WINGNUT FILMS, LTD., Plaintiff, v. KATJA MOTION PICTURES CORP.; New Line Cinema Corp.; New Line Prod., Inc.; and Does 1 through 20, inclusive, Defendants No. CV 05–1516–RSWL SHX United States District Court, C.D. California, Western Division September 18, 2007 Counsel Kara D. McDonald, Katharine Galston, Laura A. Seigle, Robert N. Klieger, Steven A. Marenberg, Irell and Manella, Los Angeles, CA, for Plaintiff. Bradley William Parr, Christopher L. Frost, James Joseph McNamara, III, Justin M. Goldstein, Robert M. Schwartz, Victor H. Jih, Omelveny and Myers, Los Angeles, CA, for Defendants. Hillman, Stephen J., United States Magistrate Judge FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER PARTIALLY GRANTING PLAINTIFF'S MOTION FOR SANCTIONS; ORDER DENYING DEFENDANTS' CROSS–MOTION *1 Presently before this Court is Plaintiff Wingnut Films, Ltd.'s Motion for Sanctions, and Defendants' Cross–Motion for Sanctions, both heard on August 15, 2007. The following documents from plaintiff's Appendix to its current Motion are incorporated by referenced to this Order: Tab Description A Joint Stipulation Re Renewed Motion to Enforce Discovery Orders and for Sanctions, filed on January 16, 2007 B Plaintiff Wingnut Films, Ltd.'s First Request for the Production of Documents to Defendants Katja Motion Pictures Corp., New Line Cinema Corp., and New Line Productions, Inc. C Defendants' Response to Plaintiff Wingnut Films, Ltd.'s First Request for the Production of Documents D Defendants' Supplemental Response to Plaintiff Wingnut Films, Ltd .'s First Request for the Production of Documents E July 14, 2006 Order on Plaintiff's Motion to Compel Production of Documents F July 14, 2006 Order Re Plaintiff's Motion to Compel Production of Documents G July 13, 2006 Order Re Plaintiff's Motion to Compel Production of Redacted Documents H Plaintiff Wingnut Films, Ltd.'s Second Request for the Production of Documents to Defendants Katja Motion Pictures Corp., New Line Cinema Corp., and New Line Productions, Inc. I Defendants' Response to Wingnut Films, Ltd.'s Second Request for the Production of Documents J August 23, 2006 Order Granting Plaintiff Wingnut Films, Ltd.'s Motion To Compel Production Of Documents In Response To Plaintiff's Second Set of Requests For Production K Transcript of the September 18, 2006 Hearing before Judge Lew L Joint Stipulation Under Local Rule 37–2 Re Plaintiff's Motion to Compel, filed on October 12, 2006 M Transcript of the November 6, 2006 Hearing before this Court N November 7, 2006 Order Re Plaintiff's Motion to Compel O November 30, 2006 letter from Bradley Parr to Robert Klieger P January 24, 2007 Order Re Plaintiff Wingnut Films, Ltd.'s Renewed Motion to Enforce Discovery and for Sanctions Q February 4, 2007 letter from Robert Klieger to Victor Jih R Plaintiff's Report on Custodian of Records Depositions and Request for Further Relief S Transcript of the February 8, 2007 deposition of Ken Horowitz T Transcript of the February 8, 2007 deposition of Dain Landon U Defendants' Report Regarding Compliance with this Court's January 24, 2007 Order V Transcript of the March 1, 2007 Telephonic Hearing before this Court W February 28, 2007 letter from Robert Klieger to Victor Jih X Transcript of the March 28, 2007 deposition of Ken Horowitz Y Transcript of the March 28, 2007 deposition of Dain Landon Z Defendants' Supplemental Responses to Plaintiff Wingnut Films, Ltd.'s Second Set of Requests for Production AA August 18, 2006 letter from Kara McDonald to Christopher Frost BB August 21, 2006 letter from Bradley W. Parr to Kara McDonald CC Transcript of the January 23, 2007 Hearing before this Court DD February 9, 2007 letter from Bradley Parr to Robert Klieger, enclosing the Declaration of Ken Horowitz. EE Defendants' Supplemental Brief in Opposition to Plaintiff's Motion to Compel Compliance with Discovery Orders FF April 3, 2007 letter from Robert Klieger to Victor Jih GG April 4, 2007 letter from Victor Jih to Robert Klieger HH Defendants' Post–Deposition Report and Request for Sanctions II March 12, 2007 letter from Bradley Parr to Robert Klieger, enclosing Ken Horowitz's signature and changes to the transcript of his February 8, 2007 deposition JJ February 7, 2007 letter from Brad Parr to Robert Klieger KK Excerpts of the Transcript of the June 20, 2006 Deposition of Michael Lynne LL February 26, 2007 email from Bradley Parr to Robert Klieger MM March 12, 2007 letters from Brad Parr to Robert N. Klieger, enclosing Ken Horowitz's and Dain Landon's signatures and changes to the transcripts of their February 8, 2007 depositions *2 Having considered all other papers submitted by the parties and the arguments of counsel, as well as the transcript of the hearing on the present motions, and for good cause shown, this Court finds as follows: I. PROCEDURAL BACKGROUND 1. Wingnut propounded its First Set of Requests for Production of Documents to Defendants on July 6, 2005. Tab B (Plaintiff Wingnut Films, Ltd.'s First Request for the Production of Documents to Defendants Katja Motion Pictures Corp., New Line Cinema Corp., and New Line Productions, Inc.). New Line initially refused to produce any documents other than those that Wingnut already possessed in the ordinary course of business, claiming that the vast majority of requests were “simply too objectionable to permit any response.” Tab C (Defendants' Response to Plaintiff Wingnut Films, Ltd.'s First Request for the Production of Documents) at 18:26 & passim. 2. Five months later, after a series of meet and confers, New Line served supplemental responses and two boxes of documents. Tab D (Defendants' Supplemental Response to Plaintiff Wingnut Films, Ltd.'s First Request for the Production of Documents). New Line then engaged Wingnut in a series of meet and confers over a period of months. 3. In June 2006, Wingnut filed the first of what would become a series of motions to compel. This Court granted Wingnut's motion in an order dated July 14, 2006 in which this Court compelled New Line to produce all of the sales and licensing, merchandising, and third-party participation documents relating to Lord of the Rings. Tab E (7/14/06 Order on Plaintiff's Motion to Compel Production of Documents) (“July 14 Order”). This Court rejected New Line's boilerplate objections to Wingnut's requests as “unsupported” and “without merit” and ordered New Line to produce documents “forthwith on a ‘rolling’ basis as documents are located” and to complete its production “no later than August 10, 2006.” Id. at 4.[1] 4. Wingnut propounded its Second Requests for Production of Documents on May 5, 2006. Tab H (Plaintiff Wingnut Films, Ltd.'s Second Set of Requests for the Production of Documents to Defendants). New Line again refused to produce documents in response to virtually every request. Tab I (Defendants' Responses to Wingnut Films, Ltd.'s Second Request for the Production of Documents). 5. Following this Court's ruling on the first motions to compel, New Line changed course and said that it would produce documents responsive to Wingnut's second set of requests. However, New Line refused to memorialize this commitment in a stipulation, and Wingnut therefore asked this Court to order the documents produced. This Court granted Wingnut's request over New Line's objection and, by order dated August 23, 2006, compelled New Line to produce or log documents responsive to fifty-six requests contained in the Second Set of Requests within ten days of the order. Tab J (8/23/06 Order Granting Plaintiff Wingnut Films, Ltd.'s Motion To Compel Production Of Documents In Response To Plaintiff's Second Set of Requests For Production) (“August 23 Order”). *3 6. New Line's production of documents in response to the discovery orders coincided with the discovery and motion cutoff date. Within weeks of New Line's production, Wingnut identified what it believed to be gross deficiencies in the production. Wingnut promptly brought these deficiencies to New Line's attention. New Line dismissed Wingnut's concerns and asserted that it had fully complied with this Court's orders. Because the motion cutoff had passed, Wingnut was unable to file a motion to enforce the discovery orders. However, on September 18, 2006, Judge Lew granted Wingnut leave to file a motion to enforce the discovery orders. See Tab K (Transcript of September 18, 2006 Hearing). 7. Wingnut filed its Motion to Compel Compliance with Discovery Orders on October 12, 2006. Tab L (Joint Stipulation Under Local Rule 37–2 Re Plaintiff's Motion to Compel Compliance with Discovery Orders) (“October 12 Joint Stipulation.”). In its motion, Wingnut identified substantial gaps in New Line's production and sought an order requiring, inter alia, that New Line produce its custodian(s) of records for deposition. New Line disputed that any significant work remained to be done. Indeed, New Line's counsel advised this Court that, with two minor exceptions, “[w]e can certify on the record right now ... [that] everything else has actually been produced.” Tab M (11/6/07 Hearing Transcript) at 15. Wingnut's counsel expressed skepticism and addressed the sanctions that should follow in the event that counsel's certification proved to be false: [I]f they make a certification that they've produced everything ... and then we find out through a custodian of records deposition, or through a custodian of records witness at trial, or through any other trial testimony that there [are] these whole categories of documents that they were ordered to produce and have not, there should be serious consequences for them. Id. at 40. 