Sanctions

New Federal E-Discovery Rules Move a Step Closer to Fruition

by Bob Ambrogi | April 19, 2013

Changes to the Federal Rules of Civil Procedure designed to enhance cooperation and proportionality in discovery and to standardize sanctions rules came a step closer to fruition last week, as the Advisory Committee on Civil Rules, meeting in Norman, Okla., April 11 and 12, voted to send the proposed changes to the Standing Committee on Rules of Practice and Procedure for consideration at its meeting June 3 and 4 in Washington, D.C.

The package of proposed rules evolved out of the 2010 Duke Civil Litigation Conference, a major two-day conference sponsored by the Advisory Committee that brought together judges, lawyers and academics to explore possible solutions to the rising cost of civil litigation and discovery.

The proposals approved last week are designed to reduce cost and delay in litigation by encouraging cooperation, proportionality and early hands-on case management. They also attempt to define a uniform set of rules for judges to follow in considering sanctions for failures to preserve.

Milberg lawyer Henry Kelston published an insightful overview of the proposed changes in Law Technology News earlier this week. What follows is our breakdown of the proposals.

Addressing Proportionality

With regard to proportionality, the most significant change would be to Rule 26(b)(1), governing the scope of discovery. The proposal would amend this section to read (text in italics is new):

Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and 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. Information within this scope of discovery need not be admissible in evidence to be discoverable.

A corresponding change would be made to Rule 26(b)(2)(C)(iii) to cross-refer to (b)(1) and to make clear that the court can and should act on its own, even without a motion, to limit the frequency or extent of discovery that exceeds these limits.

Proportionality would also be addressed by amending the presumptive numerical limits in Rules 30, 31, 33 and 36.

Currently, Rules 30 and 31 establish a presumptive limit of 10 depositions by the plaintiffs, defendants or third-party defendants. The proposals would reduce the limit on depositions to five.
Currently, Rule 30(d)(1) establishes a presumptive time limit for the duration of an oral deposition of one day, consisting of seven hours. The proposals would reduce that to six hours.
Rule 33(a)(1) sets a presumptive on written interrogatories of 25. The proposals would reduce that to 15.
Currently, there are no presumptive limits for Rule 34 requests to produce or for Rule 36 requests to admit. The proposals would, for the first time, set a limit under Rule 36 of 25 requests to admit.

Three further changes proposed to address proportionality would be to Rule 34, governing objections and responses to discovery requests. First, Rule 34(b)(2)(B) would be amended to require that the grounds for objecting to a request be stated with specificity. Second, Rule 34(b)(2)(C) would require that an objection “state whether any responsive materials are being withheld on the basis of that objection.” This is to address situations where a response provides a laundry list of objections, but then produces documents, leaving the recipient unsure whether anything has been withheld.

Third, Rule 34(b)(2)(B) would be amended so that, when a party opts to produce copies of documents or ESI rather than permit inspection, it must make that production within the time for inspection stated in the discovery request or a later reasonable time specified in the response. A corresponding change to Rule 37 would permit a motion to compel when a party fails to produce documents in accordance with this provision.

Encouraging Cooperation

Encouraging greater cooperation among litigants is also a goal of the proposed rules. To that end, the proposal calls for what is described as a “modest” addition to Rule 1:

[T]hese rules should be construed, administered, and employed by the court and the parties to secure the just, speedy, and inexpensive determination of every action and proceeding.

The Committee Note explains that this is intended to emphasize that, just as the court should construe and administer the rules to secure the just, speedy and inexpensive determination of every case, so do the parties share the responsibility to employ the rules in the same way.

The committee took this modest approach, it explained, because of the difficulty of imposing a direct duty or definition of cooperation. “It is difficult to identify a proper balance of cooperation with legitimate, even essential, adversary behavior,” it noted.

Uniform Standards for Sanctions

The proposed amendments would replace the current Rule 37(e) with new language intended to provide a uniform national standards to guide courts in evaluating what constitutes reasonable preservation and what curative measures or sanctions to employ. The new rule would apply to all forms of discoverable information, not just ESI.

A memorandum prepared for last week’s meeting summed up the key provisions of the proposed Rule 37(e):

[T]he revisions to the rule should express more clearly four basic propositions: First, curative measures should be available without any need to find fault in the failure to preserve. Second, “sanctions” should not be imposed on a party that acted reasonably even though information was nevertheless lost. Third, sanctions are proper when loss of information imposes substantial prejudice on a party and resulted from willful or bad-faith failure to preserve. And fourth, sanctions may be imposed when the loss of information completely stymies a party’s ability to litigate, but only when the failure to preserve resulted from some fault of the party on whom sanctions are imposed.

Under this proposed rule, a court would be permitted to impose sanctions for the failure to preserve only if one of two conditions is met. Either the court must find that the failure “caused substantial prejudice in the litigation and was willful or in bad faith,” or it must find that the failure “irreparably deprived a party of any meaningful opportunity to present or defend against the claims in the action and was negligent or grossly negligent.”

