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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State court practitioners beware: sanctions can be entered against your clients for failing to preserve emails, even if your state has not adopted a set of ediscovery rules

Einstein v. 357 LLC, et. al. (N.Y. Supreme Court, October 21, 2009)

In Einstein, a trial judge in the Supreme Court of the State of New York recently entered sanctions against several defendants for their failure to implement a litigation hold which resulted in the loss of emails relating to the presale condition of a condominium unit purchased by the plaintiffs in Brooklyn, New York. The trial judge recognized that even though New York had not yet enacted any rules addressing electronic discovery, and that its Civil Practice Law Rules and common law decisions were silent on the need to institute a litigation hold, New York courts have turned to the Federal Rules of Civil Procedure and case law interpreting them for guidance in other contexts.

The crux of the problem in Einstein was the limited storage capacity of the company’s email server. Each of the company’s brokers were allocated 200 megabytes of space, and once that limit was reached, a broker could not send or receive emails until that space was cleared for more email traffic. As a result, brokers had to clear old emails from the system in the ordinary course of their business. Unfortunately, a litigation hold was never instituted, and as a result, emails (several of which the plaintiff’s produced to the defendants) were not preserved. While emails were forwarded through a central server, the company’s email system was configured in such a way that once an email was deleted by an individual user from the user’s inbox, it was also deleted on the central server. While daily, weekly and monthly backup tapes were made of the email server, the daily and weekly backups were periodically reused. Thus, if emails sent or received during a particular month were also deleted during that month, the monthly backup would not capture those deleted emails.

The court concluded the defendants’ counsel and the company’s IT director failed to investigate the basic mechanics of the company’s email system and its retention practices until 11 months after plaintiffs first served their document demands upon the defendants. The court further concluded that defendants were aware of the fact that the contents of their emails would be relevant to the litigation and recalled that it had repeatedly warned defendants about the need to make a complete production of those emails. Accordingly, the court ruled that the defendants’ failure to take any steps “to implement a litigation hold, relying instead on backup tapes that a reasonable investigation would have revealed failed to capture relevant emails deleted manually by individual users,” constituted gross negligence, and warranted a finding of spoliation.

Therefore, the court imposed sanctions in the form of an adverse inference instruction relating to the missing emails, and awarded attorneys’ fees as well as expert costs associated with the review of the defendants’ hard drives.

While admittedly, a trial court decision lacks any precedential value, Einstein amply demonstrates that parties who are sued in state court, even in those states which have not enacted their own set of ediscovery rules, are not immune from ediscovery sanctions. One of our recent posts identified those states which had adopted their own set of ediscovery rules. Outside counsel would be wise to advise their clients of the need to impose a litigation hold in every case in which they are retained, even state-court proceedings, and seek to preserve ESI in state-court litigation. Counsel also would be wise to investigate the client’s email and information systems as well as its paper and electronic retention/destruction policies. Companies and their counsel can no longer safely assume that because a particular state has not enacted its own set of ediscovery rules that the client has no obligation to preserve and produce relevant electronically stored information.

Photo courtesy Flickr user Mike Licht under this Creative Commons license.

View the opinion below or by clicking here.

Einstein_v_357

Avoiding ethical pitfalls of communicating with clients via email

Leor Exploration & Production, LLC v. Aguiar, 2009 WL 3097207 (S.D. Fla. Sept. 23, 2009)

The twentieth century Spanish philosopher and poet George Santayana once wrote: “Those who cannot learn from history are doomed to repeat it.” The Leor decision proves that philosophy is especially true when it comes to the realm of ediscovery. Leor is another example of a growing body of caselaw addressing whether emails sent or received by an employee through his employer’s email server are protected by attorney-client privilege. In a prior blog post we discussed several decisions that have addressed this issue and attempted to reconcile their holdings.

Guma Aguiar was the CEO and Vice Chairman of Leor Exploration & Production LLC (“Leor”). He retained a “trusts and estates attorney” to document his interests in certain entities. Subsequently, that attorney sent an email to Aguiar’s personal advisor and agent, Garrett Smith, who also happened to be the Vice President and In-House General Counsel of Leor, which memorialized a conversation involving the three of them. The email was sent to Mr. Smith’s work email address at Leor. After a series of lawsuits erupted between Aguiar, his uncle and related entities involved in oil and gas exploration, the attorney’s email surfaced in discovery and the issue presented to the court was whether it was protected by the attorney-client privilege.

