United States District Court, D. Idaho
MEMORANDUM DECISION AND ORDER
C. Nye Chief U.S. District Court.
the Court is a Motion for Sanctions for Spoliation of
Evidence (Dkt. 39) filed by Defendant/Counterclaimant FPS
Food Process Solutions Corporation. Having reviewed the
record, the Court finds that the facts and legal argument are
adequately presented in the briefs. Accordingly, in the
interest of avoiding further delay, and because the Court
finds the decisional process would not be significantly aided
by oral argument, the Court decides the Motion on the record
without oral argument. Dist. Idaho Loc. Civ. R.
7.1(d)(2)(ii). For the reasons set forth below, the Court
GRANTS the Motion.
Dickinson Frozen Foods, Inc. (“Dickinson”) owns
and operates a vegetable processing facility located in Sugar
City, Idaho. Defendant/Counterclaimant FPS Food Process
Solutions Corporation (“FPS”) designs,
manufactures, and sells large industrial tunnel freezers
internationally to the food processing industry. This case
arises out of the purchase and sale of an industrial freezer
built by FPS for Dickinson.
freezers are custom designed and created to meet a
customer's specific needs. The units are approximately
the size of a semi-truck trailer, or even larger, and can
cost millions of dollars. Food products enter FPS freezers on
one end, and, while traveling through a series of conveyor
belts, are blast frozen and ready for packaging by the time
they exit the freezer. Unlike a home freezer, industrial
tunnel freezers do not have an independent ability to cool or
freeze products. Instead, the freezers are supported by a
refrigeration infrastructure fueled by a cooling
liquid. Refrigeration infrastructures are complex
and can take up entire buildings, or even several buildings.
In the food processing industry, customers seeking to
purchase an industrial tunnel freezer are responsible for
designing and installing a sufficiently robust refrigeration
infrastructure to support the freezer.
collaboration with customers to design a freezer, a customer
informs FPS of the intended food product, the required
production amount, and the temperature desired after
freezing. Using this information, FPS then calculates the
cooling output the customer's refrigeration
infrastructure will need to produce to support the custom
designed freezer and meet the customer's desired outcome.
March 11, 2016, Dickinson and FPS entered a written contract
(hereinafter the “Agreement”) for Dickinson's
purchase of an FPS freezer. Dickinson agreed to pay FPS $926,
000 in exchange for an FPS model MT5-6 IQF Tunnel Freezer
(hereinafter the “FPS Freezer”). Under the
Agreement, FPS promised to build Dickinson a freezer that
would freeze 8, 000 pounds of diced and shredded potatoes an
hour to 0°F. FPS represented the FPS Freezer would fully
perform with a refrigeration infrastructure that provided 210
tons of refrigerant delivering -40°F of cooling “at
the coil.” This meant Dickinson's refrigeration
infrastructure needed to be capable of delivering -40°F
to the refrigeration coil of the FPS Freezer. Dickinson hired
Kemper Northwest, Inc. (“Kemper”) to design and
install the refrigeration infrastructure (hereinafter the
23, 2016, FPS delivered the FPS Freezer to Dickinson's
Sugar City facility. FPS hired third-party contractor Cold
Steel Contractors, LLC (“Cold Steel”) to assist
it with installation. The FPS Freezer arrived in two halves,
each about 28 feet long, 14 feet wide, and 14 feet high.
After portions of Dickinson's building were demolished to
make room for the FPS Freezer, the two halves were loaded by
crane onto the frame assembly and then welded together by
alleges the FPS Freezer failed to meet contract
specifications as soon as it started operating. For instance,
instead of producing 8, 000 pounds of frozen potatoes an
hour, the FPS Freezer produced a maximum of 4, 000 pounds per
hour. Dickinson also claims the FPS Freezer could only run
for 6 hours or less at a time (when it was intended to run
for 20-22 hours per day) and suffered from excessive ice and
frost buildup. Dickinson immediately notified FPS of the
performance issues. For the next year, FPS sent numerous
field service technicians to the Sugar City facility to
attempt to resolve the issues.
the course of these visits, the parties disagreed over
whether the FPS Freezer was incapable of meeting contract
specifications, or whether Dickinson's Refrigeration
System was instead inadequate. FPS contends its technicians
repeatedly alerted Dickinson that the Refrigeration System
appeared incapable of delivering -40°F at the coil, and
that Dickinson's employees were harming the FPS
Freezer's efficiency by spraying hot water on the unit to
clean it, by constantly opening the door to look inside, and
by using the wrong oil to run the FPS Freezer. FPS claims
Dickinson largely dismissed these warnings. Dickinson
maintains it made each of FPS' suggested modifications to
its Refrigeration System, but that the FPS Freezer still
failed to meet contract specifications and continued to
suffer from the same performance problems.
