Guest Article: Not Complying With A Compelled Discovery Motion is a $25 Million Fail

December 17, 2009

Authored By: Jignesh Shah

Citation: Bray & Gillespie Management LLC v. Lexington insurance Co., 2009 WL 2407754 (M.D. Fl. 2009)

Employee/Employer Implicated: Outside Counsel, Senior Management, In-House Legal Assistant

e-Lesson Learned: Failing to search for and timely produce documents in the format requested during discovery could cost you more than $25 million dollars.

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Don’t take your discovery obligations lightly! When your adversary requests documents from you during discovery, it becomes your obligation to undertake a thorough search of your files (electronic or otherwise) to locate those documents and produce them in a timely manner and in the format requested by your adversary. Failing to do so could cost you more than $25 Million dollars, as it did to the plaintiff in B & G Management v. Lexington Insurance. Can you afford that?

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In B & G Management, B&G sued Lexington for business interruption losses, among other things, supposedly attributable to Hurricane Jeanne at the Treasure Island Resort (Resort), one of B&G’s properties. According to B&G, the losses for this claim amounted to $25 Million dollars.

To prove that the Resort was non-operational before Jeanne and therefore no operation losses could be attributed to the hurricane, on August 17, 2007, Lexington requested B&G to produce every document, including electronically stored information (ESI), which constituted hotel bills for each hotel stay (Room Folios) at the Treasure Island property starting from August 13, 2004. Lexington defined ESI as “information, without deletion or alteration of metadata, in its native form, [with indication of the] computer hardware and the software program(s) needed to translate the information into useable form in the information’s native format.”

On November 9, 2007, B&G objected on the basis that it was irrelevant. The standard for relevance, however, is so broad that this objection essentially amounted to a flat-out NO! When faced with a motion to compel, B&G submitted supplemental answers but this time it was more defiant in its refusal to produce the requested documents.

Lexington filed another motion to compel and this time the court ordered B&G to produce the responsive documents in the format requested by Lexington on or before April 30, 2008.

On April 30, 2008, B&G’s counsel delivered 7 discs to Lexington. The discs, however, did not contain the ESI in the form specified by Lexington, and nor did it contain the Room Folios.

This time Lexington filed a motion for sanctions. Rather than imposing sanctions, the court gave B&G yet another chance and ordered it to produce all responsive information in the ESI format requested by Lexington on or before July 11, 2008. B&G did not produce the requested information by that time.

On July 29, 2008, during the deposition of a B&G representative, Lexington learned that B&G used the electronic property management system, IQWare, and that if Room Folios existed then they would be contained in that system. The representative also testified that he had NEVER been asked to search for the Resort Room Folios.

Finally, in mid-to-late December 2008, B&G asked its in-house legal assistant to search for the Room Folios for the Resort. When she accessed IQWare, she found a large number of room folios for the requested time period; but in order to produce the documents as quickly as possible she did not analyze them to determine if they were complete. She also did not download the documents with metadata in its native form because the system did not permit her to do so. B&G forwarded these documents to its outside counsel on December 31, 2008 claiming that it was the complete set. On January 9, 2009, B&G’s attorneys forwarded the documents to Lexington.

Meanwhile, on January 7, 2009, the court had issued another order advising both parties, among other things, that if their production needs to be supplemented, then it must be served no later than 5 business days after the information is discovered by counsel.

When Lexington’s expert reviewed the documents produced in January 2009, he discovered significant disparity between the rooms sold as suggested by the Room Folios and by B&G’s financial records. He concluded that either all of the Room Folios were not provided or that B&G’s rooms sold statistics were over stated.

When B&G’s counsel received Lexington’s expert report, he asked the in-house assistant to search for the rest of the Room Folios. This time on April 29, 2009, the assistant reviewed an index of boxes stored in B&G’s offsite storage facility and found additional Room Folios for the requested time period. Without analyzing the Room Folios she sent them to B&G’s outside counsel on May 4, 2009. She was not instructed to ensure that these were all the Room Folios that existed and so she stopped looking at that time.

On May 11, 2009, B&G’s expert reviewed the new documents and concluded that a large number of Room Folios were still missing. B&G’s attorneys withheld producing the new documents until May 18, 2009, twice the 5-business-day period specified in the January 7, 2009 order. In the meantime, B&G’s counsel again requested the assistant to search for the missing Room Folios. Finally, she found additional records on May 26, 2009.
Lexington again sought sanctions for the violation of the discovery orders. This time the court held that B&G had an obligation to diligently search for and timely produce all requested documents, after being ordered by the court to do so.

As a result of B&G’s stubborn disobedience, the court precluded B&G from presenting any evidence regarding its business interruption losses at the Resort caused by Hurricane Jeanne. The Court rejected the argument that such a severe sanction should not be imposed on B&G because the decisions regarding discovery were made by its lawyers. In so finding, the court held that B&G was responsible for its counsel’s conduct. If it were otherwise, parties such as B&G could hide behind its chosen counsel whenever it felt free to flout a court’s discovery orders. The loss of a $25 Million dollar claim was not all she wrote for B&G. B&G and its attorneys were also ordered to pay Lexington’s attorneys fees and costs, which, in a case of this magnitude could certainly be significant.

We may never know why B&G or its attorneys never conducted a thorough search for the documents requested by Lexington when such a huge amount was at stake. B&G’s costly mistakes serves as an important lesson to all of us: Conduct a thorough search of your files and produce the requested documents in a timely manner or you could be out $25 Million dollars.

Jignesh Shah, a recent law grad and Senior Business Litigation Associate admitted to practice in New Jersey and New York, currently consults on a per diem basis. He can be contacted at jigses@gmail.com

Article posted on December 17, 2009 at 5:00 AM |