A compete set of the Federal Rules of Civil Procedure is available on TWEN, or online in PDF format at https://www.uscourts.gov/sites/default/files/federal_rules_of_civil_procedure_-_december_2020_0.pdf.  The links below are to the version included Wright & Miller and accessible via your school Westlaw account.

1. Rule 26. Duty to Disclose; General Provisions Governing Discovery
2. Rule 27. Depositions to Perpetuate Testimony
3. Rule 28. Persons Before Whom Depositions May Be Taken
4. Rule 29. Stipulations About Discovery Procedure
5. Rule 30. Depositions by Oral Examination
6. Rule 31. Depositions by Written Questions
7. Rule 32. Using Depositions in Court Proceedings
8. Rule 33. Interrogatories to Parties
9. Rule 34. Producing Documents, Electronically Stored Information, and Tangible Things, or Entering onto Land, for Inspection and Other Purposes
10. Rule 35. Physical and Mental Examinations
11. Rule 36. Requests for Admission
12. Rule 37. Failure to Make Disclosures or to Cooperate in Discovery; Sanctions
13. Rule 45. Subpoena

     U.S. Discovery Overview in Comparative Context. The broad discovery allowed by the federal rules was a new development in US litigation when the rules were adopted. While it built on discovery practice in equity courts and some state systems, it extended discovery in substantial ways over any prior practice. The goal was to avoid “trial by ambush” by making the key facts available to both sides before trial started.

     Something happened that was not expected – discovery and the motions that arise from it have now become, in effect, how US litigation is conducted. A vanishing percentage of US federal cases actually go trial.  The information exchange that comes through discovery gives the judge and the party nearly complete information on what evidence can be presented at trial. In some cases a judge will resolve claims and defenses in response to a motion on the presence or lack of evidence after the discovery process has completed. In other cases, the parties can accurately price and therefore settle claims. If you do not understand the US discovery process and how it drives case resolution, you do not understand US litigation.

     US discovery remains exceptional in world-wide context. The broad scope of US discovery gives private litigants investigative powers normally only held by governmental agencies. Even in major arbitrations, which in some cases have adopted some discovery, the scope of discovery usually is less than allowed in US federal courts.

     The burdens of discovery attach if a party is subject to personal jurisdiction in the United States. (It is also possible to seek third party discovery through subpoenas, but the normal process envisions persons or entities physically located within the territory of a U.S. District Court.) Even before that, as you might have noticed in the Chinese Drywall litigation, those contesting personal jurisdiction will often be subject to discovery so the court can assess whether personal jurisdiction exists, or as you saw in the Sheehan v. Gustafson case, discovery to see if subject matter jurisdiction exists. As we will see the prospect of discovery obligations applying imposes duties on parties to preserve evidence even before any litigation is filed.

     Application of U.S. Discovery Rules to Foreign Litigants.  The United States has signed the  Hague  Convention on the Taking of Evidence Abroad in Civil and Commercial Matters (the "Evidence Convention"), which provides a framework for obtaining extraterritorial evidence. Few U.S. lawyers find the Evidence Convention helpful, however, given the slowness of the process, the unfamiliarity of foreign governments with the role pre-trial discovery plays in the U.S. system, and their own unfamiliarity with the Evidence Convention process. In some countries, the restrictions placed by governments on the process make it 'practically useless" as a way to get evidence.  See Ray Worthy Campbell & Ellen Claar Campbell, Clash of Systems: Discovery in U.S. Litigation Involving Chinese Defendants, 4 Peking U. Transnat'l L. Rev. 129 (2016).

     Fortunately for U.S. litigants seeking extraterritorial discovery, a decision by the U.S. Supreme Court makes use of the Evidence Convention optional, not mandatory, when discovery is sought outside the borders of the United States. In Société Nationale Industrielle Aérospatiale v United States District Court for the Southern District of Iowa, 482 US 522, 542 (1987), the Court held that courts should make a case-by-case determination as to whether to use the Evidence Convention or to use the provisions of the Federal Rules. Courts are to balance three factors:  the importance of the information to the case, sovereign interests, and the likelihood that use of the Evidence Convention process will effectively provide the required information. In practice, since the Aérospatiale test was promulgated U.S. courts almost always seek discovery through the Federal Rules rather than the Evidence Convention. See Diego A. Zambrano, A Comity of Errors: The Rise, Fall, and Return of International Comity in Transnational Discovery, 34 Berkeley J. Int'l L. 101, 104 (2016). As we saw in the Chinese Drywall Litigation and will see in a case below, foreign parties failing to comply with discovery duties under the Rules are subject to significant sanctions, which can be meaningful to those who wish to continue to do business with U.S. entities.

     That the Federal Rules may be available does not mean, however, that courts will or should proceed with extraterritorial discovery under the Rules just as they would with domestic discovery. In Aérospatiale, personal jurisdiction has been clearly established and its existence was referred to in the Court’s opinion. In light of this, some courts have considered whether jurisdictional discovery, where the Court has not yet definitively established that it has power over the litigant, stands on a somewhat different footing and should be by default conducted first through the Convention; other courts, including in the Chinese Dry Wall litigation, have allowed it to proceed altogether under the Rules. See In Re Vitamins Antitrust Litigation, 120 F.Supp.2d 45 (D.D.C. 2000) (Allowing resort to Federal Rules discovery despite claim Convention should be used). Another issue arises when the law of the foreign country requires that no discovery in behalf of foreign litigation take place on their territory. As you recall, in the China Dry Wall litigation this was avoided by having discovery take place in Hong Kong. Other courts have allowed the depositions to proceed under the rules, with the parties selecting an acceptable location. See Belmont Textile Machinery Co. v. Superba, SA, 48 F.Supp.2d 521 (W.D.N.C. 1999).

     Discovery of non-parties can be sought pursuant to Rule 45. Although a subpoena can be prepared and sent out by an attorney in her capacity as an “officer of the court,” it is viewed as being issued by the court. For reasons beyond the scope of this course, there are territoriality limitations on the permissible scope of such subpoenas, making them far less useful in extraterritorial settings. In such settings the Hague Convention on the Taking of Evidence may be the only option.

     The United States also allows U.S. discovery to be used in support of litigation filed in the courts of other nations. A federal statute, 28 U.S.C. § 1782, provides in part that "[t]he district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation." In Intel Corp v Advanced Micro Devices, Inc, 542 US 241 (2004), the Supreme Court made such discovery requests subject to a four part test generally designed to incorporate principles of "comity." Since Intel, requests under § 1782 have increased substantially, leading to some controversy as to the wisdom of a process in which United States federal judges compel discovery in cases about which they have, at best, limited knowledge.. See generally, Edward D. Cavanagh, Discovery in Federal Courts in Support of Foreign Litigation: Lending a Helping Hand or Legal Imperialism?, 13, Fed. Ct. L. Rev. 81 (2021) (Examining the impact of discovery under 28 U.S.C. § 1782); Yanbai Andrea Wang, Exporting American Discovery, 87 U. Chi. L. Rev. 2089 (2020) (Analyzing more than three thousand foreign discovery requests filed in U.S. courts between 2005 and 2017).

     One issue that had arisen and been resolved differently by different federal appellate courts was whether § 1782 applied to private international arbitrations. In ZF Auto. US, Inc. v. Luxshare, Ltd., 2022 WL 2111355 , 142 S. Ct. 2078, ___ U.S. ___ (U.S. June 13, 2022), the US Supreme Court held that § 1782 reaches "only bodies exercising governmental authority." The Court concluded:

In sum, we hold that § 1782 requires a 'foreign or international tribunal' to be governmental or intergovernmental. Thus, a 'foreign tribunal' is one that exercises governmental authority conferred by a single nation, and an 'international tribunal' is one that exercises governmental authority conferred by two or more nations. Private adjudicatory bodies do not fall within § 1782.

Since the abitration proceedings at issue were configured and the arbitrators chosen by the parties themselves pursuant to arbitration agreements they were private, not governmental, and not entitled to use § 1782.

    The Tools of Discovery. The federal rules set forth the tools of discovery. Rule 26 sets forth the general provisions, including the scope of discovery and the duty to make disclosures at the outset of the case. Rule 26 also provides for protective orders, expert testimony, and protection of litigation work product materials.

     Rules 27, 28, 30, 31, and 32 deal with depositions. Depositions are a procedure in which witnesses can be required to answer questions under oath much as if they were at trial. Rule 27 deals with the limited situation of using depositions to perpetuate testimony of someone who may not be able to testify at trial and allows such a deposition to take place before an action is filed. This represents a somewhat narrow exception to the rule that prefiling discovery is not available, and aside from the likely unavailability later of a witness requires that an identifiable action with federal subject matter jurisdiction appears likely to be filed. Rule 28 deals with the issue of before whom a deposition may be taken. Within the United States, the rule is simple: anyone qualified to administer an oath may preside at a deposition, so long as they do not have an interest in the litigation themselves. Outside of the United States, the situation gets a great deal more complicated, in large part due to the differing approaches other nations take towards allowing US discovery on their soil. We won't go deep into that but be aware that identifying a proper way to take a deposition might be an issue you will need to examine in the context of a specific case. Rule 30 governs depositions by oral examination, which is the main form of deposition testimony. The great advantage of deposition testimony is that the answers are given by the witness directly without intervention of the opposing attorney. This increases the likelihood of receiving candid and unpolished answers. Such depositions are used to determine what the underlying facts are and can be used at trial either for impeachment purposes or in some instances to substitute for live testimony. Rule 31 allows depositions by written questions, which are significantly less popular and of dubious utility going forward given the possibility of remotely conducted live depositions. In general, so long as a witness is available to testify live at trial such live testimony is preferred to use of either written or video deposition testimony. If deposition testimony is used in the place of live testimony, it is subject to the same rules of evidence that would be applied to live testimony, and it is of course essential that opposing parties had an opportunity to cross-examine the witness at the depositions. Depositions have proved very important, however, for determining what witnesses will say at trial, and therefore to determining whether and how the case might be settled. If a witness does appear at trial, deposition testimony can also be used to impeach the testimony, by showing that they said something different at an earlier date should their testimony take a different course.

     Rule 33 deals with written interrogatories. Interrogatories arose from equitable practice, and allow a litigant to pose questions to the other party which must be answered in writing, under oath. In practice, while the answers must be made by the party and the oath must be given by the party, most interrogatory answers are processed through the hands of an attorney, who in practice is careful to give the other party what they are entitled to and no more. The careful crafting of interrogatories and the equally careful crafting of answers can be an expensive and time-consuming process. Some attorneys feel that interrogatories are best used only for matters where the facts are unknown but not subject to debate, and are not used for points that are likely to be actively contested between the parties. A typical good use of interrogatories would be to get the names and addresses of all individuals who worked on a particular transaction or occurrence and a description of their roles. Interrogatories can also be used to ask if the other side will make certain contentions – for example, that the plaintiff was contributorily negligent. An answer to such an interrogatory can help direct the course of factual discovery. On the other hand, an interrogatory asking for all facts showing that the defendant was negligent is likely to be a complete waste of time because objections and careful drafting will render any response useless.

