Category Archives: Federal Rules of Civil Procedure

Failure to Use Basic Security Protections when Transferring Electronic Files Results in Waiver of Privilege

The Attorney/Client Privilege and Work Product Protection for a video file transferred via Box.com was lost when a client failed to use basic security precautions.  A February 2017 ruling by a Western District of Virginia magistrate judge in Harleysville Insurance Company v. Holding Funeral Home, Inc. (Case No. 1:15-cv-00057) should reinforce a requirement that lawyers use basic security protections (at a minimum) for all potentially privileged or protected communications.

  1. All Too Common Facts

There are no winners in this case. Both sides of the Harleysville Insurance matter were scolded by the magistrate judge.  In this case, an insurance investigator transferred a video file to its company’s counsel using Box.com, a popular file transfer and sharing service. To notify counsel of the transfer, the investigator sent an email that included the hyperlink to the video file.  Months later, the transmission email was produced in discovery.  Defendants’ counsel spotted and then tested the hyperlink, and immediately found the video file.

It appears from the recitation of the facts that the investigator knew how to use the basic transfer capabilities of Box.com but was never trained or instructed to use even the basic security tools. For example, Box.com allows for the creation of secure folders and the controlled access to any folder.

To make matters worse, the video file resided on the Box.com site accessible by the hyperlink for at least six months.

  1. Attorney/Client Privilege and Work Product Protection Waiver

After the access to the Box.com site and the video file were exposed, Harleysville argued that the defense counsel’s access to the file was an improper, unauthorized access to privileged information, and this should require the disqualification of defense counsel. The argument in response was that Harleysville had waived any claim of privilege or confidentiality by placing the information on Box.com without using any of the available security tools.

Attorney/Client Privilege.  The court analyzed the Attorney/Client Privilege waiver separately from the Work Product Protection issue.  Its first finding was that Harleysville waived any claim of Attorney/Client Privilege with regard to the information posted on Box.com.  The court concluded that “the information uploaded to this site was available for viewing by anyone, anywhere who was connected to the Internet and happened upon the site by use of the hyperlink or otherwise.”  The decision continues, “In essence, Harleysville has conceded that its actions were the cyber world equivalent of leaving its claim file on a bench in the public square and telling its counsel where they could find it.”

Attorney/Client Privilege issues in the case were governed by state law. Virginia law provides protection for privileged communications. See Walton v. Mid-Atlantic Spine Specialists, 694 S.E.2d 545. 549 (Va. 2010).  But this privilege is an exception to the general duty to disclose and should be strictly construed.   Continuing, the proponent of the privilege has the burden to establish that the Attorney/Client Privilege applies and that the privilege has not been waived.

The Walton case adopts a multifactor analysis for determining whether the holder of a privilege took reasonable steps to prevent disclosure and also took reasonable steps to rectify the error. The first listed factor is “the reasonableness of precautions to prevent inadvertent disclosures.”  Harleysville’s failure to take any reasonable security precautions doomed its argument from the start.

Work Product Protection.  Work Product Protection in this matter was governed by federal law.  The Harleysville Court built its analysis on the Fourth Circuit’s recognition “that the inadvertent disclosure of attorney work product, even opinion work product, can result in a waiver of its protected status.”  This guidance is tempered by additional appellate authority that holds that a waiver should occur only when an attorney’s or client’s actions are “consistent with a conscious disregard of the advantage that is otherwise protected by the work product rule.”

FRE 502(b) would protect an “inadvertent” disclosure.  But the magistrate judge reasoned the disclosure here could not be inadvertent because the investigator clearly intended to transfer the video file to Box.com.  The Court also looked to Rule 502(b)(2), which provides that the disclosure is not a waiver if the holder of the protection “took reasonable to prevent disclosure.”  Again, Harleysville was in a bad place because it failed to take any steps.

The magistrate judge was obviously troubled not only by the transfer of the video file to Box.com without any security precautions, but also by the client leaving the unprotected file on the Internet site for at least six months.  The conclusion followed that this carelessness waived the Work Product Protection.

  1. Sanctions Imposed against Defense Counsel

In the introduction to this Blog post, we noted that both sides were scolded by the Court.  The investigator’s email that included the hyperlink also included a Confidentiality Notice.  This Notice coupled with the obvious significance of the video file was sufficient for the Court to conclude that the defense counsel should not have downloaded and studied the file. The Court wrote, “by using the hyperlink contained in the email also containing the Confidentiality Notice to access the Box Site, defense counsel should have realized that the Box Site might contain privileged or protected information.”

Harleysville argued that the appropriate sanction should be the disqualification of defense counsel. The magistrate judge agreed that there was an ethical stumble, but concluded that the disqualification was an unnecessarily severe sanction. She did, however, order that defense counsel should bear the parties’ costs in obtaining the Court’s ruling on the matter.

  1. Summary and Conclusions

The immediate instruction from the Harleysville magistrate judge’s ruling is that if a party chooses to use a new technology, it will be held responsible for ensuring that its employees and agents understand how the technology works, and, more importantly, whether the technology allows unwanted access by others to its confidential information.   The Box.com facts present a straightforward set of facts—the basic security features of Box.com would, if utilized, have blocked access to the video file.

The case sets the stage for a broader set of responsibilities associated with newer and more sophisticated security technologies.  For example, now that encryption technologies are readily available, should a disclosure that would have been blocked by the use of even simple encryption be deemed a waiver of privileges?   In Harleysville, the Box.com tools were present but not utilized.  In the encryption example, the tools can be acquired and then used, but as of today are probably not widely installed.  But this could change overnight when courts understand that Microsoft has added encryption options to Outlook.   The Harleysville reasoning likely will make it a requirement, not just a recommendation, that lawyers employ encryption for potentially privileged or protected communications.

H/T to Sharon Nelson and the VSB 2017 TechShow for flagging the significance of the Harleysville Ins. Co. v. Holding Funeral Home, Inc. ruling.

President Trump’s Immigration Executive Order Heads to the Fourth Circuit

The Trump Administration issued its replacement Immigration Executive Order on March 6, 2017 (Order No. 13,780).  This Executive Order arrived three weeks after several federal courts, including the EDVa and the Ninth Circuit, enjoined enforcement of core terms of the earlier Immigration Executive Order (Order No. 13,769).

In this Blog Post, we report on two federal court rulings blocking enforcement of the replacement Immigration Executive Order. EDVa has not yet been drawn into this legal battle.  But it is emerging that Judge Brinkema’s analysis in her widely-reported February 13, 2017 decision in Aziz v. Trump provides the template for judicial review of the new Executive Order.  This Post revisits Judge Brinkema’s decision and shows how the decisions this week from federal courts in Hawaii and in Maryland have tracked her analysis.  This analysis will soon be scrutinized in the Fourth Circuit, as, the Government noticed its appeal late on Friday night (March 17).

We previously reported on Judge Brinkema’s ruling in Aziz v. Trump granting the Commonwealth of Virginia’s Motion for a Preliminary Injunction.  Judge Brinkema ruled that Virginia would likely prevail on its Establishment Clause claim and issued a narrowly-drafted Preliminary Injunction Order.  No appeal was taken by the Government.

The Aziz v. Trump decision is significant not so much for developments in Immigration Law (although it has significance consequences), but for the three-step analysis applied by Judge Brinkema: (1) It was first decided that Virginia had standing to challenge the Executive Order as a party whose own interests were at stake (the Court did not reach a decision on Virginia’s parens patriae standing theory); (2) her opinion then confirms that federal courts unquestionably have the authority to review the constitutionality of actions by the Executive Branch, including actions of the President; (3) and lastly, perhaps most importantly, a federal court does not have to accept the facial justifications offered for Executive Branch action, but may consider evidence of contrary, unconstitutional motives.

