Production of documents in their “native file format” is gaining traction in litigation.  But, what exactly is a native file? And why should I care about it?

Native format is the file structure of an electronic document as defined by the application that created that electronic document.

So, for example, if a spreadsheet was created using Microsoft Excel, then that document’s native format is its original Excel format (.xls).  Insofar as litigation is concerned, when producing documents, the producing party has to consider whether to produce a responsive document in its native format (the .xls) or to convert the document to another electronic format (i.e., PDF).   The format (i.e., native or something other) is something that should be carefully considered for a number or reasons.  First, the format in which a document is produced can affect the costs of production.  Second, the format in which a document is produced can affect the utility of the document itself.  Finally, the format in which a document is produced can affect one’s ability to redact the document (or inadvertently modify the document).

Consider a Microsoft Excel document.  First, producing the document in Excel format is less costly in that one does not need to convert the document to a .tiff or .PDF.  Similarly, the producing party does not need to expend the money (albeit minimal) in branding the native file with confidentiality legends or bates stamps.  Thus, production in a native file format can be more cost efficient.  Additionally, an Excel document can often have embedded formulas (or at least allow the end user to embed formulas to make the document more user-friendly).  These features are lost when the document is converted to another electronic format prior to production.  If the document is converted prior to production, the receiving party may be at a disadvantage should they have desired to “slice and dice” the data in the spreadsheet, for example.   Finally, what if the .xls spreadsheet needs to be redacted?  Redacting the native file can be quite difficult.  For example, a native file Excel spreadsheet may have multiple worksheets, formulas, pivot tables and macros.  Thus it can become a very complex process as each change can trigger a number of unforeseen additional changes in different parts of the worksheet.  Moreover, redacting the native file would, by definition, cause the file data and metadata of that file to be changed.  Therefore, counsel would need to track the redacted version alongside the clean version of the native file.  Quite the undertaking! Consequently, a common compromise is to produce an .xls that requires redaction in a PDF format.

There are numerous arguments for and against native file productions.  The main benefit of a native production is that the electronic evidence can be produced without degradation.  That said, it is critical to assess the potential benefits and drawbacks of a native production on a case by case basis before committing to a production format.

 

Recently, two separate New York courts (the First Department and the Southern District) issued decisions imposing sanctions upon litigants who failed to comply with preservation obligations.  While a summary of those decisions and hyperlinks to the full decisions follow, attorneys should take heed that it is critical to timely and properly issue litigation hold notices when litigation is reasonably anticipated.   Irrespective of whether we are practicing in State or Federal court, our obligations to preserve potentially relevant information are not to be taken lightly.

Appellate Division, First Department Upholds (and Modifies) Sanctions Imposed by Trial Court Because of Plaintiff’s Failure to Timely Issue Litigation Hold.

This decision, issued on June 28, 2016, by the Appellate Division, First Department discusses what sanctions are appropriate when a party fails to comply with its preservation obligations.  Specifically, before the First Department was an Order of the Supreme Court, New York County (Carol R. Edmead, J.), which granted defendant’s renewed motion for spoliation sanctions, and dismissed plaintiff’s complaint.  The First Department unanimously modified the trial court’s decision to dismiss the complaint and instead awarded defendant an adverse inference charge at trial as to the spoliated evidence.

The factual underpinnings of the lawsuit involve allegations of legal malpractice against defendant Herrick, Feinstein LLP (Herrick) in connection with Herrick’s representation of plaintiff in negotiating a high rise construction loan with a developer.  The loan closed on May 8, 2007.  After a series of mishaps, including permit revocations and a crane collapse at the construction site, plaintiff retained counsel in June 2008 in connection with its potential claims against Herrick.  Thus, plaintiff’s obligation to preserve evidence arose at least as early as June 2008 (i.e., when it reasonably anticipated litigation).  In May 2010 – almost two years later –plaintiff finally issued a litigation hold.  As a result of this 23 month delay, plaintiff’s record destruction policies (including recycling of backup tapes, routine deletion of emails, and erasure of hard drives/email accounts upon an employee’s departure from the firm), went unsuspended until May 2010.  Plaintiff ultimately commenced its malpractice suit in 2011.

