On October 1, 2018, a new Rule (specifically, a new subdivision to existing Rule 11-e) of the Commercial Division Rules, will go into effect. 

Rule 11-e governs Responses and Objections to Document Requests.  The new subdivision, promulgated by administrative Order of Chief Administrative Judge Lawrence K. Marks, governs the use of technology-assisted review (“TAR”) in the discovery process. 

The new subdivision (f) states:

The parties are encouraged to use the most efficient means to review documents, including electronically stored information (“ESI”), that is consistent with the parties’ disclosure obligations under Article 31 of the CPLR and proportional to the needs of the case.  Such means may include technology-assisted review, including predictive coding, in appropriate cases…

In addition to implicitly recognizing the cost attendant to e-discovery, the rule promotes cooperation by encouraging parties in commercial cases “to confer, at the outset of discovery and as needed throughout the discovery period, about [TAR] mechanisms they intend to use in document review and production.”  And so, the new Commercial Division Rule appears to bring New York State Commercial Division expectations closer in line with those set forth in the Federal Rules, specifically Rule 26(f), which encourages litigants (with an eye toward proportionality) to discuss preservation and production of ESI.

Questions about technology assisted review?  Please contact kcole@farrellfritz.com.

In my December 2016 blog post, I wrote about how developing effective key words is very much an iterative and thought intensive process.  This message was recently reaffirmed by a decision out of the Southern District of Ohio, wherein the Judge reminded us that the process of identifying search terms it not merely one of guesswork.  Rather, it requires deliberative thought, testing and refining such that the searches yield target-rich and proportionate results.

In the complex commercial matter, AMERICAN MUNICIPAL POWER, INC., Plaintiff, vs. VOITH HYDRO, INC., Defendant, the parties were in litigation over the construction of four hydroelectric power plants (“Projects”) that spanned a decade.

When it came to discovery, the parties could not have been more oppositional in their respective stances.  Voith Hydro, Inc. (“Voith”) requested plaintiff conduct a search for ESI using only the four Project names (Cannelton, Smithland, Willow and Meldahl) as standalone search terms without qualifiers.

American Municipal Power, Inc., (“AMP”)  on the other hand, requested that Voith search its ESI collection without reference to any of the four project names; searching instead for various employee and contractor names connected in a boolean way with a list of common construction terms and the names of hydroelectric parts restricted only by date range.

However, both proposals were too expansive in their scope and, as a result, too burdensome.  For example, when proposing its search terms, defense counsel did not appreciate that not every shred of ESI that hit upon one of the four fairly common project names (i.e., Willow) would be relevant or, at the very least, worth examining for relevance.  As the Court noted, “As owner, AMP had retained millions of documents for more than a decade that contain the name of the four projects which refer to all kinds of matters unrelated to the case.”  The Project names –detached from any other qualifier or restriction – returned documents related to real property acquisitions, licensing, employee benefits, facility tours, parking lot signage, etc.  All content that “hit” on a search term, but none of which was relevant to the construction of the four hydroelectric power plants.  Thus, accepting Voith’s request would result in overly broad results not sufficiently tailored to the needs of the case.  And so, Judge Deavers ruled against the defense on the four project names keywords request, and granted a protective order for the plaintiff because, in the Judge’s words:

“The burden and expense of applying the search terms of each Project’s name without additional qualifiers outweighs the benefits of this discovery for Voith and is disproportionate to the needs of even this extremely complicated case.”

AMP’s more “expansive” search terms, however, were equally problematic.  Indeed, if the searches combined employee and contractor names together with a list of common construction terms and the names of hydroelectric parts, the results included innumerable confidential communications about other projects Voith performed for other customers.  Therefore, like Voith’s request, AMP’s search request similarly returned a large corpus of documents not relevant to the litigation.  AMP’s proposed searches also raised confidentiality concerns (i.e., commercial information about other customers).*

Keyword searching should be an iterative process that is tested and refined, and tested and refined again, before any commitments to search are made.

* AMP proposed to exclude the names of other customers’ project names with “AND NOT” exclusionary phrases.  This was deemed by the Court unworkable because Voith could not possibly reasonably identify all the projects from around the world with which its employees were involved during the decade they were engaged in work for AMP on the Projects.

