In Youngevity Intl’s Corp. v. Smith (No: 16-cv-00704 [SD CA December 21, 2017]), defendants sought an Order pursuant to Federal Rules of Civil Procedure 26(g) and 37.  The Order required Plaintiffs to remediate an improper discovery production to pay for Defendants’ costs for bringing the motion to compel and for the cost to review various improper prior productions.  Specifically, in connection with the discovery of electronically stored information (“ESI”), Defendants proposed a three-step process by which: “(i) each side proposes a list of search terms for their own documents; (ii) each side offers any supplemental terms to be added to the other side’s proposed list; and (iii) each side may review the total number of results generated by each term in the supplemented lists (i.e., a ‘hit list’ from our third-party vendors) and request that the other side omit any terms appearing to generate a disproportionate number of results.”

Approximately one week later, Plaintiffs advised in writing that they were “amenable to the three step process described in your May 9 e-mail.”  The parties then exchanged lists of proposed search terms to be run through their own ESI and the ESI of their opponent.

Pursuant to the agreed-to three-step process, Defendants provided to Plaintiffs its “hit list.”  Plaintiffs, however, never produced its “hit list.”  Instead, Plaintiff produced two large caches of documents – the first consisting of approximately 1.9 million pages and the second production consisting of approximately 2.3 million pages.   Upon receipt by Defendants, it became clear that the productions had been bulk coded with a CONFIDENTIAL legend and in some instances also with an ATTORNEYS’ EYES ONLY designation.  The produced materials also contained non-responsive documents.  A few months later, defendants advised they inadvertently failed to produce an additional 700,000 documents due to a vendor error.  Although the parties attempted to resolve amicably their differences, they were unsuccessful.

As a result, Defendants’ filed the instant motion to compel proper production and for costs.

In granting Defendants’ motion, Magistrate Judge Jill L. Burkhardt concluded, “the record indicates that Youngevity did not produce documents following the protocol to which the parties agreed.”  Specifically, “Youngevity failed to produce its hit list … and instead produced every document that hit upon any proposed search term” thus conflating “a hit on the parties’ proposed search terms with responsiveness.”  Moreover, the Court observed “the parties negotiated a stipulated protective order, which provides that only the ‘most sensitive’ information should be designated as AEO.”  As a result, Judge Burkhardt gave the plaintiffs two options for correcting their discovery productions with specific deadlines:

“1) By December 26, 2017, provide its hit list to Defendant; by January 5, 2018, conclude the meet and confer process as to mutually acceptable search terms based upon the hit list results; by January 12, 2018, run the agreed upon search terms across Plaintiff’s data; by February 15, 2018, screen the resulting documents for responsiveness and privilege; and by February 16, 2018, produce responsive, non-privileged documents with only appropriate designations of “confidential” and “AEO” (said production to include that subset of the not-previously-produced 700,000 documents that are responsive and non-privileged); or

2) By December 26, 2017, provide the not-previously-produced 700,000 documents to Defendant without further review; pay the reasonable costs for Defendant to conduct a TAR of the 700,000 documents and the July 21, 2017 and August 22, 2017 productions for responsiveness; by January 24, 2018, designate only those qualifying documents as “confidential” or “AEO”; by that date, any documents not designated in compliance with this Order will be deemed de-designated.”

Judge Burkhardt also ordered Plaintiffs to pay for the reasonable expenses, including attorney’s fees, for bringing the motion and for the expenses incurred by Defendants “as a result of Youngevity’s failure to abide by the Stipulated Protective Order.”

Conclusion

This case is another reminder of what appears to be the well-embraced theme in Federal discovery – cooperation.  The 2015 amendments made plain that cooperation between the parties and their attorneys during the litigation process to achieve orderly and cost-effective discovery is a priority.  Indeed, mutual knowledge of the relevant facts is essential to proper litigation; and therefore the process of obtaining those facts (i.e., discovery) should be a cooperative one.  Had counsel simply abided by the three-step process and stipulated protective Order it willingly entered, there would be no need to defend against (and foot the bill for) the motion to compel.

You are involved in litigation and faced with a document review need, what now? Naturally you need to find attorneys to review these documents. To this end, depending on the volume of data at issue, many firms will either: (1) staff the document review with firm attorneys, or (2) work with a vendor to retain a review team comprised of contract attorneys. Irrespective of who conducts the needed review, the cost attendant to that review and the time to complete the review is often a concern.  Because a party to a litigation should not produce documents without reviewing them, predictive coding may be a particularly helpful option.

