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Court Orders Solicitation of Bids From Forensic Computer Technicians to Assess Whether the Search and Restoration of Additional Data From Defendant’s Company Computers is Justified Under FRCP 26(b)(2)(C)

Posted in CASE SUMMARIES

Peskoff v. Faber, 244 F.R.D. 54 (D.D.C. 2007)

In this opinion, United States Magistrate Judge John M. Facciola continued attempts to resolve ongoing discovery issues in Plaintiff Jonathan Peskoff’s suit to recover damages for financial injury resulting from Defendant Michael Faber’s operation of a venture capital fund, called NextPoint Partners, LP.  Peskoff and Faber were managing members of NextPoint GP, LLC ("NextPoint "), the general partner of the venture capital fund.  Peskoff left NextPoint in January 2004 and filed an action against Faber shortly after.

In discovery, Peskoff sought documents, including email from his time at NextPoint Management. Faber’s initial productions of email and other documents did not include any emails that Peskoff received or authored between mid-2001 and mid-2003.  In a previous ruling centering on the missing data, the court noted that the unresolved issue was whether such emails still existed and could be located, and whether the efforts made to date to locate them had been adequate.  The court had ordered the Defendant to conduct additional searches for any email involving Peskoff, and to submit a sworn statement and provide testimony at an evidentiary hearing on the nature and adequacy of such searches.  (For additional background information, click on the links to see summaries of two previous orders in this case related to this issue, entered July 2006 and February 2007).

In this opinion, the court noted that Faber had failed to appear at the subsequent evidentiary hearing, and that this failure to comply with the court’s previous order would be construed against him.  The court then relied on the testimony made by others at the hearing, and on other available information, and concluded that the production to date raised many questions regarding its completion and the sufficiency of the searches performed.  The court also concluded that any additional searches would require additional resources beyond the tools available to NextPoint.

The court then turned to consider whether a forensic examination should be undertaken to look for additional material, and if so, who should pay for such an examination.  The court noted it had the authority to limit discovery under Fed. R. Civ. P. 26(b)(2)(C).  The court applied the standard articulated in the revised version of section (iii) of this rule that will become effective December 2007, observing that the revised version made the standard for limiting discovery somewhat clearer.  That subsection gives the court the authority to limit the frequency or extent of discovery if:

the burden or expense of the proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the parties’ resources, the importance of the issues at stake in the action, and the importance of the discovery in resolving the issues.

(Italics added to indicate new language.)

Observing that the final point regarding the importance of the discovery to resolving the issues in the litigation was challenging because “the importance of the results of the forensic examination to be had can only be accurately assessed after it is done,” the court nonetheless concluded that the information that had been produced thus far permitted the court to infer the possible existence of additional similar information warranting judicial action.

Noting the importance of considering the potential expense of forensic analysis, the court ordered the parties to collaborate to create a request for proposals seeking bids from qualified forensic computer technicians to determine the likely cost of searching for, restoring and converting email from the computers located at NextPoint.  The court stated this approach was justified “because the emails are relevant, the results of the search that was conducted are incomprehensible, and there is no other way to try to find the emails.”

The court also addressed two new arguments presented by Faber’s attorney, also serving as counsel to NextPoint, regarding the role and obligations of NextPoint in the discovery.  Counsel had argued that the court’s Rule 26 analysis was improper because the steps being proposed by the court were centered on NextPoint’s data systems.  Because Peskoff filed suite against Faber, not NextPoint, counsel argued that NextPoint was a third party that was never obligated to preserve any electronic documents, and that any such document requests directed at NextPoint required a Rule 45 subpoena.  The court ruled that Faber’s failure to state these objections in a timely manner had resulted in a waiver:

Had NextPoint wanted to take the position that it was a third party in the conflict between Peskoff and Faber, then Mr. Davis should have resisted any discovery served on NextPoint in the first place on the grounds that the information belonged to NextPoint and not to Faber.  Moreover, if Faber had needed authority to produce discovery on behalf of NextPoint, then no discovery should have been produced from NextPoint in response to Peskoff’s discovery requests at all. . . . To assert this position now at this late date simply suggests a newfangled theory by which Faber’s counsel attempts to thwart Peskoff’s legitimate discovery efforts, and the Court will not allow it.

Finally, the court expressed its concern over apparent inaccuracies or inconsistencies in the testimony that had been provided by both Peskoff’s counsel and Faber’s counsel, ordering each of them to submit to the court written explanations for erroneous and/or contradictory statements they had made regarding ESI discovery issues in the case.