In or about June 2014, Herrick filed a motion seeking dismissal of plaintiff’s complaint as a sanction for plaintiff’s failure to preserve evidence. The trial court found plaintiff’s failures constituted ordinary negligence, and granted Herrick’s motion only to the extent of directing that Herrick be entitled to an adverse inference at trial.  Later that summer, plaintiff produced additional documents that identified various other custodians who likely had information relevant to the lawsuit.  Plaintiff claimed that its failure to produce these materials earlier was inadvertent.  In or about January 2015, Herrick moved to renew its spoliation motion, based on the new documents, including the identification of additional custodians, much of whose electronic records had been destroyed by plaintiff, either due to its failure to timely institute a litigation hold, or deliberately.  Plaintiff cross moved for fees.   Upon renewal, the trial court dismissed the complaint, and denied plaintiff’s cross motion for attorneys’ fees and costs.  This appeal ensued.

The First Department found that the motion court properly granted defendant’s renewal motion but held the trial court’s decision to dismiss the complaint as a spoliation sanction was an abuse of discretion.

The Court noted,“[F]ailures which support a finding of gross negligence, when the duty to preserve electronic data has been triggered, include: (1) the failure to issue a written litigation hold []; (2) the failure to identify all of the key players and to ensure that their electronic and other records are preserved; and (3) the failure to cease the deletion of e-mail” (VOOM HD Holdings LLC v EchoStar Satellite, LLC, 93 AD3d 33, 45 [1st Dept 2012]).  Thus, per prior decisional law, the trial court’s determination that plaintiff’s destruction was grossly negligent was upheld.  However, the First Department found dismissal of the complaint an improper sanction.  Specifically, the Court noted dismissal is warranted only where the spoliated evidence constitutes “the sole means” by which the defendant can establish its defense (Alleva v United Parcel Serv., Inc., 112 AD3d 543, 544 [1st Dept 2013]), or where the defense was otherwise “fatally compromised” (Jackson v Whitson’s Food Corp., 130 AD3d 461, 463 [1st Dept 2015]) or defendant is rendered “prejudicially bereft” of its ability to defend as a result of the spoliation (Suazo v Linden Plaza Assoc., L.P., 102 AD3d 570, 571 [1st Dept 2013] [internal quotation marks omitted]).  Because the record before the Appellate Division demonstrated a massive document production and many key witnesses available to testify, an adverse inference charge was appropriate.

The full decision of the First Department can be accessed here: http://www.courts.state.ny.us/reporter/3dseries/2016/2016_05065.htm

The Southern District of New York Imposes Severe Sanctions Upon Village Due to Village’s Failing to Issue a Litigation Hold

In a separate decision from the Southern District, Judge Karas similarly imposed severe sanctions – an adverse inference and more than $40,000 in attorneys’ fees – against the Village of Ponoma for failing to timely issue a litigation hold.  That decision, and my colleagues’ blog about that decision can be read here:

For more on this topic See Facebook Posts And Text Messages Result In Monetary And Other Sanctions Being Imposed Against A Municipality 

 

We all know that it can be damaging to one’s case if a party to a litigation fails to preserve relevant information.  But when, exactly, does one’s duty to preserve (potentially relevant information) arise?  And what type of sanctions are federal courts imposing under the amended federal rules for preservation failures?

When Does One’s Duty to Preserve Arise?

Different jurisdictions have different rules regarding when the duty to preserve arises but the most common standard is once that party “reasonably anticipates litigation.” This standard is well established in the federal courts and is embraced in New York (see, e.g., Voom HD Holdings LLC v EchoStar Satellite, (2010 NY Slip Op 33764(U)).

And, while it can (sometimes) be difficult to pinpoint precisely when one reasonably anticipates litigation, a recent case in the Northern District of California demonstrates one party’s blatant disregard for its obligation to preserve.  Specifically, in Mathew Enter. v. Chrysler Grp. LLC (No. 13-cv-04236-BLF, 2016 U.S. Dist. LEXIS 67561 [N.D. Cal. May 23, 2016]), the plaintiff made no effort to preserve its internal or external emails after threatening the defendant with litigation.  Not only did plaintiff affirmatively change the email system it utilized for its business and did so after threatening Chrysler Group, LLC with a lawsuit, but Mathew Enterprises also failed to notify its database vendor of the litigation it threatened to file against defendant.   As a result, potentially relevant emails continued to be deleted regularly per normal business practice.  Indeed, there was no suspension of the auto-delete functionality used by Mathew Enterprises and no efforts were taken to otherwise maintain the emails.

Resulting Sanctions?