about June 21, 2017, Jason Kwok, Senior Manager of the
Support Group for FPS, met with representatives from
Dickinson, Kemper, and Nestle (one of Dickinson's biggest
customers) at the Sugar City facility to conduct more tests
on the FPS Freezer and Refrigeration System. Although, during
the visit, representatives from Kemper and Nestle concluded
the Refrigeration System was sufficient to meet contract
specifications, FPS continued to maintain Dickinson's
Refrigeration System was incapable of supporting the FPS
13, 2017, Dickinson's in-house counsel sent a letter to
FPS rejecting and revoking Dickinson's acceptance of the
FPS Freezer. The letter demanded a full refund of the entire
sum paid by Dickinson to FPS pursuant to the Agreement, and
At this time in order to mitigate Dickinson's damages,
until a new replacement Tunnel Freezer can be ordered and
fully operational, it would be best to retain possession of
the Freezer machine and continue to operate it, even in its
unsatisfactory condition, so as to limit Dickinson's
continuing lost profit damages, and consequential and
When the time has come with a fully operational replacement
Tunnel Freezer, Dickinson will make arrangements for FPS to
take back possession of the defective Freezer Machine.
39-5, at 3.
in-house counsel responded on July 24, 2017, and rejected
Dickinson's repudiation of the Agreement. Based in part
on a report prepared by James Peterson, a consultant hired by
FPS, FPS's in-house counsel suggested Dickinson's
failure to provide the FPS Freezer with the contractually
required refrigeration capacity was the cause of the FPS
Freezer's alleged failure to meet contract
specifications. However, FPS conceded there were minor
issues with the FPS Freezer that were capable of being
resolved, and suggested litigation would not result in a
satisfactory outcome for either party. The letter concluded:
“FPS has the knowledge, the resources, and the resolve
to provide the highest level of freezer functionality that is
reasonably possible in the circumstances, but it can only do
so with the ongoing cooperation of Dickinson. FPS kindly
requests that such cooperation continue.” Dkt. 39-6.
receiving FPS' July 24, 2017, correspondence, Dickinson
showed Peterson's analysis to representatives from Nestle
and Kemper. Believing Peterson's conclusions were based
on some flawed assumptions and speculations, they suggested
Peterson should visit the Sugar City facility to inspect the
FPS Freezer and Refrigeration System. Dickinson did not
respond to FPS's rejection of Dickinson's repudiation
letter until August 23, 2017. On that date, Dickinson's
in-house counsel emailed FPS and invited Peterson to come to
the “Sugar City facility to observe the freezer tunnel
and to meet with Bent Wiencke of Nestle and with a
representative of Kemper. . . so that they can have an
impartial engineering discussion.” Dkt. 44-23, at 1.
FPS agreed, and Dickinson contends it thereafter planned an
“Engineer Summit” for Peterson to meet with
engineers from Nestle, and representatives from Dickinson,
Kemper, and Colmac Coil.
meeting occurred on September 20-22, 2017, and Kwok and
Peterson attended. FPS contends Kwok and Peterson were
present at the meeting to continue FPS's attempt to
resolve performance issues, as FPS believed Dickinson had
accepted its request that the parties continue to work
together to avoid litigation. FPS was under this impression
because Dickinson responded to FPS's July 24, 2017,
letter rejecting repudiation and requesting cooperation by
inviting FPS's consultants to the facility to “have
an impartial engineering discussion, ” and also because
FPS had continued to send service technicians to the Sugar
City facility to work on the FPS Freezer after
Dickinson's July 13, 2017, repudiation letter.
Id. In fact, FPS continued to send technicians to
Dickinson's facility to troubleshoot through September,
2017. Dkt. 41, at ¶ 11. However, unbeknownst to FPS,
Dickinson purchased a new tunnel freezer for approximately
$1.4 million from GEA Food Solutions North America
(“GEA”) in August, 2017.