Early Case Management

In addition to addressing proportionality, cooperation and sanctions, a fourth component of these proposed rules are designed to advance early and effective case management. Among changes proposed here:

Amend Rule 4(m) to reduce the presumptive time for serving the summons and complaint from 120 days to 60 days.
Amend Rule 16(b) to reduce the time by which the judge must issue a scheduling order. The current rule requires the order within the earlier of 120 days after any defendant has been served or 90 days after any defendant has appeared. The proposed amendment changes these to 90 days after service or 60 days after appearance. It would also give the judge authority to delay the order for good cause.
Amend Rule 16(b) to require that scheduling conference be held face-to-face, striking language that permits them to be held “by telephone, mail, or other means.” However, this does not make the conference mandatory; a judge can still issue a scheduling order based on the parties’ Rule 26(f) report.
Amend Rules 16(b)(3) and 26(f) to permit a scheduling order and discovery plan to provide for the preservation of ESI and to include clawback agreements reached under Rule 502 of the Federal Rules of Evidence.
Amend Rule 16(b)(3) to add a new section permitting a scheduling order to “direct that before moving for an order relating to discovery the movant must request a conference with the court.”
Add a new Rule 26(d)(2) to allow Rule 34 requests to be made in advance of the Rule 26(f) discovery conference.

The proposed amendments will be presented to the Standing Committee at its meeting on June XX. If the Standing Committee gives the go-ahead, the proposals will be published for a six-month period of public comment and public hearings. After the comment period, the Advisory Committee can consider whether to make any further changes and, if so, whether to solicit any further public comment.

Ultimately, the Advisory Committee will send the package back to the Standing Committee for final approval. From there, the rules would go to the Judicial Conference for approval and then to the Supreme Court.

Filed Under: Court rules, Sanctions Tagged With: Court Rules, Proportionality, Sanctions, Spoliation

Report: Predictive Coding Replaces Sanctions as the Big News in E-Discovery

by Bob Ambrogi | March 11, 2013

For the last several years, year-end reports on e-discovery have highlighted sanctions as the lead headline. (For examples from this blog, see Report: Sanction Requests Rise But Awards Hold Steady for 2011 and E-Discovery Sanctions Reach an All-Time High, Survey Finds.) For 2012, however, a different story took the lead spot — the rise of predictive coding.

Such is the conclusion of the 2012 Year-End Electronic Discovery and Information Law Update published by the law firm Gibson Dunn.

In our prior electronic discovery mid-year and year-end reports, the lead story was sanctions, as numerous decisions imposing onerous penalties for real or perceived e-discovery failures caught the attention of the legal community. By contrast, 2012 was the year of predictive coding, and of meaningful rules reform becoming an important step closer.

What made predictive coding the story of 2012, says the report, were the several court decisions that discussed and even endorsed it.

In the absence of judicial approval, many litigants were unwilling to use this technology. That may well change now, following several decisions approving review methodologies involving predictive coding.

Of course, the increasing acceptance of predictive coding and other forms of technology-assisted review was not the only big e-discovery story last year. Among others cited by Gibson Dunn in its report were:

Proposed amendments to the Federal Rules of Civil Procedure that would limit the most serious sanctions for failures to preserve to cases where the court finds that the failure was willful or in bad faith, or that it “irreparably deprived a party of any meaningful opportunity to present a claim or defense.”
The rise of international e-discovery and the corollary need to deal with foreign data protection and privacy law. ”Foreign data protection and privacy laws have become pervasive and foreign data protection authorities more active in their enforcement of such laws,” says the report.
The European Commission’s proposal to replace the 27 data protection laws of the EU member states with a single data privacy regulation — a proposal that has good news and bad news for companies, according to the report.

Sanctions awarded by type and percentage of cases where sanctions granted

Even though the sanctions story is no longer the lead in Gibson Dunn’s year-end report, it is by no means gone away. However, rather than focus on punitive sanctions, courts have shifted towards pragmatic solutions.

“Decisions have increasingly noted that remedial monetary sanctions, as well as other measures such as reopening discovery and hiring forensic analysts to search for spoliated data, are generally fairer and better at making the aggrieved party whole than punitive sanctions such as a default judgment,” the report says.

An area that gained increasing attention in 2012 among e-discovery professionals and courts is the discoverability of social networking information, the report finds. Courts increasingly face difficult questions about the extent to which parties are required to preserve social media and about whether changes to social media sites constitute spoliation. “One court this year even required a defendant in a trademark infringement case to recreate a Facebook page as it had previously existed, so that the Facebook page showed plaintiff in a photo that displayed ‘infringing trade dress,’” the report explains.

Additional key issues from 2012 identified by the report are:

Parties’ preservation obligations in advance of and at the outset of litigation.
The scope and meaning of “cooperation” in e-discovery, consistent with the Cooperation Proclamation of The Sedona Conference.
The emergence of proportionality as an increasingly important concept in e-discovery.
The continued lack of clarity from the courts about what constitutes reasonable efforts to prevent the disclosure of privileged information.
Greater emphasis by courts on the government’s e-discovery obligations and a greater willingness to sanction the government for failure to live up to those obligations.

The full Gibson Dunn year-end report is available on the website and in PDF format.

Filed Under: Case law, Court rules, Predictive Ranking, Privilege, Sanctions Tagged With: Case law, Court Rules, Predictive Ranking, Privilege, Proportionality, Sanctions, Spoliation, Technology Assisted Review

Proposed Rule Change Would Raise Threshold for Preservation Sanctions

by Bob Ambrogi | December 19, 2012

The Advisory Committee on the Federal Rules of Civil Procedure has recommended approval for publication of a new Rule 37(e), governing sanctions for the failure to preserve electronically stored information. The proposed amendment would permit courts to impose sanctions only when the failure to preserve was willful or in bad faith. The proposed amendment is also intended to provide a uniform standard for sanctions to replace the various standards that have evolved across federal courts.

