Case Summary: Phillip M. Adams & Assocs., On Spoliation and Info. Management

Phillip M. Adams & Assocs., L.L.C. v. Dell, Inc., 2009 U.S. Dist. LEXIS 26964 (D. Utah Mar. 27, 2009)

FACTS: Plaintiffs, and requesting party, Philip M. Adams & Associates, alleged infringement of their patents for technology that detected and resolved defects in the most widely used floppy disk controller, thus preventing data from being destroyed. The patents in question were purportedly assigned to plaintiffs by the original inventor. FDC-related defects gave rise to multiple lawsuits, culminating with the settlement of a class action suit against Toshiba in October of 1999.
Requesting party accused producing party of spoliation, as stated in the opinion:

…first, that ASUS has illegally used Adams’ patented software; and second, that ASUS has destroyed evidence of that use. The first assertion is identical to the liability issue in this case. The second assertion is premised on the first: Assuming ASUS used Adams’ software, ASUS’ failure to produce evidence of that use is sanctionable spoliation. Adams has no direct proof of destruction of evidence but is inferring destruction or withholding of evidence. Since Adams is convinced that ASUS infringed, Adams is also convinced that failure to produce evidence of infringement is sanctionable.

Issues we examine:

1. When did the producing party’s duty to preserve attach?
2. How does the Safe Harbor provision (FRCP 37(e)) factor into the determination of sanctions in this case?
3. What role does producing party’s information management system play in the sanctions calculus?
4. How does the producing party’s lack of produced data on certain subjects in the aggregate balanced against the absence of specific evidence of wrong-doing by requesting party?

Issue 1: Court’s reasoning:
Producing party acknowledges receiving a letter from requesting party’s counsel asserting infringement on February 23, 2005. It does not acknowledge receiving an earlier letter dated October 4, 2004. Thus, Producing Party dates the beginning of its duty to preserve from the date of the February letter, and states that it has complied with that duty from that time forward. Producing party takes the position that a delay in giving notice and bringing suit by requesting party is the reason for the lack of available data from the years 2000 and 2001.
The court noted that both parties agreed that “a litigant’s duty to preserve evidence arises when ‘he knows or should know [it] is relevant to imminent or ongoing litigation.’” The court acknowledged the producing party’s stance that this trigger occurred upon receiving counsel’s letter, but stated that this was “not the inviolable benchmark.” The court cited 103 Investors I, L.P. v. Square D Co., 470 F.3d 985 (10th Cir. 2006) to buttress its argument.
In 103 Investors, the defendant disposed of 50 to 60 feet of “busway” material after a fire had occurred, destroying all but four feet of the busway, and eliminating any of the busway that should have contained a warning label. The court concluded that in that instance, the defendant should have known that litigation was imminent, although the material had been disposed of long before the complaint was filed.
The court described the history of this defect. In 1999 Toshiba paid a large sum to settle a class action related to the floppy drive error in play in the instant matter. That same year, a class action suit was filed against HP for the same defect. In 2000, producing party was working on correcting the issue. Sony became embroiled in a class action in 2000. The court stated that the industry had (or should have become) “sensitized” to the possibility of litigation on this issue.

It appears that this extends the duty to preserve, which is already among the more difficult and costly issues in e-discovery today. By extending the duty’s trigger to occur prior to any direct or specific action against defendants, the court is asking too much of any IT department. It may be that the lack of documents produced by the defendants (this is discussed below) puts the court in the position of trying to fashion a rationale for punishment. But taken literally, the effects of the opinion could set a difficult, perhaps impossible, standards for compliance with the duty.

Issue 2: Safe Harbor?

The court, to the dismay of many commentators, dismisses the effects of the safe harbor provision in FRCP 37(e). Ralph Losey claims the court “mines” the rule into oblivion. I think what is in play here is that the court feels that the producing party would use Safe Harbor as a rationale for not producing data that it should have. Nevertheless, Safe Harbor’s reach, already attenuated, appears to weaken further in this opinion.

Issue 3: What role does producing party’s information management system play in the sanctions calculus?
The court comes down hard on the IG practices of the producing party. It stated that the system’s architecture, possessed of questionable reliability, should not be excused, though it evolved, rather than was deliberately designed to operate as it does. The result is that it operated to deprive the requesting party of access to evidence.
Traits of this system are described thusly:
[Producing Party] extensively describes its email management and storage practices, to explain the nearly complete absence of emails related to the subject of this litigation.

First, [Producing Party] says its email servers are not designed for archival purposes, and employees are instructed to locally preserve any emails of long term value.

[Producing Party] employees send and receive email via company email servers.

Storage on [Producing Party's] email servers is limited, and the company directs employees to download those emails they deem important or necessary to perform their job function from the company email server to their individual company issued computer.

[Producing Party] informs its employees that any email not downloaded to an employee’s computer are automatically overwritten to make room for additional email storage on ASUSTeK ’s servers.

It is [Producing Party's] routine practice that its employees download to their individual computer those emails the employee deems important or necessary to perform his or her job function or comply with legal or statutory obligations.

Second, ASUS employee computers are periodically replaced, at which time ASUS places all archiving responsibility for email and other documents on its employees. During the course of their employment, ASUSTeK employees return their individual company issued computers in exchange for newer replacement computers.

40. The hard drives of all computers returned to or exchanged with the company are formatted to erase all electronic information stored on these computers before they are recycled, reused or given to charity.

41. During a computer exchange, it is [Producing Party's] practice to direct its employees to download those emails and electronic documents from the employee’s individual computer to the employee’s newly issued computer that the employee deems important or necessary to perform his or her job function or comply with legal or statutory obligations.

The court stated that descriptions these data management practices may explain why relevant e-mails were not produced, but it did not establish the Producing Party’s good faith in managing its data. It calls the information management practices of the producing party “questionable” and that although an organization may design its systems to suit its business purposes, the information management practices are still accountable to such third parties as adversaries in litigation. The court opines that: “[a] court – and more importantly, a litigant – is not required to simply accept whatever information management practices a party may have. A practice may be unreasonable, given responsibilities to third parties.