The Replacement Immigration Executive Order

The Administration’s replacement Immigration Executive Order is identically entitled “Protecting the Nation from Foreign Terrorist Injury into the United States.”  The Order seeks to restrict the entry of foreign nationals from specified countries and suspends entrance from the United States refugee program for a set time period.   The new Order seeks to address the Ninth Circuit’s February 9, 2017 decision in Washington v. Trump, and to some degree to answer concerns from Judge Brinkema’s February 13, 2107 Aziz v. Trump decision.

Some of the more obvious flaws and procedural frailties from the earlier Immigration Executive Order are either omitted or repaired, but the core of the order remains essentially unchanged.  That is, the so-called “travel ban” provisions remain in the Order.

The Hawaii Court’s Ruling and “Pretextual Justification”

The legal arguments have shifted slightly in the challenges to the new Immigration Executive Order. In the February challenges to the first Order, the Government argued that the President’s actions in the realm of national security could not be reviewed by a federal court. When Judge Brinkema and the Ninth Circuit forcefully batted down this argument, the Government was left without any factual defense.  Recall that Judge Brinkema’s opinion cited Virginia’s factual allegations showing evidence that the Order’s true purpose was to block Muslim entry into the United States.  The evidence included multiple quotes from Donald Trump on the campaign trail, and added quotations from Rudy Giuliani alleging that the purpose of Order was to make good on the so-called “Muslim Ban” campaign promises.

In wading into the Pretextual Justification issue, Judge Derrick K. Watson, from the Hawaii District Court, begins with an acknowledgment that “It is undisputed that the [new] Executive Order does not facially discriminate for or against any particular religion, or for or against religion versus non-religion.”  The Government argued that the core language was “religiously neutral,” and that the new Immigration Executive Order could not have been religiously motivated because “the six countries represent only a small fraction of the world’s 50 Muslim-majority nations, and are home to less than 9% of the global Muslim population . . . .”  The Government continued that “[C]ourts may not ‘look behind the exercise of [Executive] discretion’ taken ‘on the basis of a facially legitimate and bona fide reason.’”  In the Government’s analysis, this should have ended the case and defeated Hawaii’s arguments.

But the Hawaii federal judge did not stop with the Government’s argument.  He cited the Ninth Circuit’s February 9, 2017 decision regarding the earlier Immigration Executive Order in Washington v. Trump:  “It is well-established that evidence of purpose beyond the face of the challenged law may be considered in evaluating Establishment and Equal Protection Clause claims.”  This is the entry of the “Pretextual Justification” issue: Were the Trump Administration’s facially-neutral legal justifications intended to obscure a purpose of barring Muslim immigrants?

The allegations of anti-Muslim animus—taken in substantial part from the record in Aziz v. Trump—was obviously not going away.  Judge Watkins continued, “Any reasonable, objective observer would conclude, as does the Court for purposes of the instant motion for TRO, that the stated secular purpose of the Executive Order is, at the very least, ‘secondary to a religious objective’ of temporarily suspending the entry of Muslims.”

The evidentiary record before Judge Watson included more than the Trump campaign statements and promises, and more than the Giuliani commentary on a “Muslim ban.”  The judge had before him the earlier Declaration National Security Officers that criticized the Trump Administration’s arguments.   In the view of Judge Watson, the Administration’s case was further damaged a by February 21, 2017 statement by Stephen Miller, the President’s Senior Advisor.  Miller stated, “fundamentally, [despite ‘technical’ revisions meant to address the Ninth Circuit’s concerns in Washington v. Trump,] you are still going to have the same basic policy outcome [as the first].”

The Hawaii District Court found that the plaintiffs would likely prevail on their Establishment Clause claim.   Late on March 15, 2017, Judge Watson entered a nationwide TRO enjoining enforcement of Sections 2 and 6 of the new Immigration Executive Order.  Section 2(c) is the “travel ban” part of the Order, and Section 6 suspends the refugee program.

Maryland Federal Court Frames Issue as “Pretextual Justification”

Meanwhile, in the Maryland District Court, Judge Theodore D. Chuang authored a 43-page opinion in International Refugee Assistance Project v. Trump.  Judge Chuang released his decision on March 16, 2017, along with a nationwide preliminary injunction enjoining enforcement of Section 2(c) of the new Executive Order. Unlike the earlier cases involving the first Immigration Executive Order where the lead plaintiffs were the states, the plaintiffs in the Maryland action are nonprofit entities and several individuals. The Maryland District Court, however, had no difficulty finding that these plaintiffs have standing.

As in the Hawaii ruling, the Maryland plaintiffs prevailed on the Establishment Clause claim, the greatest vulnerability for the Immigration Executive Order.  The Court considered in some detail claims based on the Immigration and Nationality Act, but rejected those claims.  The Court also weighed and credited a number of the Government’s arguments. For example, the President’s assertions that the Order is driven by national security and foreign policy judgments is in the opinion recognized as a valid secular purpose.

Judge Chuang, citing Supreme Court precedent, framed the critical issue this way: “The question, however, is not simply whether the Government has identified a secular purpose for the travel band.  If the stated secular purpose is secondary to the religious purpose, the Establishment Clause would be violated.”  Here the Government’s argument that the case is only about a “facially legitimate and bona fide reason” for the Executive Branch action is rejected   The judge concludes that “in this highly unique case, the record provides strong indication that the national security purpose is not the primary purpose for the travel ban.”

Where Do We Go From Here?  To the Fourth Circuit.

The Government has now picked its battleground.   Late on Friday, March 17, 2017, the Government noticed its appeal of the Maryland District Court ruling to the Fourth Circuit.  While Judge Brinkema’s ruling will not formally reach the Fourth Circuit, her reasoning will be examined on appeal when the Circuit Court reviews Judge Chuang’s decision.

Under the current Briefing Order, the Government’s Opening Brief will be due on April 26, 2017 in the Fourth Circuit.  Unlike in last month’s Ninth Circuit consideration in the Washington case where the Government sought emergency review of the TRO, the Government is not seeking an emergency review of the Maryland District Court’s preliminary injunction ruling.  After the Government’s rough experience in the Ninth Circuit, it was probably an easy decision to go to Richmond rather than San Francisco.

Week 2 in the EDVA Drama Over the Immigration Executive Order: An Update on the Charged Immigration Issues Brewing in Judge Brinkema’s Court

While national media attention has focused on tonight’s hearing before the Ninth Circuit regarding President Trump’s immigration Executive Order, there are still proceedings in the Eastern District that could become center stage.  This Blog post is the second post tracking the legal events in the EDVA case of Aziz at al. v. Trump, the challenge to the January 27th Immigration Executive OrderLast week’s post covered the sprint from the January 28th initial Habeas Corpus Petition filing to the first courtroom confrontation on Friday morning, February 3, 2017.  This week, the focus shifts to the Commonwealth of Virginia’s Motion for a Preliminary Injunction aimed at Section 3(c) of the Executive Order, but also with an eye on parallel proceedings in the Seattle federal court and the Ninth Circuit.

Friday’s Orders in EDVA, Seattle, and the Ninth Circuit

Before the close of business on Friday, February 3, 2017, Judge Brinkema released her Order and Memorandum Opinion covering the issues argued that morning in Aziz v. Trump, Case No. 1:17cv116—LMB/TCBThe Order and Opinion continued her earlier Temporary Restraining Order (TRO) to Friday, February 10th, and set the stage for the Court’s consideration of the Commonwealth of Virginia’s Motion for a Preliminary Injunction aimed at Section 3(c) of the Executive Order.

Meanwhile, 2,500 miles away in the Seattle federal court and before the Ninth Circuit, a broader set of issues advanced.  The Seattle judge, in Washington v. Trump, 2:17cv141, issued a TRO that barred enforcement of both Section 3(c) and most of Section 5 of the Executive Order.

