Procaps S.A., Plaintiff, v. Patheon Inc., Defendant CASE NO. 12-24356-CIV-GOODMAN United States District Court, S.D. Florida, Miami Division Signed June 02, 2014 Counsel Chris S. Coutroulis, Donald R. Schmidt, D. Matthew Allen, Carlton Fields Jorden Burt, P.A., Tampa, FL, Gary Michael Pappas, Charles Woodward Throckmorton, V, David Lanier Luck, Alan Rosenthal, Natalie Jessica Carlos, Carlton Fields Jorden Burt, P.A., Miami, FL, Karen L. Hagberg, Morrison & Foerster, Michael B. Miller, Morrison & Forester, New York, NY, Avi Robert Kaufman, Kopelowitz Ostrow Ferguson Weiselberg Gilbert, Coral Gables, FL, Robert Wayne Pass, Carlton Fields Jorden Burt, P.A., Tallahassee, FL, for Plaintiff. David A. Vogel, Douglas P. Lobel, Robert T. Cahill, Cooley, LLP, Reston, VA, Dee Bansal, Joshua M. Siegel, M. Howard Morse, Marc Schildkraut, Michael J. Klisch, Meredith M. Snyder, Cooley, LLP, Washington, DC, Mary Kathryn Kelley, Mazda K. Antia, Cooley, LLP, San Diego, CA, Robert Mark Brochin, Morgan, Lewis & Bockius LLP, Miami, FL, for Defendant. Goodman, Jonathan, United States Magistrate Judge ORDER GRANTING IN PART PLAINTIFF'S MOTION FOR FEES RELATING TO ESI VENDOR'S (PURPORTED) CONFLICT Whatever you do, do wisely, and think of the consequences. *1 –Gesta Romanorum Plaintiff Procaps S.A. (“Procaps”) seeks attorney's fees against Defendant Patheon, Inc. (“Patheon”) and its counsel for the time its counsel unnecessarily incurred in communicating and dealing with “Kroll” in connection with a Court-ordered forensic analysis of its electronic media. The Court is not determining whether there was in fact a conflict and is also not holding that a law firm must include vendors in a conflict search. But the inescapable reality is that “Kroll” required Procaps to sign a conflict-waiver and Procaps refused to do so after belatedly learning about business relationships between “Kroll” (and or its parent or affiliated entities) and both Patheon and Patheon's counsel, Cooley, LLP (“Cooley”). For the reasons outlined below, the Court grants Procaps' motion, but not for the full amount requested and not based on a finding that Patheon and its counsel violated any substantive or ethical rule. Instead, the award is being entered as a cost-shifting mechanism against Patheon and Cooley because they are partially responsible for causing a further delay in this case and the unnecessary expenditure of discovery-related fees. The Court awards Procaps $10,000 (not the $20,372 requested). I. BACKGROUND A. “Kroll's” Selection Procaps is seeking more than $350 million in damages from Patheon in this federal antitrust lawsuit it filed in December 2012. It did not, however, implement a formal litigation hold until February 27, 2014, when this Court ordered one to be implemented in response to Patheon's motion for a forensic analysis. [ECF No. 324]. The genesis of the Court-ordered litigation hold (and a subsequent Order requiring Procaps to retain an Electronically Stored Information (“ESI”) specialist to conduct an ESI search) is Patheon's deposition of Procaps' Rule 30(b)(6) witness on February 13, 2014. [ECF No. 341, pp. 4-5]. That deposition involved, among other topics, Procaps' efforts to preserve, search for, and collect documents and ESI. During a break in the deposition, Patheon's counsel advised Procaps' counsel that Patheon was concerned over Procaps' failure to implement a litigation hold and also opined that Procaps had not sufficiently searched for ESI. Patheon's counsel further opined that a forensic analysis of Procaps' computer system was necessary and mentioned that he had used Kroll Ontrack, Inc. (“Kroll Ontrack”) and that it had done a good job. Patheon did not, however, insist that Procaps use Kroll Ontrack for the forensic analysis. [ECF No. 431-3]. On February 14, 2014, after additional discussions between Procaps and Patheon, a Patheon attorney sent an email to the managing director of Kroll Cyber Security, Inc. (“Kroll Cyber”) and attached the case caption “for conflicts purposes.” [ECF No. 431-1, p. 2]. Although Procaps is the party who retained Kroll Ontrack, it was a Patheon attorney who forwarded the information for a conflicts check to Kroll Cyber. [Id.].[1] In any event, on February 18, 2014, Kroll Cyber's managing director emailed the parties that “[w]e have completed our conflict checks, and as expected, we have no conflicts. Kroll is able to do the work ...” [ECF No. 431-1, p. 1].