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E-Discovery Pitfalls: Uncharted Territory

Posted by rjbiii on October 5, 2007

The story of Phoenix Four v. Strategic Resources Corporation is the third installment in our series on e-discovery pitfalls.

Phoenix Four (Phoenix), an investment firm, sued Strategic Resources Corp. (SRC), its investment advisor, for breach of fiduciary duty, common law fraud, and negligent misrepresentation. Phoenix was SRC’s sole client. Class, what happens when your only client sues you? Right, you go out of business.

In April or May 2004, Phoenix stopped paying fees to SRC and SRC ceased operations shortly thereafter. Between August and October 2004, SRC delivered to Phoenix and its representatives all paper records that belonged to it. Between August and September 2004, SRC transferred all of Phoenix’s electronic accounting records to Phoenix’s designated accounting representatives.

(citations omitted).

As the revenue stopped coming in, SRC found itself unable to pay the rent.

Sometime in February or March 2005, SRC’s landlord commenced proceedings to evict SRC from its offices in Carnegie Hall Towers, New York. SRC vacated its office space on or about March 31, 2005, prior to the commencement of this lawsuit. When the SRC Defendants moved out of Carnegie Hall Towers, they left behind Phoenix marketing documents, old prospectuses, and trade publications. They also left behind at least ten computer workstations. SRC’s landlord subsequently disposed of the abandoned documents and computers. [SRC co-founder Paul] Schack did not recall discussing with Van Pelt, Hopkins, or anyone else whether the workstations contained Phoenix-related material prior to abandoning them. By that time, SRC’s technical specialist had already left SRC’s employ.

(citations omitted, emphasis added).

Okay, here is the first real trouble with discovery, although it would be wrong to say that trouble (with a capital “T”) hadn’t already arrived. Obviously, just leaving workstations containing potentially relevant material to a lawsuit after you’ve realized you’re about to be sued is a bad idea. The court thinks so too, but we’ll get to that. What happens next?

The SRC Defendants took with them from Carnegie Hall Towers about fifty boxes containing business records pertaining to SRC and Phoenix, two servers, and at least two computer workstations. Schack, who subsequently started a new business venture, housed these items in his new office and used at least one of the servers in his new business.

Okay, so now we have the old equipment residing in a new business. In May, Phoenix files its complaint. The judge picks up the tale.

Prior to and immediately following receipt of Phoenix’s first set of document demands in August 2005, Mound Cotton, counsel to the SRC Defendants, discussed with them the need to locate and gather pertinent paper and electronic documents. Schack and Hopkins searched the computer system in Schack’s new office and informed Mound Cotton that they had failed to locate any electronic files or folders that pertained to Phoenix or SRC. They did not search the servers, however, as Schack was unaware that there was any pertinent information on them. The SRC Defendants also advised Mound Cotton that “because SRC was no longer in operation, there were no computers or electronic document collections to look through or search.” Mound Cotton attorneys reviewed hard copy materials made available by the SRC Defendants and subsequently produced these documents, about fifty boxes in all, to Phoenix in December 2005.

Basic question: if you didn’t search the servers, how did you know they didn’t contain pertinent information?

Around late February or early March 2006, a freelance computer technician, Peter Pinti, made a service call to Schack’s office in response to complaints about a malfunctioning server. This server was one of the two that the SRC Defendants had taken with them from SRC’s Carnegie Hall Towers office. After directly accessing the hard drive on the server, Pinti discovered about 25 gigabytes of data-as much as 2500 boxes-stored in a dormant, partitioned section of the server. The computer system in Schack’s office was configured in such a way that the desktop workstations did not have a “drive mapping” to that partitioned section of the hard drive. In other words, “someone using a computer connected to that server could not ‘view’ or gain access to that section of the hard drive and would have no way of knowing of its existence.” Schack immediately contacted his attorneys and was instructed to download the information and deliver it to them. A few days later, Schack asked Pinti to back up the data. Pinti first downloaded the data onto DLT tapes but Mound Cotton’s technology vendor was unable to extract the data from the tapes. On March 13 or 14, Pinti again downloaded the data onto DVDs. The deadline for discovery set in the pre-trial scheduling order for this case was March 12, 2006. See Dkt. 27.

(citation omitted).

