There is an ever-increasing volume of data generated by businesses.  In an effort to reduce storage costs and ameliorate privacy concerns, companies have embraced ephemeral, or self-destructing messaging.  And, while ephemeral messaging may solve one set of problems, it has the potential to create preservation issues when legal matters arise.

Recently, the Sedona Conference released the “Commentary on Ephemeral Messaging” (the “Commentary”). The Commentary analyzes the benefits and risks attendant to ephemeral messaging and provides several guidelines intended to tailor ephemeral messaging applications to comply with preservation obligations.

Although courts and attorneys are wary that the use of an ephemeral messaging application allows a party to conceal misconduct and may protect a party in a litigation setting, the authors of the Commentary opine that with the proper application, the benefits of ephemeral messaging are substantial.  For example, there is significant business value attendant to ephemeral messaging, including the elimination of costly storage and retention of data that lacks any business value.

Additionally, many ephemeral messaging applications have legal-hold capabilities.  And so, companies that opt to implement these applications can incorporate a customized legal hold policy that sets retention periods for documents, and allows one to disable the deletion functionality for communications related to a litigation hold.  That said, while ephemeral messaging can save businesses from expenses associated with storage and data, and applications with legal hold capabilities exist, these applications leave many a litigator thinking the applications do little more than facilitate the deletion of otherwise relevant data.

Looking forward for those companies who will embrace ephemeral messaging applications, it is critical to implement best practices relating to document retention to mitigate any potential spoliation or preservation risks.  These practices include, but are not limited to, (i) implementing clear and robust document retention policies; (ii) selecting an application that allows for legal-holds to be implemented and customized; (iii) training relevant employees on the proper uses of ephemeral messaging applications; and (iv) monitoring the use of the applications.  Therefore, as noted by the Commentary, “[i]n the absence of contrary circumstances, courts may consider a litigant’s use of ephemeral messaging that accords with [the guidelines] as being reasonable and executed in good faith.”

*Thank you to second year associate, James Maguire in the Firm’s Uniondale office, for his research assistance related to today’s blog.

Litigants often disagree about which method of identifying potentially responsive electronically stored information (“ESI”) is best.  Specifically, the use of keywords versus technology assisted review (“TAR”)* is typically the topic of the debate.  In deciding these disputes, Judges have seemingly embraced TAR as preferable, but stop short of mandating TAR’s use, citing to Principle 6 of The Sedona Principles (“Principle 6”) (“[r]esponding parties are best situated to evaluate the procedures, methodologies, and technologies appropriate for preserving and producing their own [ESI]”).

Three federal decisions addressing the topic of a litigant’s methodology for determining responsiveness are worth discussion.**

In Hyles v New York City, Judge Peck of the Southern District of New York addressed the use of keywords versus TAR for identifying potentially responsive documents (10CIV3119ATAJP, 2016 WL 4077114 [SDNY Aug. 1, 2016]).  Judge Peck acknowledged that, “TAR is cheaper, more efficient and superior to keyword searching,” but, in line with Principle 6 stopped short of ordering counsel to use TAR, and allowed the litigants to choose their own methodology.   Despite Judge Peck’s view of TAR as superior to keyword searches, he stated that, “the standard is not perfection, or using the ‘best’ tool, but whether the search results are reasonable and proportional” (citing to FRCP 26(g)(1)(B)).

Four years later, Judge Cavanaugh of the New Jersey District Court, made similar observations in In re Mercedes-Benz Emissions Litigation (Case No.: 2:16-cv-881 (KM) (ESK) [D.N.J. Jan. 8, 2020]).  In the Mercedes-Benz Litigation, Plaintiffs requested the Court compel Defendants to use TAR rather than search terms to identify potentially responsive documents.  Defendants argued the use of TAR was not appropriate due to “unique issues” that would adversely affect “an appropriate and effective seed set.”  Judge Cavanaugh, citing Hyles, noted TAR’s superiority to keyword searching but, like Judge Peck and Principle 6, recognized the responding party is in the best position to determine its own responsiveness methodology.

However, Judge Cavanaugh’s allowance came with two distinct caveats to Defendants.  First, if Defendants chose to utilize the keyword approach, the Court noted it would “not look favorably on any future arguments related to burden of discovery requests, specifically cost and proportionality” due to the “wide acceptance that TAR is cheaper, more efficient and superior to keyword searching.”  Second, that his denial was “without prejudice to revisiting [the] issue if Plaintiffs contend[ed] that Defendants’ actual production [was] deficient.”  Although Judge Cavanaugh did not compel Defendants’ use of TAR, he provided two incentives for its use.

