Electronic Discovery Law

"Inhibited Ability to Participate Meaningfully in Electronic Discovery" Results in Reduction of Rate of Recoverable Attorney's Fees

david.bowerman@klgates.com (K&L Gates) — Fri, 10 Jul 2009 08:05:00 -0800

Chen v. Dougherty, 2009 WL 1938961 (W.D. Wash. July 7, 2009)

Following a verdict in their favor, plaintiffs moved for attorneys' fees as provided by law. Finding that plaintiffs were the “prevailing parties” under the relevant fee shifting statute, the court indicated its willingness to approve the attorneys’ requested hourly rates, with one exception. Regarding the time spent by one attorney on discovery, the court ordered the requested rate to be reduced upon finding that her “inhibited ability to participate meaningfully in electronic discovery” was indicative of “novice skills in this area” and not “experienced counsel.”

The Court determines a reasonable fee award by multiplying the number of hours reasonably expended on the litigation by a reasonable hourly rate. Id. at 435. Based on the evidence presented, the Court finds reasonable the hourly rates proposed by Plaintiffs' attorneys from the law firm of Gendler & Mann, and by Mr. Barahimi's attorneys Jeffrey Needle and Susan Mindenbergs, with one exception: the Court finds it necessary to reduce the hourly rate of Mr. Barahimi's attorney Susan Mindenbergs for certain time spent on discovery. On October 1, 2008, this Court ruled on a motion to compel discovery brought by Mr. Barahimi. (Dkt. Nos. 185 & 224.) The Court determined that the parties failed to put together a proper discovery plan concerning Electronically Stored Information ("ESI"), resulting in the delivery of 50,000 pages of paper documents to Ms. Mindenbergs in response to discovery requests. Ms. Mindenbergs contributed to the resulting discovery dispute by failing to offer search terms for the delivery of relevant ESI. The Court determined that no fee-shifting would result from that discovery dispute, but required the parties to share the cost of the produced paper documents. (Dkt. No. 224 at 2.) The Court now directs that Ms. Mindenbergs' fee award for the hours billed on this dispute and the related discovery requests should be determined at the reduced rate of $200 an hour. [FN2] Ms. Mindenbergs' inhibited ability to participate meaningfully in electronic discovery tells the Court that she has novice skills in this area and cannot command the rate of experienced counsel.

Emphasis added.

A copy of the full opinion is available here.

Swiss Government Says It Would Seize UBS Data Sought by U.S.

david.bowerman@klgates.com (K&L Gates) — Wed, 08 Jul 2009 08:34:27 -0800

Bloomberg.com, July 8, 2009
By David Voreacos and Mort Lucoff

July 8 (Bloomberg) -- Switzerland said it would seize UBS AG data to prevent the U.S. Justice Department from pursuing a U.S. court order seeking the identities of 52,000 American account holders in a crackdown on tax evaders.

The assertion came in court papers yesterday in federal court in Miami, where the Justice Department sued UBS on Feb. 19, a day after the bank avoided U.S. prosecution for helping wealthy Americans evade taxes. The U.S. effort to enforce a summons seeking the names would force UBS to violate Swiss laws barring disclosure of such data, the filing said.

The Swiss government “will use its legal authority to ensure that the bank cannot be pressured to transmit the information illegally, including if necessary by issuing an order taking effective control of the data at UBS that is the subject of the summons,” according to the filing.

Click here to read the full article.

Court Grants Motion for Sanctions, Precludes Defendants' Assertion of Affirmative Defense

david.bowerman@klgates.com (K&L Gates) — Thu, 02 Jul 2009 15:24:51 -0800

Arista Records, LLC v. Usenet.com, Inc., 2009 WL 1873589 (S.D.N.Y. June 30, 2009)

In this copyright infringement case, plaintiffs alleged defendants committed egregious discovery violations deserving of terminating sanctions. The violations included wiping relevant hard drives of its employees, failing to preserve and produce relevant emails, providing misleading responses to discovery, and violating two court orders, among other things. Finding plaintiffs’ accusations credible in light of the evidence presented, the court denied their request for terminating sanctions but precluded defendants from asserting their affirmative defense of protection under the relevant statute’s safe harbor provision. The court then granted summary judgment in favor of the plaintiffs.

Defendants were previously sanctioned for spoliation of evidence in the instant litigation (See Arista Records, LLC v. Usenet.com Inc., 2009 WL 185992 (S.D.N.Y. Jan. 26, 2009).) Nonetheless, following the close of discovery, plaintiffs moved for additional sanctions based on “certain even more egregious discovery violations.” Defendants’ violations included:

• using wiping software to destroy the contents of seven hard drives of defendants’ employees;
• ensuring the unavailability of certain work-issued computers by allowing former employees to take their computers as “parting gifts” without preserving the material thereon;
• making misrepresentations regarding the company’s utilization of internal email and failing to preserve internal emails despite an obligation to do so;
• taking efforts to render its employees unavailable for deposition by “causing them to travel to Europe on an expense-paid vacation” and attempting to convince them to remain out of jurisdiction for a longer period;
• providing misleading information as to the employment and whereabouts of defendants’ former president;
• knowingly providing false responses to interrogatories; and
• violating two court orders requiring disclosure of information related to the spoliated hard drives and missing employee computers.

The court established its authority to sanction under Fed. R. Civ. P. 37 and its inherent authority and identified the appropriate considerations when determining a proper sanction:

Rule 37 sanctions require a showing of violation of a court order. Daval Steel Prod. v. M/V Fakredine, 951 F.2d 1357, 1363 (2d Cir.1991). Sanctions under the court's inherent power require a showing of bad faith or willfulness. See DLC Mgmt. Corp. v. Town of Hyde Park, 163 F.3d 124, 136 (2d Cir.1998). When deciding a proper sanction, a court generally must consider, in light of the full record of the case, (a) willfulness or bad faith on the part of the noncompliant party; (b) the history, if any, of noncompliance; (c) the effectiveness of lesser sanctions; (d) whether the noncompliant party has been warned about the possibility of sanctions; (e) the client's complicity; and (f) prejudice to the moving party. Id. In the spoliation context, the court must also consider the "prophylactic, punitive and remedial rationales underlying the spoliation doctrine." West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir.1999). Thus, the sanction should "(1) deter parties from engaging in spoliation; (2) place the risk of an erroneous judgment on the party who wrongfully created the risk; and (3) restore the prejudiced party to the same position he would have been in absent the wrongful destruction of evidence." Id.

Agreeing that “Plaintiffs’ evidence credibly illustrates a pattern of destruction of critical evidence, a failure to preserve other relevant documents and communications, and at best dilatory (and at worst, bad-faith) tactics with respect to Defendants’ conduct during discovery,” the court nonetheless indicated its unwillingness to impose the “ultimate sanction” of default judgment, as requested. However, the court did find that sanctions were warranted in light of defendants’ destruction of information that was “highly relevant to the case” and defendants’ other litigation misconduct as discussed above.

Having declined to issue default judgment, the court proposed a less drastic alternative:

While there is certainly strong evidence of extreme wrongdoing, courts must be wary of issuing case-dispositive sanctions; such sanctions "should be imposed only in extreme circumstances, usually after consideration of alternative, less drastic sanctions." West, 167 F.3d at 779. One such lesser sanction is to preclude the wrongdoer from litigating certain claims or defenses during the remainder of the case.

Accordingly, the court precluded defendants’ reliance on its affirmative defense of protection under the relevant statute’s safe harbor provision. Because defendants’ motion for summary judgment was premised on their entitlement to such protection, the motion was “mooted” and dismissed.

Following a discussion of the relevant facts and arguments, the court went on to grant plaintiffs’ motion for summary judgment.

A copy of the full opinion is available here.

Governor Schwarzenegger Signs California's Electronic Discovery Act, to be Effective Immediately

david.bowerman@klgates.com (K&L Gates) — Wed, 01 Jul 2009 08:57:02 -0800

After previously vetoing a prior version of the bill for budgetary reasons, Governor Schwarzenegger signed California’s Electronic Discovery Act last night, to be effective immediately. Closely tracking the 2006 amendments to the Federal Rules of Civil Procedure, the act institutes procedures to guide the discovery of electronically stored information in California.

