The duty to preserve electronically stored information (ESI) can arise long before a lawsuit is ever filed. Several of our prior posts, such as the ones found here and here, chronicle the problem of determining whether a pre-suit duty to preserve is triggered by a letter from a putative plaintiff which contemplates the possibility of litigation. So, any decision which recognizes a landmark that can be readily followed when navigating the pre-suit preservation minefield bears highlighting. Sinai provides such a beacon to follow.

The work-product doctrine encompasses documents that are prepared “in anticipation of litigation.” Siani reached “the common sense conclusion” that if litigation was reasonably foreseeable for one purpose, “it was reasonably foreseeable for all purposes.” 2010 WL 3170664 at *5. Thus, Siani recognizes a direct relationship between the assertion of the work-product doctrine and a duty to preserve ESI in a pre-suit context.

Thus, before asserting the protection of the work-product doctrine, an attorney would be wise to also confirm that the client has instituted a litigation hold to preserve potentially relevant ESI in the context of that anticipated litigation. Claiming the protection of the work-product doctrine means that litigation was reasonably anticipated and that a duty to preserve potentially relevant ESI has been triggered.

Today’s post involves the sorry tale of a foreign company that failed to properly issue a litigation hold and allowed the deletion of emails to occur after suit was filed. To make matters worse, at an evidentiary hearing, the company’s CEO admitted that certain responsive documents that he felt were immaterial were not produced. The CEO also testified that because the plaintiff’s discovery requests were so disproportionate, he did nothing to preserve documents relating to the manufacture and sale of the product in question. The district court concluded the defendant’s conduct in failing to issue any type of litigation hold amounted to gross negligence and that the defendant’s search for responsive documents fell well below the minimum standard that a reasonably prudent person would use.

The court in Gnosis noted that in several discovery conferences, counsel for the defendant asked that the scope of plaintiff’s discovery be limited, but the court denied those requests because they were never properly raised. The court was also critical or counsel’s failure to supervise the client’s search for responsive documents and counsel’s failure to investigate the accuracy of plaintiff’s assertions that the defendant’s production was incomplete. At several points during an ongoing discovery dispute, counsel mistakenly represented to the court that the plaintiff was accusing the defendant of not producing documents that it had produced. Once the issue was properly investigated, counsel realized the error, and additional documents were promptly sent to the plaintiff. However, counsel waited for over a month after learning of the error, until the morning of an evidentiary hearing on that discovery dispute, to advise the court about counsel’s mistaken representation.

It should come as no surprise that the district court imposed sanctions in the form of costs and attorney’s fees that plaintiff expended in compelling defendant’s compliance with its discovery obligations. Additionally, the court imposed a $25,000 fine to deter future misconduct and “to instill in defendants some modicum of respect for the judicial process.”

The district court, however, elected not to apportion liability for those sanctions between the defendant and its counsel “under the belief they are best suited to make that decision.” The court indicated it would only intercede if the defendants and their counsel “are unable to agree on apportionment of these sanctions.” The court explained that to apportion the sanctions award between defendant and its counsel would require the disclosure of information that “could compromise attorney-client confidentiality.”

While the court’s desire to preserve the integrity of the attorney-client privilege is laudable, its order created an ethical dilemma for defense counsel and potentially drove an ethical wedge into the attorney-client relationship. Unless an attorney and client immediately agree that only one of them is solely responsible for such a sanction, the attorney should carefully evaluate whether Rule 1.7(a) of the Model Rules of Professional Conduct has been triggered. Rule 1.7(a) provides that a lawyer shall not represent a client if the representation involves a “concurrent” conflict of interest. It further explains that a concurrent conflict exists if there is a significant risk that the representation of the client will be materially limited by the personal interest of the lawyer. Comment 8 to Rule 1.7 notes that even when there is no direct adversity, “if a significant risk exists that a lawyer’s ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer’s other responsibilities or interests,” a conflict exists. Any lawyer subject to the type of sanction’s order entered in Gnosis would be personally interested in its outcome, and a claim could be made that it would be difficult to give “detached advice” under the circumstances. Thus, the specter of Rule 1.7(a) is arguably triggered by the sanctions order entered in Gnosis.

While this type of potential conflict can be waived by the client, it requires the lawyer to clearly identify and explain the nature of the conflict (in writing) to the client and obtain the client’s informed consent. This requires an explanation of the reasonably foreseeable ways the conflict could have an adverse effect on the client’s interests. Additionally, Model Rule 1.8(a) explains that the client should be informed in writing that the client may seek the advice of independent legal counsel on the transaction and be given a reasonable opportunity to obtain separate counsel to decide if the conflict should be waived. Accordingly, this type of ediscovery sanctions order will likely delay the proceedings and may require the involvement of separate counsel to address the issue.

The Gnosis decision brings into focus two important questions. The first is what should a lawyer do upon learning the client is refusing to follow counsel’s advise on preserving and producing electronically stored information (ESI)? The second is whether in light of the recurring damage being done to the attorney-client relationship as a result of ediscovery sanctions, are amendments to the federal ediscovery rules warranted, or is there a reasonable alternative to attorney sanctions that would adequately insure the attorney fulfills his ediscovery obligations to the client?

What should attorneys do when clients refuse to follow their instructions about preserving and producing ESI?

The answer requires a brief review of Rules 1.2 and 1.4 of the Model Rules of Professional Conduct. Rule 1.4(a)(2) requires a lawyer to “reasonably consult with the client about the means by which the client’s objectives are to be accomplished.” Rule 1.2 addresses the allocation of authority between the client and lawyer. Comment 1 to Rule 1.2 requires attorneys to consult with the client about the “means” to accomplish the client’s desired objectives as required by Rule 1.4(a)(2) and provides the lawyer “may take such as action as impliedly authorized to carry out that representation.” In an ediscovery context, this means that once the client has been properly advised about its obligations to preserve and produce ESI, the attorney is obligated to abide by the client’s decision on those issues. Hopefully, the client follows the attorney’s recommendations, but when that does not occur, what are the attorney’s options?

Rule 1.2 permits the scope of services provided by a lawyer to be limited by agreement with the client. Comment 6 to that Rule explains that such a limitation “may exclude actions the client thinks are too costly.” So a Fortune 500 company, with experienced general counsel staff and a large IT department, could advise its outside counsel that it will handle all ediscovery preservation and production in-house in order to limit the company’s ediscovery costs. Such an arrangement is permissible under Rule 1.2. However, when that occurs, the attorney should consider modifying the engagement letter with the client to reflect the limitation in the services being provided the client.

Outside counsel should also explain to the client that some courts, like in Gnosis, have imposed a duty on outside counsel to supervise the client’s search for responsive documents, notwithstanding statements in the Advisory Committee Notes to Fed. R. Civ. P. 26(g) that when making a “reasonable inquiry,” an attorney “may rely on assertions by the client” so long as that reliance “is reasonable under the circumstances.” The attorney should consider discussing with any client taking over responsibility for ediscovery preservation or production, that in the event an ediscovery sanctions motion should be filed which is directed at the lawyer or both client and the lawyer, a conflict may arise. The lawyer will have an obvious interest in explaining why sanctions should not be imposed on him under the circumstances.

Comment 22 to Model Rule 1.7 explains that a lawyer may request the client “to waive conflicts that might arise in the future,” but explains the “effectiveness of such waivers is generally determined by the extent to which the client reasonably understands the material risks that the waiver entails.” It further explains that where the client is an experienced user of legal services and “is reasonably informed about the risk that a conflict might arise, such consent is more likely to be effective.” Moreover, where the “client agrees to consent to a particular type of conflict with which the client is already familiar,” Comment 22 provides that such “consent ordinarily will be effective with regard to that type of conflict.” Recognize however, that in this context, consent given to general or open ended waiver of future conflicts runs the risk of being judged ineffective because the conflict was not adequately explained and thus, the client can claim it did not understand the material risks involved with the waiver. So if an attorney heads down this path, carefully outline in writing for the client all of the reasonably foreseeable risks associated with this type of arrangement.