The Government sought emergency relief from the TRO in the Ninth Circuit Court of Appeals.  On Saturday, February 4th, the appellate court denied the Government’s request for emergency relief, but ordered the parties to file briefs on Sunday evening and on Monday.  After the expedited briefing, the Ninth Circuit scheduled a telephonic hearing for later this evening (Feb. 7th) on the Government’s Motion for a Stay of the underlying TRO.  A ruling is expected shortly, most likely within a few days.

The Immigration Executive Order

An Executive Order is technically not legislation but instead a presidential directive to executive agencies as to how to enforce certain laws.  The core of the January 27th Immigration Executive Order: (1) calls for a review by Homeland Security (in consultation with the Department of State and the Director of National Intelligence) of the U.S. visa-issuance procedures, (2) in Section 3(c), puts a 90-day ban on entry (with limited exceptions) on individuals from seven Muslim-majority countries (the ban on persons from Syria is indefinite), and (3) in Section 5, suspends for 120 days the U.S. Refugee Admissions Program.  (An added provision appearing immediately after the travel ban calls for the government to develop a “uniform screening standard and procedure” for all individuals seeking to enter the United States.  Applied literally, this appears to require all visitors to go through the same screening measures, regardless of where they come from or how long they intend to stay.  This added provision is not the subject of either the EDVa or Seattle proceedings.)

Section 3(c) is the lightning rod for the current Aziz v. Trump litigation.

EDVA Proceedings and Posture

Judge Brinkema’s February 3rd Orders granted Virginia’s Motion to Intervene.  The Court also permitted intervention by a second set of individual plaintiffs.  The judge continued her Saturday Night TRO to February, February 10th.  Under FRCP Rule 65(b)(2), a TRO’s duration cannot exceed 14 days.  Thus, Judge Brinkema will hear argument on Virginia’s Preliminary Injunction Motion on February 10th.

Virginia’s brief targets Section 3(c) of the Executive Order.  The Commonwealth filed its Complaint on February 3rd.  Its Preliminary Injunction Motion and brief were filed the day before.  The Government’s brief is due early this week.

Virginia’s argument is first that Section 3(c) is too broad.  As written, the section bars visa and Green Card holders from seven Muslim-majority countries from entry into the U.S. for 90 days.  The Virginia brief cites U.S. Supreme Court authority holding that Green Card holders have due process rights, and the Executive Order strips them of their rights without an available process.  The Virginia argument extends these rights to certain visa holders as well.

The second argument contends that the Executive Order was “motivated by animus towards Muslims.”  The brief argues that the directives are presumptively unconstitutional and should be held to strict scrutiny.

The expected Government response will track arguments in the Government’s Ninth Circuit brief described below.

Seattle Federal Court and the Ninth Circuit

As has been widely-reported in the national press, on February 3rd, a Seattle federal judge granted a TRO sought by the States of Washington and Minnesota.  His TRO is much broader than Judge Brinkema’s Order—the Seattle TRO bars enforcement of Section 3(c) and most of Section 5 of the Executive Order.   Additionally, the Seattle TRO is granted “on a nationwide basis” while Judge Brinkema’s current Order is narrowly written.  The parties in the Seattle matter were directed to submit no later than the end of February 6th a briefing schedule.  In an email from the Washington Solicitor General to the Department of Justice counsel, Washington State proposes that the Preliminary Injunction briefs be due on February 9, 15, and 17 in the Seattle district court.

Meanwhile, the Government sought from the Ninth Circuit an immediate stay of the Seattle TRO.   On Saturday, February 4th, a two-judge panel denied the emergency motion.  The Court ordered Washington and Minnesota to file briefs by 11:59 p.m. PST on Sunday night.  The states filed.  The Government’s Reply came in right at the 3 p.m. PST deadline.

The Washington/Minnesota Brief in Opposition to the Motion for a Stay includes a supporting declaration signed by former members of the Obama Administration, including Madeline Albright, John Kerry, Michael Hayden, Janet Napolitano, Leon Panetta, and Susan Rice that makes, among other things, a policy argument.   The affidavit concludes by alleging that “the Executive Order does not further—but instead harms—sound national security and foreign policy.”

The Government’s response argues from the start that “the Executive Order is a lawful exercise of the President’s authority over the entry of aliens into the United States and the admission of refugees.”  The response also attacks the Seattle TRO as “vastly overbroad.”

If the Ninth Circuit denies the Government’s Motion for a Stay, then a route to the U.S. Supreme Court theoretically opens.  But the more likely result is that the case remains at least for another ten days in the Seattle district court—the Seattle judge’s TRO lasts at most 14 days, so he should rule on the Motion for Preliminary Judgment, probably close to February 17th.  That Order could then go back to the Ninth Circuit, and then possibly to the U.S. Supreme Court.

State Department and Homeland Security Press Releases

At the same time as the legal wrangling, the State Department issued a press release stating that it had restored more than 50,000 cancelled visas and that the “provisional revocation [of visas pursuant to the Executive Order] is now lifted, and those visas are now valid for travel to the United States, if the holder is otherwise eligible.”

Similarly, Homeland Security announced via its website on February 4th that it had “suspended all actions to implement the Immigration Executive Order and will resume standard inspections of travelers as it did prior to the signing of the travel ban.”  But the press release added that the Justice Department will continue to defend the Executive Order.

The Preliminary Injunction Hearing on Friday, February 10th

Assuming that the Ninth Circuit denies the Government’s Motion for a Stay, the national focus likely shifts to the EDVA proceedings because of the Preliminary Injunction hearing set for this Friday before Judge Brinkema.  This hearing comes at least one week before the issues regarding the Executive Order would likely return to the Seattle federal courtroom.

Unless the Ninth Circuit provides a comprehensive opinion in response to the Motion to Stay the Seattle TRO, a ruling and opinion from Judge Brinkema will be the first substantive ruling on provisions of the Executive Order.  We might then expect the Government to take the issue immediately to the Fourth Circuit.

Thus, it is very possible that the national spotlight will suddenly shift to Alexandria after tonight’s telephone hearing before the Ninth Circuit.  If you are a practitioner appearing in federal court in Alexandria for Friday motions, be prepared for a heavy police presence, protesters, and a long line at security.

Proportionality Redux: The Sedona Conference Revisits its Commentary on Proportionality in Electronic Discovery

When Working Group 1 of The Sedona Conference (Sedona) publishes one of its eDiscovery White Papers, the consequence is often that Sedona steers the development of the law rather than merely reports on developments.  This observation is intended as a compliment, not a criticism. Sedona’s publications have guided the development of eDiscovery law since publication in 2003 of The Sedona Principles; Best Practices, Recommendations & Principles for Addressing Electronic Document Production, and have earned recognition as the gold standard for both the practical and scholarly discussion of eDiscovery issues.

In November 2016, Sedona released its Public Comment Version  of its Commentary on Proportionality in Electronic Discovery (“2016 Commentary”).  This version follows Sedona’s 2010 and 2013 Commentaries on Proportionality and its Fall 2015 publication in The Sedona Conference Journal of Judge Craig B. Shaffer’s scholarly article, “The ‘Burdens’ of Applying Proportionality” (also available for download from Sedona’s website).

This Blog post is not a critique or even a summary of the 2016 Commentary, but serves as a signpost directing litigators to Sedona’s website and the White Paper with the suggestion that the work be a resource for every federal litigator.

The December 2015 Rules Amendments: Key Rules Completely Revamped

The 2016 Commentary reminds us that “Rules 26 (b)(1) and 37(e) were completely revamped in December 2015.”  The amendments are the product of at least five years of  committee work and the most extensive public debate over any rules amendment going back to and probably including the Federal Rules of Civil Procedure introduction in 1938.

For federal court litigators on the front lines, these amendments should carry enormous, almost religious significance.  Chief Justice John Roberts emphasized in his 2015 Year-End Report on the Federal Judiciary that these developments were indeed a “Big Deal.”   See Kurz, J, “The Chief Justice and the Big Deal in the December 2015 Amendments to the Federal Civil Rules,” EDVA Update Blog (February 8, 2016).

