The Legal Intelligencer - Cost-Saving Measures Are No Excuse for Discovery Failures

Courts are increasingly sanctioning, or otherwise holding accountable, parties responsible for either improperly collecting, failing to collect, destroying, or generally failing to produce relevant electronically stored information (ESI) during discovery. As technology develops and communication habits change, more discoverable information than ever before is being exchanged on messaging and social media platforms. While searching and retrieving information from these platforms recently emerging in popularity (like Slack) is not always easy, courts are not sympathetic to the difficulties parties face during data collection and review since collection and review is possible with most reputable e-discovery vendors.

In Red Wolf Energy Trading v. Bia Capital Management, _ F.Supp.3d __, No 19-10119, (D. Mass. Sept. 8, 2022), the court entered a default judgment against two of the five defendants in a trade secrets case and ordered that reasonable attorneys’ fees and costs be paid associated with the corresponding motion to compel. In Red Wolf Energy Trading, the court issued an order in response to the plaintiff’s first motion to compel requiring the defendants to review the documents that had been produced and to supplement the production, if necessary (concerning Google Suite documents expressly) and all other responses to requests for production, including Slack messages, when the plaintiff was first concerned with the deficiencies in the defendants’ production. Shortly thereafter, one of the the defendants submitted an affidavit stating that he had complied with the court’s earlier order, that he had worked with counsel to gather documents, and he had “reviewed our Slack communications” and provided all relevant Slack channel communications to counsel. With that representation, depositions proceeded. On several other occasions after this, the plaintiff challenged the completeness of the defendants’ production of Slack messages, always over the defendants’ objections who contended that since in 2019 (when discovery began) there was “no ready mechanism” to search and produce Slack messages, so he hired a consultant in Kazakhstan (a decision he later claimed was motivated by the higher costs of American vendors) to write a program to search and produce Slack messages in a readable format. However, in response to the plaintiff’s demands that more messages existed and should be produced, the defendants repeatedly found and had to supplement their production—including right up to the eve of trial.

The court found that the defendants’ repeated failures to produce highly relevant Slack messages was highly prejudicial, bordering on misconduct, and issued the drastic sanction of an entry of default against several of the defendants, finding that the decision to “utilize an unpaid novice in Kazakhstan to conduct its search for Slack messages, rather than an experienced vendor in the United States at a modest cost, and the defendants’ repeated failures to produce all required documents was in reckless disregard of his duties under Rule 26 and to obey court orders.”

Similarly, in DR Distributors v. 21 Century Smoking, No. 12 CV 50324, (N.D. Ill. Oct. 6, 2022), the court awarded a total monetary sanction in the amount of $2,526,744.76 (including $2,401,042.21 for fees incurred for the scope of work allowed plus $125,702.55 for litigating the fee petition). A large portion of the fees awarded were as a result of the defense counsel’s repeated failures in the collection and production of relevant and responsive email, in failing to ensure that auto-delete was suspended on all relevant email accounts, and in largely failing to competently work with and oversee the work of the e-discovery vendor, whom they had previously accused of incompetence. See DR Distributors v. 21 Century Smoking, 513 F. Supp. 3d 839 (N.D. Ill. 2021).

Accordingly, litigation counsel should impress upon their clients from the outset that discovery must be done right at every juncture or the consequences could be catastrophic. While many clients try to save money by handling the collection or the initial review determination decisions internally, courts do not look favorably on cost-saving measures that affect the integrity of the production. And unfortunately, these initial first steps (including the collection of the universe of documents for review) are the most important as mistakes made during the early phases taint the later steps and final production. Courts, like the court in Red Wolf Energy Trading, may even view discovery missteps as intentional misconduct to hide relevant and harmful communications from the opposing party. Counsel, therefore, should make every effort to help their clients understand that discovery—while a long and arduous process—is just as important, if not more so, than the phases of litigation that clients typically emphasize (like trial or a motion for summary judgment) and must be conducted and prioritized accordingly. While cost is always an important consideration, especially in this current economic environment, it cannot be the determinative factor. Competency and the ability to collect and process the types of documents and communications at issue must be the determining factor.

Reprinted with permission from the January 12, 2023 issue of The Legal Intelligencer. © 2023 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.