What should the lawyer do when a client refuses to waive a future conflict in the type of scenario noted above, or when the lawyer learns that a client has refused to follow his advise as to how ESI should be preserved or produced? In some cases, where the client has a knowledgeable general counsel, talk the issue through and attempt to reach an accommodation. Otherwise, the attorney should give serious consideration to withdrawing from the client relationship. In baseball, there is an old adage that a groundball will find a weak infielder. The same analogy is true with ediscovery. A sanctions motion will inevitably find its way to the doorstep of the attorney whose client has failed to properly preserve or produce ESI.

Some clients are simply not worth the time and trouble that a sanctions motion will entail. Fights over privileged communications will occur. The lawyer’s conduct, in addition to the client’s, will likely be put under the microscope. When the client refuses to follow the attorney’s advice, and that advice would have obviated the sanctions motion, a conflict between the attorney and the client’s interests exists and as explained above, Rule 1.7 must be consulted. Consequently, the lawyer should consider at the outset whether those issues are worth it and act accordingly when a client refuses to follow the attorney’s advice.

Are rule amendments or consideration of alternatives to attorney sanctions warranted?

Given the prevalence of ediscovery sanctions as referenced in our last post, we hope the Standing Committee will consider amendments to the federal ediscovery rules at its May 2010 conference at Duke University. One type of rule amendment that will generally help limit ediscovery sanctions is to adopt the approach taken by Principle 2.04 of the Seventh Circuit’s Electronic Discovery Pilot Program. Principle 2.04 recognizes that there are certain categories of ESI that are generally not discoverable in most cases, and where a party intends to request the preservation or production of those categories of information, that desire should be promptly brought to the attention of the opposing party and its counsel. If such a request is not made, then sanctions should not be available for failing to preserve those categories of information.

However, a broader question is what role should attorney sanctions play in an ediscovery context in civil litigation? Historically, when lawyers and judges operated in the world of paper discovery, perfection was not expected. Also, it was never an attorney’s duty to preserve discoverable documents; that was the client’s obligation. And, as noted above, even when the federal rules were amended to include Rule 26(g), an attorney could rely upon the reasonable representations of the client in complying with the attorney’s duty of “reasonable inquiry.”

Now that we have entered into the digital era, an attorney’s duty to advise the client has morphed into a duty to preserve ESI. The transformation of the attorney’s historical duty to advise the client into a duty to preserve has created innumerable harms to the attorney/client relationship and our civil justice system. The relative ease that the attorney-client privilege can be lost, discovery about discovery and satellite ediscovery sanctions litigation has become prevalent under the federal ediscovery rules. All of this is driving up the cost of discovery.

At a recent Sedona Conference, one of the topics discussed was the vanishing jury trial in federal courts and ways to reverse that trend. The answer is simple: to encourage more jury trials, make litigation generally, and discovery in particular, less costly. While that answer is simple, the best approach to accomplish that solution is not so clear cut. However, one point is clear. Ediscovery sanctions and the satellite litigation it is generating is driving up the cost of litigation, which is one of the primary causes of the vanishing jury trial.

As we explained in a prior blog post, the prevailing view in federal court is that once a preliminary showing of spoliation has occurred, the attorney’s otherwise privileged litigation hold letter to the client must be produced. Today’s post, and another recent post, discusses some of the ethical dilemmas that are triggered in an ediscovery context. In what other area of the law must an attorney provide advice to the client under pain of sanctions if the lawyer fails to do so, even though the attorney’s advice could be used as evidence against the client if a preliminary showing of spoliation is made? Have district court judges considered the broader impact of their decisions or the ethical dilemmas they are creating for lawyers in an ediscovery context?

Hopefully, courts will recognize that the attorney’s historical duty is to advise the client, not to preserve the client’s information for it. Obviously, in a digital era, the attorney’s advice has to be different than the advice given when we worked in a world of paper, but it is still advice, and should not be viewed as a duty to preserve information. If courts recognize that the duty to preserve rests with the client and not the lawyer, the damage being done to our civil justice and the attorney/client relationship through the imposition of ediscovery sanctions will be reduced. The marginal utility gained through the imposition of attorney sanctions in an ediscovery context is simply not worth the damage being done to the attorney/client relationship and our system of civil justice.

The views expressed by the author are his alone and do not reflect the views or opinions of Hinshaw & Culbertson LLP.

As it now stands, electronic discovery is easier to get wrong than it is to get right under the existing rules. Kroll Ontrack is a national ediscovery consultant that tracks and summarizes decisions addressing electronic discovery issues. In January 2010, Kroll reported that from January 1, 2009 to October 31, 2009, 39% of all ediscovery decisions addressed sanctions. During that same timeframe in 2008, Kroll reported that 25% of ediscovery decisions addressed the issue of sanctions. See Case Law Update & Ediscovery News, January 2010, Vol. 10, Iss. 1 found here. Thus, even though parties and their counsel may be more familiar with the federal ediscovery rules and more knowledgeable about electronic discovery than in prior years, requests for sanctions are climbing at an alarming rate.

So what type of rule amendments might the standing committee be considering? Hopefully, one dealing with the duty to preserve ESI, clarifying the types of information that need to be preserved and addressing the trigger for that obligation in federal court litigation. As we have noted in a prior blog post, presuit letters and correspondence can trigger a duty to preserve information, but attempting to distinguish letters that trigger such a duty from those that do not frequently involves an exercise in splitting hairs. Parties should not face the specter of sanctions or the cost of unnecessarily preserving information for a wrong guess.

Additionally, as we reported in another blog post, which you can read here, when a duty to preserve is triggered prior to the filing of a lawsuit and the client fails to properly issue a litigation hold at that time, under the “prevailing view” in federal court, an attorney’s otherwise privileged correspondence – directing that a litigation hold be imposed – will have to be produced if a preliminary showing of spoliation is made. In other words, the client forfeited the right to raise attorney-client privilege before the lawyer was even retained. This has created a proverbial Hopson’s choice for attorneys when confronted with this same scenario. An attorney will have an interest in issuing a litigation hold letter to the client in order to avoid sanctions being imposed on the attorney and his firm. However, under the prevailing view, that litigation hold letter will have to be produced and will likely be used as evidence against their client when a preliminary showing of spoliation is made. Where else, other than in the world of ediscovery, must a lawyer write a letter to the client, under pain of sanctions if he fails to do so, knowing that his letter may ultimately have to be produced and could be used as evidence against his client. Court decisions addressing electronic discovery are blithely triggering new ethical dilemmas for practicing attorneys.

Some have suggested that notions of federalism and the Rules Enabling Act, 28 U.S.C. §2072, would preclude the development of rule addressing when information should be preserved prior to suit. However, Principle 2.04(d) from the Seventh Circuit’s electronic discovery pilot program recognizes that there are certain categories of information that are generally not discoverable in most cases and that if a party intends to request the preservation or production of those categories of information, then that intention should be discussed at the parties initial meet and confer or as soon thereafter as practicable. The recognition that there are certain categories of ESI that are not generally discoverable means that Rules Enabling Act should not preclude the development of a rule providing there is no obligation to preserve those categories of information and that no sanctions should be imposed for failing to preserve them. Because such a rule merely addresses procedural issues in federal court litigation and exempts certain categories of information generally from discovery, the Rules Enabling Act should not pose an impediment.

The Supreme Court, in Shady Grove Orthopedic Associates v. Allstate Ins. Co., 2010 WL 1222272 (U.S. March 31, 2010), explained that a procedural rule does not run afoul of the Rules Enabling Act if it affects a litigant’s substantive rights, because “most procedural rules do.” Id. at *8. When a rule, like the type noted above, merely addresses “the manner and means” by which a litigant’s rights are enforced in federal court, it would pass constitutional muster under Shady Grove. Id. Nor would such a rule trample notions of federalism and respect for state laws because it merely applies to issues involving preservation, discovery, and sanctions in federal court proceedings. Importantly, such a rule would provide some clarity and certainty to one of the conundrums facing parties and their counsel in Federal court litigation.

Some lawyers take a “Turkish Bazaar” approach to discovery requests, seeking more than they really need while willing to negotiate down to what they want. Other lawyers lace their otherwise reasonable discovery requests with magnifying terms such as “any and all,” “touching upon,” or “relating to” a particular topic or subject matter.