the September 20-22, 2017 meeting, an engineer from Kemper
sent Dickinson an email suggesting the tests run during the
meeting illustrated the Refrigeration System was adequate but
that the FPS Freezer continued to malfunction. On September
27, 2018, Dickinson asked FPS to outline a plan for what it
intended to do to modify the FPS Freezer. In response, FPS
sent Dickinson a pre-litigation settlement offer on October
17, 2017. Without admitting fault, FPS offered Dickinson a
full refund of the purchase price of the FPS Freezer in
exchange for Dickinson's release of any claims against
FPS. Believing it was still using the FPS Freezer, FPS
offered Dickinson the opportunity to retain possession of,
and to continue to operate, the FPS Freezer until the earlier
of 150 days from: (a) the date Dickinson received FPS's
full refund; or (b) the date Dickinson notified FPS in
writing that the FPS Freezer was no longer required and could
be removed. Dkt. 39-8, at 2. The settlement offer advised
Dickinson that FPS would remove the FPS Freezer at its own
expense following the aforementioned possession period, and
also directed Dickinson to exercise reasonable care to avoid
injury or damage to the unit prior to removal.
rejected FPS's settlement offer the next day. In an
October 18, 2017, letter, Dickinson suggested it would work
with FPS's insurance provider to obtain prompt payment of
its purchase price refund and to initiate settlement
discussions regarding Dickinson's “significant
claim” for consequential damages. Dkt. 39-9, at 2. The
letter also stated: “[Dickinson] is anticipating having
the Freezer removed in January, 2018. We would seek FPS's
full cooperation by coordinating the exact dates and being in
agreement on the vendor FPS will use for the removal.”
Id. Shortly after rejecting FPS's settlement
offer, Dickinson's industrial refrigeration expert, Chuck
Taylor, examined the FPS Freezer and provided opinions on its
design, installation, configuration, and operation. Taylor
spent over 225 hours analyzing the FPS Freezer and
Refrigeration System. Dkt. 46-1, at 5.
thereafter filed the instant suit on December 21, 2017,
pleading claims for breach of contract and, in the
alternative, breach of express warranty, violations of the
implied covenant of good faith and fair dealing, and
promissory estoppel. On December 22, 2017, Dickinson, through
counsel, sent FPS's in-house counsel a letter stating:
Please take notice that beginning on January 13, 2018,
Dickinson will have a crane and initiate the multi-day
process of removing the defective Freezer Machine from its
facility and will temporarily have it on site. Given that
Dickinson has revoked its acceptance of the Freezer Machine,
FPS is invited, at its own expense, to arrange for pick-up of
the uninstalled Freezer Machine. Assuming FPS will elect to
salvage the Freezer Machine, please coordinate with our
office so we can make the necessary arrangements.
Once the Freezer Machine is in FPS's possession, FPS will
remain obligated to preserve it as evidence during the
pendency of Dickinson's dispute with FPS. Failure to
adequately preserve the Freezer Machine, or any other
documents or evidence relevant to the parties' dispute,
may constitute spoliation of evidence or subject FPS to
39-11, Exhibit G, at 3.
maintains the parties' lawyers were in touch through
emails and telephone conversations between December 22, 2017,
and January 11, 2018, but FPS never requested that it be
provided with an opportunity to inspect the FPS Freezer or
Refrigeration System during such communications. On January
10, 2018, Dickinson's counsel spoke with FPS's
in-house counsel. Although the phone call dealt primarily
with whether FPS would waive formal service of process and
whether FPS had tendered the lawsuit to its insurer,
Dickinson's counsel notes, “at no point in that
call did [FPS's in-house counsel] raise an objection to
Dickinson's intent to disassemble the FPS Freezer three
days later nor make any demand whatsoever that FPS be allowed
to test or to inspect the FPS Freezer or Refrigeration System
prior to disassembly.” Dkt. 44-26, at ¶ 23.
on January 12, 2018, the day before Dickinson planned to
disassemble the FPS Freezer, Kwok emailed Todd Campbell,
Dickinson's Director of Operations, and stated FPS would
have people at the Sugar City facility to observe and record
the unit's dismantling and to “arrange
transportation to pick up” the FPS Freezer so that FPS
could store and preserve it. Dkt. 39-12, Exhibit H, at 3.
Campbell replied FPS could not “monitor
anything.” Id., at 2. On January 17, 2018,
four days after the FPS Freezer and Refrigeration System were
removed and dismantled, an independent contractor for FPS
emailed Campbell that he had been asked by FPS to get some
photos “and assess pick up and storage of the
unit.” Id. Campbell responded, “[a]t
this point you or anyone associated with FPS are not allowed
on site. No. photos or access. When that changes FPS will be
notified and things can move forward.” Id.
extraction of the FPS Freezer took place on January 13, 2018.
The parties offer widely varying accounts of Dickinson's
disassembly and subsequent storage of the unit. Dickinson
contends it hired a number of qualified professional
contractors, including most of the contractors who initially
installed the FPS Freezer, to carefully disassemble it.