Furthermore, while the court accepts that the Producing Party’s system “evolved” rather than was purposefully designed with the goal of hiding data needed for litigation, it nevertheless quoted the Sedona Conference: “An organization should have reasonable policies and procedures for managing its information and records.”

Finally, the court took aim at the practice of allowing individual users to drive retention practices, when it stated: “[Producing Party's]‘ practices invite the abuse of rights of others, because the practices tend toward loss of data. The practices place operations-level employees in the position of deciding what information is relevant to the enterprise and its data retention needs.”

Issue 4: How does the producing party’s lack of produced data on certain subjects in the aggregate balanced against the absence of specific evidence of wrong-doing by requesting party?

Producing Party turned over executable files of their own invention, but failed to surrender the source code for those executables. They also failed to produce other relevant executables and related source code, or “a single document” relating to the development of the applications under scrutiny. The court expressed concern over the absence of certain types of documents from the production:

[Producing Party's] only response is that it has produced a large volume of documents. That may be the case; but, it has not produced the most critical documents – those that relate to its misappropriation, its copying, and its willful behavior. The only conclusion after all this time is that [Producing Party] has destroyed critical evidence that it simply cannot show did not exist.

By this expression, the court adopted Requesting Party’s argument that Producing Party had “’spoliated the most critical evidence in this case, e.g., test programs and related source code’ “[S]ince [Producing Party] has not produced it, the only conclusion is that [they have destroyed it."

The court also noted, in its analysis of Producing Party's objection to the admissibility of data produced by third parties on grounds of authentication, that the Producing Party, while claiming "a near total absence of evidence...[sought] to eliminate the only evidence available. The court concluded that such tactics should not prevail to “prevent consideration of the best evidence available.”

Requesting Party listed types of documentation that they would expect Producing Party to possess, but never received during production. Communications and documentation from outside sources contributed to a suspicion that such documentation once existed. Indeed, as the court examines the Producing Party’s duty to preserve, it leads off by stating: “[t]he universe of materials we are missing is very large. Indisputably, we have very little evidence compared to what would be expected.”

In dismissing arguments that destruction of the data in question was covered by the “Safe Harbor” provision under FRCP 37(e), the court stated: “[o]ther than the patent application and the executable file, it does not appear [Producing Party] has produced any significant tangible discovery on the topics where information is conspicuously lacking.”

Ultimately the court found that Producing Party had breached its duty to preserve relevant data. It appears from the information above that the dearth of critical documentation from the Defendant’s productions was a significant contributor to the ruling, but the court does not explain the weight to which it assigned this as an element in its ruling.

Case Summary: Heriot; Vendor Error resulting in Production of Privileged Documents did not Waive Privilege

Heriot v. Byrne, 2009 U.S. Dist. LEXIS 22552 (N.D. Ill. Mar. 20, 2009)

To assist them in complying with a production request, responding party hired a vendor to provide scanning and other services associated with discovery. The Vendor created a “master database” that responding party used to conduct their document review. Documents designated for production were then copied to a “production database,” where they would be “marked” with an appropriate confidentiality designation.

Responding party sent hard copy versions of immigration documents to the vendor with instructions to digitize the documents, load them into the Master Database, copy them to the Production Database, apply the appropriate confidentiality legend and bates numbers, and include them in the next production. The vendor, however, mistakenly exported not only the requested documents, but other, privileged documents as well. This resulted in the inadvertent production of privilege. The error was not in the instructions given to the vendor, but was in the vendor’s execution of those instructions. Requesting party then filed a motion

During the production, requesting party asked the responding party if any documents had been withheld due to privilege. Responding party answered in the negative. Responding party subsequently learned of the error, and informed opposing counsel while requesting the documents be destroyed. Opposing counsel destroyed all documents but one set, which it filed under seal with the court. They then filed motions with the court requesting, inter alia, that the court prevent the “claw back” of the documents and instead compel their production. Responding party asserted that the documents were privileged.

The court began its analysis by determining that FRE 502 applied to the case, and crafting a new protocol for deciding whether inadvertent production necessitates the waiver of privilege (see our case blurb here).
Based on the results of an in camera review, the court decided that the documents at issue were privileged, and that the crime-fraud exception does not apply.

The court applied FRE 502(b) by considering: 1) whether disclosure was inadvertent; 2) whether responding party took reasonable steps to prevent disclosure; and 3) whether responding party took prompt steps to rectify the inadvertent disclosure. The court noted that prior to the promulgation of the new rule, the burden rested with the party claiming privilege to prove its contentions. The court saw no reason to shift this burden.

In determining whether a production was inadvertent, the court weighed such factors as: the total number of documents reviewed, the procedures used to review the documents before they were produced, and the actions of producing party after discovering that the documents had been produced.

Additionally, the court examined “the extent of the disclosure” and “the scope of discovery,” while commenting that these two factors operated on a sliding scale: the broader the scope of the discovery, the more extensive a party’s disclosure of confidential materials may be without waiving the privilege, and vice versa. The court noted that the privileged documents comprised 5% of the volume of pages produced, and 13% of the volume of the documents produced, labeling these figures neither apoplectically large nor astonishingly small. The court described the extent of the disclosure as being “broad” and the magnitude of the percentages as “not insignificant.” Nevertheless, the court found other factors more significant for the purpose of its analysis, particularly the actions of the producing party upon discovering the mistake. Because the responding party took immediate action, the court decided that the first factor weighed in favor of responding party, concluding that the production was inadvertent. The court then addressed the second factor of its test, the party’s steps to remedy the inadvertent disclosure. Therefore, as long as reasonable procedures were in place prior to “turning the documents over to the vendors,” the responding party met its obligations. The court concluded, therefore, that responding party did take reasonable measures to prevent inadvertent production.

In beginning the second part of its three-step analysis, the court cited the advisory committee’s notes that it may, in making this determination, consider several factors, including “the number of documents to be reviewed and the time constraints for production”; whether “a party that use[d] advanced analytical software applications and linguistic tools in screening for privilege and work product”; and whether “[t]he implementation of an efficient system of records management before litigation.” The court emphasized that the producing party was not required to engage in a post-production audit, although it was required to follow up on any obvious indications that a protected communication or information has been produced inadvertently.

