#CaseoftheWeek Episode 84: Court Awards $2.4 million in Sanctions Against Client and Counsel

We’ve taken a break from the Twitter and Elon Musk drama to focus on another ongoing saga involving DR Distributors.

Last year, we covered a previous decision during a two part series featuring Briordy Meyers formerly of Boehringer Ingelheim (now Discovery Counsel at Google) and Doug Austin of eDiscovery Today.

In this episode of Case of the Week, we’ll review the Court’s award of fees and costs following the entry of sanctions against Counsel and the client from January 19, 2021. 

Keep reading or watch the video to understand the eDiscovery issues.

Introduction

Good morning and welcome to Episode 84 of our Case of the Week series published in partnership with ACEDS. My name is Kelly Twigger, I am the CEO and founder of eDiscovery Assistant, and the principal at ESI Attorneys. Thanks so much for joining me this morning.

This week’s decision comes to us, again, from United States District Judge Iain Johnston in the DR Distributors case. You’ll remember this one as it made quite a bit of a splash when the judge issued his sanctions order on January 19th, 2021. We covered that decision in episodes 12 and 13 on Case of the Week. That decision was an extremely long, 256-page decision laying out every basis for sanctions and basically slapping the defendants and their lawyers with multiple sanctions for the results of discovery violations that were deemed to be critical.

Episodes 12 and 13: Previous Decision

Facts

In this latest case, which is a decision from October 6th, 2022, the judge awarded costs and fees as sanctions following on that January 19th, 2021 order. As always, in eDiscovery Assistant, we’re adding issues to the case from our proprietary issue tagging structure, and the issues for this week’s decision include redaction, in-camera review, sanctions, attorney work product, cost recovery, and failure to produce.

Many of those issues are embedded in the analysis that the Court does on the individual fees that are sought by the plaintiffs and not such that will cover today, as we’re going to do more of an expedited review of the case.

Now, as I mentioned, we’re before the Court on a fee petition following the entry of sanctions against the defendants and two of their former counsel for multiple discovery violations. The basis for fees included that the plaintiff incurred fees to litigate its motion for sanctions, as well as work that was done on summary judgment motions that were derailed as a result of the defendant’s discovery failures.

Now, the Court starts off this case with one of his very quotable quotes. The Judge says, “If Dante were a judge, he would have placed fee litigation as an inner circle of judicial hell.” I couldn’t agree more, to be honest, as an English major. In this case, the plaintiff sought fees totaling $3,991,000 — a number that included fees actually paid to the plaintiff of $2.417 million, as well as the recovery of discounts, credits, and travel time that plaintiff was never charged by counsel in the amount of $300,000 and an increase of $1.261 million for “rare and exceptional circumstances as illuminated by the scope of the sanction’s parties misconduct.”

In essence, we’ve got an actual fee application for $2.4 million that was billed to the plaintiff and paid by the plaintiff, and an additional $1.5 million sought by plaintiff’s counsel for rare circumstances, as well as discounts that were given to its client. In support of that fee petition, the Court reviewed affidavits from counsel, billing summaries, and billing statements, as well as information from the ediscovery expert.

And one of the things that came up in the facts of this case is that the new counsel that took over for DR Distributors (as you may recall, in the sanctions motion, the former counsel were sanctioned repeatedly and withdrew from representation of DR Distributors) had trouble coming up with what the billing was from the eDiscovery expert. We’ll talk about that in the takeaways. But what it really comes down to here is you’ve got to document, document, document and organize your files, especially when it comes to these later stages of litigation and your ability to be able to recover fees.

The responses from the defendants here on this fee petition did not challenge the hourly rates that plaintiff’s counsel charged, but they did object to the reasonableness of the number of hours billed, as well as any recovery that was not billed to the plaintiff. In essence, they’re arguing, “Of the $2.4 million that was billed, there are certain places where we feel like there were more hours charged than should be.” And secondly, “You shouldn’t allow them to recover anything that was not billed to their client.”

Analysis

So what’s the Court’s analysis here? The Court looks to the lodestar method to determine reasonable rates, which is consistent in these types of situations. The lodestar rate multiplies the number of hours that are reasonably expended by a reasonable hourly rate. And there is a presumption that that lodestar figure is inherently reasonable.

The Court notes that a client’s payment of an attorney’s bill for fees is evidence that the hourly rate, level of detail in the billing statements, and the number of hours incurred is presumptively reasonable. And the Court found here that the hours billed and paid for were presumptively reasonable, which includes the $2.4 million figure actually billed and paid. Essentially, we’ve got a situation where the money that was paid by the plaintiffs to its counsel is presumptively reasonable, unless there are reasons to discount that number.

