Welcome to Module 5-I.

Textbook Case of Discovery Abuse Exposes a Fallacious “Pig in a Poke” Defense.
pig in a poke

A Senior District Court Judge in Atlanta considered sanctions in what he referred to as a textbook case of discovery abuse: Kipperman v. Onex Corp., 2009 WL 1473708 (N.D.Ga., May 27, 2009). I agree. The nineteen page opinion by Judge J. Owen Forrester describes the conduct of defendants and their attorneys. The core of the abuse was defendants’ pig in a poke defense where they argued that there was no way to know if any email of value existed on backup tapes, so it would be a mistake to spend the large sums of money needed to look. Clever argument, but for the fact that, according to Judge Forrester at least, defense counsel knew, or should have known, that there were lots of important emails on the tapes and so the argument was a con.

The conduct examined in Kipperman is reminiscent of the chameleon-like actions described in 1100 West, LLC v. Red Spot Paint & Varnish Co., Case No. 1:05-cv-1670-LJM-JMS (S.D. Ill. June 5, 2009). Whereas 1100 West resulted in sanctions against the party and the law firm representing it, the amount of which has yet to be determined, the discovery abuses in Kipperman resulted in sanctions of over a million dollars, but against the party alone. Still, the conduct in Kipperman caused Judge Forrester to come very close to entering what he called “the largest default judgment sought by a defendant in the history of the nation.”  Supra at 19.

Over Lawyered

There have been multiple orders entered in Kipperman before the opinion here at issue. It has been pending for over four years and has over 600 docket entries. I have written about the last major order entered in this case on September 19, 2008, in my article, Why E-Discovery is Ruining Litigation in America and What Can Be Done About It. Although Judge Forrester’s latest opinion is focused on the conduct of defendants and their counsel, he begins the opinion with a broad-shot against all of the parties and their legal counsel:

The lengthy discovery process, which has spawned four discovery hearings, has been contentious at best and abusive at worst, and the court has expressed its displeasure with the parties’ behavior on numerous occasions.

Following the official close of fact discovery, the court expressed its frustration with the proceedings in its March 19, 2008 Case Management Order. The court chronicled the parties’ missteps, noted that this matter was being “over lawyered” on all sides, made clear that it would not compel parties to comply with orders already issued by the court, and notified the parties that it was currently tallying their disobedience and would award sanctions at their request.

Id. at *1.

Search for Email on Fifty Backup Tapes

The plaintiff responded to this invitation by requesting a variety of sanctions against defendants, including the ultimate sanction of default. There were many discovery abuses described in plaintiff’s motion, but the core problem concerned electronic discovery issues revolving around email and “ten labeled and forty unlabeled backup tapes.” Id. at *6. Yes, this is another backup tapes sanction case involving thee whereabouts of missing email. In a nutshell, early in the case defendants produced very few emails in response to plaintiff’s initial request for production of electronic records for the time period in question by this lawsuit – 1999-2003. Defendants explained that they did not use email that much back then, that it was before they adopted BlackBerries, and very few remained in their active systems. They claimed that their tapes were “not reasonably accessible” and, as such, were excluded from discovery under Rule 26(b)(2)(B), Federal Rules of Civil Procedure. (Note that if defendants had not saved these tapes to begin with, they would not have had this problem. They are in effect paying a very high price for unwise retention policies and IT pack-rats.)

Defendants argued that any search of their tapes would be expensive, but unlikely to find any email of value, since they were not using email much back then anyway. That was the clients’ story and their attorneys were advancing it with a vengeance. Based on later findings made by Judge Forrester, one wonders whether they even asked the key witnesses whether this was true or not.

At first, the plaintiff apparently accepted the defendants’ word and did not push the point. But then the plaintiff received a production from a third party that included eighteen emails written by defendants. These emails strongly undercut defendants story that it was rare for them to use emails and BlackBerries at the turn of the century. Based on this discovery, the plaintiff moved to compel the production and search of the “ten labeled and forty unlabeled backup tapes” that defendants admitted they had and might contain emails.