The Advisory Committee’s recommendation will be presented in January to the Judicial Conference’s Committee on Rules of Practice and Procedure (often referred to as the Standing Committee), seeking approval to publish the proposed rule for public comment. If the Standing Committee gives the go-ahead, the proposed rule will be published for public comment in August 2013. The Advisory Committee would then reconsider the proposed rule and either make further changes or recommend that the Standing Committee approve it.

The proposed rule’s recommendation to allow sanctions only for willful or bad faith spoliation is a direct response to Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99 (2d Cir. 2002). In that case, the 2nd Circuit held that discovery sanctions may be imposed upon a party that has breached a discovery obligation not only through bad faith or gross negligence, but also through ordinary negligence. In its report to the Standing Committee, the advisory committee explained:

The proposed amendment is designed to provide more significant protection against inappropriate sanctions, and also to reassure those who might in its absence be inclined to over-preserve to guard against the risk that they would confront serious sanctions.

Still, the proposed rule would allow sanctions even in the absence of willfulness or bad faith in one circumstance — when the loss of the information “irreparably deprived a party of any meaningful opportunity to present a claim or defense.” In its report, the Advisory Committee said that this would apply in exceptional cases. “The point is that the prejudice is not only irreparable, but also exceptionally severe,” the report said.

Notably, the proposed rule does not attempt to create new guidelines on what must be preserved or what would trigger the duty to preserve. Although some earlier drafts of the proposed rule provided specific guidelines on these issues, the Advisory Committee ultimately excluded them, concluding that “no single rule could be written that would apply fairly and effectively to the wide variety of cases in federal court.”

Text of the Proposed Amendment

Currently, Rule 37(e) provides as follows:

(e) Failure to Provide Electronically Stored Information. Absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.

The proposed amendment would substitute more detailed language:

(e) FAILURE TO PRESERVE DISCOVERABLE INFORMATION. If a party failed to preserve discoverable information that reasonably should have been preserved in the anticipation or conduct of litigation,

(1) The court may permit additional discovery, order the party to undertake curative measures, or require the party to pay the reasonable expenses, including attorney’s fees,caused by the failure.

(2) The court may impose any of the sanctions listed in Rule 37(b)(2)(A) or give an adverse-inference jury instruction only if the court finds:

(A) that the failure was willful or in bad faith, and caused substantial prejudice in the litigation; or(B) that the failure irreparably deprived a party of any meaningful opportunity to present a claim or defense.

(3) In determining whether a party failed to preserve discoverable information that reasonably should have been preserved, and whether the failure was willful or in bad faith, the court should consider all relevant factors, including:

(A) the extent to which the party was on notice that litigation was likely and that the information would be discoverable;(B) the reasonableness of the party’s efforts to preserve the information;

(C) whether the party received a request that information be preserved, the clarity and reasonableness of the request, and whether the person who made the request and the party engaged in good-faith consultation regarding the scope of preservation;

(D) the proportionality of the preservation efforts to any anticipated or ongoing litigation; and

(E) whether the party sought timely guidance from the court regarding any unresolved disputes concerning the preservation of discoverable information.

The current version of Rule 37(e) was added to the FRCP in 2007 as part of various changes designed to address issues associated with e-discovery. The rule created a “safe harbor” to protect parties that inadvertently destroyed ESI.

For several years now, the Discovery Subcommittee of the Advisory Committee has been studying whether changes to the rules would help eliminate some of the uncertainty around preservation, spoliation and proportionality. Last year, it convened a “mini-conference” in Dallas to discuss three possible approaches to the problem. The proposed amendment to Rule 37(e) is a direct outgrowth of that conference.

A hat tip to Jim Beck at Drug and Device Law blog for his post about the proposed rule. His post includes excerpts from the Advisory Committee’s report.

Filed Under: Court rules, Sanctions Tagged With: Court Rules, FRCP, Preservation, Sanctions, Spoliation

After Plaintiff Takes Sledgehammer to Computer, Case Dismissed for Spoliation

by Jim Eidelman | December 6, 2012

Could you hear me laughing from down the hall?

The plaintiff in an employment case, when ordered to turn over his computers for inspection, destroyed all evidence.

He protested that the evidence was “irrelevant,” but the judge wouldn’t buy that.

Among the more interesting aspects:

The plaintiff first wiped the hard drive of his failing desktop, took a sledgehammer to the hard drive and to the computer, and then threw them both in the landfill.
The plaintiff also installed the programs Evidence Eliminator and CCleaner and removed all evidence from his laptop.
All of this happened after he retained counsel, who told him he must preserve all emails and other documents.
The plaintiff’s wiping of data from the laptop occurred a few days after the magistrate ordered him to submit it for inspection within seven days.
In an email, the plaintiff told counsel that if the court ordered him to turn over the laptop, he would copy the data to a CD and wipe the hard drive. According to the findings of fact, “At the conclusion of the e-mail he jokes that ‘an electrical surge just fried my computer and a 50 pound anvil fell over and landed on it’ and asks ‘what penalties [he would] suffer from a contempt of court citation.’ “

I was laughing out loud as I read this, but neither the magistrate nor the district judge was amused. The plaintiff’s case was thrown out, and he was ordered to pay the defendant’s costs and attorneys’ fees.

The case is Taylor v. The Mitre Corp., No. 1:11-cv-1247, 2012 WL 5473573 (E.D. Va. Nov. 8, 2012) adopting recommendations of Taylor v. Mitre Corp., No. 1:11-cv-01247 (LO/IDD), 2012 WL 5473715 (E.D. Va. Sept. 10, 2012)

Thanks to K&L Gates for calling attention to this case on its Electronic Discovery Law blog.

