A federal court in Pennsylvania recently ordered a former executive to respond to costly and expansive discovery requests in a case where the former executive allegedly set up a competing business in violation of his employment agreement.  Although responding to the discovery was expected to be a costly endeavor, the Court in First Niagara Risk Management, Inc. v. John A. Folino (E.D. Penn. August 11, 2016) nevertheless rejected the defendant’s financial hardship argument based on the fact that he recently received $5 million for the sale of two companies to the plaintiff.

In this case, Folino began working for First Niagara in 2010 as its First Vice-President and Regional Director of Insurance for Western Pennsylvania after First Niagara paid Folino $5 million for the assets of the two business Folino owned.  As part of that sale, Folino signed an employment agreement containing non-solicitation and non-competition provisions that prevented him from competing with First Niagara.  Despite this agreement, First Niagara alleged that while working for First Niagara in 2015, Folino began working with another First Niagara employee to set up a business that directly competed with First Niagara.

During discovery, First Niagara filed a motion to permit the parties’ neutral eDiscovery vendor to conduct searches of all of Folino’s personal electronic devices and email accounts using roughly 100 separate terms and covering an almost a two and a half year period.  Folino objected to this request on the basis that it was overly broad, unduly burdensome, and excessively costly.

In granting First Niagara’s motion to compel the requested discovery, the Court found that although First Niagara’s discovery requests were “rather broad,” they nevertheless were proportional to the needs of the case.  In reaching its decision, the Court stated the following factors weighed in favor of granting First Niagara’s motion:

• Information produced in discovery demonstrated that Folino was involved in forming the competing company and recruiting First Niagara employees to join the company;

• Folino had access to the information at issue while First Niagara did not; and

• The information sought was highly relevant to First Niagara’s claims.

As for Folino’s claim that compliance with the discovery requests was cost-prohibitive, the Court specifically found that Folino’s “complaints about cost ring hollow from someone who just sold two companies for over $5 million.”

As this case demonstrates, courts look at the totality of the facts before making a proportionality determination under the revised Federal Rules of Civil Procedure.  Although individual defendants frequently have strong arguments against being compelled to engage in costly e-discovery, parties are well advised to consider the financial status of their clients before arguing that requested discovery is cost-prohibitive.