Magistrate Recommends Default Judgment Against “Big Four” Accounting Firm for Electronic Discovery Abuses

In re Telxon Corp. Securities Litigation, 2004 WL 3192729 (N.D.Ohio July 16, 2004)

Recommending that default judgment on liability be entered against third party defendant, PricewaterhouseCoopers, LLP, the judge stated “it would be difficult for anyone to argue that PWC’s conduct over the course of the litigation, particularly its repeated assurances to the court and to the parties that it had fully disclosed all relevant information, was not due to willfulness, bad faith or fault.” The judge criticized PWC for, among other things: failing at the start of discovery to check thoroughly its local servers and its archives for relevant documents, failing to produce documents as they were kept in the ordinary course of business, failing to reproduce thoroughly and accurately all documents and their attachments, and, prior to litigation, permitting the destruction of documents despite committing to their preservation. The court stated the only conclusion it can reach “is that PWC and/or its counsel engaged in deliberate fraud or was so recklessly indifferent to their responsibilities as a party to litigation that they failed to take the most basic steps to fulfill those responsibilities.”

The court declined to consider the penalty of an award of attorneys’ fees in addition to entry of default judgment, but noted that attorneys’ fees are awardable as damages in securities actions pursuant to statute.

Read the entire Report and Recommendation of Magistrate Judge Hemann here.

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