Tag Archives: e-discovery

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.

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).

Before Receiving Spoliation Sanctions, a Party Must Demonstrate Prejudice

In a recent decision, Magistrate Judge Ivan D. Davis of the U.S. District Court for the Eastern District of Virginia denied a spoliation motion aimed at a corporate defendant using a new formulation of necessary legal elements.  In Professional Massage Training Center, Inc. v. Accreditation Alliance of Career Schools and Colleges, 1:12-cv-00911, the plaintiff argued that a telephone call from the plaintiff’s lawyer nine months prior to the filing of the Complaint triggered the defendant’s duty to suspend its regular document retention policy and institute a litigation hold.  After a full-day evidentiary hearing, including expert witness testimony, Judge Davis rejected this argument and instead noted that a mere “conditional threat of litigation” expressed over the telephone, coupled with the plaintiff’s failure to send a written litigation hold letter to the defendant, did not put the defendant on notice of potential litigation.

Judge Davis’s opinion is a useful reminder to practitioners:  Send a written litigation hold letter after any telephone conversation if you anticipate asserting a spoliation claim down the road.  While what is said during a telephone call can be disputed and is subject to the vagaries of memory, a written letter is definite and inexpensive.  (Of course, be careful that your own client has properly initiated its own litigation hold before you announce that “litigation is reasonably anticipated.”).

Judge Davis’s opinion is also noteworthy for his legal analysis.  In addition to finding that the defendant had no duty to initiate a litigation hold prior to receiving the complaint, Judge Davis made the alternate finding that the plaintiff suffered no prejudice from the operation of the defendant’s document retention policy.  While the opinion does not expressly say so, it appears that Judge Davis followed the reasoning of Judge Paul Grimm, a leading e-Discovery jurist from the Federal trial bench in Maryland, and his influential opinion in Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.d. 497 (D. Md. 2010).  In that case, Judge Grimm set forth three elements necessary to warrant spoliation sanctions: 1) a triggered duty to preserve documents or evidence, 2) destruction of relevant evidence accompanied by a “culpable state of mind,” and 3) prejudice resulting to the other party.

This is a subtle yet significant extension (or perhaps modification) of the Fourth Circuit’s controlling spoliation case law, Silvestri v. Gen. Motors Corp., 271 F.3d 583 (4th Cir. 2001).  Silvestri is nearly 13 years old, and the case did not involve the destruction of electronic or digital evidence.  Further, Silvestri states that spoliation sanctions could be ordered under two alternative situations: either that the spoliator’s conduct was sufficiently egregious or the effect of the spoliator’s conduct was sufficiently prejudicial.  Contrast that with Victor Stanley where a party must show all three elements (including prejudice) to warrant an order of spoliation sanctions.  In today’s modern e-Discovery era, Victor Stanley offers better guidance for practitioners than Silvestri, and it appears that Judge Davis finds Victor Stanley persuasive and useful in the e-discovery context.

Spoliation claims against institutional or corporate defendants are becoming more frequent, especially in high-stakes, aggressive litigation.  It is easy to see why:  a successful spoliation motion that leads to an adverse inference jury instruction can be a death knell for a corporate defendant.  It is critical for plaintiff’s counsel to adequately prepare for future spoliation claims through litigation hold letters and early Rule 30(b)(6) depositions of corporate representatives.  On the flip-side, defense counsel should argue the Victor Stanley three-element requirement when defending against spoliation claims.

A copy of Judge Davis’s opinion is available here.

Disclosure:  Redmon, Peyton & Braswell, LLP served as counsel of record for Defendant Accreditation Alliance of Career Schools and Colleges in this case.

Fourth Circuit Blesses Use of Forensic Image to Examine Data

The U.S Court of Appeals for the Fourth Circuit recently approved the use of a forensic “mirror” image of a laptop computer in order to examine its contents. While such use of a forensic image is common in the e-Discovery industry, this recent case represents formal approval by one of the most significant appellate courts in the United States, and is binding precedent upon trial courts in the Eastern District of Virginia.

