Thursday, March 05, 2009

2009-03-05 Discovery Abuse Findings and Sanctions Order in Bray & Gillespie v Lexington Insurance Company

This sanctions order, issued yesterday by Magistrate Judge Karla Spaulding of the Middle District of Florida, warrants an extended post. Purely imo, I think it’s significance compares with Magistrate Judge Major’s decision in Qualcomm v Broadcom. Of course, it ain't over till it's over, and that means we'll have to await (1) the District Judge's approval and adoption of Magistrate Judge Spaulding's Order (not a Report and Recommendation), and any appeal (whether to the District Judge or to the 11th Circuit).

Case: Bray & Gillespie Management, LLC., et al. v. Lexington Ins. Co., et al.
Citation: 2009 WL546429 (MD FL 2009)
Date: 2009-03-04
Topics: eDiscovery abuse, client and law firm sanction, attorney sanction, sanctions based on inherent powers and Fed.R. Civ. P. Rule 37, inherent power to sanction non-parties for bad faith conduct, non-compliance with form of production, failure to produce metadata, deletion, alteration
or manipulation of metadata, attorney misunderstanding technical terms (competency), attorneys as fact witnesses in ESI discovery proceedings, TIFF images are not native format ESI, TIFF images deemed not maintained in "ordinary course of business".

Imo, this 51 page decision ranks in significance with the 2008 Qualcomm v Broadcom sanctions order. In what appears to be turning into an epic discovery abuse decision from the U.S. District Court from the Middle District of Florida, U.S. Magistrate Judge Karla Spaulding sets context by recounting the numerous discovery conferences and two days of evidentiary hearings regarding "ongoing difficulties with the form of production of electronically stored information ("ESI") by Plaintiffs.

In the instant proceedings Defendant Lexington sought "an order compelling ESI production "in the form specified in its request for production of documents ("RFP")" awarding sanctions for continuing non-compliance with Fed.R.Civ.P. Rule 34, and M.J. Spaulding’s April 11, 2008 Order compelling discovery responses to certain of Defendant Lexington’s requests.

The short of it: Defendants requested ESI produced in native data format, or in the alternative, in "Extractiva" format. Plaintiff B&G failed to produce in the form specified by Defendants. Bad juju, and we’re only on page 2.

Then, the eDiscovery actions of Plaintiff’s counsel are placed under intense judicial scrutiny. Magistrate Judge Spaulding notes that although "[C]ounsel for Plaintiffs argued that the form of production was substantially justified," [B&G’s counsel’s] arguments were "premised on material misrepresentations and omission regarding facts underlying the form in which ESI was maintained by B&G and provided to its lawyers." (Bad juju, and we're still on page 2)

But wait, it gets worse:

"Accordingly, while Lexington seeks sanctions only against B&G, this Court has also put counsel of record for B&G on notice that certain lawyers at Reed Smith, LLP, who made the misrepresentations and withheld material information, Reed Smith, LLP, and B&G’s in-house counsel are also subject to sanctions."

This case involved a dispute about insurance coverage claims for hurricane damages sustained by Plaintiff B&G in 2004. Anderson, Kill & Olick ("AKO") represented B&G in connection with its claims submission. In connection with these activities, both electronic and paper records were gathered by B&G’s counsel AKO. Paper docs were scanned, other ESI (such as emails and email attachments) were "downloaded in native data format."

Magistrate Judge Spaulding is nothing if not definitionally precise: for purposes of the instant decision, she defines ESI as information that is first instantiated electronically, rather than scanned from paper to generate a digital image:

"FN3 Throughout this Order, I will use ESI to refer only to electronically stored information, not to information that was scanned from paper form to a digital image."

Both scans and ESI were copied to a hard drive ("Target Hard Drive") at B&G counsel AKO's office, where a program called "Extractiva" was "used to convert the scanned documents and ESI to TIFF images. (In footnote 4, the Court quoting from the Sedona Principles, notes that .tiff images ""lose searchable text and metadata that might enable better understanding and utility of the evidence.""). AKO failed to instruct anyone to exclude metadata thought would be automatically captured by Extractiva. After loading the .tiff images and associated metadata into an Introspect database, the "Target Hard Drive" was put into storage.

The complaint was filed in February 2007, and the Orlando office of Boies, Schiller and Flexner ("Boies Schiller") was substituted as AKO's local counsel. In January of 2008, John Ellison, one of AKO's partners handling the case thereafter joined Reed Smith as partner. Ellison did not withdraw and continued to co-counsel for plaintiff B&G.

In March 2008, B&G discharged AKO as counsel and John Ellison and Reed Smith "effectively became B&G's lead attorney." AKO subsequently moved to withdraw as counsel, and the Court permitted its withdrawal, conditioned upon AKO's delivery of all discovery materials and other litigation-centric documents to new counsel Reed Smith.

BlogNote: Stay with me. This timeline plays an important role in the Court's reasoning.

