Nine Points Impacting E-Discovery Costs

There was a time when state court civil disputes did not involve the risk of astronomical e-discovery costs. That time has passed. Just as e-discovery in federal courts reaches some semblance of uniformity, the fifty (very independent) states have begun to realize that discovery in the Digital Age will necessarily involve "staggering" amounts of electronically stored information (ESI).

Since 2003, 30 states have adopted rules or enacted statutes that specifically address ESI management, preservation and production in civil disputes. New York and seven other states have developed their own methods for managing e-discovery, while California (and 21 states like it) generally follows the Federal Rules of Civil Procedure. The remaining 20 states (e.g., Illinois) have yet to adopt any e-discovery rules, but most recognize "the increasing reliance on computer technology," and some explicitly (by judicial interpretation of existing discovery rules) obligate civil litigants to produce ESI as part of their state's existing discovery obligations.

Although all 50 states have somewhat different approaches to managing e-discovery, there are a few trends in how states treat e-discovery that impact costs.

Some of the important trends include:

1.   Discretionary Cost-Shifting. While the federal rules are silent on who should bear the cost of retrieving "inaccessible data," certain states (e.g., Texas) require that a judge order a party requesting inaccessible data to incur the cost of producing it. Other states (like California and Mississippi) give the judge the option to shift the cost of producing "inaccessible" ESI. Given that the retrieval and production of "inaccessible data" can easily cost hundreds of thousands of dollars, the discretion (or obligation) to shift those costs can have a significant impact on the litigation budget.
 

2.   The Meet and Confer. Some states (like New York and Delaware) have made the "meet and confer" the cornerstone of their methodology for managing e-discovery, while other states have abandoned the requirement altogether. Do not miss this opportunity to seize control of the e-discovery process. Skipping an early “meet and confer” may appear to save money and avoid the aggravation of dealing with the "unreasonable" opposition; however, more progressive literature on e-discovery suggests that the "meet and confer" actually saves costs in the long-run and helps insulate the parties against the risk of e-discovery "do-overs" and even more severe sanctions.
 

3.   Safe Harbor. Federal Rule of Civil Procedure 37(e) forbids a court from ordering sanctions against a party who has destroyed potentially relevant ESI "as a result of the routine, good-faith operation of an electronic information system." Although practitioners debate how "safe" the harbor really is in federal courts, several states have eliminated the "safe harbor" altogether. This means that litigation holds in state courts should be implemented as soon as litigation is reasonably anticipated.


4.   Sanctions. It also is important to know what activities (or failure to act) will prompt the court in your jurisdiction to levy sanctions. Counsel should not assume (especially in states that don't follow the federal rules) that state courts will levy sanctions in the same manner and for the same conduct as federal courts. This analysis will inform your discovery strategy and help insulate against the risk of state court sanctions.

 

Although there is no substitute for becoming familiar with each state's e-discovery rules before formulating an e-discovery plan, there are a few fundamental practices that will help manage e-discovery costs (and help avoid sanctions) regardless of your jurisdiction.  Savvy litigants should:

1.   Budget for e-discovery costs in every case (based on the rules of the jurisdiction where the dispute is venued) so that you (and your outside counsel) are forced to address how the state's approach to e-discovery might affect your case.


2.   Discuss e-discovery issues and attempt reach agreement about the parameters of ESI preservation and production as early in the case as practical regardless of whether your jurisdiction requires a “meet and confer.” If the state court rules do not require a “meet and confer” and the opposition refuses, ask the court to order the parties to meet and discuss e-discovery.


3.   Know the most likely circumstances where the jurisdiction has awarded sanctions in e-discovery cases.


4.   Oversee the data collection process in your cases, but try to avoid having your internal IT department collect the data.


5.   Document the steps taken to prevent the destruction of potentially relevant ESI
In additional to local counsel, good resources to check on current state court discovery rules and decisions are maintained by Kroll Ontrack.
 

This article was originally published by Steven Hunter, a Quarles & Brady partner, in Inside Counsel

The Litigator's Guide to E-Discovery Sanctions: Who Pays the Piper When ESI "Disappears"?

As interest in e-Discovery continues to grow, there's no question what's the driving force that grabs the headlines. Sanctions, of course.   It is the water cooler of the ESI world.  Sanctions capture clients' interest, and motivates unwitting attorneys to pay attention to the growing field that is e-discovery. And while it may be known that significant sanctions have recently been imposed for e-discovery violations, what is missing is perspective. How often are sanctions requested? When will they be imposed? How severe will the punishment be? What did the client and/or attorney do wrong?

A recent study by three King & Spalding attorneys that was published in the Duke Law Journal, attempts to provide some of this perspective. A full copy of the article can be found here. They identified 401 e-discovery cases where sanctions were sought dating back to the early 1980's and through January 1, 2010. Of those cases, sanctions were awarded in 230 cases.

How many cases are there today? Likely many more. It should be no surprise that the number of e-discovery sanction cases has been growing in recent years -- and exponentially.  As recently as 2003, there were only seven e-discovery sanction cases. In 2009? That number spiked to 111. To put this in perspective, these 111 cases outnumber the total for all of the years prior to 2005 combined, and accounted for over 25% of the all cases ever reported.

