Case Summary: Calixto; Court Analyzes Preservation Methodology

Calixto v. Watson Bowman Acme Corp., 2009 U.S. Dist. LEXIS 111659 (S.D. Fla. Nov. 16, 2009)

Case Background: Plaintiff Calixto brought this action against defendants CRT and Watson Bowman Acme Corp. (WABO), alleging infringement of patent and trademark, breach of contract, and tortious interference of an agreement between plaintiff and another party. CRT had signed an Asset Purchase Agreement and was negotiating with Calixto on a licensing agreement for the Asian territory, for use of a patented system for joining concrete slabs that may be used in the construction of parking garages or vehicular roadways and an associated trademark. WABO was to be a sub-licensee of CRT’s rights.

Procedural History: The court addresses a motion to compel by Calixto.

Basic Points:

• Restoration of 30 back-up apes was found to be unnecessary when moving party failed to establih a reasonable expection that doing so would yeild relevant documents not already produced.
• Restoration of a single back-up tape was ordered because of sufficient possibility that new information would be found
• Failing to object to search methodology might be a factor in losing your motion to compel
• Failing to counter expert opinion on pricing might be a factor in losing your motion to compel
• When sending a deman letter to trigger the duty of preservation, make sure it explicitly cites all possible causes of action and directly addresses every potential litigant.

Factual Background: During a deposition, WABO’s former CEO discussed a document retention policy that included measures to ensure the retention of e-mails on offsite storage for, as best as he could recall, a minimum of ten years. In a 30(b)(6) deposition, WABO’s witness implied that there was a systematic data purge for e-mails older than six months that was implemented when BASF AC acquired WABO. However, the deponee was unable to say whether such a purge had been in place prior to the acquisition. Based on this testimony, however, Calixto filed a motion to compel, requesting the court find spoliation had occurred in the face of ongoing litigation.

During the hearing on the motion to compel, Calixito challenged WABO’s actions on two grounds:
1. the destruction of former CEO Burri’s e-mails on his hard drive after Burri left WABO; and
2. WABO’s refusal to restore monthly back-up tapes.

WABO argued that its policy was to destroy ESI from the hard drives of separated employees, and that Mr. Burri left prior to December 1, 2004, which was the earliest date from which it still retained data on back-up tapes. Therefore, no record of Burri’s e-mails existed, and WABO could not recover the e-mails from anywhere.

With respect to the second issue, WABO claimed that nothing relevant that existed on the back-up tapes had not already been produced to Calixto.

The Court ordered WABO to produce an affidavit explaining, among other matters,
(1) how WABO conducted its search for documents responsive to the deposition notice and discovery obligations;
(2) what, if any, documents had been deleted from WABO’s IT system, and the circumstances surrounding any such deletions; and (3) what, if any, options existed for recovery of any deleted documents.

Subsequently, WABO filed the affidavit with the court.

Process Used for Conducting a Search and Collection of Relevant ESI:
WABO first identified and contacted all WABO employees who:
1. had any possible contact with Plaintiff;
2. Who had any possible knowledge of the Trademarks or Patent at issue; or
3. Who possibly had any information relating to the Lawsuit or to Plaintiff’s document requests.

WABO instructed these individuals to search their personal electronic records, including their personal hard drives and computer files, and their personal hard copy records for any responsive documents or information. WABO searched the Lotus Notes mailboxes of the selected group of custodians.

WABO IT searched the server house directories, the shared drives, and the individual files (including archive files) for the identified individuals for keywords and terms, including the terms “Degussa,” “BASF,” “CORTE,” 4 “Calixto, “Asset Purchase Agreement,” “‘381 Patent,” “JEENE,” and “ALADIN.” WABO also directed the identified individuals to search their local hard drives and Lotus Notes mailboxes for the same search terms. WABO officers also made personal inquiries of those identified as possibly having responsive information or documents, asking about their knowledge and the location of any pertinent information.

WABO made available to its counsel all documents obtained through the efforts outlined above. Counsel then provided relevant documents to Calixto and listed privileged documents on a log.

The court observed that testimony in the declaration implicitly suggested that reconfiguring the back-up tapes into a searchable format and then searching the reformatted version would not yield additional responsive documents because everything reasonably anticipated to be relevant to the litigation was preserved via the litigation hold and searched pursuant to the procedures articulated above.