U.S. v. Stanley, __ Fed. Appx. __, No. 12-4572, 2013 WL 3770713 (4th Cir. July 19, 2013), was a criminal case resulting from an investigation that uncovered child pornography on the defendant’s computer. During trial, the Government presented expert testimony of a law enforcement agent who specialized in computer forensics. During voir dire examination of the agent prior to qualification, the agent testified extensively about the process she used to examine the defendant’s laptop. She testified that she used a software program called “EnCase” to make a forensic image of the defendant’s laptop. She then examined the forensic image rather than the original laptop, according to the Fourth Circuit’s opinion, so as to avoid “risking damage to the original” data.

The agent then testified that her review of the forensic image uncovered a peer-to-peer file sharing progam called FrostWire, and that this program had been used to search for, download, and share child pornography. The Fourth Circuit’s opinion accepts without further comment that the data found in the forensic image is also present on the defendant’s original laptop, and that the defendant’s guilty verdict can be amply supported by the forensic image.

During voir dire of the agent, the defense unsuccessfully attempted to exclude her as an expert witness. The Fourth Circuit affirmed the agent’s qualification as an expert, noting that the district court acted well within the “wide bounds of its discretion” under the Fed. R. Evid. 702 and the Daubert analysis. The court also recognized that the “process of forensic data extraction requires specialized knowledge or skill conducive to expert testimony.” The court then went on to review the voir dire examination of the agent, noting that it was lengthy and included several rounds of cross-examination which covered the agent’s education, training, experience, knowledge of the forensic tools, procedures utilized, as well as “detailed explanations of her use of the forensic software in this particular case.” Finally, the court noted the agent’s testimony that the “forensic tools she used to examine the contents of [the defendant’s] laptop had been accepted as reliable procedures by her law enforcement agency.” Taken in total, the Fourth Circuit found this more than sufficient to support the agent’s qualification as an expert.

Practitioners can read Stanley as the Fourth Circuit’s affirmation of the use of forensic images in data preservation. Making a forensic image of a single laptop or desktop computer is relatively inexpensive, and many e-Discovery vendors can perform the operation within a single day and for an expense between $300 – $1,000. The vendor then usually provides a copy of the image to counsel on an external hard drive. Counsel can simply connect the hard drive to a desktop computer via a USB connection, and browse through the hard drive using normal Windows system tools. Counsel need not worry about altering the metadata of the forensic image during this review because the e-Discovery vendor will maintain a “master” image which can be reproduced multiple times in the future with unaltered metadata. Considering the relatively low-expense, an early forensic image of computer data should be made if there is any suggestion that the data will become evidence in court or produced in discovery.

Please note:  This blog/Web site is made available by the firm of Redmon, Peyton & Braswell, LLP (“RPB”) solely for educational purposes to provide general information about general legal principles and not to provide specific legal advice applicable to any particular circumstance. By using this blog/Web site, you understand that there is no attorney client relationship intended or formed between you and RPB. The blog/Web site should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

FRCP Rule 45 Amendments Take Effect on December 1, 2013

On December 1, 2013, amended Rule 45 will become part of the Federal Rules of Civil Procedure. This will introduce fairly significant changes in the procedures for obtaining third-party discovery.  The biggest changes concern third-party subpoenas, both for depositions and for production of documents.

In the Rocket Docket, we often face the situation where discovery closes before a court elsewhere rules on a motion to enforce a third-party subpoena.  This can happen even when third-party subpoenas are served at the beginning of discovery.   Magistrate judges are understanding, and will likely extend discovery for the purposes of obtaining the third-party discovery, but the practical limits are still there due to the typical 9-month window between the filing of the Complaint and the trial in the Eastern District.  The Rule 45 amendments somewhat improve the situation because they permit transfer of subpoena-enforcement to the initial court by consent (barring consent, provide an opening to argue for transfer).  The Committee Note allows that “transfer may be warranted in order to avoid disrupting the issuing court’s management of the underlying litigation …” But the prospect of being caught in two different courts working on two very different timelines remains.

