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Deloitte Loses Discovery Battle in Litigation With Levi Strauss Over Business Software

SAN FRANCISCO (CN) - Deloitte Consulting's attempt to limit discovery in a dispute with Levi Strauss over a software project has been blocked, as a superior court judge came down squarely on the side of the jeans maker in a pretrial skirmish.

The judge told Deloitte's attorney to remove redactions made to employee performance reviews providing during discovery.

"Deloitte hasn't shown that the redactions are really appropriate, so there's no substantial justification," said Judge Richard Kramer at last week's hearing.

After having warned in an earlier hearing that the loser of discovery motions would pay the other side's costs, the judge also awarded $15,000 to plaintiff Levi Strauss, an amount the judge described as "cost-shifting."

In the underlying action filed in San Francisco Superior Court, the famous maker of American jeans says Deloitte's installation of business software served as a road to ruin.

Levi Strauss says Deloitte promised to assign top-f light consultants to the project, but instead used the contract to train its own inexperienced employees in how to implement the software.

The jeans maker is demanding $100 million for the extensive business damage allegedly resulting from the installation.

Deloitte has fought back fought back with a separate suit to collect about $8 million in fees under the same deal.

Last fall, the judge ordered Deloitte to produce the employee performance reviews so they could be shown to executives at both Levis Strauss and Deloitte during depositions.

"I have a right to show the performance evaluations in which Deloitte rips its own employees for poor performance on prior projects," said the lawyer for Levi Strauss, Mark Ressler with Kasowitz, Benson, Torres & Friedman in New York.

Deloitte has fought against having to hand over unabridged reviews at every chance, but lost a ruling in the court of appeals.

Robert Lewis, of Bingham McCutchen in San Francisco, tried again Wednesday to persuade the court to allow redactions, arguing employee privacy is at stake. But the judge refused, saying that any material that could lead to admissible evidence is subject to discovery.

Several times, Lewis said he was worried the court didn't grasp the consequences of his rulings.

The court has a "fundamental misunderstanding" about the case, Lewis said, arguing that the dispute is about a breach of contract and not fraud, and that the competence of the Deloitte consultants assigned to the project is irrelevant.

Judge Kramer countered by saying that even if fraud did not enter the equation, "Isn't it part of the agreement that Deloitte would put in the A Team?"

"I think the experience and competence of the employees is at the heart of both of these cases," Kramer added, referring to the consolidated actions before him. "It's Deloitte saying either that they were completely competent and we need to get paid for our contract or Levis saying they put the wrong people on the job, in the face of promises to do something else."

Lewis insisted Deloitte would be more forthcoming if it knew exactly who needed to see the employee reviews. He wanted the judge to narrow the order compelling discovery, an order that he said contains "large, unbounded language that allows mischief."

Ressler answered that he should not be forced to name each individual who may end up needing to see the performance reviews because he can't know in advance who every one of those people might be. Preparing a case for trial is an "organic process," Ressler said, in which a litigator cannot predict exactly where depostions will take the case.

The order compelling discovery will stand, Kramer said in his ruling, and he expected both sides to act professionally. "The idea that somehow Levi Strauss' counsel will commit 'mischief' is a little bit hard for me to accept."

Lewis tried to fight off sanctions for redacting the records by saying the September order was silent on the issue of sanctions and that discovery rules and prior rulings in the case both allow redaction.

Ressler replied that Lewis had "played a game of chicken" by not asking the court for permission to redact. He also argued that the information taken out was not sensitive or personal, but in fact related to revenue from Deloitte's business software contracts with other companies and would help show how much money Deloitte expected to make on the project for Levi Strauss.

Deloitte Consulting also developed a Court Case Management System for the Administrative Office of the Courts in California, a system that is the subject of a legislative hearing coming up on Wednesday. And Deloitte was named by Marin County in a suit over the same SAP business software that is the subject of the Levis Strauss litigation.

In the Marin matter, claims against Deloitte have been sent to an arbitrator based on a contract clause. But the litigation continues against the American affiliate of German software maker SAP.

Both sides in the Levis Strauss case had asked for sanctions for the legal work preparing the recent motions and their responses. Ressler asked for $29,000, but the judge reduced the amount to $15,000.

Lewis protested that sanctions are unfair, but Kramer described the sum as "cost-shifting," rather than a penalty for violating discovery rules. He said Deloitte will have to hand over unredacted documents or file an appeal by April 4.

The judge said a written order is forthcoming.

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