Oy Vey! Court attempts to define degrees of unacceptable ediscovery conduct and fashions a problematic adverse jury instruction in the process

Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC, 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010)

Pension Committee is an ediscovery opinion that is sure to garner a lot of attention. The opinion was written by Judge Shira Sheindlin, who authored the Zubulake decisions. Judge Scheindlin includes a subheading in Pension Committee that her decision is: “Zubulake Revisted: Six Years Later.” While noting that “[c]ourts cannot and do not expect that any party can meet a standard of perfection,” she nonetheless concludes “courts have a right to expect that litigants will take the necessary steps to ensure that relevant records are preserved when litigation is reasonably anticipated.”

In Pension Committee, ninety-six investors brought suit claiming the violation of federal securities law seeking to recover $550 million dollars in losses stemming from the liquidation of two British Virgin Island based hedge funds. Shortly after being retained, counsel telephoned and emailed the plaintiffs to begin document collection and preservation. Besides calling and emailing the clients, counsel also distributed memoranda instructing the plaintiffs to be over-inclusive, rather than under-inclusive in their efforts and noting that emails and electronic documents should be included in the production. After suit was filed, a stay of discovery was issued pursuant to the Private Securities Litigation Reform Act. However, a formal written litigation hold was not issued until after the discovery stay was lifted several years later. After discovery commenced, gaps were found in plaintiffs’ document productions, which prompted a motion for sanctions asserting plaintiffs failed to properly preserve and produce documents and electronically stored information.
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Court broadly allows a prevailing party to recover its ediscovery costs under 28 U.S.C. §1920

CBT Flint Partners, LLC v. Return Path, Inc., 2009 WL 5159761 (N.D.Ga. Dec. 30, 2009)

After prevailing on a patent infringement claim, the defendant sought the recovery of its attorney’s fees and expenses. One of the items of expense claimed was $243,453.02 paid to an ediscovery vendor that collected, searched, identified and helped to produce electronic documents from the defendant’s network files and hard drives in response to the plaintiff’s discovery requests. The district court in CBT Flint Partners allowed the taxation of those costs in full against the plaintiff.

In several prior blog posts, we noted the wide divergence in the opinions addressing the taxation of ediscovery costs under 28 U.S.C. §1920. In some instances, the outcome turned on the particular subdivision of §1920 that the recovery was sought under, in others the prevailing party failed to demonstrate to the court’s satisfaction that the costs were “necessarily incurred” for use in the case, and in others, the prevailing party failed to adequately support or explain why the ediscovery costs were recoverable under any subdivision of §1920. We also highlighted a split in the circuits over the meaning of “exemplification” as the term is used in §1920(4). However, several of the decisions are difficult to reconcile and perhaps are best explained by how receptive a particular court is to the recovery of these types of costs in post-judgment proceedings. The Supreme Court, in Crawford Fitting Co. v. J. T. Gibbons, Inc., 42 U.S. 437, 441-42 (1987), explained that a district court may not award costs falling outside of §1920’s statutory categories and may decline to award costs even when they fall within those categories. Under that standard, a district court has ample discretion to deny the taxation of ediscovery costs on the losing party.

In CBT Flint Partners, the court noted that the parties agreed that their respective document productions would be made in an electronic format. Thus, it appears those costs were “necessarily incurred” for use in the case. However, the court did not address whether the challenged ediscovery vendor costs fit within any of §1920’s recoverable categories. Rather, the decision appears to be heavily influenced by policy considerations. The district court in CBT Flint Partners concluded “taxation of these costs will encourage litigants to exercise restraint in burdening the opposing party with the huge cost of unlimited demands for electronic discovery.”

The district court did note the division of opinion as to whether these types of costs are recoverable under §1920. It observed that the defendant “asserted – without contradiction – that production in paper form of the 1.4 million documents plus six versions of source code would have cost far more than the fees sought for the e-discovery consultant.” After carefully reviewing the invoices that were submitted to it, the district court ultimately ruled that the services provided were “highly technical in nature,” and “not the type of services that attorneys or paralegals are trained for or are capable of providing.” Thus, the court allowed the taxation of the ediscovery vendor’s costs in full.

Perhaps the lesson to be learned from CBT Flint Partners, is to be careful what you ask for in discovery. The cost of ediscovery in many instances can be staggering and the possible recovery of those costs by a prevailing party is a factor that cannot be ignored when developing and implementing your discovery and litigation strategies. While district court decisions are not precedential, the policy view expressed by the district court in CBT Flint Partners may resonate with other district court judges and will likely raise the price of poker in federal litigation.

