CIVIL ACTION NO: 06-3002
United States District Court, E.D. Louisiana
Filed April 27, 2007
Sam Zurik, III, Robert P. Lombardi, Kullman Firm, Benjamin H. Banta, Entergy Services Inc. Legal Services-Employment/Benefits/Labor, New Orleans, LA, for Wood Group Pressure Control, L.P.
Louis M. Phillips, Gordon, Arata, McCollam, Duplantis & Eagan, Baton Rouge, LA, Brent Bennett Barriere, Fishman Haygood, Donna Phillips Currault, Gordon, Arata, McCollam, Duplantis & Eagan, New Orleans, LA, for B&B Oilfield Services, Inc.
Stephen H. Kupperman, John W. Joyce, Barrasso, Usdin, Kupperman, Freeman & Sarver, LLC, New Orleans, LA, for Ricky Poche.
Joelle Flannigan Evans, Andrea V. Timpa, Kyle D. Schonekas, William P. Gibbens, Schonekas, Evans, McGoey & McEachin, LLC, New Orleans, LA, for Bryant Broussard.
Robert W. Grant, Brad James Gegenheimer, Grant & Barrow, APLC, Gretna, LA, for Hi-Tech Quality, Inc., Ha Tran Quach
REPORT AND RECOMMENDATION
*1 Before the Court is a Motions for Sanctions Against the B&B Defendants (Rec. Doc. No. 209) filed by the plaintiff, Wood Group Pressure Control, L.P. (“Wood Group”), seeking an order from this Court sanctioning the defendant, B&B Oil Field Services, Inc. (“B&B”), for: (1) not complying with the District Judge’s Temporary Restraining Orders issued on June 26, 2006 and July 7, 2006; (2) altering documents at issue in this case; (3) failing to timely produce documents and withholding documents until confronted with the documents obtained from a third party; and (4) the spoliation of documents relevant to the subject matter of this litigation. This motion was referred to a United States Magistrate Judge to conduct a hearing, including an Evidentiary Hearing, if necessary, and to submit proposed findings and recommendations for disposition pursuant to Title 28 U.S.C. § 636(b)(1)(B).
In compliance with the referral order, the undersigned Magistrate Judge conducted a hearing on April 4, 2007.
This Court also ordered the supplementation of the record by April 12, 2007. Having received and reviewed the evidence and the law, the Court recommends that the motion be granted in part and denied in part for the reasons assigned herein.
The plaintiff, Wood Group,
alleges that its former employees, Ricky Poche and Bryant Broussard, resigned from Wood Group on March 18, 2004 and May 2, 2005, respectively, and began working for B&B, a competitor of Wood Group in the wellhead business.
Wood Group contends that Poche and Broussard stole its proprietary information including software, mechanical drawings, intellectual property and trade secrets and provided the information to B&B. Wood Group contends that, in exchange for stealing proprietary information, Poche was promised an equity share in B&B. Wood Group also alleges that Poche’s deal with B&B began while he was still employed with Wood Group and that during his employment Poche provided confidential information to B&B.
Wood Group also contends that in furtherance of B&B’s plan, B&B contracted with a third party, Hi-Tech Quality, Inc. (“Hi-Tech”), to reprint the stolen confidential drawings. According to Wood Group, Hi-Tech allegedly knew that the information was not authorized for public dissemination, and knew that it was confidential property of Wood Group but reprinted the drawings anyway with B&B’s name on them.
Additionally, Wood Group alleges that its former designer, Wilson P. Acosta, breached a signed employee confidentiality and inventions agreement by leaving Wood Group and taking mechanical drawings stored on Wood Group’s server in Houston, Texas, via disc or other electronic storage device. Acosta then allegedly supplied B&B with Wood Group’s drawings despite the confidentiality agreement.
*2 Wood Group further contends that, in just a few years after Poche joined B&B, its profits substantially increased causing harm to Wood Group. B&B’s profits allegedly resulted from the theft of Wood Group’s mechanical drawings, software, and intellectual property.
On June 9, 2006, Wood Group filed the subject lawsuit seeking damages for fraud, misappropriation, conversion, and unfair trade practices, as well as the return of its drawings and a permanent injunction prohibiting the defendants from using Wood Group mechanical drawings in their business.
At the outset of this litigation, District Judge Kurt Engelhardt issued two Temporary Restraining Orders requiring that “all parties take steps to preserve – and not destroy, damage or delete, or cause to be destroyed, damaged or deleted-any documents, data, equipment, parts or other information or things – whether in paper, electronic, or other form – relevant to this case ...”
However, at the outset of discovery in this case, the gamesmanship began, resulting in the filing of multiple motions to compel, as well as the subject motion. Wood Group contends that B&B never completely responded to its discovery and also falsely certified to the Court that it had fully responded to discovery. Wood Group contends that B&B failed to return Wood Group drawings thus violating the Temporary Restraining Orders issued by the District Judge. Wood Group also contends that B&B altered at least two of Wood Group’s mechanical drawings, lied under oath, and falsely testified about the identity of third party manufacturers.
Wood Group further contends that B&B destroyed mechanical drawings and failed to preserve electronic evidence, thus violating the Temporary Restraining Orders yet again. Consequently, Wood Group contends that this Court should sanction B&B because these actions hindered Wood Group’s ability in preparing the case for trial.
B&B contends that Wood Group is simply over aggressive. It denies any intentional wrongdoing regarding discovery and submits that the issues raised by Wood Group are grossly exaggerated or simply the result of oversights normally occurring in litigation. As examples of Wood Group’s overly aggressive approach to discovery, B&B contends that Wood Group issued over thirty subpoenas to third parties resulting in 4,300 pages of information being produced by the third party.
It also notes that Wood Group propounded eight separate requests for production of documents to B&B resulting in the production of almost 6,000 pages of documents. B&B further contends that none of the actions alleged by Wood Group rose to the level of sanctionable conduct and thus the motion for sanctions should be denied in its entirety.
Federal Rule of Civil Procedure 26 requires a party to produce non-privileged documents which are relevant to the subject matter involved in the pending action. That requirement embraces documents and information that are reasonably calculated to lead to the discovery of admissible evidence. Danis v. USN Communications, Inc., No. 98C7482, 2000 WL 1694325, at *1 (N.D. Ill., Oct. 20, 2000).
