November 27, 2022

Volume XII, Number 331

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Default Judgment Sanction Against Defendants for Failure to Produce Slack Messages

In Red Wolf Energy Trading, LLC v. BIA Capital Management, LLC, Gregory V. Moeller, Growthworks, LLC, Michael Harradon, and Jon Moeller, the United States District Court for the District of Massachusetts entered a default judgment against the defendants due to repeated failures to produce relevant documents from the defendants’ Slack accounts.[1] The court recognized that the sanction was drastic but felt it was warranted under the circumstances.[2] The decision is significant because it emphasizes the need to hire competent counsel to handle discovery matters.

Following the defendants’ initial production of discovery documents in 2019, Plaintiff claimed that the defendants failed to produce all documents.[3] The court, in turn, ordered the defendants to re-examine the produced documents and supplement them as required by the Federal Rules of Civil Procedure.[4] Defendant Moeller responded by filing an affidavit of compliance.[5] Plaintiff claimed that the document production was still incomplete, and the court reiterated its previous order, which was again met with an affidavit of compliance by the defendants.[6] Following the filing of the second affidavit, the defendants on several occasions belatedly produced additional documents relevant to the initial discovery request, several of which were damaging to the defendants’ case.[7] Because of the delayed document production, the court had to order the re-opening of depositions.[8]

Due to the defendants’ continuous violations, the court allowed Plaintiff to search the defendants’ 2019 Slack Archive, with the court instructing Plaintiff to report the number of Slack messages that were not previously disclosed.[9] The result of the Plaintiff’s search was 128 responsive documents that should have been produced in 2019.[10] Plaintiff offered an affidavit of the company orchestrating the search that claimed that the defendants could have utilized tools in 2019 to search Slack for about $10,000, an amount the court called modest.[11] Further damaging to the defendants’ case was the affidavit stated that the defendants’ 2019 search of Slack by the consultant “‘was outside of universally accepted standards and best practices for legally defensible data collection, preservation and production’ and ‘not technologically sound.’”[12]

The defendants unsuccessfully attempted to excuse their violations by claiming it was unintentional and that they acted in good faith in searching for documents responsive to the discovery request.[13] The court, however, pointed out several issues with the way the defendants conducted the search. Perhaps the defendants’ largest flaw was that they retained a consultant who was tasked with creating a program to search for Slack messages because the defendants did not believe there was a set method to locate and produce such Slack communications in 2019.[14] The consultant resided in Kazakhstan, was inexperienced with Slack, and was compensated in equity in Defendant Bia’s company as opposed to money.[15] The defendants argued that they hired this consultant because of limited monetary resources, but the court did not find their excuse valid.[16]

Moreover, the court found several other issues with the defendants' production including (1) the defendants' failure to offer entire threads of communications which were imperative to supply context[17], (2) the defendants’ counsel’s failure to utilize a vendor who could provide an Excel spreadsheet of messages derived from Search terms[18], and (3) the defendants’ omission of several documents that were significant to the merit of the underlying claims, one of which was described as a “proverbial ‘smoking gun.’”[19] Defendant Moeller argued that the initial failure to provide these documents was due to a mistake in the initial search.[20] The court, however, responded that the defendants were ordered to re-examine production and supplement multiple times but failed to do so.[21] The court repeatedly cautioned the defendants that sanctions may be imposed if discovery orders were not complied with, including the threat of criminal contempt. Despite these serious warnings, the defendants continued to violate the court’s orders. [22]

A default judgment is traditionally disfavored and only ordered in extreme cases since “federal law favors the disposition of cases on the merits.”[23] The court examined the totality of the circumstances including the reasons for noncompliance, the severity of the violations, whether the violations were continuous or intentional, the appropriateness of lesser sanctions, and the resulting prejudice to the opposing party and court.[24] Despite the judge’s discretion to impose lesser sanctions, the court entered the drastic sanction of a default judgment and felt that “. . . it [was] fully justified and, indeed, necessary to do justice in th[e] case and to deter others from engaging in similar extreme misconduct.”[25]

The court held that the violations were prejudicial as they were disruptive to the court’s scheduling and the plaintiff’s ability to prepare its case.[26] Because of the delay in producing documents, the plaintiff couldn’t fully question the witnesses after depositions were re-opened.[27] Any further re-opening of depositions would lengthen the time required for resolution and come at great expense to both parties.[28] Moreover, the court mentioned the likelihood that Plaintiff experienced a competitive injury as the dispute was ongoing.[29] The court announced that “[t]he decision, in this case, should encourage litigants to understand that it is risky business to recklessly or deliberately fail to produce documents, and perilous to disobey court orders to review and, if necessary, supplement prior productions.”[30]

The decision serves as yet another warning that discovery into newer and complex data sources continues to grow and, litigants should retain experienced discovery counsel to comply with their discovery obligations and relevant rules. Complying with discovery requests can be a burdensome process, especially with the advent of Slack, Microsoft Teams, and other non-email modes of communication; therefore, it is critical to retain counsel that is familiar with emerging software and messaging platforms because failure to do so could be costly.

Michelle Burnham also contributed to this article.


FOOTNOTES


[1] No. 19-10119-MLW, 2022 WL 4112081, at *1-2 (D. Mass. Sept. 8, 2022).

[2] Id. at *2.

[3] Id. at *1.

[4] Id.

[5] Id.

[6] Id.

[7] Id. at *1-2.

[8] Id. at *2.

[9] Id.

[10] Id. at *15.

[11] Id. at *23.

[12] Id. at *16.

[13] Id. at *3, *8.

[14] Id. at *8.

[15] Id. at *9.

[16] Id. at *11.

[17] Id. at *8.

[18] Id. at *11.

[19] Id. at *15.

[20] Id. at *9.

[21] Id. at 1.

[22] Id. at *11.

[23] Id. at *19.

[24] Id.

[25] Id. at *2.

[26] Id. at *23.

[27]  Id. at *24.

[28] Id.

[29] Id.

[30] Id. at *25.

Copyright ©2022 Nelson Mullins Riley & Scarborough LLPNational Law Review, Volume XII, Number 278
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About this Author

Travis Bustamante Litigation Attorney Charlotte
Partner

Travis' litigation practice focuses on electronic discovery, data breach response efforts, and helping companies respond to government investigations and inquiries. He works with clients in state and federal courts on issues of discovery strategy and provides counsel regarding information governance, fact investigations, document review strategies, discovery motions practice, and document productions.

Travis’s experience includes counseling Fortune 500 healthcare, financial services,  and pharmaceutical clients in large-scale litigation and in...

704-417-3044
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