Litigators across the country are accustomed to addressing attorney-client communications in review protocols as only those communications that seek and provide legal advice from counsel. But what if that communication is unsolicited legal analysis of an issue that isn’t directly related to an anticipated or pending dispute? Can that communication be fairly withheld on the basis of attorney-client privilege? According to New York state’s highest court, the Court of Appeals, the answer is unequivocally “yes.”

In Matter of App. Advocs. v. New York State Dep’t of Corr. & Cmty. Supervision, petitioner Appellate Advocates filed a Freedom of Information Law request with respondent Department of Corrections and Community Supervision (DOCCS) for materials related to the Board of Parole’s decision-making process. DOCCS disclosed thousands of pages but withheld, on the basis of attorney-client privilege, certain documents that were prepared for internal compliance and training purposes.

The court reasoned that even where the documents at issue are DOCCS employee training materials, they nevertheless

The petitioner argued that the withheld materials were not subject to the privilege because they contained generalized advice that was not connected to any legal dispute. In other words, the petitioner argued the privilege applies “only to communications responding to an existing ‘real world factual situation.’” The Court of Appeals rejected the petitioner’s narrow view of the privilege: It made clear that the court never took the position that the privilege protects only those communications made in anticipation of or during a pending action. Why? Because the court reasoned that as a matter of policy, the attorney-client privilege should incentivize practitioners and legal advisers to take a proactive approach to compliance and avoidance of disputes: “Encouraging proactive compliance with the law has patent benefits.”

The court further clarified that the advice provided by counsel need not be in response to a direct request from the client. Rather, attorneys should help their clients navigate the legal landscape. “In so doing, counsel relies on their professional judgment, experience, skill, and knowledge of the law to assess the client’s potential needs and possible risk exposure” before their client even asks a question.

Our advice: When assessing attorney-client privilege under New York law, keep in mind that the legal advice may be unsolicited and need not have been provided in anticipation of litigation.  In the context of discovery, it would be prudent to amend your review protocols accordingly to capture such privileged information and shield it from disclosure.   

The updates reinforce the “longstanding obligation” to preserve and produce all responsive documents, including data from ephemeral messaging applications that allow messages to disappear or are designed to hide evidence. “Failure to produce such documents may result in obstruction of justice charges,” said Deputy Assistant Attorney General Manish Kumar.

While documents created through use of modern collaboration tools and ephemeral messaging applications have long been covered by FTC and DOJ document requests, “companies have not always properly retained these types of documents during government investigations and litigation.”

The updates serve to “ensure that neither opposing counsel nor their clients can feign ignorance when their clients or companies choose to conduct business through ephemeral messages.”

The agencies’ joint statement declared that this “underscores the continued cooperation between the [DOJ] Antitrust Division and FTC’s Bureau of Competition on criminal enforcement of antitrust laws and related issues that arise in antitrust actions.”

FTC Press Release

DOJ Press Release

It is crucial for litigators to carefully consider the terms of an ESI protocol when drafting and before agreeing to it. By anticipating any obstacles that may arise during the preservation and collection process due to the unique IT posture of their client, legal teams can identify areas that need to be addressed upfront. An ESI protocol should be customized to the specific client, its ESI and the solutions used because—as the case outlined below shows—there is no one-size-fits-all solution.

There are valuable insights to be gained from the case of In re StubHub Refund Litigation, 2023 WL 3092972 (N.D. Cal. Apr. 25, 2023). In StubHub, the parties agreed to produce hyperlinked documents as attachments in the ESI protocol. However, the defendant could not comply with the protocol due to storage limitations, and many of the hyperlinked documents were unrecoverable. Granting the plaintiff’s motion to compel, the court emphasized the importance of adhering to the ESI protocols generally to expedite discovery. The court also cautioned parties against making commitments they couldn’t meet and warned that sanctions could result from failing to produce requested documents.

The ESI protocol is a critical component of the discovery process and should not be underestimated. To ensure success, the protocol must be based on the actual IT infrastructure of the client. Like other court documents, the ESI protocol should also be customized according to the client’s needs. Therefore, it is essential to have a good grasp of the client’s IT system to ensure that the ESI protocol is tailored accordingly. It is also important to build some flexibility into the order. At a minimum, the parties should agree to meet and confer to alter their ESI protocol in cases where unforeseen circumstances render burdensome any obligations otherwise agreed to.