In the third and final part of its analysis, the court stated that case law it unearthed stood for the proposition that how the disclosing party discovers and rectifies the disclosure is more important than when after the inadvertent disclosure the discovery occurs. In the case at bar, responding party discovered the error earlier than had the responding parties in the cases examined by the court, and were as diligent. In those cases, the disclosing parties were found to have acted appropriately. Therefore, the court found that Plaintiffs took prompt steps to rectify their inadvertent disclosure.

The court concluded that the responding party’s disclosure was inadvertent and that they did not waive the attorney-client privilege as to the Sequestered Documents.

Case Summary: William A. Gross Constr. Assocs.; Court Issues ‘wake up’ call to counsel on keywords

William A. Gross Constr. Assocs. v. Am. Mfrs. Mut. Ins. Co., 2009 U.S. Dist. LEXIS 22903 (S.D.N.Y. Mar. 19, 2009)

The opinion addressed the creation of a search protocol in this case over “alleged defects and delay in the construction ofthe Bronx County Hall of Justice.” The court began by lecturing counsel, and the district’s bar in general, over its (evidently perceived lax) attitude toward formulating search criteria:

This Opinion should serve as a wake-up call to the Bar in this District about the need for careful thought, quality control, testing, and cooperation with opposing counsel in designing search terms or “keywords” to be used to produce emails or other electronically stored information (“ESI”). While this message has appeared in several cases from outside this Circuit, it appears that the message has not reached many members of our Bar.

The lesson began, the court complained that counsel had not adequately communicated in order to arrive at a suitably agreed-upon search criterion, and the protocol that had been formulated was not the result of a sufficiently methodological process:

This case is just the latest example of lawyers designing keyword searches in the dark, by the seat of the pants, without adequate (indeed, here, apparently without any) discussion with those who wrote the emails.

The court then stated that it found itself in the “uncomfortable position of having to craft a keyword search methodology for the parties, without adequate information…”

After making certain additions to the keywords comprising the search criterion, the court then cited opinions from Victor Stanley, Inc. v. Creative Pipe, Inc., 250 F.R.D. 251, 260, 262 (D. Md. May 29, 2008) (Grimm, MJ.) and United States v. O’Keefe, 537 F. Supp. 2d 14, 24 (D.D.C. 2008) (Facciola, MJ.) for supporting the supposition that formulating keywords “requires careful advance planning by persons qualified to design effective search methodology” and designing search protocols “is a complicated question involving the interplay, at least, of the sciences of computer technology, statistics and linguistics.” The court continued by noting that the “best solution” was for opposing counsel to cooperate in formulating a search protocol, and strongly endorsing the Sedona Conference’s Cooperation proclamation.

Lessons learned:

1. The formulation of search protocols is to be taken seriously, and accomplished with careful thought, quality control, and testing.
2. Initial assumptions should not be generated blindly or in an arbitrary fashion, and should be tested and, if necessary, modified.
3. Counsel should be prepared for greater levels of communication, cooperation, and transparency than in the past.
4. Even an admittedly imperfect protocol, if the above elements are present, may suffice.

Case Summary: Rhoads Indus.; Attorney Client Privilege, the Waiver of Privilege, and Reasonable Precautions

Case Summary: Rhoads Indus. v. Bldg. Materials Corp. of Am., 2008 U.S. Dist. LEXIS 93333 (E.D. Pa. Nov. 14, 2008 )

In a question of the adequacy of a keyword screening protocol, the court entertains a motion to deem plaintiff had waived privilege as to approximately 800 inadvertently produced documents. Rhoads filed the action against Bldg. Materials Corp. of America (“GAF”) for, inter alia, breach of contract, and against R.W. Cooper & Co. (“Cooper”) for negligent misrepresentation.

Rhoads began preparing for the litigation in February, 2007. In June 2007, upon realizing that e-discovery would be extensive in the case, he hired Salvatore Gramaglia as an IT expert. Mr. Gramaglia, after conducting tests, Mr. Gramaglia purchased a license for “Discovery Attender” to be used in electronic searches. Mr. Gramaglia and Kimberly Buchinsky, an associate at Gowa Lincoln P.C., began identifying mailboxes containing relevant information to Rhoads’ project with GAF. The court stated that “Gramaglia and Buchinsky reasonably believed that the computer program would screen out all privileged materials.” Efforts to settle the dispute were unsuccessful, and on November 13, 2008, Rhoads filed the complaint. Discovery commenced shortly thereafter. Sam Washawer, a was bought in by Rhoads for the litigation. He discussed the scope of e-discovery with Mr. Gramaglia and Ms. Buchinsky, and observed the performance of Discovery Attender. He also conferred with Gramaglia and Buchinsky over the topic of search terms for searches.

During January and February of 2008, Gramaglia performed searches using terms supplied by counsel, initially identifying 210,635 documents as “being responsive.” His priv filter consisted of searching the “address line of all e-mails for these terms: *rhoadsinc* and either *gowa*, *ballard*, or *cpmi*. “Gowa” and “Ballard” represents Rhoads’ law firms, while “CPMI” refers to a non-testifying expert for plaintiff. This search resulted in the designation of 2,000 documents as “privileged,” although they were not placed on a privilege log at that time.

In response to the large volume of documents initially returned, counsel narrowed the responsive search criteria, reducing the total documents returned to 78,000 that plaintiff believed were responsive and non-privileged. Ms. Buchinsky then manually reviewed documents from specific mailboxes for privilege. She removed certain documents from the production, and entered them on a privilege log. Meanwhile, counsel also reviewed twenty-two boxes of hard copy documents for responsiveness and privilege.

On May 13, 2008, Rhoads produced to Δ’s, three hard drives containing responsive electronic documents, including the 78,0000 documents returned by the responsive “screen.”

On June 6, 2008, Rhoads produced two privilege logs to Δ’s, in response to a court order. One log was associated with Ms. Buchinsky’s manual review, while the other contained hard copy documents.

