Contempt Sanctions for Violation of Protective Order — Giving Documents to Unauthorized Person with a Financial Incentive to Read Them = Contempt Notwithstanding Oral Direction Not to Read Them

From Hunt v. Enzo Biochem, Inc., 2011 U.S. Dist. LEXIS 117607 (S.D.N.Y. Oct. 11, 2011):

Enzo Biochem, Inc., Heiman Gross, Barry Weiner, Elazar Rabbani, Sharim Rabbani, John Deluca, Dean Engelhardt, and John Does 1-50 (the "Enzo Defendants") bring this motion for sanctions against plaintiff Paul Lewicki and his former counsel, Dan Brecher. The Enzo Defendants allege that Lewicki [client] and Brecher [lawyer] violated this Court's Order for the Protection and Exchange of Confidential Information (the "Protective Order") by improperly giving Lawrence Glaser [unauthorized reader] confidential materials. The Enzo Defendants further allege that Glaser used those materials in support of a motion to re-open his lawsuit against them in Virginia (the "Virginia case") under Federal Rule of Civil Procedure 60(b). The Enzo Defendants seek to recoup the expenses associated with responding to that motion, and to recover their confidential materials. ***

1. The Virginia Case

In 2001, Lewicki signed a retainer agreement with attorney Michael Rovell with a view towards filing a lawsuit against the Enzo Defendants. As part of the retainer agreement, Lewicki, Glaser, and most of the other plaintiffs in this case planned to sue the Enzo Defendants for misrepresenting the effectiveness of Enzo's products in order to inflate the price of Enzo stock and reap a profit. The plan called for Glaser to win his case in Virginia first, and for the rest of the group to use that hoped-for success in a subsequent case in New York.

In line with the plan, Glaser filed the Virginia case in 2002. After losing in the district court, Glaser appealed, and the case was remanded for further proceedings. The Enzo Defendants then successfully moved for dismissal, whereupon Glaser brought a second appeal in 2006. The United States Court of Appeals for the Fourth Circuit denied him any relief, thereby ending his case.

2. The New York Case

***The plaintiffs in the New York case were initially represented by Michael Rovell, the same attorney who represented Glaser in the Virginia case. They filed suit in 2006 and by 2008 were on their third amended complaint, which raised common law fraud claims. Rovell died while the case was pending, and Glaser helped the plaintiffs find Brecher to replace him; Glaser also gave Lewicki a $20,000 loan to pay his share of the retainer. Because the claims in the New York case were closely related to those in the Virginia case, Lewicki encouraged Brecher to consult with Glaser. The two met several times, and Glaser eventually gave Brecher documents from the Virginia case (the "Virginia files"). Along the way, Brecher learned that Glaser had a substantial financial interest in the New York case.

Brecher and Donald Chase, counsel for the Enzo Defendants, stipulated to the terms of a Protective Order which was entered on March 25, 2008. Lewicki's understanding of the Protective Order is unclear. At the hearing, Lewicki testified that he heard of the Protective Order, but also that he never saw it. He claims that all he understood about the Protective Order was that "confidential documents needed to be kept confidential." Brecher claims, however, that he told Lewicki about the Protective Order before it was filed, and that he discussed it in great detail with Lewicki before Lewicki's deposition.

On April 11, 2009, Lewicki requested that Brecher "ask [Judge Scheindlin] to make [the Protective Order] formally. . . binding on" Glaser, so that Glaser could have access to Enzo's confidential documents. After stating that he declined Glaser's personal requests on the matter, Brecher told Lewicki that he would not seek modification of the Protective Order and threatened to withdraw as counsel if Lewicki petitioned the court on his own. Glaser repeated his requests in March 2009, and Brecher denied those as well. ***

After the Enzo Defendants won summary judgment, Lewicki asked if he could pick up the plaintiffs' files (the "New York files") from Brecher's office. In an e-mail dated July 6, 2009, Brecher told Lewicki that he could not pick up the New York files for two reasons. First, in order to release Lewicki's personal files, he needed authorization from the Trustee in Lewicki's bankruptcy proceeding. Second, in order to release the rest of the New York files, he needed authorization from the other plaintiffs. ***

While waiting for Lewicki to get the Trustee's permission to receive the New York files, Brecher e-mailed Chase on August 24, 2009 to inform Chase that he intended to release the New York files to the plaintiffs. Chase asked Brecher not to release anything marked "highly confidential," and to delay releasing documents marked "confidential" because he suspected that information contained therein was leaked on an Internet forum. Although Brecher complied with Chase's request regarding the "highly confidential" documents, Brecher and Chase continued to disagree on how to proceed with regard to "confidential" documents. Brecher reiterated his belief that the plaintiffs were entitled to the entire New York file and gave Chase a week to respond. After that week passed, Brecher e-mailed Chase, simply asking "Nu?" ["Nu" is a Yiddish expression meaning "Well?" See English-Yiddish, Yiddish-English Dictionary: Romanized 92 (David C. Gross ed., Hippocrene Books 1995).] Chase did not respond.

