Xerox Corporation v. Conduit Global, Inc.

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF NEW YORK

XEROX CORPORATION,

DECISION AND ORDER

Plaintiff/Counterclaim Defendant,

6:21-CV-06467 EAW

v.

CONDUIT GLOBAL, INC.,

Defendant/Counterclaimant.

INTRODUCTION

Plaintiff Xerox Corporation (“Plaintiff”) commenced this diversity action on or

about July 2, 2021, arising from the termination of an Outsourcing Agreement it had with

defendant Conduit Global, Inc. (“Defendant”). (Dkt. 1).

Presently pending before the Court are two motions: (1) Defendant’s appeal of a

decision issued by United States Magistrate Judge Mark W. Pedersen that awarded

attorneys’ fees and costs to Plaintiff and motion to stay enforcement of that fee award (Dkt.

88) and (2) Defendant’s motion to seal (Dkt. 89). For the following reasons, the appeal is

denied and motion to stay is denied as moot (Dkt. 88) and motion to seal (Dkt. 89) is

granted.

BACKGROUND

Pursuant to the Outsourcing Agreement between the parties, Defendant was to

provide Plaintiff with customer service call center support and other IT services. (Dkt. 1

at ¶ 1). After Defendant suffered a widespread ransomware attack that impacted Plaintiff’s

ability to communicate with customers and partners in March of 2020, Plaintiff terminated

the Outsourcing Agreement, citing Defendant’s failure to meet its contractually-prescribed

services. (Id. at ¶ 3). Plaintiff then commenced this action, seeking a declaratory judgment

that its termination of the Outsourcing Agreement was valid, and that Plaintiff is not

obligated to pay any termination fees and is entitled to damages for Defendant’s breach.

(Id. at ¶ 4).

On September 7, 2023, Judge Pedersen issued a Decision and Order on a motion to

compel filed by Defendant and a cross-motion for a protective order filed by Plaintiff.

(Dkt. 73). Thereafter, the parties each filed motions for attorneys’ fees and costs incurred

in connection with the discovery motions. (Dkt. 74; Dkt. 75). On July 26, 2024, Judge

Pedersen issued a Decision and Order granting Plaintiff’s motion for fees and denying

Defendant’s motion without prejudice to renew. (Dkt. 86).

On August 9, 2024, Defendant filed the instant appeal of the July 26, 2024 Decision

and Order and accompanying motion to stay enforcement of the fee award (Dkt. 88), and

motion to seal (Dkt. 89). Plaintiff opposed Defendant’s appeal and motion to stay but

consented to Defendant’s motion to seal. (Dkt. 91; Dkt. 92; Dkt. 93).

DISCUSSION

I. Appeal of Magistrate Judge Decision and Order and Motion to Stay

A. Legal Standard—Rule 72(a)

The standard of review with respect to Defendant’s appeal is highly deferential—

the Magistrate Judge’s determinations at issue are non-dispositive, and therefore they may

be set aside only if clearly erroneous or contrary to law. See, e.g., Eisai Ltd. v. Dr. Reddy’s

Labs., Inc., 406 F. Supp. 2d 341, 342 (S.D.N.Y. 2005) (“Under Fed. R. Civ. P. 72(a), a

District Court may set aside a Magistrate Judge’s determination on a ‘[n]ondispositive

[m]atter[ ]’ only if that determination is ‘clearly erroneous or contrary to law.’ Discovery

rulings . . . are nondispositive matters subject to that standard of review.” (alterations in

original)). “[A] district court may reverse the order only if on the entire evidence, the

district court is left with the definite and firm conviction that a mistake has been

committed.” Rodriguez v. Pie of Port Jefferson Corp., 48 F. Supp. 3d 424, 425 (E.D.N.Y.

2014) (quotations and citations omitted); see also Khaldei v. Kaspiev, 961 F. Supp. 2d 572,

575 (S.D.N.Y. 2013) (explaining that an order “is contrary to law if it fails to apply or

misapplies relevant statutes, case law or rules of procedure” (quotation omitted)); Flaherty

v. Filardi, No. 03 Civ. 2167(LTS)(HBP), 2009 WL 749570, at *19 (S.D.N.Y. Mar. 20,

2009) (“The clearly erroneous standard is highly deferential, and magistrate judges are

afforded broad discretion in resolving non-dispositive disputes. . . .” (quotations, citation,

and alterations omitted)), aff’d, 460 F. App’x 66 (2d Cir. 2012).