Most recently, in Livingston v City of Chicago, (16 CV 10156, 2020 WL 5253848 [N.D. Ill. Sept. 3, 2020]), the Plaintiffs sought to compel the Defendant to use “keyword searches to identify responsive ESI” or, in the alternative for use of TAR on the entire collection.***  In support of their position Plaintiffs argued that, “TAR is a culling tool rather than a method of responsiveness review” and “attorney reviewers [would] improperly train the TAR tool by making incorrect responsiveness determinations.” Judge Kim was not persuaded.  Rather, the Judge noted that the use of TAR was both reasonable and proportional to the needs of the case satisfying FRCP 26 and, citing to Principle 6, followed the trend among federal Judges that the responding party is best situated to decide the best methodology for determining responsiveness.

While Judges may be reluctant to order the use of TAR, recent decisions demonstrate judicial support, economic benefits, and efficiency of TAR.  And so, litigants should consider learning about TAR and employing TAR in their e-discovery workflows.

*https://www.allaboutediscovery.com/2020/11/tar-1-0-vs-tar-2-0-is-the-newer-version-the-better-version/

**https://www.allaboutediscovery.com/2016/10/the-southern-district-of-new-york-has-ruled-that-it-cannot-force-a-responding-party-to-use-technology-assisted-review-when-searching-for-documents/

***https://www.allaboutediscovery.com/2020/10/the-city-of-chicago-employs-tar-to-facilitate-review-but-doing-so-is-not-without-issue/

****A special thanks to Jay Sawczak, an associate in our Commercial Litigation Department, for his contributions to today’s blog.

Historically, the legal profession has been reluctant to embrace technology and electronic discovery in the practice of law.  Indeed, practitioners often still exchange discovery in paper format or ignore, altogether, medium, like text messages, that may be repositories of relevant information.  A recent case — In DR Distributors, LLC v 21 Century Smoking, Inc. – is an example supporting the belief of judges “that too many attorneys pay too little heed to both the spirit and the letter of procedural rules addressing e-discovery.”  This decision, which focuses on the basic duties and fundamentals of handling electronically stored information (“ESI”) during all stages of litigation, is a must read for litigators appearing in Federal courts.

Background:

In DR Distributors, LLC v 21 Century Smoking, Inc. is a trademark dispute involving electronic cigarettes branded under similar marks. In late 2012, Brent Duke (“Duke”), one of the defendants and the principal of defendant 21 Century Smoking (“21 Century” and with Duke “Defendants”) met with his attorneys to draft initial disclosures.  During the meeting, Duke explained he used two email accounts (Yahoo! and GoDaddy) and chat applications for business and personal purposes.

Although Defendants’ attorneys purportedly advised Duke to preserve all potentially relevant emails from both of his accounts, they failed to issue a litigation hold or to instruct Duke to disable automated deletion features on the account that would auto-delete emails or chats.  Further, Defendants’ attorneys were under the mistaken assumption that they could obtain all necessary emails from Defendants’ computer servers, when in reality, these “web-based emails and messages” were stored online.

Adding insult to injury, Defendants’ attorneys then allowed Duke to self-collect emails and communications relevant to the litigation.  At no time did Defendants’ attorneys monitor or supervise the searches performed by Duke.  And so, three years later, after the close of fact discovery and various allegations that Defendants withheld relevant communications, Defendants’ reengaged an ESI vendor, who found over 15,000 responsive documents that were never collected or produced.  And, Defendants were unable to recover additionally potentially relevant emails because many had been deleted by the automated deletion feature that was never disabled.

Ultimately, Plaintiff filed a motion for sanctions based on Defendants’ failures and the failures of their former counsel to timely produce ESI and for spoliation of ESI.  As part of its motion, Plaintiff requested a wide range of sanctions, including civil contempt and monetary sanctions.

The Court was deeply troubled that Defendants’ former counsel lacked the basic knowledge, training, and skills to handle properly ESI.  Specifically, Judge Johnston detailed the myriad mistakes made by defense counsel including counsel’s: (1) argument that “because this is a trademark case, ESI was unimportant;” (2) failure to provide a litigation hold; and (3) allowing unsupervised self-collection of relevant documents by Duke.  Notably, the Court was particularly annoyed with counsel’s attempt to shift blame to the ESI vendor for failing to properly identify and produce relevant emails and communications.  According to the Court, it is a lawyer’s responsibility to have “a reasonable understanding of the[ir] client’s information systems” and that such “ understanding of the client’s information systems allows counsel to create a systematic process and plan for responding to discovery requests.”