*3 This broad duty of disclosure extends to all documents that fit the definition of relevance for the purposes of discovery, whether the documents are good, bad, or indifferent. Id. Self-reporting is in fact a central concept of the discovery process. Id. This duty to disclose would become illusory if a party could avoid the duty by failing to preserve those documents it does wish to produce because the documents may be harmful to their case. Id. A necessary predicate of the duty to produce is the duty to preserve those documents or other information that may be relevant in a case. Id. Indeed, “there is no ‘bad document’ exception to the duties of preservation and production.” Id. These two obligations are a part of the system, applicable to lawyers and parties engaged in litigation, and should conform their behavior.
In furtherance of these requirements, parties can be sanctioned for spoliation under Fed. R. Civ. P. 37, any state-law equivalent to Rule 37, or a court’s inherent power. While Fed. R. Civ. P. 37 does not specifically authorize sanctions for spoliation, courts frequently rely on subsections (b) and (c) of Rule 37 when imposing such sanctions because a party has destroyed documents in violation of a court order or the destruction of documents has rendered a party unable to comply with its disclosure obligations under the Rules. Rule 37(b) provides that “if a party fails to obey an order entered under Rule 26(f), the court in which the action is pending may make such orders in regard to the failure as are just.” Rule 37(c) permits a court to impose other “appropriate sanctions” if a party “without substantial justification fails to disclose information required by Rule 26(a) or 26(e)(1), or to amend a prior response to discovery as required by Rule 26(e)(2) ...”
A. Failure to Conduct Reasonable Search and to Produce
Wood Group contends that B&B failed to reasonably search for information in its possession that is relevant to this case, namely mechanical drawings. It further contends that B&B, through its counsel, falsely certified to the Court that it produced all of the mechanical drawings in its possession. Wood Group also contends that B&B violated the Temporary Restraining Orders issued by the District Judge by not returning all of its drawings and by not preserving information, such as drawings, that are relevant to this case.
B&B again contends that Wood Group is simply overly aggressive. It denies any intentional wrongdoing regarding discovery and submits that the issues raised by Wood Group are grossly exaggerated or simply the results of normal oversights that occur in litigation.
The requirement in Fed. R. Civ. P. 26(g) that an attorney or party certify that every discovery response or objection “to the best of the signer’s knowledge, information, and belief, formed after a reasonable inquiry,” is consistent with the Federal Rules of Civil Procedure and is warranted by existing case law. See Fed.R.Civ.P. 26(g)(2) (emphasis added); see also St. Paul Reinsurance Co., Ltd. v. Commercial Fin. Corp., 198 F.R.D. 508, 516 (N.D.Iowa 2000) (holding that a court should test the signer’s certification under an objective standard of reasonableness, “except that it may inquire into the signer’s actual knowledge and motivation to determine whether a discovery request, response or objection was interposed for an improper purpose”). “Rule 26(g) imposes an affirmative duty to engage in pretrial discovery in a responsible manner that is consistent with the spirit and purposes of Rules 26 through 37.” St Paul, 198 F.R.D. at 516.
Rule 34 also imposes on B&B an affirmative duty to seek information reasonably available through its employees, agents, and others subject to their control. See Anderson v. Cryovac, Inc., 862 F.2d 910, 929 (1st Cir. 1988) (noting that “once a proper discovery request has been seasonably propounded, we will not allow a party sentiently to avoid its obligations by ... failing to examine records within its control”); see also A. Farber and Partners, Inc. v. Garber, 234 F.R.D. 186, 189 (C.D. Cal. 2006) (holding that a party has an obligation to conduct a reasonable inquiry in the course of responding to requests for production); In re Indep. Service Org. Antitrust Litigation, 168 F.R.D. 651, 653 (D. Kan. 1996) (noting that party cannot meet its discovery obligations by “sticking its head in the sand and refusing to look for the answer and then saying it does not know the answer;” a corporation must speak to those employees who may have responsive information).
*4 In this case, the first set of Interrogatories and Requests for Production of Documents were propounded to B&B on June 22, 2006, sixteen days after the lawsuit was filed. (See Rec. Doc. No. 82 Ex. A). Wood Group requested, among other things, that B&B produce all of its mechanical drawings relating to Wood Group’s T-60 Tubing Hanger. Id. On July 7, 2006, it requested that B&B provide all machine drawings for products sold by B&B. Id. at Ex. E.
In response, B& B interposed broadly based objections without any attempt to respond to the discovery initially propounded, even if on a limited basis. Unsatisfied with the responses, Wood Group propounded more discovery.
In its Fourth Request for Production propounded on August 25, 2006, it sought all of the mechanical drawings in B&B’s possession. Id. at Ex. K. Wood Group also requested all drawings sent to third parties, namely High Tech, High Tech Components, Machine Tech and any payments made thereto. Id. It also sought drawings for particular components, the 15,000 Lubricator, RB2 Lubricator, Casing Head Reducer Bushing, Extended Neck Tubing Hanger, C-22 Bowl to the C-29L in the Spools, the Tubing Head Adapter, Extended Neck Tubing Hanger and more. Id. In concurrently propounded interrogatories, Wood Group also sought the identification of the designer and the identity of the individual who created the drawings. Id. at Ex. M.
B&B again interposed their standard objections based on relevance, over broadness, confidentiality and burdensomeness, proprietary, cumulative, duplicative, and for seeking documents under the control of third parties. In response to Wood Group’s request for those documents sent to or received from Hi-Tech or Ha Tran Quach, B&B objected to the production but later agreed that it would make the documents available. Id. at Ex. L. B&B also indicated that it might consider producing documentation of payments for inspection and copying consistent with the confidentiality agreement. Id. Finally, B&B directed Wood Group to its own subpoena issued to High Tech rather than comply with its discovery obligations under the rules.