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

In 2012, Klipsch Group Inc. (“Klipsch”), a manufacturer of sound equipment, filed a complaint against ePRO E-Commerce Ltd. (“ePRO”), alleging an ePRO subsidiary was selling counterfeit headphones.  Through discovery demands, Klipsch called for the production of information relevant to the sale of the allegedly infringing product, including emails and specific sales data.    Eventually, however, it became clear that ePRO was not engaging in a cooperative discovery process but instead was avoiding its discovery obligations.  For example, ePRO:  failed to implement an appropriate legal hold notice even after having been directed by the Trial Court to do so; limited vendor access to electronic data; failed to produce many responsive documents; and (as demonstrated by a forensic examination authorized by the Court) engaged in routine and systematic deletion of thousands of files and emails using a data wiping software long after the suit had commenced.

Because of the numerous and continuous discovery failures, Klipsch moved for sanctions and ultimately filed an ex parte motion seeking additional relief.  The District Court concluded that ePRO willfully spoliated evidence and it imposed various sanctions on ePRO including:

(1)   a jury instruction requiring the jury find that ePRO destroyed relevant emails and related data;

(2)  a jury instruction permitting the jury to infer that the destroyed evidence would have been favorable to Klipsch; and

(3)  Klipsch’s reasonable costs and fees, which the Court ultimately concluded was $2.7 million necessitated by ePRO’s obstructionist behavior.

ePRO filed an interlocutory appeal, arguing that the District Court’s $2.7 million sanction in the case where damages were, at most, $20,000 was impermissibly punitive and grossly disproportionate.

In January, the Second Circuit upheld the District Court’s sanction.  In doing so, the Circuit held that discovery sanctions should be commensurate with the costs occasioned by the sanctionable behavior, not the value attributable to the alleged (or even proven) compensatory damages.  To allow otherwise would, according to the Circuit, force a litigant to a small value dispute to beat risk to suffer blatant and egregious discovery misconduct.  And so, sanctions must be proportionate to the costs inflicted on a party – irrespective of total case value – by virtue of that party having to remediate discovery misconduct by its adversary.

Consistent with the theme of cooperative discovery, the Second Circuit noted that “the integrity of our civil litigation process requires that the parties….carry out their duties to maintain and disclose the relevant information in their possession in good faith.”    Like the countless other cases I have blogged about since December 2015, this decision serves as another reminder that judges expect cooperation between the parties and their attorneys during the litigation process to achieve orderly and cost-effective discovery; indeed, it is a priority.  Had ePRO and its counsel simply cooperated with their adversary and engaged in good faith discovery, the outcome here would have been entirely different.*

 

 

* Cooperation among counsel is critically important and the means to insure compliance with Rule 1’s mandate that the parties are responsible for securing the “just, speedy and inexpensive determination” of a civil litigation.  Indeed, the revised committee notes state, “[m]ost lawyers and parties to cooperate to achieve these ends” and “[e]ffective advocacy is consistent with – and indeed depends upon – cooperative and proportional use of procedure.”

Armstrong Pump, Inc. v. Hartman, No. 10-CV-446S, 2016 WL 7208753 (W.D.N.Y. Dec. 13, 2016)

In this case, pending before the Court was a motion by Armstrong Pump Inc. (“Armstrong”) to compel formal production of certain documents that defendant Optimum Energy LLC (“Optimum”) considered the functional equivalent of its proprietary source code.  This “formal production” Armstrong sought to compel consisted of 46 documents (305 pages) that Armstrong previously viewed during a “document and source code review” conducted pursuant to a strict protocol.  During that review Armstrong was permitted to attend with two outside counsel and two experts.  Moreover, Armstrong was able to print – also under strict protocol – certain of those documents.

In support of its motion to compel, Armstrong now argues that the reviewed documents did not contain “actual programming” and thus were able to be produced under the parties’ protective order for discovery without any additional protections designed to protect source code. Optimum argued in response that the documents were “functionally equivalent to source code” and should not be subject to production.  Specifically, Optimum contended that the documents contained enough technical information including (in detail) the functions, logic and algorithms implemented in Optimum’s products to “allow a software engineer to build its proprietary source code based on that information.”

Ultimately, the Court reasoned that discovery had “reached the point of diminishing returns” and declined to compel production, with limited exceptions.

