In Episode 152, Kelly Twigger discusses how counsel’s failures in handling hard copy documents and supervising discovery efforts led to sanctions and what counsel needed to do differently in Domus BWW Funding, LLC v. Arch Ins. Co. (August 12, 2024).
Introduction
Welcome to this week’s episode of our Case of the Week series brought to you by eDiscovery Assistant in partnership with ACEDS. My name is Kelly Twigger. I am the CEO and founder at eDiscovery Assistant, your GPS for ediscovery knowledge and education, and the Principal at ESI Attorneys. Thanks so much for joining me today.
Each week on the Case of the Week, I choose a recent decision in ediscovery and talk to you about the practical implications of that judge’s decision. This week’s decision highlights the importance of early preservation and collection and how the failure to supervise both can lead to sanctions. It’s also another example, just in case you needed one, that you don’t tell untruths to a judge.
A couple of announcements first. I’ll join my good friends Doug Austin of eDiscovery Today and Brett Burney at Nextpoint Law Group for a webinar on hyperlinked files on August 27th sponsored by Nextpoint. It should be a lot of fun and a great conversation on where things are with the case law and technology, so please join us. The link to register is here.
Second, our whole team from eDiscovery Assistant will be at Relativity Fest in September, where I’ll be speaking on the case law panel as well as addressing the Relativity scholars and mentors. Please join us if you plan to be at Fest. Reach out here to schedule time to meet.
All right, let’s dive into the case.
Background
This week’s decision comes to us from Domus BWW Funding, LLC v. Arch Ins. Co. It’s a decision from August 12th, so very recent, from United States District Judge Joshua Wolson. District Judge Wolson has 13 decisions in our eDiscovery Assistant database, and as always, we tag each of our decisions with our eDiscovery proprietary issue tagging structure. This week’s issues include cooperation of counsel, spoliation, sanctions, failure to preserve, and failure to produce.
We are before the Court here on a motion for sanctions, and this decision is a doozey and one that you’re going to want to read and send your clients as a roadmap of what not to do. It’s not specifically intentional conduct; it’s a lack of attention to what needs to happen in the discovery process that can happen to any in-house counsel who has an incredible workload. So, send this case to them, make sure they know and understand what’s happening, calendar follow-ups, etc.
The Court begins the decision with this quote:
No less an authority than Daniel Webster observed that to be a great lawyer, one ‘must first consent to be only a great drudge.’ No part of legal practice better illustrates this maxim than discovery, which is, from start to finish, drudgery. As the data available to search multiplies, so does the drudgery required. Yet discovery rules promote efficiency, transparency, and the administration of justice, three interests I don’t take lightly, and I expect the lawyers before me to honor. So, while lawyers may not enjoy it, they have to take their discovery obligations seriously.
That’s the quote that sets up this decision, and I think you know where we’re going from here.
Facts
Domus seeks insurance coverage from Arch for defense costs from an underlying civil matter. There are a number of facts in chronological order — because you know how I love my timelines — that are the basis for the motion for sanctions that is the genesis of this Court’s decision.
Let’s review those.
Domus notified Arch of its claim for coverage in July of 2018. Lynne Miller was Arch’s claims adjuster, and Greg McGowan was the policy underwriter. Pay attention to those names. Arch denied coverage in December 2019 and several times again on appeal in 2020 and 2021. Domus filed this litigation in September 2022. Arch issued a litigation hold in October 2022, more than four years after it first learned of the claim, although that is not really discussed in this decision. In response to the hold, Lynne Miller advised Dan Layden, in-house counsel, where she had responsive electronic documents and that she had hard copy materials, including her handwritten notes about the claim. So we’ve got both ESI issues and hard copy issues. McGowan also advised that he had electronic files. He left the company in late 2022, a couple of months after the notice issued.
Fast forward to April 2023, where we’ve got both hard copy issues and ESI issues. The parties then agreed on search terms for searching ESI. Arch delegated the process of using the search terms to identify responsive ESI to a paralegal in-house, but the search “fell through the cracks”, and in-house counsel did not follow-up with the paralegal. Arch then produced approximately 100 documents to Domus by June 30, 2023, all of which came from the claims file. The Court noted that as that date approached, in-house counsel knew that Arch had not provided ESI to its law firm, but didn’t tell its counsel.