On October 11, 2006, B&B supplemented its response to Wood Group’s request for all drawings and produced approximately one hundred and sixty (160) mechanical drawings, Bates Nos. B&B2567- 2714 and Bates Nos. B&B775-2788. B&B later supplemented its supplemental response on October 17, 2006 by producing eighty-one (81) more documents identified as the Gould Documents, Bates Nos. B&B-2811, B&B-2883 and B&B-2887 to B&B-2894, from Bernard Gould, a former salesman for ERC, a company in Houston which was later acquired by Wood Group. B&B also indicated that there may be more information or documents responsive to this request which would be made available.
Ultimately, during the November 8, 2006 hearing, B&B’s counsel, Camille Poche, represented to the Court that B&B had produced all of the drawings responsive to the request which were in its possession and only withheld drawings of a tool because it was unrelated and in the process of being patented.
*5 A review of counsel’s argument shows that Wood Group believed that B&B produced the majority of the documents that related to the products. Camille Poche, counsel for B&B, clarified that “the only documents that were withheld from production are with regard to a product that is being developed for patenting that is not part of this wellhead or Christmas tree. It’s a tool.” (Tr. of Nov. 8, 2006 hearing, Rec. Doc. No. 122 at p. 5). Wood Group therefore was led to believe that the only documents which were not produced related to a tool unrelated to this litigation.
Several months later, on March 7, 2007, the parties returned to this Court on B&B’s Motion to Compel. Wood Group continued to challenge B&B’s representation that it had produced all of the mechanical drawings except for those connected with the unrelated tool being developed for securing a patent.
During this hearing, the Court was advised that Wilson Acosta is the only designer of mechanical drawings for B&B. Acosta is also a former Wood Group employee, who left Wood Group and later joined B&B.
On January 23, 2007, Acosta’s, deposition took place. During his deposition, he was asked whether he possessed any mechanical drawings since he has been employed with B&B. He answered in the affirmative and further indicated that he had created approximately one-hundred (100) drawings since he began his employment with B&B.
When questioned about whether someone at B&B made inquiry about the number of drawings he created during his tenure at B&B, he indicated that no one had asked him that question.
According to Acosta’s sworn deposition, B&B had over 100 drawings in its possession that had not been produced, this despite the November 8, 2006 representation that all relevant mechanical drawings were produced. As Acosta stated, the reason these drawings were not produced was because no one responsible for conducting a reasonable search for the information had asked him whether he had any mechanical drawings. This failure to inquire was despite the fact that Acosta is the only designer and despite the fact that this case centers on the alleged theft of Wood Group’s drawings.
Further, during a deposition of Michael Taylor, a former defendant in this matter, he testified that he was in possession of between 100 and 500 ERC drawings which predated his knowledge about Wood Group. (See Rec. Doc. No. 209 Ex. 14 at p. 36). He further testified that he believed that he had the right to be in possession of the drawings. Id. at 25-36. He also testified that he had used the ERC drawings to help him make a sale for Wood Group. Id. at 38.
Within hours of his deposition in January, Wood Group subpoenaed Taylor to compel production of ERC and Wood Group drawings in his possession. In response to the subpoena, Taylor produced one-hundred and fifteen (115) drawings, Bates MT-0001-MT0117, on January 19, 2007. (See Rec. Doc. No. 209 Ex. 15). Therefore, a total of three-hundred and fifty six (356) drawings were produced by January19, 2007.
*6 A short time later, on February 2, 2007 counsel for B&B again supplemented their responses to Wood Group’s discovery and produced documents bearing Bates B&B 5441-5922, consisting of over one hundred (100) Acosta mechanical drawings. Therefore, as of today, a total of four hundred and fifty six (456) mechanical drawings were produced, of which at least two hundred and fifteen 215 were produced after discovery production of the drawings was certified by B&B as complete.
2. Alteration and Concealment of RR and ASAP mechanical Drawings.
a. Mechanical Drawing Produced by RR
Wood Group next contends that B&B knowingly altered Wood Group drawings and failed to produce them in compliance with their duty to produce as set forth by the rules of discovery. It contends that B&B altered a drawing that it forwarded to RR, a manufacturer of parts for B&B.
Specifically, it alleges that it subpoenaed Doyle Rogers, the owner of the company, and requested that he produce to Wood Group copies of any drawings he received from B&B. When Wood Group received a drawing faxed to RR on April 19, 2006, it noticed the drawing was a copy of a Wood Group drawing. The dimensions on the drawing are identical, are in the same position, and the only modification of the drawing is that Wood Group’s name was removed from the document. Wood Group also contends that this drawing was never produced by B&B during discovery.
B&B indicated during the hearing that it did not produce the RR drawing because it could not find that drawing. B&B also indicated that they do not have a mechanism to track their drawings.
The record shows that the drawing at issue was faxed to RR on April 19, 2006 by James Burns, the shop manager for B&B. (See Rec. Doc. No. 209 Ex. 10). Doyle Rogers, the owner of RR, was deposed and stated that he received the document from B&B. Id.
During the hearing, the Court was provided with a side-by-side viewing of a Wood Group drawing and the alleged copy of the drawing received from RR. Wood Group pointed out that B&B failed to white-out the words that “this is the property of ERC Inc.” (See Wood Group Ex. 10 and 13C for comparison). The undersigned observed the same language on both documents. Further, both documents state “Drawing Number 13-541-522.” Also, the dimensions on both documents had the exact placement and numbers.
The Court noted on the record that the only difference between Exhibit 13C and Exhibit 10 was that Exhibit 13C had “ERC Industries, Inc.,” in the title block of the drawing. Exhibit 10 had something blocking the name that was actually in the title block.
The Court also reviewed the deposition testimony of Doyle Rogers. Rogers testified that he received the mechanical drawing from B&B and that they had requested a quote for the manufacture of certain wellhead parts. (See Rec. Doc. No. 209 Ex. 10 at 13-15).
The Court notes that during the deposition of B&B, Bryant Broussard stated that B&B did not destroy documents, that “we need to keep that as history.” Id. at Ex. 1 at p. 102. Counsel for B&B acknowledged that Broussard, the manager of the Belle Chase Office, served as the corporate representative responsible for making sure that B&B complied with the discovery requests.
In this case, given that B&B never produced the drawing that was faxed to a third party, the Court is of the opinion that Broussard’s statement that B&B never destroys is not credible in light of the absence of a cataloging system for keeping mechanical drawings. Further, B&B acknowledged its inability to indicate how many drawings it had. It could only attest that the drawings they did have were located in separate wellhead files but not kept in any particular order.
