“It Wasn’t My Fault”: Court Rejects Attempts by Client and Attorney to Duck Responsibility and Sanctions Both Jointly
This blog has previously discussed the importance of cooperation among parties in a litigation to effectuate a comprehensive discovery framework; however, a recent decision from the District Court for the Northern District of California exemplifies the importance of joint responsibility and collaboration between attorneys and their clients when dealing with e-discovery matters, including preservation, collection, and production of electronically stored information (ESI). In a case that ultimately settled and involved both foreign and domestic parties, the court granted a motion for monetary sanctions pursuant to its inherent authority and Rule 37, after finding that the plaintiff’s discovery misconduct “not only forced [defendant] to incur additional attorneys’ fees but … also forced the court to expend considerable resources beyond what was necessary.” Because both the plaintiff and its former counsel “failed in their responsibilities,” the court imposed sanctions jointly and severally against them.
In Optrics Inc. v. Barracuda Networks Inc., the plaintiff, a Canadian engineering firm, filed suit in August 2017 against the defendant, an American company, “bringing trademark, contract, and other claims stemming from allegedly unfair and deceptive business practices by [defendant] during the parties’ thirteen-year business relationship.” Beginning in June 2019, discovery disputes and “discovery violations” by the plaintiff plagued the litigation. In February 2020, “with discovery still mired in disputes,” the parties stipulated to the plaintiff dismissing its complaint with prejudice and, several days later, plaintiff’s counsel moved to withdraw after being terminated by the plaintiff.
The discovery disputes and violations fell primarily into three buckets: (i) the plaintiff’s violations of court orders; (ii) the plaintiff’s failure to preserve electronic data; and (iii) the plaintiff’s self-collection of data. After a thorough review of the complex history of discovery, the court concluded that “[plaintiff’s] conduct clearly warrants sanctions.” The court noted that the plaintiff never fully responded to the discovery requests or produced a privilege log, and “[i]nstead, after months of repeated Magistrate Judge intervention, repeated and generous deadline extensions, multiple discovery hearings and orders, and several warnings that sanctions were in the cards, [plaintiff] withdrew its claims at the eleventh hour on the eve of an important deposition.” According to the court, “[plaintiff] demonstrated a flagrant indifference to th[e] Court’s orders.” The court also pointed out that, because the plaintiff “failed to put in place a litigation hold, there was a “strong possibility that it lost potentially relevant documents as a result,” and the plaintiff “had a retention period of only 30 days on its data preservation software and never bothered attempting to extend it.” The court noted that the plaintiff “initially put its own people in charge of collecting data to be produced,” which consisted of individual employees running “keyword searches of … emails using a basic search function … and print[ing] to PDF only those emails which [the employees] considered responsive.” Lastly, the court noted that plaintiff “clearly failed to prepare for its Rule 30(b)(6) depositions, and thus substantively impaired the value of those depositions, forcing the Court to order a renewed deposition.”
Because the parties settled and, thus, terminating or preclusionary sanctions would be meaningless, the court determined that monetary sanctions were warranted and concluded that an award of attorneys’ fees and related costs was the appropriate sanction. The court awarded fees and costs in the amount of $202,035, noting that the “sanction [was] a reasonable and appropriate deterrent given the extraordinary discovery misconduct and repeated violations of Court orders in this case.”
Next, the court had to determine who was responsible to pay the award of fees and costs. The plaintiff and its former counsel offered competing statements and different versions of events, each attempting to place the blame on the other. The plaintiff argued that its former counsel was “responsible for all of its discovery violations … and it complied with all of [counsel’s] instructions during discovery and relied on its U.S. counsel and followed their advice.” According to the plaintiff, its former counsel “never provided specific instructions or a document preservation or back-up plan” and “initially gave [plaintiff] only general suggestions, including sending a link to an article about ‘self-collection.’” The plaintiff further asserted that its former counsel “retained [an e-discovery vendor], but neither [former counsel] nor [the vendor] actively managed the data collection process.”
On the other hand, the plaintiff’s former counsel asserted that he advised the plaintiff that his firm “could not and would not manage the collection of [plaintiff’s] electronic data, and that it did not have the software or the personnel to manage the e-discovery.” The plaintiff’s former counsel testified that “the risks [of self-collection] were discussed,” but the plaintiff “insisted on self-collection.” The plaintiff’s former counsel further asserted that the ESI attorneys estimated the cost to produce a privilege log, but the plaintiff did not authorize the work, despite the fact that he spoke with the plaintiff about “the need to authorize that this work be performed and reiterated that, until the privilege log was created, it would remain in violation of the Court’s order.”
The court acknowledged that it had “no easy way to know who [was] telling the truth and who [was] lying on each specific point,” but determined that there was “no need,” reasoning that, “what [was] certain [was] that both [plaintiff] and its former counsel failed in their responsibilities.” The court opined that the plaintiff could not “simply wash its hands of any responsibility by claiming that it didn’t know what it was doing and [its former counsel] never told it what to do.” The court noted that the plaintiff’s “failure to preserve evidence predated its outside counsel’s involvement by years,” and its “disastrous self-collection of documents was done by [plaintiff] and its partners.” However, the court further determined that the plaintiff “wasn’t alone in dropping the ball[,]” explaining that, pursuant to the Federal Rules of Civil Procedure, “[i]t wasn’t enough for [former counsel] to simply inform [plaintiff] that they ‘could not and would not manage the collection of the electronic data’ and then just keep moving for extensions while [plaintiff] botched production, lost data, and missed deadline after deadline.” Accordingly, the court imposed sanctions jointly and severally against the plaintiff and its former counsel.
The Optrics decision highlights the importance of cooperation and collaboration within the attorney-client relationship, especially in the context of the production of discovery. It is essential that attorneys and their clients have open and clear communications, so that each side fully understands its responsibilities and obligations during the discovery process. As the court made clear, a client may not “wash its hands” of its responsibilities by relying on its counsel and claiming that it does not know what it is doing. At the same time, an attorney may not take a passive approach relying solely on the client’s word, but rather, has an affirmative duty pursuant to Federal Rule of Civil Procedure 26(g)(1) to “have knowledge of, supervise, or counsel the client’s discovery search, collection and production.” Counsel also has ethical duties to provide competent representation, including a duty to stay “abreast of changes in the law and its practice, including the benefits and risks associated with relevant technology.” ABA Model Rule 1.1, cmt. 8; see also New Jersey Rule of Professional Conduct (RPC) 1.1. To avoid a situation such as the one in Optrics, it is imperative that both the attorneys and their clients understand their respective responsibilities and obligations and can work collaboratively. If not, attorneys and clients alike may find themselves liable for significant monetary sanctions.