So sanctions are being sought and awarded on average in over fifty percent of the cases (401/230).  But how severe are the penalties?  Courts awarded in excess of $5 million in five of the cases identified, and in excess of $1 million in four of the cases. Courts also terminated the action, either by dismissal or default judgment, in thirty-six of the identified cases.

Note, however, that the above cases involved extreme misconduct. Of the thirty-six cases that courts terminated, thirty-four involved willful misconduct or bad faith behavior. Only two involved gross negligence, and none involved negligence. Moreover, these extreme examples are the minority. They only account for ten percent of the e-discovery sanction cases, and twenty percent of the cases where sanctions were awarded.

The study also revealed that defendants were sanctioned three times more often than plaintiffs. This makes sense because for defendants are more likely to hold ESI relevant to the lawsuit and to face broad discovery demands from plaintiffs. The most common misconduct was failure to preserve ESI followed by failure to produce and failure to produce in a timely fashion.

Judicial sanctions of counse -- whether through money or orders to attend certain legal education classes -- are also increasing, though this is still considered a drastic remedy. The study identified thirty cases where counsel was sanctioned, including seven instances in 2009 alone. The vast majority of these cases involved a pattern of misconduct as opposed to isolated incidents. The predominant sanction was an award of attorneys' fees and costs, which ranged from $500 to $500,000.

The bottom line:  sanctions for e-discovery are on the rise and they can be exorbitant. Clients and practitioners can take some solace, however, in two facts:  (a) the most severe sanctions only result from the most egregious misconduct; and (b) while sanctions may be growing, they still remain relatively small in number and infrequent.

For additional thoughts on this topic and the Duke Law Journal article, please visit the excellent article in the ABA Journal by Debra Cassens Weiss or the report from the Catalyst E-Discovery Blog.
 

Compliance Officer Found Liable for Failing to Preserve Data

A recent ruling of the Securities and Exchange Commission (“SEC”) should serve as a yet another reminder of the importance of adequately preserving electronically stored data.

On July 2, 2010, the SEC ruled that vFinance Investments Inc., a Florida based broker dealer, violated securities laws by failing to preserve and produce electronic communications requested by the SEC as required by Section 17(a) of the Securities Exchange Act of 1934. In re vFinance Investments Inc., SEC, Admin. Proc. File No. 3-12918, 7/2/10.

 

In addition, as another example of the growing trend of blaming corporate executives for e-discovery failures, the SEC held that the firm’s former chief compliance officer, Richard Campanella, was liable for willfully aiding and abetting vFinance’s violations. The SEC sustained an administrative law judge’s decision censuring the Campanella and assessing penalties of $100,000 and $30,000 against the firm and Campanella, respectively. The SEC also barred Campanella from the industry for two years.

 

The penalties stemmed from vFinance’s failure to preserve and produce electronic communications of a branch manager at one of the firm’s offices. In July of 2005, the Enforcement Division of the SEC contacted Campanella to alert him regarding a forthcoming document request regarding Lexington Resources, Inc. -- the branch manager acted as a market maker for its stock. Although it was obvious to Campanella that the branch manager would not produce the requested documents, he waited almost six months after the division’s request to threaten to fire the branch manager for not doing so. In spite of the manager’s noncompliance, Campanella never followed through on the termination threat, giving the branch manager time to destroy the documents sought by the Enforcement Division. In addition, while Campanella was aware that the branch manager was sending and receiving email relating to Lexington Resources from a personal email account, he never implemented a system to preserve such email.  Because Campanella failed to act when he had a duty to do so, the SEC found him liable for aiding and abetting vFinance’s violations.  

 

Campanella was found liable for aiding and abetting vFinance’s violations even though he did not have actual knowledge that his failure to act constituted a violation. At oral argument before the SEC, Campanella’s counsel argued that in order to ensure certainty in the law, the standard for aiding and abetting in SEC administrative actions should be the same as in federal district courts, where actual knowledge is required. The SEC disagreed, holding that “recklessness is sufficient to establish aiding and abetting liability, and here we find Campanella’s conduct was variously knowing and extremely reckless.” 

 

There are two important implications here:  (1) corporate executives are not immune from e-discovery sanctions by virtue of being a few corporate steps removed from the process; and (2) the standard for liability in SEC actions is lower than in district courts -- recklessness rather than actual knowledge.

 

Author of the Zubulake Opinions Decides New E-Discovery Case, Chiding Those With A "Pure Heart and Empty Head"

Federal district court judge Shira Scheindlin -- who penned five seminal opinions in the case of Zubulake v. UBS Warburg -- has weighed in again on a litigant's duty to preserve electronically stored information (“ESI”) relevant to pending or reasonably foreseeable litigation. She even titled her opinion, "Zubulake Revisited: Six Years Later."

In Pension Committee of University of Montreal Pension Plan v. Banc of American Securities, LLC 05-CIV-9016, 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010), Judge Scheindlin sanctioned thirteen plaintiff investors for their failure to preserve ESI.  Along the way, she sketched a general framework for determining how much to blame a litigant for its failure to preserve ESI and what sanctions to impose when a litigant's conduct is blameworthy.