8. In this Court's Order dated November 7, 2006, this Court directed New Line to confirm by November 30, 2006 that all responsive documents had been produced in accordance with the discovery orders, but the Court declined to order custodian of record depositions at that time. Tab N (11/7/06 Order Re Plaintiff's Motion to Compel) (“November 7 Order”). 9. By letter dated November 30, 2006, New Line confirmed in writing that it had complied with this Court's discovery orders and that all non-privileged documents encompassed within those orders had been produced. Tab O (11/30/06 Letter from Brad Parr to Robert N. Klieger) (“11/30/06 Parr Letter”). 10. Wingnut discovered facts that led it to believe that a number of New Line's representations to this Court were false, and Wingnut filed a Renewed Motion to Enforce Discovery Orders and for Sanctions. Tab A (Joint Stipulation Re Renewed Motion to Enforce Discovery Orders and for Sanctions) (“January 16 Joint Stipulation”). 11. Following oral argument on Wingnut's motion, this Court ordered New Line to make its custodian of records available for deposition “for examination regarding defendants' record-keeping policies and procedures with respect to the categories of documents defendants have been ordered to produce in this action, including both paper and electronic documents and defendants' search for and collection of documents for production.” Tab P (1/24/07 Order Re Plaintiff Wingnut's Renewed Motion to Enforce Discovery and for Sanctions) (“January 24 Order”). This Court took Wingnut's request for monetary sanctions under submission pending completion of the custodians' depositions. Id. *4 12. New Line declined to produce its custodians for deposition in Los Angeles. Instead, New Line insisted that Wingnut's counsel travel to New York for the depositions. Tab JJ (2/7/07 Letter from Brad Parr to Robert Klieger). In advance of the depositions, and to ensure that New Line's custodians were adequately prepared and that the trip was not wasted, Wingnut's counsel identified the specific categories of documents about which Wingnut intended to inquire at the depositions. Tab Q (2/4/07 Letter from Robert N. Klieger to Victor Jih). 13. New Line designated two custodians of records to address the listed topics—Ken Horowitz, New Line's Vice President, Participations and Contract Accounting; and Dain Landon, New Line's Senior Counsel. When these witnesses appeared for deposition on February 8, 2007, they were unable to answer many basic questions regarding New Line's record-keeping policies or its collection of documents for production, and the answers that Messrs. Horowitz and Landon were able to provide suggested significant defects in New Line's production. Tab R (Plaintiff's Report on Custodian of Records Depositions and Request for Further Relief) (“Wingnut Report”); Tab S (2/8/07 Transcript of Deposition of Ken Horowitz) (“2/8/07 Horowitz Depo.”); Tab T (2/8/07 Transcript of Deposition of Dain Landon) (“2/8/07 Landon Depo.”). 14. On February 12, 2007, New Line filed a “Report Regarding Compliance with this Court's January 24, 2007 Order.” Tab U. Wingnut responded with its own “Report of Custodian of Records Depositions and Request for Further Relief,” in which it detailed what had transpired at the custodians' depositions. Tab R (Wingnut Report). 15. On March 1, 2007, this Court ordered New Line to produce its custodians for a second round of depositions in which Wingnut's counsel could seek information that the witnesses had been unable to provide at their first depositions. Tab V (3/1/07 Hearing Transcript) at 8–10. The follow-on depositions were scheduled for March 28, 2007. 16. More than three weeks before the depositions, Wingnut provided New Line a two-page list of the specific subjects that Wingnut understood to be within the scope of the follow-on depositions and about which it intended to inquire. Tab W (2/28/07 Letter from Robert N. Klieger to Victor Jih). Nonetheless, New Line's custodians apparently waited until literally the day before the follow-on depositions to make any effort to gather the information they had been unable to provide at their first depositions. Mr. Horowitz spent “five or maybe ten minutes” gathering additional information about New Line's search of its audit files. Tab X (3/28/07 Transcript of Deposition of Ken Horowitz) (“3/28/07 Horowitz Depo.”) at 174:24–175:13 & 181:25–182:15. Mr. Landon spoke with eleven individuals to prepare for his deposition, but all eleven conversations occurred the day before the deposition and lasted less than 45 minutes in total. Tab Y (3/28/07 Transcript of Deposition of Dain Landon) (“3/28/07 Landon Depo.”) at 234:6–263:25. The custodians remained unable to answer critical questions regarding New Line's production, and the testimony they did provide demonstrates New Line's failure to comply with the discovery orders. II. NEW LINE'S DISCOVERY FAILURES *5 17. From the start, Wingnut identified significant gaps in New Line's document production and expressed concerns about its completeness. Wingnut's counsel raised these concerns again and again, both in correspondence and meetings with New Line's counsel and in submissions to the Court. New Line's counsel represented again and again that a diligent search had been conducted and all responsive documents had been produced. Whenever Wingnut fortuitously discovered the existence of specific responsive documents that had not been produced, New Line would make disjointed searches, each time coming up with a few more documents, and each time representing that that was all they had. All the while, New Line's counsel persisted in belittling Wingnut's concerns as “paranoia” and “harassment.” The Court eventually granted Wingnut leave to take discovery regarding New Line's discovery compliance, at which time New Line's discovery failures became readily apparent. These are much the same issues Judge Preska was faced with in Metropolitan Opera Ass'n, Inc. v. Local 100, Hotel Employees & Restaurant Employees Int'l Union, 212 F.R.D. 178 (S.D.N.Y.2003), and this Court concludes that they should be resolved in much the same way (albeit with less draconian sanctions designed to facilitate a fair trial on the merits rather than establish liability as a matter of law). 18. New Line's continuing discovery failures fall into three basic categories: (A) New Line did not conduct a reasonably diligent search for numerous categories of documents that this Court ordered produced; (B) New Line did not conduct a reasonably diligent search for emails and other electronic documents; and (C) New Line did not suspend its document destruction policy or otherwise take adequate steps to preserve documents. A. New Line Did Not Conduct A Reasonably Diligent Search For Numerous Categories Of Documents It Was Ordered To Produce 1. New Line Has Withheld Documents Relating To Third–Party Audits 19. In its Second Set of Requests for Production, Wingnut requested that New Line produce “[a]ll DOCUMENTS that constitute, memorialize, or refer to, and all COMMUNICATIONS regarding, any other audit claims that any profit participant has made against DEFENDANTS in connection with a film, television, soundtrack, or videogame property.” Tab H (Wingnut's Second Set of Requests), Request No. 164. 20. In its initial response, New Line refused to search for and produce any responsive documents. Tab I (New Line's Response to Wingnut's Second Set of Requests), Response to Request 164. After Wingnut had incurred the time and expense of drafting a motion to compel, New Line supplemented its response to state that “[t]he subject matter of this request has already been addressed by the Magistrate in its July 10, 2006 order on the production of documents” and that “Defendants are in the process of complying with that order on a rolling basis, and are working diligently to identify the likely location of documents and to produce them by August 10, 2006.” Tab Z (Defendants' Supplemental Responses to Plaintiff Wingnut Films, Ltd.'s Second Set of Requests for Production), Response to Request No. 164. *6 21. Wingnut asked New Line to memorialize its agreement to produce documents responsive to Request No. 164 in a stipulation to be entered by this Court, so that New Line could not later claim that it somehow was not obliged to produce the documents; New Line refused to enter into a stipulation, and further opposed Wingnut's request that the Court enter an order requiring the documents to be produced. This Court granted Wingnut's request over New Line's objection and ordered that all documents responsive to Request No. 164 be produced. Tab J (August 23 Order). 