United States District Court, S.D. New York
WILLIAM C. HOUSE, for Plaintiff Bravia Capital Partners Inc.
Herbert Rubin, Maureen Doerner Fogel, Mark A. Weissman., HERZFELD & RUBIN, P.C., dor Defendant M.
OPINION & ORDER
JOHN F. KEENAN, District Judge.
Before the Court is Defendant Maryanne Fike's motion for sanctions against Plaintiff Bravia Capital Partners, Inc. Defendant claims that sanctions are appropriate because Plaintiff committed a fraud on the court by destroying evidence, withholding evidence, lying to the Court, and forging documents.
She asks that the sanctions take the form of (i) dismissal of Bravia's declaratory judgment complaint; (ii) entry of a default judgment against Bravia on Fike's counterclaims; and (iii) reasonable attorney's fees. For the reasons set forth below, Defendant's motion is denied.
However, at a later date, the Court will order Bharat Bhise, owner and CEO of Bravia, to show cause why he should not be personally sanctioned for submitting to the Court a document with an admittedly forged signature. Additionally, hearings will be held to determine the circumstances that led to (1) the deletion of Exhibits Q, R, and PP, as well as (2) the deletion of emails during the transfer of servers on April 5, 2014.
Familiarity with the Court's previous decisions on this matter is presumed. A more detailed factual background is provided in the Court's opinions resolving two motions to dismiss certain claims and counterclaims as well as the opinion resolving the cross-motions for summary judgment. See Bravia Capital Partners, Inc. v. Fike, No. 09 Civ. 6375, 2011 WL 6081345 (S.D.N.Y. Dec. 6, 2011) (motion to dismiss); Bravia Capital Partners, Inc. v. Fike, No. 09 Civ. 6375, 2011 WL 4632891 (S.D.N.Y. Oct. 5, 2011) (summary judgment); Bravia Capital Partners, Inc. v. Fike, No. 09 Civ. 6375, 2010 WL 3359470 (S.D.N.Y. Aug. 25, 2010) (motion to dismiss). The Court sets forth the facts relevant to this motion below.
Bravia, a New York corporation engaged in the aviation finance business, hired Fike as an independent contractor to help bring in new business. Bravia memorialized the parties' agreement in a one-page letter to Fike on December 14, 2006. According to that letter, Fike was entitled to certain percentages of the gross fees for "any transactions that close." For in-house deals that Fike worked on, she would receive 5 percent of the gross fees. For new clients that she brought in, she would receive compensation based on three tiers: 10 percent of the first $500, 000 of gross fees; 15 percent of the next $500, 000 up to $1 million of the gross fees; and 20 percent of gross fees in excess of $1 million. Bravia fired Fike on February 27, 2009.
In June 2009, Bravia brought this declaratory judgment action against Fike in New York state court, seeking a declaration that it does not owe her commissions related to various deals. Fike removed the action to this Court on the basis of diversity and counter-claimed for a money judgment on those same deals.
After a stipulation, two motions to dismiss, and crossmotions for partial summary judgment, there are four counterclaims remaining. Bravia had moved for summary judgment on two of those counterclaims, but shortly before oral argument Fike alerted the Court that she intended to move for sanctions. The Court ordered the summary judgment motion be deemed withdrawn until the resolution of the sanctions motion. (ECF No. 218.)
This motion involves two disputed deals: the so-called ANA-Mitsubishi Deal and the Avion Deal. In the ANA-Mitsubishi Deal, Bravia acted as an agent for an existing client, HNA Group Company Limited ("HNA Group" or "HNA"), in the forward purchase of three leased aircraft from All Nippon Airways ("ANA"). In broad strokes, the deal involved (a) a sale and leaseback agreement and (b) a forward purchase. For the first part, ANA sold three old airplanes to a Mitsubishi subsidiary called MCAP Japan 101 Limited ("MCAP"); MCAP would then pay rent to ANA. In the second part of the deal, the aircraft would be converted to freighter configurations and delivered to BHK Partners 1 Limited, an HNA Group special purpose vehicle based in the Cayman Islands.