*7 In light of the substantial number of mechanical drawings produced after B&B certified to the Court that all of mechanical drawings in its possession were produced and its failure to question its own employees about drawings in their possession, the Court concludes that B&B breached its duty to reasonably search for and produce to the plaintiff relevant information.
b. Mechanical Drawing Produced by ASAP
Wood Group contends that it issued a subpoena to ASAP, another manufacturer that does business with B&B. The subpoena requested a copy of any mechanical drawings ASAP received from B&B. In response, ASAP produced a drawing created by Acosta while at B&B on August 18, 2006. Wood Group contends that the drawing matches the dimensions and tolerances on a Wood Group drawing at issue and this drawing was never produced by B&B in response to the discovery requests.
Counsel for B&B admitted that she relied only on the representations of Broussard that the production was complete. However, the day before the hearing, Acosta apparently determined that he actually had the ASAP drawing. By way of explanation, Acosta advised counsel for B&B that he did not assign a number to five drawings, one of which was the drawing from ASAP.
As one writer has said, determining the lack of candor in discovery becomes evident when the responses lack consistency, the inconsistencies are revealed, and documents are discovered which the party said never existed.
All of the factors enumerated above exist in the present case.
3. Failure to Produce 11 Acosta Drawings
Wood Group notes that Acosta used the Solid Works program to sequentially number drawings. It contends that, even though Acosta testified that mechanical drawings created in Solid Works are sequentially numbered, B&B’s document production failed to account for several drawings. Wood Group contends that drawings numbered D0008, D0009, D00011, D00019, D00047, D00048, D00053, D00055, D00056, D00122, and D00054 were never produced. Wood Group contends that B&B never explained why it failed to provide these documents.
B&B contends that these drawings were never made. It contends that while a number was assigned, the project was later cancelled and no mechanical drawing was generated. During the hearing, the Court requested that B&B supplement its pleadings by providing a listing of the cancelled projects, for whom the project was, the date it was cancelled, and the nature of the project.
B&B complied with the instruction, however, the shell game continued. In its supplement and again despite the oral representation of B&B’s counsel in open court, B&B indicated that they have no documents that would reflect projects because they had no policy in place for keeping the documents.
It appears that B&B is under the mistaken impression that the absence of a policy is an explanation for its providing responses to the Court and counsel on one day, which cannot be supported when questioned further on another day. To the contrary, the absence of a policy makes it appear more likely that the positions presented in writing and orally are simply a position of convenience rather than fact, and are simply an attempt to provide temporary cover for B&B’s desire not to comply with the discovery rules. Again, the Court concludes that B&B breached its duty to reasonably investigate, preserve, and produce.
*8 Wood Group also contends that B&B breached its duty to reasonably search and produce because it failed to produce the documents of Marvin Beau, a machinist employed with B&B. Marvin Beau testified that he made three or four drawings that were never produced. Wood Group contends that, according to Beau’s deposition, no one ever asked him for the drawings.
Counsel for B&B responded that the Beau documents were produced with the original drawings. Wood Group then noted that Beau testified that he never gave the drawings to his lawyers. It also noted that B&B did not respond in written discovery that the documents were enclosed with the response.
The record shows that Beau was deposed on January 23, 2007 and the original production of documents occurred in October 2006. At the time of his deposition, Beau testified that he had three or four drawings which he created by hand. Id. at Ex. 3 at p. 142. He further conceded that he did not provide them to B&B’s counsel because no one asked him to do so. Id. The Court finds again that B&B breached its duties to conduct a reasonable search and produce relevant information.
Wood Group contends that they have acquired evidence from B&B that it altered Wood Group drawings. Wood Group points to Drawing 12 which was seemingly produced twice by B&B. The first time the drawing was produced was in October of 2006. Wood Group contends that the exact same drawing was again produced after Acosta’s deposition with certain numbers changed. Counsel for Wood Group points out that there are three dimensions that Wood Group considers to be its proprietary information. The purported proprietary dimensions are 2.00, 1.766 and 1.69. all of which are reflected on the first drawing. However, these proprietary dimensions on the second drawing were all modified by .01.
Wood Group referred the Court to the declaration of Cathy Calderas, who points out that in addition to the slight change of the numbers, the dates remained the same and no revision change was noted in the second version of the drawing. See Id. at Ex 12. However, revision changes is a common practice in the industry. Calderas also opined that there is no legitimate business purpose for creating such a minute change that would not affect the tolerance. Wood Group also contends that B&B never responded to the allegation that Acosta altered Drawing 12, a Wood Group drawing.
It appears from reviewing the documents that the documents produced in February and October are the same. The only change is the slight numerical change and Calderas indicated in her declaration that the change was so minor that it would not alter the tolerance affecting the function of the component. Wood Group contends that the only reason Acosta made the change and then produced the same document again later was in an attempt to cover his tracks. Thus, while the drawing was altered, it was produced during discovery.
Consequently the significance of B&B’s modification to the Wood Group drawing is an issue for the trier of fact and would clearly go to the weight of the evidence at trial and the credibility of B&B as a party. The request to sanction because of the altered document 12 is denied as it is not directly related to B&B’s failure to search, protect, and produce.
Wood Group contends that two weeks after the lawsuit was filed, Ricky Poche wrote a check to Ha Tran Quach in the amount of $4,000.00. The Court questioned whether this information was probative in their case-in-chief. Wood Group indicated that the information is further proof that B&B should be sanctioned.
*9 The undersigned is of the opinion, however, that the issue of the check given to Quach is not an issue regarding the duty to produce and or preserve and as such is not properly before it on the subject motion for sanctions. Again, this issue is one of the of credibility of B&B which goes to the weight of the evidence presented during the trial before the District Judge. Therefore, to the extent that Wood Group sought sanctions for the check written by Poche to Quach, the request is denied.
7. Identity of B& B Manufacturers
Wood Group contends that they also requested that B&B provide a complete list of its manufacturers. It complains that it did not receive a complete listing and was required to subpoena various manufacturers in the industry. One such subpoena was issued to Hi-Tech Components, which produced several drawings from its B&B file.