Simply put, predictive coding is the use of a computer system to help determine which documents are relevant to a particular legal proceeding.  The system makes this determination based upon “training” it receives from human input.  In fact, for a predictive coding system to make accurate decisions, the system needs direction from humans fluent in the intricacies of the lawsuit.  During this training phase, attorneys will review a seed set of documents and code those documents accordingly (i.e., responsive, privilege, tagging issues applicable). (FN*) At each step of this process, the computer system is being trained and educated. Refinements are made along the way and internalized by the system. Once trained, the computer will find and code (based on its training) the responsive documents far quicker (and often with far greater accuracy) than human reviewers. Specifically, the computer will build a model to identify documents that have a high probability of correct classification into categories pre-defined through the training /seed coding.

As with any review (entirely human or a combination of human and machine review), a validation process should be implemented.  Specifically, there should be a work flow created that provides for attorney reviewers to check the efficacy and accuracy of the model.   It is important here to determine what validation/QC process is best implemented.  For example, one can implement a statistical sampling of data where documents are selected at random and reviewed for accuracy.  This sort of validation would be reflective of the machine’s overall accuracy and reflective of the overall document population.  There is also, however, a more particularized sampling where a group of relevant documents are selected from the population and reviewed for accuracy.  This sort of validation would be more limited in that it would not allow the attorney running the review to form any conclusions about the entire document population.  (FN**)

Because of the ever-increasing volume of data and information, predictive coding is becoming a more attractive tool to incorporate into every document review to some degree, especially because no minimum data size is required to use predictive coding.  A document review that uses predictive coding coupled with a well-devised work flow will inevitably minimize review costs while maximizing efficiency during the review.

 

FN* Because the coding on these seed documents will impact the quality of the computer’s determinations, it is important the individuals coding the seed documents understand well the lawsuit and how the predicting coding system is to work.

FN**  And, if you are not comfortable allowing a computer to do that much work, other predictive coding options (e.g., other than allowing the system to extrapolate based upon seed sets) are available.  For example, prioritized review can be used whereby the system identifies and escalates important documents for review but keeps likely irrelevant documents in the queue.  Incorporating this option into your work flow allows attorneys to still lay eyes on all documents but provides for an efficient prioritization of documents that must be reviewed.

What do applications like Snapchat, Telegram, Wickr, Cover Me, Speak On, and Whisper have in common? They are all self-destructing message (“SDM”) applications. What exactly does this mean, you ask? Self-destructing messaging applications transmit information with end-to-end encryption, and auto destruct after a set time period of time, or after receipt and access by the intended recipient.  Consider Snapchat, for example. Snapchat is one of the most popular social media platforms in the world. Indeed, in 2016, Snapchat surpassed Facebook’s number of video views per day.*  Part of Snapchat’s popularity is derived from the fact that the user can set timers for shared photos / videos to self-destruct once the person received it; allowing users (typically younger generations) to share photos without the risk of the photo going public.

Yet, what happens when SDM technologies (which are evolving rapidly) are used in the corporate world?  How does one preserve potentially relevant information?  What is the risks verses benefits of incorporating into one’s business SDM technology?  These questions – and others – are likely questions litigators will grapple with in the coming months/years given the rapid growth of SDM technology.**

While it is impossible to predict the future, I suspect it is only a matter of time until this issue becomes more of a focus in litigation and I look forward to reading decisions on point as the case law catches up to the technology.

http://mediashift.org/2016/12/state-video-2016/

** Consider, for example, the Waymo LLC v. Uber Technologies, Inc., lawsuit, wherein allegations have arisen that one party is hiding information relevant to the lawsuit by transmitting that information via SDM. Consider further the fact that the Department of Justice in December issued an enforcement policy urging strongly against the use of messaging applications that do not store data in a way that allows for access during a subsequent investigation.  https://www.justice.gov/usam/usam-9-47000-foreign-corrupt-practices-act-1977  These recent lawsuits and policies make plain SDM technology is being employed in corporate America.

 

In IDC Financial Publishing, Inc. v. Bonddesk Group, LLC (15-cv-1085-pp, 2017 WL 4863202 (E.D. Wis. Oct. 26, 2017)), the Eastern District of Wisconsin granted IDC’s motion to compel the production of more than 600 documents that had previously been produced by Bonddesk with extensive non-responsive redactions applied.

