Sloan Valve Co. v. Zurn Industries, Inc.

Introduction

The Plaintiff, Sloan Valve Company, brought a renewed motion for discovery sanctions against the Defendant, Zurn Industries, Inc., for failure to comply with discovery requests and the Magistrate Judge’s order. In the instant action, Sloan argued that the Defendant refused to adequately preserve documents that would have been responsive to the Plaintiff’s document requests and that the Defendant failed to inform its employees to preserve relevant documents.

Background

Sloan filed a suit in January 2010 alleging that Zurn Industries had committed trademark infringement when it created its version of the dual mode toilet flush valve invention. Zurn Industries counterclaimed for invalidity, non-infringement, and inequitable conduct. Sloan filed the instant motion to compel and for discovery sanctions after Zurn produced only a small number of documents in response to Sloan’s discovery request. After receiving and reviewing the documents that Zurn produced, Sloan became suspicious that Zurn had not conducted a thorough document search and, therefore, Sloan sought a motion requiring Zurn to re-search its database in compliance with the Federal Rules of Civil Procedure. The Court referred this matter to the Magistrate Judge in that district.

The Magistrate Judge entered an order requiring Zurn to submit to Sloan a letter detailing how it conducted its document search for documents that were produced. The Magistrate Judge also required that Zurn supplement the documents that had been produced to Sloan and certify in the letter that no documents were purposely withheld from production. A week and a half later, Zurn sent Sloan a letter identifying how it searched for the documents that were produced. After reviewing the letter, Sloan filed another motion for sanctions against Zurn for failure to properly comply with the Court’s order. The Court, after reviewing the letter, found that Zurn had not provided sufficient detail about its document production process. The Court again asked Zurn to supplement its discovery responses and identify certain specific information about its document production process. Shortly thereafter, Zurn filed its supplemental discovery response. Sloan renewed its motion for sanctions arguing that the production was still incomplete. Zurn responded by producing an additional 2,900 documents.

Legal Analysis

Federal Rule of Civil Procedure 37(b)(2)(A) permits a Court to impose sanctions on a party who has failed to comply with proper discovery requests and discovery orders. Fed. R. Civ. P. 37(b)(2)(A). Sanctions can include striking the pleadings in whole or in part, dismissing the action, preventing the disobedient party from supporting or opposing claims or defenses, monetary sanctions, and treating the disobedient party’s failure to comply as contempt of court. Though the Court has wide discretion as to the kind of sanctions it can impose, the “district courts should only impose sanctions that are proportionate to the circumstances surrounding a party’s failure to comply with discovery rules.” Sloan Valve Co. v. Zurn Industries Inc., 2012 WL 1886353 *3 (N.D. Ill May 23, 2012).

Sloan identified six different areas where Zurn failed to comply with its discovery obligations, but only the three major discovery issues will be discussed here.

K Drive

Sloan argued that Zurn’s search of its network storage drive, the K Drive, was fatally flawed. Zurn submitted evidence that to find relevant documents to produce to the plaintiff, it had its IT Systems Manager create a searchable list of the K Drive’s file and folder names. Then Zurn provided the list to its outside counsel who searched the list text using the “find and replace” search function. Sloan alleged, and the Court agreed, that the “find and replace” search function was inadequate to produce relevant documents because it would only retrieve documents whose files and folder names matched the user’s search terms. In essence, Zurn’s search would not yield documents whose content was relevant, but its name did not contain the relevant search terms.

Secondly, Sloan objected to Zurn’s use of the “find and replace” search because Zurn claimed that it had conducted a Boolean (connectors, word strings, and wildcards) search, which cannot be done in the “find and replace” function. To combat this allegation, Zurn alleged that it had an attorney visually review the text file of the K Drive directory. The Court found that this type of “search” method was unreliable especially given the complicated Boolean search terms and Zurn’s counsel’s own admission that the text file was “very large.” The Court ordered that the parties meet and agree on new search terms that are to be used during Zurn’s supplemental search and the files that are to be searched.

J Drive

Next, Sloan argued that the J Drive, which contained Zurn’s individual employees’ files, was searched in the same manner that the K Drive was searched, and thus, was inadequate for the production of all relevant documents. Zurn produced evidence that it only searched the files of its development group, including the president and vice president of the company. Sloan argued that this limited search was inadequate because Sloan’s document request sought documents that would have pre and post dated the formation of the development group and would include employees that were either not members of the development group or not officers of the company. To resolve Zurn’s inadequate search of the J Drive, the parties were ordered to come up with new search terms, the employees whose files were to be searched, and date restrictions.

Document Preservation

Generally, parties to a lawsuit have a duty to preserve discoverable documents that are relevant to the case. Sloan, 2012 WL 1886353 *11 citing Jones v. Bremen High Sch. Dist. 228, 2010 WL 2106640, at *6 (N.D. Ill. May 25, 2010). “The duty to preserve arises when the party knows or should know that litigation is imminent.” Sloan, 2012 WL 1886353 *11. On February 10, 2010, Zurn received a litigation hold memo which was later forwarded to certain Zurn employees. Sloan asserts that while the memo was forwarded to some employees of the company, several employees did not receive the memo, or if they received it at all, they received it too late. Sloan argued that Zurn should have known of the litigation in 2008 or at the latest 2009, because Sloan sought to preserve documents from those years. However, Zurn did not begin to disseminate the litigation hold memorandum until mid-February 2010. Even then, only four of the ten employees whose documents Zurn sought to search actually received the memo.

While some Zurn employees acknowledged receiving the memo, others testified that they had never seen the document, and even more testified that they received it some nine months after Zurn was told to preserve documents. The Court held that, based on the record, it was unclear whether Zurn’s IT personnel took any active steps to prevent employees from permanently deleting files from their computers. Because the Court could not ascertain what measures, if any, Zurn took to preserve hard copies of documents, the Court ordered that Zurn identify the precise procedures it undertook to preserve documents and identify backup files that would have existed for those employees. As a result, the Court found that it was premature to determine that Zurn willfully and permanently destroyed hard copy documents.

Conclusion

The Court acknowledged that while some form of sanctions are due because of Zurn’s conduct, the Court refused to accept Sloan’s suggestion of a harsher sanction of default judgment or an adverse instruction to the jury because, based on the record before them, Zurn’s conduct did not rise to the level to warrant such sanctions. As iterated by the Court, to warrant such harsh sanctions, the Court must find that the noncompliant party operated in bad faith or willfulness. Instead of imposing Sloan’s suggested sanctions, the Court reopened discovery and ordered Zurn to conduct additional searches and provide additional information on how the search is to be conducted going forward. However, the Court acknowledged that because of the added attorney’s fees that Sloan had to incur for Zurn’s failure to conduct an adequate document search, the Court awarded attorney’s fees for the additional discovery motions Sloan had to file due to Zurn’s noncompliance.