United States District Court, N.D. Illinois, Eastern Division
FLEXTRONICS INTERNATIONAL, USA, INC., Plaintiff/Counter-Defendant,
SPARKLING DRINK SYSTEMS INNOVATION CENTER LTD. and AARON SERGE BUENO, Defendants, and SPARKLING DRINK SYSTEMS INNOVATION CENTER HK LTD., Defendant/Counter-Plaintiff.
MEMORANDUM OPINION AND ORDER
International USA, Inc. brought this suit against Aaron Serge
Bueno and two companies he founded, Sparkling Drink Systems
Innovation Center Ltd. (“SDS-IC”) and Sparkling
Drink Systems Innovation Center HK Ltd.
(“SDS-HK”) (together, “SDS”),
alleging breach of contract, fraud, and other state law
claims in connection with a manufacturing agreement. Doc. 19.
After the court denied in large part Defendants' motion
to dismiss, Docs. 49-50 (reported at 186 F.Supp.3d 852 (N.D.
Ill. 2016)), they answered and SDS-HK counterclaimed for more
than $280 million, Doc. 52.
before the court is Flextronics's motion for sanctions
under Federal Rule of Civil Procedure 37 and the court's
inherent power. Doc. 54. The motion asserts that Defendants
fabricated an email that purported to alter the terms of the
parties' contractual relationship and then attempted to
use that email in this litigation. In addition to receiving
the parties' extensive briefs, the court conducted a
three-day evidentiary hearing. Docs. 135-137. Having
carefully considered all of the pertinent materials, the
court grants the motion in part and, as a sanction, dismisses
with prejudice SDS-HK's counterclaim.
The Parties' Business Dealings
to the operative complaint, SDS reached out to Flextronics in
2014 to engage it to manufacture disposable plastic pods for
use in SDS's at-home beverage systems. Doc. 19 at
¶¶ 4-5. After a few months of discussions,
Flextronics sent SDS a proposal setting forth the prices and
quantities of the pods it would produce. Doc. 94 at 11.
Thomas Schwab, SDS's CEO, agreed to the proposal on
August 1, 2014 during a telephone call with Flextronics
employee Rick Shaffer. Doc. 52 at 33; Doc. 94 at 11, 37; Doc.
94-3 at 3. (The record is unclear as to whether Schwab was
CEO of only SDS-HK or of both SDS-HK and SDS-IC, but because
only SDS-HK is being sanctioned, the point is immaterial for
to Flextronics, the parties later decided to formalize their
agreement in a written contract called the Interim Agreement.
Doc. 19 at ¶ 7. Flextronics emailed SDS a draft version
of the Interim Agreement on September 25, 2014 and solicited
SDS's input. Doc. 94-3 at 35. SDS discussed the draft
internally and made changes. Id. at 44, 48-51. After
additional negotiations, Schwab emailed Flextronics on
November 19, 2014 to ask it to “please issue this
agreement … officially from your side, with signature
etc., and send to us for agreement and counter-signature,
” id. at 54; the email referred to a version
of the agreement that previously had been attached in the
same email chain, Doc. 55-1 at 66-71. Flextronics replied on
November 21, attaching what it termed “the finalized
and signed contract as you requested” and asking for
SDS's countersignature. Doc. 94-3 at 58.
clear from the parties' correspondence that SDS did not
send Flextronics a countersigned agreement in 2014. On
December 1, 2014, Flextronics sent a list of “open
items” to SDS, including a request that SDS “sign
off” on the Interim Agreement. Doc. 55-1 at 144-47. On
December 15, Flextronics sent SDS an email bearing the
subject line “Interim Agreement, ” stating that
the “SDS countersigned document has not been returned
to Flex, ” and reattaching the version that Flextronics
had sent SDS on November 21. Id. at 158-64. On
December 17, an SDS employee asked Flextronics to
“adjust the agreement to reflect [the] correct pricing
and I will get it signed.” Id. at 166. (Later
that day, the same SDS employee asked Schwab whether he
should “sign or put it off.” Joint Exh. 22.
