Discovery Spotlight 2013

12/19/13:  Year in Review.  The long-time readers among you know that we tend to go more than a little "soft" on our last blog of the year, with primary goals of wishing you a happy holiday season, thanking you for your support, and offering an early toast to the New Year.  2013 will be no different with nary an "id" to be found in the text below.

We thought we'd briefly highlight the top three themes we've seen in our work this year -- starting with (1) the continuing shift of e-discovery practice and strategy away from law firms.  Our corporate clients continue to take more control over the legal strategies, decision-making on service providers, project management and even the execution of technical functions.  As it should be!

After that, we see (2) an increasing amount of specialization at the higher levels of the electronic discovery world.  New business models (including some innovative, re-imagined law firm structures) have emerged.  They are built to deliver legal services better, more nimbly, and more client-centrically than the traditional outside counsel model ever did -- or could.

And (3) is the phenomenon we call the Incredible Shrinking Document Review.  Fewer reviewers are needed to review an ever-expanding sheer amount of data.  Thanks to improved culling and searching capabilities in the initial stages of a collection and review, and end-user review features now standard to most review platforms, the days of massive armies of reviewers are dwindling.  And the premium on having highly qualified document review capabilities has never been higher.

OK, now on to the important things.  Enjoy a holiday season filled with good food, drink, and company.  We wish you a happy, healthy, and prosperous 2014.  Most of all, thanks to all of our clients, colleagues, and friends for being part of a fantastic year for Podo Legal!

11/21/13:  Slow Trigger Finger?  Must litigation be "imminent" or only "reasonably foreseeable" to trigger the duty to preserve evidence?  That's the question posed by In re Pradaxa (Dabigatran Etexilate) Products Liability (2013 WL 5377164 (S.D.Ill.)), a class action that includes a dispute over the allegedly premature destruction of a key custodian's data.  That custodian, a former employee of the corporate defendant, was a VP whose data would have contained materials relevant to the litigation.  However, said data were destroyed -- in accordance with the company's records retention policies -- after the employee's departure from the company.  (In re Pradaxa at 2.)

The Plaintiffs' Steering Committee claimed Defendant's duty to preserve evidence was triggered by a number of events which cumulatively put Defendant "on notice that litigation was reasonably foreseeable."  (Id. at 3, 9.)  Since these events transpired before the destruction of the data, Plaintiffs sought sanctions in the form of an adverse inference.  (Id.)  Defendant's position?  The duty to preserve arose only when Defendant knew or should have known litigation was "imminent" -- specifically, upon the receipt of a demand letter relating to the substantive issues of the case that was later filed.  (Id.)

After a detailed analysis of two Seventh Circuit cases on point with In re Pradaxa, the court decides "imminent litigation" is the correct standard to trigger preservation duties, not "reasonable anticipation."  (Id. at 9-11.)  The court also notes that its decision would have been the same under either standard, and that no adverse inference for spoliation could be applied, given the absence of a showing by Plaintiff of Defendant's bad faith in destroying the data.  (Id. at 3, 10, 14.)

The result here leaves some unanswered questions, at least for Seventh Circuit litigants.  Most compelling among them is one suggested by Plaintiffs' assertion that adopting the "imminent" standard could encourage the destruction of relevant evidence not only "whenever a party reasonably foresees, but is not certain, that it is likely to be sued," but even "where a party knows litigation is certain to be filed-but not in the immediate future ...."  (Id. at 10.)  The Seventh Circuit should be on high alert for boomerangs related to this issue.

10/17/13:  Final-Final Recusal Refusal.  This one will be brief.  Not as brief as the U.S. Supreme Court's denial of certs earlier this month in the long-running discovery saga that is -- oops, was -- Monique Da Silva Moore, et al. v. Publicis Group SA, et al., 1 Civ. 1279.  But that makes sense, since the Supremes' proverbial two cents were only two words: Petition DENIED.

As we have told you previously, this case (and its appellate incarnations) involved Plaintiffs' dogged attempts to secure the recusal of Magistrate Judge Andrew Peck.  Plaintiffs cast M.J. Peck as a crusading predictive coding zealot, hell-bent on forcing Defendants' protocols on Plaintiffs in an employment litigation involving high volumes of documents.  Nobody anywhere seemed to share Plaintiffs' views. 

Apparently, the nine robed sages have other things to worry about.  So should Plaintiffs -- like litigating their case. 

