IBM- Reply in Support of its Motion to Compel Compliance with March 16, 2012 Order and for Sanctions for Noncompliance

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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

IBM’S REPLY IN SUPPORT OF ITS MOTION TO COMPELCOMPLIANCE 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 Court’s 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

IBM’s motion to compel compliance with the Order and for sanctions for

noncompliance (“Motion”) addresses QSGI’s ongoing failure to comply with the Court’s 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 IBM’s discovery requests. QSGI

does not even address its failure to provide substantive responses to IBM’s first set of

interrogatories (“Interrogatories”) seeking the basic factual premises of QSGI’s purported

Case 9:11-cv-80880-KLR Document 77 Entered on FLSD Docket 05/11/2012 Page 1 of 13



claims. And QSGI admits that over a month since the Court’s deadline for the production of

documents, it still has not yet completed its production—indeed, having only produced a mere

fraction of its intended production. QSGI offers no legitimate excuse for its failure to comply

with the Court’s Order. The several million documents that QSGI plans belatedly to produce

have at all relevant times been in QSGI’s possession (in the hands of its SEC counsel).

Moreover, QSGI’s stated plan to dump these documents on IBM (without responsiveness

review and in noncompliant format) is neither a valid written response to IBM’s Interrogatories,

nor does it discharge QSGI’s obligations pursuant to the Court’s Order to produce documents

responsive to IBM’s Document Requests (collectively, “Discovery Requests”). QSGI’s failure

to respond completely to the Interrogatories or complete its document production substantially

prejudices IBM’s ability to prepare its defense. QSGI brought this suit, and it must meet its

discovery obligations and comply with this Court’s 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 Court’s Order within a week of the Court’s

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 Order—over a month and counting

after the deadline for QSGI to respond completely to outstanding discovery. QSGI’s Response

omits even to address its failure to provide responses to IBM’s 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).

QSGI’s uncontested and continuing failure to comply with the Court’s Order to provide




complete responses to IBM’s Interrogatories alone warrants sanctions.1

Through these

Interrogatories, IBM seeks answers to straightforward questions concerning fundamental

aspects of QSGI’s 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 QSGI’s 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)

1 QSGI incorrectly disparages IBM’s 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 IBM’s Motion,

none of which QSGI disputes, demonstrates IBM’s extensive good-faith efforts to engage QSGI prior tofiling this Motion. Specifically, IBM called QSGI on April 19, 2012 to discuss QSGI’s noncompliance

with the Order, but QSGI did not return IBM’s phone call. Mot., p. 10. IBM’s correspondence and

request for conference also went unanswered, including correspondence on March 31, 2012 (outlining

the deficiencies in QSGI’s 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 IBM’s

Document Requests); April 2, 2012 (requesting access to the boxes of documents produced to the SEC);

April 11, 2012 (requesting complete responses to IBM’s Discovery Requests, confirmation on whether

QSGI has completed its document production, information regarding QSGI’s noncompliant production

and access to the documents produced to the SEC); and April 23, 2012 (requesting a meet and confer

concerning QSGI’s noncompliance with the Order). Id . at pp. 9-10.

2

For example, IBM’s Interrogatories request information regarding the factual bases of QSGI’sallegation 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).

3QSGI initially provided a partial substantive response to one Interrogatory—Interrogatory No. 8—

concerning document destruction and retention. Subsequent to IBM filing its Motion, however, QSGI’sdesignated corporate representative on those issues testified that QSGI’s response describing QSGI’s

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 QSGI’s counsel effectively to withdraw that response, on

the purported basis that the interrogatory response is unverified and “still hasn’t been resolved”. Id. at

88:7-11. Per the Court’s 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 court’s

order requiring responses to document requests and answers to interrogatories).

Furthermore, QSGI not only admits, but touts, its noncompliance with the Court’s 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.) QSGI’s forthcoming production,

which will come over a month after the Court’s deadline, apparently will comprise several

million documents. (May 11, 2012 Diessel Decl. ¶ 9.)4

Surely QSGI’s counsel knew prior to

April 2, 2012 that it had several million documents of outstanding document production. No

doubt QSGI’s 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 QSGI’s 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.,

4 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 QSGI’s

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 QSGIdocuments, IBM anticipates that a large volume of additional QSGI documents are yet to be produced.May 11, 2012 Diessel Decl. ¶ 11.

5QSGI mischaracterizes IBM’s communication with QSGI as a “sea of correspondence” purportedly the

result of IBM’s 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 IBM’s phone calls. For example, QSGI failed to respond to

multiple phone calls made by IBM in an effort to resolve outside of court QSGI’s 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 QSGI’s 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 Defendant’s failure to comply with the

Court’s order [to serve responsive documents] or to seek an extension of time to comply”). 6

B. QSGI’s Self-Inflicted Difficulties Do Not Excuse its Noncompliance.

QSGI contends that its noncompliance with the Court’s Order “was not QSGI’s 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 “QSGI’s documents and records have been in the possession and control of

. . . QSGI’s SEC counsel, McDonald Hopkins LLC”. ( Id.) QSGI offered identical excuses in

opposing IBM’s initial motion to compel, which the Court did not credit.7

These excuses are

equally unavailing here.

QSGI’s representation that its documents were in the possession of QSGI’s SEC counsel

is irrelevant and misleading. Documents in the possession of QSGI’s SEC counsel are within

QSGI’s 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 party’s 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.

6QSGI’s 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 non-compliance 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.

7There, 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 “QSGI’s

documents were in the possession, custody and control of QSGI’s 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 suit—and at least

shortly thereafter—counsel 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 QSGI’s existing documents”. ( Id . ¶ 6.)

Indeed, these documents are conspicuous as one of the only sources of QSGI documents

remaining following QSGI’s 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 Court’s Order for QSGI to carry out its obligation to collect and

produce its purported universe of existing documents.

With respect to QSGI’s representation that certain QSGI documents were until recently

in the possession of the SEC, this circumstance is due entirely to QSGI’s 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

8March 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 IBM’s 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 QSGI’s warehouse). ( Id . ¶ 10.) QSGI claims that it has an

agreement with the SEC that precludes copying of documents at a vendor’s location. ( Id .)

9 QSGI’s 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 QSGI’s resale of used mainframes would have been retained . . . at the

Minnesota facility, correct? A. Yes. Q. Information relating to QSGI’s . . . prospective sale of used

mainframes would have been stored . . . in the Minnesota facility? A. Correct. Q. And information

relating to QSGI’s inventory of used IBM mainframes would have been stored . . . in QSGI’s Minnesotafacility, correct? A. Correct . . . Q. So documents relating to QSGI’s strategy concerning its usedmainframe 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, whenits CEO, Marc Sherman, was supposedly in charge of document retention. See id. at 137:2-4 (“Q. So

you and Mr. Meynarez were running QSGI’s 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 QSGI’s 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

IBM’s 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.) QSGI’s restrictions on these documents

effectively forecloses IBM’s ability to use these documents for purposes of this litigation. (May

11, 2012 Diessel Decl. ¶ 10.)

