April–May, 2011 Volume 1, Number 1
eDiscovery Advantage Welcome Note from the Editors eDiscovery is a complex and ever-changing area of law that imposes many requirements on litigants, irrespective of whether they are corporations or individuals. As parties have become more aware of the challenges and opportunities associated with electronic discovery, the number of cases and issues has increased dramatically. Winston & Strawn LLP, through its eDiscovery Group, is committed to staying abreast of these developments and advising clients on how best to avoid the myriad eDiscovery pitfalls. Winston & Strawn will publish eDiscovery Advantage, a bi-monthly newsletter containing overviews of significant eDiscovery cases and developments. Over the last year, there were a number of important decisions which highlighted the volatility inherent in this area, especially with respect to spoliation and sanctions. For this first issue, we highlight two recent decisions and a number of the significant decisions from 2010, particularly those discussing judicial sanctions. On behalf of the entire eDiscovery Group, we wish to express our sincere desire that eDiscovery Advantage will become an important resource for clients and practicing attorneys alike as we all face the many challenges associated with eDiscovery and ever-changing modes of communication and data transmission. Sincerely, Christopher Costello, Elizabeth Erickson, and Pamela Rons
Summary of 2011 Decisions In Nat’l Day Laborer Org. Network v. United States Immigration and Customs Enforcement Agency, No. Civ. 3488, 2011 WL 381625 (S.D.N.Y. Feb. 07, 2011), Judge Shira Scheindlin issued another important opinion relating to the production of electronically stored information (ESI), this time in the context of a Freedom of Information Act
(FOIA) request. In the case before her, the defendant agency produced paper and electronic documents that had been stripped of all metadata in undifferentiated, unsearchable PDFs and did not provide any means to link e-mails and attachments. Judge Scheindlin found that the agency violated both FOIA and the Federal Rules of Civil Procedure by producing documents in “a form that makes it difficult or burdensome for the requesting party to use the information efficiently.” Judge Scheindlin was careful to note that in smaller cases where it is unlikely that the parties will use automated review platforms, the production of static images may be perfectly reasonable. However, she held that in the case before her, the production of static images without any means of permitting the application of electronic search tools was an “inappropriate downgrading of the ESI.” Taking things a step further, Judge Scheindlin noted that she believed the following metadata fields should accompany any significant collection of ESI: production identifier, file name, custodian, source device, source path, production path, modified time and date, and time zone. For e-mails, Judge Scheindlin noted that productions
Table of Contents Welcome Note from the Editors.............................................1 Summary of 2011 Decisions.......................................................1 Summary of Major 2010 Decisions ........................................ 2 Sanctions.................................................................................. 2 Attorney-Client Privilege.....................................................4 Procedure................................................................................5 Stored Communications Act...............................................6 Upcoming Firm Speaking Engagements and Publications......................................................................... 7 return to top
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Winston & Strawn LLP should include the following fields: to, from, cc, bcc, time and date sent, time and date received, subject, and attachments. In FCC v. AT&T Inc., __ U.S. __, 131 S. Ct. 1177 (2011), the United States Supreme Court unanimously held that corporations do not have “personal privacy” pursuant to Exemption 7(C) to FOIA. AT&T opposed a FOIA request for records of the FCC’s investigation into whether AT&T overcharged the government under the federal E-rate program on the basis that FOIA Exemption 7(C) protects from disclosure such “records or information compiled for law enforcement purposes” that “could reasonably be expected to constitute an unwarranted invasion of personal privacy.” 5 U.S.C. § 552 (b)(7)(C). AT&T argued that because the word “personal” in the phrase “personal privacy” encompasses the word person, which is defined to include corporations, the “personal privacy” exemption must likewise be applicable to corporations. The Court did not accept AT&T’s position, concluding that there was no reason to disregard the ordinary meaning of the phrase “personal privacy” which the Court found to be the type of privacy evocative of human concerns—not those of business entities. Thus, for purposes of FOIA, corporations cannot utilize Exemption 7(C), as they have no “personal privacy” that could be invaded.
Summary of Major 2010 Decisions In 2010, a number of federal and state courts addressed, inter alia, when a party’s duty to preserve evidence attaches, appropriate sanctions for both negligent and willful spoliation of evidence, the protections afforded by the attorney-client and work product protections, the impact of the 2006 amendments to the Federal Rules of Civil Procedure, production of electronically stored information in accessible formats, and the approach 2
to social media. The following sections summarize notable cases in these areas.