09/19/13:  No Dough?  No Dice.  It's often said that e-discovery vendors are a dime a dozen.  But what if you don't have a dime?  Or aren't willing to spend it?  Plaintiff in Northstar Marine, Inc. v. Huffman & Huffman Construction, Inc., Case 1:13-cv-00037-WS-C (S.D. Ala. 2013), an admiralty suit over the alleged failure to pay a referral fee on work Plaintiff referred to Defendant, essentially asked the court this very question, responding to a motion to compel by saying it was having difficulty finding an inexpensive e-discovery technology company.  (Northstar Marine at 2.) 

The court's order replied in no uncertain terms -- tough toenails.  Perhaps most damaging to Plaintiff's attempt to dodge or delay the collection, review and production of responsive documents, was the agreement into which the two parties had entered.  This agreement included very specific protocols and procedures for identifying, collecting and producing ESI.  (Id. at 1-2.)  Plaintiff also was found to have engaged in two months of evasive communications after Defendant had declared it was ready to exchange documents.  (Id. at 2.) 

Rejecting the frugality defense, the court stated, "Plaintiff's attempts to find an inexpensive provider certainly do not constitute due diligence."  (Id. at 4.)  Plaintiff was given two weeks to get its act together and produce the documents to which Defendant was entitled.  (Id.) 

This episode is good for a chuckle, but there are serious underlying issues in play too.  Parties all too often underestimate the costs of discovery.  When this happens, progress in resolving the case can stall, or worse yet, lead to detours that cost everyone more time and money than was required to get to the final destination.  So put on your forecasting and business planning hat early on -- or before you file a case, if you're so inclined.... 

08/15/13:  Stranger in a Strange Land.  When in Rome?  As you can guess, foreign litigants juggling American e-discovery obligations and compliance with their home countries' privacy laws face a "lose-lose" proposition.  Linde v. Arab Bank, 706 F.3d 92 (2013) highlights an increasingly common issue in discovery practice -- i.e., whether or not a party can be forced to produce documents in federal court, in violation of foreign criminal privacy laws.

Plaintiffs in Linde allege that Defendant, a Jordanian Bank with a New York branch, knowingly approved transactions to terrorist groups resulting in injuries to them.  Linde at 95.  To prove their case, Plaintiffs requested documents relating to numerous banking transactions that occurred overseas.  Id.  The bank produced a small fraction of the documents sought.  However, citing Middle Eastern criminal privacy regulations, Defendant sought to withhold the most relevant materials -- even allegedly sabotaging the waiver it was requesting from foreign law enforcement agencies to permit production.  Id. at 98, 113.

The Magistrate Judge required the bank to provide the records at issue (a decision later affirmed by the appellate court).  Id. at 98-101.  In so doing, the Magistrate highlighted the bank's lack of effort to determine whether or not production would in fact violate foreign privacy laws until late in the case.  Id.  Also, the bank's ability to secure waivers from foreign governments to enable the production of similar documents in previous cases stood in stark contrast to its almost complete lack of effort to do so in the instant case.  Id. at 99-100.

The punishment for refusal to comply with the district court's order was a jury instruction for Plaintiffs allowing a negative inference for each transaction the defendants refused to produce.  Id. at 101-103.  In denying a writ of mandamus to overturn the Magistrate's decision, the Court of Appeals noted that a party's ability to skirt discovery requests to avoid criminal prosecution is never set in stone.  Id. at 104.  Rather, courts must consider both production issues and all the circumstances of cases, and balance the competing interests.  Id. at 104-107.  Tacitly recognizing the precarious positions its ruling could place parties in, the court's language concedes that such balancing acts may place parties in murky ethical waters.  But this concession could be as small a comfort to future foreign litigants as to the present one...

Thanks to Podo Legal Attorney/Consultant, Dave Samson, for his contributions to the research and writing efforts for this month's blog.

07/18/13:  We're used to e-discovery staying behind the curtain, with more glamorous aspects of litigation in the spotlight.  But a recent malpractice case reminds us that a lawsuit's outcome can hinge on what happens backstage. 

In an arbitration proceeding, the law firm T. Wade Welch & Associates ("Welch") is battling its insurer, OneBeacon, over coverage for an unfavorable malpractice judgment.  The malpractice suit stems from an antitrust action brought against DISH, a longtime Welch client, by Russian Media Group, LLC ("RMG"). See Russian Media Group, LLC v. EchoStar Comm's Corp. and Kelly Broadcasting Sys., Inc., 3:03-cv-01263-WWE (D. Conn. 2009).  In that case, a Welch attorney produced thousands of irrelevant documents.  When subsequent supplemental requests went unanswered, DISH was hit with discovery sanctions, and was precluded from presenting its own evidence to refute RMG's calculation of damages. 