Lawyers responding to these types of requests will typically, and rightfully, object to the requests as being overbroad and unduly burdensome. Principle 1.03 of the Seventh Circuit’s Electronic Discovery Pilot Program further provides that requests for production of electronic information should be “reasonably targeted, clear and as specific as practicable.” That principle provides another basis to object to burdensome discovery requests.

But how many lawyers think to raise Rule 26(b)(2)(C)’s proportionality standard when addressing a burdensome discovery request? Rule 26 applies to all discovery, not just to inaccessible information. Attorneys who fail to consider Rule 26’s proportionality standard are overlooking an important tool in controlling ediscovery costs, as the decision in today’s post explains.

Bellinger involved a Title VII claim in which plaintiff alleged that she was denied a promotion and received unequal pay because of her gender. In discovery, plaintiff sought “detailed information about the job status and career histories” of various groups of other employees. The district court sustained the defendant’s objection, noting that the burden of complying with the interrogatory seeking this information was “substantial” and that “[t]he likely benefit of the discovery . . . is slight or non-existent, particularly in light of the narrow scope of plaintiff’s claims and the broad range of discovery that has already been produced.”

Additionally, plaintiff in Bellinger sought “detailed and technically complex” information about the defendant’s electronically stored information. Again, notions of proportionality prevailed. The court concluded that responding to those interrogatories would be “extremely burdensome” and that the information sought in those interrogatories was “unlikely to be of significant value, especially in light of the discovery that the defendant has already provided.”

Practical tips for asserting Rule 26(b)’s proportionality standard

Rule 26(b)(2)(C) provides:

On motion or on its own, the court must limit the frequency or extent of discovery otherwise allowed by these rules or by local rule if it determines that:

(i) the discovery sought is unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome or less expensive;

(ii) the party seeking discovery has had ample opportunity to obtain the information by discovery in the action; or

(iii) the burden of expense of the proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the parties’ resources, the importance of the issues at stake in the action, and the importance of the discovery in resolving the issues.

Bellinger is one example of how Rule 26(b)’s proportionality standard can be applied to supplemental discovery requests. When raising a proportionality objection to a supplemental discovery request, counsel should endeavor to provide the court with specific information as to the costs and burdens of the discovery that has already been provided as well as the anticipated costs of the supplemental discovery response. Be specific, do not provide the court with broad generalizations as to the costs and burdens involved. In addition to the anticipated cost of responding to this supplemental discovery, provide the court with information as to the number of pages or documents produced in discovery, the number of depositions that have been taken and the actual expense the client has already incurred in preserving and producing information in connection with your opponent’s prior discovery requests.

Raising a proportionality objection during the early stages of a case when the client may incur significant costs responding to the initial discovery requests can be more complicated. One of the factors that a court is required to take into consideration under Rule 26(b)(2)(C)(iii) is “the amount in controversy.” Frequently, that is unknown to defense counsel. There is no amount-in-controversy requirement with federal question jurisdiction, Arbaugh v. Y& H Corp., 546 U.S. 500 (2006), and diversity jurisdiction only requires pleading that the amount in controversy exceeds $75,000, exclusive of interest and costs under 28 U.S.C. §1332. However, there are options available when raising a proportionality objection.

One option is to borrow a page from Judge Paul Grimm’s playbook in Mancia v. Mayflower Textile Servs. Co., 253 F.R.D. 354 (E.Md. 2008). Judge Grimm in Mancia noted that the record before him lacked the type of factual information he needed to make a proportionality determination. Therefore, he ordered counsel to meet and confer as to the likely range of provable damages that could be foreseeably awarded to the plaintiffs if they prevailed at trial. 253 F.R.D. at 364. Because your opponent is likely to provide an inflated value as to a case’s worth at the outset of any lawsuit, try thinking outside the box when considering this option.

Many district judges are more than willing to provide as much case management to a given matter that the parties request. Consider asking the court to require each side to provide the same type of information ordered by Judge Grimm in Mancia. Also, review 15 U.S.C. §6607 for specific guidance. There, Congress required a party provide “specific information as to the nature and amount of each element of damages [being claimed] and the factual basis for the damages calculation” in a statement that accompanied any pleading in a Y2K action. Such a paper, signed by counsel after having been ordered by the court is more likely to contain a realistic evaluation of the amount in controversy than if you simply solicited a settlement demand from opposing counsel.

Should a district court be unwilling to supplement its typical case management procedures and require the provision of this type of information, provide the court with information about verdicts and settlements in similar cases. In the absence of reported verdict or settlement information, provide your considered opinion as to the recoverable damages when arguing your opponent’s discovery requests are not proportional. Don’t forget to address the other Rule 26 factors that a court must consider, including the needs of the case, the importance of the issues at stake in the litigation, and the importance of the discovery in resolving those questions.

Years earlier, Judge Easterbrook of the Seventh Circuit Court of Appeals foresaw the very problem confronting Judge Grimm in Mancia. Judge Easterbrook then wrote:

The plaintiff files a sketchy complaint . . . and discovery is launched. A judicial officer does not know the details of the case the parties will present and in theory cannot know the details. Discovery is used to find the details. The judicial officer always knows less then the parties, and the parties themselves may not know very well where they are going or what they expect to find. . . . Judicial officers cannot measure the costs and benefits to the requestor and so cannot isolate impositional requests. Requestors have no reason to disclose their own estimates because they gain from imposing costs on rivals (and may lose from an improvement in accuracy). The portions of the Rules of Civil Procedure calling on judges to trim back excessive demands, therefore, have been, and are doomed to be, hollow. We cannot prevent what we cannot detect; we cannot detect what we cannot define; we cannot define “abusive” discovery except in theory, because in practice, we lack essential information.

Frank H. Easterbrook, Discovery As Abuse, 69 B.U.L.Rev. 635, 638-39 (1989).

Until some obvious gaps in the Rules are filled, it is up to counsel to seek creative approaches to provide the court with information relevant to a proportionality analysis. Putting the time and effort at the front end should certainly save your client significant costs, especially when addressing the costs and burdens of electronically stored information.

Unlike attempting to buy a rug at a Turkish Bazaar, in federal court you cannot simply walk away from your opponent’s unreasonable demands. Be sure not to overlook the important tool Rule 26(b)(’s) proportionality standard provides in attempting to control the burdens and costs of ediscovery in your cases.

Stengart v. Loving Care Agency, Inc., — A.2d —, 2010 WL 1189458 (N.J. March 30, 2010)

The New Jersey courts have a reputation of being protective of “informational privacy.” See, e.g., State v. Reid. A recent decision concerning employee privacy in personal emails adds to that reputation.

Plaintiff-employee used a work-issued laptop to access her Yahoo email account, through which she communicated with her lawyer about her lawsuit against the employer. During the discovery phase of that employment discrimination lawsuit, the employer used computer forensics to recover those Yahoo emails that had been copied to the computer’s temporary internet files folder.

Counsel for plaintiff demanded that the employer turn over the recovered emails, arguing that the communications were protected by the attorney-client privilege. When the employer agreed to turn them over but not discontinue use of the information garnered from them, plaintiff sought relief from the court.

The trial court denied relief and plaintiff sought review with the appellate court. That court reversed, and the employer sought review with the state’s supreme court. You can read our prior blog post that discussed the appellate court’s decision here. The supreme court upheld the appellate court’s decision, holding that the employee had a reasonable expectation of privacy in the communications.

The employer relied on a broadly-written company policy through which the employer reserved the right to review and access “all matters on the company’s media systems and services at any time.” But the court rejected those arguments.

Framework for the analysis

The supreme court considered two aspects in its analysis: (1) the adequacy of the notice provided by the company policy, and (2) the important public policy concerns raised by the attorney-client privilege.

As for the adequacy of the notice provided by the policy, the court found that because the policy did not address the use of password-protected personal email accounts, the policy was “not entirely clear.” As for the importance of the attorney-client privilege, the court lavished it with almost-sacred verbal accoutrements, calling it a “venerable privilege . . . enshrined in history and practice.”

“Intrusion upon seclusion” as source for standard

The court noted that the analysis for a reasonable expectation of privacy in dealings between two private parties was a bit different than the analysis in a Fourth Amendment case. The common law source for the standard in this context is with the tort of “intrusion upon seclusion.” Under New Jersey law, that tort is committed when one intentionally intrudes, physically or otherwise, upon the solitude or seclusion of another or his private affairs or concerns, in a manner that would be highly offensive to a reasonable person. (This language comes from the Restatement (Second) of Torts § 652B.)