Bonddesk argued that the applied redactions were necessary to protect confidential business information that had no relevance to the underlying dispute.  In making this argument, Bonddesk relied on In re Takata Airbag Prods. Liab. Litig., 2016 WL 1460143 (S.D. Fla. Feb. 24, 2016). In the Takata case, the district court in the Southern District of Florida permitted the redactions based upon “non-responsiveness,” because of the “concern that the documents contained competitively sensitive materials that may have been exposed to the public, despite protective orders.”

In the present case, however, the Court looked to the Federal Rules for guidance. Specifically, the Court observed that redactions based upon relevance are not explicitly supported by the Federal Rules, and seemingly contrary to the Rules’ allowance for broad discovery. The Court also reasoned redactions based upon relevance (or a lack thereof), have the potential for abuse. For example, should non-responsive redactions be deemed per se proper, parties may be incentivized to “hide as much as they dare” (internal citations omitted).   Moreover, the Court reasoned that Bonddesk failed to provide an otherwise “compelling reason” for its “extensive” redactions and failed to explain why the protective order in place did not provide adequate protection.

Therefore, based upon the Court’s fear of party abuse, Bonddesk’s failure to articulate a compelling reason for the redactions, and Bonddesk’s failure to articulate why the protective order was insufficient, the Court granted IDC’s motion to compel. The Court concluded it “[did] not see a compelling reason to alter the traditionally broad discovery allowed by the rules by letting the defendants unilaterally redact large portions of their responsive documents on relevance grounds.”

This decision does not conclude relevance redactions are per se impermissible, but it reminds us, as practitioners, that engaging our adversary in a meaningful discussion about inter alia redactions, is good practice. Recall, the theme of late from the federal courts is “cooperation”. Here, there was a protective order in place and no compelling reason to apply the redactions at issue. Query whether had the lawyers spoken, the cost of motion practice and a subsequent (un-redacted) production could have been avoided. It seems lately that a collaborative approach is preferred by the Bench.  However, if such a meet and confer/discussion is not practical or possible, at least be prepared to provide compelling reasons why a robust “So Ordered” confidentiality agreement is not sufficient to protect the content of your client’s documents before unilaterally applying redactions.

Earlier this year, I wrote about the then-proposed changes to the Federal Rules, and how those changes (if implemented), could impact electronic discovery. (February 15, 2017 blog)  Well, the time has come — effective December 1, 2017, the amendments to Federal Rule of Evidence 902 “Evidence That is Self Authenticating” went live.

As the title suggests, Federal Rule of Evidence (“FRE”) 902 applies to evidence that is self-authenticating (i.e., sealed and signed public documents, certified copies of public records, newspapers).  Because such documents are deemed “self-authenticating,” attorneys do not need to go through the authentication process in court with qualified expert testimony.  Effective December 1st, two new categories of documents will qualify as self-authenticating, too.

Specifically, 902(13) and (14) are the newly added provisions – each of which apply to electronically stored documents.

Subsection 13 provides:

(13) Certified Records Generated by an Electronic Process or System. A record generated by an electronic process or system that produces an accurate result, as shown by a certification of a qualified person that complies with the certification requirements of Rule 902(11) or (12). The proponent must also meet the notice requirements of Rule 902(11).

And, subsection (14) provides:

(14) Certified Data Copied from an Electronic Device, Storage Medium, or File. Data copied from an electronic device, storage medium, or file, if authenticated by a process of digital FEDERAL RULES OF EVIDENCE 3 identification, as shown by a certification of a qualified person that complies with the certification requirements of Rule 902(11) or (12). The proponent also must meet the notice requirements of Rule 902(11).

Subsection (13) applies to machine-generated information (i.e., produced by a computer system or computer process) and is analogous to Rule 902(11)’s certification of business records.  Subsection (14) applies more broadly to copied/replicated ESI provided the copy retains a hash value that is identical to the original.[1] Subsection 14, thus, effectively dispenses with the costly need for trial testimony of a forensic or technical expert where best practices are employed, as certified through a written affidavit by a “qualified person.”

While neither subsection (13) nor (14) dispense with the need to demonstrate authenticity, the new provisions drastically simplify the process.  Indeed, the expectation is that the new Rules will provide a streamlined and efficient process to establish a foundation for ESI collected in a Rule 902(14) compliant manner. This will increase predictability by eliminating surprise challenges, and will encourage the use of ESI practitioners by allowing written certifications in the place of expensive and time-intensive in-person testimony.  Indeed, the ability to eliminate foundational testimony will undeniably result in significant cost savings to one’s client and help promote judicial efficiency.[2]

[1] Recall, a file’s hash value is often likened to its fingerprint – a unique identifier attributable to the contents of a file being processed through a cryptographic algorithm, which results in a unique numerical value – the hash value – being produced that identifies the contents of the file.

