant CITGO has engaged in abuses of the discovery process by:
1) improperly objecting to certain requests on the grounds that the terms “rack price,” “branding allowance” and “functionally equivalent” were not defined despite the fact that the terms were unambiguous and common terminology used in the industry and/or the course of dealings between the parties;
2) resisting compliance with discovery orders regarding production of audit documents by limiting the order to an unreasonably narrow reading and failing to conduct an adequate search and review of such documents;
3) making false statements concerning the review of the initial audit document ordered by the Court;
4) failing to produce certain court-ordered materials, including marketing documents, in a timely fashion;
5) failing to be forthcoming to the Court as to the existence of certain audit, marketing and anti-trust documents, as well as the extent of information contained on Mr. Watson’s hard drive; and,
6) failing to preserve the laptop computer hard drives of Mr. Jones and Mr. Watson
CITGO’s clear and numerous abuses of the discovery process lead the Court to conclude that CITGO’s callous disregard of its obligations and its conduct rise to the level of bad faith, and were based upon a disagreement with the Court’s orders, rather than negligence.
As to the prejudice to Plaintiff, the undersigned notes at the outset that the fact that numerous key documents were belatedly produced in November 2005 has not alone resulted in significant prejudice as the trial was continued. However, the additional tardy production of documents through September 2006, combined with the Court’s finding that an inadequate search has been performed, has resulted in significant prejudice. This prejudice is compounded by the loss of the hard drives and potentially deleted e-mails of Mr. Watson and Mr. Jones, given that those witnesses were “key players” in the negotiations between Defendants CITGO and Sunshine. The extent of that prejudice cannot be measured as it is impossible to know which, if any, e-mails were deleted.
As applied to the instant case, CITGO attempts to distinguish and limit the holding of Zubulake by asserting that there is no requirement under Zubulake to preserve electronic data contained on “backup tapes”, but rather, the obligation arises only if such tapes “are accessible.” (DE # 394, Def.’s Resp. to Pl.’s Mot. Supp. R. at 4).
However, CITGO fails to cite the Zubulake Court’s exception to the rule that when a company can identify where particular employee documents are stored on backup tapes, then the tapes storing the documents of “key players” to the existing or threatened litigation should be preserved if the information contained on those tapes is not otherwise available. Thus, under Zubulake, as Jones was identified as a “key player” very early in the litigation by all parties, it is clear that CITGO had an obligation to maintain Mr. Jones’ “back-up tapes,” or in this case, his hard drive, once the litigation was initiated.
The question becomes whether the facts underlying this case support a finding that CITGO’s recycling of Mr. Jones’ computer and the “wipe” of all of his previously deleted e-mails rise to the level of bad faith as required by this Circuit to support the imposition of a default judgment or whether it was merely negligence on the part of legal counsel.
*28 As to Mr. Watson’s laptop, it appears that the return of his hard drive to the manufacturer occurred prior to the instant matter being filed. CITGO argues that it was therefore under no duty to preserve Mr. Watson’s hard drive as CITGO could not have reasonably anticipated the instant litigation in July 2004 when Mr. Watson turned in his laptop computer for routine exchange (DE # 198 at 6). CITGO states that the prior case did not involve Sunshine or any allegation concerning Sunshine’s formula pricing. Id.
However a review of the prior litigation leads to a different conclusion. In particular, as stated above, Plaintiff C&M attempted to amend its complaint to include anti-trust violations involving Sunshine in the previous breach of contract action in August of 2004. In its opposition to the amendment, CITGO argued, in essence, that as early as March 12, 2004 that C&M Oil was aware of the price difference in the sale of gas between C&M Oil and Sunshine in their respective dealings with CITGO and that C&M Oil should have sought to amend its Complaint at that time. CITGO bolstered its argument with a transcript excerpt from the deposition of Max Alvarez wherein Plaintiff’s counsel focused on the dealings between Sunshine and CITGO as to discounts in the rack price for gasoline (See DE #75, Exhibit C, Alvarez Depo. at 119-21.) Significantly, in his deposition, Max Alvarez testified that he negotiated the formula pricing for Sunshine with Jonathan Watson in 1998. Id. Thus, at that point, it was clear that issues related to Sunshine’s formula pricing were relevant.
At very least, the July 21, 2004 Joint Status Report After Reassignment, discussed previously, unarguably placed CITGO on notice of the likelihood of litigation related to CITGO’s formula pricing plan with Sunshine prior to the return and “wipe” of Mr. Watson’s hard drive, notwithstanding the fact that the instant litigation was not filed until November of 2004.