In sum, the Court granted Plaintiff’s motion and imposed several sanctions including pursuant to Rule 26(g) and 37 of the Federal Rules of Civil Procedure, monetary sanctions, and required Defendants’ former counsel to attend “at least eight hours of continuing legal education.(CLE) on ESI.”

Conclusion:

As noted by Judge Johnson, “[i]t is no longer amateur hour. It is way too late in the day for lawyers to expect to catch a break on e-discovery compliance because it is technically complex and resource-demanding.”  And so, let this case serve as an important reminder to all lawyers of their obligation to be competent in ESI or to engage an attorney who is.

Have questions?  Please contact me at kcole@farrellfritz.com.

Thank you to second year associate, James Maguire in the Firm’s Uniondale office, for his research assistance related to today’s blog.

As the pandemic continues and businesses adapt to the realities of virtual workforces, the “Zoom-Bombing” pranks housemates played on one another are a thing of the past.*  Rather, we now must confront the discovery implications this virtual shift presents.  For example, the increased use of virtual platforms, replete with recording features, may expose a litigant to discovery obligations beyond what it cares to share.

Virtual meeting platforms such as Zoom and Microsoft Teams allow for the recording of meetings.  However, does the recording of a meeting necessarily mean the recording must be produced during discovery in a legal action?  The answer seemingly is, no.  Rather, the typical rules of discovery apply: is the recording relevant to the claims at issue in the litigation? Would producing such things be proportional given the allegations?   And so, recordings of virtual meetings are subject to the same discovery rules as would apply to any electronically stored information (“ESI”).

But, what about the duty to preserve the recordings?  In New York, the duty to preserve is triggered when a lawsuit is reasonably foreseeable.  And so, whether a Company must preserve such recordings may require a case by case analysis.  In other words, if a virtual meeting is recorded and, during that meeting the termination of an employee who likely may file suit for wrongful termination or discrimination is discussed, one could argue there is a duty to preserve that recording.     The same conclusion may not be reached if the recording captures a meeting where nothing of substance or concern is addressed.

Given the potential for such recordings to be relevant, and the desire to avoid discovery failures, entities should revisit existing document retention policies to account for the realities of the last 10 months generally, and recordings of virtual meetings, specifically.  Entities should consider whether virtual meetings may be recorded; if so, under what circumstances; and whether, or for how long, such recordings will be retained.**

*https://www.boredpanda.com/husband-zoom-trolling-quarantine-carafields/?utm_source=google&utm_medium=organic&utm_campaign=organic

*https://www.dailymail.co.uk/femail/article-8297963/Husband-pranks-wife-wearing-funny-costumes-background-Zoom-calls.html

**https://www.theverge.com/2020/4/3/21207134/zoom-recordings-exposed-thousands-identical-naming-search

***A special thanks to Jay Sawczak, an associate in our Commercial Litigation Department, for his contributions to today’s blog.

Pursuant to 28 U.S.C. § 1920, a prevailing party may have a right to recover certain costs associated with the litigation.  Many prevailing parties seek to recoup costs attendant to e-discovery, given the expense associated with collecting, processing and producing electronically stored information (“ESI”).  However, most federal courts confronting the issue have determined that e-discovery costs are recoverable only in very limited circumstances.

A recent decision out of the Circuit Court in Washington, D.C., provides guidance into which e-discovery costs may be recoverable under 28 U.S.C. § 1920 (See U.S. v Halliburton Co., 954 F3d 307 [D.C. Cir. 2020]).

Factual Background of Halliburton

Harry Barko (“Barko”) brought a lawsuit against his former employer, Kellogg Brown & Root Services (“KBR”), alleging that KBR and various subcontractors defrauded the U.S. Government by inflating costs and accepting kickbacks while administering military contracts in wartime Iraq, whereby violating the False Claims Act.  During discovery, KBR collected for review more than 2.4 million documents.  Eventually, KBR produced 171,000 documents to Barko.