The Chief Justice wrote that amended Rule 26(b)(1) “crystallizes the concept of reasonable limits on discovery through increased reliance on the common-sense concept of proportionality.”   Before the amendment, the boundary for the scope of discovery was relevancy.  While for at least three decades federal courts had wrestled with various proportionality considerations embedded in the discovery section of the Federal Rules, the consensus is that proportionality had gained little or no traction for the day-to-day practice of law.  Each time we checked, proportionality slipped deeper into the forgotten fine print of rule subsections and subparts.  With the December 2015 amendment, the discovery scope boundaries are revised to matters “relevant to any party’s claim or defense and proportional to the needs of the case . . .” (emphasis added).  The amended rule then identifies six consideration points.  Proportionality thus moved from the proverbial rule sub-basement (Rule 26(b)(2)(iii)) to the front foyer.

The rule-makers opted in Rule 26(b)(1) not only to elevate proportionality as a discovery touchstone along with relevancy, but seemingly weighted them equally.  This amendment was then paired with the total revision of Rule 37(e), the rule that provides directions for data preservation and spoliation sanctions.   For our coverage of the Rule 37(e) amendment, see Kurz and Mauler, “Proposed Rule 37(e) Cleared by the U.S. Judicial Conference,” EDVA Update Blog (September 29, 2014).  Under these combined rules, a proponent of discovery should now be prepared to defend both the relevancy and the proportionality of requested discovery. Additionally, when conducting a post hoc analysis of preservation decisions, the reasonableness of the preservation should depend in part on proportionality considerations.

Sedona’s 2016 Commentary on Proportionality in Electronic Discovery

The intervening development between the earlier Commentaries and Judge Shaffer’s work and now the 2016 Commentary is the arrival of the December 2015 amendments to Rule 26(b)(1) and Rule 37(e).

The 2016 Commentary revises only slightly the previously published Sedona Principles of Proportionality.  These principles first appeared in the 2010 Commentary. The discussion under each principle is now considerably more robust than in the prior versions. Of course, this is the expected result now that we have the amended rules, the Committee Notes, and nearly a year of case law applying the amended rules.

Some commentators have observed that many practitioners, and even some federal courts, have continued seemingly oblivious to the December 2015 amendments.  This was expected—as we all know, court procedural rules can be mind-numbing, and it will reasonably  take several years for amendments, even highly consequential amendments, to achieve broad effect.  The Chief Justice’s “Big Deal” reminder in his 2015 Report was probably more an effort to accelerate what was otherwise anticipated to be slow change, and not a response to minimally-observed changes on the front lines of litigation.

Sedona’s 2016 Commentary does not admonish either the bar or the bench regarding recognition of the rules amendments.  Rather, the Commentary summarizes the rules amendments, and then works through the six Principles of Proportionality using for the first time a detailed set of 24 Comments.  With each Comment, the Commentary suggests how the new rules can and should work in practice.  For example, under Principle 1 (which addresses proportionality in preservation) in Comments 1.a and 1.b, the language is “proportionality principles may be considered in evaluating the reasonableness of prelitigation preservation efforts,” and “a post hoc analysis of a party’s preservation decisions should [be made] in light of the proportionality factors set forth in Rule 26, and the reasonableness of the preservation parties’ efforts.”  Consistent with Sedona’s practices, the Comments are supported by comprehensive footnotes.

As a second example, the same bridge from Principle to Comments and practical advice can be seen in the discussion of Principle 4 (proportionality decisions should be based on information other than speculation). Comment 4.b directs that “Discovery must be limited if producing the requested information is disproportionate to its likely benefits . . . .”  In Comment 4.c the instruction is that “courts may order sampling of the requested information to determine whether it is sufficiently important to warrant discovery.”

Making Use of Sedona’s 2016 Commentary

Sedona’s White Papers should be a part of every federal litigator’s eDiscovery toolkit.  The White Papers are the preferred starting point to understand the current state of eDiscovery law, to track recent developments, and to appreciate pending or future rules amendments.  Overall, Sedona presents balanced assessments of eDiscovery issues, and provides the best available practical guidance as well as scholarly research and analysis.

We appreciate the practical value of the 2016 Commentary.  This reflects the make-up of the team of lawyers and judges who drafted the Comments. The team members, all respected eDiscovery veterans, include front-line litigators and two federal court magistrate judges.  In many instances, they provide granular, step-by-step recommendations for implementing the Principles.  For this reasons, the Commentary may prove to be especially valuable in resolving many of the eDiscovery challenges that routinely arise in federal court litigation.

The 2016 Commentary, while currently at the Public Comment Version stage, is no exception to the continuing quality of Sedona’s White Papers.  The writers and editors have produced the best available resource on proportionality in eDiscovery, including bringing to date the developments associated with the December 2015 amendments to Rule 26(b)(1) and Rule 37(e).

Filing Deadline Changes: The Disappearance and then the Return of the 3-Day Cushion

On December 1, 2016, amendments to Fed. R. Civ. P. Rule 6(d) went into effect.  At the same time, amendments to EDVa Local Civil Rule 7(F)(1) also went into effect.  For practical purposes, the F.R.C.P amendments make ECF service good for nearly all purposes and eliminate the added 3-day cushion that applied to most response and reply filings.  The EDVa Local Rule revision adds back the otherwise lost three days.  While the overall consequence may seem insignificant, you should be alert to at least one nuance from these changes.

To appreciate the changes, we summarize below the F.R.C.P. Rule 6(d) amendment and the changes to Local Civil Rule 7(f)(1).  Then we revisit the Sprint Option provision in the standard Rule 16(b) Scheduling Order used in the Alexandria Division.  See R. Larson, “The 1-Week EDVa Discovery Sprint from Filing to Ruling in 7½ Days.”  As explained below, the combined new F.R.C.P. and Local Rule amendments provide some added coverage for the beloved Sprint Option.

FRCP Rule 6(d) Amendments — Good-bye 3-Day Cushion

In April 2016, the U.S. Supreme Court approved the F.R.C.P. Rule 6(d) amendment that removes electronic service from the modes of service under Rule 5(b) that allows an extra three days for responses.   The Rule before amendment provided:

(d) Additional Time After Certain Kinds of Service. When a party may or must act within a specified time after service and service is made under Rule 5(b)(2)(C), (D), (E), or (F), 3 days are added after the period would otherwise expire under Rule 6(a).

The workings of this Rule for the most part simply extended the motion response and reply times by three days.  For example, a motion that provided 11 days for the response in fact provided 14 days because of the 3-day cushion that was automatically added.  Now, when the services is by ECF (which is covered as electronic service under Rule 5(b)(2)(E)), the 3-day cushion vanishes.

The amended version of the Rule looks almost exactly the same except a close look shows that subpart 5(b)(2)(E) has been erased.   This now-gone segment is where Rule 5(b) allows for electronic service, which we usually translate to mean ECF service.  A quick look at Rule 5(b)(2)(E) suggests that the electronic service provisions apply only if the receiving party “consented in writing” to electronic service.   You might conclude that the changes add to a big nothing because you perhaps could refuse to consent.  You may have forgotten, however, that when you registered for ECF filing (as all EDVa practitioners are required to do) you consented to electronic service.   The EDVA Complete E-Filing Policies and Procedures Manual provides in Chapter 4 that “[b]y participating in the electronic filing process, the parties consent to the electronic service of all documents and will make available electronic mail addresses for service.”

To this point in the analysis, the F.R.C.P. Rule 6(d) amendments effectively shorten the response and reply times for most motion pleadings.