Further, Mr. Watson’s laptop was not returned to the manufacturer until September 13, 2004. (Steele Depo. At 52, (CIT CPU-0055)). The Court notes that CITGO returned Mr. Watson’s hard drive during the pendency of Plaintiff’s Motion to Amend, which was not denied by the court until October 14, 2004. Defendant did not know that Plaintiff’s Motion would not be granted and therefore should have maintained all evidence related to Plaintiff’s amended claims, in the event they were joined in the pending litigation. Accordingly, CITGO was still in possession of the hard drive after it was placed on notice of the reasonable possibility of litigation on anti-trust issues related to Sunshine and should have preserved the same.
In addition, another issue lies in whether counsel for CITGO and Mr. Watson were being forthright in their depiction of the computer crash of July 2003 where, according to the statements contained in the Status Report filed in November 2005, all previously deleted e-mails were no longer available on Mr. Watson’s hard drive. According to the deposition of Mr. Steele taken in March 2006, there is no indication that the problem regarding Mr. Watson’s e-mail in July 2003 would have resulted in a total deletion of those e-mails from his hard drive. While this doesn’t make a difference as to what e-mails would have been recoverable as the hard drive was returned prior to the institution of this suit, it lends credence to the assertion that Defendant CITGO has misled the Court as to what information was available on Mr. Watson’s hard drive prior to it being recycled. It appears however, based upon the volume of e-mails ultimately produced from Mr. Watson’s computer, that Mr. Watson’s testimony regarding his practice of not deleting business-related e-mails is credible, and this diminishes the potential prejudice. Of course, no one will never be able to know whether he deleted a particularly damaging e-mail, pejorative to C&M, that might have helped Plaintiff’s case.
*29 As to the scope of the Court’s Order regarding production of the Audit documents and CITGO’s compliance therewith, technically, the September 2, 2005 Order only referred to “the Audit” and not all audits and therefore, Counsel may assert that it misunderstood the Order, much like the defendants in Southeast Banking Corp. However, that Order was based upon the express and repeated assertion by counsel that only one potentially responsive audit existed. Mr. Miller testified that he relied upon CITGO’s representations that no other responsive audits existed, and that if he had known of the ones ultimately produced, he would have provided them.
The lack of timely production of numerous documents, and the unsatisfactory explanations, which include disagreements with the scope of the court’s ruling, have been detailed above and will not be repeated. The undersigned could write countless pages documenting each of the misrepresentations, but the above recitation is sufficient to demonstrate the extreme nature of the deficiencies.
In sum, the undersigned finds that CITGO deliberately chose to disregard its discovery obligations and either intentionally failed to search for responsive documents or failed to timely produce those documents based upon its mistrust of opposing counsel (despite an informal confidentiality agreement under which the parties had agreed to operate), or a fear that disclosure might lead to joinder of other plaintiffs or a class action lawsuit. The tactics lead to an inference that CITGO hoped Plaintiff would give up rather than pursue the discovery to which it was entitled. The undersigned finds that CITGO sought to prevent discovery of information which would impeach its witnesses or cast doubt upon its assertions that the formula pricing agreement with Sunshine was functionally equivalent to the pricing available to C&M, that it was given based upon a good faith motive to meet competitive offers, and that the price differential, if calculated appropriately, was de minimis.
The late production of responsive documents, which was made only after repeated court orders compelled additional searches, precludes the effective use of those documents absent re-depositions of several witnesses. Moreover, the undersigned concludes, based upon the testimony concerning cyclical audits, that there are likely to be additional responsive documents in storage that cover the most pertinent dates– i.e., the dates surrounding the 1999 approval of the formula pricing agreement with Sunshine.
Finally, the failure to take even the most basic steps to preserve the hard drives of Jonathan Watson and Rick Jones, such as failing to place a formal litigation hold which would advise the IT department responsible for recycling those computers of the need to preserve evidence, evinces a reckless disregard for the discovery process. The Court cannot determine what information may have been lost as a result of this destruction. Despite Jonathan Watson’s claim that he did not delete pertinent e-mails, it is often the less formal e-mail discussions that are the most significant to opposing parties.