KBR then moved successfully for summary judgment and filed a bill of costs seeking in excess of $100,000 ($65,000 of which was for expenses attributable to e-discovery, copying and printing).  Subsequently, the clerk taxed the full bill of costs for KBR.  Barko appealed arguing that the costs were not recoverable within the meaning § 1920 because some of the e-discovery costs did not qualify as “making copies” and/or were not “necessarily obtained for use in the case.”  In response, KBR argued that Congress amended the statute in 2008 to “make allowable both the costs of copies themselves (whether hard copy or electronic) and the costs incurred in the process of making copies.”

On appeal, the D.C. Circuit determined that scope of what was recoverable within the meaning of § 1920 was narrow and rejected recovery of the following e-discovery costs: (i) the initial conversion of the documents; (ii) subscribing to a hosting platform; (iii) processing documents (e.g., organizing and keyword-searching); and (iv) production processing.  In reaching this decision, the Court examined the meaning of 28 U.S.C. § 1920, particularly section four, which authorizes a district court to award “the costs of making copies of any materials where the copies are necessarily obtained for use in the case.”

The Court noted that the authors of the 2008 amendment “intended the amendment to have limited effect” and permitted “taxing the costs associated with copying materials whether or not they are in paper form.”  In remanding the case to the District Court, the Circuit Court compared KBR’s requested e-discovery costs to those of the pre-digital era, and reasoned they were:

[C]omparable to the steps that law-firm associates took in the pre-digital era in the course of “doc review”—identifying stacks of potentially relevant materials, culling those materials for documents containing specific keywords, screening those culled documents for potential privilege issues, Bates-stamping each screened document, and mailing discovery materials to opposing counsel.  Because “[n]one of the steps that preceded [or followed] the actual act of making copies in the pre-digital era would have been considered taxable,” such tasks are untaxable now, whether performed by law-firm associate or algorithm.

Conclusion:

The Halliburton decision is consistent with other recent decisions that have addressed the issue of what costs a prevailing party may recover when it comes to ESI (See, e.g., Peterson v Nelnet Diversified Solutions, LLC, (2020 WL 3978756 [D. Colo. May 20, 2020] [permitting certain e-discovery costs associated with the costs of making copies]).  And, the general view among the federal courts is that 28 U.S.C. § 1920  is of a “limited nature.”  As a result, practitioners are encouraged to continue to work cooperatively to keep discovery proportional to the needs of a case.  Moreover, litigants are strongly encouraged not to anticipate recovering e-discovery costs even as a prevailing party.

*Thank you to second year associate, James Maguire in the Firm’s Uniondale office, for his research assistance related to today’s blog.

Have questions?  Please contact me at kcole@farrellfritz.com.

 

Technology-assisted review (“TAR”) is a powerful tool used to streamline document review.  Because data volume is constantly increasing, TAR was designed to leverage human categorization of documents (i.e., responsive/not responsive) to educate software, that would, in turn, categorize additional documents based upon what the computer had “learned.”

The original TAR (commonly known as TAR 1.0) was a welcomed advancement as it redefined the way electronically stored information (“ESI”) potentially relevant to a litigation was reviewed.  TAR’s ultimate purpose was to implement various advances intended to increase review throughput.  These advances included predictive coding clustering, and concept analytics. And, while TAR 1.0 promoted efficiency and increased throughput, TAR 2.0 has improved the review process even more.  Indeed, good news for weary document reviewers – TAR 2.0 makes for an even more efficient, more precise (and therefore, less costly) review process.  TAR 2.0 is also known as Continuous Active Learning (CAL).  This means that as human reviewers make decisions about a document’s relevance, importance, confidentiality and other categories the TAR engine is actively internalizing these decisions and continuously learning so that it can re-prioritize documents yet to be reviewed so that those documents most likely to be relevant are prioritized in the queue.  At some point, there are diminishing returns and only non-relevant documents remain.  And so, one of the benefits of TAR 2.0 is that an attorney reviews all relevant documents without non-relevant documents intermixed among the materials.

An additional benefit of TAR 2.0 is that the process is as accurate as a full manual review (albeit less expensive).  Indeed, because the entire population of relevant documents is eventually reviewed by human reviewers, the coding designations are as accurate as humanly possible. From there, simple quality control methods can be used to catch any outliers.

Another advantage of TAR 2.0 is that because it is a prioritization tool, it can be used on a dataset with as little as 500 documents, whereas TAR 1.0 required a data set of 50,000 documents minimally.  This means TAR 2.0 can be leveraged in a wide variety of cases.*

And so, the next time you are beginning a document review project, consider using TAR 2.0, which allows for a meaningful way to reduce the volume of documents in the review queue while increasing efficiency, and throughput of a review project.

