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Treppel v. Biovail Corporation

February 6, 2006


The opinion of the court was delivered by: James C. Francis IV United States Magistrate Judge


However wise it may be for parties to agree to an order to prevent the destruction of evidence, such orders are not always required. The plaintiff in this action, Jerry I. Treppel, alleges that the defendants engaged in a smear campaign that destroyed his career as a securities analyst. In his initial complaint, he asserted claims of defamation, tortious interference with prospective economic advantage, prima facie tort, and civil conspiracy against the defendants, Biovail Corporation ("Biovail"); its Chairman and Chief Executive Officer, Eugene Melnyk; its General Counsel, Kenneth C. Cancellara; Sitrick and Company, Inc.; and Michael S. Sitrick. Mr. Treppel now moves pursuant to Rule 37(a) of the Federal Rules of Civil Procedure for an order compelling the defendants to: (a) preserve all potentially discoverable data, whether maintained in electronic or paper form; (b) answer a range of questions concerning their electronic data management practices; and (c) produce all accessible data and documents responsive to the plaintiff's First Request for Production of Documents, including documents responsive to three specific requests. For the reasons discussed below, the plaintiff's motion is granted in part and denied in part.


A. Factual Allegations*fn1

Prior to the events that gave rise to this litigation, Mr. Treppel was a securities research analyst who covered the healthcare and pharmaceutical industries for Banc of America Securities ("BAS") and other securities firms. Two of the companies that he routinely analyzed and reported on were Biovail and its competitor, Andrx Corporation ("Andrx"). In 1993, Mr. Treppel acquired 24,000 shares of Andrx stock. He asserts that he fulfilled all reporting obligations with respect to that investment and held the stock in a managed account so that he could not direct or control its trading.

In October 2000 and in January 2002, Mr. Treppel downgraded his recommendation with respect to Biovail. This resulted in substantial declines in its stock value. According to Mr. Treppel, Biovail then retained media consultants Michael S. Sitrick and Sitrick and Company (collectively, the "Sitrick defendants") to engineer a campaign to sully his reputation as an analyst. As part of this campaign, the defendants obtained Mr. Treppel's personal account statements by allegedly taking improper discovery of BAS, a nonparty to this litigation, in a lawsuit in Florida.

On April 29, 2002, Mr. Treppel issued a report and made public comments critical of Biovail and its management and again downgraded his recommendation on the company. Immediately thereafter, Biovail's stock declined in value by more than twenty percent, resulting in substantial personal losses for Mr. Melnyk, who owned eighteen percent of the company's outstanding shares. Mr. Treppel alleges that the defendants then retaliated by providing his personal account statements to The Wall Street Journal and falsely telling the press that he had traded Andrx shares to coincide with the issuance of his recommendations, thus illegally profiting from his own reports. According to Mr. Treppel, the defendants made some eleven defamatory statements about him, falsely stating or implying that he was biased against Biovail because of a conflict of interest in relation to Andrx, that he had concealed his stock holdings in Andrx while reporting on Biovail, and that he had engaged in unlawful conduct by purportedly profiting from his trades of Andrx stock based on his reports and recommendations concerning both Andrx and Biovail.

These statements were reported in the press, and Mr. Treppel was investigated by the New York State Attorney General's Office, the Securities and Exchange Commission, and the National Association of Securities Dealers. Further, Mr. Treppel alleges that in May 2002 the defendants pressured BAS into placing him on leave and ultimately forcing his resignation.

Mr. Treppel commenced this action on April 29, 2003, and subsequently filed an amended complaint. The defendants initially moved to dismiss, and in an opinion and order dated October 15, 2004, the Honorable Peter K. Leisure, U.S.D.J., granted the motion in part and denied it in part. Specifically, the Court dismissed the plaintiff's defamation claims with respect to eight of the eleven statements on the grounds either that the representations were conceded to be true or that they constituted non-actionable expressions of opinion. Further, the Court dismissed the prima facie tort claim, sustained the plaintiff's claim of tortious interference with prospective economic advantage, and sustained the civil conspiracy claim. Treppel I, 2004 WL 2339759, at *20.