The Chrysler Group, LLC moved for sanctions against the plaintiff for the loss of these potentially relevant emails, highlighting there was no effort made to preserve and urged the court to utilize spoliation sanctions. The judge, Magistrate Judge Paul Grewal, issued FRCP 37(e) sanctions.  Specifically, he expanded the scope of evidence the Chrysler Group, LLC was allowed to bring to trial and he awarded reasonable attorney’s fees.   Moreover, Judge Grewal stated, “[Plaintiff’s] lackadaisical attitude towards document preservation took away [defendant’s] opportunity. Not only has spoliation occurred, but it also has prejudiced [defendant].”

The Mathew Enterprise case is a good reminder that preservation obligations must be taken seriously as the ramifications for failing to preserve can be significant.  It is thus critical that our clients are properly advised of the need to begin preservation efforts as soon as litigation is reasonably anticipated.  (i.e., upon receipt or transmittal of a cease and desist letter, for example).

In the well-known saga commonly referred to as “deflategate,” (NFL Mgmt. Council v. NFL Players Ass’n., 2016 WL 1619883 [2d Cir. Apr. 25, 2016]) the Second Circuit upheld the arbitrator’s decision to suspend Patriots’ quarterback, Tom Brady.  Specifically, Brady, was suspended for four games after it surfaced that he participated in deflating the footballs used in Superbowl XLIX below the regulation pounds per square inch (“PSI”).  In reaching that decision, the arbitrator considered several factors, including that Brady was uncooperative with the National Football League’s investigation insofar as he willfully destroyed his cell phone.  Perhaps not surprisingly, the arbitrator opined that the cell phone may have housed evidence (in the form of text messages or otherwise) of Brady’s involvement in deflating the footballs. In seeking to have the decision overturned, Brady argued that he had no idea that “destruction of the cell phone would even be at issue in the arbitration proceeding.” Because, however, Brady intentionally destroyed his cell phone, the arbitrator was able to infer that the cell phone did contain evidence which would be unfavorable to Brady.

The Second Circuit upheld the arbitration decision, noting that “any reasonable litigant would understand that the destruction of evidence, revealed just days before the start of arbitration proceedings, would be an important issue.”

The plain and simple message from this case – make sure to educate your clients about the importance of preserving – and refraining from any modification/destruction of – evidence that may be relevant to a litigation.  The panoply of sanctions available to the Court when one fails to abide by their preservation obligations is vast.

In Thurmond v. Bowman, 2016 WL 1295957 (W.D.N.Y. Mar. 31, 2016), a Fair Housing Act case, defendants moved for sanctions against the plaintiff alleging plaintiff deleted Facebook posts relevant to this lawsuit. The plaintiff argued that the posts were not deleted, but instead were “hidden” from public view.  Soon thereafter, plaintiff produced a printed set of most of the “missing” Facebook posts.  Three posts, however, remained missing. In denying defendants’ motion, the court found that the “missing” Facebook posts, because of their nature (photographs of the plaintiff’s children, supplied as “screen shots” by the defendants), were not relevant to the case. Moreover, the court noted the defendants failed to request the information through discovery. The court specifically noted that one’s claim that all social media posts are relevant “sweeps far too broadly” and discovery must be tailored to relevant information.  However, because the plaintiff did change privacy settings to the Facebook account in violation of a previous court order to maintain the “status quo” of social media accounts, the plaintiff was warned that further conduct in this manner could result in sanctions.

The takeaway from this decision is that social media is here to stay and can be relevant to – and thus subject to production in – a litigation.  When advising your client about preservation obligations, be certain to remind them that social media outlets (facebook, Instagram, SnapChat, Musically,….) are all potential caches for relevant information and must be preserved when litigation is reasonably anticipated.

In an insurance law class action suit pending in the Western District of Missouri (Labrier v. State Farm Fire & Cas. Co., 2016 U.S. Dist. LEXIS 61246 [W.D. Mo. May 9, 2016]), State Farm Fire & Casualty Company (“State Farm”) requested the district court vacate a Special Master’s discovery order. The plaintiff’s allegations were that State Farm depreciated much of its labor costs when calculating a home insurance claim payment. After State Farm objected to the class’s discovery requests, stating that access to its electronic claims system would violate trade secrets, the Special Master approved interrogatories, which requested information regarding an estimated 150,000 claims.  Resort to interrogatories resulted in State Farm having to utilize two separate databases for each claim. The district court rejected State Farm’s argument that to gather information in this matter is too burdensome, stating that “even if the matching must be done claim by claim, the time and cost involved does not justify preventing [the plaintiff] access to critical information.” The court denied State Farm’s motion to vacate the Special Master’s discovery order, explaining that “[a] litigant cannot keep its own system secret then refuse to gather the information itself.”

