Blue Sky Travel and Tours, LLC v. Nasser Al Tayyar

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-2500
BLUE SKY TRAVEL AND TOURS, LLC; MAHMOUD RIAD MAHMOUD,
Plaintiffs - Appellees,
v.
NASSER AQEEL AL TAYYAR; AL TAYYAR GROUP,
Defendants - Appellants.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Anthony J. Trenga,
District Judge; Ivan D. Davis, Magistrate Judge. (1:12-cv-
01142-AJT-IDD)
Argued: January 28, 2015 Decided: March 31, 2015
Before SHEDD, DUNCAN, and KEENAN, Circuit Judges.
Affirmed in part, vacated in part, and remanded with
instructions by unpublished opinion. Judge Keenan wrote the
majority opinion, in which Judge Duncan joined. Judge Shedd
wrote a dissenting opinion.
ARGUED: Christopher M. Curran, WHITE & CASE LLP, Washington,
D.C., for Appellants. Warner Franklin Young, III, ALLRED,
BACON, HALFHILL & YOUNG, PC, Fairfax, Virginia, for Appellees.
ON BRIEF: Nicole Erb, Matthew S. Leddicotte, WHITE & CASE LLP,
Washington, D.C., for Appellants. Matthew C. Indrisano, ALLRED,
BACON, HALFHILL & YOUNG, PC, Fairfax, Virginia, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
BARBARA MILANO KEENAN, Circuit Judge:
In this appeal concerning the breach of an oral contract,
we consider whether the district court erred in denying the
defendants’ motion for judgment as a matter of law asserting a
defense of the statute of frauds. We also consider whether the
district court abused its discretion in affirming the magistrate
judge’s imposition of an evidentiary sanction after determining
that the defendants spoliated evidence.
Upon our review, we conclude that the district court did
not err in rejecting the defendants’ defense of the statute of
frauds. However, on the sanction issue, we hold that the court
applied an incorrect legal standard in concluding that the
defendants spoliated evidence, and we remand the matter to the
district court for application of the correct legal standard and
further factual development. Accordingly, we affirm in part,
and vacate in part, the district court’s judgment, and remand
the case for further proceedings.
I.
This case involves a breach of contract dispute between two
travel agencies and their respective principals. Dr. Nasser
Aqeel Al Tayyar (Nasser) is the founder and vice chairman of the
“Al Tayyar Group” (ATG), a large travel agency based in the
Kingdom of Saudi Arabia (Saudi Arabia). ATG has a contract with
2
the Ministry of Higher Education of Saudi Arabia (the Ministry),
under which ATG facilitates the travel of Saudi students outside
Saudi Arabia whose travel arrangements are paid by the Ministry.
To provide ATG greater access to the airline ticketing market in
the United States, ATG sought to work together with a travel
company in the United States accredited by the Airlines
Reporting Corporation (ARC).
In March 2011, an ATG representative contacted Mahmoud Riad
Mahmoud (Riad), the owner of “Blue Sky Travel and Tours, Inc.,”
a travel agency holding ARC accreditation, concerning a
potential business relationship. Nasser traveled to the United
States in June 2011 to meet with Riad and, over the course of
several days, discussed forming a partnership to service ATG’s
contract with the Ministry.
During these meetings, Riad and Nasser entered into an oral
agreement to facilitate ATG’s contract with the Ministry
involving Saudi students traveling to and from the United
States. Under the oral agreement, Riad and Nasser agreed to
form a new entity, “Blue Sky Travel and Tours, LLC” (Blue Sky). 1
The parties’ contract provided that Blue Sky would receive,
1
Riad also agreed to cease operating Blue Sky Travel and
Tours, Inc. in exchange for $850,000 from Nasser, which amount
the parties later agreed to reduce to $661,000. After that
company ceased operating, Riad transferred its ARC license to
the new entity that he formed with Nasser.
3
through ATG, requests from the Ministry for airline tickets for
students. Blue Sky was required to search for the least
expensive available tickets, purchase such tickets on the
students’ behalf, and send the invoices to ATG for reimbursement
and payment to Blue Sky of an additional $100 fee per ticket.
In turn, ATG agreed to “resell” the tickets to the Ministry at a
greater price than Blue Sky had paid for the tickets.
Riad alleged that Nasser agreed to provide Blue Sky
additional compensation in the form of shared profits.
According to Riad, Nasser promised that around December 2012,
ATG would calculate its profits from reselling the tickets to
the Ministry and would pay Blue Sky 50 percent of those profits.
