Lombardo and Qualcomm Typlify Cases Sustaining Substantial Fee Awards in E-Discovery Disputes.
About a year ago, LiveOffice, an on-demand messaging security provider, released these fascinating findings based on a nationwide survey:
· 53% of 400 IT managers and consumers admitted that they were not in position to meet federal court discovery requirements and 52% did not have an “e-discovery plan” prepared by legal counsel, despite the fact that 63% had been required to produce emails during the course of litigation;
· 28.9% of the responding managers/consumers were not even aware of federal procedural discovery obligations; and
· Almost a third of the respondents were unable to produce any emails that were over one year old, likely due to document purging policies.
Aside from the rather startling nature of these survey findings, failure to respond to e-discovery requests can result in awards of substantial attorney’s fees by the noncompliant litigants or, in some cases, sanctions of a professional nature against the litigants’ attorneys. We survey two California cases, one at the state level and one from a federal venue, that illustrate how litigants and they attorneys can get stung with fee sanctions for not producing or destroying electronic documents requested during discovery.
The first case, Lombardo v. Broadway Stores, Inc., 2002 WL 86810 (4th Dist., Div. 3 Jan. 22, 2002) (unpublished), was decided by our local Santa Ana based appellate court, authored by Justice O’Leary on behalf of a 3-0 panel. There, employee in an eventually certified class action sought accrued vacation benefits from defendant. Defendant’s answer contained a payment defense, which made payroll records germane. Named plaintiff sent “preservation” letters to Broadway early in the litigation. Ms. Lombardo requested payroll records relating to vacation benefits. What followed was sixth months of Broadway failing to produce the records. Lombardo filed motions to compel, with Broadway responding that numerous electronic documents had been “lost, misplaced or destroyed.” The court granted the motions and ordered Broadway to pay $3,479 in sanctions. Lombardo filed motions to compel to obtain further responses when some partial documents were produced at a later mediation. A referee recommended granting the motions and awarding Lombardo further sanctions of $8,396, a recommendation adopted by the trial court. Broadway estimated there were about five million pages of manual documents that related to the class members’ payroll registers. Under Code of Civil Procedure section 2023, Lombardo sought monetary sanctions for the computer payroll record spoliation, specifically requesting Broadway to pay the costs of recompiling the computer records from the 5 million hard copy records and to pay her $31,250 in attorney’s fees in seeking discovery compliance. Broadway voluntarily agreed to convert the hard copy registers into electronic database records at a $100,000 conversion cost that it would bear. Nevertheless, the discovery referee determined Broadway had willfully destroyed records after litigation began and in the wake of Lombardo’s prior requests. The referee also found that Broadway gave evasive discovery responses knowing the records did not exist and frivolously opposed prior motions to compel. The referee recommended that Broadway be ordered to recompile the records and pay the requested attorney’s fees sanction, a recommendation endorsed by then Judge Tully H. Seymour when he presided over class actions.
Broadway appealed the eventual discovery order, which was affirmed on appeal (with costs on appeal also being awarded to Lombardo).
The Lombardo court found authorization for the fee sanctions in Code of Civil Procedure sections 2023.030(a) (formerly section 2030(b)) [sanctions may be imposed against anyone engaging in conduct that is a misuse of the discovery process] and 2031.320(b) [monetary sanctions for failure to produce documents that are promised in a response]. The appellate panel also found that the general discovery misuse provision, section 2023.010 (formerly section 2023(a)) also allows for sanction impositions, with spoliation of evidence being sanctionable under the terms of current section 2023.010. (See Cedars-Sinai Med. Center v. Superior Court, 18 Cal.4th 1, 12 (1998).) Further, because evidence had been destroyed, it would have been futile for Lombardo to proceed under section 2031 rather than moving under section 2023.
Justice O’Leary then rejected Broadway’s main merits argument that sanctions were unjustified because hard copy payroll documents were still available (or, as it framed the argument, “were the same as the computerized data”). “Not so,” said the appellate panel. “The hard copy may have contained the same information, but that information was not equally accessible. As Lombardo noted in her motion, it would be virtually impossible to manually extract all of the necessary and pertinent information from five million pages of records.” After noting that a full recompilation would cost $5 million and Broadway was willing to spend $100,000 on an abbreviated recompilation, the Court of Appeal concluded that “[t]he computerized records had evidentiary unique value distinct from the hard copy records: They made the information accessible.” (2002 WL 86810 at *8.) Justice O’Leary also found substantial evidence supported the referee’s determination that the destruction of records had been willful. Finally, the $31,250 in sanctions was adequately documented, with Lombardo’s attorney providing his hourly rate and number of hours to substantiate the basis for the request. (Id. at 10.) (BLOG OBSERVATION—We find that this is generally how attorneys document their fee requests in law and motion proceedings, so it is nice to see appellate courts track the realities of practice in this area.)