To read the full text of the Electronic Discovery Act, click here.

Magistrate Judge Declines to Compel Plaintiff to Categorically Organize Documents that were Produced as Kept in the Usual Course of Business

david.bowerman@klgates.com (K&L Gates) — Tue, 30 Jun 2009 09:55:16 -0800

Valeo Elec. Sys., Inc. v. Cleveland Die & Mfg. Co., 2009 WL 1803216 (E.D. Mich. June 17, 2009)

In response to defendant’s requests for production, plaintiff produced over 270,000 pages of emails and other electronically stored information (“ESI”) as they were kept in the usual course of business. Plaintiff also produced two indices which identified the custodian for each bates range, the location the file was stored, document titles and “re:” lines of emails, and additional information regarding the creation and storage of the information produced. Defendant argued that despite the information provided, it nonetheless had to open and review each file individually and alleged that plaintiff named the files “innocuously” in order to frustrate its review. Discussing the relevant burden to a party producing its files as maintained in the usual course of business, the court found plaintiff had satisfied its burden under Fed. R. Civ. P. 34 and the parties’ agreement and denied defendant’s motion to compel plaintiff to organize the data into 28 specific categories.

In its analysis of the issue, the magistrate first established a party’s ability to produce documents as maintained in the usual course of business under Fed. R. Civ. P. 34(b)(2)(E)(i) and then turned to the burden of that party to establish its compliance with the rule:

A party demonstrates that it has produced documents in the usual course by revealing information about where the documents were maintained, who maintained them, and whether the documents came from one single source or file or from multiple sources or files. See Nolan, LLC v. TDC Int'l Corp., No. 06-CV-14907-DT, 2007 WL 3408584, at *2 (E.D.Mich.2007) (Majzoub, Magistrate Judge). A party produces emails in the usual course when it arranges the responsive emails by custodian, in chronological order and with attachments, if any. MGP Ingredients, Inc. v. Mars, Inc., No. 06-2318-JWL-DJW, 2007 WL 3010343, at *2 (D.Kan.2007). For non-email ESI, a party must produce the files by custodian and by the file's location on the hard drive--directory, subdirectory, and file name. Id.

Citing plaintiff’s counsel’s demonstration of the organization and use of the indices at the hearing on the motion and the organization of the production itself, the court found that plaintiff’s counsel had established that the documents were produced in the way they were kept in the usual course of business, in compliance with the Federal Rules:

These two indices may be the nearest thing approaching a "magic decoder ring" and defense counsel may consider it of no more help than the Rosetta Stone leaving him and his associates hours of work ahead to comb through what was previously undecipherable hieroglyphics on the 15 discs. Nonetheless, all ESI documents produced are searchable in Adobe and/or other commercially available litigation search programs. Following Plaintiff's counsel's demonstration on June 17, it is determined that this production, including the supplemental Excel spreadsheets provided on June 17 satisfies Valeo's Rule 34 burden and the parties' agreement following the Rule 26(f) conference.

Accordingly Valeo has no duty to further organize or label the documents. Rule 34 and the relevant case law are quite clear: once a party demonstrates that it has produced documents as they are kept in the usual course of business, it has no further duty under Rule 34 or otherwise, absent some exceptional circumstances not present in this case, to organize and label the documents. Hagemeyer, 222 F.R.D. at 598 ("[A]ccording to the plain language of Rule 34, a responding party has no duty to organize and label the documents if it has produced them as they are kept in the usual course of business.").

To require more would impose an unfair burden on the producing party:

Requiring further that these requested materials be segregated according to the requests would impose a difficult and usually unnecessary additional burden on the producing party.... Such an undertaking would usually not serve any substantial purpose, and it could become quite burdensome if considerable numbers of documents were involved.

Wright & Miller, FEDERAL PRACTICE AND PROCEDURE § 2213 (2d 1994) (emphasis added). Worse, to insist that a party rename, or disassemble and reassemble its files before production would set a troublesome precedent, "invit[ing] claims of the very sort of 'hiding' of materials that gave rise to the 1980 amendment." See id.

*4 Only in "exceptional circumstances" have some courts compelled a producing party to further organize its documents. See 3M Co. v.. Kanbar, MK, No. C06-01225 JW, 2007 WL 1725448, at *2 (N.D.Cal.2007). A large volume of documents does not, without more, justify imposing additional organizational burdens on the producing party. Id. Here, Defendant has not demonstrated any exceptional circumstances warranting Plaintiff to produce anything further now that the supplemental Excel Index has been produced along with the earlier short table indicating the custodian and Bates number range.

A copy of the full opinion is available here.

You Get What You Pay For: Court Allows Access to Defendant's Relevant Backup Tapes and Email Archives provided Plaintiff is Willing to Bear the Costs

david.bowerman@klgates.com (K&L Gates) — Fri, 26 Jun 2009 13:50:40 -0800

Kilpatrick v. Breg, Inc., 2009 WL 1764829 (S.D. Fla. June 22, 2009)

This case arose from plaintiff’s claim that defendant’s product caused plaintiff to develop a degenerative cartilage condition (chondrolysis), that defendant was aware of the risk of such a condition, and that defendant is therefore liable for plaintiff’s damages resulting from the condition. In the course of discovery, plaintiff became concerned that defendant’s production of electronic discovery was incomplete and filed a motion to compel. Acknowledging the validity of plaintiff’s concern but noting the unlikely possibility that any material new documents were located in defendant’s email archives or on disaster recovery tapes, the court concluded that plaintiff may, but was not required to, hire an outside vendor “for the purpose of confirming the completeness of [defendant’s] production, at is own expense” subject to specific conditions enumerated by the court.

In response to plaintiff’s discovery requests, defendant objected to searching “archived electron [sic] records” stating that “responsive documents include ‘internal email communications which may be held by [defendant] in disaster recovery back up storage [, which] is not reasonably accessible, and plaintiff is unable to demonstrate the need and relevance that outweigh the costs of retrieving and processing.’” Additionally, throughout the course of litigation, defendant repeatedly assured plaintiff that it was not necessary to conduct “in-depth” discovery of archived materials because “any relevant information could be gleaned through employee depositions and the notebooks that they kept which contained printed versions of any germane materials.” In the course of discovery certain documents were discovered indicating that defendant’s knowledge of the relevant risks of its product may have existed earlier than originally represented by defendant’s employees at deposition. That evidence, combined with “certain purported irregularities in [defendant’s] production of electronic discovery” lead plaintiff to believe that relevant documents existed that had not been produced. Accordingly, plaintiff filed his motion to compel.

The court agreed that the record indicated the existence of responsive documents that had not been produced and noted that the omission of suspected relevant but undisclosed material was “especially glaring” considering defendant’s assurances that any relevant information could be gleaned through employee depositions and other materials. Despite acknowledging the possibility of the existence of additional responsive information, the court indicated the need to limit plaintiff’s relief in light of the questionable likelihood that the information sought would be found in the email archives or on the disaster recovery tapes (and the questionable value of such information in light of the timing of plaintiff’s claim) and the inability to accomplish the requested searches so close in time to trial.

Seeking to balance the potential relevance of the discovery with the burden and cost of production to the defendant, the court concluded that plaintiff “may, but is not required to, hire an outside vendor for the purposes of confirming the completeness of [defendant’s] production, at its own expense” and subject to the following conditions established by the court:

1. Plaintiff's search may encompass, at most, five of Breg's back-up tapes. Plaintiff shall provide Breg with a single list of those tapes that it wishes to search, to avoid unnecessarily burdening Breg with the responsibility to make multiple trips to its off-site storage facility.

2. Breg must be provided with the results of the search no later than June 26, 2009; and, Breg must review those documents and deliver all discoverable materials to Plaintiff's counsel no later than July 1, 2009.

3. The search shall encompass the email archives of the seven Breg employees identified by the parties as having participated in potentially relevant communications.

4. The search shall be constrained to prevent interfering with Breg's preparation for trial; and, therefore, the search shall include a limited number of search terms, including the word "chondrolysis." [Footnote omitted.]

5. The documents resulting from the search shall be segregated based on whether the document resulted from a search of the word "chondrolysis," as opposed to another keyword.

6. Because the backup tapes contain confidential data and are preserved by Breg for disaster recovery purposes, the search shall be subject to the terms of a confidentiality agreement; and, the tapes shall be returned to Breg in the same condition that they were received.