Now pause here for just a moment to ask, why didn’t outside counsel ask in-house counsel about getting the ESI search responsive to the search terms? There’s really no answer to that question in the decision, but it’s one we’ll talk about later.
In late June, in-house counsel followed up with the paralegal about the search but did not get a response. During the sanctions hearing on this motion, Layden (in-house counsel) told District Judge Wolson that he didn’t do a lot of follow-up because it’s often the case that there is no ESI outside of the claims file, so he assumed there was nothing.
Big mistake. Huge.
Sometime that same summer of 2023, Arch undertook a data migration — and I can practically hear your collective groans because you know what that means. During the migration, someone incorrectly tagged Mr. McGowan’s emails that had been preserved following his departure and those emails were deleted. Because Arch didn’t learn about the deletion until many months later, any backup tapes that may have included the emails were also overwritten.
In September 2023, Layden learned that Arch had not run the search terms or gathered any kind of ESI review set. Despite knowing that, he did not inform counsel. Arch finally provided ESI to counsel on October 2, 2023. After processing, the data set contained more than 12,000 documents. Remember, Arch already produced 100 documents. Arch’s counsel didn’t tell Domus because it didn’t think the documents would impact the deposition of Arch’s claims adjuster, Lynne Miller. Now, sit with that for just a moment. The actual electronic information from the claims adjuster and underwriter wouldn’t affect the claims adjuster’s deposition. Interesting. Note that there’s not even a comment here about the hard copy documents with her handwritten notes that Miller specifically told Layden she had.
On November 14th, 2023, now seven months after the parties agreed to search terms, Layden finally told Domus that Arch had not yet produced ESI. It finally produced 300 documents, and, in an attempt to cure the prejudice to Domus, agreed to make Miller available again for deposition and to allow Domus to supplement its expert reports.
Let’s turn now to hard copy documents. When Miller moved to remote working in July of 2021, two years before the discovery issues, she moved hard copies from her office to a filing cabinet at Arch. It turned out the filing cabinet was in the hallway behind where her cubicle used to be. Arch searched for the hard copy documents in and around her office, but apparently never actually asked Miller because it didn’t find them and then told the Court they did not exist, stating that Miller was wrong and the documents never existed in the first place.
At the sanctions hearing, the District Judge required a declaration from Arch about the search for the hard copy documents — and surprise, surprise, surprise — Arch found eight file folders in the file cabinets in the hallway behind Miller’s former cubicle. Arch then produced 400 pages, including drafts of coverage letters and Miller’s handwritten notes that it had told the Court did not exist.
Analysis
How does the Court feel about all of those facts?
The Court’s analysis is very straightforward in assessing the availability of sanctions under Rule 37. The Court looked first at the ESI search at Arch and found that the delayed search “demonstrated counsel’s disdain” for its discovery obligations. The Court pointed to Arch’s conduct concealing the lack of a search for ESI and identified Arch’s behavior and that of in-house counsel as “problematic”, finding that it “strains credulity to think that, in this day and age and in a case involving corporate parties, anyone could blithely expect ESI searches not to yield valuable information in discovery. I, therefore, find Mr. Layden’s explanation to be somewhere between dismissive and disingenuous.”
The Court chastised Layden for not being more involved in the collection of ESI and found that Arch’s conduct led to a substantial delay, which in turn also led to the loss of McGowan’s emails that were deleted following the migration.
As to the delay, the Court found that, while there was no violation of a court order, it was still a violation of the party’s obligations to provide discovery. The Court declined to award monetary sanctions on the motion. The Court did, however, state that Domus’s decision to “press forward on its own” made a request for relief inequitable and that the Court would have managed the situation differently. We’ll talk about that in takeaways.
As to the destruction of McGowan’s emails, the Court focused on the timing and the fact that Arch lost the emails after its lack of diligence failed to collect them when they should have in June of 2023. The Court also rejected Arch’s argument that it located all of Mr. McGowan’s relevant emails by searching other custodians at Arch with whom Mr. McGowan communicated. The Court stated, and this is an important quote:
But it’s equally plausible that Mr. McGowan sent and received emails to and from Arch employees whose copies were also destroyed [via the migration], or that he corresponded with individuals not within the scope of Arch’s search. Given Arch’s quickness in this case to insist information doesn’t exist, only to be proven wrong later, I won’t take counsel at their word now. To the contrary, the problem with lost ESI (or other lost documents) is that it’s impossible to know what has been lost. There’s a reason that Arch was preserving McGowan’s ESI after he left the company so that Arch could review and produce the relevant materials. It’s likely that some of that would have been duplicative of material that Arch has gathered from other custodians, but Arch can’t say with certainty that all of it would have been duplicative.