     Rule 34 deals with the production of documents and things. In modern large case litigation, the production of documents has changed materially since the situation that existed at the time the rules were adopted. At the time the rules were adopted, the documents relevant to a lawsuit could be expected to be relatively finite, and to exist in the form of actual written documents such as business records, memoranda, receipts, and other such pieces of paper. One imagines that the drafters of the rules expected a file folder or at most a box of documents being exchanged in average litigation. The invention of the xerographic copy machine changed that, and by the 1960s and 1970s production of documents could include hundreds or thousands of boxes of responsive documents that were pulled from corporate record depositories. The shift to digital documents has multiplied the scope of documents, and today document production can include terabytes of documents, and in formats ranging from emails to text messages to drafts of word processing documents to video recordings. Nonetheless, documents remain a core element of the discovery process. They are not easily subject to manipulation by attorneys but exist as they were created prior to the inception of litigation, and so tend to be persuasive with factfinders. Documents and interrogatories also provide a roadmap with regard to which witnesses should be deposed, as well as to what testimony they may be expected to give. In modern practice discovery of documents has shifted to e-discovery, in which outside vendors use technology to sift through vast quantities of electronic documents, creating a subset based on search and sometimes artificial intelligence technology that is further reviewed by the lawyers

     Rule 35 deals with physical and mental examinations. To give examples of the use of this rule, a plaintiff who claims physical injury may be required to submit to a physical examination to determine if the claimed injuries are real. Similarly, in the event that defects in an automobile are attributed as the cause for an accident, the vehicle may be examined by an expert to determine whether it was properly functioning at the time the accident occurred. In general, parties have a right to examine people and objects that might yield evidence relevant to the case but are not entitled to examinations that are merely burdensome and intrusive, and rule 35 provides the vehicle for doing that.

     Rule 36 deals with requests for admission. Requests for admission ask the other party to concede that a given fact is true. For example, in order to establish beyond doubt subject matter jurisdiction the plaintiff might ask the defendant to admit that it is incorporated under the laws of Delaware and headquartered in New York City. There also can be issues that at the outset of the case might have seemed possible to dispute, but as the case proceeds these issues may become indisputable based on the evidence or a party may decide for tactical reasons not to dispute that issue. In order to establish these points and to save trial time, a request to admit can be made, and the judge will instruct the jury if there is a jury to accept the fact of those matters that have been conceded in a request to admit. Failure to respond to a request to admit in a timely fashion is treated as an admission, so they cannot be ignored. Similarly, they cannot be denied without careful consideration, in part because of ethical duties and in part because if a request to admit is denied and that fact is later proved at trial, the party who wrongfully denied the request might under some circumstances be liable for the attorneys’ fees and costs incurred in proving the matter.  Requests to admit can also be somewhat treacherous for those making the request, because an admitted request to admit removes the need and the possibility to present trial testimony on that point. In some cases, parties would prefer to present testimony and other evidence in order to dramatize the situation in the theater-like environment of the live trial. If they have made a request to admit on the point, they lose that opportunity if the defendant admits the contention.

     Rule 37 deals with sanctions. The parties and attorneys in a federal lawsuit are required to cooperate in discovery matters, and if they withhold matters that should have been produced or otherwise fail to cooperate, they can be subject to court orders to make proper production. If they fail to comply properly with those orders they can be subject to sanctions. The sanctions can range from monetary penalties to the admission or waiver of certain issues, all the way to the court directing a finding of liability. Note that these duties and sanctions are in addition to and separate from the duties of Rule 11 and other rules applying to pleading that we looked at earlier, but also reflect an expectation that the parties and their attorneys will behave cooperatively and ethically in the course of the litigation.

     Stages of Discovery.  Discovery typically progresses in stages. The first stage begins before litigation even has been filed. When it becomes clear that litigation is likely to be filed, a party has an obligation to preserve any evidence it has within its control or possession. At a corporate level, this requires the issuance of a “hold order” so that all the employees of the Corporation retain materials relevant to the litigation. Failure to do this can lead to significant sanctions that can in some situations determine the outcome of the case. If you take nothing else from this chapter, be aware if you represent clients potentially subject to US litigation that ignoring this important obligation can have serious adverse consequences. We will discuss this in more detail later.

     The next stage of discovery involves the production of materials without request under rule 26. In effect, rule 26 requires each side to produce those materials that they expect to rely upon a trial. This includes documents, as well as the names and identities of witnesses. Failure to make this production can lead to the foreclosure of using that evidence at trial, which again can be determinative of the outcome of the case. Under this provision, parties are not required to produce evidence that they will not use at trial - in other words, there is no duty to produce the 'bad,' unhelpful evidence that they hope no one ever discovers. (Such 'bad' evidence must be produced in response to a proper inquiry, but the request must be made and be made in proper form.)

     The next stage of discovery normally involves exchanges of written documents. Interrogatories will be served, often alongside document requests. Once responses are served to these requests and there has been sufficient time to review what has been produced, the parties are likely to proceed to deposition testimony.

     Requests to admit may be served at any time after the Rule 16 conference at the outset of the case, but often they are not answered definitively until discovery is complete or nearly complete. Parties are required to admit to those things that are true, but denials, objections, and requests for additional time effectively allow additional time if the answer is not immediately amenable to an answer (e.g., plaintiff has no evidence showing that defendant was aware the product had defects). Also often answered late in the litigation are what are known as contention interrogatories. These request a party to state whether certain arguments or contentions will be made on their side of the case. A contention interrogatory might ask, for example, whether a defendant will claim the defendant was contributorily liable or whether defendant will claim some third party was in fact the tortfeasor. In many cases these do not need to be answered at the outset, but responses must be made in time for the other party taking discovery to be able to obtain evidence relative to the contentions that are being pursued.

     After all fact discovery is closed, the parties normally will turn to expert discovery. Experts will review the facts in the case, including the fruits of discovery, and prepare opinions based upon their expert knowledge. These opinions must be provided to the other side in a written report if the expert is designated as one who will be called to tesitfy at trial (if you read the rule, you will see that no such duty normally attaches if the expert will not be called, which may happen if the expert comes to no conclusion or a conclusion that does not help the party that retained her). Economists and scientists often serve as expert witnesses, especially in cases where issues related to their expertise are prominent.  Sometimes lawyers or law professors serve as experts, with one example being where issues of foreign law are involved. Expert testimony allows a factfinder to be informed on issues that are beyond the expertise of a layman. You might ask yourself, as many already have, whether lay juries are well equipped to weigh and balance the competing opinions of highly-credentialed witnesses presented with opposing opinions by the opposing sides.

     Scope of Discovery.  Rule 26 sets forth the scope of permissible discovery. Over time, the rules have reduced this scope. At one time, for example, discovery was proper into any matter related to the subject matter of the litigation. Now, discovery must be related to a specific cause of action or defense. This has the effect of foreclosing discovery that might allow, for example, a claimant on a contract claim to seek evidence relevant to a potentially more lucrative antitrust or fraud claim that might arise from the same transaction or occurrence if the requisite facts can be uncovered. The rules have also reduced the quantity. While at one time there was no limitation in the rules on, for example, the numbers of interrogatories or the number and length of depositions, there are now default limits. While these can be extended in complex cases, the effect of the caps is intended to keep a check on requests for discovery unless a court or the other parties are persuaded to lift the caps. We are not aware of studies that definitively answer whether these limits have had the intended effect, but anecdotal evidence from friends suggests that both the bargaining framework (How many depositions seem like too many? How many days can the deposition be scheduled for?) and the actual amount of such discovery has indeed been shifted downward. We also hear that the stricter limits might limit wasted efforts but also can reward evasive tactics that run out the clock.

     Material that will not be admissible at trial is not exempt from discovery. Instead, a much broader test applies – discovery requests need to be reasonably calculated to lead to admissible evidence. Under this standard documents and testimony that will be barred from being entered evidence at trial by the hearsay rule, for example, will be subject to discovery because it might lead to admissible evidence.

     The Rules also have moved proportionality front and center. While proportionality has long been an aspect of permissible discovery, recent amendments stress this concept. The idea is that vast discovery is inappropriate for a smaller value case. As an economic matter, it's not clear why parties would ever want to spend time and money on disproportionate discovery, nor are there any studies we are aware of showing that disproportionate discovery has in fact been a widespread problem, but the point remains that judges are explicitly charged today to be on guard against disproportionate discovery.

     Another aspect of the scope of discovery has to do with protective orders. Parties may seek protective orders to limit or prevent discovery into sensitive areas. They can also, failing that, seek protective orders that require all parties to keep the information shared in discovery strictly confidential, which in some cases will limit the sharing of discovered information with individuals at client companies who may be in a position to use the information for reasons aside from the litigation. In many commercial case, protective orders putting all fruits of discovery behind a protective order up to trial are entered into as a standard practice in order to avoid the releasing into the public domain business or technical information.

     Attorney Client Privilege and the Work Product doctrine are also important limitations on the scope of discovery. Parties are entitled to assert attorney-client privilege and to invoke the work product doctrine to cut off discovery requests. To do this, some record has to be made showing that the claim of privilege or work product is legitimate. In the case of documents, a ‘privilege log’ usually is given to the other side, showing what documents were withheld and very briefly stating the basis for not producing them. Judges or magistrates might be asked to look at the withheld documents and rule on the assertion that they should not be produced. At depositions, the attorney will typically instruct the witness not to answer questions that intrude on these doctrines; if the instruction is not well-founded (and sometimes they are not), a judge or magistrate might be asked to rule on the objection. Similarly, with regard to interrogatories, an objection on privilege grounds might be included in the response.

     Note that attorney client privilege can get tricky when foreign legal professionals are involved. In the U.S., only licensed lawyers can give case specific legal advice, creating a bright line for the application of the privilege. In other countries, those without law licenses or even law degrees might give legal advice, leaving their communications potentially unprotected by the privilege.

     Judicial Control and Sanctions.  Over time, the judicial role in discovery has grown. Rule 16 (b)(1) requires the judge, in most cases (there are exceptions), to issue a scheduling order for the case within 90 days of the last defendant being served. Prior to that, the parties will typically meet in a conference required by Rule 26(f) conference to discuss discovery and establish a discovery plan. While at one time the progress of a case through the system largely depended on the attorneys, today such judicial control means that the parties must constantly respond to court issued deadlines. As of June 30, 2021, the median time from filing of a civil suit to trial is 28.3 months, a short time to get a lot done. See  (https://www.uscourts.gov/sites/default/files/data_tables/fcms_na_distprofile0630.2021.pdf).

