Discovery Lessons from the Southern District of California

By
Nicole R. Gamble, Esq.
Schwartz Semerdjian Cauley & Moot, LLP
Published:  11.01.2015

In a recent 78-page order, U.S. Magistrate Judge Mitchell D. Dembin recommended “severe sanctions” against a technology company, its CEO and their attorneys for numerous discovery mistakes related to electronically stored information (“ESI”).  Among the attorneys’ mistakes were certifying discovery responses that were false, misleading, and made without conducting a reasonable inquiry, failing to supervise their ESI vendor, and failing to implement a litigation hold.  As outlined below, the Order (which is available at http://law.justia.com/cases/federal/district-courts/california/casdce/3:2012cv02884/401426/251/) offers a variety of important reminders and lessons for all attorneys involved in pre-trial discovery.

Background on the Case 

In 2012, HM Electronics, Inc. (“HME”), a maker of drive-thru headset systems (primarily used in the fast-food industry), filed a complaint against R.F. Technologies, Inc. (“RFT”), who repairs drive-thru headset products, alleging trademark infringement, false designation of origin, trade dress infringement, trade libel, unfair competition and interference with prospective economic advantage.   Specifically, the Plaintiff’s case centered around a document entitled “HM Electronics IQ failures” (the “Report”) which RFT created to look like an HME internal quality control document that acknowledged problems with HME’s products.  RFT circulated the Report to clients, potential clients, and Plaintiff’s competitors.    The Report was therefore a key piece of evidence in the Plaintiff’s case.  

Upon learning of the Plaintiff’s suit, RFT’s CEO specifically instructed employees to “destroy” all Report-related documents.  Not surprisingly, the Report was never produced during discovery.

By the time the case had made its way into Judge Dembin’s courtroom, nine discovery conferences had been held, discovery deadlines had been continued four times, and RFT had already been ordered to pay monetary sanctions in the amount of $15,224.62.

Discovery Misconduct

“Federal courts do not require perfection in ESI discovery… [t]he touchstone of discovery of ESI is reasonableness,” Judge Dembin wrote.  Here, the Court found that RFT, their CEO, and their counsel had not been reasonable but instead engaged in widespread discovery misconduct, which contributed to the concealment of documents that were relevant and favorable to Plaintiff, causing unnecessary delay and needlessly increasing the cost of litigation. 

Specifically, Judge Dembin identified the following discovery violations: (i) Defendants signed certifications that certain documents did not exist – even though they did; (ii) Defendants signed certifications stating that they had no knowledge as to whether certain events occurred – even though it knew that those events had occurred; (iii) Defendants’ attorneys failed to communicate to them the importance of preserving relevant documents; (iv) Defendants instructed RFT employees to “destroy” documents because they were relevant to the lawsuit; (v) Defendants’ attorneys allowed the attorneys and vendors handling the ESI production to use limiting search terms, such as the word “confidential” to justify withholding as privileged more than 150,000 pages of ESI that were not privileged; and (vi) Defendants’ attorneys failed to produce over 375,000 pages of ESI until well after the close of discovery because they failed to perform quality control checks or to supervise their ESI vendor.

Sanctions 

Despite the fact that the parties notified the Court that they were/are in the process of finalizing a settlement, the Court emphasized that its decision to impose sanctions “outlives the anticipated settlement and voluntary dismissal of the case.”  The Court stated that the improperly certified discovery responses were an “abuse of discovery and fraud upon the court.”  Further, Judge Dembin found that “the attorneys’ total abdication of their obligation to communicate the duty to preserve evidence to their clients in an effective manner warrants severe sanctions.” 

Accordingly, Judge Dembin ordered Defendants to pay Plaintiff’s attorneys’ fees and costs incurred in seeking discovery from Defendants from October 18, 2013 to the date of the Order (HME is requesting $1.3 million in fees and $49,000 in costs).  The Court also recommended that the district court grant HME’s request for issue sanctions and an adverse inference instruction against Defendants if the settlement is not finalized and the matter proceeds to trial.  

Lessons from the Court

One-third of the 78-page order outlines specific document requests, the response by Defendants, an explanation as to why the response was false or improper, and includes a section entitled “Inquiry Attorneys Should Have Made.”  Here is a summary of the Court’s do’s and don’ts:

  1. Don’t: Certify document production responses before reviewing the documents (or at the very least a sample of the documents) in order to meet a discovery deadline.  
  2. Do: Be transparent with both opposing counsel and the court about the large amount of ESI.
  3. Do: Engage in meaningful and collaborative discussions with opposing counsel about the volume of ESI, the ESI production methodology, and the timetable required.
  4. Do: If the ESI is voluminous, seek an extension informing the court of the proposed methodology and the technological and time constraints necessitating extension (so that document collection and some sampling can occur).
    1. For example, in this case, Defendants could have filed a motion for protective order or an ex parte discovery motion seeking to extend the time to respond detailing the large amount of ESI, the time and technology constraints, and their proposed collection and processing methodology.  Instead, lead counsel made the decision to sign false discovery responses without making any efforts to assure that the responses accurately reflected the documents.
  5. Do: When relying on a sample of the ESI, inform both opposing counsel and the court that the representation that all responsive documents have been produced was based on a sampling, and inform them of the sampling methodology used.  
  6. Don’t: Certify discovery responses denying the existence of documents based solely on one client’s word if that reliance is not appropriate under the circumstances.  
  7. Do: If the client is a company, talk to other high level or “key” employees who would be privy to the communications at issue.
    1. For example, in this case, the Court said it was not reasonable to accept only the CEO’s response that certain documents did not exist without asking other company employees, especially since there were many other executive level employees who knew responsive documents existed.
  8. Do: Become familiar with clients’ information systems and computer data structure in order to adequately advise the client of the duty and method for preserving evidence.
  9. Do: Effectively communicate a litigation hold tailored to the client and particular lawsuit so that the client will understand what actions to take and which to avoid and will actually take the steps necessary to preserve evidence.
  10. Do: After a litigation hold has been implemented, continue to monitor a client’s compliance with the litigation hold. 
  11. Don’t: Delegate critical discovery tasks without an appropriate monitoring or quality control plan in place.
  12. Do: Supervise associates, staff, and contractors (including ESI vendors) who are involved in the document collection, review, and production process.

As the use of email and other electronically stored information continues to grow, it is imperative that attorneys are knowledgeable about the source and extent of ESI and take the necessary steps to ensure all potentially relevant ESI is preserved and collected.  Judge Dembin’s suggestions are great reminders of practical steps attorneys can implement when handling ESI, and further highlights the attorney’s duty to be actively engaged in the discovery process.