The new year has brought one of the most comprehensive court decisions yet reminding attorneys in no uncertain terms of the rules mandating fundamental competency in the treatment of electronically stored information (“ESI”). Falling short may get both lawyers and clients sanctioned.
In January 2021, U.S. District Judge Iain Johnston issued his opinion in DR Distributors, LLC v. 21 Century Smoking, Inc. (N.D. Ill. No. 12 CV 50324) coming down hard on defense counsel for failing to possess the skills and diligence necessary to competently meet their ESI discovery obligations. In a detailed opinion that is well worth reading (if you have an hour or two), the court recounts the many e-discovery “missteps, misdeeds, and misrepresentations” both of client and counsel that culminated in the issuance of harsh evidentiary and cost-shifting sanctions on each.
DR Distributors is a long running trademark infringement case involving the likelihood of confusion between similar marks used for branded electronic cigarettes. One discernable theme is how defense counsel at many points should have realized the likelihood that they would be confused by their ESI obligations, and associated themselves with someone knowledgeable and interested in figuring that out. Their decision instead to simply push through would be their undoing.
During the initial disclosure process, counsel learned that the client used webmail and chat applications for business and personal purposes. While counsel purported to advise defendants to preserve emails and chats, (i) no written litigation hold notice was issued much less followed up on; (ii) no custodial interview was conducted; (iii) the client was allowed to search for and self-collect ESI without counsel involvement; (iv) the client was not instructed to disable auto-delete functionality on these web based accounts; and (v) counsel mistakenly believed that information created and saved in such accounts was available from company computer hard drives and servers – rather than exclusively existing online.
Unsurprisingly (except to defense counsel), this did not go well. By close of discovery, plaintiff’s insistent allegations that disclosures were lacking prompted defendants and their new ESI vendor to find over 15,000 responsive documents never previously collected or produced. The vendor could not recover, however, an unknown number of additional potentially responsive communications that had been deleted before auto-deletion on the accounts was turned off. Plaintiff moved for sanctions based on these failures to disclose and spoliation.
The court surveyed the long timeline of the case and the defendants’ repeated missteps, evasions and failures despite the court’s early and repeated emphasis on doing e-discovery right. While perfection or even a high level of expertise in ESI is not required, the court noted that the Federal Rules require “a reasonable understanding of ESI and the law relating to identifying, preserving, collecting, and producing ESI, in addition to good faith compliance by the parties and counsel.” To meet this standard, counsel has to acquire a reasonable understanding of their client’s information infrastructure so as to meaningfully take part in discovery planning and responding to ESI requests. “[S]ome semblance of intellectual curiosity would go a long way in this regard” – a trait that the court in florid detail showed was lacking. That defendants seem to have misled counsel and the court about the ESI was not sufficient excuse.
The court granted the sanctions motion under Rule 26(g) as well as Rule 37(a)-(c). First, the court issued evidentiary sanctions, including that (a) while defendants could not use any documents that they wrongly withheld, plaintiff was free to use them as it deemed appropriate; (b) certain facts asserted by plaintiffs were deemed established; and (c) the relevant fact finder could consider the discovery failures in determining the underlying merits of the trademark dispute and plaintiffs’ Lanham Act claims.
Second, the court ordered defendants and former counsel each to pay half of plaintiff’s relevant attorney’s fees and costs, which plaintiff had already indicated was over $800,000. The court observed that “authority exists to support the reasonableness” of such amounts. Third, certain defense attorneys were required to complete at least eight hours of CLE on e-discovery and certify that they read the 256-page order.
DR Distributors is yet another a wake-up call to counsel that pleading lack of sophistication or confusion about ESI will not ward off sanctions for spoliation or insufficient productions. As the court observed, “It is way too late in the day for lawyers to expect to catch a break on e-discovery compliance because it is technically complex and resource-demanding.” Counsel must not only acquire the skills necessary to handle ESI in their matters, but also must exhibit diligence appropriate to the matter – taking mission critical steps to conduct discovery and meet professional and ethical obligations of competency and candor. That means counsel must learn about their clients’ systems and data, must figure out the right questions to ask and must follow-up when results do not match the answers received. In particular before a jurist as knowledgeable and motivated as Judge Johnston, litigants who give ESI issues short shrift and double down on dissembling, ignorance and apathy in explaining their lack of competence cannot expect forbearance.
For additional information regarding these issues and other electronic discovery obligations, please contact the professional(s) listed below, or your regular Crowell & Moring contact.