22. New Line did not produce any third-party audit documents by the compliance date set by the Court. By letter dated August 18, 2006, Wingnut alerted New Line to its failure to produce documents as promised: “This request [No. 164] calls for documents related to other audit claims by any profit participant against Defendants in connection with a film, television, soundtrack, or videogame property. Defendants have clearly failed to produce all documents responsive to this request.” Tab AA (8/18/06 Letter from Kara McDonald to Christopher Frost) (“8/18/06 McDonald Letter”). New Line dismissed Wingnut's concerns and asserted that New Line had “conducted a diligent and good faith search for responsive documents” and had produced everything they had found. Tab BB (Letter from Bradley W. Parr to Kara McDonald dated August 21, 2006) (“8/21/06 Parr Letter”). 23. At the time Wingnut filed its Motion to Compel Compliance with Discovery Orders on October 12, 2006, more than two months after the discovery cutoff, New Line still had not produced a single such document. Although New Line had previously represented that all documents responsive to Request No. 164 had already been produced, New Line now said that it had been prepared to produce such documents: “During Defendants' search for documents, Defendants looked for and were prepared to produce any documents concerning such claims [described in Request No. 164] that they identified.” Tab L (October 12 Joint Stipulation) at 13. New Line did not explain why it had not actually produced the documents as this Court had ordered, or why it previously represented that all responsive documents had already been produced. New Line said it would “search again.” Id. 24. In late October 2006, nearly six months after Wingnut had propounded Request No. 164, and more than two months after New Line had first represented that all responsive documents had been produced, New Line produced one-third of a box of third-party audit documents that consisted of an incomplete set of audit reports and responses. New Line produced virtually nothing in the way of correspondence, memoranda, emails, notes, work papers, settlement agreements, or anything else relating to dozens of motion picture audits. 25. Following its October production, New Line claimed that its production of audit documents was now complete. Wingnut questioned this representation: *7 If [Defendants] can truly certify to this Court that they have now produced all documents that constitute, memorialize or refer to, and all communications regarding other audit claims that any profit participant has brought against New Line, which is what they were ordered to produce, great. I would love to have that certification. I don't believe that certification could be given. And if it can, I believe it will be shown whether through a custodian of records deposition, or ultimately at trial, to be false or mistaken, at the very least. And there should be consequences for that. Tab M (11/6/06 Hearing Transcript) at 18. New Line's counsel dismissed Wingnut's skepticism as paranoia and certified to the Court, without any equivocation, that New Line had searched for and produced all documents responsive to Request No. 164: The second category that Mr. Klieger raises in terms of third-party ‘non-Lord of the Rings' audits. He characterizes our—so, first of all, he just wants to make sure we've actually completed our search and produced all of the documents—and the answers—we've said again and again and again, we have. We've completed the search and provided the documents. So, I'm not adding any caveat or ambiguity to that. I'm stating that for the record. Id. at 28. 26. This Court in retrospect unwisely accepted the representation of New Line's counsel and declined to order custodian of records depositions or to enter sanctions. The Court did, however, order New Line to produce any remaining third-party audit documents and to confirm by no later than November 30, 2006 that all such documents had been produced. Tab N (November 7 Order) at 1. 27. However, New Line did not produce any third-party audit documents by the November 30, 2006 compliance date. Instead, on November 30, 2006, New Line gave the same assurance its counsel had made to the Court three weeks earlier—i.e., that all responsive documents had already been produced. Tab BB (11/30/06 Parr Letter). In opposing Wingnut's Renewed Motion to Enforce Discovery Orders and for Sanctions, New Line again rejected Wingnut's contention that any documents had been withheld. New Line accused Wingnut of seeking to “reopen discovery simply because it—in its paranoia—does not trust Defendants” and of “using the discovery process to harass Defendants,” and suggested that Wingnut should be sanctioned “for forcing the Court and Defendants to deal with this frivolous motion.” Tab A (January 16 Joint Stipulation) at 57 & 59. 28. At the January 23, 2007 hearing on Wingnut's renewed motion, Wingnut's counsel again expressed skepticism that New Line's certification that it had produced all third-party audit claim documents could be true: “[W]e ... know from experience in this case and other cases that it's not going to be a third of a box. It can't possibly be.” Tab CC (1/23/07 Hearing Transcript) at 51. 29. On January 24, 2007, this Court ordered New Line to make its custodian of records available for deposition and to provide a declaration confirming, inter alia, that “all documents that constitute, memorialize, or refer to, and all communications regarding, any audit claims that any profit participant has made against defendants in connection with any film, television, soundtrack, or video game property” had been produced in compliance with the Court's August 23 Order. Tab P (January 24 Order). *8 30. New Line designated Ken Horowitz, the senior member of New Line's audit group, to testify as its custodian of records as to documents related to audits. Mr. Horowitz testified that his group maintains a comprehensive set of audit files. Tab S (2/8/07 Horowitz Depo.) at 20:5–20. 31. Mr. Horowitz testified that, for each film, the audit files include, inter alia, copies of all written correspondence with the auditors engaged by participants to conduct the audits (id. at 20:2–4); copies of New Line's frequent (often daily) email communications with the auditors (id. at 55:11–18); copies of everything that is sent to the auditors in connection with an audit, such as accounting papers, copies of agreements, and the like (id. at 104:10–17); copies of any internal memoranda (id. at 64:7–17); copies of all correspondence, both internal to New Line and with third parties (id.); and copies of documents pertaining to any litigation arising from an audit (id. at 70:18–25). Mr. Horowitz testified that the audit files are so extensive that they fill “many, many files cabinets of many drawers each.” Id. at 23:6–11. On-site alone, Mr. Horowitz estimated that the audit files fill at least six to ten file cabinets of three to five drawers each. Id. at 25:12–17.[2] 32. Mr. Horowitz identified Robin Howe and Justin Glaser as the two individuals who had searched New Line's audit files in connection with this litigation (id. at 123:12–17), but he was unable to testify with any certainty what exactly Ms. Howe and Mr. Glaser had searched for and collected (id. at 124:4–128:8). Mr. Horowitz's testimony thus provided no corroboration for New Line's prior certification that it had searched for and produced all audit claim documents. 33. On February 9, 2007, less than 24 hours after his deposition, Mr. Horowitz signed a declaration in which he declared, based on “personal knowledge,” that New Line had complied with the Court's discovery orders regarding third-party audit documents. Tab DD (Declaration of Ken Horowitz) (“Horowitz Declaration”). Specifically, Mr. Horowitz declared that: [M]embers of my group have searched for all documents that constitute, memorialize, or refer to, and all communications regarding, any audit claims that any profit participant has made against Katja Motion Pictures Corp., New Line Cinema Crop, and New Line Productions, Inc. in connection with any film, television, soundtrack, or video game property. All of the documents that were found were collected and sent to New Line's outside counsel, O'Melveny & Myers LLP for production. Id. at ¶¶ 1–2. New Line did not identify the source of the newfound “personal knowledge” that Mr. Horowitz had lacked just one day earlier. 