The opinion of the court was delivered by: Judge James B. Moran
MOTION OF BP AMOCO CHEMICAL COMPANY AND BP CORPORATION NORTH AMERICA INC. FOR SANCTIONS AGAINST FLINT HILLS RESOURCES, LLC FOR THE SPOLIATION AND DESTRUCTION OF MATERIAL EVIDENCE
BP Amoco Chemical Company ("BP Amoco") and BP Corporation North America Inc. ("BPCNA") move the Court for sanctions against Flint Hills Resources, LLC ("FHR") due to FHR's intentional spoliation and destruction of evidence central to the issues in this case. The spoliation and destruction of core evidence at issue in this case was not accidental; it was not minor or immaterial; and it involved both physical evidence as well as masses of electronic evidence. FHR itself has belatedly acknowledged and admitted that its destruction of emails was not appropriate, and was contrary to its own policies and procedures.
FHR also has admitted that it spoliated physical evidence at the heart of 12 of its individual claims in this case. In some cases FHR completely destroyed the equipment, and in other cases it preserved only FHR-selected samples of what was replaced or repaired.
As the Court is aware from prior motion practice and hearings, this case involves claims by FHR that BP Amoco committed fraud and breached the parties' Asset Purchase and Sale Agreement ("PSA") when it sold FHR an allegedly damaged and mechanically deficient chemical plant located in Joliet, Illinois. Specifically, FHR alleges that the condition of the plant at the time of the sale, in May 2004, did not meet various contractual representations and warranties made by BP Amoco. Thus, the obvious, crucial issues in this case revolve around:
(i) the negotiations between the parties and the parties' internal discussions relating to the representations and warranties in the PSA; and (ii) the condition of the allegedly defective equipment at the time the plant was sold. FHR's own claims and the discovery in this case have confirmed the centrality of these issues.
Incredibly, and only after persistent questioning, BP Amoco and BPCNA learned during discovery that FHR failed to preserve critical pieces of evidence at the plant. Instead, FHR destroyed, permanently altered, and failed to preserve equipment that is the very subject of its claims. For example, in Claim 48, FHR seeks $1.6 million for repairs and/or replacement of the MD-801(2), a titanium-lined vessel at the Joliet plant. Yet, after allegedly having made the repairs and replacement, FHR destroyed the original vessel, precluding BP Amoco from examining it to determine whether any repairs or replacement were needed, and if they were, why they were needed (i.e., causation).
In addition, FHR's most senior executive, its then-President and Chief Executive Officer, David Robertson, deliberately and knowingly deleted well in excess of at least 1,500 emails regarding the Joliet plant. What is most disturbing is that FHR destroyed much of this evidence after Mr. Robertson personally instructed BP Amoco-in writing-about the need to preserve evidence relating to the Joliet plant. Moreover, and setting aside Mr. Robertson's own document preservation instructions to BP Amoco, FHR destroyed physical evidence at the Joliet plant even after this lawsuit was filed, and even after counsel for BP Amoco specifically reminded FHR's counsel about the obligation to preserve the physical evidence upon which FHR bases its claims, but then destroyed.
FHR's destruction of key evidence has seriously and irrevocably prejudiced BP Amoco and BPCNA. For example, as a result of FHR's actions, BP Amoco and BPCNA are forever precluded from examining, testing, using or relying upon the spoliated evidence to defend against FHR's counterclaims. Nor will BP Amoco or BPCNA, or the jury, ever know the contents of all of the emails destroyed by Mr. Robertson. As a result, BP Amoco and BPCNA respectfully request that the Court dismiss FHR's counterclaims, strike FHR's answer to BP Amoco's declaratory judgment complaint, and award attorneys' fees and costs to BP Amoco and BPCNA in light of FHR's conduct. In the alternative, BP Amoco and BPCNA respectfully request that the Court: (1) dismiss the 12 individual FHR claims that are most directly affected by FHR's spoliation of evidence; (2) award BP Amoco and BPCNA their attorneys' fees, costs, and expenses associated with defending those 12 claims*fn1 ; (3) dismiss FHR's fraud claim as a result of its unclean hands; (4) order that an adverse inference be given to the jury to the effect that the destroyed emails and physical evidence would have been unfavorable to FHR; and (5) take this adverse inference into account when ruling on summary judgment motions.
In further support of this Motion, BP Amoco and BPCNA refer to their accompanying Memorandum of Law and provide the following summary of the facts:
FHR'S DUTY TO PRESERVE EVIDENCE
1. BP Amoco sold the Joliet plant to FHR pursuant to the parties' PSA, which was executed on March 29, 2004. The closing and transfer of the plant took place on May 28, 2004.