Filed Under: Case law, Sanctions Tagged With: Case law, Sanctions, Spoliation

Court Orders Counsel to Disclose E-Discovery Search Strategy

by Bob Ambrogi | August 28, 2012

Out of concern that counsel may not have sufficiently supervised their client’s production of electronic documents, a federal judge in New Mexico has ordered the attorneys to disclose the search strategy their client used to identify responsive documents. In so ruling, the judge relied on the federal rule that requires attorneys to sign discovery responses and certify that they are “complete and correct.”

Addressing motions to compel discovery in the case of S2 Automation LLC v. Micron Technology, U.S. District Judge James O. Browning ruled that S2 Automation would have to provide to Micron “its search strategy for identifying pertinent documents, including the procedures it used and how it interacted with its counsel to facilitate the production process.”

The judge based his ruling on Federal Rule of Civil Procedure 26(g), which requires that discovery responses must be signed by attorneys who must certify that the response “is complete and correct as of the time it is made.” Judge Browning concluded that this certification obligation is analogous to the certification required under Fed.R.Civ.P. 11 and that case law interpreting Rule 11 applies to Rule 26(g).

Applying that case law to the discovery context, Judge Browning said that Rule 26(g) imposes an obligation on the attorney who signs the discovery response to conduct “a reasonable inquiry into the facts and law supporting the pleading.” He went on to explain:

Accordingly, it can become necessary to evaluate whether an attorney complied with his rule 26(g) obligations and to evaluate the strategy an attorney used to provide responsive discovery, with relevant circumstances including: (i) “[t]he number and complexity of the issues”; (ii) “[t]he location, nature, number and availability of potentially relevant witnesses or documents”; (iii) “[t]he extent of past working relationships between the attorney and the client, particularly in related or similar litigation”; and (iv) “[t]he time available to conduct an investigation.” 6 J. Moore, Moore’s Federal Practice, § 26.154[2][a], at 26-615 (3d ed. 2012). Consequently, the analysis in which courts must engage to evaluate whether a party’s discovery responses were adequate is often a fact-intensive inquiry that requires evaluation of the procedures the producing party adopted during discovery.

‘Not Proper for Counsel to Sit Back’

The issue came before the judge after Micron’s attorneys became aware that S2′s counsel may not have worked with their client sufficiently during the discovery process and may have failed to provide a number of responsive documents. They became aware of that during a discovery conference between the parties, which followed a deficiency letter Micron sent S2 detailing shortcomings in S2′s production. A sworn declaration from one of Micron’s attorneys detailed what allegedly happened during that conference:

During that call, we discussed the April 25 deficiency letter and Micron’s request that S2 supplement its production. Counsel for S2 stated that he had not yet reviewed the letter in detail. We then discussed the format for production of S2′s documents. Counsel stated that he was not aware that S2 had separated attachments from e-mails, that he had delegated the process of gathering documents to S2, and that he was generally unaware of the manner in which S2 had provided the documents. Counsel also stated that he was unsure what protocol S2 followed to locate responsive documents.

In its motion to compel, Micron argued that “it is not proper for counsel to sit back and allow the client to search for documents without active direction and participation by counsel; to the contrary, counsel must be actively involved in the search to ensure that all responsive documents have been located, preserved, and produced.” The approach taken by S2′s counsel violated their obligations under Rule 26(g), Micron asserted.

S2′s attorneys denied that they had failed to supervise the discovery process, asserting that “nothing could be further from the truth” and that they had “met with the client on multiple occasions during the discovery process in order to organize and respond to discovery.”

Despite S2′s protestations, Judge Browning wrote that Micron’s sworn declaration caused him to be concerned about the adequacy of S2′s strategy for responding to discovery requests. “The … Declaration suggests that S2 Automation’s counsel were not working closely with their client during the document-production process,” he said. “Without some information about the search strategy S2 Automation used to provide responsive documents to requests for production, neither the Court nor Micron Technology can have a full understanding of the adequacy of S2 Automation’s search strategy.”

For this reason, Judge Browning concluded that it was appropriate for him to order S2 to provide to Micron its search strategy for identifying pertinent documents. His order directed S2 to include explanations of the procedures it used and how it interacted with its counsel to facilitate the production process.

What Can We Learn from this Case?

This case serves as a reminder that the lawyer who signs a discovery response has a direct obligation under Rule 26(g) to ensure that the response is complete and correct. As Judge Browning indicated, the key inquiry is whether the lawyer who signed the response “conducted a reasonable inquiry into the facts and law supporting the pleading.”

In this case, the judge’s uncertainty about whether the lawyers lived up to that obligation resulted in his order that their client explain its search strategy. In appropriate cases, however, Rule 26(g) also authorizes courts to impose sanctions on the lawyer and the client. “The sanction may include an order to pay the reasonable expenses, including attorney’s fees, caused by the violation,” the rule says.

Filed Under: Case law, Sanctions, Search Tagged With: Case law, Court Rules, Sanctions, Search

‘Mt. Hawley’ Affirmed and Claim Dismissed: District Judge Again Puts His Stamp of Approval on Troubling Rulings

by John Tredennick | December 6, 2011

For over a year, we have been writing about a West Virginia decision (and its progeny) that we believe went too far in making new e-discovery law. The original decision, issued May 18, 2010, was styled Mt. Hawley Insurance Co. v. Felman Production. You can read my original post at: Bad Facts Make Bad Law: ‘Mt. Hawley’ A Step Backward for Rule 502(b).