Sometime "after May 2, 2008" Reed Smith partner John Berringer became involved in the case, and asked Reed Smith associate Jeremy Heinnickel to assist with eDiscovery issues. Meanwhile, attorney W. Bruce DelValle, formerly outside counsel for plaintiff B&G, entered his appearance as in-house counsel for B&G, and substituted as local attorney for Boies Schiller. In September 2008, B&G filed for bankruptcy protection, and thereafter attorney Michael Beaudine and "other lawyers" at Latham, Shuker, Eden & Beaudine appeared as co-counsel for B&G. Defendant Lexington has been represented throughout by Daniel C. Brown at Carlton Fields (Carlton Fields).

Ok, now that the cast of main characters is set, on to the proceedings:

In their August 2007 Case Management report, the parties reported that they believed eDiscovery was necessary, but after meeting and conferring, could not reach an agreement on form of ESI production. That said, defendant Lexington's second RPD requested ESI, and specified form of ESI production pursuant to Fed. R. Civ. P/ Rule 34(b)(1)(C) as follows:

"Electronically stored information" includes all "electronically stored information" as that term is used in Federal Rules of Civil Procedure 26(a)(1)(B) and 34(a)(1). . . . As used in these Requests for Production a request for "electronically stored information" calls upon you to produce such information, without deletion or alteration of meta-data, in its native form, and to indicate the computer hardware and software program(s) needed to translate the information into usable form in the information’s native format. Lexington RFP 1 at 5 ¶ J (emphasis in original); Lexington RFP 2 at 3 ¶ G (same).

"Document" includes electronically stored information – including writings, drawings, graphs, charts, photographs, sound recordings, images, and other data or data compilations–stored in any medium from which information can be obtained either directly or, if necessary, after translation by the responding party into a reasonably usable form."

Defendant Lexington's further instructions to B&G:

"Please state, for each item of electronically stored information, the hardware, medium (for example, "compact disk" or "compact disk reader") and software program required to inspect the information contained in the item in the native format in which the information is stored and the computer hardware and software required to copy the information in such native format."

Despite these requests, plaintiff B&G's counsel objected to the "requested form for producing electronically stored information (something the Court notes that the FRCP do not permit) but did not object to B&G's ESI definitions or to its native data format requests.

What B&G Produced - The Meaning of "Scanned"

In response to defendant's second RPD, B&G produced 27 discs containing .tiff images of paper documents produced previously to defendant Lexington. The B&G attorney at AKO signed the RFP responses for B&G understood "scanned" to mean converting paper documents to an electronically stored image. The Court "credited that attorneys testimony only to the extent that it referred to scanning of "documents that originally existed in paper form, and not production of ESI."
You can see where this is heading...

B&G, without objecting to Defendant Lexington ESI format request, served a supplemental response, and then an amended supplemental response, to Lexington's RPD. Although B&G asserted in a discovery conference that it had:

"produced about 100,000 e-mail documents categorized by sender's email in-box" and that "about 100,000 electronic non-email documents...are into the queue and will be produced in the next two weeks or so, perhaps even earlier."

The problem: the ESI had been produced as .tiff images without metadata. As you might surmise, Rule 37 motion practice ensued, and on April 11, 2008, Magistrate Judge Spaulding issued an order compelling plaintiff B&G to respond to the request as instructed in that request (and provide native format data, etc.).

B&G's ESI Representations

At a March 28, 2008 discovery conference, counsel for B&G (Reed Smith) represented that a March 14 CD contained email and attachments. Upon examination, defendant Lexington's counsel discovered that the disc "contained 108,845 documents in .tiff format. The Court then makes the
following point perfectly clear:

"TIFF images are not the native format of email or other ESI"

To steal a line from Bugs and company, that's not all, folks. The Court also notes that:

"Similarly, Lexington’s counsel discovered that the April 30 Discs contained at least 721,331 pages of documents, many of which were e-mails. See Doc. No. 202-9 ¶¶ 5-6. All of the documents were TIFF images with no metadata and no coding that would allow the documents to be searched by fields, such as creation date, last modification date, author, or subject. Doc. No. 202-10 ¶¶ 5-7; see also Doc. No. 222-2 ¶ 5. Thus, both the March 14 Disc and the April 30 Discs did not comply with Lexington’s specifications in its RFPs that ESI be produced in native format without alteration or deletion of metadata. The April 30 Discs also did not comply with the April 11 Order directing B&G to produce documents responsive to the specific requests identified in the Renewed Motion to Compel."

At minimum, the Court points out, TIFF format "eliminated" search capabilities, and OCR conversion would have been necessary to make the images searchable. "Accordingly," the Court states, "the March 14 Disc and the April 30 Disc contain ESI that was not in reasonably usable form."

BlogNote: Although I would have argued in addition that .TIFF's are not ESI (and that, as such these files never existed as original ESI), Judge Spaulding does cite Judge Scheindlin's new Digital Evidence book as source for her reason why a .tiff file is not generally "reasonably usable:

"FN9 When a person "scans" a document, the resulting electronic output is stored as a picture of the document, such as in the TIFF images produced by B&G in this case. See SHIRA A. SCHEINDLIN, DANIEL J. CAPRA, ELECTRONIC DISCOVERY AND DIGITAL EVIDENCE 708 (2009) [hereinafter "ELECTRONIC DISCOVERY"] (A scanner is "[a]n input device commonly used to convert paper documents into images."). OCR used to convert physical documents or
electronic images into text files has significant limitations. OCR generally does not recognize handwriting. If the image file is of poor quality, OCR often cannot produce usable text files. Id. at 696."