2. In overview, the evidence on this motion will establish the following undisputed facts: (i) prior to the filing of this litigation, Robertson, FHR's then-CEO, instructed BP Amoco in writing about the legal obligation and need to preserve all relevant evidence; (ii) when BP Amoco specifically reminded FHR that the obligation to preserve evidence ran both ways, FHR incredibly disputed that it had any such obligation; (iii) FHR nevertheless assured BP Amoco that it had taken steps to preserve evidence relating to its claims; (iv) FHR, in fact, did not preserve the physical evidence for many of its claims, at least 12 of them, but instead destroyed or otherwise compromised the evidence; (v) FHR throughout discovery continually represented to the Court that it was done with its document production; (vi) FHR's representations about the status of its document production were not accurate; (vii) during discovery, BP Amoco reminded FHR on several occasions that FHR had not produced any emails from its most senior executive (Mr. Robertson), the person in charge of the transaction and who personally asserted FHR's post-sale claims against BP Amoco; (viii) FHR finally produced a handful of emails from Robertson's files only a few weeks before his deposition and more than two years after the beginning of fact discovery; and (ix) only at Mr. Robertson's deposition was it finally revealed that he had destroyed his emails. In short, the evidence establishes that FHR knew what its duties were and nevertheless violated those duties en masse by destroying electronic evidence relating to the entire transaction at issue and physical evidence relating to at least 12 of its individual claims.
3. On December 21, 2004, seven months after the closing and transfer of the Joliet plant, Mr. Robertson sent BP Amoco a letter-which he signed-claiming that BP Amoco had defrauded FHR and breached certain representations and warranties in the PSA regarding the condition of the plant. According to FHR and Mr. Robertson, BP Amoco had not adequately maintained the Joliet plant and, as a result, FHR would have to repair and replace different parts of the plant and its equipment. In his letter, Mr. Robertson stated that:
Flint Hills Resources has discovered information which indicates that representations and warranties made by BP Amoco in the Asset Purchase and Sale Agreement are not true and accurate in all material respects . . . and that covenants of BP Amoco have been materially breached . . . . The basis of [FHR's] Claim, and estimates of the losses (to the extent they have been incurred or can now be estimated), are included in the attached schedule. We expect that there may be other breaches that FHR has not yet discovered.
(See 12/21/04 Ltr from D. Robertson to M. Wrenn, attached as Ex. A.)
4. The schedule attached to Mr. Robertson's letter contained a list of specific equipment at the Joliet plant. (Id.) FHR claimed that, at the time of the sale, the condition of the specified equipment did not meet BP Amoco's representations and warranties as set forth in the PSA. (Id.) The individual pieces of equipment listed in FHR's letter now form the basis for the bulk of FHR's counterclaims. (Id.)
5. On April 25, 2005, Mr. Robertson sent BP Amoco another letter, detailing what documents should be preserved for use in the parties' dispute:
We assume that BP has preserved, and will continue to hold all records (electronic and hard copy) that are relevant to this dispute. We want to remind BP specifically of the back-up tapes being stored at Iron Mountain, and ask that those be preserved.
(See 04/25/05 Ltr from D. Robertson to M. Wrenn, attached as Ex. B (emphasis added).) Ironically, Robertson ignored his own instructions.
6. BP Amoco initiated this declaratory judgment action on September 30, 2005, seeking a declaration from this Court that it had not breached the PSA. On October 17, 2005, FHR filed its answer and counterclaims. A few months later, in January 2006, BP Amoco reminded FHR in writing of FHR's continuing obligation to preserve evidence relating to its claims and notified FHR that BP Amoco would need to inspect the relevant physical evidence at the Joliet plant. (See 01/25/06 Ltr from D. Peel to R. Stiles, attached as Ex. C.)
7. Notwithstanding the earlier letter from FHR's own CEO concerning the duty to preserve all evidence, FHR in response to BP Amoco's January 2006 letter disputed that it had any obligation to preserve evidence prior to the filing of BP Amoco's declaratory judgment action, and incorrectly asserted that only BP Amoco had a duty to preserve evidence before the litigation commenced. (See 04/18/06 Ltr from M. Porter to D. Peel, attached as Ex. D; see also Ex. B, April 2005 letter from FHR instructing BP Amoco to preserve all electronic and physical evidence.) Despite its inconsistent positions, FHR nevertheless represented that "mechanisms [had] been placed into effect . . . to preserve all relevant evidence in support of [FHR's] claims." (Id.) BP Amoco responded to FHR's letter by informing FHR that its duty to preserve evidence arose when it first contemplated litigation, even if no lawsuit had yet been filed. (See 06/13/06 Ltr from D. Peel to M. Porter, attached as Ex. E.) That same day, BP Amoco served a Rule 34 notice requesting a physical inspection of the plant. (Id.)
