Case Summary
Phoenix Four, Inc. v. Strategic Res. Corp., 2006 U.S. Dist. LEXIS 32211 (S.D.N.Y. May 23, 2006).
Phoenix filed breach of fiduciary claims against Strategic. Toward the end of the time for discovery, a freelance computer technician on a service call at Strategic discovered a dormant partitioned hard drive that was not accessible to computer work stations. The 25 gigabytes of information discovered on the dormant hard drive amounted to as much as 2500 boxes of documents.
The court rejected several sanctions that Phoenix sought against Strategic for late production of the documents. An adverse inference instruction was not appropriate because abandonment of some work stations at an office on which Strategic lost a lease was not shown to be gross negligence by Strategic during the upheaval in its business. Also, an adverse inference instruction was not warranted because 200-300 boxes of documents retrieved from the server had been presented to Phoenix.
Counsel for Strategic, according to the court, failed to undertake the methodical survey of Strategic's sources of information suggested by Zubulake V (Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004)). The court stated that "counsel's obligation is not confined to a request for documents; the duty is to search for sources of information." The court found that counsel was grossly negligent in failing to carry out duties outlined in Zubulake to be codified in pending amendments to the Federal Rules of Civil Procedure.
Due to late production of the server documents and disruption of the litigation process, the court ordered Strategic and its counsel to pay monetary sanctions which the court made clear could not be paid by Strategic's insurers. Strategic and its counsel were ordered to reimburse Phoenix equally for statutory costs and attorney fees in bringing the motion for sanctions and to each pay Phoenix $10,000 for four re-depositions.
<< Click here to go backThe court rejected several sanctions that Phoenix sought against Strategic for late production of the documents. An adverse inference instruction was not appropriate because abandonment of some work stations at an office on which Strategic lost a lease was not shown to be gross negligence by Strategic during the upheaval in its business. Also, an adverse inference instruction was not warranted because 200-300 boxes of documents retrieved from the server had been presented to Phoenix.
Counsel for Strategic, according to the court, failed to undertake the methodical survey of Strategic's sources of information suggested by Zubulake V (Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004)). The court stated that "counsel's obligation is not confined to a request for documents; the duty is to search for sources of information." The court found that counsel was grossly negligent in failing to carry out duties outlined in Zubulake to be codified in pending amendments to the Federal Rules of Civil Procedure.
Due to late production of the server documents and disruption of the litigation process, the court ordered Strategic and its counsel to pay monetary sanctions which the court made clear could not be paid by Strategic's insurers. Strategic and its counsel were ordered to reimburse Phoenix equally for statutory costs and attorney fees in bringing the motion for sanctions and to each pay Phoenix $10,000 for four re-depositions.