B. Judge Pedersen’s Award of Attorneys’ Fees is Affirmed

On September 7, 2023, Judge Pedersen issued a Decision and Order on a motion to

compel filed by Defendant and a cross-motion for a protective order filed by Plaintiff.

(Dkt. 73). The discovery motions arose from disputes between the parties over discovery

demands served by Defendant seeking Plaintiff’s policy documents, including all

documents related to Plaintiff’s data security policies and any analysis or assessment of the

same.1 The policy documents sought pursuant to the discovery requests at issue included

documents reflecting the application of Plaintiff’s policies not only as applied to

Defendant, but also with respect to Plaintiff’s internal assessments of those policies and its

communications with two other providers of telephony services to Plaintiff. (Dkt. 88 at 5-

7; Dkt. 91-1 at 10-11). Defendant argued that these documents were relevant and necessary

to develop evidence of applicable standards for providers of telephony services to Plaintiff.

Defendant also served discovery requests pertaining to a separate unrelated ransomware

cyber-attack Plaintiff suffered. (Dkt. 88 at 10). Plaintiff cross-moved for a protective

order, arguing that the separate ransomware attack was not relevant to Defendant’s claims

and defenses. (Dkt. 91-1 at 11-12). Judge Pedersen granted Defendant’s motion to compel

in part by compelling production of a limited set of policy documents to the extent they

were applied to Defendant but otherwise denied the remaining portions of the motion.

Judge Pedersen also granted Plaintiff’s cross-motion for a protective order in full. (Dkt.

73). No party appealed Judge Pedersen’s Decision and Order resolving the discovery

motions.

Thereafter, the parties were permitted to submit briefing seeking an award of costs

on the motions. Defendant moved for $74,143.60 in attorneys’ fees pursuant to Federal

1 Specifically, these document requests sought production of “1. All Documents

Concerning [Xerox’s] policies rules, requirements and procedures relating to data security,

including but not limited to [Xerox’s] policies, rules, requirements and procedures

referenced in Section 20.1 of the Outsourcing Agreement,” and “2. All Documents

Concerning any analysis or assessment of [Xerox’s] policies, rules, requirements, and

procedures relating to data security, including but not limited to [Xerox’s] policies, rules,

requirements and procedures referenced in Section 20.1 of the Outsourcing Agreement.”

(See Dkt. 86 at 5).

Rule of Civil Procedure 37(a)(5)(A) (Dkt. 74) and Plaintiff cross-moved for $51,951.20 in

reasonable expenses, including attorneys’ fees, pursuant to Rule 37(a)(5)(C) and/or Rule

37(a)(5)(B) (Dkt. 75).

Rule 37(a)(5) governs an award of sanctions in connection with a motion

compelling disclosure or discovery and provides in relevant part:

(5) Payment of Expenses; Protective Orders.

(A) If the Motion Is Granted (or Disclosure or Discovery Is Provided After

Filing). If the motion is granted--or if the disclosure or requested discovery

is provided after the motion was filed--the court must, after giving an

opportunity to be heard, require the party or deponent whose conduct

necessitated the motion, the party or attorney advising that conduct, or both

to pay the movant’s reasonable expenses incurred in making the motion,

including attorney’s fees. But the court must not order this payment if:

(i) the movant filed the motion before attempting in good faith to obtain the

disclosure or discovery without court action;

(ii) the opposing party’s nondisclosure, response, or objection was

substantially justified; or

(iii) other circumstances make an award of expenses unjust.

. . .

(C) If the Motion Is Granted in Part and Denied in Part. If the motion is

granted in part and denied in part, the court may issue any protective order

authorized under Rule 26(c) and may, after giving an opportunity to be heard,

apportion the reasonable expenses for the motion.

Fed. R. Civ. P. 37(a)(5). “Rule 37(a)(5) ‘applies to [an] award of expenses’ made in

connection with an application for a protective order.” FD Special Opportunities V, LLC

v. Silver Arch Cap. Partners, LLC, No. 21CV0797(JLR)(OTW), 2022 WL 17730098, at

*1 (S.D.N.Y. Dec. 15, 2022) (quoting Fed. R. Civ. P. 26(c)(3)).