In this situation, the court found that plaintiff had both a subjective and objective expectation that the messages would be private. Supporting her subjective belief was the fact that she used a private email account that was password protected, instead of her work email account. And she did not store her password on the computer. Her belief was objectively reasonable given the absence of any discussion about private email accounts in the company policy.

Plaintiff’s expectation of privacy was also bolstered by the fact that the email messages were not illegal, nor would they impact the performance of the employer’s computer system. And they bore all the “hallmarks” of attorney-client communications.

For all these reasons, not the least of which the priority of the courts “to keep private the very type of conversations that took place here,” the court found that the conversations were protected by the attorney-client privilege.

Lawson is an ediscovery decision that has flown under the radar of most bloggers and legal commentators. It is a relatively short opinion, addressing whether sanctions should be imposed on the plaintiff and his former attorneys after the plaintiff unlocked certain password-protected documents produced by defendant in discovery that were privileged. The decision, however, implicates a number of ethical issues and the case could be used in teaching a course on ediscovery ethics. Because of the brevity of the district court’s opinion, many of the facts discussed below are taken from the Magistrate’s Report and Recommendation which can be read here.

The Magistrate, in addressing the defendant’s sanctions motion, described the issues presented by that motion as:

[T]he perfect storm of problems that can arise from voluminous electronic discovery in high stakes litigation. As with the storm of any magnitude – and this one might qualify as a Category 5 from the National Hurricane Center – the damage can be severe. Such is the case in the wake of this maelstrom.

The defendant claimed in its motion for sanctions that the case was an “ediscovery version of Watergate,” with the plaintiff acting as “the henchman who broke into the password-protected documents” and his counsel engaging in the “cover-up.” The district court, however, was not persuaded. While a relatively modest monetary sanction was imposed upon the plaintiff, the district court ultimately vacated the Magistrate’s recommended monetary sanction on plaintiff’s former counsel. Even when the defendant’s hyperbole is ignored, Lawson presents a number of knotty ethical issues that practitioners must be ready to recognize and properly address.

Password protected privileged information produced in discovery.

The plaintiff, David Lawson, filed suit claiming that he was owed several million dollars in incentive compensation for his efforts in securing a contract between Sun Microsystems and IBM. Plaintiff sought the production of a massive amount of ESI in discovery. After production of the requested ESI was delayed, plaintiff filed a motion to compel. That motion prompted the parties to enter into an agreement to expedite the ESI production. Under the parties’ agreement, the defendant agreed to produce its ESI with the understanding that plaintiff would provide the defendant with 14 days’ notice prior to using any of that information and defendant would have seven days to object to its use.

Subsequently, the defendant produced its ESI with a transmittal letter explaining that it had password protected certain privileged information that counsel had been able to review prior to production but had withheld data from certain custodians that it had not yet reviewed. The defendant indicated that it intended to review that additional ESI, password protect it and add references to privileged documents to its privilege log. One of the puzzling aspects of this case is the defendant withheld certain privileged information which it listed on the privilege log. The Magistrate never received a satisfactory explanation why some of the defendant’s privileged information was withheld and other privileged information was produced in a password protected format. Defendant’s privilege log explained that it produced the ESI in its native state without any review, but with the understanding that the plaintiff would provide 14 day advance notice of his intent to use any of the information and allow the defendant 7 days to raise an objection to that proposed use.

Because of the amount of ESI defendant produced, plaintiff’s counsel relied on his client to make an initial review of the defendant’s ESI to highlight and prioritize any information important to plaintiff’s claim. Subsequently, plaintiff sent his attorneys an email with a subject line: “Password protected files – Unlocked!” In that email, plaintiff explained that he had successfully unlocked most of the password protected files and wrote: “I suspect it remains to be seen if these will be considered ‘privileged’ with respect to our current situation or not.” Two days later, plaintiff sent a second email to his counsel referencing “unlocked documents.” The law firm which was then representing plaintiff withdrew several months later and another firm took over the prosecution of plaintiff’s claim.

Plaintiff’s successor counsel subsequently designated under the 14/7 day agreement information they intended to use in a deposition which included documents that had been password protected and listed by the defendant on its privilege log. And, as one might expect, accusations of misconduct by plaintiff and his former counsel then began to fly. Defendant requested, and was allowed to depose not only the plaintiff, but also plaintiff’s prior counsel about how the plaintiff obtained access to the password protected privileged information.

Plaintiff admitted in his deposition that he was able to unlock the password and gain access to the protected documents by using a utility that he downloaded from the internet. Plaintiff claims that he flagged for his attorney the fact that some of the documents were password protected and asked whether his counsel wanted plaintiff to try and open the documents. Plaintiff testified that his lawyer told him to not waste a lot of time, but to go ahead and try to open them.

Prior counsel for the plaintiff did not recall that conversation with his former client nor did he recall receiving the emails from plaintiff indicating he had unlocked the password protected documents. In an affidavit, counsel further affirmed that he never read or responded to the client’s email concerning unlocking the password. In his factual findings, the Magistrate pointed to several inconsistencies in the plaintiff’s testimony and concluded there was no basis to believe that plaintiff’s former counsel had actual knowledge of what the plaintiff had done.

Sanctions sought against plaintiff and his former counsel.

Defendant brought a motion for sanctions against the plaintiff for unlocking the password protected documents and reviewing the privileged information. Sanctions were also sought against plaintiff’s former counsel. Defendant accused counsel of violating Rule 1.2 of the Indiana Rules of Professional Conduct, which prohibits assisting a client in criminal conduct, and of violating Rule 4.1, which prohibits the failure to disclose a material fact to a third person when such disclosure is necessary to avoid assisting a criminal or fraudulent act by the client. The defendant further accused counsel of failing to properly monitor and supervise the actions of the former client and of violating Rule 1.4, which requires an attorney to have reasonable communications with the clients. Defendant requested monetary sanctions be imposed and that the case be dismissed under Fed. R. Civ. P. 37, the district court’s inherent powers, and pursuant to 28 U.S.C. §1927, which permits sanctions on an attorney who unreasonably and vexatiously “multiplies the proceedings in any case.”

The Magistrate’s imposition of monetary sanctions.

The Magistrate concluded that terminating sanctions under either Rule 37 or the court’s inherent power were not warranted, in part, because of the role which the defendant and its counsel “played in creating this perfect storm of a disaster.” The Magistrate pointed to the defendant’s delay in producing its ESI until ordered by the court and then “dumping” a massive production on the plaintiff without any review, relying instead on the 14/7 day agreement. The Magistrate questioned why the defendant decided to password protect certain privileged information rather than withhold it, and was critical of defense counsel’s failure to discuss this approach to handling privileged information with the plaintiff, noting that defendant made only one short mention of the password protected documents on the third page of a transmittal letter. The fact that defendant pulled and redacted other privileged documents in its production, led the Magistrate to reject defendant’s suggestion that password protecting privileged documents was an agreed upon protocol between the parties. After reviewing the password protected documents, the Magistrate further concluded that most of that information either had been or could be obtained through other discovery.

Determining that monetary sanctions were appropriate, the Magistrate nonetheless rejected defendant’s request for a six figure sanction, finding the defendant could have avoided most of the expense it incurred in investigating the plaintiff’s misconduct and in briefing the sanctions motion had it originally proceeded differently with its discovery. Noting the defendant and its counsel “could not escape several nagging questions,” the Magistrate again wondered why a party “would produce privileged documents at all,” and why the defendant provided documents “it now claims are so significant with such little notice that they were password protected?”

The Magistrate determined that a reasonable monetary fee for taking the deposition of plaintiff and his prior counsel and then briefing a “properly focused sanctions motion” should amount no more than $54,500. Fifty percent (50%) of that sanction was imposed on the plaintiff for intentionally accessing the password protected documents and for lying at his deposition. Twenty five percent (25%) was attributed to the defendant and its counsel for contributing to the “problem at hand,” and twenty five percent (25%) of the monetary sanction was imposed on plaintiff’s former counsel.