[2] *2 While Procaps agreed to the forensic analysis, the parties could not agree on the scope of the analysis or on other significant components. As such, the Court granted Patheon's motion for a forensic analysis of Procaps' electronic media. [ECF No. 341]. The parties advised the Court that Procaps had agreed to use Kroll Ontrack and the Court's Order (detailing the ESI collection procedures) specifically mentions Kroll Ontrack. The Order notes that Kroll Ontrack “shall be considered a neutral, third-party forensic examiner and shall not be deemed an agent, representative, or expert of either Procaps or Patheon, except that Procaps shall contract directly with Kroll [Ontrack] regarding the work to be performed pursuant to this Order.” [ECF No. 341, p. 6 (emphasis added) ]. This language came directly from Patheon's proposed order. B. “Kroll's” Conflicts After it agreed to use Kroll Ontrack, and the Court's order directed the same, Procaps spent a significant amount of time coordinating the project with Kroll Ontrack and discussing the project with Patheon's attorneys. [See generally ECF No. 431]. But shortly thereafter, Procaps became aware of information which it says it viewed as a conflict or potential conflict. [Id.]. In particular, a “Kroll” affiliate, Kroll Associates, Inc. (“Kroll Associates”) had a pre-existing project with Patheon. [ECF No. 431-2, p. 1]. According to Kroll Cyber, this Patheon project was unrelated to this litigation and was separately staffed. [Id.]. Nevertheless, despite this representation of no links between the project for this case and the already-in-progress work for Patheon, Kroll Cyber requested that Procaps sign a conflicts waiver or else it would not continue with the project. Understandably, Procaps' counsel emailed Patheon's counsel for more information on Kroll Associates' Patheon project. [ECF No. 431-3]. After not receiving satisfactory answers, Procaps' counsel raised the matter at a telephonic hearing. The Court permitted Procaps to propound questions to “Kroll” in an effort to confirm whether there was a conflict and to provide further detail about “Kroll's” relationships with Patheon and Cooley. [ECF No. 384, pp. 7-8]. Kroll Cyber answered 25 of the 28 questions Procaps propounded. But it did not provide the engagement letter and answers to three questions because Patheon (through Cooley) interposed objections. [ECF No. 402-2, pp. 2-3]. Procaps refused to sign the conflict-waiver and was therefore required to retain another ESI firm, which further delayed this case. [ECF No. 422]. The specific factors triggering Procaps' decision to not sign the waiver are: 1. Cooley has represented Altegrity, Inc. (“Altegrity”) as a client since 2009. Altegrity is Kroll Ontrack, Kroll Cyber, and Kroll Associate's parent company. 2. Kroll Associates is performing work for Patheon which “relates to Banner internal procurement practices.” Banner is, or was, a competitor of Procaps—and it was Patheon's announced intent to acquire Banner which caused this lawsuit to be filed. Patheon engaged Kroll Associates for the Banner-related work in December 2013, approximately a year after it was sued by Procaps. Due to Patheon's objection, Kroll Cyber declined to further explain the nature of the work it is doing for Patheon concerning its Banner business unit. 3. Kroll Cyber first became aware that Patheon is a client of Kroll Associates during its February 18, 2014 conflict check. However, the check was run as though Patheon was the client, “not as a neutral engagement.” Therefore, the conflict checker “did not consider the unrelated engagement as a conflict.” [ECF No. 402-2, p. 6]. Apparently, “Kroll” did not appreciate that it would be evaluating Procaps' ESI as a neutral examiner even though Procaps would be paying the fees and costs. *3 4. Kroll Cyber and Kroll Associates have separate employees who “work collaboratively on certain engagements.” The two companies share physical office space in common and “some Kroll Cyber staff are co-located in Kroll Associates offices.” The entities share the same email server and the forensic imaging of Procaps' computers was to be uploaded onto Kroll Ontrack. C. Procaps' Instant Motion Procaps filed the instant motion seeking attorney's fees for the time it incurred working with Kroll Ontrack. [ECF No. 431]. Not surprisingly, Patheon objects to Procaps' request that it be reimbursed for