In that decision, Magistrate Judge Mary E. Stanley held that Felman had waived attorney-client privilege by inadvertently producing a smoking-gun email to counsel suggesting that it might be helpful to their insurance claim for business interruption to backdate several orders from clients. If the orders had come in while the machinery in question was under repair, that might provide support for their $38 million dollar insurance claim. You have to love their chutzpa at the very least.

The 'smoking-gun' email involved a furnace such as this one, at Felman's West Virginia facility.

In my original post, I suggested that bad facts (outright fraud it seemed to me) might be responsible for what I thought was bad law. After all, the production had been overseen by a highly reputable law firm (which had no involvement in this email). Counsel had not only been diligent in trying to screen out privileged documents, but it had gone far beyond what we have typically seen elsewhere. Indeed, counsel cited over 20 steps they had taken, including a variety of review and sampling efforts:

Negotiated the ESI stipulation with defendants.
Hired an ESI collection vendor, Innovative Discovery.
Discussed with Felman’s IT department the company’s computer network structure and identified potential sources of relevant ESI.
Visited Felman’s West Virginia plant to coordinate and oversee ESI collection.
Decided to collect data using forensic imaging.
Directed the vendor to collect ESI from the current server and the backup server.
Collected 1,638 gigabytes of data.
Downloaded emails from 29 custodians for processing by its law firm, Venable.
Hired a new vendor to process Felman’s Oracle and Soloman databases.
Identified the first six workstations to be processed and learned that each contained more data than anticipated.
Examined methods to cull non-relevant materials.
Selected search terms to retrieve documents responsive to defendants’ document requests.
Tested the search terms against the Felman emails and added additional search terms.
Tested the search terms, including the additional terms, against the Felman emails, tagged responsive documents, and set them aside for privilege review.
Produced 17,064 Excel spreadsheets.
Selected privilege search terms to identify materials which are potentially privileged and relevant.
Set aside potentially privileged materials for individualized document-by-document review for relevancy and privilege.
Tested the privilege search terms against Felman’s emails.
Retrieved native files of all images and examined thumbnails.
Conducted “eyes-on” review of all documents identified both as relevant and potentially privileged.
Decided to use a vendor to complete the processing of Felman’s emails.
Produced ESI in native or TIF format, with 36 fields of metadata.
Produced more than 346 gigabytes of data without sampling for relevancy, over-inclusiveness or under-inclusiveness.

Counsel got nailed simply because several of the Concordance indexes they used turned out to be corrupt. As a result, privilege searches didn’t turn up anything for the documents in those indexes. Since counsel didn’t attempt to review every one of the millions of documents they produced, several key documents slipped through the net. Reading between the lines, Magistrate Judge Stanley seemed to lay blame on the fact that they did not appear to sample the documents that they produced but never reviewed to see if any might be privileged.

We wrote about subsequent decisions as well as other commentary about the decision here:

Now, in what has to be the final straw in this saga, the presiding judge in the case, U.S. District Judge Robert C. Chambers, has taken the ultimate step by issuing further sanctions and dismissing the lost-business claim: Felman Production v. Industrial Risk Insurers, 2011 U.S.Dist. Lexis 112161 (Sept. 29, 2011).

Let us look at the court’s reasoning.

Bad Discovery Practices

U.S. District Judge Robert C. Chambers

You can’t read any of the Mt. Hawley decisions without being reminded that both the magistrate judge and the district judge were not happy with Felman’s discovery practices. Among others we have chronicled, you won’t win favor with the courts by backing up the trucks and dumping a ton of irrelevant electronic files on the opposition. When you go the next step and make every one of them confidential, regardless of content, you only worsen your position. The judge was particularly incensed to see pictures of kitties with a big confidential stamp on them. Kitties. Yes kitties. Awww, how cute. Oh, but there were a couple of naked men in the photos too (although not with the kitties, thank heavens).

There were also missing files and no real attempt to issue a litigation hold by Privat, the Ukrainian company that was at the controls in this case. Indeed, it appears that party Felman actively dissembled with respect to its true owners, a fun loving bunch of Ukranians with little respect for the discovery process. They got caught when one of the inadvertently produced documents showed that they were running the show. Oh what a tangled web they weaved!

As Judge Chambers explained:

Felman’s failure to comply with Judge Stanley’s August 19 and October 19, 2010 Orders was inevitable in light of the lack of care Felman exercised. … Felman did not provide litigation hold memos to the West Virginia Felman staff until four months after this case was filed. Felman also admitted that the Ukrainian custodians were not instructed to preserve their documents.

This led to the destruction of documents when the Privat representatives sold their computers before receiving a document request. Convenient, to say the least.

All this led to a motion for sanctions—either a dismissal outright or dismissal of the business interruption claims plus an adverse inference instruction regarding the missing documents.

The judge made short order of the motion. While not dismissing the case outright, he did dismiss the $38 million business interruption claim. He started by discussing spoliation, citing Magistrate Judge Grimm in Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497, 522 (D. Md. 2010).

A party subject to [the duty to preserve] must “identify, locate, and maintain information that is relevant to specific,predictable, and identifiable litigation.” In ascertaining whether a party has fulfilled its duty to preserve, a court must “determine reasonableness under the circumstances … [which] in turn depends on whether what was done—or not done—was proportional to that case and consistent with clearly established applicable standards.