Pig in a Poke

pig in a poke aka bagAt a hearing on this issue, defense counsel argued that the restoration of the backup tapes should not be required because no one knew what was on those tapes. For this reason it would be foolish to require expensive restoration, since it would be like buying a pig in a poke.

… [W]e’re talking about somewhere around 380 to $410,000 worth of costs. And for what? No one literally knows. … So what we have is a pig in a poke, but for everybody. No one knows what’s in there.

Id. at *7. As we will see, Judge Forrester at first bought this argument, but then later, after some peeks into the bag (the poke), decided that the defendants and their counsel must have known all along exactly what was in there, and it was not good. It was not an empty bag. It was a bag full of vicious-cat-like incriminating emails.

The Court first had some sympathy for the pig in a poke argument and crafted a compromise order that allowed for sampling of two of the fifty backup tapes. This order, in effect, allowed the plaintiff to peak and see if the bag was empty, as defendants suggested it would be. Or if it had contents, whether it would be “pigs or cats in the poke.” To use the modern legal vernacular, whether the email in the backup tapes would be smoking guns or silver bullets.

The court directed Plaintiff to designate two tapes and design a search and directed Defendants to pay for it. The court made Plaintiff the guarantor of the search’s success, however, and granted Defendants the right to demand fees if it produced little discoverable material.

Id.

That seems like a fair decision. Only two out of the fifty tapes had to be searched and if defendants were right, and there was not much email use back then, the plaintiff would have to pay for the futile search. Further, if the search design proposed by the plaintiff was not reasonable and narrow in focus, the defendants could object and move for a protective order.

Lots of Cats Found in the Poke

cat.in.bagIt turns out that there were a lot of email on the two backup tapes, many of which were smoking guns detrimental to the defense. Here is Judge Forrester’s description of what happened next:

Plaintiff selected its tapes and provided its terms by January 16, 2008. Defendants performed a search on the two tapes, received hits resulting in thousands of documents, and began releasing documents to Plaintiff on a rolling basis. Defendants unilaterally decided to search seven witnesses’ mailboxes rather than the entire tape and decided to redact documents. Defendants chose the seven boxes of the individuals Plaintiff wished to depose. These were the witnesses Defendants believed had knowledge or had something to do with the instant matter. Defendants refused to search the hundred or so mailboxes of employees they believed were not related to the case. Plaintiff found Defendants’ production to be incomplete.

Id.

Plaintiff then moved to compel again, seeking search of all mailboxes and an additional backup tape thought to have a missing time period. This lead to another hearing where, according to Judge Forrester:

Defendants argued against an additional tape and contended that only a portion of the existing production was relevant. Defendants explained that the volume of the production was related to (1) the broad nature of Plaintiff’s search terms, (2) the fact that many of the e-mails contained spreadsheets with multiple blank pages, (3) the fact that attachments were reproduced every time an e-mail was forwarded or replied to, and (4) Plaintiff’s demand for every e-mail sent to or received by certain individuals including items they were copied on. Plaintiff’s counsel represented to the court that at least ten to twenty percent of the documents were extremely relevant, or the kind of documents that the Trustee would put on an exhibit list at trial. Defendants informed the court that it had cost them more than $600,000 to search the two tapes. This figure included attorney time for privilege review. Defendants never filed a protective order asking to be relieved of the burden of searching the entire tapes.

Id. at *8.

Note that even though Judge Forrester started off the opinion by saying that the case had been “over-lawyered,” he will hammer defense counsel here for not immediately filing a motion for protective order. The moral of the story is one we have seen in several prior cases — if you want protection for expensive backup tape search, you need to file the motion before you do the work, not afterwards. See: In re Fannie Mae Securities Litigation, _F.3d_, 2009 WL 215282009 (D.C. App. Jan. 6, 2009).

Cats are Out of the Bag and they Bite

cat.viciousWhat really seemed to get to Judge Forrester was the nature of the emails discovered. Plaintiff argued that ten to twenty percent of the documents were extremely relevant, that is hot-docs, otherwise known as “smoking guns.” The judge read many of these emails himself to decide these motions and he found that the plaintiff was right.