On June 5, 2008, Δ’s GAF notified Π’s counsel that some privileged e-mails may have been produced. Π immediately responded by asserting that no privilege had been waived, and that this was likely a case of inadvertent production. Over the next two and a half weeks, Π then conducted nine depositions and responded to Δ Cooper’s Motion to Dismiss before addressing the privilege issue.

On or about June 23, 2008, Ms. Buchinsky began reviewing the 78,000 e-mails produced as a result of the responsive searches executed in Discovery Attender. She generated a new privilege log identifying 812 emails as privileged, producing it to Δ’s on June 30, 2008 as an attachment to a letter invoking FRCP 26(b)(5)(B) to have Δ’s sequester the inadvertently produced documents.

On August 19, 2008, Δ Cooper filed a Motion to Deem that Plaintiff had waived the Privilege to the approximately 800 documents. Δ GAF filed a motion joining Cooper’s motion on August 25, 2008. Defendants did not dispute that the production was inadvertent and that the software purchased by Rhoads was designed to ferret out privileged documents. Defendants did argue that Rhoads’s technical consultant and counsel were not sufficiently careful to review the software screening and to take steps to prevent disclosure when it appeared obvious that privileged material had filtered through the screening procedure.

On November 5, 2008, the first hearing on the waiver of privilege was conducted. All three privileged logs were produced. Mr. Gramaglia and Ms. Buchinsky testified as to the method of creation of the logs, and their relationship to each other. Rhoads admitted that 2,000 e-mails previously designated as privilege had not yet been disclosed in a privilege log. Ms. Buchinsky testified to her belief that a manual review of all 78,000 emails would have resulted in the timely identification of those documents in a privilege log. The court then ordered that any documents not on a privilege log as of the date of that hearing should be produced, absent exceptional circumstances.

After the hearing, Rhoads inspected the 2,000 documents earlier set aside, but not identified in a log, as privilege. The results of this inspection were discussed on a hearing on November 13, 2008. Rhoads concluded that 941 documents were duplicative. Of the 1059 unique documents, 511 were responsive, consisting of 335 privileged documents and 176 non-privileged documents. Of the 335 privileged documents, 215 had been previously identified in other logs. Rhoads agreed to produce the 176 responsive non-privileged documents, and generated a fourth privilege log. The court expressed its opinion that Rhoads might still retain privileged and un-logged documents.

The court then weighed the facts using the five factor test laid out in Fidelity & Deposit Co. of Md. v. McCulloch, 168 F.R.D. 516 (E.D. Pa. 1996). These factors are:

(1) The reasonableness of the precautions taken to prevent inadvertent disclosure in view of the extent of the document production.
(2) The number of inadvertent disclosures.
(3) The extent of the disclosure.
(4) Any delay and measures taken to rectify the disclosure.
(5) Whether the overriding interests of justice would or would not be served by relieving the party of its errors.

On the first factor (reasonableness taken to prevent inadvertent disclosure), the court found that the following factors favored the plaintiff (producing party):

1. Plaintiff purchased a special software program, Discovery Attender, for the purposes of complying with discovery in this litigation.
2. Plaintiff’s technical consultant (Mr. Gramaglia) conducted trial searches prior to purchasing the software and was satisfied with its reliability and accuracy.
3. Mr. Gramaglia was experienced with Rhoads’s computer system.
4. Plaintiff believed that its search terms would pick up all attorney-client communication.
5. Plaintiff did not use “Warshawer” or “Costello” (outside counsel) as search terms because counsel believed Gowa was included on all e-mails going to the client.
6. Plaintiff did not include “privileged” or “confidential” as keyword search terms because all Rhoads e-mails use these words in the signature line at the bottom of every e-mail, and thus use of these words would have identified every Rhoads document as privileged.
7. Ms. Buchinsky spent over 40 hours reviewing documents for privilege before production. Additional attorneys spent significant hours on the privilege review.

The court found the following factors favored defendants (requesting parties):

1. Plaintiff should have used additional search terms to weed out potentially privileged documents, especially the names of all of its attorneys. Here the court cited Bensel v. Air Line Pilot Ass’n, 248 F.R.D. 177, 180 (D.N.J. 2008).
2. Ms. Buchinsky had no prior experience doing a privilege review and her supervising attorneys did not provide any detailed oversight.
3. Plaintiff’s search for privileged documents was limited to e-mail address lines (as opposed to the e-mail body). Therefore any potentially privileged e-mails (as defined by Plaintiff’s search terms) that were subsequently forwarded outside of Rhoads and either Gowa, Ballard, or CPMI would not be captured by its search.
4. Plaintiff produced documents that its limited search should have caught. Therefore Plaintiff not only failed to craft the right searches, but the searches it ran failed. Plaintiff has no explanation for this.
5. As Stanley notes, relying exclusively on a keyword search for the purpose of conducting a privilege review is risky, and proper quality assurance testing is a factor in whether precautions were reasonable. Victor Stanley, 250 F.R.D. at 257, 260. Here there was no testing of the reliability or comprehensiveness of the keyword search.
6. Plaintiff’s only testing of its search was to run the same search again

On the second factor, the number of inadvertent documents produced, the court found this fact favored plaintiffs:

1. The number of documents inadvertently produced represent a small percentage (1-2%) of the total production.

The court found these facts weighed in favor of defendants:

1. 800 inadvertently produced documents plus at least 120 privileged documents that this Court now orders be produced is still a large number of documents regardless of the percentage produced.
2. The court in Stanley found that 165 documents was a sufficiently large number to favor waiver of the privilege.

The court stated that nothing in the record indicated whether the third factor (the extent of the disclosure) weighed in favor of one party over the other.