By September 15, 2009, Lewicki had obtained permission from the bankruptcy Trustee. He asked if he could pick up the New York files on October 2, 2009. Glaser told Brecher that he would be coming along, and the two arrived at Brecher's office as planned. Lewicki signed for the files, and Brecher handed them over to both men, who proceeded to move them to Glaser's truck. Although he knew that there were confidential materials in the New York files, Brecher testified that he saw "nothing improper" about the situation, and insists that he reminded Lewicki and Glaser of the requirements of the Protective Order. Lewicki, however, claims that he did not know that the files turned over that day contained any confidential material.

Lewicki and Glaser drove from Brecher's office to the home of a common friend in New Jersey, where they stored the New York files. At some point before October 6, 2009, Lewicki went through the files and complained to Brecher that a specific document was missing. Glaser eventually took the files from New Jersey to an attorney who was to help Lewicki with his appeal. When that attorney declined to take the case, Glaser took the files back, and later brought selected documents to a meeting with Lewicki at a rest stop on the New Jersey Turnpike. Lewicki testified that at least three of the documents they went over at that meeting were marked "confidential," and that Glaser used those documents to support his Rule 60(b) motion in the Virginia case. Glaser has retained all of the New York files since then.


Footnote 45. While a court also has the "inherent power" to sanction noncompliance with protective orders, it should avoid using such powers when a rule — in this case Rule 37 — applies directly to the same conduct. See Southern New England Tel. Co. v. Global NAPs Inc., 624 F.3d 123, 144 n.7 (2d Cir. 2010). Therefore, although both sides mention inherent power sanctions in their briefs, I do not discuss them in this opinion because Rule 37 is sufficient.

Under Federal Rule of Civil Procedure 37(b)(2), a court may "treat[] as contempt . . . the failure to obey any order except an order to submit to a physical or mental examination." The Advisory Committee Note makes it clear that noncompliance with protective orders issued pursuant to Rule 26(c) may be sanctioned under this provision,

Footnote 46. See 1970 Advisory Committee Note to Fed. R. Civ. P. 37 at 207 (2011 ed.). See also Gregory P. Joseph, Sanctions: The Federal Law of Litigation Abuse § 48(A)(2) (4th ed. 2008).

and the Second Circuit generally instructs that "[a] party may be held in civil contempt for failure to comply with a court order if (1) the order the contemnor failed to comply with is clear and unambiguous, (2) the proof of noncompliance is clear and convincing, and (3) the contemnor has not diligently attempted to comply in a reasonable manner."

Footnote 47. Paramedics Electromedicina Comercial, Ltda. v. GE Med. Sys. Info. Tech., Inc., 369 F.3d 645, 655 (2d Cir. 2004).

Furthermore, under Rule 37(b)(2)(C), a finding of contempt may also lead to an award of "reasonable expenses, including attorney's fees, caused by the failure [to comply]," payable by either the offending party, its attorney, or both. ***



Based on the materials in the record as discussed above, I find that the following facts are undisputed: (1) A Protective Order was in place that did not allow Glaser to access Enzo's confidential materials. (2) Brecher knew that Glaser had a personal and financial interest in the New York case. (3) Brecher released the New York files into the joint physical custody of Lewicki and Glaser on October 2, 2009. (4) Lewicki and Glaser stored the New York files in New Jersey. (5) Glaser took the files from New Jersey to an attorney -- who ended up rejecting the case -- for review in preparation for Lewicki's appeal. (6) Glaser and Lewicki reviewed confidential documents together at a rest stop on the New Jersey Turnpike. (7) Glaser used the same confidential documents in an attempt to reopen the Virginia case. (8) Glaser currently retains possession of the New York files.***

There are two key factual issues that must be resolved before I can determine whether sanctions against Lewicki and Brecher are appropriate. These issues turn on the credibility of the witnesses and the exhibits offered by both parties at the hearing.

The first important issue is what documents Brecher actually released to Lewicki and Glaser on October 2, 2009. As noted above, Brecher asserts that he told Lewicki that the files contained confidential materials that could not be shown to Glaser. Lewicki, however, testified that he did not know that any of the materials released on that day were confidential; indeed, he testified that he thought Brecher kept all the documents that were restricted by the Protective Order. I find that Lewicki's testimony on this matter is not credible***. ***

The second important issue regards Lewicki's understanding of the Protective Order. Lewicki claims that he did not understand the distinction between "confidential" and "highly confidential" materials. Several facts make this claim dubious. ***I find that Lewicki substantially understood the Protective Order and his responsibilities thereunder. ***

A. Sanctions Against Lewicki [Client]

The first question is whether the Protective Order is "clear and unambiguous." *** I ... find that the Protective Order was clear and unambiguous. Furthermore, Lewicki was aware of his responsibilities under the Order.