The undersigned has carefully considered the available alternative sanctions. Compensation for the many hours expended in conducting discovery, which were increased by the need to discover the deficientdiscovery responses, as well as preparing for the hearing on sanctions, is certainly warranted. However, this is insufficient to compensate Plaintiff for the inability to probe areas revealed by the late production of responsive documents, and it is unfair to require Plaintiff to delay its case even further by re-opening discovery.[17] CITGO should not be rewarded for a tactic of delay. This is particularly true where one of the key documents is an audit report that was not adequately reviewed despite a court order to do so, and where the Court and Plaintiff were actively misled about compliance with the Court’s order. Moreover, this is not a case where counsel alone engaged in misconduct. High level CITGO employees were extensively involved in the discovery process, and the undersigned finds that they sought to produce as little as they believed they could get away with. The Court recognizes that voluminous documents regarding the specific transactions at issue with Sunshine were produced; however, this does not excuse the failure to produce the documents at issue in this order.
*30 Finally, the Court notes that CITGO’s actions have not only prejudiced Plaintiff with respect to Plaintiff’s case against CITGO, they have also prejudiced Plaintiff in its case against Sunshine. Of course, Sunshine cannot be sanctioned for CITGO’s misconduct; and Plaintiff will bear the burden of the discovery deficiencies.
The Court has also considered, and rejected, the sufficiency of an adverse jury instruction, or the striking of only part of the defense–such as the entry of an order which finds that the element of Plaintiffs’ claims under the Robinson-Patman Act and Florida’s Motor Fuel Marketing Practices Act regarding discrimination in price (including the functional availability claim) be deemed established, and that the affirmative defense that the price was set to meet competition be stricken. This would leave for trial against CITGO the issues of whether the effect of such discrimination was to injure, destroy, or prevent competition, and damages,[18] as well as the state law claims. However, since the issue of the effect of such discrimination is bound into the issue of the amount of discrimination, given the nature of the documents withheld, and the failure to conduct an adequate search for others, the undersigned has determined that the only appropriate sanction is the entry of a default judgment as to liability on Counts I, II and III of the Amended Complaint, and for the case to proceed to trial on the issue of damages as to those counts. However, although the discovery violations, the destruction of the hard drives, and the misrepresentations made to the Court, are related to the issues as to those counts, the undersigned has determined that there is an insufficient nexus between that misconduct and the state common law claims to warrant the entry of a default. As to those claims, to the extent that the failure to produce documents and the destruction of the information contained on the hard drives is pertinent, the award of fees and costs is sufficient to vindicate the authority of the court, punish CITGO, and compensate Plaintiff.
Therefore, based upon a review of the record as a whole, and the foregoing findings and analysis, it is hereby
RECOMMENDED that Plaintiff’s Motion for Sanctions be GRANTED, and that CITGO be sanctioned through the entry of a default as to liability on Counts I, II and III of its Complaint, and by an award of attorney’s fees and costs incurred with respect to litigation of the Motion for Sanctions, as well as all discovery undertaken with respect to CITGO.
The parties will have ten days from the date of service of this Order within which to file written objections, if any, for consideration by the United States District Judge to whom this case is assigned. Failure to file objections timely shall bar the parties from attacking on appeal any factual findings contained herein. LoConte v. Dugger, 847 F.2d 745 (11th Cir.), cert. denied, 488 U.S. 958 (1988); RTC v. Hallmark Builders, Inc., 996 F.2d 1144, 1149 (11th Cir. 1993).
*31 DONE AND SUBMITTED in chambers in Miami, Florida on February 28, 2007.
Transcripts have been filed with respect to the hearing, except for the morning of September 13, 2006. See DE # 432 (9/6/06); DE # 429 (9/7/06 a.m.); DE # 430 (9/7/06 p.m.); DE # 433 (9/13/06 p.m.).
The undersigned explored with the parties the effect of this potential ruling on the trial as to Sunshine; neither side could devise a workable solution other than a severance of the anti-trust claims against Sunshine.
C&M Oil sold its assets in January of 2003 but the Complaint contained allegations against CITGO until the then-present, 2004.
The symbol “Ex” is used to refer to exhibits which were admitted into evidence at the evidentiary hearing.
The document request specifically identified “the files of CITGO’S “Pricing Department,” CITGO’S Light Oil’s Marketing Department, CITGO’S legal department, CITGO’S Southeast Region office, Pam Ward, Jack Kelsey, Jonathan Watson, Rick Jones, Marty Sedlacek, and Bob Clingan, as well as portions of any policy manuals available to the persons identified in this request” as potential sources of those documents.
