*1 Plaintiff, Eastman Chemical Company (“Eastman”), have filed three Motions in Limine[1] [Docs. 99, 101, 109] and corresponding memorandums [Docs. 100, 102, 110]. Defendants, SGS North America, Inc. and SGS Minerals Services (“SGS”), have filed three responses [Docs. 124, 130, 136], objecting to the motions. A hearing on these motions was held January 24, 2019. The matter is before the Court pursuant to 28 U.S.C. § 636 and the standing orders of the District Court. The matter is now ripe for resolution.

I. Relevant Background and Procedural History

Eastman entered into a series of Purchase Orders beginning in January 2010 and a Master Services Agreement (“MSA”) with SGS in October 2010 where SGS agreed to sample and analyze coal purchased by Eastman from third-party coal suppliers. Eastman contracted to purchase coal from Mountain Energy Resources, Inc. (“Mountain”) and True Energy Services, Inc. (“True Energy”) (collectively “Suppliers”). As part of those purchase orders, Eastman and Suppliers agreed to a “premium-penalty” arrangement: Eastman would pay a higher price for coal certified above a specified British Thermal Unit (“BTU”) threshold and a lower price for coal falling below the BTU threshold. SGS would sample and test coal shipments from Mountain and True Energy to determine ash, sulfur, BTU, and other content of the coal, determining the price Eastman would pay to the suppliers.

However, individual SGS employees accepted bribes from Suppliers to sample and report higher quality coal than they knew was actually being sent to Eastman. This resulted in Eastman paying the premium price to Suppliers for non-premium quality coal. This scheme continued unbeknownst to Eastman from early 2010 until February 2012, when an anonymous letter was sent to Eastman from an SGS employee revealing the scheme. Eastman filed the current action to recover losses from the scheme from SGS.

In its motions, Eastman seeks to exclude various evidence and testimony by SGS. The Court will address each motion in turn.

II. Analysis

A. First Motion in Limine to Preclude SGS from Presenting and Rebutting Evidence as to the Estimated Value of the Coal Shipped [Doc. 99]

Eastman seeks to prevent SGS from presenting any evidence as to the actual value of the coal shipped from Suppliers during the scheme, arguing that as SGS failed to collect accurate samples, it has been equitably estopped from presenting any evidence as to how much Eastman has been damaged. Eastman also asserts that allowing SGS to present a valuation of the coal would be unfairly prejudicial to Eastman under Fed.R.Evid. 403. Finally, Eastman moves the Court to sanction SGS for the spoliation of the only true evidence of the actual value of the coal. SGS objects, stating that Eastman fails to meet its burden in proving equitable estoppel, irrelevancy under Rule 403, and spoliation.

*2 With this motion, Eastman hopes to prevent SGS from presenting any evidence as to a significant portion of Eastman's claimed damages, which are at the heart of this litigation. As Eastman notes in its own motion, “[t]he doctrine of equitable estoppel is founded upon the soundest principles of justice and morality...” Church of Christ v. McDonald, 171 S.W.3d 817, 821 (Tenn. 1943). In following those principles, the Court cannot find that it is just and moral to allow Eastman to present its estimation of the actual value of the coal delivered to Eastman without allowing SGS to do the same. To do so would essentially allow Eastman to set its own damages without question. Therefore, the Court is unpersuaded by Eastman's equitable estoppel argument.

Similarly, Eastman seeks the same result under Fed.R.Evid. 403, this time arguing that it would be unfairly prejudicial, misleading to the jury, and could confuse the issues. Again, the Court agrees with SGS that this extreme remedy would essentially give Eastman the opportunity to set its own damages. This practice would be unfairly prejudicial, except not to Eastman, but to SGS.

Finally, Eastman asserts that sanctions under Fed.R.Civ.P. 37 and the “inherent powers” of the Court is appropriate for the spoliation of the actual value of the coal shipped during the scheme. Eastman asserts that the appropriate sanction in this case would be precluding SGS from presenting any evidence as to the quality of the coal and from rebutting any of Eastman's evidence to the same. This is simply Eastman's third attempt to present uncontested its estimate of damages, which the Court has already found to be unjust. Therefore, the Court will DENY this motion.