     Judges also have the power to impose sanctions for discovery misconduct. While we know of no reliable empirical studies showing an increase in sanctions, we have heard anecdotal reports that judges have become more willing over time to impose sanctions when parties engage in discovery abuse – especially when they fail to produce materials that should have been produced, or allow the destruction of relevant materials such as documents. Judges have broad but not unlimited discretion to impose sanctions, with both the Due Process Clause and the Rules providing some limits. That said, in most situations, judges are free to respond flexibly and creatively to abuses. With any appeal normally held until the end of the case under the finality rule, and with many cases likely to settle rather than try and appeal the case, the trial judge holds substantial power over the parties in this context. Because those not familiar with U.S. litigation may not fully appreciate the risks and consequences of sanctionable behavior, we cover this in more detail below.

     Electronic Records and E-discovery.  At the time the Rules were adopted documents and other records existed only in physical format. As technology has progressed, the records relevant to discovery increasingly exist in electronic form.  Electronic records include not just word-processed documents but emails, texts, photographs, videos, social media posts, and so on. All of these are producible in discovery if otherwise qualified (and should be covered by any hold order issued by a competent legal department subject to US litigation). Electronic creation and storage of documents has also led to a vast increase in the numbers of possible documents. In a major case the producible documents can number in the billions. One aspect of the move to electronic documents is that technical expertise is needed to manage this information. Firms have arisen that handle electronic discovery, using offshored legal workers to review it and sometimes tools such as artificial intelligence to sort through it. Beyond that, major corporations that are subject to repeat litigation need to design their information technology systems at least in part with an eye to being able to respond to production demands in an economical and responsive fashion.

(3) Trial Preparation: Materials.

(A) Documents and Tangible Things. Ordinarily, a party may not discover documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent). But, subject to Rule 26(b)(4), those materials may be discovered if:

(i) they are otherwise discoverable under Rule 26(b)(1); and

(ii) the party shows that it has substantial need for the materials to prepare its case and cannot, without undue hardship, obtain their substantial equivalent by other means.

(B) Protection Against Disclosure. If the court orders discovery of those materials, it must protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of a party's attorney or other representative concerning the litigation.

(C) Previous Statement. Any party or other person may, on request and without the required showing, obtain the person's own previous statement about the action or its subject matter. If the request is refused, the person may move for a court order, and Rule 37(a)(5) applies to the award of expenses. A previous statement is either:

(i) a written statement that the person has signed or otherwise adopted or approved; or

(ii) a contemporaneous stenographic, mechanical, electrical, or other recording—or a transcription of it—that recites substantially verbatim the person's oral statement.

(5) Claiming Privilege or Protecting Trial–Preparation Materials.

(c) Protective Orders.

     Hickman and the Work Product Doctrine. The decision in the Hickman case led to the incorporation of Rule 26(b)(3) in the Rules. Again, while we will stop short of a deep exploration of the contours of the doctrine, you will note that both in the opinion and the rule the ability to withhold work product materials is conditional. In some cases, it can be overcome by a showing of “substantial need,” but even then intertangling of the materials with attorney thought processes might block production. Note that most other countries do not have anything like the Work Product doctrine but also do not have anything like U.S. private discovery.

     Assertion. Both the attorney-client privilege and the work product doctrine allow otherwise relevant and producible documents and testimony to be withheld. In response to a request, the privilege or the doctrine need to be asserted, and enough information provided for the other party and the court to determine whether the assertion is well founded. It is improper but not unheard of for parties to assert the doctrine or the privilege when the facts do not fully support the assertion, and that assertion can be challenged. For documents, this normally is done through creation of a 'privilege log' that identifies the document and provides the basis for the assertion. The privilege and the doctrine can also be asserted by counsel in the context of depositions; they can also be asserted in response to interrogatories, as was the case in Hickman. In some cases, protective orders can be obtained to exclude inquiry into areas that will be covered by the doctrine or privilege.

       Waiver. Both the attorney client privilege and the work product privilege can be waived and can even be waived inadvertently by producing material that is subject to being withheld. The issue that arises is that the waiver cannot be selective – parties cannot waive the privilege when it helps their case and withhold other privileged information that is not favorable. As a result, if there has been some waiver of the privilege, the opposing party is entitled to pursue discovery of privileged materials that put the waived material in context, which can mean more or less total discovery into the privileged communications. The sheer volume of electronic documents today means that some privileged material might be disclosed accidentally. While in times past such a mistake could easily be treated as a waiver, today Federal Rule of Evidence 501(b) and FRCP 26(b)(5)(B) give the producing party an opportunity to argue that the inadvertent production was made despite reasonable efforts to not produce privileged materials and to request its destruction or return.

     Determination of Claims. Claims of privilege and non-producibility will ultimately be determined by a judge if challenged. On occasion, the judge might review the challenged material in private or 'in camera' to determine the claim without revealing the information covered to the side seeking production.

     Anticipation.  Parties routinely subject to US litigation need to assert the applicable privilege or doctrine, or they might find they have waived it. In order to be able to easily identify documents subject to privilege or work product claim, documents that include an attorney among the drafters or recipients might prominently feature boldfaced terms such as "Attorney-Client Material; Privileged and Confidential" or "Work Product Material." Including such identifiers when the documents are created makes it easy to spot them at the time of production or if they come up in the course of litigation. Issues can arise, however, when someone who is a qualified attorney is participating in a role that does not draw on their legal expertise but places them in a purely business role. In such cases, the privilege is not applicable and should not be asserted, yet nonetheless documents on which they are included might routinely include the privilege flag. Producing parties should not rotely assert privilege in such cases.

     Extension of the Privilege. The attorney-client privilege normally attaches to communications to those who are acting as agents of the attorney. For example, statements made to an investigator or secretary acting for a lawyer will typically fall under the privilege. Again, if that is the case, forward-looking parties will clearly mark such documents at the time of creation so they are not inadvertently produced.

     Comparative Issues and Attorney-Client Privilege. Within the United States, the understanding and application of attorney-client privilege is generally consistent. Someone in a role of giving legal advice is entitled to assert the privilege so long as they are a licensed lawyer (a member of a bar). This applies even if they are full-time in-house attorneys. In many other countries, however, in-house lawyers are not allowed to assert the privilege as they are not considered sufficiently independent of their client. Without going into a deep analysis, be aware that a US court might not allow assertion of the privilege by a licensed lawyer who would not be allowed to assert an equivalent privilege in their home country. Issues also arise in countries - and China is one - where legal advice is sometimes given by law school graduates who have not joined the bar. This seems to be a common practice for those working in-house, for example. Again, without going into a deep dive on how this would be analyzed, be aware that an assertion of attorney-client privilege by someone who is a law graduate but not a licensed lawyer might not be honored by a US court.

     Identity and Scope of the Client. Again, we have chosen not to go in-depth into it in this course, but an issue arises with corporate and other non-human clients as to who can assert the privilege and as to which communications are covered. The US Supreme Court addressed this issue in Upjohn Co. v. United States, 449 U.S. 383, 389 (1981). The Court rejected an argument that only communications with a 'control group' that directed legal affairs counted. Instead, in addition to communications with the control group, communications with those whose actions might be charged to the company were covered. 

     Differences between Work Product and Attorney Client. Note that while there is some overlap between both the policies underlying Work Product and Attorney-Client protections, they are not the same. You will note that the work product doctrine only concerns items prepared in connection with litigation or anticipated litigation, and those materials need not be created or even reviewed by an attorney. The attorney client privilege, in contrast, requires communications between an attorney (or her agent) and the client (or her agent), conducted in confidence for the purpose of giving legal advice. Remember that they need to be analyzed separately.

(a) Motion for an Order Compelling Disclosure or Discovery.

(1) In General. On notice to other parties and all affected persons, a party may move for an order compelling disclosure or discovery. The motion must include a certification that the movant has in good faith conferred or attempted to confer with the person or party failing to make disclosure or discovery in an effort to obtain it without court action.

(2) Appropriate Court. A motion for an order to a party must be made in the court where the action is pending. A motion for an order to a nonparty must be made in the court where the discovery is or will be taken.

          (3) Specific Motions.

(A) To Compel Disclosure. A party seeking discovery may move for an order compelling an answer, designation, production, or inspection. This motion may be made if:

(B) To Compel a Discovery Response. A party seeking discovery may move for an order compelling an answer, designation, production, or inspection. This motion may be made if:

(i) a deponent fails to answer a question asked under Rule 30 or 31;

(ii) a corporation or other entity fails to make a designation under Rule 30(b)(6) or 31(a)(4);

(iii) a party fails to answer an interrogatory submitted under Rule 33; or

(iv) a party fails to produce documents or fails to respond that inspection will be permitted — or fails to permit inspection — as requested under Rule 34.

(C) Related to a Deposition. When taking an oral deposition, the party asking a question may complete or adjourn the examination before moving for an order.

(4) Evasive or Incomplete Disclosure, Answer, or Response. For purposes of this subdivision (a), an evasive or incomplete disclosure, answer, or response must be treated as a failure to disclose, answer, or respond.

(5) Payment of Expenses; Protective Orders.

(A) If the Motion Is Granted (or Disclosure or Discovery Is Provided After Filing). If the motion is granted—or if the disclosure or requested discovery is provided after the motion was filed—the court must, after giving an opportunity to be heard, require the party or deponent whose conduct necessitated the motion, the party or attorney advising that conduct, or both to pay the movant’s reasonable expenses incurred in making the motion, including attorney’s fees. But the court must not order this payment if:

(i) the movant filed the motion before attempting in good faith to obtain the disclosure or discovery without court action;

(ii) the opposing party’s nondisclosure, response, or objection was substantially justified; or

(iii) other circumstances make an award of expenses unjust.

(B) If the Motion Is Denied. If the motion is denied, the court may issue any protective order authorized under Rule 26(c) and must, after giving an opportunity to be heard, require the movant, the attorney filing the motion, or both to pay the party or deponent who opposed the motion its reasonable expenses incurred in opposing the motion, including attorney’s fees. But the court must not order this payment if the motion was substantially justified or other circumstances make an award of expenses unjust.

(C) If the Motion Is Granted in Part and Denied in Part. If the motion is granted in part and denied in part, the court may issue any protective order authorized under Rule 26(c) and may, after giving an opportunity to be heard, apportion the reasonable expenses for the motion.

(b) Failure to Comply with a Court Order.

(1) Sanctions Sought in the District Where the Deposition Is Taken. If the court where the discovery is taken orders a deponent to be sworn or to answer a question and the deponent fails to obey, the failure may be treated as contempt of court. If a deposition-related motion is transferred to the court where the action is pending, and that court orders a deponent to be sworn or to answer a question and the deponent fails to obey, the failure may be treated as contempt of either the court where the discovery is taken or the court where the action is pending.