[2]  However, this necessarily presupposes that practitioners in the federal courts will understand what a 902(14) compliant collection means.

In Barcroft Media, Ltd. et al. v. Coed Media Grp., LLC, No. 16-CV-7634 (JMF) (S.D.N.Y. Sept. 28, 2017), Plaintiffs – providers of entertainment-related photojournalism and owners of celebrity photographs – interposed various intellectual property claims against Defendant Coed Media Group, LLC (“CMG”).  The claims related to the allegedly infringing use of certain celebrity photographs (the “Images”) on CMG’s pop culture and celebrity gossip websites.  Because CMG purportedly failed to preserve the “webpages” on which it displayed the Images, Plaintiffs filed a motion for spoliation sanctions pursuant to Federal Rule of Civil Procedure 37.

In deciding the sanctions motion, Judge Furman discussed the relevant provisions of Rule 37 and its 2015 amendment.  Specifically, the Court noted that a sanction may be imposed only if the ESI that should have been preserved is lost because a party failed to take reasonable steps to preserve it and the ESI cannot be restored or replaced through additional discovery.  Once that standard is met, the next step in the inquiry is to determine whether; (1) the non-offending party has been prejudiced from the loss of ESI; and (2) the offending party acted with the intent to deprive another party of the information’s use in the litigation. Even a cursory reading of the (not so newly) amended Rule 37 makes plain that mere loss of data alone is not enough for sanctions. Rather, loss coupled with a prejudice is necessary and, even then, the resulting sanction must only be as great as needed to cure the prejudice. Thus, only after a Court identifies a prejudice to the aggrieved party, may the Court order measures necessary to remediate that prejudice.

Against this backdrop, the Court concluded Plaintiff’s motion for sanctions was without merit and bordered on frivolous.  Specifically, the Court found there was no foundation for the imposition of any sanctions.

“Given the plain language of [Federal Rule 37(e)], Plaintiffs’ motion borders on frivolous, for the simple reason that they cannot even show that the evidence at issue was ‘lost.’ Several of the images are still hosted on CMG’s websites…And the record makes clear that Plaintiffs themselves possess copies of the other Webpages—in the form of screen captures taken when they displayed the Images (the ‘Screenshots’)…In fact, Plaintiffs themselves list the Screenshots as trial exhibits…Given that…, there is no foundation to impose sanctions under Rule 37(e).”

The Southern District went on to conclude that “Plaintiffs obviously cannot show prejudice ‘as [they] actually possess[ ] copies’ of the relevant evidence” and sanctions are not appropriate.[1]

This decision serves as an important reminder that practitioners need to remain current in their understanding of the Federal Rules and the standards articulated under those Rules.  Indeed, a sanction for lost ESI cannot be predicated merely upon loss alone.  Rather there must be a loss of relevant ESI coupled with a prejudice before sanctions may be imposed.

[1] Bear in mind the decision is limited to spoliation issues, not authenticity and best evidence.

United States v. New Mexico State Univ., No. 1:16-cv-00911-JAP-LF, 2017 WL 4386358 (D.N.M. Sept. 29, 2017)

This case, which arises from allegations of pay discrimination by New Mexico State University (“NMSU”) based on gender, in violation of Title VII, serves as an important reminder that all counsel – irrespective of one’s computer know-how – understand their ESI obligations and cooperate in good faith with opposing counsel when engaging in the process of retrieving electronically stored information (“ESI”).

BACKGROUND

In this pay discrimination case, the United States alleged that NMSU paid a female employee less than her male counterparts, although they were performing similar responsibilities for NMSU’s track and field program.  During discovery, plaintiff sought production of documents reflecting communications regarding her compensation; production of documents regarding her complaints concerning her pay; and production of documents regarding any other complaints of pay discrimination made by other coaches, trainers, etc.  Eventually, disputes arose over NMSU’s responses to plaintiff’s discovery requests and the United States filed a motion to compel.

In response, NMSU detailed the “more than 20” keyword searches it conducted (without conferring with plaintiff’s counsel) to locate documents responsive to the plaintiff’s requests.  Thereafter, the United States identified what it perceived to be inadequacies and deficiencies in NMSU’s searches notwithstanding the 14,000 pages of documents produced.  Before the Court could resolve the issue of the adequacy of searches, NMSU moved for a protective order to preclude further searching for responsive documents.