Local Civil Rule 7(F)(1) Amendment — the 3 Lost Days Return

EDVa Local Civil Rule 7 covers local Motions practice.  Subpart (F)(1) provides for filing response and reply briefs, and until the new revisions took effect set the filing dates at 11 days and three days respectively.  But with the addition of the 3-day cushion, the effective response and reply dates have been 14 days and six days.  The Local Rule subpart read (until now):

(1)  All motions, unless otherwise directed by the Court and except as noted herein below in subsection 7(F)(2), shall be accompanied by a written brief setting forth a concise statement of the facts and supporting reasons, along with a citation of the authorities upon which the movant relies. Unless otherwise directed by the Court, the opposing party shall file a responsive brief and such supporting documents as are appropriate, within eleven (11) days after service and the moving party may file a rebuttal brief within three (3) days after the service of the opposing party’s reply brief. No further briefs or written communications may be filed without first obtaining leave of Court. [Emphasis added.]

Absent modification of this Local Rule, the amendments to F.R.C.P. Rule 6(d) would result in significantly shorter response and reply times.

The EDVa amendments to Local Civil Rule 7(F)(1) substitute 14 days and three days as the new response and reply dates.  This Local Rule change was issued on extreme short notice—on November 17, 2016, only two weeks ago.  So we are essentially back where we started.  The major difference is that we have eliminated a provision appropriate to the time when nearly all pleadings traveled by snail mail.

When practicing in other Districts, be sure to check the Local Rules to see whether the EDVa changes have been adopted in the other District.   Failure to check could potentially result in painful consequences.

The Sprint Option and the Alexandria Division’s Rule 16(b) Scheduling Order

The give/take changes described above are not entirely neutral.  One difference is that the combined new F.R.C.P. and Local Rule amendments provide added coverage for the Sprint Option.

What we refer to as the “Sprint Option” is a creature of the standard Alexandria Division Rule 16(b) Scheduling Order, and it is not a Local Rules provision.   The standard Scheduling Order issued by the Alexandria magistrate judges includes this language:

In order to provide for the prompt resolution of non-dispositive matters, a non-dispositive motion may be filed and served by no later than 5:00 p.m. on a Friday and noticed for a hearing at 10:00 a.m. on the following Friday. Under this expedited schedule, a response must be filed and served by no later than 5:00 p.m. the Wednesday before the hearing and any reply should be filed and served as early as possible on Thursday to give the Court time to review all pleadings before the hearing. At the moving party’s discretion, a non-dispositive motion may also be filed and noticed for a hearing in accordance with the briefing schedule provided in Local Civil 7(F)(1) discussed above in order to provide additional time for briefing and consideration by the Court. [emphasis added]

In short, file and serve by 5 PM on Friday, and you can be before the Court the next Friday morning.

This is a key provision that greatly disturbs lawyers from other districts, but also one that keep the Rocket Docket roaring forward.  The 3-day cushion, however, had the potential to disrupt this process.  To stay on the Sprint Option track, a party had to avoid the 3-day cushion in prior F.R.C.P. Rule 6(d).  This required service of the pleading by “handing it to the person” to be served, or by leaving the pleading at the person’s home or office.   For practice in the Alexandria Division, this was a major impediment if the opposing counsel (or local counsel) was anywhere outside of Alexandria.

The above-describe challenge goes away with the combined F.R.C.P. Rule 6(d) and EDVa Local Rule 7(F)(1) amendments.  ECF service by 5:00 PM on Friday (with the NEF returned—service time is when the NEF issues, and not when you hit the last ECF button) suffices, and the Sprint Option is now more widely available without concerns about the in person service and the 3-day cushion.  The same applies to the Sprint Option responses and replies—ECF filing is adequate service without adding the 3-day cushion.

Is there a New Cap on Recoverable Attorney Rates in EDVA?

There is yet further disagreement among the judges of the Eastern District regarding reasonable attorney hourly rates.  As we noted in a previous EDVA Update here, this disagreement is manifesting itself most frequently in the Alexandria Division, as judges there confront (and push back against) the higher hourly rates frequently charged by larger law firms in the Northern Virginia/ DC metro area.

Today’s example of the disagreement comes in the recent case of Integrated Direct Marketing, LLC v. Drew May, et al., 1:14-cv-1183, 2016 WL 3582065 (E.D. Va. June 28, 2016).  In this case, Judge Leonie M. Brinkema of the Alexandria Division of the Eastern District invited a plaintiff to file a motions for sanctions and attorney’s fees after successfully demonstrating that the defendant made materially false statements in both an affidavit and during courtroom testimony.  But after the plaintiff petitioned for over $63,000 in attorney’s fees, Judge Brinkema strongly criticized the hourly rates and record keeping of plaintiff’s counsel, and she cut the fee award down to only $17,000.

To justify their hourly rates, plaintiff (represented by attorneys from both the DC and Connecticut offices of Ogletree, Deakins, Nash, Smoak & Stewart, PC) relied upon the matrix of hourly rates approved by Judge Gerald Bruce Lee in Vienna Metro (discussed in a prior EDVA Update here).  But Judge Brinkema rejected the Vienna Metro matrix.  By doing so, she sided with Judge T.S. Ellis’s opinion in Route Triple Seven (also discussed in a prior EDVA Update here) in the ongoing dispute regarding hourly attorney rates.  Below is a summary of the experience levels of each attorney, the hourly rates sought by the plaintiff, and the rates awarded by Judge Brinkema:

Attorney’s Legal Experience

Requested Hourly Rate

Awarded Hourly Rate

30 years $ 545 $ 450
9 years $ 395 $ 350
6 years $ 335 $ 275
5 years $ 320 $ 250

To set these hourly rates, the court followed the rates determined by Judge Ellis in Route Triple Seven.  Significantly, Judge Brinkema did not rely upon any other expert witness testimony or evidence to set these hourly rates.  (And, as we saw in the Route Triple Seven case, there the court relied upon its own “experience” to determine an appropriate reasonable rate.)  These hourly rates are in sharp contrast to the $550 – $600 hourly rates approved by Judge Lee in Vienna Metro.

It is clear that a revolt against high hourly rates (or, at least, rates perceived as high) is brewing among many judges of the Alexandria Division of the Eastern District.  It also appears that a hard cap of approximately $450 – $500 for an experienced attorney’s hourly rate is forming, at least in the eyes of several judges who have rejected the Vienna Metro matrix.

E.D. Va. Whacks Attorneys’ Fees Claim: Further Split on Court Revealed

Star Scientific, Inc. is back in the legal news, but this it has nothing to do with Jonnie Williams and the McDonnell trial (Star Scientific, Inc. did not disappear, but instead changed its name to Rock Creek Pharmaceuticals).  In August 2016, Judge Anthony Trenga ruled on Plaintiffs’ Motion for an Award of Attorneys’ Fees in In re Star Scientific, Inc. Derivative Litigation, Case No. 1:13-cv-0550 (AJT/JFA).  Plaintiffs’ counsel asserted that their fees exceeded $1.6 million, but petitioned for $975,000.  Judge Trenga, however, awarded only $488,062.

The ruling is significant not because of the outcome as to total fees awarded, but because of two points:  (1) Judge Trenga’s clear analysis applying McAfee v. Boczar, 728 F.3 81, 88 (4th Cir. 2013), and (2) his finding that reasonable attorney’s fees in this district are $400/hour for partners, $200/hour for associates, and $100/hour for paralegals.  These rates are far below the rates approved multiple times by this Court under the Vienna Metro matrix standard, and they represent further divide among the judges of the Eastern District regarding reasonable hourly rates.

Derivative Action Claims

In re Star Scientific involved several derivative actions filed in both state and federal courts on behalf of the shareholders of Star Scientific, Inc.  The primary claims in the litigation were that the Board of Directors breached their fiduciary duties and also violated section 14 (A) of the Securities Exchange Act. The combined cases arrived in Judge Trenga’s court.  The claims eventually settled, and part of the settlement agreement was that plaintiffs’ lead counsel would apply to the Court for award of fees and expenses with respect to both the federal and state actions.