(2) Sanctions Sought in the District Where the Action Is Pending.

(A) For Not Obeying a Discovery Order. If a party or a party’s officer, director, or managing agent—or a witness designated under Rule 30(b)(6) or 31(a)(4)—fails to obey an order to provide or permit discovery, including an order under Rule 26(f), 35, or 37(a), the court where the action is pending may issue further just orders. They may include the following:

(i) directing that the matters embraced in the order or other designated facts be taken as established for purposes of the action, as the prevailing party claims;

(ii) prohibiting the disobedient party from supporting or opposing designated claims or defenses, or from introducing designated matters in evidence;

(iii) striking pleadings in whole or in part;

(iv) staying further proceedings until the order is obeyed;

(v) dismissing the action or proceeding in whole or in part;

(vi) rendering a default judgment against the disobedient party; or

(vii) treating as contempt of court the failure to obey any order except an order to submit to a physical or mental examination.

(B) For Not Producing a Person for Examination. If a party fails to comply with an order under Rule 35(a) requiring it to produce another person for examination, the court may issue any of the orders listed in Rule 37(b)(2)(A)(i)–(vi), unless the disobedient party shows that it cannot produce the other person.

(C) Payment of Expenses. Instead of or in addition to the orders above, the court must order the disobedient party, the attorney advising that party, or both to pay the reasonable expenses, including attorney’s fees, caused by the failure, unless the failure was substantially justified or other circumstances make an award of expenses unjust.

(c) Failure to Disclose, to Supplement an Earlier Response, or to Admit.

(1) Failure to Disclose or Supplement. If a party fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless. In addition to or instead of this sanction, the court, on motion and after giving an opportunity to be heard:

(A) may order payment of the reasonable expenses, including attorney’s fees, caused by the failure;

(B) may inform the jury of the party’s failure; and

(C) may impose other appropriate sanctions, including any of the orders listed in Rule 37(b)(2)(A)(i)–(vi).

(2) Failure to Admit. If a party fails to admit what is requested under Rule 36 and if the requesting party later proves a document to be genuine or the matter true, the requesting party may move that the party who failed to admit pay the reasonable expenses, including attorney’s fees, incurred in making that proof. The court must so order unless:

(A) the request was held objectionable under Rule 36(a);

(B) the admission sought was of no substantial importance;

(C) the party failing to admit had a reasonable ground to believe that it might prevail on the matter; or

(D) there was other good reason for the failure to admit.

(d) Party’s Failure to Attend Its Own Deposition, Serve Answers to Interrogatories, or Respond to a Request for Inspection.

(1) In General.

(A) Motion; Grounds for Sanctions. The court where the action is pending may, on motion, order sanctions if:

(i) a party or a party’s officer, director, or managing agent—or a person designated under Rule 30(b)(6) or 31(a)(4)—fails, after being served with proper notice, to appear for that person’s deposition; or

(ii) a party, after being properly served with interrogatories under Rule 33 or a request for inspection under Rule 34, fails to serve its answers, objections, or written response.

(B) Certification. A motion for sanctions for failing to answer or respond must include a certification that the movant has in good faith conferred or attempted to confer with the party failing to act in an effort to obtain the answer or response without court action.

(2) Unacceptable Excuse for Failing to Act. A failure described in Rule 37(d)(1)(A) is not excused on the ground that the discovery sought was objectionable, unless the party failing to act has a pending motion for a protective order under Rule 26(c).

(3) Types of Sanctions. Sanctions may include any of the orders listed in Rule 37(b)(2)(A)(i)–(vi). Instead of or in addition to these sanctions, the court must require the party failing to act, the attorney advising that party, or both to pay the reasonable expenses, including attorney’s fees, caused by the failure, unless the failure was substantially justified or other circumstances make an award of expenses unjust.

(e) Failure to Preserve Electronically Stored Information. If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court:

(1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or

(2) only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation may:

(A) presume that the lost information was unfavorable to the party;

(B) instruct the jury that it may or must presume the information was unfavorable to the party; or

(C) dismiss the action or enter a default judgment.

(f) Failure to Participate in Framing a Discovery Plan. If a party or its attorney fails to participate in good faith in developing and submitting a proposed discovery plan as required by Rule 26(f), the court may, after giving an opportunity to be heard, require that party or attorney to pay to any other party the reasonable expenses, including attorney’s fees, caused by the failure.

     Case Management. As discovery has become increasingly important in US litigation, the role of judges in managing the discovery process and pretrial behavior has become increasingly crucial. Traditionally, judges were not engaged in management of a case, but now 'managerial judging' is a standard part of the US process. Judges meet with the parties early to determine how the case should proceed and typically, especially in more significant cases, hold regular status hearings to stay on top of the case. The parties still have significant leeway to pursue the evidence and legal theories they think are appropriate, but judges will be engaged to keep the case on schedule and to resolve disputes, including disputes about discovery. Some see a convergence between the US, common law approach and civil law systems; others note that in civil law countries judges play a more central role in making the choices that drive litigation. 

     Today, much of the case management is done by “Magistrate Judges,” who are not Article III judges confirmed by the Senate and holding lifetime tenure. Instead, the magistrates are appointed by the judges of a district to a term of years. Magistrates often handle pretrial matters subject to the review of the trial court, and, with the approval of all parties, might handle the trial of a case, with the appeal of such a trial being direct to the court of appeals. The limitations on the role of magistrate judges imposed by the Constitution and statutes are beyond the scope of this course; that said, modern federal practice depends upon them. The “Judge Kim” referred to in the opinion that follows is a magistrate judge in the Northern District of Illinois.

     Sanctions. Courts can impose sanctions for discovery misconduct. The rule that provides discovery sanctions, Rule 37, operates independently of Rule 11, which governs pleadings. Discovery sanctions can arise from a variety of behavior, which would include failure to preserve evidence, destruction of evidence, failure to cooperate, obstruction, and on. Sanctions can include responses ranging from an order to cooperate to financial sanctions to instructing a jury that it can draw adverse inferences from the missing evidence to directing a finding of liability in the case. We will go more into depth on Rule 37 after the following case, which arose in the same Global Materials Technologies, Inc., v. Dazheng Metal Fibre Co. Ltd. litigation we saw earlier in the section on enforcement of foreign judgments and will see again in the contest of applying preclusion doctrine to judgments from outside the United States.

GLOBAL MATERIAL TECHNOLOGIES, INC., Plaintiff,

v.

DAZHENG METAL FIBRE CO. LTD., Dazheng Metal Fibre Co. Ltd. d/b/a ChuanGuPing a/k/a Tru Group, and Dong Jue Min, Defendants.

No. 12 CV 1851

|

Signed 09/13/2016

MEMORANDUM OPINION AND ORDER

Manish S. Shah, United States District Judge

     For years, Global Material Technologies maintained a close business relationship with Dazheng Metal Fibre Co. (DNZ), a Chinese company. The relationship eventually disintegrated, however, and in 2011 GMT sued DNZ in both the United States and China. The Chinese court entered judgment before the domestic case was transferred to this district, and several of GMT’s claims were dismissed at the pleadings stage. But its trade-secrets claim remained, and the parties engaged in discovery on that issue. Citing repeated abuses of the discovery process by defendants (which include DNZ’s general manager, Dong Jue Min, and its wholly-owned subsidiary, Tru Group), GMT moved for a default judgment. Defendants opposed the motion, and filed their own motion for summary judgment. For the reasons discussed below, GMT’s motion for default is granted, and defendants’ motion for summary judgment is denied as moot.

1. Legal Standard

     The district court may sanction a party that has failed to take reasonable steps to preserve electronically stored information if that information should have been preserved during the litigation, but it has been lost and cannot be restored or replaced through additional discovery. Fed. R. Civ. P. 37(e). If another party was prejudiced by the loss of the information, the court may order measures necessary (but no greater than necessary) to cure the prejudice. Fed. R. Civ. P. 37(e)(1). Alternatively, if the court finds that the party that lost the information did so intentionally in order to deprive the other party of the information’s use, the court may: presume that the information was unfavorable to the first party; instruct the jury that it may (or must) presume that the information was unfavorable to the first party; or dismiss the action or enter a default judgment. Fed. R. Civ. P. 37(e)(2).  FN 1  Default judgment is an appropriate sanction where: (1) there is “a clear record of delay or contumacious conduct”; (2) less drastic sanctions have proven ineffective; or (3) a party has demonstrated willfulness, bad faith, or fault. Domanus v. Lewicki, 742 F.3d 290, 301 (7th Cir. 2014) (quoting Maynard v. Nygren, 332 F.3d 462, 467 (7th Cir. 2003); In re Thomas Consol. Indus., Inc., 456 F.3d 719, 724 (7th Cir. 2006)). 

1. Background
2. GMT’s Suits Against DNZ

     GMT is an American company that manufactures and sells metallic-wool products, including steel fibers. In February 2011, GMT sued DNZ—a Chinese company with whom GMT had contracted for the supply of such fibers—in both the United States Court for the Middle District of Tennessee and the Zhuhai People’s Court of Guangdong Province, China. In the Chinese action, GMT alleged that DNZ had breached the parties’ supply agreement by shipping to GMT (or to GMT’s customers) rusted product, product that did not otherwise comply with GMT’s purchase orders, and product that GMT had never ordered. GMT included similar allegations in the United States litigation, but added claims concerning the purported use of GMT’s confidential information. According to GMT, it had shared with DNZ the former’s pricing strategies, confidential customer list, and internal operating procedures—but with the clear understanding that DNZ would not disclose this information to third parties or use it to GMT’s disadvantage. GMT believed that DNZ had violated this understanding, and had created in secret a subsidiary, Tru Group, through which DNZ had attempted to take over GMT’s customer base. GMT named Tru Group and DNZ’s general manager, Dong Jue Min, as additional defendants to the United States action.

     The latter was ultimately transferred to the Northern District of Illinois. Before the transfer, however, the Chinese trial court entered judgment in the lawsuit there. The Chinese trial court concluded that GMT had failed to prove there were any quality issues with DNZ’s shipments, and that DNZ also was not liable for shipping product that did not adhere to GMT’s orders. DNZ had agreed to the return of certain goods, though, and so was obligated to refund the cost of those goods. But DNZ’s obligations would be offset—and then some—by GMT’s own obligations. The trial court agreed with DNZ that the American company owed some $1 million in outstanding balances in related costs. The Chinese court of appeals affirmed in large part the lower court’s judgment, making only small adjustments to the damages calculation.