B. Second Motion in Limine Concerning Spoliation of Evidence by SGS [Doc. 101]

Eastman asserts that sanctions should be imposed on SGS for spoliating employee evaluations, chain of custody records, and Electronically Stored Information (“ESI”). As a result, Eastman is seeking an adverse inference instruction and to preclude SGS from presenting evidence that it fully cooperated with the FBI investigation and Grand Jury subpoenas. Additionally, Eastman acknowledged at the hearing that the employee evaluations and chain of custody records are only relevant to the RICO claims under consideration by the District Judge in SGS's Motion for Partial Summary Judgment [Doc. 50]. SGS responds that Eastman has not shown that SGS has spoliated any of the complained evidence.

By definition, “[s]poliation is the intentional destruction of evidence that is presumed to be unfavorable to the party responsible for its destruction.” Ross v. American Red Cross, 567 F.App'x 296, 301-02 (6th Cir. 2014) (quoting United States v. Copeland, 321 F.3d 582, 597 (6th Cir. 2003)) (internal quotations omitted). In this case, Eastman bears the burden of proof in proving such destruction. See Rogers v. Hobby Lobby Stores, Inc., No. 2:14-CV-379, 2016 WL 7799583, at *5 (E.D. Tenn. June 29, 2016). In order for a Court to issue a sanction for the destruction of tangible evidence, three conditions must be met: “(1) the party with control over the evidence must have had an obligation to preserve it at the time it was destroyed, (2) the accused party destroyed the evidence with a culpable state of mind, and (3) the evidence destroyed must be relevant to the other side's claim or defense.” McCarty v. Covol Fuels No. 2, LLC, 644 F.App'x 372, 378 (6th Cir. 2016) (citing Beaven v. U.S. Dep't of Justice, 622 F.3d 540, 553 (6th Cir. 2010)).

i. Employment Evaluations

Eastman specifically asserted that SGS destroyed the employment evaluations of Jerry Wheeler, Edward “Butch” Pendleton, Bruce Caylor, Steve Pendleton, Clayton Ayers, Gary Clonce, and Anthony Wells. SGS states that it objected to the production of all employment information except for the files of Anthony Wells and Gary Clonce in a letter on November 21, 2017 [Doc. 130-5] and that Eastman never challenged that objection. SGS also asserts that Eastman has not proved that it destroyed the evidence with a culpable state of mind. It states that the personnel files have been moved several times and that SGS searched in the physical files as well on a laptop and at the Harrogate facility, but were unable to find any additional employee evaluations that had been requested. Based on this information, and the lack of information provided by Eastman that SGS intentionally destroyed the evaluations, the Court finds that Eastman has not met its burden in proving SGS spoliated this evidence and will DENY this part of the motion.

ii. Chain of Custody Records

*3 Eastman sought chain of custody records for the coal collected by Anthony Wells at True Energy between 2010 and 2012. SGS argues that there is no evidence that these records ever existed. While Anthony Wells stated in his deposition that he remembered signing a chain of custody form, he says that he does not remember if he did such for every sample collected [Doc. 102-4, Wells Deposition, 65:21-66:1, 67:23-68:3]. SGS also notes, through the testimony of its corporate representative, that “if SGS is there and maintains custody of that sample all the way through” the process, then “there's not a real need to have a Chain of Custody Report” [Doc. 130-1, Buddy Hancock Deposition, 201:10-14]. Therefore, based on the statement of Wells and SGS policy, SGS claims that the chain of custody reports might have never existed in the first place. Again, Eastman has failed to prove that the records existed and that SGS destroyed this evidence. The Court will DENY this part of the motion.

iii. Electronically Stored Information

The standard of spoliation as it relates to ESI is governed by Fed.R.Civ.P. 37(e). Essentially this rule creates a step-by-step analysis:

Yoe v. Crescent Sock Company, Case No. 1:15-CV-3-SKL, 2017 WL 5479932, at *9 (E.D. Tenn. Nov. 14, 2017) (citing Byrd v. Alpha Alliance Inc. Corp., 518 F.App'x, 380, 383-84 (6th Cir. 2013)).