attorney's fees it unnecessarily incurred dealing with Kroll Ontrack and with the conflict issues arising from the short-lived “Kroll” retention. Patheon asserts several factual clarifications to support its position: 1. Cooley did not know until March 7, 2014 that Kroll Associates was working on a project for Patheon and did not learn until March 14 that the work related to the Banner business unit. 2. Cooley voluntarily disclosed its attorney-client relationship with Altegrity on March 17, 2014 even though it says it had no obligation to do so. Cooley says it represents Altegrity in real estate leasing matters unrelated to the litigation and contends that this does not represent any conflict. 3. Cooley argues that it had no duty to run a conflict check on a vendor—and notes that the Carlton Fields firm (which represents Procaps) did not run its own conflicts check until March 21, 2014, after the conflict issues already arose (and after Procaps advised that it would not sign the waiver and after it filed its motion for fees). Therefore, Cooley says, although Altegrity is a Cooley client, it had no need to run a conflict check on “Kroll” (which might have led to the realization about Altegrity's status as a firm client) because it had no reason to run a conflict check on a vendor.[3] 4. Neither Cooley nor Patheon ever represented that “Kroll” was a neutral third party, especially because Cooley's lead trial counsel specifically advised a Carlton Fields attorney that he previously had used Kroll Ontrack. Moreover, Patheon argues, it agreed only that “Kroll” would act as a neutral in this case, meaning that it would not be a party expert. In other words, Patheon contends, the term “neutral” does not mean that Kroll or its affiliated companies did not have existing relationships with Patheon or Cooley; it meant only that it would not be an expert “for” any party. 5. Procaps signed an engagement letter with Kroll Cyber in which it agreed to waive any and all conflicts relating to any work that Kroll Cyber “or its affiliated companies” performed for Patheon “on matters not substantially related to the work Kroll Cyber Security was performing in the case.” Therefore, Patheon argues, “Procaps agreed to waive such ‘conflicts,’ and then backed out of that agreement when it learned of one.” [ECF No. 448-1, p. 14]. II. DISCUSSION A. Who is Responsible? The Court does not fault Procaps for not signing “Kroll's” conflict waiver. Indeed, it is hardly surprising that Procaps opted to not waive conflicts and decided to not allow Kroll Ontrack to search its electronic media given the following: (a) Patheon retained Kroll Associates to work on matters involving Banner, a business unit of Patheon which had been a significant competitor of Procaps and whose acquisition is at issue in the instant lawsuit; (b) Patheon objected to Kroll Cyber providing any further detail about the nature of Kroll Associates' work for the Banner business unit; (c) Cooley represents Altegrity; and (d) Patheon did not disclose this Altegrity-Cooley relationship until mid-March 2014. *4 Because Procaps' not-unreasonable decision led to the unnecessary expenditure of attorney's fees and a delay in this case, the Court must decide who should assume this financial responsibility. Procaps has, in effect, exempted “Kroll” from the equation by advising that it is not seeking fees against “Kroll,”[4] a decision which leaves only a few potential payors: Procaps; Patheon; or their respective counsel (i.e., Carlton Fields or Cooley). The consequence of Procaps' decision to not sign the conflict waiver was a delay in this case and the need for Procaps to retain another ESI vendor, thereby rendering a part of its time dealing with Kroll unnecessary. Another inescapable reality is that Procaps is not to blame for the circumstances generating the need to switch ESI vendors. Procaps' decision to not sign the conflict waiver is not an action for which the Court will assess blame against Procaps. Although it could have signed the waiver, its choice to not do so is understandable and not illogical. Moreover, it appears as though “Kroll” is partially responsible for this situation because it did not adequately understand the nature of the requested project and the roles of the different parties. But, as noted, Procaps is not seeking fees against Kroll. As between Procaps, Patheon, and their respective counsel, Patheon