     Back in the United States, DNZ sought to enforce the Chinese judgment and preclude GMT (under principles of res judicata) from pursuing its claims in the Northern District of Illinois. That motion was granted as to the recognition and enforcement of the judgment rendered by the Chinese intermediate court, and granted as to preclusion of GMT’s contract-based claims, but denied as to GMT’s trade-secrets claim. [Editor’s Note: The decision as to enforcing the Chinese judgment was included in our section on judgments, above; the decision as to preclusion is included in the preclusion section of this book, below.] Discovery thus proceeded on that claim.

2. GMT’s Motions to Compel and for Default

     In October 2014, GMT filed with Magistrate Judge Kim a motion to compel the production of materials concerning a Hong Kong company named Seamarky Industrial, Ltd. [173]. GMT believed that DNZ had established Seamarky on the sly—much as GMT believed DNZ had secretly created Tru Group—for the purpose of taking over GMT’s customers without its knowledge. In response to GMT’s discovery requests, however, defendants denied any connection with Seamarky, and, accordingly, having any documents concerning that company. Id. at 1–2, 5–6. GMT was skeptical of these answers, because it had obtained through subpoenas to some of its former customers: (1) documents linking Seamarky to Alex Chan, a DNZ sales director; and (2) records tying Seamarky to Delano Mok, a person previously identified by defendants as a Tru Group employee. See id. at 7–8. GMT also believed that defendants had produced an implausibly small number of documents, and questioned whether defendants had conducted a proper search for electronically stored information. See id. at 12–13.

     Judge Kim granted the motion to compel and ordered the defendants to describe, first, the efforts they had made to date in searching for responsive records, and, second, where those records were being kept. Defendants explained in a March 2015 letter to Judge Kim that neither DNZ nor Tru Group had operated an electronic data network, server, or other storage system, and that neither had ever hosted a company e-mail system. Instead, employees and “independent sales representatives” were asked to register individually for DNZ and Tru Group e-mail accounts with a cloud-based e-mail provider in China. Defendants did not in general have access to those accounts; however, following the production by GMT’s third-party customers of e-mails referring to Alex Chan and Delano Mok, DNZ had obtained the log-in information for Chan’s account. When DNZ accessed that account, all of the e-mail folders were empty. And Tru Group was never given access to Mok’s e-mail account. Dong Jue Min had a Yahoo!-hosted e-mail account, but those messages were likewise inaccessible because Yahoo! had stopped providing e-mail service to China in August 2013, and had at that time deleted all of its customers’ accounts.

     As for other records, defendants stated that DNZ had issued some computers, but only to a select number of employees working in DNZ’s “general office” and its warehouse and finance departments. DNZ had not issued computers to any independent sales representatives (like Chan); and Tru Group had not issued any computers, period.

     Beginning in March 2011, said defendants, they began to wind down their business operations and, as part of that process, instructed their employees to preserve in hard copy any electronic information needed to comply with relevant record-keeping obligations in China. Defendants said that some electronic data were also transferred to a USB flash drive. According to defendants, after the “relevant” information was printed or transferred to the flash drive, DNZ liquidated all of its computers. In response to GMT’s discovery requests (propounded in November 2011), defendants claimed that they had searched the flash drive and all physical records. The companies had also directed their remaining employees to search their e-mail accounts for responsive information, and had asked their former independent sales agents to do the same. To the extent responsive records were found, said defendants, they had saved them to the flash drive or printed and retained hard copies.

     Judge Kim ordered that the flash drive be imaged by a discovery vendor and, once imaged, searched for additional responsive information. The drive was imaged and reviewed by defendants, but in an April 2015 teleconference, defendants’ attorney told counsel for GMT that everything on the drive had already been produced.

     Based on, among other things, the lost computers and missing e-mail evidence, GMT moved for a default judgment under Rule 37(e) of the Federal Rules of Civil Procedure. Defendants opposed the motion and filed their own motion for summary judgment.

III. Analysis

1. GMT’s Motion for Default Judgment

     Default judgment may be awarded under Rule 37(e) only where a party that lost or failed to preserve electronically stored information did so intentionally in order to prevent an opposing party from using that information in the litigation. Fed. R. Civ. P. 37(e)(2). Negligent or even grossly negligent conduct is insufficient to warrant such a severe sanction. Advisory Committee Note to 2015 Amendment to Fed. R. Civ. P. 37(e). See also Domanus, 742 F.3d at 301 (willfulness or bad faith is required); Aura Lamp & Lighting Inc. v. Int’l Trading Co., 325 F.3d 903, 909 (7th Cir. 2003) (citing In re Golant, 239 F.3d 931, 936 (7th Cir. 2001)) (same). GMT argues that default is appropriate here because, among other reasons, defendants: destroyed evidence (DNZ’s computers) and refused to search other sources of electronic information (Dong Jue Min’s e-mail account) until it was too late to do so; lied to GMT and to the court about defendants’ (lack of) relationship with Seamarky in order to explain the absence of records concerning that company; and otherwise obstructed GMT’s discovery of relevant information.

1. Destruction or Loss of Electronic Information
2. DNZ’s Computers

     GMT first points to the liquidation of DNZ’s computers, which defendants say were sold after the businesses started winding down their operations in March 2011. That was the explanation given to Judge Kim in March 2015, at any rate. See [197] at 3; see also id. at 1, 3 (stating that DNZ stopped exporting manufactured products in March 2011, Tru Group ceased all export sales six months later, and all manufacturing operations ended in 2013). In September 2015, however, Tru Group represented (again to Judge Kim) that both companies were still doing some business and might later resume full production. See Tru Group’s Opposition to GMT’s Motion to Remove “Attorneys’ Eyes Only” Designations, [245] at 4–5; see also id. at 5–9 (arguing against disclosure of defendants’ commercial information to GMT employees because the parties were still competitors). Tru Group insisted to Judge Kim that nothing in defendants’ March 2015 letter had suggested that they “d[id] not intend to re-start their operations upon resolution of [the] litigation” with GMT. Id. at 5. But as Judge Kim later observed, at 10, that is exactly the impression that the letter gave (and, presumably, that it was meant to give).

     Defendants now contend, as they did before Judge Kim in March 2015, that the sale of the computers can make no difference to GMT, because the computers did not contain any information material to GMT’s claims. See [352] at 10, Tr. at 9:10–:13 (stating that the computers were issued only to custodians not relevant to this case); [367] at 31 (similar). But this assertion is contradicted by statements in Dong Jue Min’s declaration, which defendants have filed in opposition to GMT’s current motion (and in support of their own motion for summary judgment). In his declaration, Dong says that before the computers were discarded, DNZ staff reviewed their contents and saved to a “digital storage device” copies of any documents relevant to the litigation. See [368-2] at 17 ¶ 49. This device, he explains, is the same one that Judge Kim ordered defendants to have imaged in March 2015. Id. Recall, however, that after the imaging was complete, defendants told GMT that everything on the drive had already been produced in discovery—meaning that the computers must have contained information responsive to GMT’s discovery requests.

1. Dong Jue Min’s E-mail Account

     GMT also complains that defendants failed to search the Yahoo!-hosted e-mail accounts of Dong Jue Min and his wife (the latter of whom used her account to contact potential customers for DNZ, see November 19, 2008 E-mail, [353] at 2). Defendants do not dispute that they did not search these accounts, but argue that the messages in them were unavailable because Yahoo! had deleted data after discontinuing its e-mail services in China. See [367] at 31; see also March 10, 2015 Letter to Judge Kim, [197] at 2. GMT propounded its initial discovery requests in November 2011; the e-mail accounts were not shut down until August 2013. See [197] at 1–2, 6. Defendants have not explained why the accounts were not searched during the intervening 21 months.

     Moreover, defendants expressed to Judge Kim complete surprise that Yahoo! had pulled out of China. See Transcript of March 12, 2015 Proceeding, [203] at 8, Tr. at 8:19–:24 (“[N]o one anticipated this situation with Yahoo!. No one foresaw that they would all of a sudden pick up and leave China. That was a surprise to everyone,...[s]o it would have been impossible for us to have anticipated that would occur.”). But it is incredible that Yahoo! would not at least have warned its Chinese customers of an intent to erase the customers’ information. Indeed, publicly-available news stories indicate that the termination of Yahoo!’s services in China was not the total shock defendants claim it was. If news of the termination broke in April 2013 (see note 5, below), defendants had plenty of time in which to preserve the information in the affected accounts.

1. Other E-mail Accounts

     In their March 2015 letter to Judge Kim, defendants explained that they had been unable to search other company e-mail accounts because those accounts had been registered (with a third-party provider) by the individuals who had used them, and those individuals—including, in particular, Alex Chan and Delano Mok—no longer worked for defendants. [197] at 3–4. In other words, the e-mail records were now out of defendants’ control. While defendants had eventually been given access to and had searched Chan’s DNZ account in September 2014 (only to find that no data remained), defendants told Judge Kim that they had never accessed Mok’s e-mails. Id. at 4. This last statement stands in stark contrast to those made by Julia Wu, Tru Group’s sales manager. In a declaration dated November 3, 2014, Wu swore under penalty of perjury that Tru Group had “searched Mr. Mok’s assigned Trugroup [sic] email account” after GMT’s customers had produced certain records in response to a subpoena. [183-2] at 2 ¶ 6; id. at 3. There is also evidence, discussed below, that Mok and Chan did not actually stop working for defendants in 2011, as defendants claim.

2. False Statements

     Defendants have maintained repeatedly, both in statements to GMT and to the court, that none of them is affiliated with, or has had any kind of a business relationship with, Seamarky Industrial, Ltd. See, e.g., DNZ’s Amended Responses to GMT’s November 8, 2011 Discovery Requests, [348] at 3 ¶ 13 (“DNZ...does not [have], and [has] never had, a business relationship with Seamarky.”); DNZ’s Amended Responses to GMT’s July 2014 Discovery Requests, [313] at 16 ¶ 13 (same); id. at 10 ¶ 14 (“DNZ has no affiliation with Seamarky and is unaware of any documents which may relate to Seamarky’s business other than those previously produced by third-parties pursuant to subpoena.”); Shi Declaration, [183-1] at 2 ¶ 5 (“DNZ is not affiliated with, and has no ownership interest in, Seamarky....DNZ has never had a business relationship with Seamarky....”); November 3, 2014 Declaration of Julia Wu, [183-2] at 2 ¶ 5 (same, but concerning the absence of a connection between Seamarky and Tru Group); Transcript of February 11, 2015 Proceeding before Judge Kim, [204] at 11, 11:6–:12 (stating that none of the defendants, including Dong Jue Min, had a relationship with or had done business with Seamarky); Defendants’ Opposition to GMT’s Motion for Default Judgment, [367] at 31–32 (arguing that GMT has no proof of any connection between defendants and Seamarky). GMT argues, and I agree, that defendants’ claims about Seamarky are belied by the evidence obtained from some of GMT’s former customers.