DECISION

Citing defense counsel’s failure to “adequately confer” before performing keyword searches that were “inadequate to reveal all responsive documents,” the Court concluded that “which searches will be conducted is left to the Court” and went on to order NMSU to conduct additional searches with specific terms.  The Court found defense counsel’s failure to confer with its adversary particularly troubling as “[t]he best solution in the entire area of electronic discovery is cooperation among counsel” and “[c]ooperation prevents lawyers designing keyword searches ‘in the dark, by the seat of the pants,’ without adequate discussion with each other to determine which words would yield the most responsive results.”

Here, the failure to adequately confer in good faith was the very reason for the inadequate searches.  The Court went on to observe:

Electronic discovery requires cooperation between opposing counsel and transparency in all aspects of preservation and production of ESI. Moreover, where counsel are using keyword searches for retrieval of ESI, they at a minimum must carefully craft the appropriate keywords, with input from the ESI’s custodians as to the words and abbreviations they use, and the proposed methodology must be quality control tested to assure accuracy in retrieval and elimination of “false positives.” It is time that the Bar—even those lawyers who did not come of age in the computer era—understand this.

[Citation omitted] [emphasis added].

CONCLUSION

While this decision does not actually state that counsel must disclose their ESI search terms to opposing counsel, it comes pretty darn close.  By commenting that transparency in all aspects of ESI preservation and production is necessary, this decision effectively obligates counsel to discuss with opposing counsel the intended search terms before executing on those terms.  Indeed, collaboration and cooperation are again held to be central to one’s discovery obligations.  And, here, counsel’s failure to meet and confer and engage the adversary in that process resulted in counsel earning the expensive right to repeat the process – this time with judicial weigh-in.  Perhaps equally important of a take-away from this decision – counsel’s lack of computer savvy does not extricate counsel from the obligation to understand one’s e-discovery obligations and attain competency in technological advances relevant to litigation in today’s E-centric world.

In past blogs, I have discussed the importance of issuing a litigation hold notice (“Hold”), as soon as a litigation is reasonably anticipated. I have also written about various best practices when drafting one’s Hold. [See Practical Tips For an Effective Litigation Hold Notice and Your Litigation Hold Must be Generally Broad And Specifically Tailored]. In an effort to avoid reiterating those blog posts in full, suffice it to say it is critically important to:

  1. provide custodians with detailed instructions on what they are expected to do upon receipt of the Hold; and
  2. ensure that the Hold sets forth the specifics of what information must be preserved, thus limiting any discretion vested in the recipients of the Hold.

A recent decision out of the District of New Mexico reminds us of these best practices.

In N.M. Oncology & Hematology Consultants v. Presbyterian Healthcare Servs., 2017 U.S. Dist. LEXIS 130959 (D.N.M. Aug. 16, 2017), the plaintiff moved the District Court for adverse inference sanctions against the defendants alleging defendants failed to implement a proper litigation hold (“Notice”) because, among other things, the Notice impermissibly gave discretion to employees to determine what information might be relevant to the lawsuit and thus subject to the Notice. Plaintiff contended that permitting such discretion was per se inadequate.

The Court, however, concluded that the discretion the employees were cloaked with in this specific instance was limited and, therefore, the Notice was not inadequate.  Specifically, the employees were directed to retain documents and data “that mention or discuss or relate to any of” an exhaustive list of subjects. The recipient-employees were also directed that if “you are unsure about the relevance of a document, be cautious and preserve it.”

In reaching its conclusion, the Court observed that defendant’s employees were not given a generic retain relevant documents instruction but rather one with sufficient specificity that the employees had little, if any, discretion, and were further instructed to err on the side of preservation.

While the Court further noted that allowing individual employees to exercise discretion as to whether to retain data is not, alone, indicative of bad faith nor does it render a Hold per se inadequate, the decision reminds us that generic “preserve all relevant data” instructions should never be the basis of one’s Hold. The decision also serves as an important reminder that one’s Hold should be drafted in a way that it effectively becomes a checklist for the specific records you seek to preserve.  It is important that you include not only a broad description of the types of documents you seek, but also identify documents or locations with specificity to the greatest extent possible, thus eliminating discretionary decisions to the greatest extent possible.

Ronnie Van Zant, Inc. v. Pyle, No. 17 Civ. 3360 (RWS), 2017 WL 3721777 (S.D.N.Y. Aug. 28, 2017)  

In this case, the Southern District of New York imposed an adverse inference against defendants for their failure to preserve text messages that were in the possession of a non-party.  Specifically, Judge Sweet imposed an adverse inference against defendants based upon the spoliation of non-party text messages after concluding that as a result of the non-party’s: close working relationship with the defendants; his prior production of documents in the litigation; and his financial interest in the at-issue film, defendants had the practical ability to obtain the text messages, irrespective of any legal right to those messages.