During the hearing, Wood Group showed a drawing to the Court that it contends was a Wood Group drawing with a B&B business card over the title block. It contends that this drawing was faxed to Hi-Tech Components. A review of the document shows that Elizabeth Trosclair’s name is on the fax transmittal from B&B to Hi-Tech Components. However, Wood Group points out yet again that the document was not produced to them by B&B. Wood Group further contends that B&B violated the Temporary Restraining Orders by not returning this Wood Group drawing.
Wood Group further complains that on twenty-two invoices sent by B&B to Hi-Tech, Hi-Tech indicates that it was provided with drawings by B&B. However, Hi-Tech indicated that it did not have the drawings when it received the subpoena. At the corporate deposition of Hi-Tech, the witness, Joey LaRouge, testified that they usually put drawings in the file and if the drawings are too large to fit within a regular sized file, they would not retain them. See Id. at Ex 8 at p. 17.
During the hearing, Wood Group noted that, at Broussard’s deposition, he testified that, even though the invoices from Hi-Tech indicated that it performed the work according to drawings provided by B&B, the invoices were in error. He further testified that he did not have any drawings for any of the parts he ordered from Hi-Tech Components. B&B did not contest that this was Broussard’s testimony.
However, during the corporate deposition of Hi-Tech Components, LaRouge testified that to the extent the invoices reference that the work was done per a drawing, that the drawing would have come from the customer. In each of the twenty-two instances, the customer was B&B. Id. at Ex. 8 at p. 66.
The Court notes that during the hearing, B&B did not dispute that the invoices from Hi-Tech indicated that B&B provided the drawings. It argued, however, that if B&B provided a drawing, Hi-Tech should have had the drawing in their files and the absence of a drawing in the Hi-Tech files confirmed Broussard’s testimony that B&B did not provide drawings to Hi-Tech. Thus, B&B contends that it could not have failed to produce something it did not have.
The problem with this argument is that B&B retained Hi-Tech to manufacture components to B&B’s specifications. In order to do so, B&B would have to provide the specifications. Specifications are typically in the form of a drawing. Further, LaRouge’s testimony is very strong in that he states, without wavering, that if the invoice references a drawing, he received a drawing from B&B. Considering the lack of consistency in B&B’s position on a host of issues as detailed above and the clear testimony of LaRouge, the Court is of the opinion that again B&B is being less than candid in its representations and production.
8. Failure to Preserve Electronic Evidence
*10 Wood Group contends that B&B failed to take steps to preserve electronic evidence as ordered by the District Judge on two separate occasions in June and July of 2006. Wood Group notes that B&B’s corporate representative for information technology (“IT”) matters, David Cedatol, stated that B&B took no steps to preserve any electronic information.
B&B’s counsel explained that she met with all of the original defendants and explained to them the steps they were required to take to preserve evidence. She conceded that she did not speak to B&B’s computer specialist at the outset of this litigation because it did not occur to her to do so. Counsel for B&B further explained that she did not ask the president of the company if there was a person who was responsible for the operation of their computer system.
Counsel for B&B conceded that even as of the time of the hearing, she had not made contact with the IT person for B&B to explain to him his responsibility for placing a litigation hold internally to protect relevant electronic information from destruction.
In fact, the deposition testimony of Cedatol is very illuminating. He was deposed on December 4, 2006, five months after the District Judge ordered that all electronic information be preserved. According to the deposition, Cedatol knew of no steps taken by B&B to retain electronically stored information in connection with this case. Id. at 2 at 15. The Court also notes that Cedatol is the only computer specialist at B&B. Neither Poche nor Broussard have technical training in information systems.
Counsel for B&B suggested that the absence of a litigation hold or preservation instruction is not significant because the information is backed-up on its server every 24 hours, so some of the information may be available. She contends that everything that was there in June 2006 is available by backup tape.
The Court explained, however, that to the extent their representation that the information is being backed-up daily is accurate, they are implicitly conceding that information is being overwritten, deleted, or altered daily.
The Court notes that “[n]etworked computers, such as those used by most large businesses, store data on large hard drives. The information is copied and stored on their system to a backup system (typically using magnetic tapes to store the data) on a regular basis to guard against accidental loss of data.” Hon. Shira A. Scheindlin, Jeffrey Rabkin, Electronic Discovery in Federal Civil Litigation: Is Rule 34 up to the Task?, 41 B.C.L. Rev. 327, 336.
Backup tapes, however, are not archives from which documents may be easily retrieved. Rowe Entm’t, Inc. v. The William Morris Agency, Inc., 205 F.R.D. 421, 429 (S.D.N.Y. 2002). The data on a backup tape is “not organized for retrieval of individual documents or files, but for wholesale, emergency uploading onto a computer system. Therefore, the organization of the data mirrors the computer’s structure, not the human records management structure, if there is one.” Id. (quoting Kenneth J. Withers, “Computer-Based Discovery in Federal Civil Litigation,” SF97 ALI-ABA 1079, 1085 (2001)). A party’s refusal to implement steps to preserve relevant information by allowing the downgrading of data to the less accessible format which by its nature systematically hinders future discovery making it more costly and burdensome can result in a violation of the preservation obligation. See Residential Funding Corp. v. DeGeorge Financial Corp, 306 F.3d 99, 110 (2d Cir. 2002).
*11 It is clear that, as of the writing of this report, B&B has not taken any steps to preserve email communications or mechanical drawings which may be on their server, despite the clear duty to do so. Even their IT person verified that nothing new was implemented or changed with regard to its computerized data.
B&B, on the other hand, seems to suggest that it would be appropriate to require Wood Group to secure B&B’s unnumbered backup tapes and search for information that would have been readily accessible but for their failure to adhere to the Temporary Restraining Orders and the duty to preserve which attached to this proceeding when the lawsuit was filed. Once again, B&B breached its duty to preserve and its duty to produce.
Wood Group also alleges that B&B misappropriated Wood Group’s proprietary engineering standards. They allege that engineering standards cannot be reversed-engineered because it is impossible to produce the exact standards when reverse-engineering. The only way to have an exact match for engineering standards, according to Wood Group, is to copy someone else’s standards.