The Major Changes to Rule 45

There are four major changes in the soon-to-be effective Rule 45 amendments:

  1. The court where the underlying matter is pending will now be considered the court “issuing” the subpoena for deposition testimony or document production.  This is in contrast to current practice where the court sitting in the district where the person is found is considered the “issuing” court.
  2. Amended Rule 45(b)(2) provides for nationwide service of the subpoena (the same process is followed in criminal cases).  . The caveat here is that a subpoena is returnable (i.e., where the deponent or the documents are to be produced) only within the state where the recipient or documents are found (depending on the state’s rules), or within 100 miles of where the recipient lives or works.  This applies to trial subpoenas as well.  The inclusion of trial subpoenas under this provision clarifies a situation that arose in the Vioxx Litigation.  (Note that a party representative or a corporate officer might be compelled to appear at a deposition where the litigation is pending, but a trial subpoena for that same person is limited by the in-state/100-mile rule).
  3. You must serve notice to the other parties to the litigation before service of the subpoenas.  Notice must include a copy of the subpoena itself.
  4. As explained above, the amendment adding Rule 45(f) permits transfer of compliance proceedings—both protective orders and motions to compel– back to the court where the underlying matter is pending.   Objections should be made in the court where the subpoena recipient resides, and absent consent, a motion to compel must be initiated in that court as well, but then transfer is a possibility.

The rule-makers achieve their goal in simplifying third-party discovery, but from our vantage point in the Eastern District, an easier standard for transfer of enforcement proceedings to the issuing court would be preferred.  Even under the “exceptional circumstances” standard, distant courts may be inclined to send third-party discovery issues to the issuing court.

Let’s use a hypothetical to help understand how a Rule 45 Subpoena might be treated after the changes take effect:

Our Hypothetical Case: Partner Holdings, LLC v. Delta Investments, Inc. 

 Partner Holdings is embattled in a hotly contested dispute with Delta Investments in the U.S. District Court for the Western District of Texas over a bungled telecommunications deal.  Partner serves Rule 45 discovery in December 2013 on Tango 3P Communications, a Virginia LLC located in Fairfax County, Virginia.  Partner notifies Delta, and then issues the Rule 45 subpoena from the Western District of Texas, the subpoena is served on the Virginia registered agent for Tango 3P.

Assume you represent Tango 3P Communications.  As a practitioner, how do you properly quash the third-party subpoena under the amended Rule 45?

Partner’s request seeks confidential trade secrets and commercial information as well as privileged information in the form of documents within 21 days. Additionally, Partner requests documents from Tango 3P other telecommunication contracts with Delta which are unrelated to Partner’s current litigation with Delta.  Partner directs Tango 3P to deliver its responses to Partner’s law firm’s Washington, D.C. office.

Note that the requirement of notice before service does not mean that Partner would have to produce to Delta the documents produced by Tango 3P.  This still requires a Rule 34 Request for Production.

What grounds are there to quash the subpoena? Since Partner is only seeking documents from Tango 3P, the grounds available to quash the subpoena are:

  1. A failure to allow for a reasonable time to comply;
  2. The subpoena seeks privileged information, or
  3. The request is an undue burden on the recipient.

Under amended Rule 45, the proper court for a motion to quash the subpoena is the jurisdiction where the recipient is located, in this case, the Eastern District of Virginia.

This is the first filing for Tango 3P and requires Tango 3P to open a “Miscellaneous” matter with the Clerk and pay the filing fee (the current filing fee in the EDVa is $46). Tango 3P then must file the following:

  • A notice of the motion;
  • A memorandum of law;
  • Supporting affidavits;
  • A proposed order; and
  • Proof of service on the issuing party.

Timing is key. The motion should be filed prior to the return date of the subpoena or within 14 days of service, whichever is earlier.  Missing the 14-day limit is grounds for denial of the motion.

Before setting the motion for a hearing date, you must consider the local rules of the issuing court and whether those rules require the parties to meet and confer.  In Tango 3P’s case, both the Western District of Texas and the Eastern District of Virginia require parties to meet and confer in good faith before even filing the motion (and must state in their memorandum that a meet and confer actually happened).  A failure to meet and confer is grounds for the magistrate judge to deny the motion to quash.  This should come as no surprise to practitioners in the EDVa, where meaningful meet and confers are demanded by the magistrate judges, and parties are admonished (and sometimes penalized) for failing to abide by the rules.

In the hypothetical, the motion to quash is heard by the magistrate judge five days before the return date of the subpoena. The judge decides against transferring the motion to the Western District of Texas, partly because Tango 3P objects to the transfer and partly because the circumstances presented in the motion are not exceptional.