Leor held that the attorney’s email to his client’s personal advisor and agent was not privileged because the client lacked a reasonable expectation of privacy in emails transmitted through his employer’s (the company’s) email server. In reaching that conclusion, the court identified four factors that should be considered in determining whether an employee has an expectation of privacy in email communications:

• Does the corporation maintain a policy banning personal or objectionable use;
• Does the corporation monitor the use of the employee’s computer or e-mail;
• Do third parties have a right of access to the computer or e-mails; and
• Did the corporation notify the employee or was the employee aware of the use and monitoring policies?

Because each of the four factors were present, the court in Leor had little difficulty in concluding that plaintiff did not meet his burden of establishing the applicability of the attorney-client privilege. However, the privilege belongs to the client not the lawyer, and the decision fails to address how an attorney can waive the privilege belonging to the client without the client’s consent. When the client sends an email to his attorney with knowledge of the four factors noted above, one can argue the client impliedly waived any right to assert the privilege, but the converse is not necessarily true. However, the decision follows the approach taken in Scott v. Beth Israel, and lawyers must take care not to run afoul of the decision.

In our prior blog post addressing this issue, we discussed how some courts have ruled that email communications retained their privileged character when they were encrypted or involved password protected web-based email notwithstanding the fact that they were sent or received via a company issued computer. While that post focused on the duties and responsibilities of a company’s attorney who receives or reviews employee emails, Leor highlights the responsibilities of any attorney communicating with his client via email.

Reasonable communication between an attorney and his or her client is necessary under Rule 1.4 of the Model Rules of Professional Conduct. Rule 1.6 of the Model Rules further requires that an attorney act competently to safeguard confidential information relating to the representation of a client against its inadvertent or unauthorized disclosure. Under Rule 1.6, a lawyer is obligated to take reasonable precautions to prevent information from coming into the hands of unintended recipients. That does not necessarily require that a lawyer use special security measures, such as encrypting emails, where the mode of communication affords a reasonable expectation of privacy. However, special circumstances can require that special precautions be taken.

While the decisions are not uniform in their holding, given the growing body of caselaw addressing the waiver of attorney-client privilege involving workplace email communications, an attorney should consider whether special precautions may be warranted in this scenario, especially if you practice in a jurisdiction where you would have reason to believe a court may find a waiver occurred. An attorney should consider addressing this issue at the outset of any representation with his client. Lawyers would be wise to follow the age-old adage: an ounce of prevention is worth a pound of cure. If the risk of privilege loss is to be avoided, then neither the attorney nor the client should communicate with one another through any email server or by any means in which they lack a reasonable expectation of privacy. While that does not mean that an attorney cannot communicate via email with his client, the attorney should endeavor to avoid emailing the client at the client’s place of business and should consider advising the client to not communicate with him through a company-issued computer, Blackberry or other communication device. Consider alternative methods of communication. While a client may consent to the use of a mode of communication that would be prohibited by Rule 1.6, that consent must be “informed.”

So before you send that next email to a client, stop and assess whether there are any privilege issues implicated by your communication. Don’t let convenience trump confidentiality. Where appropriate, clients should be advised of the risks of communication via company-issued computers or Blackberries in order to avoid a waiver of privilege as in Leor.

Photo courtesy Flickr user Michael Licht under this Creative Commons license.

How the privilege applicable to a lawyer’s litigation hold letter may be forfeited, and the ethical dilemma it potentially triggers – the Morton’s Fork created by Major Tours v. Colorel.

Major Tours, Inc. v. Colorel, 2009 WL 2413631 (D.N.J. Aug. 4, 2009)

Wikipedia defines Morton’s Fork as “a choice between two equally unpleasant alternatives (in other words, a dilemma), or two lines of reasoning that lead to the same unpleasant conclusion. It is analogous to the expressions ‘between the devil and the deep blue sea’ or ‘between a rock and a hard place.’” Wikipedia explains that Morton’s Fork is “the opposite of the Buridan’s Ass.” It is similar to a “Catch 22” in that it involves a “no win situation,” but does not involve the use of circular logic.

What is the only area of law where a lawyer is required, under the pain of sanctions, to write a letter and provide advice to a client that potentially can be used as evidence against that client? Where else is “discovery about discovery” becoming the norm, rather than the exception? The answer is the post-Zubulake world of electronic discovery in which we now find ourselves.

Today, if a lawyer fails to issue written litigation-hold instructions, and/or then fails to take appropriate follow-up steps, the lawyer can be sanctioned if electronically stored information (“ESI”) is not properly preserved by the client. While a lawyer’s litigation-hold letters are generally considered privileged, e.g., Muro v. Target Corp. 250 F.R.D. 350, 360 (N.D.Ill. 2007), the court in Major Tours held that they must be produced when a preliminary showing of spoliation has been made. And, when that occurs, a lawyer’s litigation hold letter will invariably be used against the client as evidence that the client failed to heed the lawyers advice.