34. Mr. Horowitz appeared for his second custodian of records deposition on March 28, 2007. Wingnut inquired at the outset regarding what additional investigation or inquiry Mr. Horowitz had done following his February 8 deposition that enabled him to certify New Line's compliance with the discovery orders the very next day. Mr. Horowitz testified that he did not recall doing anything at all. Tab X (3/28/07 Horowitz Depo.). *9 35. To prepare for the second day of his deposition, Mr. Horowitz spent “five or maybe ten minutes” speaking with Mr. Glaser and “a few minutes” speaking with Ms. Howe about their searches of New Line's central audit files. Id. at 174:24–175:13 & 181:25–182:15. Mr. Horowitz testified that Ms. Howe and Mr. Glaser had performed two searches of the central audit files. Id. at 191:18–193:20. In their first search, conducted somewhere between August and October 2006, they were instructed to collect only audit claims and reports, responses to audit reports, and settlements. Id. at 192:8–22 & 194:4–11. They did not collect any other documents from the drawers and drawers of audit files, including any correspondence, memoranda, emails, notes, or work papers. Id. In the second search, conducted in December 2006 or January 2007, Ms. Howe and Mr. Glaser were instructed to collect only external correspondence relating to the audits for which they had previously collected reports. Id. at 193:6–13, 199:23–200:5, 201:5–23, 211:17–212:16. Again, they were not told to collect, and did not collect, anything in the way of internal correspondence, memoranda, emails, notes, or work papers. Id. There have been no further searches of the central audit files. Id. at 202:21–204:14.[3] 36. In addition, Mr. Horowitz testified that New Line has not conducted any search for audit documents outside of the central audit files. Id. at 227:22–230:11. New Line seeks to excuse this failure based on Mr. Horowitz's testimony New Line's policy is that all documents are to be placed in the central files. Although Mr. Horowitz did testify that this is New Line's policy, he also testified that there are no checks to monitor compliance with the policy and that he has no idea how well the policy is followed. Tab S (2/8/07 Horowitz Depo.) at 64:7–17. Moreover, the audit documents that New Line has produced from the central audit files demonstrate that New Line does maintain work files separate and apart from the central audit files. The one box of audit documents that New Line has produced includes audit responses and correspondence that are copied or blind copied to countless individuals within and outside of New Line's audit department (including Ron Signorotti, Michael Spatt, Anna Tannenbaum, Craig Alexander, Judd Funk, David Imhoff, Frank Smith, and Ted Fournier) as well as to numerous company files, including at least 17 files concerning just the Austin Powers films. Mr. Horowitz was not familiar with any of these files. Tab X (3/28/07 Horowitz Depo.) at 226:24–234:16. These files may contain identical or non-identical copies of documents already produced, and they may also contain responsive documents that have not previously been identified and produced. The fact that New Line is not obligated to produce identical copies of the same document does not mean that it need not collect all responsive documents so that it can determine whether documents are, in fact, copies and—to the extent they are copies—whether they are identical copies, as opposed to marked up copies with handwritten notes or the like. It should go without saying that only truly identical copies may be withheld from production, and New Line cannot simply assume all copies will be identical without actually looking. *10 39. The Court finds that New Line still has not complied with the Court's order that it produce all third-party audit documents. New Line has produced less than one box of documents from the “many, many file cabinets of many drawers each” that comprise New Line's central audit files. New Line's custodian conceded that New Line has not collected or produced any internal correspondence, memoranda, emails, notes, or work papers; that it has not looked anywhere outside of the central audit files for any responsive documents; and that it has not performed any search for electronic documents. New Line's repeated and unequivocal certifications that it has fully complied with the Court's discovery orders have been seriously misleading and obfuscatory. 2. New Line Has Withheld Documents Relating To Other Lord of the Rings Audits 40. In its First Request for Production of Documents, Wingnut requested that New Line produce “[a]ll DOCUMENTS that evidence, reflect or refer to any audits conducted by any PERSON pertaining to the FILM [Lord of the Rings].” Tab B (Wingnut's First Set of Requests), Request No. 81. Besides the Wingnut audit, there are two basic groups of audits that have been conducted in connection with Lord of the Rings: (1) audits of New Line conducted by other profit participants; and (2) audits conducted by New Line of its licensees, including a number of its Warner Bros. affiliates. New Line refused to produce documents from either group. Tab C (Defendants' Response to Plaintiff Wingnut Films, Ltd.'s First Request for the Production of Documents), Request 81. 41. This Court granted Wingnut's motion to compel the production of documents responsive to Request No. 81 in its July 14 Order and required New Line to produce all responsive documents by no later than August 10, 2006. Tab E (July 14 Order). 42. By the August 10 compliance date, New Line had produced just four responsive documents (audit reports prepared by the Bank of New Zealand, Miramax, Liv Tyler, and Saul Zaentz), totaling just 88 pages. New Line did not produce any correspondence, memoranda, emails, notes, or work papers related to any of these participant audits. Nor did New Line produce a single document related to the audits of its Warner Bros. affiliates. 43. Wingnut placed New Line on notice of this deficiency in its production. Specifically, by letter dated August 18, 2006, Wingnut stated with respect to Request No. 81: “Defendants produced some audit reports pertaining to The Lord of the Rings, but they have generally not produced related documents, such as Defendants' responses to those reports, work papers, audit files or audit correspondence.” Tab AA (8/18/06 McDonald Letter) at 2. New Line's counsel responded three days later with an assurance that “Defendants conducted a diligent and good faith search for responsive documents they agreed to or were ordered to produce, and produced the documents ... they identified during that search.” Tab BB (8/21/06 Parr Letter) at 1. *11 44. New Line was less committal in responding to Wingnut's October 12, 2006 Motion to Compel Compliance with Discovery Orders. Although New Line represented that it had produced all documents relating to the audit of New Line, it stated that it was “still confirming” that all licensee audit documents had been produced. Specifically, New Line indicated that “Defendants are confirming whether additional documents exist for Warner Home Video and Warner Music Group.” Tab EE (Defendants' Supplemental Brief in Opposition to Plaintiffs' Motion to Compel Compliance with Discovery Orders) at 3. 45. Following the hearing on Wingnut's motion, this Court ordered New Line to complete its production of Lord of the Rings audit documents and to certify the completion of that production by November 30, 2006. Tab N (November 7 Order). New Line did not thereafter produce any documents relating to the audits of its Warner Bros. affiliates. Nonetheless, by letter dated November 30, 2006, New Line certified that it had complied fully with the Court's orders and that all responsive documents had been produced. Tab O (11/30/06 Parr Letter). 46. At the January 23, 2007 hearing on Wingnut's Renewed Motion to Enforce Discovery Orders and for Sanctions, this Court inquired of New Line's counsel why the Warner Bros. audit documents had not been produced. New Line's counsel was unable to offer any satisfactory response. Tab CC (1/23/07 Hearing Transcript) at 46:8–47:13. 47. New Line has since produced a small handful of documents in response to Wingnut's repeated motions to compel compliance with the Court's discovery orders. However, with few exceptions, New Line has not produced any correspondence, memoranda, emails, notes, work papers, or litigation or settlement documents related to the participant audits conducted by the Bank of New Zealand, Miramax, Liv Tyler, or Harper Collins. New Line has not produced a single document related to its audit of Warner Bros. Pictures. It has produced virtually no documents related to its audit of Warner Home Video. And it has produced only a small set of documents related to its audit of Warner Music Group—most of which were not produced until May 2007. 