A Cautionary Tale About How Not to Conduct Discovery in Federal Court
November 20, 2019
Yikes! No practitioner wants to be on the receiving end of a decision that starts with the title of this post. And yet, that’s precisely how Magistrate Judge Bloom started her decision in Abbott Laboratories v. Adelphia Supply USA (15 cv 5826 [CBA] [LB]), ECF No. 1545 . Abbott serves as an important reminder to practitioners that we need to be competent in matters of electronic discovery, or partner with someone steeped in the area of ESI.
In October 2015, Plaintiffs filed an action against hundreds of defendants alleging trademark diversion predicated upon improper sales in the United States of Abbott’s international diabetes test strips (“Abbott I”). At a discovery conference the Magistrate Judge ordered all defendants to “review all formal and informal communications regarding defendants’ purchases and sales of [the international test strips] in 2014, including emails, text messages, purchase orders…” (ECF No. 925).
Soon thereafter, counsel for defendant H&H claimed the production of documents beyond one year would be unduly burdensome in light of the fact that the 2014 responsive documents totaled 6,000. And so, the Court directed H&H to produce only the 2014 documents due to the high volume of responsive documents they identified (ECF No. 963). H&H produced 314 emails and a separate collection of invoices. Plaintiffs objected to this production because the documents were printed “in hard copy, scanning them all together, and producing them as a single, 1941-page PDF file.” (ECF No. 1075). The Court then ordered H&H to produce “an electronic copy of the 2014 emails (1941 pages), including metadata” (ECF No. 1080). In response, H&H produced 4,074 pages of responsive documents. Note, the page numbers of what they initially produced (and were ordered to produce electronically) did not marry up with the re-production.
In May 2017, plaintiffs commenced a counterfeiting action against the H&H defendants, alleging they were selling the international test strips repackaged into counterfeit U.S. packages (Abbott Laboratories v H&H Wholesale Services, Inc., No. 17-cv-3095) (“Abbott II”). In Abbott II, the Court entered a seizure order authorizing Abbott to seize, among other things, a copy of H&H’s email server. Armed with the server, plaintiff raised again concerns that defendants failed to comply with the Court’s discovery orders in Abbott I. And so, the Court directed the H&H defendants in Abbott I to re-run the document searches outlined in the Court’s various discovery orders, produce the resulting documents, and provide the affidavit of someone with knowledge to detail the technical errors that purportedly affected the prior productions (ECF No. 1156). In response, H&H re-ran the searches and this time produced 3,569 responsive documents.
Plaintiffs moved, pursuant to FRCP Rule 37, requesting the Court strike the H&H defendants’ pleading, enter a default judgment against them, and for an order directing defendants to pay plaintiffs’ attorney’s fees for investigating and litigating the discovery fraud defendants perpetrated against the Court.
In reaching her decision, Magistrate Judge Bloom noted that “[w]hile sanctions under Rule 37 would be proper [to the extent defendants failed to comply with two discovery orders], defendants’ misconduct herein is more egregious and goes well beyond defendants’ failure to comply with the Court’s January 2017 discovery orders. The Court then detailed that a fraud upon the Court occurs when it has been established by clear and convincing evidence that “a party has set in motion some unconscionable scheme calculated to interfere with the judicial system’s ability impartially to adjudicate a matter” and occurs “when a party lies to the court and his adversary intentionally, repeatedly, and about issues that are central to the truth-finding process.”
Here, in reaching its ultimate conclusion, the Court observed the following:
- The H&H defendants initially represented to the Court that for the year 2014 there were 6,000 responsive documents.
- The H&H defendants then clarified that it was 6,000 pages, not documents.
- Given the large volume, the court modified its order to only documents from 2014.
- H&H then produced 314 documents, totaling 2,034 pages.
- After the seizure of H&H’s server, and the re-run of search terms by H&H’s vendor Transperfect, the H&H defendants produced 3,569 documents.
- The outside vendor included a declaration stating that H&H used an email archive system that had two different accounts – Administrator and Auditor – and the original search was run using only the Auditor account.
- When Transperfect replicated the search using the Adminstrator account they returned 1,737 emails and
- When Transperfect replicated the search using the Auditor account they returned 1,540 emails.
- And so, 197 emails were not “viewable” when the original search was performed.
However, as the Court noted, even when you include the 197 emails, defendants’ math did not add up. And, the H&H defendants’ explanation that the differentials were the result of de-duplicating and threading did not carry water. Rather, the Court noted that the H&H defendants “proffered serial representations to the Court, many of which have been proven false.” And, the Court noted that the defendants materially misrepresented the number of responsive documents/pages to the Court, which facilitated their objective – the modification and limit by the Court of the search for responsive materials. The Court further observed that defendants cannot be obviated of any blame by pointing fingers at prior counsel.*
This was just the tip of the iceberg regarding defendant H&H’s discovery misconduct. As the investigation continued, it became apparent that H&H withheld every responsive email that referenced Howard Goldman, the owner and president of H&H, and all documents that concerned or referenced his wife, Lori Goldman. While Mr. and Mrs. Goldman claimed in declarations that Mrs. Goldman had no involvement in, and did not direct or control any business activities of H&H, but was instead a housewife who dropped in and out of the office, the re-run searches demonstrated otherwise. Indeed, 16 documents demonstrated Mrs. Goldman interfacing with suppliers and forwarding to her husband offers from suppliers about the test strips. The Court found there was no credible explanation for why these documents were not produced except that they were willfully withheld.**
Based on the full record of the case, the Court found there was clear and convincing evidence that the H&H defendants perpetrated a fraud upon the Court, with the harshest sanction being warranted. And so, the Court granted plaintiffs’ motion for sanctions and entered a default judgment against the H&H defendants.
While this case is an egregious example of discovery misconduct that goes beyond ESI incompetence, it serves as an important reminder that electronic discovery is a reality of today’s litigations. And that we, as counsel, must be competent and conversant in the intricacies of searching for, and producing, responsive ESI.
* The Opinion also discusses the search terms the H&H Defendants used, which were inadequate and “designed to fail.” For example, using only “International FreeStyle” rather than “FSL,” the abbreviation the company used to refer to the FreeStyle strips. Nor can it be overlooked that the H&H defendants employed more than three different, successive law firms throughout the lawsuit.
** The court observed, “Defendants’ explanations that there were no documents withheld, then that any documents that weren’t produced were due to technical glitches, then that the documents didn’t appear in [the] original search, then that if documents were intentionally removed, they were removed per [prior counsel’s] instruction cannot all be true. The H&H defendants have always had one or more excuses up their sleeve in this ‘series of episodes of nonfeasance,’” which amounts to “deliberate tactical intransigence.”