The Court goes into detail about the efforts that plaintiffs had to take as a result of the failure to produce ESI by the defendants in a timely fashion, including specific instances in which the Court notes, “like producing documents the night before summary judgment motions were due.” The Court goes on to do a factual analysis of how the plaintiffs were actually forced to do additional work as a result of the myriad of “a stunning number of revelations of discovery that defendants timely failed to produce.”

What the Court does not permit is any recovery of discounts that the plaintiff’s counsel gave to its client, any travel time that was never billed, or any multiplier to compensate them for the “rare and exceptional circumstances of this case.” The Court essentially allows the recovery of that 2.4 million with a few dings here and there for hours that seem to be outside the norm, but does not allow any of the exceptional items that plaintiff’s counsel sought.

Essentially, the Court didn’t allow plaintiff’s counsel to prop up its claim for attorneys’ fees by the egregious nature of what happened here. The Court basically said: you bill for the egregious nature of what you had to do in response to defendant’s failures to produce ESI. And as such, we’re going to allow you to recover those fees, but nothing else.

Takeaways

What are our takeaways here? Well, I mentioned it already. The first one is document, document, document. You need to have well documented the work that’s done and the fees that were paid in order to be able to recover on a petition like this. And that includes, as the Court notes here, making sure that the descriptions in your time entries accurately reflect the work done.

This is not the first time we’ve seen a fee petition for discovery violations as a sanction. And it’s essentially following up on what we’ve seen in previous case law on the #CaseoftheWeek, and that is that you’ve got to have detailed time descriptions that are broken up to reflect the actual time spent on motions for which the court deems fees are recoverable. So be cautious about that. Make sure you’re advising your team that as they’re incurring this work, you’re looking at a sanctions motion down the line. And you want to make sure that your time entries are going to adequately reflect what you want to have recovered on your fee petition.

As the Court notes here, there’s not going to be any ability to recover work that is not billed to the client. Now, obviously, that’s different in a situation where you’re working on a contingency fee basis. And in that instance, you’ve got to make sure that the effort that you’re seeking to recover is reasonable, as well as the hourly rates that you’re seeking to recover.

Now, the last take away from this decision is that the Court really had no sympathy for the defendants arguing against the number of hours that were billed because of the repeated discovery violations. Essentially, the defendants had so burned the bridge with the Court regarding the extra work that both its staff and the plaintiffs had to do in response to the defendant’s repeated discovery violations, that it was not going to give them any leeway on this fee petition. The Court even noted about how much time his court staff had to spend on the discovery disputes, including a five-day evidentiary hearing that was very well-documented and detailed in the Court’s January 19th, 2021 ruling.

So you’ve got to make sure—in support of a fee petition—that you’re documenting everything you can. And when you’re responding to a fee petition, you’ve got to have specific basis for being able to argue that certain fees would not be recoverable. Your choices are to argue about the number of hours, the hourly rates that are being assigned, and whether or not those hours are reasonable. But again, if they’ve been billed to a client and paid — under this Court’s analysis — those fees are going to be presumptively reasonable.

The point of this case, and of me bringing this to you on #CaseoftheWeek is to understand that in this situation, the Court levied $2.4 million of fees as just one sanction for discovery violations. And those fees are to be split 50-50 between counsel and the client here. That is a very hefty amount of fees to be levied against a lawyer. This is not a joke. You’ve got to meet these discovery obligations. You’ve got to understand what you should be doing.

If you go back to our analysis in the #CaseoftheWeek series from the January 19th, 2021 ruling, you’ll see that essentially what happened here is that the lawyers did not know enough to conduct a proper custodial interview of their client. They didn’t uncover sources of information that they should have known and understood would be a pertinent to discovery. And, as a result, data was lost. Other data was not produced in a timely fashion. Essentially, counsel didn’t do their job. That’s what resulted in these sanctions.

Take this as something you can discuss with your teams. Help them understand the importance of knowing and digging into what are all the sources of ESI for a case, understand your preservation obligations and scope, and get information delivered in a timely fashion. As we’ve also discussed on #CaseoftheWeek, transparency with the other side is a key to keeping yourself out of sanctionable territory.

If you are telling the other side that you continue to have problems and you’re continuing to gather information, that is a basis to go before the Court and seek extension of deadlines. But failure to do so, and causing both the other side as well as the Court to incur in tremendous time and expense to deal with discovery disputes is not going to ingrain you into the good graces of the Court.

Conclusion

All right. That’s our #CaseoftheWeek for this week. Thank you so much for joining me. We’ll be back again next week with another episode and another decision from our eDiscovery Assistant case law database.

If you’re interested in doing a free trial of our case law and resource database, sign up for a free trial to get started, or reach out to us at support@eDiscoveryAssistant.com. Thanks so much, have a great rest of the week and I’ll see you next week.

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