The court went on to find specific culpability—gross negligence—in Felman’s failure to issue litigation holds and otherwise take steps to preserve evidence.

In the end, the court didn’t dismiss all claims but rather threw out the big one—for business interruption. It left the other claims and counterclaims to be tried.

The sanctionable conduct of Felman and the resulting prejudice to Defendants merits dismissal fo the business interruption claim because the unavailable evidence and improper conduct related predominantly to it. As to Defendant’s counterclaim, the unavailable evidence is less prejudicial and an adverse inference instruction is an adequate remedy.

The court also went on to award attorneys’ fee in the bargain.

What Happens Next?

My guess is that we won’t hear any more from the parties in this case. The business interruption claim was the heart of Felman’s demand in the first place. An adverse inference instruction is a powerful tool to address the rest of the claims, at least to the extent Felman oversteps the bounds of its insurance policy. Settlement is the likely next step in this matter.

What about a malpractice claim? Given the Felman party antics, I wouldn’t put it past them. They might claim malpractice for producing the damaging documents. With a bogus claim for $38 million at stake, who knows what they might do. At the least, this would present interesting evidentiary questions for the firm’s malpractice carrier. I wouldn’t want to be in the settlement meeting.

But my concern is for other cases more than for how this one wraps up. With 23 steps being ruled as not enough, what will be adequate? Perhaps the problem could have been remedied by some simple sampling procedures, but that isn’t clear from anything I read. Perhaps enough other judges will choose to ignore it so that it becomes weak precedent. “A derelict on the waters of the law,” as famed Supreme Court Justice Felix Frankfurter once said. That’s my vote. Send the bad guys home but leave e-discovery law alone.

Filed Under: Case law, Privilege, Review, Sampling, Sanctions Tagged With: Case law, Mt. Hawley, Privilege, Sampling, Sanctions

Seminar in Houston this Week on Protecting Privilege Using Defensible Search

by Bob Ambrogi | September 19, 2011

There is still time to register for How to Protect Privilege Using Defensible Search and Review Strategies, a live seminar and lunch in Houston on Wednesday. The seminar panel includes Harris County District Court Judge Ravi K. Sandill along with two lawyers who are experts in e-discovery search.

The program will review recent court decisions that illustrate the risks of inadvertent disclosure of privileged documents. Panelists will then review best practices for building searches, for using advanced analytics, any for verifying results through quality control and sampling.

There is no cost to attend the seminar, which is sponsored by Catalyst. Here are the details:

Date: Sept. 21, 2011

Time: Registration and lunch begin at noon. One-hour seminar begins at 12:30 p.m.

Location: Houston Technology Center, 410 Pierce St., Houston.

A registration form, a full description of the program and biographies of the speakers all can be found here.

Filed Under: Catalyst News, Privilege, Review, Search, Seminars Tagged With: Best Practices, Privilege, Review, Sanctions, Search

Meeting in Dallas Today Could Set Course for Changes to Federal E-Discovery Rules

by Bob Ambrogi | September 9, 2011

Should the Federal Rules of Civil Procedure be amended to better address issues relating to evidence preservation and sanctions in e-discovery?

Today in Dallas, at a “mini-conference” convened by the Discovery Subcommittee of the Committee on Rules of Practice and Procedure of the Judicial Conference of the United States, participants are considering that very question. In a memorandum written in May, U.S. District Judge Mark R. Kravitz, chair of the Advisory Committee on Civil Rules, explained the purpose of today’s conference, describing the current state of affairs as “anxiety bordering on anguish”:

Discovery of electronically stored information commanded great attention at the Duke Conference. In this realm, anxiety bordering on anguish arises from uncertainty as to the beginning, scope, and duration of the duty to preserve and the concomitant risk of sanctions for spoliation. The panel chaired by Gregory Joseph proposed a thoughtful list of elements to be captured in a civil rule addressing these problems. The task of translating these elements into a workable rule is formidable, perhaps impossible. But the problems are so important that it is necessary to do everything possible to explore possible solutions. The Committee and more particularly the Discovery Subcommittee began work immediately after the Conference.

Three rough sketches of possible approaches were prepared by the Discovery Subcommittee and considered by the Committee at the April meeting. The first seeks to provide specific guidance, defining preservation obligations in considerable detail. The second is similar in outline, but substitutes general obligations of reasonable behavior for detailed directions. The third focuses on sanctions, relying on backward inference to shape preservation obligations. Each sketch is designed to provoke discussion in the expectation that much more work likely will be required before the Committee can decide whether to recommend publication of a proposed rule. The Advisory Committee has approved the suggestion of the Subcommittee that a miniconference be held to pursue the work further. The conference will gather lawyers with perspectives on all sides of a variety of litigation categories, including staff attorneys in private and government organizations. It also will include technology experts in search of current information about the most efficient methods of preserving, searching, and utilizing electronically stored information. It will be held on September 9, a date chosen to enable the Subcommittee to develop new models for consideration at the November Committee meeting.