The underlying dispute involves certain prohibitions on the use of Lynyrd Skynyrd’s likeness and name. For the readers who may be too young to have a full appreciation of the band and its traumatic history, a brief factual background is provided.

On October 20, 1977, two members of the Lynyrd Skynyrd rock band, and a number of other people were killed in a plane crash in Mississippi.*  However, a number of people, including Artimus Pyle (“Pyle”) (the band’s drummer), survived the crash.  In the years that followed, the three surviving band members and Ronnie Van Zant’s surviving spouse (“Judy”) entered into what has been called a “blood oath.”  Under the blood oath, it was agreed that no surviving band member would ever perform again as Lynyrd Skynyrd.

In 1987, to commemorate the ten year anniversary of the crash, the band’s surviving members reunited for a tribute tour.  Judy disputed use of the band’s name and sought to enjoin use of the band’s name in the performance (the “1988 Lawsuit”).  The 1988 Lawsuit was resolved by the parties’ entry of a consent order, judgment and decree (the “Consent Decree”).  Pyle – who was represented by counsel in connection with the 1988 Lawsuit – was a signatory to the Consent Decree.  Among other things, the Consent Decree set forth various restrictions on the how the parties to the 1988 Lawsuit could use the name Lynyrd Skynyrd, and the name/image/likeness of Ronnie Van Zant and band member Steve Gaines, who also perished in the crash.  Among other restrictions, the parties were prohibited from commercially exploiting the history of Lynyrd Skynyrd without prior written approval.

In 2016, defendant Cleopatra Records, through one of its affiliate divisions (collectively, “Cleopatra”), sought to make a feature-length film based on the 1977 crash. Jared Cohn (“Cohn”) was hired as the director and writer for the proposed film.  Former Lynyrd Skynyrd drummer, Pyle, was hired to work on the script with Cohn and ultimately signed an agreement with Cleopatra that entitled him to 5% of the film’s net receipts.  Pyle also contracted to narrate the film, make a cameo appearance and contribute an original song to the film.  In the course of his work on the film (tentatively titled, Free Bird), Cohn (who was paid by, but not an employee of Cleopatra) worked closely with Pyle, relying almost exclusively on phone calls and text messages to communicate.

Around the end of June, 2016, Cleopatra put out press releases advertising the film and Pyle’s involvement.  On July 15, 2016, Plaintiffs** sent Cleopatra a cease and desist letter (“Letter”).  In the Letter, Plaintiffs requested a copy of the film’s script and outlined the various restrictions in the Consent Decree.  Soon thereafter, Plaintiffs sent Cleopatra a copy of the Consent Decree.  When, many months later, Plaintiffs discovered Cleopatra was proceeding with production, they filed an action in the Southern District of New York alleging a violation of the Consent Decree, seeking a permanent injunction against Cleopatra and an award of costs and attorneys’ fees (“SDNY Lawsuit”).

Cohn was not a party to the SDNY Lawsuit.

While the Opinion and Order of the Court (“Order”) determined the merits of the lawsuit (spoiler alert – Judge Sweet granted the permanent injunction and awarded attorneys’ fees to Plaintiffs), the balance of this blog discusses only that portion of the Order relevant to a party’s preservation obligations. (Ronnie Van Zant, Inc. v. Pyle, No. 17 Civ. 3360 (RWS), 2017 WL 3721777 (S.D.N.Y. Aug. 28, 2017)).

In May 2017 — after commencement of the SDNY Lawsuit — Cohn switched cell phone providers and began using a new phone.  “Although certain data on Cohn’s old phone was backed-up, such as pictures, other data was not preserved, such as Cohn’s text messages, including those sent and received from Pyle.”  As a result, Plaintiffs moved, “either pursuant to Federal Rule of Civil Procedure 37(e) or the Court’s inherent authority” for an adverse inference with respect to the unpreserved text messages between Cohn and Pyle.