Section "D" to the Order: "Berringer's False Story About How B&G Collected ESI"

One could argue that no blanks need be filled in other than the caption to Section "D" to the Order.

That said, this is where this decision begins to resemble Magistrate Judge Major's 2008 eDiscovery abuse decision in Qualcomm v Broadcom. Some choice excerpts follow.

"During the course of the negotiations to resolve the dispute regarding the form of production of ESI, [Reed Smith attorney] Berringer concocted a story about the process that B&G and AKO used to gather the discoverable documents"

How Not to Produce ESI in Native Data Format: Claim that Client Printed Files and Scanned into .tiff Format

"Berringer explained that "B&G printed the documents from B&G’s electronic systems. B&G sent the printed documents to Anderson Kill. Anderson Kill scanned the documents to create TIFF images of them . . . , from which production was then made." Doc. No. 202 at 15 n.11 (emphasis in original) (Counsel for Lexington’s description of the explanation)."

The Court states that B&G's attorney Berringer was aware of quite the opposite:

""In creating this false tale, Berringer ignored numerous facts known or readily available to him about the actual process that was used to collect ESI and produce it to Lexington. On April 9, 2008, Berringer defended a deposition of Harold Lueken, formerly in-house counsel for B&G, who
testified that information was "electronically transferred" and given to AKO in 2006."

Willful Blindness of B&G's Retained Counsel

The Court was not sparing in its depiction of B&G's outside counsel's discovery behavior:

"Reed Smith attorneys had access to the Introspect database before and after AKO transferred it to Reed Smith. If he had reviewed the Introspect database, Berringer would have seen that it contained ESI metadata. Finally, Berringer could simply have contacted AKO to learn how the information was gathered. See id. at 344 (Berringer did not seek information from AKO about
the scope of the agreement to produce scanned copies of documents in lieu of hard copies); accord. Id. at 238, 259-61 (cooperation between AKO and Reed Smith).10"

"The false explanation Berringer gave regarding how ESI had been collected was based, at best, on willful blindness which unreasonably prolonged and multiplied the proceedings regarding the ESI discovery dispute."

On May 27, 2008, Defendant Lexington filed a Third Motion for Sanctions including a Third Motion to Compel Production of ESI (I believe that is how the pleading was captioned). The Court notes that "Lexington argued, in sum, that B&G violated Rule 34 by failing to produce ESI in the form specified in Lexington’s RFPs and violated the April 11 Order by producing the April 30 Discs, which did not comply with the specified form of production of ESI. Lexington sought an order compelling production of ESI in the form specified in Lexington’s RFPs, striking portions of B&G’s claims to which the requests for production at issue pertained, and awarding Lexington the reasonable costs, including attorney’s fees, it incurred in filing the motion."

Plaintiff B&G countered with arguments, inter alia, that

(1) Lexington had not specified form of request in initial case management cnference did in its RFP),
(2) the RPD contained definitions buried in boilerplate,
(3) the native format data requests were overly burdensome, and
(4) that the documents were "provided 'as kept in the usual course of business,'" citing to several out-of-circuit cases in which courts determined that failure to produce metadata did not violate Rule 34.

(BlogNote: Quick retreat to the timeline: On June 28, 2008 the Introspect data base was transferred to B&G new counsel, Reed Smith. As of June 28, 2008, therefore, Reed Smith had a copy of the Target Hard Drive, replete with all ESI and associated metadata.)

Counsel for the parties continued to confer in an attempt to resolve or narrow eDiscovery issues throughout June 2008. On June 23, Reed Smith attorneys disclosed defendants' counsel that B&G's ESI had not been "printed and scanned," but rather, that "native format emails were collected and then converted into TIFF images using a program that set to selectively exclude
certain types of metadata."

What Defines Non-Cooperation, or, How Not to Cooperate

"During these [June 2008] discussions, Reed Smith attorneys did not disclose what metadata the Introspect database actually contained; did not disclose how the ESI in native format was transferred to the Introspect database; and did not disclose the existence of the Target Hard Drive or that Reed Smith had a copy of it in its possession."

B&G's counsel at Reed Smith attorneys then offered to produce "load files" (of a type not discussed) containing "seven basic metadata fields for the TIFF images previously produced..."

Metadata Offered, Then Offer Withdrawn

Here's where it gets murky. Or messy. Or ugly, depending upon your pov. At one point, Reed Smith attorney Berringer offered to give defendant Lexington "all of the metadata in the Introspect database," but then and apparently without explanation, retracted that offer:

"When defense counsel asked that B&G disclose in writing the metadata contained in the Introspect database, among other things, Berringer withdrew the offer."

The June 25, 2008 Evidentiary Hearing - Semantics Gives Way to Facts

At an evidentiary hearing held in June 2008, defendant's technology expert opined that "the discs contained ESI that had been converted to TIFF images, not scanned copies of paper documents. The discs had metadata showing the beginning and ending of each page, but no other metadata and no text search capabilities.