Finding it incredible that plaintiff’s former counsel had not noticed the subject line of the client’s email—“Password protected files – Unlocked!”—the Magistrate concluded that counsel’s failure to read or review the plaintiff’s emails was not without consequence. The court concluded that counsel’s actions were unreasonable and implicated Rule 1.4 of the Indiana Rules of Professional Conduct, which requires an attorney to reasonably communicate with a client. The Magistrate pointed to the fact that counsel had devised a discovery plan, which involved the client’s review of defendant’s discovery responses, but failed to supervise and communicate with the client during the process, an approach he found to be “blatantly careless.” The Magistrate ruled, however, that counsel had not vexatiously multiplied the proceedings so §1927 sanctions were not warranted. He recommended that sanctions be imposed on plaintiff’s former counsel under the court’s inherent power.

The district court’s rationale for vacating the sanctions upon plaintiff’s former counsel.

Counsel timely objected to the Magistrate’s recommendation under Fed.R.Civ.P. 72(b), arguing that because the Magistrate concluded that counsel did not engage in wilful misconduct or had acted in bad faith, the imposition of monetary sanctions under the court’s inherent power was improper. The district court agreed, citing Roadway Express, Inc. v. Piper, 447 U.S. 752, 767 (1980). In Roadway Express, the Supreme Court required that a finding be made that counsel’s conduct “constituted or was tantamount to bad faith” before the entry of “any sanctions under the court’s their inherent powers.” The Seventh Circuit reached a similar conclusion in Maynard v. Nygun, 332 F.3d 462, 470 (7th Cir. 2003), explaining “the assessment of fees against counsel under the inherent powers in the court is permitted only when there is a finding of wilful disobedience or bad faith.” Maynard further observed that “mere negligence” will not support a sanction under a court’s inherent power.

While recognizing defendant’s frustration with this conclusion, the district court noted that the defendant was not significantly harmed by plaintiff’s misconduct because many of the password protected documents contained factual information that could be otherwise obtained in discovery.

Ethical and privilege issues presented in Lawson.

The preamble to Illinois’ Rules of Professional Conduct, which are now based on the Model Rules, notes that one of an attorney’s primary responsibilities is to properly advise a client and explain the practical implications of the client’s legal rights and obligations.

The duty to reasonably communicate under Rule 1.4 – Given the complexities frequently encountered in ediscovery, Model Rule 1.4’s obligation to “reasonably consult with the client about the means by which he client’s objectives are to be accomplished,” plays a more prominent role in an ediscovery context than in many other aspects of an attorney’s representation. The failure to advise a client about the need to impose a litigation hold, and what the hold process should reasonably entail can result in the imposition of significant sanctions on both the client and the attorney. Failing to advise a client to identify and alert key custodians about the preservation obligation or to discuss with the client basic issues such as the format in which the client’s electronic information is generated and preserved and how long it is preserved can lead to missteps that will also result in sanctions.

Comment 5 to Rule 1.4 recognizes: “The client should have sufficient information to participate intelligently in decisions concerning the objectives of the representation and the means by which they are to be pursued, to the extent the client is willing to do so.” Comment 5 further explains this requires the attorney to consult with the client about “tactics that are likely to result in significant expense.” Given the skyrocketing costs of ediscovery, a disgruntled client could claim that he should have been consulted on any significant ediscovery decision an attorney made during the course of the representation. Whether that is true is debatable, but communication about ediscovery issues can be critical, and a close working relationship between the attorney and the client can avoid claims that Rule 1.4’s obligations were not fulfilled.

The duty to abide by a client’s decision – Rule 1.2 – Once the client has been properly advised and made a decision concerning how the objectives of the representation are to be accomplished, Model Rule 1.2 requires the attorney to abide by the client’s decision. While the Rule is not without its limitations such as where fraudulent or criminal conduct by a client may be at play, Comment 1 to Rule 1.2 states that the Rule “confers upon the client the ultimate authority to determine the purposed to be served by legal representation, within the limits of the law and the lawyer’s professional obligations.”

Various district court ediscovery decisions such as Zubulake, extend the client’s duty to preserve electronic information to the attorney, and have created a tension between the attorney and his client in light of Rule 1.2. The imposition of a duty to preserve on the attorney had also created new ethical pitfalls that have to be avoided. Where the client chooses not to follow an attorney’s advise about how the litigation hold process should be implemented or how information should be preserved or produced and sanctions could result, potential adversity between the attorney and the client may be triggered if a motion for sanctions is later filed which involves the issue on which the attorney and client disagreed. Comment 2 to Rule 1.2 acknowledges that when a lawyer has a fundamental disagreement with the client, the attorney may withdraw from the representation. Withdrawal by the attorney may be the only viable alternative to avoid drawing a sanctions motion stemming from the client’s refusal to abide by the attorney’s advise in this context. And, should the attorney be drawn into a sanctions battle stemming from the client’s decision not to follow the attorney’s advise, the potential for having to disclose information about the representation of the client in order to defend against the imposition of sanction may have to be considered by the attorney.

Duty to maintain confidentiality of information – Rule 1.6 – While the attorney-client privilege and an attorney’s ethical duty under Rule 1.6 of the Model Rules are related concepts, an attorney’s ethical duty under Rule 1.6 is far broader than the attorney-client privilege. Absent the client’s informed consent, an attorney may not reveal any information from any source relating to that representation subject to Rule 1.6’s limited exceptions discussed below. The duty imposed by Rule 1.6 is also not limited to judicial or adjudicatory proceedings like the attorney-client privilege. It must also be remembered that an attorney’s ethical duty of confidentiality survives the termination of the attorney client relationship under Model Rule 1.9(c).

Comment 16 to Rule 1.6 also notes that the rule imposes a duty to competently safeguard information relating to the representation of a client against inadvertent or unauthorized disclosure by an attorney or others participating in the representation who are subject to the lawyer’s supervision. Comment 17 explains that this requires reasonable precautions and does mandate that a lawyer employ special security measures if the method of communication affords a “reasonable expectation of privacy.” It further provides: “Special circumstances, however, may warrant special precautions. Factors to be considered in determining the reasonableness of the lawyer’s expectation of confidentiality include the sensitivity of the information and the extent to which the privacy of the communication is protected by law or by confidential agreement.”

Lawson demonstrates the relative ease with which password protected documents can be unlocked. The plaintiff in Lawson simply employed a utility which he downloaded from the internet in order to unlock the documents. Consequently, after reading Lawson, it is uncertain whether any tribunal in the future would find that adequate measures were taken to safeguard the client’s privileged information simply by password protecting the documents. Withholding the documents and disclosing their existence through a properly protected privilege log will avoid any question that adequate measures were not taken to maintain the security of the client’s information.

Another aspect of Lawson bears mentioning at this point. We would not recommend entering into the type of 14/7 agreement involved in Lawson. The Magistrate noted that defendant did not review the documents before they were produced in discovery under that agreement. The defendant relied on the right to object to the use of those documents within 7 days as provided in that agreement, as an adequate means to protect its client’s interests. However, it appears doubtful that a party producing documents under such an arrangement could claim reasonable precautions were taken prior to production as required under F.R.E. 502(b) when it never reviewed the documents prior to their production. This could result in a court concluding that F.R.E. 502(b)’s protection was unavailable and in a finding that the attorney-client privilege or work product protection had been waived. Additionally, other entities who were not parties to such an agreement could seek to obtain any documents produced pursuant to the agreement without having to overcome the hurdle of attorney-client privilege or work product protection. Remember that clawback, quickpeek and other types of non-waiver agreements are not enforceable against third parties under F.R.E. 502(e) unless they are incorporated into a court order.

Duty upon receiving inadvertently produced information – Rule 4.4 - Typically, when an attorney receives privileged information from his opponent, it was inadvertently produced by opposing counsel. The duty of the attorney receiving inadvertently produced information under these circumstances is relatively straightforward and is outlined in Model Rule 4.4(b). Rule 4.4 requires a lawyer who receives a document and knows it was inadvertently produced to promptly notify the sender. Comment 3 to Rule 4.4 permits a lawyer to return the document after learning it was inadvertently sent.