The StubHub case shows that courts tend to rely on and will enforce the parties’ agreement on discovery matters and will only step in for serious reasons. A customized discovery process, starting from implementing a hold and going through preservation and drafting of relevant court documents, can help prevent needless expenses, lower legal risks and avoid potential spoliation sanctions.

A Passion for Technology and Law

Prieto’s journey into the realm of legal technology was not a typical one. While technology had always interested her, it wasn’t until she entered the legal field that she realized its immense potential. Fresh out of law school, Prieto delved into e-discovery and was captivated by the tech-driven solutions aimed at making litigation more efficient and cost-effective. She recognized a significant gap in understanding e-discovery’s impact within the legal community and seized the opportunity to bridge it.

Prieto’s passion for connecting the legal world with technology has since become her mission. She stays at the forefront of legal tech developments, acting as a conduit between attorneys and technology experts. Her aim? To ensure everyone speaks the same language when it comes to addressing the technological needs of a case.

Prieto’s journey in legal technology is a testament to the power of authenticity and adaptability and having a passion for bridging the gap between law and technology. Her insights and experiences serve as an inspiration for aspiring legal tech professionals, especially women looking to make their mark in this dynamic field.

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On Aug. 8, the Securities and Exchange Commission (SEC) announced it had imposed $289 million in fines on 10 broker-dealers for violating recordkeeping provisions of federal securities laws. Similarly, the Commodity Futures Trading Commission (CFTC) announced on the same day that it had imposed $260 million in fines on four CFTC-registered firms for violating CFTC recordkeeping rules. Both the SEC and the CFTC charges were based on the failure to preserve electronic communications, including employees’ “off-channel” communications through personal messaging apps as opposed to company-sanctioned platforms.

The agencies’ investigations revealed that employees of these firms, including supervisors and senior-level executives, communicated regularly and extensively using unapproved communication methods, such as personal text, iMessage and Signal. Even if company policies forbade such off-channel communications, the firms were nevertheless culpable for “failing to reasonably supervise with a view to preventing and detecting those violations.” In addition to agreeing to pay the fines, the firms committed to improving their compliance mechanisms to prevent such violations in the future.

Gurbir Grewal, director of the SEC’s Division of Enforcement, emphasized the agency’s continued focus on recordkeeping rules, noting that “to drive this foundational message home” it had brought 30 enforcement actions, rendering $1.5 billion in fines. Ian McGinley, the CFTC’s director of enforcement, likewise highlighted his agency’s actions against 18 firms, rendering more than $1 billion in fines for similar violations. Grewal encouraged firms to “heed[] this message” – and advised those who have committed similar recordkeeping violations to “self-report, cooperate and remediate,” as doing so would result in “a better outcome than if you wait for us to come calling.” McGinley warned in the same vein, “[CFTC] registrants that fail to comply with these core regulatory obligations do so at their own peril.”

A Recent Growing Concern

These announcements follow similar news from December 2021, when the SEC and the CFTC imposed a combined $200 million in fines on JPMorgan Chase for the loss of off-channel messages that were sent via apps on employees’ personal devices. The Department of Justice (DOJ) showed that it too is paying close attention to the issue of off-channel communications – meaning this should be a concern to every organization, not just financial institutions subject to SEC or CFTC oversight. Deputy Attorney General Lisa Monaco issued a memorandum in September 2022 advising prosecutors that in evaluating a company’s compliance program, they should “consider whether the corporation has implemented effective policies and procedures governing the use of personal devices and third-party messaging platforms to ensure that business-related electronic data and communications are preserved.” These considerations should play a role in corporations seeking “cooperation credit in connection with an investigation.”  In March, the DOJ Criminal Division revised its “Evaluation of Corporate Compliance Programs” (ECCP) guidelines, which prosecutors use to make corporate charging decisions, to incorporate those principles from the September 2022 Monaco Memo.

Prepare to Address the Issue

As attention to this issue increases, it is critical for each organization to develop a deep understanding of employee practices, its own data management and the legal framework under which it operates. Only then can it establish effective policies and procedures that, among other things:

• Define the scope of business-related communications.
• Outline what devices and applications are permissible or prohibited, and provide guidance on their appropriate use. This may include a combination of policies directed toward acceptable use, bring your own device, corporate-owned assets, remote access, mobile device management, platform and container use, and third-party records management.
• Address the employer’s right to access data and messages on employees’ devices in the event of an investigation or litigation.
• Provide comprehensive training on a periodic basis to employees at all levels in the organization.
• Consider monitoring and enforcement programs, including disciplinary consequences for policy violations.

