Diving Deep For Documents Opens Even Deeper Pockets


If litigation is commonly a war of attrition, discovery is the battlefield where that war is often decided. And that terrain is particularly perilous for plaintiffs in derivative litigation, because a minority shareholder demanding documents and information from the defending majority in a derivative dispute confronts a perpetual conundrum: the majority controls – and naturally refuses to turn over – evidence of their own misdeeds existing within the company’s records. The resulting dynamic pits the essence of the minority plaintiff’s ability to meet his or her burden of proof against the majority defendant’s natural inclination to resist disclosure of damaging material. The minority must, to overcome this hurdle, be committed to pressing for these potentially incriminating documents to leverage a more lucrative settlement or judgment.


KNOW WHAT YOU NEED

Company records can be extensive, ranging from traditional hard copy to electronic documents – e.g., emails, word documents, .pdfs, computerized accounting records and tax files. That emphasizes the importance of tailored discovery. Inviting a document dump only plays into the defense’s hands, costing time and money for the minority to review – only to find that critical documents have been withheld.


Thus, drilling down on critical documents early is key. We recommend hiring an IT firm at the outset to help identify documents most likely to expose malfeasance and assist in wordsmithing document demands to cover all native electronic files with metadata intact.


Serving pointed discovery early in the case helps deprive the defense of opportunities to game the system.


TELL THEM YOU KNOW HOW TO GET IT

With discovery in play, the majority typically delays by serving non-compliant responses and a paltry document production in non-readable .pdf form, containing no native electronic files.


The required “meet and confer” with opposing counsel sets the stage going forward. We give opposing counsel notice that, with IT assistance, the minority will press for all responsive documents, including all metadata required to investigate any data manipulation, and bring whatever motions are necessary to enforce discovery. This alone may not resolve the major issues, and court assistance often is required.


STAY THE COURSE

No amount of posturing or rhetorical preparation is a surrogate for the willingness to seek the intervention of the Courts where the majority insists on obstruction. The minority must be prepared to file the motions necessary to chase down potential smoking guns. The initial motion to compel sets the narrative that the majority has something to hide, and in fact is hiding it. When the minority walks away with turn-over orders, those orders also carry the message that the court will not tolerate further gamesmanship. In our experience, obtaining turn-over orders alone can generate bargaining strength if the majority would rather settle than turn over incriminating documents.


If the case does not settle, the minority should vigilantly enforce the turn-over orders, including by further meet and confer efforts and/or filing further motions for monetary, evidence, issue and/or terminating sanctions. Given that courts are reluctant to issue more extreme sanctions straight away, the minority should be prepared to file sequential motions to remedy turn-over order violations.


At some point, persistence pays off: the majority eventually is caught staring at the proverbial rock and a hard place, faced with the choice of producing harmful documents or incurring a potentially worse fate at the hands of an irritated judge or outraged jury.

The lesson here is that when the majority controls the evidence, the minority should be prepared to commit to an aggressive discovery plan calculated to change the balance of power and force the more lucrative settlement or judgment.

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This article is made available for educational purposes and to provide general information on current legal topics, not to provide specific legal advice. The publication of this article does not create any attorney-client relationship and should not be used as a substitute for competent legal advice from a licensed professional attorney.

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