Dickinson also hired Idaho Steel Products, Inc. (“Idaho
Steel”), a third-party contractor that specializes in
the construction, installation, and removal of food
processing equipment, to assume primary responsibility for
disassembly of the FPS Freezer.
maintains that, given the sheer size of the FPS Freezer,
Idaho Steel's personnel had to remove the welding where
the two halves of the FPS Freezer had originally been welded
together. Idaho Steel personnel then disconnected the belts
and chains and the four connecting bolts for each fan motor
and dismounted the various fans and engines from the FPS
Freezer. Dickinson's employees subsequently worked to
store the FPS Freezer, its component parts, and its control
panel, in Dickinson's parking lot in crates and under
tarps. Dickinson states it asked its employees and Idaho
Steel to take special care and every reasonable precaution in
the disassembly process to ensure that the FPS Freezer and
its component parts were not damaged, destroyed, or altered
any more than reasonably necessary during removal.
alleges Dickinson instead used straight edges to cut the FPS
Freezer in half and cut the legs out from under the two
halves. Rather than simply disconnecting or unhooking them,
FPS suggests Dickinson severed all refrigeration, water,
steam, air lines, and electrical wiring and conduits from the
FPS Freezer. FPS contends Dickinson also severed fan motors,
thumper motors, and chains and pipe sections from the FPS
Freezer. Dickinson allegedly used duct tape to cover the
“gaping holes it had created” with removal of
such parts, as well as to cover “the massive incision
it cut down the middle of the FPS Freezer.” Dkt. 39-1,
parties also disagree over Dickinson's subsequent storage
of the dismantled unit. While Dickinson claims it has
carefully stored the disassembled FPS Freezer in its parking
lot-“the only place with adequate space at
Dickinson's Sugar City Facility to store it”-in
crates covered with tarps, FPS alleges all parts were
“dumped” into crates and have been exposed to the
elements ever since the January 13, 2018, disassembly.
Compare Dkt. 44, at 17 with Dkt. 39-1, at
8. FPS contends such exposure has resulted in significant
damage above and beyond that sustained during Dickinson's
initial removal. For instance:
A ‘refrigeration coil' consists of a series of
pipes and ‘fins' that dissipate heat. . . [t]he
pipes of the refrigeration coils have suffered weathering and
damage; [t]he conduit piping, which feeds cooling power to
the FPS Freezer, has been . . . exposed to the elements for
prolonged periods of time and will require dehydrating and
chemical treatment to be restored, if at all; [r]ust appears
throughout the FPS Freezer; [v]ermin have invested the FPS
Freezer and the floor is now covered in droppings; [and] the
computer control panel shows signs of standing water and the
circuitry is weathered.
39-1, at 9-10.
also highlights Dickinson significantly altered the
Refrigeration System to work with its new GEA freezer after
disassembling the FPS Freezer. As a result,
“significantly meaningful discrepancies exist within
the various paper records relating to the FPS Freezer's
design and installation, ” including “differences
in dimensions, equipment make and model, configurations, and
diagnostic numbers.” Id., at 10. Given such
discrepancies, FPS contends “testing of the actual FPS
Freezer and the actual refrigeration infrastructure on site
at the Plant at the time of operation (as opposed to relying
on documents) is critical.” Dkt. 39-1, at 10.
Dickinson barred FPS access to the Sugar City facility, FPS
contends it was unable to assess the unit's condition
until October 16, 2018, during a site visit with FPS's
counsel and technical expert arranged through discovery.
After FPS's expert determined there were multiple tests
he could not run due to the disassembly and storage of the
FPS Freezer and subsequent modification of the Refrigeration
System, FPS's counsel conferred without resolution with
Dickinson's counsel. FPS's counsel thereafter filed
the instant Motion for Spoliation, seeking dismissal as a
sanction for Dickinson's purportedly willful destruction
of the key evidence in this suit.
authority to sanction a party who has despoiled evidence is
based on Federal Rule of Civil Procedure 37 and on the
court's inherent power to levy sanctions in response to
abusive litigation practices. Leon v. IDX Sys.,
Corp., 464 F.3d 951, 958 (9th Cir. 2006). Rule 37
sanctions are available when a party “fails to obey an
order to provide or permit discovery.” Id.
(citing Fjelstad v. Am. Honda Motor Co.,
Inc., 762 F.2d 1334, 1337-1338 (9th Cir. 1985)).