When a lawyer is not required by applicable law to return an inadvertently produced document, the decision whether or not to voluntarily return such a document is reserved to the professional judgment of the attorney. When an attorney chooses not to return an inadvertently produced document containing privileged information, F.R.E. 502 may be implicated. Determining if the privilege was waived will turn on whether the production was inadvertant, whether the party that produced the information took reasonable precautions before the production occurred and whether it took reasonably prompt steps to seek its return upon determining that an inadvertent production had occured.

Duty upon receiving improperly obtained information from the client or a third party – Multiple Rules – When an attorney receives information from the client or a third party that may have been obtained by an improper or unauthorized means as in Lawson, the issues presented are far more complex and far more ethically dangerous than when the attorney receives inadvertently produced information from opposing counsel.

Rule 1.2(d) prohibits a lawyer from counseling, engaging or assisting a client in conduct that a lawyer knows is “criminal or fraudulent.” Rule 1.0(d) defines the terms “fraud” or “fraudulent” as “conduct that is fraudulent under the substantive or procedural law of the applicable jurisdiction and has a purpose to deceive.” Comment 9 to Rule 1.2(d) explains: “This prohibition does not preclude the lawyer from giving an honest opinion about the actual consequences that appear likely to result from the lawyer’s conduct.” Comment 10 addresses what an attorney should do under the Rules when the client’s fraudulent activities has commenced:

When the client’s course of action has already begun and is continuing, the lawyer’s responsibility is especially delicate. The lawyer is required to avoid assisting the client, for example, in drafting or delivering documents that the lawyer knows are fraudulent or by suggesting how the wrongdoing might be concealed. The lawyer may not continue assisting the client in conduct the lawyer originally supposed was legally proper but then discovers is criminal or fraudulent. The lawyer must, therefore, withdraw from the representation of the client in the matter. See Rule 1.16(a). In some cases, withdrawal alone might be insufficient. It may be necessary for the lawyer to give notice of the fact of withdrawal and to disaffirm any opinion, document, affirmation or the like. See Rule 4.1. In such situations, the lawyer should consider whether disclosure of information relating to the representation is appropriate. See Rule 1.6(b).

Illinois’ recently adopted version of Rule 1.6 permits an attorney to disclose information when necessary in order to prevent the client from committing a crime or a fraud “that is reasonably certain to the result in substantial injury to the financial interests or property of another.” It also permits an attorney to reveal information when it would “mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client’s commission of a crime or fraud in furtherance of which the client has used the lawyer’s services.” A lawyer is further permitted under the Illinois version of Rule 1.6 to secure legal advice about compliance with his duties and responsibilities under the Rules or when necessary to establish a lawyer’s “claim or defense” in (1) any “controversy between a lawyer and the client,” (2) or when necessary “to establish a defense to a criminal charge or civil claim against the lawyer based upon conduct in which the client was involved,” or (3) when required “to respond to allegations in any proceeding concerning the lawyer’s representation of the client,” or (4) “to comply with other law or a court order.”

Where the attorney represents an organizational client and learns that an officer, employee or another person associated with the organization, either “intends to act or refuses to act in a matter related to the representation” which violates “a legal obligation to the organization,” or who may be engaging “in a crime, fraud or other violation of the law which may be imputed to the organization,” Model Rule 1.13 should be consulted. It permits the attorney to bring the matter to the attention of a “higher authority” within the organization. Where an alleged crime or fraud is involved, Rule 1.13(c) permits the attorney, in certain instances, to reveal information to others outside the organization, “but only if and to the extent the lawyer reasonably believes necessary to prevent substantial injury to the organization.”

Turning back to Lawson, while an argument can be made that the client’s unlocking password protected documents might not qualify as “fraudulent” conduct under a state’s substantive or procedural laws, it clearly undermines the integrity of the adjudicative process and violates at least the spirit, if not the letter of the rules. Improperly accessing privileged documents undermines the notion of fair competition embodied in Model Rule 3.4. Clearly a lawyer could not engage in that behavior, and as noted below, under Rule 5.3, supervising attorneys can be held liable in certain circumstances for the acts of non-lawyer assistants that would violate the Model Rules if performed by the attorney.

In this context, Model Rule 3.3 may also be implicated. Rule 3.3 prohibits a lawyer from knowingly making “a false statement of fact or law to a tribunal” and requires the attorney “to correct a false statement of material fact or law previously made to the tribunal by the lawyer.” Rule 3.3(b) further mandates that a lawyer who represents a client in an adjudicative proceeding who knows that a person has engaged, is engaging, or intends to engage “in criminal or fraudulent conduct related to the proceeding” to take “reasonable remedial measures, including, if necessary disclosure to the tribunal.”

Comment 10 to Rule 3.3 explains that a lawyer should advise the client about the attorney’s duty of candor and seek the client’s consent to withdrawing or correcting the false statement(s) or evidence. If the client does not consent, the attorney’s withdrawal from the representation is permitted. However, where withdrawal is either “not permitted or will not undo the effect” of the false statement or evidence, the attorney “must make such disclosure to the tribunal as is reasonably necessary to remedy the situation, even if doing so requires the lawyer to reveal information that otherwise would be protected by Rule 1.6.”

Obtaining legal advise on compliance with the Rules – Rule 1.6 - Perhaps the most critical of all the exceptions recognized to the Rule 1.6’s duty of non-disclosure is the attorney’s right to consult with counsel as to how to comply and if his or her professional obligations under the rules. Whenever an attorney is confronted with these type of tough ethical questions, the safest course of action is to consult with another lawyer who has significant expertise in navigating your states ethics rules. As this brief outline demonstrates, the answers to an attorney’s questions are not always clear, which is why seeking out advice can be critical for the lawyer.

However, when considering the proper course of action, consider which type of ethical violation you would rather defend – one in which you are accused of conspiring with a client to perpetrate a fraud upon the court and/or your opponent, or one in which you are alleged to have improperly disclosed information stemming from your representation of the client in order to prevent a fraud from being perpetrated upon the court or your opposing counsel or in an attempt to mitigate the damage flowing from the fraud? While attorneys want to avoid any ethical challenge, I would rather to err on the side of caution and defend the latter charge rather than the former.

Duty to supervise non-lawyer assistants – Rule 5.3 - Lawson also implicates Model Rule 5.3 That rule requires any lawyer having direct supervisory authority over a non-lawyer to make reasonable efforts to ensure that the non-lawyer’s conduct is compatible with the professional obligations of the supervising attorney. Rule 5.3(c) further makes the supervising lawyer responsible for any misconduct of the non-lawyer assistant which violates the rules of professional conduct, where the lawyer either orders or knowingly ratifies the non-lawyer assistant’s conduct or where a supervising attorney knows of the conduct at a time when its consequences can be avoided or mitigated and fails to take reasonable remedial measures to limit that harm. Model Rule 5.1 contains similar provisions relating the duties to supervise the activities of other lawyers involved in the representation of the client.

Accordingly, had the Magistrate in Lawson concluded that counsel authorized the client’s attempt to unlock the password or had reviewed the client’s emails and failed to instruct the client to stop and not review the documents, an argument could be made that Rule 5.3 was arguably violated.

Conclusion – The ethics of ediscovery is not simply “putting new wine into old skins,” rather it requires addressing issues that were not even imaginable as recently as a decade ago. Given the rapidity of technological change in today’s digital era, attorneys will have to keep abreast of those changes because the ethical issues now being presented will continue to evolve and new issues will emerge as the technology used by attorneys and their clients evolves and changes over time.

Rimkus Consulting Group, Inc. v. Cammarata, 2010 WL 645253 (S.D.Tex. February 19, 2010)

The Rimkus decision will likely prove to be one of the most important ediscovery decisions announced in 2010. The decision was written by Judge Lee H. Rosenthal, who chairs the Judicial Conference Committee on Rules of Practice and Procedure. It is a decision that merits the attention of any serious ediscovery practitioner.

The blogosphere has been all “a twitter” about Judge Shira Scheindlin’s recent opinion in Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC, 2010 WL 184312 (S.D.N.Y. January 5, 2010). However, Rimkus may ultimately prove to have more lasting and widespread significance.