Sanctions Two federal judges well known for their eDiscovery expertise issued opinions addressing the legal standard for determining culpability regarding spoliation of electronic evidence. In Pension Comm. of Univ. of Montreal Pension Plan v. Banc of America, Sec. 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010), amended and superseded by 685 F. Supp.2d 456 (May 28, 2010), Judge Scheindlin created a 4-step analytical framework for spoliation of electronic evidence: 1) level of culpability; 2) the interplay between the duty to preserve and spoliation; 3) a low burden to prove spoliation initially on the accusing party, which is then rebuttable; and 4) criteria for appropriate sanctions. Judge Scheindlin noted the plaintiffs had failed to “timely institute written litigation holds and engaged in careless and indifferent collection efforts after the duty to preserve arose.” In Rimkus Consulting Group Inc. v. Cammarata, 688 F. Supp. 2d 598 (S.D. Tex. 2010), Judge Lee Rosenthal summarized the varied approaches federal courts have taken on the level of culpability necessary to warrant severe sanctions, and noted that while the Fifth Circuit required a finding of bad faith, under the Pension Committee standard, grossly negligent or willful behavior was enough for the imposition of severe sanctions (e.g., adverse instructions, striking pleadings, or granting a default judgment). Magistrate Judge Paul Grimm’s sanctions recommendation in Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497 (D. Md. 2010) (“Victor Stanley II”) also garnered significant attention. Magistrate Grimm held that a defendant who had engaged in a pattern of intentional and egregious deletions of ESI, in the face of repeated preservation orders and admonishments return to top
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Winston & Strawn LLP from the court, was liable for the plaintiff’s attorneys’ fees and costs pursuant to FRCP 37(b)(2)(C) and subject to two years imprisonment for civil contempt unless and until the fees were paid. Additional sanctions included a permanent injunction and default judgment. Among the defendant’s many failures that warranted such severe sanctions were: (1) the failure to implement a legal hold; (2) the deletion of ESI soon after the lawsuit was filed and after repeated preservation orders; and (3) the use of programs designed to “clean” or “scrub” data from a computer. Although he applied Fourth Circuit standards in imposing spoliation sanctions, Magistrate Grimm also provided an analysis of spoliation sanctions organized by circuit – an ambitious and welcome undertaking given the diversity of approaches across the circuits. Continuing the trend set forth in Pension Committee, Victor Stanley, and Rimkus, Magistrate Judge James Francis analyzed the existing regime for spoliation sanctions and added his own gloss in Orbit One Commc’ns, Inc. v. Numerex Corp., 2010 WL 4615547 (S.D.N.Y. Oct. 26, 2010). Magistrate Francis noted that a party can be subject to sanctions under FRCP Rule 37(b) when spoliation of evidence violates a court order. Moreover, sanctions may also be appropriate when spoliation occurs prior to the issuance of a discovery order— even though the inability to comply with the subsequent order was “self-inflicted.” Magistrate Francis disagreed with Judge Scheindlin’s position in Pension Committee (i.e., that the failure to issue a litigation hold constitutes gross negligence); noting that under certain circumstances a formal litigation hold letter may not be necessary. He suggested that rather than declaring that a failure to adopt good preservation practices is categorically sanctionable, the better approach is to consider such conduct one factor in the analysis. The ultimate determination of whether sanctions are appropriate should focus on whether some “discovery-relevant data has 3