C. QSGI’s 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 Court’s Order. (Resp. ¶ 6.) QSGI is incorrect. The Court

ordered QSGI to respond completely to IBM’s Interrogatories. The production of documents is

a separate matter from, and would not satisfy, QSGI’s 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 QSGI’s purported claims.

Furthermore, QSGI’s proposed belated production of several million documents is

improper and does not discharge QSGI’s 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 IBM’s specific requests through its future production of the entire “known universe

10QSGI 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 IBM’s request that QSGI copy

selected documents and provide them to IBM. Id .




of QSGI’s existing documents”, see Resp. ¶ 6, without any review for responsiveness to IBM’s

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 QSGI’s 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 IBM’s 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 [defendant’s] request”). QSGI should be ordered to review these documents for

responsiveness to IBM’s Document Requests and to produce these documents in the agreed

format that can efficiently be reviewed by IBM.12

Even assuming that QSGI’s promised production of documents fulfilled QSGI’s

obligations pursuant to the Order (which it does not), that would not absolve QSGI’s material

11 QSGI’s counsel informed IBM’s 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 IBM’s Document Requests. May 11, 2012 Diessel Decl. ¶ 9. Indeed, during the

deposition of QSGI’s 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 QSGIhas 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 agreedto these terms and is bound by the parties’ agreement. IBM has produced a large volume of documents

in response to QSGI’s 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 QSGI’s 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 Court’s Order. QSGI’s 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. Commc’ns, 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, IBM’s discovery from QSGI has barely even begun. With

QSGI’s destruction of relevant documents and planned deluge of irrelevant material, the

prejudice to IBM in preparing its defense is significant. QSGI’s 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 QSGI’s 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 Court’s prior Order within one week of the date of the Court’s order on the

instant Motion, order that QSGI’s forthcoming electronic document production be reviewed for

responsiveness to IBM’s Document Requests and produced in the agreed, compliant format, and

impose sanctions upon QSGI for its noncompliance.




Dated: May 11, 2012

Respectfully submitted,

/s/ Laura Besvinick____________Laura Besvinick

Florida Bar No. 391158

HOGAN LOVELLS US LLP200 South Biscayne Blvd.Suite 400

Miami, FL 33131

Telephone: 305-459-6500

Facsimile: [email protected]

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: [email protected]

[email protected]

[email protected]

Ty Cobb*Eric J. Stock*

HOGAN LOVELLS US LLP

Columbia Square

555 Thirteenth Street, NWWashington, DC 20004

Telephone: 202-637-5600

Facsimile: 202-637-5910

[email protected]

[email protected]

*Admitted Pro Hac Vice

Counsel for Defendants IBM Global

Financing and International Business

Machines Corporation




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 Firm4000 Ponce de Leon Blvd

Suite 700

Miami, FL 33146Phone: 305-375-0111

Fax: 305-379-6222

Case A. Dam

Ferraro Law Firm

4000 Ponce de Leon Blvd

Suite 700

Miami, FL 33146Phone: 305-375-0111

Fax: 305-379-6222

Email: [email protected]




Case 9:11-cv-80880-KLR Document 77-1 Entered on FLSD Docket 05/11/2012 Page 1 of 4












EXHIBIT 1




In The Matter Of:

QSGI, INC.v.

IBM GLOBAL FINANCING, et al.

___________________________________________________

DAVID HARRIS ‐ Vol. 1 May 7, 2012

___________________________________________________




DAVID HARRIS - 5/7/2012

1-800-325-3376 www.merrillcorp.com/laMerrill Corporation - New York

Page 80

1 THE WITNESS: The -- the GFI mail

2 recovery? I'm not sure when that started.

3 BY MR. DIESSEL:

4 Q. Did that mail archive include every email

5 that was sent and received to a QSGI employee during

6 the period in which it was in use?

7 A. Yes.

8 Q. Were emails ever deleted on that mail

9 archive?

10 A. No.

11 Q. How were emails added to that mail

12 archive?

13 A. The QSGI email?

14 Q. I'm referring now to the mail archive on

15 the SQL server.

16 A. Okay. The software automatically captured

17 them.

18 Q. When did the software automatically

19 capture those emails?

20 A. I don't know the exact details, but the

21 mail server had a process where the emails were in

22 transit and the software caught them in transit to

23 the mail server and recorded it. That was both the

24 Minnesota server and the New Jersey manufacture.

25 Q. And if someone subsequently deleted an






Page 81

1 email from his or her mailbox, would that action be

2 propagated to the mail archive?

3 MR. DAM: Objection, form.

4 THE WITNESS: Absolutely not.

5 BY MR. DIESSEL

6 Q. And why not?

7 A. It's two independent processes.

8 Q. I would like to hand you what I have

9 marked as Exhibit 11.

10 (Thereupon, the referred-to document was

11 marked by the court reporter for Identification

12 as Deposition Exhibit 11.)

13 BY MR. DIESSEL:

14 Q. You can feel free to read the whole

15 document or leaf through it, but I'm going to be

16 asking you about the last page, the last question.

17 Just tell me when you're ready.

18 A. Okay.

19 Q. Do you see this document, Exhibit 11, is

20 entitled, "Plaintiff's Unverified Response to

21 Defendants' IBM and IBM Global Financing's First Set

22 of Interrogatories"?

23 A. Yes.

24 Q. I'll represent to you that these are a

25 series of questions, numbered questions, that IBM






Page 82

1 asked of QSGI, and then information following

2 answer, colon, is QSGI's response.

3 A. Okay.

4 Q. I would like to ask you about the question

5 No. 8, which asks QSGI to identify the facts and

6 circumstances relating to any documents including,

7 but not limited to, documents in storage facilities

8 that QSGI destroyed, discarded or otherwise failed

9 to preserve since January 1, 2007.

10 Do you see that?

11 A. Yes.

12 Q. And I want to focus you in on a specific

13 part of QSGI's response dealing with email

14 archiving. I would like to turn to page 6. I will

15 read the part of the response that I want to ask you

16 about.

17 Three lines from the top, page 6, QSGI's

18 response states: "Company emails were archived at

19 13-month-end and year-end to DLT tapes which were

20 maintained at the New Jersey facility located at 70

21 Lake Drive, Hightstown, New Jersey."

22 Do you see that?

23 A. Yes.

24 Q. Is that accurate?

25 MR. DAM: Objection to form. Outside the






Page 83

1 scope of this notice.

2 THE WITNESS: It wasn't my practice that

3 period.

4 BY MR. DIESSEL:

5 Q. And what was your practice during that

6 period?

7 A. Okay. So let's cover it in the areas that

8 it should be covered in.

9 The emails, first, you already know that

10 everybody's PST was captured as they were

11 terminated.