The Court did not find intent to deprive for sanctions under Rule 37(e)(2), as the destruction “appears to have been the result of operator error during a standard procedure for system migration, so this factor weighs in Arch’s favor.” The Court did, however, find prejudice and that sanctions were appropriate under Rule 37(e)(1). As such, the Court ordered that Domus be permitted to introduce evidence of Arch’s failure to preserve McGowan’s emails and stated that he would craft an appropriate instruction at trial. As to the hard copy documents, the Court found that “the failure to provide Ms. Miller’s hard copy documents appears to be the result of incompetence rather than malice, and it has now located and produced those documents.”
As such, in fairness to Domus, the Court permitted Domus to reopen discovery and required Arch to pay for reasonable additional discovery. In issuing sanctions, the Court also stated that “Arch’s approach to discovery in this case is cavalier, at best. It ignored its obligations, and it turned indignant when confronted with its failures. I find its approach troubling, and it falls well below what I expect from the lawyers who appear before me.”
Takeaways
Go to the court. Get the court’s intervention when you know something’s not going the way that it should. Surely, counsel for Domus recognized that they were not receiving any electronic information. There’s nothing about that in the decision of this case. And on Case of the Week, we stay within the four corners of that decision. But I’m sure they knew, and that’s what ultimately resulted in the motion for sanctions here.
Next takeaway. As outside counsel, it is your obligation to ensure that your client is complying with discovery obligations. You are signing the requests for production, ensuring that you have conducted a reasonable search under Rule 26(g). That doesn’t come up in this decision, but it could have. Counsel did not do their job here. Maybe they did it behind the scenes that we don’t know about and that’s why the Court focused on in-house counsel’s actions as opposed to outside counsel. But the takeaway here is that it is your job as outside counsel to ensure you’ve met your obligations before signing the discovery responses.
Next takeaway. Unsupervised self-collection is a no-no. Stop doing it. The Court cites here to one of my all-time favorite decisions from Magistrate Judge Matthewman in the M1 5100 case on self-collection. That was Episode 1 on our Case of the Week. I don’t necessarily think, even though the Court mentions it here, that having the paralegal do the ESI searches was unsupervised self-collection. I think that there just wasn’t follow-up from in-house counsel, and that’s what the Court is referencing.
Next, I think that Arch got very, very lucky here. While the circumstances do not establish intent on their face, we’ve seen a lot of case law since 2023 that has found that a cumulative set of circumstances can be sufficient to find intent. Arch’s failures and then the story to cover them up here were something like a Netflix movie script. The difference is that ultimately Arch did produce ESI and the hard copy files, although McGowan’s emails were lost. In the sense that the punishment must fit the crime, the Court’s sanctions here are well placed in requiring Arch to pay for the reopening of discovery and the jury instruction.
Yet again, we’re left with the same theme that we cover over and over again here on Case of the Week. Doing the work up front protects you from unnecessary expense down the line. Telling the jury about Arch’s discovery failures here will absolutely impact the jury’s decision. To the point that former Magistrate Judge Andrew Peck has raised with me, though, multiple times, it’s unlikely that the case will ever go to trial given that such a small percentage of cases do. So whether that sanction will have an impact is unknown. It may, however, encourage settlement.
Another thought from Magistrate Judge Peck that came up in our discussions at the Master’s Conference in New York was whether the court can, in fact, go outside the sanctions that are noted in the rule. Covering of costs from reopening discovery is not a sanction that is stated under Rule 37(e)(1), although the Rule does state that the court “may order measures no greater than necessary to cure the prejudice.” The punishment certainly does seem to fit the crime here, so perhaps that is the intent in that section with no specific articulated sanctions like section (e)(2).
Conclusion
That’s our Case of the Week for this week. Thanks for joining me. We’ll be back again next week with another decision from our eDiscovery Assistant database. As always, if you have suggestions for a case to be covered on the Case of the Week, drop me a line. If you’d like to receive the Case of the Week delivered directly to your inbox via our weekly newsletter, you can sign up on our blog. If you’re interested in doing a free trial of our case law and resource database, you can sign up to get started.
Have a great week!