On the fourth factor (Any delay and measures taken to rectify the disclosure), the court found these facts favored plaintiffs:

1. Plaintiff immediately responded to Defendant’s e-mail that some potentially privileged documents had been produced by stating that production was inadvertent and inquiring which documents Defendant was referring to;
2. As relied on in Fidelity, Plaintiff was under a tight discovery schedule at the time it was notified of the inadvertent production. Fidelity & Deposit Co., 168 F.R.D. at 522. Ms. Buchinsky was helping prepare for nine depositions taken over the course of twelve days. Plaintiffs also had to respond to Defendant Cooper’s Motion to Dismiss during this time.
3. Plaintiff invoked the remedial measure of FRCP 26(b)(5)(B) to have the inadvertently produced documents sequestered at the same time it produced the June 30th privilege log (Ex. D-1), three weeks after learning of the disclosure.
4. Plaintiff was willing to produce a cleansed hard drive (i.e. without the privileged documents) to Defendants in September, but Defendants refused the hard drive.
5. Defendant did not file their Motion to Deem that the Privilege was Waived until two months after Plaintiff produced the June 30th privilege log.

Those facts favoring defendants:

1. Plaintiff had abundant time to review its own documents and segregate any privileged documents before it started the litigation and also before it began producing documents in May 2008;
2. The crunch and time pressure that Plaintiff claims it suffered in June 2008 were caused by Plaintiff not providing adequate resources (e.g. attorneys or paralegals) to the privileged communication issue;
3. Defendants had to bring Plaintiff’s error to its attention instead of Plaintiff catching its own mistake (cites Victor Stanley).
4. It took Plaintiff over three weeks to produce a privilege log of the inadvertently produced documents once it was aware of its mistake.
5. The June 30th privilege log required Defendants to cross-reference each document produced to them against the log to check whether documents were in fact privileged. Plaintiff did not offer Defendants a cleansed hard drive until September.
6. Plaintiffs did not offer suggestions to rectify the inadvertent production until October, after many depositions had been taken.

On the final factor (Whether the overriding interests of justice would or would not be served by relieving the party of its errors), the court found these facts weighed in favor of the plaintiffs:

1. Plaintiff has shown general compliance with the three conditions of Rule 502, although considering the factors in the prior case law, Plaintiff is responsible for the confusion and delay noted above;
2. The loss of privilege would be highly prejudicial to the Plaintiff;
3. Defendants have not demonstrated substantial unfairness that they have suffered because of their inability to review the privileged documents beyond having to cross-reference documents against the June 30th privilege log.

Favoring defendants:

1. Plaintiff should have conducted a more rigorous privilege review and allowing Plaintiff to retain the privilege in these documents may not deter similar conduct in the future.

The court then concluded its opinion by ruling the following:
Those documents that were never logged after designation (part of the 2000 e-mails initially designated as privileged, but not listed in a privilege log until after the Nov. 5 hearing) were not subject to protection, as a failure to identify privilege documents in a log in a timely manner violates FRCP 26(b)(5).

With respect to the documents that were inadvertently produced, the court stated that neither Victor Stanley or Amersham were controlling. The court stated that although the facts in Victor Stanley were similar to those in the instant matter, Judge Grimm’s analysis reflects, to a more significant degree than [the court] believe[s] appropriate, application of hindsight, which should not carry much weight, if any, because no matter what methods an attorney employed, an after-the-fact critique can always conclude that a better job could have been done. The court found that factors one through four favored defendants, while the fifth strongly supported plaintiffs. As defendants have the burden of proof as the moving party, the court concluded that this burden had not been met, and privilege was not waived for these documents.

Case Summary: Hoover; Third Party Subpoenas and the Scope of Discovery

Hoover v. Fla. Hydro, Inc., 2008 U.S. Dist. LEXIS 87839 (E.D. La. Oct. 1, 2008 )

The case involves a contract dispute between Louisiana resident Floyd Hoover and Florida Hydro, Inc., a Florida Corporation. Hoover brought the action, alleging that provisions of an oral contract between the parties promised Hoover a percentage of ownership for his efforts in securing funding for the company, and that these provisions were never fulfilled by the company.

Florida Hydro issued a subpoena deuces tecum to both Hoover’s mother, Mary Catherine Hoover, and his good friend, Shaun Sanghani. The subpoenas sought testimony, and forensic inspection of their personal computers, and any media in their possession (such as hard drives, flash drives, etc…) that might contain relevant data.

Hoover moved to quash the subpoenas, arguing that they are “unwarranted, unduly burdensome, and seek to harass his witnesses.” He contended that both individuals had already produced all relevant material in hard copy form. He described the subpoenas as the company’s attempt at a ‘fishing expedition, and an infringement of privacy and proprietary interests of his mother, his friend and himself. Finally, he accused the company of failing to adequately narrow the scope of the subpoenas.

Florida Hydro countered that: 1) the subpoenas are not overly broad, unduly burdensome, or harassing in nature because neither Mrs. Hoover nor Mr. Sanghani objected on that basis; 2) the subpoenas are reasonably related to the claims and are temporally limited to the relevant years; and 3) they have attempted to make production easy by offering to pick up the documents, reimburse the associated costs, granting multiple extensions, and delaying depositions.

The court concluded, over defendant’s objections, that Hoover had standing to file the Motion to Quash, because although the subpoenas were not issued to him, they sought information information that may have been sent by or for him.

The court ruled that objections to both subpoenas were filed within the requisite time period after the subpoenas were issues, and were therefore timely. The court then addressed substantive issues on the motion.

Undue Burden
Hoover contends that granting inspection and production of the computers is unwarranted and unduly burdensome. In the light of production by these witnesses of documents in hard copy form, defendant has no right to inspect ESI on the computers. Because these witnesses complied with earlier subpoenas, these newly issued subpoenas are duplicative and unwarranted, unless defendants make a definitive showing that these individuals deliberately failed in their duties to respond.

Florida Hydro disagreed, noting that neither individual objected based on Hoover’s current arguments. The company also maintained that it did not violate any rule merely by making its request that the parties produce ESI.

The court noted that upon proper objection by a third party to the inspection ordered by a subpoena, the Court must determine whether the plaintiff’s need for the inspection is sufficient to outweigh the burden imposed by the inspection on the third party.