The judge agrees with your argument that Partner’s requests seek privileged and confidential communications, but disagrees with your position that the time to comply with the demand is unduly burdensome or that the additional requests made concerning Tango’s contracts with Delta is overly broad. The judge grants in part and denies in part your Motion to Quash and directs Tango 3P to comply within 30 days of the judge’s ruling.

If there are compliance issues, the EDVa court may enforce its order.  The amended Rule also permits transfer of compliance issues, and in fact encourages the involved judges to consult with each other.

Conclusion

The amendments to Rule 45, especially as they concern third-parties, simplify the subpoena process and afford more protection to third-parties attempting to quash subpoenas for production of documents or testimony. The amendments also provide more protection to non-issuing parties in discovery matters by demanding notice prior to service of the subpoena.

Take care in preparing Rule 45 subpoenas, providing the required notice, be wary of the 14-day objection provision, and be on the lookout for the possibility of having to enforce or defend a subpoena in a foreign jurisdiction

Committee Report on Rule 45

Please note:  This blog/Web site is made available by the firm of Redmon, Peyton & Braswell, LLP (“RPB”) solely for educational purposes to provide general information about general legal principles and not to provide specific legal advice applicable to any particular circumstance. By using this blog/Web site, you understand that there is no attorney client relationship intended or formed between you and RPB. The blog/Web site should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

The Duke Rules Ahead: Part 2 Rule 37(e) Amendment and No Presumption of Prejudice when Seeking an Adverse Inference Instruction

Read Part 1 here:The Duke Rules: Part 1.

In June 2013, the Standing Committee on Rules of Practice and Procedure approved a series of proposed amendments to the Federal Rules of Civil Procedure.  These proposals were published in August 2013.  The amendment process has several remaining steps, but if the process remains on course, then the new rules will take effect on December 1, 2015, subject to Supreme Court approval and Congressional inaction.

The focus in this Part 2 discussion is on one of the hot-button eDiscovery issues—whether a party aggrieved by spoliation must prove both relevance and resulting prejudice for the court to order an adverse inference instruction.  Since the lost data is obviously not available, proof in either direction will almost certainly be difficult.  Whether or not the law provides presumptions of both relevance and prejudice sharply tilts the playing field in a sanctions fight in one direction or the other.  The proposed amendment to Rule 37(e) would preclude a presumption of prejudice. Thus, a party seeking sanctions must prove prejudice.  In practice, this will limit the availability of an adverse inference instruction. 

Introduction and Summary

While the proposed Rule 37(e) amendment included in the Duke Rules identifies proof elements for serious sanctions, the broader issue is the breadth of the duty to preserve ESI under a litigation hold.  The availability and likelihood of serious sanctions for spoliation will dictate the ESI preservation efforts undertaken by parties.  Preservation costs are high; whatever preservation-related rule amendments emerge in the Duke Rules will impact these costs.

The Committee’s Comments show that it considered three approaches to the preservation issue:  1)  An explicit preservation rule that details when and how ESI must be preserved, 2)A a general preservation rule, but still contains a “front end” solution, that is, directions or guidelines for the ESI preservation process, and 3) A “back end” approach that focuses on the sanctions for failure to preserve relevant evidence.  The Committee has pursued option three.

The impact of a “back end” approach hinges on proof requirements given that the essential ESI has been destroyed.  Does the innocent party get the benefit of certain presumptions?  Or must that party prove the relevance of the destroyed ESI and the resulting prejudice to its case?

We begin with a short analysis of the August 2013 decision by Judge Shira Scheindlin in Sekusui American Corp v. Hart, No. 12 Civ. 3479, 2013 WL 4116322 (S.D.N.Y. Aug. 15, 2013).  Judge Scheindlin, applying 2nd Circuit precedent, started with a showing of willfulness.  Based on this, she provided the aggrieved parties with a presumption of prejudice, which led to an adverse inference instruction.

We then consider the same facts under the proposed replacement for the current Rule 37(e).  The amendment would preclude the prejudice presumption, with the consequence that adverse inference instruction ordered under the Sekusui test likely would not be available.

The sanctions provisions are one of the keys to eDiscovery rules.