These sweeps by the SEC and the CFTC, when viewed in light of recent DOJ guidance concerning the primacy of text messages and chats in the criminal enforcement area, are a harbinger of things to come in the litigation arena as well. Perceptions of a right to privacy concerning off-channel business communications mirror similar misplaced beliefs concerning email from decades past. While BakerHostetler emphasizes a practical approach in each unique eDiscovery exercise, we do believe that the email-only era of electronic communications is over, and it behooves organizations to understand where their relevant business data resides, particularly when under a regulatory retention requirement or other duty to preserve.

BakerHostetler’s attorneys have extensive experience helping clients with these issues through their work on our practice teams for White Collar, Investigations, and Securities Enforcement and Litigation; E-Discovery Advocacy and Management; and Information Management. Please feel free to contact any of our experienced professionals if you have questions about this alert.

Practical Insight

Reliance on an employee’s general statement that they do not use text messages for work-related matters may not be sufficient to rule out their device as a potential source of discoverable data. Relying on an employee’s memory without an accompanying thorough discussion – informed by potentially relevant technical considerations of where data may reside and a more robust effort to locate it – is unlikely to constitute a “reasonable search” for purposes of defending a response to a request for non-objectionable discovery.

Further, employers should examine their bring-your-own-device (BYOD) policies to ensure that what is or is not company data is well defined according to their business, regulatory and litigation needs. Even where a court rules that a company does not have possession, custody or control of an employee’s text messages pursuant to its BYOD policy or other factors, those text messages still may be discoverable through a subpoena to the employee directly. 

Summary of the Case

A federal court recently ruled that a large corporate defendant cannot be compelled to produce data from the personal devices of its nonparty employees. In In re Pork Antitrust Litig., the plaintiffs alleged that the defendant company conspired to fix prices in the pork industry. The plaintiffs sought the preservation and production of data from the personal cellphones of the company’s relevant custodians. The company asserted that it did not have possession, custody or control of the employee-custodians’ personal cellphone data.

In evaluating the issue of “control,” the court noted that there is a circuit split in the interpretation of the standard. Some courts define control as the “legal right” to obtain the documents, while other courts apply the “practical ability” test. The legal-right test focuses on the entitlement or authority to obtain the documents from the owner, whereas the practical ability test focuses on the “mutuality” of the responding party’s relationship with the document owner (i.e., records that the responding party can obtain from the document owner in the normal course of business or where the document owner has an interest in the litigation and cooperated in discovery by providing documents to the responding party).

While declining to formally adopt either definition, the court found that the plaintiffs failed to demonstrate the company had control over its employees’ personally owned cellphones under either analysis because the company’s BYOD policy failed to assert ownership, control or the ability to access personal text messages. Rather, the BYOD policy defined company information as “all data that is sourced from company systems and synced between the mobile device and its servers.” 

The court also rejected the argument that the employer-employee relationship provided the company with the practical ability to demand access to the personal cellphone data. Cognizant of the power imbalance that would make employees feel the need to comply (whether based on company loyalty or job security fears), the court distinguished between permissibly asking for documents and impermissibly demanding them. The court shared the view of the Sedona Conference guidance that “organizations should not be compelled to terminate or threaten employees who refuse to turn over their devices for preservation or collection.”

With respect to the plaintiffs’ subpoena directly to the nonparty custodians, the court refused to accept the custodians’ bald assertion that they had no work-related texts where “nothing suggests the custodians did, or were asked to do, anything beyond consulting their memories.” Even where the court acknowledged that there was only “weak” evidence that responsive texts actually exist, it could not be confident that a “reasonable search” for such texts was performed –  custodians’ counsel should have fully explained to the custodians what kind of information could be relevant, thoroughly discussed with the custodians where such relevant data might be located, and done more “to test [the custodians’] memories” regarding text messaging, which is “by its very nature, short, quick, often reactive[] and therefore unlikely to be particularly memorable.” 

For e-discovery practitioners, adequate diligence and supervision of efforts to identify, preserve and collect potentially relevant information, together with knowledge of the jurisdiction’s relevant case law governing “possession, custody and control” and state law equivalents, are key.