A copy of the full opinion is available here.

Judge finds Dell Inc. in Contempt

david.bowerman@klgates.com (K&L Gates) — Thu, 25 Jun 2009 11:14:40 -0800

By BECKY BOHRER

NEW ORLEANS (AP) — A state court judge on Thursday found Dell Inc. in contempt of court, saying the computer company was making a "mockery" of the system with its alleged piecemeal production of documents in a civil lawsuit over New Orleans' crime camera system.

Judge Rosemary Ledet also ordered Texas-based Dell to pay $25,000 in sanctions. Plaintiffs' attorneys had requested nearly $182,000 in fees and expenses.

Dell attorney Phillip Wittmann disputed claims that the company was dragging its feet and playing games in discovery, saying that more than 160,000 pages of documents have been produced, e-mail and other information has been handed over as it's been uncovered and that the company has been acting in good faith.

But Ledet called the company's conduct "unconscionable," after hearing arguments from plaintiffs' attorneys that searches using such keywords as "camera" were not done for e-mail and other documents that may have been sent to or by Dell executives, including Chief Executive Michael Dell.

Plaintiffs' attorney Gladstone Jones said he "wasted my time" in Texas last week for Michael Dell's deposition because of the quality of the records' search.

Ledet ordered a search using specific words and said the sides can discuss how to proceed if the search yields a huge amount of records. She did not order that depositions, like Michael Dell's, be taken again.

Click here to read the full article.

Court Finds Request Overly Broad and Unduly Burdensome and Denies Motion to Compel but Orders Search of Electronically Stored Information According to Its Instruction

david.bowerman@klgates.com (K&L Gates) — Fri, 19 Jun 2009 13:45:40 -0800

Kay Beer Distrib., Inc. v. Energy Brands, Inc., 2009 WL 1649592 (E.D. Wis. June 10, 2009)

Following the court’s award of partial summary judgment to defendant, the sole cause of action remaining was plaintiff’s claim for breach of an oral agreement. In support of that claim, plaintiff sought to compel the production of five DVDs containing the results of defendant’s search for potentially responsive electronically stored information ("ESI") referencing plaintiff, including emails. Because of the broad nature of defendant’s search, the DVDs contained some information that was privileged or otherwise non-discoverable. Defendant opposed the request as overly broad and unduly burdensome “given the narrow issues remaining in the case.” Moreover, defendant had previously produced responsive ESI, including ESI contained on the DVDs. The court denied plaintiff’s motion to compel. Having denied the motion, the court nonetheless recognized defendant’s obligation to “conduct reasonable searches” to respond to plaintiff’s discovery requests and ordered defendant to conduct additional searching of the ESI at issue as instructed by the court.

Despite defendant’s prior production of responsive ESI, plaintiff sought access to defendant’s DVDs for purposes of verifying production of all responsive information. As the court noted, “[i]n effect, [plaintiff] has demanded every email or ESI in which its name or some variation thereof appears.” Opposing plaintiff’s request, defendant argued that production of the DVDs would be unduly burdensome in light of the need to have its attorneys review the contents “to ensure that only nonprivileged and discoverable information was provided.” The cost of attorney time alone was estimated at almost $120,000.

Considering the nature of the sole remaining claim, the court noted that it was unclear what information on the DVDs would be considered responsive or admissible and stated that “[t]he mere possibility of locating some needle in the haystack of ESI…does not warrant the expense [defendant] would incur in reviewing it.” Turning to plaintiff’s suggestion that the parties avoid the issue of such expense by entering into a clawback agreement, the court reasoned that “[the availability of a remedy for inadvertently produced material…does not deprive a party of their right to withhold it in the first place.” The court went on to note that such an agreement would not relieve defendant of the need to review information it wished to withhold on the ground that such information was not discoverable and contained some proprietary or confidential information that a business in its position may simply prefer not to disclose. Accordingly, plaintiff’s motion for access to the DVDs was denied.

Having denied the motion to compel, however, the court nonetheless recognized defendant’s obligation under the rules of discovery to search for and produce responsive ESI to plaintiff. Noting defendant’s claim that it provided plaintiff with every email referencing “Kay Beer” in the body, the court went on to opine that a “reasonable search” should have included the use of certain variations of plaintiff’s name, including “Kay Distributing” or “Kay.” Accordingly, the court ordered defendant to conduct such a search and to produce any information identified as a result.

Finally, the court addressed plaintiff’s insistence that the information be produced in its native format, “despite the fact the documents could not be Bates stamped in that format, they would be subject to alteration, and it would not be possible to select certain documents and produce only those in that format.” Relying on defendant’s proper objection to plaintiff’s request as unduly burdensome pursuant to Fed. R. Civ. P. 34(b)(2)(D), on the parties’ agreement to produce ESI as either hard copy or an electronic copy “depending on what was most cost effective,” and on defendant’s offer to produce documents in their native format upon plaintiff’s good faith request and demonstration of need, the court determined that such a request was “excessive” under the circumstances.

A copy of the full opinion is available here.

Iowa Supreme Court Adopts New Evidence Rule 5.502 Addressing the Disclosure of Information Subject to the Attorney-Client Privilege and Work Product

david.bowerman@klgates.com (K&L Gates) — Thu, 18 Jun 2009 13:03:10 -0800

On April 2, 2009, the Iowa Supreme Court approved the adoption of Evidence Rule 5.502 addressing the disclosure of information covered by the attorney-client privilege and work product. Substantially similar to recently enacted Federal Rule of Evidence 502, the new rule outlines the effects of disclosure with regard to waiver, including the effect of inadvertent disclosure. The rule became effective on June 1, 2009.

Click here to view the full text of the Supreme Court’s report.

Appellate Court Finds Trial Court Abused its Discretion by Failing to Impose Terminating Sanctions for Discovery Abuses, Directs Entry of Default Judgment

david.bowerman@klgates.com (K&L Gates) — Wed, 17 Jun 2009 16:21:41 -0800

Doppes v. Bentley Motors, Inc., 2009 WL 1578384 (Cal. Ct. App. June 8, 2009)

In this case arising from plaintiff’s claims of a foul odor in his new car and defendant’s failure to repair it, plaintiff repeatedly sought terminating sanctions from the trial court for defendant’s repeated and egregious discovery abuses. Instead, the trial court ordered the jury would be instructed regarding defendant’s discovery failures and allowed to draw an adverse inference. Even when presented with additional evidence of defendant’s failures during trial, the trial court refused to award terminating sanctions. On appeal, the appellate court found that the trial court abused its discretion in failing to impose terminating sanctions and remanded the case with instructions to strike defendant’s answer and enter default judgment, among other things.

Defendant’s pre-trial discovery violations were numerous and resulted in several motions to compel and two pretrial motions for terminating sanctions. Those violations included:

• repeated failure to timely produce responsive documents pursuant to court orders, including documents related to it’s knowledge of the alleged odor;
• failure to produce responsive documents pursuant to court orders or to provide an explanation for such failure;
• destruction of relevant email;
• repeated misrepresentations that production was complete;
• refusal to produce documents from Bentley Motors Ltd. in the UK, from whom it regularly obtained documents for business purposes; and
• failure to provide plaintiff’s counsel with court ordered access to its email files to allow counsel to “‘data-mine’ the emails for references to the odor problem.”

Upon plaintiff’s first motion for terminating sanctions, the court found that monetary sanctions were warranted. Later, in the course of the parties’ ongoing conflict surrounding discovery, the court appointed a discovery referee. Despite acknowledging defendant’s extensive violations as outlined above, the discovery referee ultimately recommended against terminating sanctions and instead fashioned an adverse inference instruction which was adopted by the court.

Approximately two weeks into trial, plaintiff asserted that defendant had not complied with the court’s order to allow access to its emails and had failed to produce requested customer service history reports. Plaintiff asked for a second order compelling access to the emails. Thereafter, plaintiff and his attorney traveled to another state to review the emails. While there, they discovered two highly relevant and previously unknown emails and their attachments. Plaintiff’s counsel also deposed one of defendant’s executives for the first time.