But the opinion will be more than just a warning. If Zubulake's reception is any guide, the analytical framework laid out in Pension Committee will greatly influence judicial thinking about the discovery of ESI.  Practitioners would be wise to be familiar with its contents. 
 

Judge Scheindlin begins Pension Committee with some rough definitions, tailored to the discovery context, of three familiar classes of misconduct: negligence, gross negligence, and willfulness. She writes that negligence can result from "a pure heart and an empty head" -- for example, if a litigant acting in good faith fails to collect the records of employees who are peripherally connected to the litigation. A heart somewhat less pure (or perhaps a head more empty) can result in grossly negligent or even willful misconduct. A litigant is at least grossly negligent it fails to collect records from key players in pending or reasonably foreseeable litigation or if it destroys relevant email or certain backup tapes. 

Pension Committee then discusses the sanctions that a court may apply when a litigant wrongfully destroys, alters, or loses ESI -- and thus "spoliates" that evidence. These sanctions include requiring additional discovery, awarding a monetary remedy to the innocent party, imposing a fine on the litigant, issuing special instructions to the jury, excluding certain evidence at trial, or terminating the case with a default judgment or dismissal. A court should always elect the least punitive sanction that can remedy the harm to the innocent party and wield enough force to work as a deterrent. Terminating a case as a discovery sanction is appropriate "in only the most egregious cases, such as where a party has engaged in perjury, tampering with evidence, or intentionally destroying evidence by burning shredding, or wiping out computer hard drives." 

Pension Committee also addresses the difficult question who should bear the burden of establishing that missing or destroyed ESI was relevant to the litigation and that the innocent party has been harmed by its loss. Judge Scheindlin's answer is that the burden may shift depending on how badly the litigant responsible for losing or destroying information has behaved. A willful or grossly negligent litigant is responsible for showing that no harm fell upon the innocent party. But the innocent party must shoulder the burden of proof if the offending litigant behaved only negligently. 

In deciding the case, Judge Scheindlin rejected the defendants' claim that the plaintiffs had engaged in willful misconduct -- and turned down the defendants' request for dismissal as a sanction -- but still found that each plaintiff had been negligent or grossly negligent. All the plaintiffs had failed to timely issue a written litigation hold directing employees to preserve all relevant records and creating a mechanism for collecting the preserved records for discovery. Each grossly negligent plaintiff also had made one or more of the following mistakes: deleting or failing to preserve and collect electronic documents, failing to request documents from key players in the litigation, delegating search efforts without any management supervision, destroying backup data that might have contained the only copies of some key players' documents, and describing their discovery efforts in misleading or inaccurate ways in court submissions. 

Judge Scheindlin used a jury instruction to sanction the plaintiffs who were grossly negligent. She informed the jury that these plaintiffs had been grossly negligent in performing their discovery obligations and had lost evidence as a result. She instructed the jury that it could choose to adopt a rebuttable presumption that the lost evidence was relevant and would have favored the defendants. She also permitted the jury to consider the egregiousness of the plaintiffs' conduct when deciding whether to adopt this presumption.       

Judge Scheindlin imposed monetary sanctions on all the plaintiffs, ordering them to pay the defendants' reasonable attorney's fees and costs attributable to the discovery dispute. She also ordered two of the plaintiffs to provide further discovery if possible, noting that the goal of discovery is "to obtain evidence, not to issue sanctions."   

Pension Committee serves as a cautionary tale: Shoddy discovery efforts can result in serious consequences even when intentions are good. A complicated discovery dispute is not cheap to litigate, and the Pension Committee plaintiffs ended up paying the other side's legal fees in addition to their own. Those found grossly negligent also must now persuade a jury not to presume that any lost evidence was favorable to the defendants, even as they try to focus the jury's attention on the merits of their case. 

Litigation Holds Can Be "Tire"some, But Hang In There!

"It ain't over 'till it's over."  Yogi Berra was talking about baseball, but the quote applies just as well to lawsuits.  It is no secret that litigation can be a very protracted process, and, when a party is subject to a litigation hold, it seems that much longer. 

One question that lawyers get with some frequency is "how long do we have to maintain this hold?"  The answer is that it depends.  One touchstone, though, is that the hold should remain in effect until all deadlines for appeal or further review have expired.

In a recent Louisiana case, Pipes v. UPS, UPS was hit with a motion for sanctions due to alleged spoliation of evidence.  One of its drivers was involved in an accident.  After the accident, UPS fired the driver and he filed a grievance protesting his termination.  He argued that the accident was not his fault, but rather was caused by a faulty tire on his delivery van.  His grievance was denied at all stages, and his firing was upheld.  Following the end of the grievance process, van maintenance records were destroyed, and the allegedly faulty tire was released to a vendor.

However, the fired driver then sued both UPS (for firing him) and his union (for inadequate representation) in federal court.  When he discovered that the maintenance records and tire were gone, he brought a motion for sanctions.  UPS's managers testified that they thought they could put the matter behind them when the grievance was decided, and so had gotten rid of the evidence.  The court ultimately declined to sanction UPS because the driver's claim lacked merit, and the tire and maintenance records were ultimately only slightly relevant to his claims.