Sekusui American Corp v. Hart

In Sekusui, the plaintiff corporation sued the Harts, the former owners of the company, for breach of contract tied to representations made at the time of the company sale.  Sekusui did not impose a litigation hold until 15 months after filing its lawsuit, and then waited another six months before notifying its eDiscovery vendor to preserve data.  During the 15-21 month period, the Harts’ ESI on the company’s servers, including years of email, was intentionally erased by Sekusui employees.  The Harts claimed spoliation and sought an adverse inference instruction.  The magistrate judge denied their motion, refusing to presume prejudice even through the evidence showed gross negligence by Sekusui.

Judge Scheindlin set aside the magistrate’s ruling and ordered the adverse inference instruction. The judge reasoned:

When evidence is destroyed intentionally, such destruction is sufficient evidence from which to conclude that the missing evidence was unfavorable to that party. As such, once willfulness is established, no burden is imposed on the innocent party to point to now-destroyed evidence which is no longer available because the other party destroyed it.

 Id. at 7 (emphasis in original).  Essentially, Judge Scheindlin decided  the fairest way to deal with problem of destroyed ESI is to place the burden on the party that destroyed it.  Her solution is to provide the innocent party with the necessary presumption of prejudice.  The opposing party has the opportunity to rebut the presumption, but it faces the obvious problem that the ESI itself is no longer available.

Proposed Rule 37(e)

The proposed amendment to Rule 37(e) would entirely replace the current rule.   The amendment language plainly requires proof of “substantial prejudice.” Nothing is said about a presumption, but the requirement of proof and the silence regarding any presumption tell all:  This is the opposite of the Sekusui approach.

The core of the amendment is proposed Rule 37(e)(1)(B), which reads:

(1)  Curative measures; sanctions. If a party failed to preserve discoverable information that should have been preserved in the anticipation or conduct of litigation, the court may:

* * * *

(B) impose any sanction listed in Rule 37(b)(2)(A) or give an adverse inference jury instruction, but only if the court finds that the party’s actions:

(i) caused substantial prejudice in the litigation and were willful or in bad faith; or

(ii) irreparably deprived a party of any meaningful opportunity to present or defend against the claims in the litigation.

The critical language is in subsection (1)(B)(i).  Where Judge Scheindlin applied a presumption of prejudice when there was proven willfulness or bad faith, the amended rule requires proof of “substantial prejudice.”

There is a caveat to this rule in subpart (B)(ii) where a party could prove conduct that “irreparably deprived a party of any meaningful opportunity to present or defend against the claims.”  Note that this is more demanding than “substantial prejudice.”

The outcome under the Sekusui facts would therefore likely be different under the proposed amendments.  Amended Rule 37(e)(1)(B)(i) would permit a court to give an adverse inference jury instruction only after proof that the party to be sanctioned has “caused substantial prejudice in the litigation and was willful or in bad faith,” or if the innocent party is “irreparably deprived . . . of any meaningful opportunity to present or defend“ claims in the litigation.

Summary

In sum, the proposed amendment to Rule 37(e) would require in most cases proof of prejudice from the spoliation, with no available presumption, which is in contrast to Judge Scheindlin’s Sekusui opinion.

The flood of comments to this amendment has already begun.  The proposed Rule 37(e) wades straight into a heated debate.  Suffice it to say that the fate of the proposed Rule 37(e) amendments is far from certain.

Committee MemorandumProposed Discovery Rules

Please note:  This blog/Web site is made available by the firm of Redmon, Peyton & Braswell, LLP (“RPB”) solely for educational purposes to provide general information about general legal principles and not to provide specific legal advice applicable to any particular circumstance. By using this blog/Web site, you understand that there is no attorney client relationship intended or formed between you and RPB. The blog/Web site should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

The Duke Rules Ahead: Part 1 Rule Amendments Will Narrow Discovery and Spur Cooperation

In June 2013, the Standing Committee on Rule of Practice and Procedure approved a series of proposed amendments to the Rules of Civil Procedure. The amendments will come as the follow-on to the broad 2006 eDiscovery amendments. The proposed rule changes include, among other modifications, amendments to Rules 1, 26, 30-34, 36 and Rule 37. We refer to these proposed amendments as the “Duke Rules” because they emerged from a May 2010 conference at the Duke Law School. The proposed Rules and Committee Memorandum are found here: Proposed Discovery RulesCommittee Memorandum.