Where, as here, Rule 37 is not applicable because there was
no associated discovery order, federal trial courts
“are invested with inherent powers that are governed
not by rule or statute but by the control necessarily vested
in courts to manage their own affairs so as to achieve the
orderly and expeditious disposition of cases.”
Unigard Sec. Ins. Co. v. Lakewood Eng'g & Mfg.
Corp., 982 F.2d 363, 368 (9th Cir. 1992) (internal
quotation marks and citations omitted). The court's
inherent powers include “‘the broad discretion to
make discovery and evidentiary rulings conducive to the
conduct of a fair and orderly trial.'” Id.
(quoting Campbell Indus. V. M/V Gemini, 619 F.2d 24,
27 (9th Cir. 1980)).
court's discretion in imposing sanctions can range in
severity from minor sanctions, such as awarding
attorneys' fees, to more severe sanctions including
permitting a jury to draw an adverse inference against a
party responsible for the destruction of evidence, ordering
the exclusion of evidence, or even dismissal of claims.
Glover v. BIC Corp., 6 F.3d 1318, 1329 (9th Cir.
1993); Reinsdorf v. Skechers U.S.A., 296 F.R.D. 604,
626 (C.D. Cal. 2013). To decide which spoliation sanction, if
any, to impose, courts generally consider: (1) the degree of
fault of the party who altered or destroyed the evidence; (2)
the degree of prejudice suffered by the opposing party; and
(3) whether there is a lesser sanction that will avoid
substantial unfairness to the opposing party.
Reinsdorf, 296 F.R.D. at 626.
exercise of a court's inherent powers must be applied
with “restraint and discretion” and only to the
degree necessary to redress the abuse. Chambers v. NASCO,
Inc., 501 U.S. 32, 45 (1991); see also Schmid v.
Milwaukee Elec. Tool Corp., 13 F.3d 76, 79 (3rd
Cir.1994) (courts should choose “the least onerous
sanction corresponding to the willfulness of the destructive
act and the prejudice suffered by the victim”).
Accordingly, the determination of an appropriate sanction for
spoliation is “confined to the sound discretion of the
trial judge, and is assessed on a case-by-case basis.”
Fujitsu Ltd. v. Fed. Express Corp., 247 F.3d 423,
436 (2d Cir.2001) (internal citations omitted).
initial matter, the Court must address Dickinson's claim
that spoliation sanctions are unavailable because it did not
“destroy” any evidence. Dkt. 44, at 28. Dickinson
suggests it merely “disassembled” the FPS Freezer
and Refrigeration System, and that courts have found
spoliation sanctions are unavailable where evidence is not
lost or destroyed. Id. Dickinson's definition is
overly restrictive. Spoliation is “‘the
destruction or significant alteration of evidence,
or the failure to preserve property for
another's use as evidence[, ] in pending or reasonably
foreseeable litigation.'” Reinsdorf, 296
F.R.D. at 626 (quoting Zubalake v. UBS Wardburg,
LLC, 220 F.R.D. 212, 216 (S.D.N.Y. 2003) (emphasis
added)). FPS has presented substantial evidence to establish
the FPS Freezer and Refrigeration System were not simply
“disassembled, ” but were at least significantly
altered, if not destroyed.
instance, with respect to the FPS Freezer, Dickinson did not
simply remove the welding between the two original halves,
but cut metal and plastic inside the FPS Freezer that were
not part of the mid-line. Dkt. 41, at ¶¶ 15, 17-18.
All six of the unit's “fins” used to
dissipate heat “have been completely bent beyond
repair” and have large gashes in them. Id., at
¶ 13. Other large metal components are severely dented.
Dkt. 41-7. The conduit piping, which feeds cooling power to
the FPS Freezer, has been cut and sections have been removed.
Dkt. 41, at ¶ 15. The insulation encapsulating the FPS
Freezer body has been shredded. Id., at ¶ 16.
The conveyor belt support bed, which runs the entire length
of the FPS Freezer, has been cut in half, and the conveyor
belt chain mail has been removed from the freezer “and
dumped in a wooden box.” Id., at ¶¶
17-18. In addition, components such as fan motors, gear
motors, and computer wiring used to connect the FPS Freezer
to its computer control panel have all been severed, and the
mounting brackets and connection points used to attach these
items to the FPS Freezer have also been cut. Id., at
also significantly altered the Refrigeration System.
The FPS Freezer only required a single ammonia supply line
(“LTRL”), coil connection, and defrost condensate
(“DC”) riser for each refrigeration coil. Since
removing the FPS Freezer, Dickinson has reconfigured its
refrigeration infrastructure by splitting its ...