IBM - Reply in Support of Its Motion To Compel Compliance With March 16, 2012 Order and For Sanctions For Noncompliance

Case 9:11-cv-80880-KLR Document 77 Entered on FLSD Docket 05/11/2012 Page 1 of 13
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA QSGI, INC., Plaintiff, v. IBM GLOBAL FINANCING and INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendants.
Case No. 9:11-cv-80880-KLR
IBMS REPLY IN SUPPORT OF ITS MOTION TO COMPEL COMPLIANCE WITH MARCH 16, 2012 ORDER AND FOR SANCTIONS FOR NONCOMPLIANCE
Pursuant to Rules 26, 33, 34, and 37 of the Federal Rules of Civil Procedure, International Business Machines Corporation and IBM Global Financing (collectively, Defendants or IBM) submit this reply memorandum in support of their motion to: (1) compel QSGI to comply with the Courts March 16, 2012 order (Order) to completely respond to the pending discovery requests; and (2) impose appropriate sanctions on QSGI for its failure to comply with that Order. BACKGROUND IBMs motion to compel compliance with the Order and for sanctions for noncompliance (Motion) addresses QSGIs ongoing failure to comply with the Courts Order. In its opposition to the Motion (Response), QSGI admits that it has not complied with the Order. QSGI contends, wrongly, that its failure to comply is not its fault and is excusable. QSGI also contends, again wrongly, that its production of several million documents will discharge its obligations to produce documents responsive to IBMs discovery requests. QSGI does not even address its failure to provide substantive responses to IBMs first set of interrogatories (Interrogatories) seeking the basic factual premises of QSGIs purported
claims. And QSGI admits that over a month since the Courts deadline for the production of documents, it still has not yet completed its productionindeed, having only produced a mere fraction of its intended production. QSGI offers no legitimate excuse for its failure to comply with the Courts Order. The several million documents that QSGI plans belatedly to produce have at all relevant times been in QSGIs possession (in the hands of its SEC counsel). Moreover, QSGIs stated plan to dump these documents on IBM (without responsiveness review and in noncompliant format) is neither a valid written response to IBMs Interrogatories, nor does it discharge QSGIs obligations pursuant to the Courts Order to produce documents responsive to IBMs Document Requests (collectively, Discovery Requests). QSGIs failure to respond completely to the Interrogatories or complete its document production substantially prejudices IBMs ability to prepare its defense. QSGI brought this suit, and it must meet its discovery obligations and comply with this Courts Order. Given upcoming depositions in May and the looming close of fact and expert discovery (July 27, 2012), IBM respectfully requests that this Court compel QSGI to comply with the Courts Order within a week of the Courts order on this Motion and impose appropriate sanctions on QSGI. ARGUMENT A. QSGI Concedes its Noncompliance.
QSGI does not dispute its ongoing violation of the Orderover a month and counting after the deadline for QSGI to respond completely to outstanding discovery. QSGIs Response omits even to address its failure to provide responses to IBMs Interrogatories. And QSGI readily admits that it has yet to produce the overwhelming majority of its intended document production (millions upon millions of documents, according to QSGI, see Resp. 6). QSGIs uncontested and continuing failure to comply with the Courts Order to provide
complete responses to IBMs Interrogatories alone warrants sanctions.1 Through these Interrogatories, IBM seeks answers to straightforward questions concerning fundamental aspects of QSGIs case.2 IBM is entitled to clear and complete answers. Over five months after IBM propounded its Interrogatories, IBM has yet to receive a substantive answer to any of its Interrogatories.3 Moreover, based on QSGIs Response, it appears that QSGI does not intend ever to provide responses to the Interrogatories. If QSGI cannot, for example, state the basis for its central allegation that IBM purportedly changed a policy in the summer of 2007 and applied that policy in disparate fashion, or identify any facts relating to the impact of that purported policy change, QSGI should not be permitted to continue this lawsuit against IBM. See, e.g., Maus v. Ennis, No. 6:10-cv-1904-Orl-31DAB, 2011 WL 6319176, at *3-8 (M.D. Fla. Dec. 1, 2011) adopted by No. 6:10-cv-1904-Orl-31DAB, 2011 WL 6319179 (M.D. Fla. Dec. 16, 2011)
QSGI incorrectly disparages IBMs good-faith certification, claiming that IBM did not seek to resolve the discovery issues prior to filing this Motion. Resp. 2-3. The chronology of facts in IBMs Motion, none of which QSGI disputes, demonstrates IBMs extensive good-faith efforts to engage QSGI prior to filing this Motion. Specifically, IBM called QSGI on April 19, 2012 to discuss QSGIs noncompliance with the Order, but QSGI did not return IBMs phone call. Mot., p. 10. IBMs correspondence and request for conference also went unanswered, including correspondence on March 31, 2012 (outlining the deficiencies in QSGIs March 30, 2012 production and providing details as to how to remedy); April 2, 2012 (requesting that QSGI specify whether it had provided complete written responses to IBMs Document Requests); April 2, 2012 (requesting access to the boxes of documents produced to the SEC); April 11, 2012 (requesting complete responses to IBMs Discovery Requests, confirmation on whether QSGI has completed its document production, information regarding QSGIs noncompliant production and access to the documents produced to the SEC); and April 23, 2012 (requesting a meet and confer concerning QSGIs noncompliance with the Order). Id. at pp. 9-10.
2
For example, IBMs Interrogatories request information regarding the factual bases of QSGIs allegation that IBM changed a policy in 2007 and applied that policy in disparate fashion (Interrog. No. 1), and the impact of that purported policy change (Interrog. Nos. 2-6).
3
QSGI initially provided a partial substantive response to one InterrogatoryInterrogatory No. 8 concerning document destruction and retention. Subsequent to IBM filing its Motion, however, QSGIs designated corporate representative on those issues testified that QSGIs response describing QSGIs electronic retention practices was inaccurate and did not describe anything [QSGI] did. See May 7, 2012 Rule 30(b)(6) deposition of David Harris (Harris Deposition), May 11, 2012 Diessel Decl. Ex. 1, at 95:5-24. This line of questioning prompted QSGIs counsel effectively to withdraw that response, on the purported basis that the interrogatory response is unverified and still hasnt been resolved. Id. at 88:7-11. Per the Courts Order, this response should have been resolved and complete responses provided by April 2, 2012.
(entering default judgment against the defendant following noncompliance with the courts order requiring responses to document requests and answers to interrogatories). Furthermore, QSGI not only admits, but touts, its noncompliance with the Courts Order to complete production of documents by April 2, 2012. By April 2, QSGI had produced a mere fraction of its intended production (some tens of thousands of documents, produced in noncompliant format precluding orderly review). (See Mot., pp. 6-9; May 11, 2012 Declaration of Benjamin Diessel (May 11, 2012 Diessel Decl.), 6.) QSGIs forthcoming production, which will come over a month after the Courts deadline, apparently will comprise several million documents. (May 11, 2012 Diessel Decl. 9.)4 Surely QSGIs counsel knew prior to April 2, 2012 that it had several million documents of outstanding document production. No doubt QSGIs counsel knew that at least prior to the date of its Response. Yet QSGI never sought leave from the Court for an extension of time for this document production. Nor did QSGI inform IBM prior to the date of its Response that QSGIs document production was incomplete, much less that it would be producing millions upon millions of documents. (Id.)5 Accordingly, sanctions are appropriate. See, e.g., Siddiq v. Saudi Arabian Airlines Corp.,
On the date of this submission, IBM received a hard drive that QSGI describes as containing materials that McDonald Hopkins previously produced to the SEC. As of the time of this submission, IBM has not had an opportunity to determine the contents of the hard drive. QSGI has not made any other document production as of the date of this submission since its April 5, 2012, document production. Given QSGIs representation that it is producing the known universe of existing documents, and that QSGI has not indicated that this hard drive completes its intended production of the known universe of QSGI documents, IBM anticipates that a large volume of additional QSGI documents are yet to be produced. May 11, 2012 Diessel Decl. 11.
5
QSGI mischaracterizes IBMs communication with QSGI as a sea of correspondence purportedly the result of IBMs unwillingness or inability to communicate via telephone. Resp. 7-8. Throughout this litigation, IBM has sought to communicate with QSGI through formal telephonic conference, telephone conversation, and email and letter correspondence. May 11, 2012 Diessel Decl. 4. Around February of 2012, however, QSGI stopped returning IBMs phone calls. For example, QSGI failed to respond to multiple phone calls made by IBM in an effort to resolve outside of court QSGIs failure to provide IBM with discovery. See Mot. to Compel Pl.s Resps. to Defs. Disc. Reqs. and Mem. of Law in Supp. of Defs. Mot., Besvinick Decl. 16 (Feb. 15, 2012, ECF No. 40-1). More recently, QSGI failed to return a phone call made by IBM in an effort to resolve outside of court QSGIs noncompliance with the Order.
No. 6:11-cv-69-Orl-19GJK, 2012 WL 390496, at *3-4 (M.D. Fla. Feb. 1, 2012) (finding that [a]n award of sanctions [was] appropriate due to Defendants failure to comply with the Courts order [to serve responsive documents] or to seek an extension of time to comply).6 B. QSGIs Self-Inflicted Difficulties Do Not Excuse its Noncompliance.
