Federal Deposit Insurance Corporation as Receiver for Broadway Bank v. Giannoulias et al
Filing
132
MEMORANDUM OPINION Signed by the Honorable John F. Grady on October 23, 2013. Mailed notice(cdh, )
12-1665.132-RSK
October 23, 2013
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
FEDERAL DEPOSIT INSURANCE CORP.,
AS RECEIVER FOR BROADWAY BANK,
Plaintiff,
v.
DEMETRIS GIANNOULIAS, GEORGE
GIANNOULIAS, JAMES MCMAHON, SEAN
CONLON, STEVEN DRY, DONNA
ZAGORSKI, STEVEN BALOURDOS,
GLORIA SGUROS, ANTHONY D’COSTA,
Defendants.
)
)
)
)
)
)
)
)
)
)
)
)
)
)
No. 12 C 1665
MEMORANDUM OPINION
Before the court are: (1) the motion of plaintiff Federal
Deposit
Insurance
Corporation,
as
receiver
for
Broadway
Bank
(“FDIC”), for a protective order; (2) the defendants’ motions to
compel; (3) the FDIC’s motion regarding search terms; and (4) the
defendants’ motions to add certain search terms.1
For the reasons
explained below, we grant the FDIC’s motion for a protective order;
deny the defendants’ motions to compel; grant in part and deny in
part the FDIC’s motion regarding search terms; and grant in part
1/
Defendants Steven Balourdos, Sean Conlon, Anthony D'Costa, Steven Dry,
Gloria Sguros, and Donna Zagorski have taken the laboring oar during the parties’
the current discovery dispute. (See generally Certain Defs.’ Mot. to Compel and
for Entry of Defs.’ ESI Protocol (hereinafter, “Certain Defs.’ Mot.”).) The
remaining defendants — Demetris Giannoulias, George Giannoulias, and James
McMahon — have filed tag-along motions adopting their co-defendants’ arguments.
- 2 -
and deny in part the defendants’ motions to add certain search
terms.
BACKGROUND
Plaintiff Federal Deposit Insurance Corporation, as receiver
for Broadway Bank (“FDIC-R”), has filed this lawsuit to recover
approximately $114 million in losses that the bank suffered on 20
commercial real estate loans.
(Am. Compl. ¶ 1.)
The FDIC-R
alleges that the defendants — seven former directors of Broadway
Bank and two former officers — negligently approved the loans.
(Id. at ¶ 2.)
The defendants have served on the FDIC 242 separate
requests for production.
The FDIC represents that it has already
produced approximately 500,000 pages of documents in response to
the defendants’ requests (what the FDIC refers to as “Phase I”
discovery).
These documents include the loan files for the 20
loans at issue in this case and other documents that the FDIC can
readily identify as responsive to the defendants’ requests.
FDIC’s
Mem.
in
Supp.
of
its
Mot.
for
a
Protective
(hereinafter, “FDIC’s Mem. (Protective Order)”) at 1, 5-6.)
(See
Order
So-
called “Phase II” discovery consists of other electronically-stored
information (“ESI”) — mostly emails — that the FDIC cannot readily
identify as responsive to the defendants’ requests.
The parties
have worked together to generate a list of approximately 250 unique
search terms to identify relevant materials in the ESI.
(See
“Search Results by Category,” attached as Ex. 6 to the FDIC’s
- 3 -
Consolidated Report/Mot. Regarding Search Terms and Supp. in Supp.
of Mot. for Protective Order (hereinafter, “FDIC’s Mem. (Search
Terms)”.)
Those search terms have produced approximately 150,000
“hits.” The parties disagree about whether the FDIC should include
six
additional
search
terms,
which
approximately 16,800 additional hits.
if
adopted
would
yield
The parties also disagree
about what should be done with the ESI once the search terms have
been finalized. Under the defendants’ proposed “ESI Protocol,” the
FDIC would be required to review the filtered ESI to determine
whether the materials were in fact responsive to the defendants’
requests before producing them to the defendants.
Also, the FDIC
would
production
be
required
to
organize
and
label
the
correspond to the defendants’ requests for production.
to
The FDIC
contends that the defendants’ proposal is unduly burdensome.
It
instead proposes to upload onto a database (called “Relativity”)
documents
generated
by
the
agreed-upon
search
terms.
The
defendants would be permitted to search and review the discovery
materials on the database and identify the documents that they wish
to receive.
The FDIC would then review those documents for
privilege and produce any non-privileged documents.
DISCUSSION
A.
Search Terms
We agree with the defendants that the following search terms
should
be
added
to
the
parties’
agreed-upon
list:
(1)
- 4 -
“BrookWeiner;” (2) “Brook near2 Weiner; (3) “Plante Moran;” and (4)
“Harry near4 Shah.”
BrookWeiner, LLC and Plante Moran, PLLC both
served as outside auditors to Broadway Bank. As such, the proposed
search terms may capture emails or other documents relevant to the
FDIC’s claims about defendants’ management of the bank.
We
acknowledge the FDIC’s concern that the terms may also capture
irrelevant documents, and that some (perhaps many) of the relevant
hits will also be captured by other search terms.