Specifically, Request 8, which applied to Jonathan Watson, and Request 9, which applied to Rick Jones, requested: “All documents contained in files of Jonathan Watson [Rick Jones] and the CITGO Southeast Regional Office from November 1999 to the present, including all data stored on the hard drive of the computer(s) on which Jonathan Watson [Rick Jones] and his assistant generated documents and received or sent e-mails, and any central computer located in the CITGO Southeast Region office for sale of branded fuels, which refer or relate to: (1) the addition of new distributors or termination of distributorships for the sale of CITGO branded fuels within the Southeast Region; (2) the price terms offered to or agreed to with any distributor within the Southeast Region; (3) business with SUNSHINE including contracts with SUNSHINE, negotiation of contracts with SUNSHINE, sales to SUNSHINE, approval of new retail stations to be supplied by SUNSHINE, the manner in which SUNSHINE conducts business, and any other aspect of business with SUNSHINE; (4) all communications to or from SUNSHINE related to its Contracts with CITGO and the distribution of branded CITGO gasoline by SUNSHINE, any other aspect of business with SUNSHINE, including but not limited to an references in such communications to the business of other (existing or potential) distributors or retail stations not supplied by SUNSHINE at the time of the communications, retail locations, and sales meetings involving SUNSHINE and its employees” (Ex. WWW, Items 8 and 9)
Ms. Mustain testified that the meeting was scheduled for a time when the key individuals were going to be in Tulsa (Mustain Depo. at 45). The meeting was attended by Sylvia Brown, Richard Ball, Michael Charba, Brad Roach, R. Todd, Jonathan Watson, Rick Jones and Jack Kelsey (Mustain Depo. at 49). Prior to the meeting, the memo had been distributed to Barry Fulda, Jack Kelsey, Brad Roach, Jonathan Watson and Rick Jones (Mustain Depo. at 50).
This is a general description of the document requests; the actual requests had more specific details of what was requested.
Although the transcript reflects the date of June 14, 2005, and former CITGO counsel Miller testified that he believed the hearing took place in June; it is clear from this chronology that the date on the transcript is incorrect since the undersigned Magistrate Judge was not assigned to this case until July (DE # 74). At the evidentiary hearing, present counsel for all parties agreed that the correct date is August 10, 2005.
The hearing also dealt with discovery disputes involving Sunshine, but those disputes are not relevant to the pending motion, and therefore are not discussed herein.
C&M also raised the issue of its new discovery that the laptop computers of Mr. Jones and Mr. Watson had been recycled; but since this spoliation issue was not listed in the joint notice of discovery issues, the Court declined to consider the matter at the August 17th hearing.
This is relevant only to the extent that it shows CITGO’s awareness that it needed to search its legacy systems as well as its present systems. One of the reasons given for the failure to produce an audit conducted in 2001 was the failure to search a legacy system; albeit it a different system than the one at issue at the August 17th hearing.
Although Exhibit AA does not include the distribution list, the same version was included as Exhibit 10 to the March 2006 depositions of Eladio Perez and Jeff Bednar, and the copy of Exhibit 10 filed with the Court on April 21, 2006, includes the distribution letter; as does the unredacted version of this audit admitted as Ex. TTT-2 at the sanctions hearing.
Ex. TTT-1 is the unredacted audit, and Ex. TTT-4 contains unredacted excerpts of audit work papers that correspond to the redacted audit marked Ex. Z, which was produced initially in March 2006 as Exhibit 9 in the March 2006 depositions of Mr. Eladio Perez and Mr. Bednar.
Ex. TTT-2 is the unredacted version of the audit, and TTT-3 contains the unredacted work papers which correspond to the redacted audit marked Ex. AA, which was produced initially in March 2006, as Exhibit 10 in the March 2006 depositions of Mr. Eladio Perez and Mr. Bednar.
Based upon the supposed review by Mr. Perez of the initial audit in September 2005, and the failure to recognize responsive documents, the Court has no confidence that this review was adequate.
The fact that there has now been additional time for Plaintiff to review the audit reports, in particular, does not obviate the need for deposition testimony to explain those reports. Mr. Hedges recognized in his testimony that the work papers were not easily decipherable in the absence of explanations by the auditors. In addition, may documents contained “embedded” dates, so when the document is printed out it contains the date it was printed rather than the date it was created (See, e.g., DE # 432 at 52-54, 63-64).
As noted in the District Court’s Order denying summary judgment, there is apparently no dispute regarding the existence of the first two elements of the antitrust claim–(1) Citgo’s sales to Sunshine were in interstate commerce; and (2) the gasoline sold to Sunshine and C&M was of the same grade and quality (DE # 437 at 4).