The court in Major Tours concluded that a duty to preserve was triggered by a letter sent to the New Jersey Attorney General and the Commisioner of the New Jersey Department of Transportation approximately twenty-two (22) months prior to suit being filed. A litigation hold was not issued until after suit was brought, and the court found it was “probable that relevant evidence was lost before the defendants issued their litgation hold.” Thus, in the court’s view, because a preliminary showing of spoliation had been made, the attorney’s litigation-hold letter had to be produced. In other words, the client forfeited the right to assert attorney-client privilege by failing to issue a litigation hold before the attorney’s privleged litgation hold letter was ever sent to the client.

The rationale applied in Major Tours could trigger an ethical dillemma, and the potential for a conflict for outside counsel in future cases when a duty to preserve ESI was arguably triggered before suit was filed, and the client failed to institute a litgation hold at that time. If the lawyer failed to send a litigation hold letter, the lawyer could be sanctioned. However, if the lawyer sends a hold letter and the court follows the approach taken in Major Tours, the attorney’s privileged communication potentially may become discoverable, and be used as evidence against the client. While a party may be entitled to learn what steps an opponent took to preserve ESI once a preliminary showing of spolilation occurs, finding the attorney-client privilege was forfeited in this scenario would appear to be an ill-concieved approach. It triggers for the lawyer a Morton’s Fork – a choice of protecting himself from sanctions knowing that his advice may potentially be used against the client. Thus, does Zubulake’s requirement that a lawyer issue written litgation-hold instructions inevitably create a conflict between the lawyer and his client?

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An opinion sure to make everyone’s “Top Ten” list of ediscovery decisions for the year

Goodman v. Praxair Servs. Inc., 632 F.Supp.2d 494 (D.Md. 2009)

Near the end of the year, various commentators and bloggers will typically post their list of top ediscovery decisions for the year. While it may be a bit early for predictions, one decision that should make everyone’s top ten list this year is Goodman v. Praxair Services. The decision was written by Judge Paul Grimm who also was the author of the Hopson, Victor Stanley and Mancia decisions. Judge Grimm always seems to be on the leading edge of ediscovery issues.

Praxair is notable for its comprehensive treatment of issues that frequently arise involving the preservation of electronically stored information (“ESI”) and sanctions that can result for the failure to do so. The decision contains more ediscovery law than many book chapters on the topic. Even the most experienced ediscovery practitioner will find some helpful insights in the decision. If there is one ediscovery decision you read this year, Praxair should be the one. The issues addressed by Judge Grimm in Praxair include:

• The trigger date for a duty to preserve
• The timeliness of a spoliation motion.
• Identifying the “key players” to whom the litigation hold should be directed.
• Determining what ESI is under a party’s control.
• Distinguishing the duty to preserve from the duty to produce.
• Ediscovery and small “mom and pop” companies.
• Whether sanctions can be imposed for the spoliation of evidence by an agent.
• State of mind required for spoliation sanctions.
• Four scenarios when costs and attorney fees are allowed.
• Sanctions for unilaterally preserving only the ESI that a party deems relevant.

Judge Grimm even traces the “historic roots” of spoliation to Armory v. Delamirie, 93 Eng. Rep. 664 (K.B. 1722), which he describes as a Dickensian tale of avarice and greed involving a chimney sweep’s discovery of a jewel and a goldsmith’s subsequent attempt to keep it for himself. Because of Judge Grimm’s comprehensive treatment of the issues noted above, we have divided our review and commentary on Praxair into multiple parts that will appear over the next few days on Practical Ediscovery. This first part outlines Praxair’s factual background and addresses when a duty to preserve is triggered.

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Seventh Circuit’s Electronic Discovery Pilot Program

Recently, the Seventh Circuit announced its Electronic Discovery Pilot Program. The program was developed in response to continuing comments by the business community and practicing attorneys about the need to reform the civil pretrial discovery process. It is an attempt to reduce the cost and burden of ediscovery in litigation. What makes the Seventh Circuit’s pilot program unique is that its results will be reviewed and analyzed during the program’s phases.

A series of Principles Relating to the Discovery of Electronically Stored Information (“ESI”) were developed and codified in a standing order. These principles are intended to serve as supplemental procedural ediscovery guidelines for the parties in selected cases. Individual district court, magistrate, and bankruptcy judges in the Seventh Circuit have agreed to adopt the principles and implement them in selected cases during Phase I of the program, which runs through May 1, 2010.

