Kipperman v. Onex Corp., N.D. Ga. Case No. 05-CV-1242 (May 27, 2009)

Take Away: Aside from the common sense advice not to engage in discovery abuses and to make good use of protective orders, this case demonstrates that a well-planned and defensible retention policy can help an organization when e-discovery is at issue. An organization that keeps everything may someday have to search “everything,” an expensive and time-consuming process. As Defendants found out here, once relevant information is retained, at minimum some efforts will have to be made to find it. Simply avoiding these efforts may result in sanctions, and fighting the discovery will result in legal fees. A well-planned retention policy can limit these e-discovery expenses.  

A Northern Division of Georgia case recently imposed a sanction of over one million dollars for discovery abuses. In Kipperman v. Onex Corp., Senior District Judge J. Owen Forrester was confronted with numerous instances of discovery abuse when the Plaintiff sought sanctions against the Defendants, most of which were related to electronic discovery abuses. When the court issued its order, the constructive transfer and bankruptcy case had been pending for four years and contained over 600 docket entries. The discovery issues between the parties had been well-documented.

In his opening salvo Judge Forrester remarked that the lengthy discovery process, “has been contentious at best and abusive at worst, and the court has expressed its displeasure with the parties on numerous occasions.” The discussion related to e-discovery involved the Defendants’ refusal to provide and search backup tapes. Initially very few e-mails were produced, and Defendants’ counsel asserted that the company did not use e-mail very much during the period in question (1999-2003). Plaintiff’s counsel accepted this until a third-party produced eighteen e-mails written by Defendants, including one originating from a Blackberry. As expected, a discovery dispute followed, with the Plaintiff inquiring into issues including what e-mails had been produced from a live server, what e-mails might be on the backup tapes, other e-mail sources, and the cost of restoring e-mails. Plaintiff eventually filed a motion to compel, and the Defendants responded by arguing that Plaintiff’s discovery efforts were nothing more than dilatory tactics.

The Defendants, however, attached an affidavit stating that they had searched a sample of three backup tapes, though not the e-mail portions, and had approximately 28,000 “hits” on the inspected portion of the tape. Further, the affidavit indicated there were ten labeled and forty unlabelled backup tapes. The Plaintiff argued that the third-party’s e-mails alongside the 28,000 reported hits indicated that the discovery of relevant e-mails was likely. The Defendants, meanwhile, argued that the high cost and doubtful value weighed against such expansive discovery. The Defendant proceeded to use the “pig in a poke” defense, arguing that Plaintiff had no idea whether there was a single e-mail related to the case in the backup tapes, and that no one really knew. Splitting the baby, the Court allowed the Plaintiff to designate two tapes and directed them to design a search to be paid for by the Defendants. The Defendants, however, could demand fees if little discoverable material was found.

The Defendants began releasing documents on a rolling basis, but opted to ignore both Plaintiff’s designed search and the court orders. Instead, Defendants chose to search the mailboxes of seven of Plaintiff’s proposed deponents, refusing to search other mailboxes. On February 18, 2009 the Plaintiff filed a motion to compel Defendant to follow the court order. The very next day Defendants produced a huge quantity of documents. By this time the parties’ experts were drafting their reports and key witnesses were being deposed. Defendants had not filed a protective order. The Defendants opposed the motion to compel asserting that Plaintiff’s demand was baseless and overbroad. The court noted it could have levied sanctions, but chose to give Defendants a chance to narrow the Plaintiff search terms and let Plaintiff’s narrow the number of employees whose boxes would be searched. The Plaintiff, however, was able granted another backup tape to be searched.

The Defendants proceeded to withhold or redact documents they considered irrelevant, as well as documents responsive to a certain search term they opposed, and documents captured from the mailboxes of a subsidiary company. In its September 19, 2008 order the court sided with the Defendants as to the subsidiary and search term withholdings, but not as to the supposedly “irrelevant” material:

Defendants' actions have delayed the production of electronic discovery throughout this litigation. Defendants have consistently tried to minimize the likely value of this discovery. The court's minimal forays into the electronic discovery that has been produced has shown just the opposite. Despite all of this, the court is not unsympathetic to the massive amount of discovery involved in this matter, the considerable burden of working with it, and the overproduction that often comes with e-mail production. Therefore, the court gave Defendants numerous tools by which to reduce the burden of e-mail discovery, including an opportunity to limit Plaintiff's search terms and an opportunity to provide a list by which the number of people and the number of boxes being searched could be reduced. Defendants did not take advantage of these opportunities. Defendants must now lie in the bed that they have made.

After citing its prior decision, the court noted that the Defendants had certified their production as complete in December 2008. It further noted that some of the most interesting evidence came from the e-mails produced subsequently, stating it was “deeply disturbed” by the Defendant’s production. The court, though understanding, had been pushed to its limits and stated:

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.

The court ruled that counsel had misrepresented the scope and value of e-mails to the case, and the court had relied on these representations when it crafted the “two tapes” solution. In hindsight the court characterized counsel’s statements as intentionally misleading or demonstrating a reckless disregard for the truth. Additionally, the court held that it was “absolutely inconceivable” that counsel did not know their client’s e-mail use when the representations were made in 2008.

The court proceeded to discuss 11th Circuit law on sanctions, and addressed Plaintiff’s request for the “ultimate sanction” of default judgment by stating that while it was tempted to do so, the case was worth hundreds of millions of dollars and were it to grant the judgment it “might be granting the largest default judgment sought by a defendant in the history of the nation.” Instead, the court opted to use the Plaintiff’s estimated expenses in dealing with this “textbook case of discovery abuse” and ordered the Defendants pay the Plaintiff $1,022,700 in sanctions.

It must be noted that there were other discovery abuses in this case, though those most discussed by the court dealt with e-discovery. Further, the Defendants were victims of their own ill-prepared retention policies that led them to have as many backup tapes subject to search as they did. Had these been systematically disposed of pursuant to a defensible retention policy, instead of saved for posterity, the Defendants would not find themselves in this situation. Additionally, this case, like many others, highlights that protective orders should always be filed before engaging in expensive and time-consuming discovery (as is so often the case with e-discovery) and not after conducting the searches.

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