Failure To Disclose Can Cost A Lot More Than Dollars
July 25, 2007
On Sept. 11, 2001, the day of the terrorist attacks on the United States, a chief underwriter for Zurich American In-surance asked her assistant to print a copy of a policy for World Trade Center Properties, LLC. She retained the 62-page document in the company's Schaumburg office.
On June 18, 2007, Judge Alvin Hellerstein of the Southern District of New York, ordered discovery sanctions of $1.25 million "jointly and severally" against Zurich and the two law firms representing it for failing to disclose this very document and misleading the court in the litigation following the attack. In re September 11th Liability Insurance Cov-erage Cases, 03 Civ. 332. P. 31.$1.25 million.
For the record, that was $4,565,808 less than what the plaintiffs' lawyers requested for fees.
So the status report to the client goes something like this: "We're pleased to report that Judge Hellerstein agreed with our argument that $5,815,808 in fees was ridiculous and have successfully persuaded him to slash that request by 75 percent. Please forward a check for $1.25 million at your earliest convenience."
This is a good reminder to every attorney about the obligation to disclose discoverable information. The desire to provide the best, most aggressive representation for your client does not trump the rules of disclosure.
In this case, the court handed down the fines pursuant to Federal Rules 11 and 37.
Rule 11(b) states that, by presenting a pleading to the court, an attorney is certifying to the best of his or her knowledge that it is (1) not being presented for an improper purpose; (2) warranted under existing law; and (3) has evi-dentiary support after reasonable inquiry.
But Rule 11 (d) says that it doesn't apply to discovery responses. And, as far as the amount of a fine, 11(c)(2) states that it should be limited to what is sufficient to deter repetition of such conduct or comparable conduct by others similarly situated.
Hmmm. "Deter the conduct of others similarly situated."
Takes me back to high school where Brother "O'Malley" slapped the bejeezus out of the (now institutionalized) kid in the first seat so those in the back would be quiet. "That's fer you, back thar," he brogued.
The faces of Zurich's attorneys were just as red after being slapped with the sanction, the court reasoning that it "must be proportioned to the public interest and bear relation to the amounts involved."
The pleadings and contentions (not discovery answers) and decision to maintain coverage denials, the court said, "caused substantial expense to the parties, caused a substantial waste of court time, and insulted public and judicial ex-pectations of the standards of conduct expected of attorneys and insurance carriers a sanction of $750,000 is appropriate." In re September 11th Liability Insurance Coverage Cases, 03 Civ. 332. P. 31.
$750,000 under Rule 11. Then he turned to Rule 37.
Rule 37 (C) (1) states that a party that fails to disclose information required by Rule 26 without substantial justifi-cation may be sanctioned with reasonable expenses, including attorney fees.
Relying upon Zubulake v UBS Warburg LLC, 229 F.R.D 422 S.D.N.Y. (2004), the court held that the standard for the amount of a sanction is one "that will restore the parties to the position they would have occupied but for the breach of discovery obligations and deter future misconduct."
Add a cool $500,000.
But the largest cost of such conduct may not be the court fine.
Destroying or failing to produce documents can also constitute violations of Rules of Professional Conduct and warrant discipline or suspension from practice.
The Rules are clear. A lawyer shall not suppress any evidence that he or she has an obligation to produce or offer evidence the lawyer knows to be false. Illinois Rules of Professional Conduct (134 Ill. 2d R. 3.3(4)(13).
Or you could lose that client you were trying to so vigorously defend. Failing to turn over evidence can lead to the exclusion of your witness from testifying at trial, and possibly a resultant loss of a case, and, perhaps ultimately, the client.
In Taylor v. Illinois, 484 U.S. 400 (1988), the U.S. Supreme Court upheld a trial court's refusal to allow a witness not identified in a pretrial discovery response request to testify at trial. The lesson is pretty clear.
If you fail to turn over documents that should be disclosed, you may be fined millions, lose a case, and then a client. Then you might get fired, which means you have to go home and tell your spouse why.