48. At the deposition of New Line's custodians of records, Mr. Horowitz testified that New Line has not made any effort to collect internal memoranda, emails, or correspondence related to the participant audits conducted by Bank of New Zealand, Harper Collins, Miramax, Liv Tyler, or Saul Zaentz. Tab X (3/28/07 Horowitz Depo.) at 211:24–212:16. Both Mr. Horowitz and New Line's other custodian, Dain Landon, admitted that they have done nothing to gather information with respect to the audits of Warner Bros. Pictures or Warner Home Video. Id. at 239:24–240:22; Tab Y (3/28/07 Landon Depo.) at 298:24–300:6. While Mr. Landon testified that a search had been performed for documents related to New Line's audit of Warner Music Group, he had no idea what, if any, documents had been collected. Tab Y (3/28/07 Landon Depo.) at 301:10–304:18. *12 49. This Court finds that New Line has not reasonably complied with the Court's order that it produce all documents related to any audit concerning Lord of the Rings. New Line has neither searched for nor produced any its internal correspondence, memoranda, emails, notes, or work papers with respect to these audits. It has not produced a single document related to the Bank of New Zealand claim dispute arbitration that is pending or has recently been concluded. And it has produced no more than a small handful of documents related to its audits of Warner Home Video, Warner Music Group, and Warner Bros. Pictures. New Line's repeated and unequivocal certifications that it has fully complied with the Court's discovery orders have been seriously misleading and obfuscatory. 3. New Line Has Withheld Documents Relating To The New Zealand Tax Subsidy 50. In its Second Request for Production of Documents, Wingnut requested that New Line produce “[a]ll DOCUMENTS that refer or relate to, and all COMMUNICATIONS regarding, any foreign tax deductions, tax credits, or other tax benefit received by DEFENDANTS in connection with THE LORD OF THE RINGS.” Tab H (Wingnut's Second Set of Requests), Request No. 49. New Line refused to produce any responsive documents. Tab I (New Line's Response Wingnut's Second Set of Requests), Response to Request 49. The Court granted Wingnut's motion to compel the production of documents responsive to Request No. 49 in its August 23 Order and required New Line to produce all responsive documents within ten days of that order. Tab J (August 23 Order). 51. Discovery has shown that New Line received substantial funds in connection with a structured New Zealand “tax deal.” New Line was represented in the tax deal by the New Zealand law firm of Simpson Grierson, which engaged in countless non-privileged communications with the government of New Zealand, the Bank of New Zealand, and other third parties on New Line's behalf. Documents held by outside counsel that pertain to work performed for a client are within the “possession, custody or control” of the client for purposes of Rule 34. See Malletier v. Dooney & Bourke, Inc., 2006 WL 3476735, at *4–5 (S.D.N.Y. Nov.30, 2006). 52. The testimony of New Line's custodian of records proves that New Line has purposefully limited its production of documents concerning the New Zealand tax deal to a single set of closing binders, and that New Line has neither collected nor produced other responsive documents, including documents in the possession its outside counsel in New Zealand. Tab Y (3/28/07 Landon Depo.) at 307:25–309:2. New Line contends that “Defendants have never received any foreign tax deduction, tax credit, or other tax benefit” and that the Court's orders with respect to Request No. 49 therefore did not encompass documents pertaining to the New Zealand transaction. However, as Wingnut notes, documents produced by New Line for the first time on February 22, 2007 show that New Line internally accounted for actual proceeds from the New Zealand tax as “Tax Deal” proceeds. See Plaintiff's Submission of Newly Produced Evidence in Opposition to Defendants' Motions for Summary Adjudication, Docket No. 368 (filed under seal). Accordingly, New Line cannot reasonably dispute that documents relating to the New Zealand tax deal are responsive to Request No. 49 and that, pursuant to this Court's August 23 Order, all documents related to that deal should therefore have been produced.[4] *13 53. Based on the foregoing, the Court finds that New Line has not complied with the Court's order that it produce all non-privileged documents related to the New Zealand tax deal. B. New Line Has Not Conducted A Reasonably Diligent Search For Electronic Documents 54. Wingnut's document requests specifically required the production not only of paper documents, but also of all forms of electronic documents. See Tab B (Wingnut's First Set of Requests), Definitions ¶ 9(d) (requesting production of “all forms and manifestations of electronically stored and/or retrieved electronic information, in all electronic media (hard drive, diskette, or tape), including but not limited to ‘e-mail.’ ” ). This Court ordered New Line to produce all documents, not simply paper documents. 55. This Court's January 24, 2007 Order specifically required New Line's custodians of records to testify regarding “defendants' record-keeping policies and procedures with respect to the categories of documents defendants have been ordered to produce in this action, including both paper and electronic documents and defendants' search for and collection of documents for production.” Tab P (January 24 Order) at 1. 56. The testimony of New Line's custodians demonstrates that New Line's efforts to locate and collect electronic documents has been less than diligent. Ken Horowitz, who was the designated custodian with respect to documents relating to participant audits of Lord of the Rings and other films, testified at his first deposition that he was not aware of any search for electronic documents on New Line's servers, on any individual's desktop or laptop computer, or otherwise. Tab S (2/8/07 Horowitz Depo.) at 130:20–131:7 & 134:10–25. At the second day of his deposition, Mr. Horowitz confirmed that no electronic search had been conducted. Tab X (3/28/07 Horowitz Depo.) at 229:25–230:11. 57. New Line's other custodian, Dain Landon, testified that he had undertaken a search of New Line's servers for documents relating specifically to merchandising agreements. Mr. Landon's “search” consisted of little more than clicking through various folders on the only two server drives he personally could access. Tab T (2/8/07 Landon Depo.) at 72:25–73:25. Mr. Landon acknowledged that he did not conduct or arrange for a server-wide search for documents containing the phrase “Lord of the Rings” or any other keywords; indeed, he did not even search for documents with “Lord of the Rings” in the title. Id. at 74:2–13 & 76:21–23. 58. New Line likewise failed to conduct any search of the company's email servers for email correspondence containing the phrase “Lord of the Rings” or any other keywords. While some individual employees were asked to collect their emails, others were not; and even those employees who did collect emails were given little or no guidance on where to search (e.g., inbox, sent items, deleted items, archived folders) or how to conduct their search (e.g., keyword searching). Indeed, of the eleven individuals Mr. Landon spoke to in preparation for the second day of his deposition, only three told him that they had even looked for emails, and Mr. Landon had no information regarding how those searches were performed. Tab Y (3/28/07 Landon Depo.) at 273:3–279:17. *14 59. This Court finds that New Line has still not performed any meaningful search for emails and other electronic documents. No emails or other electronic documents have been collected from the audit group. Mr. Landon has performed no more than a haphazard search for electronic documents, and even then only with respect to merchandising agreements and only on the servers to which he happened to have access. And no witness can say with any degree of certainty what individuals searched their own email files or how any of those searches were conducted. The most New Line's custodians can say is that any emails or electronic documents that happened to have been printed in the ordinary course of business and placed in the paper files would have been captured in the document collection (at least to the extent those paper files were ever searched). However, a search for printouts is not a search for electronic documents; it is a search for paper documents. 60. At the very least, New Line should have charged its in-house information technology professionals with responsibility to ensure that all of the company's servers and individual computers were searched, and that they were searched in a manner that was reasonably calculated to capture all responsive documents (e.g., keyword searches of electronic documents and emails). To the extent this could not be accomplished in-house, New Line should have retained an outside vendor. See Malletier, 2006 WL 3476735, at *8–9. Instead, New Line practically disregarded its obligation to produce electronic documents at all. C. New Line Did Not Suspend Its Document Destruction Policy Or Otherwise Take Adequate Steps To Preserve Documents 61. Equally concerning as New Line's scant search for emails and other electronic documents is its failure to suspend the automatic deletion of electronic documents after this dispute arose. 