DISH sued Welch for malpractice.  Welch turned to its insurer for representation.  However, OneBeacon claimed it had no duty to defend Welch, alleging Welch had hidden previous sanctions against the firm when applying for coverage.  The plot sickens -- not Welch's first e-discovery snafu. 

The previous sanctions asserted by OneBeacon were meted out in an unrelated case, when Welch improperly retained a laptop full of data for years after it should have been produced.  Air Comm'n & Satellite, Inc., v. EchoStar Satellite Corp., Case No. 00CV3130 (S.Ct. Col. 2002). 

How does a law firm with an important, national client manage to shoot itself in the foot on seemingly straightforward e-discovery endeavors, not once but twice?  We aren't sure about the specifics in these cases, but we are sure that the nuances of a good, solid e-discovery practice still are poorly understood and poorly executed by many big name law firms.  Too many partners continue to dismiss discovery as junior or mid-level associate play, failing to supervise it adequately.  Assuming they could, of course; most are incapable.  For Welch, this failure led to an arbitration finding that the cost to DISH of Welch's errors and/or admissions was almost $12M.  Whether Welch attorneys were managing e-discovery directly or had delegated that responsibility, the proper systems and processes seem not to have been in place to ensure the defensible discharge of client discovery obligations.

In light of evolving technology and case law, the time is ripe -- if not overripe -- for bringing e-discovery into the light, and into the hands of specialists; whether said specialists hang their hats at law firms or at other service providers.  The risks in leaving discovery in the hands of generalists are greater than sanctions and dollars.  Client reputations, client retention, and law firm viability are at stake.  After all, a law firm that cannot fulfill its time-honored role as carbon filter for client risk and stress has too little to offer.

06/20/13:  Changes Afoot at The ITC....  On 05/15/11, the ITC amended its Rules of Practice and Procedure on e-discovery for proceedings under § 337 of the Tariff Act of 1930. (78 Fed. Reg. 29,618-24 (May 21, 2013) (to be codified at 19 C.F.R. pt. 210)).  § 337 matters involve IP infringement and unfair competition over imports.

The new rules follow the FRCP.  (78 Fed. Reg. 29,618.)  Paragraph (c) of § 210.27 is new and brings the Commission's ESI rules into line with FRCP 26.  Like FRCP 26(b)(2)(B), § 210.27(c) does not require parties to produce ESI from sources "not reasonably accessible because of undue burden or cost." (Id. at 29,624.)  Parties seeking discovery in such scenarios may move to compel.  (Id.)  The opposing party must then show that the ESI is not discoverable because of burden or cost.  (Id.)

The rules come as the ITC faces an unprecedented volume of cases, thanks to a stepped-up pace of investigations over the past five years, with no end in sight.  And larger caseloads mean more ESI.  With the new rules, the ITC hopes to limit the current scope of discovery and reduce unnecessary costs and burdens for all parties.

It will be interesting to see how the rules are applied at the ITC, a forum popular among patent litigants for one reason above all others: the need for speed.  By statute, the ITC must "conclude any such investigation and make its determination under this section at the earliest practicable time."  (Tariff Act of 1930, 19 U.S.C. § 1337 (2010).)  While the ITC maintains a 16-month target for full resolution of cases, patent disputes can go to trial much more quickly.  So discovery is compressed at the ITC, as responses to document requests must be provided within 10 days of service.  (See 19 C.F.R. § 210.30.)  In fact, it is common at the ITC for an ALJ to resolve a discovery dispute via conference calls with the parties, prior to the filing of any written motion.  The relative speed of ITC proceedings appeals to complainants who need timely import bans on infringing products.  The new rules risk dragging out the current expeditious state of discovery.

Furthermore, while the new rules target efficiency in dealing with ESI, they will doubtless invite disputes over what sources are "not reasonably accessible" and what constitutes an "undue burden or cost."  (See 78 Fed. Reg. at 29,624.)  The new rules also lack further guidance for reducing costs, such as: (1) limiting the number of custodians; (2) restricting requests for backup media; and (3) excluding voice mails, instant messages, and documents that are automatically saved.  So it remains an open question as to what effect the new rules will have in § 337 proceedings.