In reaching this conclusion, the court first addressed the effects of the 2015 amendments to Federal Rule 26, reasoning that “proportionality has assumed greater importance in discovery disputes” and that the amended rule is intended to encourage more aggressive efforts from the judiciary to discourage discovery overuse. The court continued:

Discouraging discovery overuse does not end with the early stages of a case, however. Implicit in both the language and the spirit of the 2015 Amendments is the obligation, at any stage of a case, to prevent parties from expending increasing time and energy pursuing diminishing returns. Calling a halt to the pursuit of diminishing returns often will overlap with an assessment of duplicate or cumulative discovery. Sometimes the additional discovery sought technically would provide nominally probative information not yet in the parties’ hands. Either way, when adding a few more pages of documents requires five or six inches of motion papers, and when those few more pages would be added to over one million pages of total discovery, numerous pages of expert reports, and transcripts from depositions of all of the relevant players, there exists a point beyond which courts have to tell the parties that if they cannot yet prove their claims then they probably never will. See Alaska Elec. Pension Fund v. Bank of Am. Corp., No. 14-CV-7126 (JMF), 2016 WL 6779901, at *3 (S.D.N.Y. Nov. 16, 2016) (“Rule 26(b)(1)’s proportionality requirement means [that a document’s] ‘marginal utility’ must also be considered.”) (citations omitted); Updike v. Clackamas County, No. 3:15-CV-00723-SI, 2016 WL 111424, at *1 (D. Or. Jan. 11, 2016) (“There is a tension, however, among the objectives of Rule 1. As more discovery is obtained, more is learned. But at some point, discovery yields only diminishing returns and increasing expenses. In addition, as more discovery is taken, the greater the delay in resolving the dispute. Finding a just and appropriate balance is the goal, and it is one of the key responsibilities of the court in managing a case before trial to assist the parties in achieving that balance.”).

The court then turned to the discovery specifics in the underlying case and concluded that discovery had “reached the point of diminishing returns.” Indeed, discovery had been ongoing for six years and the parties exchanged more than 1,600,000 pages of documents.  The Court listed a litany of critical case development failures along the 6 year discovery path and concluded it hard to believe that 150 pages of already reviewed but not printed documents would definitively prove what six years of discovery could not.

This case serves as a further reminder that discovery is not limitless.  Indeed, there is little tolerance for cumulative discovery and proportionality is the key inquiry under new federal landscape.

The amendment to Federal Rule of Civil Procedure 26(b)(1) (which defines the scope of permissible discovery) did away with the timeworn “reasonably calculated to lead to the discovery of admissible evidence” standard.  In its place is now the “proportionality standard,” which explicitly imposes a responsibility on litigants to tailor their discovery requests to account for the significance of the information requested, and the cost of gathering responsive information:

Parties may obtain discovery regarding any non-privileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering 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. Information within this scope of discovery need not be admissible in evidence to be discoverable.

Fed. R. Civ. P. 26(b)(1). (emphasis added)

Although many courts have applied the revised Rule 26 during 2016, the District Court in the Eastern District of Pennsylvania recently reminded practitioners that proportionality is a critical factor.  In First Niagara Risk Mgmt. v. Folino, 2016 U.S. Dist. LEXIS 106094 (E.D. Pa. Aug. 11, 2016), which involved the purported violation of a non-compete agreement, the plaintiff moved the Court to compel a discovery request. Specifically, the plaintiff requested that the Court allow its e-discovery vendor to search the defendant’s personal electronic devices and email accounts for a particular set of agreed upon search terms. The defendant objected stating that “the request is overly-broad, costly, and burdensome.”  Although the Court agreed with defendant that the “request was rather broad,” the Court found the request “proportional to the needs of this case.” After verifying that the information requested by the plaintiff was relevant to the case, the Court considered the individual factors in FRCP 26(b)(1).

Specifically, using the factors set forth above, the Court found the issues were “of grave importance” to the plaintiff, the defendant is the sole source of access to the important information, and the plaintiff “needs to conduct broad discovery to uncover the scope of [defendant’s] misdeeds.” The Court granted the motion to compel, and explained that, “[w]eighing these factors makes it clear that the potential harm [plaintiff’s] discovery requests may impose on [defendant] does not outweigh the presumption for disclosure of these requests.”

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).