Lawson v. Spirit AeroSystems

LARRY A. LAWSON, Plaintiff, v. SPIRIT AEROSYSTEMS, INC., Defendant.

Case No. 18-1100-EFM-ADM

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

June 18, 2020

MEMORANDUM AND ORDER

This matter comes before the court on Defendant Spirit AeroSystems, Inc.'s ("Spirit") Motion to Shift Costs of Technology Assisted Review of ESI to Plaintiff Larry A. Lawson ("Lawson"). (ECF 133.) At Lawson's request, the parties spent months engaged in an ESI discovery process regarding the issue of business overlap between Spirit and non-party Arconic, Inc. ("Arconic") using traditional ESI methods involving custodians and search terms. When that process repeatedly yielded low responsiveness rates, the court allowed the parties to proceed—again, at Lawson's request—with a technology-assisted review ("TAR") of approximately 322,000 documents, with the caveat that the court would decide whether to allocate the TAR expenses to Lawson. Spirit now moves the court to require Lawson to pay Spirit its costs and expenses for the TAR process pursuant to Federal Rule of Civil Procedure 26(c).

As explained below, Spirit's motion is granted. The court is mindful of the default rule that the producing party should ordinarily bear the costs of production, but the court finds good cause to allocate the TAR expenses to Lawson in order to protect Spirit from undue burden and expense. Early in the case, Lawson pursued a scattershot ESI approach on the issue of Spirit's "Business," and the court repeatedly cautioned Lawson to better focus his ESI custodians and search terms because the court would, at some point, begin shifting costs. Spirit has already borne its fair share of expenses providing discovery on this subject matter by accommodating Lawson's ESI requests for the custodians and search terms he selected, by running court-ordered sampling exercises, and by making targeted document productions on a separate path than the ESI process. That ESI process repeatedly yielded low responsiveness rates. But Lawson was unwilling to abandon the largely non-responsive ESI dataset and instead sought continued review via TAR that unnecessarily perpetuated and exacerbated ESI/TAR expenses. The TAR process ultimately yielded a responsiveness rate of only 3.3%. Even the documents that were technically responsive were of marginal (if any) relevance above and beyond what Spirit produced outside of the ESI/TAR process. Thus, the ESI/TAR process became disproportionate to the needs of the case.

The parties are directed to meet and confer to try to reach agreement on the amount of the TAR expenses. In the event they are unable to reach agreement, the court orders further briefing as to what dollar amount the court should award, as set forth below.

I. BACKGROUND

The background of this lawsuit is more thoroughly set forth in this court's prior orders, familiarity with which is presumed. Briefly summarized, Lawson is Spirit's former chief executive officer. He retired on July 31, 2016. His Retirement Agreement contained non-compete obligations for two years, until July 31, 2018. In early 2017, non-party investment firms Elliott Associates, L.P. and Elliott International, L.P. (collectively, "Elliott") hired him to provide consulting services in connection with a proxy contest Elliott launched to replace five Arconic board members. When Spirit learned about this, Spirit notified Lawson that his involvement with Arconic constituted a breach of his non-compete, and Spirit stopped paying Lawson and demanded that he repay what the company had already paid him under the Retirement Agreement. Lawson disputes that he breached the non-compete.

The disputed issues in this case largely involve interpreting and applying the non-compete provision in Lawson's Retirement Agreement. That provision prohibited Lawson from being involved with "any business that is competitive with the Business or any portion thereof." Lawson v. Spirit AeroSystems, Inc., No. 18-1100-EFM, 2018 WL 3973150, at *2 (D. Kan. Aug. 20, 2018). The Retirement Agreement defined the term "Business" as follows:

We [Spirit] are engaged in the manufacture, fabrication, maintenance, repair, overhaul, and modification of aerostructures and aircraft components, and market and sell our products and services to customers throughout the world ( . . . the "Business").

Id.

Lawson's theory of the case focuses on his allegations that Spirit is a tier-one manufacturer of aerostructures and aircraft components (i.e., it builds and sells large structures and components like fuselage, propulsion, and wing systems) whereas Arconic is a tier-three or tier-four manufacturer of lightweight engineered metal components (e.g., small fasteners, connectors, bolts, engine components, fan blades, etc.) that end up in airplanes because they are used by tier-one suppliers like Spirit. Id. at *7-*9. Lawson therefore contends that Spirit and Arconic are not in the same "Business" because they do not provide, market, or sell the same "specific products and services." Id. Furthermore, Lawson contends that Spirit and Arconic do not regard each other as competitors in their SEC filings or otherwise. Id.