Taking note of the fact that the objection to the subpoenas came, not from the parties served, but the plaintiff, the court stated that facts in the record clearly indicated that Mrs. Hoover had documents relevant to the case on her computer. The court also disagreed with plaintiff’s assertion that in order to challenge the completeness of Mrs. Hoover’s production, it should have filed a motion to compel, stating that a party is free to utilize the discovery method it deems appropriate. As precedent, the court cited Gabarick v. Laurin Maritime (America), Inc., No. 08-04007, 2008 U.S. Dist. LEXIS 61685, 2008 WL 3560426, at *2 (E.D.La. Aug. 11, 2008), noting that it cited Rule 26(d) for the proposition that ‘there is no priority rule for the sequence of discovery.’). The court further cited Lee v. Knutson, 112 F.R.D. 105 (N.D. Miss 1986), for the proposition that a party may choose the methods of discovery which he or she will employ, “so long as the choice is not foreclosed by the [Federal] Rules.”

While the court ruled that in the case of Mrs. Hoover, compliance the subpoena did not impose undue burden, it did state that the parties may agree upon a search protocol that would prevent personal, family, non-business related communications from being retrieved during the forensic computer inspection of her laptop and/or personal computer. The court ruled against quashing the subpoena served to Mrs. Hoover.

However, the court granted the motion to quash Mr. Sanghani’s subpoena, because the defendant’s assertions that his production in response to a motion to compel was incomplete was of a general nature, and there had been no showing of any defect in his response.

Attorney Client Privilege
The court was not persuaded by plaintiffs arguments that because he used his mother’s computer occasionally and continued to use her computer to access his email accounts as well as to transact business, including reading correspondence from his attorneys and reviewing their work product, the communications are privileged. The court noted that Mrs. Hoover did not make any such objections, and that the failure to follow the Federal Rules of Civil Procedure may result in waiver of the attorney-client privilege and/or work-product protection. The court was not convinced that a search protocol could not be designed that would enable the exclusion of any document where privilege was claimed.

Search Protocol

Plaintiff proposed a four part protocol: 1. Florida Hydro must produce a search protocol in advance of the inspection to be reviewed and approved by the Court; 2. Florida Hydro must prepare a confidentiality agreement prior to the inspection; 3. The third-party witness whose laptop is subject to the inspection shall be present during the inspection; and 4. Florida Hydro must reimburse the third party witness for all of the inspection costs, including attorney’s fees associated with same and for any damages caused by the inspection.

The court declined to accept the specific proposal, but did agree that the establishment of a protocol was appropriate, and set a deadline for an agreement between the two parties.

The court, therefore, granted the motion to quash for the subpoena issued to Mr. Sanghani, but denied the motion to quash for the subpoena to Mrs. Hoover.

Case Summary: Harding, Earley; The “do’s” and “don’ts” of Website Captures

Healthcare Advocates, Inc. v. Harding, Earley, Follmer & Frailey, 497 F. Supp. 2d 627, 650 (E.D. Pa. 2007)

Healthcare Advocates (“HA”), a patient advocacy group that helps its members deal with health care providers, brought an action against a competitor alleging trademark infringement and misappropriation of trade secrets. The competitor was represented by Harding, Earley, Follmer & Frailey (“Harding”), a “boutique” law firm specializing in intellectual property matters. Harding began investigating HA, and part of that investigation consisted of using the internet to do searches and view the the group’s website. Harding also used a tool known as the “wayback” machine to look at materials that had been posted to the web in the past.

The wayback machine, maintained by the Internet Archive, stores screenshots from websites that can be looked up by any interested internet surfer. This allowed Harding to HA’s website pages as they would have appeared before the litigation began. Harding printed some of these pages, and some of these prints were during the course of the litigation. Harding did not save any of the images to hard drives.

HA had placed a file, named Robots.txt, on its website server to direct indexing engines and the wayback machine from pages that HA did not want accessed or displayed by the public. On this occasion, however, this protective measure failed, and the wayback machine displayed “forbidden” content to Harding. The failure was due to an issue with the wayback machine’s servers, and not with any action taken by Harding.

Nevertheless, HA brought this action against Harding, alleging, inter alia, that Harding had: violated provisions of the Digital Millenium Copyright Act (“DMCA”); infringed upon their copyrights by printing and unknowingly saving copies of the archived web pages in temporary memory, and distributing copies of the pages to co-counsel; committed spoliation by failing to preserve the copies in temporary memory, violated provisions of the Computer Fraud and Abuse Act (“CFAA”) “by intentionally exceeding their access and obtaining information from protected computers used in interstate commerce;” and violated Pennsylvania laws with respect to conversion and trespass.

Harding requested summary judgment in its favor on all counts.

Copyright Infringement: The court found that HA had established both elements for infringement. HA had a valid copyright on the materials found on its website, and had demonstrated that Harding had “reproduced” and “publicly displayed” these materials. The court then conducted an analysis to determine whether Harding’s actions were permissible under the Fair Use Doctrine.

The court began by listing the factors considered for Fair Use:

1. “the nature and character of the use” by the alleged infringer;
2. “the nature of the copyrighted work;”
3. “the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and”
4. “the effect of the use upon the potential market for or value of the copyrighted work.”

The court then continued its examination. For the first factor, although it noted that the display and copying of the website content was in pursuit of a profitable activity, that it nevertheless cut in favor of the law firm. The court noted that “[Harding] copied these materials as supporting documentation for the defense they planned to raise for their clients against the allegations,” and stated that “[i]t would be an absurd result if an attorney defending a client against charges of trademark and copyright infringement was not allowed to view and copy publicly available material, especially material that his client was alleged to have infringed.”

The court held that the second factor also cut in favor of Harding, because the the data copied was of an informational nature.

The third factor cut in favor of HA, as Harding copied and displayed the entire website, however, because the information was relevant in a pending litigation, and the firm had a duty to preserve such material, “the substantiality of the portion used does not militate against a finding of fair use.”

The fourth factor “militate[d] in favor of a finding of fair use.” Harding’s actions in copying and displaying the material were for the use in a lawsuit, and not for the purpose of “gaining a competitive advantage.” The court’s analysis concluded with a determination that Harding’s “infringing use is excusable under the doctrine of fair use.” The court granted Harding’s motion for a summary judgment with respect to HA’s copyright infringement claim.