Riad stated that Nasser told him that he would earn between $5
million and $6 million in profits under the arrangement.
Nasser, however, denied that he agreed to share ATG’s profits
with Blue Sky. The parties did not memorialize their agreement
in writing.
In May 2012, Blue Sky began issuing tickets for Saudi
students under its contract with ATG. In less than two months,
Blue Sky had purchased airline tickets for about 8,500
passengers, at a total cost to Blue Sky of around $18 million.
However, ATG quickly became dissatisfied with Blue Sky’s
performance. ATG particularly was concerned with Blue Sky’s
documentation practices, which caused significant problems with
4
ATG’s ability to resell the tickets to the Ministry. Around the
end of June 2012, ATG ceased sending Blue Sky ticket requests
from the Ministry.
In October 2012, Blue Sky and Riad (collectively, Blue Sky)
filed a complaint in the district court against ATG and Nasser
(collectively, ATG), alleging among other things that ATG
breached its contract with Blue Sky by failing to pay money owed
under the agreement. As set forth in its amended complaint,
Blue Sky asserted that ATG breached the oral agreement by: (1)
failing to reimburse Blue Sky for the cost of tickets and
service fees in the amount of $1,976,412.72; and (2) refusing to
pay any portion of the profits ATG earned after reselling the
tickets to the Ministry. 2 ATG responded to the amended complaint
by raising numerous affirmative defenses, including that the
oral agreement was unenforceable under the statute of frauds.
The allegations in the complaint related almost entirely to
ATG’s relationship with Blue Sky, and, as relevant to this
appeal, did not mention any other companies used by ATG to
purchase tickets for the Ministry. During discovery, Blue Sky
2
The complaint contained numerous additional claims
asserted against ATG and Nasser. Of these additional claims,
only Riad’s personal claim against Nasser for breach of contract
relating to the closure of his previous travel agency was
decided by the jury, which found in favor of Riad and awarded
him $661,000. Neither that claim nor any of the additional
claims alleged in the complaint are at issue in this appeal.
5
requested documents concerning ATG’s relationship with the
Ministry, which requests were limited to ATG’s business with
Blue Sky. ATG produced to Blue Sky all invoices sent to the
Ministry for tickets purchased by Blue Sky.
Blue Sky first directly raised the issue of ATG’s invoices
involving vendors other than Blue Sky on June 18, 2013, in a
deposition taken of ATG’s chief accountant, Hany Ragaie. Blue
Sky’s counsel requested during that deposition “documents that
reflect what the Ministry has paid in calendar year 2012 and
what the cost of the goods was, the tickets that were delivered
to the Ministry” involving all ATG vendors. ATG did not agree
to produce the documents sought at the deposition regarding the
other vendors.
Thereafter, Blue Sky filed a motion to compel discovery
concerning Blue Sky’s original request for documents, which
related only to ATG’s business with Blue Sky. The motion also
requested the documents discussed during Ragaie’s deposition
showing the prices paid by the Ministry for tickets purchased by
all twenty-eight vendors used by ATG.
During a July 2013 hearing on the motion to compel, Blue
Sky asked the magistrate judge to order ATG to produce the
invoices that ATG sent to the Ministry for all ATG’s vendors.
Counsel explained that Blue Sky’s purpose in seeking that
information was to test the validity of ATG’s claim that it had
6
charged a markup of only five percent on all its airline tickets
purchased on behalf of the Ministry. The magistrate judge
issued an order requiring ATG to produce the documents requested
in Blue Sky’s motion. After ATG did not produce any documents
to Blue Sky in response to the magistrate judge’s order, Blue
Sky filed a motion requesting sanctions.
The magistrate judge held a hearing on Blue Sky’s motion
for sanctions on August 2, 2013. Upon deciding that invoices
and other documents dealing with all the ATG vendors could be
relevant to Blue Sky’s theory of damages, the magistrate judge
ordered ATG to produce copies of invoices ATG sent to the
Ministry for tickets purchased by all the vendors.
ATG did not produce any invoices in response to the
magistrate judge’s order. Instead, ATG produced around 5,000
pages of computer spreadsheets containing pricing information on
ATG’s resale of tickets from the twenty-eight vendors to the
Ministry.
In response, Blue Sky filed a renewed motion for sanctions.
At a hearing on that motion, the magistrate judge again ordered
ATG to produce the invoices. The magistrate judge imposed
several sanctions on ATG at that time, including prohibiting ATG
from arguing that it received only a five-percent profit from
the Ministry for reselling tickets purchased by ATG’s vendors.