WABO stated that the it was a routine business practice to delete a former employee’s email upon separation, although no written policy existed. No documentation recording the deletion operation was generated, and the exact date of deletion could not be recalled, although WABO insisted that the deletion did occur prior to receiving a letter from Plaintiffs threatening litigation.

Back-up Tapes:
Because back-up tapes used a compressed format that rendered data contained by them inaccessible, WABO claimed that the data must be restored in order to render it accessible. Because of the tape rotation schedule, WABO only held data for approximately 30 months, meaning that WABO now only retained tapes containing data from December of 2004. WABO has preserved data from that time forward in order to comply with its discovery obligations.

In reviewing WABO’s IT representative’s testimony, the court noted that IT felt they needed to deleted data to increase performance and liberate memory and disk space. IT generated the policy of deleting emails of departed employees at its own initiative, although it did communicate the fact that it was engaged in this practice to executives at the time. BASF’s newly implemented automatic deletion program exempts those custodians on a litigation hold.

WABO (and BASF) Counsel:

Senior counsel at BASF, who also had a history with WABO also testified on the existence of two letters and their effects on the litigation hold process. The first, dated March 1, 2004, was sent to WABO president Burri, described negotiations with respect to licensing at an impasse, and concluded that no further discussions would occur. The “re” block was “Proposed Exclusive License Agreement Between Jorge Calixto and Shanghai Master Builders Co., Ltd.” It reminded WABO that they were prohibited from making, distributing, or selling any product using the process set forth in the Patent and from using the JEENE trademark in the Asia/Pacific Territory. It warned that Calixto would enforce his rights and remedies under an earlier signed Asset Purchase Agreement, as well as any common law and/or statutory rights in the relevant jurisdiction.

Counsel claimed never to have seen that letter, but contended that he did not view it as threatening imminent litigation against WABO because:
(1) he saw the letter as a demand letter for royalty payments; and
(2) WABO is not a signatory to the Asset Purchase Agreement discussed in the letter

The second letter was dated September 9, 2004. The “re” block on this letter reads, “Breach of Asset Purchase Agreement dated November 17, 2003 by and Between [CRT] and . . . Calixto.” the letter alleges that CRT was engaging in precisely these activities within the Asia/Pacific Territory. Among other instances, Plaintiff’s counsel cited a WABO announcement that it had “changed the name of the ‘JEENE’ system to ‘Aladin’ as of 1st January 2004.'” The letter concluded by demanding that CRT:

cease and desist from engaging in [such] activities. Furthermore, . . . Calixto is entitled to damages as a result of the breach of the Agreement, including the attorneys’ fees and costs he has incurred pursuant to Section 10.2 of the Agreement. Unless we receive a written response from [CRT] within ten (10) days of your receipt of this notice detailing its intended actions for addressing these matters and compensating . . . Calixto, . . . Calixto has authorized us to pursue all rights and remedies available to him under the Agreement and in accordance with applicable law.

Senior counsel testified that he remembered receiving this letter, but he did not view it as triggering document retention requirements at WABO because:
(1) the letter was about CRT’s alleged breach of the Agreement, and WABO was not a party to that Agreement,
(2) it did not appear to him as though litigation was imminent, based on this letter, and
(3) even had it appeared so, because CRT is a German entity and Calixto is a citizen of Brazil, Pendergast did not anticipate that litigation in the United States would occur, and document preservation and discovery requirements in other countries can differ substantially from those in the United States.

Counsel stated he did not consider that WABO might be sued until Calixto actually filed suit against WABO and others in Florida Circuit Court and served it on WABO. More specifically, Pendergast stated, on March 30 or 31, 2005, after learning of the lawsuit, he put a litigation hold in place.

As mentioned above, Calixto sought to obtain letters of request enabling service of subpoenas duces tecum to proceed against BASF SE Construction Chemicals Division, in Germany; BASF Construction Chemicals Asia Pacific in Shanghai, China; Sanfield Industries Ltd. in Hong Kong; and Vispack Co., Ltd., in Thailand. WABO objected, asserting that it had already provided Calixto with documents in its possession regarding all sales during the relevant time frame.

Analysis:

The court observed that it must address two issues in resolving Plaintiff’s Motion to Compel:
(1) Whether WABO’s alleged destruction of the Burri e-mails or its process of searching for documents relevant to this litigation and responsive to Calixto’s requests was so deficient as to justify an order from the Court directing WABO to engage in sampling or some other methodology requiring WABO to reconfigure any or all of its back-up tapes and conduct a search of them; and
(2) Whether WABO’s destruction of the Burri e-mails in 2004 constituted spoliation warranting some type of sanction.