62. Mr. Landon testified that every employee's email in-box is purged every 30 days, and that the backup tapes are wiped clean on a weekly basis. Tab T (2/8/07 Landon Depo.) at 45:9–46:7. Mr. Landon testified that the backup tapes for other electronic documents, such as word processing files, are recycled after one year. Id. at 46:8–14. However, New Line did not suspend the automatic deletion of emails and other electronic documents as part of a litigation hold; instead, to this day, emails continue to be purged from every employee's email in-box every thirty days, and backup tapes continue to be recycled every week (for emails) or year (for other electronic documents). Tab Y (3/28/07 Landon Depo.) at 293:16–294:1. 63. As a result of New Line's failure to suspend its automatic document destruction procedures, the only email correspondence that has possibly been preserved is that which an individual employee moved from his or her in-box into a saved folder. And there is no assurance that even those emails are still accessible. A number of employees involved in the facts of this case no longer work at New Line, including the individual who negotiated the profit participant agreement at the heart of this case (Suzanne Rosencrans) and the former head of New Line's audit group (Anna Tannenbaum). Mr. Landon testified at the first day of his deposition that “once a person leaves the company, I was told by our IT department after about a month, any archived or stored e-mail is also deleted.” Tab T (2/8/07 Landon Depo.) at 55:19–56:2. Mr. Landon confirmed this at the second day of his deposition. Tab Y (3/28/07 Landon Depo.) at 246:10–21. Consequently, all of the emails that Ms. Rosencrans, Ms. Tannenbaum, or any other departing employee had saved on the company's servers have since been destroyed. *15 64. New Line attempts to defend its conduct by arguing that relevant documents were destroyed “long before this lawsuit was filed.” In particular, New Line makes much of the fact that Suzanne Rosencrans, the New Line executive who negotiated the Wingnut agreement, left the company in 2003. There are two fundamental problems with this argument. First, New Line was on notice of potential litigation years before the lawsuit was actually filed. Wingnut commenced its audit in February 2003—before Ms. Rosencrans left the company and her files were purged. There can be no doubt that New Line anticipated litigation long before the lawsuit was filed; indeed, every document authored by Mr. Rosencrans that somehow avoided deletion has been logged on New Line's privilege log as “work product,” i.e., as having been created in anticipation of litigation. Second, this litigation concerns the manner in which New Line has accounted to Wingnut from the film's release through to the present. New Line's continued purging of emails during the pendency of this litigation therefore cannot be excused. 65. Although there is no automatic purging of paper documents akin to that for electronic documents, it is apparent that New Line has not taken adequate steps to ensure that even paper documents are preserved. Mr. Landon testified that New Line has not implemented any document retention policy. Id. at 41:22–42:3. Mr. Landon also testified that New Line has no policy or guidelines, written or oral, regarding how long paper documents should be kept or maintained. Id. at 42:15–24. 66. At the first day of his deposition, Mr. Landon further testified that New Line had not taken any steps to preserve documents even after the filing of this litigation. Id. at 68:9–69:13. Mr. Landon's testimony had changed by the second day of his deposition, such that he not only knew that a document retention notice had been circulated, but he now recalled that he was the one who drafted it. Tab X (3/28/07 Landon Depo.) at 282:15–284:2. Mr. Landon's changed testimony is difficult to credit, however, given that Mr. Landon, New Line's general counsel, and numerous New Line employees have been unable to locate even a single copy of the notice, and New Line's other custodian of records, who is also the head of New Line's audit group, has no recollection of having ever received such a notice. Id. at 289:18–290:7; Tab S (2/8/07 Horowitz Depo.) at 61:5–22; Tab X (3/28/07 Horowitz Depo.) at 207:13–16. 67. In light of the foregoing, the Court finds it doubtful that any litigation hold notice was issued in this litigation. Moreover, even if such a notice had been issued, it was not heeded, as the automatic deletion of emails and other electronic documents has never been suspended. New Line's document retention efforts fall far short of what the law requires. III. SANCTIONS 68. The obvious and overall purpose of discovery under the Federal Rules is to require disclosure of all relevant information, so that the ultimate resolution of disputed issues is based on a full and accurate understanding of the facts and therefore embodies a fair and just result. See United States v. Procter & Gamble Co., 356 U.S. 677, 682, 78 S.Ct. 983, 2 L.Ed.2d 1077 (1958). The rules are intended to operate with minimal judicial involvement and to rely on the honesty and good faith of counsel in dealing with adversaries. See Rozier v. Ford Motor Co., 573 F.2d 1332, 1345 (5th Cir.1978) (“Our system of civil litigation cannot function if parties ... suppress information called for upon discovery.”). *16 69. For the discovery system to function properly, the costs of resisting discovery must be sufficiently great so that the benefits to be gained from sharp or evasive discovery practices are outweighed by the sanctions imposed when those practices are discovered. It is not enough that an offender belatedly comply with its discovery obligations; “[i]f the only sanction for failing to comply with the discovery rules is having to comply with the discovery rules if you are caught, the diligent are punished and the less than diligent, rewarded.” Poole v. Textron, Inc., 192 F.R.D. 494, 506 (D.Md.2000). 70. Wingnut has suffered three distinct forms of prejudice as a result of New Line's persistent disregard of the Court's discovery orders. First, Wingnut has been and continues to be denied access to documents that the Court has already determined are relevant to the claims and defenses in this action. Without access to the true facts, there can be no just result. Valley Eng'rs Inc. v. Electrical Eng'g Co., 158 F.3d 1051, 1058 (9th Cir.1998) (“There is no point to a lawsuit, if it merely applies law to lies. True facts must be the foundation for any just result.”). Second, New Line's failure to timely produce documents in response to Wingnut's requests and this Court's orders resulted in Wingnut being forced to complete its fact depositions of New Line's witnesses before New Line produced the lion's share of its documents; indeed, less than forty percent of New Line's entire production to date was produced prior to the August 10, 2006 discovery cutoff. Finally, Wingnut has been forced to incur substantial attorneys' fees and costs as a result of New Line's failure to comply with its discovery obligations and the discovery orders. A. Potential for Plaintiff's On–Site Access To Audit Files 71. New Line has not fulfilled its obligation to produce responsive documents from its audit files. With respect to both Lord of the Rings and other films, New Line has been ordered to produce documents related to and communications regarding participant audit claims. The orders do not distinguish between internal and external correspondence and do not exclude memoranda, notes, emails, work papers, or documents related to legal proceedings arising from participant audit claims. Yet, the head of New Line's audit group conceded that New Line has deliberately limited it searches—in the first instance to audit reports, responses, and settlement agreements, and in a subsequent search to external correspondence. 72. New Line has had no fewer than five opportunities to comply with its obligation to collect and produce all responsive third-party audit documents—first, by the compliance date set forth in the Court's August 23 Order; second, by the November 30 certification date set forth in the Court's November 7 Order; third, in advance of the custodian of records depositions ordered in the Court's January 24 Order; fourth, following Wingnut's filing of its Report on Custodian of Records Depositions and the Court's order that the custodians reappear for deposition; and fifth, in advance of this filing. Yet, New Line still has not complied. It will be afforded one final and brief opportunity. *17 73. In light of New Line's studied non-compliance with this Court's prior discovery orders, the Court has determined that Wingnut's counsel would be permitted to directly inspect and arrange for the copying of New Line's audit files on site, but only if all responsive third party documents are not produced within 21 days of the date of this Order. New Line will, of course, retain the right to withhold from inspection and copying the audit file documents—if any—that have been logged on New Line's privilege log. In the event that any individual members of the audit group, or of the broader participations and contract accounting department, have their own audit work papers, those shall also be made available for inspection and copying within 21 days. New Line shall within 21 days also provide a sworn declaration from the head of its participations and contract accounting group confirming that all such audit files have been made available for Wingnut for inspection and copying. 