12 The GFI mail archiver was ongoing,

13 captured all the sends and receives.

14 And then I guess there's the normal backup

15 practice, probably not part of necessarily just the

16 mail server, but all servers were backed up daily

17 over the years.

18 Of course, there was the transition from

19 DLT to LTO tapes.

20 Again, they were done daily. There was

21 the daily tapes remained intact until a full week,

22 weekend backup took place, at which time the daily

23 tapes were reused.

24 The weekly tapes remained intact until a

25 month-end backup was taken. The month-ends were






Page 84

1 held on until an annual backup was taken.

2 And the annuals should all still exist.

3 Probably better wording would be: Not be reused.

4 And the DVD's referred to in the mail

5 backups, they were never reused. They were in

6 storage.

7 Q. What was the time period during which this

8 backup process that you described was being

9 performed?

10 A. It started after the merger.

11 Q. And you're referring to the merger of

12 Qualtech and QSGI?

13 A. Yes.

14 Q. And did there come a point in time when

15 QSGI stopped performing this backup?

16 A. No. These were all tape libraries that --

17 it was automated right to the end.

18 There's one other detail added to the

19 backup process. There was an exchange of tapes.

20 This process for the tapes was also done in

21 Minnesota for their servers.

22 Q. Are you describing that there were two

23 different backup processes for the servers in

24 Minnesota and New Jersey?

25 A. Not processes, but the -- well, it depends






Page 85

1 on how you refer to a process. But this process was

2 done in both sites.

3 Q. Let's start with the process, the backup

4 process being performed in Minnesota.

5 What servers did that process back up?

6 A. The file server and the mail server.

7 Q. Specifically, the Minnesota backup process

8 backed up the Minnesota file server and mail server?

9 A. Uh-huh.

10 Q. And I take it the New Jersey backup

11 process backed up the New Jersey file server and

12 mail server, correct?

13 A. Correct.

14 Q. Was there a backup process for the SQL

15 server and accounting server?

16 A. Oh, yeah. All of the New Jersey servers.

17 You didn't add those.

18 Q. Marc Sherman testified at his prior

19 testimony that QSGI started its backup process

20 sometime in 2007. Is that consistent with your

21 understanding?


23 THE WITNESS: Again, I'm confused by the

24 whole timeframe today with the 2004.

25






Page 86

1 BY MR. DIESSEL:

2 Q. Is there anywhere that you could look, any

3 document you could look at that would tell you when

4 QSGI instituted its backup process?

5 MR. DAM: Object to the form.

6 THE WITNESS: I can't think of one.

7 BY MR. DIESSEL:

8 Q. Is there any way at all to determine when

9 QSGI instituted its backup process?

10 A. This process in some form, from 2002 to

11 2009, was in place.

12 Q. So the 2002 precedes QSGI's acquisition of

13 Qualtech, right?

14 A. Right.

15 Q. So was there a different process in place

16 in 2002?

17 A. No. It was the same retention.

18 Q. What was the process that was being

19 employed in 2002?

20 A. What I have described already.

21 Q. Well, Mr. Harris, I believe your testimony

22 earlier was this process commenced with QSGI --

23 after QSGI's acquisition of Qualtech, so I'm trying

24 to understand what the process was before and after

25 the acquisition.






Page 87

1 Do you understand what I'm getting at?

2 MR. DAM: Object to the form.

3 THE WITNESS: Yes.

4 BY MR. DIESSEL:

5 Q. What was the process that QSGI was using

6 for backup, if any, prior to the Qualtech

7 acquisition?

8 A. So for the server backups, the second half

9 of what I mentioned is what is -- was done from

10 2002, the tape backups.

11 Q. So is it your understanding that QSGI

12 conducted annual -- created annual tape backups of

13 its servers from 2002 until bankruptcy?

14 A. Yes.

15 Q. And were any of those annual tapes ever

16 reused?

17 A. They weren't supposed to be, if they were.

18 Q. Were any of those annual tapes ever

19 discarded?

20 A. No, not that I know of.

21 Q. So there were two sets of tapes: Tapes in

22 Minnesota relating to the mainframe resale business,

23 correct?

24 A. Yes.

25 Q. And tapes in New Jersey relating to the






Page 88

1 other aspects of the company, correct?

2 A. Yes.

3 Q. Now, the interrogatory answer that you

4 were referring to before refers only to tapes

5 maintained at the New Jersey facility.

6 Do you see that?

7 MR. DAM: Objection, form. It's an

8 unverified interrogatory response. And

9 objection, it still hasn't been resolved. At

10 this point, I would claim that that is not an

11 admission.

12 BY MR. DIESSEL:

13 Q. Where are the Minnesota backup tapes?


15 THE WITNESS: Part of our process for the

16 tapes was to exchange tapes between Minnesota

17 and New Jersey. I can't say when that process

18 started. I can't say when it stopped. It did

19 stop before the bankruptcy took place due to a

20 lack of staff to physically exchange tapes.

21 But then they were each left at their

22 respective facilities.

23 BY MR. DIESSEL:

24 Q. Now, what do you mean by there was a tape

25 exchange program? What does that refer to?






Page 89

1 A. The weekly backups from New Jersey would

2 be sent to Minnesota, the weekly backups from

3 Minnesota would be sent to New Jersey, for storage,

4 in the event of some disaster.

5 Q. So is it the case that the Minnesota tapes

6 were ultimately sent to New Jersey for storage?


8 THE WITNESS: They were sent there for a

9 period of time, yes.

10 BY MR. DIESSEL:

11 Q. And what's the period of time during which

12 they were sent to New Jersey for storage?

13 A. They would only reside there until the

14 following week's tape.

15 Q. And then -- and then what would happen to

16 those tapes thereafter?

17 A. They would be returned to the respective

18 site and reused.

19 Q. So where were the annual Minnesota tapes

20 stored?

21 A. Honestly, they were at each site.

22 Q. So the Minnesota annual tapes would be

23 stored in Minnesota?

24 A. Yes.

25 Q. And the New Jersey annual tapes were






Page 90

1 stored in New Jersey?

2 A. Yes.

3 Q. Do you have an understanding that QSGI

4 lost documents from a New Jersey facility during its

5 bankruptcy?

6 A. Lost documents?

7 Q. Do you have an understanding that QSGI

8 lost documents from a Minnesota storage facility

9 during bankruptcy?

10 MR. DAM: Objection to form. Outside the

11 scope of this notice, or at least what this

12 witness is being presented for.

13 THE WITNESS: No.

14 BY MR. DIESSEL:

15 Q. Where are the annual Minnesota tapes

16 today, Mr. Harris?

17 A. I was terminated and left them in place.

18 Q. You left them in place in Minnesota?

19 A. Yes.

20 Q. As you sit here right now, you have no

21 idea where the Minnesota tapes are, correct?

22 A. No.

23 Q. You don't even know if they still exist,

24 correct?

