Merck Eprova AG v. Gnosis S.P.A., 2010 WL 1631519 (S.D.N.Y. April 20, 2010)
Today’s post involves the sorry tale of a foreign company that failed to properly issue a litigation hold and allowed the deletion of emails to occur after suit was filed. To make matters worse, at an evidentiary hearing, the company’s CEO admitted that certain responsive documents that he felt were immaterial were not produced. The CEO also testified that because the plaintiff’s discovery requests were so disproportionate, he did nothing to preserve documents relating to the manufacture and sale of the product in question. The district court concluded the defendant’s conduct in failing to issue any type of litigation hold amounted to gross negligence and that the defendant’s search for responsive documents fell well below the minimum standard that a reasonably prudent person would use.
The court in Gnosis noted that in several discovery conferences, counsel for the defendant asked that the scope of plaintiff’s discovery be limited, but the court denied those requests because they were never properly raised. The court was also critical or counsel’s failure to supervise the client’s search for responsive documents and counsel’s failure to investigate the accuracy of plaintiff’s assertions that the defendant’s production was incomplete. At several points during an ongoing discovery dispute, counsel mistakenly represented to the court that the plaintiff was accusing the defendant of not producing documents that it had produced. Once the issue was properly investigated, counsel realized the error, and additional documents were promptly sent to the plaintiff. However, counsel waited for over a month after learning of the error, until the morning of an evidentiary hearing on that discovery dispute, to advise the court about counsel’s mistaken representation.
It should come as no surprise that the district court imposed sanctions in the form of costs and attorney’s fees that plaintiff expended in compelling defendant’s compliance with its discovery obligations. Additionally, the court imposed a $25,000 fine to deter future misconduct and “to instill in defendants some modicum of respect for the judicial process.”
The district court, however, elected not to apportion liability for those sanctions between the defendant and its counsel “under the belief they are best suited to make that decision.” The court indicated it would only intercede if the defendants and their counsel “are unable to agree on apportionment of these sanctions.” The court explained that to apportion the sanctions award between defendant and its counsel would require the disclosure of information that “could compromise attorney-client confidentiality.”
While the court’s desire to preserve the integrity of the attorney-client privilege is laudable, its order created an ethical dilemma for defense counsel and potentially drove an ethical wedge into the attorney-client relationship. Unless an attorney and client immediately agree that only one of them is solely responsible for such a sanction, the attorney should carefully evaluate whether Rule 1.7(a) of the Model Rules of Professional Conduct has been triggered. Rule 1.7(a) provides that a lawyer shall not represent a client if the representation involves a “concurrent” conflict of interest. It further explains that a concurrent conflict exists if there is a significant risk that the representation of the client will be materially limited by the personal interest of the lawyer. Comment 8 to Rule 1.7 notes that even when there is no direct adversity, “if a significant risk exists that a lawyer’s ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer’s other responsibilities or interests,” a conflict exists. Any lawyer subject to the type of sanction’s order entered in Gnosis would be personally interested in its outcome, and a claim could be made that it would be difficult to give “detached advice” under the circumstances. Thus, the specter of Rule 1.7(a) is arguably triggered by the sanctions order entered in Gnosis.
While this type of potential conflict can be waived by the client, it requires the lawyer to clearly identify and explain the nature of the conflict (in writing) to the client and obtain the client’s informed consent. This requires an explanation of the reasonably foreseeable ways the conflict could have an adverse effect on the client’s interests. Additionally, Model Rule 1.8(a) explains that the client should be informed in writing that the client may seek the advice of independent legal counsel on the transaction and be given a reasonable opportunity to obtain separate counsel to decide if the conflict should be waived. Accordingly, this type of ediscovery sanctions order will likely delay the proceedings and may require the involvement of separate counsel to address the issue.
The Gnosis decision brings into focus two important questions. The first is what should a lawyer do upon learning the client is refusing to follow counsel’s advise on preserving and producing electronically stored information (ESI)? The second is whether in light of the recurring damage being done to the attorney-client relationship as a result of ediscovery sanctions, are amendments to the federal ediscovery rules warranted, or is there a reasonable alternative to attorney sanctions that would adequately insure the attorney fulfills his ediscovery obligations to the client?Leave a Comment »