It appears to be uncontested in this case that the location of the ESI at issue is on a server owned by Orange Business Services, making the ESI not destroyed, but simply unaccessed. At approximately the same time that SGS was served in this litigation in early 2016, it also changed email providers, from Orange Business Services to Office365. The information on this server is apparently in a “journal entry form, which has terabytes upon terabytes of information” [Doc. 130-1, Hancock Deposition, 34:23-35:8]. SGS testified that it has consistently made efforts to retrieve that data in a searchable form but so far has been unsuccessful.[2] Again, Eastman has not shown that this evidence has been spoliated by SGS as it cannot even show that the ESI is destroyed. Therefore, this part of the motion is DENIED.

For the reasons stated above, this motion in its entirety is DENIED.

C. Fourth Motion in Limine (Omnibus) [Doc. 109]

This motion by Eastman contains several distinct parts. It hopes to exclude the following evidence and testimony: Michael Evans' December 18, 2018 expert report, Michael Costello's December 18, 2018 expert report, certain deposition testimony of Lauren Daloisio, testimony of Charles Renner, designated deposition testimony of Eastman's corporate representative, and certain SGS exhibits. SGS objects.

i. Expert Reports by Evans and Costello

This part of the motion deals with Evans' supplemental expert report that is the subject of Eastman's Motion to Strike [Doc. 96]. Per the Court's previous Order [Doc. 142], this report is stricken from the record. Therefore, that part of the motion is GRANTED. As such, Costello's supplemental report, to the extent that it relies on the stricken Evans' report, is also excluded. That part of the motion is GRANTED.

ii. Deposition Testimony of Lauren Daloisio

*4 Lauren Daloisio is the former Assistant General Counsel for Litigation and Employment for SGS. Eastman seeks to exclude her testimony as it relates to compromise negotiations with Eastman's in-house counsel and any statements from the FBI as recounted by Daloisio in her deposition. However, SGS argues that the designated testimony is instead being for other, admissible purposes.

As to the negotiations between Daloisio and Eastman's counsel Mike Blake, under Fed.R.Evid. 408, evidence of “furnishing, promising, or offering...a valuable consideration in compromising or attempting to compromise a claim” and any “conduct or [ ] statement[s] made during compromise negotiations” is not admissible. Daloisio states in her deposition that she remembered a call to Blake in which she offered to refund the testing fees paid by Eastman to SGS during the time of the scheme. SGS seeks to characterize that testimony as a defense against Eastman's claim of SGS “ratifying” the actions of its employees who were involved in the scheme. This argument, however, is unpersuasive to the Court. Even Daloisio admits that this offer occurred in relation to the demand letter and the claims contained within from Eastman to SGS [Doc. 111-5]. This is clearly an offer to settle, which is barred by Rule 408, and therefore, the Court GRANTS this part of the motion and excludes Daloisio's testimony regarding offers to settle.

For the statements made by the FBI and recounted by Daloisio, Fed.R.Evid. 802 applies, which bars hearsay. The statements made by FBI agents about the extent of its investigation to Daloisio is classic hearsay: they are statements made by someone outside of court and offered “to prove the truth of the matter asserted in the statement.” Fed.R.Evid. 801(c). While SGS tries to argue that it seeks to use the statement to show Daloisio's and thereby SGS' state of mind when firing Clonce and Wells, the Court does not find that persuasive. It is clear that SGS hopes to introduce these statements, including one to the effect that Clonce and Wells were the only SGS employees involved in the scheme, to suggest that the company is not at fault. Therefore, this part of the motion is GRANTED and her statements regarding what the F.B.I. told her is excluded.