Sufficiency of WABO’s Search:
The court began this part of its analysis by citing FRCP 26(b)(2)(B):

Specific Limitations on Electronically Stored Information. A party need not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden or cost. On motion to compel discovery or for a protective order, the party from whom discovery is sought must show that the information is not reasonably accessible because of undue burden or cost. If that showing is made, the court may nonetheless order discovery from such sources if the requesting party shows good cause, considering the limitations of Rule 26(b)(2)(C). The court may specify conditions for the discovery.

Rule 26(b)(2)(C), in turn, directs the court to limit discovery when it finds that the discovery sought is, as relevant to the analysis in this case, unreasonably cumulative or duplicative. The burden fell on WABO to demonstrate that the information that Calixto seeks is not reasonably accessible because of undue burden or cost.

WABO submitted an estimate from e-discovery vendor Kroll Ontrack, stating the cost to restore these back-up tapes to a searchable format would be approximately $ 40,000.00. WABO would then have to spend further funds for a review for relevance and privilege any documents resulting from this endeavor. The Court concluded that WABO satisfied its initial burden of showing that the materials that Calixto seeks from the back-up tapes are not reasonably accessible because of undue burden or cost. The court then concluded that Calixto has not established good cause for the Court to require WABO to restore and search the back-up tapes, despite the cost and burden.

The court continued by finding that Calixto has failed to establish a reasonable expectation that restoring and searching all of the back-up tapes will yield relevant documents that WABO’s other search methods have not. Calixto raised no objections to the adequacy of WABO’s search methods, including, among other procedures, the keywords that WABO chose to use in performing its search for relevant and responsive material from its electronic databases. Moreover, the Court’s independent review of WABO’s specified search methodology revealed that it appeared to have been designed to find relevant information, and no obvious significant gaps in the methodology.

The court did find, however, that the very earliest back-up tape should be restored and searched, because of doubts about the actual date of the deletion of former CEO Burri’s email. The court stated that it was possible that such a search would not return merely duplicative data, and the court was not persuaded that searching a single back-up tape would constitute an undue burden.

Spoliation Sanctions:
Spoliation sanctions constitute an evidentiary matter, and in diversity cases, the Federal Rules of Evidence govern the admissibility of evidence in federal courts. The key to unlocking a court’s inherent power requires a finding of bad faith.

Where no direct evidence of bad intent exists, in this Circuit, bad faith may be found on circumstantial evidence where all of the following hallmarks are present:
(1) evidence once existed that could fairly be supposed to have been material to the proof or defense of a claim at issue in the case;
(2) the spoliating party engaged in an affirmative act causing the evidence to be lost;
(3) the spoliating party did so while it knew or should have known of its duty to preserve the evidence; and
(4) the affirmative act causing the loss cannot be credibly explained as not involving bad faith by the reason proffered by the spoliator.

In applying these factors to the deleted emails, it first concluded that it was likely that Burri’s email store contained relevant documents. There was no doubt that WABO affirmatively caused the data to be destroyed. However, the court was not convinced that a duty to preserve attached at the time of destruction, as it decided that neither of the letters discussed above triggered that duty. The court emphasized that WABO was not a signatory of the Asset Purchase Agreement cited in the letters, and that it appeared that WABO was not a proper defendant for a breach of contract claim based on that document.

WABO IT’s representative credibly testified that, as a senior information systems analyst, her primary job was to ensure the security and proper functioning of WABO’s computer system, something that too much information storage threatened. Therefore, no deliberate act of destruction of evidence occurred.

Ultimately, the court agreed to require the restoration and search of a single back-up tape while denying the other requests discussed here.

Court tells Artist to Come Clean

A federal court has ordered Shepard Fairey, the man behind the now famous “Hope” poster of Barack Obama to disclose ESI that was deleted, and to reveal the identity of the person behind the destruction of evidence. From the ABA’s story on the matter:

Fairey switched lawyers in the case last November after his then-counsel said in a court document that the artist had deleted electronic files to cover up a mistake about which photo he had used. The document, a motion for new counsel, said the events presented a potential for conflict of interest between Fairey and his then-lawyers.

Fairey is under criminal investigation in connection with the disclosure, according to court filings.