Upon his return, plaintiff again requested terminating sanctions. In support of his request, plaintiff relayed the following facts, revealed on his mid-trial trip:

• the deposed executive testified that there was a possibility that he had deleted relevant emails and that he had first seen an email implementing a litigation hold only three to four months prior;
• defendant’s employees were instructed to move their emails to their personal folder files (.pst) which were not made available to plaintiff’s counsel during his court ordered email inspection;
• despite multiple file cabinets containing customer complaints, no such files were produced prior to the executive’s deposition and even then, only plaintiff’s redacted file was produced;
• defendant failed to produce relevant customer service history reports, including plaintiff’s and, according to the executive, failed to contact the customer service center responsible for maintaining the reports when responding to discovery;
• defendant failed to produce relevant database information, or even refer to a particular relevant database in its responses to discovery; and
• defendant failed to produce certain other relevant documents.

Despite these and other facts, the court again declined to order terminating sanctions but gave an additional “special instruction” to the jury. Plaintiff eventually prevailed on several but not all of his claims and subsequently filed his appeal.

Acknowledging the trial court’s “broad discretion” in choosing an appropriate sanction (and the attendant rarity of finding an abuse of that discretion), the court next focused its discussion on California’s discovery statutes and their “incremental approach” to the imposition of sanctions:

"Discovery sanctions ‘should be appropriate to the dereliction, and should not exceed that which is required to protect the interests of the party entitled to but denied discovery.’" If a lesser sanction fails to curb misuse, a greater sanction is warranted: continuing misuses of the discovery process warrant incrementally harsher sanctions until the sanction is reached that will curb the abuse. "A decision to order terminating sanctions should not be made lightly. But where a violation is willful, preceded by a history of abuse, and the evidence shows that less severe sanctions would not produce compliance with the discovery rules, the trial court is justified in imposing the ultimate sanction.” [Citations omitted.]

Turning to the facts before it, the appellate court first indicated its unwillingness to find the trial court had abused its discretion in denying plaintiff’s motions for terminating sanctions prior to trial. Regarding the later revelations of discovery abuse, however, the appellate court stated that they had revealed that defendant’s conduct was “worse than originally known” and went on to find that “[d]espite monetary and issue sanctions, [defendant] had flagrantly engaged in such further discovery abuses so as to compel the trial court to impose the next level of sanctions – terminating sanctions.” According to the appellate court, once the trial court learned, during trial, “that [defendant] had failed miserably to comply with discovery orders and directives…the trial court had to impose terminating sanctions.”

Therefore, the appellate court affirmed the jury’s judgment as to those causes of action for which liability was found and reversed the jury’s judgment in favor of defendant on the fraud cause of action with instructions to the trial court to enter a default and default judgment against defendant, among other things.

A copy of the full opinion is available here.

Note: this opinion also includes a discussion of plaintiff’s motions for attorney’s fees.

Upcoming Events

david.bowerman@klgates.com (K&L Gates) — Wed, 17 Jun 2009 12:50:46 -0800

E-Discovery Workshop via HP Halo Telepresence Collaboration Studios – “E-Discovery in a Down Economy: Achieving Litigation Readiness While Cutting Costs and Improving Outcomes”

July 16, 2009
HP Halo Studio Locations:
     New York, NY – 2 Penn Plaza, 8th Floor
     Marlborough, MA – 200 Forest St.
     Alpharetta, GA – 5555 Windward Parkway
9:30 – 12:30 PM

K&L Gates Partner, David Cohen, will co-facilitate this timely discussion covering a range of topics, including e-discovery readiness, identifying and addressing the risks of e-discovery, best practices of successful organizations, and how your business can achieve the balance of cutting costs, protecting your business, and preparing for the future, among others.

Click here to learn more.

American Bar Association Annual Meeting (and CLEs)
July 30 – August 4, 2009
Chicago, IL

K&L Gates Partner Helen Bergman Moure will be co-presenting on the topic of international discovery at the presentation sponsored by the Section of Litigation entitled “Electronic Discovery Around the World” at 2:00 PM on July 30th. This presentation will focus on the laws of discovery in countries around the world including the United States, Mexico, Canada, England and Wales.

Click here to learn more.

Finding Plaintiffs' Ex-Employee and his New Employers Culpable for the Spoliation of Ex-Employee's Laptop, Court Orders Adverse Inference and Monetary Sanctions

david.bowerman@klgates.com (K&L Gates) — Mon, 15 Jun 2009 14:57:56 -0800

Beard Research, Inc. v. Kates, 2009 WL 1515625 (Del. Ch. May, 29, 2009) (Unpublished)

In this case, arising from plaintiffs’ claims that defendants interfered with business relationships and misappropriated trade secrets, plaintiffs sought sanctions against defendants for the destruction of information on a laptop computer which belonged to defendant Michael Kates, a former employee of plaintiffs. The court refused to award default judgment, as requested, but ordered an adverse inference against Kates and ordered monetary sanctions against Kates and defendants Advanced Synthesis Group (“ASG”) and ASDI, Inc. (“ASDI”) resulting from Kates’s destruction of a relevant hard drive and ASG’s and ASDI’s failure to take reasonable steps to prevent that destruction.

Dr. Michael Kates was employed by plaintiffs between 1997 and February 2004. In mid-2003, while still employed by plaintiffs, Kates purchased a Gateway laptop for business purposes. Between 2003 and early 2004, Kates’s relationship with plaintiffs deteriorated. In December 2003, Kates resigned from plaintiff C&B Research & Development, Inc. (“CB”) and on February 13, 2004, Kates also resigned from plaintiff Beard Research, Inc. (“BR”). Kates began working at ASG three days later and eventually went to work for ASDI; he continued to use the Gateway laptop. ASDI provided management services for ASG and both plaintiffs and defendants were involved in the sale of chemical compounds through a catalog, among other things. On May 4, 2005, CB and BR filed suit against Kates, ASDI, ASG and others.

Discovery was contentious and plaintiffs eventually filed three motions to compel. The third motion sought production of Kates’s Gateway laptop. Upon production of the laptop, plaintiffs’ expert discovered evidence of extensive deletions. Accordingly, plaintiffs filed a motion for sanctions. Following the court’s discussion of the relevant facts, it concluded that defendants had a duty to preserve arising no later than June 2005 and that “three separate sets of actions require[d] discussion:”

1) In October 2005, Kates was laid off from ASG and subsequently deleted all ASG data and files from his laptop and emptied the recycle bin. Kates claimed the action was taken because he was angered by the lay off.

2) In December 2007, following several alleged hard drive crashes after which Kates reformatted the drive and reinstalled system software, Kates provided the hard drive to an employee of ASDI’s in-house technology support and electronic discovery consultant who determined the drive could not be saved and therefore replaced it with a new hard drive (“the new drive”). This was done despite Kates being warned by defense counsel not to “trash” the computer. Moreover, despite the alleged return of the old drive to Kates, Kates could not produce the old drive as requested and hypothesized that he had discarded it.

3) On July 23, 2008, upon being informed of the need to produce the laptop, Kates reinstalled the new drive, which had also allegedly failed, and then defragmented the new drive before producing it to the plaintiffs the next day. At the time of production, Kates failed to inform plaintiffs that the new drive had been installed and that the old drive was lost.

Plaintiffs’ motion for sanctions argued that Kates, ASDI, and ASG were all liable for the spoliation of discoverable materials and requested default judgment as to two claims.

In a lengthy discussion of each separate action, the court ultimately determined that Kates, ASDI, and ASG were responsible for the spoliation “with varying degrees of culpability.” Specifically, the court faulted Kates for his failure to comply with his preservation obligations by deleting information, by replacing and losing his original hard drive (particularly where plaintiffs presented evidence that relevant data may have been retrieved from the drive), and by defragmenting the new drive prior to production, among other things. As to ASDI and ASG, the court found they violated their discovery obligations by doing “virtually nothing” to preserve the computer and its contents. Moreover, the court found heightened culpability where the replacement of the old hard drive was accomplished with the assistance of ASDI’s in-house technology support, also serving as e-discovery consultant for the litigation. Notably, the court discussed defense counsel’s failure to act to ensure preservation but did not include counsel in the sanctions discussed below.