QSGI contends that its noncompliance with the Courts Order was not QSGIs fault and is excusable. (Resp. 2.) Specifically, QSGI points to its failure to preserve certain QSGI documents before providing them to the SEC and, incredibly, claims that only recently did it learn that other of QSGIs documents and records have been in the possession and control of . . . QSGIs SEC counsel, McDonald Hopkins LLC. (Id.) QSGI offered identical excuses in opposing IBMs initial motion to compel, which the Court did not credit.7 These excuses are equally unavailing here. QSGIs representation that its documents were in the possession of QSGIs SEC counsel is irrelevant and misleading. Documents in the possession of QSGIs SEC counsel are within QSGIs possession, custody and control for purposes of the instant lawsuit. Jans v. The GAP Stores, Inc., No. 6:05-cv-1534-Orl-31JGG, 2006 WL 2691800, at *1-2 (M.D. Fla. Sept. 20, 2006) (ordering documents within the possession of a partys counsel produced because those
See Mot., Declaration of Benjamin Diessel (May 1, 2012 Diessel Decl.), 17 (May 1, 2012, ECF No. 64-2). Rather than cut off communication (as QSGI may have preferred), IBM resorted to communication via correspondence (which also went unanswered). May 11, 2012 Diessel Decl. 4.
6
QSGIs reliance on Dorsey v. Academy Moving & Storage, Inc., 423 F.2d 858 (5th Cir. 1970) is entirely misplaced. The Eleventh Circuit has made clear that sanctions may be imposed for noncompliance with a court order even without a showing of willfulness or bad faith on the part of the disobedient party. See BankAtlantic v. Blythe Eastman Paine Webber Inc., 12 F.3d 1045, 1049 (11th Cir. 1994). Moreover, unlike the plaintiff in Dorsey, QSGI possessed these several million documents at all relevant times.
7
There, QSGI contended that unexpected circumstances should excuse its interminable delays in providing discovery, and similarly pointed to its failure to preserve the SEC documents and that QSGIs documents were in the possession, custody and control of QSGIs counsel, McDonald Hopkins, LLC. See Pl.s Resp. to Defs. Mot. to Compel Resps. to Defs. Disc. Reqs. 1, 4 (Mar. 2, 2012, ECF No. 43).
documents are within the control of the party). Moreover, QSGI misleadingly claims that it has been at the mercy of McDonald Hopkins . . . who only recently produced and allowed access to the millions upon millions of documents. (Resp. 2.) Counsel was appointed by the Bankruptcy Court to bring this case well over a year ago. Before filing suitand at least shortly thereaftercounsel should have undertaken efforts to identify the various repositories of relevant QSGI documents and to ensure access to them. Even a cursory investigation by counsel would undoubtedly have identified this obvious source of documents, which QSGI now acknowledges constitute[s] the known universe of QSGIs existing documents. (Id. 6.) Indeed, these documents are conspicuous as one of the only sources of QSGI documents remaining following QSGIs document destruction.8 Further, there has been no suggestion by QSGI, let alone any evidence, that QSGI timely sought to collect and review the documents it possessed in the hands of McDonald Hopkins or that McDonald Hopkins was non-cooperative. It should not have required time-consuming discovery by IBM of McDonald Hopkins, a motion to compel by IBM, and this Courts Order for QSGI to carry out its obligation to collect and produce its purported universe of existing documents. With respect to QSGIs representation that certain QSGI documents were until recently in the possession of the SEC, this circumstance is due entirely to QSGIs improper failure to preserve these documents. QSGI publicly stated in 2007 that it had an actionable claim against IBM. (See QSGI, Inc., Current Report (Form 8-K) (Nov. 14, 2007), Ex. 99.1, Reply in Supp. of Mot. to Compel Pl.s Resps. to Defs. Disc. Reqs., Besvinick Decl. Ex. A (Mar. 12, 2012 ECF No. 44-1).) It was incumbent upon QSGI at that time to preserve and retain any
March 12, 2012 Rule 30(b)(6) Deposition of Marc Sherman (Sherman Deposition), May 11, 2012 Diessel Decl. Ex. 2, at 169:18-23 (Q. So other than these documents that you selected and sent to Mr. Bauta, is it true that QSGI does not have any documents other than those in the possession of McDonald Hopkins . . . A. That would be correct.).
documents relevant to that purported claim (including the vast quantity of other documents that QSGI lost and destroyed).9 QSGI should not have turned over to the SEC original documents bearing on a lawsuit that it already anticipated or, at minimum, QSGI should have made copies of the documents prior to turning them over to the SEC. Having turned over relevant original documents, at least QSGI should have endeavored timely to obtain their return, but QSGI provides no evidence of its diligence on that score. Compounding IBMs prejudice, as of the date of this submission, IBM still does not have meaningful access to these documents. On May 4, 2012, IBM was allowed to peruse the documents in the warehouse in which the boxes are stored. (May 11, 2012 Diessel Decl. 7-8.) But QSGI refuses to allow IBM to arrange for a third-party copying service to copy these documents off-site (which would be far more efficient and less costly than trying to bring copying machines and personnel to QSGIs warehouse). (Id. 10.) QSGI claims that it has an agreement with the SEC that precludes copying of documents at a vendors location. (Id.)
QSGIs suggestion that only a narrow subset of documents was destroyed is wholly incorrect. For example, the documents that QSGI stored in Minnesota comprised a large quantity of documents highly relevant to this lawsuit. See Sherman Deposition, May 11, 2012 Diessel Decl. Ex. 2, at 62:8-63:22 (Q. [I]nformation relating to QSGIs resale of used mainframes would have been retained . . . at the Minnesota facility, correct? A. Yes. Q. Information relating to QSGIs . . . prospective sale of used mainframes would have been stored . . . in the Minnesota facility? A. Correct. Q. And information relating to QSGIs inventory of used IBM mainframes would have been stored . . . in QSGIs Minnesota facility, correct? A. Correct . . . Q. So documents relating to QSGIs strategy concerning its used mainframe business would have been stored . . . in its Minnesota facility, correct? . . . A. Primarily, yes.); 87:8-10 (A. The Minnesota hard copy documents were destroyed sometime in 2009 . . . .). Moreover, QSGI destroyed or lost a vast quantity of additional documents during its bankruptcy, when its CEO, Marc Sherman, was supposedly in charge of document retention. See id. at 137:2-4 (Q. So you and Mr. Meynarez were running QSGIs document retention during this bankruptcy, correct? A. To the best that we could.); 158:17-20 (Q. So for purposes of this lawsuit, QSGI has no hard copy documents at all, correct? . . . A. Correct.); 109:22-110:1 (Q. So as far as this lawsuit is concerned, the books, records, and documents relating to QSGIs hardware division are gone, right? . . . A. Correct.); 104:4-7 (Q. So for purposes of this lawsuit, whatever was on those servers is gone? . . . A. Yes.).
QSGI has refused to show IBM this purported agreement. (Id.)10 IBMs understanding based on conversations with the SEC, however, is that QSGI is not restricted in providing these documents to a third-party vendor for that vendor to make copies for purposes of this litigation. (May 10, 2012 Declaration of Ty Cobb, 2-4.) QSGIs restrictions on these documents effectively forecloses IBMs ability to use these documents for purposes of this litigation. (May 11, 2012 Diessel Decl. 10.) C. QSGIs Belated Document Dump Does Not Meet its Obligations or Absolve its Prejudicial Noncompliance.
QSGI suggests that its forthcoming production of millions upon millions of documents fulfills its obligations pursuant to the Courts Order. (Resp. 6.) QSGI is incorrect. The Court ordered QSGI to respond completely to IBMs Interrogatories. The production of documents is a separate matter from, and would not satisfy, QSGIs obligation to respond completely to the Interrogatories in writing. See Fed. R. Civ. P. 33(b)(3) (Each interrogatory must, to the extent it is not objected to, be answered separately and fully in writing under oath.). Eight weeks have elapsed since the Court ordered QSGI to completely respond to the Interrogatories. To date, IBM has received effectively no responses at all. IBM should not be made to guess the substance of QSGIs purported claims. Furthermore, QSGIs proposed belated production of several million documents is improper and does not discharge QSGIs court-ordered obligation to complete a production of responsive documents. IBM requested specific, narrowly targeted categories of documents, and QSGI was ordered to respond completely by April 2, 2012. QSGI, however, purports to respond to IBMs specific requests through its future production of the entire known universe
10
QSGI suggested that IBM obtain written agreement from the SEC that these documents may be copied offsite. May 11, 2012 Diessel Decl. 10. As far as IBM can tell, however, QSGI has not approached the SEC to obtain such permission. Id. Nor has QSGI responded to IBMs request that QSGI copy selected documents and provide them to IBM. Id.
of QSGIs existing documents, see Resp. 6, without any review for responsiveness to IBMs Document Requests.11 QSGI cannot dump these documents on IBM in the 11th hour of fact discovery without review. QSGI has already effectively (and improperly) outsourced to IBM preparation of QSGIs document productions through its admitted noncompliant productions of electronic documents. QSGI would now effectively outsource the review of its entire universe of documents for material responsive to IBMs specific requests, too. IBM should not bear the burden of both defending and prosecuting this matter. QSGI brought this case and these discovery obligations are its to bear if it intends to pursue this case. See, e.g., Rothman v. Emory Univ., 123 F.3d 446, 455 (7th Cir. 1997) (affirming the imposition of sanctions where plaintiff rebuffed his obligation to sort through the documents and produce only those responsive to [defendants] request). QSGI should be ordered to review these documents for responsiveness to IBMs Document Requests and to produce these documents in the agreed format that can efficiently be reviewed by IBM.12 Even assuming that QSGIs promised production of documents fulfilled QSGIs obligations pursuant to the Order (which it does not), that would not absolve QSGIs material