Pension Committee addressed when the failure to properly preserve and collect ESI justifies the sanction of an adverse inference instruction. In a recent blog post about the Pension Committee decision, we raised several concerns about the opinion’s analysis and conclusions. While Rimkus involved allegations of wilful misconduct, including the intentional destruction of emails and other ESI after a duty to preserve had been triggered, Judge Rosenthal noted that there were “some common analytical issues” between Rimkus and Pension Committee, which merited discussion. Judge Rosenthal’s discussion of those common analytical issues in Rimkus addressed several of the concerns we highlighted in our Pension Committee post.

Judge Rosenthal observed that the rules surrounding the duty to preserve ESI and spoliation are not controversial. However, she recognized that applying them “to determine when a duty to preserve arises in a particular case and the extent of that duty requires careful analysis of the specific facts and circumstances.” She then observed:

It can be difficult to draw bright-line distinctions between acceptable and unacceptable conduct in preserving information and in conducting discovery, either prospectively or with the benefit (and distortion) of hindsight. Whether preservation or discovery conduct is acceptable in a case depends on what is reasonable, and that in turn depends on whether what was done – or not done – was proportional to that case and consistent with clearly established applicable standards.

The Seventh Circuit’s Electronic Discovery Pilot Program recognizes that Rule 26(b)(2)(B)’s principle of proportionality applies to the duty to preserve ESI. Principle 2.04(a) of the Seventh Circuit’s Pilot Program provides that parties and their counsel “are responsible for taking reasonable and proportionate steps to preserve relevant ESI ‘within its possession custody or control.’” Judge Rosenthal endorses that approach to preservation efforts in Rimkus. She cites THE SEDONA PRINCIPLES: SECOND EDITION, BEST PRACTICES RECOMMENDATIONS & PRINCIPLES FOR ADDRESSING ELECTRONIC DOCUMENT PRODUCTION 17, cmt. 2.b. (2000), as support for her conclusion on this point. In that comment, the Sedona Principles explain “electronic discovery burdens should be proportional to the amount in controversy and the nature of the case. Otherwise, transaction costs due to electronic discovery will overwhelm the ability to resolve disputes fairly in litigation.”

Judge Rosenthal further recognized that applying a categorical approach to the issue of sanctions can be difficult for similar reasons. When determining if sanctions are warranted and the nature of any sanctions to be imposed “requires a court to consider both the spoliating parties’ culpability and the level of prejudice to the party seeking discovery.” In other words, a court’s response to the loss of ESI depends on both the degree of culpability involved and the extent of any prejudice that results. Even with the intentional destruction of potentially relevant information, if no prejudice to the opposing party results, that should influence the sanctions that are imposed. Judge Rosenthal also recognized that even with an inadvertent loss of ESI, severe prejudice to the opposing party will influence the appropriate response to a request for sanctions, assuming there is some degree of culpability involved.

As a result, even though the defendants in Rimkus intentionally destroyed ESI in bad faith and provided false testimony about the destruction of that evidence, Judge Rosenthal refused to impose terminating sanctions. She noted that between the information the defendants did produce and the records plaintiff obtained through the issuance of subpoenas to several internet service providers, plaintiff had extensive evidence to present at trial. While acknowledging that plaintiff had suffered some prejudice, it was far from irreparable, and the issuance of a terminating sanction (dismissal or a default judgment) is appropriate only if the spoliation of evidence results in “‘irreparable prejudice’ and no lesser sanction would suffice.” Judge Rosenthal did authorize the issuance of an adverse inference instruction, but unlike Pension Committee, the court made the preliminary findings necessary to submit the spoliation evidence and the adverse inference instruction to the jury.

Judge Rosenthal also noted that the Fifth, Seventh, Eighth, Tenth, Eleventh and D.C. Circuits all appear to require evidence of “bad faith” before an adverse inference instruction can issue. She further observed that while the First, Fourth and Ninth Circuits do not necessarily require bad faith if severe prejudice is demonstrated, decisions from those Circuits frequently emphasize bad faith. She further explained that in the Third Circuit, courts balance the level of fault against the resulting prejudice. Thus, Judge Rosenthal concluded that the circuit differences on the degree of culpability necessary to warrant the issuance of an adverse inference instruction, limits the applicability of the approach taken in Pension Committee. And, following the Supreme Court’s decision in Chambers v. NASCO, Inc., 501 U.S. 32, 43-46 (1991), something more than negligence may be required when sanctions are imposed under a district court’s inherent authority.

Intentional deletion of emails and ESI bars the application of issue and claim preclusion.

Several former employees left Rimkus to start their own competing company offering similar investigative and forensic engineering services. Shortly after the new startup company was formed, those former employees filed a declaratory judgment action in Louisiana claiming that the forum-election, choice-of-law, non-competition and non-solicitation provisions in the employment agreements they had signed with Rimkus were unenforceable. Subsequently, Rimkus sued those employees in two separate lawsuits in Texas (that were ultimately consolidated before Judge Rosenthal) alleging they breached the non-competition and non-solicitation covenants of their employment contracts and that they used trade secrets and proprietary information in setting up their competing company.

The former employees were successful in their Louisiana declaratory action. There the court concluded that the challenged provisions of the employment contracts were unenforceable under Louisiana law. In the subsequently filed Texas federal suits, the former employees argued that it should be dismissed based on the preclusive effect of the Louisiana state-court decision which invalidated the non-compete, non-solicitation, forum-election and choice-of-law provisions in the employment contracts. That motion was denied because even if those provisions were unenforceable in Louisiana under Louisiana law, that finding did not make them invalid in all states.

Subsequently however, in the Louisiana state-court action, Rimkus filed an answer and a “reconventional demand,” which is similar to a counterclaim, asserting claims for breach of the employment agreement, breach of fiduciary duty and disparagement, arguing those claims should be governed under Texas state law. The trial court in the Louisiana action granted summary judgment to the former employees on those claims, which set the stage for what came next. The former employees then moved for summary judgment in the Texas federal court action on the grounds of res judicata.

Judge Rosenthal denied that summary judgment motion based on the spoliation of evidence that had occurred. She noted that the Restatement (Second) of Judgments provides, “that fraud, concealment or misrepresentation provide a basis to depart from claim preclusion.” She explained: “Issue preclusion does not apply when one party ‘conceal[s] from the other information that would materially affect the outcome of the case.’ Restatement (Second) of Judgments, §28(f), cmt. j. As a result, after weighing the policies underlying the law of preclusion against the defendants spoliation of evidence relevant to Rimkus’ claims, Judge Rosenthal concluded that exceptional circumstances existed and ruled that neither issue nor claim preclusion could be applied.

The record on summary judgment clearly demonstrated that the defendants had not only deleted emails and other ESI after a duty to preserve had arose, they also delayed producing documents, which demonstrated that information had been taken from Rimkus that was used in setting up the competing company. The defendants also provided incomplete information about their discovery efforts, which would have revealed the spoliation. Because none of the destroyed evidence was available to Rimkus during the course of the Louisiana action, Judge Rosenthal concluded that Rimkus did not have a full and fair opportunity to litigate the misappropriation, breach of fiduciary duty, and disparagement claims in the Louisiana lawsuit.

Rule 37(e)’s “safe harbor” provision was inapplicable.

Judge Rosenthal concluded that a duty to preserve was triggered no later than “when the defendants were about to ‘preemptively’ sue Rimkus” in the Louisiana state-court action. At that point, the defendants had an obligation to preserve documents and information, including ESI, relevant to the dispute with their former employer.

Fed. R. Civ. P. 37(e) precludes the imposition of sanctions where the loss of information results from the routine operation of a party’s computer system, when operated in good faith. The court concluded that Rule 37(e) was inapplicable in Rimkus. One of the former employees testified that he and the others decided on a “policy” of deleting emails more than two weeks old. Such a policy, which was put into place after a duty to preserve had arisen, did not constitute the “routine, good-faith operation of a computer system,” thereby vitiating Rule 37(e)’s protection. Additionally, information presented to the court established that the defendants selectively deleted emails that would have disclosed their activities, which further precluded the potential application of Rule 37(e).

Petitioner Irwin noticed that a local government agency used a picture of Irwin in an email “news blast.” He claimed the agency used the photo without his permission, and sought modest compensation for the use of the photo. When the agency refused, Irwin sought information about the agency’s collection of digital images under New York’s Freedom of Information Law (“FOIL”).