     One such customer was Federal-Mogul. GMT originally sold to Federal-Mogul steel-fiber products made in GMT’s own factory in Illinois, but around 2005 began to supply them with product manufactured by DNZ in China. See October 21, 2015 Deposition of Stanley Kulis, [309] at 3, Tr. at 20:6–:16. The change in manufacturer necessitated a product-quality audit by Federal-Mogul so that Federal-Mogul could make sure its requirements would continue to be met. See id. at 4, Tr. at 21:3–23:12. In late December 2009, Delano Mok (one of Tru Group’s sales agents) began communicating with Federal-Mogul representatives about purchasing its steel fibers directly from DNZ, through Tru Group. See E-mail Exchange between Mok and Chris Wilde, [315] at 3–6. Mok explained that Tru Group was authorized by DNZ to sell the latter’s products overseas because DNZ had terminated its exclusive supply agreement with GMT in late 2008 (due to GMT’s failure to meet its minimum-purchase obligations), and that DNZ had materials proving DNZ had been manufacturing Federal-Mogul’s fibers all along. See id. at 2–3. In March 2011, Federal-Mogul executed a supply agreement with Tru Group. See [320]. Because there would be no change in product, Federal-Mogul did not perform a quality audit or notify its customers of the switch. See Kulis Deposition, [309] at 8, Tr. at 55:1–:11; October 14, 2015 Deposition of Allen Cleveland, [308] at 10, Tr. at 70:9–:14.

     A few months later, Federal-Mogul learned—one may assume from Mok— that Tru Group had established a business entity in Hong Kong called Seamarky. See July 1, 2011 E-mail from Derek Milliean to Allen Cleveland et al., [307] at 2. “The intent,” Federal-Mogul was told, was “to eliminate [Tru Group] and replace it with Seamarky” because customs fees and taxes were lower in Hong Kong than in mainland China, where Tru Group operated. Id. So Federal-Mogul exchanged its supply contract with Tru Group for one with Seamarky, effective August 1, 2011, and continued to work with Delano Mok (who continued to use his Tru Group e-mail address) as its point of contact. See September 15, 2011 E-mail from Mok to Susi Rivers et al., [321] at 2; September 2011 E-mails between Mok and Andrea Meyerpeter et al., [325] at 2–3 (noting that shipments made before August 31, 2011, were supplied by Tru Group, but subsequent shipments had been and would in the future be made using the company name “Seamarky Industrial Limited”); April and June 2014 E-mails between Mok and David Klemz et al., and attachments, [336] (addressing, through Mok’s Tru Group e-mail account, problems with Seamarky shipments of DNZ product).

     Tru Group claims that Mok left its employ in September 2011, and that Tru Group had no idea Mok was continuing to use his company e-mail account to perform work on behalf of Seamarky, a company with which Tru Group claims to have no connection. But several invoices from Mok (Dated August 14, August 29, and September 14, 2011, respectively) directed Federal-Mogul to pay Seamarky, a Hong Kong company, through Tru Group’s bank account in mainland China. See [321] at 3–8. These instructions would have made no sense at all if Tru Group and Seamarky were truly unrelated.

     And Mok is not the only one of defendants’ “former” agents connecting defendants to Seamarky’s activities. On June 17, 2011, Alex Chan sent representatives at Honeywell, another of GMT’s customers, an e-mail entitled, “Seamarky Info.” [343] at 2. Chan sent the e-mail using his DNZ e-mail account, and included a signature block representing that he was a sales director of that company. He wrote:

Enclosed please find our Hongkong [sic] company information for your documents....I will be your first contact for the material supply.

     Id.(The enclosure or attachment was never produced.) Defendants claim that DNZ terminated its relationship with Chan in June 2011, and that Chan, too, continued to use his company e-mail address without defendants’ knowledge. But there is evidence indicating that, in 2013, Chan visited one of Federal-Mogul’s facilities on behalf of both DNZ and Seamarky. See January 12, 2013 E-mail from David Klemz to Alex Chan et al., [334] at 2; see also Kulis Deposition, [309] at 17, Tr. at 125:7:–:19. And when Federal-Mogul asked Chan—also in 2013—to clarify his role at DNZ, Chan replied that he was a “sales manager” for that company. See March 16, 2013 E-mail from Randall Gibbs to Chan et al., [335] at 2; March 17, 2013 E-mail from Chan to Gibbs et al., id.

     The evidence produced by Federal-Mogul further suggests that the product Federal-Mogul was receiving through Seamarky was indeed manufactured by DNZ. See Attachments to April and June 2014 E-Mails, [336] at 4–8, 11–22, 25–26 (showing DNZ-marked packaging with Seamarky shipping labels attached); Kulis Deposition, [309] at 13–14, Tr. at 80:19–22, 81:24–84:23 (stating that in July 2012, a Federal-Mogul employee completed a product-quality audit at a DNZ manufacturing plant in Ma’anshan, China); 2012 Product Process Audit Report, [332] at 2 (listing Seamarky Industrial as the supplier for product made at the Ma’anshan DNZ plant).  And still more names from DNZ’s purported past continued to pop up in Federal-Mogul’s document production. A 2012 audit report listed Federal-Mogul’s “[s]upplier contact” (i.e., Seamarky contact) as Xie Ying— otherwise known as Grace Xie—DNZ’s marketing manager and Tru Group’s manager of operations. See [332] at 1; DNZ’s Amended Responses to GMT’s July 2014 Discovery Requests, [313] at 12 ¶ 1; Dong Declaration, [368-2] at 8 ¶ 20; id. at 11–12 ¶¶ 31–32. Defendants say that Xie resigned from DNZ and Tru Group on June 25, 2011. Dong Declaration, [368-2] at 14 ¶ 38. But Xie was still using her DNZ e-mail address and DNZ’s fax number more than a year later. Compare [332] at 1 (listing Xie’s fax number in 2012) with June 17, 2011 E-mail from Alex Chan, [343] at 2 (providing DNZ’s fax number in June 2011) and http://www.dnz-inc.com/ec1.html (listing the same, but as DNZ’s telephone number) (last visited September 12, 2016).

     The evidence from GMT’s customers clearly connects defendants to Seamarky Industrial, such that defendants’ claims to the contrary are not credible. Defendants say that they have broken ties completely with each individual (and the manufacturing facility) potentially linking defendants to Seamarky’s activities, but offer no documentary proof in support of this assertion. Nor does their explanation of what happened—that defendants’ former employees and agents set up Seamarky themselves and used the “DNZ” mark to sell product from the Ma’anshan plant without any continued connection to or permission from DNZ—make sense. Defendants claim that these “former” employees stole the DNZ brand, and also claim that defendants were shutting down DNZ because of GMT’s accusations. But the DNZ brand would not have been worth stealing if, as defendants claim, their reputations had been so damaged by GMT’s accusations that in early 2011 they were forced to start closing down their operations. See March 2015 Letter to Judge Kim, [197] at 1, 3; Dong Declaration, [368-2] at 13–14 ¶ 38.⁸ In addition, Tru Group is a defendant here and its claim to have no connection to Seamarky is flatly contradicted by the instructions to a customer to send money for Seamarky to a Tru Group bank account. The simpler, and more likely true, explanation is that DNZ and Tru Group had some relationship with Seamarky, and defendants falsely denied the relationship’s existence.

3. Other Discovery Violations

     GMT contends that defendants DNZ and Tru Group have also violated Federal Rule of Civil Procedure 30(b)(6) by selecting as a representative deponent only Dong Jue Min, who was either unprepared to answer, or in certain instances refused to answer, questions relating to the noticed deposition topics—topics to which neither defendant company ever objected.

     Some of Dong’s deposition testimony was indeed bizarre. When asked if there existed written records or minutes of DNZ board meetings, Dong responded that he had no obligation to provide GMT’s counsel with any such information, because GMT was not one of DNZ’s shareholders. Deposition of Dong Jue Min, [304] at 17, Tr. at 106:6–:19. Although Dong ultimately gave an answer to the question (no, there were no meeting minutes), he then clarified that the reason he had answered “no” was because GMT was not a shareholder of DNZ. See id. at 18, Tr. at 109:6–110:8. Dong gave similar responses to questions concerning DNZ’s production of documents to GMT, see id. at 26, Tr. at 150:16–151:4, and about the creation of Tru Group, see id. at 20, Tr. at 116:2–:10 (“Q. [W]hen did [the board] resolution occur for the approval of TruGroup...? A. This is internal information of DNZ. Like I said many times before,...you have no rights [sic] to ask a question in regards to our internal operations[, and] I have no...obligations [sic] to answer these questions.”). Whether GMT has an ownership interest in DNZ does not inform the parties’ rights or obligations at a deposition. And having neglected to object to the scope of any of the noticed deposition topics—which included the subjects just discussed, see [354] at 8 ¶¶ 1, 10; id. at 11 ¶ 44—Dong was required to speak to those issues unless the information sought was either privileged or subject to a work-product protection (and defendants make no such argument here).

     Dong was also unable to answer questions about Jenny Shi and Julia Wu, the declarants for DNZ and Tru Group, respectively (as discussed earlier); nor could he speak to the contents of the declarations. See Dong Deposition, [304] at 7–8, Tr. at 51:24–53:12, 57:8–:17; id. at 13, Tr. at 78:18–80:16. These topics, too, were covered by GMT’s 30(b)(6) deposition notices. See [354] at 8 ¶¶ 6–7; [355] at 8 ¶¶ 6–7. Dong claimed to be unfamiliar with Alex Chan. Compare Dong Deposition, [304] at 27–28, Tr. at 152:2–:6, 156:16–158:2 (stating that Dong did not know who that person was) with GMT’s Amended Rule 30(b)(6) Deposition Notice to DNZ, [354] at 11 ¶¶ 47–48 (listing as 30(b)(6) topics all communications by and between DNZ and Alex Chan, and communications sent by Alex Chan on DNZ’s behalf) and id. at 8 ¶ 6 (listing as a topic all information contained in Jenny Shi’s declaration); Shi Declaration, [183-1] at 2 ¶¶ 3–4, 6 (discussing Chan’s relationship with DNZ and the search of his DNZ e-mail account). And Dong said he had little to no information about Tru Group’s operations or related documents, because Tru Group had “contracted out” its management to another party. See Dong Deposition, [304] at 22–23, Tr. at 125:5–131:6.