11
QSGIs counsel informed IBMs counsel shortly before QSGI submitted its Response that QSGI intended to reproduce these materials as provided by McDonald Hopkins without conducting a review for responsiveness to IBMs Document Requests. May 11, 2012 Diessel Decl. 9. Indeed, during the deposition of QSGIs corporate representative on document retention issues, counsel nonchalantly dismissed the prohibitive cost and prejudice QSGI will impose on IBM when this occurs by stating that he expects IBM to have a team of 40 attorneys to comb[] through every single document that QSGI has ever generated. See Harris Deposition, May 11, 2012 Diessel Decl. Ex. 1, at 161:13-19.
12
QSGI attempts to shirk its obligations pursuant to the parties agreement relating to electronic production of documents by characterizing its agreement as gratuitous. See Resp. 4. This post hoc characterization does not alleviate QSGI of its obligations; nor does it change the fact that QSGI agreed to these terms and is bound by the parties agreement. IBM has produced a large volume of documents in response to QSGIs document requests, and has complied with the parties agreement by meticulously preparing document productions that include load files, metadata, and individual pages with Bates numbers. May 11, 2012 Diessel Decl. 5. IBM has been prejudiced by QSGIs refusal to provide electronic productions in the agreed on format necessary for orderly review. May 1, 2012 Diessel Decl. 14. If QSGI again fails to provide the necessary load files to load and review the massive forthcoming production, the cost to IBM to remediate this issue will be substantial. May 11, 2012 Diessel Decl. 9.
noncompliance with the Courts Order. QSGIs noncompliance, over a month in duration to date, substantially and unfairly prejudices IBM in preparation of its defense and undermines the integrity of the discovery process. See Gratton v. Great Am. Commcns, 178 F.3d 1373, 1374 (11th Cir. 1999) (Rule 37 sanctions are intended to prevent unfair prejudice to the litigants and insure the integrity of the discovery process.). Fact depositions are presently scheduled throughout May, with depositions likely continuing into June, and the discovery phase (including expert discovery) is set to close less than three months from now (July 27, 2012). Yet as of the date of this submission, IBMs discovery from QSGI has barely even begun. With QSGIs destruction of relevant documents and planned deluge of irrelevant material, the prejudice to IBM in preparing its defense is significant. QSGIs conduct has already caused IBM to incur sizeable expenses, for example by forcing IBM to engage a litigation services vendor to recreate technical files necessary to load and review QSGIs electronic document production. (See Mot., p. 8.) Accordingly, appropriate sanctions are warranted. CONCLUSION For the foregoing reasons, IBM respectfully requests that the Court order QSGI to comply with the Courts prior Order within one week of the date of the Courts order on the instant Motion, order that QSGIs forthcoming electronic document production be reviewed for responsiveness to IBMs Document Requests and produced in the agreed, compliant format, and impose sanctions upon QSGI for its noncompliance.
10
Dated: May 11, 2012 Respectfully submitted, /s/ Laura Besvinick____________ Laura Besvinick Florida Bar No. 391158 HOGAN LOVELLS US LLP 200 South Biscayne Blvd. Suite 400 Miami, FL 33131 Telephone: 305-459-6500 Facsimile: 305-459-6550
Laura.Besvinick@HoganLovells.com
Evan R. Chesler* Richard J. Stark* Teena-Ann V. Sankoorikal* CRAVATH, SWAINE & MOORE LLP Worldwide Plaza 825 Eighth Avenue New York, NY 10019 Telephone: 212-474-1000 Facsimile: 212-474-3700 echesler@cravath.com rstark@cravath.com tsankoorikal@cravath.com Ty Cobb* Eric J. Stock* HOGAN LOVELLS US LLP Columbia Square 555 Thirteenth Street, NW Washington, DC 20004 Telephone: 202-637-5600 Facsimile: 202-637-5910 Ty.Cobb@HoganLovells.com Eric.Stock@HoganLovells.com *Admitted Pro Hac Vice Counsel for Defendants IBM Global Financing and International Business Machines Corporation
11
CERTIFICATE OF SERVICE I HEREBY CERTIFY that, on this 11th day of May 2012, I electronically filed the foregoing document with the Clerk of the Court using CM/ECF. I also certify that the foregoing document is being served this day on all counsel of record or pro se parties identified on the attached Service List in the manner specified, either via transmission of Notices of Electronic Filing generated by CM/ECF or in some other authorized manner for those counsel or parties who are not authorized to receive electronically Notices of Electronic Filing.
/s/ Laura Besvinick____________ Laura Besvinick Florida Bar No. 391158
QSGI, INC. SERVICE LIST Juan Pablo Bauta, II Ferraro Law Firm 4000 Ponce de Leon Blvd Suite 700 Miami, FL 33146 Phone: 305-375-0111 Fax: 305-379-6222 Case A. Dam Ferraro Law Firm 4000 Ponce de Leon Blvd Suite 700 Miami, FL 33146 Phone: 305-375-0111 Fax: 305-379-6222 Email: cxd@ferrarolaw.com
Case 9:11-cv-80880-KLR Document 77-1 Entered on FLSD Docket 05/11/2012 Page 1 of 4
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA QSGI, INC., v. IBM GLOBAL FINANCING and INTERNATIONAL BUSINESS MACHINES CORPORATION, Plaintiff Case No. 9:11-cv-80880-KLR
Defendants. DECLARATION OF BENJAMIN H. DIESSEL Benjamin H. Diessel, declares as follows: 1. I am an attorney at the law firm of Cravath, Swaine & Moore LLP
and counsel to Defendants IBM Global Financing and International Business Machines Corporation (collectively, "Defendants" or "IBM") in the above-captioned action. I submit this declaration in support of IBM's Reply in Support of its Motion to Compel Compliance With March 16, 2012 Order and For Sanctions For Noncompliance. 2. Attached as Exhibit 1 is a true and correct copy of excerpts from
the transcript of the May 7, 2012 Rule 30(b)(6) deposition of David Harris. 3. Attached as Exhibit 2 is a true and correct copy of excerpts from
the transcript of the March 12, 2012 Rule 30(b)(6) deposition of Marc Sherman. 4. IBM has sought, on numerous prior occasions, to engage QSGI
concerning its noncompliance with the Court's Order. Yet, IBM's letters and phone calls regarding the same went unanswered. Indeed, IBM has sought throughout this litigation to communicate with QSGI by all available means, including telephonic conference, telephone conversation and email and letter correspondence. When QSGI stopped
returning IBM's phone calls around February of 2012, IBM resorted to communication via email and letter correspondence (which also went unanswered). 5. On April 11, April 18, April 27 and May 7, 2012, IBM provided
electronic document productions to QSGI. These productions comprise a substantial volume of documents. IBM complied with its agreed-to obligations with respect to the production of electronic documents by meticulously preparing these document productions to include load files, metadata and individual pages with Bates numbers. 6. On March 30, April 3, and April 5, 2012, QSGI provided
electronic document productions to IBM. These productions comprise some tens of thousands of documents which were produced in a noncompliant format precluding orderly review. 7. On May 2, 2012, QSGI wrote to IBM, stating that the documents
QSGI previously turned over to the SEC had been returned, and that IBM could inspect these documents at the warehouse where they are stored. 8. at the warehouse. 9. On May 7, 2012, I took the continued deposition of QSGI's On May 4, 2012, QSGI permitted IBM to peruse these documents
corporate representative for document retention issues, David Harris. At the conclusion of that deposition (and just hours before QSGI filed its response to the present motion), QSGI's counsel represented to me that QSGI would be producing millions of documents in the next few days. This was the first time that QSGI informed IBM that it had not completed its document production as ordered by the Court. QSGI's counsel further represented that QSGI intended to produce these materials to IBM as provided by
McDonald Hopkins, without conducting a review for responsiveness to IBM's Document Requests, and without regard to QSGI's obligations pursuant to the parties' agreement concerning electronic productions of documents. If QSGI indeed produces these millions of documents in a noncompliant format, the cost to IBM to remediate the production will be substantial. Certainly the cost would exceed the tens of thousands of dollars expended by IBM to remediate QSGI's prior, and much smaller productions of electronic documents. 10. On May 7 and May 8, 2012, I spoke with QSGI's counsel
concerning reasonable access to the documents that QSGI had previously turned over to the SEC. In those conversations, QSGI refused to permit a third-party vendor to copy these documents at the vendor's location, which would be more efficient and less costly than hiring a vendor to bring copying machines and personnel to QSGI's warehouse. QSGI's counsel stated that the basis for this refusal is a purported agreement between QSGI and the SEC. QSGI refused to provide IBM with a copy of this agreement. QSGI suggested that IBM obtain written agreement from the SEC allowing for these documents to be copied offsite. As far as IBM can tell, QSGI has not approached the SEC to obtain such permission. Nor has QSGI responded to IBM's request made in our letter dated May 8 that QSGI copy and provide to IBM selected documents. QSGI's restrictions on these documents, which preclude efficient copying of the documents, effectively forecloses IBM's ability to use these documents for purposes of this litigation. 11. On the date of this submission, IBM received a hard drive that
QSGI describes in an accompanying letter as containing materials that McDonald Hopkins previously produced to the SEC. As of the time of this submission, IBM has
not had an opportunity to determine the contents of the hard drive. This production marks the only document production that QSGI has made to IBM since its April 5, 2012 document production. QSGI did not indicate in the letter accompanying this production whether this hard drive completes its intended production of the known universe of QSGI documents.
I declare under the penalty of perjury that the foregoing is true and correct. Executed on May 11, 2012 Benjamin H. Diessel
EXHIBIT 1
In The Matter Of:

QSGI,INC. v. IBMGLOBALFINANCING,etal.
___________________________________________________
DAVIDHARRISVol.1
May7,2012
___________________________________________________
DAVID HARRIS - 5/7/2012 Page 80 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 them. Q. When did the software automatically THE WITNESS: recovery? BY MR. DIESSEL: Q. Did that mail archive include every email The -- the GFI mail
I'm not sure when that started.
that was sent and received to a QSGI employee during the period in which it was in use? A. Q. archive? A. Q. archive? A. Q. The QSGI email? I'm referring now to the mail archive on No. How were emails added to that mail Yes. Were emails ever deleted on that mail
the SQL server. A. Okay. The software automatically captured
capture those emails? A. I don't know the exact details, but the
mail server had a process where the emails were in transit and the software caught them in transit to the mail server and recorded it. That was both the
Minnesota server and the New Jersey manufacture. Q. And if someone subsequently deleted an
1-800-325-3376
Merrill Corporation - New York www.merrillcorp.com/law
DAVID HARRIS - 5/7/2012 Page 81 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 email from his or her mailbox, would that action be propagated to the mail archive? MR. DAM: Objection, form. Absolutely not.
THE WITNESS: BY MR. DIESSEL Q. A. Q. And why not?
It's two independent processes. I would like to hand you what I have
marked as Exhibit 11. (Thereupon, the referred-to document was marked by the court reporter for Identification as Deposition Exhibit 11.) BY MR. DIESSEL: Q. You can feel free to read the whole
document or leaf through it, but I'm going to be asking you about the last page, the last question. Just tell me when you're ready. A. Q. Okay. Do you see this document, Exhibit 11, is
entitled, "Plaintiff's Unverified Response to Defendants' IBM and IBM Global Financing's First Set of Interrogatories"? A. Q. Yes. I'll represent to you that these are a
series of questions, numbered questions, that IBM
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DAVID HARRIS - 5/7/2012 Page 82 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. A. Q. asked of QSGI, and then information following answer, colon, is QSGI's response. A. Q. Okay. I would like to ask you about the question
No. 8, which asks QSGI to identify the facts and circumstances relating to any documents including, but not limited to, documents in storage facilities that QSGI destroyed, discarded or otherwise failed to preserve since January 1, 2007. Do you see that? Yes. And I want to focus you in on a specific
part of QSGI's response dealing with email archiving. I would like to turn to page 6. I will
read the part of the response that I want to ask you about. Three lines from the top, page 6, QSGI's response states: "Company emails were archived at
13-month-end and year-end to DLT tapes which were maintained at the New Jersey facility located at 70 Lake Drive, Hightstown, New Jersey." Do you see that? Yes. Is that accurate? MR. DAM: Objection to form. Outside the
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DAVID HARRIS - 5/7/2012 Page 83 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 scope of this notice. THE WITNESS: period. BY MR. DIESSEL: Q. period? A. Okay. So let's cover it in the areas that And what was your practice during that It wasn't my practice that
it should be covered in. The emails, first, you already know that everybody's PST was captured as they were terminated. The GFI mail archiver was ongoing, captured all the sends and receives. And then I guess there's the normal backup practice, probably not part of necessarily just the mail server, but all servers were backed up daily over the years. Of course, there was the transition from DLT to LTO tapes. Again, they were done daily. There was
the daily tapes remained intact until a full week, weekend backup took place, at which time the daily tapes were reused. The weekly tapes remained intact until a month-end backup was taken. The month-ends were
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DAVID HARRIS - 5/7/2012 Page 84 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 held on until an annual backup was taken. And the annuals should all still exist. Probably better wording would be: Not be reused.
And the DVD's referred to in the mail backups, they were never reused. storage. Q. What was the time period during which this They were in
backup process that you described was being performed? A. Q. It started after the merger. And you're referring to the merger of
Qualtech and QSGI? A. Q. Yes. And did there come a point in time when
QSGI stopped performing this backup? A. No. These were all tape libraries that --
it was automated right to the end. There's one other detail added to the backup process. There was an exchange of tapes.
This process for the tapes was also done in Minnesota for their servers. Q. Are you describing that there were two
different backup processes for the servers in Minnesota and New Jersey? A. Not processes, but the -- well, it depends
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DAVID HARRIS - 5/7/2012 Page 85 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. on how you refer to a process. done in both sites. Q. Let's start with the process, the backup But this process was
process being performed in Minnesota. What servers did that process back up? The file server and the mail server. Specifically, the Minnesota backup process
backed up the Minnesota file server and mail server? A. Q. Uh-huh. And I take it the New Jersey backup
process backed up the New Jersey file server and mail server, correct? A. Q. Correct. Was there a backup process for the SQL
server and accounting server? A. Oh, yeah. All of the New Jersey servers.
You didn't add those. Q. Marc Sherman testified at his prior
testimony that QSGI started its backup process sometime in 2007. understanding? MR. DAM: Objection, form. Again, I'm confused by the Is that consistent with your
THE WITNESS:
whole timeframe today with the 2004.
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DAVID HARRIS - 5/7/2012 Page 86 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY MR. DIESSEL: Q. Is there anywhere that you could look, any
document you could look at that would tell you when QSGI instituted its backup process? MR. DAM: Object to the form. I can't think of one.
THE WITNESS: BY MR. DIESSEL: Q.
Is there any way at all to determine when
QSGI instituted its backup process? A. This process in some form, from 2002 to
2009, was in place. Q. So the 2002 precedes QSGI's acquisition of
Qualtech, right? A. Q. in 2002? A. Q. No. It was the same retention. Right. So was there a different process in place
What was the process that was being
employed in 2002? A. Q. What I have described already. Well, Mr. Harris, I believe your testimony
earlier was this process commenced with QSGI -after QSGI's acquisition of Qualtech, so I'm trying to understand what the process was before and after the acquisition.
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DAVID HARRIS - 5/7/2012 Page 87 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Do you understand what I'm getting at? MR. DAM: Object to the form. Yes.
What was the process that QSGI was using
for backup, if any, prior to the Qualtech acquisition? A. So for the server backups, the second half
of what I mentioned is what is -- was done from 2002, the tape backups. Q. So is it your understanding that QSGI
conducted annual -- created annual tape backups of its servers from 2002 until bankruptcy? A. Q. reused? A. Q. discarded? A. Q. No, not that I know of. So there were two sets of tapes: Tapes in They weren't supposed to be, if they were. Were any of those annual tapes ever Yes. And were any of those annual tapes ever
Minnesota relating to the mainframe resale business, correct? A. Q. Yes. And tapes in New Jersey relating to the
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DAVID HARRIS - 5/7/2012 Page 88 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 other aspects of the company, correct? A. Q. Yes. Now, the interrogatory answer that you
were referring to before refers only to tapes maintained at the New Jersey facility. Do you see that? MR. DAM: Objection, form. It's an And At
unverified interrogatory response.
objection, it still hasn't been resolved.
this point, I would claim that that is not an admission. BY MR. DIESSEL: Q. Where are the Minnesota backup tapes? MR. DAM: Objection, form. Part of our process for the
THE WITNESS:
tapes was to exchange tapes between Minnesota and New Jersey. started. I can't say when that process It did
I can't say when it stopped.
stop before the bankruptcy took place due to a lack of staff to physically exchange tapes. But then they were each left at their respective facilities. BY MR. DIESSEL: Q. Now, what do you mean by there was a tape What does that refer to?
exchange program?
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DAVID HARRIS - 5/7/2012 Page 89 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. The weekly backups from New Jersey would
be sent to Minnesota, the weekly backups from Minnesota would be sent to New Jersey, for storage, in the event of some disaster. Q. So is it the case that the Minnesota tapes
were ultimately sent to New Jersey for storage? MR. DAM: Objection, form. They were sent there for a
THE WITNESS:
period of time, yes. BY MR. DIESSEL: Q. And what's the period of time during which
they were sent to New Jersey for storage? A. They would only reside there until the
following week's tape. Q. And then -- and then what would happen to
those tapes thereafter? A. They would be returned to the respective
site and reused. Q. stored? A. Q. Honestly, they were at each site. So the Minnesota annual tapes would be So where were the annual Minnesota tapes
stored in Minnesota? A. Q. Yes. And the New Jersey annual tapes were
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DAVID HARRIS - 5/7/2012 Page 90 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 stored in New Jersey? A. Q. Yes. Do you have an understanding that QSGI
lost documents from a New Jersey facility during its bankruptcy? A. Q. Lost documents? Do you have an understanding that QSGI