This decision reminds of us of the balance between providing a party with information necessary to the lawsuit and the burden of collecting/producing same.  Where, as here, the requested information is “critical,” the courts are less likely to sympathize with a party’s grievance that producing the same is time consuming and/or costly.  This was especially true in the Labrier case because State Farm sought to avoid allowing access to its confidential electronic claims system.  In doing so, State Farm was forced to resort to a far more time consuming and laborious process such that plaintiff was able to receive the information needed to prosecute the suit.

In a trademark infringement case pending in the Northern District of California (InternMatch v. Nxtbigthing, 2016 WL 491483 [N.D. Cal. Feb. 8, 2016]), plaintiff requested copies of any documents relating to the defendants’ defense that it had continually and pervasively used the trademark at issue.   The defendants were not able to produce many responsive documents and advised plaintiff that a lightning strike in 2011 and a subsequent power surge in April 2015, destroyed responsive documents, including relevant corporate records.  Defendants further noted that after the power surge, they discarded certain laptops and hard drives that were damaged by the event.

Believing defendants intentionally destroyed electronic versions of responsive documents, plaintiff sought sanctions against defendants.  The Court, following the newly amended FRCP 37(e), found defendants violated their duty to preserve relevant evidence.  The Court specifically noted that defendants failed to run diagnostics on the destroyed computer following the power surge to assess whether the files on the laptop’s hard drive could be recovered prior to discarding it.  Defendants failed to take any recovery efforts despite their claim that the only electronic copies of the marketing materials allegedly establishing “previous use” of the trademark existed on that computer. The Court also found the power surge to be an implausible claim. The Court held that “at the very least, [the] defendants consciously disregarded their obligations to preserve relevant evidence,” and granted the plaintiff’s request for an adverse inference instruction sanction.

This case reminds us that under the new Rule 37(e), courts are authorized to use specific measures, including adverse inference sanctions, if relevant information that should have been preserved is lost – irrespective of the mechanism that caused the loss. The decision also serves as a good reminder that electronic information is susceptible to destruction and modifications based upon uncontrollable events — like power surges — and we remain obligated to take prompt preservative/remedial measures upon learning of such events.

Chief Justice Roberts commented that the newly amended Federal Rule of Civil Procedure, Rule 26 “crystalizes the concept of reasonable limits in discovery through increased reliance on the common-sense concept of proportionality.”  This common sense approach was recently embraced by a Special Master, and then approved by the District Court Judge, in the products liability case In re Takata Airbag Prods. Liab. Litig., MDL No. 2599 (S.D. Fla. Mar. 1, 2016).

In that case, the defendants proposed to withhold or redact non-relevant information from their production of documents.  The proposal included redacting non-relevant parent emails from responsive families (i.e., if the email was not relevant but it’s attachments were, defendants proposed to redact the email, but produce the entirety of attachments).  Specifically, defendants proposed to redact information pertaining to seven discrete categories of information in an effort to balance their desire to protect highly confidential trade secrets while complying with their discovery obligations.

The District Court concluded the defendants’ proposal was appropriate and, quoting Chief Justice Robert’s comments about the then proposed amendments, highlighted that “a party is not entitled to receive every piece of relevant information,” and therefore “it is only logical” that “a party is similarly not entitled to receive every piece of irrelevant information in responsive documents if the producing party has a persuasive reason for why such information should be withheld.”  This “common Sense” approach is a fair and balanced way to proceed with discovery, especially when responsive information is mixed with non-responsive information.

While not discussed in the In re Takata case, query whether a redaction log – comparable to a privilege log — is advisable when applying responsiveness redactions to one’s production.  Such a log may prevent against gamesmanship and over-designations.  I, myself, have had occasion to apply responsiveness redactions to productions and have made it my practice to create a redaction log, which articulates – in a summary fashion – the reason for the redaction (i.e., redaction of information relevant to a contract other than the one at issue in this litigation).

When dealing with a lawsuit that inevitably will require the production of electronically stored information (“ESI”), one of the first things we (as counsel) have to do is figure out where that ESI resides.   But how, exactly, does one begin to determine where responsive data exists?  Well, consider the client’s data map.

Some of you may be thinking, what the heck is a data map?

A data map is just as it sounds – it is a way to understand the specifics of where responsive electronic information resides within a company/corporation’s infrastructure.  It often does not exist at the inception of a lawsuit, but instead is “drawn” by counsel after engaging in interviews with a client’s information technology (“IT”) represen­tative, the client’s general counsel, and/or  the individuals at the client who are most likely to have information responsive to the lawsuit (i.e., the custodians).  The resulting “map” should list as much information as possible about what electronic information exist (email, Excel documents, accounting reports), on what devices (lap top, shared drive, desktop, the cloud, backup servers), under whose care (custodian vs. IT), and how the data may be accessed.

