Court Imposes Sanctions on Plaintiff and Counsel, Orders Plaintiff to Provide Access to Database and for Attorney and his Law Firm to Pay Defendant’s Costs, Fees, and Expenses

Bray & Gillespie Mgmt. LLC v. Lexington Ins. Co., 2009 WL 546429 (M.D. Fla. Mar. 4, 2009)

This case arises from an insurance dispute following damage to Bray & Gillespie’s (“B&G”) resort properties from Hurricanes Charley, Frances, and Jeanne.  B&G was represented by Anderson, Kill & Olick, P.C. (“AKO”) in connection with the submission of insurance claims for the damage.  B&G, with the assistance of AKO, gathered documents, including electronically stored information (“ESI”) to support those claims.  Relevant ESI was downloaded in its native format, scanned, and loaded to a hard drive (“Target Hard Drive”).  The ESI was then converted to TIFF images using a program called Extractiva, which also captured the metadata from the ESI.  Those images and metadata were then uploaded into the Introspect database and the Target Hard Drive was put in storage.  AKO provided copies of the information to Lexington, in paper form and on discs, in support of B&G’s insurance claims.  Coverage could not be agreed upon, and on February 13, 2007, B&G filed suit.

B&G’s representation history throughout the course of litigation was extensive. AKO was eventually discharged from the case following attorney John Ellison’s decision to leave AKO and join another law firm, Reed Smith.  Ellison and attorney John Berringer (also of Reed Smith) were both instrumental in B&G’s discovery process although, as is reflected in the opinion, there were many other attorneys involved at various times and for various reasons who also played a part in the court’s findings regarding discovery.

In August and September, 2007, Lexington served requests for production on B&G, specifically requesting production of ESI in native format with metadata intact.  B&G did not object to the request for production in native format.  However, following Lexington’s first motion to compel, B&G made an initial production of ESI but produced the documents as TIFF images with no metadata.

On April 11, 2008, following a second motion to compel, the court ordered B&G to produce its responsive information by April 30th.  On April 30th, B&G produced seven discs of relevant ESI in TIFF format with no metadata.

On May 19, 2008, Lexington formally objected to the form of B&G’s production and negotiations between counsel ensued in an attempt to resolve the issue out of court.  During the course of those negotiations, Berringer, despite having several resources to learn the truth, “concocted a story about the process that B&G and AKO used to gather the discoverable documents.”  Berringer asserted that the documents were printed by B&G and sent to AKO to be scanned and converted to TIFF images for production.  This mischaracterization led to Lexington’s misunderstanding that no metadata would be present in the Introspect database and its subsequent denial of an offer to access that database for inspection.

On May 27, 2008, Lexington filed its motion for sanctions arguing that B&G had violated Rule 34 and seeking an order compelling production in native format and sanctions.  Ellison’s response on behalf of B&G argued that Lexington had delayed too long to object, that the documents had been produced as maintained in the usual course of business, and that native production would be unduly expensive, among other things.

Days before a hearing on the motion, Reed Smith attorneys disclosed for the first time that documents had not been printed and scanned but rather “collected and then converted into TIFF images using a program that was set to selectively exclude certain types of metadata.”  They did not disclose, however, what metadata the Introspect database actually contained or the existence of the Target Hard Drive in their possession.

At hearing, Lexington presented expert testimony regarding the varied problems with the TIFF images, including the inability to search them, and testimony that B&G’s collection with Extractiva would have resulted in B&G’s possession of the ESI’s metadata.  On behalf of B&G, Berringer revealed for the first time that the collected ESI had been copied to the Target Hard Drive and stored, and that the metadata for the previously produced TIFF images existed.  Ellison and Berringer both attempted to blame their failures to learn and disclose the correct information on AKO’s alleged lack of cooperation.  Evidence revealed, however, that AKO provided unrestricted remote access to the Introspect database throughout the course of litigation.  At the conclusion of the hearing, the court ordered B&G to produce the ESI and metadata in their control either using the Extractiva program or by producing the ESI in its native format.