lost documents from a Minnesota storage facility during bankruptcy? MR. DAM: Objection to form. Outside the
scope of this notice, or at least what this witness is being presented for. THE WITNESS: BY MR. DIESSEL: Q. Where are the annual Minnesota tapes No.
today, Mr. Harris? A. Q. A. Q. I was terminated and left them in place. You left them in place in Minnesota? Yes. As you sit here right now, you have no
idea where the Minnesota tapes are, correct? A. Q. correct? A. I do not. No. You don't even know if they still exist,
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DAVID HARRIS - 5/7/2012 Page 91 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. In fact, for all you know, those tapes
were destroyed? MR. DAM: Objection, form, argumentative.
Don't answer that question. MR. DIESSEL: MR. DAM: What is your basis?
You're asking him to completely
speculate on a topic that he has no knowledge of. MR. DIESSEL: MR. DAM: that question. purpose. notice. He's free to --
He's not qualified to answer He's not being put for that
It is outside the scope of this I will be happy to file a motion for
protective order on that question. If you have a different question, sure. MR. DIESSEL: your -MR. DAM: This deposition is for discovery Well, I would forward
purposes, correct, not for you to testify? MR. DIESSEL: Well, Case, unless you're
instructing on the basis of privilege, I don't think your instruction is proper. MR. DAM: speculate. You're asking him to totally You're asking He's not an
It's not evidence.
him to guess as a fact witness.
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DAVID HARRIS - 5/7/2012 Page 92 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 expert. There's so many things wrong with that
question, I don't think the Court would be inclined to disagree with me. MR. DIESSEL: Well, you made your All I'm saying is
objection on the record.
that your instruction not to answer is obstructionist and improper. MR. DAM: of this notice. And it is outside of the scope He has no knowledge. He's
already said that. BY MR. DIESSEL: Q. Where are the New Jersey annual backup
tapes, Mr. Harris? A. building. Q. Whose responsibility was it during I left them in New Jersey when I left the
bankruptcy to maintain the annual backup tapes? MR. DAM: Objection, form. No foundation.
Myself and Eric.
And there came a point in time when you
were no longer employed by QSGI during bankruptcy, correct? A. Q. Right. And during that period of time, who, if
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DAVID HARRIS - 5/7/2012 Page 93 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. anyone, was responsible for the annual backup tapes? MR. DAM: answered. THE WITNESS: BY MR. DIESSEL: Q. During the point of the QSGI bankruptcy? MR. DAM: Objection, form. While all of the proceedings During what time? Objection, form, asked and
THE WITNESS:
were going on, it was still me and Eric. BY MR. DIESSEL: Q. Despite you weren't employed by QSGI, you
were still in charge of the backup tapes; is that your testimony? MR. DAM: Objection, form. Maybe I don't understand the
THE WITNESS:
bankruptcy process, then. BY MR. DIESSEL: Q. Sure. Mr. Harris, you testified earlier
that from September 2009 until the beginning of January, you were not employed by QSGI. Do you recall that? Correct, yes. Who was in charge of the backup tapes
during that period of time? A. No clue as to what happened.
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DAVID HARRIS - 5/7/2012 Page 94 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Did QSGI conduct any investigation to
determine the whereabouts of these backup tapes? MR. DAM: Objection, form. I haven't.
Well, you're here as QSGI's corporate
representative, so I'm asking you, did QSGI do anything to determine the whereabouts of these backup tapes? MR. DAM: If you know. I haven't. I don't know.
THE WITNESS: BY MR. DIESSEL: Q. A. using. Q. A. Q.
What is Arcserve? That was the backup software we were
Is that a product by Computer Associates? Yes. What is the time period during which
Arcserve was being used for archival purposes? A. Q. A. The entire time I was there. What is the purpose of Arcserve? It's the software that talks to the
operating systems and captures the file systems. Q. recovery? Is it software that's used for disaster
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DAVID HARRIS - 5/7/2012 Page 95 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. That also, yes. Are there other aspects to Arcserve beyond
disaster recovery? A. Q. Just general file restoration. Sir, referring to back to the
interrogatory answer, do you have an understanding as to what process, if any, was undertaken with respect to archiving at 13-month-end? A. I don't really know what that means. It's
not a statement I would have made. Q. And do you have an understanding as to
what archiving process was conducted at year-end to DLT tapes which were maintained at the New Jersey facility? A. means. Q. Is that statement accurate? MR. DAM: Objection, form. Not in my opinion. Again, I don't know what this statement
Is it complete? MR. DAM: Objection, form. I don't believe it's
THE WITNESS: accurate.
It doesn't describe anything I did.
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DAVID HARRIS - 5/7/2012 Page 96 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY MR. DIESSEL: Q. Now, Arcserve, your testimony was, was to
back up QSGI's servers, correct? A. Q. back up? A. Operating system. All of the files. The Yes. And which parts of QSGI's servers did it
entire server. Q. Is it your testimony that every file on
each server was backed up using Arcserve? MR. DAM: Objection, form. That's what its purpose was.
THE WITNESS: BY MR. DIESSEL: Q. A. Q.
Is that, in fact, how it was used by QSGI? Yes. Now, there came a point in time when QSGI
sold parts of its mainframe business to Joel Owens, correct? MR. DAM: Objection, form. Outside the
scope of this notice. THE WITNESS: BY MR. DIESSEL: Q. You do know that there came a point in I don't know.
time when QSGI left the used mainframe business, correct?
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DAVID HARRIS - 5/7/2012 Page 159 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. DAM: We can present our objections at
any time prior to you asking a question. MR. DIESSEL: Well, then, we can continue
the deposition until we get answers to all of the notice questions. We still haven't
received, following continuation of a deposition that first took place in March, we still haven't received answers to most of our questions. MR. DAM: Again, maybe if you list all of
your questions and type them up for us, then we can have our witnesses properly prepared. Second of all -MR. DIESSEL: Case, you know we're not
entitled to type up -MR. DAM: Hey, I'm making my record, so
why don't you pipe down, okay? One, you know full well that two very important witnesses in this case have been subpoenaed by you. All right? And they have They are All
information relevant to this lawsuit. filling in the gaps that are missing. right?
Unfortunately, they're not employees of
QSGI anymore. We're trying to put together people who
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DAVID HARRIS - 5/7/2012 Page 160 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 can answer questions that are related to your notice, as well the questions that you have listed out, the topics that you have listed out. Okay? MR. DIESSEL: Well, Case, the function of
a deposition notice is we put you on notice as to topics. We're not required to type out a That's
list of questions for you to answer. what interrogatories are for.
Your obligation is to produce a witness that can give complete testimony on all the notice topics. MR. DAM: That's what we're entitled to. Ask him what he knows and what
he doesn't know. MR. DIESSEL: I tried to ask, and I've
found that the witness is both unprepared and you've been peppering this deposition with scope objections which are completely unfounded. MR. DAM: I have to preserve my record.
What about my objections that are improper? MR. DIESSEL: MR. DAM: Well --
You're asking him questions that
are outside of the scope that we are presenting him for on behalf of QSGI.
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DAVID HARRIS - 5/7/2012 Page 161 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. DIESSEL: MR. DAM: Well --
According to the law, I have to
make these objections, because should you try to use this testimony at trial for impeachment purposes or whatnot, my objection is preserved, and it will be subject to a motion in limine. I'm not doing anything improper. MR. DIESSEL: We'll look forward to
continuing this deposition with someone that knows something about the sources from which QSGI produced documents to the SEC and all the other topics that we have yet to receive -MR. DAM: You guys are going to have every
single document that QSGI has ever generated within a matter of the next couple of days. So I'm sure you guys are going to have a team of 40 attorneys combing through that, and you'll find out all of the information you need to. QSGI is not here to hide anything, despite
your assertions to the contrary. THE VIDEOGRAPHER: Stand by, please. This
is the end of Videotape No. 3 in the deposition of Mr. David Harris. record at 1:12 p.m. We are going off the
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DAVID HARRIS - 5/7/2012 Page 162 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. (Thereupon, a recess was taken, after which the following proceedings were held:) THE VIDEOGRAPHER: record. We are back on the
Here begins Videotape No. 4 in the The time
deposition of Mr. David Harris. 1:48 p.m. BY MR. DIESSEL: Q.
Mr. Harris, I'm going to hand you what I
have marked as Exhibit 13. (Thereupon, the referred-to document was marked by the court reporter for Identification as Deposition Exhibit 13.) BY MR. DIESSEL: Q. Exhibit 13 is an April 20 letter from
McDonald Hopkins to Benjamin Diessel and Teena Sankoorikal. Do you see that? I see it. Who is McDonald Hopkins? MR. DAM: Objection, form. Law firm. A law firm.
And they are a law firm that represents
QSGI, correct? MR. DAM: Objection, form.
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EXHIBIT 2
In The Matter Of:

QSGI, INC., et al. v. IBM GLOBAL FINANCING, et al.
___________________________________________________
MARC SHERMAN Vol. 1

March 12, 2012
___________________________________________________
MARC SHERMAN - 3/12/2012 Page 61 1 2 3 4 11:41:34 5 6 7 8 9 11:41:47 10 11 12 13 14 11:41:56 15 16 17 18 19 11:42:09 20 21 22 23 24 11:42:26 25

Q. Is it the case that QSGI's documents
relating to its mainframe resale business would have been included, if at all, in the hard copy documents of Minnesota? A. Q. Repeat the question again. Yeah. So where would QSGI's hard copy
documents relating to its mainframe resale business have been stored? A. Q. Transactional data? Well, for example, you said that sales
orders relating to the mainframe resale business were stored in Minnesota. A. Q. Correct. Yes.
What other categories of documents relating
to the mainframe resale business were stored in Minnesota? A. It would be their resale contracts, their
parts, their orders, just the things that would run their day-to-day operation that would either create a purchase order or a sales order or invoice was stored within their documents. Q. So is it the case that documents relating to
QSGI's sale of the zSeries mainframes would have been stored at the facility in Minnesota? A. Yes.
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Q. And those documents would not have been
stored at the New Jersey facility, correct? A. The actual sales transaction documents would
not be stored in New Jersey, but the overall revenue and the dollars and cents documents would have been stored in New Jersey. The consolidated financials
would end up in New Jersey. Q. Setting aside the consolidated financials,
information relating to QSGI's resale of used mainframes would have been retained, if at all, in the Minnesota facility, correct? A. Q. Yes. Information relating to QSGI's -- any
prospective sale of used mainframes would have been stored, if at all, in the Minnesota facility? A. Q. Correct. And information relating to QSGI's inventory
of used IBM mainframes would have been stored, if at all, in QSGI's Minnesota facility, correct? A. Q. Correct. And information relating to QSGI's
strategies relating to its used mainframe business would have been stored, if at all, in its Minnesota facility, correct? A. Not correct.
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A. Q. Q. A. Where else would that have been stored? Those are e-mails. Once again, a lot of the
strategic business plans and things like that were, you know, dynamic e-mails that would go back between Joel myself and Seth and Ed, and we would talk about the business and the growth, about the overall things that you would discuss in trying to grow and build a business. So that wasn't necessarily a
storage item in the file, that was more correspondence between parties. Q. And I would like to focus just on -- I would
like to set aside the e-mails and focus on the categories of documents that we have been talking about, just the hard copy documents. that? A. Q. Sure. So documents relating to QSGI's strategy Can we do
concerning its used mainframe business would have been stored, if at all, in its Minnesota facility, correct? MR. BAUTA: Objection. Form.
Primarily, yes. When you say "primarily" is there any other
physical location where those documents could have been stored?
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A. You know, I had a document that was a
PowerPoint presentation that discussed the mainframe business and the growth and the degradation of the business. So I had a copy of a PowerPoint that I
gave to Juan as well. So for the most part documentation was stored in Minnesota. If it was pertaining to
financial records, hard copy financial records, maybe one or two other documents were copied and I ended up with a copy of it for review or Seth ended up with a copy of it for review. storage item. Q. And the PowerPoint that you are talking That wasn't a
about, is that an example of an electronic document or hard copy document? A. printed. Q. So I would like to focus on QSGI's -- well, I think we were It was an electronic document that was
I think let me stop and pause.
speaking before about where, if at all, QSGI would have stored hard copy documents relating to its business. A. Q. Do you recall that?
Yes. And I believe, and you can correct me or
give a different answer now if you want to, but my
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A. A. Q. retention period, the Minnesota documents at least were destroyed, right? MR. BAUTA: Correct. How many documents were destroyed at the Objection to form.
Minnesota facility? A. Q. A. Q. I have no idea. Is it hundreds of boxes? I have no idea. Is there anyone that would know how many
documents were destroyed at the New Jersey facility? A. Q. A. Q. New Jersey facility? Sorry, the Minnesota facility. I don't know. But I guess aside from the specific
quantity, all of QSGI's hard copy documents relating to the day-to-day activity of its mainframe resale business were destroyed during that gray area in QSGI's record retention period, right? MR. BAUTA: Objection to form.
Well, I said we never preserved the
day-to-day hard copy documents, so I don't know why you keep going back to it. Q. Okay. So aside from -- let's just start
over, then.
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SMS? A. Q. Yes. Outside of the asset sale to SMS, were there A. I would like to get a sense of what documents were destroyed during that gray area of records retention period. One of the things that
you testified was destroyed during a gray area records retention period was the Minnesota hard copy documents, correct? MR. BAUTA: Objection. Form.
The Minnesota hard copy documents were
destroyed sometime in 2009 when paying the bill was out of our control. Q. And is it also the case that QSGI lost
servers during that gray area period as well? A. There were servers that were sold with some
of the assets. Q. And you are referring to the asset sale to
any servers that QSGI lost during that gray area records retention period? A. There was another New Jersey server that was It was actually sold
also sold to another company. to Victory Park.
The lender credit bid and they
ended up with the assets as well. Q. So other than the sale of certain servers,
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A. A. A. are there any other servers that QSGI lost during this gray area of its record retention? A. Q. No. Are there any other documents that QSGI lost
during the gray area of its record retention? MR. BAUTA: Objection. Form.
I have no idea.
The question is so broad I
don't even know the answer to the question. Q. You don't know whether QSGI destroyed any
documents during its bankruptcy? MR. BAUTA: Objection to form.
We never intentionally destroyed any
documents. Q. Do you know whether QSGI unintentionally
destroyed any documents during its bankruptcy? MR. BAUTA: Objection to form.
We never intentionally destroyed any
documents. Q. So my question was whether QSGI
unintentionally destroyed documents during bankruptcy? A. known. MR. BAUTA: THE WITNESS: Mr. Sherman, no speculating. Oh, sorry. If it was unintentional we wouldn't have
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database. Q. So other than CRM and the templates and the
e-mail, what other information was on these servers? A. Q. That's all that I can recall. Did you do anything in preparation of this
deposition to investigate what was on those servers? A. Q. A. No, I did not. Where are those servers today? One is -- one was sold to Victory Park, and
the other one was sold to SMS. Q. Anything on those servers -- strike that. QSGI did not make any backup or copy of those servers before providing them to SMS and Victory Park, right? A. Q. Correct. So any e-mails or documents on those servers
for purposes of this lawsuit are gone, right? A. The Court actually requested the documents,
the backup tapes back from Victory Park, and that's how we were able to get back the documents that we -- the e-mails and everything that we have. Q. Were these archives on these two servers
that you are describing? A. Q. I'm not sure. So other than the e-mail archive, which you,
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A. Q. I guess, aren't sure -- you are not sure that the e-mail archive was on these two servers, right? A. Q. I'm not sure. So for purposes of this lawsuit, whatever
was on those servers is gone? MR. BAUTA: Yes. Is there any correspondence or documentation Objection to form.
that would show what QSGI kept on the servers? A. Q. Repeat the question. Is there any documentation or correspondence
that would describe what information QSGI kept on the servers? A. Q. No. When you say that the servers included all
the information that QSGI used to manage and run its business, what years did that cover? A. Q. Can you be more specific with the question? Sure. You testified before that these two
servers included information and documentation that QSGI used to manage and run its business, correct? A. Q. Correct. Did these servers include information and