As well, the Court noted, there was no ability to link email by conversation thread, link attachments to particular emails, no hash values (to determine if ESI is/are duplicates). The expert also testified that the conversion of spreadsheets into TIFF images made the spreadsheets essentially unreadable and "did not disclose the underlying formulas for financial calculations."

Perhaps not coincidentally, it was only after defendant's expert's testimony that attorney Berringer "revealed to the Court for the first time" that he had "learned that ESI had been copied to the Target Hard Drive and converted to TIFF images stored into the Introspect database."

BlogNote: Some disclosures are better not left for a closing argument in a sanctions hearing:

"Ellison and Berringer did not disclose until closing argument, that sometime before June 20, 2008, [the] Reed Smith analyst reviewed the Introspect database and the Target Hard Drive and told [Reed Smith associate] Heinnickel that metadata existed for the documents on the March 14 and April 30 Discs."

When Cornered, Blame Your Adversary

B&G's counsel, Reed Smith attorneys Ellison and Berringer "repeatedly argued that their failure to learn and disclose the correct information about the gathering and production of ESI was the result of AKO's (Plaintiff's predecessor counsel) refusal to provide them information."

That dog wouldn't hunt.

June 2008 Sanctions Imposed on Plaintiff B&G for ESI Manipulation

The failure to produce metadata, or strip it away by means of flattening ESI into an unsearchable .TIFF sans metadata is addressed by Magistrate Judge Spaulding assessing fault and imposing monetary penalties:

"At the conclusion of the hearing, I found that B&G "directly or through their agents deliberately manipulated the electronically stored information in such a way as to withhold from the defendants the information that had been requested, specifically metadata." Id. at 196.15

"I further found that the problems with the ESI production were caused by B&G and its agents, and therefore "they will be the ones to bear the burden of whatever cost it takes to get" the ESI produced in a usable format."

It is perhaps noteworthy to point out that Plaintiff B&G appealed the June 2008 Order to the District Judge, in essence asserting the Magistrate Judge Spaulding had (1) erred by failing to reduce her order to writing, and (2) that the Court abused its discretion by requiring expedited production of ESI "too quickly" and thereby placing an undue burden on Plaintiffs. Not surprisingly, the District Judge overruled Plaintiff B&G's and "affirmed the order in all aspects."

Thereafter, in attempted compliance, Plaintiff B&G provided Lexington with a hard drive ("B&G Hard Drive") that "was not complete, not in the original format, and not as maintained by B&G in the ordinary course of business."

Re-Opened Sanction Hearing December 8 2008

In October 2008, the Court issued a notice to B&G's in house counsel,to Reed Smith attorney Berringer, and the Reed Smith firm, affording them an opportunity to file a supplemental response addressing "why sanctions should not be imposed against any or all of them as the attorney(s) responsible for the sanctionable conduct." The Court also later re-opened the June 8, 2008
evidentiary hearing.

When Cornered A Second Time, Blame Predecessor Counsel

B&G outside counsel's supplemented response at the re-opened evidentiary and sanctions hearing:

"In their supplemental response to the motion for sanctions, Reed Smith and Ellison again asserted that "[b]ecause of the poor communication with prior counsel, and the termination of B&G’s prior chief legal officer, it has proven difficult for Reed Smith and John Ellison to get the facts about
Plaintiffs’ document production.""

The December 8, 2008 Hearing

Cast blame Plaintiff B&G's current counsel tried, but come the hearing, predecessor counsel AKO testified through its attorneys that AKO "always cooperated with Reed Smith...allowing [them] unrestricted remote access to the Introspect database."

Nevertheless, at this point, and with a torrent of impeachment testimony provided by Plaintiff's B&G's predecessor counsel AKO, B&G's current counsel began conceding points... and at the hearing, one of Reed Smith's attorneys conceded that the "asserted" communications problems between Reed Smith and AKO were "'overstated.'"

"[B&G co-lead counsel and Reed Smith Attorney]Berringer conceded that he had incorrectly advised defense counsel that ESI contained in the Introspect database had been printed and scanned."

Berringer also testified about, well, I think he testified about his misunderstanding of "how the hard drive c[a]me about." The following testimonial excerpt is included solely to point out a rather feeble (strictly imo) attempt at feigned technological ignorance:

"I asked Jeremy [Heinnickel] and I’m sure we asked the client, how did this target hard drive come about? Every time we raised the question, we were told that Maya Cater and Leuken were involved. "You’d have to talk to them." But every time we raised the question, somebody talked about the [student interns]. And I guess what happened was I just translated that, because the only thing I could ever take from most of these discussions was that [the student interns] stood in front of scanners, scanning documents for a full weekend; and I just – I guess I made an unconscious leap then and assumed that they had scanned everything."

The Money Shot: Withholding Disclosure of Hard Drive Containing ESI Metadata

Something more significant than Berringer's "we screwed up" defensive posture (actual testimony excerpt) was his "acknowledgement that he did not disclose the existence of the Target Hard Drive containing the ESI in native format during the negotiations with Lexington's counsel."

