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IN THE NEWS
Reasonableness Rule Limits Damages Tied to Cost of Defense of Discovery Sanctions Motion
TIG Insurance Company v. Giffin Winning Cohen & Bodewes, 444 F. 3d 587 (7th Cir. 2006)
By David L. Brandon, Morris Polich & Purdy LLP, Los Angeles, CA 90017-2503
An interesting case from the Seventh Circuit poses three questions:
- How many lawyers does it take to defeat a motion for discovery sanctions?
- How much does it cost to defeat a motion for discovery sanctions?
- Assuming it is otherwise proper to base a legal malpractice claim on damages comprising the cost of defending against a sanctions motion, were the damages here "reasonably foreseeable"?
In TIG Insurance Company v. Giffin Winning Cohen & Bodewes, 444 F. 3d 587, (7th Cir. 2006), the firm Giffin Winning was defending Illinois State University (ISU) on claims of gender-discrimination, first before the Equal Employment Opportunity Commission, and then in federal court. While representing ISU before the EEOC, Giffin Winning received some documents called Gender Equity Studies. During the subsequent federal court action, Giffin Winning was served with discovery requests, which they forwarded to the responsible person at ISU, William Gorrell. Gorrell did not forward the Gender Equity studies to Giffin Winning for production, and the law firm did not produce them on its own. TIG then retained Latham & Watkins to represent ISU. The federal action was then stayed.
Gorrell then left his employment with ISU and sued ISU in a separate action for wrongful termination. Gorrell got together with the plaintiffs' attorney in the gender discrimination action and gave the attorney the gender equity studies. Gorrell also executed an affidavit in which he explained that the gender equity studies had been based on a database which had been maintained by ISU.
The gender-discrimination plaintiffs' attorney filed a motion to have a default entered against ISU, claiming that the failure to produce the gender equity studies was part of a conspiracy to hide the database on which the studies were based. As it turned out, however, there really was no database - the studies were based on more than two hundred banker boxes full of documents, which had already been produced to the plaintiffs' attorney. The district court denied all these motions and the case was latter settled, "mercifully," according to the Seventh Circuit. Id. at 590.
TIG then sued Giffin Winning for legal malpractice, claiming as damages the attorney fees paid to Latham to defend against the sanction motion. This would be a good point to answer our first two questions:
- How many lawyers does it take to defeat a motion for discovery sanctions? 27. Id. at 590.
- How much does it cost to defeat a motion for discovery sanctions? "[A] whopping $1.2 million, give or take." Id.
The key issue in the case, according to the Seventh Circuit, was the third question posed earlier: Were the exorbitant costs of defending the sanctions motion foreseeable, under a causation analysis, and therefore collectible in a malpractice action. At the threshold, the Seventh Circuit assumed, without deciding, that a malpractice claim could be based on attorney fees, for it ultimately did not need to reach that question to decide the case. "What we are saying is that, assuming such a cause of action exists (which we are assuming only for the present discussion), TIG's claim would fail as a matter of law." 444 F.3d at 590.
The Seventh Circuit found that Giffin Winning's conduct, even if below the standard of care, did not cause TIG to incur $1.2 million in attorney fees to Latham. Id. How did the Seventh Circuit reach this conclusion?
The court turned to basic tort law for the definition of causation. "Legal cause . . . is largely a question of foreseeability . . . The occurrence must have been 'reasonably' foreseeable: 'Not what actually happened, but what the reasonably prudent person would then have foreseen as likely to happen. . . .'" Id. at 591.
The Seventh Circuit turned to the nature of Giffin Winning's conduct - an "all-too-common" discovery error - and then asked if anyone could have foreseen the "result" that actually occurred. The court determined that the "result" - that Latham generated bills in excess of $1 million defending the sanction motion - was not reasonably foreseeable. The court rejected TIG's argument that the fees were prima facie reasonable, because they were paid, and that the "foreseeable result" was TIG's getting stuck with those fees.
In deciding reasonable foreseeability, rather, the court simply looked at the magnitude of Latham's response to the discovery motion: "Would reasonable people foresee that . . . a large law firm . . . would jump into high gear out of fear of default judgment and launch an army of 27 attorneys, plus paralegals, to defend against the possibility that [the district court] might grant default judgment on the basis of an alleged conspiracy to hide something which does not exist? In other words, was the Latham response to a failure to produce documents and the resulting injury foreseeable?" Id. at 592 (emphasis in original).
The Seventh Circuit came down on the side of common sense and found that, as a matter of law, Latham's response was not reasonably foreseeable to anybody, including Giffin Winning. The Seventh Circuit noted that attorneys fail to produce documents in response to discovery all the time. While not condoning this practice, the court noted that it does happen. But despite its frequency, the court held that no one could foresee that the failure to produce a document - particularly a document that did not even exist - could "spawn a million-dollar bill for attorney fees." Id. "Giffin Winning could hardly be expected to foresee all this trouble over a phantom database." Id.
Practice Notes: This case is comfort for firms concerned a relatively innocuous discovery oversight might result in a million-dollar malpractice judgment because of another firm's habit of throwing lots of lawyers at a motion practice.
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