In Hedgeye Risk Mgmt., LLC v. Dale, No. 21-CV-3687 (ALC) (RWL) (S.D.N.Y. July 26, 2023), New York Magistrate Judge Robert W. Lehrburger ordered Plaintiff “to pay Defendants the reasonable expenses, including attorney’s fees, incurred by Defendants” for multiple discovery violations and misrepresentations that they had met their discovery obligations.

Case Background

In this case, defendants moved multiple times to compel production of responsive communications, including text messages, from Hedgeye’s executives, including:

• February 18, 2022, in which Plaintiff represented to the Court that it had “investigated and collected and produced” responsive messages and was working “diligently” to produce the rest.
• April 18, 2022, in which Defendants again moved to compel, Plaintiff assured the Court that it had remedied the deficiency.
• at a hearing held on April 28, 2022, Plaintiff’s counsel confirmed that Plaintiff had produced “all communications between Mr. Bl[u]m, Mr. Jones and other top Hedgeye executives and any third party concerning Mr. Dale or this litigation.”
• April 17, 2023, Plaintiff’s counsel again represented to defense counsel that “Hedgeye has produced all communications with third parties relating to the Lawsuit that it has located after a reasonable search.” Production of documents by a third-party, however, revealed the existence of text messages that had not been produced by Plaintiff. After Defendants once again filed a motion to compel, Plaintiff responded that it had fully complied with its obligation by having undertaken “a carefully considered, reasonably diligent text message collection process to locate responsive text messages,” while at the same time stating that it was “undertaking yet another search of its executives’ text messages.”

At a hearing held on May 11, 2023, addressing the motion, Plaintiff’s counsel similarly represented that Plaintiff had “produced everything.” But upon questioning of Plaintiff’s counsel by the Court, it came to light that Plaintiff itself, not its outside counsel, had conducted searches. Plaintiff’s in-house counsel was a witness in this case and reported to executives who had a direct interest in the case. Outside counsel could not represent that it had exercised quality control over the collection of texts of all but one of Hedgeye’s executives. The Court concluded by directing the parties to meet and confer to identify and remedy any further issues.

That led to a further motion by Defendants to compel a thorough search of Plaintiff executives’ laptop computers, which Plaintiff apparently had not done at all. Plaintiff agreed to conduct the search but only if Defendants paid for the related costs. On June 21, 2023, the Court issued an order requiring the search to be conducted at Plaintiff’s expense with the potential to recoup costs depending on whether the search yielded duplicative documents. Plaintiff produced “thousands of new documents, including hundreds of text and Slack messages Defendants had never seen before”, including the type of messages that Plaintiff had been ordered to produce in April 2022 and that Plaintiff repeatedly represented had been produced.

Judge’s Ruling

In considering sanctions pursuant to FRCP Rule 37(a)(5)(A) for plaintiff’s discovery violations and misrepresentations, Judge Lehrburger stated: “To obtain the discovery sought, Defendants had to file multiple letter motions to compel. Hedgeye only finally fulfilled its obligations after multiple conferences with the Court and by taking steps to rectify inadequate collection efforts by Hedgeye personnel and inadequate quality control by outside counsel… No circumstances are present that would vitiate imposing reimbursement.” He also stated: “at the May 11, 2023 hearing, it became apparent that Hedgeye had not exercised sufficient quality control over the collection process… Given this series of events, Defendants did not prematurely move to compel; Hedgeye’s faulty discovery and inaccurate representations were not substantially justified, and no other circumstances make an award of expenses unjust. Accordingly, the court “must” order Hedgeye to pay Defendants’ reasonable expenses, including attorney’s fees, in moving to compel production of all communications from Hedgeye executives to third parties concerning Defendant Dale or the instant litigation.”

In considering sanctions pursuant to FRCP Rule 37(b)(2) for plaintiff’s discovery violations and misrepresentations, Judge Lehrburger stated: “Payment of Defendants’ expenses also is warranted due to Hedgeye’s failure to comply with the Court’s order dated April 28, 2022 providing that Hedgeye ‘shall produce to Defendant all communications from Hedgeye executives to third parties concerning Defendant Dale or the instant litigation.’” Also, while noting that “there is no direct evidence of willful misconduct”, Judge Lehrburger stated: “But Hedgeye’s conduct was hardly innocent and was more than negligent. Hedgeye repeatedly misrepresented the extent of its compliance with the Court’s April 28, 2022 order…And, counsel failed to exercise sufficient quality control over collection by Hedgeye’s personnel.”

Judge Lehrburger also found that “As for lesser sanctions, there are none”, that “Hedgeye’s failure to fully comply with its discovery obligation with respect to the communications at issue persisted from at least April of 2022 through and after April of 2023” and that “Hedgeye is represented by sophisticated counsel who well know the consequences of failing to abide by court orders.” Judge Lehrburger also rejected Plaintiff’s reminder that Defendant Dale previously has admitted to spoliating evidence (among other misconduct), stating “courts in imposing discovery sanctions follow the maxim that ‘two wrongs don’t make a right’”.

So, Judge Lehrburger ordered Plaintiff “to pay Defendants the reasonable expenses, including attorney’s fees, incurred by Defendants” for the multiple discovery violations and misrepresentations that they had met their discovery obligations.

So, what do you think? Were the sanctions appropriate for the discovery violations and misrepresentations? Please share any comments you might have or if you’d like to know more about a particular topic.

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