The second question is whether the proof of Lewicki's noncompliance with the order is clear and convincing. As noted above, the facts concerning the physical transit of the New York files are not in dispute. *** I find that this evidence provides clear and convincing proof that Lewicki allowed Glaser to access confidential materials, and, accordingly, clear and convincing proof of Lewicki's noncompliance with the Protective Order.

The final question is whether Lewicki made diligent efforts to comply with the Protective Order in a reasonable manner. I conclude that Lewicki failed to take even basic precautions to protect the confidential materials. First, Lewicki never told Glaser not to review the New York file, which Lewicki explains by claiming that he was unaware that the New York file contained confidential material. That explanation is not credible; Lewicki knew that the New York file contained confidential materials, and simply did not make efforts to protect them from Glaser. Second, Lewicki did not tell Glaser to return confidential documents that he knew were in Glaser's possession after meeting Glaser on the New Jersey Turnpike. I therefore find Lewicki in civil contempt under Rule 37 for his failure to comply with the Protective Order.

2. Sanctions Against Brecher [Lawyer]

Because I have already found the Protective Order to be clear and unambiguous, there are only two remaining questions to address in deciding whether Brecher should be sanctioned. First, whether proof of Brecher's noncompliance with the Protective Order is clear and convincing; and second, whether Brecher diligently attempted to comply with the Protective Order in a reasonable manner.

Paragraph 12 of the Protective Order requires that anyone who is given access to confidential materials must be made aware of the Protective Order and given a copy of it. Compliance with this requirement is irrelevant, however, if the person to whom such access is given is not authorized to receive confidential materials under Paragraphs 10 or 11. Brecher does not argue that Glaser was entitled to access any confidential materials. Indeed, Brecher testified that prior to releasing the New York files on October 2, 2009, he carefully segregated the confidential materials because he knew Glaser was not entitled to access them.

I have already found that Brecher physically delivered the New York files — including confidential materials — into Glaser's possession. Brecher nonetheless argues that there was "nothing improper" about allowing Glaser to assist Lewicki in moving them. Because Glaser does not fall into any of the categories described in Paragraphs 10 or 11, Brecher's opinion as to the propriety of his actions is irrelevant. By providing confidential materials to a person not entitled to receive them, Brecher violated the Protective Order. The evidence of this fact is clear and convincing.

The only remaining question is whether Brecher failed to make diligent efforts at reasonable compliance with the Protective Order. As noted above, Brecher was in compliance with the Protective Order until October 2, 2009. He gave Glaser no "confidential" materials before then, and always protected the "highly confidential" materials. His e-mail exchange with Chase also makes it clear that he continued to respect the seriousness of the Protective Order even after he stopped representing the plaintiffs.

What makes the act of transferring confidential materials into Glaser's possession deeply troubling — even if he only viewed Glaser as a stand-in for a paid moving company — is what Brecher knew about Glaser. As noted above, Brecher knew that Glaser was deeply involved with the plaintiffs — both with regard to finances and legal strategy — well before the date of the transfer. Brecher also knew that Glaser was insistent on gaining access to Enzo's confidential materials. Given this knowledge, Brecher was obliged to do more than simply give Glaser and Lewicki instructions not to violate the Protective Order. Repeated warnings to play by the rules to a person with known incentives to do otherwise simply do not meet the substantial burden of making a diligent attempt to comply with the Protective Order in a reasonable manner. Accordingly, I find Brecher in civil contempt under Rule 37 for his failure to comply with the Protective Order. ***

C. Determination of Sanctions


I have already determined that $67,561.71 is a reasonable amount for attorneys' fees for the work done in responding to the violation of the Protective Order. I have now found that both Lewicki and Brecher violated the Protective Order, and further find that they contributed equally to the costs the Enzo Defendants incurred.

Notably, however, Lewicki is in bankruptcy proceedings, and is therefore unlikely to be able to pay his fair share of a joint and several sanction. Therefore, a joint and several sanction would be tantamount to a sanction against Brecher alone. Taking this into consideration, I find that Brecher's lack of bad faith should be given some weight as part of the "full record" that I may consider when choosing the appropriate sanction. Accordingly, I find that imposing a sanction of fifty percent of the Enzo Defendants' fees and costs against each of Brecher and Lewicki is the most appropriate way to resolve this matter.

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