Kenneth J. Winters, the Managing Director of the Sedona Conference®, and former Colorado Supreme Court Judge Rebecca Kourlis, the Executive Director of the Institute for Advancement of the American Legal System (“IAALS”) at the University of Denver, assisted in the development and review of these principles.

IAALS is developing questionnaires to assess the efficacy of the principles. The questionnaires will be completed by the judges and lawyers participating in Phase I of the program. The results of the IAALS’ questionnaires will be presented to the Seventh Circuit at its annual meeting in May, 2010. At that time, the program’s ediscovery principles will be reviewed and refined as needed. Phase II of the program is scheduled to proceed from June, 2010 through May, 2011. It is contemplated that in May, 2011, Phase II findings will be presented and the Seventh Circuit’s final ediscovery principles announced.

Among other things, the principles require in the event of a dispute during the meet and confer process, the appointment of an ediscovery liaison who should be prepared to participate in ediscovery dispute resolution. These principles also recognize that that Rule 26(b)(2)(C)’s proportionality principles should be applied when formulating a discovery plan; provide that sanctions can be imposed for the failure to cooperate and participate in good faith in the meet and confer process; identify categories of ESI, which are generally not discoverable in most cases; and provides that if a party intends to request the preservation or production of these categories of ESI, that such a request be discussed at the parties’ initial meet and confer session or as soon thereafter as practicable.

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Failing to take prompt reasonable steps once notified of an inadvertent production results in privilege waiver – you’ve now entered the Twilight Zone

United States v. Sensient Colors, Inc., 2009 WL 2905474 (D.N.J. Sept. 9, 2009)

“You’re traveling through another dimension, a dimension not only of sight and sound, but of mind; a journey into a wondrous land whose boundaries are that of imagination – Next stop, the Twilight Zone.”

Any lawyer who inadvertently produces privileged information steps into a legal twilight zone. However, that legal twilight zone is not a “wondrous land,” but one filled with sleepless nights and many questions. How did it happen? When and how do I tell the client? How do I get the materials back? Will I lose the client, my job, my career? With ediscovery, the risk that privileged or confidential information will be inadvertently produced geometrically increases. While the use of clawback or nonwaiver agreements and FRE 502(b) lessen that risk, they do not eliminate it. Sensient Colors establishes that point.

Sensient Colors involved the electronic production of 45,000 documents totaling 135,000 pages or 450 boxes of records by the United States (“government”). Several months after that production was completed, the defendant initially returned a group of documents that were privileged. Over the ensuing months, the defendant continued to identify additional documents that the government had produced but were privileged. Ultimately, the defendant sought a ruling that the government had waived its right to assert privilege over the documents it had produced.

The court in Sensient Colors concluded the privileged documents were inadvertently produced by the government and that the requirements of FRE 502(b) were met as to the first group of documents the defendant returned. However, as to the subsequently identified privileged documents, the court ruled that the government waived its right to assert privilege under Rule 502(b) as to those documents because it had failed to promptly take reasonable steps to rectify its error after being notified of the initial inadvertent production.

The explanatory note to FRE 502 provides: “The Rule does not require the producing party to engage in a post-production review to determine whether any protected communication or information has been produced by mistake.” However, the court in Sensient Colors concluded that once a party has been put on notice that privileged information has been inadvertently produced, Rule 502(b)(3) requires the producing party take “prompt and reasonable steps to reassess its document production.” The court in Sensient Colors concluded the government failed to act reasonably and diligently to correct its error and waived its privilege and work-product protection as a result.

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State court ediscovery rules scorecard

Anyone old enough to remember when Jack Brickhouse and Lou Bodreau were WGN’s broadcasters for the lovable losers on the north side of Chicago, will have fond memories of the venerable public address announcer who graced the “friendly confines” known as Wrigley Field. At the beginning of each game Pat Pieper would begin with his signature announcement: “Attention, Attention, please! Have your pencils and scorecards ready and I will give you the correct lineups for today’s game.”

As of September 2009, there are 24 states which have enacted their own electronic discovery rules. Staying on top of this movement is important for attorneys with multi-jurisdictional practices and for general counsel whose companies operate in multiple states or ship their products through out the country, and as a result, are sued in various jurisdictions. Texas adopted its ediscovery rules (Tex. R. Civ. P. 196.4) before the federal rules were enacted and has not attempted to amend its rules to mirror the federal rules. Several of the states listed below (Idaho and Mississippi) follow the Texas approach. While other states have attempted to base at least some of their ediscovery rules on the corresponding federal provisions, in some instances there are obvious gaps and differences between the analogous state and federal rules, and in others, the variations are subtle, yet significant. So there is no substitute for reviewing the actual rules themselves.