Spirit does not seem to dispute its market positioning vis-à-vis Arconic—namely, that Spirit is primarily a tier-one supplier whereas Arconic makes and sells smaller aerostructures and aircraft components. In fact, Arconic is one of Spirit's suppliers. Spirit instead relies on the business overlap between Spirit and Arconic in light of the non-compete language prohibiting Lawson from being involved with "any business that is competitive with the Business or any portion thereof" (emphasis added) and defining "Business" to include "manufacture, fabrication,repair, overhaul, and modification of aerostructures and aircraft components." See generally, e.g., Lawson v. Spirit AeroSystems, Inc., No. 18-1100-EFM-ADM, 2020 WL 2101251, at *1 (D. Kan. Apr. 30, 2020) (discussing Spirit's motion to compel Arconic to provide discovery on business overlap); Lawson v. Spirit AeroSystems, Inc., No. 18-1100-EFM-ADM, 2020 WL 243598, at *1 (D. Kan. Jan. 16, 2020) (same). Spirit contends that both it and Arconic manufactured, fabricated, maintained, repaired, overhauled, modified, marketed and/or sold the same or similar aerostructures and aircraft components; marketed similar relevant machining capabilities; competed for employees; committed capital and other resources for research and development; maintained relationships with, submitted proposals or bids to, and contracted with the same or similar customers; and pursued strategic initiatives to try to expand their respective market shares. (ECF 281-1, at 6-8.)¹ Spirit also contends that Arconic sought to expand its aerospace business via its relationship with Spirit by extracting more of the aerostructure and aircraft components business for itself as a supplier to Spirit (i.e., attempting to move up the value chain). (Id.)

Lawson filed this lawsuit seeking to recover what he believes Spirit owes him. Elliott's role in the current lawsuit is in some respects germane to the current motion, and it is more thoroughly explained in one of the court's prior orders. See generally Lawson v. Spirit AeroSystems, Inc., 410 F. Supp. 3d 1195, 1201-02 (D. Kan. 2019). Briefly summarized, Lawson and Elliott entered into two agreements on January 31, 2017. The first was a Consulting Agreement for Lawson to provide Elliott with consulting services in connection with the Arconic proxy contest. By the time Elliott and Lawson entered into the Consulting Agreement, Spirit had already notified them that Spirit believed Lawson's consulting arrangement with Elliott wouldviolate Lawson's non-compete. So Lawson and Elliott also entered into an Indemnification Agreement by which Elliott agreed to indemnify Lawson if Spirit failed to pay him under his Retirement Agreement, in which case Elliott would become subrogated to the extent of those payments to Lawson's rights of recovery from Spirit. Id. at 1201-03. Elliott paid Lawson tens of millions of dollars pursuant to the Consulting and Indemnification Agreements (ECF 152-1, at 16-18), and retained Lawson's litigation counsel at Elliott's expense, Lawson, 410 F. Supp. 3d at 1203. Elliott is now funding this lawsuit to recover the amounts Spirit allegedly owes Lawson pursuant to his Retirement Agreement.

A. The Parties' Initial Discussions Regarding Spirit's ESI

By the time this case was reassigned to the undersigned on March 26, 2019, Lawson had already filed a motion to compel Spirit to produce ESI directed to the issue of whether Spirit and Arconic are in the same "Business." (ECF 57, at 23-24.) Lawson's motion to compel was based on its Requests for Production ("RFPs") seeking various documents related to Spirit's relationship with Arconic and the overlap between their businesses. (Id. at 12; ECF 58-2, at 9-14 (RFPs 19, 25-30, 34-38, 40).) The parties had not been able to agree on ESI custodians or search terms and had difficulty meeting and conferring productively. So Lawson moved to compel Spirit to produce documents according to Lawson's list of search terms and custodians. (ECF 57, at 24-30.)

Spirit responded, arguing Lawson's ESI demands were "nothing short of a fishing expedition," disproportionate to the needs of the case, and "abusive," and that Lawson was "using discovery for the sake of creating obvious burden." (ECF 72, at 2-3.) Spirit explained that Lawson had demanded that Spirit search 69 custodians' ESI plus each custodian's assistant's ESI. (ECF 72-9, at 1; ECF 136-2, at 1.) Lawson had also demanded that Spirit run these searches using about 90 search terms. Many of these terms contained one or more "OR" connectors, and therefore theeffective number of search terms far exceeded 100. (See ECF 136-2, at 2-4.) None of the search terms were tailored to specific custodians. Many of the search terms like "Manufactur! OR Sell OR Sale OR Sold" and "Catalog OR Catalogue" and ...