25 A. I do not.






Page 91

1 Q. In fact, for all you know, those tapes

2 were destroyed?

3 MR. DAM: Objection, form, argumentative.

4 Don't answer that question.

5 MR. DIESSEL: What is your basis?

6 MR. DAM: You're asking him to completely

7 speculate on a topic that he has no knowledge

8 of.

9 MR. DIESSEL: He's free to --

10 MR. DAM: He's not qualified to answer

11 that question. He's not being put for that

12 purpose. It is outside the scope of this

13 notice. I will be happy to file a motion for

14 protective order on that question.

15 If you have a different question, sure.

16 MR. DIESSEL: Well, I would forward

17 your --

18 MR. DAM: This deposition is for discovery

19 purposes, correct, not for you to testify?

20 MR. DIESSEL: Well, Case, unless you're

21 instructing on the basis of privilege, I don't

22 think your instruction is proper.

23 MR. DAM: You're asking him to totally

24 speculate. It's not evidence. You're asking

25 him to guess as a fact witness. He's not an






Page 92

1 expert. There's so many things wrong with that

2 question, I don't think the Court would be

3 inclined to disagree with me.

4 MR. DIESSEL: Well, you made your

5 objection on the record. All I'm saying is

6 that your instruction not to answer is

7 obstructionist and improper.

8 MR. DAM: And it is outside of the scope

9 of this notice. He has no knowledge. He's

10 already said that.

11 BY MR. DIESSEL:

12 Q. Where are the New Jersey annual backup

13 tapes, Mr. Harris?

14 A. I left them in New Jersey when I left the

15 building.

16 Q. Whose responsibility was it during

17 bankruptcy to maintain the annual backup tapes?

18 MR. DAM: Objection, form. No foundation.

19 THE WITNESS: Myself and Eric.

20 BY MR. DIESSEL:

21 Q. And there came a point in time when you

22 were no longer employed by QSGI during bankruptcy,

23 correct?

24 A. Right.

25 Q. And during that period of time, who, if






Page 93

1 anyone, was responsible for the annual backup tapes?

2 MR. DAM: Objection, form, asked and

3 answered.

4 THE WITNESS: During what time?

5 BY MR. DIESSEL:

6 Q. During the point of the QSGI bankruptcy?


8 THE WITNESS: While all of the proceedings

9 were going on, it was still me and Eric.

10 BY MR. DIESSEL:

11 Q. Despite you weren't employed by QSGI, you

12 were still in charge of the backup tapes; is that

13 your testimony?


15 THE WITNESS: Maybe I don't understand the

16 bankruptcy process, then.

17 BY MR. DIESSEL:

18 Q. Sure. Mr. Harris, you testified earlier

19 that from September 2009 until the beginning of

20 January, you were not employed by QSGI.

21 Do you recall that?

22 A. Correct, yes.

23 Q. Who was in charge of the backup tapes

24 during that period of time?

25 A. No clue as to what happened.






Page 94

1 Q. Did QSGI conduct any investigation to

2 determine the whereabouts of these backup tapes?


4 THE WITNESS: I haven't.

5 BY MR. DIESSEL:

6 Q. Well, you're here as QSGI's corporate

7 representative, so I'm asking you, did QSGI do

8 anything to determine the whereabouts of these

9 backup tapes?

10 MR. DAM: If you know.

11 THE WITNESS: I haven't. I don't know.

12 BY MR. DIESSEL:

13 Q. What is Arcserve?

14 A. That was the backup software we were

15 using.

16 Q. Is that a product by Computer Associates?

17 A. Yes.

18 Q. What is the time period during which

19 Arcserve was being used for archival purposes?

20 A. The entire time I was there.

21 Q. What is the purpose of Arcserve?

22 A. It's the software that talks to the

23 operating systems and captures the file systems.

24 Q. Is it software that's used for disaster

25 recovery?






Page 95

1 A. That also, yes.

2 Q. Are there other aspects to Arcserve beyond

3 disaster recovery?

4 A. Just general file restoration.

5 Q. Sir, referring to back to the

6 interrogatory answer, do you have an understanding

7 as to what process, if any, was undertaken with

8 respect to archiving at 13-month-end?

9 A. I don't really know what that means. It's

10 not a statement I would have made.

11 Q. And do you have an understanding as to

12 what archiving process was conducted at year-end to

13 DLT tapes which were maintained at the New Jersey

14 facility?

15 A. Again, I don't know what this statement

16 means.

17 Q. Is that statement accurate?


19 THE WITNESS: Not in my opinion.

20 BY MR. DIESSEL:

21 Q. Is it complete?


23 THE WITNESS: I don't believe it's

24 accurate. It doesn't describe anything I did.

25






Page 96

1 BY MR. DIESSEL:

2 Q. Now, Arcserve, your testimony was, was to

3 back up QSGI's servers, correct?

4 A. Yes.

5 Q. And which parts of QSGI's servers did it

6 back up?

7 A. Operating system. All of the files. The

8 entire server.

9 Q. Is it your testimony that every file on

10 each server was backed up using Arcserve?


12 THE WITNESS: That's what its purpose was.

13 BY MR. DIESSEL:

14 Q. Is that, in fact, how it was used by QSGI?

15 A. Yes.

16 Q. Now, there came a point in time when QSGI

17 sold parts of its mainframe business to Joel Owens,

18 correct?

19 MR. DAM: Objection, form. Outside the

20 scope of this notice.

21 THE WITNESS: I don't know.

22 BY MR. DIESSEL:

23 Q. You do know that there came a point in

24 time when QSGI left the used mainframe business,

25 correct?






Page 159

1 MR. DAM: We can present our objections at

2 any time prior to you asking a question.

3 MR. DIESSEL: Well, then, we can continue

4 the deposition until we get answers to all of

5 the notice questions. We still haven't

6 received, following continuation of a

7 deposition that first took place in March, we

8 still haven't received answers to most of our

9 questions.

10 MR. DAM: Again, maybe if you list all of

11 your questions and type them up for us, then we

12 can have our witnesses properly prepared.

13 Second of all --

14 MR. DIESSEL: Case, you know we're not

15 entitled to type up --

16 MR. DAM: Hey, I'm making my record, so

17 why don't you pipe down, okay?

18 One, you know full well that two very

19 important witnesses in this case have been

20 subpoenaed by you. All right? And they have

21 information relevant to this lawsuit. They are

22 filling in the gaps that are missing. All

23 right? Unfortunately, they're not employees of

24 QSGI anymore.

25 We're trying to put together people who






Page 160

1 can answer questions that are related to your

2 notice, as well the questions that you have

3 listed out, the topics that you have listed

4 out. Okay?

5 MR. DIESSEL: Well, Case, the function of

6 a deposition notice is we put you on notice as

7 to topics. We're not required to type out a

8 list of questions for you to answer. That's

9 what interrogatories are for.