In response to Plaintiffs’ motion, Cleopatra argued that it could not be sanctioned for the actions of Cohn (a non-party) because neither Cohn nor his phone were within its control.  The Court, however, disagreed with Cleopatra.  Specifically, Judge Sweet noted the “concept of control”—pursuant to which documents are considered to be under a party’s control—has been construed broadly and is satisfied “if the party has the practical ability to obtain the documents from another, irrespective of his legal entitlement.”  The Court continued:

Here, while Cohn is a non-party, his text messages were, practically speaking, under Cleopatra’s control. Cohn was contracted by Cleopatra to work on the Film, and the evidence has establishes [sic] that he worked closely with Cleopatra for over the past year. Over the course of the instant litigation, Cohn has participated by providing documents and took a deposition sought by Plaintiffs during discovery. As has been found relevant in other cases determining the relationship between a party and non-parties, Cohn also has a financial interest in the outcome of this litigation, since he is entitled to a percentage of the Film’s net receipts, which would be zero should Plaintiffs prevail. In sum, while determining practical control is not an exact science, “common sense” indicates that Cohn’s texts with Pyle were within Cleopatra’s control, and in the face of pending litigation over Pyle’s role in the Film, should have been preserved.

(Citations omitted.)

The Court further noted that Cohn’s actions (i.e., “getting a new phone after Plaintiffs brought the instant action and managing to back-up pictures but, somehow, not text messages”) demonstrate the “kind of deliberate behavior that sanctions are intended to prevent and weigh in favor of an adverse inference.” Docket No. 61, p. 28-29.  Ultimately, the Court concluded that an adverse inference would be presumed against Cleopatra as to the missing text messages.

CONCLUSION

Because this decision concludes a party can be sanctioned for the failures of a third-party, it is critically important to assess what third-parties, if any, you have a practical ability to secure documents/information from when issuing your hold notices.

For example, does your client have the “practical ability” to retrieve documents from its software vendor? From its payroll provider? From its accountant? If so, and that third-party may have responsive information, you should seek to preserve that information and give serious consideration to issuing a litigation hold to that non-party.

*Among those who lost their lives were lead singer and song writer, Ronnie Van Zant.

**Plaintiffs include Ronnie Van Zant, Inc., Gary R. Rossington, Johnny Van Zant, Barbara Houston as the Trustee of the Allen Collins Trust, and Alicia Rapp and Carinna Gaines Biemiller as personal representatives of the estate of Steven Gaines.

*** It is also interesting to note that there was no analysis of prejudice suffered, if any, by plaintiffs as a result of this preservation failure.  This is interesting in light of the fact that the 2015 Amendments to the Federal Rules of Civil Procedure were intended, in part, to allow a party to secure sanctions only when failures to preserve resulted in an actual prejudice or harm.  Here, the decision and order seems to infer there was prejudice – an inference more typically permitted under the pre-amendment rules.

Despite the existence of a stipulated clawback agreement (that was never presented to the Court to be So Ordered) that provided “[i]nadvertent production of privileged documents does not operate as a waiver of that privilege,” the Court found defendants’ claim to privilege was waived by the inadvertent and “completely reckless” production of privileged materials.  In reaching its conclusion, the Court declined to conclude a clawback agreement always protects against waiver, regardless of its terms.  Rather, like the Second Circuit’s approach, the Ohio State Court held that the heightened protection provided to producing parties under a clawback agreement is lost when the party’s disclosure is “completely reckless.”

Background

Plaintiff, Irth Solutions, LLC (“Irth”) filed this lawsuit in state court alleging contract and fraud based claims.  Eventually, Defendant Windstream Communications, LLC (“Windstream”) removed the action to the District Court for the Southern District of Ohio, based upon diversity jurisdiction.  Shortly after removal, Windstream advised the Court there was a discovery dispute involving an inadvertent production of privileged electronic communications.

At the heart of the decision (Irth Sols. LLC v. Windstream Commc’ns LLC, No. 2:16-CV-219, 2017 WL 3276021 [S.D. Ohio Aug. 2, 2017]) is the parties’ agreement concerning the production of electronically stored information (“ESI”) and an email memorializing that agreement.  As is relevant here, the parties agreed that a formal court order under Federal Rule of Evidence 502 was not necessary given the size of the dispute but nonetheless agreed among themselves:

  • If a producing party discovers that it has inadvertently produced a privileged document, the producing party will promptly notify the receiving party of the inadvertent production;
  • The receiving party will promptly destroy or return all copies of the inadvertently produced document; and
  • The inadvertent production of privileged documents does not operate as a waiver of the asserted privilege.

(Docket 45-1).

Discovery began and eventually (twenty-seven days after Irth alleges production was due) Windstream made a partial production of documents.  According to Windstream, that production contained 43 inadvertently produced privileged documents.  Approximately 12 days later, Windstream’s counsel realized the production issue and contacted Irth’s counsel demanding return of the privileged materials.    Irth’s counsel refused to return the documents, but sequestered them pending decision by the Court.  Irth’s position was that any claim of inadvertence was far-fetched given the small total production size (2200 pages), the inordinate time Defendant took to make any production of documents (3 months) and the firm’s reputation for excellence.