Discussing first the requested sanction of default judgment, the court established that such a sanction was appropriate only as “a last resort” and that “to impose a default judgment, the spoliator must have acted ‘willfully or in bad faith and intended to prevent the other side from examining evidence.’” In the case before it, the court found that plaintiffs failed to establish the existence of certain incriminating evidence on the spoliated hard drive or that such evidence would have supported their position and that an adverse inference would be a sufficiently appropriate sanction under the circumstances. The court also found that plaintiffs failed to establish that defendants acted with the purpose of misleading plaintiffs or the court. Accordingly, default judgment was denied.

Moving to the appropriateness of an adverse inference, the court highlighted the standard for drawing such an inference as articulated by the Delaware Supreme Court:

An adverse inference instruction is appropriate where a litigant intentionally or recklessly destroys evidence, when it knows that the item in question is relevant to a legal dispute or it was otherwise under a legal duty to preserve the item. Before giving such an instruction, a trial judge must, therefore, make a preliminary finding that the evidence shows such intentional or reckless conduct.

[Citation omitted]. Pausing to “define some key terms,” the court established that “for spoliation, the spoliator must have intended to ‘act with purpose’” and again cited the Delaware Supreme Court which reasoned that “an adverse inference is consistent with human nature and common sense: if a party intentionally destroys evidence, it is reasonable to infer that the evidence was not favorable to that party.” Specifically discussing recklessness, the court laid out the relevant burden, as established by the Delaware Supreme Court: “‘Where the claim of recklessness is based on an error in judgment, a form of passive negligence, plaintiff's burden is substantial,’ because the ‘precise harm which eventuated must have been reasonably apparent but consciously ignored in the formulation of the judgment.’”

Concluding that “drawing an adverse inference is appropriate when an actor is under a duty to preserve evidence and takes part in the destruction of evidence while being consciously aware of the risk that he or she will cause or allow evidence to be spoliated by action or inaction and that the risk would be deemed substantial and unjustified by a reasonable person,” the court determined that an adverse inference was appropriate for Kates’s deletion of ASG data and Kates’s replacement/loss of the original drive. The court’s discussion then outlined the specific inferences to be drawn from Kates’s behavior.

Turning finally to the imposition of monetary sanctions, the court stated, “To impose monetary sanctions, this Court need only find that a party had a duty to preserve evidence and breached that duty. Essentially, this means that negligence alone may be sufficient to support the imposition of monetary sanctions.” Once again excoriating Kates’s behavior, the court also found ASDI and ASG responsible for the loss of evidence resulting from their failure to “take reasonable steps to ensure that Kates preserved his laptop computer…” The court’s discussion also condemned defendants’ failure to inform plaintiffs that the old drive had been replaced when producing the new drive. Accordingly, the court awarded plaintiffs their attorneys’ fees and expenses, including expert’s fees, jointly and severally against Kates, ASDI, and ASG.

A copy of the full opinion is available here.

Finding Defendants' Behavior "a Textbook Case of Discovery Abuse," Court Orders $1,022,700 in Monetary Sanctions

david.bowerman@klgates.com (K&L Gates) — Thu, 04 Jun 2009 13:11:04 -0800

Kipperman v. Onex Corp., 2009 WL 1473708 (N.D. Ga. May 27, 2009)

In this constructive transfer and fraud case arising out of the 2003 bankruptcy of Magnatrax Corporation, plaintiff alleged numerous discovery abuses on the part of defendants and sought sanctions accordingly. Among the abuses described were several allegations related to defendants’ failure to produce information stored on backup tapes, even upon being ordered to do so, and other various and related misdeeds. Calling defendants actions a “textbook case of discovery abuse,” the court found in favor of plaintiff but declined to strike defendants’ answer, as requested, and ordered defendants to pay plaintiff $1,022,700 in monetary sanctions.

In his motion for sanctions, the plaintiff established six categories of alleged discovery abuses, including the category “electronic or email discovery.” Details of the alleged discovery abuses in this category revolved around the question of defendants’ obligation to restore and produce responsive information stored on backup tapes. The question arose in light of the notable lack of email identified as responsive following defendants’ initial search of their electronic systems and in light of another party’s production of emails that should also have been produced by defendants, but were not. Defendants explained that the emails were likely stored on email backup tapes. Defendants further indicated their belief that they were not required to bear the burden and expense of restoring and searching the tapes but agreed to consider such action if plaintiff would pay.

The parties could not reach agreement and the issue was brought before the court on one of plaintiff’s motions to compel. Prior to the hearing, defendants undertook a sample search of three of the backup tapes, including a 2003 file server tape which resulted in 28,000 “hits.” The email server portion of the tape was not tested. At hearing, plaintiff argued that the 28,000 hits, among other evidence, indicated the likely existence of additional relevant emails. Defendants strongly objected to such an inference and argued that the “hits” plaintiff relied on were not emails, that no one really knew what was stored on the backup tapes, that evidence suggested there was a low likelihood of locating any emails, that the information would be “dubious at best,” and that restoration and searching would result in extremely high costs to defendants. Examples of specific arguments made by defendants include: "Plaintiffs don't know and we don't know whether there is a single e-mail on there, a single e-mail in any way related to this case"; "[t]he fact that there are two or three e-mails that they have found in the Magnatrax documents would tend to indicate that there is a very low likelihood of any e-mails"; and "[w]e don't even know whether people readily used e-mails. This was not a BlackBerry era at the time.” These arguments were later found by the court to be misleading and, in some cases, were specifically contradicted by other evidence.

At the hearing, the court ordered defendants to conduct a sample search on two tapes designated by plaintiff. Defendants complied in part by unilaterally deciding to search only seven mail boxes present on one tape and deciding to redact certain documents. Thousands of documents were hit, and rolling production began.

Plaintiff filed a motion to compel defendants to fully comply with the court order and, because the sample tapes did not cover the entire time frame that they were expected to cover, for an additional tape to fill the gap. Again the defendants were strongly opposed and indicated that searching the two tapes cost more than $600,000. The court decided to enforce its order to search the two tapes in their entirety and granted plaintiff’s request for an additional tape to fill the gap. The court did offer defendants an option to reduce the scope of the necessary search but defendants failed to avail themselves of that option.

Despite ongoing disagreement between the parties, production was eventually certified by defendants as complete. Soon thereafter, plaintiff filed the instant motion for sanctions and outlined the discovery abuses related to electronic discovery, as well as five other categories of alleged discovery abuse.

Addressing plaintiff’s allegations surrounding the backup tapes, the court indicated its understanding of defendants’ initial refusal to produce electronic discovery from its backup tapes, but went on to condemn defendants’ subsequent behavior including their “blatant misrepresentations about the value of e-mail discovery in this case in an effort to influence the court’s ruling…and for behaving as if they, and not the court, got to decide what…was relevant…and what was not.” The court went on to state that it had relied on defendants’ misrepresentations when making its determination as to whether discovery of the tapes was warranted and in crafting its “’two tape’ solution” and that “it now appears that defense counsel’s statements were either purposefully misleading or made with a reckless disregard for the truth.” The court’s illustrative discussion of defendants’ various wrongdoing went on for several paragraphs.

Among the various other discovery abuses alleged were accusations of incomplete discovery, additional misrepresentations to the court, and multiple failures to abide by the court’s orders.

Accordingly, the court determined sanctions were warranted. Establishing its ability to order sanctions under both the Federal Rules (Fed. R. Civ. P. 26 and 37) and its own inherent authority, the court found defendants’ actions a “textbook case of discovery abuse.” The court went on to point out the prejudice to plaintiff as a result of defendants’ discovery behavior and rejected defendants argument that no such prejudice existed in light of their eventual compliance with their obligations.

Explaining that because there were “novel issues of liability presented in this matter,” that “the ad damnum clause in this case is hundreds of millions of dollars,” and that “plaintiff has the raw material and document it needs to proceed with its case and this court has the means, through re-depositions and supplemental expert reports, to minimize a large portion of the damage done,” the court indicated its unwillingness to “take the dramatic action” of striking defendants’ answer. Instead, the court ordered defendants to pay plaintiff $1,022,700 in monetary sanctions, an amount equal to plaintiff’s attorney’s fees related to the difficulties created by defendants’ discovery behavior.

A full copy of the opinion is available here.