and its counsel are more responsible for the ultimately unnecessary attorney's fees incurred in connection with Kroll Ontrack's canceled involvement in the discovery project. As Federal Rule of Civil Procedure 37(a)(5) provides, responsibility for attorney's fees as expenses does not necessarily mean that Patheon or Cooley violated any statute, rule, or guideline, nor does it mean that they did anything wrong. Instead, it simply means that Patheon and Cooley did things which ultimately resulted in unnecessary expense—which, in the specific circumstances here, is attorney's fees. Phrased differently, Patheon and Cooley are responsible for the consequences of their actions. The Court does not fully accept the argument that Kroll Ontrack was only a vendor, such as a business which sells computers or office supplies. Kroll Ontrack is a company specializing in ESI retrieval and computer forensic analysis, and it is more akin to an expert or consultant than a vendor. See Gordon v. Kaleida Health, No. 08-CV-378S F, 2013 WL 2250506, at *5 (W.D.N.Y. May 21, 2013) (treating ESI vendor as expert or consultant in determining whether vendor should be disqualified). Therefore, although Patheon argues that it and Cooley never ran a conflict check on Kroll because it does not do this for vendors, the Court views the more-relevant question to be whether law firms should run conflict checks on proposed experts or consultants and whether it would be prudent to do so even if not required. *5 The risks associated with a failure to run a conflict check on a proposed expert are not difficult to discern. A simple, entirely plausible hypothetical demonstrates the point: Attorney A wants to retain Joe Smith as an engineering expert. If Attorney A did not run a conflict check on Smith, then he would not learn that Attorney B (at the same firm) is simultaneously in a case where Smith is the opposing expert and that Attorney B has challenged Smith's credentials and methodology. That failure to run a conflict check on Smith would generate significant problems for Attorneys A and B. Attorney A might very well be arguing that Smith is a well-qualified, experienced expert with sound methodology—while Attorney B would be simultaneously arguing, in another case, that Smith is an incompetent, unqualified witness whose background and training and methodology are inadequate and that his testimony should be excluded. Wouldn't law firms want to know about that type of fundamentally inconsistent scenario before an expert witness was retained? At a minimum, a basic conflicts check concerning the proposed expert would surely be prudent. The dangers associated with law firms which hire experts in circumstances involving a potential conflict are not illusory. See In re Androgel Antitrust Litig. (No. II), No. MD-2084-TWT, 2011 WL 1882516 (N.D. Ga. May 17, 2011) (involving motions to disqualify expert witnesses because of purported conflicts). Setting aside the expert witness analogy, the Sedona Conference Working Group Series provides several suggestions and guidelines recommending that conflict checks be used before an ESI vendor is selected.[5] In fact, it cautions that the consideration of an ESI vendor “should always start with a conflicts check as the first step.” Id. at p. 16. Because an ESI vendor “will be privy to confidential information about the client's information management systems and policies,” it is “imperative to ensure that there are no conflicts or potential conflicts at the outset.” Id. The Sedona Guidelines also go on to explain that business conflicts, in addition to legal conflicts, may preclude the retention of a particular ESI expert. For example, the Guidelines note, an ESI vendor “may have been previously retained by a competitor of the party and may be in possession of non-public information or trade secrets belonging to its first client.” After pointing out the changing landscape in the ESI expert vendor business, the Guidelines suggestions then explain that “the only way to avoid these problems is to ensure that you understand, prior to engaging a vendor, who ultimately owns and controls it.” Id. at p. 18 (emphasis added).