*Moreover, TAR 2.0 has been deemed user friendly as compared to TAR 1.0, which required complicated metrics to validate results.

**Thank you to first year associate, Jaclyn Ruggirello in the Firm’s Uniondale office, for her research assistance related to today’s blog.

Have questions?  Please contact me at kcole@farrellfritz.com.

 

The duty to preserve potentially relevant evidence – documentary or electronic – arises when a lawsuit is reasonably anticipated.  Although this is a subjective standard,  Parlux Fragrances, LLC et al v. S. Carter Enterprises, LLC et al.  illustrates a recent decision where a court imposed  sanctions and an adverse inference because the defendants failed to preserve information after receipt of a letter warning of a potential litigation.

Factual Background:

On or about April 18, 2012, defendants S. Carter Enterprises (“Carter Enterprises”) and Shawn Carter (“Jay-Z”) (collectively, the “Defendants”) entered a license agreement (“License Agreement”) with Artistic Brands Development, LLC (“ABD”), granting ABD the exclusive right to license and trademark the likeness of Jay-Z for a fragrance line.  The parties also entered a sub-license agreement (“Sub-License Agreement”) with Parlux Fragrances, LLC (“Parlux”) and Perfumania Holdings, Inc. (“Perfumania”) (collectively, the “Plaintiffs”), allowing Parlux and Perfumania the exclusive right to promote and distribute Jay-Z branded fragrances, including the Gold Jay-Z fragrance.

From October 2013 to July 2015, Parlux contended that Carter Enterprises and Jay-Z continuously failed to meet their obligations pursuant to the Sub-License Agreement by: (i) refusing to make personal and/or public appearances in support of the Gold Jay-Z fragrance; and (ii) failing to assist in the development of additional fragrances for the Gold Jay-Z brand.  As a result, on July 31, 2015, Plaintiffs sent Defendants a letter (the “Breach Letter”) detailing Defendants’ breaches under the various agreements, urging Defendants’ compliance with their obligations and advising Defendants should be guided accordingly or Plaintiffs would take all necessary action, including legal action.  Defendants effectively ignored the Breach Letter.  Approximately 6 months later, on January 25, 2016, Plaintiffs commenced a lawsuit against Carter Enterprises and Jay-Z alleging various breaches.

As is relevant here, Plaintiffs had to file a motion for sanctions predicated upon Defendants destruction of Jay-Z’s emails months after receipt of the Breach Letter.  Specifically, Plaintiffs claimed Defendants were on notice of a potential litigation on July 31, 2015, when Plaintiffs sent the Breach Letter.  In response, Defendants claimed the emails were deleted pursuant to a documented deletion policy governing Jay-Z’s emails.  Defendants also argued the emails deleted were not relevant and no deletions occurred after the action was commenced on January 25, 2016.

Analysis:

To prevail on a motion for sanctions for failure to preserve evidence, the Court noted the moving party must establish that: (1) the party having control over the evidence possessed an obligation to preserve it at the time of its destruction, (2) the evidence was destroyed with a “culpable state of mind,” and (3) “the destroyed evidence was relevant to the party’s claim or defense such that the trier of fact could find that the evidence would support that claim or defense” (Pegasus Aviation I, Inc. v Varig Logistica S.A., 26 NY3d 543, 547 [2015], quoting VOOM HD Holdings LLC v EchoStar Satellite L.L.C., 93 AD3d 33, 45 [1st Dept 2012]).  The Court further observed that one’s duty to preserve potentially relevant information occurs “once a party reasonably anticipates litigation, [at which time] it must suspend its routine document retention/destruction policy and put in place a litigation hold” (VOOM, 93 AD3d at 41; quoting Zubulake v UBS Warburg LLC, 220 FRD 212 [SD NY 2003]).

Here, the Court concluded Defendants should have “reasonably anticipated litigation” when it received around July 31, 2015, the Breach Letter, which advised “Parlux intends to take whatever action it deems necessary and appropriate to recover all of the losses it has sustained as a consequence of [Carter Enterprises] and [Jay-Z’s] failure to comply with the terms of the License Agreement.”  According to the Court, Defendants’ failure to implement a litigation hold and the deletion of emails in January 2016 (days before the litigation was filed) “after they reasonably anticipated litigation and had an obligation to preserve evidence” was, at a minimum, grossly negligent.  And so, because Defendants failed to preserve relevant evidence when a litigation was reasonably anticipated, Plaintiffs’ motion for sanctions and to impose an adverse inference against the Defendants at trial was granted.