10 Your obligation is to produce a witness

11 that can give complete testimony on all the

12 notice topics. That's what we're entitled to.

13 MR. DAM: Ask him what he knows and what

14 he doesn't know.

15 MR. DIESSEL: I tried to ask, and I've

16 found that the witness is both unprepared and

17 you've been peppering this deposition with

18 scope objections which are completely

19 unfounded.

20 MR. DAM: I have to preserve my record.

21 What about my objections that are improper?

22 MR. DIESSEL: Well --

23 MR. DAM: You're asking him questions that

24 are outside of the scope that we are presenting

25 him for on behalf of QSGI.






Page 161

1 MR. DIESSEL: Well --

2 MR. DAM: According to the law, I have to

3 make these objections, because should you try

4 to use this testimony at trial for impeachment

5 purposes or whatnot, my objection is preserved,

6 and it will be subject to a motion in limine.

7 I'm not doing anything improper.

8 MR. DIESSEL: We'll look forward to

9 continuing this deposition with someone that

10 knows something about the sources from which

11 QSGI produced documents to the SEC and all the

12 other topics that we have yet to receive --

13 MR. DAM: You guys are going to have every

14 single document that QSGI has ever generated

15 within a matter of the next couple of days.

16 So I'm sure you guys are going to have a

17 team of 40 attorneys combing through that, and

18 you'll find out all of the information you need

19 to. QSGI is not here to hide anything, despite

20 your assertions to the contrary.

21 THE VIDEOGRAPHER: Stand by, please. This

22 is the end of Videotape No. 3 in the deposition

23 of Mr. David Harris. We are going off the

24 record at 1:12 p.m.

25






Page 162

1 (Thereupon, a recess was taken, after

2 which the following proceedings were held:)

3 THE VIDEOGRAPHER: We are back on the

4 record. Here begins Videotape No. 4 in the

5 deposition of Mr. David Harris. The time

6 1:48 p.m.

7 BY MR. DIESSEL:

8 Q. Mr. Harris, I'm going to hand you what I

9 have marked as Exhibit 13.

10 (Thereupon, the referred-to document was

11 marked by the court reporter for Identification

12 as Deposition Exhibit 13.)

13 BY MR. DIESSEL:

14 Q. Exhibit 13 is an April 20 letter from

15 McDonald Hopkins to Benjamin Diessel and Teena

16 Sankoorikal.

17 Do you see that?

18 A. I see it.

19 Q. Who is McDonald Hopkins?


21 THE WITNESS: Law firm. A law firm.

22 BY MR. DIESSEL:

23 Q. And they are a law firm that represents

24 QSGI, correct?





EXHIBIT 2




In The Matter Of:

QSGI,INC.,etal.v.

IBMGLOBALFINANCING,etal.

___________________________________________________

MARCSHERMANVol.1

March12,2012

___________________________________________________




MARC SHERMAN - 3/12/2012

1-800-325-3376 www.merrillcorp.com/lawMerrill Corporation - New York

Page 61

1 Q. Is it the case that QSGI's documents

2 relating to its mainframe resale business would have

3 been included, if at all, in the hard copy documents

4 of Minnesota?

511:41:34 A. Repeat the question again.

6 Q. Yeah. So where would QSGI's hard copy

7 documents relating to its mainframe resale business

8 have been stored?

9 A. Transactional data?

1011:41:47 Q. Well, for example, you said that sales

11 orders relating to the mainframe resale business

12 were stored in Minnesota.

13 A. Correct. Yes.

14 Q. What other categories of documents relating

1511:41:56 to the mainframe resale business were stored in

16 Minnesota?

17 A. It would be their resale contracts, their

18 parts, their orders, just the things that would run

19 their day-to-day operation that would either create

2011:42:09 a purchase order or a sales order or invoice was

21 stored within their documents.

22 Q. So is it the case that documents relating to

23 QSGI's sale of the zSeries mainframes would have

24 been stored at the facility in Minnesota?

2511:42:26 A. Yes.






Page 62

1 Q. And those documents would not have been

2 stored at the New Jersey facility, correct?

3 A. The actual sales transaction documents would

4 not be stored in New Jersey, but the overall revenue

511:42:38 and the dollars and cents documents would have been

6 stored in New Jersey. The consolidated financials

7 would end up in New Jersey.

8 Q. Setting aside the consolidated financials,

9 information relating to QSGI's resale of used

1011:42:51 mainframes would have been retained, if at all, in

11 the Minnesota facility, correct?

12 A. Yes.

13 Q. Information relating to QSGI's -- any

14 prospective sale of used mainframes would have been

1511:43:06 stored, if at all, in the Minnesota facility?

16 A. Correct.

17 Q. And information relating to QSGI's inventory

18 of used IBM mainframes would have been stored, if at

19 all, in QSGI's Minnesota facility, correct?

2011:43:24 A. Correct.

21 Q. And information relating to QSGI's

22 strategies relating to its used mainframe business

23 would have been stored, if at all, in its Minnesota

24 facility, correct?

2511:43:35 A. Not correct.






Page 63

1 Q. Where else would that have been stored?

2 A. Those are e-mails. Once again, a lot of the

3 strategic business plans and things like that were,

4 you know, dynamic e-mails that would go back between

511:43:46 Joel myself and Seth and Ed, and we would talk about

6 the business and the growth, about the overall

7 things that you would discuss in trying to grow and

8 build a business. So that wasn't necessarily a

9 storage item in the file, that was more

1011:44:00 correspondence between parties.

11 Q. And I would like to focus just on -- I would

12 like to set aside the e-mails and focus on the

13 categories of documents that we have been talking

14 about, just the hard copy documents. Can we do

1511:44:12 that?

16 A. Sure.

17 Q. So documents relating to QSGI's strategy

18 concerning its used mainframe business would have

19 been stored, if at all, in its Minnesota facility,

2011:44:25 correct?

21 MR. BAUTA: Objection. Form.

22 A. Primarily, yes.

23 Q. When you say "primarily" is there any other

24 physical location where those documents could have

2511:44:33 been stored?






Page 64

1 A. You know, I had a document that was a

2 PowerPoint presentation that discussed the mainframe

3 business and the growth and the degradation of the

4 business. So I had a copy of a PowerPoint that I

511:44:46 gave to Juan as well.

6 So for the most part documentation was

7 stored in Minnesota. If it was pertaining to

8 financial records, hard copy financial records,

9 maybe one or two other documents were copied and I

1011:45:00 ended up with a copy of it for review or Seth ended

11 up with a copy of it for review. That wasn't a

12 storage item.

13 Q. And the PowerPoint that you are talking

14 about, is that an example of an electronic document

1511:45:13 or hard copy document?

16 A. It was an electronic document that was

17 printed.

18 Q. So I would like to focus on QSGI's -- well,

19 I think let me stop and pause. I think we were

2011:45:25 speaking before about where, if at all, QSGI would

21 have stored hard copy documents relating to its

22 business. Do you recall that?