The Court approved the settlement in accord with Fed. R. Civ. P. 23.1 and took the Fee Application under advisement.  Judge Trenga then directed the parties to mediate the issue of fees before Magistrate Judge Anderson, but that mediation was unsuccessful.

Analytical Framework

The district court applied the three–step procedure for determining the proper award of attorney’s fees in the Fourth Circuit as set forth in McAfee v. Boczar.  Under McAfee, a court first determines the lodestar figure by multiplying the number of reasonable hours expended times a reasonable rate. To ascertain reasonable hours and rates under this analysis, a court applies the 12 factors set forth in Johnson v. Georgia Highway Express Inc., 480 F.2d  714, 717-19 (5th Cir. 1974).   The second step is to subtract fees for time spent on unsuccessful claims unrelated to the successful ones.   And third, the Court then awards some percentage of the remaining amount depending upon the degree of success enjoyed by the plaintiff.

Reasonable rates

In In re Star Scientific, plaintiffs’ counsel submitted hourly attorney rates ranging from $775/hour down to $275/hour.  Using the time records and applying these rates, the total fees added up to $1,672,000.  On their own, counsel slashed this sum down to $975,000.  Judge Trenga then determined that the reasonable rates in the Eastern District are $400/hour for partners, $200/hour for associates, and $100/hour for paralegals.  Applying these rates to the claimed hours yields a total of $976,125.

Billable hours – Total Work and 50% Reduction

The District Court seemed frustrated by the lack of specificity in the billing records: “[T]he Court is unable to assess with any accuracy the number of hours reasonably and effectively devoted to legal work.”  The court opted for a 50% reduction in the hours claimed, which resulted in a total fee award of $488,062 (half of the $976,125).  This 50% figure appears to be a combination of the court’s frustration with the billing records but also recognition of the results obtained in the nature of the litigation.

Star Scientific Rates versus Vienna Metro Rates

In June 2014, we posted on this Blog about the Vienna Metro matrix.  In the Vienna Metro v. Pulte Home Corp., Case No. 1:10-cv–0052, Judge Lee approved attorneys’ fees ranging from $250/hour to $820/hour.  In his award, Judge Lee applied a 50% across-the-board reduction to the plaintiff’s fees recovery because the plaintiff prevailed on only one of several counts in the complaint.  In the Blog post, we observed that “Judge Lee make clear that the reduction was due to limited success in the litigation and not due to the hourly rates charged by counsel.”

Now in In re Star Scientific, Judge Trenga is clear about his overall 50% reduction in the fee award, but he is also extremely clear as to what are reasonable hourly rates.  The judge could reached the same overall result using other avenues, but he chose to employ a simple fee matrix that seemingly is not tied closely to the facts of the case but instead has broad application.

The differences between the two cases as to what are reasonable hourly rates in the Eastern District are huge — the Vienna Metro rates are roughly double the rates recognized in In re Star Scientific.  After Vienna Metro and its progeny, it seems that several judges on the Eastern District are uncomfortable with the approval of comparatively high hourly rates.  Judge Trenga’s decision in In re Star Scientific will no doubt be frequently cited in future disputes over what are reasonable rates in this district.

Defend Trade Secrets Act of 2016 Delivers New Relevancy for the “Long Arm” of FRCP 4(k)(2)

In this blog post, we reach back to a 2003 Judge Ellis opinion applying FRCP Rule 4(k)(2). In Graduate Management Admission Council v. RPV Narasimha RJU d/b/a GMATPlus.com, 241 F. Supp. 2d 589 (E.D. Va. 2003) (the “GMAC Case”), the judge applied this little-known rule to rescue a complaint from dismissal for lack of in personam jurisdiction.  The decision has had little visibility, but with the recent enactment of the Defend Trade Secrets Act of 2016 (“DTSA/2016”) the rule and the Judge Ellis’s opinion have new relevancy.   Stated differently, Rule 4(k)(2), as applied by Judge Ellis thirteen years ago, potentially turbocharges DTSA/2106’s role in trade secrets litigation involving overseas defendants.

Rule 4(k)(2), the Federal Long-arm Statute

Rule 4(k)(2) is buried deep in Rule 4, which has the innocent title of “Summons.”  Rule 4(k), titled “Territorial Limits of Effective Service,” also seems easily overlooked.   Our target, subpart 4(k)(2), provides:

(2) Federal Claim Outside State-Court Jurisdiction. For a claim that arises under federal law, serving a summons or filing a waiver of service establishes personal jurisdiction over a defendant if:

     (A) the defendant is not subject to jurisdiction in any state’s courts of general jurisdiction; and

     (B) exercising jurisdiction is consistent with the United States Constitution and laws.

It’s a decent bet that most of us (except some of the patent bar), even those with decades of federal court experience, have never before encountered Rule 4(k)(2).  Since its arrival in 1993, the rule has only rarely been applied, and the limited appearances have mostly been in patent and copyright cases.

The 2003 GMAC Case

In the GMAC Case, Judge Ellis rescued a copyright infringement complaint by resorting to Rule 4(k)(2) on behalf of a plaintiff who was having difficulty establishing in personam jurisdiction using Rule 4(k)(1) and the Virginia long-arm statute.   The issue was jurisdiction over an Indian citizen who was selling copyrighted GMAT questions marketed as test preparation resources for aspiring MBA candidates.   The solicitations and sales of the test preparation materials were made over the Internet, and seemingly were not directed to any one state but at a broader United States market.  The defendant failed to answer GMAC’s complaint notwithstanding adequate service in India.

Following routine court procedures, Judge Ellis referred the case to Magistrate Sewell to prepare the R&R report.  The magistrate considered the jurisdiction claim under Rule 4(k)(1) and the Virginia-long arm statute as the complaint alleged.  The magistrate concluded that while the conduct fell within the expansive reach of the long-arm statute, the constitutional due process requirements for in personam jurisdiction were not met.

The case might have disappeared from the radar screen at that point, but Judge Ellis saved the case using Rule 4(k)(2).  GMAC’s complaint came before Judge Ellis when the plaintiff challenged the R&R report.  The judge agreed with the magistrate’s conclusions regarding the Virginia long-arm statute, but he applied retroactively Rule 4(k)(2) (the plaintiff had not alleged jurisdiction under Rule 4(k)(2)), which is often referred to as the Federal long-arm statute, to find in personam jurisdiction.   Citing authority from the 1st Circuit and the 7th Circuit, Judge Ellis explained:

Rule 4(k)(2) was added in 1993 to deal with a gap in federal personal jurisdiction law [identified in Omni Capital Int’l, Ltd v. Rudolph Wolff & Co., 484 U.S. 97 (1987)] in situations where a defendant does not reside in the United States, and lacks contacts with a single state sufficient to justify personal jurisdiction, but has enough contacts with the United States as a whole to satisfy the due process requirements.

The GMAC Case fell into the gap identified in the referenced 1987 Supreme Court decision, only to be rescued by the little-known rule.

Judge Ellis’ decision is important not just because it reminds that Rule 4(k)(2) is part of the landscape, but also for his retroactive use of the rule and how he assigned the burden of the tricky third element in the analysis under the rule.

Three-part Analysis Under Rule 4(k)(2)

When Rule 4(k)(2) comes into play, it tracks a three-part analysis taken directly from the rule’s text.  First, the rule applies the same minimum contacts due process analysis that is conducted under Rule 4(k)(1), but with the significant difference that the relevant forum is the United States as a whole, not an individual state.  The second element of the rule is that the claim arises under federal law.   In the GMAC Case, Judge Ellis cited five federal statutes, including the Copyright Act, invoked in the complaint.

The third and final element—the tricky element—requires a showing that the defendant is not subject to the jurisdiction of the courts of general jurisdiction in any particular state.  Courts have wrestled with how to assign the burden on this element.  Does the plaintiff have to prove a negative across 50 states?  Or does the burden fall to the defendant to establish that at least one state should have jurisdiction?