Well, I guess we can hope that the data isn’t “pertinent.” Now this is interesting, the judge calls the unmapped partition dormant and even comes close to calling it “inaccessible” above. In fact, he later concludes that the partition fits the definition of “not reasonably accessible.” Read this:

The Introduction to the proposed amendments to Rule 26(b)(2) identifies as a difficult-to-access source “legacy data that remains from obsolete systems and is unintelligible on the successor systems.” Pending Rules Amendments, http://www.uscourts.gov/rules/newrules6.html. at 40. The information on the server in this case, which is in a partitioned section of the hard drive and not accessible from Schack’s newly configured computer system, fits squarely within this description.

Bull! An unmapped partition is easily accessible. But the point is, Phoenix’s counsel could not have adequately explained this. This conclusion was something in the nature of a mitigating factor. So whatever the penalty, keep in mind that it could be worse. This also illustrates the need for network topology maps and standardized procedures for storing data. Lay on, MacDuff!

Mound Cotton received the DVDs on March 15, 2006, and tried to review the documents quickly for privilege, relevance, and responsiveness. On March 20, 2006, Mound Cotton alerted Phoenix to the recently discovered documents and advised that it would inform Phoenix of the nature of the documents “as soon as [it] knew more about [them].” Between March 20 and April 10, 2006, counsel for Phoenix and the SRC Defendants met almost daily at depositions being taken in the case and discussed the status of the production. They also corresponded about the production. On April 10, 2006, SRC responded to Phoenix’s prior discovery requests that all responsive documents had been produced. On April 12, 2006, Mound Cotton informed Phoenix that it would produce the documents in “TIFF” format but Phoenix rejected that format. On April 13, 2006, Mound Cotton told Phoenix that it would provide the documents in an electronically searchable “Case Vault” format. Phoenix did not respond to this offer.

(citations omitted).

Evidently, hoping didn’t work. Phoenix goes on to be so uncooperative as to seek sanctions against SRC. The court decides against issuing an adverse inference instruction to the jury, both for the abandonment of the workstations and the late production of the unmapped partition. About the abandonment, the court says:

Nonetheless, because actual notices of the pending litigations are unavailable, and because of the upheaval in the defendants’ business, I do not find this instance to be one in which gross negligence alone supports an inference that the abandoned evidence was unfavorable to the SRC Defendants.

The court was not so forgiving with respect to the manner in which Mound Cotton (SRC’s counsel) conducted its search for relevant documents:

It appears that Mound Cotton never undertook the more methodical survey of the SRC Defendants’ sources of information that Judge Scheindlin outlined in Zubulake V. Mound Cotton simply accepted the defendants’ representation that, because SRC was no longer in operation, there were no computers or electronic collections to search. Had Mound Cotton been diligent, it might have asked-as it should have-what had happened to the computers SRC used at Carnegie Hall Towers.

It also wasn’t happy with SRC’s investigation. Ultimately, the court decides against any of the more stronger remedies available, and instead fines client and counsel $30,000 each. That had to be a shock for counsel, and an unwelcomed occurrence for SRC. All because of a store of invisible data, that was not to be found on any mapped partition…

Phoenix Four, Inc. v. Strategic Resources Corp., 2006 WL 1409413 (S.D.N.Y. May 23, 2006).

Posted in Data Management, Document Retention, Duty to Conduct a Reasonable Inquiry, Duty to Preserve, E-Discovery Pitfalls | Tagged: , | Leave a Comment »

E-discovery Pitfalls: What a Tangled Web we Weave…

Posted by rjbiii on September 30, 2007

The second installment in our series on E-Discovery Pitfalls.

Law.com has posted an article in which a team of lawyers is now trying to justify their management of discovery project gone wrong:

Attorneys who once represented Qualcomm Inc. in its ill-fated federal patent case against Broadcom Corp. have asked a judge to pierce their client’s privileged communications.

With the threat of formal sanctions bearing down on them, lawyers at Heller Ehrman and Day Casebeer Madrid & Batchelder — Qualcomm’s former litigation counsel — are asking for a rare exception to privilege so they can explain to the judge how their side failed to produce hundreds of thousands of relevant documents during discovery in the San Diego case.

Qualcomm, citing privilege, has refused to produce any evidence about the discovery error. Magistrate Judge Barbara Major has ordered the attorneys to show cause at an Oct. 12 hearing as to why they should not be sanctioned. Now, in advance of the hearing, many of the outside counsel have hired their own lawyers and have been trying to find a way to explain what happened.

(emphasis added)

Obviously, this is an ugly situation for all parties, and it looks to get uglier. Lifting privilege is one of those actions necessary to examine an attorney’s management of a case, and is an element in bar malpractice suits. All the elements of a worst case scenario seem present with respect to a lawsuit: unhappy clients, their former attorneys who find themselves threatened by a deadly triple-threat of sanctions, malpractice actions, and state bar proceedings. Now, whether the attorneys are responsible or not is something that will only come out with further examination, although there is ample case law that states that ultimately the buck stops with counsel. However, an attorney doesn’t actually physically collect the data, so counsel’s responsibility is far from absolute.