been destroyed.” As in Pension Committee, the court in Crown Castle USA Inc. v. Fred A. Nudd Corp., 2010 WL 1286366 (W.D.N.Y. Mar. 31, 2010), found gross negligence where both outside and inside counsel failed to undertake any efforts to implement a litigation hold. According to Magistrate Judge Marian Payson, a finding of spoliation requires three elements: (1) a duty to preserve the lost evidence; (2) a “culpable state of mind”; and (3) that the lost evidence must be relevant to the claims or defenses of the requesting party. The court found that the plaintiff’s duty of preservation arose even before the filing of its complaint, and its destruction of documents by failing to issue a litigation hold amounted to gross negligence. Ultimately, the Court held that spoliation occurred as such conduct necessarily assumes a “culpable state of mind” and the lost evidence was relevant. A number of other courts grappled with the issue of spoliation of ESI. In Harkabi v. Sandisk Corp., 2010 WL 3377338 (S.D.N.Y. Aug. 23, 2010), Judge William H. Pauley, III applied the Pension Committee test and ruled that defendant Sandisk – ironically an electronic storage company – was negligent in preserving and collecting laptop data from two key custodians. The court found that the plaintiffs (the two key custodians formerly employed at Sandisk) met their burden of proving relevant evidence was not produced, and ordered that an adverse inference be given at trial. Defendants were also fined $150,000 for belatedly producing such e-mails only after plaintiffs incurred attorneys’ fees and costs litigating defendant’s failures. However, in Siani v. State Univ. of New York at Farmingdale, 2010 WL 3170664 (E.D.N.Y. Aug. 10, 2010), the court ignored Pension Committee and instead applied the culpability factors from Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003) to conclude that while defendants were negligent in preserving relevant return to top
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Winston & Strawn LLP electronic data, there was no evidence of bad faith or willful conduct. As the plaintiff did not prove the data’s relevance, an adverse instruction was inappropriate. In D’Onofrio v. SFX Sports Group, Inc., 2010 WL 3324964 (D.D.C. Aug. 24, 2010), Magistrate Judge John Facciola struggled to determine what sanction, if any, was appropriate when the responding party had failed to preserve all relevant evidence, but later made significant efforts (totaling at least $1 million) to restore and produce what data could be found. Magistrate Facciola found that dismissal, default judgment, and adverse instructions were not appropriate in the current case, as the plaintiff had not proven by “clear and convincing evidence” that the defendants had acted in bad faith. Monetary sanctions were not imposed as defendants spent over $1 million recovering and producing documents. Similarly, in Aliki Foods, LLC v. Otter Valley Foods, Inc., 726 F. Supp. 2d 159 (D. Conn. 2010), the court found that the plaintiff acted in bad faith by failing to obey court orders to produce documents and preserve computer hard drives, and dismissed the lawsuit with prejudice. The court applied the Second Circuit test discussed in Agiwal v. Mid Island Mortgage Corp., 555 F.3d 298 (2d Cir. 2009) which discussed four factors: (1) the willfulness of the non-compliant party; (2) the efficacy of lesser sanctions; (3) the duration of noncompliance; and (4) whether the noncompliant party had sufficient warning of sanctions. The 18-month pattern of egregious discovery conduct, including repeated violations of court orders, misleading responses, destruction of data on relevant hard drives, and failure to pay the court ordered forensic fees to restore spoliated data, was sufficient to justify dismissal. Finally, underscoring the danger to both clients and counsel of failures to comply with discovery obligations, in Qualcomm, Inc. v. Broadcom Corp., 4
2010 WL 1336937 (S.D. Cal. Apr. 2, 2010), the court sanctioned the client and six outside counsel for failing to collect and produce thousands of relevant electronic documents due to a series of miscommunications and poor discovery practices. The sanctions against outside counsel were vacated after the court determined that although there were “ineffective and problematic interactions between Qualcomm employees [and outside counsel, … the attorneys] made significant efforts to comply with their discovery obligations” and their efforts were made in good faith, although flawed. Regardless of the ultimate result, this case should serve as a wake-up call for counsel who persist in thinking that the client is the only one responsible for the search for and production of electronically stored information.
