In a previous post we discussed generally the idea of a cooperative discovery process and highlighted how the proposed amendments to the Federal Rules embrace this principal (see, e.g., proposed amendments to Federal Rule Civil Procedure [“FRCP”] 1).  Here, we discuss how the concept of a cooperative discovery process– even apart from the specific mandates in the FRCP – is expected by the Courts.

Consider, for example, the several districts that have adopted local rules and standards for e-discovery that promote cooperation.  In the Eastern and Southern Districts of New York, for example, “[c]ounsel are expected to cooperate with each other, consistent with the interests of their clients, in all phases of the discovery process” (Local Rule 26.4).  Additionally, the Seventh Circuit, the Southern District of Illinois, the Northern District of California, and other federal Courts have adopted similar rules and guidelines. And, as recent developments in case law have shown (see, e.g., Boston Scientific Corp. v. Lee, 2014 WL 3851157 [N.D. Cal. 2014]), counsel is wise to adopt a cooperative approach to the discovery process.  Indeed, clients are best served by an attorney who is a master of dialogue rather than simply a master of debate.

In Boston Scientific, the Company brought suit against a former employee who began employment with a competitor immediately after resigning from Boston Scientific.  The new employer, after learning about the lawsuit, segregated defendant’s laptop and sent it to a third party e-discovery vendor.  Plaintiff sought forensic images of two laptops; the first that was initially segregated and a replacement laptop, both of which the former employee had been using.  As confirmed by the vendor, the second laptop contained trade secrets and other confidential information from a previous user. When the employer offered to have the first laptop reviewed for pertinent information, Boston Scientific declined the offer.   Thereafter, the court held that neither laptop was discoverable.  Not surprisingly, in the face of this ruling Boston Scientific sought promptly to accept the previous offer which the court would not allow.  The court notably stated:

“This case illustrates a recurring problem in all civil discovery, … A party demands the sun, moon and stars in a document request or interrogatory, refusing to give even a little bit. The meet and confer required by a court in advance of a motion is perfunctory at best, with no compromise whatsoever. But when the parties appear before the court, the recalcitrant party possesses newfound flexibility and a willingness to compromise. Think Eddie Haskell singing the Beaver’s praises to June Cleaver, only moments after giving him the business in private.”

Here, had counsel for Boston Scientific engaged in a cooperative approach to the discovery process, undoubtedly Boston Scientific would have been better served and likely counsel would have maintained credibility in the eyes of the Court.*

*For other decisional law illustrating the Courts’ frustrations with obstreperous or unreasonable discovery anticssee also Brown v. Tellermate Holdings Ltd., 2014 WL 2987051 (S.D. Ohio 2014); Straight Path IP Group, Inc. v. Blackberry Ltd., 2014 WL 3401723 (N.D. Cal. 2014); In re Domestic Drywall Antitrust Litig., 2014 WL 1909260 (E.D. Pa. 2014).

As those of you reading this well know, many studies and decisions show continued dissatisfaction with the discovery process. Remedies to this dissatisfaction that have gained traction are the ideas of cooperation, proportionality and reasonableness in the discovery process – the very themes that lay at the heart of the proposed amendments to the Federal Rules.

On April 29, 2015, in a letter to the United States Senate and House of Representatives, Chief Justice John Roberts submitted the proposed amendments to the FRCP for final congressional approval.  Specifically, C.J. Roberts stated that the amendments “[H]ave been adopted by the Supreme Court of the United States.”  This means, absent any legislation to reject or modify the proposed rules, they will become effective December 1, 2015.

Indeed, unless modified by an act of Congress, several new civil procedure rules will be effective this year, certain of which will impact discovery generally, including e-discovery.

For example, as amended, FRCP 37(e) seeks to impose a uniform standard relating to the remedies available by a court when ESI is not properly preserved and prejudice to the impacted party is found.  These remedies are, adverse inference, jury instruction or dismissal.  Rule 37(e), however, is applicable only when three criteria are met: (1) ESI is lost that “should have been preserved in the anticipation or conduct of litigation;” (2) because of a failure to take “reasonable steps;” and (3) the loss cannot be remedied by “additional discovery” designed to replace or restore the ESI.

Other FRCP amendments emphasize the recurring themes of the importance of cooperation, proportionality, and reasonableness in and the discovery process.  For example, FRCP 1 seeks to emphasize the need for cooperative advocacy in discovery.  Specifically, the proposed amendment specifies that clients share in the responsibility with the Court for achieving the Rule’s objective:

“[These rules] should be construed, and administered, and employed by the court and the parties to secure the just, speedy, and inexpensive determination of every action and proceeding.” The idea behind the amendment to Rule 1 is that the express reference to the litigants in the rule itself will prompt litigants and their lawyers to engage in more cooperative behavior.

