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Sent to you by pakurilecz via Google Reader: "Like any Ordinary
Litigant, the Government Must Abide by the Federal Rules of Civil
Procedure" via Electronic Discovery Law by [log in to unmask]
(K&L Gates) on 1/28/09
S.E.C. v. Collins & Aikman Corp., 2009 WL 94311 (S.D.N.Y. Jan. 13, 2009)

In this case, arising from claims of securities fraud, the court
addressed questions concerning the government’s discovery obligations
in civil discovery. Throughout discovery in the case, several disputes
arose regarding the SEC’s production of documents and its failure to
perform sufficiently thorough searches for the requested information.
Following extensive analysis of the individual issues, the court
ultimately concluded that “[w]hen a government agency initiates
litigation, it must be prepared to follow the same discovery rules that
govern private parties…”

Document “Dump”

In response to defendant’s request for documents in fifty-four separate
categories, the SEC produced 1.7 million documents (approximately 10.6
million pages) maintained in different databases and containing
different metadata protocols. Defendant objected to the production,
arguing that the SEC failed to identify documents responsive to his
request for documents supporting particular factual allegations and
instead preferred to “dump” a huge volume of documents while suggesting
that the defendant is capable of searching them himself to locate what
is relevant. The SEC responded by claiming that it did not “maintain a
document collection relating specifically to the subject addressed” and
thus it produced the documents as they were “kept in the regular course
of business.”

In the course of the disagreement, the defendant informed the court of
the existence of approximately 175 file folders maintained by the SEC
correlating to the specific factual allegations of the complaint and
maintained in the regular course of agency business. The SEC objected
to the production of those files arguing that “the compilation itself
is attorney work product” and that its disclosure would reveal the
attorney’s mental impressions and conclusions.

In its discussion of the applicable law, the court first noted the
narrow nature of the work product protection provided to the selection
and compilation of documents, and that equity weighs against work
product protection for document compilations which are inaccessible by
other means.

Turning to the applicability of the work product protection in this
case, the court stated that compilations are not “core” work product
unless organized by legal theory or strategy and thus, are provided a
lesser level of protection. Accordingly, in at least one case with
similar facts, a court ordered plaintiffs to provide the location of
documents supporting factual allegations, even where defendants were
already in possession of the documents. The court further reasoned that
even if the compilation of file folders was work product, defendant
demonstrated his substantial need for the documents that could not be
obtained elsewhere.

The court then addressed the question of undue hardship where the SEC
claimed the defendant could search the already produced documents and
find “substantially the same documents identified by the SEC” (in its
175 file folders) without impinging upon the thought processes of the
SEC attorneys. The court agreed, but noted the significant time and
expense such a review would necessitate. Expressly invoking its ability
to weigh equitable considerations, the court concluded, “[i]t is
patently inequitable to require a party to search ten million pages to
find documents already identified by its adversary as supporting the
allegations of the complaint.” Accordingly, the court held that the 175
file folders were not protected as work product. (The court went on to
hold that for the same reasons, compilations prepared by an SEC
accountant and another law firm were also not protected as work
product.)

Having determined the file folders were not privileged, the court
turned to the SEC’s contention that it already fulfilled its discovery
obligations by producing millions of documents as maintained in the
usual course of its business. The analysis began with a discussion of
what constitutes an appropriate production as kept in the “usual course
of business.” Following analysis of the definition of “business,” the
court determined that production as documents are kept in the “usual
course of business” required a party to meet either of two tests.
First, the option is available to enterprises that function in the
manner of commercial enterprises. Second, the option is available for
records resulting from “regularly conducted activity.” Otherwise, the
court determined, a party must produce documents under Rule 34’s
alternative: “organize[d] and label[ed]…to correspond to the categories
of the request.”

The court explained the logic that when records do not result from
“routine and repetitive” activity, there is no incentive to organize
them into a predictable system. The court went on to state that the
purpose of Rule 34 is to facilitate production in a useful manner;
therefore “it is reasonable to require litigants who do not create
and/or maintain records in a ‘routine and repetitive’ manner to
organize the records in a usable fashion prior to producing them.”

Thus, the court indicated, where the Government acts in the manner of a
commercial entity, as it often does, and creates and maintains records
in an efficient fashion such that they would allow for easy analysis of
a claim, production as they are kept in the usual course would be
acceptable. However, according to the court, investigation is not
routine or repetitive and therefore cannot fall within the scope of the
“usual course of business.” Accordingly, the court ordered the
production of documents responsive to defendant’s request for
information to support each factual allegation of the complaint. To the
extent that one or more of the SEC’s 175 file folders were responsive,
they were ordered produced.

General Subject Matter Documents

Defendant’s requests also sought several general categories of
documents related to SEC policy and enforcement actions. The SEC
objected to each of the relevant requests as overly broad and unduly
burdensome. Moreover, the SEC rejected defendant’s proposal that it
would establish a search protocol that would balance identification of
information against the strain on agency resources. Rather, the SEC
unilaterally limited its search to “centralized compilations” in three
selected divisions and indicated they found no responsive documents.
The SEC also argued that in light of how the information was organized,
the burden of production was disproportionate to the value of the
litigation.

The court rejected the SEC’s unilateral approach and refusal to
negotiate a search protocol as “patently unreasonable.” Opining that
judicial intervention might not have been required if the parties had
fulfilled their obligation to meet and prepare a discovery plan, the
court ordered the parties to confer to establish a search protocol that
would “reveal at least some of the information defendant seeks.”

Email

The SEC’s initial production contained no email or attachments
generated or received by the SEC itself. The absence of such
information was explained by the SEC’s failure to undertake the
appropriate search. In its defense, the SEC indicated that nearly all
responsive emails would be privileged or subject to the court’s
non-disclosure order and that the defendant had not made the “necessary
showing” to require such a costly and time consuming undertaking. The
SEC also criticized defendant’s lack of specificity in his requests
which would result in searching through emails of hundreds of attorneys
and accountants over an indefinite period of time.

The court rejected the SEC’s blanket refusal to produce any email
without even an attempt to negotiate search terms to weed out
privileged or irrelevant emails. Responding to the SEC’s representation
that the cost of such a search was too high, the court suggested
consideration of sampling “to test the cost and the yield” of the
terms. Accordingly, the parties were ordered to meet to attempt to
negotiate search terms and appropriate limitations to subject matter
and date.

Upon issuing its order, the court noted that failure to agree could
result in the appointment of a Special Master to supervise remaining
discovery.

A full copy of the opinion is available here.

Note: This case also contains a discussion of the Deliberative Process
Privilege.

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