Conclusion:

This case is an important reminder that preserving evidence as soon as litigation is reasonably anticipated is critical. While the standard is a subjective one, a letter threatening legal action, as here, is sufficiently objective that litigation should have been anticipated, and one’s duty to preserve triggered.  Thus, litigants and potential litigants should consult with an attorney prior to destroying or disposing of any potential evidence.

Have questions?  Please contact me at kcole@farrellfritz.com.

*Thank you to first year associate, James Maguire in the Firm’s Uniondale office, for his research assistance related to today’s blog.

 

In today’s “e”-dense world, attorneys often look to leverage technology to facilitate production of electronically stored information (“ESI”) during the discovery process.  We do so in an effort to streamline the collection, review and production process whereby containing costs.  However, as recent decisions demonstrate, parties often disagree on what methodology to use and which analytic tools are best.  Livingston v City of Chicago, 16 CV 10156, 2020 WL 5253848 (N.D. Ill. Sept. 3, 2020) provides a good example of this precise issue.

The Livingston litigation involves allegations of discrimination by the City of Chicago (“City”) against female candidates seeking paramedic positions with the City Fire Department.  After two years of settlement negotiations, with only minimal success, the parties proceeded to discovery.  The process, however, resulted in a number of disputes that required judicial intervention, including a motion to compel the adoption of Plaintiffs’ discovery protocol, and a subsequent motion by Plaintiffs’ counsel to compel the City’s compliance with that protocol. The details of these applications, and the parties’ disagreement over analytics and processes, are set forth below.

Part I – The November 2019 Order

In 2019, when discovery began, the parties were unable to reach agreement on either the method for searching and collecting ESI, or the content of what was to be produced. Specifically, regarding production, the parties were at an impasse on the issue of whether, once potentially relevant emails were identified by search terms, those emails should be produced without further review.

The Plaintiffs’ proposed protocol required an outside vendor to export the City’s emails, perform keyword searches on that email, and produce the “hits” of those search terms without further review for responsiveness or privilege.  The City, on the other hand, proposed using its own Microsoft Tool to perform a simple search prior to exporting any data.  The Plaintiffs rejected this proposal out of purported concern that the City’s basic search would not comprehensively identify ESI for collection.  The City conceded that its collection tool was not fool-proof but countered it would miss only a “negligible quantity” of documents.  The court split the difference: requiring the City to retain an outside vendor to export emails and use Plaintiffs’ keywords to identify potentially responsive content.  The Court, however, denied Plaintiffs’ request that the “hits” be produced without further review for privilege or responsiveness (“November 2019 Order”).

The City subsequently reported that the Court-Ordered process resulted in 192,000 unique emails.  Given this volume, the City informed the Court and plaintiffs that it intended to use technology-assisted review (“TAR”) to identify responsive documents for production.* Plaintiffs objected to this process, claiming use of TAR would exclude responsive documents from the review process, and further claiming the City’s use of TAR was inconsistent with the November 2019 Order.  And so, Plaintiffs’ filed a motion seeking the Court order the City to comply with the November 2019 Order or, in the alternative, for entry of a proposed TAR protocol submitted by Plaintiffs that would require the use of TAR on the entire collection.

Part II – The September 2020 Order

In response to Plaintiffs’ second motion, the court found the November 2019 Order addressed the methodology for collecting emails, not the methodology for determining responsiveness. Thus, the November 2019 Order did not preclude TAR, and the issue of the City performing a responsiveness review was outside the scope of the November 2019 Order.

Plaintiffs further argued that since TAR is more effective at identifying responsive documents than traditional manual review, pre-TAR culling would eliminate large amounts of potentially relevant ESI. While the court did not deny that using TAR from the outset may reveal more responsive documents overall, based on the number of documents that were discarded using Plaintiffs’ proposed search terms (only 15% of 9 million pages of documents hit on Plaintiffs’ search terms), pre-TAR culling would achieve the best possible review in this case. The court found this method to satisfy the reasonable inquiry standard under Fed. R. Civ. P. 26.

Plaintiffs also argued that that attorney reviewers would improperly train TAR by making incorrect responsiveness decisions. The court recognized, however, that this concern is present no matter which methodology is employed, and that “uncertainty in determining responsiveness is not unique to TAR.” The court was also satisfied with the variety of quality controls offered by AL.