Court Declines to Compel Production of Documents from Foreign Jurisdiction upon Finding a Lack of Personal Jurisdiction and where Certain Documents are Protected from Production by Israeli Law

david.bowerman@klgates.com (K&L Gates) — Thu, 04 Jun 2009 09:24:35 -0800

Linde v. Arab Bank, PLC, 2009 WL 1456573 (E.D.N.Y. May 22, 2009)

In this case, defendant Arab Bank moved to compel production of documents, pursuant to subpoena, by non-parties Israel Discount Bank, Ltd. (“IDB”), its indirect, wholly –owned subsidiary, Israel Discount Bank of New York (“IDBNY”), and Bank Hapoalim (“Hapoalim”). Arab Bank served its first subpoena on IDBNY seeking, among other things, the production of IDB documents located in Israel. Arab Bank also served a second subpoena on IDBNY seeking “the production of identical information from its parent, IDB.” Hapoalim was also served with a subpoena seeking the production of documents located in Israel. IDBNY generally complied with the first subpoena but objected to the production of IDB documents located in Israel. As to the second subpoena, IDBNY accepted service on behalf of itself, but not IDB, and IDB resisted the production of the documents sought based on the court’s lack of personal jurisdiction. Hapoalim also resisted production arguing that much of the information sought was protected from discovery by Israeli law. The court denied Arab Bank’s motion as to IDB documents located in Israel upon finding that IDBNY lacked sufficient control of such documents and because the court lacked personal jurisdiction over IDB. The court also denied Arab Bank’s motion as to those documents protected by Israeli law, but indicated its willingness to require production of the other documents requested.

Israel Discount Bank of New York and Israel Discount Bank, Ltd.

Despite generally complying with Arab Bank’s subpoenas to the extent they sought documents within IDBNY’s control, IDBNY objected to the extent that they called for the production of IDB documents located in Israel. Arab Bank argued that IDBNY should be compelled to produce the requested IDB documents because it had the “practical ability” to obtain them and that IDB should be compelled to produce the requested documents because IDBNY was a “mere department” of IDB, thus establishing IDB’s presence in New York for purposes of personal jurisdiction.

The court began its analysis of IDBNY’s obligation to respond to the first subpoena by highlighting the relevant law. Under Fed. R. Civ. P. 45, a subpoena may command a nonparty served to produce documents that are in its "possession, custody, or control."

"Control is defined not only as possession, but as the legal right to obtain the documents requested upon demand." "Control" may also be found where an entity has "access to" and the "ability to obtain the documents." The party seeking to compel a subsidiary to produce the documents of its foreign parent has the burden of showing that the documents are within the local subsidiary's control. "Access" and "ability to obtain documents" have been found where "documents ordinarily flow freely between" parent and subsidiary. [Citations omitted.]

The court next acknowledged IDBNY’s submission of sworn statements stating that it had no access to its parent’s documents, that they shared no computers systems or confidential information concerning customer transactions, and that “IDBNY does not even expect that IDB would provide documents about a customer to IDBNY so that IDBNY could defend itself in litigation.” The court also noted the lack of evidence to indicate that the documents sought “flowed freely” between subsidiary and parent and rejected Arab Bank’s arguments and evidence to the contrary. Accordingly, the court denied Arab Bank’s motion to compel IDBNY’s production of IDB documents.

Addressing IDB’s obligation to respond to the second subpoena, the court turned to Arab Bank’s arguments that IDBNY was a mere department of IDB and that service on IDB was effective through service on its New York subsidiary. “For New York courts to acquire personal jurisdiction over the parent based on a subsidiary's presence in New York, the parent's ‘control over the subsidiary's activities ... must be so complete that the subsidiary is, in fact, merely a department of the parent.’” [Citation omitted.] Such a determination requires a fact-specific inquiry taking into consideration four factors: "(1) common ownership between the parent and subsidiary; (2) the financial dependency of the subsidiary on the parent corporation; (3) the degree to which the parent corporation interferes in the selection and assignment of the subsidiary's executive personnel and fails to observe corporate formalities; and (4) the degree of control over the marketing and operational policies of the subsidiary exercised by the parent." [Citation omitted.]

Engaging in a fact specific analysis of the relevant factors, the court found that all but the first weighed against a finding that IDBNY was a “mere department” of IDB. Accordingly, Arab Bank’s motion to compel was denied.

Bank Hapoalim

The court next considered the objections of Bank Hapoalim based on a “host of Israeli laws” and international comity which prevented the disclosure of much of the information requested.

Beginning its analysis, the court first rejected the assertion that the Israeli laws against self incrimination and protecting commercial secrets prohibited the discovery of the documents sought where appropriate measures could be taken to address Hapoalim’s concerns and noted that “these laws do not present a true conflict with the United States such that a comity analysis is necessary.” The court recognized, however, that the remaining laws cited by Hapoalim did “erect prohibitions on disclosure that raise a true conflict between United States discovery rules and Israeli confidentiality laws.” Accordingly, an international comity analysis was necessary.

The court laid out five factors to consider when deciding whether to compel production, as articulated by the Restatement Third of the Foreign Relations Law of the United States:

(1) the importance of the investigation or litigation of the documents or other information requested; (2) the degree of specificity of the request; (3) whether the information originated in the United States; (4) the availability of alternative means of securing the information; and (5) the extent to which noncompliance with the request would underline important interests of the United States, or compliance with the request would undermine important interests of the state where the information is located.

The court also noted that prior courts have considered the nonparty status of the party from whom discovery is sought when evaluating the hardship imposed by discovery.

Of the articulated factors, the court found that only one factor, the specificity of the request, weighed against recognizing Israel’s bank confidentiality laws as a bar to discovery.

Notably, regarding the fifth factor, the court determined that compliance with the requests would “undermine important Israeli interests, including maintaining privacy rights of bank clientele and the confidentiality of sensitive communications with Israel’s central bank” and that noncompliance “would not greatly undermine important interests of the United States.” The court also pointed to the potential hardship that could be imposed on Hapoalim by an order compelling the production of the requested materials. Specifically, the court stated that violation of the relevant laws “could lead to substantial civil liability and criminal punishment” and that Hapoalim’s non-party status weighed against an order to compel where such an order “should be imposed on a nonparty…only in extreme circumstances.”

Accordingly, as to the materials that fell within the protection of the relevant laws cited, the court denied Arab Bank’s motion to compel. As to the remaining materials requested, the court granted Arab Bank’s motion to compel.

A full copy of the opinion is available here.

Update: Supreme Court of Louisiana Vacates Court of Appeal's Judgment to Vacate Preliminary Injunction of District Court, Remands for Further Proceedings

david.bowerman@klgates.com (K&L Gates) — Mon, 01 Jun 2009 15:06:56 -0800

Council of the City of New Orleans v. Washington, 2009 WL 1492869 (La. May 29, 2009)

In this case, attorney Tracie Washington and others appealed a preliminary injunction from the District Court preventing the dissemination of emails received in response to a public records request. The injunction was issued in light of the City’s failure to properly review the documents for privileged information before production. Upon Washington’s appeal, the court of appeal determined the injunction violated the First Amendment and thus vacated the order of the District Court. The City Council of the City of New Orleans appealed.

On appeal, the Supreme Court of Louisiana vacated the judgment of the court of appeal upon finding that the First Amendment arguments upon which the court relied were presented for the first time on appeal and were therefore improperly considered. Accordingly, the matter was remanded for further proceeding.

A copy of the full opinion is available here.

A summary of the court of appeal's opinion is available here.

Court Rules Office of Administration Not Covered by Freedom of Information Act, Records Related to White House Email Management Systems Need not be Produced

david.bowerman@klgates.com (K&L Gates) — Wed, 27 May 2009 10:14:52 -0800

Citizens for Responsibility and Ethics in Washington v. Office of Admin., 2009 WL 1373612 (D.C. Cir. May 19, 2009)

Citizens for Responsibility and Ethics in Washington (“CREW”) alleged that “entities in the Office of Administration (OA) discovered in October 2005 that entities in the Executive Office of the President (EOP) had lost millions of White House emails.” In April 2007, CREW filed a Freedom of Information Act (“FOIA”) request seeking OA’s production of “records related to the EOP’s email management system, reports analyzing problems with the system, records of retained e-mails and possibly missing ones, documents discussing plans to fine the missing e-mails, and proposals to instate a new e-mail records system.” The OA initially agreed to produce the records but asked for an extended deadline to do so. Upon missing the extended deadline, OA argued for the first time that it was not covered by FOIA “because it provides administrative support and services directly to the President and the staff in the EOP, putting it outside of FOIA’s definition of ‘agency.’” Despite its resistance, the OA produced some records as a matter of “administrative discretion.”