“Despite the compulsory language in Rule 37, ‘a district court has wide discretion

in sanctioning a party for discovery abuses.’” Smith v. Fischer, No. 13-CV-6127-FPG,

2019 WL 4750548, at *2 (W.D.N.Y. Sept. 30, 2019) (quoting Reilly v. Natwest Mkts. Grp.

Inc., 181 F.3d 253, 267 (2d Cir. 1999)). In reaching a determination as to the

appropriateness of an award of expenses, a court should consider the three exceptions listed

in the rule at subsections (i) through (iii). See Wager v. G4S Secure Integration, LLC, No.

1:19-cv-03547-MKV-KNF, 2021 WL 293076, at *3 (S.D.N.Y. Jan. 28, 2021). “Whether

a party was substantially justified in resisting discovery is determined by ‘an objective

standard of reasonableness and does not require that the party have acted in good faith.’”

Holloway v. City of New York, No. 21 CV 3858 (AMD)(CLP), 2024 WL 4333761, at *4

(E.D.N.Y. Sept. 27, 2024) (quoting Jindan Wu v. Seoul Garden, Inc., No. 16 CV 3613,

2018 WL 507315, at *8 (E.D.N.Y. Jan. 22, 2018)). Substantial justification exists “where

there is justification to a degree that could satisfy a reasonable person that parties could

differ as to whether the party was required to comply with the disclosure request, or if there

exists a genuine dispute concerning compliance.” Id. (quoting Hong v. JT Home

Management LLC, No. 18 CV 2612, 2023 WL 6609303, at *1 (E.D.N.Y. Sept. 20, 2023)).

Further, “[t]he imposition of Rule 37(a)(5) sanctions for failure to comply with discovery

demands must be weighed in light of the full record.” S.E.C. v. Yorkville Advisors, LLC,

No. 12 Civ. 7728(GBD)(HBP), 2015 WL 855796, at *3 (S.D.N.Y. Feb. 27, 2015).

In his July 26, 2024 Decision and Order on the fee motions, Judge Pedersen

concluded that because Plaintiff successfully opposed the bulk of Defendant’s motion to

compel and had its motion for protective granted in full, it was entitled to most of its

requested attorneys’ fees. (Dkt. 86 at 14). He largely rejected Defendant’s argument that

its motion to compel and opposition to the protective order were “substantially justified”

and had a reasonable basis in law and fact, concluding that Plaintiff’s policies were not

ambiguous “about the yardstick against which Conduit’s performance would be measured”

(id. at 24) and did not require the extrinsic evidence sought by Defendant to determine their

meaning, as Defendant argued. After employing the lodestar calculation, the Court

awarded Plaintiff $42,527.50 in fees (id. at 44) and denied Defendant’s motion for fees

with leave to renew (id. at 45-46). Defendant then filed the instant appeal of Judge

Pedersen’s decision and requested an interim stay of enforcement of the fee order pending

adjudication of the appeal.

The record reflects that Judge Pedersen concluded that Plaintiff attempted in good

faith to meet and confer with Defendant prior to filing its motion for a protective order,

which Defendant does not contest on this appeal.

In addition, Judge Pedersen’s conclusions about whether Defendant’s position was

substantially justified were sufficiently sound and not clearly erroneous or contrary to law.

Defendant argues that the policies are capable of more than one interpretation and that

contractual terms such as “adequate,” “appropriate,” or “acceptable” cannot be determined

as a matter of law and require fact-finding including expert testimony about industry

standards or examples of other security controls. But Judge Pedersen concluded that to

comply with the Outsourcing Agreement, Defendant “needed to adhere to industry

standards, current legal obligations, and Xerox policies,” and Defendant’s discovery

requests were not relevant to that assessment. (Id. at 24-25). Judge Pedersen explained his

reasoning for concluding that only the category of documents relating to the security

policies that Plaintiff claimed Defendant breached were relevant and why the remaining

requests propounded by Defendant lacked sufficient justification. The Court does not find

that Judge Pedersen’s determination on this point was clearly erroneous or contrary to law.

Finally, the Court cannot discern, nor has Defendant identified, any other

circumstances that would make an award of expenses unjust. Plaintiff filed information

documenting the time spent preparing its motion papers and attached an itemized schedule

detailing the hours worked by timekeeper. (Dkt. 75-3). Defendant does not challenge the

reasonableness of the fees on the instant appeal.

Accordingly, for the foregoing reasons, the Court denies Defendant’s appeal of the

Magistrate Judge’s determination that Plaintiff is entitled to attorneys’ fees in connection

with the discovery motions because it has not been established that the determination was

clearly erroneous or contrary to law.