74. At the same time New Line produces participant audit files for inspection and copying, New Line shall also make available all files from its international distribution, home video, and music divisions relating to any ongoing or completed audits concerning Lord of the Rings. As with the participant audit files, these are files that New Line has repeatedly been ordered to produce, but from which only a small handful of documents has actually been produced. The Warner Bros. audit files made available to Wingnut for inspection and copying shall include not only department files but also any individual employee's separate work files. The files shall be made available on the same terms set forth above, and New Line shall file a sworn declaration from the president of each of the foregoing divisions within 21 days confirming that all such files have been made available to Wingnut for inspection and copying. Failing total compliance with the above orders, the court will grant plaintiff's counsel direct access to the subject files on shortened notice. B. Outside Vendor To Collect Emails And Other Electronic Documents 75. New Line's failure to perform any structured search for emails and other electronic documents from the company's servers and from individual employees' desktop or laptop computers requires a different solution. Nor does the Court have any confidence that once again ordering New Line to conduct a good faith search for electronic documents will be any more effective than it has in the past. The Court has determined that, under the circumstances here presented, New Line should be required to retain an outside vendor experienced in electronic document retrieval to collect responsive documents. 76. The Court finds the decision in Tulip Computers Int'l B.V. v. Dell Computer Corp., 2002 WL 818061 (D.Del. Apr.30, 2002), instructive. The plaintiff in Tulip, like Wingnut here, expressed concerns over a period of months “about what it perceived to be gaps in [defendant] Dell's document production” related to the issues in dispute. Id. at *2. In response, Dell “repeatedly denied that such documents existed” and “maintained that they had produced all responsive documents that they had.” Id. Then, more than nine months after plaintiff had served its requests for production, Dell disclosed for the first time the existence of an off-site warehouse containing a large number of documents that had not previously been disclosed. Id. Dell maintained that it had disclosed the existence of these documents as soon as it discovered them, and Dell ultimately provided Tulip access to the documents. Id. at *3–4. However, Tulip argued that the Court could no longer trust Dell's representations regarding its collection of other documents, including email correspondence from its employees' computers. Id. at *4. Tulip therefore sought an order requiring Dell to allow an outside vendor to conduct a search of emails from the hard drives of specified Dell executives. Id. *18 77. In granting Tulip's request for relief, the Court spoke directly to the issues we are confronted with here: Tulip seeks this [email] discovery, and contends that Dell's prior pattern of behavior in blocking discovery and inaccurately stating that no responsive documents could exist in certain places that were subsequently found to have responsive documents, causes it to doubt Dell's representation that all relevant documents have been produced.... ... ... [I]t is apparent that Dell has not fulfilled many of its basic discovery obligations in this case. Dell's failure to identify an off-site warehouse which contained responsive information, its failure to take steps to prevent the destruction of potentially responsive documents, and its inaccurate representations about the scope of discoverable information accessible in its own data warehouse indicates either a failure to take its discovery obligations with the required degree of seriousness and diligence or an extreme lack of knowledge and control over its own files and procedures. The latter seems unlikely for a party as large and sophisticated as Dell. ... The court will next turn to the e-mail based discovery that Tulip seeks. Counsel for Dell has repeatedly argued that because Tulip has not shown that Dell breached its discovery obligations with regard to e-mail, the court should not accede to Tulip's request. Dell's argument misses the mark. The history of Dell's failures to cooperate in the discovery process—and its sweeping but inaccurate positions that Tulip would never find certain documents that Tulip, through persistence and diligence, later uncovered—counsel in favor of awarding Tulip some relief that allows them to ascertain for themselves whether Dell's representations that all responsive documents have been produced are accurate. Moreover, counsel for Dell could not represent to the court that it has thoroughly searched these e-mail records for responsive information. The procedure that Tulip has suggested for the discovery of e-mail documents seems fair, efficient, and reasonable. Dell shall provide the e-mails from the hard disks of the identified executives in electronic form to [the outside vendor]. [That vendor] will search the e-mails based on an agreed upon list of search terms. Tulip will give Dell a list of the e-mails that contain those search terms, Dell will then produce the e-mails to Tulip, subject to its own review for privilege and confidentiality designations. Id. at *4–7. 78. New Line's discovery order non-compliance is more serious than the defendant in Tulip. In Tulip, there had been no prior discovery orders requiring the production of the subject documents; only compliance with the documents requests themselves was at issue. Here, by contrast, New Line has repeatedly been ordered to produce the documents. In Tulip, Dell had not certified to the court that it had conducted a diligent search for all responsive documents and that all such documents had been produced. Here, by contrast, New Line and its counsel have repeatedly certified their purported compliance with the discovery orders. In Tulip, Dell had voluntarily disclosed its discovery of an off-site warehouse containing documents that had been overlooked in its initial search. Here, by contrast, New Line has never admitted to any discovery failures, such that Wingnut has been forced to incur the time and expense of multiple motions to compel, multiple motions to enforce the discovery orders, and multiple custodian of records depositions simply to bring those failures to light. And in Tulip, there was no reason to doubt Dell's representations regarding its search for email correspondence other than the fact that Dell's representations regarding its production of other documents had proven to be inaccurate. Here, by contrast, the Court is presented not only with a record of New Line's repeated breach of its discovery obligations, but also with specific proof—in the form of custodian of records testimony—that New Line's search for electronic documents has been anything but diligent. *19 79. New Line shall be required to retain an outside vendor, to be jointly selected by the parties, within 21 days of this date, to collect electronic documents and email correspondence that are within the scope of the Court's discovery orders. The vendor shall be granted access to New Line's servers, including without limitation its email server(s), for the purpose of conducting keyword searches for responsive documents and emails. The vendor shall also be granted access to the hard drives from the desktop and laptop computers of specified employees who are connected with this dispute for the purpose of conducting keyword searches. All documents and emails collected by the outside vendor may be reviewed by New Line for privilege and confidentiality designations; however, no documents identified by the vendor may be withheld on relevance grounds. 