The Court wasn't into buying the "screw-up" argument:

"Berringer was evasive and dissembling when asked to explain why Reed Smith did not simply produce the metadata in the Introspect database associated with the TIFF images when it produced the March 14 and April 30 Discs."

It was also clear that there was an easy way to comply with Defendant's RPD's, and at minimum, that meant to produce the TIFF images in searchable fashion together with the associated metadata:

"Berringer also knew that the Introspect database was searchable by fields that contained metadata such as name, date, subject matter, to, from, and CC. Id. at 278-79, 305-06. Berringer testified, 'I know that the fields that we told them [the Introspect database] had were to, from, date, re line, if there was one, cc’s, bcc’s.'). Id. at 304-05 (emphasis added). Berringer identified a letter in which Reed Smith offered 'to produce load files containing certain metadata fields for the e-mails produced' that included, but were not limited to, those set forth in the letter. Id. at 313. Thus, there was no need to search the ESI in native format before determining the scope of the metadata in the Introspect database, and no need to conduct a privilege review of the ESI in native format. Rather, B&G and Reed Smith could easily have produced for each TIFF image on the March 14 and April 30 Discs a corresponding load file containing the metadata for each image as stored in the Introspect database."

The Court then determined that the evidence supported a finding that B&G has (at least as of March 4, 2009) still not disclosed all the metadata in the Introspect database.

Now, on to the Court's analysis:

eDiscovery Violations Analysis

Waiver of Objection to Form of ESI Production Results in Fed. R. Civ. P. Rule 34

Although the Court found that the parties complied with the Fed. R. Civ. P. Rule 26f) meet and confer, even though they did not reach an agreement. The Court then provides an analysis of Fed. R.Civ. P. Rule 34 requestor's option to designate format of production of ESI. In particular, the Court notes, defendant Lexington specified the form of production -- "in native form without deletion or alteration of metadata." Relying on Rule 37a)(3)(B)(iv), the Court found that plaintiff B&G waived its objections to defendant Lexington's RFP because it failed to support the objections in a response to the Renewed Motion to Compel.

Plaintiff B&G's Violation of April 11, 2008 Order

On April 11, 2008 Order, the Court ordered B&G to produce by April 30, 2008 "all responsive documents in its possession, custody or control to the extent requested in the Renewed Motion to Compel. The Court found that B&G could have produced responsive ESI by that deadline. That B&G (or its counsel) had in its possession, but chose not to produce, the Target Hard Drive that contained what would have been documents responsive to the request, the Court found that B&G violated the April 11, 2008 order by "failing to produce ESI in the specified form.

Available Sanctions Discover Violations Sanctions Under Fed. R. Civ. P. Rule 37

The Court then provides a short analysis of possible sanctions for violations of a discovery order pursuant to Fed. R. Civ. P. Rule 37(b):

"(i) directing that the matters embraced in the order or other designated facts be taken as established for purposes of the action, as the prevailing party claims;
(ii) prohibiting the disobedient party from supporting or opposing
designated claims or defenses, or from introducing designated matters in evidence;
(iii) striking pleadings in whole or in part;
(iv) staying further proceedings until the order is obeyed;
(v) dismissing the action or proceeding in whole or in part;
(vi) rendering a default judgment against the disobedient party; or
(vii) treating as contempt of court the failure to obey any order except an order to submit to a physical or mental examination."

Fed. R. Civ. P. Rule 37 Sanctions Applicable to Party, Its Counsel, or Both

The Court goes on to describe the "instead of" or "in addition to" language of Rule 37(b)(2)(C), where in essence, sanctions for discovery violations may be imposed against a party, the party's advising attorney, or both, and that sanctions may include attorneys fees caused by the failure.

The Court then states that under 11th Circuit decisional precedent, a motion for sanctions under Rule 37 may include both a party and his attorney, and that a court also has the double option of holding either the party, the attorney, or both responsible:

"'[A] motion for sanctions under Rule 37, even one which names only a party, places both that party and its attorney on notice that the court may assess sanctions against either or both unless they provide the court with a substantial justification for their conduct.' Devaney v. Continental Am. Ins. Co., 989 F.2d 1154, 1160 (11th Cir. 1993)."

No Bad Faith or Willfulness Required for Imposition of Discovery Violation Sanctions

The Court then notes that Rule 37 sanctions do not require a finding of either willfulness or bad faith by the party or its counsel, relying again on the 11th Circuit's decision in Devany v Continental Am. Ins. Co., supra.

