Sanctioned For Deleting Emails, Plantronics Could Lose Fed Contracts Too

Plantronics, a California company that manufactures telephone headsets, may soon be barred from doing business with the federal government — less than one year after a judge imposed $3 million in “punitive” sanctions on the company for discovery violations.

Earlier this week, the U.S. General Services Administration, which helps manages federal government agencies, proposed “debarment” for Plantronics and its senior vice president of sales Don Houston — the figure at the center of its discovery debacle in Delaware federal court — citing “a lack of business honesty,” which is one of several possible causes.

The listing used boilerplate language and stated the nature or cause of the debarment as:

“Preliminary ineligible based upon adequate evidence of conduct indicating a lack of business honesty or integrity, or a lack of business integrity, or regulation, statute, executive order or other legal authority, pending completion of an investigation and/or legal proceedings; or based upon initiation of proceedings to determine final ineligibility based upon regulation, statute, executive order or other legal authority or a lack of business integrity or a preponderance of the evidence of any other cause of a serious and compelling nature that it affects present responsibility.”

 The GSA does not share any other information on why it is seeking debarment, including whether the move is even connected to the discovery sanctions. Plantronics and Houston are already listed as “excluded” on a government website, pending finalization of the “debarment” process, which is designed to protect the federal government from “doing business with non-responsible contractors.”

Debarment generally takes 30 days to finalize and lasts for a period of three years, according to several experts, during which time the company would be prohibited from doing business with any federal agency that’s part of the executive branch, a group that includes the Departments of Justice, Commerce, Transportation and many others.

Neither a Plantronics spokesman, nor its lawyers from Wilson Sonsini, Potter Anderson & Corroon, or Morris, Nichols, Arsht & Tunnell were available for comment.

The impact on the company’s bottom line may be limited: So far, in 2017, it has been awarded roughly $1 million in federal contracts— less than one percent of the $209 million in fourth quarter revenue it posted in 2017.

Its CEO Joe Burton did not even mention the exclusion in an investor call on May 1, the same day it was listed as excluded, according to a transcript.

In its 2016 annual report, Burton wrote:

We also make direct sales as a General Services Administration (“GSA”) contractor to certain government agencies in the U.S. These sales did not comprise a significant portion of our net revenues in fiscal years 2016, 2015, or 2014. In addition, certain distributors are authorized resellers under a GSA schedule price list and sell our products to government customers pursuant to that agreement.

The annual value of its government contracts has been increasing since 2013, according to USA Spending.gov, a government website.

Still, the possibility that discovery sanctions could have a spillover effect on a company’s ability to do business with agents of the federal government caught the attention of practitioners.

According to an FAQ section on the GSA website, debarment can be imposed for any number of reasons including “falsification or destruction of records,” violation of antitrust statutes or “any other cause that affects present responsibility.”

It definitely would be a wake up call for some companies … you could lose all your government work if you don’t handle your e-discovery properly

Ignatius Grande, a Hughes Hubbard & Reed attorney in New York who specializes in e-discovery, called the Plantronics’ case one of the “most significant” discovery sanctions’ cases in recent years, and said he had never heard of a company facing GSA debarment as a collateral consequence.

It definitely would be a wake up call for some companies … you could lose all your government work if you don’t handle your e-discovery properly,” said Grande.

He added, “I think the language was what really distinguished it. The judge called it ‘punitive sanctions’ and you had someone who was proactively deleting emails.”

U.S. District Judge Leonard Stark in Delaware handed down the discovery sanctions on July 12, 2016 in an antitrust case filed by a competitor GN Netcom. The suit, which was filed in 2012 and remains ongoing, accuses Plantronics of prohibiting its distributors from selling GN Netcom or other rival’s headsets to large call centers.

Stark imposed the $3 million in sanctions after determining that Houston, a senior vice president at Plantronics, had deleted and instructed others at the company to delete as many 90,000 emails, at least some of which would have been discoverable.

He wrote “that Plantronics’ high degree of fault, its bad-faith intent to deprive GN of responsive documents, and the prejudice it has caused to GN’s case — along with the difficulties it has created for GN in ‘getting to the bottom of the deletion story’ and its (at times) unwillingness to acknowledge wrongdoing” merited the $3 million in sanctions.

Stark also awarded GN its attorney fees and costs for investigating the email deletion and left open the possibility that GN Netcom could advise the jury — if the case reaches trial — to draw an adverse inference from the fact that Plantronics deleted emails.

The judge also wrote that the $3 million in sanctions was approximately triple the financial penalty that Plantronics had imposed on Houston. But he added that Plantronics may actually have benefitted financially by imposing the penalty because it saved money it otherwise would have paid out as compensation.

The entire opinion can be read for free here, via Bloomberg Law. [Login required.]

The company, which set aside $5 million as a result, has said the antitrust claims are without merit and that it believes the sanctions order may ultimately be repealed and reversed upon resolution of the case.

Robert Wagman, a Bracewell partner in Washington, D.C. who specializes in government contracts, also said he had never seen court sanctions lead to a debarment order.

“It would be very rare that you would see GSA making a determination that somebody’s conduct in litigation questions their business integrity,” said Wagman, but he added, “It’s a very subjective standard, so it could happen.”

He said companies generally have an opportunity to appeal such a debarment, though it is not known if Plantronics will do so.