Identifying inaccessible sources of ESI just got a little easier

Fed.R.Civ.P. 26(b)(2)(B) explains that a party need not produce electronically stored information (“ESI”) from sources that are not reasonably accessible because of undue burden or cost. Parties are expected to produce relevant, non-privileged information from sources that are “reasonably accessible” subject to Rule 26(b)(2)(C)’s limitations that apply to all discovery under the federal rules. This “two-tier” approach to ediscovery is easy to recite but can be very difficult to apply in practice. At what point does a source of ESI cross the threshold from reasonable accessibility to inaccessibility under the Rule? Are there sources of information that parties can readily agree are not reasonably accessible? Alas, neither Rule 26(b)(2)(B) nor its accompanying committee note provide any helpful insight. Indeed, the 2006 Advisory Committee Note states “[i]t is not possible to define in a rule the different types of technological features that may affect the burdens and costs of accessing electronically stored information.”

The Report of the Judicial Conference Committee on Rules of Practice and Procedure (“Standing Committee Report”) which predated the enactment of the 2006 ediscovery amendments to the federal rules provided some insight. The Standing Committee Report did note that the features of an information system that make it burdensome or costly to access ESI can vary from system to system and will change over time. However, it provided several examples of “current technology” that do not generally fit under the rubric of reasonable accessibility. Those examples included “deleted information, information kept on some backup-tape systems for disaster recovery purposes, and legacy data remaining from systems no longer in use.” See THE NEW E-DISCOVERY RULES, Dahlstrom Legal Publishing, Inc. (2006) at p. 15. Unfortunately, that guidance was not carried over into the 2006 Advisory Committee Note to Rule 26(b)(2)(B).

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Rule 502(d) nonwaiver orders need not be limited to the “inadvertent” production of privileged or protected information

Callan v. Christian Audigier, Inc., 2009 WL 4844422 (C.D.Cal. Oct. 27, 2009)

If you were looking for an ediscovery opinion to lift your spirits during this wintery holiday season, stop, Callan is not the decision for which you’ve been waiting. After reading the opinion, Santa reportedly decided to deliver coal to lawyers who fail to follow Fed. R. Evid 502. The court’s decision in Callan focused on the issue of inadvertent waiver of privilege, and Rule 502(b). However, as we originally explained in one of our blog posts several months ago, the time and effort expended in addressing the issue of inadvertent waiver in Callan could have been avoided had the protective order been drafted in accordance with Fed. R. Evid. 502(d).

The proper framework for analyzing the inadvertent waiver of attorney-client privilege under Fed. R. Evid. 502(b) was discussed in one of our recent blog posts. In that post, we warned that when a party seeks the return of inadvertently produced privileged material under Fed R. Civ. P. 26(b)(5)(B), the failure to explain what steps the party took to prevent the disclosure of privileged information from occurring could result in a finding of waiver under Rule 502(b), no matter how inadvertent the disclosure. Unfortunately, defense counsel made that same mistake in Callan. The court noted that defendants failed to establish the documents in question were privileged and even failed to identify “what privileges purportedly apply to the documents [that were] allegedly inadvertently produced.” As a result, the court awarded attorney’s fees to the plaintiff under Rule 37(a)(5)(B) for responding to the motion. Thus, the failure to meet Rule 502(b)’s elements not only can result in a finding of waiver, it can also result in having to pay your opponent’s attorney’s fees for responding to such a motion. Obviously, care must be taken when seeking the return of inadvertently produced information under Rule 502(b).

The district court in Callan had entered a protective order under Fed. R. Civ. P. 26(c) that included a clawback provision which provided: “The inadvertent production of any discovery material by any party shall be without prejudice to any subsequent claim by the producing party that such discovery material is privileged or attorney-work product and shall not be deemed a waiver of any such privilege or protection.” So, what went wrong? The protective order was limited to the “inadvertent” production of discovery materials and defendants failed to show the materials were inadvertently produced or were privileged. More importantly however, the first misstep occurred in drafting that protective order. As explained below, the real lesson to be learned is that nonwaiver orders under Fed. R. Evid. 502(d) need not be limited to the “inadvertent” production of privileged or protected materials as in Callan.