It is critical to note though, the map that you create today, may not be accurate in a week.  Specifically, if a server fails, or a laptop crashes, for example, then data that existed in location “A” today, may reside at location “B” next week, and therefore, the data map from last week is no longer accurate.  The point being – even if a client hands you a data map at the inception of a litigation – you should confirm it is current and accurately reflects the existing infrastructure.

While this post is not intended to discuss litigation holds, suffice it to say that a data map can help focus a litigation hold (i.e., what media needs to be preserved and for which custodians) because the better you understand where the data resides, the easier it is to identify what needs to be preserved.

Some critical items to think about and discuss when meeting with the client/IT representative and endeavoring to create a data map.

What is the physical infrastructure in place at the client:

  1. Location
  • Where is the client’s datacenter?
  1. Specifics of infrastructure
  • Identify and secure server names, server location, and IP addresses of servers.
  • Make sure you understand the operating system in use, and whether the servers are backed up.
  1. Email specifics –
  • What application is used (i.e., Microsoft Exchange, Googlemail)?
  • Where is the email hosted (i.e., internally or elsewhere, are they stored locally or at server level)?
  • Are Emails backed-up? If so, with what frequency?
  • Where do those backups reside?
  • Is there an auto-delete functionality in place?
  • Is there a mailbox size limitation?
  1. Custodians –
  • Who are my custodians?
  • Where do they work?

For each custodian ask:

  • What computer(s) do they use
  • What is the name/IP address/operating system in use
  • What is the custodian’s email address
  • Custodian documents – can they be stored locally? Or must they be saved on a server share?  Here it is critical that you understand whether the custodian can write/store files to his/her local drive (as compared to whether the Company discourages it)?

Interviews with custodians are critically important.  Aim to understand the practice of each individual – how and where they store their emails/e-docs.

  1. Other Devices –
  • Does the custodian have their own mobile device/tablet?
  • Is it company issued?
  • Is it used at all for work purposes?

You must likewise explore the specifics of each device upon which work related tasks were performed.

The more detailed of a map you can create, the more informed you will be when trying to scope your project and assess the various electronic information that you may need to collect.

In Brown Jordan Int’l v. Carmicle, 2016 WL 815827 (S.D. Fla. Mar. 2, 2016) – a case previously written about on February 11, 2016 the Court was required to determine whether certain actions taken by Christopher Carmicle (“Carmicle”), a high-ranking employee running two subsidiaries of an international furniture company,  warranted termination of his employment for cause.  In particular, the Court was required to determine whether Carmicle’s repeated access of other employees’ email accounts (including the CEO, CFO and General Counsel of the parent company) amounted to gross negligence or willful misconduct.  In connection with determining that larger issue, the Court had to resolve multiple factual and legal issues including whether Carmicle violated federal law (see BLOG Is Your Spouse’s Phone Subject to Production Under Federal Rule 45? ).  While familiarity with my prior posts is assumed, the consolidated cases were tried in a bench trial from October 27, 2015 through October 30, 2015, continued from November 2, 2015 through November 6, 2015 and then again from November 9, 2015 to November 10, 2015.  The Court ultimately concluded that Carmicle’s employment was properly terminated for cause.  Today’s blog, however, deals with the discreet issue that arose when Carmicle sought the return of his personal laptop from the company plaintiffs, who refused to release the laptop unless Carmicle could prove he paid for it with his own money.  Presumably frustrated and seeking to similarly frustrate his former employer, Carmicle remotely locked a company laptop he had in his possession, and refused to provide a password to unlock it throughout the case proceedings, rendering the laptop and its contents inaccessible.  The defendant also claimed to have lost a personal tablet and other devices containing screenshots of emails and other data.  The plaintiffs filed a motion for sanctions under the newly amended Rule 37(e) for spoliation of evidence.

It should come as no surprise that the Court determined that litigation was reasonably anticipated when the defendant destroyed or withheld data, and that he knew or should have known of his duty to preserve. Therefore, the court held that the defendant had acted with intent to deprive plaintiffs of information, and accordingly ordered an adverse inference instruction for the jury.

Even when emotions run high, it is critical that we – as counsel – remind our clients of their obligation to timely and fully comply with their discovery obligations.  The failure to timely preserve and produce all relevant data carries significant ramifications under the amended federal rules.