(Search
Terms)
at
4-5.)
However,
the
(approximately 3,000) is relatively small.
total
(See FDIC Mem.
number
of
hits
For the same reasons,
we will require the FDIC to use the search term “Harry near4 Shah.”
Harry Shah brokered several of the loans at issue in this case.
And as the defendants point out, the FDIC has sought information
regarding the defendants’ communications with Shah that is not
strictly limited to the challenged loans. (See Defs.’ Mem. (Search
Terms) at 7-8.)
On the other hand, we will not require the FDIC to use the
search terms “Capitalized” and “Capitalization.”
The complaint
expresses the bank’s concentration in risky commercial real estate
loans as a percentage of total “capital.”
21.)
(See, e.g., Compl. ¶
And the bank was ultimately closed because regulators
concluded that it was “undercapitalized.”
(See id. at ¶ 38.)
But
the connection between the terms “capitalized” and “capitalization”
and the complaint’s core negligence allegations is tenuous, and the
- 5 -
likelihood of entirely irrelevant hits appears high. Moreover, the
number of hits — approximately 8,700 — is substantial.
Finally,
the fact the FDIC initially proposed these terms is essentially
irrelevant.
The defendants have not relied in any way on the
FDIC’s initial proposal, so we see no reason to prevent the FDIC
from changing its mind.
B.
Responsiveness Review
A party responding to discovery must inspect its records and
produce only those documents that are responsive to the opposing
party’s requests. See, e.g., Rothman v. Emory Univ., 123 F.3d 446,
455 (7th Cir. 1997) (upholding sanctions against a plaintiff who
refused to fulfill “his obligation to sort through the documents
and produce only those responsive to [defendant’s] request”).
At
the same time, “there is no obligation on the part of a responding
party to examine every scrap of paper in its potentially voluminous
files in order to comply with its discovery obligations. Rather, it
must
conduct
a
diligent
search,
which
involves
reasonably comprehensive search strategy.”
developing
a
Treppel v. Biovail
Corp., 233 F.R.D. 363, 374 (S.D.N.Y. 2006). Employing search terms
to search ESI is one such strategy.
See id.
The defendants
contend, however, that filtering the ESI using search terms is
insufficient to satisfy the FDIC’s burden.
inspect
the
documents
resulting
from
the
determine whether they are in fact responsive.
Instead, it must
initial
search
to
In this particular
- 6 -
case, we conclude that the burden such a review would impose on the
FDIC far outweighs any benefit to the defendants.
The defendants’
discovery requests are voluminous and, it appears, appropriately
so: the complaint alleges a broad failure by the defendants to
properly manage the bank’s financial risks across 20 loans.
It
seems likely that the vast majority of the material generated by
the parties’ narrowly-tailored search terms will be relevant to one
of the defendants’ 242 requests.
(See, e.g., Giannoulias Defs.’
First Req. for Prod. No. 1 (“[A]ll documents concerning Demetris
Giannoulias.”); McMahon’s First Req. for Prod. No. 11 (“Any and all
documents
relating
to
each
of
the
Loss
Loans
attributed
to
Defendant James McMahon . . . .”); Certain Defs.’ First Req. for
Prod. No. 7 (“All documents relating to each of the Loss Loans . .
. .”).)
False hits are probably inevitable, but we will not
require the FDIC to review thousands of documents to weed out a
presumably small subset of irrelevant materials.2
C.
Whether the FDIC Must Organize Its Production to Correspond to
the Defendants’ Requests
Federal Rule of Civil Procedure 34 provides that, “[u]nless
otherwise stipulated or ordered by the court,” “[a] party must
produce documents as they are kept in the usual course of business
or must organize and label them to correspond to the categories in
2/
We acknowledge that the court in FDIC v. Briscoe, Civil Action No.
1:11-cv-2303-SCJ reached a different conclusion on the facts before it. However,
on the facts of this case, we take a different view of the relative benefits and
burdens that a further responsiveness review would entail.
- 7 -
the request . . . .” Fed. R. Civ. P. 34(b)(2)(E) (emphasis added).
The defendants cite several cases holding that the “usual course of
business” alternative is simply unavailable to an agency like the
FDIC. See, e.g., FDIC v. Appleton, No. 1:11-cv-00476-JAK, Dkt. No.
188, slip op. at 5-6 (C.D. Cal. Nov. 29, 2012); see also W Holding
Co., Inc. v. Chartis Ins. Co. of Puerto Rico, No. CIV 11-2271 GAG,
2013 WL 1352426, *3 (D.P.R. April 3, 2013).
After the FDIC took
over Broadway Bank, it created a database to store many of the
bank’s documents in searchable electronic form.
The defendants
argue that the FDIC has not satisfied its burden to show that the
database preserves the documents exactly as they were maintained
prior to the bank’s closure.
We think that the defendants’
interpretation of Rule 34's requirements is overly technical.
Emails are produced as they are maintained in the “usual course of
business” when they are sorted chronologically by custodian. See,
e.g., Valeo Electrical Systems, Inc. v. Cleveland Die & Mfg. Co.,
No. 08–cv–12486, 2009 WL 1803216, *2 (E.D. Mich. June 17, 2009).