The court itself examined examples of some of the e-mails produced to assess relevance: “I don’t consider myself enough of an expert on the law in this area to declare these to be smoking guns but they certainly are hot and they certainly do smell like they have been discharged lately.”(Tr. 04/29/08 54:10-13). The court stated that it would enforce its existing order but that it would give Defendants a chance to narrow Plaintiff’s search terms and provide Plaintiff with a list of employees, their positions, departments, etc., so that Plaintiff could agree to narrow the number of employee boxes that needed to be searched. The court also agreed to give Plaintiff an additional tape.

Id. at *8.

Judge Forrester would of course wonder how it is that defendants did not know about these emails all along. If the emails discovered had just been marginally important, the defendants story might have had some credibility. The plaintiff’s charge of a cover-up might not have rung true. But with so much email found, and much of it highly relevant, it stretches credibility to think this evidence was not well known to defendants all along. This may explain the court’s testy reaction to defendants failure to move for a protective order until after the fact. The comment in footnote four of the opinion as to a colloquy between judge and defense counsel is particularly interesting:

During the hearing defense counsel attempted to justify his earlier statements to the court about e-mail and justify Defendants’ actions. Defense counsel also conceded that Defendants should have asked for a protective order with respect to its initial production. The court said:

… I didn’t say come close. I said this is what you have to do. That’s an order of the court, and as an officer of the court you are obliged to follow that or to get a protective order to get relieved of that, and failing either, maybe you have to get rid of your client, I don’t know, but what I’m trying to explain to you is something that’s been said a lot before. Close doesn’t count in hand grenades, horseshoes and it doesn’t count here when you have to abide by an order of the court. …

Id.

After this hearing, the defendants searched the other custodians and other tape as ordered, and started to produce more emails. Plaintiff complained that they were not getting all of the emails they expected, and more motions followed, including this time a motion for protective order by defendants. Defendants argued that one of the search terms specified, “Armtec,” produced too many false positives. The judge agreed with them on that point and granted protection from production of those documents. But defendants also argued that they could withhold select documents uncovered by the other keyword search terms specified by plaintiff if they deemed them the hits to be irrelevant. Judge Forrester did not buy that argument, implying that defendants were, at this point, not to be trusted. Judge Forrester’s reasoning on this point is very instructive and worth a full reading:

Defendants certified their production as complete for the last time in December 2008. The court believes that some of the most interesting evidence in this matter has come from e-mail production. The court is deeply disturbed by Defendants’ handling of this production. The court recognizes the difficulties associated with electronic discovery and notably the difficulties in producing older documents archived on mediums which were not designed to withstand the rigorous searching associated with modern e-discovery. As such, the court does not fault Defendants for their initial refusal to produce electronic discovery from the so called “backup tapes” or for asserting legitimate legal arguments under Fed.R.Civ.P. 26(b)(2)(B) in their response to Plaintiff’s initial motion to compel this information. The court does condemn Defendants, however, for making blatant misrepresentations about the value of e-mail discovery in this case in an effort to influence the court’s ruling, for refusing to follow the court’s ruling once made, and for behaving as if they, and not the court, got to decide what electronic material was relevant and discoverable under Rule 26 and what material was not.

Experienced defense counsel misrepresented the scope and value of e-mail discovery to this matter. The court has outlined the colloquy that occurred between it and defense counsel regarding e-mail during the January 9, 2008 hearing. Defense counsel notably argued: (1) “Plaintiffs don’t know and we don’t know whether there is a single e-mail on there, a single e-mail in any way related to this case”; (2) “[t]he fact that there are two or three emails that they have found in the Magnatrax documents would tend to indicate that there is a very low likelihood of any e-mails”; (3) “they didn’t even ask Mr. Wright, who they took as a 30(b)(6) witness, a single, you know, question about e-mail usage and what might be stored and what might not be stored”; (4) “[w]e are at the end of discovery, they finally decided … this is interesting to them. It hasn’t been critical until today, but now it’s critical”; and (5) “[w]e don’t even know whether people readily used e-mails. This was not a BlackBerry era at the time.”Counsel also relied upon an employee affidavit and argued that there would be considerable overlap of date on different backup tapes.

