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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
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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
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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.
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(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.
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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).
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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.”).
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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.”).
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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 .
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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.
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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.
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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]
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
*Admitted Pro Hac Vice
Counsel for Defendants IBM Global
Financing and International Business
Machines Corporation
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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
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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]
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EXHIBIT 1
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In The Matter Of:
QSGI, INC.v.
IBM GLOBAL FINANCING, et al.
___________________________________________________
DAVID HARRIS ‐ Vol. 1 May 7, 2012
___________________________________________________
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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
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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
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DAVID HARRIS - 5/7/2012
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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
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DAVID HARRIS - 5/7/2012
1-800-325-3376 www.merrillcorp.com/laMerrill Corporation - New York
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
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DAVID HARRIS - 5/7/2012
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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
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DAVID HARRIS - 5/7/2012
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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?
22 MR. DAM: Objection, form.
23 THE WITNESS: Again, I'm confused by the
24 whole timeframe today with the 2004.
25
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DAVID HARRIS - 5/7/2012
1-800-325-3376 www.merrillcorp.com/laMerrill Corporation - New York
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.
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DAVID HARRIS - 5/7/2012
1-800-325-3376 www.merrillcorp.com/laMerrill Corporation - New York
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
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DAVID HARRIS - 5/7/2012
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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?
14 MR. DAM: Objection, form.
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?
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DAVID HARRIS - 5/7/2012
1-800-325-3376 www.merrillcorp.com/laMerrill Corporation - New York
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?
7 MR. DAM: Objection, form.
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
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DAVID HARRIS - 5/7/2012
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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.
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DAVID HARRIS - 5/7/2012
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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
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DAVID HARRIS - 5/7/2012
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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
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DAVID HARRIS - 5/7/2012
1-800-325-3376 www.merrillcorp.com/laMerrill Corporation - New York
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?
7 MR. DAM: Objection, form.
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?
14 MR. DAM: Objection, form.
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.
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DAVID HARRIS - 5/7/2012
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1 Q. Did QSGI conduct any investigation to
2 determine the whereabouts of these backup tapes?
3 MR. DAM: Objection, form.
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?
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DAVID HARRIS - 5/7/2012
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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?
18 MR. DAM: Objection, form.
19 THE WITNESS: Not in my opinion.
20 BY MR. DIESSEL:
21 Q. Is it complete?
22 MR. DAM: Objection, form.
23 THE WITNESS: I don't believe it's
24 accurate. It doesn't describe anything I did.
25
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DAVID HARRIS - 5/7/2012
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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?
11 MR. DAM: Objection, form.
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?
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DAVID HARRIS - 5/7/2012
1-800-325-3376 www.merrillcorp.com/laMerrill Corporation - New York
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
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DAVID HARRIS - 5/7/2012
1-800-325-3376 www.merrillcorp.com/laMerrill Corporation - New York
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.
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DAVID HARRIS - 5/7/2012
1-800-325-3376 www.merrillcorp.com/laMerrill Corporation - New York
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
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DAVID HARRIS - 5/7/2012
1-800-325-3376 www.merrillcorp.com/laMerrill Corporation - New York
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?
20 MR. DAM: Objection, form.
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?
25 MR. DAM: Objection, form.
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EXHIBIT 2
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In The Matter Of:
QSGI,INC.,etal.v.
IBMGLOBALFINANCING,etal.
___________________________________________________
MARCSHERMANVol.1
March12,2012
___________________________________________________
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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.
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MARC SHERMAN - 3/12/2012
1-800-325-3376 www.merrillcorp.com/lawMerrill Corporation - New York
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.
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MARC SHERMAN - 3/12/2012
1-800-325-3376 www.merrillcorp.com/lawMerrill Corporation - New York
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?
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MARC SHERMAN - 3/12/2012
1-800-325-3376 www.merrillcorp.com/lawMerrill Corporation - New York
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
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MARC SHERMAN - 3/12/2012
1-800-325-3376 www.merrillcorp.com/lawMerrill Corporation - New York
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?
9 A. I have no idea.
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.
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MARC SHERMAN - 3/12/2012
1-800-325-3376 www.merrillcorp.com/lawMerrill Corporation - New York
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?
7 MR. BAUTA: Objection. Form.
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,
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MARC SHERMAN - 3/12/2012
1-800-325-3376 www.merrillcorp.com/lawMerrill Corporation - New York
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?
6 MR. BAUTA: Objection. Form.
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?
11 MR. BAUTA: Objection to form.
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?
16 MR. BAUTA: Objection to form.
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.
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MARC SHERMAN - 3/12/2012
1-800-325-3376 www.merrillcorp.com/lawMerrill Corporation - New York
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,
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MARC SHERMAN - 3/12/2012
1-800-325-3376 www.merrillcorp.com/lawMerrill Corporation - New York
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?
6 MR. BAUTA: Objection to form.
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?
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MARC SHERMAN - 3/12/2012
1-800-325-3376 www.merrillcorp.com/lawMerrill Corporation - New York
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?
18 MR. BAUTA: Objection. Form.
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?
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MARC SHERMAN - 3/12/2012
1-800-325-3376 www.merrillcorp.com/lawMerrill Corporation - New York
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?
18 MR. BAUTA: Objection. Form.
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,
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MARC SHERMAN - 3/12/2012
1-800-325-3376 www.merrillcorp.com/lawMerrill Corporation - New York
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.
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MARC SHERMAN - 3/12/2012
1-800-325-3376 www.merrillcorp.com/lawMerrill Corporation - New York
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?
2013:31:44 MR. BAUTA: Objection to form.
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?
2513:31:55 MR. BAUTA: Objection to form.
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MARC SHERMAN - 3/12/2012
1-800-325-3376 www.merrillcorp.com/lawMerrill Corporation - New York
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?
513:32:03 MR. BAUTA: Objection to form.
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?
2013:32:38 MR. BAUTA: Objection to form.
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?
2513:32:47 MR. BAUTA: Objection to form.
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MARC SHERMAN - 3/12/2012
1-800-325-3376 www.merrillcorp.com/laMerrill Corporation - New York
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?
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MARC SHERMAN - 3/12/2012
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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.
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MARC SHERMAN - 3/12/2012
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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?
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MARC SHERMAN - 3/12/2012
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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?
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MARC SHERMAN - 3/12/2012
1-800-325-3376 www.merrillcorp.com/lawMerrill Corporation - New York
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
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MARC SHERMAN - 3/12/2012
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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?
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MARC SHERMAN - 3/12/2012
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Page 158
1 MR. BAUTA: Objection to form.
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?
6 MR. BAUTA: Objection. Form.
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?
19 MR. BAUTA: Objection to form.
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.
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MARC SHERMAN - 3/12/2012
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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?
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MARC SHERMAN - 3/12/2012
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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.
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MARC SHERMAN - 3/12/2012
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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
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MARC SHERMAN - 3/12/2012
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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?
13 A. I have no idea.
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
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