In addition to the members of the Discovery Subcommittee, others invited to participate in today’s conference include Thomas Allman, retired GC, BASF Corp.; Jason Baron, National Archives and Records Administration; Theresa H. Beaumont, Google; William P. Butterfield, Hausfeld LLP; Bart Cohen, Berger Montague; Gordon V. Cormack, professor, University of Waterloo; M. James Daley, Daley & Fey LLP; Alex Dimitrief, General Electric Co.; Andrew Drake, Nationwide Insurance; U.S. Magistrate Judge John M. Facciola; Yvonne Flaherty, Lockridge Grindal Nauen, PLLP; Maura Grossman, Wachtell, Lipton, Rosen & Katz; Gregory Joseph, Law Offices of Gregory Joseph; Robert Levy, ExxonMobil; Hon. Nan Nolan; Robert Owen, Sutherland, Asbill & Brennan; Ashish Prasad, Discovery Services LLC; John K. Rabiej, The Sedona Conference; John Rosenthal, Winston & Strawn; U.S. District Judge Shira Scheindlin; Donald Slavik, Robinson, Calcagnie & Robinson; Allison C. Stanton, U.S. Department of Justice; Ariana Tadler, Milberg; Mark Tamburri, University of Pittsburgh Medical Center; and Kenneth J. Withers, The Sedona Conference.

One of the documents the attendees were provided in advance of the conference was a research memorandum prepared by Andrea Kuperman, then rules law clerk to U.S. District Judge Lee Rosenthal, chair of the Standing Committee on Rules of Practice and Procedure. Recently, Texas Lawyer published an interview with Ms. Kuperman about her research.

If today’s conference ends up recommending changes to the FRCP, the recommendations will be considered in November by the Advisory Committee on Civil Rules. Depending on what the Advisory Committee decides, that could be the start of a multi-stage process that could eventually result in formal changes to the rules.

For an in-depth discussion of the issues pertaining to preservation and sanctions, see the May memorandum by Judge Kravitz (starting at page 25 of the memorandum).

Filed Under: Sanctions Tagged With: Court Rules, FRCP, Sanctions, Spoliation

Report: Sanction Requests Rise But Awards Hold Steady for 2011

by Bob Ambrogi | July 28, 2011

Are court-awarded sanctions for e-discovery violations on the rise? A new report on e-discovery sanctions from the law firm Gibson Dunn reveals the trend so far for 2011. But before we get to that, allow us to review some history.

In two posts here last January, we tried to sort through the data regarding e-discovery sanctions and come up with answers. First, based on a survey conducted by King & Spalding and published in the December 2010 Duke Law Journal, Sanctions for E-Discovery Violations: By the Numbers, we published a post, E-Discovery Sanctions Reach an All-Time High, Survey Finds.

Within days of that post, the law firm Gibson Dunn published its 2010 Year-End Electronic Discovery and Information Law Update. In sharp contrast to the Duke Law Journal survey, Gibson Dunn concluded that sanction awards had decreased–and decreased substantially. That led to another post here, Sanctions are Up? Sanctions are Down? Which is It? in which we sought to harmonize these seemingly conflicting reports. As it turned out, the King & Spaulding survey looked at federal e-discovery decisions issued prior to Jan. 1, 2010. The Gibson Dunn survey specifically covered 2010. In the end, both were true — while sanction awards steadily rose over the course of several years, culminating in 2009, they dropped in 2010.

Now, Gibson Dunn has released its 2011 Mid-Year E-Discovery Update, analyzing 187 e-discovery decisions issued by federal courts from Jan. 1 to June 15. It finds a dramatic increase in the number of instances in which litigants sought sanctions — 68 so far this year compared to 31 at the same point last year. Even so, there was virtually no increase in the rate at which courts awarded sanctions. So far in 2011, courts awarded sanctions in 56% of the cases in which they were requested. The rate for all of 2010 was 55%. (The actual number of cases in which sanctions were awarded in 2010 was 55, according to Gibson Dunn. So far this year, the number of sanction awards is 38.)

Not all the sanctions are monetary. Other types of sanctions include evidence preclusion, instructions allowing adverse inferences, and case dismissals. The following chart from the Gibson Dunn survey shows 2011 sanction awards by type and percentage of case.

The Gibson Dunn mid-year report addresses a number of e-discovery issues in addition to sanctions. With regard to search methodologies, the report says that no cases this year have addressed the legal implications of using predictive coding or other advanced search technologies. Even so, the report adds, “there is no doubt that these tools are becoming better known. Even the mainstream media started to pay attention to these advanced search methodologies this year.” As evidence of that, the report points to two articles, John Markoff’s piece for the New York Times, Armies of Expensive Lawyers Replaced by Cheaper Software, and Ben Kerschberg’s blog post at Forbes, E-Discovery and The Rise of Predictive Coding.

On the subject of inadvertent disclosure of privileged materials, the report suggests that courts are kinder to lawyers who use standard e-discovery review tools. Courts are more likely to find that reasonable efforts were made to prevent inadvertent disclosure when lawyers use some sort of e-discovery software. In one case, this was true even though the software malfunctioned and failed to catch an email that should not have gone through.

Perhaps the most telling finding of this mid-year report is that there is such a thing as “discovery karma.” The report discusses the case of Lee v. Max Int’l, LLC, 638 F.3d 1318 (10th Cir. 2011). If for no other reason, the case is notable as one of the few federal circuit decisions to squarely address e-discovery. But there is more. In affirming the sanction of dismissal for the plaintiff’s repeated discovery misconduct, Circuit Judge Neil M. Gorsuch, writing for the panel, concludes:

There is such thing as discovery karma. Discovery misconduct often may be seen as tactically advantageous at first. But just as our good and bad deeds eventually tend to catch up with us, so do discovery machinations.

And with those words, we come full circle back to the question of whether sanctions are up or down or whether it even matters. In the end, what matters is not what happens in all the other cases. What matters is the karma you bring to your case. For that, you can cite the 10th Circuit.