05/16/13:  Changes to FRCP Imminent?  Finally?  In a move that could have profound effects on e-discovery in federal court, a subcommittee of the Judicial Conference’s Committee on Rules of Practice and Procedure recently recommended changes to the FRCP.  (See Report of the Advisory Committee on Civil Rules, April 2013 at 77-104.)  The recommendations would affect multiple FRCP.  Perhaps most notably, they contemplate a two-tier approach to Rule 37(e) sanctions -- one for unintentional spoliation; and another for willful violations of court orders to preserve evidence.  The Committee stated that the purpose was to provide “more comprehensive protection for those who inadvertently and in good faith lose information.”  (Id. at 26 ll. 153-54.)

The Committee was responding to the clamor from businesses in recent years for changes to the FRCP to help clarify obligations to retain ESI in anticipation of litigation.  The confusion stems primarily from the different standards that various circuits apply when determining whether or not to sanction a party for spoliation.  Some circuits impose sanctions only upon a showing of willfulness or bad faith in destroying ESI.  In other circuits, a showing of mere negligence in destroying ESI earns a party a trip to the proverbial woodshed.

To avoid sanctions and embarrassment, many companies now choose to retain much more of their ESI than they otherwise would.  The practical effect of all this uncertainty surrounding sanctions has been the retention of far more data than is necessary, driving up the cost of litigation.

The subcommittee’s proposed rules redefine “sanctions” as those listed in FRCP 37(b), including adverse inference instructions, striking pleadings, default judgment, and dismissal.  (Id. at 26.)  These sanctions would only be available if a court were to find that the failure to preserve was in bad faith and caused substantial prejudice to the innocent party.  (Id. at 27.)

The proposals also include a list of remedial measures specifically not defined as "sanctions" under the FRCP, such as allowing extra time for discovery, requiring a party to recreate the information that was lost, and ordering a party to pay reasonable expenses resulting from the failure to preserve.  (Id. at 26.)  These are simply aimed at eliminating the prejudice that the innocent party suffers as a result of not obtaining the destroyed evidence through discovery.  (Id. at 26, 143.)

These rules do not go as far as some might have hoped in clarifying what types of ESI must be preserved and for how long.  However, they delineate when a litigant will be subject to sanctions for failing to preserve ESI, and make a clear distinction between willful and unintentional spoliation.  As such, the proposed rules represent a step in the right direction in narrowing the scope of discovery and reducing the uncertainties surrounding preservation obligations.  Cheers to that! 

04/18/13: Get Your Claws Out.  In re Coventry Healthcare, Inc., ERISA Litigation, 2013 WL 1187909 (D. Md.), is a class action involving alleged violations of ERISA.  The parties clashed over the proper scope of the time period subject to discovery.  (Coventry Healthcare at 1-2.)  The court distinguished the allowable time period from that of a companion securities litigation action, citing the difference in the nature of the claims and their underlying facts.  (Id. at 3.)

Next, the court considered the burden that would be imposed on Defendants to produce ESI to Plaintiffs.  Defendants claimed that the costs to collect, process, review and produce ESI would outweigh any potential benefits to Plaintiffs.  (Id. at 3.)

The magistrate judge disagreed, noting first that Defendants had not proposed any alternatives to Plaintiffs' requests for the information required to make their case.  (Id. at 4.)  Plaintiffs, by contrast, offered to negotiate different search terms and shorten the discovery period.  (Id.)

Most importantly, however, the court concluded that Defendants could reduce its review and production costs by negotiating a clawback agreement to avoid waiving privilege on any documents provided to Plaintiffs that should have been withheld.  (Id.)  Moral of the story -- play nice, seem reasonable, and win the motion to compel....

03/21/13: $3M+ Technology/Doc Review Award!  After prevailing in a patent dispute, Defendant in Gabriel Tech's Corp. v. Qualcomm, Inc., 2013 WL 410103 (S.D. Cal.), filed for a significant award of attorneys' fees under 35 U.S.C. § 285.  Among the fees claimed were costs incurred for an advanced technology platform and review used to reduce the number of documents to be reviewed manually; and for the manual review of documents deemed potentially responsive.  (Gabriel Tech's at 2.)

The court analyzed the allegations of Gabriel Technologies and the disposition of the claims, all of which were dismissed or resolved by summary judgment.  The judge found the lawsuit to be objectively baseless and subjectively brought in bad faith, thus qualifying as an exceptional case under 35 U.S.C. § 285.  (Id. at 3-5.)  The court also analyzed the issue of awarding attorneys' fees under the California Uniform Trade Secrets Act (Cal. Civ. Code § 3426.4), reaching similar conclusions as it did in its discussion of 35 U.S.C. § 285.  (Id. at 6-8.)