[6] *6 If Patheon or Cooley had fully explained to Kroll Cyber the nature of the project when they forwarded the conflict search information, then Kroll Cyber likely would have discovered that Kroll Associates was doing work for Patheon's Banner business unit. Procaps could have then chosen to switch ESI vendors, before incurring significant additional attorney time. Likewise, a conflict search by Patheon and/or Cooley could well have quickly uncovered the fact that Cooley represents Altegrity or that Patheon has retained Kroll Associates. Had these facts been disclosed, then Procaps could have then decided whether to allow Kroll Ontrack to inspect its ESI before incurring significant attorney time. By their actions, or, in this case, inactions, Patheon and Cooley caused Procaps to unnecessarily incur attorney's fees. Therefore, they should be responsible for their share of the reimbursement. This conclusion does not require a finding of bad faith or violation of a rule. Instead, it is simply a reality-based, common sense conclusion anchored in the notion that a party is responsible for the consequences of its actions. In other words, Patheon and Cooley's responsibility for a portion of Procaps' attorney's fees is analytically similar to a party who is required to pay airfare and attorney's fees because it and its counsel missed an out-of-town deposition and did not notify opposing counsel until they had already made the flight and spent time preparing with their witnesses. In fact, United States Magistrate Judge Andrea M. Simonton entered a fees and costs award against a party who prevailed on a motion to compel because the party failed to timely cancel an out-of-town 30(b)(6) deposition, thereby creating adverse financial consequences to the opposing party. Topp, Inc. v. Uniden Am. Corp., No. 05-21698-CIV-Moreno/Simonton, 2007 WL 2155604 (S.D. Fla. July 25, 2007). In Topp, Inc., plaintiff Topp filed a motion to compel Defendant Uniden's 30(b)(6) deposition in Arizona. [Topp, Inc., No. 05-21698-CIV-Moreno/Simonton, ECF No. 283]. Uniden took the position that Topp waived its right to take the deposition because it abruptly canceled the deposition the night before it was to occur, after Uniden's counsel and a corporate officer had flown to Arizona, thereby causing unnecessary and unreasonable expense, including several hours of attorney preparation time with the 30(b)(6) witness. [Topp, Inc., No. 05-21698-CIV-Moreno/Simonton, ECF No. 297]. Rejecting Uniden's waiver argument, Magistrate Judge Simonton granted the motion to compel—but required Topp, the prevailing party, to pay the costs and fees. [Topp, Inc., No. 05-21698-CIV-Moreno/Simonton, ECF No. 316]. In doing so, Judge Simonton rejected Topps' argument that Uniden should not be compensated for any of the attorney time spent preparing for the deposition because she noted that the representative would need to be prepared again and that “most” of the time spent preparing for the deposition was wasted. As a result, after the parties could not agree on the amount of the fees and expenses, Judge Simonton entered an award in favor of Uniden for $11,829.00. Topp, Inc., 2007 WL 2155604, at *5. Of particular relevance here, Judge Simonton did not find that Topp acted in bad faith. She did not award Uniden fees and expenses as the prevailing party in a discovery dispute, as Uniden lost the motion to compel. Similarly, she did not award the fees and costs as a disciplinary sanction. Rather, she simply entered the order as a cost-shifting measure justified by the circumstances, explained by the practical notion that Topp caused the events which generated the financial consequences. Adopting this pragmatic and logical approach, the Court concludes that Patheon and Cooley are partially responsible (along with Kroll) for causing the financial consequences and should therefore be responsible for paying them. B. The Amount of Fees *7 Patheon does not challenge the hourly fees, nor does it attack the reasonableness of the attorney time incurred. 1. Applicable Legal Standard The Court calculates a reasonable attorney's fee by using the lodestar method, which is the number of reasonable hours expended multiplied by the reasonable hourly rate. Norman v. Housing Auth. of Montgomery, 836 F.2d 1292, 1299 (11th Cir. 1988). Concerning the hourly rates, the Court “is itself an expert on the question and may consider its own knowledge and experience concerning reasonable and proper fees and may form an independent judgment either with or without the aid of witnesses as to value.” Id. at 1303; see also Loranger v. Stierheim, 10 F.3d 776, 781 (11th Cir. 1994). 