The magistrate judge further warned that he would impose
7
additional sanctions if ATG did not comply with the court’s
order.
ATG did not produce any additional documents in response,
and instead filed a motion for limited reconsideration of the
sanctions order. In that motion, ATG represented for the first
time that it no longer retained the invoices from the other
vendors. ATG attached to its motion an affidavit from Ragaie,
in which he attested that ATG transcribed information concerning
the invoices paid by the Ministry onto a Microsoft Excel
worksheet, and stated that “ATG does not retain copies of the
original invoices submitted to the [Ministry] after they are
submitted and paid by the [Ministry].” In response, Blue Sky
filed a motion requesting that the court enter default judgment
against ATG.
At a hearing held in September 2013 to determine whether
ATG spoliated evidence, the magistrate judge admonished counsel
for ATG, stating that “when this litigation started, the
defendants were required by law to preserve. Any document
retention policy you had had to be stopped.” The magistrate
judge further informed counsel for ATG that “[o]nce you are put
on notice that there is litigation pending or once litigation
starts, you are required . . . to stop [your] normal document
retention policies and to preserve all documents because you
don’t know what may or may not be relevant.” The magistrate
8
judge rejected ATG’s argument that Blue Sky’s complaint did not
put ATG on notice that invoices relating to vendors other than
Blue Sky could be relevant in the case. Additionally, the
magistrate judge did not make any credibility findings
concerning Ragaie’s affidavit.
At the conclusion of the hearing, the magistrate judge
determined that additional sanctions were appropriate because
ATG “completely failed to fulfill [its] obligation[] to preserve
documents subsequent to the initiation of this litigation.” The
magistrate judge held that entry of default judgment was not
warranted, but that the jury would be given an adverse
instruction permitting the jury to presume that ATG made $20
million in profits in reselling to the Ministry the tickets
originally purchased by Blue Sky.
ATG filed exceptions in the district court to the September
2013 sanctions order, under Rule 72 of the Federal Rules of
Civil Procedure. The district court held a hearing on the
motion, and later issued an order denying ATG’s exceptions and
affirming the adverse jury instruction sanction imposed by the
magistrate judge. The district court concluded that the relief
imposed by the sanction was “necessary to address effectively
the prejudice to the plaintiffs caused by defendant’s failures.”
Thereafter, the parties consented to ATG’s request to
bifurcate a portion of the trial. Under the proposal accepted
9
by the district court, the jury would determine whether the
parties formed an oral agreement requiring ATG to split the
profits ATG earned upon reselling the tickets to the Ministry.
If the jury found that there was such an agreement, the district
court rather than the jury would determine the amount of lost
profit damages to which Blue Sky was entitled. With the jury no
longer determining the amount of lost profit damages, the court
construed the adverse jury instruction sanction as creating an
evidentiary presumption applicable at the damages hearing.
The case proceeded to trial. After Blue Sky presented its
evidence, ATG moved for judgment as a matter of law, arguing
among other things that the Virginia statute of frauds barred
any action based on the oral agreement. The district court
denied the motion at that time.
At the conclusion of the three-day trial, the jury
determined that ATG breached its agreement to compensate Blue
Sky for the costs and service fees for the airline tickets at
issue. The jury entered a verdict awarding Blue Sky damages of
$1,940,050.89. The jury also concluded that there was, in fact,
an oral agreement between ATG and Blue Sky to split the profits
earned by ATG upon its resale of the airline tickets to the
Ministry.
The case was submitted to the district court to determine
the amount of profits to which Blue Sky was entitled. The court
10
held a hearing at which the parties made arguments regarding
lost profit damages, as well as arguments on ATG’s renewed
motion concerning the statute of frauds. The court did not hear
testimony or receive other evidence at this hearing.
Following the hearing, the district court issued a
memorandum opinion, in which the court denied ATG’s defense of
the statute of frauds. The court concluded that it was possible
for Blue Sky to have completed its performance within one year
of the contract’s formation in June 2011, and that, therefore,
the Virginia statute of frauds did not apply. The court next
held that because ATG did not produce evidence rebutting the
presumption that ATG made $20 million in profits from its resale
of tickets to the Ministry, Blue Sky’s 50-percent share of those
profits entitled Blue Sky to $10 million in damages. After
denying ATG’s additional motions for judgment as a matter of law
and for a new trial, the district court entered final judgment
in favor of Blue Sky. ATG timely filed a notice of appeal.
II.
ATG raises two arguments on appeal. ATG first asserts that
the district court erred in rejecting ATG’s defense of the
statute of frauds. ATG also contends that the district court
abused its discretion in imposing sanctions on ATG for failing
11
to retain invoices of vendors other than Blue Sky. We discuss
these arguments in turn.