The FDIC represented at the hearing on the parties’ motions that
the emails, which we understand to be the main focus of the Phase
II production, can be electronically sorted in the same fashion
using metadata.
The FDIC’s electronic database also includes
materials that the bank originally maintained in hard copy form.
(See FDIC Mem. (Search Terms) at 1, 12.) The FDIC represents that
the defendants can use metadata associated with these documents to
- 8 -
identify the original location of the materials using a “Master
Inventory.” (See id. at 12; see also Master Inventory, attached as
Ex. 1 to FDIC’s Mem. (Search Terms).)3
Strictly speaking, this may
not be production in the “usual course of business,” but the
practical difference is elusive. Conversely, requiring the FDIC to
organize its production according to the defendants’ numerous
discovery requests would impose a substantial burden:
[T]he producing party does have a burden to select and
produce the items requested rather than simply dumping
large quantities of unrequested materials onto the
discovering party along with the items actually sought
under Rule 34. Requiring further that these requested
materials be segregated according to the requests would
impose a difficult and usually unnecessary additional
burden on the producing party. The categories are devised
by the propounding party and often overlap or are
elastic, so that the producing party might be compelled
to decide which best suits each item in order to consign
it to the proper batch. Such an undertaking would usually
not serve any substantial purpose, and it could become
quite burdensome if considerable numbers of documents
were involved.
8B Charles A. Wright and Arthur R. Miller, Federal Practice and
Procedure, § 2213 (3d ed.).
The Federal Rules give the court
leeway to modify the parties’ discovery obligations to take these
sorts of practical considerations into account.
See Fed. R. Civ.
P. 34(b)(E) (requiring parties to produce materials as they are
kept in the usual course of business or organized according to the
opposing
parties’
requests
“[u]nless
otherwise
stipulated
or
3/
The Master Inventory describes the contents of 77 boxes of documents
and for each document identifies a physical location (e.g., "Upstairs Vault") or
custodian (e.g., "Demetris Giannoulias").
- 9 -
ordered by the court . . . .”) (emphasis added); Fed. R. Civ. P.
26(c) (“The court may, for good cause, issue an order to protect a
party from annoyance, embarrassment, oppression, or undue burden or
expense . . . .”).
Under the circumstances, we will not require
the FDIC to organize its Phase II production according to the
defendants’ numerous discovery requests.
The current status and organization of the Phase I production
is less clear. We understand that those materials were produced in
electronic form, (see Decl. of Ray Rivard, attached as Ex. B to
FDIC Mem. (Protective Order), ¶ 11), but it is not clear whether
those materials were produced with metadata showing where they were
maintained by the bank.
On the other hand, the FDIC has created an
index of documents produced to date that describes the documents
(e.g., “Broadway Loan Policy (2003)”) and identifies them by Bates
range.
(See Index of Docs. Prod., dated as of Aug. 30, 2013,
attached as Ex. 3 to FDIC Mem. (Search Terms).)
indicates
that
it
will
supplement
its
Also, the FDIC
responses
to
written
discovery to identify responsive documents by Bates number. (See
FDIC Mem. (Search Terms) at 10.)
Finally, as the executives
responsible for the bank’s management during the relevant time
period, the defendants in this case are arguably more familiar with
the documents than the FDIC.
that
important
documents
inadvertently) appears slim.
supplement
its
written
Under the circumstances, the risk
will
be
obscured
(deliberately
or
Bearing in mind the FDIC’s offer to
responses,
we
will
not
compel
it
to
- 10 -
categorize its Phase I production according to the defendants’
requests at this time.
D.
Who Should Bear the Costs of Production
We told the parties at the hearing on their motions that we
will defer ruling on which side should bear certain costs at this
time.
So, consistent with the general presumption in discovery,
the FDIC will bear the costs of production as they arise subject to
the possibility that we may later require contribution from the
defendants.
See Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340,
358 (1978) (“Under [the discovery] rules, the presumption is that
the responding party must bear the expense of complying with
discovery
requests,
but
he
may
invoke
the
district
court’s
discretion under Rule 26(c) to grant orders protecting him from
‘undue
burden
or
expense’
in
doing
so,
including
orders
conditioning discovery on the requesting party’s payment of the
costs of discovery.”).
CONCLUSION
The FDIC’s motion regarding search terms [114] is granted in
part and denied in part.
The defendants’ motions to add certain
search terms [115, 117, 119] are granted in part and denied in
part.
The parties shall add the following search terms to their
already agreed-upon list: “BrookWeiner;” “Brook near2 Weiner;”
“Plante Moran;” and
“Harry near4 Shah.”
The FDIC’s motion for a
protective order [88] is granted in part and taken under advisement
- 11 -
in part. The defendants’ motions to compel [91, 95, 97] are denied
in part and taken under advisement in part.
By October 30, 2013,
the FDIC shall submit to the court a revised proposed ESI protocol
consistent with this opinion.
For now, the FDIC shall bear all
production costs subject to the possibility that the court may
later determine that cost-shifting is appropriate.
DATE:
October 23, 2013
ENTER:
___________________________________________
John F. Grady, United States District Judge
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?