As demonstrated by this case, it is imperative that litigation holds remain in place until appeal or review opportunities have passed.  This is a tricky issue where, as here, the avenue for appeal may be novel (one of UPS's managers testified that he had never seen a grievance decision appealed).  It is important that the person managing the hold make sure that all key players are on the same page about when the hold may be released, and that attorneys keep their clients informed about the possible avenues and timelines for appeal.

A Doll's House of Cards: Wanton Laptop Destruction Leads to Sanctions

What happens when Nineteenth Century dolls meet Twenty-First Century litigation? Sometimes - sanctions! Kvitka v. The Puffin Co, LLC, 2009 U.S. Dist. LEXIS 11214 (M.D. Pa. Feb. 13, 2009) reminds us that the failure to preserve relevant ESI can mean disaster in any litigation. Although few of us would fail to recognize the red flags posed by Ms. Kvitka's behavior in this case, it bears repeating that even the inadvertent failure to preserve ESI can fatally compromise an otherwise-valid claim or defense, even in a doll-sized case.

Nancy Kvitka had advertised her antique bisque-headed dolls in the magazine Antique Doll Collectors, published by Puffin Company, LLC, since the magazine's first issue in 1998.  In August 2005, the magazine notified Ms. Kvitka that it would no longer publish her advertisements because of a large number of complaints about her business practices, including her disparagement of other advertisers and misleading advertisements.

 

Upset, Ms. Kvitka sent a letter back, intimating that forged or altered emails had led to the dispute. When Ms. Kvitka threatened litigation, Defendants notified Ms. Kvitka that Puffin had a file containing several emails written by Ms. Kvitka disparaging its other clients. Defendants' counsel also sent a letter to counsel for Ms. Kvitka reminding them that Ms. Kvitka's computer - and, in particular, the hard drive and the email messages contained there - needed to be preserved as potential evidence in the threatened litigation. "As you know," the letter warned, "emails can be deleted, but they cannot be erased."

 

Ms. Kvitka filed suit in Pennsylvania state court in January of 2006. She later claimed that, shortly after filing the state court litigation, she began having problems with the laptop she presumably used to send the offending emails. The laptop was "doing wonky things, ridiculous things," she said, and "it was difficult to receive emails, it was difficult to send emails..."  Nonetheless, after she ordered a new laptop, she successfully received email confirmation of that order on the old laptop, and forwarded that email confirmation to her computer technician on that old laptop. Hmmm.

 

Once her computer technician set up the new laptop, Ms. Kvitka THREW THE OLD LAPTOP IN THE TRASH.   (I guess she couldn't pull a Torvald and burn it?)  Mere days later, the court inquired about the status of the original emails Ms. Kvitka supposedly sent from the old laptop. Ms. Kvitka failed to inform the court of the destruction of the old laptop, and instead abruptly terminated the state court litigation and refiled her claims in federal court.

 

Ms. Kvitka successfully concealed the fate of her old laptop until January 2008, when Defendants moved for an order of inspection of her new laptop. She then claimed that, although she had not deliberately transferred any data between laptops, "some" emails had mysteriously made their way from the old laptop to the new laptop, while others had just as mysteriously disappeared forever.

  

Although such magical things may happen in dolly-land, they don't happen in the real world of ESI, and the court wasn't buying it either. Finding that Ms. Kvitka had acted in bad faith and "with the greatest degree of fault" in destroying her old laptop, the court imposed sanctions for the intentional spoliation of evidence, including dismissal of Ms. Kvitka's claims and an adverse inference instruction on Defendants' cross-claims.

 

Naturally - and much like your dear blogger - the court couldn't resist quoting Ibsen. Noting with dismay Ms. Kvitka's many implausible attempts to conceal her malfeasance, the court counseled her that "[m]any a man can save himself, if he admits he's done wrong and takes his punishment." (I was hoping for "it would be the greatest miracle of all if you avoided sanctions here, lady.")

Ode to E-Discovery in 2008

Flooding the internet, they consistently accrue:
Blawgs offering e-discovery 'Year in Review's;
But these go on about facts and case histories too,
Before getting to the point of what you can and can't do.

Why not cut to the chase? Why not give it up straight?
Stripped below are the basics of two thousand and eight.
We'll start off with the general dos and the don'ts;
The haven'ts, the shouldn'ts, the emphatically won'ts.

Quite instructive are Canon's and Keithley's examples
Of "lackadaisical attitude" of defendants. As samples:
Do not find that hard drive behind the client's home door,
When discovery has been ongoing for a year or for more.

Do not stumble on computer reports you said "did not exist"
In an e-folder marked "Reports" that you for some reason missed.
And periodically remind clients and their IT personnel
Of the need to preserve the source code that was written on that Dell.

When you don't produce e-mails, the court said in Peskoff
Explain your search method and why, at production, you scoffed.
But if you contributed to information deletion or loss
And the court orders recovery, you won't get your costs!

Do not say you've e-searched when it's just a tall tale:
This was sanctioned under Rule 26 in R&R Sails.
There were costs sanctions also in Ajaxo, among a larger plethora.
And sanction of termination in Arteria and also Pandora.