documents that QSGI used to run its business in the 2007 time frame?
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I... Q. So regardless of the specific dates, those A. Q. A. I don't know. Can you start over with the
question one more time, please? Q. Sure. My question is in what -Let me turn this off.
THE WITNESS:
Let's come at this another way, Mr. Sherman,
and you can tell me when you are ready. A. Q. A. One second. What years were these two servers in use? They were in use from the starting of the
company and the acquisition of Qualtech to the time that they were taken off line and sold with the assets of those two respective businesses. Q. So that would be roughly the year 2000 to
the year 2009? A. Q. If that's the dates, yes. You don't have any reason to think that
those dates are incorrect, do you? MR. BAUTA: Objection. Form.
If you tell me that those are the dates,
servers were used to house QSGI's documents and information that it needed to manage and run its business during the point in time that QSGI was operating as a business, correct?
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A. Q. through. A. Q. A. Q. Correct. And QSGI provided the servers that contains
the only copy of that information to Victory Park and SMS? MR. BAUTA: Objection. Form. They were taken.
We didn't provide them.
So the only servers that contain that
information were taken by QSGI and provided to -A. Q. No. Yeah. Start over again. Again, just for the benefit of the
court reporter, we have to try not to get on top of each other with the questions and answers. I will start from the top and we will go So those two servers contain all of the
documents and information that QSGI used to run and manage its business during the time period when QSGI was in business? MR. BAUTA: Yes. And QSGI -- strike that. And those two servers are no longer in the possession of QSGI, correct? A. Q. Correct. QSGI didn't make a copy or backup of any of Objection. Form.
the documents or information on that server,
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correct? A. Q. Correct. QSGI has no ability to access the documents
or information that were on those servers, correct? A. Q. Correct. Just to complete the record, QSGI provided
one of the servers to SMS pursuant to an asset sale, correct? A. Q. Correct. What is the reason why the second server was
provided to Victory Park? A. They bought the assets of the New Jersey
facility, the credit assets, from the data security side of the business. Q. Did Victory Park acquire any other assets
from the New Jersey facility other than that server? A. They bought all the assets that were part of
the data security compliance business. Q. correct? A. Q. That would include the books and records. QSGI didn't make any copies of those books That would include the books and records,
and records before it provided them to Victory Park, correct? A. QSGI did not have access to those records.
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A. Q. Q. And QSGI never made any copy of those books
and records before it provided them to Victory Park? A. Q. Correct. As to SMS, QSGI as part of that asset sale
provided all the books and records relating to its hardware division to SMS, correct? A. Q. Correct. It provided every document relating to its
hardware division to SMS, correct? A. I don't know every document. I can't
speculate. Q. Well, at least it provided every book,
record, and document relating to its hardware division to SMS, correct? A. All the available documents that came with
the business in the purchase. Q. So all of the available documents -- so in
2009 QSGI sold the assets comprising its hardware division to SMS, right? MR. BAUTA: Correct. So all the records, documents, and Objection to form.
information that QSGI had relating to the hardware division in 2009 transferred to SMS, correct? MR. BAUTA: Objection to form.
1-800-325-3376
A. Q. A. A. Q. Correct. QSGI didn't make any copies of the books,
records, and documents before it provided them to SMS, correct? MR. BAUTA: Objection to form.
The only copies that we have are the copies
that were electronic. Q. A. And you are referring to the e-mails? E-mails and anything that resided on the
copies from the tapes. Q. So I appreciate that. My question wasn't
about the e-mails.
My question is about the books,
records, and information that you provided to SMS pursuant to the asset sale. please? A. Q. Sure. So did QSGI make any copies of any of the Can we stay on that,
books, records, or documents before transferring them to SMS? MR. BAUTA: Objection to form.
Not that I know of. So as far as this lawsuit is concerned, the
books, records, and documents relating to QSGI's hardware division are gone, right? MR. BAUTA: Objection to form.
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CRM? A. Q. Yeah. I'm not sure if we talked about the years Is it the case that A. Correct. THE WITNESS: second? MR. BAUTA: break? THE WITNESS: MR. BAUTA: Yeah. Sure. Off the video record at Sure. Do you want to take a Can I speak to you for a
THE VIDEOGRAPHER: 1:32. (Recess taken) THE VIDEOGRAPHER: 1:37.
Back on the record at
CONTINUED DIRECT EXAMINATION BY MR. DIESSEL: Q. We were talking a second ago about the QSGI
during which that was in place.
QSGI used that CRM database during the time in which QSGI was in business? A. We always had some type of a database for We went from rolodex to database.
managing names. Q.
Do you have -- when did QSGI start using the
database?
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A. I don't know exactly. I wasn't a user of
it, so I don't know the exact date, but I know we had it for our employees. Q. A. Q. A. Q. A. Q. A. Q. A. Q. Would it have been 2002? I don't know the answer to that. Would it have been before 2005? I don't know. Would it have been before 2007? I would imagine so. QSGI is currently using it, right? QSGI currently uses a database, yes. Where is the rolodex? What's the question? Where is the rolodex of customer
information? A. know. Q. So there is two sources of customer Where is the rolodex of customers? I don't
information that QSGI has had while it's been in business, a rolodex and the CRM database, right? A. I used that as an example. I said before
CRM there was such a thing as a rolodex. Q. What did QSGI use for its customer
information before CRM? A. I don't know.
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A. Q. Q. A. What is this document? It's our plan of reorganization that was
sent to the Bankruptcy Court. Q. Do you see at the top of the page there is
some information including a page number? A. Q. please. A. Q. Okay. Do you see a heading titled "Current Yeah. Can you turn to page 22 of the document,
Management"? A. Q. Um-hm. And it says, "Since the bankruptcy filing,
Marc Sherman and David J. Meynarez have been running the Debtors' reorganization, and facilitating the Chapter 11 case in the following ways." Do you see that? Um-hm. And then it lists some of the things that
you and Mr. Meynarez have been doing to run the reorganization. A. Q. Um-hm. And six lines into that paragraph the first Do you see Do you see that?
two words are "document retention." that?
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do? A. Q. Correct. What are some of the things that you and A. Q. Um-hm. So you and Mr. Meynarez were running QSGI's
document retention during this bankruptcy, correct? A. Q. To the best that we could. You couldn't always do as good of a job as
you would have hoped, right? A. Q. I don't understand your question. Yeah, so I asked if you and Mr. Meynarez
were running QSGI's document retention, and you have testified "the best that we could." A. Q. The best that we could. You guys did the best job preserving the
documents that you were able to? A. Once we were able to isolate the documents,
we were able to get our -- we could do what we could do with the documents that we had. Q. And there were some things that you couldn't
Mr. Meynarez couldn't do? A. We couldn't get our hands on all the
documents because some of the documents were destroyed. Q. What were the documents that were destroyed?
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Q. A. Q. A. The documents that were in Minnesota. What other documents were destroyed? That's all that I know of. Anything that
was on the server that we couldn't get our hands on. Once again, I don't know exactly what's on the backup tapes. Q. A. Who are Kinetic Advisors? Kinetic Advisors was the company that we
used to help us through our bankruptcy. Q. A. Q. You worked with Kinetic Advisors? Yes, we worked with Kinetic Advisors. Did you specifically work with Kinetic
Advisors? A. Q. A. Yes. Who is Rich Cartoon? Richard Cartoon was one of our advisors on
the bankruptcy. Q. A. Did Rich Cartoon work for Kinetic Advisors? Yes, he did. (Document marked as Exhibit 5 for identification) I would like to hand you what's been marked For the record, this document is
as Exhibit 5.