Court's Inherent Power to Sanction

Magistrate Judge Spaulding also notes that the Court, pursuant to Supreme Court and 11th Circuit authority, has inherent power to sanction for discovery violations:

"Courts have the discretion to sanction conduct that abuses the judicial process even if procedural rules exist that govern the same conduct. Chambers v. NASCO, Inc., 501 U.S. 32, 44-45, 48-49 (1991). In fashioning appropriate sanctions, courts have the inherent power to impose sanctions on parties, lawyers, or both. In re Sunshine Jr. Stores, Inc., 456 F.3d 1291, 1304 (11th Cir. 2006). The court may tax attorney’s fees and costs "when either has acted in bad faith, vexatiously, wantonly, or for oppressive reasons." Byrne v. Nezhat, 261 F.3d 1075, 1106 (11th Cir. 2001)"

Court's Inherent Power to Sanction Non-Parties for Bad Faith Discovery Violations

In what appears to be a decision of first impression for the Middle District of Florida, the Court adopts the reasoning of a decision from the U.S. District Court of the Eastern District of Michigan in finding that non-parties may be subject to inherent power sanctions imposition for bad faith discovery violations:

"The court’s inherent power also includes sanctioning non-parties for bad faith conduct. See generally Chambers, 501 U.S. at 43; see also Helmac Prods. Corp. v. Roth (Plastics) Corp., 150 F.R.D. 563, 564-67 (E.D. Mich. 1993) (citing Chambers as authority to sanction non-parties). The
sanctioning of non-parties requires additional safeguards. I find persuasive the decision in Helmac Products that a non-party must "(1) have a substantial interest in the outcome of the litigation and (2) substantially participate in the proceedings in which he interfered." Helmac Prods. Corp.,
150 F.R.D. at 568."

No Substantial Justification Shown

The Court notes that the Supreme Court imposes a negative pre-condition (no substantial justification) prior to permitting the imposition of a sanction for discovery violations under a Court's inherent power:

""The Supreme Court has clarified that an individual’s discovery conduct should be found ‘substantially justified’ under Rule 37 if it is a response to a ‘genuine dispute, or if reasonable people could differ as to the appropriateness of the contested action.’" Devaney, 989 F.3d at 1163 (quoting Pierce v. Underwood, 487 U.S. 552, 565 (1988) (citations omitted))."

B&G's "Substantial Justification" Arguments

Three were asserted:

(1) B&G’s response to Lexington’s RFPs referred to an agreement to produce scanned copies of documents;
(2) Lexington delayed in objecting to the form of production of ESI; and,
(3) B&G was entitled to produce ESI as maintained in the usual course of its business and in reasonably usable form." [citations omitted]

Magistrate Judge Spaulding's analysis:

(1) The evidence established that the agreement among counsel related only to documents that were maintained in paper form. B&G did not produce all documents as scanned copies: "Rather, B&G's attorneys manipulated ESI to convert the searchable text to a TIFF image stripped of metadata." The Court found these facts to "undermine" B&G's assertions of justifiable reliance.

(2) Lexington's Delay in Objecting to B&G's failure "might carry some weight if B&G had produced ESI in a form permitted by Rule 34 at the outset. It didn't, and the Court again found no evidence of "justifiable reliance."

(3) Magistrate Judge Spaulding provides incisive comments about "maintained in the usual course of its business" --- Put succinctly, the Court found that it was not TIFF images that was maintained by B&G in usual course of its business." In fact, the argument was apparently made that the ESI, together with its associated metadata was what *was* maintained in B&G's ordinary course of business. Relying on the Federal Rules Advisory Committee notes to Rule 34, the Court also found that B&G's deletion of metadata from its discovery response "significantly degraded Lexington’s ability to search the ESI and, accordingly, that it was not in a reasonably usable form as required by Rule 34." Once again, B&G's "substantial justification" argument fell on deaf ears.

Out of Circuit Case Law Permitting Non-Production of ESI Metadata on Basis of Substantial Justification Rejected

B&G cited three cases in support of its assertion that it was "substantially justified in not producing ESI in native data format with associated metadata," and, notwithstanding the Court's finding them non-binding, rejects them each in turn as non-supportive of plaintiff's position:

Kentucky Speedway, LLC v. NASCAR, Inc., Civ. Action No. 05-138-WOB, 2006 WL 5097354 (E.D. Ky. Dec. 18, 2006) -- The Court notes that in this case, the movant did not specifically request the manner in which ESI should be produced, and that, on the facts of that case, that Court noted that the belated request was not warranted.

Michigan First Credit Union v. Cumis Ins. Soc’y, Inc., No. 05-74423, 2007 WL 4098213 (E.D. Mich. Nov. 16, 2007) --- In this case, the defendant objected to the format of production (native format data, with associated metadata). Judge Spaulding again notes that B&G never objected to the format of production specified by defendant Lexington.

In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig. ("In re Payment Card"), No. MD 05-1720(JG)(JO), 2007 WL 121426 (E.D.N.Y. Jan. 12, 2007). In this case, the requests were served (and responses produced) before the effective date of the amended Rule 34. In that case, even though defendant's had failed to object, the Court found it would "not be fair to impose the costs of reproduction of the ESI on the individual plaintiffs," but warned them that future production would likely require them to reproduce any ESI that was produced in a form that was reasonably usable. Rather than support plaintiff B&G's position, the Mag. Judge Spaulding finds here that "Accordingly, B&G’s knowledge of the decision in In re Payment Card provides additional support for the finding that the form in which it produced ESI to Lexington was not substantially justified"

The Impax Labs Decision Footnote

Footnotes are typically at least as instructive (if not more so) as opinion text in the main. Footnote 25 tells all:

"B&G cited Wyeth v. Impax Labs., Inc., 248 F.R.D. 169 (D. Del. 2006) for the proposition that when counsel do not agree on the form of production of ESI, a party is not required to produce ESI in native format." The Wyeth court’s decision was based on local discovery standards that directed parties to produce ESI as image files if they could not agree on a different form of \production. Id. at * 4-5. This Court does not have local discovery standards that establish the default form of production of ESI in the absence of agreement of the parties."

