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Boeing Sanctioned In $1.2B Air Force Contract Dispute

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Paullee   Monday, 03/27/17 11:03:02 PM
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Boeing Sanctioned In $1.2B Air Force Contract Dispute
By Chuck Stanley
Law360, New York (March 10, 2017, 6:22 PM EST) -- An Alabama federal judge on Thursday granted a sanctions bid against Boeing, invoking the Joni Mitchell song "Big Yellow Taxi" in an order finding the company intentionally destroyed documents related to its long-running dispute with defunct Alabama Aircraft Industries over a $1.2 billion U.S. Air Force contract.

U.S. District Judge R. David Proctor said neither the court nor Alabama Aircraft Industries Inc. can know why Boeing Co. employees destroyed information related to the two companies' collapsed agreement to bid on an Air Force tanker fleet maintenance contract, but that it can be reasonably presumed the information would have hurt Boeing’s case, in an order stating jurors in a potential trial will be allowed to assume the lost information is unfavorable to Boeing.

"'Big Yellow Taxi' reminds us of this: 'Don't it always seem to go / That you don't know what you've got 'til it's gone.' But in this case, Alabama Aircraft Industries Inc. ('AAI') contends that employees of The Boeing Co. have destroyed documents, and that presents a somewhat different problem: AAI doesn’t know what Boeing had because it's gone," the order states. "Because the information is irretrievably lost, AAI (not to mention this court) is left to speculate as to why the data was destroyed."

Boeing had argued that AAI never showed the deleted documents were crucial to the case or that the documents were deleted to purposely undermine AAI's suit.

But Proctor ruled Boeing employees' "unexplained, blatantly irresponsible behavior" leading to the loss or destruction of the documents was sufficient to draw the conclusion that the documents had been intentionally destroyed.

Boeing knew or should have known that it's withdrawal from a memorandum of understanding with AAI was likely to result in litigation, since a loss of the contract would almost certainly bankrupt AAI.

Boeing set up a "firewall plan" to preserve and separate from its solo bid for the contract, proprietary information belonging to AAI's predecessor company, Pemco, which it had obtained as part of the failed partnership.

Boeing employees tasked with crafting Boeing's solo proposal for the Air Force contract in 2006 deleted files from their chief financial officer's computer rather than preserving and delivering them to the company legal department, in compliance with the firewall plan. Rather than copying the files to a disk as they were required to do, according to the decision, the employees executed a "two-step process" to permanently delete the files, moving them to the computer's recycle bin and then emptying the recycle bin.

In a separate 2007 incident, Mark Rabe, an in-house attorney for Boeing in charge of preserving the Pemco information removed two CDs with Pemco information from an analyst tasked with rewriting and removing Pemco from joint bid volumes originally produced for the abandoned joint agreement. Rabe claimed to have lost the CDs and told the court he could not remember why he removed them in the first place, according to court documents.

Boeing's inability to explain the series of actions that ran directly contrary to its procedure for handling Pemco electronic information, which resulted in the data being lost or destroyed was enough for Proctor to rule that the loss of the data was intentional and the information was unfavorable to its position in a potential lawsuit over the contract award.

In the event the case goes to trial, according to the order, jurors will be instructed that they "may presume that the lost information contained in Blake's Pemco-related [computer] was unfavorable to Boeing."

Boeing was also ordered to pay AAI's legal costs related to its sanctions motion.

A representative from AAI said the company is pleased by the decision, but declined to comment further.

Representatives for Boeing did not immediately respond to requests for comment.

AAI is represented by J. Michael Rediker, R. Scott Williams, Peter J. Tepley, Meredith J. Lees, Rebecca A. Beers and Joshua D. Lerner of Rumberger Kirk & Caldwell.

Boeing is represented by Kevin C. Newsom, John Thomas Richie and R. Thomas Warburton of Bradley Arant Boult Cummings LLP and Craig S. Primis, Matthew E. Papez and Erin C. Johnston of Kirkland & Ellis LLP.

The case is Alabama Aircraft Industries Inc. v. Boeing Co. et al., case number 2:11-cv-03577, in the U.S. District Court for the Northern District of Alabama.

--Editing by Katherine Rautenberg.

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