Spoliation of Evidence: With respect to the specific case of the data copied to temporary files, the court noted that HA had not presented any evidence of what had been copied. HA argued that it deserved a “spoliation inference” because the Harding’s duty to preserve existed with respect to this data. The court began by discussing the three factor test used in the third circuit for spoliation determinations. “The considerations are: (1) the degree of fault of the party who altered or destroyed the evidence, (2) the degree of prejudice suffered by the opposing party, and (3) whether there is a lesser sanction that will avoid substantial unfairness to the opposing party and where the offending party is seriously at fault, will serve to deter such conduct by others in the future.”

In examining the facts in the context of the first factor, the court found that because the files were deleted automatically, and not by an affirmative action on the part of Harding, the factor weighed in favor of Harding. The court was not convinced by HA’s argument that Harding’s failure to immediately “remove the computers from further use” did not “shock the conscience.” Nor did the court find persuading HA’s argument that Harding should have taken measures once it received a subsequent letter demanding all evidence be preserved, as the firm felt that nothing relevant had been saved onto the hard drives of its computers.

The second factor, likewise, weighed in favor of a finding against spoliation, because the court concluded that HA suffered no real prejudice from the loss of this data.

The court determined that the final factor cut the same way as the other two, when it stated: “[t]he Harding firm did not purposefully destroy evidence. To impose a sanction on the Harding firm for not preserving temporary files that were not requested, and might have been lost the second another website was visited, does not seem to be a proper situation for an adverse spoilation inference.”

The Claim under the DMCA: The court then turned to examine HA’s claim that Harding had violated the provision in the DMCA under 17 U.S.C. § 1201(a)(1)(A), prohibiting the circumvention of a technical mechanism designed to protect copyrighted material. Here, HA argued that Harding bypassed the protection of the “robots.txt” file, and thus was in violation of the measure. The court found that, “in this situation,” the placement of the file on the website constituted an anti-circumvention technological measure as defined under the DMCA. The court emphasized, however, that “this finding should not be interpreted as a finding that a robots.txt file universally qualifies as a technological measure that controls access to copyrighted works under the DMCA.”

The court continued by noting that the defect was with Internet Archive’s server, and that when used by Harding, it was as though the protective measure was not present. Harding accessed the data, but not by circumventing the protection, and was therefore not in violation of the DMCA. Harding’s motion for summary judgment on HA’s DMCA claim was granted.

HA’s claim under the CFFA: HA argued that Harding’s viewing of the content prohibited by the Robots.txt file constituted a violation of the CFAA. The court concluded that Internet Archive’s computers were used in interstate commerce, and were protected under the act, and that the costs accrued by HA in investigating the unauthorized access, estimated in excess of $9,600, met the statutory threshold. However, merely using a public website does not create liability under the act, and HA was unable to present evidence of prohibited activity, and Harding’s motion for summary judgment on the CFFA claim was granted.

HA’s claims for trespass to chattels and conversion: The final two claims arose under state law, and the court concluded that these claims were preempted by the federal copyright claims under 17 U.S.C. § 301(a), that the court had already examined. Harding’s motion summary judgement with respect to the state law claims was also granted.

Case Summary: Bunnell; Terminating Sanctions and Default Judgment appropriate for Willful, Systemic Spoliation

In this copyright infringement case, the court held that terminating sanctions and the entry of default judgment in favor of the requesting party was appropriate the court found:

• User forum postings had been systematically reviewed for the purpose of modifying or deleting those which referred to acts associated with copyright infringement;
• Directory headings where copyrighted content was stored was changed from specific names of television shows to more generalized names (e.g., “TV-Unsorted”).
• Evidence suggested that [Producing Party] may have failed to produce previously existing, unaltered versions of these directories.
• Producing Party failed to produce, and claimed not to possess, the full IP addresses related to clients downloading works protected by copyright laws, where evidence suggested that the party did in fact have this information.
• Producing party failed to produce names of forum moderators, as required.

Columbia Pictures Inc. v. Bunnell, No. 2:06-cv-01093 (C.D. Cal. Dec. 13, 2007) (Order Granting Plaintiffs’ Motion for Terminating Sanctions)

Case Summary: Lakeside School; Court lays out procedure for examining employee’s hard drive

In this employee discrimination case, defendant Lakeside School sought a court order allowing inspection of a hard drive from a laptop belonging to the school, but which had been assigned for use to plaintiff for use in the discharge of his duties while employed at the school. The employee argued that some information on the laptop was covered by attorney-client and marital privilege.

The court ruled that in general, the employee had no expectation of privacy for communications made on the laptop belonging to his employer: he had signed a document indicating that he had read the school’s employee handbook containing a policy allowing the school to inspect any computer it furnishes its employees; any communications made using the e-mail accounts provided by the school similarly was bereft of any expectation of privacy. However, the court ruled that “web based” e-mails made on the computer, communicating with employee’s spouse or attorney, were covered by privilege.

I”m guessing here that the term “web based e-mails” means that the employee had an e-mail account, with an ISP that was not associated with the school (like Yahoo or Hotmail), and that he used his business laptop to access and use those accounts. These are what the court protected.

Another interesting facet of the decision is that, in the absence of an agreed protocol by the parties, the court dictated the procedure the parties would use for inspection of the hard drive. The court allowed the school’s suggested procedure:

Lakeside would be willing to have its own expert, at its own expense [ ], provide both parties’ counsel with a list of files (deleted and active) from Mr. Sims’ computer … Plaintiffs’ counsel can then identify any files they believe are privileged, as well as the nature of the privilege being asserted. Lakeside will then review any remaining files over which no claim of privilege is made, and will determine whether any of plaintiffs’ privilege designations should be challenged.

K&L Gates has their own summary here, and a copy of the opinion here (MS Word format).

Sims v. Lakeside School, 2007 WL 2745367 (W.D. Wash. Sept. 20, 2007)

E-Discovery Pitfalls: Court dictates collections and search protocols

The latest in our series on e-discovery pitfalls.

