Facts
- Former Tellermate sales employees sued Tellermate and related entities/individuals for age discrimination after their termination on August 22, 2011.
- The plaintiffs sought sales performance data to test defendants’ claim that the terminations were for poor sales.
- The relevant sales data was maintained on Salesforce.com, a third-party platform used by Tellermate.
- During discovery, defendants and counsel represented that Tellermate could not access or print its Salesforce sales data and suggested plaintiffs obtain the records from Salesforce instead.
- The court found that reasonable inquiry would have shown Tellermate’s employees routinely printed Salesforce reports and that Tellermate owned its sales data under its Salesforce contract.
- After an April 2013 order compelling production, defendants did not meaningfully comply until January 2014.
- During the delay, older sales data was lost or destroyed, and Salesforce’s retention limits prevented reconstruction.
- Defendants produced roughly 50,000 pages marked “attorneys’ eyes only,” limiting the plaintiffs’ ability to review materials central to their claims.
- Plaintiffs moved for Rule 37(b) sanctions (including default judgment) and to strike the “attorneys’ eyes only” designations.
Issues
- Whether defendants violated federal discovery obligations by misrepresenting access to and control over cloud-hosted sales data, delaying compliance with discovery orders, and making sweeping “attorneys’ eyes only” designations.
- What sanctions were appropriate under Fed. R. Civ. P. 37(b), including whether default judgment was warranted.
Decision
- The court granted plaintiffs’ motion for sanctions under Rule 37 based on serious discovery misconduct.
- The court denied the request for default judgment, choosing lesser sanctions tailored to remedy prejudice and deter repetition.
- The court granted the motion to strike defendants’ “attorneys’ eyes only” designations as overbroad and unjustified.
- The court ordered corrective discovery actions and imposed sanctions with monetary and evidentiary components.
Legal Principles
- A party may not obstruct discovery by falsely or recklessly misrepresenting whether it has responsive information or can obtain access to it.
- For discovery purposes, “possession, custody, or control” includes electronically stored information a party has the legal right or practical ability to obtain from a third-party service provider.
- Counsel must make reasonable inquiry into a client’s information systems before making factual representations in discovery.
- Noncompliance with discovery orders and delay that results in loss of relevant information supports Rule 37(b) sanctions.
- “Attorneys’ eyes only” designations are exceptional and must be narrowly supported; mass designation without adequate justification may be struck and may support sanctions.
Conclusion
The court found that defendants’ discovery conduct—misstatements about access to cloud-hosted sales data, delayed compliance with a production order leading to loss of information, and indiscriminate “attorneys’ eyes only” designations—warranted substantial Rule 37 sanctions and removal of the restrictive confidentiality designations, but not the case-ending remedy of default judgment.