Ultimately, the court denied Plaintiffs’ motion, finding City, as the responding party, was best situated to decide how to search for and produce responsive documents to Plaintiffs’ requests.** 

Conclusion

This case reminds us of a number of things including the importance of understanding your clients’ ESI, and engaging meaningfully with opposing counsel on issues involving ESI collections and production.  However, when a responding party is fully familiar with its ESI, courts believe it is the responding party who is best situated to decide how to search for and produce responsive documents, and may be permitted to devise custom TAR methodologies to best fit the needs of the case.

 

*Specifically, the City sought to use Relativity’s Active Learning (“AL”), a type of software that uses learning algorithms to prioritize documents for its attorneys to review manually. As described in the decision, AL “merely shuffles the order of the documents being reviewed based on the coding decisions [i.e., responsive or nonresponsive] made by the attorney review team. All documents marked responsive and ultimately produced are done so by human reviewers.” However, as a result of using AL, there is a portion of the ESI collection deemed nonresponsive and not reviewed by attorney reviewers.

**The court cites to The Sedona Principles, Principle 6, which states, “[r]esponding parties are best situated to evaluate the procedures, methodologies, and technologies appropriate for preserving and producing their own [ESI].”

Have questions?  Please contact me at kcole@farrellfritz.com.

Generally, the party producing discovery bears the costs of production. But, shifting to the non-producing party the costs of production is sometimes warranted.  This issue was recently tackled by a Kansas District Court in the matter Lawson v. Spirit AeroSystems, 2020 WL 3288058 (D. Kan. June 18, 2020).

Background

Following his retirement from Spirit AeroSystems, Inc.’s (“Spirit”), plaintiff Larry A. Lawson (“Lawson”), the former CEO of Spirit, began consulting for non-party Arconic, Inc. (“Arconic”).  Spirit contended this consulting amounted to a breach of Lawson’s retirement agreement, which contained a non-compete provision.  As a result, Spirit discontinued Lawson’s retirement benefits and demanded he reimburse Spirit the amounts already paid to him.  Lawson brought suit, arguing that Spirit and Arconic are not in the same “business,” and thus the non-compete provision in his retirement agreement was never triggered.

Discovery in the lawsuit was focused largely on the issue of whether Spirit and Arconic are in the same “business.”  In connection with discovery of electronically stored information (“ESI”), Lawson insisted on protocols that led to overbroad results, yielding low percentages of responsive documents, and even lower percentages of relevant documents.*

The parties then conducted a technology assisted review of the more than 300,000 collected documents, which yielded a 3.3% responsiveness rate.  The responsive documents were produced.  Dissatisfied, Lawson filed a motion to compel Spirit to produce the documents reviewed by TAR beyond those already produced.  In response, Spirit sought to shift all costs and attorney’s fees associated with the production to Lawson under Federal Rule 26(c). Spirit argued that it spent months collecting, processing, hosting, and searching millions of documents from custodians selected by Lawson and using search terms selected by Lawson; a process which cost hundreds of thousands of dollars and which resulted only in a small percentage of responsive or relevant documents. In opposition, Lawson argued that cost-shifting is only available for ESI that is not reasonably accessible, pursuant to Rule 26(b)(2)(B). The court did not agree.

Good Cause & Proportionality

The Lawson court instructs that Rule 26(c), “is not limited to non-reasonably accessible discovery,” but rather was “amended in 2015 to make clear that the court may allocate discovery expenses for good cause in order to protect a party from undue burden or expense.” To establish “good cause” the “moving party must make a particularized and specific demonstration of fact, as distinguished from stereotyped and conclusory statements,” and the court has “broad discretion” in whether good cause has been established.

In Lawson, the court, in deciding to shift costs, reviewed Rule 26(b)(1)’s proportionality factors.  Specifically, “the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.”  Here, the court concluded:

  • the action was a private lawsuit over an executive’s severance package, not a suit with significant public policy implications;
  • although the TAR expenses were not unreasonable compared to the amount in controversy, Spirit had already bore considerable amounts in discovery expenses;
  • both parties had adequate resources to bear their fair share of discovery expenses;
  • apart from the ESI/TAR process, Spirit produced substantial discovery collected the “old-fashioned way” of targeted productions via custodian interviews and collections;
  • Lawson had equal access to that discovery; and
  • Lawson had not articulated how the documents sought via the TAR process were important to resolving the issues above and beyond the discovery Spirit already produced.