A.
We first address ATG’s contention that the district court
erred in rejecting ATG’s defense of the statute of frauds. ATG
asserts that full performance of the parties’ oral contract
could not be accomplished within one year and, thus, that any
action based on the oral contract was barred under Virginia law
by the statute of frauds. In support of this argument, ATG
relies primarily on Blue Sky’s allegation that the parties’
contract required ATG to calculate and distribute its profits,
at the earliest, in December 2012, which date was more than one
year after the contract was formed in June 2011. ATG also
contends that Blue Sky was required to provide ticket exchange
services under the contract, and that full performance of that
obligation could not be made until more than one year after the
date of the contract. We disagree with ATG’s arguments.
We review de novo the district court’s denial of ATG’s Rule
50 motion addressing the statute of frauds. See Fontenot v.
Taser Int’l, Inc., 736 F.3d 318, 333 (4th Cir. 2013). In
conducting this review, we consider the evidence in the light
most favorable to Blue Sky, the nonmoving party. Id.The parties agree that Virginia law applies in considering
whether the statute of frauds barred the present action
12
concerning the parties’ oral contract. 3 The Virginia statute of
frauds provides in relevant part that “[u]nless a promise,
contract, agreement, representation, assurance, or ratification,
or some memorandum or note thereof, is in writing and signed by
the party to be charged or his agent, no action shall be
brought . . . [u]pon any agreement that is not to be performed
within a year.” Va. Code § 11-2(8).
Critically, the Supreme Court of Virginia has held that the
statute of frauds applies only if both parties to an oral
contract are incapable of performing their contractual
obligations within one year of the contract’s formation.
Silverman v. Bernot, 239 S.E.2d 118, 121 (Va. 1977) (stating
that the statute of frauds is inapplicable if the contract can
be fully performed “on one side” within one year).
Additionally, courts examining whether an agreement falls within
Virginia’s statute of frauds do not examine the actual course of
contract performance, but rather undertake a theoretical
approach to determine whether the contract is capable of being
3
See United States v. Rosen, 487 F. Supp. 2d 721, 729 (E.D.
Va. 2007) (holding that the Virginia statute of frauds applies
to all disputes concerning unwritten contracts when Virginia is
the forum state in which the dispute is adjudicated); see also
Cosey v. Prudential Ins. Co. of Am., 735 F.3d 161, 169 n.7 (4th
Cir. 2013) (applying law of forum state, as agreed by the
parties, in interpreting the terms of the contract).
13
fully performed by either party within one year. 4 See id.(“[W]hen by its terms, or by reasonable construction, such a
contract can be fully performed on one side within a year,
although it can be done by the occurrence of some improbable
event, . . . the contract is not within the statute and need not
be in writing.”) (emphases added).
Applying the holding in Silverman to the present matter, we
conclude that it was possible for Blue Sky to fully perform its
obligations under its oral contract with ATG within one year of
the contract’s formation in June 2011. As the district court
observed, the contract was premised on ATG receiving ticket
requests from the Ministry. Although Nasser predicted, and Riad
hoped, that Blue Sky would receive many ticket requests through
the end of 2012, there remained the possibility that the
Ministry would cease funding student travel through ATG or would
order only a small number of tickets. 5
4
See also Rosen, 487 F. Supp. 2d at 729 (holding that
employer’s agreement to advance legal fees to employees for an
indefinite period in connection with criminal investigation was
not within statute of frauds, because of the possibility the
investigation and prosecution could have been completed within
one year of the agreement).
5
The district court concluded that it was uncertain when
and under what circumstances ATG’s contract with the Ministry
expired. The court additionally observed that the ATG-Ministry
contract was “silent as to any commitment or obligation on the
part of the Ministry to actually order any tickets or use any
other services of ATG,” and that the court could not rule out
(Continued)
14
Under the circumstances of the parties’ agreement, it was
therefore possible that there could have been only a single
ticket request made to Blue Sky through ATG and the Ministry,
and that such a request could have been made within one year of
the agreement between Blue Sky and ATG in June 2011. Blue Sky
could have purchased the ticket, issued it to the student, and
sent the invoice to ATG within that one year. If Blue Sky did
not receive another ticket request because the Ministry had
terminated its relationship with ATG, Blue Sky would have fully
performed its obligations under the agreement within one year of
the contract’s formation. 6 In that hypothetical situation, it is
the possibility that “the contract continued as a contract
terminable for cause or for the convenience of the Ministry.”