Shortly thereafter, the Sitrick defendants and Mr. Cancellara moved for reconsideration of the Court's holdings with respect to the tortious interference and civil conspiracy claims, and, since these were the only remaining claims asserted against these defendants, they asked that the Amended Complaint as a whole be dismissed as to them. Judge Leisure agreed, holding that a decision of the New York Court of Appeals, Carvel Corp. v. Noonan, 3 N.Y.3d 182, 785 N.Y.S.2d 359 (2004), filed a day after Treppel I had been decided, made clear that a claim of tortious interference with prospective economic advantage could only be based on acts that were criminal, constituted an independent tort, or were solely intended to inflict harm on the victim. Treppel II, 2005 U.S. Dist. LEXIS 2939, at *14. Judge Leisure found that the Amended Complaint asserted no such conduct by the moving defendants, and he held that allegedly pressuring BAS to terminate Mr. Treppel was not the kind of "extreme and unfair" act that would support a tortious interference claim. Id. at *26-27. Further, since the plaintiff's civil conspiracy claim was derivative of his tortious interference allegations, the Court dismissed it as well and granted the motion to dismiss in its entirety, albeit without prejudice. Id. at *27-28.

Mr. Treppel then filed his Second Amended Complaint, reasserting his claims of tortious interference and civil conspiracy against all defendants. Mr. Melnyk, in turn, filed counterclaims alleging defamation and conspiracy by Mr. Treppel. Specifically, Mr. Melnyk asserted that Mr. Treppel, motivated first by his own financial interests and then by a desire to retaliate for what he perceived as Biovail's role in his termination, disseminated false statements to the effect that: (a) Mr. Melnyk had caused Biovail to engage in illegal corporate accounting and to issue false operating results and cash flow reports, (b) Mr. Melnyk had directed Biovail to participate in a "fake truck accident" involving a shipment of Biovail products, and (c) under Mr. Melnyk's direction, Biovail had made inappropriate payments to physicians to encourage them to prescribe Biovail products. Finally, Mr. Melnyk alleged that Mr. Treppel had conspired with others to disseminate the false information in order to cause him harm. According to Mr. Melnyk, this conduct caused him losses of 250 million dollars in the value of his Biovail stock.

The Sitrick defendants and Mr. Cancellara then moved to dismiss the Second Amended Complaint ("SAC") on the basis that the modifications made by the plaintiff failed to cure the flaws that the Court had previously identified. Mr. Treppel cross-moved to dismiss Mr. Melnyk's counterclaims. In a decision dated August 30, 2005, Judge Leisure granted the moving defendants' application and again dismissed the claims against them, this time with prejudice. Treppel III, 2005 WL 2086339, at *12. The Court also dismissed without prejudice Mr. Melnyk's defamation counterclaim to the extent that it was based on the allegation that Biovail made improper payments to physicians because that claim was not pled with sufficient particularity. Id. at *8. Judge Leisure denied the motion to dismiss the remaining defamation counterclaims insofar as they were based on statements made in March 2005, but found that claims based on statements in May 2004 were time-barred. Id. at *11. Finally, the Court dismissed Mr. Melnyk's claim of civil conspiracy, finding it wholly conclusory, but gave him leave to replead. Id. at *12.

B. Discovery Disputes

As noted above, Mr. Treppel filed the initial complaint in this action in April 2003. He did not effect service of that complaint, however, and instead served an amended complaint in August 2003. Motion practice ensued, and while the first set of motions was pending, Mr. Treppel's counsel sent a letter to counsel for Biovail on December 3, 2003, demanding that all information relevant to the claims and defenses in the action, including electronically-stored data, be preserved. (Letter of R. Scott Garley dated Dec. 3, 2003, attached as Exh. 10 to Affidavit of R. Scott Garley dated Oct. 7, 2005 ("Garley Aff.")). Biovail's counsel responded by making a similar demand of plaintiff's attorney. (Letter of Andrew J. Levander dated Dec. 31, 2003, attached as Exh. 11 to Garley Aff.). Plaintiff's counsel later sent a similar letter to the attorneys for Mr. Melnyk and the Sitrick defendants. (Letter of R. Scott Garley dated June 24, 2005, attached as Exh. 18 to Garley Aff.).

