Clear-View Technologies, Inc. v John H. Rasnick, et al (2015 U.S. Dist. LEXIS 63579), reads as a list of the things you do not want to do if you want to avoid spoliation sanctions. The underlying dispute involved the development of an alcohol tracking product, and certain shareholders’ alleged conspiracy to steal the technology and start a new company.

The defendants, however, forgot they had discovery obligations (or they were not properly informed about them by their attorneys). After being on notice of a potential litigation, through a text message where they were threatened with a lawsuit, the defendants failed to take any steps to preserve discovery. Instead, they continued to delete emails and dispose of technology (like iPhones, iPads and computers). They also never even tried to do a fulsome search for responsive materials, but still certifying that they searched for and produced all of their ESI.

Defendants’ discovery failures led the court to require the defendants to turn over all of their devices to an outside consultant to review. This is where things went from bad to worse. The consultant found almost 2,600 relevant documents, totaling almost 12,500 pages of materials the defendants did not produce (12,000 more pages than the defendants entire production). The forensic examiners also found that four separate optimization and computer cleaning programs was run on one of the laptops (including “crap cleaner”) which can be used to “wipe specific files and programs.” This was done six-days after the filing of the motion to compel. The defendants also purged outlook files from an external hard drive and purportedly were unable to provide passwords for certain email accounts.

All in all, the court was not accepting the defendants’ actions lightly. The court issued an adverse inference sanction and over $200,000 in attorney’s fees (though it declined to issue a termination sanction regarding defendants’ counterclaim). Adding insult to injury, the defendants stiffed the forensic expert, even though the court had ordered that they pay its fees. The court therefore issued an order to show cause as to why additional sanctions should not be issued.

A little more than three years ago, federal Magistrate Judge Andrew J. Peck (SDNY), issued a seminal decision in Da Silva Moore v. Publicis Groupe & MSL Group, 11 Civ. 1279 (February 24, 2012).  Indeed, in that ruling, Judge Peck sent a message that predictive coding and computer assisted review is an appropriate tool that should be “seriously considered for use” in large data-volume cases and attorneys “no longer have to worry about being the ‘first’ or ‘guinea pig’ for judicial acceptance of computer-assisted review.”    Judge Peck went on to encourage parties to cooperate with one another and to consider disclosing the initial “seed” sets of documents.  In doing so, he recognized that sharing of seed sets is often frowned upon by counselors who argue that these sets often contain information wholly unrelated to the action, much of which may be confidential or sensitive.  Specifically Judge Peck stated: “This Court highly recommends that counsel in future cases be willing to at least discuss, if not agree to, such transparency [with seed sets] in the computer-assisted review process.”

Since Da Silva,  many cases have successfully employed various forms of technology assisted review (“TAR”) to limit the scope of documents actually reviewed by attorneys.  It is well-embraced that the upside of utilizing TAR is to make document review a more manageable and affordable task.  Moreover, Courts routinely embrace TAR for document review  See, e.g., Rio Tinto PLC v. Vale S.A., S.D.N.Y. No. 14 Civ. 3042 (RMB)(AJP) (March 3, 2015) (“the case law has developed to the point that it is now black letter law that where the producing party wants to utilize TAR for document review, courts will permit it”).

In Rio Tinto, Judge Peck revisited his DaSilva decision. And, while most of Rio Tinto discusses the merits of transparency and cooperation in the development of seed sets, Judge Peck notes there is no definitive answer on the extent of transparency and cooperation required.   Citing to his opinion in DaSilva and other cases, Judge Peck makes clear that he “generally believe[s] in cooperation” in connection with seed set development. Nevertheless, Judge Peck notes there is no absolute requirement of transparent cooperation.  Rather, “requesting parties can insure that training and review was done appropriately by other means, such as statistical estimation of recall at the conclusion of the review as well as by whether there are gaps in the production, and quality control review of samples from the documents categorized as now responsive.” (emphasis added)

The decision goes on to emphasize that courts and litigants should not hold predictive coding to a so-called “higher standard” than keyword searches or linear review. Such a standard could very well dissuade counsel and clients from using predictive coding, which would be a step backward for discovery practice overall.

Perez v. Metro Dairy Corp., No. 13 CV 2109(RML), 2015 WL 1535296 (E.D.N.Y. Apr. 6, 2015)

In this collective action seeking unpaid wages, overtime and other relief, Plaintiffs moved pursuant to Federal Rule of Civil Procedure (“FRCP”) 37 for spoliation sanctions attributable to Defendants’ failure to preserve, and ultimately produce certain relevant employment-related evidence, including, for example payroll records and W-2s.  Defendants objected to the motion on the grounds that their books, computers and the specific documents sought by Plaintiffs had been seized pursuant to an order of the Superior Court of New Jersey in a different case involving Farmland Diary.  Defendants further stated they had no opportunity to back up their data or make copies of their data prior to that seizure.

While the plaintiffs were able to conduct some limited discovery into these documents through the issuance of a non-party subpoena directed to Farmland Diary (indeed, approximately three hundred pages of payroll records were provided to Plaintiffs by Farmland) and conducted an inspection of the records in Farmland’s possession prior to filing the motion for sanctions, certain relevant records were no longer available.  In opposing the motion, Defendants argued that they had “no control over the records and were not complicit in their loss or destruction.”

Assessing Defendants’ duty to preserve and noting the failure of Plaintiffs or the court to identify case law addressing a comparable situation, the court reasoned that Defendants had not destroyed their records and found that “[u]nder the specific circumstances of this case … defendants did not have an obligation to copy their books and records before complying with the court order.”  The court also reasoned that even if Defendants did have an obligation to preserve, there was no evidence of Defendants’ requisite culpable state of mind and denied Plaintiffs’ motion for sanctions.













