________________________________________________ MOTION FOR DISCOVERY SANCTIONS GRANTED IN PART: February 25, 1994 ________________________________________________ GSBCA 11270, 11431, 11432, 11503 11504, 11545, 11546, 11547 SEAGRAVE COATINGS CORPORATION, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Marla Moss of Tepperman & Moss, West Orange, NJ, counsel for Appellant. Wendy Nevett Bazil and David L. Frecker, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. PARKER, Board Judge. Seagrave Coatings Corporation (Seagrave) and the General Services Administration (GSA) entered into two requirements contracts for the supply of paint. GSA terminated one contract in its entirety and numerous purchase orders under the second contract after determining that the paint failed to comply with the specifications. After a series of appeals was filed, discovery commenced. GSA requested key batch records from Seagrave, but Seagrave had already destroyed them. GSA then filed a motion for sanctions. We grant the motion in part. Background GSA awarded Seagrave contract number GS-10F-51499 on June 30, 1989, and contract number GS-10F-51752 on March 20, 1990. Appeal File, GSBCA 11432, Exhibit 1; Appeal File, GSBCA 11431, et al., Vol. 1, Exhibit 1. Both contracts required Seagrave to manufacture paint and supply it to GSA. Pursuant to the terms of the contract, GSA randomly tested paint samples supplied by the Chemray Defense Division of Seagrave. During the course of performance, GSA rejected certain paint samples supplied under the purchase orders. GSA also issued numerous quality deficiency notices (QDNs) to Seagrave after determining that the paint samples failed to meet specifications. Seagrave denied that the paint samples were nonconforming and continuously requested that the paint samples be retested. In November 1990, GSA terminated contract number GS-10F- 51752 in part. Appeal File, GSBCA 11431, et al., Vol. 2, Exhibit 42. On June 6, 1991, GSA issued final decisions demanding reimbursement of payments for defective paint under both contract number GS-10F-51752 and contract number GS-10F-51499. Id., Exhibit 67; Appeal File, GSBCA 11432, Exhibit 27. On August 23, 1991, GSA terminated for default certain purchase orders under contract number GS-10F-51752. Appeal File, GSBCA 11431, et al., Vol. 4, Exhibit 97. On July 3, 1991, the contracting officer demanded reimbursement for defective paint orders under contract number GS-10F-51752. Id., Exhibit 111. On September 9, 1991, contract number GS-10F-51752 was terminated in its entirety for default. Appeal File, GSBCA 11431 et al., Vol. 5, Exhibit 171. On May 24, 1991, Seagrave filed an appeal of the contracting officer's partial termination of contract number GS-10F-51752. Appeal File, GSBCA 11270, Exhibit 13. Thereafter, Seagrave filed a series of appeals of the other contracting officer's decisions. The Board consolidated the eight appeals. According to Seagrave's technical director, batch records containing paint formulations and testing procedures were destroyed by Seagrave in October 1991. Appellant's Exhibit A (unsworn declaration of Fred Armstrong, June 9, 1993).[foot #] 1 Mr. Armstrong stated that the documents were destroyed when Chemray Defense Operations closed its business operations. Moses Lawrence, quality control chief chemist at Seagrave from October 1987 to December 1990, stated that batch records are not destroyed in the regular course of business, but normally retained for as long as the company is in business. Respondent's Exhibit 7. On February 2, 1992, GSA served written discovery on Seagrave and requested, among other things, Seagrave's batch records. In response, Seagrave informed GSA that records were only retained for a one year period pursuant to its company policy. On April 27, 1992, GSA requested that Seagrave provide any batch records still in existence during the relevant time period and contended that Seagrave was required to retain the batch records pursuant to the "Examination of Records by GSA" ----------- FOOTNOTE BEGINS --------- [foot #] 1 The declaration was attached to appellant's response; we have labeled it Exhibit A. ----------- FOOTNOTE ENDS ----------- clause in the contract. On May 26, 1992, in its supplemental response, Seagrave sent a small portion of the batch records, dated from February through August 1991, to GSA. GSA filed the instant motion for discovery sanctions on May 21, 1993. Discussion GSA asks the Board to grant its motion for sanctions because Seagrave destroyed batch records containing relevant information, including the original paint formulation and components, interim and final testing procedures, and the results of the interim and final tests. We grant the motion because we agree with GSA that Seagrave was required to keep