Judge John F. Grady of the U.S. District Court for the Northern District of Illinois issued an opinion in FDIC v. Giannoulias providing guidance on common e-discovery issues. The case involved a lawsuit by the FDIC against former executives of Broadway Bank to recover $114 million in losses from commercial real estate loans. The court ordered the FDIC to use additional search terms but not overly broad terms. Neither party wanted to review documents for responsiveness so the court ruled the FDIC did not need to do so. The court also found the FDIC's method of electronically producing emails satisfied Rule 34 requirements.

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Serving the cityʹs law profession since 1854
December 9, 2013
Practical e-discovery approach prevails
By Adam J. Glazer
Adam J. Glazer is a partner at Schoenberg, Finkel, Newman & Rosenberg LLC and an adjunct professor at
Northwestern University School of Law. A general service firm, Schoenberg, Finkel dates back about 60 years in
Chicago. Glazer maintains a broad commercial litigation practice with an emphasis on preventing, and if
necessary, litigating business disputes.
Most readers will remember the saga of Broadway Bank and its demise in early 2010 under the hand of the
Giannoulias family. The public airing of the bank’s dirty laundry not only sank Alexi Giannoulias’ U.S. Senate bid
that November, but inevitably spawned litigation that continues today in Chicago federal court.
While much of this litigation involves arcane issues of banking law, U.S. District Judge John F. Grady just
issued an opinion containing useful guidance on questions commonly arising in modern discovery disputes
involving voluminous document productions.
Recurrent discovery issues in electronically stored information (ESI) disputes, such as formulating search terms;
which the party bears the burden of filtering out unresponsive documents; and in what form the responsive
materials must be produced were all addressed by Grady in FDIC v. Giannoulias, No. 12 C 1665 (N.D. Ill. Oct. 23,
2013).
After regulators closed Broadway Bank and the FDIC took it over, the agency initiated suit to recover about
$114 million in losses suffered on some 20 commercial real estate loans. The defendants, the bank’s former
managing executives charged with negligently approving those loans, served the FDIC with 242 requests for
production.
The first phase of the FDIC’s response, where the parties agreed upon a list of unique search terms for the
bank’s ESI, led to the production of 500,000 documents, including the complete loan files for the 20 real estate loans.
This went relatively smoothly. These were evidently the documents the FDIC could readily identify as responsive to
the defendants’ requests.
Disputed search terms
The FDIC objected to adding six additional search terms that would yield an additional 16,800 ESI hits. Four of
the proposed terms contained the names of the bank’s outside auditors, and the court quickly determined these
terms may capture highly relevant documents concerning the defendants’ management activities.
The court acknowledged the FDIC’s concern that employing these terms would also identify irrelevant or
cumulative materials, but the relatively small number of hits involved rendered this unpersuasive.
Grady also ordered the FDIC’s search to include the individual who brokered many of the loans at issue. Where
the FDIC had likewise requested broad information from the defendants involving this broker, turnabout was fair
play.
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However, the defendants’ request to use the search terms “Capitalized” and “Capitalization” was over‐
inclusive. These terms produced a large number of hits and the court found searching for such commonly used
banking terms was likely to identify many irrelevant documents.
Burden of producing only responsive materials
Unlike the typical discovery fight, where each side vigorously protects its right to make responsiveness
determinations, neither party in this case was anxious to accept the burden of inspecting Broadway Bank’s
voluminous documents to ferret out the responsive information.
The FDIC applied the agreed search terms and stood ready to produce the matching documents. Evidently
viewing this as a document dump, the defendants called upon the FDIC to inspect those documents in order to
produce only those actually responsive.
The court took a practical approach. Careful not to criticize the sizeable scope of the discovery requests in light
of the complaint alleging “a broad failure by the defendants to properly manage the bank’s financial risks across 20
loans,” the court felt “the vast majority of the material” would prove responsive to the defendants’ 242 production
requests. While some false hits were inevitable, “we will not require the FDIC to review thousands of documents to
weed out a presumably small subset of irrelevant materials.”
Organizing the production
Once responsiveness was determined, the FDIC was ready to make production. The defendants, however,
invoked Fed.R.Civ.P. 34’s familiar requirement that parties “must produce documents as they are kept in the usual
course of business or must organize and label them to correspond to the categories in the request” to insist the FDIC
categorize its production to their 242 requests.
Rather than invest the time to match up documents with often overlapping categories in productions requests,
the parties commonly comply with this requirement by producing documents as maintained by their clients in the
usual course of business. The FDIC attempted its own version of this practice and met a stiff challenge.
E‐mails were the main focus of the parties’ dispute and the FDIC was prepared to produce these e‐mails from
the database it created to store the bank’s documents in a searchable form. The defendants claimed this fell short of
Rule 34’s requirement to preserve the documents just as the bank maintained them before it closed, but the court
viewed this interpretation as “overly technical.”
Refusing to require the FDIC to organize its production “according to the defendants’ numerous discovery
requests,” the court appeared to find the rule’s “usual course of business” standard was satisfied by sorting e‐mails
chronologically by custodian and enabling the production to be searched using metadata. The burden to the FDIC of
strictly enforcing the “usual course of business” production standard was duly considered and helped lead the court
to find “the practical difference is elusive.”
Notably, the court felt the risk that important documents might “be obscured (deliberately or inadvertently)” in
the FDIC’s method of production was limited by the defendants’ status as former bank managers who “are arguably
more familiar with the documents than the FDIC.”
This seems to create an unusual protocol by enabling the FDIC to rely on its litigation opponent to ensure its
production is complete, rather than ensure its own compliance. Yet, this again appears to represent a practical
approach by Grady to minimize cost and inconvenience.
No discovery dispute is complete without bickering over who bears the cost of production and Grady’s opinion
ends by resolving the costs issue on the same practical note. The FDIC was ordered to cover its own costs, subject to
later consideration of discretionary cost‐shifting under Rule 26(c).
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Of course, had Broadway Bank’s executives adopted a comparably practical approach to banking, instead of
showing “disregard for risk and a willingness to lend millions of dollars to un‐creditworthy borrowers for
speculative commercial building projects,” as alleged by the FDIC, the entire episode would likely have been
avoided.
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