23 A. Yes.

24 Q. And I believe, and you can correct me or

2511:45:39 give a different answer now if you want to, but my






Page 86

1 retention period, the Minnesota documents at least

2 were destroyed, right?

3 MR. BAUTA: Objection to form.

4 A. Correct.

512:09:34 Q. How many documents were destroyed at the

6 Minnesota facility?

7 A. I have no idea.

8 Q. Is it hundreds of boxes?


1012:09:49 Q. Is there anyone that would know how many

11 documents were destroyed at the New Jersey facility?

12 A. New Jersey facility?

13 Q. Sorry, the Minnesota facility.

14 A. I don't know.

1512:10:01 Q. But I guess aside from the specific

16 quantity, all of QSGI's hard copy documents relating

17 to the day-to-day activity of its mainframe resale

18 business were destroyed during that gray area in

19 QSGI's record retention period, right?

2012:10:22 MR. BAUTA: Objection to form.

21 A. Well, I said we never preserved the

22 day-to-day hard copy documents, so I don't know why

23 you keep going back to it.

24 Q. Okay. So aside from -- let's just start

2512:10:34 over, then.






Page 87

1 I would like to get a sense of what

2 documents were destroyed during that gray area of

3 records retention period. One of the things that

4 you testified was destroyed during a gray area

512:10:54 records retention period was the Minnesota hard copy

6 documents, correct?


8 A. The Minnesota hard copy documents were

9 destroyed sometime in 2009 when paying the bill was

1012:11:12 out of our control.

11 Q. And is it also the case that QSGI lost

12 servers during that gray area period as well?

13 A. There were servers that were sold with some

14 of the assets.

1512:11:31 Q. And you are referring to the asset sale to

16 SMS?

17 A. Yes.

18 Q. Outside of the asset sale to SMS, were there

19 any servers that QSGI lost during that gray area

2012:11:44 records retention period?

21 A. There was another New Jersey server that was

22 also sold to another company. It was actually sold

23 to Victory Park. The lender credit bid and they

24 ended up with the assets as well.

2512:12:01 Q. So other than the sale of certain servers,






Page 88

1 are there any other servers that QSGI lost during

2 this gray area of its record retention?

3 A. No.

4 Q. Are there any other documents that QSGI lost

512:12:29 during the gray area of its record retention?


7 A. I have no idea. The question is so broad I

8 don't even know the answer to the question.

9 Q. You don't know whether QSGI destroyed any

1012:12:44 documents during its bankruptcy?


12 A. We never intentionally destroyed any

13 documents.

14 Q. Do you know whether QSGI unintentionally

1512:12:54 destroyed any documents during its bankruptcy?


17 A. We never intentionally destroyed any

18 documents.

19 Q. So my question was whether QSGI

2012:13:06 unintentionally destroyed documents during

21 bankruptcy?

22 A. If it was unintentional we wouldn't have

23 known.

24 MR. BAUTA: Mr. Sherman, no speculating.

2512:13:21 THE WITNESS: Oh, sorry.






Page 103

1 database.

2 Q. So other than CRM and the templates and the

3 e-mail, what other information was on these servers?

4 A. That's all that I can recall.

513:24:03 Q. Did you do anything in preparation of this

6 deposition to investigate what was on those servers?

7 A. No, I did not.

8 Q. Where are those servers today?

9 A. One is -- one was sold to Victory Park, and

1013:24:20 the other one was sold to SMS.

11 Q. Anything on those servers -- strike that.

12 QSGI did not make any backup or copy of

13 those servers before providing them to SMS and

14 Victory Park, right?

1513:24:31 A. Correct.

16 Q. So any e-mails or documents on those servers

17 for purposes of this lawsuit are gone, right?

18 A. The Court actually requested the documents,

19 the backup tapes back from Victory Park, and that's

2013:24:51 how we were able to get back the documents that

21 we -- the e-mails and everything that we have.

22 Q. Were these archives on these two servers

23 that you are describing?

24 A. I'm not sure.

2513:25:04 Q. So other than the e-mail archive, which you,






Page 104

1 I guess, aren't sure -- you are not sure that the

2 e-mail archive was on these two servers, right?

3 A. I'm not sure.

4 Q. So for purposes of this lawsuit, whatever

513:25:25 was on those servers is gone?


7 A. Yes.

8 Q. Is there any correspondence or documentation

9 that would show what QSGI kept on the servers?

1013:25:45 A. Repeat the question.

11 Q. Is there any documentation or correspondence

12 that would describe what information QSGI kept on

13 the servers?

14 A. No.

1513:25:57 Q. When you say that the servers included all

16 the information that QSGI used to manage and run its

17 business, what years did that cover?

18 A. Can you be more specific with the question?

19 Q. Sure. You testified before that these two

2013:26:19 servers included information and documentation that

21 QSGI used to manage and run its business, correct?

22 A. Correct.

23 Q. Did these servers include information and

24 documents that QSGI used to run its business in the

2513:26:35 2007 time frame?






Page 105

1 A. I don't know. Can you start over with the

2 question one more time, please?

3 Q. Sure. My question is in what --

4 THE WITNESS: Let me turn this off.

513:27:04 Q. Let's come at this another way, Mr. Sherman,

6 and you can tell me when you are ready.

7 A. One second.

8 Q. What years were these two servers in use?

9 A. They were in use from the starting of the

1013:27:23 company and the acquisition of Qualtech to the time

11 that they were taken off line and sold with the

12 assets of those two respective businesses.

13 Q. So that would be roughly the year 2000 to

14 the year 2009?

1513:27:39 A. If that's the dates, yes.

16 Q. You don't have any reason to think that

17 those dates are incorrect, do you?


19 A. If you tell me that those are the dates,

2013:27:50 I...

21 Q. So regardless of the specific dates, those

22 servers were used to house QSGI's documents and

23 information that it needed to manage and run its

24 business during the point in time that QSGI was

2513:28:06 operating as a business, correct?






Page 106

1 A. Correct.

2 Q. And QSGI provided the servers that contains

3 the only copy of that information to Victory Park

4 and SMS?

513:28:17 MR. BAUTA: Objection. Form.

6 A. We didn't provide them. They were taken.

7 Q. So the only servers that contain that

8 information were taken by QSGI and provided to --

9 A. No. Start over again.

1013:28:30 Q. Yeah. Again, just for the benefit of the

11 court reporter, we have to try not to get on top of

12 each other with the questions and answers.

13 I will start from the top and we will go

14 through. So those two servers contain all of the

1513:28:48 documents and information that QSGI used to run and

16 manage its business during the time period when QSGI

17 was in business?


19 A. Yes.

2013:28:56 Q. And QSGI -- strike that.

21 And those two servers are no longer in the

22 possession of QSGI, correct?