Schwab responded that “[a]s long as nothing else is
signed the Interim Agreement applies.” Ibid.).
On December 19, Flextronics sent Schwab an updated
“open items” list, whose second-highest priority
was for “SDS to sign off” on the agreement. Doc.
55-1 at 150, 156. At no point did Schwab or anyone else at
SDS say that SDS had already sent back to Flextronics a
signed version of the Interim Agreement.
relations soured, and the risk of litigation was apparent to
SDS by March 2015. On March 17, Schwab emailed Flextronics a
PDF of what he called “a copy of the Interim Agreement
signed back in November, ” which had “not
agreed” in handwriting next to the agreement's $2
million limitation of liability provision. Id. at
89-96. The document was signed by Schwab as
“CEO/Director” of SDS, and his signature was
dated November 23, 2014. Id. at 94. Quentin
Ducouret, SDS's CFO, was copied on the email.
Id. at 89. On March 18, Schwab received an email
from Bueno saying, “We need to really prepare ourselves
suing them” and “[t]o me it is clear we need now
to prepare a war with them. No matter what.”
Id. at 60-61.
next day, March 19, Schwab wrote to Flextronics, “my
assistant just pointed out to me that I did not send you the
final, final version of the agreement [on March 17] …
. Enclosed therefore the correct document.”
Id. at 52. The attached document included not only
the “not agreed” notation next to the limitation
of liability provision, but also handwriting that crossed out
the integration clause, which stated that the Interim
Agreement constitutes “the entire agreement between the
parties and supersede[s] prior discussions.”
Id. at 55. Schwab's signature on the document
was dated November 23, 2014. Id. at 56.
reacted to Schwab's emails with confusion and concern.
Joint Exh. 46 at 1-2 (March 18 emails among Flextronics
employees attempting to “figure out who received the
signed copy back from them [in November 2014, as] nobody
seems to have it, ” and treating Schwab's mark-ups
as “obviously a serious problem”). On March 23,
Flextronics employee Harjinder Bajwa replied to Schwab,
copying Bueno, stating that Flextronics “definitively
… did not receive any version of the Interim Agreement
from SDS until last week, ” and asking SDS to forward
any “electronic transmission [sent to Flextronics] in
late November” that attached the marked-up version of
the Interim Agreement. Id. at 98. After receiving
Bajwa's email, Bueno instructed Schwab to “resend
the one sent to Rick in November and tell them there is no
agreement as changes were not accepted.” Joint Exh. 50
next move is crucial for purposes of this sanctions motion.
On March 24, 2015, Schwab sent Bajwa, copying Bueno and
Ducouret, an email (“the March 24 email”)
stating, “while I don't really understand why this
still matters …, below the respective mail to
[Flextronics employee] Rick [Shaffer] at the time.”
Doc. 55-1 at 46. Below that text is what purports to be a
forwarded email dated November 24, 2014 (“the November
24 email”) from Schwab to Shaffer and Ducouret.
Ibid. The November 24 email states, “enclosed
the signed agreement with some further amendments [from] our
side. Let's discuss further, whenever necessary.”
next day, March 25, Bueno emailed Schwab a to-do list. Item
#3 reads: “Send email to Flex with ‘Proof we sent
it already (and your cynical comments©).” Doc.
106-11 at 2. That item was marked as completed.
filed this suit on June 3, 2015. Doc. 1. As to the March 24
email and November 24 email, the operative complaint alleges:
SDS has also claimed that it emailed a signed copy of the
Interim Agreement to Mr. Shaffer at Flextronics back on
November 24, 2014. To attempt to provide evidence of this
claim, SDS has forwarded to Flextronics what SDS asserts is
an “email” from that date in which Mr. Schwab of
SDS sent the “final, final” signed version of the
Interim Agreement to Mr. Schaffer. … After a diligent
search, Flextronics's technology department has been
unable to locate this supposed “email” in
Flextronics's email system.