Wood Group contends that, when it deposed Bryant Broussard in October of 2006, he indicated that he had designed standards approximately two weeks prior to his deposition. (See Rec. Doc. No. 209 at Ex 6 at p. 134). They also noted that when it deposed Beau, the B&B machinist with 30 years of experience, he testified that he had seen engineering design standards for casing heads, tubing heads, adapters and hinges. See id. at Ex. 3 at 134-135.
Wood Group also indicated that when deposing Bobby Rhyne as a Rule 30(b)(6) witness, he confirmed that he observed several engineering standards while at B&B. Id. at Ex. 27 at pp. 117, 121, and 164. However, after a deposition break, the witness returned and indicated that, after speaking with Poche, B&B only had the one engineering standard that was produced.
B&B contends that Wood Group has not requested the production of engineering standards. B&B did not address the apparent inconsistency of its own witness testimony.
Wood Group points out that the engineering design standard that it believes was copied was actually produced to it by B&B in response to the October 2006 document production. The record supports Wood Group’s representation that its Request for Production of Documents sought the production of engineering design standards. The Court is not convinced that B&B produced all of the engineering standards that it possesses. Again, concealment rather than candor appears to be its practice.
10. Failure to Produce the TC-60 Drawing
Wood Group contends that Ricky Poche testified falsely in his deposition when he stated that B&B did not possess any mechanical drawings for TC-60 hangers before June 26, 2006 when one of its own manufacturers, Machine Tech, faxed to him a TC-60 drawing. Id. at Ex. 2 at pp. 19-20. It notes that, after it issued a subpoena to ASAP, another manufacturer, ASAP produced a TC-60 drawing faxed to them on March 18, 2006, by an employee of B&B, Travis Raiford. Wood Group contends that these two drawings are essentially the same and are Wood Group drawings. Wood Group also contends that it specifically requested production of all TC-60 drawings during discovery; however, it contends that B&B never produced any drawings in response.
*12 B&B contends that Angers, the owner of Machine Tech Services, sent a TC-60 drawing to B&B on June 26, 2006. It denies that it sent the drawing to Machine Tech. B&B also contends that later during his deposition, Poche clarified his testimony and indicated that the drawing was found by a B&B employee in a surplus part purchased by B&B from Wood Group.
B&B contends that the similarity of the drawings shows that there are many drawings of the products circulating around and not that they took a Wood Group drawing and co-opted it as their own.
B&B also contended that Raiford testified that he is not a technical person and would not know what was sent with the fax sheet. He denied knowing the source of the drawing. He also testified that he was never asked to gather any TC-60 drawings.
The record shows that Exhibit 13 A is the Wood Group drawing which was created on June 22, 1993. Exhibit 13A shows a drawing number of 20-261-039-01. In comparison, Exhibit 12 has the exact same number on it. The only modification on Exhibit 12 was in the title block. The reference to the company that is typically in the title block was blocked out. Also, the date of creation was blocked out. Further, the ASAP produced drawing shows that it was transmitted by B&B from their telephone number to ASAP.
The exhibits are mechanical drawings sought during discovery that Poche denied having. Further, there is no evidence that suggests that B&B honored its duty to produce the documents to Wood Group, but it certainly forwarded the drawing to its manufacturer for reproduction.
B. The Appropriateness of Sanctions
Wood Group contends that it clearly established an effort by B&B to obstruct, alter documents, and impede the free flow of information in the case. It further contends that because of B&B’s obstructive conduct, it should be sanctioned. It specifically requests a determination of facts as established, a determination of liability, or alternatively the assignment of an adverse inference. Additionally, Wood Group seeks the assessment of reasonable attorneys fees and expenses for the difficulty B&B created during the discovery phase of the litigation.
B&B contends that the evidence presented only shows that it may have been negligent and not that it purposely misrepresented, delayed or obstructed discovery. It contends that the issue of altering documents and paying off witnesses go to the weight of the evidence to be presented at trial and has nothing to do with discovery. As such, B&B contends that the subject motion should be denied in its entirety.
Rule 37 of the Federal Rules of Civil Procedure provides for the imposition of sanctions against a party who fails to make discovery or to obey a discovery order. The sanctions expressly permitted under Rule 37 include taking facts as established, striking answers or defenses, precluding the introduction of evidence, striking out pleadings, dismissal, judgment by default, holding a party in contempt, and assessing reasonable expenses, including attorney’s fees. A district court is also permitted under Rule 37 to enter any order that is “just.” See Bowers v. NRX Services, Inc., 170 F.R.D. 91, 92 (N.D.N.Y. 1997).
Additionally, the Court notes “that federal courts are vested with the inherent power ‘to manage their own affairs so as to achieve the orderly and expeditious disposition of cases.’ ” Lafarge Corp. v. M/V Macedonia Hellas, CIV. A. 99-2648, 2000 WL 1586402, at *4 (E.D. La. Oct. 23, 2000) (citing Link v. Wabash R. Co., 370 U.S. 626, 630 (1962)). Accordingly, the Court “may order sanctions ... for misconduct either pursuant to Rule 37(b)(2) ... which authorizes a court to assess a sanction for violation of a discovery order, or pursuant to the court’s inherent power to protect [its] integrity and prevent abuses of the judicial process.” Webb v. District of Columbia, 146 F.3d 964, 971 (D.C. Cir. 1998).
*13 In the subject case, B&B violated this Court’s January 8, 2007 discovery order and adeptly avoided a direct violation of others. (See Rec. Doc. No. 138). The Court observes that throughout the pretrial proceedings B&B strategically objected to the production of documents responsive to the requested written discovery, forced Wood Group to file a motion to compel, and on the eve of the hearing produce documents. B&B would then certify to the court that their production was complete resulting in a finding by the court that the motion to compel was moot.
For example, in response to the Third Set of Interrogatories seeking the identity of the entity creating the drawings, B&B refused to identify the individual or entity that created the drawings it had it its possession. B&B initially objected to production of the documents suggesting that Wood Group should take its Rule 30(b)6 deposition. This Court ordered production of the information on January 8, 2007. (See Rec. Doc. No. 138). Wood Group later filed another Motion to Compel re-urging the production of the information. Subsequent to the filing of the motion, but before the next hearing, B&B answered the request and provided a list or chart identifying the mechanical drawings and the individual who created them.