23 A. Correct.

24 Q. QSGI didn't make a copy or backup of any of

2513:29:09 the documents or information on that server,






Page 107

1 correct?

2 A. Correct.

3 Q. QSGI has no ability to access the documents

4 or information that were on those servers, correct?

513:29:18 A. Correct.

6 Q. Just to complete the record, QSGI provided

7 one of the servers to SMS pursuant to an asset sale,

8 correct?

9 A. Correct.

1013:29:57 Q. What is the reason why the second server was

11 provided to Victory Park?

12 A. They bought the assets of the New Jersey

13 facility, the credit assets, from the data security

14 side of the business.

1513:30:10 Q. Did Victory Park acquire any other assets

16 from the New Jersey facility other than that server?

17 A. They bought all the assets that were part of

18 the data security compliance business.

19 Q. That would include the books and records,

2013:30:29 correct?

21 A. That would include the books and records.

22 Q. QSGI didn't make any copies of those books

23 and records before it provided them to Victory Park,

24 correct?

2513:30:36 A. QSGI did not have access to those records.






Page 108

1 Q. And QSGI never made any copy of those books

2 and records before it provided them to Victory Park?

3 A. Correct.

4 Q. As to SMS, QSGI as part of that asset sale

513:30:56 provided all the books and records relating to its

6 hardware division to SMS, correct?

7 A. Correct.

8 Q. It provided every document relating to its

9 hardware division to SMS, correct?

1013:31:07 A. I don't know every document. I can't

11 speculate.

12 Q. Well, at least it provided every book,

13 record, and document relating to its hardware

14 division to SMS, correct?

1513:31:26 A. All the available documents that came with

16 the business in the purchase.

17 Q. So all of the available documents -- so in

18 2009 QSGI sold the assets comprising its hardware

19 division to SMS, right?


21 A. Correct.

22 Q. So all the records, documents, and

23 information that QSGI had relating to the hardware

24 division in 2009 transferred to SMS, correct?







Page 109

1 A. Correct.

2 Q. QSGI didn't make any copies of the books,

3 records, and documents before it provided them to

4 SMS, correct?


6 A. The only copies that we have are the copies

7 that were electronic.

8 Q. And you are referring to the e-mails?

9 A. E-mails and anything that resided on the

1013:32:15 copies from the tapes.

11 Q. So I appreciate that. My question wasn't

12 about the e-mails. My question is about the books,

13 records, and information that you provided to SMS

14 pursuant to the asset sale. Can we stay on that,

1513:32:28 please?

16 A. Sure.

17 Q. So did QSGI make any copies of any of the

18 books, records, or documents before transferring

19 them to SMS?


21 A. Not that I know of.

22 Q. So as far as this lawsuit is concerned, the

23 books, records, and documents relating to QSGI's

24 hardware division are gone, right?







Page 110

1 A. Correct.

2 THE WITNESS: Can I speak to you for a

3 second?

4 MR. BAUTA: Sure. Do you want to take a

513:32:58 break?

6 THE WITNESS: Yeah.

7 MR. BAUTA: Sure.

8 THE VIDEOGRAPHER: Off the video record at

9 1:32.

1013:33:05 (Recess taken)

11 THE VIDEOGRAPHER: Back on the record at

12 1:37.

13 CONTINUED DIRECT EXAMINATION

14 BY MR. DIESSEL:

1513:38:22 Q. We were talking a second ago about the QSGI

16 CRM?

17 A. Yeah.

18 Q. I'm not sure if we talked about the years

19 during which that was in place. Is it the case that

2013:38:33 QSGI used that CRM database during the time in which

21 QSGI was in business?

22 A. We always had some type of a database for

23 managing names. We went from rolodex to database.

24 Q. Do you have -- when did QSGI start using the

2513:38:51 database?






Page 111

1 A. I don't know exactly. I wasn't a user of

2 it, so I don't know the exact date, but I know we

3 had it for our employees.

4 Q. Would it have been 2002?

513:38:59 A. I don't know the answer to that.

6 Q. Would it have been before 2005?

7 A. I don't know.

8 Q. Would it have been before 2007?

9 A. I would imagine so.

1013:39:14 Q. QSGI is currently using it, right?

11 A. QSGI currently uses a database, yes.

12 Q. Where is the rolodex?

13 A. What's the question?

14 Q. Where is the rolodex of customer

1513:39:29 information?

16 A. Where is the rolodex of customers? I don't

17 know.

18 Q. So there is two sources of customer

19 information that QSGI has had while it's been in

2013:39:49 business, a rolodex and the CRM database, right?

21 A. I used that as an example. I said before

22 CRM there was such a thing as a rolodex.

23 Q. What did QSGI use for its customer

24 information before CRM?

2513:40:04 A. I don't know.






Page 136

1 Q. What is this document?

2 A. It's our plan of reorganization that was

3 sent to the Bankruptcy Court.

4 Q. Do you see at the top of the page there is

514:08:23 some information including a page number?

6 A. Yeah.

7 Q. Can you turn to page 22 of the document,

8 please.

9 A. Okay.

1014:08:40 Q. Do you see a heading titled "Current

11 Management"?

12 A. Um-hm.

13 Q. And it says, "Since the bankruptcy filing,

14 Marc Sherman and David J. Meynarez have been running

1514:08:53 the Debtors' reorganization, and facilitating the

16 Chapter 11 case in the following ways."

17 Do you see that?

18 A. Um-hm.

19 Q. And then it lists some of the things that

2014:09:03 you and Mr. Meynarez have been doing to run the

21 reorganization. Do you see that?

22 A. Um-hm.

23 Q. And six lines into that paragraph the first

24 two words are "document retention." Do you see

2514:09:13 that?






Page 137

1 A. Um-hm.

2 Q. So you and Mr. Meynarez were running QSGI's

3 document retention during this bankruptcy, correct?

4 A. To the best that we could.

514:09:45 Q. You couldn't always do as good of a job as

6 you would have hoped, right?

7 A. I don't understand your question.

8 Q. Yeah, so I asked if you and Mr. Meynarez

9 were running QSGI's document retention, and you have

1014:10:03 testified "the best that we could."

11 A. The best that we could.

12 Q. You guys did the best job preserving the

13 documents that you were able to?

14 A. Once we were able to isolate the documents,

1514:10:13 we were able to get our -- we could do what we could

16 do with the documents that we had.

17 Q. And there were some things that you couldn't

18 do?

19 A. Correct.

2014:10:17 Q. What are some of the things that you and

21 Mr. Meynarez couldn't do?

22 A. We couldn't get our hands on all the

23 documents because some of the documents were

24 destroyed.

2514:10:24 Q. What were the documents that were destroyed?






Page 138

1 A. The documents that were in Minnesota.

2 Q. What other documents were destroyed?

3 A. That's all that I know of. Anything that

4 was on the server that we couldn't get our hands on.

514:10:40 Once again, I don't know exactly what's on the

6 backup tapes.

