Hedgeye Risk Management, LLC v. Dale

Background

This order resolved defendants’ letter motion seeking sanctions for Hedgeye’s discovery failures, failure to obey the court’s April 28, 2022 discovery order, and repeated representations that it had produced all responsive communications.

Defendants first moved to compel production of responsive communications from Hedgeye executives in February 2022. Hedgeye represented that it had collected and produced responsive messages, and the court denied that motion without prejudice. In April 2022, defendants again sought communications concerning Darius Dale and the litigation. Hedgeye represented that it had corrected the problem, and its counsel confirmed at a hearing that it had produced all such communications. The court then ordered Hedgeye to produce all communications from its executives to third parties concerning Dale or the litigation.

In April 2023, Hedgeye again represented that it had produced all communications located after a reasonable search. A third party’s production revealed previously undisclosed text messages, leading to another motion to compel. Hedgeye stated that it had conducted a careful and reasonably diligent collection process while also saying it was conducting another search. At a May 2023 hearing, it became clear that Hedgeye itself had conducted the searches and that outside counsel had not exercised sufficient quality control over most of the executives’ text-message collections. Further proceedings showed that Hedgeye apparently had not searched its executives’ laptop computers. The court ordered that search to occur at Hedgeye’s expense, subject to possible later recovery of costs depending on whether the search produced duplicative documents.

Rules and analysis

Federal Rule of Civil Procedure 37(a)(5)(A) generally requires reimbursement of reasonable expenses, including attorney’s fees, when a party must move to compel discovery or provides the requested discovery after the motion is filed, unless the nondisclosure was substantially justified or other circumstances make reimbursement unjust. Rule 37(b)(2) authorizes sanctions for violating a discovery order and generally requires payment of expenses caused by the violation unless the failure was substantially justified or reimbursement would otherwise be unjust.

The court found that either rule, or both, required Hedgeye to reimburse defendants. Defendants had filed multiple motions to obtain discovery that Hedgeye ultimately provided only after repeated conferences with the court and corrective efforts. The court found that Hedgeye’s discovery failures and inaccurate representations were not substantially justified, and it found no other circumstance making reimbursement unjust.

For the discovery-order violation, the court considered the party’s reason for noncompliance, whether lesser sanctions would work, how long the noncompliance lasted, and whether the party had been warned about possible sanctions. The court found no direct evidence of willful misconduct, but concluded that Hedgeye’s conduct was more than negligent and was not innocent. Hedgeye repeatedly overstated its compliance, and its counsel failed to exercise sufficient quality control. The court found that reimbursement of expenses was the mildest appropriate sanction, that Hedgeye’s noncompliance lasted from at least April 2022 through and after April 2023, and that a prior express warning of sanctions was not necessary for this expense award.

The court rejected Hedgeye’s argument that defendants suffered no prejudice, explaining that defendants had incurred unnecessary legal fees to obtain information that should have been produced. The court also rejected Hedgeye’s argument that defendants’ alleged misconduct, including Darius Dale’s prior admission concerning spoliation, excused Hedgeye’s own discovery failures.

Disposition

The court required Hedgeye to pay defendants’ reasonable expenses, including attorney’s fees, incurred in moving to compel production of all communications from Hedgeye executives to third parties concerning Dale or the litigation. The court did not determine the amount at this stage. It held that defendants’ submission of supporting information must await determination of the case’s merits and any damages or attorney’s fees that may be owed to either party. The Clerk of Court was directed to terminate the sanctions motion at Docket 587.