Judge Ellis answered the burden question—it is the defendant’s burden to identify some other forum state, and if no state is identified then Rule 4(k)(2) applies.   The defendant in the GMAC Case was in default and did not appear; Judge Ellis found that there was no evidence showing the jurisdiction was not available in any one state, and from there moved to his conclusion that Rule 4(k)(2) gave the court jurisdiction.  The judge followed a mix of the 1st Circuit’s pure burden shifting approach from United States v. Swiss American Bank, 191 F.3d 30 (1st Cir. 1999) and the 7th Circuit’s more pragmatic approach in ISI Int’l, Inc. v. Borden Ladner Gervais, LLP, 256 F.3d 548 (7th Cir. 2001) where a defendant must name a suitable forum state or concede that jurisdiction is not available in any state.   Under Judge Ellis’s logic, a defendant who has general contacts with the United States but who coyly argues that it cannot be sued in the forum state and then refuses to identify any other state where the suit could be brought faces in personam jurisdiction under Rule 4(k)(2).

The Rule 4(k)(2) case law in the years since the GMAC Case is sparse outside the patent arena.  Not surprisingly, because the cases where the rule has been applied are mostly patent and copyright matters, the Federal Circuit has spoken.    In Merial Ltd. v. Cipla Ltd, 681 F.3d 1283 (Fed. Cir. 2012), the Federal Circuit employed an analysis much like Judge Ellis’s GMAC Case opinion, and approved retroactive application of the rule.

The 4th Circuit’s consideration of Rule 4(k)(2) is not completely blank.   In the few reported cases, the court has been generally hostile to Rule 4(k)(2) argument, but has not offered much analysis.  In Base Metal Trading v. OJSC Novokuznetsky Aluminum Factory, 283 F.3d 208 (4th Cir. 2002), the Court rejected jurisdiction based on Rule 4(k)(1), and noted that there was insufficient evidence generally of contacts with the United States to support the Rule 4(k)(2) argument.   The same result for the same reason appears in Saudi v. Northrop Grumman Corp., 427 F.3d 271 (4th Cir. 2005).  More recently, in Unspam Techs., Inc. v. Chernuk, 716 F.3d 322 (4th Cir. 2013), in a case that alleged a conspiracy involving illegal prescription drugs, the appellate court rebuffed the Rule 4(k)(2) jurisdiction argument against four foreign banks that processed the associated credit card transactions.  The opinion cryptically states that jurisdiction “would not, in the circumstances here, be ‘consistent with the United States Constitution and laws.’”

The Combination of Rule 4(k)(2) and DTSA/2016

As suggested above, Rule 4(k)(2) and the GMAC case might easily have been left in the irrelevancy bin.  In copyright, patent, and trademark cases where the defendant is foreign, perhaps from India or China, the evidence often is sufficient to pinpoint one or more states, or at least to provide sufficient contacts to satisfy the due process concerns associated with suing the foreign persons or entities in the federal courts in those states.  These cases likely arise after infringing goods are being sold and/or marketed, which means that there typically is evidence which supports jurisdiction under Rule 4(k)(1) and state long-arm statutes.  In the few cases where a defendant might contest state-specific activity, Rule 4(k)(2) allows the plaintiff to hold the defendant in the proceeding.

Claims alleging trade secrets misappropriation, on the other hand, very well might present facts that confirm misappropriation, but where the facts precede any significant targeted sales and marketing by the misappropriator.   The plaintiff could be seeking at an early stage to enjoin sales, and perhaps is aiming to employ DTSA/2016’s civil seizure remedies, including the ex parte remedies.   The conduct might come within DTSA/2016’s broad “misappropriation” definition, but limited facts connecting the activity to any one state could defeat in personam jurisdiction under Rule 4(k)(1) and state long-arm statutes.

Until the DTSA/2016 enactment, trade secrets claims were governed by state laws, which meant that Rule 4(k)(2)’s application was blocked because the second element of the analysis could not be satisfied.  Under DTSA/2016, just about every trade secrets claim is now a federal claim, and the rule’s three-step analysis can now be satisfied.  This does not negate the requirement of established contacts with the United States generally, but trade secrets cases against foreign defendants now have a fortified argument to get around the earlier nemesis of the lack of in personam jurisdiction

Conclusion        

The combination of Rule 4(k)(2), as applied by Judge Ellis back in 2003 in the GMAC Case, and the enactment of DTSA/2016 potentially opens wide the doors of federal courthouses to trade secrets litigation against overseas defendants.   For litigators who represent foreign companies, there is new concern that their clients can now be forced to defend trade secrets cases in the U.S. federal courts.  And for those attorneys whose clients have reason to complain about misappropriation of their trade secrets by overseas entities, the combination of Rule 4(k)(2) and DTSA/2016 is an invitation to bring their claims here.

Is the Standard for Summary Judgment Evolving in EDVA?

Is the standard for summary judgment evolving, and has the Eastern District kept up with the evolution? 

In a July 6, 2016 decision in Guessous v. Fairview Property Investments, LLC, (Dkt. No. 15-1055), the Fourth Circuit reversed Judge Lee on all six counts in a fairly standard discrimination case.  The Court found repeatedly that the record was sufficient to permit a reasonable jury to find for the plaintiff, yet the District Court had credited the Defendant’s summary judgment evidence and granted summary judgment.  Stated differently, the appellate court reminds us that a district court’s weighing the evidence at summary judgment is impermissible.

The adjustment to the summary judgment standard traces to a May 2014 Supreme Court decision in what was a fairly routine § 1983 case.  In Tolan v. Cotton, 572 U.S. __ , 134 S.Ct. 1861 (2014), a Texas district court had granted summary judgment to a police officer deciding that his conduct in a police shooting was “objectively reasonable.”  There was evidence on both sides of the summary judgment issues; the district court weighed the evidence and came down in favor of the police officer.

The Fifth Circuit affirmed, albeit on different grounds, but three judges on that court voted in favor an en banc hearing. The case could easily have been passed over at the certiorari stage (Justice Alito, joined by Justice Scalia, wrote a concurring opinion complaining that the case was so routine that the Court should not have granted certiorari), but it seemed that several of the Supreme Court justices were looking for the opportunity to remind lower courts that a judge’s function at summary judgment is not to weigh the evidence but to determine whether there is a genuine issue for trial.”  This is the time-honored directive from Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986), but the Court’s Tolan decision suggests that justices believed that the standard needed some reinforcing.

The Fourth Circuit followed Tolan a few weeks later in McAirlaids, Inc. v. Kimberly-Clark Corp., 756 F.3d 307, 310 (4th Cir. 2014).  It then quoted from Tolan: “It is an ‘axiom that in ruling on a motion for summary judgment, [t]he evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor.’”   Not long afterwards, in March 2015, the Fourth Circuit provided “further elaboration” of the summary judgment standard in Jacobs v. N.C. Admin. Office of the Courts, 780 F.3d 562, 568 (4th Cir. 2015).  In an ominous introduction that highlighted a “clear misapprehension of summary judgment standards”, the panel of Judges Floyd, Keenan, and Harris cited Tolan:

Ordinarily we would begin our discussion with a brief restatement of the standard of review for a motion for summary judgment. When “the opinion below reflects a clear misapprehension of summary judgment standards,” however, further elaboration is warranted. Tolan v. Cotton (citations omitted) (per curiam).

Given this harsh treatment of the district court, it was no surprise that the Fourth Circuit reversed in part and remanded for trial.  The Court observed that in the Tolan case the district court had “fail[ed] to credit evidence that contradicted some of its key factual conclusions” and “improperly ‘weighed the evidence’ and resolved disputed issues in favor of the moving party.”