In an earlier post (SEE reference to my top 10 list), I noted the importance of issuing a timely and proper legal hold notice.  In case you failed to appreciate the critical importance of this step, a reading of the insurance case of Fidelity Nat. Ins. Co. v. Captiva Lake Invs., 2015 WL 94560 (E.D. Mo. Jan. 7, 2015) should drive the point home.

In this case, the defendant alleged that Fidelity failed to implement a legal hold notice and therefore scores of potentially relevant emails were deleted.  The defendant also argued that plaintiff allowed data in its electronic claims database to be overwritten, thus destroying discoverable evidence.  Defendant therefore sought sanctions against plaintiff due to this spoliation of relevant evidence. In response, plaintiff argued that Captiva was not prejudiced by the loss of emails because it received a substantial amount of emails during discovery and the overwriting of the claims database was a routine operation.

In siding with the defendant, the court imposed sanctions on the plaintiff, including an adverse jury instruction and attorneys’ fees. The court held that the plaintiff failed to implement a legal hold, deleted emails, and prejudicially delayed the production of relevant documents as a result. Notably, the court did not impose sanctions upon Fidelity pursuant to Rule 37(e) for overwriting the claims database because the Court found there was no indication that the plaintiff had the ability to prevent the system from overwriting files without incurring an extreme burden to do so.

In a case that helps clarify what discovery-specific activities constitute the practice of law, District Court Judge Richard Sullivan – a judge in the Southern District of New York – ruled that contract attorneys performing document review for a law firm are not entitled to overtime pay because they are engaged in legal work.

Specifically, the case involved a collective action initiated by contract attorney David Lola in July 2013 against law firm Skadden Arps Slate Meagher & Flom (“Skadden”) and Tower Legal Staffing (“Tower”) arising from work he performed for Tower over the course of 15 months as a contract attorney in North Carolina. Although Lola is a licensed attorney in California, he is not licensed to practice in North Carolina or the Northern District of Ohio, where litigation involving a Skadden client necessitated the review work.

Lola performed elementary review that consisted of identifying search terms appearing in documents, marking those documents for responsiveness, and, occasionally, redacting materials according to protocols Tower and Skadden provided. He earned $25 per hour working 45 to 55-hour weeks. His fellow contract attorneys received similar wages, with no increase in pay for hours worked in excess of 40 hours per week.  Lola claims the legal industry has been exploiting for years contract attorneys who conduct document review projects for extended hours at a time and without overtime compensation. Though Tower hired and paid the contractors working on the Skadden project, it was Skadden that oversaw the work and provided coding protocols and guidelines. Skadden also had the authority to terminate reviewers.

Skadden moved to dismiss the suit last October, arguing that, as a licensed attorney, Lola was exempted from overtime pay under the Fair Labor Standards Act (“FLSA”), and that he had failed to show that Skadden actually employed him.

Under the FLSA, the Department of Labor, which has the authority to exempt employees working in a “in a bona fide… professional capacity,” does not require employers to pay overtime to “holder[s] of a valid license or certificate permitting the practice of law… and is actually engaged in the practice thereof.”

Lola’s counsel argued that “When one’s job consists solely of searching keywords and categorizing those documents based on those keywords, it is absolutely not the practice of law.” Adding, “It involves no legal analysis, judgment, discretion or advice, and can be performed by a non-lawyer.” Skadden argued that, though the tasks are not glamorous, review work represents a core attorney function on par with drafting pleadings and memoranda of law, and conducting legal research.  Skadden also emphasized that the North Carolina Bar acknowledges document review is legal work.

Calling upon professional and ethical codes of North Carolina, where the contract attorneys were conducting their document review, Judge Sullivan determined that document review rises to the level of legal practice — irrespective of its simplicity/complexity or the legal credentials of those performing it. The application of legal judgment, Judge Sullivan said, is not a prerequisite for an activity to be deemed “practice of law.”  Judge Sullivan reasoned that document review is a legal task, like double-checking citations while drafting a brief, that often requires little to no legal judgment.  Judge Sullivan continued, “Document review is the practice of law, regardless of who conducts it. The only difference between lawyers and non-lawyers is that the former can lawfully perform document review without supervision, while the latter cannot.”  Judge Sullivan’s ruling to dismiss Lola’s case weighs heavily on the many licensed lawyers who rely on document review projects as a way to make a living. For law firms, contract attorneys provide a reputable source of credentialed, cost-effective attorneys who spare the client from higher-priced associates, and spare those associates from a discovery obligation that many deem menial.

The question of what actually constitutes the practice of law has only been posed to two other district judges — in the Southern District of Texas in Oberc v. BP PLC  and in the Southern District of New York in Henig v. Quinn Emanuel Urquhart & Sullivan. In the Henig case, whose facts mirror the Skadden dispute, District Judge Ronnie Abrams has allowed discovery to determine whether the plaintiff in the case, William Henig, practiced law under the FLSA while working as a reviewer under the supervision of Quinn Emanuel.

The Department of Labor has given no guidance on what constitutes the practice of law and David Lola’s appeal was argued to the Second Circuit only in January.  In the argument before the Court of Appeals, Skadden argued that both common sense and the FLSA contradicted Lola’s position that document review is not the practice of law.  Lola, in turn, argued that the lower court erred by applying the definition of practicing law in North Carolina – where he conducted the document review – and irrespective of that definition, he was not practicing law. He went on to argue for the adoption of a federal definition of “practice of law.”  Check back here for the Second Circuit’s decision when available.

Lola vs. Skadden Arps – Judge Sullivan 9-16-14 Opinion and Order