80. The vendor shall prepare a log of all collected documents so that Wingnut can confirm that all such documents are either produced or logged. In the event that the parties are unable to agree upon the identity of the outside vendor, the search protocol, or the individual employees whose desktop and laptop computers will be provided for inspection, those disputes should be promptly submitted to the Court for resolution. New Line shall bear all costs and expenses of the outside vendor. C. Production Of Documents By New Line's Outside Counsel In New Zealand 81. As discussed above, the testimony of New Line's custodian shows that New Line did not collect all documents related to the New Zealand tax deal, as the Court has ordered, but instead directed its outside counsel in that transaction, Simpson Grierson, to produce only the closing binders from the transaction. This is easily remedied. New Line shall produce, and shall direct Simpson Grierson to, produce all responsive documents, withholding only those documents that have been logged on New Line's privilege log. Wingnut will treat all produced documents as “Attorneys' Eyes Only” unless the parties agree upon or the Court orders that a different confidentiality designation shall apply. D. Poential Depositions Regarding Late–Produced And Destroyed Documents 82. Wingnut has requested that New Line be ordered make its previously-deposed fact witnesses available for questioning in light of New Line's late-produced documents and failure to implement an effective litigation hold and to suspend its automatic email destruction practices during the pendency of this litigation. 83. Although the court reserves ruling on this request, the Court concludes that targeted additional depositions likely will be warranted and that, following compliance with the other portions of this Order, the court will likely will order that New Line shall make its previously-deposed fact witnesses available, at its sole expense, for examination regarding (1) documents produced on or after the discovery cutoff and the matters identified therein; and (2) any documents that have been destroyed as a result of New Line's failure to implement an effective litigation hold or to suspend its automatic email destruction practices during the pendency of this litigation. E. Monetary Sanctions *20 84. Wingnut is entitled to reimbursement of much of the substantial costs it has incurred as a result of New Line's failure to timely comply with this court's discovery orders. Rule 37(b)(2) provides that, in addition to the other sanctions the court may in its discretion impose, “the court shall require the party failing to obey [an] order or the attorney advising that party or both to pay the reasonable expenses, including attorney's fees, caused by the failure.” Fed.R.Civ.P. 37(b)(2). Except where the offender's conduct was “substantially justified” or an award of expenses is otherwise “unjust”—neither of which describes the present case—Rule 37 sanctions are mandatory and “must be applied diligently both ‘to penalize those whose conduct may be deemed to warrant such a sanction, [and] to deter those who might be tempted to such conduct in the absence of such a deterrent.’ ” National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 43 (1976) (per curiam ). 85. Sanctions are likewise mandatory under Rule 26(g), which requires that counsel make a reasonable investigation and effort to certify that the client has provided all information and documents available to it which are responsive to a discovery request—something that New Line's counsel has plainly failed to do here. Fed.R.Civ.P. 26(g)(3) (When Rule 26(g) is violated without substantial justification, “the court ... shall impose upon the person who made the certification, the party on whose behalf the disclosure, request, response, or objection is made, or both, an appropriate sanction, which may include an order to pay the amount the reasonable expenses incurred because of the violation, including a reasonable attorney's fee.” Fed.R.Civ.P. 26(g)(3) (emphasis added). The court finds without equivocation that defendants' actions have been without substantial justification. 86. This Court has considered the sobering, though plausible, award of attorneys' fees and costs sought by Wingnut in connection, specifically, in regard to the 1) Renewed Motion to Enforce Discovery Orders, 2) the Custodian of Records Depositions, 3) and the current Motion, as set forth in Mr. Klieger's August 21, 2007 Declaration, and finds them to be substantially reasonable. Despite this court's prior reticence to impose sanctions, at a minimum there was no substantial justification for requiring Wingnut to go through the exercise of 1) the Renewed Motion, 2) the Custodian of Record Depositions, or 3) filing of the current Motion (and the Opposition to Defendants' Motion). However, the court affords defendant the opportunity to challenge the reasonableness of plaintiff's billings as to the three items listed above. 87. Based on the foregoing, this Court GRANTS Wingnut's Motion for Sanctions and orders as follows: A. Within twenty-one (21) days of the date of this Order, New Line shall produce all audit files on the terms set forth in paragraphs 73 and 74 of this Order; *21 B. Within twenty-one (21) days of the date of this Order, New Line shall retain, at its expense, an outside vendor, to be jointly selected by the parties, to collect electronic documents and email correspondence that are within the scope of the Court's discovery orders in accordance with paragraphs 79 and 80 of this Order; C. New Line shall produce, and shall direct Simpson Grierson to produce, all responsive documents within twenty-one (21) days of the date of this Order, withholding only those documents that have been logged on New Line's privilege log. Wingnut shall treat all such documents as “Attorneys' Eyes Only” unless the parties agree upon or the Court orders that a different confidentiality designation shall apply; D. Following the completion of the electronic document collection and production, Wingnut may move on shortened notice to make New Line's previously-deposed fact witnesses available for examination regarding (1) documents produced on or after the discovery cutoff and the matters identified therein; and (2) any documents that have been destroyed as a result of New Line's failure to implement an effective litigation hold or to suspend its automatic email destruction practices during the pendency of this litigation; and E. Within ten (10) days of the date of this Order, defendants shall file any additional Opposition as to why a reasonable, substantial portion of Wingnut attorneys' fees and costs in the appropriate amount of $125,000 should not be imposed as sanctions on defendants. The Opposition shall be limited to addressing Mr. Klieger's Declaration, and the related billing records. F. Defendants' Cross–Motion is DENIED. IT IS SO ORDERED. Footnotes [1] On the same date, this Court issued a second Order, which required New Line to produce, inter alia, all documents regarding communications with Time Warner or other Time Warner subsidiaries, including Warner Bros., regarding the lawsuit and the disputes that are the subject thereof and damages-related documents for all accounting periods through the date of trial. Tab F (7/14/06 Order Re Plaintiff's Motion to Compel Production of Documents). A day earlier, this Court had granted Plaintiff's Motion to Compel Production of Non–Redacted Documents. Tab G (7/13/06 Order Re Plaintiff's Motion to Compel Production of Redacted [2] New Line asserts, without any supporting citation, that “many of those documents concern properties that were released before 1995” and that therefore of all outside the scope of the discovery. Joint Stipulation Re Cross–Motions for Sanctions, at 46. However, no 1995 cutoff appears in either the discovery request nor the Court's orders. Moreover, New Line's custodian specifically testified that he many audit files relating to properties released before 1995 have been moved to off-site storage, and therefore are not part of the “many, many file cabinets of many drawers each.” Tab X (3/28/07 Horowitz Depo.) at 237:12–238:6. [3] New Line asserts, again without any supporting citation, that many of the documents in the “many, many file cabinets of many drawers each” concern audits for which no audit claims were ever received. Joint Stipulation Re Cross–Motions for Sanctions, at 46. However, New Line's custodian, who is also the head of New Line's audit group, was unable to identify even one film that has been audited but as to which no audit claims were made. Tab X (3/28/07 Horowitz Depo.) at 197:15–24. [4] New Line notes that, based on its previous denial that proceeds from the New Zealand transaction were tax benefits, Wingnut propounded a request for production directed to agreements with the Bank of New Zealand with respect to Lord of the Rings. Although New Line refused to produce all documents responsive to that request, that in no way excuses New Line's obligation to comply fully with Request No. 49. This is especially so in light of the fact that New Line's refusal came several weeks before the Court's August 23 Order. Once that order issued, New Line was required to comply.