The amendment process has several remaining steps, but if the process remains on course, then the new rules will be effective on December 1, 2015.
This Part 1 discussion covers the proposed amendments regarding the scope of discovery, changes in the presumptive discovery limits, and Rule 34 provisions (including a potentially significant 1-line change in the protective order language from Rule 26). In Part 2 (to be posted on the EDVa Update Blog in early November 2013), the proposed amendments to Rule 37 will be considered along with an analysis of the August 2013 decision from Judge Shira Scheindlin in Sekusui American Corp v. Hart, 2013 WL 4116322 (S.D.N.Y 2013).

Scope of Discovery

The amendments as proposed will tighten the scope of discovery.
Rule 26(b)(1) sets generally the boundaries of discovery. In the 1983 Amendments, the rules were adjusted to include proportionality consideration. The balancing test introduced in 1983 has not worked as hoped. The Committee recognized that excessive discovery demands have continued to be a problem in federal court litigation.

The proposed amendment imposes a limit on the scope of discovery, and for the first time uses the word “proportional.” If the Duke Rules are adopted, then discovery must be proportional to the needs of the case considering the amount in controversy, the importance of the issues at stake in the action, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.

A second proposed change in Rule 26(b)(1) applies to the court-controlled discovery (as opposed to party-controlled discovery). The amendment deletes the language “subject matter involved in the action” from the scope of discovery. Discovery therefore would be limited to the parties’ claims or defenses and coupled with the elimination of the “reasonably calculated” wording in the rule. If courts strictly apply these provision, then this portends a major tightening of the scope of discovery.

Changes to Presumptive Discovery Limits in Rules 30, 33 and 36

The amendments will impose, in most cases, more limitations on the number of depositions and discovery requests available to the parties. The Dukes Rules would alter the presumptive limits on (1) the number and duration of depositions under Rule 30, and (2) the number of interrogatories under Rule 33. In addition, for the first time there would be a limit on the number of Rule 36 Requests for Admission. Presumptive limits for Rule 34 were considered but rejected; the Committee addresses the document and eDiscovery concerns from a different direction.

The proposed amendments to the presumptive discovery limitations include:

Rule 30:​ The amendments would reduce the presumptive limit on the number for depositions from 10 depositions to 5 depositions. The duration of a deposition would change from a maximum seven hours to six hours.

Rule 33: ​The presumptive limit on the number of interrogatories would by 15 instead of the current 25.

Rule 36​A new section 36(a)(2) would add a presumptive limit of 25 Requests for Admission. Currently there is no limit.

The limits are presumptive because courts retain the authority to grant additional discovery.

Amendments to Rule 34 and Allocation of Costs by Protective Order

The rule-makers advance seemingly modest changes to Rule 34, but these changes, when coupled with a 1-line addition to the protective order portion of Rule 26, will spur cooperation among counsel.

The 600 pound gorilla in the room remains electronic discovery. It takes only a handful of broadly-worded requests for electronic documents to send discovery costs through the roof. From the other side, responses to eDiscovery requests can be frustratingly incomplete and/or endlessly delayed. The Committee answered these concerns in three steps.

First, a change in Rule 26(d) governing the timing and sequence of discovery would allow Rule 34 requests to be served before the Rule 26(f) conference. While the time to respond would run from the date of the Rule 26(f) conference, the early service can make the requests a discussion item among the parties and a point to be covered at the Scheduling conference and in the Rule 16(b) Scheduling Order.

Second, the amended rules would require that objections to Rule 34 requests be stated with specificity; this borrows from the success of similar language in Rule 33(b)(4). Additionally, a producing party must state whether documents are being withheld based upon a specific objection. Finally, there would be requirements that actual production be completed no later than the time for inspection stated in the request or a later reasonable time stated in the response.