ATG does not argue on appeal that the district court erred in
reaching these conclusions.
6
In asserting the opposite conclusion, our colleague in
dissent misreads the decisions in Silverman and Falls v.
Virginia State Bar, 397 S.E.2d 671 (Va. 1990). In neither case
did the Supreme Court of Virginia announce a per se rule that
any contingency must be specified in the oral contract as
constituting full performance to remove the contract from the
statute of frauds. The dissent notes correctly that the court
in Falls held that death, resignation, or discharge for cause
could not constitute full performance in an oral employment
contract unless the parties so specified. See 397 S.E.2d at
672-73. However, the Falls holding stands for the unremarkable
position that events not otherwise considered to be full
performance may be considered as such upon the parties’
agreement. This was the case in Silverman, in which the terms
of the agreement provided that death constituted full
performance. See 239 S.E.2d at 122-23. Otherwise, as explained
in Falls itself, an oral employment contract terminates by
(Continued)
15
immaterial whether ATG could perform its obligation to calculate
and distribute profits within one year of the agreement’s
formation in June 2011, because it is not necessary under
Virginia law that both parties are able to fully perform within
one year. See Silverman, 239 S.E.2d at 121.
We are not persuaded by ATG’s arguments to the contrary.
ATG attacks the hypothetical situation posited by the district
court, in which the court observed that it was possible under
the contract for Blue Sky not to have received any ticket
requests whatsoever. 7 ATG asserts that such a situation would
eliminate the need for any performance, and would constitute
non-performance rather than the full performance required to
operation of law upon the employee’s death or resignation, and
terminates by breach upon the employee’s discharge for cause.
See 397 S.E.2d at 673. In the present matter, however, the
contract would not terminate upon Blue Sky receiving only one
ticket request through ATG and the Ministry. Rather, as
explained above, Blue Sky’s fulfillment of that ticket request
would have constituted full performance if the Ministry had
ended its relationship with ATG after that one ticket had been
purchased. Further, we are not persuaded by the dissent’s
recitation of non-Virginia precedent in support of the view that
the duration of Blue Sky’s potential obligation to ATG places
the agreement within the statute of frauds. Cf. Southern States
Life Ins. Co. v. Foster, 229 F.2d 77 (4th Cir. 1956) (applying
South Carolina law); Martocci v. Greater N.Y. Brewery, Inc., 92
N.E.2d 887 (N.Y. 1950) (applying New York law).
7
The district court also observed that even if Blue Sky had
received ticket orders, Blue Sky “might have completely
performed all of its duties within a year in order to receive
its share of [the] profits.”
16
remove the agreement from the statute of frauds. See id.However, we do not rely on the “zero tickets ordered”
hypothetical set forth by the district court, but rather the
hypothetical possibility that one ticket would be ordered, which
situation would allow Blue Sky to perform under the agreement.
We also do not agree with ATG’s argument that Blue Sky
could not have performed its contractual obligations within one
year because Blue Sky purportedly was required to accommodate
ticket exchange requests through the end of 2012. ATG relies on
a statement from Sherin Noor, a Blue Sky employee, who testified
that Blue Sky was doing “exchanges” until January 2013 for
students who needed to change the dates of their travel
arrangements. Noor stated during his testimony that “because we
issued the ticket, we need to make the exchange.”
Even assuming that Blue Sky had a contractual obligation to
process ticket exchange requests, 8 we conclude that such an
8
Although we need not reach the issue, we observe that it
would be tenuous, at best, to conclude that the evidence
supports a finding that Blue Sky had a contractual obligation to
provide ticket exchange services. Riad discussed during his
testimony the obligations assumed by Blue Sky under the oral
agreement without mentioning any servicing requirement. Nasser
also did not testify about any obligation on the part of Blue
Sky to provide exchange services. In light of the absence of
such testimony from the contract principals, we do not think
that Noor’s ambiguous statement of a “need” to service the
tickets constitutes sufficient evidence that servicing was a
contractual obligation.
17
obligation does not require application of the statute of
frauds. It would be possible, particularly under the “one
ticket” hypothetical discussed above, for Blue Sky to receive
and process any exchange request within one year of the
contract’s formation. Absent any further exchange requests,
Blue Sky thus would have fully performed its obligations within
one year. Accordingly, we affirm the district court’s denial of
ATG’s defense of the statute of frauds. 9
B.