In Keithley sanctions were imposed even on a party pro se
And in Schwarzenegger for "foot dragging" and a "litany of delays."
But take heed, warned O'Keefe -- don't request termination on whim.
Do not "strike at a king" unless you're sure you'll "kill him."

O'Keefe (plus Equity, Victor) gave lawyers heart attacks.
For saying that search term effectiveness is for experts to crack;
And that if lawyers pick and evaluate the key words instead
They are moving toward places "where angels fear to tread."

The courts warned that when using a method of searching
Learn first of its weaknesses through prior researching.
This was why D'Onofrio rejected what both experts said
And created a brand new search protocol method instead.

Rule 502 on preventing waiver through "reasonable steps"
Saw decisions pronouncing judgment on various missteps.
Alcon acknowledged that the Rule's very recent debut
Was designed to avoid "expensive, painstaking review."

Despite this pronouncement, some courts have cried "waived"
As to attempts made in hindsight to have privilege saved.
Rhoads found possible waiver for documents mistakenly produced
If they were not in the privilege log – there could be no excuse.

And failure to take measures that could prevent waiver
Like claw-back agreements, or Sedona-type saviors
Led to Victor’s conclusion, which uncommonly held
That the attorney-based privilege at issue was quelled.

Moving on, Mancia addressed the Rule 26 obligation
To meet early on regarding e-preservation,
Proclaiming "adversarial conduct" in e-discovery condemned
As a "burden to the American judicial system."

Some courts dove in early to prevent such discord,
Ordering forensic exams to preserve evidentiary records.
To conserve ephemeral info in Xpel, it was fair;
And when defendants were evading service, it was ordered in Allcare.

Other examples included when a party was unable
or unwilling (in Canon) to preserve/produce on the table.
Just remember: as emphasized in Sterle and Square D
Do not interfere with a court-ordered forensic decree.

Rodman, Reinhard and Younessi addressed nonparty subpoenas
And the protection of confidential, trade secret arenas.
Where nonparties are concerned and offer up much resistance
In-house searches are fine, or neutral expert assistance.

The debates continue on metadata versus non-native tracks
And Aquilar labeled metadata as being "the new black."
That court ordered re-production of non-natives with meta
Though the recipient was required to pay costs, as pro rata.

But not all courts required conversion to a metadata mode.
Extra burden led D'Onofrio to an "only if necessary" ode.
And Autotech said doc requests must actually require "native" --
You can't ask for it in hindsight by getting creative.

Yet if e-documents already exist in original native form
And the requests do not contain any language that informs,
White condemned the conversion to non-native in litigation
Since this is done just to increase the opponent's frustration.

Finally, social networks are making an appearance in law
And becoming a most popular e-discovery draw.
The field is wide open on the extent to which these
Are discoverable and admissible, or cannot be seized.

Flagg required defendants to give ISPs consent
And to produce ISP-retrieved records of texts that it sent.
And in Australia a court made clients even more nervous
By allowing Facebook to be used as a method of service!

We hope you've enjoyed this short "Year in Review"
And that all of this knowledge is useful to you.
We await more developments in two thousand and nine;
And wonder whether and where courts will draw any lines.

 

**For a complete list of the cases discussed above, please contact the author.
 

Use Caution When Doing Your Spring Cleaning!

 

Although we're in the middle of winter, and the Midwest had -40 degree wind chills last week, this is the time for you to think about spring cleaning. I don't mean scrubbing floors or washing windows. Now is the time to develop a record retention policy and a litigation hold policy and then begin appropriately "cleaning house."  Micron Technology, Inc. v. Rambus, Inc., 2009 WL 54887 (D. Del. Jan. 9, 2009) shows us why it is so very important to have a litigation hold policy in place before starting that spring cleaning.

Rambus was a microchip technology company that became concerned about possible patent infringements by microchip manufacturers. It sought counsel regarding possible litigation, and counsel developed a litigation strategy. During this time, Rambus also designed and implemented a record retention policy, then held a series of "Shred Days" where many expired records were destroyed.

Micron sought a declaratory judgment from the court that its designs did not infringe on Rambus' patent.  The court held a separate trial on whether Rambus' wholesale destruction of documents pursuant to its document retention policy constituted spoliation of evidence and the appropriate sanction to be imposed on Rambus if in fact spoliation had occurred.  

In analyzing the spoliation issue, the court found that Rambus had a duty to preserve its documents once litigation became reasonably foreseeable.  According to the court,

Rambus knew or should have known, that a general implementation of the policy was inappropriate because the documents destroyed would become material at some point in the future.  Therefore, a duty to preserve potentially relevant information arose in December 1998 and any documents purged from that time forward are deemed to have been intentionally destroyed, i.e. destroyed in bad faith. 

Because Rambus' bad faith was so clear and convincing and because Rambus destroyed innumerable documents relating to all aspects of Rambus' business, the court determined that the very integrity of the litigation process had been impugned.  The court found that neither adverse jury instructions nor the preclusion of evidence nor the imposition of fees and costs on Rambus could cure the damage done by the massive document destruction.  Instead, the court delivered the ultimate sanction of all, it declared Rambus' patents involved in the lawsuit unenforceable. 