The parties dispute the amount of fees earned by Bravia on this deal. This dispute arises from the fact that there are at least two drafts of the agreement between HNA Group and Bravia. The one that Bravia claims is the true agreement was allegedly signed by Bravia's CEO, Bharat Bhise, in India and is for approximately $1.5 million in fees ("$1.5 Million Fee Agreement"). Fike claims that the real agreement was signed by Robin Yan, then the manager of planning for Bravia, and is for $3 million in fees for Bravia along with $1 million to what is called the Japanese Agent ("$4 Million Fee Agreement"). Fike says she is entitled to a percentage of all $4 million in fees provided for in the $4 Million Fee Agreement. Bravia claims that the agreement Yan signed was an early draft and that Yan did not have authority to sign the agreement on behalf of Bravia.
For the Avion Deal, Bravia acted as an agent for an existing client in the acquisition of two aircraft from Avion Aircraft Trading hf ("Avion"), an Icelandic company. Bravia claims that its gross profit from the Avion transaction was $188, 000. Fike alleges that Bravia actually made at least $400, 000 in fees. Like the ANA-Mitsubishi Deal, this dispute is also fueled by the existence of two separate agreements.
In support of her motion for sanctions, Fike deposed Liu Hui Feng ("Liu" or "Liu Feng"), who worked for HNA Group as a manager in its purchasing management department. Liu acted as a liaison between HNA and Bravia during the ANA-Mitsubishi Deal. (Liu Tr. 13.) At his deposition, Liu provided copies of emails that he sent to and received from Bravia employees ("Liu Emails"). These emails concerned the ANA-Mitsubishi Deal and the creation of the agreement that would become the $4 Million Fee Agreement. Several of these emails were never produced by Bravia during discovery. Bravia also took the deposition of Ren Wei Dong from HNA Group.
After each side deposed Liu and Ren Wei Dong, Fike moved for sanctions. Fike alleges that Bravia perpetrated a fraud on this Court because (1) Bravia "deliberately concealed" relevant evidence and (2) several of Bravia's witnesses, including Bhise, "repeatedly lied to Fike and to the Court." (Def. Mem. 1) Fike seeks entry of a default judgment against Bravia and an award of attorneys' fees and costs.
During oral argument, Plaintiff referenced additional documents that had not been produced to Defendant, including the transaction ledger for BHK Partners 1 Limited, which the parties agree is a New York company separate from HNA Group's off-shore special purpose vehicle of the same name. (Tr. 30-31.) The Court ordered Plaintiff to produce these documents. (Tr. 31.) Plaintiff emailed copies of the documents ("Supplemental Documents") to chambers along with explanations of each document. Defendant objected to the documents submitted in addition to the ledger as well as the explanations.
In light of the newly submitted documents, as well as Defendant's objections, the Court ordered Plaintiff to authenticate the new documents and set a briefing schedule concerning the appropriateness of sanctions for failing to produce the Supplemental Documents sooner.
A. Legal Standard
A Court has the inherent authority to sanction a party for committing a fraud on the court. See In re Dynex Capital, Inc. Sec. Litig., No. 05 Civ. 1897, 2011 WL 2581755, at *3 (S.D.N.Y. Apr. 29, 2011). A party commits a fraud on the court when it has "sentiently set in motion some unconscionable scheme calculated to interfere with the judicial system's ability impartially to adjudicate a matter by... unfairly hampering the presentation of the opposing party's claim or defense." Passlogix, Inc. v. 2FA Tech., LLC, 708 F.Supp.2d 378, 393 (S.D.N.Y. 2010) (alteration in original) (internal quotation marks omitted). The existence of the fraud on the court must be "established by clear and convincing evidence." Id.