Link to District Circuit Decision

• HSBC Securities (USA) Inc. (HSBC) and Scotia Capital (USA) Inc. (Scotia Capital) paid a combined $37.5 million in fines to settle actions with the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) for violations arising from the firms’ failure to maintain and preserve employees’ business-related communications on personal devices.
• These enforcement actions follow years of increased regulator focus on employee use of personal devices as well as recent policy revisions by the Department of Justice (DOJ) concerning employees’ use of third-party messaging apps on personal devices.
• Employers should ensure that they maintain and consistently update policies and compliance procedures regarding record retention and the use of personal devices as regulators and prosecutors continue to focus on off-channel communications.

Background

The SEC and CFTC settlements with HSBC and Scotia Capital come after years of federal regulators’ and prosecutors’ steadily increasing scrutiny of off-channel communications. Anchoring these settlements are long-standing books and records requirements of the SEC and the CFTC regulating the maintenance and preservation of documents. Specifically, Section 17(a)(1) of the Securities Exchange Act of 1934 (the Exchange Act) authorizes the SEC to issue rules requiring broker-dealers to maintain and preserve records as necessary or appropriate in the public interest. The SEC adopted Rule 17a-4 pursuant to this authority, which, among other things, requires that broker-dealers preserve all communications received and all communications sent relating to the firm’s business.[1] Similarly, the Commodity Exchange Act (the CEA) requires registrants to “keep books and records of all activities related to its business as a swap dealer.”[2] Registrants are also required to “keep full, complete, and systemic records” of all swap activities, including “[r]ecords of each transaction.”[3]

In December 2021, the SEC and the CFTC imposed a combined total of $200 million in fines on JPMorgan Chase for the loss of work-related messages that were sent via apps on employees’ personal devices. The regulators stepped up their enforcement efforts the following year, and in September 2022, the SEC and the CFTC announced settlements with 11 major financial firms for a stunning combined total of $1.81 billion in fines in connection with the firms’ failure to maintain and preserve off-channel communications. This trend continued into 2023, as there were news reports that the SEC conducted a targeted sweep focused on private equity and hedge fund firms’ use of personal devices and on whether those communications were authorized or preserved. These reports prompted 10 financial industry trade associations to issue an open letter to SEC Chairman Gary Gensler in January of this year, criticizing the commission’s actions as exceeding the scope of the recordkeeping provisions of the Investment Advisers Act of 1940.[4]

The DOJ has also turned its attention to employees’ use of personal devices and ephemeral messaging apps. In a DOJ-wide memorandum issued in September 2022, Deputy Attorney General Lisa Monaco stated that the ubiquity of personal devices and the increased use of messaging platforms, including those that offer ephemeral and encrypted messaging, pose “significant corporate compliance risks, particularly as to the ability of companies to monitor the use of such devices for misconduct and to recover relevant data from them during a subsequent investigation.” Monaco stated that when evaluating a corporation’s compliance program for purposes of a potential resolution with the department, prosecutors should consider whether there are effective policies and procedures in place to ensure business-related communications are preserved.

Further, under recent revisions to the Evaluation of Corporate Compliance Program guidelines, prosecutors will assess whether a company’s policies governing personal devices, electronic communications platforms and messaging apps are “tailored to the corporation’s risk profile and specific business needs” and whether “business-related electronic data and communications are accessible and amenable to preservation by the company.” Specifically, prosecutors will assess (1) what channels of communication are used or are authorized to be used to conduct business as well as the mechanisms the company uses to manage and preserve data within each of the channels; (2) the policies and procedures that allow companies to monitor, preserve and review business-related communications on personal devices; and (3) the risk management policies in place, including consequences for employees who refuse the company access to their business communications.

Emphasizing the DOJ’s focus on this issue and the need for employers to adopt robust compliance policies, in March of this year, Assistant Attorney General Kenneth Polite Jr. stated that “prosecutors will not simply accept a company’s inability to produce messages from third-party applications without adequate explanation.”

Recent Enforcement Actions

HSBC and Scotia Capital are the latest financial firms to pay penalties for violating the recordkeeping provisions of the Exchange Act. HSBC agreed to settle with the SEC and pay a $15 million fine, and Scotia Capital agreed to settle with the SEC and pay a $7.5 million fine. The press release regarding the settlements stated that there were “widespread and longstanding failures by both firms and their employees to maintain and preserve electronic communications,” but it noted that the penalties were reduced in consideration of the voluntary self-disclosure and remediation efforts undertaken by both firms. The CFTC separately settled with Scotia Capital and the Bank of Nova Scotia for $15 million, while its settlement with HSBC remains pending. As part of the SEC settlement, Scotia Capital and HSBC also agreed to “retain compliance consultants to, among other things, conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on personal devices and their [enforcement of such] policies and procedures.”