Author's Note: What is interesting is whether, in Delaware, a challenge to the local rules (as contradicting, or limiting, the Federal Rules) might be asserted.

Ok, back to Judge Spaulding's decision.

In a showng of impeccable logic, Magistrate Judge Spaulding also disposes of any remaining "substantial justification" arguments:

"Most telling, if B&G and its attorneys believed the form in which they produced ESI was substantially justified, there was no reason for them to conceal information and make material misrepresentations about the way ESI was collected and the form in which it was kept in the Introspect database."

" Instead, Reed Smith and its attorneys went to great length to fabricate explanations about why they could not produce ESI. In response to the April 11 Order, they asserted the costs and burden B&G would incur in producing ESI without disclosing to the Court and the parties that ESI with associated metadata was readily available in the Introspect database."

Deliberate or Reckless Disregard of Truth Does Not Provide Substantial Justification

This may not really require much explanation, but again, the Court was not sparing in its criticism of B&B's counsel's discovery conduct:

"During the December 8, 2008, hearing, counsel for Reed Smith still argued that production of ESI in native format would have been unduly burdensome because the privilege review had not been conducted of the ESI on the Target Hard Drive. In making this argument, counsel ignored the evidence that a privilege review had been done in the Introspect database, and that the metadata associated with the TIFF images on the March 14 and April 30 Discs could be produced from the Introspect database."

The Court's take: "Such deliberate or reckless disregard of the truth can never provide substantial justification under Rule 37."

Accordingly, B&G and its counsel have not established that their production of ESI and their response to the April 11 Order were substantially justified.

Sanctions for eDiscovery Violations Imposed

First, a finding of prejudice to defendant Lexington as requesting party:

"Lexington has been prejudiced by

(1) being unable to complete discovery after receiving ESI in a form that was not reasonably usable;

(2) incurring additional expense in using ESI that was produced in a form that limited its ability to search it; and,

(3) incurring attorney’s fees, costs, and litigation expenses in establishing that ESI had not been properly produced."

Perhaps most tellingly, B&G's discovery violations were ongoing:

"The interim relief that I granted resulted in production of the Logix Systems Hard Drive and B&G Hard Drive, but B&G still has not produced all specified ESI in reasonably usable form."


(1) Order directing Plaintiff B&G to produce (again): "Accordingly, B&G shall provide to Lexington the Introspect database, except for information already segregated as privileged or protected. B&G shall bear all costs related to this production, including purchasing software or paying license fees for Lexington’s use of the database software, and hiring professionals to copy the database, if necessary. Lexington may elect the form or forms in which it wishes the production of the Introspect database to be made – it may ask for a copy of the Introspect database, remote access to the database, or both."

(2) To ensure B&G's compliance, the Court also ordered it to provide a computer expert selected by Defendant with direct access to the Introspect database maintained by Reed Smith, so that "the expert can confirm that all information loaded into the Introspect database (except for privileged or
otherwise protected information) has been produced to Lexington.

(3) Discovery reopened as to Defendant for 60 days.

No Sanctions Against In House Counsel

The Court gave B&G's in house counsel (who was not an attorney advising B&G during the pertinent time period) a pass, and a strict warning:

"DelValle entered the case in May 2008 and became local counsel for B&G in June 2008. I credit his testimony that he did not participate in the production of ESI until after my June 25 Order requiring reproduction of ESI. Accordingly, I find that he was not an attorney advising B&G with respect to the production of ESI in March and April 2008. I remind DelValle, however, that blindly relying on outside counsel falls short of the duty he has as an officer of the court, as counsel of record, and as an advocate for his client."

Sanctions Against B&G's Outside Co-Lead Counsel

Sanctions Against Ellison: The Court first sets forth the discovery violation rules applicable to "advising attorneys" --

"Rule 37 provides that the party or the attorney advising the sanctionable conduct, or both, are subject to sanctions. Fed. R. Civ. P. 37(a)(5)(A), (b)(2)(C). The Eleventh Circuit has explained that "[t]he phrase ‘attorney advising such conduct’ does not . . . exclude . . . an attorney’s willful blindness . . . ; to the contrary, the phrase instructs that when an attorney advises a client in discovery matters, he assumes a responsibility for the professional disposition of that portion of a lawsuit and may be held accountable for positions taken or responses filed during that process." Devaney, 989 F.2d at 1161-62. In this respect, "[s]anctions exist, in part, to remind attorneys that service to their clients must coexist with their responsibilities toward the court, toward the law and toward their brethren at the bar.""

The Court then finds that Ellison to an "advising attorney" and finds him personally liable for sanctions:

"Ellison has been one of the lead counsel of record in this case since its inception. While he presented evidence that he was not involved in production of discovery before April 2008, the evidence shows that he began advising B&G regarding discovery before the April 30 Discs were produced."

"The improper production of ESI on the April 30 Discs and the discovery misconduct that followed was done under Ellison’s supervision, and necessitated the motion for sanctions and proceedings related thereto.

