Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—8th Cir.: Slick move: Shell Oil dismissed after accountant disappears, (Aug 15, 2014)

By Greg Hammond, J.D.

Allegations of bribery, deception, and a missing accountant have led to the dismissal of a breach of contract and fraud case against Shell Oil Company. In upholding the dismissal of the franchisee’s complaint, the U.S. Court of Appeals in St. Louis determined that Shell could not obtain a fair trial without the missing accountant, his computer, and the raw data and reports contained therein (Sentis Group, Inc. v. Shell Oil Company, August 14, 2014, Melloy, M.).

Background. Sentis Group, Inc. and Coral Group, Inc. (Collectively, Sentis) sued Shell Oil Company, alleging that Shell: (1) fraudulently induced Sentis into entering an operating agreement by providing false historic expense data; and (2) breached the operating agreement by calculating expense payments—paid to Sentis—with a different method than represented at the time the agreement was signed. The case was dismissed on two occasions. On the first occasion, the trial court determined that Sentis failed to comply with multiple discovery orders; failed to disclose its relationship with accountant Nick Anton; failed to produce financial records held by Anton; and attempted to bribe Anton to hide documents. However, the case was remanded back to the trial court after the appellate court determined that the bribery issue was not adequately supported.

The trial court dismissed the suit a second time due to the disappearance of Anton and his computer. The court interpreted the lower court’s judgment as holding: “Plaintiffs carried on a pattern of evasive and objectionable conduct during and after discovery and that, even though many of the misdeeds standing alone might not have individually warranted dismissal, the disappearance of Anton and his computer—following the pattern of evasiveness and obfuscation surrounding Anton—were the straws that broke the camel’s back.” Sentis, once again, appealed the dismissal.

Permissible sanction. The court ultimately concluded that dismissal was a permissible sanction, as the record sufficiently supported that Sentis acted in bad faith; controlled Anton; and intentionally and systematically suppressed evidence. Nevertheless, Sentis made four arguments to the contrary: (1) Shell was given access to Anton and his accountant during a post-discovery deposition, but voluntarily terminated the deposition “such that the later disappearance of Anton and his computer cannot be deemed spoliation”; (2) the missing evidence regarding Sentis’ actual expenses is immaterial and cannot support a finding of prejudice; (3) the missing evidence exists in other forms such that loss of the evidence is not prejudicial; and (4) any dismissal sanctions should be applied to particular claims, not the action as a whole.

The court disagreed, noting that although Shell had access to Anton and his computer at one point, it did not shield Anton’s disappearance from claims of spoliation. The court also determined that Sentis had a number of “mistaken views” when making its arguments, namely that Sentis: (1) presumed it had the unilateral ability to dictate the scope of discovery; (2) incorrectly suggested that discovery is limited to material that might be deemed relevant and admissible at trial; and (3) wrongly suggested that the concepts of materiality, relevancy, and discoverability are fixed and cannot be changed during the course of discovery as new facts and relationships are revealed or explained.

Sentis also argued that it was an abuse of discretion for the lower court to impose anything other than the “minimally punitive sanction available within the range of possible sanctions.” The court disregarded this argument, however, as it found no error in the lower court’s decision. Specifically, the court determined that it still remains unclear how payments to the accountant related to site expenses; how such expense related to Sentis’ profitability; and—when correctly calculating expenses—whether Sentis earned the per-site profits suggested in the operating agreement. Because Shell cannot present its theory of the case without such information, cannot impeach Anton, and cannot test the information on Anton’s computer, the lower court did not abuse its discretion in dismissing the case, the court concluded.

The case number is 12-3623.

Attorneys: Jeffrey Ryan King (King Law Offices) for Sentis Group, Inc. David M. Harris (Greensfelder & Hemker) for Shell Oil Co.

Companies: Sentis Group, Inc.; Shell Oil Co.

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