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Ediscovery sanctions drive an ethical wedge in the attorney-client relationship

Merck Eprova AG v. Gnosis S.P.A., 2010 WL 1631519 (S.D.N.Y. April 20, 2010)

This 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?

What should attorneys do when clients refuse to follow their instructions about preserving and producing ESI?

The answer requires a brief review of Rules 1.2 and 1.4 of the Model Rules of Professional Conduct. Rule 1.4(a)(2) requires a lawyer to “reasonably consult with the client about the means by which the client’s objectives are to be accomplished.” Rule 1.2 addresses the allocation of authority between the client and lawyer. Comment 1 to Rule 1.2 requires attorneys to consult with the client about the “means” to accomplish the client’s desired objectives as required by Rule 1.4(a)(2) and provides the lawyer “may take such as action as impliedly authorized to carry out that representation.” In an ediscovery context, this means that once the client has been properly advised about its obligations to preserve and produce ESI, the attorney is obligated to abide by the client’s decision on those issues. Hopefully, the client follows the attorney’s recommendations, but when that does not occur, what are the attorney’s options?

Rule 1.2 permits the scope of services provided by a lawyer to be limited by agreement with the client. Comment 6 to that Rule explains that such a limitation “may exclude actions the client thinks are too costly.” So a Fortune 500 company, with experienced general counsel staff and a large IT department, could advise its outside counsel that it will handle all ediscovery preservation and production in-house in order to limit the company’s ediscovery costs. Such an arrangement is permissible under Rule 1.2. However, when that occurs, the attorney should consider modifying the engagement letter with the client to reflect the limitation in the services being provided the client.

Outside counsel should also explain to the client that some courts, like in Gnosis, have imposed a duty on outside counsel to supervise the client’s search for responsive documents, notwithstanding statements in the Advisory Committee Notes to Fed. R. Civ. P. 26(g) that when making a “reasonable inquiry,” an attorney “may rely on assertions by the client” so long as that reliance “is reasonable under the circumstances.” The attorney should consider discussing with any client taking over responsibility for ediscovery preservation or production, that in the event an ediscovery sanctions motion should be filed which is directed at the lawyer or both client and the lawyer, a conflict may arise. The lawyer will have an obvious interest in explaining why sanctions should not be imposed on him under the circumstances.

Comment 22 to Model Rule 1.7 explains that a lawyer may request the client “to waive conflicts that might arise in the future,” but explains the “effectiveness of such waivers is generally determined by the extent to which the client reasonably understands the material risks that the waiver entails.” It further explains that where the client is an experienced user of legal services and “is reasonably informed about the risk that a conflict might arise, such consent is more likely to be effective.” Moreover, where the “client agrees to consent to a particular type of conflict with which the client is already familiar,” Comment 22 provides that such “consent ordinarily will be effective with regard to that type of conflict.” Recognize however, that in this context, consent given to general or open ended waiver of future conflicts runs the risk of being judged ineffective because the conflict was not adequately explained and thus, the client can claim it did not understand the material risks involved with the waiver. So if an attorney heads down this path, carefully outline in writing for the client all of the reasonably foreseeable risks associated with this type of arrangement.

What should the lawyer do when a client refuses to waive a future conflict in the type of scenario noted above, or when the lawyer learns that a client has refused to follow his advise as to how ESI should be preserved or produced? In some cases, where the client has a knowledgeable general counsel, talk the issue through and attempt to reach an accommodation. Otherwise, the attorney should give serious consideration to withdrawing from the client relationship. In baseball, there is an old adage that a groundball will find a weak infielder. The same analogy is true with ediscovery. A sanctions motion will inevitably find its way to the doorstep of the attorney whose client has failed to properly preserve or produce ESI.

Some clients are simply not worth the time and trouble that a sanctions motion will entail. Fights over privileged communications will occur. The lawyer’s conduct, in addition to the client’s, will likely be put under the microscope. When the client refuses to follow the attorney’s advice, and that advice would have obviated the sanctions motion, a conflict between the attorney and the client’s interests exists and as explained above, Rule 1.7 must be consulted. Consequently, the lawyer should consider at the outset whether those issues are worth it and act accordingly when a client refuses to follow the attorney’s advice.