Attorney-Client Privilege In two cases involving the inadvertent disclosure of privileged materials, the producing parties in each case had different approaches to their productions, which resulted in different consequences for their mistakes. In Community Bank v. Progressive Cas. Ins. Co., 2010 WL 1435368 (S.D. Ind. Apr. 8, 2010), the plaintiff sought to protect privileged documents that had allegedly been inadvertently disclosed by a non-party (plaintiff’s counsel in an underlying insurance case) in response to a subpoena. The plaintiff had previously returned the defendant’s inadvertently produced privileged materials, and was assured at the time that it would be afforded the same “courtesy.” When that “courtesy” was not later extended, plaintiff sought relief from the court. In denying the motion for a protective order, the court ruled that the expected reciprocal conduct was merely professional in nature and not a legal right. Moreover, the “courtesy” was limited to inadvertent disclosures, the documents at issue had been deliberately produced by the non-party, and no privilege log return to top
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Winston & Strawn LLP had been provided, although such a log was requested by the defendant. The court further held that the plaintiff failed to take “reasonable precautions” under FRE 502(b), and in fact failed to take any precautions since it did not assist the nonparty with the production or review any of the documents, despite being the owner of the privilege. In contrast, in Board of Trustees, Sheet Metal Workers’ Nat’l Pension Fund v. Palladium Equity Partners, LLC, 722 F. Supp. 2d 845 (E.D. Mich. 2010), the court ruled that the defendants did indeed take “reasonable precautions” to prevent disclosure such that their inadvertently produced documents were protected by FRE 502(b) and FRCP 26(b)(5). In reaching this conclusion, the court pointed to a number of factors that demonstrated the Palladium defendants’ “reasonable steps”: (1) only a small number of privileged documents were produced as part of a voluminous production; (2) the attorney reviewers spent substantial amounts of time reviewing the documents prior to production; and (3) at least eleven law firms had represented the defendants on various matters. The court also noted that the plaintiffs were promptly notified of the inadvertent disclosure – within three days of its discovery. The Palladium defendants’ careful approach to the review and production of documents serves as an example of how to protect against the loss of privilege through inadvertent disclosures.
Procedure Both the Federal Rules of Civil Procedure’s requirement that parties engage in meaningful discussions about ESI and the “not reasonably accessible” exception to production were also topics of judicial discussion. In Cartel Asset Mgmt. v. Ocwen Fin. Corp., 2010 WL 502721 (D.Colo. Feb. 8, 2010), the court addressed the defendants’ argument that pursuant to FRCP 26(b)(2)(B) 5
certain archived ESI was “not reasonably accessible because of undue burden or cost.” Defendants had failed to specify how their ESI was stored, how many archival systems were in place, and what efforts would be required to retrieve information from those archives. Instead, they simply made a series of speculative and unsubstantiated assumptions about the burdens and costs of production. The court held that defendants had not met the required showing under Rule 26(b)(2)(B) and thus denied the request to exclude such ESI from production. Addressing a related issue and endorsing the Sedona Conference Cooperation Proclamation, the court further noted that the significant expense and protracted nature of electronic discovery demand more than a superficial compliance with the “meet and confer” requirements of the Rules. In Major Tours, Inc. v. Colorel, 720 F. Supp. 2d 587 (D.N.J. 2010) the court granted a protective order precluding restoration of backup tapes except for a single month — and then only if costs were split. Judge Jerome Simandle applied the test for determining whether a party has demonstrated good cause articulated in the Advisory Committee Notes to Rule 26(b)(2)(B), which is based on Zubulake, and found that “most … factors tilted in Defendants’ favor.” He concluded that although defendants were on notice of the lawsuit two years prior to issuing any litigation hold letter, the backup tapes were not reasonably accessible (the restoration cost estimate of $1.5 million was not contested) and plaintiffs failed to prove good cause to require tape restoration. Furthering the debate over what constitutes a reasonably accessible format for ESI, in Phillip M. Adams & Assocs., LLC v. Fujitsu Ltd., 2010 WL 1901776 (D. Utah May 10, 2010) Magistrate Judge David Nuffer held that where no format was specified in a request for the production of ESI the producing party could produce its documents in any format. However, where return to top
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Winston & Strawn LLP the requesting party had specified the format of production, and the producing party had failed to object to that format, the Court held that the documents were to be produced in the requested format. The court also considered the defendant’s request for the production of ESI stored on old, previously used computers dating back to the late 1980s. The plaintiff argued that such a search would be unduly burdensome and expensive, particularly since the data on those computers had been archived onto backup tapes, which had already been searched for responsive documents. Relying on FRCP 34, which expressly permits testing and sampling of ESI, Magistrate Nuffer ordered the plaintiff to produce the directories and file structure contained on one or two of the old computers, as selected by the defendants from an inventory of the computers at issue. If the sampling yielded something significant, the court held that defendants could move the court for further discovery. In addition, at least one federal court addressed the extent to which a party’s control over a third party can require production of data in that third party’s possession. In Mt. Hawley Ins. Co. v. Felman Prod., Inc., 269 F.R.D. 609 (S.D.W.Va. 2010), the court examined whether a U.S. party had “control” over electronic discovery possessed by managers of a non-party parent corporation, and consultants, located in the Ukraine. In analyzing the “possession, custody or control” language in FRCP 34, the court considered three factors: 1) the degree of control exercised by the parent over the subsidiary’s directors, officers, and employees; 2) the non-party’s connection to the transaction at issue; and 3) the degree to which the nonparty would receive the benefit of any award in the case. The court concluded that the ownership and management decisions made by the Ukrainian owner and consultants meant they were agents of the defendant; making the electronic discovery sought within the defendant’s 6
control, relevant to the issues in the case, and thus subject to production.