While it may take more effort to engage in a cooperative, proportional and reasonable discovery process, doing so offers a multitude of benefits for attorneys and their clients, not the least of which may be a less expensive discovery process (i.e., fewer discovery disputes, limited motion practice, decreased potential for sanctions).

In the latest of a string of decisions relating to ediscovery spoliation, the First Department, on Jun 11, 2015, reconfirmed a basic principal of a spoliation motion: the party seeking sanctions must demonstrate that the spoliated materials were relevant to their case.  This requirement must be satisfied even if the spoliation was caused by gross negligence.

In AJ Holdings Group LLC v IP Holdings LLC et al., (2015 NY Slip Op 04943 [1st Dept 2015]), which arose from a licensing dispute, the First Department reversed the Trial Court’s spoliation sanctions, which included an adverse inference and an award of the movant’s expert and attorneys’ fees in bringing the motion.  The plaintiff alleged that the defendant improperly terminated its license for “MUDD” branded products so that it could enter into a licensing arrangement with Kohl’s.  The defendant claimed that the plaintiff orally agreed to modify the termination provision in their licensing agreement.

The problem was that the plaintiff failed to properly implement a litigation hold after it was on notice of the potential litigation and destroyed its internal emails.  In the words of the First Department:

Plaintiff’s failure to ensure that its principals, who were all involved in the instant transactions, preserved their emails on various accounts used by them, and its failure to implement any uniform or centralized plan to preserve data or even the various devices used by the “key players” in the transaction, demonstrated gross negligence with regard to the deletion of the email.

The Court’s analysis did not end there.  The grossly negligent spoliation only gave rise to a rebuttal presumption that the spoliated materials were relevant.  The defendant in AJ Holdings, rebutted the presumption by demonstrating that the defendant’s claimed defense – the oral modification – necessarily turned on communications to or with defendant’s, not plaintiff’s internal communications.  Again, in the words of the First Department:

because defendants can have only relied on communications they received from plaintiff to establish this defense, there is no sense in which the deleted internal emails of plaintiff would be relevant.  As such, it was error to impose spoliation sanctions.

The lesson for the practitioner is that when bringing a spoliation motion one must not forget to demonstrate the relevancy of the spoliated materials, which cannot be taken for granted.

AJ Holdings Grp. LLC v. IP Holdings, LLC, No. 600530/2009 (N.Y. Sup. Ct. Sept. 19, 2014) reversed by AJ Holdings Group LLC v IP Holdings LLC et al., (2015 NY Slip Op 04943 [1st Dept 2015]).

In this breach of licensing agreement dispute, the Defendants sought spoliation sanctions against the Plaintiff.  The sought-after sanctions included striking the complaint, dismissal of the suit, adverse inferences, and attorneys’ fees.  The Court declined to strike the Plaintiff’s complaint, but found an adverse inference appropriate both at summary judgment and at trial because Plaintiff failed to preserve critical emails, which caused the Defendants to be “at an undue disadvantage in establishing their defense.” The Court also ordered the Plaintiff to cover the cost of the forensic examination and the Defendants’ attorneys’ fees for both motions that sought sanctions.

In AJ Holdings, Defendants filed a motion to compel the Plaintiff to produce both paper and electronic discovery. In granting the motion, the Court ruled that the Plaintiff’s duty to preserve arose on September 29, 2008, the date Plaintiff’s counsel sent the Defendants an e-mail regarding the early termination of the license agreement. The Court’s ruling also allowed the Defendants’ forensic expert to examine the Plaintiff’s computers and devices to determine whether any information deleted after September 29, 2008 could be recovered. Because it was unclear whether any data had been lost, the Court found the Defendants’ request for spoliation sanctions premature but granted them the right to renew their request after the forensic examination.

The Defendants’ expert found that the Plaintiff did not institute a legal hold or take steps to collect or preserve e-mail on its e-mail servers.  Indeed, the Plaintiff’s IT manager testified that he was unaware of the lawsuit until the day before his deposition and that no one informed him that e-mail needed to be preserved. Therefore, all but a “handful” of e-mails sent between the time the duty to preserve arose and the filing of the lawsuit had been lost. Comparing that handful to the typical volume of e-mails sent by the custodians, the expert concluded that “a substantial number of mail items” had been destroyed. This problem was exacerbated by the Plaintiff’s replacement of the computers and Blackberry’s its principals used during the relevant time frame, so the expert could not examine them. Further, the Plaintiff’s employees used AOL accounts to exchange work-related e-mails, and without access to the hardware, the expert could not access any deleted messages.