2. Procaps' Counsel's Hourly Rates The hourly fees sought by Procaps are reasonable. In fact, they are in line with the reduced hourly rates which this Court used earlier in the case when calculating a fees award in Patheon's favor. The Court understands that Procaps' counsel has lowered the hourly fees in order to be consistent with the Court's earlier order. 3. Procaps' Counsel's Reasonable Hours Expended Concerning the reasonableness of the hours requested,[7] the Court is reducing the hours for two reasons: (1) Patheon and Cooley should not be fully responsible for all the fees because “Kroll” is partly responsible for the consequences;[8] and (2) some of the time spent on the project when “Kroll” was involved also relates to the project once “Kroll's” replacement was located and substituted. While Procaps is seeking $20,372 in fees, the Court is reducing the amount of the fees award to $10,000. Patheon and Cooley shall pay their half-share of the $10,000 fees award by June 13, 2014 and shall also submit an affidavit of compliance to the Court's efile inbox within three days of making the payment.[9] DONE AND ORDERED in Chambers, in Miami, Florida, June 2, 2014. Footnotes [1] The parties have not advised why Patheon, and not Procaps, forwarded the conflict information to Kroll Cyber when Procaps is the party who would be paying for the ESI project and when its ESI is the data to be forensically analyzed. [2] The parties have not explained why the parties were emailing with Kroll Cyber about hiring Kroll Ontrack, a presumably separate entity. In general, the interplay and relationship between the different Kroll entities is not clear. As such, the Court frequently uses the term “Kroll” because it is ambiguous as to which Kroll entity is acting. [3] Cooley does not explain what results would have been obtained had it run Kroll or its affiliated entities through a conflict check listing Kroll as a proposed expert or ESI search vendor, however. [4] In its renewed motion, Procaps advises that it is “unable to seek attorney's fees against Kroll because, as a non-party vendor that did not participate in the negotiations or motion practice giving rise to the Court's Forensic Analysis Order, no federal rule or statute provides for it.” [ECF No. 431]. The Court takes no position on whether an award of fees and/or costs may be entered against “Kroll,” a Court-appointed neutral ESI examiner. See Koch Ref. Co. v. Jennifer L. Boudreau M/V, 85 F.3d 1178, 1181 (5th Cir. 1996) (noting that courts have inherent authority to disqualify experts). However, as explained later, Procaps' decision means that the award against Patheon and Cooley will be reduced, because the Court is not going to hold them fully responsible for consequences which were, in part, also caused by “Kroll.” [5] The Sedona Conference Best Practices for the Selection of Electronic Discovery Vendors: Navigating the Vendor Proposal Process (2007), available at https://thesedonaconference.org/publication/navigating-vendor-proposal-process-best-practices-selection-electronic-discovery (last visited June 2, 2014). [6] The Sedona Conference Working Group Series is not the only source recommending that conflict checks be run on ESI vendors and other experts. See also Michael A. Cottone, When Should Ediscovery Vendors Be Disqualified?, 15 Transactions: Tenn. J. Bus. L. 441, 447 (2014); Ellen Yankiver Suni, Conflicts of Interest, GPSolo Magazine Oct./Nov. 2005 (recommending conflict checks for clients, opposing parties and expert witnesses). [7] Procaps submitted an affidavit and billing records to support the hours requested. The Court has reviewed the entries and finds them acceptable. [8] This does not mean that “Kroll” did anything substantively or ethically wrong. It merely means that its apparent confusion about the conflict search caused the unnecessary expenditure of fees. [9] The fees award is not a sanction, nor is it a negative disciplinary finding against Cooley or its attorneys. Instead, it is a cost-shifting mechanism designed to impose financial responsibility on the parties who caused Procaps to incur unnecessary attorney's fees. Therefore, this Order would not require Cooley or any of its attorneys to answer “yes” if ever asked (e.g., by a judicial nominating commission, by a prospective client, by an insurance carrier, by a prospective employer, etc.) if the law firm or its attorneys have ever been sanctioned or disciplined.