Working with outside vendors and an AKO computer analyst, B&G provided Lexington with a hard drive containing metadata from the extant Extractiva files.  The information, however, was not complete, not in the original format, and not as it was maintained in the usual course of business.

Given another opportunity to address why sanctions should not be imposed against them, Reed Smith and Ellison again attempted to blame AKO for the discovery problems, to no avail.  Berringer, despite attempts to explain himself, conceded that he had incorrectly advised Lexington that documents were printed and then scanned and that he did not disclose the existence of the Target Hard Drive during negotiations with defense counsel.  Berringer also testified, untruthfully, that a reason why Reed Smith had not simply produced the metadata in the Introspect database when it produced the TIFF images was because it would have required another privilege review (in fact, the documents in the Introspect database had been reviewed for privilege and the privileged information had been segregated).

Completing its recitation of the numerous facts, the court opined that “[t]he problems with the information on the B&G Hard Drive could also easily have been resolved at the outset by producing the complete metadata load files from the Introspect database for the TIFF images” that were produced on disc.

Turning to its analysis, the court noted that Rule 34 “permits a party requesting production of documents to specify the form or forms in which the electronically stored information is to be produced” but that a responding party may object to the form of production and state the form it intends to use.  Because Lexington specified the form of production in its request and because B&G failed to timely object, the court held that B&G had violated Rule 34.  The court also held that B&G had violated its April 11, 2008 order by failing to produce the ESI in the specified form.

Having determined that B&G violated its discovery obligations, the court then considered sanctions. First, the court discussed its authority to impose sanctions arising from Rule 37 as well as the inherent authority of the court.  The court noted that its inherent authority included the ability to sanction non-parties for bad faith conduct (upon a finding of bad faith) and indicated its approval for precedent requiring that to be sanctioned, the non-parties must “1) have a substantial interest in the outcome of the litigation and 2) substantially participate in the proceeding in which he interfered.”  (Citation omitted.)

The court next addressed the arguments of B&G and its counsel that they had been “substantially justified” in their actions, noting that “[t]he Supreme Court has clarified that an individual’s discovery conduct should be found ‘substantially justified’…if it is a response to a ‘genuine dispute, or if reasonable people could differ as to the appropriateness of the contested action.’”  Arguments for why their behavior was substantially justified included that they misunderstood an agreement amongst counsel, that Lexington had delayed too long to object, and that they had produced documents as they were maintained in the usual course of business or in a reasonably usable form.  The court quickly and soundly rejected those arguments, as well as B&G’s reliance on three “out-of-circuit” cases with insufficiently analogous facts.

Accordingly, the court ordered sanctions against B&G and its counsel.  B&G was ordered to provide Lexington with a copy of its Introspect database, except for privileged information, and was ordered to bear all costs related to the production, including the purchase of any necessary software for Lexington’s use and the hiring of any professionals to copy the database.  Lexington was allowed to choose the form of production, i.e., a copy of the database, remote access, etc.  To ensure B&G’s full compliance, B&G was ordered to allow a Lexington-designated expert to access the database to ensure that everything contained therein was produced.

As an “attorney advising” B&G regarding discovery, the court found Ellison personally liable for Rule 37 sanctions.  In so holding, the court specifically rejected Ellison’s argument that he was relieved of liability because local counsel was in charge of production.  Accordingly, Ellison was ordered to pay the reasonable attorneys fees, costs and expenses incurred by Lexington, including expert witness fees and the fees of the Court’s court reporter at the December 8, 2008 hearing.

Finding that “Reed Smith, through its partners and associate attorneys, was also responsible for the discovery misconduct,” the court held the firm “jointly and severally liable” with Ellison to pay Lexington’s reasonable fees, costs and expenses.

The court also issued an order to show cause why John Berringer, Esq., should not also be personally sanctioned for his conduct in this case.

ADDENDUM: On November 16, 2009 District Court Judge Mary Scriven ordered that the portions of the order finding bad faith against Mr. Ellison, Mr. Berringer, and Reed Smith LLP be quashed.