7 Q. Who are Kinetic Advisors?

8 A. Kinetic Advisors was the company that we

9 used to help us through our bankruptcy.

1014:11:18 Q. You worked with Kinetic Advisors?

11 A. Yes, we worked with Kinetic Advisors.

12 Q. Did you specifically work with Kinetic

13 Advisors?

14 A. Yes.

1514:11:25 Q. Who is Rich Cartoon?

16 A. Richard Cartoon was one of our advisors on

17 the bankruptcy.

18 Q. Did Rich Cartoon work for Kinetic Advisors?

19 A. Yes, he did.

2014:11:35 (Document marked as Exhibit 5

21 for identification)

22 Q. I would like to hand you what's been marked

23 as Exhibit 5. For the record, this document is

24 entitled "Summary of First Interim Application of

2514:11:50 Kinetic Advisors, LLC for Compensation and






Page 157

1 Q. When you refer to essential documents, are

2 you, again, just referring to financial documents

3 and contract documents?

4 A. Yes.

514:34:40 Q. So other than the financial documents and

6 contract documents that QSGI produced to the SEC,

7 all of QSGI's other hard copy documents have been

8 destroyed, correct?

9 A. Whatever was in the boxes in the New Jersey

1014:34:55 facility are still somewhere to be had.

11 Q. Those are the documents that you are

12 referring to that were SEC, correct?

13 A. Correct.

14 Q. QSGI doesn't have the ability to access

1514:35:07 those documents, correct?

16 A. You mean the ones that are at the SEC right

17 now?

18 Q. Yes.

19 A. When they send them back to us. When they

2014:35:16 send them back to us we will have it.

21 Q. I'm going to go back to my question. Other

22 than the financial documents and the contract

23 documents that QSGI produced to the SEC, all of

24 QSGI's other hard copy documents have been

2514:35:28 destroyed, correct?






Page 158


2 A. Correct.

3 Q. QSGI does not have the right or the

4 authority to access the financial and contract

514:35:40 documents that it produced to the SEC, correct?


7 I'm going to instruct you not to answer. I

8 think that calls for a legal opinion at a

9 minimum, at a minimum. So if you know the

1014:35:53 answer, great. If not, I instruct you not to

11 answer. Don't guess.

12 A. What was the question again?

13 Q. Does QSGI have the authority to access the

14 financial and contract documents that it produced to

1514:36:09 the SEC?

16 A. No.

17 Q. So for purposes of this lawsuit, QSGI has no

18 hard copy documents at all, correct?


2014:36:16 A. Correct.

21 Q. What's the status of the SEC investigation?

22 MR. BAUTA: I'm going to object and instruct

23 you not to answer.

24 It's beyond the scope of this witness's

2514:36:40 designation.






Page 159

1 MR. DIESSEL: Well, I recall on your

2 response you represented that those documents

3 had been produced to the SEC, documents which

4 are plainly responsive to our document requests.

514:36:52 It seems to me we are entitled to know what the

6 status of those documents are and what's going

7 on with the SEC.

8 MR. BAUTA: Why don't you approach the SEC?

9 Q. What's the status of the SEC investigation?

1014:37:08 MR. BAUTA: I'm going to instruct you not to

11 answer it.

12 MR. DIESSEL: What's the basis of your

13 instruction?

14 MR. BAUTA: Beyond the scope of this

1514:37:13 particular witness's designation. It may

16 involve an ongoing investigation with the

17 Securities Exchange Commission, and I'm not his

18 counsel for that aspect of it, so I don't

19 believe he has authority to talk about it.

2014:37:35 If you question whether the documents are at

21 the SEC, I'm sure you can find out.

22 MR. DIESSEL: So our position is the SEC has

23 the only QSGI hard copy documents in existence.

24 MR. BAUTA: Is this a speech or is this a

2514:38:13 question?






Page 168

1 Q. Does QSGI have any documents other than

2 those in the possession of McDonald Hopkins?

3 A. Well, there are some documents that Juan has

4 as well.

515:02:07 Q. What documents does Juan have?

6 A. Juan sent me over --

7 MR. BAUTA: Let me tell you don't tell him

8 anything, any conversations you and I have had.

9 We still have attorney-client here remember.

1015:02:23 Okay?

11 THE WITNESS: Yep.

12 Q. To be clear, I obviously don't want those

13 answers. That's not what I want to know.

14 What documents does Juan have?

1515:02:31 A. Just as part of the discovery there are

16 things that he asked me to provide to him that I

17 have sent.

18 Q. What categories of documents have you sent

19 to him?

2015:02:49 MR. BAUTA: Well, I'm going to ask you to

21 define for him what "categories" means. Without

22 that he is going to become very close to

23 disclosing something that he shouldn't, and

24 rather than instruct him not to answer it at

2515:03:03 all, I'm going to give you a chance to fix it.






Page 169

1 Q. The documents that you sent to Mr. Bauta, do

2 you know how many documents that set comprised?

3 A. I don't off the top of my head.

4 Q. What sources -- where did you find those

515:03:26 documents?

6 A. I had some PowerPoint presentations sitting

7 around my office, I had some documents that were in

8 an old credenza that I had sitting from some

9 conference calls.

1015:03:55 Q. Was it greater than a hundred documents?

11 A. No.

12 Q. So other than these documents -- would it be

13 accurate to say that you individually selected these

14 and provided them to Mr. Bauta?

1515:04:07 A. I had to look through some things that I had

16 hanging around my office, and I found them and I

17 sent them off to him.

18 Q. So other than these documents that you

19 selected and sent to Mr. Bauta, is it true that QSGI

2015:04:23 does not have any documents other than those in the

21 possession of McDonald Hopkins?

22 MR. BAUTA: Objection to the form.

23 A. That would be correct.

24 Q. So the next sentence of the response states,

2515:04:38 "McDonald Hopkins, LLC, who is most familiar with






Page 170

1 the universe of QSGI documents, informed Plaintiff's

2 counsel that the Firm possessed approximately

3 400 gigabytes of documents in its database and

4 approximately 400 bankers boxes of additional

515:04:53 documents in a warehouse located in New Jersey."

6 Do you see that?

7 A. Um-hm.

8 Q. Now, the 400 boxes, those are the boxes that

9 were produced to the SEC, correct?

1015:05:01 A. I assume so, yes.

11 Q. Do you have an understanding as to what the

12 400 gigabytes of documents are?


14 Q. Would it be accurate that these

1515:05:16 400 gigabytes of documents are the only QSGI

16 documents that exist presently?

17 MR. BAUTA: Objection to form. No

18 speculating, please.

19 A. Please repeat the question.

2015:05:29 Q. Yeah. Is it true that -- is it the case

21 that these 400 gigabytes of documents in the

22 database are the only QSGI documents that presently

23 exist?

24 A. I don't know.

2515:05:39 Q. Do you know of any other documents that