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Protecting nonparties against undue burden or expense from subpoenas seeking ESI under Fed. R. Civ. P. 45

North American Rescue Products, Inc. v. Bound Tree Medical, LLC, 2009 WL 4110889 (S.D. Ohio Nov. 19, 2009)

Rule 45 contains several provisions that can protect third parties from undue burden or expense when responding to subpoenas for electronically stored information (“ESI”).  Fed. R. Civ. P. 45(c)(1) requires a party issuing a subpoena “take reasonable steps to avoid imposing undue burden or expense” on a non-party subject to that subpoena. Rule 45(c)(2)(B) authorizes the recipient of a subpoena to timely object and mandates that any subsequent order must protect the party receiving the subpoena “from significant expense resulting from compliance.”  Fed. R. Civ. P. 45(c)(2)(B)(ii). The Rule contains a third provision, subdivision (d)(1)(D), which provides that the recipient of a subpoena need not produce ESI from sources that are “inaccessible” because of undue burden or cost.

Despite these various protections that are woven into the fabric of Rule 45, the court in North American Rescue rejected a third-party’s request for reimbursement of approximately $24,930 in charges relating to the conversion of its native files to a reviewable format in response to a subpoena for documents. Why? Because the recipient of the subpoena did not follow Rule 45’s procedures. After objecting to the cost and burden of responding to that subpoena, it nonetheless produced the ESI without conditioning its compliance on the payment of its production costs.

The court in North American Rescue, noted that strict compliance with Rule 45’s procedures may be excused where the parties issuing and receiving the subpoena have reached an agreement concerning reimbursement of the costs of compliance. Because the party receiving the subpoena in North American Rescue failed to show the existence of such an agreement, the court concluded that by failing to wait for a court order before producing its ESI, the subpoena recipient forfeited its right to seek reimbursement under Rule 45 of the costs it incurred in complying with that subpoena.

The response of the subpoena recipient in North American Rescue should be contrasted against the approach taken in Guy Chemical Co., Inc. v. Romaco AG, 243 F.R.D. 310 (N.D.Ind. 2007). There, the court found compliance with a subpoena imposed an undue burden upon the nonparty and conditioned the production of any records pursuant to that subpoena upon reimbursement of the nonparty’s costs by the party issuing the subpoena. Simply put, the failure to follow Rule 45’s procedures can result in a waiver of its protection.

Several of Rule 45’s cost-protection provisions predate the 2006 ediscovery amendments to the Rule, and courts have not comprehensively addressed the interplay between the Rule’s pre and post-amendment cost provisions. The Advisory Committee Notes to Rule 45 broadly outline how to apply the Rule’s various cost protections, and the remainder of the post will provide a framework for their application.

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Proper framework for analysis and evidence needed to establish inadvertent waiver under F.R.E. 502(b) – or – “I may not always be right but I’m never wrong.”

Amobi v. District of Columbia Dept. of Corrections, 2009 WL 4609593 (D.D.C. Dec. 8, 2009)

Comrie v. Ipsco, Inc., 2009 WL 4403364 (N.D.Ill. Nov. 30, 2009)

Coburn Group, LLC v. Whitecap Advisors LLC, 640 F. Supp.2d 1032 (N.D.Ill. 2009)

Today’s “trifecta” addresses the proper framework for analyzing the application of Fed. R. Evid. 502(b) to claims of inadvertent waiver of attorney-client privilege and work-product protection. It also discusses the information that should be provided to a court when seeking Rule 502’s protection. In both Amobi and Comrie, defendants failed to establish that they took reasonable steps to prevent the disclosure of privileged information, and thus, failed to establish the elements of Rule 502(b), resulting in a finding of waiver. These decisions confirm that the reasonableness of the precautions taken by a party to protect its privileged and protected communications is an explicit consideration in determining whether a waiver occurred under Rule 502(b), no matter how inadvertent the disclosure. 

Notably, in Amobi Judge Facciola rejected the argument that if a “disclosure was made by a lawyer, then it clearly was not mistaken and not inadvertent.” He observed that if a lawyer’s mistake never qualified as an inadvertent disclosure, it “would vitiate the entire point of Rule 502(b)…. It would essentially reinstate the strict waiver rule in cases where lawyers reviewed documents, and would create a perverse incentive not to have attorneys review documents for privilege.” 2009 WL 4609593 at *8. Judge Facciola also jokingly noted that the premise of plaintiff’s argument was wrong because: “Lawyers make inadvertent mistakes; it is judges who never make mistakes.” Id.(emphasis in original). The court’s tongue-in-cheek comment in Amobi reminded of me of something my father frequently told me in my youth: “I may not always be right, but I’m never wrong.” I have remembered that sage advice throughout my legal career, especially when reflecting upon a court’s evidentiary rulings.