     That Tru Group (the defendant for whom Dong testified as a 30(b)(6) representative) had absolutely no knowledge of or control over its own documents is improbable—especially considering that the individual to whom Tru Group claims to have entrusted its management was not a disinterested third party, but Grace Xie, the DNZ marketing manager (and a DNZ employee). See id. Moreover, as Dong stated in his March 2016 declaration (filed in response to the present motion and in support of defendants’ motion for summary judgment), Tru Group did have possession of some of its operational records. [368-2] at 15–16 ¶ 45. Both Tru Group and DNZ, explained Dong in his declaration, had policies of preserving in hard copy all “important” information, including all documents concerning the export of DNZ’s products. Id. The physical records had been maintained at the companies’ respective offices until the businesses purportedly ceased operations, at which time those documents were moved to an archive room at DNZ. Id. According to the defendants’ March 2015 letter to Judge Kim, Tru Group stopped exporting goods for sale in September 2011, and both Tru Group and DNZ discontinued all operations in 2013. See [197] at 1, 3. So defendants had possession of Tru Group’s records no later than 2013. Dong Jue Min was not deposed until 2015—at which time he claimed to be totally in the dark on this point.

     As for Dong’s ignorance of Alex Chan and the rest, defendants argue that Dong did not speak English (and so did not recognize any of the English names that DNZ or Tru Group representatives may have adopted). He was the person most qualified to represent those companies at the deposition, argue defendants, and he answered GMT’s questions as best he could. Defendants confuse the deposition of a business entity with the deposition of an individual. Individuals may testify only to their personal knowledge; but company representatives designated under Rule 30(b)(6) must also be prepared to testify about any information “known or reasonably available to the organization.” Fed. R. Civ. P. 30(b)(6). If a single person is unfamiliar with such information, or cannot be so educated before the deposition, the company must select additional designees to testify. See id. (“The named organization must... designate one or more officers... or designate other persons...to testify on its behalf.”) (emphasis added). The rule is structured in this way to prevent the kind of “bandying” that may occur when the officers or agents of a business entity are deposed in turn and each disclaims knowledge of facts that are clearly known to persons in the company (and, thus, to the company itself). Advisory Committee Note to 1970 Amendment to Fed. R. Civ. P. 30.

     Someone at DNZ definitely knew who Alex Chan was, because they provided information about him in a sworn declaration submitted to the court. And there is no excuse for Dong’s professed unawareness of the contents of that declaration, or its declarant, as DNZ was given notice that these subjects would be addressed at the deposition. The declaration submitted by Tru Group was similarly included as a topic for discussion with that company’s 30(b)(6) designee. Dong may not have spoken English, but the deposition notices were sent on June 29, 2015, see [354] at 4; [355] at 4—four months before the first of two 30(b)(6) deposition sessions. (Dong was first deposed as a 30(b)(6) witness on September 29, 2015; he was deposed again under Rule 30(b)(6) on December 9 of that year.) There was plenty of time in which to have had the notices translated, to have investigated the noticed topics, and, if Dong was unfamiliar with some of the names or terminology contained in those topics, to have filled him in or selected additional representatives to testify if needed. Cf. Black Horse Lane Ass’n, L.P. v. Dow Chem. Corp., 228 F.3d 275, 304 (3d Cir. 2000) (“[T]he purpose behind Rule 30(b)(6)...is frustrated [when] a corporate party produces a witness who is unable [or] unwilling to provide the necessary factual information on the entity’s behalf....[P]roducing an unprepared witness [under Rule 30(b)(6)] is tantamount to a failure to appear that is sanctionable under Rule 37(d).”) (citations and internal quotation marks omitted).

4. The Appropriate Sanction

     “Default judgment is strong medicine for discovery abuse.” Domanus, 742 F.3d at 301. But there are some types of misconduct that place too high a burden on allowing the case to continue, see Dotson v. Bravo, 321 F.3d 663, 665 (7th Cir. 2003) (quoting Barnhill v. United States, 11 F.3d 1360, 1368 (7th Cir. 1993)); and defendants’ conduct here is egregious enough to warrant the requested sanction.

     Defendants disposed of DNZ’s computers while the lawsuit was pending, and neither the claim that the information on those computers was irrelevant to the litigation, nor defendants’ explanation for having liquidated the computers in the first place, is credible—the defendants acknowledged that relevant information existed on the computers at some point and the defendants did not truly cease operations. Defendants also sat on the e-mail account of a key custodian (and named defendant), Dong Jue Min, until GMT complained about the paucity of defendants’ production; then they pointed to the “surprise” deletion of the account as an excuse for not having searched it. This is no excuse at all. Not only was the erasure of the e-mail messages not a surprise—Yahoo! had informed its customers of the pending deletion months in advance—but defendants had nearly two years in which to search Dong’s account before it disappeared. As to Delano Mok’s e-mail account, defendants swore in a filing with the court that they had searched the account, then reversed course and represented to Judge Kim that in fact they had never searched it at all because they had never been given access.

     In short, defendants lied. Their dishonesty leads me to conclude that, when defendants discarded one source of electronic evidence and failed to preserve others, they did so deliberately and in order to prevent GMT from obtaining that evidence and using it against defendants in the litigation. That defendants were acting in bad faith is further demonstrated by their stubborn failure to comply with their 30(b)(6) obligations, and by their assertions about Seamarky. All three defendants have disclaimed any kind of relationship with the Hong Kong-based supplier—seemingly in an effort to explain (or justify) the lack of references to that company in the materials defendants did produce to GMT—but the records and deposition testimony provided by GMT’s former customers sing a different tune. And, contrary to defendants’ assertion, evidence tying defendants to Seamarky is relevant to GMT’s trade-secrets claim—so lying about the connection is a willful act directed at this litigation.

     To prevail on the trade-secrets claim, GMT must show that defendants misappropriated a “trade secret”—that is, information that: (1) was sufficiently secret that its holder could derive economic value from its not being generally known to others; and (2) was “the subject of efforts that [were] reasonable under the circumstances to maintain its secrecy or confidentiality.” Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d 714, 721 (7th Cir. 2003) (quoting 765 ILCS 1065/2(d)). The second requirement is satisfied only where the plaintiff has taken affirmative measures to prevent others from using its proprietary information. See id. at 722 (citing Jackson v. Hammer, 274 Ill.App.3d 59, 653 N.E.2d 809, 816 (1995)); see also Alpha School Bus Co., Inc. v. Wagner, 391 Ill.App.3d 722, 740 (1st Dist. 2003) (explaining that, in determining whether a plaintiff’s information was a “trade secret,” the most important consideration is whether and how the information was kept secret). GMT maintains that it did take such measures, which included obtaining from DNZ an agreement of confidentiality and a corresponding promise not to approach any of GMT’s customers. The parties never executed a written confidentiality contract, however, so the agreement, if there was one, was oral.

     Direct evidence of an oral confidentiality agreement—the recollection of GMT’s representative that he reached such an agreement with Dong Jue Min—is disputed by Dong, who says the agreement never happened. But circumstantial evidence, too, may be used to show that an agreement existed, and such evidence could include proof of a connection between DNZ and Seamarky. According to GMT, DNZ secretly created Tru Group—and then, once GMT learned of that connection, secretly created Seamarky—in order to snatch up GMT’s customers and sell to them products manufactured using GMT’s techniques. There would be no reason to do these things in secret, however, unless defendants thought by engaging in such conduct they were crossing a line they were not supposed to cross—a line created, for instance, by a promise of confidentiality to GMT.

     Defendants make little argument in response to GMT’s evidence of misconduct, except to say that Judge Kim has already resolved this issue (he has not); that defendants did satisfy their discovery obligations (they did not, as just explained); and that GMT has not shown any prejudice from the alleged loss of evidence. A specific finding of prejudice is not required under Rule 37(e)(2) once the court has found, as I have here, an intent by the party who lost or destroyed the evidence to prevent the other party from using it in the litigation. See Advisory Committee Note to 2015 Amendment to Fed. R. Civ. P. 37(e). A specific finding of prejudice is not required in such cases because the finding of intent to deprive the other party of the use of certain information also supports the inference that the missing information was unfavorable to the party that destroyed it—and thus the further inference that the party who now cannot use the lost evidence has been prejudiced by that loss. Id.

     For the reasons discussed above, I find that defendants’ discovery violations were willful and the product of bad faith. Default judgment is a harsh penalty, and litigation ordinarily ought to be resolved on the merits, but the sanction is appropriate here. Lesser sanctions—for example, an instruction permitting or requiring the jury to infer that the information from the lost computers and now-unavailable e-mail accounts was favorable to GMT—would not adequately reflect the seriousness of defendants’ wrongs. Defendants were not merely dilatory or misleading by omission in their litigation tactics; they were affirmatively deceitful, to GMT and to the court. Giving false information or a false impression to the court in the hopes of obtaining a benefit in the litigation is a most egregious offense, as it “undermines the most basic foundations of our judicial system.” Secrease v. W. & S. Life Ins. Co., 800 F.3d 397, 402 (7th Cir. 2015); cf. Ridge Chrysler Jeep, LLC v. DaimlerChrysler Fin. Servs. Ams. LLC, 516 F.3d 623, 626 (7th Cir. 2008). While an adverse-inference instruction, or a prohibition on introducing certain types of evidence, might level the playing field between the litigants, those sanctions would not be sufficient to punish defendants for their dishonesty. Defendants falsely told Magistrate Judge Kim that they liquidated their computers as part of a business wind-down and that Dong’s emails were surprisingly lost. They then willfully dodged other efforts to investigate the case by falsely claiming no connection to Seamarky and intentionally avoiding their obligations under Rule 30(b)(6). The abuse of the litigation process was serious enough to bar defendants from denying liability to GMT on its trade-secrets claim.

     This sanction does not, however, change the disposition of the other claims in this case. The recognition of DNZ’s Chinese-court judgment and its preclusive effect against GMT remains in place. The dismissal of other claims by GMT is also not revisited. Finally, the sanction of default does not fix the amount of damages, and GMT remains obligated to prove its damages.

1. Defendants’ Motion for Summary Judgment

     Because the motion for default is granted, defendants’ motion for summary judgment is denied as moot. GMT’s motions to strike defendants’ Local Rule 56.1 statement, and to strike Dong Jue Min’s declaration, are likewise denied.

1. Conclusion

     Plaintiff’s motion for default judgment is granted. An order of default is entered against defendants on plaintiff’s trade-secrets claim, with the amount of damages to be determined in additional proceedings. The disposition of the other, resolved claims in this litigation is unchanged. Plaintiff’s motion to supplement the record, is denied. Defendants’ motion for summary judgment is denied as moot. Plaintiff’s motions to strike  are denied. A status hearing is set for 10/7/16 at 9:30 a.m.

FN 1  The current version of Federal Rule of Civil Procedure 37, as cited above, took effect on December 1, 2015. The current version of the Rule is applied to pending cases unless it would not be “just and practicable” to do so. See April 29, 2015 Order of the Supreme Court of the United States, available at https://www.supremecourt.gov/orders/courtorders/frcv15(update)_1823.pdf (last visited September 12, 2016); cf. Manez v. Bridgestone Firestone N. Am. Tire, LLC, 533 F.3d 578, 583 (7th Cir. 2008). As no such concerns are present here, and defendants have not objected to the application of the Rule as amended, I refer in this opinion only to the current version of Rule 37.