Conclusion

The Lawson court reviewed all the factors, and in the end determined that Lawson’s “continued pursuit of the ESI dataset via TAR was not proportional to the needs of the case.” While the court was careful to mention that the 2015 amendment to Rule 26 does not imply that cost-shifting should become common practice, Lawson offers considerable insight into facts which warrant cost-shifting, and the court’s discretion in awarding the same.

 

*Lawson was also expansive in the custodial data he sought and the search terms he insisted upon.  For example, he demanded Spirit search sixty-nine (69) custodians’ ESI plus each custodian’s assistant’s ESI. Lawson also demanded using ninety (90) search terms, many of which containing “OR” connectors, resulting in the effective number of search terms in excess of 100. Of note, 85% of the documents yielded in result of these searches were irrelevant.

**Thank you to first year associate, Jaclyn Ruggirello in the Firm’s Uniondale office, for her research assistance related to today’s blog.

Have questions?  Please contact me at kcole@farrellfritz.com.

When allegations of employee misconduct are alleged, companies must respond swiftly.  Indeed, “insider threats” can cause significant damage to a company.  These threats come in many different forms, including:

  • Accounting fraud;
  • Theft of assets;
  • Unauthorized access to or manipulation of data; and
  • Threats, sexual harassment or other inappropriate forms of behavior or communication.

And so, when a threat is perceived or reported, an internal investigation – which aims to assess the validity of the alleged misconduct within the organization – may be necessary.  Although such investigations necessarily involve different steps and goals as the facts require, a typical element of an investigation includes collection and examination of written or recorded evidence, interviews with suspects and witnesses, and computer and network forensics.

McDonald’s Corp. v Stephen J. Easterbrook, (Index No. 2020-0658, [Del. Ch. Aug. 12, 2020] [Complaint]) reminds us that collecting and reviewing electronically stored information (“ESI”) is a critical step in a thorough investigation.

Factual Background:

In October 2019, it was alleged that then-CEO of McDonald’s Corporation (“McDonald’s”) Stephen J. Easterbrook (“Easterbrook”) engaged in sexual conduct with a company employee in violation of McDonald’s standards of business conduct policy.  In response to these allegations, McDonalds’s hired outside independent counsel to perform an internal investigation.  The investigation included interviews of Easterbrook and the company employee, and a review of all images, videos, and text messages stored on Easterbrook’s company-issued cellphone.  The investigation, however, failed to include any collection or review of Easterbrook’s company email.

Because none of the evidence counsel reviewed contradicted Easterbrook’s allegation that the relationship at issue was consensual, McDonald’s and Easterbrook entered into a separation agreement, wherein Easterbrook was terminated “without cause” and pursuant to which he received severance compensation and benefits under his existing compensatory arrangement.

Less than a year later, in July 2020, however, McDonald’s received a complaint from a different company employee that Easterbrook had engaged in sexual conduct with her, in violation of McDonald’s standards of business conduct policy.  This complaint resulted in a second internal investigation, which included the collection of review of Easterbrook’s, now dormant, McDonald’s email account.  It was during this July 2020 investigation that McDonald’s discovered several photographs and emails relevant to both the 2019 and 2020 complaint that had been deleted from Easterbrook’s company cellphone.  Unbeknownst to Easterbrook, although he deleted these emails and photographs from his company cellphone, a copy of the emails and photographs remained accessible on McDonald’s servers.  These emails and photographs provided indisputable evidence that Easterbrook repeatedly violated McDonald’s standards of business conduct policy.

Clearly, had McDonald’s been aware of Easterbrook’s misconduct in 2019 as documented by email communications, it would not have entered the separation agreement with Easterbrook.  And so, McDonald’s was forced to commence an action against Easterbrook, alleging that he breached his fiduciary duty by violating McDonald’s standards of business conduct policy and fraudulently inducing McDonald’s to enter into the separation agreement.

Conclusion:

This lawsuit reminds us that in today’s age of e-everything, an internal investigation of any alleged misconduct must include collecting and reviewing ESI.  While efficiency and cost necessarily inform decisions, collecting and reviewing ESI (even if deemed a costly endeavor) must remain a priority in internal investigations.  Here, review of emails could have prevented subsequent litigation.

Have questions?  Please contact me at kcole@farrellfritz.com.

*Thank you to first year associate, James Maguire in the Firm’s Uniondale office, for his research assistance related to today’s blog.