On Monday, [Judge] Hellerstein ordered Fairey and his companies to disclose how computer files were searched for relevant legal records, according to the AP story.

Case Blurb: Lafarge North Am.; Measures for Protecting ESI

[The expert witness] sets out and expounds on five “generally accepted measures” for protecting electronic information:
(1) establishing and communicating protection polices;
(2) need-to-know distribution of confidential information;
(3) marking information as “confidential” or “proprietary”;
(4) maintaining confidentiality agreements; and
(5) controlling access to information with physical or electronic systems.

The measures [the expert] identifies appear reasonable.

United States Gypsum Co. v. Lafarge North Am. Inc., 670 F. Supp. 2d 768, 773 (N.D. Ill. 2009)(internal citations removed).
See Case Summary here.

Case Summary, Lafarge North Amer.; Accusations of Spoliation and E-Discovery Experts

United States Gypsum Co. v. Lafarge North Am. Inc., 670 F. Supp. 2d 768 (N.D. Ill. 2009)

Background: Plaintiffs US Gypsum Co. (USG) claim that Defendants Lafarge North. Am. (Lafarge) infringed USG’s patents and stole confidential information relating to wallboard manufacture.
Procedural Status: The court considers motions by each party to exclude the testimony of the other party’s forensics expert.

Basic Points:

• A witness may be qualified as an expert by knowledge, skill, experience, training, or education.
• An expert witness may testify to those areas within his expertise, which may include areas closely associated with or encompassed in general by their subject of expertise, even if not explicitly stated in their credentials.
• An expert witness may not testify to the state of mind of actor’s without specific qualification, or based on speculative means.
• Accusations of spoliation based on speculation are barred from admission
• Criticisms on one expert’s methodology based solely on a study of that methodology, and absent an independent study, are admissible to the extent the criticisms are based on expert-level knowledge and not speculative means.

Admissibility of Expert Testimony in General:

Under FRE 702, a witness can be qualified as an expert by “knowledge, skill, experience, training, or education. Courts consider a proposed expert’s full range of practical experience as well as academic or technical training when determining whether that expert is qualified to render an opinion in a given area.”

The court stated that the admissibility of expert testimony depends not only on the witness’s qualifications as an expert. Under Daubert, court’s are to consider the following factors, among others that may present themselves:

(1) whether the expert’s technique or theory can be or has been tested–that is, whether the expert’s theory can be challenged in some objective sense, or whether it is instead simply a subjective, conclusory approach that cannot reasonably be assessed for reliability;
(2) whether the technique or theory has been subject to peer review and publication;
(3) the known potential rate of error of the technique or theory when applied;
(4) the existence and maintenance of standards and controls; and
(5) whether the technique or theory has been generally accepted in the scientific community.

The court must ensure, therefore, that the proffered testimony has, at its core, some reliable basis. The testimony must also be relevant, so that it assists the trier of fact in understanding the evidence or in determining a fact in issue.

Testimony of Carl Florez:
Carl Florez was retained by Plaintiffs to testify to the security measures undertaken by USG to protect its proprietary information.
Upon examining Mr. Florez’s qualifications, it concluded that he was a qualified expert in the areas of computer forensics and investigation. In his expert reports, Mr. Florez offered a list of “reasonable” measures a company might take to protect its confidential information, and then compared them to the measures implemented by USG. He concluded that “USG’s efforts to protect the secrecy of its proprietary and confidential information, including the information that is electronically stored, are more than reasonable, and are among the most thorough I have encountered in my experience.”

Defendants Lafarge, contended that Florez is not qualified to render an opinion regarding the steps USG took to protect its confidential information. While acknowledging Florez’s knowledge and experience in the areas of computer forensics, defendants argued that has no apparent expertise in the steps necessary to protect the secrecy of information. Florez’s opinions on these matters are, therefore, unreliable.

In beginning its analysis, the court stated the following rule: whether a witness is qualified as an expert can only be determined by comparing the area in which the witness has superior knowledge, skill, experience, or education with the subject matter of the witness’s testimony. Florez has gained expertise and familiarity with how breaches occur, including the measures and countermeasures used to protect information and to overcome protections. Efforts to protect information and efforts to access confidential information evolve on parallel tracks, such that a person familiar with the challenges of accessing protected information will also be familiar with steps necessary to protect it. Florez’s unique familiarity with computer crime provides him with an understanding of computer security measures. The court concluded that Florez’s testimony passed the test.