     1. Effect of Default.  We will get into judgments, including default judgments, shortly, but in the meantime note that the entry of the default judgment was not the end of this matter. The plaintiff still needed to prove the level of damages caused by the misappropriation of trade secrets. After hearing evidence on this, the judge entered an order: "GMT is awarded $6,617,656 in damages on its trade-secret misappropriation claim. Enter judgment and terminate civil case. Any petition for attorney's fees and costs should comply with Local Rules 54.1 and 54.3." 

     2. Rule 37 Generally.  If you read Rule 37 carefully, you will notice two distinct situations that can arise. In the first, a party responds to discovery but refuses to provide something that is requested. While responses are made or a witness comes to a deposition, documents might be withheld, interrogatories might be objected to, or a witness might be instructed not to answer a question. This is covered by Rule 37(b) but requires a process to be followed. In the second addressed by Rule 37(d), the party simply fails to respond at all. This can lead to immediate sanctions.

     The first situation arises frequently in litigation and often for good reason.  One party might request, for example, "All documents in any form that you believe might be harmful to your case." Such a request might be subject to a number of objections, including exceeding the scope of permissible discovery, proportionality, work product, and attorney client privilege. The recipient of such a request could properly object. Similarly, a witness at a deposition might be asked questions outside the scope of proper discovery or that intrude on the attorney client privilege. Again, the witness's attorney could properly instruct them not to answer.

     In such situations, what the courts want parties to do and what parties normally try to do is work things out between themselves. The person seeking discovery might recognize that the objection is well founded and drop the request. They might talk with the other side so that they understand the objection, and if they conclude that they are entitled to something but that there are problems with the form of the request, modify the document request or deposition question so that it only seeks proper materials. Not infrequently, the party seeking discovery might believe the request is proper but not feel it is worth the expense and bother of a motion to compel. In general, because federal judges enjoy squabbles over discovery about as much as kindergarten teachers enjoy fights among three year olds over who should have the crayon, experienced lawyers try very hard not to burden judges or magistrates with inconsequential disputes.

    If there is a legitimate and consequential disagreement, however, the parties will have to turn to the judge or magistrate to have it resolved. In such a case, the party seeking discovery will file a motion to compel, and the party opposing it will file a motion for a protective order, putting forth the arguments as to why the response should be blocked. Eventually, in some cases, the judge will take the side of the party seeking discovery and issue an order compelling the responding party to provide a response.

     It is at this point that Rule 37(b) takes effect. If the party fails, after the judge's order, to comply the range of sanctions set out in that part of the rule can come into play.

     What if the party simply fails to respond at all? Imagine a situation where the defendant fails to appear for a properly scheduled deposition, or the time comes to produce documents or respond to interrogatories and nothing is provided. Again, the aggrieved party will normally seek an explanation and prompt compliance rather than going straight to the judge, but if necessary they will. At this point the full range of sanctions under 37(d) become applicable, which include everything possible under 37(b) except for contempt of court because no court order has been disobeyed.

     3. Rule 37(e) - Electronically Stored Information.  The vast expansion of electronically stored information has created problems for litigants and judges. The scope of discoverable information includes materials held directly by the defendant in corporate data repositories, but can also extend to materials created by employees that exist in private email accounts, have been posted on social media accounts, and so on. Most entities also do not preserve all electronic documents indefinitely - most commonly, document retention policies provide for a purge of documents after a specific, preset time. In other cases, backup electronic files might exist, sometimes in obsolete or near-obsolete formats, and corporate information management experts might on occasion know exactly where those backups are and on other occasions have honestly forgotten that such records still exist in a box somewhere in an offsite location,

     In an effort to strike a balance, Rule 37(e) was revised in 2015 in a way that is quite favorable to those holding such information. Absent an intent to deprive the other other party of the information, sanctions are limited to those necessary to correct for the loss of the documents. This could include, for example, requiring the non-complying party to take otherwise extraordinary and arguably non-proportional steps to find copies of all or most of the missing information.

     If there was an "intent to deprive another party of the information’s use in the litigation" greater sanctions such as adverse inference instructions and even entry of a default judgment might be proper. While intent is a high standard to meet, the DaZheng ruling illustrates that if ESI is destroyed after litigation has commenced and and discovery requests have been served, a court might have little trouble concluding that the destruction of documents was deliberate and worthy of extreme sanctions.

     In General. The first big takeaway for discovery is that it has become the battle ground where US litigation largely takes place. A vanishing percentage of US cases actually make it to trial these days. The vast majority are either won or dismissed through motion practice, or settled. The information obtained through discovery fuels those outcomes. The second big takeaway is that it is not optional for those even arguably subject to personal jurisdiction in the United States. Notwithstanding different practices in other countries - and most countries have nothing like US civil discovery, and more than a couple forbid the operation of US discovery within their territory - a US court might well ignore those different practices and requirements (not to say they should not be brought to the US court's attention) and require full compliance. As a practical matter, it will be up to the trial judge to decide what discovery requirements will be and what sanctions will be imposed if they are not met, subject only to a deferential standard of review when the litigation is final. In most cases, adverse outcomes at the trial level lead as a practical matter to a settlement, which forecloses any appeal at all.

     Expense. In a large case, discovery can be quite expensive. After all, documents don't produce themselves, interrogatories do not write or answer themselves, and depositions require careful preparation. We are reliably told that in one major case involving many billions of dollars of damages, which was subject to an accelerated process which limited the scope of discovery and capped the number of potential parties, the cost of producing documents for one client alone was in excess of $60 million. That would represent but a downpayment on a process that would proceed to interrogatories, depositions, motions practice related to discovery, and expert witness testimony and reports. Of course, given that the damages in the case were huge, such costs were fully proportional to what was at stake. In the normal case, the party responding to discovery requests, often the defendant, must bear those costs with no real prospect of ever shifting them to the other side. 

     Sanctions.  Most defendants not familiar with and used to US discovery tend to approach the process with a bit of disbelief. They find it hard to understand that the other side can command the production of otherwise confidential documents, require the testimony of busy corporate officials, and so on. It is an uncomfortable process to have to respond to discovery. In some cases, such defendants, whether unsophisticated US defendants or international defendants, may either not comply or comply less than fully. It is not unheard of to have such defendants attempt to lie to their counsel or withhold information from their counsel. Be aware that this is a path fraught with peril. As the Zubulake case, which reportedly ultimately settled at a figure well above what we would have estimated as a likely outcome, sanctions of various kinds, not to mention alienating the trial judge who is in a position to make many more important and hard to review decisions, can change the outcome of the case. We are not saying that clients need to be docile and should not assert every worthwhile defense, but be aware that those who do regular business in the United States need to respond according to a strategy that takes into account the realities of US practice.

     Hold Orders. Take note that the time for hold orders to be implemented is when there is awareness of potential litigation, not after the discovery requests have been filed or even after the litigation has formally begun. Again, clients unsophisticated with US practice might not understand the downside of failing to preserve evidence, and might consider a "shredding party" or the electronic equivalent if conflicts arise and there are troubling documents under their control. Lack of familiarity with US requirements will not reliably shield parties who fail to meet obligations from sanctions, including sanctions such as adverse inference instructions (telling the jury that they can conclude that the missing documents would have supported the other side's case, which can be hugely persuasive to a jury and which also will satisfy the summary judgment and post-trial standards will see later) or even direction of a result on certain issues. 

     Digital Era. The rise of digital documents has changed many aspects of discovery. It has vastly expanded the scope of responsive documents, created new types of responsive documents such as electronic messages as well as audio and video files, and required new methods for sorting and reviewing documents of many different types so as to produce a suitable set of responsive documents. [One common method now is using 'predictive coding' searches on document databases so as to sift out a subset for human review that is more likely to be on point and capable of being reviewed by humans in the time span allowed.] Another consequence should also be kept in mind - in the era when the US discovery rules were created, it was at least theoretically possible that only one hard paper copy of a key document existed, and if it was wrongly withheld or lost, it would be hard to know. Today, with frictionless electronic copying, it must always be assumed that someone - perhaps an ex-employee with no fondness for the company - has a copy and would be delighted to produce it, especially if doing so would suggest bad faith in the production process.

     Back to the pig. On a dark and stormy night the prize pig disappears from their home pigpen at Farmer Yellow's and seems to appear the next day in the pigpen of Farmer Gelb. Yellow immediately sends a certified letter to Gelb, which is received, notifying him that litigation will be filed and warning him to preserve any relevant evidence.

     Despite that, Farmer Gelb after receiving this notification but before the suit is filed destroys the security camera footage that would show any activity - including the arrival of a wayward pig - at his premises on the evening in question.

     Shortly thereafter Farmer Yellow files suit. Pursuant to Rule 26 Farmer Yellow provides all records he has with regard to the pig including breeding records, a DNA sample analysis, and security cam footage from his own premises on the night in question. Farmer Gelb produces a letter from Yellow in which Yellow says that "for an appropriate price, at $1,000,000, I might indeed be persuaded to sell the pig." Yellow also produces a list of witnesses he might call but Gelb does not. Yellow discloses his insurance coverage but Gelb does not.

      Yellow then files document requests in which he asks for "any documents relating to the pig in question" and any documents relating to "plans or schemes to obtain ownership of any pig." Gelb produces photographs he had taken of the pig as well as his letter back to Yellow stating that $1,000,000 was far too high a price. Gelb does not produce a letter he sent to his attorney asking what penalties civil and criminal might follow from the kidnapping of a pig, nor does he reveal the existence of such a letter to his attorney in a privilege log,

     Yellow also serves interrogatories on Gelb. Gelb returns unsigned interrogatory answers in which he objects to each interrogatory as being "persnickety and annoying" and refuses to provide information in response.

     Yellow seeks a chance for his expert to examine the pig and to take a DNA sample. When the day comes for the examination Gelb refuses to make the pig available. Gelb also fails to show up for a properly scheduled deposition.

     Yellow files a request for admission in which, in separate requests, he asks Gelb to admit that he cannot produce any evidence that he has legal title to the pig in question, that he is currently in possession of the pig in question, and that he came into possession of the pig in question by breaking into Yellow's pigpen and carrying the pig away. Gelb does not respond in any way to the Requests for Admission.

      Gelb serves a notice of deposition on Yellow. Yellow appears. At the deposition, Gelb's attorney asks Yellow when he stopped beating his wife. Yellow's attorney instructs Yellow not to answer. Gelb's attorney also asks Yellow to discuss a conversation he had had with a veterinarian who told him that his pigpen was contaminated with heavy metals and unsafe for pigs to live in. Yellow's attorney instructs him not to answer this question on the grounds it calls for inadmissible hearsay.

     Please analyze.