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Court Enforces Agreement Regarding Search Terms and Production of Disaster-Recovery Backup Tapes; Holds Third-Party in Contempt Despite $6 Million In “Extensive Efforts to Comply”

Posted in CASE SUMMARIES

In re Fannie Mae Sec. Litig., 552 F.3d 814 (D.C. Cir. 2009)

In this case, the district court held defendants had sole authority to dictates search terms, per stipulated order, and sanctioned a third-party for failure to timely produce documents, despite significant efforts to comply with the deadline.  The Court of Appeals affirmed.

Individual defendants served a third-party subpoena on The Office of Federal Housing Enterprise Oversight (“OFHEO”), requesting production of over 30 categories of documents.  The court denied OFHEO’s subsequent motion to quash, and entered an order directing compliance.

The defendants then agreed to limit the requests for electronically stored information to emails stored on OFHEO’s network and backup tapes.  After the court granted several requests for an extension of time to comply, OFHEO finally produced what it represented were “all” relevant materials.  However, defendants later discovered that OFHEO failed to search all of its off-site disaster-recovery backup tapes.

Despite OFHEO’s voluntary agreement to conduct a search of these tapes, defendants moved to hold OFHEO in contempt.  Following a day of hearings on the issue, the parties entered into a stipulated order holding the contempt motions in abeyance and requiring OFHEO to conduct searches of its disaster-recovery back-up tapes and to produce those documents, as well as a privilege log, by a date certain.  Thereafter, a dispute arose requiring the court’s clarification that the stipulated order gave sole discretion to specify search terms to the defendants.  Despite OFHEO’s attempts to comply with the order, it indicated its inability to timely produce the required privilege logs.  Accordingly, defendants renewed their contempt motion.  The motion was granted and, as a sanction, OFHEO was ordered to produce a category of privileged material to defendants’ counsel for review, with the specific instruction that such production would not waive privilege.  OFHEO appealed.

The stipulated order from which the relevant dispute arose stated as follows:

OFHEO will work with the Individual Defendants to provide the necessary information (without individual document review) to develop appropriate search terms.  By October 19, 2007, the Individual Defendants will specify the search terms to be used.

(Emphasis added).  Pursuant to the order, defendants submitted over 400 search terms which captured approximately 660,000 documents.  OFHEO objected on the grounds that the stipulated order limited the individual defendants to “appropriate search terms.”  Disagreeing with OFHEO’s interpretation, the court confirmed that the order “gave the individual defendants sole discretion to specify the search terms and imposed no limits on permissible terms.”  (Emphasis added).

Thereafter, OFHEO took “extensive efforts” to comply, including hiring 50 contract attorneys and eventually spending over $6 million dollars, more than 9 percent of the agency’s total budget, responding to defendants’ requests.

The day before an interim production was due, OFHEO informed the court that it would be unable to meet the deadline and moved for an extension.  It was granted.  Two days before the extended deadline, OFHEO once again indicated its inability to comply and admitted that its previous assurances were based on “insufficient data” and that it had only recently hired the attorneys necessary to complete the review and production.  It further represented that it could produce all non-privileged material by the agreed final deadline, but that privilege logs could not be produced until a month later.  It was at that point that the defendants renewed their contempt motions.

Recognizing OFHEO’s efforts, but calling them “too little too late” and finding that “OFHEO has treated its Court-ordered deadlines as movable goal posts and has repeatedly miscalculated the efforts required for compliance,” the court granted defendants’ motions.  As a sanction, the court ordered production of all documents “withheld on the sole basis of qualified deliberative process privilege” and not logged by the final production deadline.   According to the order, however, production would be made only to defendants’ counsel and would not result in a waiver of privilege.  OFHEO appealed.

OFHEO’s principal argument on appeal was that the language of the stipulated order “limits the individual defendants to specifying only “appropriate” search terms, and that by transgressing this limitation, the individual defendants relieved OFHEO of its obligation to process the search terms and to produce the corresponding documents and privilege logs by the stipulated order’s deadline.”

Following an extensive discussion of the appropriate interpretation of the order, including OFHEO’s argument that defendant’s list of terms was “tantamount to a request for the dictionary,” the appellate court held that it “unambiguously requires OFHEO to process the search terms the individual defendants specify.”  Thus, OFHEO had not been relieved of its production obligations which it violated when if failed to produce the privilege logs on time.

Regarding OFHEO’s argument that the district court abused its discretion by compelling compliance with the subpoena in the first place, the appellate court found that “[w]hatever the merits of these claims, OFHEO abandoned them by entering into the stipulated order.”

Addressing OFHEO’s argument that it substantially complied in good faith and that the district court thus abused its discretion in holding it in contempt, the appellate court conceded that “[w]ere we deciding this matter in the first instance, we might not have held OFHEO in contempt.”  Nonetheless, the appellate court found that the district court had not abused its discretion in its holding and specifically acknowledged the district court’s authority to manage its own dockets as well as the court’s “intimate familiarity” with the details of the case such that it should not be second guessed.

Finally, turning to the imposed sanction, the appellate court once again held that the district court had not abused its discretion where the compelled production of potentially privileged documents would expedite the discovery process while maintaining any legitimate claims of privilege.