How did we get here? To find out, let’s reboot and start from the beginning.

Read the rest of this entry »

Posted in E-Discovery Pitfalls, Sanctions | Tagged: , | 1 Comment »

E-Discovery Pitfalls: The tale of the missing attachments

Posted by rjbiii on September 20, 2007

Today Post Process introduces a new series of posts, called “E-Discovery Pitfalls,” that will describe cases in which the e-discovery process went wrong. Today’s installment discusses a case of missing attachments, and the matter is PSEG Power New York, Inc. v. Alberici Constructors, Inc., Slip Copy 1:05-cv-00657-DNH-RFT (N.D.N.Y., Sept. 7, 2007) [pdf file]. A summary can be viewed here.

Law.com has an article which can quickly bring us to the crux:

PSEG Power New York Inc., turned over more than 3,000 e-mails and 211,000 pages of documents to a legal adversary, but a magistrate judge has found that the company still failed to comply with a discovery request.

Magistrate Judge Randolph F. Treece directed PSEG to try again to produce the materials in a coherent form as requested by Alberici Constructors Inc., its adversary in a suit in the Northern District of New York. PSEG must do so at its own expense, despite a plea from the energy company to shift some of the e-discovery costs to Alberici.

The opinion in this large construction-based action opens with the magistrate expressing his understanding of the difficulties posed in this case by electronic discovery:

For nearly six months, the parties and the Court have been grappling with an electronic discovery monstrosity with the hope that it could be corralled and definitively resolved, thereby obviating the need for motion practice. Alas, attempts to resolve the issue in lieu of briefs fell woefully beyond the parties’ grasp and, as the last straw, they have set the matter at our feet for appropriate resolution.

PSEG responded to Alberici’s first document request by producing, over a period of six months, 211,000 pages of hard copy, which Alberici then converted to electronic format (TIF images), and loaded into a litigation database at its own expense. PSEG also produced a disc of e-mails. Alberici had also produced a large amount of document to PSEG. At this point, all is straightforward. PSEG and Alberici each produced their own documents, at their own expense. Each paid for post-production conversion of the other party’s documents as well. Here’s where the tale goes astray. Judge Treece describes the problem:

In January 2007, it became evident to Alberici that PSEG had produced emails without the attachments which were referenced as being a part of the emails. Apparently a technical glitch occurred whereby numerous emails were “divorced” from their attachments caused by limitations in the downloading software. Dkt. No. 51 at p. 1, Ex. F, Pl.’s Lt., dated Feb. 20, 2007. The separation of the emails from the attachments happened at the interface between the different software used by PSEG and the vendor when reducing the documents in a form that could be reviewed by counsel. Id. It appears that the “vendor’s software was not compatible with the HTML format in which PSEG had provided its documents and that this incompatibility had resulted in the parent child link between the emails and attachments being broken.”

We’ve lost the connection between our e-mail messages and their attachments. This means that in responding to discovery requests by Alberici, PSEG failed to produce relevant material. The good news is that the required data exists, and this isn’t a case of evidence destruction. The bad news is that quite a bit of technical expertise will now have to be put to use in order to either 1) re-process the e-mails in a manner that preserves the connection to attachments; or 2) use the existing evidence to (in the court’s words) “re-marry” the two.

Judge Treece tells us what the parties did upon discovering the problem:

Throughout this ordeal, the raw data was not lost. All 750 gigabytes of unfiltered data remained intact in its original format. Dkt. Nos. 54, n.5; 57 at p. 4. Realizing that the underlying data still existed, the next proposal included PSEG sharing with Alberici’s vendor a sample of the metadata for analysis. However, the dearth of metadata related to the emails and attachments rendered this proposal fruitless. Id. In the interim, the parties’ vendors explored other ways to reverse engineer the available data and “re-marry” the attachments to their emails. This exploration was for naught inasmuch as the data necessary to complete this task was destroyed during PSEG’s collection and formatting of the emails. Id.