K&L Gates has posted an opinion in which U.S. Magistrate Howard R. Lloyd dictates the collection and search protocols of a set of data over which the parties have become somewhat contentious. Let us begin with His Honor’s description of the dispute:

According to defendants, there are two hard drives in question. In July 2007, they reportedly made bit-for-bit copies of those hard drives (including recovered deleted files and fragments) and produced documents responsive to plaintiff’s requests. Plaintiff is skeptical about the production.

Well, the requesting party is always skeptical, isn’t it? What circumstances give merit to plaintiff’s suspicions?

[Plaintiff/Requesting Party] says that, to date, defendant Romi Mayder has produced only one email pertaining to his work at Silicon Test Systems, Inc. whereas Bob Pochowski, a third-party witness, has produced a host of documents (emails, data sheets, and the like) from Mayder that apparently were created during Mayder’s employment at Verigy.

Oops. This illustrates the dangers of working with highly distributable and “copyable” documents, such as e-mail, and not producing a full set (for whatever reason). Even in the days of paper, you never knew where all the copies might have been hiding. In this digital age of ours, with the ease of replication and distribution, the dangers are exponentially higher. So let us remember two things: do a good job on formulating an appropriate search protocol; and, of course, never deliberately exclude relevant documents not subject to privilege from production. But the court isn’t finished with plaintiff’s suspicions.

Verigy also contends that other documents produced to date demonstrate Mayder’s willingness to manipulate evidence. Plaintiff also asserts that, when defendant Mayder left plaintiff’s employ, a system or software upgrade was performed which may have deleted files from defendants’ hard drives.

So now they walk beyond the line of suggesting the producing party could have accidentally failed to produce, but suggest defendant is indifferent with respect to its obligation to produce, or that it even purposefully manipulates data to protect itself. This serves to illustrate the importance of following a defensible, documented collection plan. The documentation may serve to refute allegations of impropriety or mismanagement. The importance of retaining a third party to execute the collection process is also on point, as such an expert tends to lend an objective voice to any dispute over procedure.

Now, this next bit is interesting, and potentially really bad for the defendant.

[Requesting Party] argues that it needs to conduct additional discovery of those hard drives, not only to determine whether any relevant documents have been withheld from defendants’ production, but also to examine what may have happened on the hard drives and why.

The requesting party wants to examine the drives to see if defendants failed in their responsibilities. The request is not made merely for the sake of satisfying their curiosity. The possibility that such intrusive measures might be allowed should be a warning shot over the bow for any party engaged in discovery. Make sure your processes are thorough, managed competently, well documented, and defensible.

[Producing Party does] not dispute that a system or software upgrade was performed which may have deleted files from their hard drives. However, they maintain that all deleted files have been recovered and preserved and that they have produced all information responsive to plaintiff’s requests.

All deleted files have been recovered? That’s far from certain, especially with respect to an operation as extensive as a software upgrade. The percentage of deleted files forensically recovered is based on many factors. Was “wiping” involved? If not, has the drive been defragmented? What is the “data turnover” (number of files deleted vs. number of new files written to the drive) of the drive at issue? Under only a very limited set of circumstances might one be able to say with any semblance of certainty that every single deleted file was recovered. As we see, the judge doesn’t appear convinced either. Upon considering the arguments, the court sets a two-tiered plan into place.

Defendants propose a two-tier protocol which (a) permits discovery in areas that defendants deem presumptively relevant; and (b) allows plaintiff to request that the expert conduct other searches, subject to an opportunity by defendant to review and object to the proposed search requests.

Defendants sought to protect themselves from abuse:

Defendants express concern that plaintiff will propound unduly burdensome or otherwise abusive searches beyond the scope of permissible discovery under Fed.R.Civ.P. 26. At the motion hearing, it was suggested, somewhat facetiously, that Verigy might attempt to request a search for all documents with the letter “A.” Indeed, documents submitted on supplemental briefing indicate that Verigy apparently has previously requested a search for all documents containing the letter “V” (see Pasquinelli Decl., Ex. C)–a request which strikes this court as being patently overbroad.

In an interesting note, the requesting party argued that disclosure of additional search terms it wanted to use might infringe attorney work product. The court, however, was not persuaded.
In concluding its opinion, the court felt the urge to remind counsel and the parties of their duties under the law:

Although it should go without saying, the parties are admonished to proceed in good faith and to refrain from conduct designed to unnecessarily encumber or retard discovery or to impose unnecessary expense or burden on the opposing parties or the court.

To reiterate the lessons of the case: engage in an honest, thorough, and well documented discovery plan; think about retaining a third party to serve as an objective, knowledgeable voice; and scrutinize the implementation of processes (such as software upgrades) that endanger the integrity of the litigation hold.

Case Summary: Benton v. Dlorah, Inc., 2007 WL 2225946 (D. Kan. Aug. 1, 2007); Court denies motion to compel production of hard drive

In this employment discrimination case, Magistrate Judge Gerald Rushfelt denied defendant’s request to compel the plaintiff to “produce the hard drive of her personal computer for inspection and copying.” In response to defendants’ discovery requests, some of which sought correspondence between plaintiff and defendant National American University or her students at the university, plaintiff produced one e-mail. After defendant informed plaintiff that it believed her responses to the discovery requests were deficient, and after agreeing to supplement those responses, Ms. Benton declared that all e-mails from her students had been deleted, and therefore could not produced. She also resisted producing her hard drive, as requested by defendants.

Defendants argued that Ms. Benton failed to “produce[] any e-mail communications that took place after February 2007,” and that they believe she had been deleting those emails relating to her employment since that date. Defendants contended that because Ms. Benton had admitted to deleting some emails, and because she had only produced one e-mail dated after February 2007, she must have destroyed other relevant documents.

The court disagreed. Defendants were speculating as to the whether plaintiff complied with their discovery requests, and have not met their burden to support their contentions of spoliation. The court refused to assume the plaintiff’s failure to comply. Therefore, the court denied the motion, and any calls for sanctions, without prejudice to any future motion should further discovery show that plaintiff did, in fact, fail to produce responsive documents or had spoliated relevant evidence.

Benton v. Dlorah, Inc., 2007 WL 2225946 (D. Kan. Aug. 1, 2007)

K&L Gates has the full text of the opinion here, as well as their own summary here.