The third step is a potentially game-changing modification to Rule 26. The Duke Rules would add a single line identifying “the allocation of expenses” to the protective order provisions of Rule 26(c)(1)(B). This would instruct parties and the courts that the preferred time to consider the costs of discovery, including most importantly electronic discovery, is early in the process when the court may choose to allocate those costs. The amended rule would read

(c) Protective Orders.
(1) In General. * * * The court may, for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense, including one or more of the following:
* * * * *
(B) specifying terms, including time and place or the allocation of expenses, for the disclosure or discovery;

This last step adds the missing enforcement mechanism to the cost-shifting possibilities of Rule 34. With the amendment, it will be clear that the procedure to achieve cost-shifting is to seek a protective order. If courts are reasonably lenient in granting such requests, then the parties should have enhanced incentives for more cooperation on eDiscovery matters.

Summary

The 2006 eDiscovery amendments to the Federal Rules of Civil Procedure imposed relatively uniform treatment of the eDiscovery process. The rule-makers knew then that significant subsequent amendment would be needed. The Duke Rules are the subsequent amendments.

The Duke Rules target the escalating costs of eDiscovery. The sections addressed in this Comment attempt to narrow the scope of discovery by tweaking the proportionality language in Rule 26, and aggressively curtail the availability of discovery means.

In this writer’s opinion, it is the Rule 34 amendments and the 1-line addition to the protective order provision of Rule 26 that will have the greater cost control impact. Early consideration of electronic discovery burdens with a prospect of cost allocation should spur cooperation between and among counsel, with the consequence of meaningful discovery cost management.

Read on to learn more about the proposed rule changes: The Duke Rules: Part 2

Please note:  This blog/Web site is made available by the firm of Redmon, Peyton & Braswell, LLP (“RPB”) solely for educational purposes to provide general information about general legal principles and not to provide specific legal advice applicable to any particular circumstance. By using this blog/Web site, you understand that there is no attorney client relationship intended or formed between you and RPB. The blog/Web site should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

4th Circuit Narrows 28 USC § 1920(4) Taxation of Common eDiscovery Costs

The Fourth Circuit confirms that while certain costs of ESI copying for discovery are taxable under Rule 54(d)(1), the taxable costs in a plain vanilla ESI production do not include the underlying ESI processing costs. The impact of this will often be substantial—the prevailing party in the case sought $101,858 in ESI-related costs—the court awarded $218.59. The caveat is that in a more complex production that includes metadata or specified formats, the costs to produce the metadata may be taxable.

In Country Vintner of North Carolina, LLC v. E. & J. Gallo Winery, Inc., 718 F.3d 249 (4th Cir. 2013), the court concluded that 28 USC § 1920(4), applied to a basic eDiscovery production, “limits taxable costs to . . . converting electronic files to non-editable formats, and burning the files onto discs.”  Opinion at 21.  The case involved conversion of PST files to TIFF images, with the production of the TIFF images on CDs.   Apparently no load file was part of the production.  The Opinion recognized in a footnote that “we assume, without deciding, that taxable costs would include any technical processes necessary to copy ESI in a format that includes such information.”   Opinion, n.19 at 21.  This covers the load files.  A second footnote carves out the situation where the parties have agreed to a specific production format (“the production of ESI on a particular database or in a native file format”).  Id. n. 20 at 21.

In a ruling by Judge Brinkema a month before the Country Vintner decision, essentially the same issues were addressed with essentially the same results.   In Nobel Biocare USA, LLC v. Tecnhique D’Usinage Sinlab, Inc. 2013 WL 819911 (E.D.Va. 2013), a more factually robust case, the court concluded

. . . all of the cited authorities agree that although the costs of collecting, storing, and extracting electronically stored information may not be taxable, the costs of converting that information into the agreed-upon format and electronically Bates stamping it are analogous to copying costs, and therefore are taxable.

Citing the Parties’ Joint Discovery Plan that provided for “searchable TIFF or PDF format,” Judge Brinkema allowed $30,000 for the production of more than 400,000 TIFF images.

The 4th Circuit’s analysis begins with the Supreme Court’s recent observation that taxable costs under 28 USC § 1920 are “modest in scope” and “limited to relatively minor, incidental expenses.”  Taniguchi v. Kan Pacific Saipan, Ltd., 132 S.Ct. 1977 (2012).  The analysis then cites approvingly Race Tires America, Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158 (3rd Cir. 2011).  In that case, the appellate court reversed the trial judge’s ruling that allowed taxation of $365,000 of eDiscovery costs, and approved only $30,000 for “scanning and file format conversion” as it was “the functional equivalent of making copies” under the statute.   The approved file format conversion costs included conversion to TIFF and conversion of video from VHS to DVDs.