*10 The court relied upon these statements to make a determination under Rule 26(b)(2) as to whether Plaintiff had shown “good cause” to order discovery of the backup tapes, whether discovery of all of the tapes would be cumulative or duplicative, and in sum whether the burden or expense of the discovery outweighed its likely benefit. The court relied on these statements in crafting the “two tape” solution at Defendants’ expense with Plaintiff to bear the cost should the search ultimately be fruitless. Looking at the state of the record as a whole, it now appears that defense counsel’s statements were either purposefully misleading or made with a reckless disregard for the truth.

… The issue of backup email discovery was certainly not something that Plaintiff only became interested in on the eve of a discovery deadline. Second, both Plaintiff and Defendants’ counsel were aware that the parties involved in this case used e-mail. … This e-mail indicated that at least one of the relevant parties was using BlackBerry technology at this time, and such technology is synonymous with the regular use of e-mail. Despite defense counsel’s assertions it is clear that Plaintiff’s counsel did discuss e-mail usage and retention with Nigel Wright during Onex’s 30(b)(6) deposition. (Id. Ex 5, at Ex A). Further, the court finds it absolutely inconceivable that defense counsel did not know in January of 2008, more than two years into the case and more than one year into full discovery, whether his client readily used e-mails. Any competent counsel should be expected to ask his client such questions in the infancy of discovery. If counsel did not know, it was because he did not wish to know, and reckless indifference to the truth of a matter is a close brother to willful omission or misrepresentation. FN6

FN6. The court finds it notable that Defendants’ legal team chose to have local counsel argue the e-mail portion of the hearing. Local counsel likely had the least personal knowledge about the workings of Onex and Magnatrax and the least daily telephone and face contact with the clients. Therefore, the court can conceive of a situation in which local counsel had not had discussions about e-mail usage with his client. Regardless, he was responsible for being familiar with the state of the record. Further, his co-counsel were responsible for ensuring that he made no misrepresentations to the court or for correcting any made.

Id. at *9-*10.

Fool Me Once, Shame On You;
Fool Me Twice, Shame On Me

The chameleon attorneys have now been exposed. Judge Forrester now knows who he is dealing with. This, in part, explains the harsh sanctions that resulted, in spite of the fact that Judge Forrester clearly recognized the difficulties associated with electronic discovery in general and backup tapes in particular.

If defense counsel had acted independently from their clients, and been forthright about the problems, then, in my opinion, sanctions could have been avoided entirely and they would not have alienated the presiding judge. That is never a smart thing to do. The truth contained in the email would still have come out, but that is as it should be. The job of a lawyer is to argue the meaning of facts and the consequences that should flow from them, not to hide or change the facts. If the defense had been handled differently, the whole process would have been far less prejudicial to defendants. Moreover, the judge would likely have restricted discovery and the whole process would have been far less expensive and aggravating.

Eleventh Circuit Sanctions Law

Judge Forrester spends the first sixteen pages outlining the facts of discovery abuse. In the last three pages he explains what the law in the Eleventh Circuit requires him to do under these troubling circumstances. He begins with the rules. (Note he does not even mention old Rule 37(e).

Fed.R.Civ.P. 26(g) was “designed to curb discovery abuse by explicitly encouraging the imposition of sanctions.” Malautea v. Suzuki Motor Co., Ltd., 987 F.2d 1536, 1542 (11th Cir.1993). Rule 26(g) states:

(1) Signature Required; Effect of Signature. Every disclosure under Rule 26(a)(1) or (a)(3) and every discovery request, response, or objection must be signed by at least one attorney of record…. By signing, an attorney or party certifies that to the best of the person’s knowledge, information, and belief formed after a reasonable inquiry:

(A) with respect to a disclosure, it is complete and correct as of the time it is made; and (*17)

(B) with respect to a discovery request, response, or objection, it is: (i) consistent with these rules and warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law, or for establishing new law; (ii) not interposed for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation; and (iii) neither unreasonable nor unduly burdensome or expensive, considering the needs of the case, prior discovery in the case, the amount in controversy, and the importance of the issues at stake in the action. ….