It was noted during the hearing that the second chart was sufficient for the additional mechanical drawings that were produced after the original certification made by B&B in November, 2006, that it had produced all of the drawings. Wood Group however advised B&B that the initial chart it provided did not contain information as to all of the vendors. As such, B&B agreed to go back and check to confirm that this response was complete. It further suggested that since Wood Group deposed Acosta, its designer, he could have provided the information.
Similarly, although B&B certified during the November 6, 2006 hearing that it produced all of the mechanical drawings, the same issues resurfaced, namely completeness of the production of the mechanical drawings. For example, B&B certified at the November hearing that it provided all of the mechanical drawings with one reservation, only to find out later that each time Wood Group deposed a witness, such as Acosta, Beau, Angers, LaRouge, Rogers, Taylor, and Raiford, more drawings were disclosed.
The common theme is that despite B&B’s certification to the court that the production was complete, it failed to ask its own employees and third party contractors if they had any mechanical drawings. B&B’s attempt to tap dance around the rules of discovery caused them to walk so close to the line that it crossed the line. B&B’s failure to seek out information that was reasonably accessible to it and preserve it and/or produce it is a clear abuse of the judicial process.
Further evidence of B&B’s blatant disregard for the inherent authority of the court to manage its cases and administer justice is the admission by their system’s employee that nothing was done to comply with the preservation orders contained in each of the Court’s Temporary Restraining Orders. It comes as no surprise that because B&B failed to follow the preservation orders issued by the District Court, it could produce no emails because the system was overwritten daily.
Wood Group clearly presented evidence that B&B altered mechanical drawings by placing their name on the drawings, produced other drawings with inconsequential modifications to the measurements with its name on it, and failed to produce drawings in response to written discovery. Clearly, co-opting Wood Group’s drawings illustrates bad faith and intent to impact the judicial process by concealing the truth. In fact, these drawings were not produced until third-parties responded to subpoenas sent by Wood Group.
*14 Finally, although Wood Group requested production of engineering design standards, and its employees testified that they had seen engineering standards at B&B, only one engineering design standard was produced and B&B responded in written discovery that it did not have any to produce. Then, after having sworn to tell the truth, Rhyne, upon consultation with Poche, changed his testimony and indicated that they had no further engineering standards.
Interestingly, B&B inadvertently produced one engineering standard in discovery in direct contradiction to its written response and, in an effort to conceal their existence, secured a change in the testimony of Rhyne during a break in his deposition. The evidence shows that during the break he asked Poche about the other engineering design standards, he was advised there were none and returned to testify that the only engineering design standard it had was the one it had inadvertently produced. The Court is of the opinion that the obvious attempts to conceal the truth and multiple breaches of the duty to preserve and produce warrant the imposition of sanctions.
Having determined that B&B’s conduct is sanctionable, the Court next determines which sanction is appropriate under the circumstances. Wood Group contends that a plethora of sanctions should be imposed. Wood Group seemingly relies upon the inherent power of the court to sanction as this is the only standard provided in their written submission to the court. B&B contends that no sanction is appropriate as they were just negligent.
A Court’s discretion to impose sanctions under its inherent power is more limited than the discretion the court possesses when applying civil rules of procedure and statutes that call for sanctions. Pressey v. Patterson, 898 F.2d 1018 (5th Cir. 1990). The courts must use their inherent power with great restraint and should only exercise this power when it is essential to preserve the authority of the court. Natural Gas Pipeline Co. of Am. v. Energy Gathering, Inc., 86 F.3d 464 (5th Cir. 1996). These powers include the authority to punish for contempt in order to maintain obedience to court orders and the authority to impose reasonable and appropriate sanctions on errant lawyers practicing before the court. Flaksa v. Little River Marine Constr. Co., 389 F.2d 885 (5th Cir. 1968).
The threshold for the use of the inherent power sanction is high. Reed v. Iowa Marine & Repair Co., 16 F.3d 82 (5th Cir. 1994). Such power may be exercised only if essential to preserve the authority of the court and the sanction chosen must employ “the least possible power adequate to the end proposed.” Natural Gas, 86 F.3d at 467. If there is a reasonable probability that a lesser sanction will have the desired effect, the court must try the less restrictive measure first. Spallone v. United States, 493 U.S. 265, 280 (1990).
1. Adverse Inference Charge
The Court concludes that the imposition of an adverse inference charge is the least punitive measure that could be employed and should garner the desired effect. The trial court enjoys broad discretion in determining the appropriate sanction for the non-production of documents, which may include giving an adverse inference charge at trial. See Glover v. Costco Wholesale Corp., 153 Fed. Appx. 774, 775 (2d Cir. 2005).
A court may use the sanction of an adverse evidentiary inference when a party suppresses evidence through spoliation. Anderson v. Production Management Corp., Civ. A. 98-2234, 2000 WL 492095, at *3 (E.D. La. Apr. 25, 2000) (citing Maria A. Losavio, Comment, 1. Synthesis of Louisiana Law on Spoliation of Evidence, 58 La. L.R. 837, 862 (1998). Spoliation includes the loss, destruction, concealment or material alteration of evidence. Id. (citing Black’s Law Dictionary, p. 1409 (7th ed. 1999)); see also Karen Wells Roby & Pamela W. Carter, Spoliation: The Case of the Missing Evidence, 47 La. B.J. 222, 222 (1999). “When the contents of a document are relevant to an issue in a case, the trier of fact generally may receive the facts of the document’s nonproduction or destruction as evidence that the party which has prevented production did so out of the well-founded fear that the contents would harm him.” Nation-Wide Check Corp. v. Forest Hills Distribs., Inc., 692 F.2d 214, 217 (1st Cir. 1982).
*15 In the Fifth Circuit, the adverse inference is predicated on bad conduct of the contumacious party. See Vick v. Texas Employment Comm’n, 514 F.2d 734, 737 (5th Cir. 1975). Moreover, the circumstances of the act must manifest bad faith. Id. “Mere negligence is not enough, for it does not sustain an inference of consciousness of a weak case.” Id. (quoting McCormick, Evidence § 273 at 660-61 (1972), 31A C.J.S. Evidence § 4.6 156(2) (1964)); see also Williams v. CSX Transp., Inc., 925 F. Supp. 447, 452 (S.D. Miss. 1996).