Filed Under: Case law, Sanctions Tagged With: Case law, Predictive Ranking, Privilege, Sanctions

Irate Federal Judge Rules that Slogged-Down Search Waives Privilege

by Bob Ambrogi | May 11, 2011

It is no secret that judges and magistrates are losing patience with lawyers and litigants who abuse the e-discovery process. The latest example of this came in an opinion handed down this week by Royce C. Lamberth, chief judge of the U.S. District Court for the District of Columbia. Lambasting a defendant for its “repeated, flagrant, and unrepentant failures” to produce thousands of responsive emails, Judge Lamberth ruled that it had waived all objections – including objections that the emails were protected by attorney-client privilege – and would be required to produce all the emails in short order.

What is remarkable about this case, DL v. District of Columbia, is that the full extent of the defendant’s failure to produce only came to light on the day trial was to begin, in a class action that had already dragged on for six years and in which the judge three years earlier had ordered the defendant to produce the emails. On the day trial was to begin, plaintiffs’ counsel informed the judge that the defendant had produced thousands of emails just the day before and that new productions continued to flood his office.

Indeed, he said that his office had received thousands of e-mails just days before trial and that the District had indicated that it was going to continue producing thousands of e-mails on a “rolling” basis even after the trial concluded. Such a “document dump” might be legitimately explained if these e-mails were new and thus couldn’t have been produced sooner. But plaintiffs’ counsel indicated that many were more than two years old.

For the defendant to produce documents after trial, the surprised judge said, would be like a comic telling his jokes after delivering the punch line or a plane deploying its landing gear after touchdown. In search of an explanation, the judge turned to counsel for the defendant and asked why these e-mails were just coming to light.

Defense counsel indicated that they were the result of a “supplemental search” that had yielded tens of thousands of e-mails that had to be reviewed for relevance and privilege. She also said that this process of new searches and review had been “ongoing for months.” The Court asked her why she failed to mention this at the pretrial conference. She responded that the District didn’t know it was going to fail to complete the review process before trial began and thus saw no need to inform the Court of the ongoing discovery.

The Court asked why the District chose to undertake this process in secret without informing it of what was happening. She responded that the District was understaffed, the discovery was voluminous, and there simply were not enough bodies to process it all before trial.

Upon hearing that, the exasperated judge issued his order directly from the bench. He ordered the defendant to produce all of its e-mails within one week of the close of trial and ruled that it had waived privilege and objections with regard to the emails yet to be produced. (The deadline of one week after trial was set to allow plaintiffs time to reopen the trial record in the event the emails produced new evidence.)

Defendant Had ‘Absolutely No Excuse’

The written opinion that Judge Lamberth issued this week came after the defendant filed a motion asking him to reconsider the order he issued from the bench. If counsel for the defendant thought the judge might have cooled down in the interim, she was wrong. The motion argued that the defendant should not be sanctioned because it made a good faith effort to produce the emails before trial. Here is what Judge Lamberth said about that:

Whether the District made a good-faith effort to produce all responsive e-mails before the trial is irrelevant. As explained above, it was not sanctioned for failing to make a good-faith effort. It was sanctioned for openly, continuously, and repeatedly violating multiple Court orders, failing to adhere to or even acknowledge the existence of the Federal Rules’ discovery framework, and committing a discovery abuse so extreme as to be literally unheard of in this Court. The Rules require more than simply making a good-faith effort to produce documents. They require adherence to a very precise framework for navigating the discovery process. Moreover, the duty to adhere to clear Court orders is among a lawyer’s most basic. Were it not for those two directives—the Federal Rules’ discovery framework and Court orders regarding discovery—discovery would devolve into pure bedlam. Disciplined adherence to those Rules and Orders on the part of courts as well as parties is the only tool our system has to wrangle the whirlwind as it were and tame an otherwise unmanageable part of the litigation process. A good-faith effort to produce documents in the absence of adherence to Court orders and the Federal Rules is useless.

As for the sanctions he imposed, Judge Lamberth explained that the defendant had “absolutely no excuse for its behavior in this case. It knew of its discovery obligations and it knew how to file a motion for extension of time.” At whatever point the defendant realized it would not be able to comply with the discovery order, it should have alerted the court and asked for more time, he said.

Regarding his order that the defendant had waived privilege in the yet-to-be produced emails, the judge said that this was not simply punitive. “Instead, the Court sought to specifically deter the District from misbehaving in this way in the future and to generally deter other parties from doing the same by putting them on notice of the fact that this Court takes the Federal Rules’ discovery framework seriously,” he explained.

The Catalyst Take: Watch Your Head

What are the lessons to be learned from this decision? Here are two fairly obvious ones:

1. If you’re in over your head, you need help to dig yourself out. The opinion makes clear that defendant’s counsel knew she did not have the staff to handle the volume of email that had to be reviewed. Not only did she know it, but she knew it years earlier. There is no indication that she sought help, either in the form of technology or consulting. Had she done so when she first realized there was a problem, the problem would never have snowballed into a crisis.

2. If you are unable to do something the law expects you to do, don’t hide your head in the sand and hope no one will notice. The judge made clear that if defendant’s counsel had only asked for more leeway, she would have received it. The defendant’s complaints that it was overwhelmed “fall on deaf ears,” the judge said, “because it failed to seek relief.”

I urge you to read the full decision and invite you to share your thoughts in the comments below.

[Hat tip to The BLT: The Blog of Legal Times, which first reported the ruling.]

Filed Under: Privilege, Review, Sanctions, Search Tagged With: Case law, Privilege, Sanctions, Search

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