The moral of the story?  Companies must exercise extreme caution in implementing document retention policies and must strongly consider whether a "litigation hold" needs to be placed on some documents, even in cases where litigation has not been officially commenced yet.  Consequently, when you get that itch to do some spring cleaning, plan ahead so that you can protect your intellectual property and your business.

No One Escapes E-Discovery Obligations

Two e-discovery articles this week highlight a theme to remember:  no one escapes document retention and e-discovery obligations.

You think you can't lose.  The facts are on your side.  The law is on your side.  You have a slam-dunk motion for summary judgment.  Or three slam-dunk motions.  You can coast through until you prevail on the merits, right?  WRONG  Leonard Deutchman in the Pennsylvania Law Weekly looks at two of the more-famous e-discovery cases from 2008 - Qualcomm, Inc. v. Broadcom Corp. and Keithley v. The Homestore.com, Inc. - both of which demonstrate that even when you prevail on the merits, only a fool disregards her document retention and e-discovery obligations. 

In Qualcomm, the appellate court reversed an adverse judgment on the merits in the underlying patent infringement case, but  upheld the lower court's findings and rulings as to spoliation and other e-discovery violations, including sanctions imposed on counsel.  In Keithley, although the court ruled for the defendants on the merits, it adopted the magistrate judge's sanctions recommendations for spoliation of evidence and late production of discovery.  The only bright spot for defendants on the e-discovery front was that the court denied the plaintiffs' motions for adverse inference instructions, solely on the grounds that defendants' victory on the merits mooted that issue. 

Even the leader of the free world isn't exempt from document retention and e-discovery obligations.  As this Associated Press article on findlaw.com reports, on January 15, Magistrate Judge John Facciola "tore into" the Bush White House, finding that the administration had failed to meet its obligations to preserve ESI, including millions of missing e-mails.  And Judge Facciola isn't the only one hitting the White House hard over its document retention obligations; just the day before, U.S. District Judge Henry Kennedy issued an order requiring the White House to search for emails created between March 2003 and October 2005.

Lessons learned?  No matter who you are - from the most powerful person in the world to the owner of a small company - and no matter how good your case, you ignore your document preservation and e-discovery obligations at your own peril.

Not Just Another "Auld Lang Syne"

On New Year's Eve, we typically gather in a glitter-and-confetti whirl to toast the New Year with champagne…or maybe you're a stay-by-the-fire-and-watch-Times Square type. Whatever your preference to usher in the New Year, you may be interested to know that the singing of the Scottish folk song "Auld Lang Syne" at midnight is not as traditional as you believed - it did not come to yearly use until 1929, when Guy Lombardo's orchestra played it at midnight at the Hotel Roosevelt in New York City, then released a record of it and continued playing it every New Year's Eve afterward.

By the same token, a century from now law firms will no doubt wonder at our tizzy in getting used to electronic document discovery instead of our "traditional" means of producing documents via hard copy. But for now, clinging to the old ways and not making sure that document retention policies are not only up to date but adhered to is costing our clients a mint. As reported by Sheri Qualters in The National Law Journal on December 17, 2008, Kroll Ontrack analyzed 138 reported cases from January to October 2008 and reported that ONE QUARTER of the reported electronic discovery opinions in that period resulted in sanctions issues, while 13 percent addressed preservation and spoliation, 12 percent involved computer forensics protocols and experts, 11 percent, admissibility, and 7 percent, privilege considerations. In one case in the Northern District of California, defendants were sanctioned to the tune of more than a quarter million dollars. Keithley v. The Home Store.Com Inc., No. 3:03-cv-04447 (N.D. Calif., Aug. 12, 2008). That buys a LOT of champagne!

 

It's clear that doing things the way they were done in "old times past" - the literal translation of Auld Lang Syne - will get legal clients in trouble with the Court and could result in heavy financial sanctions. The Court has no "cup of kindness" when it comes to electronic discovery issues. So this New Year, no matter your celebratory preference, resolve to pay attention to your document retention and e-discovery policies, or if you do not have such policies, it's a New Year - a great time to implement a formal policy.

2008 E-Discovery Year In Review

It's that time of the year again .... chilly temperatures, frenzied shopping, offices full of high-calorie treats, and, my personal favorite, year-end "year in review" and "top" lists.  Kroll Ontrack contributes an interesting early entry to the annual roll with its descriptively-titled, "Year In Review: Courts Unsympathetic to Electronic Discovery Ignorance or Misconduct"

Kroll's sobering survey of the approximately 138 reported opinions on electronic discovery issue leaves something rather more ominous than visions of sugarplums dancing in one's head, revealing that over half of those opinions addressed sanctions, data production, or preservation and spoliation issues, with a whopping 25% involving some type of court-ordered sanctions for e-discovery issues.  Kroll also offers its "top five" 2008 cases demonstrating both the breadth of material available through e-discovery and courts' growing intolerance for e-discovery mishaps:

  • In Flagg v. City of Detroit, 2008 WL 3895470 (E.D. Mich. Aug. 22, 2008), U.S. District Judge Gerald Rosen rejected the city defendants' argument that the court's previous order - compelling the production of text messages sent between City employees on city-issued text messaging devices - violated the Stored Communications Act ("SCA").  Although the SCA does not authorize a service provider to disclose electronic communications in response to a subpoena or court order, Judge Rosen found that the law does not override a defendant's obligation under Federal Rule of Civil Procedure 34 to produce relevant, nonprivileged electronic communications in their possession, custody or control.  Rosen reasoned that defendants were both able and obligated to give their consent to SkyTel, the service provider that stored the text messages, to retrieve those messages, which the city must then produce. 
  • U.S Magistrate Judge Paul Grimm contributes once again to the body of e-discovery casleaw with Victor Stanley, Inc. v. Creative Pipe, Inc., 2008 WL 2221841 (D. Md. May 29, 2008), and sheds some light on the "reasonable precautions" parties must take to prevent inadvertent disclosure.  Judge Grimm found that defendants had waived the attorney-client and work product privileges as to 165 electronic documents inadvertently produced in discovery by failing to take several measures that could have prevented the waiver, including a clawback agreement the disclosing party voluntarily abandoned and compliance with The Sedona Conference® best practices.
  • The effectiveness of electronic search terms and methods may be a growing area for expert testimony in both civil and criminal cases, per United States v. O'Keefe, 2008 WL 449729 (D.D.C. Feb. 18, 2008).  Applying the civil e-discovery rules to a criminal prosecution, Magistrate Judge John M. Facciola ordered the parties to collaborate to reach an agreement on production after the co-defendant filed a motion to compel claiming the government failed to meet its discovery obligations.  Judge Facciola further suggested that any judicial review of search methods may demand the services of an expert witness, observing that lawyers and judges who attempt to determine whether search terms are effective venture "where angels fear to tread."
  • Another Judge Facciola decision makes Kroll's top-five list:  Peskoff v. Faber, 2008 WL 2649506 (D.D.C. July 7, 2008).  Peskoff involved an ongoing discovery dispute involving Faber's failure to produce certain emails without explaining why they were not produced or what efforts he had undertaken to locate them.  Finding that Faber's search had been inadequate, the court orderd the parties to seek bids from forensic computer technicians to determine whether the cost of searching for, restoring, and converting the emails from Faber's computers was justified.  Since the court found that defendant's inadequate search efforts, failure to preserve ESI, and overall unwillingness to take "discovery obligations seriously" had caused the need for forensic examination, the court refused to shift costs.
  • Last, but certainly not least, my personal favorite e-discovery cautionary tale of 2008 goes to Keithley v. Homestore.com, Inc., 2008 WL 3833384 (N.D.Cal. Aug. 12, 2008).  A "lackidasical attitude" towards e-discovery doesn't pay, as the defendant in patent infringement litigation learned when the court awarded plaintiffs their attorney fees, expert witness fees and costs that could total over $1 million for re-doing tasks made necessary by defendants’ misconduct and ordered a mandatory adverse inference jury instruction against defendants.  Why?  A litany of e-discovery misconduct that the court described as "among the most egregious this court has ever seen," including:  
    • a defendant employee who "suddenly remembered" after well over a year of discovery demands, court orders and sanctions hearings that he had stored a crashed hard drive that contained some of the source code sought at his home;
    • computerized reports that defendants claimed "did not exist" suddenly surfacing in a hard drive under a directory labeled "reports";
    • defendants' failure to remind technical personnel of the need to preserve crucial source code information, resulting in the loss of backup information when the backup tapes for a failed computer continued to be overwritten;
    • defendants failure to ask the person responsible for transferring files to a new source code control system about the availability of source code until after a sanctions hearing.

Fodder for some 2009 e-discovery resolutions, indeed!

Slaying the e-Discovery Dragon: Are Law Schools Up to the Task?

Ask any lawyer whether the typical law school course is "practical," and you'll likely receive a resounding "No!" - after they stop laughing, of course. But bloggers have stumbled onto a novel idea - why not teach law students practical skills for dealing with e-discovery issues before they are sent out into the legal community? In a recent article, William Hamilton, a commercial litigator at Holland & Knight and an adjunct professor at the University of Florida's Levin College of Law, pointed out that "e-discovery failures continue, apparently unabated" and "many of the dramatic e-discovery failures of the past two years have involved firms at or near the top of the profession." See The E-Discovery Crisis: An Immediate Challenge to Our Nation's Law Schools, November 5, 2008." Some experts believe that "attorney incompetence in e-discovery is so widespread that it presents a massive ethical crisis across the entire legal profession." Id.  So why not educate the next generation of lawyers about the best methods for dealing with e-discovery? These law students can bring a new level of e-discovery competence to law firms, government agencies, and clients. Id. It may be the best method by which the profession can slay the e-discovery dragon and avoid the pitfalls and sanctions of the "e-discovery crisis." 