The Court's ruling: "As such, Ellison was "an attorney advising" B&G regarding the discovery misconduct, and he is personally liable for Rule 37 sanctions."

It bears mentioning that Ellison's argument that "his local counsel was in charge of the production of the April 30 Discs" fell on deaf ears: It did not relieve him from personal liability "because counsel of record may not avoid sanctions for his own conduct on the basis that another attorney was advising the client regarding the discovery matter at issue. Citing 11th Circuit precedent in Stuart I. Levin & Assocs., P.A. v. Rogers, 156 F.3d 1135 (11th Cir. 1998), Magistrate Judge Spaulding notes that in that case :

"The [11th Circuit] observed that while Levin "may have delegated some of these duties to his associate, such a delegation-while it may provide a ground for sanctioning [his associate]-did not relieve Levin of his own duties." Id. The Eleventh Circuit noted that "[a]s counsel of record, Levin
owed a duty to his client fully to represent his interests, and he owed a duty to the court to comply with the court’s orders." Id. Accordingly, the Eleventh Circuit found that the district court had not abused its discretion in imposing Rule 37 sanctions against Levin."

Magistrate Judge Spaulding's ruling:: "As in Levin, because Ellison’s own conduct was not substantially justified, he is subject to sanctions under Rule 37 and shall pay the reasonable attorney’s fees, costs, and expenses Lexington incurred in filing the motion for sanctions and in the matters arising therefrom. These costs include the fees and expenses of expert witness Teshima. In addition, Ellison shall pay the Court’s court reporter, Diane Peede, for the cost of transcribing the December 8, 2008, hearing on the motion for sanctions. "

Sanctions Against Plaintiff's Counsel and Plaintiff's Counsel's Firm

Magistrate Judge Spaulding also finds Plaintiff's counsel's law firm responsible for the discovery abuse of its attorneys:

"Reed Smith, through its partners and associate attorneys, was also responsible for the discovery misconduct."

The Court singled out Reed Smith, and Reed Smith attorney Berringer for his behavior:

"The evidence establishes that Reed Smith, particularly through its partners Ellison and Berringer, acted in bad faith with respect to the events that occurred after Lexington objected in May 2008 to the form of B&G’s production of ESI. Specifically, Berringer falsely told opposing counsel that B&G had caused all of its ESI to be printed and scanned to support the position that B&G could not produce metadata or text searchable documents. He made no reasonable effort to determine whether the story he told was true – such as looking at the information in the Introspect database or asking AKO."

"Counsel for Lexington and the Court were deceived by Berringer’s deliberate fabrication, and it resulted in a significant waste of resources for Lexington and the Court. Berringer finally disclosed to Lexington’s counsel on the eve of the June 25, 2008, hearing that B&G’s ESI had been obtained in electronic form and transferred to the Introspect database, but that disclosure remained deceptive and incomplete. He did not disclose what metadata the Introspect database contained or the extent to which the ESI therein had full text search capacity. He did not reveal, until after Teshima testified at the June 25 hearing, that B&G possessed the Target Hard Drive on which the ESI in native format was stored."

Berringer received additional excoriating attention from the Court:

"Berringer continued this pattern of deliberate misrepresentation through willful blindness in his testimony at the December 2008 hearing. He testified about the metadata on the Introspect
database, even though he never examined the database to determine what it contained. He was evasive about why B&G did not simply disclose the metadata on that database before the hearing.
Berringer and Ellison also made material misrepresentations to the Court about the reason they did not produce the metadata from the Introspect database to resolve the production problems. Both of them repeatedly told the Court that AKO had been asked to provide necessary information, but refused to do so. Instead, as the evidence established, throughout the relevant period, AKO made the Introspect database remotely accessible without restrictions to Reed Smith"

Order Imposing Sanctions Against B&G's Outside Counsel and Counsel's Firm, cont'd

"The totality of this conduct establishes that Reed Smith’s actions in this regard were deliberately designed to impede Lexington’s ability to discover and reasonably use ESI maintained by B&G. This bad faith conduct disrupted and delayed the discovery process and caused significant prejudice to Lexington. The bad faith conduct also unreasonably multiplied the proceedings in this case."

Magistrate Judge Spauldings' Ruling: "Accordingly, pursuant to Rule 37 and the Court’s inherent power, I find that Reed Smith is jointly and severally liable with Ellison to pay the reasonable attorney’s fees, costs, and expenses Lexington has incurred in filing the motion for sanctions and in the proceedings related thereto. These costs include the fees and expenses of expert witness Teshima, whose testimony was essential to uncovering the misrepresentations made regarding
ESI. Reed Smith is also jointly and severally liable with Ellison to reimburse the Court’s court reporter for the cost of transcribing the December 8, 2008, hearing on the motion for sanctions. "

"Finally, I will issue an order to show cause why John Berringer Esq., should not also be personally sanctioned for his conduct in this case."

I expect that this decision will be appealed first to the District Judge, and then, perhaps, to the 11th Circuit. That said, the standards for review (and reversal) are either abuse of discretion or clear error...

Stay tuned.


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