In August 2007, CREW took the issue before the district court and was granted permission to conduct limited discovery “to explore ‘the authority delegated to [OA] in its charter documents and any functions that OA in fact carries out.’” Such a determination was important in light of FOIA’s applicability only to government agencies. Following such discovery, the district court concluded that OA “’lacks the type of substantial independent authority’ this court ‘has found indicative of agency status for other EOP components’” and granted OA’s motion to dismiss. CREW appealed.

On appeal, the appellate court upheld the ruling of the district court holding that “OA need not comply with CREW’s requests because it is not an agency under FOIA.” Accordingly, OA was relieved of any obligation to produce the requested documents.

A full copy of the opinion is available here.

For more information about this case, click here to read a recent article published in the Washington Post.

Court Finds Delay in Objecting to a Failure to Produce in Native Format Was "Patently Unreasonable" and Denies Defendant's Motion to Compel Production; Court Also Denies Motion to Confirm Adequacy of Defendant's Manual Search

david.bowerman@klgates.com (K&L Gates) — Wed, 27 May 2009 09:33:23 -0800

Ford Motor Co. v. Edgewood Props., Inc., 2009 WL 1416223 (D.N.J. May 19, 2009)

In this case, arising from allegations surrounding contaminated concrete following the demolition of a Ford plant in New Jersey, defendant Edgewood Properties (“Edgewood”) brought several motions before the court, including a motion to compel production of documents in their native format (or documents containing metadata) and a motion for an order granting Edgewood the right to confirm the adequacy of Ford’s manual collection process by searching the electronic systems of certain custodians. Finding Edgewood had waived its objection to the format of Ford’s production by failing to object within a reasonable time period, the court denied Edgewood’s motion to compel. The court also denied Edgewood’s motion to allow access to certain of Ford’s electronically-stored records citing inter alia the burden to Ford and Edgewood’s failure to make a showing of Ford’s purposeful or negligent withholding of documents.

Edgewood’s initial document request called for the production of electronically stored information (“ESI”) in its native format (or with metadata). Ford responded by informing Edgewood of its intent to produce “Tagged Image File Format (“TIFF”) with accompanying searchable text.” The parties failed to reach agreement regarding the format of production, and Ford produced its documents as indicated, in TIFF format. Ford made three productions in TIFF format, one in March 2008, one in August 2008, and one in November 2008. Following the third production, in January 2009, Edgewood sought to compel re-production of Ford’s documents in native format, as originally requested.

Beginning its analysis with Fed. R. Civ. P. 34, as discussed in Aguilar v. Immigration & Customs Enforcement Div. of U.S. Dep’t of Homeland Sec., 2008 WL 5062700 (S.D.N.Y. Nov. 21, 2008), the court elucidated the parameters of the rule which allow for the requesting party to specify the format of production, but also for the responding party to object to such specification. Per the rule, upon objecting, the responding party must also indicate its intended format of production. If the requesting party opposes the suggested format, the parties are required to meet and confer before filing a motion to compel. The court’s analysis also acknowledged the need to consider the necessity of producing metadata to allow equal access to the information produced, as discussed by The Sedona Conference©, and that court’s have generally ordered the production of metadata “when it is sought in the initial document request and the producing party has not yet produced the documents in any form.”

Turning the facts before it, the court highlighted a colloquy between the court and counsel at hearing in which Edgewood acknowledged its delay in objecting to Ford’s production for many months, despite Ford’s repeated production of documents in TIFF format.

Accordingly, the court found that Edgewood’s delay in objecting to Ford’s production was “patently unreasonable,” reasoning:

One may reasonably expect that if document production is proceeding on a rolling basis where the temporal gap in production is almost half a year apart, a receiving party will have reviewed the first production for adequacy and compliance issues for a reason as obvious as to ensure that the next production of documents will be in conformity with the first production or need to be altered. It was incumbent on Edgewood to review the adequacy of the first production so as to preserve any objections. The Court is not dictating a rigid formulation as to when a party must object to a document production. Reasonableness is the touchstone principle, as it is with most discovery obligations. The simple holding here is that it was unreasonable to wait eight months after which production was virtually complete.

Denying Edgewood’s motion to compel re-production, the court ended its discussion by highlighting the need for cooperation among counsel:

It is beyond cavil that this entire problem could have been avoided had there been an explicit agreement between the parties as to production, but as that ship has sailed, it is without question unduly burdensome to a party months after production to require that party to reconstitute their entire production to appease a late objection… Parties would be best to heed the admonition of a recent court that "the best solution in the entire area of electronic discovery is cooperation among counsel." William A. Gross. Constr. Assocs., Inc. v. Am. Mfrs. Mut. Ins. Co., 2009 WL 724954 (S.D.N.Y. Mar. 19, 2009).

The court next turned to Edgewood’s request to confirm the adequacy of Ford’s manual document collection processes by using a vendor to perform a “narrowly tailored key word search of electronically-stored records from a limited time period associated with certain custodians.” Citing The Sedona Conference Best Practices Commentary on the Use of Search and Information Retrieval Methods in E-Discovery, the court acknowledged that reliance on manual searching may be considered “infeasible or unwarranted” in certain situations and that automated search methods “should be viewed as reasonable, valuable and even necessary.” Citing the same document, however, the court also noted that absent agreement, “a [responding] party has the presumption, under Sedona Principle 6, that it is in the best position to choose an appropriate method of searching and culling data.”

Reasoning that the “gravamen of Edgewood’s complaint is that it suspects it had not received all of the documents to which it is entitled ,” the court acknowledged prior courts’ refusal to be swayed by such speculation and found, in this case, that “reinventing the wheel here would be unduly burdensome to Ford.”

In denying the motion, the court also found that Edgewood had failed to make a colorable showing of Ford’s purposeful or negligent withholding of documents and stated that “[t]he notion that a document production is insufficient based on a belief that documents must exist simply is not enough to grant a motion to compel that would require Ford to go back to square one and begin its collection efforts anew.” The court further reasoned that “[t]o countenance such a holding would unreasonably put the shoe on the other foot and require a producing party to go to Herculean and costly lengths…in the face of mere accusation to rebut a claim of withholding. This scenario is not contemplated by the Federal Rules.”

A copy of the full opinion is available here.

Preliminary Injunction against Publication and Dissemination of Documents Received in Public Records Request Violates First Amendment

david.bowerman@klgates.com (K&L Gates) — Wed, 20 May 2009 09:06:04 -0800

Council of the City of New Orleans v. Washington, 2009 WL 1300747 (La. Ct. App. May 12, 2009)

In this case, Relator Tracie Washington, a Louisiana attorney, and others, appealed the trial court’s issuance of a preliminary injunction which prevented them from publishing or disseminating documents received in response to a public records request and required that all documents be returned, among other restrictions. The request at issue sought email records from a number of City Council members from 2006 to the present. The documents produced were not reviewed for privilege prior to production. Accordingly, the City Council sought and received a preliminary injunction to prevent their dissemination and require their return. Relators appealed and the trial court was reversed upon the appellate court’s finding that the trial court’s injunction violated the Relators’ First Amendment rights.

In December 2008, Relator Washington made a written public records request seeking email records from a number of City Council members. Fearing disposal of the records requested, Washington sought and received the assistance of the Director of Sanitation for the City of New Orleans who facilitated “pick up and production at some point in December 2008.” Ordinarily, such a request would have been properly responded to via the city’s Legal Department. Later, it was determined that the documents produced had not been reviewed for privilege. Accordingly, the City Council sought and received a preliminary injunction preventing their dissemination and requiring their return. In support of the injunction, the City Council argued, in part, that Washington’s obligations under the Louisiana Rules of Professional Conduct required Washington to return the privileged documents. The injunction was appealed.