We next address ATG’s argument that the district court
abused its discretion by upholding the evidentiary sanction
issued against ATG on the ground of spoliation. 10 ATG asserts
that the magistrate judge and the district court applied an
incorrect legal standard concerning ATG’s document preservation
obligations in concluding that ATG destroyed documents that it
had a duty to preserve. Blue Sky argues in response that the
9
Because the defense of the statute of frauds in this case
presents a pure question of law, we need not address ATG’s
argument that the district court erred by placing the burden of
proof on ATG with respect to its defense. Application of the
undisputed facts under the hypothetical analysis required by
Silverman mandates the conclusion that the oral agreement in
this case does not fall within the statute of frauds.
10
“Spoliation refers to the destruction or material
alteration of evidence or to the failure to preserve property
for another’s use as evidence in pending or reasonably
foreseeable litigation.” Silvestri v. Gen. Motors Corp., 271
F.3d 583, 590 (4th Cir. 2001) (citation omitted).
18
sanction was imposed on the basis of general discovery
violations rather than spoliation, and that ATG waived any
objections to the magistrate judge’s holdings. We disagree with
Blue Sky’s arguments.
We find no merit in Blue Sky’s argument that the sanction
at issue was imposed for general discovery abuses rather than
for spoliation of evidence. The magistrate judge stated in the
order imposing the adverse jury instruction that the sanction
was being imposed “[f]or reasons stated from the bench” at the
September 2013 hearing. Unmistakably, the reasons given by the
magistrate judge from the bench at that hearing addressed
spoliation. The magistrate judge stated that the hearing was
being held to determine whether ATG spoliated evidence, set
forth his view of the legal standard applicable to spoliation,
and applied that standard in concluding that ATG “completely
failed to fulfill [its] obligation[] to preserve documents
subsequent to the initiation of this litigation.” (Emphasis
added). It was on that basis, rather than on the mere failure
to produce the documents or because of any other discovery
failures, that the magistrate judge decided to impose the
sanction at issue.
Similarly, we find no merit in Blue Sky’s argument that the
district court’s affirmance of the magistrate judge’s sanction
order was not based on the magistrate judge’s spoliation
19
holding. In affirming the adverse jury instruction sanction,
the district court noted the possibility that ATG’s actions may
have “entirely eliminated” Blue Sky’s ability to establish its
damages for lost profits. The court’s use of the term
“eliminated” indicates that it was ATG’s failure to preserve the
documents, rather than ATG’s mere failure to timely produce
them, that justified the extreme sanction in the court’s view.
Moreover, the district court did not make an express statement
that the court was affirming the sanction on a basis independent
from the magistrate judge’s analysis. To the contrary, the
court grounded its holding on the magistrate judge’s decision,
concluding that ATG failed to show that “the Order of the
Magistrate Judge with respect to damages was clearly erroneous
or contrary to law.” Accordingly, we conclude that the district
court affirmed the sanction order for the reason provided by the
magistrate judge, namely, spoliation of evidence.
We also disagree with Blue Sky’s argument that ATG waived
its appeal of the sanction order. Although a party’s failure to
file timely exceptions under Rule 72 to a magistrate judge’s
order waives the party’s right to appeal that order, Wells v.
Shriners Hosp., 109 F.3d 198, 201 (4th Cir. 1997), ATG timely
20
filed such exceptions to the magistrate judge’s spoliation
finding and imposition of the adverse jury instruction. 11
We proceed to analyze for abuse of discretion the sanction
imposed on ATG for spoliation. Silvestri v. Gen. Motors Corp.,
271 F.3d 583, 590 (4th Cir. 2001). Among other circumstances, a
court abuses its discretion when it bases its ruling on an
erroneous principle of law. Georgia Pac. Consumer Prods., LP v.
Von Drehle Corp., 710 F.3d 527, 533 (4th Cir. 2013).
A party may be sanctioned for spoliation if the party (1)
had a duty to preserve material evidence, and (2) willfully
engaged in conduct resulting in the loss or destruction of that
evidence, (3) at a time when the party knew, or should have
known, that the evidence was or could be relevant in litigation.
Turner v. United States, 736 F.3d 274, 282 (4th Cir. 2013). In
the present case, neither the magistrate judge nor the district
court made the crucial finding whether ATG destroyed or failed
to preserve the evidence at issue, despite having known or
should have known that the evidence could be relevant in the
case. See Silvestri, 271 F.3d at 591; see also Turner, 736 F.3d
at 282.
11
Blue Sky asserts that ATG did not file exceptions to the
magistrate judge’s previous orders that the invoices were
relevant and should be produced, but those conclusions do not
constitute the spoliation finding or the resulting sanction that
is at issue in this appeal.