The request sought “[a]ll computer records that are associated with published [photographs] in all [of the agency's] publications, including [Web site] and e-mail activities, for the years 2005, 2006, and 2007.” The agency produced some photos that were of reduced quality and “bereft” of metadata.

Irwin filed a court action to compel, among other things, the disclosure of the metadata associated with the requested records. The trial court denied Irwin’s petition, and Irwin sought review with the appellate court. On appeal, the court amended the judgment to order the production of the metadata.

The court emphasized that the decision was limited to its facts. But the case is worth reading because of its concise yet thorough explanation of the various types of metadata and their discoverability.

In this case, the court found that the scope of the petitioner’s request included “system metadata,” which are things such as file names and extensions, sizes, creation dates and latest modification dates. The court noted that FOIL’s scope generally includes electronic records. It then compared system metadata to the notes on a file folder describing attributes of the documents stored in that folder. Drawing on these notions, the court found that the agency should disclose system metadata associated with the requested computer files.

The disclosure of metadata appears, at a superficial level, to present a paradox. Some courts, such as the ones in Kentucky Speedway, LLC v. NASCAR, Inc., 2006 U.S. Dist LEXIS 92028 (E.D. Ky.2006) and Michigan First Credit Union v. CUMIS Insurance Society, 2007 WL 4098213 (E.D. Mich. Nov. 16, 2007) have essentially found a presumption that metadata is not subject to disclosure because of the likelihood of its irrelevance.

But a look at emerging technologies such as those underlying the “semantic web” — an aspect of the World Wide Web in which data are encoded so that the various machines on the network can “understand” the data and thereby undertake the more mundane tasks of finding, sharing and combining information – underscore the potential importance of metadata.

Insightful counsel can break this paradox by remaining mindful of the need for metadata based on the claims and defenses raised in the matter. Hopefully the days of blanket requests for metadata, without a principled basis for such requests are over. Just like any other sort of information that pertains to a case, metadata has no inherent relevancy. Instead, the question of whether it should become a part of the record depends on its meaning. Metadata’s discoverability (or amenability to disclosure under freedom of information laws) should depend not on the fact that it is “metadata,” but on how it can serve to explain the scenario underlying the dispute.

Interested readers should also be aware of related opinions from other states. For example, the Arizona Supreme Court has held in (Lake v. City of Phoenix) that metadata is subject to disclosure under the state’s open records statute. Given the burden to governmental agencies tasked with responding to public requests, the issue of metadata’s discoverability is unlikely to disappear soon.

AccessData is a software developer that entered into an agreement with ALSTE to sell its software products. AccessData brought a breach of contract action against ALSTE involving the sale of its forensic software. ALSTE claimed that the software was defective and filed a counterclaim asserting a breach of a technical support agreement. In discovery, AccessData sought production of information concerning customer complaints and any damages flowing from that counterclaim. ALSTE objected, arguing that the discovery requests were overbroad and the disclosure of information about the identities of third parties who voiced the complaints would violate German law. AccessData brought a motion to compel that information and also sought the reproduction of emails in their native format.

Failing to follow Rule 34’s requirements triggers order to reproduce ESI in a reasonably useable form.

In several of our prior blog posts which you can read here and here, we discussed Rule 34’s process for addressing the format of ESI production. Rule 34(b)(2)(D) requires the party responding to a production request to inform the requesting party of the format in which it proposes to produce its ESI in two scenarios – when the producing party objects to the requested production format specified in the production request or if no form is specified in that request. That is precisely what occurred here. AccessData did not specify a format in its Rule 34 production request. ALSTE scanned hard copy printouts of emails and other documents rather than produce them in their original electronic format. Apparently, Optical Character Recognition (“OCR”) was not added to the PDF images because AccessData argued that the documents were not reasonably usable because they were not “searchable.”

ALSTE argued that it would be unnecessarily burdensome and expensive to now extract specific information to make the emails text searchable and pointed to Rule 34(b)(2)(E)(iii) which provides that a party is not obligated to produce the same ESI in more than one form.

The court was not persuaded by these arguments. It noted that ALSTE failed to follow Rule 34’s requirements by failing to notify the plaintiff of the format it intended to use in producing the requested discovery. As the Advisory Committee Notes to the 2006 Amendment to Rule 34 explains:

Stating the intended form before the production occurs may permit the parties to identify and seek to resolve disputes before the expense and work of the production occurs. A party that responds to a discovery request by simply producing electronically stored information in a form of its choice, without identifying the form in advance of the production and the response required by Rule 34(b), runs the risk that the requesting party can show that the produced form is not reasonably usable and that it is entitled to production of some or all of the information in an additional form.

Fed.R.Civ.P.34(b) Advisory Comm. Notes to 2006 Amendment

Rejecting ALSTE’s argument, the court pointed to another statement appearing in the Advisory Committee Notes to Rule 34 that warns:

If the responding party ordinarily maintains the information it is producing in a way that makes it searchable by electronic means, the information should not be produced in a form that removes or significantly degrades this feature.

Id. The court in AccessData concluded that the scanned PDF’s were not reasonably usable and ordered the defendant to reproduce the electronic discovery in its native format or in a reasonably usable form.

German Data Protection Act and Hague Convention did not bar disclosure of personal third-party information.

ALSTE argued that German law prohibited the production of third-party personal information and suggested that if it complied with the plaintiff’s discovery requests, it would be subject to civil and criminal penalties. The district court rejected that argument and noted that one provision of the German Data Protection Act specifically provides that transfers of “personal information to countries that do not have the same level of data protection ‘shall be lawful, if … the data subject has given his/her consent [or] … the transfers are necessary or legally required… for the establishment, exercise or defense of legal claims.’”

Additionally, the court observed that in Societe Nationale Industrielle Aerospatiale v. United States District Court, 482 U.S. 522, 544 n.29 (1987), the Supreme Court held: “It is well settled that such [blocking] statutes do not deprive an American court of the power to order a party subject to its jurisdiction to produce evidence even though the act of production may violate the statute.” Moreover, the Supreme Court cited the American Law Institute’s Restatement which explains:

When a state has jurisdiction to prescribe and its courts have jurisdiction to adjudicate, adjudication should (subject to generally applicable rules of evidence) take place on the basis of the best information available …. [Blocking] statutes that frustrate this goal need not be given the same deference by courts of the United States as substantive rules of law at variance with the laws of the United States.

Id. (quoting Restatement of Foreign Relations Law of the United States (Revised) § 437, Reporter’s Note 5 (1986)).

ALSTE suggested that plaintiff must comply with the rules set forth in the Hague Convention for Taking Evidence Abroad with respect to the private information about the defendants’ customers. The district court summarily rejected that argument by again pointing to the Supreme Court’s Societe Nationale decision where the Court held “we cannot accept petitioners’ invitation to announce a new rule of law that would require first resort to [Hague] Convention procedures whenever discovery is sought for my foreign litigant.” Id.

Under the holding of Societe Nationale, parties might have to comply with Hague Convention procedures where suits involve foreign states or if “the additional cost of transportation of documents or witnesses to or from foreign locations … increase[s] the danger that discovery [is] sought for [an] improper purpose.” Id. at 546. Because neither scenario was presented by the plaintiff’s breach of contract action, the district court in AccessData ruled that the Hague Convention procedures were inapplicable.

Laptop photo courtesy Flickr user Mike Licht under this Creative Commons license.

The committee developed a set of ediscovery principles intended to serve as supplemental guidelines to be followed by litigants participating in the program. These principles were codified into a standing order which is being used in selected cases to assess their effectiveness. Kenneth J. Withers, the Director of Judicial Education and Content for The Sedona Conference, and Rebecca L. Kourlis, the Executive Director of the Institute for the Advancement of the American Legal System at the University of Denver assisted in the process of drafting these principles.

What makes these principles unique is that they will be tested during phases of the Pilot Program. The results for Phase I of the program will be presented in May 2010 at the Seventh Circuit’s Annual Meeting. They will then be evaluated and refined. Phase II will then run from June 2010 to May 2011. At that juncture, the committee will present its findings and issue its final principles.

Below is to a set of PowerPoint slides addressing the program and the ediscovery principles that are currently being tested.