So, although the “raw data” is still intact, the data resulting from downstream processing is in such a state so as to render the re-connecting of parent email to child attachment impossible. At this stage, I’d like to point out something very important. Changes to data have occurred in the EDD processing (or loading, or ingestion, or whatever you want to call it) phase, rendering that data unuseable for the task at hand. However, there is a reservoir of “raw data” available because of (what one supposes is) correctly collected data. This illustrates the vital importance of a defensible collection process. The opinion here gives no description of how data was collected, because the collection isn’t being challenged. Nevertheless, without that defensible process in place, there would be no acceptable “raw data” reservoir as backup, and the issue might not be late production of attachments in an appropriate form, but destruction of data, a much more serious affair.

After the parties’ attempts to collaborate on solving the problem of the missing attachments failed to produce an accord, the magistrate got involved:

[T]he issues are several-fold: (1) is Alberici entitled to receive the emails with the related attachments together as opposed to their current state of separation, lacking coordinated identification with each other; (2) although PSEG has provided these emails and attachments in hard copy albeit not “married,” is PSEG obligated to provide these documents in their original format; and (3) if re-production is required, which party bears the cost of this production?

Alberici felt as if the e-mails and attachments should be connected in some easily identifiable way. PSEG argued that Alberici “is impermissibly seeking a “perfect” or “ideal” production, regardless of expense or benefit.” Furthermore, “[s]uch a re-do effort would be duplicative and entirely unnecessary in its view.”

PSEG offered its own alternative to solving the problem:

PSEG wants Alberici to identify a concise group of attachments that are important and necessary to Alberici and then it would consider producing said attachments, however, reserving its right to assert that it may be irrelevant or non-responsive or privileged. Dkt. No. 54 at p. 4. Or, if Alberici insists on a re-production, PSEG is willing to provide them but at Alberici’s expense. Id.

So…we’ve already produced the stuff, although not in an optimum state. If you want it produced yet again, you pay for it. How did that go over with his honor? He started off by mentioning the changes to FRCP 34(b):

(ii) if a request does not specify the form or forms for producing electronically stored information, a responding party must produce the information in a form or forms in which it is ordinarily maintained or in a form or forms that are reasonably usable; and (iii) a party need not produce the same electronically stored information in more than one form.

Obviously, the commonsensical purpose of this mandate has always been to prevent massive dumping of documents, without form or direction, thereby
alleviating an incalculable burden upon the requesting party of searching for the proverbial needle in a haystack. In this respect, notwithstanding Rule 34(b)’s amendments, (ii) and (iii), PSEG would still have to produce business records as kept in the regular course of business or in such a manner that Alberici could readily find a necessary document or two. It has also been a seminal rule that the responding party would not have to satisfy the requesting party’s whim to have the documents produced in various forms.

The Judge then cuts to the chase:

Clearly these 3000 emails and related attachments were not produced in accordance with this mandate, and, as we now know have caused considerable consternation and agony for both parties, which the revised statute was attempting to avoid. Normally, one would expect that an email and its attachment would have been kept together in the regular course of business, and the production of said documents would have followed suit. Here, the difficulty has been that there was not sufficient identifying information to match attachments with their respective email. We accept Alberici’s proffer that it has spent considerable time employing different methodologies to unearth attachments to correspond with the emails it has found to be pertinent. Attempting to reunite these documents has been nothing short of a donnybrook for Alberici. It has been frustrated if not completely hamstrung in locating these documents. Compounding Alberici’s angst is the disadvantage it has been placed in preparing for depositions. In essence, the first production of emails and attachments has been ineffectual.

The judge then takes a shot at PSEG’s vendor:

We acknowledge that discovery production is rarely perfect or ideal, yet this discovery quagmire created by PSEG’s vendor falls woefully short of comporting with the spirit of Rule 34.

Ultimately the Judge decided that PSEG must take responsibility for the consequences of its own vendor’s misadventures, by denying the request for cost-shifting, and granting Alberici’s motion to compel.

In one project in which I worked, we noticed missing attachments for some e-mails, but not for others. This is different than what happened with PSEG, in that the attachments that the e-mail message indicating should be present didn’t exist. After quite a bit of investigation, we discovered an error in collection, which had been executed by the client’s own IT staff. Remote users (with laptops) would receive e-mails logged in over the web, but woudn’t actually download the attachments unless they requested the document (by clicking on it). So if they never viewed the attachment, it didn’t exist on their system, despite the e-mail’s indication that the attachment should be present. As a result, the data had to be collected yet again. Additionally, some rather extensive data manipulation had to be done to get the originally processed data and the re-collected data to match. Never was very pretty, but at least the issue was discovered before production.

Posted in 2nd Circuit, E-Discovery Pitfalls, Form of Production, FRE 34(b), Magistrate Judge Randolf F. Treece, N.D.N.Y. | 1 Comment »