C. Motion to Stay

In its motion, Defendant argued that the Court should stay enforcement of the fee

order pending adjudication of the appeal. But because the Court has affirmed Judge

Pedersen’s decision, and because in any event Defendant satisfied the judgment in the

amount of $42,527.50 on August 28, 2024 (see Dkt. 91 at ¶ 6), this portion of Defendant’s

motion is denied as moot.

II. Motion to Seal

Finally, Defendant moves to seal very limited portions of its memorandum in

support of its appeal. As noted, Plaintiff joins in this request for relief.

“In considering a motion to seal, the court undertakes a three-part analysis. First,

the court must determine whether the document is in fact a judicial document. . . . Second,

once the Court finds that the document is a ‘judicial document, the court must determine

the weight of the presumption that attaches. . . . Third, once the Court has determined the

weight to accord the presumption of public access, it must determine whether competing

considerations outweigh the presumption.” Spectrum Dynamics Med. Ltd. v. Gen. Elec.

Co., No. 18CV11386(VSB)(KHP), 2023 WL 7126251, at *1 (S.D.N.Y. Oct. 30, 2023)

(quotations and citations omitted). To overcome the presumption of public access to

judicial documents, the Court must make “specific, on-the-record findings that sealing is

necessary to preserve higher values” and any sealing order must be “narrowly tailored to

achieve that aim.” Lugosch v. Pyramid Co. of Onondaga, 435 F.3d 110, 124 (2d Cir. 2006).

Because the information sought to be redacted here was submitted to the Court in

support of a motion to appeal a magistrate determination on a discovery motion, the

information constitutes a judicial document entitled to a presumption of public access.

Brown v. Maxwell, 929 F.3d 41, 50 (2d Cir. 2019) (documents “submitted in connection

with, and relevant to, [] judicial decision-making [on motions to compel and quash] are

subject to at least some presumption of public access.”). “This, however, ‘does not

necessarily mean that those documents meet the ‘higher threshold imposed by the First

Amendment with respect to judicial documents.’” Samsung Elecs. Co. v. Microchip Tech.

Inc., No. 1:24-MC-00269 (GHW), 2024 WL 4169353, at *3 (S.D.N.Y. Sept. 12, 2024)

(quoting Kewazinga Corp. v. Microsoft Corp., No. 18-CV-04500 (GHW), 2021 WL

1222122, at *7 (S.D.N.Y. Mar. 31, 2021)). “[M]aterials submitted in connection with non-

dispositive motions, including discovery motions, are entitled to a weaker but ‘still

substantial’ presumption of public access.” Disability Rts. Connecticut, Inc. v. Connecticut

Dep’t of Correction, No. 3:21-CV-146(KAD), 2024 WL 3963782, at *7 (D. Conn. Aug. 28,

2024); see also Conservation L. Found., Inc. v. Shell Oil Co., No. 3:21-CV-00933 (JAM),

2023 WL 5567614, at *2 (D. Conn. May 16, 2023) (“When the document was placed before

the court as an exhibit to a discovery motion, the presumption of access typically ‘has only

‘modest’ weight[.]’” (citation and quotation omitted)).

In this instance, the parties have identified specific countervailing factors to

overcome the presumption of public access due to the confidential and proprietary nature

of the information. New York Knicks, LLC v. Maple Leaf Sports & Ent. Ltd., No. 23-CV-

7394 (JGLC), 2024 WL 3237563, at *13 (S.D.N.Y. June 28, 2024) (“The demonstration of

a valid need to protect the confidentiality of sensitive business information, such as pricing

and compensation information, may be a legitimate basis to rebut the public’s presumption

of access to judicial documents.” (citation omitted)). The Court also finds that the

proposed redactions are narrowly tailored to protect the confidential information contained

therein without impeding the public’s ability to understand the issues before the Court on

the pending motions. Accordingly, Defendant’s motion to seal is granted. The Court will

arrange for the sealing of the unredacted memorandum on the docket.

CONCLUSION

For the foregoing reasons, Defendant’s appeal of Judge Pedersen’s ruling (Dkt.88)

is denied, motion to stay is denied as moot, and motion to seal (Dkt. 89) is granted.

SO ORDERED. 7)

:

L C tC

LIZABETH A. WOLFORD

Chief Judge

United States District Court

Dated: February 24, 2025

Rochester, New York

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