Stored Communications Act Social media presents many challenges for eDiscovery efforts, not the least of which is whether parties can obtain information contained on social media sites via subpoena. In Crispin v. Christian Audigier, Inc., 717 F. Supp. 2d 965 (C.D. Cal. 2010), the court quashed third party subpoenas seeking private e-mail from social networking sites Facebook and MySpace, Inc., and from Media Temple, Inc. (Media Temple), a web hosting company. The court found that all three entities met the Stored Communications Act’s (SCA) statutory definition of providing electronic communication services (ECS) because they all provided “private messaging services” for unopened messages in temporary storage on each server. The court also concluded that for any e-mails opened and retained, Facebook, MySpace, and Media Temple were also remote computing services (RCS) providers, thereby protecting such messages from disclosure. The court held it did not have a sufficient record on plaintiffs’ privacy settings to determine if the Facebook wall postings or MySpace comments sought were public or private (and thus protected under the SCA). In City of Ontario, Cal. v. Quon, 560 U.S. ____, 130 S.Ct. 2619 (2010), the Supreme Court focused on reasonable searches of employee instant messages on work devices. There, the plaintiff, Quon, was a SWAT team member using a pager issued by his employer, City of Ontario Police Department (OPD). Quon’s supervisor issued a memo extending the written computer policy on e-mails to IMs and explaining that neither were considered private messages. The supervisor later said that if employees paid for any IM monthly overages, an audit would not be necessary to monitor use. When Quon’s overages continued for several months, the City obtained his IM transcripts and return to top
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found many of his messages did not relate to business, and some were sexually explicit. After Quon was disciplined for violating OPD rules, he sued for violations of the 4th Amendment and the SCA. The Supreme Court, applying the two step test from O’Connor v. Ortega, 480 U.S. 709 (1987), ruled that the search of Quon’s text messages was reasonable. The court declined to rule on whether Quon’s expectation of privacy was reasonable, noting that the “judiciary risks error by elaborating too fully on the Fourth Amendment implications of emerging technology before its role in society has become clear…rapid changes in the dynamics of communication and information transmission are evident not just in the technology itself but in what society accepts as proper behavior.”
Upcoming Firm Speaking Engagements and Publications May 16, 2011, John Rosenthal, Esq., “New Technologies and New Problems for eDiscovery—Focus on Social Media and Cloud Computing,” CEIC 2011, Orlando, FL.
Contact Us If you have questions about the items that appeared in this issue of eDiscovery Advantage, would like to learn more about these cases or other eDiscovery matters, or would like to be added to the mailing list please contact one of the following: Chicago Elizabeth H. Erickson, Esq.
[email protected]
+1 (312) 558-5304
New York Christopher Costello, Esq. Scott Cohen
[email protected] [email protected]
+1 (212) 294-3336 +1 (212) 294-3558
Washington, D.C. John J. Rosenthal, Esq.
[email protected]
+1 (202) 282-5785
Winston & Strawn LLP’s eDiscovery & Information Management Practice Group (the “eDiscovery Group”) brings years of “real world” experience and offers our clients and case teams the full continuum of services along the electronic discovery reference model behind our own firewall. Our services include preservation, collection, early case assessment, processing, hosting and review. The eDiscovery Group also offers a wide variety of consulting services, including eDiscovery risk assessments, eDiscovery response programs, vendor selection, training of legal and technical staffs, data mapping, legacy retirement and records retention programs.
These materials have been prepared by Winston & Strawn LLP for informational purposes only. These materials do not constitute legal advice and cannot be relied upon by any taxpayer for the purpose of avoiding penalties imposed under the Internal Revenue Code. Receipt of this information does not create an attorney-client relationship. No reproduction or redistribution without written permission of Winston & Strawn LLP. © 2011 Winston & Strawn LLP
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