In his article, published as a guest feature on the e-Discovery Team blog and the Paralegal Profs blog, Professor Hamilton does a thorough analysis of the impact law schools can have on the legal profession by teaching courses on e-discovery. Hamilton himself teaches a course on e-discovery at the University of Florida's Levin College of Law. He points out that most law schools are "blithely continuing to teach civil procedure as if nothing or little is happening 'out there.'" Id. All while the civil justice system "flounders under the weight of digital revolution." Id. Hamilton compares the inaction of law schools to "fastidiously arranging the deck chairs while the Titanic goes under." Id. He calls on law schools to educate young lawyers about the importance of e-discovery. After all, law schools are best equipped to address the e-discovery crisis, because they "operate in an educational environment absent crushing time and business restraints. Law students have the time to think, work, and struggle with e-discovery in a tolerant, incubating environment." Id. Practicing lawyers, on the other hand, are forced to attempt to learn best practices for dealing with e-discovery through CLE programs and seminars, all while trying to deal with the "crush of billable hours and the economics of the modern law firm." Id. Hamilton goes on to describe what a "practical" e-discovery course would look like.  He insists that "teaching e-discovery means working through each of the e-discovery phases outlined in the EDRM model with similar hands-on experimental approaches." Id. He also emphasizes that the students must not be lectured, they must "do." In his own course, Hamilton emphasizes practical experience, and the students conduct mock "interviews" using IT professionals from the University of Florida's Legal Technology Institute as their subjects. See Hamilton's article for a full walk-through of a course in his classroom. 

Professor Hamilton's point is a good one: the legal profession can begin to stop the bleeding from the e-discovery crisis by insisting that the new generation of lawyers be educated about e-discovery issues. Some law schools, like the Levin College of Law at the University of Florida, are already on board. But how likely are law schools across the country to answer Hamilton's call? After all, law schools have been historically slow to offer practical coursework for their students. But as sanctions from e-discovery violations build, law schools may be forced to pull their heads out of the sand and address the critical role they could play in educating the profession about e-discovery. Only time will tell if law schools will answer the call.

Qualcomm v. Lawyers: Let's Get It On!

Things are getting really ugly in what has turned into a grudge match discovery dispute between Qualcomm and the company's outside lawyers.

I wrote recently about the impressive sanctions handed down by a magistrate judge against Qualcomm and its outside counsel after they failed to turn over hundreds of thousands of documents in patent litigation.  Qualcomm's lawyers sought to defend themselves at the sanctions hearing by pointing the finger at Qualcomm's failures in the discovery process.  However, the magistrate judge ruled that they were prevented from doing so by the attorney client privilege.

The federal district court has reversed that ruling.  Four Qualcomm employees had filed declarations with the court that tended to exonerate Qualcomm while placing the blame on the shoulders of outside counsel.  Specifically, Qualcomm alleged that its lawyers had failed to ask Qualcomm for discoverable documents, had inadequately prepared witnesses for deposition and had failed to advise Qualcomm employees of the company's defenses prior to their testimony at trial. 

Because of the introduction of "accusatory adversity" between Qualcomm and its counsel, the district court ruled that the self defense exception to the attorney client privilege should apply.  So, it looks as though the lawyers will get to tell their side of the story.  It'll be interesting to hear what they have to say.

Sanctions Imposed for "Monumental Discovery Violation"

A California federal court judge sanctioned wireless chip developer Qualcomm Inc. and six of its outside lawyers on January 7, 2008 for what the judge labeled a "monumental discovery violation" in connection with Qualcomm's failure to turn over electronically-stored information.  One of Qualcomm's central arguments in patent litigation against Broadcom Corp. rested on Qualcomm's position that prior to September 2003 it had not been involved in working on a committee tasked with creating a video coding standard. 

The fly in the ointment was 46,000 emails (totaling over 300,000 pages) showing that Qualcomm had, in fact, been involved with the committee as early as August, 2002.  What to do? 

Qualcomm apparently decided not to produce the emails even though Broadcom had requested them in discovery.  At the same time, Qualcomm produced lots of emails evidencing its involvement in the committee after September 2003.  Despite knowing about some of the emails, Qualcomm's outside lawyers repeatedly asserted that there was no evidence of Qualcomm's earlier involvement in the committee.  Everybody was up the creek.

The court sanctioned Qualcomm to the tune of $8.5 million in attorneys fees and costs, noting that "Qualcomm's claim that it inadvertently failed to find and produce these documents also is negated by the massive volume and direct relevance of the hidden documents. . . .  [I]t is inexplicable that Qualcomm was able to locate the post-September 2003 [ ] documents that either supported, or did not harm Qualcomm's arguments but were unable to locate the pre-September 2003 [ ] documents that hurt its arguments."

As for the lawyers, the court found that they had "assisted Qualcomm in committing this incredible discovery violation by intentionally hiding and recklessly ignoring relevant documents, ignoring or rejecting numerous warning signs that Qualcomm's document search was inadequate, and blindly accepting Qualcomm's unsupported assurances that its document search was adequate."  The court continued to note that the attorneys "then used the lack of evidence to repeatedly and forcefully make false statements and arguments to the court and jury."  The court referred the attorneys to the California Bar for investigation and possible imposition of sanctions.  We will keep you posted as to the punishment handed down.

A copy of the decision is here.