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Sanctions rejected where evidence was destroyed pursuant to routine, good-faith records management practice before receipt of any notice of a likelihood of litigation

Today’s post demonstrates the importance of a document retention/destruction policy applicable to a company’s paper and electronic records that is consistently applied and routinely followed.

In Mohrmeyer, plaintiff sought discovery sanctions in the form of an adverse inference instruction because Wal-Mart failed to preserve certain records relevant to his accident. The particular record, a maintenance log, was not typically preserved in the ordinary course of the company’s business. It was routinely discarded on a weekly basis. Plaintiff noted that Wal-Mart employees attended to him immediately after his fall, called 911 and summoned an ambulance to take him to the hospital. As a result, the plaintiff in Mohrmeyer claimed that Wal-Mart’s duty to preserve all relevant documents was triggered immediately following his fall because Wal-Mart “should have known” that his accident would result in litigation.

Mohrmeyer is significant because the court recognized:

The law does not and should not require businesses to preserve any and all records that may be relevant to future litigation for any accidental injury, customer dispute, employment dispute, or any number of other possible circumstances that may give rise to a claim months or years in the future, and there is absolutely no contemporaneous indication that a claim is likely to result at the time the records are destroyed pursuant to a routine records management policy.

That Wal-Mart preserved some records relating to the plaintiff’s accident pursuant to its policy involving accidental injuries did not change the result in the court’s view because the particular maintenance log was only temporarily retained and was routinely discarded. Merely because Wal-Mart summoned an ambulance for the plaintiff did not make the litigation more likely to occur. The court found no deliberate or improper conduct by Wal-Mart involving its failure to preserve what the court described as a “transient record.”

The court recognized that a duty to preserve applies only when a party has been put on notice that evidence is relevant to pending litigation or which may be relevant to future litigation that is likely to occur. It concluded that at the time the maintenance log was discarded, there only existed a speculative possibility that a lawsuit might be brought. The court observed that before the log was destroyed Wal-Mart had received no telephonic or written warning from the plaintiff or his counsel raising the possibility of a lawsuit and there was no history of litigation between the parties which made a lawsuit more likely to occur. The court was not willing “to presuppose the likelihood of litigation for every slip and fall accident that occurs.”

The court in Mohrmeyer distinguished the factual scenario presented from an airline disaster where the “trigger date” for the preservation of evidence would clearly be the date of the disaster “because of the high likelihood of litigation following such [an event].” The mere fact that an accident had occurred was insufficient to establish that litigation was likely to ensue.

The court also noted that the plaintiff testified in his deposition that he did not even consider filing a lawsuit until a couple of months after the accident occurred, which was long after the maintenance records were destroyed in the ordinary course of the company’s business. This is a good practice point to remember in discovery in any matter where discovery sanctions potentially may be sought.

Accordingly, Mohrmeyer concluded that when evidence is destroyed pursuant to a company’s “routine, good-faith records management practices” before any notice of the likelihood of litigation is received, discovery sanctions of any type are not warranted.

Vitruvian Man image courtesy Flickr user Michael Licht under this Creative Commons license.

Failing to follow Rule 34’s procedures can result in having to produce ESI a second time in a different format

Covad Communications Co. v. Revonet, Inc., 260 F.R.D. 5 (D.D.C. 2009); Cenveo Corp. v. Southern Graphic Systems, 2009 WL 404 2898 (D. Minn. Nov. 18, 2009)

Because the production of electronically stored information (ESI) can occur in various formats, Rule 34 sets up a process through which the parties are supposed to resolve their disputes over the format of production. Rule 34(b)(1)(C) permits the requesting party to specify the format in which to produce the requested ESI. The producing party can either agree to produce the ESI in the requested form or can object to the proposed format. Rule 34(b)(2)(D) specifies that when either the requesting party fails to specify a production format in its request for documents or when the producing party objects to a specified format, the producing party is obligated to identify the format in which it proposes to produce the requested ESI. If the parties are unable to agree on a format, the Rule contemplates that a court will then resolve the issue, but is not bound by either party’s proposed production formats.