iii. Testimony of Charles Renner

In this part of the motion, Eastman asserts that SGS untimely supplemented its disclosures to have former employee Charles Renner testify at trial. However, SGS states that it did not do so. Eastman withdrew this motion at the hearing. Therefore, this part of the motion is DENIED AS MOOT.

iv. Deposition Testimony of Scott Schallon

Eastman also challenges certain deposition testimony designations of Eastman's corporate representative, Scott Schallon. First, it argues that his testimony relating to the drafting history of the MSA to be irrelevant. Second, Eastman states that Schallon's testimony about the four trains shipped from Suppliers as part of the FBI investigation are not relevant as Eastman is not seeking damages based on those trains. Third, Schallon testified to prior and ongoing litigation between Eastman and Mountain and True Energy. Those suits are related to the four investigatory coal shipments, which are not at issue in this case. Fourth, Schallon testified to the continued business relationship between Eastman and SGS and the spot-checks now performed by Mineral Labs since the discovery of the scheme. SGS maintains that this testimony is relevant to show that Eastman never believed that SGS was involved in the scheme and that it was feasible to mitigate its damages. Finally, Eastman seeks to exclude Schallon's testimony as to his opinion on the legal aspects of the demand letter sent from Eastman to SGS.

*5 For the following reasons, the Court GRANTS this part of the motion and excludes Schallon's specific deposition designations challenged by Eastman. In regards to the testimony about the MSA, there is no contention that the MSA is ambiguous, making it irrelevant. Next, Schallon's testimony relating to the four investigatory coal shipments and the litigation resulting therefrom are related to SGS' offsetting benefits calculation, which the Court has excluded under a separate order [Doc. 144]. Next, the Court finds that what Eastman did after the fraud, including continuing to do business with SGS and performing spot-checks with Mineral Labs, is irrelevant to the case at hand. Finally, Schallon's personal interpretation of the demand letter is also irrelevant.

v. SGS exhibits

Finally, Eastman challenges several exhibits proposed by SGS as irrelevant, including training materials prepared by Charles Renner, pleadings from the suits between Eastman and Mountain and True Energy, other documents relating the four investigatory shipments in 2012, and a table showing the calculated pre-judgment interest related to Dale Stanley's criminal restitution payments. Eastman also challenges the various versions of the Evans and Costello expert reports.

First, SGS suggests that the Renner training materials are relevant to show the standard of coal sampling training provided to field technicians at the branch office in Harrogate. The Court agrees that, to the extent the RICO claims are allowed to proceed to trial, these materials are relevant. Therefore, the part of the motion is DENIED.

Next, the pleadings in the Mountain and True Energy cases as well as the other related documents are only related to SGS' offsetting benefits calculation, which has been excluded. Therefore, these documents are not relevant and the Court excludes them. The Court has also previously excluded SGS' calculation of prejudgment interest to Dale Stanley's criminal restitution payments [Doc. 141]. Therefore, that table is irrelevant and should be excluded. Finally, as previously stated, the substance of the last-filed Evans and Costello reports have already been excluded, and therefore the reports shall be as well. As to the other previously filed reports by those experts, the Court agrees that the reports themselves are hearsay and are excluded, but at the hearing, the parties agreed that the figures and charts included in them may be used at trial.

III. Conclusion

For all of the above reasons, the Court:

(1) DENIES Plaintiff's First Motion in Limine [Doc. 99];

(2) DENIES Plaintiff's Third Motion in Limine [Doc. 101];

(3) GRANTS in part and DENIES in part Plaintiff's Fourth Motion in Limine [Doc.109].[3]

SO ORDERED:

Plaintiff's Third Motion in Limine to Exclude SGS' Setoff Defense Related to Investigatory Coal Shipments is addressed in a separate Order.

At the hearing, SGS stated that it would be willing to pay for keyword searches of the ESI on Orange Business Services server.

Any objections to this order must be filed by Sunday, February 10, 2019 or further appeal will be waived.