While both firms adopted policies that forbid the use of personal apps for business purposes, they allegedly failed to adequately implement enforcement mechanisms to ensure compliance with such policies. HSBC and Scotia Capital admitted that their employees used personal messaging apps for business purposes and failed to maintain internal controls to prevent such use. As a result, the majority of these communications were not maintained or preserved. As to Scotia Capital, the CFTC stated “some of the very same supervisory personnel responsible for ensuring compliance with the firms’ policies and procedures themselves used non-approved methods of communication to engage in business-related communications, in violation of firm policy.”

Conclusion

Federal regulators and prosecutors continue to focus on the unsanctioned use of off-channel communications, and this trend shows no signs of slowing. The use of personal devices exploded during the pandemic, and employees are still communicating on work-related matters through personal messaging apps and texts on personal devices despite company policies to the contrary. In light of the rise in the use of personal devices by employees and the increased attention from regulators and prosecutors to these communications, we can expect existing cases to gain speed and new actions to be initiated swiftly and aggressively.

Employers are well advised to adopt robust policies governing the use of personal devices and to have existing policies reviewed by outside counsel as the government continues to scrutinize off-channel communications. In addition, regulators have made clear they expect regular compliance with such policies in order for prosecutors to afford corporations cooperation credit. There is no single common approach to effective policies and procedures. Any program should meet applicable regulatory requirements, emphasize practicality, reflect the business needs of the corporation, and evidence meaningful training and enforcement. Finally, since the identification of potentially relevant chats, instant messages and texts implicates numerous technical and practical challenges, e-discovery counsel should be consulted when the need for preservation and collection arises.

BakerHostetler’s attorneys have extensive experience helping clients with these issues through their work on our practice teams for White Collar, Investigations, and Securities Enforcement and Litigation; Information Governance; and E-Discovery Advocacy and Management. Please feel free to contact any of our experienced professionals if you have questions about this alert.

[1] Exchange Act Rule 17a-4(b)(4), 17 C.F.R. § 240.17a-4(b)(4).

[2] CEA Section 4s(f)(1)(C), 7 U.S.C. 6s(f)(1)(C).

[3] Regulation 23.201(a).

[4] See Advisers Act Rule 204-2(a)(7), 17 CFR § 275.204-2, and Advisers Act Rule 206(4)-7, 17 CFR § 275.206(4)-7. Rule 204-2(a)(7) requires registered investment advisers (RIAs) to maintain records of certain types of written communications, and Rule 206(4)-7 requires RIAs to adopt and implement written policies and procedures reasonably designed to prevent violation of the Advisers Act.

Practical Insight

This decision illustrates three trends in e-discovery: (1) employees are increasingly using chat platforms and other means of instant messaging to engage in substantive conversations about work; (2) courts are increasingly penalizing litigants for not actively supervising compliance with litigation holds; and (3) the failure to address more challenging sources of potentially relevant information at the initial preservation stage — such as with text and instant messages — comes with increasing risk to litigants in terms of reputational harm and significant discovery-related sanctions.

Summary of the Case

On March 28, a federal court sanctioned Google for failing to suspend a 24-hour automatic deletion of internal company instant chat messages and to adequately supervise the preservation efforts of its relevant employees, who had the ability to change the preservation settings on their instant chat messages. While the Northern District of California declined to impose terminating sanctions, it ordered Google to cover the plaintiffs’ legal costs in pursuing the Rule 37 sanctions motion and reserved the possibility of imposing nonmonetary sanctions at a later date. The plaintiffs in this action — the attorneys general of 37 states and Washington, D.C., two tech companies, and individuals — allege that Google’s Play Store charges commissions so high that it violates antitrust laws. In failing to preserve relevant chat messages after the commencement of litigation, the court opined that Google “fell strikingly short … in honor[ing] the evidence preservation duties it was abundantly familiar with from countless prior cases.” Specifically, the court took issue with the following:

• Despite assuring the court in a case management statement that it had “taken appropriate steps to preserve all evidence relevant to the issues,” the defendant failed to “say[] a word about [c]hats or its decision not to pause the 24-hour default deletion” until “many months after plaintiffs first asked about them.”
• The defendant initially claimed that it did not have the “ability to change default settings for individual custodians with respect to the chat history setting,” but evidence disclosed at the hearing “plainly established that this representation was not truthful.”
• The defendant claimed that chat was used primarily for nonbusiness, casual conversations, but evidence revealed the company does in fact use it to discuss “substantive business.”

