The recent decision in Brown v. Tellermate Holdings, out of the Southern District of Ohio, provides yet another valuable illustration of the critical need for litigation counsel to take reasonable steps to educate themselves about potentially relevant ESI in the possession, custody, or control of their clients and to take appropriate measures to preserve and produce that information. The case highlights, in particular, the pitfalls associated with cloud-based ESI (specifically, a common sales app called as well as the severe sanctions that can befall those who make significant missteps, as the defendant and its counsel learned in Brown.

United States Magistrate Judge Terence Kemp observed early in his decision: “Discovery did not go smoothly.” The court’s recitation of the procedural history and discovery issues in the case soon reveal this to be a significant understatement. Judge Kemp ultimately sanctioned the defendant and its counsel for failing to preserve and timely produce ESI relevant to the plaintiffs’ age discrimination suit. In addition to awarding attorney’s fees and costs incurred by the plaintiffs in filing and prosecuting various motions, the court prohibited the defendant from introducing or relying on any evidence that it terminated the plaintiffs’ employment for performance-related reasons rather than age. Judge Kemp reasoned that the defendant’s discovery failings prevented the plaintiffs from obtaining discovery relevant to that critical issue.

In what the court described as a “pattern of failure either to learn or communicate the truth about matters related to discovery,” the court was particularly critical of the defendant’s counsel’s apparent failure to identify, preserve, and produce the information. Defendant’s counsel repeatedly represented to the court that this information was not in the defendant’s control, but counsel evidently did not appropriately inquire into the defendant’s access to the data. Further, the defendant’s counsel, according to the decision, erroneously assumed that, the third-party cloud-service provider of the application, would preserve the sales data, but counsel took no steps to confirm that assumption, even though the records were accessible and subject to possible changes by employees.

The court concluded that sanctions were necessary for counsel’s “complete abdication” of their responsibilities to make a reasonable inquiry into the facts under Federal Rule 26(g) and the repeatedly “false and misleading” statements and certifications made throughout discovery resulting from counsel’s failure to make a reasonable inquiry into the facts.

In assessing the discovery failures at issue, Judge Kemp attributed the problems to “one overriding reason: counsel fell far short of their obligation to examine critically the information which Tellermate gave them about the existence and availability of documents requested by the Browns.”

The “ Issue”

Judge Kemp viewed “the issue” as “the most significant.” He observed that “ is a web-based application which allows business to track, among other things, their sales activities.” The app allows salespeople to record contacts with customers, among other customer-related information. Tellermate evidently obtained licenses for use of, and the plaintiffs and other employees used the database for sales-related purposes.

According to the decision, in discovery, the plaintiffs expressly requested “ reports” for themselves and other employees, and Tellermate agreed to produce responsive, nonprivileged documents. Judge Kemp noted, however, that “[n]otwithstanding that statement, Tellermate did not produce any information at all.” The plaintiffs moved to compel the information.

Judge Kemp reported that, in response to the motion, a lawyer for Tellermate represented that the defendant was unable to produce information from and that discovery of that information “should be directed to, not Tellermate.” The court detailed a number of similar, more specific representations from the defendant’s counsel, including a claim that “Tellermate does not possess or control data maintained in the database and is not at liberty to produce it in discovery or verify its accuracy or authenticity.”

Judge Kemp ultimately found these representations to be inadequate and even false. He found that “any Tellermate employee with a login name and a password could access that information—including historical information—at any time.” He further found that one or more of the defendant’s employees even served as “ administrators, meaning that they enjoyed the highest level of access to the information.”

Ask The Right People The Right Questions

The court concluded that “had the right questions been asked of the right people, counsel would have known” what the court ultimately learned itself after briefing and an evidentiary hearing. Regarding the failure to produce information for employees other than the plaintiffs, the court found “no evidence that counsel made any effort to speak to any of those employees to find out if they could retrieve information from their accounts.” The court went on: “There is also no evidence that counsel ever visited the website, and there is no evidence that counsel made any effort to verify what the admittedly ‘limited number of people’ at Tellermate had been saying about Tellermate’s access to the data.”

Despite the defendant’s and its counsel’s repeated claims to the contrary, the court held: “The true facts show beyond a doubt that any ESI maintained on the database belonged to Tellermate.” Judge Kemp did not stop there, though, extending the reasoning of his holding much more broadly:

The same would be true, of course, for other web-based applications; just because, for example, emails in a Google or Outlook account might be kept on a server owned or maintained by the email provider, it does not mean that the information in those emails belongs to the provider—just the opposite.

Although the defendant eventually produced a “data export” from, the court considered it too little too late. Judge Kemp noted that because appropriate steps to preserve the data had not been taken and employees had the ability to alter and even delete data in the database before the export was produced, “the integrity of the information contained in the data export cannot be verified beyond three to six months prior to the date it was run.”

Carefully Examine The Cloud-Provider Agreement

In addition to emphasizing the need to ask the right questions of the right people, the court’s decision also emphasized the need to carefully examine the terms of agreements with cloud storage providers. Judge Kemp found that certain provisions in the defendant’s agreement with provided “a fairly good indication of who actually controlled the data,” which the court found to be Tellermate, at least for discovery purposes. Specifically, the court noted that the agreement prohibited from disclosing the data and made clear that acquired no right, title, or interest in the defendant’s data. Judge Kemp also noted that the agreement had little to say about preserving the data.

Judge Kemp concluded that the defendant’s agreement with did not support its counsel’s representations. First, the court found that “no cogent argument could have been made, based on its language, that Tellermate was legally prohibited from accessing and producing its own information in discovery….” Second, the court found that “no fair reading of the agreement supports the assumption that was going to back up the information in Tellermate’s accounts on any periodic basis.”

Do Not Simply Defer To The Client

Judge Kemp emphasized that counsel cannot simply take their clients’ representations at face value. Rather, Rule 26(g) of the Federal Rules of Civil Procedure requires counsel to undertake a reasonable inquiry into the facts and to certify compliance with the rules. Counsel cannot abdicate responsibilities to clients, such as the obligation to preserve potentially relevant information. The court explained:

Like any litigation counsel, Tellermate’s counsel had an obligation to do more than issue a general directive to their client to preserve documents which may be relevant to the case. Rather, counsel had an affirmative obligation to speak to the key players at Tellermate so that counsel and client together could identify, preserve, and search the sources of discoverable information.

The court concluded that much of the responsibility for the failures regarding “must be shared by Tellermate and its attorneys.”

Sanctions For Gross Negligence Or Willfulness

The court concluded that sanctions were available under Rules 26(g), 37(a), and 37(b), 28 U.S.C. 1927, and the court’s inherent authority. In determining whether to impose sanctions, Judge Kemp noted that the “failure to uncover even the most basic information” about “was not a stand-alone occurrence.” The court ultimately sanctioned the defendant and its counsel for that and other discovery failures, including the defendant’s failure to provide its counsel with accurate information about the application and the existence of other responsive material, “dumping” largely non-responsive and irrelevant documents on the plaintiffs, and for over-marking documents with confidentiality and privileged designations.

Judge Kemp concluded: “At the end of the day, both Tellermate’s and its counsel’s actions were simply inexcusable, and the Court has no difficulty finding that they were either grossly negligent or willful acts, taken in objective bad faith.”