Rule 34 contemplates that the parties will resolve their disputes over the format of production before any production occurs. Indeed, the Advisory Committee Note to Rule 34 explains: “Stating the intended form before production occurs may permit the parties to identify and seek to resolve disputes before the expense and work of the production occurs.”

When a party unilaterally produces ESI in a format of its choice without providing the prior notice contemplated by Rule 34(b)(2)(D), the Advisory Committee Note to the Rule further explains that the producing party runs the risk that a court may conclude the ESI was produced in a format that was not reasonably usable and may order that it be reproduced in a different form. That very nightmare occurred in both of today’s featured decisions and the Covad Communications decision provides a textbook example of the type of problem that can occur when a party has to produce its ESI a second time in a different format.

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Rule 26(b)(2)(c)’s proportionality standard triggers protective order

High Voltage Beverages LLC v. The Coca-Cola Company, 2009 WL 2915026 (W.D.N.C. Sept. 8, 2009) [Link to decision via Google Scholar]

Several of our prior blog posts [e.g., here and here] have addressed how Rule 26’s proportionality principles can be used to control a party’s ediscovery costs. As we explained in one of those posts, because Rule 26(b)(2)(c) applies to all discovery requests, its proportionality standard potentially can be applied even to sources of electronic information that are reasonably accessible, so long as the burden or expense of the proposed discovery outweighs its likely benefit. And with the ABA reporting “Electronic discovery should be proportionate to [the] controversy,” we thought today would be a good time to post about a decision that applied Rule 26’s proportionality standard to a source of electronic information that was “reasonably accessible.” Addressing what it characterized as “a novel question,” the court in High Voltage Beverages granted the defendant’s request for a protective order under Rule to 26(b)(2)(c).

After the defendant produced 1.7 million pages of documents, plaintiff demanded that it search for alternative sources of documents relating to defendant’s investigation and selection of its VAULT mark. In response, defendant identified an additional 17 gigabytes (1.5 million pages) of documents from a senior executive which had been retained under litigation holds issued in unrelated lawsuits. Defendant did not object to producing that data, but because defendant believed it produced every document related to the clearance of its VAULT mark, defendant objected to incurring the cost of reviewing the documents. Defendant offered plaintiff the opportunity to key-word search the documents and plaintiff refused. In its request for a protective order, defendant explained that a de novo review of the 17 gigabytes of data would not result in the discovery of any documents that have not already been produced.

The court in High Voltage Beverages accepted the defendant’s representation that it had produced all documents in its possession concerning the VAULT mark and concluded the time and expense of reviewing the documents would be extraordinary. Thus, the court concluded that the burden and expense of the requested discovery outweighed its likely benefit and held the defendant did not have to review the data before producing it to the plaintiff. Therefore, the court denied plaintiff’s motion to compel and granted defendant’s motion for a Rule 26 protective order. It did require that defendant to again extend the opportunity to key-word search the documents prior to their production.

So the moral of the story is do not overlook Rule 26(b)(2)(c) cost-shifting arguments where appropriate. With the growing chorus that ediscovery costs are harming our civil justice system, courts are more likely to favorably consider Rule 26 cost-shifting arguments. Rule 26(b)(2)(c)’s proportionality standard can provide an effective tool to control your ediscovery costs.

Photo courtesy Flickr user Capt Kodak via this Creative Commons license.

The Good, The Bad And The Ugly (of an ediscovery decision)

Scalera v. Electrograph Systems, Inc., 2009 WL 3126637 (E.D.N.Y. Sept. 29, 2009)

Today’s blog post is named after the 1967 epic spaghetti western starring Clint Eastwood. Wikipedia explains that the movie’s plot “centers around three gunslingers competing to find a fortune in buried confederate gold.” Intended by its director to be a “tongue-in-cheek satire on run-of-the-mill westerns,” Quintin Tarentino once called it “the best-directed film of all time.”

While that might be a bit of a stretch, The Good, The Bad and The Ugly aptly summarizes the court’s holding in Scalera v. Electrograph Systems. While you won’t find any confederate gold, bounty hunters or ghost towns in the decision, there are a number of important points that can be gleaned from the opinion. However, as with many ediscovery decisions, there are several bad, and at least one downright ugly finding entered by the court. Luckily, while the court concluded the company “unquestionably breached a duty to preserve emails,” the plaintiff failed to establish that any of the destroyed emails would have been favorable to her claim and, thus, the court denied plaintiff’s request for an adverse inference instruction. As a result, on several levels, Scalera is a decision that merits your attention.

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