• The defendant failed to adequately advise on and supervise the preservation efforts of its relevant employees. Employees who received a litigation hold “were unable or unwilling to follow the [c]hat preservation instructions, and sometimes disregarded the instructions altogether.” In addition, employees were left “largely on their own to determine what [c]hat communications might be relevant to the many critical legal and factual issues in this complex antitrust litigation.”

While the court declined to terminate the case on the basis of lost chat communications, it acknowledged the “plaintiffs’ dilemma of trying to prove the contents of what Google has deleted.” Thus, the court left open the possibility of further nonmonetary sanctions at the conclusion of fact discovery, when the plaintiffs will be in a better position to assess “what might have been lost.”

Please contact Edward J. Jacobs with questions about if and when various forms of instant messages are discoverable and should be preserved when litigation arises.

Link to Decision

This case is a cautionary tale for the attorney who may know to say all of the right things when it comes to modern discovery practice but, in fact, lacks the expertise and competence to oversee a defensible discovery effort. This counsel instead subjected the court to a self-described “inner circle of judicial hell” in dealing with discovery ineptitude. As complex discovery has become a specialized field, courts have also grown more sophisticated in their understanding of the hallmarks of competent e-discovery counsel versus those who are merely winging it. Discovery practitioners should have a thorough understanding of their clients’ information systems in order to properly defend or prosecute their cases; otherwise they risk severe consequences.

Case Summary

In a trademark case involving e-cigarettes branded under similar marks, the defendants and their counsel were sanctioned more than $2.5 million for discovery violations that stemmed from the counsel’s lack of competency in e-discovery:

• Although the defense counsel advised the defendants to preserve all potentially relevant emails from email accounts, the counsel failed to issue a formal litigation hold, inquire thoroughly about all possible data sources or instruct their client to disable automated deletion features, which “any competent counsel should have done.”
• The counsel mistakenly assumed that all relevant emails could be collected from the defendants’ servers, when in reality, the defendants used web-based emails and messages stored online.
• The counsel failed to appreciate the difference between email and chat applications, which resulted in the spoliation of relevant chat data.
• The counsel allowed their clients to self-collect emails and communications relevant to the litigation without monitoring or supervising the searches. Attorneys must recognize “it is not sufficient to notify all employees of a legal hold and expect that the party will then retain and produce all relevant information.”

After it became apparent the defendants neglected to produce certain relevant communications, the defendants reengaged an electronically stored information (ESI) vendor, which found more than 15,000 relevant documents that were never collected or produced. Additionally, the ESI vendor was unable to recover other potentially relevant emails and chats that had been automatically deleted. The court chastised the defense counsel for their lack of the basic knowledge, training and skills to properly handle ESI, stating: “Counsel must be competent in their knowledge and ability to identify, preserve, collect, review, and produce ESI. Competence pervades every aspect of the ESI discovery process . . .  . It is no longer amateur hour. 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.”

The court also dismissed the counsel’s attempt to shift blame to the ESI vendor. It is a lawyer’s responsibility to have “a reasonable understanding of the[ir] client’s information systems,” and such “understanding of the client’s information systems allows counsel to create a systematic process and plan for responding to discovery requests. The absence of a process and a plan is strong evidence that counsel did not conduct a reasonable inquiry.” The court granted the plaintiff’s motion for sanctions under Federal Rules 26(g) and 37, which included monetary sanctions and requiring the defense counsel to attend “at least eight hours of continuing legal education (CLE) on ESI.”

The court noted in its subsequent ruling – voicing its frustration with the painstaking saga – that it went through the “inner circle of judicial hell” to assess the appropriate amount of attorneys’ fees to award in sanctions. After an exhaustive review and analysis of the additional costs incurred due to the defense side’s errors, the court ultimately found that approximately $2.5 million in sanctions was warranted –half to be paid by the defendants and the other half by the defendants’ two counsel. It justified the large sum based, in part, on the fact that while the defendants “knew what went wrong . . . the jaws of life were needed to extract these facts from them,” forcing the plaintiff to spend many hours to piece together and “understand the shambolic discovery mess created by defendants.”

DR Distribs., LLC v. 21 Century Smoking, Inc., 513 F. Supp. 3d 839 (N.D. Ill. 2021).

DR Distribs., LLC v. 21 Century Smoking, Inc., No. 12 CV 50324 (N.D. Ill. Oct. 6, 2022).

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