230 F. Supp. 3d 896
N.D. Ill.2017Background
- SDS (Sparkling Drink Systems entities) negotiated manufacturing of disposable beverage pods with Flextronics in 2014; Flextronics sent a drafted "Interim Agreement" on Nov. 21, 2014 that included an integration clause and a $2 million liability cap.
- SDS never returned a countersigned Interim Agreement in 2014; in March 2015 SDS sent Flextronics emails purporting to show a November 24, 2014 email from SDS (Schwab) attaching a signed, amended Interim Agreement.
- Flextronics could not locate the November 24 email on its servers or the accounts of named recipients; SDS produced the purported November 24 email only as embedded in a March 24, 2015 message.
- Forensic expert for Flextronics (Roffman) concluded the November 24 email was fabricated in 2015; SDS’s expert (Curtin) offered an alternative theory but later searches of Schwab’s hard drives (disclosed late) found no trace of the November 24 email.
- Schwab (SDS CEO) submitted a declaration and deposition asserting the email’s authenticity but later resigned and invoked the Fifth Amendment when ordered to submit a further affidavit; court found his testimony false and fabricated the November 24 email with intent to influence litigation.
Issues
| Issue | Flextronics' Argument | SDS' Argument | Held |
|---|---|---|---|
| Whether Schwab fabricated the Nov. 24, 2014 email | Schwab fabricated the email in 2015 to avoid the $2M cap and produced it during litigation | Schwab and SDS maintain the email is authentic; expert Curtin said Schwab’s account was plausible | Court found by more than preponderance (clear and convincing) that Schwab fabricated the email |
| Whether Schwab’s sworn statements/perjury occurred | Schwab willfully lied in declaration and deposition about the email’s authenticity | SDS argued Schwab testified individually and not on behalf of SDS; also challenged materiality | Court held Schwab’s testimony was perjurious, willful, and material; imputed to SDS |
| Whether SDS engaged in sanctionable discovery/misconduct | SDS produced fabricated evidence, gave false discovery responses, and provided a false expert disclosure | SDS denied fabrication, later said "cannot truthfully admit or deny", and offered expert rebuttal | Court held SDS committed willful misconduct and violated Rule 26/37 duties (including nondisclosure of key forensic searches) |
| Appropriate sanction | Flextronics sought dismissal of SDS-HK counterclaim, fees, and default on Flextronics’ claims | SDS argued dismissal/default too harsh; urged lesser sanctions | Court dismissed SDS-HK’s counterclaim with prejudice and awarded Flextronics reasonable fees/costs related to the sanctions motion; declined default judgment on Flextronics’ claims |
Key Cases Cited
- Chambers v. NASCO, Inc., 501 U.S. 32 (recognizing courts’ inherent power to sanction bad-faith litigation conduct)
- Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., 313 F.3d 385 (7th Cir. 2002) (inherent power used when Rules don’t adequately address misconduct)
- Ramirez v. T & H Lemont, Inc., 845 F.3d 772 (7th Cir. 2016) (dismissal appropriate when party seeks relief based on information it knows is false)
- Montano v. City of Chicago, 535 F.3d 558 (7th Cir. 2008) (perjury in litigation can warrant dismissal)
- Salmeron v. Enter. Recovery Sys., Inc., 579 F.3d 787 (7th Cir. 2009) (inherent power sanctions used to reprimand and deter abusive litigation practices)
- Ridge Chrysler Jeep, LLC v. DaimlerChrysler Fin. Servs. Am., LLC, 516 F.3d 623 (7th Cir. 2008) (affirming dismissal of corporate claims where executive’s litigation misconduct warranted sanction)