At the hearing on the issue, the Court noted that many of the documents contained clear indicia of potential privilege (e.g., 14 of the 43 documents contained the word “legal” and several identified the author with a signature block making plain her role as counsel: “Counsel to Director of Government Contract Compliance”).  Notwithstanding these privilege flags, defense counsel reaffirmed at the hearing that the documents had been subject to a dual step review process intended to capture privilege concerns.

While the matter was pending before the Court, Windstream produced the at-issue privileged documents again. That’s right – counsel produced the very documents in dispute a second time!  In that instance, defense counsel claimed the production was the result of an attempt to re-produce the prior production set, excluding the privileged materials, in a searchable format and accidentally the Firm’s litigation support team included the privileged materials, despite counsel’s efforts to ensure they were withheld.

Discussion

Taking up the issue, the Court discussed the question of what constitutes inadvertence and ultimately indicated that it would assume arguendo that Defendant had established inadvertence.

The Court then turned to the “impact” of the parties’ clawback agreement on the question of waiver, citing three frameworks applied by other courts: “(1) if a clawback is in place, it always trumps Rule 502(b); (2) a clawback agreement trumps Rule 502(b) unless the document production itself was completely reckless [as embraced by the Second Circuit]; and (3) a clawback agreement trumps Rule 502(b) only if the agreement provides concrete directives regarding each prong of Rule 502(b).”

The Court rejected the first approach, reasoning in part that it “undermine[s] the lawyer’s responsibility to protect the sanctity of the attorney-client privilege” and “runs the risk of undermining contract principles.”

The Court, however, expressed approval of both the second and third frameworks and reasoned it need not choose between them because “taking into account the careless privilege review [conducted by defense counsel], coupled with the brief and perfunctory clawback agreement [the parties drafted], following either [the second or third] approach leads to the same result: Defendant has waived the privilege.”  Applying the framework in this Circuit, the Court noted that “[i]nadvertent disclosure provisions in stipulated protective orders are generally construed to provide heightened protection to producing parties.” (citations omitted).  However, this heightened protection is lost where a disclosure is completely reckless.

In analyzing what constitutes “complete recklessness” the Court stated that various considerations come into the calculus including: the number of privileged documents inadvertently produced, the number of documents ultimately reviewed, and the type of review process engaged in by the producing party.  Applying those factors to the facts before it, the Court ultimately concluded each demonstrated a level of recklessness that supported waiver.  Indeed, the number of privileged documents produced (>10% of the production), the time taken for the review (“Defendant had months to produce the first production”), and the fact that the mistake was not “the result of a technical error or mistake born from hours and hours of review” but instead was the result of critical and reckless mistakes of counsel (i.e., counsel reviewed a limited number of documents and more than 1/3 of the documents prominently featured “Counsel” and a legal signature block) each supported a determination of recklessness.*

Although the Court was sympathetic that privileged documents will inevitably fall through the cracks and be produced inadvertently in today’s world that is replete with emails, the Court in its Opinion reminded the Bar of our responsibility to safeguard the attorney-client privilege.  Indeed, the Court wrote, “as the “guardian” of the attorney-client privilege, it is a lawyer’s responsibility to minimize the cracks through which privileged material might slip. The Court believes the second approach adequately recognizes an attorney’s responsibility to guard that privilege, and holds an attorney accountable when normal cracks become chasms—as was the case here.” (Citation omitted.)

Conclusion

There are many critical lessons to be internalized from this decision not the least of which is the importance of entering a robust and unambiguous claw back agreement that is So Ordered by the Court.  However, it is equally important that any privilege review be undertaken in a deliberate and comprehensive fashion and performed by an attorney capable of assessing privilege – not necessarily the lowest billing attorney assigned to the specific matter.   As the Court made clear, it is the attorney’s responsibility to hold sacred their client’s privilege.  To this end, when devising a review protocol for ESI, it is imperative that a well thought out privilege protocol is designed and implemented.  And, once privilege review is complete that key words and other quality control mechanisms are put in place to avoid the inadvertent production of privileged materials.

Full decision can be located here: https://www.ediscoverylaw.com/wp-content/uploads/2017/08/Irth-Opinion.pdf

* And to make matters worse, Windstream then produced the exact same documents again while asking the Court to protect its privilege.