After the forensic examination, the Defendants asked again for spoliation sanctions, and the Court granted their motion. Under the seminal case Zubulake v. UBS Warburg, the Court found the company should have preserved the e-mail of “key players” likely to have information relevant to the dispute. The five principals at issue had participated in the termination of the license agreement and “had control over relevant email.” Therefore, they had a duty to preserve evidence when litigation was reasonably foreseeable.

Despite this duty, the key players took no steps to preserve evidence: they did not institute a legal hold or prevent the automatic deletion of their e-mails from the servers, although their counsel had repeatedly warned them to do so. The principals “discussed” an oral legal hold but never implemented it. Thus, the Court found the principals were grossly negligent in the dereliction of their duty to preserve evidence. Because the destruction of the evidence was grossly negligent, the relevance of the evidence was presumed. The Court found that even if the spoliation had been merely negligent, the destroyed e-mail would have been relevant to the defense of the action.

In AJ Holdings Group LLC v IP Holdings LLC et al., (2015 NY Slip Op 04943 [1st Dept 2015]), the First Department reversed the Trial Court’s spoliation sanctions.  Stay tuned for our next blog post discussing that decision.

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.

Novick v. AXA Network, LLC, 2014 WL 5364100 (S.D.N.Y. Oct. 22, 2014)

In this contract dispute case, the plaintiff made a motion for sanctions under Rule 37(b)(2) requesting the court strike the defendants’ answer and counterclaims, allow a negative spoliation inference against the defendants and order a monetary fine due to the plaintiff’s “repeated attempts to obtain the at-issue discovery and defendants’ failure to preserve the same.” The plaintiff alleged that the defendants had significantly delayed the discovery process by providing largely irrelevant emails, by withholding emails that were unfavorable to the defendants, by failing to preserve relevant emails and by failing to preserve 10 weeks of audio recordings that constituted “approximately one-third of the entire time period ordered.” The court found that “the defendants acted in bad faith respecting their production of e-mail messages, employed delay tactics, caused substantial costs to be incurred by the plaintiff and wasted the [c]ourt’s time.” The court also found that the defendants had acted in bad faith regarding the missing audio recordings. Thus, the court imposed an adverse inference jury instruction concerning the audio recordings, awarded the plaintiff reasonable attorney’s fees and ordered that certain depositions be retaken at the defendants’ expense.

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.

Lawyers are constantly asked by clients if there is any way to recover attorneys’ fees and costs from the opposing party.  The typical response is that such fees and costs are only recoverable by the successful party by contract, or under a specific statute.  This response often sends lawyers to the “rule books” so that they may determine if a statute is applicable to their case.

One statute all litigators who practice in federal court must remember is 28 U.S.C. § 1920(f), which provides that the “judge or clerk of any court of the United States may tax as costs” against the unsuccessful party for items, including, “costs of making copies of any materials where the copies are necessarily obtained for use in the case.”

Creative lawyers have argued that, under 28 U.S.C. § 1920(f), their clients are entitled to be reimbursed for certain eDiscovery costs, including imaging hard drives.  Until recently, there were two schools of thought on how much of the eDiscovery costs were recoverable.  The Third Circuit in Race Tires America, Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158  (3d Cir. 2012) took a more limited view (not allowing for recovery of eDiscovery costs), while the Federal Circuit in CBT Flint Partners, LLC v. Return Path, Inc., 737 F.3d 1320 (Fed. Cir. 2013) took a more expansive view (allowing for recovery of some eDiscovery costs, including copying or imaging hard drives).

The Sixth Circuit has now weighed in on the issue in Colosi v. Jones Lang LaSalles Americas, Inc., 2015 U.S. App. Lexis 4184 (6th Cir. 2015) finding that 28 U.S.C. § 1920(f) allows for the recovery of the costs associated with imaging a hard drive.  The Sixth Circuit based its decision on a 2008 amendment to 28 U.S.C. § 1920(f) which replaced the word “papers” with “materials,” as well as the definition of the word “copying.”  The Sixth Circuit’s decision was also based on the fact that the party being taxed costs decided to only make her hard drive available instead of copying and producing materials in response to discovery demands by the prevailing party.  In performing its analysis the Sixth Circuit expressly rejected the Third Circuit’s decision in Race Tires as “overly restrictive”

The Sixth Circuit’s decision is another in a line of cases which should be considered once successful in a litigation and when seeking to answer the client’s question if there is a way to recoup costs and expenses from the losing party.