The archetypical fraud on the court occurs "when a party lies to the court and his adversary intentionally, repeatedly, and about issues that are central to the truth-finding process." McMunn v. Mem'l Sloan-Kettering Cancer Ctr., 191 F.Supp.2d 440, 445 (S.D.N.Y. 2002). Other examples of actions that can rise to the level of fraud on the court include where a party "(1) improperly influences the trier; (2) unfairly hampers the presentation of the opposing party's claim or defense;... or (4) knowingly submits fraudulent documents to the Court." Passlogix, 708 F.Supp.2d at 395 (alterations, citations, and internal quotation marks omitted).
If a party's actions rise to the level of a fraud on the court, there are a number of sanctions available including a jury charge, awarding attorney's fees, and entry of default judgment against the offending party. See R.F.M.A.S., Inc. v. So, 271 F.R.D. 13, 22 (S.D.N.Y. 2010). Entering judgment against the offender, however, "is permissible only when the deception relates to matters in controversy in the action, and even then is so harsh a remedy that it should be imposed only in the most extreme circumstances." Sanchez v. Litzenberger, No. 09 Civ. 7207, 2011 WL 672413, at *5 (S.D.N.Y. Feb. 24, 2011) (internal quotation marks and citation omitted). In considering so drastic a remedy, the court weighs "(1) whether the misconduct was the product of intentional bad faith; (2) whether and to what extent the misconduct prejudiced the other party; (3) whether there is a pattern of misbehavior, rather than an isolated instance; (4) whether and when the misconduct was corrected; and (5) whether further misconduct is likely to continue in the future." McMunn, 191 F.Supp.2d at 446.
Fike premises her motion on (1) "Bravia's failure to produce highly relevant documents." (Def. Mem. 17.); and
(2) what she characterizes as the lies of several Bravia witnesses, including the submission of allegedly forged or improperly altered documents. Therefore, in evaluating whether sanctions are appropriate, the Court will take each allegation in turn.
First, the Court will look at whether Bravia wrongfully deleted or withheld documents. As later explained, the Court will subject the Liu Emails to a spoliation analysis. However, the Supplemental Documents will be evaluated to see if Plaintiff failed to produce them in response to Defendant's demands for documents. Second, the Court will evaluate the allegedly false statements by Bravia's witnesses. Next, the Court will examine the allegedly forged ANA-Mitsubishi agreement and altered revenue journal. Finally, the Court will determine whether, taken together, Bravia's conduct rises to the level of a fraud on the Court.
1. Spoliation of the Liu Emails
As an initial matter, Fike has not established that any of the documents she provided were withheld during discovery. Indeed, she offers no evidence and advances no argument that Bravia had possession of the documents at the time they should have been produced. Bravia alleges that the documents were deleted in the normal course. (Bhise Decl. ¶¶ 3-10; Yan Decl. ¶¶ 6-13.) Thus, the Court interprets Fike's argument as one for a finding of spoliation.
In order to prove spoliation, Fike must show that (1) Bravia had a duty to preserve the emails; (2) Bravia had a culpable state of mind when the emails were destroyed; and (3) the emails were relevant. See Zubulake v. UBS Warburg LLC, 229 F.R.D. 422, 430 (S.D.N.Y. 2004). A party may still be sanctioned for spoliation even though, as here, its adversary comes to possess the documents. See Nursing Home Pension Fund v. Oracle Corp., 254 F.R.D. 559, 565 (N.D. Cal. 2008).
Fike nowhere cites the standard for spoliation. It is perhaps not surprising then that she made no showing of when a duty to preserve attached or that destruction occurred with a culpable state of mind. Indeed, only three of the Liu Emails appear even remotely covered by the spoliation standard.