Of great interest is the breakdown of the costs awarded for specialized technology-assisted review (over $2.8M) and manual document review (almost $400K).  (Id. at 9-10.)  Out-sourced discovery costs therefore accounted for over 25% of the total $12M+ attorneys' fees awarded here.  These numbers underscore the continuing and growing migration of this work away from law firms and towards specialized service providers.

Even more interesting is that the lion's share of the out-sourcing bill by far went to the provider of technology-assisted review, not the staffing agency.  So the trend away from old school staffing functions and toward advanced review and technology continues to gather momentum too.  A close look at the attorneys' fees award in this case provides valuable insights into the rapidly shifting delivery of legal services in today's landscape....

02/21/13: Certain You Want to Certify?  It's safe to say that FRCP 26(g) is not often the subject of high and lofty legal debate and discourse.  However, counsel should pay attention to the magistrate judge's ruling in Branhaven LLC v. Beeftek, Inc., 2013 WL 388429 (D. Md.).  The lawsuit, over licensing and distribution agreements between Plaintiff and Defendant, included an allegation that Plaintiff's counsel violated FRCP 26(g).  This rule requires counsel to sign discovery responses only after making reasonable efforts to ensure a client has provided materials responsive to a discovery request.  (Branhaven at 2.)

The court found Plaintiff's counsel failed to comply with its obligations by offering to make documents available for inspection in the future.  Far from reflecting reasonable efforts to identify documents, the offer was found to be "meaningless and arguably misleading," meant only to comply technically with Rule 26(g) while buying time to comply properly.  (Id.)  Plaintiff's attorney made these representations although the search for responsive materials had barely begun.  (Id. at 3.)

The magistrate judge took Plaintiff's counsel to task for having done little if anything to ensure its client's responses were complete, noting a delay of months before email servers were reviewed; or before a technology vendor was even engaged.  (Id. at 3-4.)  Finally, it was not lost on the court that Branhaven was the plaintiff in the case, not the defendant, and thus should have been well aware of its discovery obligations and able to develop and implement strategies in a timely manner.  ( 4.)

Finding that the record reflected "... a casualness at best and a recklessness at worst in plaintiff's counsel's treatment of their discovery duties," the court awarded costs to Defendant for receiving and processing Plaintiff's production.  (Id. at 6.)  Interestingly, the award for costs was made jointly and severally against Plaintiff and Plaintiff's counsel.  (Id. at 7.)  Even more interestingly, the magistrate judge made a point of deeming Plaintiff's senior counsel more culpable for the violation than junior counsel, although the latter had actually signed to certify the discovery responses in question.  (Id. at 8.) 

01/17/13: GC's "Culpable Mind" Leads to Sanctions, Partial Default.  In Day v. LSI Corp., 2012 WL 6674434 (D. Ariz.), Plaintiff sued Defendant for constructive discharge and other employment-related claims.  In late 2010, Plaintiff told HR he was the victim of harassment and discrimination; in early 2011, Plaintiff's attorney wrote to Defendant's brass detailing these allegations and putting Defendant on notice that a lawsuit was likely.  (Day at 2-3.)

Defendant's GC took an active role in the pre-litigation activities, a fact that came back to haunt Defendant in the court's ruling.  The good news: he distributed a hold letter and preservation instructions to multiple employees of the company.  The bad news: the conspicuous exclusion of the person most knowledgeable about Plaintiff's hiring, performance awards and stock option grants -- in short, the employee with the most important information about all of Plaintiff's main allegations.  So, guess whose documents were mostly missing from Defendant's productions?  (Id. at 3-4.)

Plaintiff filed for a default judgment and sanctions, because of the failure to preserve and produce materials from the key player.  The motion was supported by a detailed list of materials alleged to be missing from Defendant's production.  (Id. at 4-5.)  Most damaging to Defendant's attempts to oppose the motion was the GC's heavy, personal involvement in the discovery process.  (Id. at 6-9.)

The court decided the GC had a "culpable mind" and "... at least acted willfully here."  (Id. at 12.)  The GC was also found to have mischaracterized his preservation instructions, with at least one other employee contradicting his testimony.  (Id.)

The price of the chicanery was high.  The judge awarded a default judgment to Plaintiff on his stock option claim.  (Id. at 14-15, 18.)  Also, Defendant was ordered to pay $10,000 in sanctions for causing Plaintiff to incur legal costs to fight the effects of spoliation.  (Id. at 16, 18.) 

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