the batch records. However, because the record does not show that Seagrave destroyed the records in bad faith (to hinder discovery), we do not adopt the harsh sanctions that GSA recommends. As discussed below, we find that Seagrave's conduct merits the sanction of precluding it from introducing any evidence intended to show the contents of the missing batch records. Seagrave clearly had a duty to preserve the batch records. "Sanctions may be imposed on a litigant who is on notice that documents and information in its possession are relevant to litigation, or potential litigation, or are reasonably calculated to lead to the discovery of admissible evidence, and destroys such documents and information." William T. Thompson Co. v. General Nutrition Corp., 593 F. Supp. 1443, 1455 (C.D. Cal. 1984). GSA argues that Seagrave should have been on notice that the batch records were "likely to be relevant evidence" as early as August 29, 1990, the date Seagrave received its first QDN. We think that position is a little too harsh. The first QDN did not necessarily put Seagrave on notice that litigation was likely to commence; rather, it appears that the initial response to the QDN reflected Seagrave's intent to continue performance. Over a period of time, however, litigation became reasonably foreseeable due to the sheer volume and frequency of the QDNs. Certainly, Seagrave should have known that the batch records were relevant to litigation by May 24, 1991, the date the first appeal was filed. The batch records were destroyed in October 1991 -- five months later.[foot #] 2 ----------- FOOTNOTE BEGINS --------- [foot #] 2 Respondent also argues that Seagrave was required to retain the batch records pursuant to the Examination of Records by GSA clause in the contract. Respondent cites Loyal _____ E. Campbell d.b.a. House of Typewriters, GSBCA 5954, 82-2 BCA _________________________________________ 15,916, a case in which the Board held that the same clause required the contractor to retain certain payroll records that it claimed would support the contractor's billings. The situation involved here is somewhat different. This dispute involves manufacturing records relating to the quality of the contractor's (continued...) ----------- FOOTNOTE ENDS ----------- As to the appropriate sanction, GSA requests that the Board deem established that Seagrave's paint failed to meet the specifications and preclude appellant from introducing evidence to establish otherwise. In the alternative, GSA asks that the Board draw an adverse inference from the destruction of the evidence, that is, to infer that the batch records would have shown that the paint failed to meet the specifications. Again, we think that GSA's suggestions, both of which would be dispositive of the cases, are too harsh. Although Seagrave violated its duty to retain the clearly relevant records, there is insufficient evidence to demonstrate that Seagrave deliberately destroyed the records to prevent discovery. The evidence shows that the records were destroyed after the appeal had been filed, but before the discovery request had been made. Seagrave has explained that the destruction of batch records occurred pursuant to the closing of Chemray's business operations and GSA has provided no evidence to the contrary. Without a showing of bad faith, we decline to sanction Seagrave in a way which would be dispositive of the cases. See Refac International, Ltd. v. Hitachi, Ltd., 921 F.2d 1247, 1254 (Fed. Cir. 1990) (severe sanctions must be due to willfulness, bad faith or fault). Seagrave's actions in destroying the batch records were improper, however, and do merit a sanction. Based upon the record before us, we hold that the appropriate sanction is to preclude Seagrave from introducing any evidence intended to show the contents of the missing batch records. If Seagrave has other evidence which shows the paint formulations, the testing procedures used, or the results of those tests, it may be introduced. Decision For the above stated reasons, we grant respondent's motion for sanctions in part: Seagrave is precluded from introducing any evidence intended to show the contents of the missing batch records. ___________________________ ROBERT W. PARKER ----------- FOOTNOTE BEGINS --------- [foot #] 2 (...continued) paint, as opposed to cost or pricing type data. Also, unlike the situation in Campbell, there is no separate, detailed list of ________ records required to be kept in the contract. GSA has not cited any cases which address these issues. However, because we hold that Seagrave had a common law duty to retain the batch records, we need not decide whether the Examination of Records by GSA clause also required that the records be maintained. ----------- FOOTNOTE ENDS ----------- Board Judge