Beginning its analysis, the appellate court first noted that prior to the issuance of the injunction, Washington “enjoyed unrestricted access to those records for approximately ninety days.” During that time, the contents of the emails were discussed with numerous individuals and discussed publicly. Thus, the court reasoned that while the records produced may have contained privileged information that by definition is not a public record, “the fact remains that the records, privileged or not, have already been provided to Relators.”

The court then established that the sole issue on appeal was whether the preliminary injunction was a violation of Relators’ First Amendment rights. Relators argued that the trial court’s preliminary injunction constituted impermissible prior restraint on freedom of speech. In so arguing, Relators relied on the holding of New York Times, Co. v. United States, 403 U.S. 713, 91 S. Ct. 2140 (1971), which allowed the publication of illegally obtained government records because to prohibit the publication would constitute infringement upon the publication’s First Amendment rights. In that case, the court concluded that “the press must be left free to publish news, whatever the source, without censorship, injunctions, or prior restraints.”

In the present case, the court found that “although Relator Washington is not a member of the press, the same reasoning applies, as she seeks to publish records obtained via her public records request.” The court recognized the competing interests of the Louisiana Public Records Law and the Rules of Professional Conduct, for example, and pointed out that ethical violations could be asserted if the privileged material was disseminated, but found that First Amendment concerns “greatly outweighed” those interests. In support of this finding, the court noted that the U.S. Supreme Court previously stated that “any prior restraint on expression comes to this Court with a ‘heavy presumption’ against constitutional validity” and the Supreme Court’s determination that “prior restraints on speech and publication are the most serious and the least tolerable infringement on First Amendment rights.”

The court rejected the council’s arguments that Washington’s constitutional rights were not violated in light of the temporary nature of the injunction and in light of her opportunity to object to any information withheld as privileged. The court also recognized the numerous exceptions to production within Louisiana Public Records Law, but stated that the question before it was not the constitutionality of the law, but rather the constitutionality of preventing the documents’ dissemination when they had already been produced. Similarly, the court noted that while privileged information must be returned if disclosed in litigation, that was not the case where the documents were released pursuant to a records request.

Finding that the trial court abused its discretion, the appellate court noted that its “opinion in this matter should not be taken to indicate the propriety, in the future, of issuing temporary stays and restraining orders to block the publication of material sought to be suppressed.”

A full copy of the opinion is available here.

To learn more about this case, click here to read a recent article published in the New Orleans Times-Picayune.

Granting Motion to Compel, Court Orders Appointment of Independent Expert "to Retrieve any Deleted Responsive Files from Defendants' Computers"

david.bowerman@klgates.com (K&L Gates) — Wed, 06 May 2009 10:08:57 -0800

Bank of Mongolia v. M & P Global Fin. Servs., Inc., 2009 WL 1117312 (S.D. Fla. Apr. 24, 2009)

In this case arising from allegations that defendants conspired to defraud plaintiff of $23 million, defendants failed to properly and timely respond to plaintiff’s requests for production of documents and failed to offer adequate justifications or explanations for such behavior. Additionally, despite initial representations that certain documents had been produced or were not in their possession, at hearing it became clear that such representations were not true. For example, despite claiming that all responsive documents had been produced, defense counsel admitted at hearing that defendants had not performed a search of all deleted and unsaved electronic documents. For defendants’ discovery failures, the court granted plaintiff’s motion to compel and ordered an independent forensic expert be allowed access to defendants’ computer systems to search for “deleted responsive files.” The court also granted plaintiff’s motion for attorney’s fees.

During the course of discovery, plaintiff filed its initial requests for production but received no response. Defendants also repeatedly failed to respond to inquiries regarding their estimated date of production. Plaintiff filed a motion to compel based on the lack of response and requested access to defendants’ electronic records and computer hardware as a sanction for suspected spoliation based on plaintiff’s receipt of documents from a third-party that should also have been produced by defendants, but were not. Defendants initially failed to respond to plaintiff’s motion to compel resulting in the court’s Order to Show Cause directing a response. Thereafter, defendants produced their response to plaintiff’s request for production consisting of a one page document representing that the requested materials had already been produced or were not in defendants’ possession, among other things. When defendants finally responded to the motion to compel, they offered no substantial explanation for their tardy responses to either the request for production or the subsequent motion to compel beyond a claim that they mistakenly believed their initial disclosures were a response to plaintiff’s request for production.

At hearing, counsel conceded that defendants failed to perform a search of all deleted and unsaved electronic documents. Also, counsel was unable to provide an explanation of defendants’ search methodology upon the court’s inquiry or to answer other questions related to discovery and production.

The court made several findings in favor of plaintiff, including that defendants failed to provide an adequate explanation for their delay and failed to produce all responsive documents or provide a reasonable explanation for that failure. Accordingly, plaintiff’s motion to compel was granted and defendants were ordered to produce an affidavit from their custodian of records detailing the steps take to identify responsive documents.

Also, because of the discrepancies in defendants’ response to plaintiff’s requests, their concession that not all documents had been produced, “and particularly in light of the recovery of apparently responsive documents by the Plaintiffs from third-party sources,” the court determined that an independent expert should be appointed “to retrieve any deleted responsive files from Defendants’ computers.” The court denied defendants’ request to undertake such an inspection on their own. The court then provided a 10-point procedure to be followed in carrying out the inspection. Included were instructions that the expert’s access would not result in defendants’ waiver of privilege, that the court would have final approval of search terms following plaintiff’s submission of such terms and defendants’ opportunity to object, and that plaintiffs would bear the cost of such inspection. The court acknowledged that its proscribed protocol did not provide plaintiffs with the access requested, but reasoned that, “the [defendants’] failure to adequately respond to Plaintiff’s request for documents is not sufficient grounds to give Plaintiff unfettered access to Defendants’ computer system.”

Regarding the court’s order that plaintiff bear the cost, the court reasoned that absent a showing that defendants improperly deleted or otherwise omitted documents from the production of their computer files, cost shifting was not appropriate. The court indicated its willingness, however, to revisit the issue should evidence of spoliation be uncovered.

Finally, noting that “the M & P Defendants' counsel frankly conceded that there was no substantial justification for Defendants' failure to comply with Plaintiff's documents requests, nor did other circumstances make an award of expenses unjust,” the court granted plaintiff’s request for attorney’s fees and costs.

A copy of the full opinion is available here.

Federal Court Defers Final Ruling on Attorneys' Fees Motion Related to Forensic Examination

david.bowerman@klgates.com (K&L Gates) — Tue, 05 May 2009 14:53:02 -0800

Technical Sales Assocs., Inc. v. Ohio Star Forge Co., Nos. 07-11745, 08-13365 (E.D. Mich. May 1, 2009)

In ongoing litigation over sales commissions, Plaintiff Technical Sales Associates, Inc. ("TSA") claims that Defendant Ohio Star Forge Comapny ("OSF") breached two separate sales representative agreements. After a protracted discovery dispute, TSA and OSF agreed to a forensic examination of OSF's computers to search for a particular e-mail. The forensic examination was performed by a company hired by TSA called Midwest Data Group LLC ("Midwest"). During the forensic examination, Midwest found evidence that certain files had been deleted by OSF. Midwest's reporting of its findings to TSA became the subject of cross-motions for sanctions which were ruled upon by the court on March 19, 2009. (See summary of March 19, 2009 opinion available here.)

Following the court's March 19 ruling, Midwest moved for attorney's fees, arguing that OSF's motion for contempt against Midwest was an abuse of the judicial process and an attempt to "bully" Midwest for revealing that OSF had deleted electronic files. The court ruled on the attorney's fees motion on May 1, 2009 (“the May 1 Ruling"). The court found that Midwest "was at best naive" in the way it handled its discovery of the deleted files, noted that TSA's advice to Midwest about the situation was "ill-advised," and said that OSF's filing of a contempt motion against TSA and Midwest was "overblown." May 1 Ruling at 3. As a result, the court found that "an electronic discovery dispute has become a sideshow which eclipses the circus."

The court concluded that "Midwest has been unwittingly caught in the middle of the parties' contentious litigation tactics." The court then ordered Midwest to "submit its detailed billing records displaying the amount of attorney fees and cost[s] incurred," and decided to "reserve decision on the motion until the end of the case." May 1 Ruling at 3.

Thomas J. Smith of K&L Gates represented Midwest.

A copy of the full opinion is available here.