Taking into account (1) B&B’s failure to comply with this Court’s discovery order; (2) B&B’s failure to instigate a litigation hold to retain relevant documents both after the issuance of the Temporary Restraining Orders and during the course of the litigation; and (3) B&B’s inappropriate conduct during depositions, the Court considered making the recommendation of a judgment of liability. However, in keeping with the standard applicable when applying the inherent authority of the court, the Court has concluded that other less stringent sanctions are more appropriate; namely, an adverse inference jury charge regarding the failure to produce emails and mechanical drawings, and engineering design standards, and to whatever extent the District Judge may later find destruction of other documents. The undersigned defers to the District Judge for the formulation of the appropriate language of the adverse inference.
Under its “inherent powers,”a district court may also award sanctions in the form of attorneys’ fees against a party or counsel who acts “in bad faith, vexatiously, wantonly, or for oppressive reasons.” Primus Auto. Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 648 (9th Cir.1997) (discussing a sanction against an attorney). Before awarding such sanctions, the court must make an express finding that the sanctioned party’s behavior “constituted or was tantamount to bad faith.” Id.
A party “demonstrates bad faith by delaying or disrupting the litigation or hampering enforcement of a court order.” Id. at 649. The bad faith requirement insures that the district court’s exercise of its broad power is properly restrained, and “preserves a balance between protecting the court’s integrity and encouraging meritorious arguments.” Id. Additionally, the amount of monetary sanctions must be “reasonable.” In re Matter of Yagman (Brown v. Baden), 796 F.2d 1165, 1184, as amended by, 803 F.2d 1085 (9th Cir. 1986) (reviewing a Rule 11 sanction but announcing a standard applicable to other sanctions as well).
Having determined that B&B acted in bad faith, the Court is of the opinion that Wood Group is entitled to recover reasonable attorneys’ fees and costs associated with the subject motion, the depositions of Angers, LaRouge, and Rogers, for all third party subpoenas, and fees and costs associated with the motions to compel submitted to the Magistrate Judge for resolution. The award of reasonable attorney fees shall be addressed in a subsequent motion after B&B has an opportunity to respond to the fee application submitted by Wood Group as instructed by the undersigned at the hearing.
It is therefore RECOMMENDED that the Motion for Sanctions Against the B&B Defendants (Rec. Doc. No. 209) be GRANTED IN PART and DENIED IN PART for the reasons detailed above and in the manner recommended above.
*16 A party’s failure to file written objections to the proposed findings, conclusions, and recommendation in a magistrate judge’s report and recommendation within ten (10) days after being served with a copy shall bar that party, except upon grounds of plain error, from attacking on appeal the unobjected-to proposed factual findings and legal conclusions accepted by the district court, provided that the party has been served with notice that such consequences will result from a failure to object. Douglass v. United Services Automobile Association, 79 F.3d 1415, 1430 (5th Cir. 1996).
Wood Group is engaged in the oil field services industry. It is a limited partnership organized under the laws of Texas with a principal place of business located in Houston, Texas.
The lawsuit was filed on June 9, 2006. See Rec. Doc. No. 1. The original defendants in this matter were B&B, Bobby Rhyne, Brent Trauth, Ricky Poche, Bryant Broussard, Michael Taylor, a former independent contractor for Wood Group and now employee of B&B, Hi-Tech, and Ha Tran Quach, the president and equity owner of Hi-Tech.
The First Temporary restraining order was issued on June 26, 2006. (See Rec. doc. No. 10) The second Temporary Restraining order was issued on July 6, 2006. (See Rec. Doc. No. 19).
The Court notes that several sets of Interrogatories and Requests for Production were at issue in the initial hearing all of which requested production of all machine drawings, other drawings, design files, prints, calculations and other documents supporting any product purchased obtained, manufactured or sold by B&B. B&B indicated that they produced over 200 drawings most of which were undated and done by hand. See Tr. of Nov. 8, 2006 hearing, Rec. Doc. No. 122 at pp. 5-7).
Acosta worked briefly for an unrelated third party company before joining B&B.
Acosta Deposition Excerpt Page 78, Lines 8-24.
Q. As of the end of last year, how many drawings do you think you had created on SolidWorks?
Q. As of the end of last year, 2006, how many drawings do you think you had created on SolidWorks?
Q. How many drawings do you think you’ve created this year?
Q. Okay. So just a few more this year so far you’ve created?
A. No, no, no. Yeah–well, since I’ve been there about I think it’s–the number started at one, and I think I’m just–just–just over a hundred.
Acosta Deposition Excerpt Page 77, Lines 13-25.
Q. Did anyone ever ask you to produce all of the drawings you had?
Q. In other words, to turn over to the attorneys all of the drawings you had?
A. Not– not me, no, I haven’t– I haven’t been asked that.
B&B advised the court that Acosta was sued by Wood Group in November 2006. As a result, B&B indicated that Acosta had to hire separate counsel.
Counsel for B&B did not concede that Acosta was assigned to use the Solid Works program which sequentially numbers all drawings.
eDiscovery & Digital Evidence, Discerning lack of candor, § 7.19(updated November 2006).
During the hearing the Court requested production of Cedatol’s testimony and in reviewing it, noticed that he testified that no one ever asked him to retrieve a deleted email.
Indeed, in light of the fact that B&B failed to comply with the District Judge’s order to preserve evidence, this Court ordered the production of Acosta’s computer for copying and forensic analysis.
“False testimony in a formal proceeding is intolerable. We must neither reward nor condone such a flagrant affront to the truth-seeking function of adversary proceedings.” ABF Freight Sys., Inc. v. N.L.R.B., 510 U.S. 317, 323 (1994).
Courts have extended the affirmative duty to preserve evidence to instances when that evidence is not directly within the party’s custody or control so long as the party has access to or indirect control over such evidence. See, e.g., King v. American Power Conversion Corp., 181 Fed. Appx. 373 (4th Cir.2006); Silvestri v. General Motors Corp., 271 F.3d 583 (4th Cir.2001).
End of Document.