8. FHR continued to dispute that it had any duty to preserve evidence before the filing of this lawsuit in September 2005, but stated that it would allow BP Amoco to physically inspect the Joliet plant if BP Amoco described the equipment it wished to inspect and provided FHR with a list of the individuals who would be conducting the inspection. (See 07/24/06 Ltr from M. Porter to D. Peel, attached as Ex. F.) After BP Amoco provided FHR with the requested information, however, FHR asserted that BP Amoco's retained experts at Packer Engineering had a conflict of interest. (See 08/09/06 Ltr from J. Figliulo to Dr. K. Packer, attached as Ex. G.) Although Packer Engineering disputed that a conflict existed, FHR refused to allow Packer Engineering to participate in the plant inspection. As a result, BP Amoco was forced to file a motion to compel asking this Court to resolve the conflict issue. After full briefing, the Court ruled in favor of BP Amoco and rejected FHR's disqualification arguments.
9. Because of the delay caused by FHR's challenge to BP Amoco's retained experts, followed by the hospitalization of one of the key persons planning to attend the inspection (John Dueker, the former plant manager of the plant), BP Amoco conducted its physical inspection of the plant in early September 2007. As a result, BP Amoco's inspection occurred a year and a half after FHR already had spoliated and permanently altered much of the relevant equipment.
FHR'S SPOLIATION OF EQUIPMENT AT THE JOLIET PLANT
10. During the course of discovery, BP Amoco and BPCNA have learned, through deposition testimony and discovery responses, that FHR has not preserved much of the equipment over which it is seeking damages (for repair/replacement costs) in its counterclaims. Although BP Amoco first asked questions relating to spoliation in an interrogatory served on February 2, 2007, FHR's initial response was vague, incomplete and did not state that equipment had been destroyed and/or not preserved. After BP Amoco notified FHR that its response was deficient in this respect, FHR initially refused to supplement its interrogatory response. (See 5/18/07 letter from S. Fowkes to R. Stiles, attached as Ex. P; 3/18/08 letter from R. Stiles to S. Fowkes, attached as Ex. Q.) FHR eventually served a supplemental response providing limited additional information, but still failing to provide all of the facts relating to its spoliation of evidence at the plant. (See FHR Supp. Resp. Interr. 15 dated July 14, 2008, attached as Ex. H.) BP Amoco was thus required to take a Rule 30(b)(6) deposition of FHR on the subject of evidence preservation. Richard Morris testified on FHR's behalf on July 18, 2008. Thus, only after serving an interrogatory relating to spoliation, requesting that FHR supplement its response to that interrogatory, receiving yet another deficient response, and then taking a Rule 30(b)(6) deposition was BP Amoco able to confirm the facts surrounding FHR's spoliation of evidence.
11. It is not surprising that FHR was not forthcoming with the facts relating to its spoliation of evidence. Indeed, the discovery taken by BP Amoco confirms that much of the equipment at issue in FHR's counterclaims has been removed and was not preserved. Moreover, the evidence discovered by BP Amoco has confirmed that this equipment was destroyed after FHR's December 2004 claim letter and before BP Amoco's physical inspection of the plant.
12. For example, in Claim No. 48, FHR claims that MD-801(2), a titanium-lined vessel with a carbon steel shell, was corroded and that the titanium liner had bulged and buckled before the sale. (See June 9, 2008 FHR Claim Chart, attached as Ex. Y at 8.) FHR seeks over $1.6 million in damages to repair and replace this vessel. In the fall of 2005, many months after FHR first notified BP Amoco of its claims, FHR removed this vessel, but failed to preserve it as evidence. As a result, neither BP Amoco nor its experts had an opportunity to examine MD-801(2) after the sale and before its destruction by FHR. (Ex. H at 9, Rule 30(b)(6) Dep. Trans. of Richard Morris, at 647-48, attached in part as Ex. I; Dep. Trans. of Scott Retzlaff at pp. 159-60, attached in part as Ex. J; Dep. Trans. of Tim Nicol at 504, attached in part as Ex. K.) FHR's corporate representative on this subject, Mr. Morris, confirmed under oath that this vessel was "not retained" by FHR, in violation of FHR's own "legal hold" notice:
Q: Claim No. 48, we talked about this yesterday. This is MD-801(2). You would agree with me that at least by the fall of 2005 the legal hold had been put in place, correct?
Mr. Warman: Objection. Form. Again I'll-I will instruct the witness not to answer regarding the substance of any legal hold matter other than to say that substance involved legal hold.
A: To answer your question, legal hold was in place in December 2004.
Q: Okay. This vessel was removed by Flint Hills after the legal hold was put in ...