entitled "Summary of First Interim Application of Kinetic Advisors, LLC for Compensation and
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now? Q. A. Yes. When they send them back to us. When they Q. When you refer to essential documents, are
you, again, just referring to financial documents and contract documents? A. Q. Yes. So other than the financial documents and
contract documents that QSGI produced to the SEC, all of QSGI's other hard copy documents have been destroyed, correct? A. Whatever was in the boxes in the New Jersey
facility are still somewhere to be had. Q. Those are the documents that you are
referring to that were SEC, correct? A. Q. Correct. QSGI doesn't have the ability to access
those documents, correct? A. You mean the ones that are at the SEC right
send them back to us we will have it. Q. I'm going to go back to my question. Other
than the financial documents and the contract documents that QSGI produced to the SEC, all of QSGI's other hard copy documents have been destroyed, correct?
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A. Q. A. Q. MR. BAUTA: Correct. QSGI does not have the right or the Objection to form.
authority to access the financial and contract documents that it produced to the SEC, correct? MR. BAUTA: Objection. Form. I
I'm going to instruct you not to answer. think that calls for a legal opinion at a minimum, at a minimum. answer, great. answer. A. Q. So if you know the
If not, I instruct you not to
Don't guess.
What was the question again? Does QSGI have the authority to access the
financial and contract documents that it produced to the SEC? A. Q. No. So for purposes of this lawsuit, QSGI has no
hard copy documents at all, correct? MR. BAUTA: Correct. What's the status of the SEC investigation? MR. BAUTA: I'm going to object and instruct Objection to form.
you not to answer. It's beyond the scope of this witness's designation.
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Q. MR. DIESSEL: Well, I recall on your
response you represented that those documents had been produced to the SEC, documents which are plainly responsive to our document requests. It seems to me we are entitled to know what the status of those documents are and what's going on with the SEC. MR. BAUTA: Why don't you approach the SEC?
What's the status of the SEC investigation? MR. BAUTA: I'm going to instruct you not to
answer it. MR. DIESSEL: instruction? MR. BAUTA: Beyond the scope of this It may What's the basis of your
particular witness's designation.
involve an ongoing investigation with the Securities Exchange Commission, and I'm not his counsel for that aspect of it, so I don't believe he has authority to talk about it. If you question whether the documents are at the SEC, I'm sure you can find out. MR. DIESSEL: So our position is the SEC has
the only QSGI hard copy documents in existence. MR. BAUTA: question? Is this a speech or is this a
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A. Q. answers. Q. Does QSGI have any documents other than
those in the possession of McDonald Hopkins? A. as well. Q. A. What documents does Juan have? Juan sent me over -MR. BAUTA: Let me tell you don't tell him Well, there are some documents that Juan has
anything, any conversations you and I have had. We still have attorney-client here remember. Okay? THE WITNESS: Yep.
To be clear, I obviously don't want those That's not what I want to know. What documents does Juan have? Just as part of the discovery there are
things that he asked me to provide to him that I have sent. Q. to him? MR. BAUTA: Well, I'm going to ask you to Without What categories of documents have you sent
define for him what "categories" means. that he is going to become very close to
disclosing something that he shouldn't, and rather than instruct him not to answer it at all, I'm going to give you a chance to fix it.
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A. Q. Q. The documents that you sent to Mr. Bauta, do
you know how many documents that set comprised? A. Q. I don't off the top of my head. What sources -- where did you find those
documents? A. I had some PowerPoint presentations sitting
around my office, I had some documents that were in an old credenza that I had sitting from some conference calls. Q. A. Q. Was it greater than a hundred documents? No. So other than these documents -- would it be
accurate to say that you individually selected these and provided them to Mr. Bauta? A. I had to look through some things that I had
hanging around my office, and I found them and I sent them off to him. Q. So other than these documents that you
selected and sent to Mr. Bauta, is it true that QSGI does not have any documents other than those in the possession of McDonald Hopkins? MR. BAUTA: Objection to the form.
That would be correct. So the next sentence of the response states,
"McDonald Hopkins, LLC, who is most familiar with
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A. Q. the universe of QSGI documents, informed Plaintiff's counsel that the Firm possessed approximately 400 gigabytes of documents in its database and approximately 400 bankers boxes of additional documents in a warehouse located in New Jersey." Do you see that? Um-hm. Now, the 400 boxes, those are the boxes that
were produced to the SEC, correct? A. Q. I assume so, yes. Do you have an understanding as to what the
400 gigabytes of documents are? A. Q. I have no idea. Would it be accurate that these
400 gigabytes of documents are the only QSGI documents that exist presently? MR. BAUTA: Objection to form. No
speculating, please. A. Q. Please repeat the question. Yeah. Is it true that -- is it the case
that these 400 gigabytes of documents in the database are the only QSGI documents that presently exist? A. Q. I don't know. Do you know of any other documents that
1-800-325-3376
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA Plaintiff; v. IBM GLOBAL FINANCING and INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendants. QSGI, INC.,
Case No. 9:11-cv-80880-KLR
DECLARATION OF TY COBB Ty Cobb, declares as follows: 1. I am a member of the law firm of Hogan Lovells US LLP and
counsel to Defendants IBM Global Financing and International Business Machines Corporation (collectively, "Defendants" or "IBM") in the above captioned action. I submit this declaration in support of IBM's Reply in Support of its Motion to Compel Compliance With March 16, 2012 Order and For Sanctions For Noncompliance. 2. On May 8, 2012, I contacted by telephone Victor Tabak, an
attorney at the Securities and Exchange Commission ("SEC"), on information provided by QSGI's counsel in this matter. In a subsequent call that day, I spoke with Mr. Tabak and Assistant Director of Enforcement, Nina Finston. 3. During these calls, I was informed that the SEC could not confirm
or deny that it had any proceeding/investigation as to QSGI, consistent with long standing policy, including whether it had any agreement with QSGI concerning the boxes of documents that QSGI previously produced to the SEC. I was informed, consistent with my own extensive experience with the SEC, that it would be extraordinary for the SEC to
direct a party that it is prohibited from honoring its discovery obligations in a civil litigation not involving the SEC. 4. On the basis of these telephone calls, it is my understanding that
QSGI is not restricted in providing the documents recently returned to QSGI from the SEC to a third-party vendor for that vendor to make copies for purposes of this litigation or otherwise honoring its discovery obligations.
I declare under the penalty of perjury that the foregoing is true and correct. Executed on May 10, 2012

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/s/ Laura Besvinick____________ Laura Besvinick Florida Bar No. 391158

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In The Matter Of:

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I'm not sure when that started.

the SQL server. A. Okay. The software automatically captured

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THE WITNESS: BY MR. DIESSEL Q. A. Q. And why not?

series of questions, numbered questions, that IBM

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You didn't add those. Q. Marc Sherman testified at his prior

whole timeframe today with the 2004.

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THE WITNESS: BY MR. DIESSEL: Q.

Is there any way at all to determine when

2009, was in place. Q. So the 2002 precedes QSGI's acquisition of

What was the process that was being

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THE WITNESS: BY MR. DIESSEL: Q.

What was the process that QSGI was using

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unverified interrogatory response.

objection, it still hasn't been resolved.

I can't say when it stopped.

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those tapes thereafter? A. They would be returned to the respective

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were destroyed? MR. DAM: Objection, form, argumentative.