Are rule amendments or consideration of alternatives to attorney sanctions warranted?

Given the prevalence of ediscovery sanctions as referenced in our last post, we hope the Standing Committee will consider amendments to the federal ediscovery rules at its May 2010 conference at Duke University. One type of rule amendment that will generally help limit ediscovery sanctions is to adopt the approach taken by Principle 2.04 of the Seventh Circuit’s Electronic Discovery Pilot Program. Principle 2.04 recognizes that there are certain categories of ESI that are generally not discoverable in most cases, and where a party intends to request the preservation or production of those categories of information, that desire should be promptly brought to the attention of the opposing party and its counsel. If such a request is not made, then sanctions should not be available for failing to preserve those categories of information.

However, a broader question is what role should attorney sanctions play in an ediscovery context in civil litigation? Historically, when lawyers and judges operated in the world of paper discovery, perfection was not expected. Also, it was never an attorney’s duty to preserve discoverable documents; that was the client’s obligation. And, as noted above, even when the federal rules were amended to include Rule 26(g), an attorney could rely upon the reasonable representations of the client in complying with the attorney’s duty of “reasonable inquiry.”

Now that we have entered into the digital era, an attorney’s duty to advise the client has morphed into a duty to preserve ESI. The transformation of the attorney’s historical duty to advise the client into a duty to preserve has created innumerable harms to the attorney/client relationship and our civil justice system. The relative ease that the attorney-client privilege can be lost, discovery about discovery and satellite ediscovery sanctions litigation has become prevalent under the federal ediscovery rules. All of this is driving up the cost of discovery.

At a recent Sedona Conference, one of the topics discussed was the vanishing jury trial in federal courts and ways to reverse that trend. The answer is simple: to encourage more jury trials, make litigation generally, and discovery in particular, less costly. While that answer is simple, the best approach to accomplish that solution is not so clear cut. However, one point is clear. Ediscovery sanctions and the satellite litigation it is generating is driving up the cost of litigation, which is one of the primary causes of the vanishing jury trial.

As we explained in a prior blog post, the prevailing view in federal court is that once a preliminary showing of spoliation has occurred, the attorney’s otherwise privileged litigation hold letter to the client must be produced. Today’s post, and another recent post, discusses some of the ethical dilemmas that are triggered in an ediscovery context. In what other area of the law must an attorney provide advice to the client under pain of sanctions if the lawyer fails to do so, even though the attorney’s advice could be used as evidence against the client if a preliminary showing of spoliation is made? Have district court judges considered the broader impact of their decisions or the ethical dilemmas they are creating for lawyers in an ediscovery context?

Hopefully, courts will recognize that the attorney’s historical duty is to advise the client, not to preserve the client’s information for it. Obviously, in a digital era, the attorney’s advice has to be different than the advice given when we worked in a world of paper, but it is still advice, and should not be viewed as a duty to preserve information. If courts recognize that the duty to preserve rests with the client and not the lawyer, the damage being done to our civil justice and the attorney/client relationship through the imposition of ediscovery sanctions will be reduced. The marginal utility gained through the imposition of attorney sanctions in an ediscovery context is simply not worth the damage being done to the attorney/client relationship and our system of civil justice.

From Hinshaw & Culbertson's Practical EDiscovery Blog: http://blog.hinshawlaw.com/practicalediscovery/2010/04/30/ediscovery-san...

The views expressed by the author are his alone and do not reflect the views or opinions of Hinshaw & Culbertson LLP.

© 2019 Hinshaw & Culbertson LLP

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About this Author

Steven Puiszis Hinshaw Culbertson Law Firm Litigator

Steven Puiszis is a well-known and highly experienced trial attorney and mediator with a wide-ranging litigation and trial practice, who stopped counting after having taken more than 40 civil and criminal jury trials to verdict. He is one of the few attorneys nationally who has ever successfully defended through trial a federal class-action lawsuit.

Mr. Puiszis’ litigation background includes the representation of local units of government or state and local officials and he has also successfully handled numerous professional liability claims on behalf of...

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