There was then little activity in discovery until February 25, 2005, when Mr. Treppel's counsel sent a letter to the attorneys for all defendants enclosing a proposed Stipulation and Order Regarding Electronic Data Preservation and Discovery Protocols (the "Proposed E-Discovery Stipulation"). (Letter of Patrick V. DiDomenico dated Feb. 25, 2005 ("DiDomenico Letter"), attached as Exh. 12 to Garley Aff.). The proposed order reflected a detailed and comprehensive approach to e-discovery. It provided that the parties exchange information about their document retention policies, identify a deposition witness with knowledge of their computer systems, and preserve relevant data in a variety of specifically identified media and storage devices according to a highly detailed protocol. Further, the proposed order would require the parties to produce in native file format all relevant information currently maintained in "accessible" form, that is, on existing hard drives, servers, and removable media such as CDS, DVDs, or ZIP discs. At the same time, the parties would identify but not immediately produce information contained on inaccessible media such as back-up tapes and would provide detailed information about the ability to restore data from that media. The parties would also identify any relevant information that was no longer available and explain the circumstances of its loss or destruction. Finally, the parties would answer a Document Retention Questionnaire that was attached as Schedule A to the proposed order. That form contained 19 questions, together with subparts, relating to the operation of each party's network servers, e-mail services, hard drives, and use of non-firm computers.

After receiving no response, plaintiff's counsel again wrote to defendants' counsel on June 8, 2005, and asked to confer about the proposed order. (Letter of Patrick V. DiDomenico dated June 8, 2005, attached as Exh. 13 to Garley Aff.). Counsel for the defendants declined the invitation, arguing that they were aware of their preservation obligations under the Federal Rules of Civil Procedure and would abide by them; that the proposed order was unnecessarily onerous in light of the relatively narrow issues presented in this case; and that it was inappropriate to consider production of information, electronic or otherwise, in the absence of specific requests for the production of documents. (Letter of Benjamin E. Rosenberg dated June 16, 2005, attached as Exh. 14 to Garley Aff.; Letter of Jerry L. Dasti dated June 17, 2005, attached as Exh. 16 to Garley Aff.; Letter of Frank P. Scibilia dated June 29, 2005, attached as Exh. 22 to Garley Aff.).

On July 11, 2005, counsel for Mr. Treppel propounded Plaintiffs' First Request for Production of Documents to All Defendants ("Pl. Doc. Req."). (Garley Aff., Exh. 5). Each of the defendants responded, objecting to certain requests and agreeing to produce documents responsive to others. (Garley Aff., Exhs. 6, 7, 8). In particular, Biovail objected on grounds of relevance to producing documents in response to requests numbers 18, 19, and 28 which read as follows:

18. All documents concerning the decision by or on behalf of Biovail to subpoena or otherwise obtain Treppel's personal account statements and trading records in the Florida Lawsuit.

19. All documents concerning the termination of Biovail's investment banking relationship with BAS.

28. All documents reviewed, referred to or relied upon by Biovail and Melnyk in the preparation of their respective Answers to the Second Amended Complaint in this action. (Pl. Doc. Req., ¶¶ 18, 19, 28).

With respect to the documents that the defendants did agree to produce, a separate dispute arose. Because much of the responsive information was maintained in electronic form, counsel for Biovail proposed that the parties agree which employees' files were to be searched and what search terms were to be used. (Letter of Andrew J. Levander dated Aug. 9, 2005 ("Levander 8/9/05 Letter"), attached as Exh. 25 to Garley Aff.; Letter of Neil A. Steiner dated Sept. 1, 2005 ("Steiner 9/1/05 Letter"), attached as Exh. 31 to Garley Aff.). Mr. Treppel's counsel demurred, stating that "it is defendants' obligation to simply search its [sic] records and respond to those demands. Plaintiff has no obligation to assist defendants in the process by providing search terms or any other guidance." (Letter of Mark Sidoti dated Sept. 12, 2005 ("Sidoti 9/2/05 Letter"), attached as Exh. 32 to Garley Aff., at 4).

When counsel were unable to resolve these disputes among themselves, the plaintiff ...

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