Court Orders Monetary Sanctions for Production Delay Resulting from Counsel’s Failure to Become Familiar with Plaintiff’s Retention Policies and Systems

GFI Acquisition, LLC v. Am. Federated Title Corp. (In re A & M Fla. Props. II, LLC), 2010 WL 1418861 (Bankr. S.D.N.Y. Apr. 7, 2010)

Where plaintiff’s counsel “failed in his obligation to locate and produce all relevant documents in a timely manner” by failing to gain a sufficient understanding of plaintiff’s computer systems resulting in significantly delayed production of relevant documents, the court declined to impose terminating sanctions or an adverse inference but ordered monetary sanctions against plaintiff and counsel in an amount to be determined.

Upon plaintiff’s production of requested discovery, defendant was surprised by the lack of internal emails produced.  Thereafter, plaintiff retained new counsel who, in an effort to settle the issue, ordered plaintiff to perform a “company-wide” search for responsive information.  The search was conducted under the direction of Deborah Garfinkle, plaintiff’s Chief Technology Officer.  Unfortunately, counsel was “uninformed on the detailed workings of [plaintiff’s] computer system and email retention policies.”  Specifically, counsel was unaware of the existence of archive folders to which employees regularly moved emails.  The archive folders were therefore not searched.

Eventually, defendant brought the lack of email production to the court’s attention.  The parties thereafter agreed to jointly retain a forensic expert to search plaintiff’s computer system.  Because plaintiff’s counsel remained unaware of the archive folders, the forensic search did not include them.  When certain emails were not found in the forensic search, defendant suspected intentional spoliation.

Responding to the accusation of spoliation, Garfinkle informed defendant’s counsel of the existence of archive folders.  Upon plaintiff’s own subsequent search of those folders, additional responsive emails were found.  Plaintiff argued that the situation could have been avoided had defendant included archives in its search request.  Defendant argued that plaintiff should have known to search the archives.  Both sides agreed to a second search by the forensic expert, including the archives.

Following the second forensic examination, plaintiff’s counsel’s “mistaken impression” regarding the methodology for production of the recovered ESI resulted in a two-month delay in the production of certain responsive emails to defendant.

Contemplating an appropriate sanction, the court declined to impose the drastic sanctions of dismissal or adverse inference.  Instead, the court imposed monetary sanctions.  In support of such a sanction, the court reasoned:

While the delays in discovery were not caused by any intentional behavior, GFI’s counsel did not fulfill its obligation to find all sources of relevant documents in a timely manner.  Counsel has an obligation to not just request documents of his client, but to search for sources of information.  Id. at *5.  Counsel must communicate with the client, identify all sources of relevant information, and "become fully familiar with [the] client’s document retention policies, as well as [the] client’s data retention architecture."  Zubulake v. UBS Warburg LLC, 229 F.R.D. 422, 432 (S.D.N.Y.2004).  [FN16]  Nash failed in his obligation to locate and produce all relevant documents in a timely manner.  A diligent effort would have involved some sort of dialogue with Garfinkle and any key figures at GFI to gain a better understanding of GFI’s computer system.  See Phoenix Four, Inc., 2006 WL 1409413, at *5 (stating that counsel’s effort to discover all sources of relevant information "would involve communicating with information technology personnel and the key players in the litigation to understand how electronic information is stored.").  Had he posed the proper questions in these dialogues, Nash would have gained a more nuanced understanding of how GFI employees stored emails much earlier in the discovery process.  [FN17]  Assuming GFI was operating in good faith, it is almost certain that the archive folders would have been mentioned.

Accordingly, the court ordered plaintiff and counsel to reimburse defendant for its half of the costs of the forensic searches and for the costs associated with the present motion.  A hearing will be held to determine the amount of the sanction and the amount plaintiff and counsel will be responsible for paying respectively.

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