A bankruptcy judge in the Northern District of Ohio has forbidden a creditor from using information on its own electronic database to prove an administrative claim against a debtor’s estate because it refused to provide the debtor with access to the database throughout the discovery process

By Patrick Ryan

In re LTV Steel Co., 307 B.R. 37 (N.D. Ohio 2004)

Employer/Employee Implicated: Counsel

eLesson Learned: When producing only a summary of materials on an electronic database, be prepared to make the database itself available for inspection. Failure to allow inspection might lead to preclusion of evidence at trial, or even dismissal of your case.

In what can only be described as a pyrrhic victory, a creditor (“C & K”) avoided an outright dismissal of its case against the debtor (“LTV”) but lost the only evidence that could fully support its claim. 

C & K had provided LTV with services in bankruptcy. As part of the compensation package, LTV agreed to pay C & K an “Efficiency Bonus” for keeping costs down. This bonus was to be calculated as a percentage of the difference between the annual cost targets of C & K and the actual costs of its services. When C & K filed an administrative claim for the Efficiency Bonus upon completing its services, LTV disputed it and requested that C & K provide it with information relating to the rates at which C & K had provided similar services to third parties during the same time period. This information was necessary for LTV to decide whether C & K had actually provided more efficient, less expensive services to LTV in bankruptcy.

Although much of the information was readily available on one of its electronic databases,  outside counself for C & K  refused to produce the information. At first, C & K argued LTV’s request was overbroad and would result in disclosure of trade secrets. In response, LTV provided C & K with a signed order protecting its trade secrets and requested that it at least provide LTV with a summary of its price rates. (The Federal Rules of Evidence allow for a party to provide a summary of the contents of voluminous writings in lieu of the writings themselves, but only if the party allows its adversary to examine or copy the original writings at a reasonable time and place. Fed. R. Evid. 1006.) C & K, however, did not provide LTV with the summary of its prices until they were less than two weeks away from trial.

When C & K also failed to produce its trial exhibits as required, the bankruptcy court continued the trial and called a status conference.  At the conference, C & K mentioned that it kept an electronic database of its third-party pricing information. By letter, LTV requested access to the database with a datamap, but C & K again refused. This time, C & K argued that the database did exist, but that C & K had not used the database to prepare its summary of prices. It assured LTV that it was compiling hard copies of the relevant documents for LTV’s inspection, but when C & K failed to make even the hard copies of the documents available, LTV filed a motion to dismiss the administrative claim.

The bankruptcy court took the attorneys for C & K to task for wasting the time and money of not only LTV, but also LTV’s other unsecured creditors. As the court explained:

“The ground shifting tactics of C & K demonstrate[d] willfulness and bad faith. This was not a case of accidental or inadvertent noncompliance. . . . By constantly shifting its ground, C & K assured itself that it would not have to respond to LTV’s requests since it always had a fresh excuse as to why it need not comply. LTV was forced to wrestle a cloud. This is even more objectionable in the bankruptcy context. Everyone is present because there is not enough money. LTV’s creditors do not have money to waste with discovery games. The estate is administratively insolvent. Any money spent pursuing essential discovery is money that is not going to someone else.”

307 B.R. at 46-47.

C & K had not violated any order compelling discovery of the information, but the court noted that Fed. R. Civ. Pro. 37(d) might provide it with the discretion to dismiss its case anyway. In determining whether a party’s case should be dismissed under such circumstances, a federal court in the Sixth Circuit must consider the following four factors: (1) whether the party’s failure to produce the requested information was due to willfulness, bad faith or fault; (2) whether the adversary was prejudiced by the conduct; (3) whether the party was previously warned that its conduct might result in dismissal of its case; and (4) whether less drastic sanctions already had been imposed or considered. Id. at 45. Furthermore, even if one or more of these factors do not support dismissal of the party’s case, such action is proper if the record demonstrates delay or disobedience. See id.

Although conduct of C & K was clearly willful, the court concluded that dismissal was not appropriate because C & K had not received adequate notice that such a result was possible. The court noted, however, that C & K’s conduct had prejudiced LTV, because LTV could not fairly have been expected to defend against C & K’s administrative claim without first receiving the information that LTV had requested. For that reason, the court ordered that C & K itself could not offer any evidence or argument at trial related to the prices paid for their services by third parties, including any evidence that was readily available on their electronic database. In so doing, the court prevented C & K from recovering the portion of the administrative claim that LTV disputed.

The lesson here is that counsel should provide appropriate electronic information in as timely a fashion as possible, especially when the request is made in the context of a bankruptcy proceeding. A willful failure to provide such information is just as likely to prejudice an attorney’s own case as it is the opposition’s. 

Patrick J. Ryan is a third-year law student at Seton Hall University School of Law. He has focused much of his training and legal education on bankruptcy and state law insolvency proceedings. 

e-Lessons Learned Disclaimer:
The opinions expressed by bloggers and those providing comments are theirs alone, are provided solely for informational purposes, and do not necessarily reflect the opinions of e-Lessons Learned.  We are not responsible for the accuracy of any of the information supplied herein and are not liable for any errors or omissions in this information, or any losses, injuries, or damages arising from its display or use.  By using this blog site you understand that there is no attorney client relationship and it should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.