21
Instead, the magistrate judge held that once litigation
began, ATG had a duty to stop its document retention policies
“and to preserve all documents because you don’t know what may
or may not be relevant.” (Emphasis added). The standard
applied by the magistrate judge constituted an abuse of
discretion, because a party is not required to preserve all its
documents but rather only documents that the party knew or
should have known were, or could be, relevant to the parties’
dispute. See Turner, 736 F.3d at 282. Further, the district
court’s imposition of the sanction based on spoliation created
severe prejudice, because the evidentiary presumption
effectively relieved Blue Sky of its burden to prove its damages
claim for lost profits.
Accordingly, applying the principles expressed in Turner,
we conclude that two unresolved issues are essential to the
spoliation analysis and should be addressed in the first
instance by the district court. First, the district court
should ascertain the date by which ATG knew or should have known
that invoices relating to other vendors could be relevant in the
case. Second, the district court should establish when ATG
destroyed the invoices from the other vendors. The
determination whether ATG committed spoliation will rest in
large part on the district court’s findings regarding these two
questions.
22
On remand, therefore, the district court should determine
whether ATG spoliated evidence, what sanctions, if any, are
appropriate, and whether a new trial on lost profits damages is
necessary. However, because the spoliation sanction did not
have a material impact on the liability proceedings before the
jury, a new trial will not be required on the issue of
liability, or on the jury’s award of $1,940,050.89 in other
damages.
III.
For these reasons, we affirm the district court’s judgment
with respect to the court’s denial of ATG’s defense of the
statute of frauds. We affirm the district court’s liability
determination and damages award in the amount of $1,940,050.89,
vacate the court’s profit-based damages award, and we remand
this matter to the district court for further proceedings
consistent with this opinion.
AFFIRMED IN PART, VACATED IN PART,
AND REMANDED WITH INSTRUCTIONS
23
SHEDD, Circuit Judge, dissenting:
I disagree with the majority’s conclusion that the oral
agreement in this case is not within the Virginia statute of
frauds. See Va. Code Ann. § 11-2(8) (no action may be brought on
an oral contract if the contract is based on an “agreement that
is not to be performed within a year”). The Supreme Court of
Virginia has explained that when “it appears by the whole tenor
of an agreement not in writing that it is to be performed after
the first year, then the contract is within the statute and must
be in writing.” Silverman v. Bernot, 239 S.E.2d 118, 121 (Va.
1977). However, when “by its terms, or by reasonable
construction, such a contract can be fully performed on one side
within a year, although it can be done by the occurrence of some
improbable event, . . . the contract is not within the statute
and need not be in writing.” Id.Looking at the “whole tenor” of the oral contract, as
described by Mr. Riad, it clearly falls within § 11-2(8). Formed
in June 2011, the contract obligated both parties to perform
through the end of 2012, some 18 months later. Specifically, the
contract obligated Blue Sky to purchase airline tickets at ATG’s
request through the end of 2012, and it obligated ATG to share
its profits with Blue Sky at the end of 2012. The contract did
not contain any contingency that, upon its occurrence, could
constitute full performance before the 18-month period expired.
24
Therefore, there is simply no way that either party could fully
perform its obligations within one year of June 2011. 1
Finding to the contrary, the district court interpreted
Virginia law in an extraordinary manner, stating that if a court
could “conjure up some contingency, no matter how improbable,
that would allow either Blue Sky or ATG to completely perform
all of its contract obligations within one year of June 2011,”
then the oral agreement is not within the statute of frauds.
J.A. 1309 (emphasis added). The court then concluded that
because, within one year of June 2011, the Ministry could have
stopped ordering airline tickets from ATG or the Ministry
contract with ATG could have been terminated, either Blue Sky or
ATG “might have completed their performance under their
contract” during that period. J.A. 1310. In affirming the
1
The “whole tenor” of the oral contract makes clear that
the parties contracted for Blue Sky to purchase airline tickets
at ATG’s request until the end of 2012. Among other things, Mr.
Riad testified that ATG handled approximately “$120 million a
year” in United States tickets for the Saudi Ministry, and that
Dr. Al-Tayyar told him that his profit “would be between 5 to 6
million.” J.A. 829. See Rizoti v. Plemmons, 91 Fed. Appx. 793,
796-97 (4th Cir. 2003) (holding that testimony regarding the
anticipated duration of the agreement established that the
defendant’s performance would extend beyond one year). Moreover,
Mr. Riad testified that he kept his business open until January
18, 2013, “after the last student used his ticket.” J.A. 841.