(3) Sanction for Improper Certification. If a certification violates this rule without substantial justification, the court, on motion or on its own, must impose an appropriate sanction on the signer, the party on whose behalf the signer was acting, or both. The sanction may include an order to pay the reasonable expenses, including attorney’s fees, caused by the violation.

“The decision whether to impose sanctions under Rule 26(g)(3) is not discretionary,” and “[o]nce the court makes the factual determination that a discovery filing was signed in violation of the rule, it must impose ‘an appropriate sanction.’ ” Id. at 1372. The court does have considerable discretion in determining what sanction is appropriate. Id. However, an order imposing costs under Rule 26(g)(3) should be limited to the reasonable expenses incurred because of the violation. Id. at 1372 n. 45.

District courts enjoy substantially more discretion in deciding whether and how to impose sanctions under Fed.R.Civ.P. 37. Id. at 1366.A district court may impose sanctions against a party which violates a discovery order “as are just.” Id. …

Id. at 16-17.

Judge Forrester then examines the additional authority he has under the common law to impose sanctions.

*18 A court may also sanction litigation misconduct using its inherent power “to manage [its] own affairs so as to achieve the orderly and expeditious disposition of cases.” Eagle Hosp. Physicians, LLC v. SRG Consulting, Inc., No. 08-11026, 2009 WL 613603, *5 (11th Cir. Mar.12, 2005) (citing Chambers v. NASCO, Inc., 501 U.S. 32, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991)). The court must exercise its power, however, with restraint and discretion. Id. “The key to unlocking the court’s inherent power is a finding of bad faith,” and a party may demonstrate bad faith by delaying or disrupting litigation or hampering the enforcement of a court order. In re Sunshine Jr. Stores, Inc., 456 F.3d 1291, 1304 (11th Cir.2006). A party is entitled to due process before a court determines that the party has acted in bad faith and the court invokes its inherent power to impose sanctions and assess fees. Id. at 1306. “Due process requires that the party be given fair notice that its conduct may warrant sanctions and the reasons why.” Id. at 1306-07.A party can be given fair notice by either the court or the party seeking sanctions. Id. Once a party has notice that it might be subject to sanctions, the court must afford it the opportunity to justify its actions either orally or in writing. Id. …

Id. at *18.

Textbook Case of Discovery Abuse

Judge Forrester then makes the statement on textbook case that I have chosen as the byline for Kipperman v. Onex Corp.:

The court regards the instant case as a textbook case of discovery abuse. The court finds that Plaintiff has been prejudiced in two ways-the Trustee has been denied all the documents necessary to depose witnesses and prepare expert reports and the Trustee’s preparation has been made disjointed and difficult and it has been forced to expend a fair amount of time and money and effort to get that which should have been more easily obtained. … Defendants’ only defense is their unpersuasive argument that they have now complied and Plaintiff has suffered no prejudice. Defendants’ defense completely ignores the burdens the court and Plaintiff have endured to garner their compliance and the destructive precedent this court would set were it to allow Defendants to escape the consequences of three years of bad behavior simply because they believe they have now complied.

Id.

Stated Reasons for the $1,022,700 Sanction

Judge Forrester then explains why he decided to only award monetary sanctions, albeit in an amount of $1,022,700, and not simply enter judgment for the plaintiff.