The latest that the duty to preserve would have attached is June 29, 2009, which is the date Plaintiff's counsel signed the verified complaint for declaratory judgment filed in state court. See Arista Records LLC v. Usenet.com, Inc., 608 F.Supp.2d 409, 430 (S.D.N.Y. 2009) ("In the usual case the duty to preserve evidence arises no later than on the date the action is initiated.") Of course, the duty to preserve does not begin only at the moment of filing the complaint, and may attach "when a party should have known that the evidence may be relevant to future litigation." See In re WRT Energy Sec. Litig., 246 F.R.D. 185, 195 (S.D.N.Y. 2007) (internal quotation marks omitted). Although Defendant does not take this position, the earliest the duty would have attached is February 27, 2009 - the date of Fike's termination.
All but three of the allegedly spoliated emails can be dispensed with quickly. Most of the emails are from December 2007, more than a year and a half before any duty would have arisen. (Exs. C-K.) Five are from late March or April 2008, more than a year before the litigation and nearly a year before Fike's firing. (Exs. L-O, U.) One is from March 2009, four months before the start of litigation and a month after Bravia terminated Fike. (Ex. P.)
Since Fike, who bears the burden, presents no evidence to suggest that the duty to preserve arose before the litigation, the Court finds that Defendant had no duty to preserve the above referenced emails. Therefore, none of these emails can serve as the basis for a finding of spoliation.
Fike provides five emails that post-date the litigation. (Exs. Q-T, PP.) However, Bravia actually produced one of those, Exhibit S. Another, Exhibit T, was not sent to anyone from Bravia, and was thus never in Bravia's possession. (Pl. Mem. 13; Def. Mem. 9 (referring to Exhibit T as an "internal HNA email.").) Neither could be grounds for spoliation.
That leaves three possibly spoliated emails. The first, Exhibit Q, was sent by Robin Yan on July 28, 2009, and transmits what the parties call the Edogawa Side Letter with the phrase "FYI see below the original signed documents between BHK and the Japanese Agent." (Ex. Q.)
The second email, Exhibit R, sent in January 2011, contains a table that relates to the ANA-Mitsubishi Deal. The series of emails themselves, however, do not clearly refer to the ANA-Mitsubishi Deal. The subject line reads "payment schedule of P2F program for 3 747." (Ex. R.) There are references to "CDB" and "CDBL" but not HNA Group, Mitsubishi, MCAP, BHK Partners 1 Limited, or ANA. The table is sent by Liu Feng to Yan with a request for a "payment schedule like the following matrix of purchasing program." (Id.)
In reply, Fike provided Exhibit PP, which is a series of emails from January 2011. The subject of the email is "Payment of the 2nd aircraft." (Ex. PP.) It appears from the text of the emails that they are concerning the ANA-Mitsubishi Deal. For example, one of the emails in the chain specifically references Mitsubishi. At least three reference MCAP, while another references HNA Group and uses the serial number of one of the three planes.
Since Defendant only presented Exhibit PP in reply, Plaintiff did not initially have an opportunity to address it. The Court thus raised the issue at oral argument. (Tr. 24.) Plaintiff conceded at oral argument that the email was relevant to the ANA-Mitsubishi deal. (Tr. 24.) Plaintiff then averred that the email chain was not turned over or preserved because Bravia's employees "didn't use the right [search] terms." (Tr. 26.)
It is clear that Plaintiff deleted each of these three emails - Exhibits Q, R, and PP - after the duty to preserve arose because they were all sent after the litigation began. Since there was no intervening act of God or other circumstance beyond Plaintiff's control, the destruction of the emails was at a minimum negligent. See Zubulake, 220 F.R.D. at 220. Thus, Plaintiff acted with a culpable state of mind. See Dorchester Fin. Holdings Corp. v. Banco BRJ S.A., ___ F.R.D. ___, 2014 WL 7051380 (S.D.N.Y. 2014) ("[A] culpable state of mind' requires at least negligence."). Defendant made no showing that Plaintiff acted grossly negligent, recklessly, or intentionally. Therefore, the Court will not engage in line drawing except to note that it cannot infer intent from the text of the emails, and the text of Exhibits Q and R weigh against a finding of intentional deletion.