Defendants also argued that Florez’s opinion with respect the reasonableness of USG’s data security measuares rested on an unreliable method. Again, the court disagreed. Florez’s failure to undertake a specific experimental analysis in reaching his opinion does not, by itself, require the court to exclude his testimony. Indicators of reliability depend on the particular circumstances of the particular case at issue. Determining whether a particular activity is reasonable in light of other facts is often a function of experience, of which Defendants admit Mr. Florez has a sufficient measure. The court was persuaded that in this case, experience provided a reliable basis for determination of what precautions are reasonable and effective to prevent breaches

Reasonable Measures Cited by Mr. Florez:
Florez cited and expounded on five “generally accepted measures” for protecting electronic information:
(1) establishing and communicating protection polices;
(2) need-to-know distribution of confidential information;
(3) marking information as “confidential” or “proprietary”;
(4) maintaining confidentiality agreements; and
(5) controlling access to information with physical or electronic systems.

In the context of forming his opinion, Florez consulted authoritative sources and publications in the field. He also compared USG’s policies with those at several other organizations he was familiar with, including the FBI. Defendants suggested that these comparisons are inadequate because none of these organizations is in the manufacturing business or construction industry. While the court acknowledged that discussion of confidentiality measures in the manufacturing setting might have been useful, its omission was not fatal, as the need for security in manufacturing sector here cannot be greater than that present at the FBI. The court concluded that Florez’s opinion appeared reasonable, even in the face of his inability to cite specific sources of information used for his analysis.

Mr. Florez’s Analysis of the Intent of Actors:

The court did agree with Defendants assertions that where Mr. Florez made oblique references to the state of mind of certain actors, he appeared to exceeded the scope of his expertise. The court noted that nothing in the record suggested that Florez was particularly qualified to understand the mental attitudes of others. Even assuming he were, he is able to render an opinion on intent only by drawing inferences from the evidence. Such opinions merely substitute the inferences of the expert for those the jury can draw on its own. Thus, the court excluded this type of testimony from the case.

Mr. Florez’s Analysis of Document Spoliation:

In his reports, Florez opined that various Defendants committed intentional acts of spoliation to cover up the misappropriation of USG documents. In an earlier opinion, the court had barred USG, its attorneys and witnesses from offering evidence of any alleged spoliation of evidence by any of the Defendants . . . and precluding all comment or testimony on such matters in the presence of the jury, either directly or indirectly, at any stage of trial from jury selection to verdict. Plaintiff now sought to use Florez’s testimony to explain “what steps were taken resulting in deletion of the documents, how partial information was recovered, and what information is irretrievably lost.”

The court was not persuaded to change its view on the matter of accusations of spoliation. The opinion stated that plaintiffs implicitly conceded that the main purpose of Florez’s testimony was to create the inference that Defendants intentionally destroyed evidence in an attempt to cover up alleged wrongdoing. Because plaintiffs offer no new non-speculative evidence on the issue, the court prohibited all testimony of this type.

Testimony of Andrew Reisman:

Mr. Reisman opined primarily on the validity of Florez’s methods and conclusions, contending that the evidence Florez reviewed failed to establish his subsequent findings. Mr. Reisman conducted no independent investigation or data analysis, but rather he reviewed Florez’s reports and consulted the same data Florez did. Plaintiff suggested that Reisman was obligated to undertake a broader investigation because he “had unfettered access to the entire Lafarge computer network” and concludes that the failure to do so constituted cherry-picking data in a way that fatally undermined the reliability of his conclusions. Defendants respondrf that Reisman would testify, based on his own experience, to “what forensic analysts do, what information they look at, what conclusions they can reach, and what conclusions they cannot reach based on forensic evidence.”

The court concluded that Reisman’s methodological criticisms were sufficiently based on his relevant experience to be reliable, and because computer forensics is a highly complicated area, the jury would benefit from having access to criticism from another expert in the field. However, to the extent that Reisman’s opinion offers speculation with respect to the use or dissemination of USG information at Lafarge, in the guise of criticizing Florez’s methodology, such testimony will be excluded.

The court ruled that any comments from Reisman that appear to divine an actor’s intent through speculative means will also be excluded. Finally, the court also ruled that Reisman may not opine on issues of spoliation or destruction of documents in answer to Florez’s accusations, becuase those accuasations have already been barred. Anything that Reisman would add is therefore not needed.