The current standard in the Eastern District for taxable eDiscovery costs under 28 USC § 1920(4) seemingly distill to these points:

  • When the production is basic (e.g., PST files to PDF to TIFF), the taxable costs are the conversion costs (here PDF to TIFF) plus the costs to transfer to the production media.
  • The underlying ESI collection and processing costs are not taxable.
  • Ancillary production costs, such as electronic Bates-stamping, are taxable.
  • If the production requires metadata (for example, a common Summation or Concordance load file), then the taxable costs likely include the costs to put the data in the production format.
  • If in an agreement between the parties or specifications in the discovery Instructions further production (but not processing) requirements are imposed, those costs are likely taxable.

The big-ticket eDiscovery components—the document collection, processing, and attorney review—are not taxable.  Only eDiscovery costs analogous to costs of physical copying fall within the scope of 28 USC § 1920(4).

The Country Vintner of North Carolina, LLC v. E. & J. Gallo Winery, Inc. Opinion

Please note:  This blog/Web site is made available by the firm of Redmon, Peyton & Braswell, LLP (“RPB”) solely for educational purposes to provide general information about general legal principles and not to provide specific legal advice applicable to any particular circumstance. By using this blog/Web site, you understand that there is no attorney client relationship intended or formed between you and RPB. The blog/Web site should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

Lookout for Spoliation Attacks

A recent appeal of a decision from Judge Gerald Bruce Lee of the Eastern District of Virginia is another cautionary example that counsel defending corporate clients in civil litigation must be ever-vigilant against plaintiff’s claims of evidence spoliation.  In today’s modern commercial litigation, careful lawyers are (rightly) concerned about spoliation claims of Electronically Stored Information (“ESI”).  Civil practitioners in the Eastern District of Virginia are seeing more and more of such claims from parties attempting to gain a decisive advantage in litigation.  The stakes are obviously high: few corporate clients can hope to overcome the sanction of a judge’s jury instruction that the corporation has acted improperly to destroy relevant evidence.  Considering how easy it is to demonize corporate parties in a jury trial, such an obstacle usually leads to a generous settlement offer.

In Zellers v. NexTech Northeast, LLC, Case No. 1:11-cv-00967 (GBL/TRJ), Ms. Zellers sued her former employer, Rite Aid, after she was allegedly exposed to refrigerant coolant that leaked from a gas line in a freezer.  After the leak was discovered, a technician plugged the leak, which presumably contained the remaining refrigerant within the gas line.  Ms. Zellers then filed suit against the employer.  Several weeks later, another technician serviced the gas line after another reported leak and performed a triple evacuation of the freezer system,which removed all traces of the refrigerant in the system.

This technician was never aware of the newly-filed litigation, and instead, was simply following his instructions to service the freezer.  Later in the litigation, an issue developed that turned on the chemical composition of the refrigerant allegedly inhaled by the plaintiff.  But due to the evacuation of the gas lines, there was no refrigerant to test.

The plaintiff filed a motion seeking spoliation sanctions against the defendant which included an adverse inference instruction to be delivered to the jury by the trial judge.  The proposed instruction stated that the defendant had improperly released the refrigerant, and the jury was free to presume that the refrigerant was harmful to the defendant’s case.  As a practical matter, such adverse inference instructions are difficult for defense counsel to overcome.

Ultimately in this case, Judge Lee denied the plaintiff’s motion for sanctions as moot after he excluded the plaintiff’s proffered experts on Daubert grounds and granted summary judgment to the defendant.  But this case is an example and warning to corporate defense counsel.  The routine operations of a company can lead to spoliation claims under expected circumstances.  Thus, defense counsel must be vigilant to safeguard evidence that is connected to claims raised in any lawsuit.

Zellers v NexTech Northeast, LLC Opinion (PDF)

Please note:  This blog/Web site is made available by the firm of Redmon, Peyton & Braswell, LLP (“RPB”) solely for educational purposes to provide general information about general legal principles and not to provide specific legal advice applicable to any particular circumstance. By using this blog/Web site, you understand that there is no attorney client relationship intended or formed between you and RPB. The blog/Web site should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.