More specifically, although Exhibit Q was destroyed, Bravia has produced the Edogawa Side Letter attached to the email. Moreover, Bravia took the position that documents pertaining to R.F. Edogawa Aerospace LLC ("Edogawa Aerospace") were not discoverable up until mid-2012 when Fike made a motion to compel and Magistrate Fox resolved the dispute in a telephone conference on October 23, 2012. (ECF notation on Oct. 23, 2012) It is thus perhaps not surprising that an email concerning Edogawa Aerospace sent not more than a month after this case began could have been negligently deleted.
Nor can the Court infer intent from the face of Exhibit R. Those emails do not refer directly to the ANA-Mitsubishi Deal, and the table concerning the ANA-Mitsubishi Deal was sent by Liu Feng. Moreover, the table does not appear to be clearly labeled as relating to the ANA-Mitsubishi Deal, with the serial numbers for the aircrafts being the only identifying characteristic. While this email should have been preserved, it is not hard to imagine someone negligently deleting an email that is not readily identifiable as related to the ANA-Mitsubishi Deal.
Turning to the question of relevance, the Court need not imagine the content of the emails, since unlike the typical case of spoliation, Defendant has actually obtained the emails deleted by her adversary. Relevance here is more than probative value under Federal Rule of Evidence 401. See Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 108-09 (2d Cir. 2002). Instead, relevance turns on whether the destroyed emails would have been or, in this case, are, "favorable" to Defendant's case. Toussie v. Cnty. of Suffolk, No. 01 Civ. 6716, 2007 WL 4565160, at *8 (E.D.N.Y. Dec. 21, 2007).
The Court notes that it is not yet clear that Fike is entitled to any commissions on the ANA-Mitsubishi Deal. See Bravia, 2011 WL 4632891, at *5 ("[F]actual disputes remain as to the amount of work Fike expended with respect to the ANA[-Mitsubishi] Deal.") Thus, the dispute over which agreement controlled and the amount of fees Bravia collected would be irrelevant if Fike did not perform sufficient work to entitle her to those fees.
Of course, that does not mean the destroyed evidence would not be "favorable" to her case. See Passlogix, 708 F.Supp.2d at 411 ("A discarded document is relevant where a reasonable trier of fact could find that the document either would harm the spoliator's case or support the innocent party's case."). Since it uses the term "Japanese Agent" and transmits the Edogawa Side Letter, Exhibit Q lends support to Fike's theory, discussed in more detail below, that Edogawa Aerospace is the Japanese Agent referred to in the $4 Million Fee Agreement. Similarly, the table included in Exhibit R contains agent fees consistent with the $4 Million Fee Agreement, bolstering her case for that agreement representing the true final agreement. Finally, the emails in Exhibit PP reflect $333, 000 invoices for agent fee payments to BHK Partners and demonstrate HNA's apparent confusion about whether that amount should be paid directly to Bravia instead. That would corroborate her claim that the $333, 000 fees correspond to those in the $4 Million Fee Agreement. Since each email is relevant, the Court finds that Bravia spoliated the emails attached as Exhibits Q, R, and PP.
Fike does not seek a separate sanction for spoliation, rather she characterizes the deleted emails as part of a broader fraud on the court. Because the Court concludes that Fike has not established that Bravia committed a fraud on the court, it is left to fashion a remedy for the spoliation of the three exhibits. See In re NTL, Inc. Sec. Litig., 244 F.R.D. 179, 192 (S.D.N.Y. 2007) ("The sanctions imposed should serve the threefold purposes of deterring parties from engaging in spoliation, placing the risk of an erroneous judgment on the party who wrongfully created the risk, and restoring the prejudiced party to the position it would have been in had the misconduct not occurred." (internal quotation marks omitted)).
The Court will defer sanctioning until the parties have an opportunity to fully brief the issues of culpability, prejudice to Fike, and an appropriate remedy for the spoliation of these three emails. As part of its consideration of culpability, the Court will hold a hearing to ascertain why these emails, in particular Exhibit PP, were not turned over to Fike and the manner in which they were ...