Thus, with a tip of the hat to Tom Allman who originally began tracking those states that adopted their own set of ediscovery rules, and with a bow to Pat Pieper, get your pencils and scorecards ready for a list of those states that have enacted ediscovery rules which are linked below to their respective state rules:

• Alaska
• Arizona
• California
• Idaho
• Indiana
• Iowa
• Kansas
• Louisiana
• Maine
• Maryland
• Michigan
• Minnesota
• Mississippi
• Montana
• Nebraska
• New Hampshire
• New Jersey
• North Dakota
• Ohio
• Tennessee
• Texas
• Utah
• Virginia
• Wyoming

Pat Pieper served as the public address or field announcer at Wrigley Field for 59 years – he worked longer in that capacity than the ediscovery rules listed above likely will. Some fun facts about Pat on his Wikipedia page are that from 1916 to 1932, he used a megaphone to make his field announcements, and he never missed a game at Wrigley Field after 1924 until he retired in 1974. He likely should be listed in Ripley’s Believe It or Not for watching the most baseball games ever lost. Had he only gone to the South Side and worked for the White Sox, at least he could have watched some winning baseball including the 1959 Champs known as the Go Go Sox. Yes, I admit it, I am a White Sox fan, and I am waiting for the most interesting manager in baseball, Ozzie Guillen to pop back up on Twitter. Or was he also Twitterjacked?

Scorecard photo courtesy of Flickr user Caitlinator under this Creative Commons license.

Blackberries ‘N SYNC’d with company servers did not prevent the imposition of sanctions for failing to preserve ESI on the Blackberries

Southeastern Mechanical Servs., Inc. v. Brody, 2009 WL 2883057 (M.D.Fla. Aug 31, 2009)

Blackberries, iPhones and similar devices used by a company’s employees contain electronically stored information (“ESI”), that must be preserved when a litigation hold is imposed. Many companies today have hundreds, if not thousands, of employees who use PDAs for company business, complicating the litigation hold process.

If you are a general counsel who believes the use of PDAs shouldn’t pose much of a litigation concern because they are synchronized to your company’s email servers so that any emails sent or received by your employees from those devices reside on your company’s servers, think again, and then read Brody. The fact that employee Blackberries were synced to the company’s email server did not preclude sanctions from being entered. Brody appears to be the first reported ediscovery decision where sanctions were imposed for failing to preserve data on individual Blackberries. Electronic information on individual PDAs must be preserved with no strings attached.

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The failure to timely issue a litigation hold did not itself create a question of material fact warranting the denial of summary judgment

Kotakis v. Wesco Distrib., Inc., 2009 WL 1850827 (W.D.Pa. June 26, 2009)

In Kotakis, plaintiff filed a Title VII claim asserting she was subjected to discrimination and retaliation because of her gender. The defendant moved for summary judgment, and plaintiff argued that a genuine issue of material fact was triggered because the defendant failed to take steps to preserve its electronically stored information (“ESI”) until nearly eleven (11) months after receiving notice of the litigation.

The district court quickly disposed of plaintiff’s argument. It observed that following Lujan v. National Wildlife Fed’n., 497 U.S. 871, 888 (1990), the party opposing summary judgment must proffer specific evidence found in the record which demonstrates the existence of a genuine factual dispute on a material issue which requires resolution by a jury. The district court in Kotakis held no question of material fact was presented by the plaintiff, and entered summary judgment in defendant’s favor.

In a footnote, the district court acknowledged plaintiff’s argument that the defendant failed to timely issue a litigation hold, but noted a recent decision, Phillips v. Potter, 2009 WL 1362049, *4-6 (W.D.Pa. May 14, 2009), which ruled that sanctions were inappropriate even though the defendant failed to timely issue a litigation hold when “there was no evidence that relevant documents were destroyed.” The district court in Kotakis found the logic of Potter persuasive, and applied its rationale in rejecting plaintiff’s summary judgment argument. Kotakis, 2009 WL 185027 at *4, n.2.

Thus, when a party opposing summary judgment fails to establish that potentially relevant ESI was lost due to a failure to timely institute a litigation hold, the mere fact that the moving party failed to timely take the necessary procedures to preserve ESI does not, in and of itself, provide a basis to deny the entry of summary judgment.