See Volvo Constr. Equip. N.A., Inc. v. CLM Equip. Co., 386 F.3d
581, 598 (4th Cir. 2004) (noting that “courts commonly look to
evidence of the course of dealing . . . in assessing ambiguous
contract terms”).
25
district court’s decision, the majority asserts that Blue Sky
could have fully performed its contractual obligations by
purchasing a single airline ticket within one year of June 2011.
The district court and the majority misread Virginia law.
In Silverman, upon which the majority primarily relies, the
state supreme court held that the oral employment contract was
not within the statute of frauds because it was capable of being
performed by either party within one year; however, the court
did not adopt a standard allowing for any contingency to be
“conjured up” to remove a contract from the statute. Instead,
the court concluded that the contract itself provided for
“alternative performances, that is, . . . the parties
contemplated that the agreement would be fully performed if
either (1) the plaintiff remained in Silverman’s employ until
she reached the age of 62, or (2) the plaintiff remained in
Silverman’s employ until his death.” 239 S.E.2d at 121. The
court reasoned that because “the death of the employer could
have occurred within the first year of the agreement,” the
contract was not within the statute of frauds. Id. In reaching
this conclusion, the court specifically emphasized the
distinction in service-contract cases between the termination of
a contract by operation of law and by completion of performance,
and it noted that the termination of a party’s contractual duty
26
is not the same as a party’s full performance of the
contemplated work. Id. at 121-22. 2
The court reiterated this point in Falls v. Virginia State
Bar, 397 S.E.2d 671 (Va. 1990), in which it held that the oral
employment contract, which was indefinite in duration but
contingent on the employee’s satisfactory performance, was
within the statute of frauds. The court rejected the employee’s
argument that the contract could be fully performed within one
year because he could have died, resigned, or been discharged
for cause during that period. Applying Silverman, the court
explained that “[a]lthough occurrence of any of the three
contingencies . . . would have terminated [the employee’s]
performance during the first year of his employment, the
parties’ contract did not expressly provide that the occurrence
of any of these contingencies would constitute full
performance.” Id. at 672-73. Continuing, the court noted that
because the contract “contains no such provision providing for
full performance in the event of those contingencies, the
statute of frauds is applicable.” Id. at 673.
2
The district court and the majority read too much into the
Silverman court’s statement that the occurrence of an improbable
event can constitute a party’s full performance of an oral
agreement. Certainly, an improbable event may lead to a party’s
full performance, but the event itself must be expressed in the
contract.
27
As noted, the oral contract in this case obligated the
parties to perform for a period of 18 months, and it did not
contain a contingency that, upon its occurrence, would have
constituted full performance. Thus, like the contingencies in
Falls, the contingencies conjured up by the district court might
have terminated Blue Sky’s performance under the oral contract,
but they would not have led to the “full performance”
contemplated by the parties when they made the contract. See
also Lee’s Adm’r v. Hill, 12 S.E. 1052 (Va. 1891) (holding that
an agreement for one year’s service, made in August and to
commence in October, was within the statute because the
employee’s promise could only be performed by service for the
full year).
Moreover, although Blue Sky’s purchase of any airline
tickets during the 12-month period after June 2011 would
constitute partial performance of Blue Sky’s contractual
obligations, partial performance is insufficient to remove this
contract from § 11-2(8). Because Blue Sky was contractually
obligated to purchase tickets at ATG’s request until the end of
2012, it could not fully perform its obligations within one year
after June 2011. See generally Southern States Life Ins. Co. v.
Foster, 229 F.2d 77, 81 (4th Cir. 1956) (“Until the arrival of
each of those months, the waiver for that month could not be
tendered; until then, neither the appellant, nor the appellees,
28
could perform their agreement for that month. . . .”); Martocci
v. Greater N.Y. Brewery, Inc., 92 N.E.2d 887, 889 (N.Y. 1950)
(“The endurance of defendant’s liability is the deciding factor.
The mere cessation of orders from Lorillard to defendant would
not alter the contractual relationship between the parties; it
would not constitute performance; plaintiff would still be in
possession of his contractual right, though it may have no
monetary value, immediately or ever.”).
For these reasons, I believe that the oral contract is
within the statute of frauds. Accordingly, the defendants are
entitled to judgment as a matter of law. 3
3
Although unnecessary for my resolution of this appeal, I
agree that the district court abused its discretion regarding
spoliation of evidence. The magistrate judge applied an
incorrect, overly broad standard, and the district judge applied
an excessively prejudicial evidentiary presumption during the
damages proceeding.
29