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Oct 14 2011

Lawyer’s Failure to Safeguard Documents Brings Hefty Penalty

Often in Federal litigation and state commercial litigation, certain documents are marked “confidential” so that the parties know that while they have to be exchanged through the course of the case, they are not to be given to third parties or used outsider the litigation in any way. In some cases, an entire court file can be marked in that fashion and all pleadings, discovery and letters have to be filed under seal.

Lawyers involved in “Confidential” cases or in cases where “confidential” documents are involved would be wise to read what happened in the case of Hunt v. Enzo BioChem a case pending in the Southern District of New York before Judge Shira Scheindlin. She assessed a penalty of $30,000+ against a lawyer in that case who allowed another person to have access to Enzo BioChem’s records which that person then used to try and revive a case against Enzo that he had earlier lost.

A number of litigants had wanted to bring claims against Enzo alleging that it inflated the price of its stock by making false claims about the validity and performance of certain Enzo products. The plan was to have one litigant named Lawrence Glaser file a case in Virginia first; he was expected to win that and then fellow investor Paul Lewicki would file in NY. Glaser’s case was summarily thrown out in Virginia and Lewicki then filed the action in NY. Lewicki encouraged his lawyer Daniel Brecher, to consult with Glaser about the claim. Glaser gave Brecher the documents from the Virgina case (which contained no confidential documents). Brecher also became aware that Glaser had loaned $20,000 to Lewicki to cover the legal fees in the NY case.

In the NY litigation, the court issued a protective order marking the records of Enzo Biochem confidential and others “highly confidential.” The NY case was then dismissed as well. Brecher, who was not going to be working on the appeal, eventually gave Lewicki the file (except for the highly confidential documents). The problem was that when Lewicki came to pick it up he was accompanied by Glaser, who was not a party to the NY suit. Brecher handed over the file to Lewicki and Lewicki handed it over to Glaser who promptly used the confidential records to file a motion to re-open the Virigina case. The motion was denied, but then Enzo brought a motion in NY asking for its legal fees in defense of the Virgina motion and for further sanctions.

In granting the motion in its entirety, Judge Scheindlin said that while Brecher may have told Lewicki that the records were confidential, that was insufficient, especially in light of what Brecher knew about Glaser’s involvement in the matter.Judge Scheindlin stated:

“Repeated warnings to play by the rules to a person with know 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.”

The judge found that both Brecher and Lewicki were in contempt of court for violating the order and sanctioned them in the amount of $67,000, jointly and severally. While the judge was clearly displeased with Brecher’s conduct, she stated because it did not appear he transferred the documents in bad faith, coupled with the high probability that he will have to pay the whole $67,000 since Lewicki is in bankruptcy, further penalties were unwarranted.

Counsel litigating under these confidentiality orders need to understand the serious consequences of violating their terms. Brecher need only have clarified with his adversary that he was allowed (or not) to release the records or at the least, obtain a written guarantee from Lewicki that he would not give or reveal the records to anyone outside of the lawsuit. A simple one paragraph letter signed by Lewicki would probably had saved Brecher the $67K.

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