The Tolan and Jacobs decisions arguably provide a course correction in the summary judgment standards in cases where there is conflicting record evidence. The frequent Tolan quote is this:

Where there is conflicting evidence, the court must credit the evidence of both sides and acknowledge that there is a genuine issue of material fact that cannot be resolved by summary judgment. See Tolan v. Cotton (stating that summary judgment is inappropriate where each side has put forward competent evidence that raises a dispute about a material fact).

Westlaw identifies more than 870 case citations to Tolan.  Granted, many of the citations are for the § 1983 issues, but the case still stands tall because of the adjustments to the summary judgment standard.  Since Tolan, the above quote appears in multiple summary judgment rulings by Judge Cacheris, and in several ruling by Judge O’Grady.  Magistrate Judge Buchanan has also cited Tolan.  The Westlaw search shows, however, no other reliance either way on Tolan in the Alexandria Division of the Eastern District.

Sometimes district courts cite only the controlling circuit court decision without mentioning the Supreme Court case. The leading Fourth Circuit authority is the Jacobs decision.  Westlaw confirms that Jacobs has been cited in 136 cases, with most of these from within the circuit; there are more than 70 citations from the Maryland District Court, but only four from the Eastern District of Virginia, and just one of those four is from the Alexandria Division.

The Fourth Circuit’s Guessous decision relies on both Tolan and JacobsThe Court writes:

The court must “view the evidence in the light most favorable to the [nonmoving] party.”  Tolan v. Cotton, 134 S. Ct. 1861, 1866 (2014) (internal quotation omitted).   “The court . . . cannot weigh the evidence or make credibility determinations.” Jacobs v. N.C. Admin. Office of the Courts, 780 F.3d 562, 568-69 (4th Cir. 2015).  In general, if “an issue as to a material fact cannot be resolved without observation of the demeanor of witnesses in order to evaluate their credibility, summary judgment is not appropriate.” Fed. R. Civ. P. 56 advisory committee’s note to 1963 amendment.

Guessous at 16-17.  It is after these pointed citations that the Court launches into its “reasonable jury” analysis.   “A reasonable jury could easily conclude, however . . .”       Id. at 22. “This alone would be enough to allow a reasonable jury to conclude. . .”   Id. at 23.  “[T]he record is sufficient to permit a reasonable jury to conclude . . .” Id. at 28.  “[A] reasonable jury would certainly be entitled to reach a different conclusion . . .”   Id. at 30.  The Court’s unanimous decision reversed and remanded on all six counts.

Because so much of the Eastern District’s civil docket encounters summary judgment, Tolan and Jacobs are important precedents.  Other districts within the circuit, mostly notably the District of Maryland, seem to have recognized the course adjustment.  The Guessous decision perhaps is a wake-up call to the rest of the circuit, including the Eastern District of Virginia, to recognize the appellate direction for a tighter summary judgment standard.

EDVA Weighs in on Circuit Split on Equal Pay Act Exceptions

In a 53-page opinion, Judge Robert E. Payne of the Richmond Division made new law in the Eastern District by adopting an Eighth Circuit framework to analyze claims under the federal Equal Pay Act brought by employees of state government agencies.  In doing so, Judge Payne differed with a previous Eastern District case and staked out a new position in an absence of Fourth Circuit precedent.

In Reardon v. Herring, 3:16-cv-34, 2016 WL 3181138 (E.D. Va. June 3, 2016), Plaintiff Ann Marie Reardon sued her former employer, Virginia Attorney General Mark R. Herring, claiming that she was paid less than other male attorneys in the Office of the Attorney General (“OAG”).  During her time in the OAG, Reardon was classified as an Assistant Attorney General – Level III (“AAG III”), a category that typically includes attorneys who have been admitted to the bar for 10 to 15 years.  Reardon’s starting salary in 2010 as an AAG III was $62,000, and her salary rose to $65,280 when she was terminated from the OAG in 2014.  (According to the opinion, the OAG has since raised salaries for the AAG III position to a range of $90,800 to $136,200, as of 2015.)

Jurisdiction vs. Factual Dispute

In response to Reardon’s Complaint, Herring filed a Fed. R. Civ. P. 12(b) motion to dismiss, arguing several grounds.  Judge Payne first dealt with Herring’s argument under Rule 12(b)(1) that the court lacked subject matter jurisdiction over Reardon’s claim.  Herring argued that Reardon was an appointee “on the policy-making level” and therefore not an “employee” within the meaning of the Equal Pay Act (the Act exempts several categories of high-ranking government employment levels).  Judge Payne rejected this argument and held that the proper classification of Reardon’s employment status was a “substantive issue, rather than a jurisdictional one.”  Thus, it was a factual matter that needed to be determined at trial, not a jurisdictional issue that had to be determined at the outset of the case.

Circuit Split

Judge Payne then turned to the bulk of Herring’s motion to dismiss under Rule 12(b)(6), which mirrored the 12(b)(1) argument and asserted that the factual allegations in Reardon’s Complaint demonstrated that she was exempt from the Act as a high-ranking “policymaking” employee.  Judge Payne reviewed the text and legislative history of the relevant section of the Act, and then covered the “rather significant circuit split [among the Second, Seventh, and Eighth Circuit Courts of Appeals] respecting the appropriate standard for determining whether an appointee serves ‘on the policymaking level.’”

The judge’s opinion discussed perceived problems with the Second and Seventh Circuits’ analytical framework, ultimately adopting an “intermediate approach” from the Eighth Circuit (by doing so, Judge Payne broke with a previous decision by Judge Gibney out of the Richmond Division that went with the Seventh Circuit’s approach).  Judge Payne said that the Eighth Circuit’s approach struck the “best balance between the protection of employees from [wage] discrimination, and the protection of a state’s—and its people’s—ability to independently govern itself” and was “consistent with the ordinary meaning of the statutory text.”

Eighth Circuit Test

The Eighth Circuit’s framework uses a “non-exhaustive list of factors” to determine whether an appointee is on the policymaking level.  Judge Payne’s opinion expressly mentions three factors:

  1. Whether the appointee has discretionary, rather than solely administrative powers,
  2. Whether the appointee serves at the pleasure of the appointing authority, and
  3. Whether the appointee formulates policy.

Judge Payne applied the Eighth Circuit test to Herring’s 12(b)(6) argument and concluded that Reardon’s factual allegations did not “plead her out of court” by lodging her within the “policymaking” exception.  Rather, Judge Payne referred to the AAG III position as a “line attorney” position that had little policymaking power or discretion.  Inferring the allegations in the Complaint in Reardon’s favor, Judge Payne held that they did not demonstrate that she was exempt from the Equal Pay Act, and that a final determination of that issue would be made by the jury at trial.

Twombly/Iqball Analysis

In addition to adopting the Eighth Circuit’s test, Judge Payne’s opinion is noteworthy for his treatment of the level of specificity of the plaintiff’s factual allegations.  Herring argued that Reardon’s factual allegations were too vague and conclusory to survive under a Twombly/Iqball analysis.  In her Complaint, Reardon alleged that she was paid less than other similarly-situated male attorneys, that she had comparable work experience, received identical classification, and performed substantially-similar work.  Judge Payne held that this level of specificity was sufficient to survive an early 12(b)(6) motion to dismiss, citing several other Virginia cases with similar allegations that proceeded to discovery.

Conclusion

Judge Payne’s recent decision in Reardon will likely not be the end of the case.  Discovery is scheduled to proceed, and unless the parties settle, the Fourth Circuit is likely to weigh in on the case next year (potentially enlarging the current circuit split).  In addition to making new law in the Eastern District by adopting the Eighth Circuit’s test, the opinion is also notable for the (low) level of specificity of the plaintiff’s factual allegations.  Not only can the employment law plaintiffs’ bar use this precedent to survive 12(b)(6) challenges, but the precedential value likely can be used by other plaintiffs in non-employment cases facing similar motions to dismiss.

 

BlogMaster Note:  H/T to EDVAUpdate subscriber Mike Roberts for identifying this case.