Judge Threatens KPMG With 6-Month Discovery Limit In OT Suit

Law360 - Megan Leonhardt
March 13, 2012

A New York federal judge on Monday threatened to limit discovery in a class action against accounting firm KPMG LLP that claims it failed to compensate thousands of audit associates for overtime worked, expressing frustration with ongoing evidence disputes.

If KPMG is unwilling to cooperate in that endeavor, I will just abandon my effort to streamline the case, give you six months (no more) to complete ALL discovery, merits and expert, and let you have at it, ” U.S. District Judge Colleen McMahon said in a letter to counsel.

Judge McMahon denied claims by the accounting firm that she had “wipe[d] the slate clean,” in regards to documents it was previously ordered to produce. Instead, she said, she expected both parties’ lawyers merely to narrow their requests for evidence in light of previous rulings attempting to streamline discovery in the case.

The judge’s warning stemmed from a March 9 letter sent by plaintiffs’ attorney Justin Mitchell Swartz of Outten & Golden LLP, which asked Judge McMahon to have a magistrate judge step in to work out the discovery disputes. Swartz said in the letter that KPMG told the employees’ attorneys that Judge McMahon had said the accounting giant was free to ignore requests for evidence and needed only to produce documents that it planned to use in its defense.

In Monday’s letter, Judge McMahon claimed she never eased up on her previous discovery rulings, but merely asked that the parties constrain their requests in order to simplify the process.

A number of former employees sued KPMG in January 2011, claiming the Big Four accounting firm violated the Fair Labor Standards Act by deliberately misclassifying its entry-level auditors as exempt from receiving overtime pay.

The KPMG employees, classified as audit associates and audit associate seconds, were required by the accounting firm to work hours in excess of 40 hours per week without receiving proper overtime compensation, despite serving in an entry-level job that requires no advanced level training and primarily involves performance of routine duties, ” the complaint said.

In April, Judge McMahon gave an oral order staying discovery until the question of conditional certification was decided. The ex-workers’ motion for conditional class certification was granted in January.

Last month, Judge McMahon ruled that KPMG had to preserve thousands of hard drives belonging to ex-workers. She denied KPMG’s appeal for a protective order on its preservation obligations following U.S. Magistrate Judge James Cott’s denial in October, saying the hard drives probably contained pertinent information.

Because KPMG had refused to allow the employees’ counsel or Judge Cott to assess the hard drives, Judge McMahon found that no one knew the potential benefit of the evidence. The judge said she was forced to preserve that evidence, adding that KPMG was hoist on its own petard. ”

Further, Judge McMahon said she felt KPMG had been hiding behind her April order. The judge called KMPG’s dismissal of the ex-workers’ requests unprofessional ” and absurd. ”

According to docket information, KPMG met with Judge McMahon on March 2 to discuss a new schedule for summary judgment. A week later, Swartz sent the request for a magistrate judge to referee the bitter evidence battle.

It would not be fair … to allow KPMG to unilaterally determine what can be part of the summary judgment record and what cannot, ” Swartz’s letter said.

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The plaintiffs are represented by Justin Mitchell Swartz, Rachel Bien, Seth Marmin, Elizabeth Wagoner and Dana Sussman of Outten & Golden LLP as well as by Gregg Shavitz, Keith Stern and Susan Stern of the Shavitz Law Group PA.

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The case is Pippins et al. v. KPMG LLP, case number 1:11-cv-00377, in the U.S. District Court for the Southern District of New York.

–Additional reporting by Ben James. Editing by Eydie Cubarrubia.