*19 Plaintiff has asked the court for the ultimate sanction. Given the Defendants’ behavior, the court is tempted to grant Plaintiff’s request. That being said, the court will not strike Defendants’ answer. The court believes there are novel issues of liability present in this matter. Further, the ad damnum clause in this case is hundreds of millions of dollars. Were this court to avoid trying this case on the merits, it might be granting the largest default judgment sought by a defendant in the history of the nation. As this matter currently stands, Plaintiff has the raw material and documentation it needs to proceed with its case and this court has the means, through re-depositions and supplemental expert reports, to minimize a large portion of the damage done. The court is simply unwilling to take the dramatic action of striking Defendants’ answer and entering default in the face of moderate prejudice. That being said, Defendants should not and will not go unpunished. The court will exercise its discretion under Rules 26 and 37 and its inherent powers to award monetary sanctions.

Id. at *19.

Conclusion

Sanctions in an amount of $1,022,700 are not minor, but in view of the total amount at issue here, they are not really that severe. Some may think that defendants got off too lightly. But, please remember, the case is not over yet. Indeed, it is about to go to trial. There will be other consequences for the behavior of defendants and their counsel. Judge Forrester will, after all, be making many more rulings just before, during, and after the trial. Once a lawyer has been “outed” as a chameleon, there is no turning back. It is also likely that the jury will learn about some or all of the defendants’ textbook discovery misconduct during this case. The final punishment for defendants’ misconduct will be welded by the judge and jury ruling on the ultimate merits of this case.

Unlike a default sanction judgment, which carries a high risk of reversal on appeal, a final judgment entered after a full trial to a jury on the merits is very difficult to overturn. All experienced trail counsel understand that the risks of appeal often enter into a judge’s decision. Judge Forrester’s ruling may appear to be lenient, but after the trial is over and the jury has spoken, the wisdom of his mercy will be obvious. He has read the email, the smoking guns that defendants tried so hard to hide. No doubt he is confident that justice will be done once a jury reads them too.

______________________

SUPPLEMENTAL READING: Sanctions is the hot topic in e-discovery. Most people think that there is too much sanctions practice going on and that the judges are too tough. I tend to agree that there is too much practice, but not that judges are too tough. You need to hear the views of other analysts and commentators in addition to mine. There are many articles online on this subject. Search for some recent ones and look especially for some that have different views. Look for some that are quite likely to be very pro-defense, and look for others that are likely to be pro-plaintiff, or better put, pro-requesting party.

EXERCISE: Consider what the most important things a lawyer can do to protect him or herself from sanctions? What can a lawyer do to protect their law firm from sanctions? And, most importantly, what can a lawyer do to protect their client? Do these actions differ somewhat? Do they conflict? All the vendors like to talk about sanctions? Get their views on this subject, but challenge their opinions, just like you should challenge mine.

Students are invited to leave a public comment below. Insights that might help other students are especially welcome. Let’s collaborate!

Copyright Ralph Losey 2015

 

Ralph Losey is a practicing attorney who specializes in electronic discovery law. He is a principal in a U.S. law firm with over 50 offices & 800 lawyers where he supervises electronic discovery work and litigation support. Ralph has written over two million words on law and technology, including six books on electronic discovery. His latest books are "E-Discovery for Everyone" (ABA 2017) and "Perspectives on Predictive Coding" (ABA 2017) (ed. & contributor). His blog is widely read in the industry: "e-DiscoveryTeam.com." Ralph is the founder and principal author of "Electronic Discovery Best Practices" and "e-Discovery Team Training," a free online course covering all aspects of e-discovery. Ralph's sub-speciality is the search and review of electronic evidence using multimodal methods, including artificial intelligence. He also has a free online training program to teach these advanced methods - the "TAR Course." Ralph has devoted a month of his time each year since 2013 to research and test various AI-enhanced document review methods. In 2015 and 2016 Ralph and his Team participated in the TREC Total Recall Track experiments sponsored by the National Institute of Standards and Technology. Ralph has been involved with computers and the law since 1978. His full biography is found at RalphLosey.com. Ralph is the proud father of two children, Eva M. Losey and Adam Colby Losey, a high-tech lawyer married to another e-discovery lawyer, Cat Jackson Losey, and, best of all, Ralph has been married since 1973 to Molly Friedman Losey, a mental health counselor and life-long friend.

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