In Armstrong Pump, Inc. v. Hartman, No. 10-CV-446S, 2014 WL 6908867 (W.D.N.Y. Dec. 9, 2014), discovery in the breach of contract case was contentious, protracted and resulted in a multiple motions to compel, the first of which the court granted in favor of the defendant.  At that time, the court warned the plaintiff “not to engage in piecemeal production of materials it has located that are responsive to Optimum Energy’s unobjectionable requests.”  Not heeding the Court’s warning, Plaintiff subsequently produced documents on nine separate occasions.  At that time, Defendant learned, for the first time, of a “five-step development process,” that it believed was highly relevant to its claims in the case, and which caused it to believe that the plaintiff was withholding relevant documents from production.  Accordingly, Defendant filed a second motion to compel and sought sanctions for Plaintiff’s discovery behavior, including its delayed production of relevant information. 

The court granted in part Defendant’s second motion to compel and, in light of Plaintiff’s continued piecemeal production coupled with other discovery failures, fashioned a “new and simpler approach” to discovery, including the identification of 13 search terms/phrases to be utilized when searching “ALL [of Plaintiff’s] corporate documents, files, communications, and recordings. . .”  The court also ordered the plaintiff and all counsel of record to file a sworn statement confirming its “good-faith effort to identify sources of documents; that a complete search of those sources for each of the [identified] phrases occurred; and that the search results [were] furnished to [Defendant].”

In deciding the motion, the Court expressed its frustration with “the continual and growing animosity between the parties, an animosity that has slowed the progress of the case and that has required repeated judicial intervention.”  The court also noted that despite the bickering between parties, neither had ever filed a motion for a protective order “[n]or ha[d] any party foregone passive-aggressive snarking and filed a formal motion under Rule 11 or 28 U.S.C. § 1927 to complain about material misrepresentations in motion papers.”  “Instead,” the court continued, “the parties would prefer that the Court forget what the actual claims are in this case and start obsessing over details . . .” 

Reasoning that “[a] lawsuit is supposed to be a search for the truth, and the tools employed in that search are the rules of discovery,” that “[o]ur adversary system relies in large part on the good faith and diligence of counsel and the parties in abiding by these rules and conducting themselves and their judicial business honestly” and noting that “Rule 37 helps enforce proper conduct,”  the court indicated it would “fashion a new and simpler approach to discovery that keeps the core of Optimum’s counterclaims in mind.”  The court went on to state that it had “noticed” “[i]n the various discovery documents attached to the motion papers” that “certain phrases appear that inevitably refer to or hint at [the at-issue technology]” and that the phrases “open the door to a more objective discovery process that leaves Armstrong no room for gamesmanship.”  Thus, after identifying the terms/phrases specifically, the court ordered:

For a period starting from January 1, 2004 through the present time, Armstrong must search ALL corporate documents, files, communications, and recordings for EACH of the above phrases. Armstrong will maintain a list of every server, computer, file room, or other place searched, and a list of all positive search results. For each positive result, Armstrong will procure a full copy of the document in question. Armstrong also will furnish a complete and sworn description of its document retention policies, if any, from January 1, 2004 through the present time. In the specific instance of [REDACTED] reports, if for any reason a product did not have a written report for a certain stage or did not go through all five stages then someone at Armstrong with appropriate knowledge or expertise will provide a sworn statement explaining why. When the search is complete, a representative of Armstrong and all of Armstrong’s counsel of record will file a sworn statement confirming that Armstrong made a good-faith effort to identify sources of documents; that a complete search of those sources for each of the above phrases occurred; and that the search results have been furnished to Optimum. All of this must occur on or before April 1, 2015, with absolutely no exceptions or extensions. Failure to comply will lead to sanctions under Rule 37(b)(2)(A).

The court also warned Defendant that it would not hesitate to impose the same approach on its discovery and ordered that counsel of record file, by a date certain, a sworn statement that all discovery requests had been fulfilled, or a motion for a protective order. 

In light of this judicial reminder that courts favor a collaborative and efficient resolution of matters, and that Judges can, and will impose sanctions for egregious discovery violations, counsel should take seriously their obligations to be cooperative, diligent and timely during the discovery process irrespective of the courthouse in which we practice.