Other California decisions are to the same effect. See, e.g., Sherman v. Kinetics Concepts, 67 Cal.App.4th 1152 (1998) [trial court denied imposing sanctions for concealment of documents discovered a week after trial; appellate court reversed, mandating an award of monetary sanctions to at least cover trial costs/attorney’s fees and consideration of additional sanctions short of a default entry under Code of Civil Procedure 2023].
That brings us to the federal case on electronic discovery sanctions, a decision that gained widespread notoriety in short order. In Qualcomm Inc. v. Broadcom Corp., 2008 WL 66932 (S.D. Cal. Jan. 7, 2008), Qualcomm sued for patent infringement, with Broadcom defending and counterclaiming based on waiver—factually based in Qualcomm’s participation in a Joint Video Team. After asking Qualcomm for documents relating to JVT participation and receiving responses they would be produced (but nothing was), it was discovered during trial by Broadcom that Qualcomm failed to produce 21 emails showing JVT participation. Subsequent investigation showed that Qualcomm did not produce over 46,000 responsive emails, producing instead 1.2 million pages of marginally relevant documents and failing to undertake a competent search for the omitted emails. Once these documents came to light in trial, Qualcomm lost its infringement claims and Broadcom won based on its waiver defense. District Judge Brewster found litigation misconduct by Qualcomm and its attorneys, adopting a magistrate’s recommendation that ordered Qualcomm to pay $8,568,633.25 in attorney’s fees and costs to Broadcom (all of its litigation expenses), including post-judgment interest that swelled the award to $9,259,985.09 through December 11, 2007. Judge Brewster referred Broadcom’s sanction motion for further consideration by U.S. Magistrate Judge Barbara L. Major, who wrote a very comprehensive decision sustaining the $8.5 million Qualcomm sanction and referring several of Qualcomm’s attorneys to the California State Bar for an investigation of possible ethical violations. (She allowed Qualcomm to pay Judge Brewster’s $8.5 million award, using any payments as a credit against her award in order to avoid “double dipping”.)
Magistrate Judge Major found that the fee/costs sanctions against Qualcomm were fully justified under Federal Rules of Civil Procedure, rule 37(c)(1) [reasonable fees and costs may be imposed as sanctions where a party fails to unjustifiably amend a prior discovery response based on newfound information] and the inherent authority of the court to prevent abuse of the judicial process [see authorities cited at 2008 WL 66932 at *8]. There was no need for Broadcom to file a motion to compel, because Qualcomm earlier had indicated it would produce responsive JVT participation documents.
With respect to Qualcomm’s litigation attorneys, the magistrate found that the retained attorneys did not look in the correct locations, likely accepted the assurances of an important client that Qualcomm’s search was sufficient, ignored warning signs that the client document search was inadequate, failed to press Qualcomm for the truth, and/or encouraged employees to only provide information that bolstered the non-participation argument. This conduct warranted sanctions under Fed.R.Civ.P. 26(g) [all litigation counsel have a duty to act responsibly in the pretrial discovery process] and the inherent sanctioning power of the court [see Fink v. Gomez, 239 F.3d 989, 991 (9th Cir. 2001)]. The magistrate found that Rule 37 alone did not help in this context, because it only sanctioned parties or only sanctioned attorneys if a motion to compel was filed/if there was noncompliance with a discovery order. That is why other federal rules and inherent court authority anchors were relied on.
Magistrate Judge Major summed it up eloquently this way: “While no one can undo the misconduct in this case, this process, hopefully, will establish a baseline for other cases. Perhaps it also will establish a turning point in what the Court perceives as a decline in and deterioration of civility, professionalism and ethical conduct in the litigation arena … If nothing else, it will provide a road map to assist counsel and corporate clients in complying with their ethical and discovery obligations and conducting the requisite ‘reasonable inquiry.’” (2008 WL 66932 at *20.)
Other federal courts have imposed substantial fee awards as sanctions where e-discovery has been thwarted. See, e.g., Pennar Software Corp. v. Fortune 500 Sys. Ltd., 51 Fed.R.Serv.3d 279 (N.D. Cal. 2001) [sanctions for fees and costs imposed against defendant for its failure to present a maintenance policy, a log file, or backup tapes that would track web site modification and e-document deletion procedures]; z4 Technologies v. Microsoft Corp., 2006 WL 2401099 (E.D. Tex. 2006) [in patent infringement case, plaintiff learned at deposition shortly before trial that Microsoft hid key email given to its attorneys a year before trial; trial judge ordered Microsoft to pay enhanced damages of $25 million plus $2 million in attorney’s fees to plaintiff for Microsoft’s failure to produce the key email during discovery and its failure to disclose the existence of a data base]. In some cases, dismissal of a lawsuit has occurred as an even more dramatic sanction in these types of situations. See, e.g., Leon v. IDX Sys. Corp., 44 F.3d 951 (9th Cir. 2006) [dismissal entered as sanctions where plaintiff ran hard drive “wiping” program on business laptop so as to erase 2,200 files].