Doc. 19 at ¶¶ 80-81. On the day the complaint was
filed, Flextronics sent SDS a letter formally terminating the
Interim Agreement. Joint Exh. 55 at 1. Citing the November 24
email, SDS's response to the termination letter
maintained that there was no Interim Agreement for
Flextronics to terminate: “Before terminating something
not existing, Flextronics should refer to the exchanges
between Tomas Schwab and Rick Shaffer on November 24th 2014
and between Tomas Schwab and Harjinder Bajwa in the period
March 19th 2015 to March 24th 2015.” Ibid.
produced a copy of the November 24 email in discovery, but
only as it appeared within Schwab's March 24 email. Doc.
55-1 at 46. SDS notified Flextronics that it could not find
the November 24 email in Schwab's or Ducouret's email
accounts or otherwise locate the email in its native format.
Id. at 224, 268. Flextronics's searches for the
email on its own server turned up empty as well. Doc. 59.
then issued a request under Rule 36 for SDS to admit that the
November 24 email was fabricated. Doc. 55-1 at 221. SDS
responded with a denial on January 4, 2016. Id. at
221-22. SDS's counsel insisted that the email was
authentic in communications with Flextronics's counsel on
January 8, 2016, id. at 225 (“SDS responded to
Mr. Shaffer's draft interim agreement in November
2014”), January 19, 2016, id. at 272
(“[H]ad Flextronics preserved and investigated its SMTP
server logs, then these records would now show that Mr.
Schwab sent, and Mr. Shaffer received, the November 2014
email.”), and January 26, 2016, id. at 227
(“[P]lease allow me to be clear: … Mr. Schwab
did not fabricate any emails.”).
March 1, 2016, the parties agreed that Flextronics would not
seek a forensic examination of Schwab's computers in
exchange for Schwab's preparing a declaration and giving
a limited deposition. Id. at 182-84. In his March 7
declaration and March 10 deposition, Schwab maintained that
the November 24 email was legitimate and provided a detailed
description of how he inserted the November 24 email into the
March 24 email. Id. at 5, 102-07, 111-27. At the
time he executed that declaration and gave that deposition,
Schwab was SDS's CEO. Id. at 102, 110.
point, Schwab's and SDS's explanations of how he
created the emails had evolved considerably. Initially, SDS
told Flextronics that the native version of the email sent on
November 24 was lost when Schwab's laptop crashed in
early 2015. Id. at 224, 268. According to this
version, Schwab copied and pasted the November 24 email into
the March 24 email from a “bounce-back” version
of the November 24 email that he had attempted to forward to
Flextronics employee Alexandra Hansen on November 25.
Id. at 225, 267. SDS said that it could not find
this bounce-back version (also called a “non-delivery
report”) on Schwab's new laptop because the email
server, Gandi.net, automatically deleted it from his junk
mail folder. Id. at 268.
story later changed from one in which the November 24 and 25
emails were lost due to a computer crash and automatic
deletion by the Gandi.net email server to one in which Schwab
deleted them intentionally. In his declaration and
deposition, Schwab swore that he forwarded the bounce-back
from his home computer to his new laptop, id. at
105, 115, but that there was no trace of the bounce-back or
the forward of the bounce-back on either device because he
had deleted them before the litigation began, id. at
107, 118-20. According to this version, Schwab deleted the
November 24 email and the November 25 forward of the email
“to keep [his] email folders clean.” Id.
at 103, 123. Yet SDS produced an email with the text of the
November 24 email that Schwab sent to himself on March 23,
2015. Doc. 94-3 at 104. Schwab explained that this March 23
email was a “‘test' email to verify that the
November 24th Email looked the way it should” after he
pasted it from the bounce-back message. Id. at 7.
retained Daniel Roffman of FTI Consulting “to provide
forensic analysis and expert opinions” regarding the
November 24 email's authenticity. Doc. 55-1 at 4. Roffman
and his team “set up numerous testing machines and
purchased an email account on the same server that Mr. Schwab
used at the time he allegedly sent the Nov. 2014
email”; “contacted the technical support for Mr.
Schwab's email provider and asked questions about their
bounce back messages”; “examined ...