Wednesday, May 20, 2009

2009-05-21 Pre-Review Access by Adverse Party, Failure to Adhere to Local Court Rules,Metadata Production Discussions and Work Product Privilege, Ninth Circuit Spoliation Standards

Three decisions for this week, including, of course, one spoliation decision.

Requesting Party’s Right to Pre-Privilege ESI Search, Local Rule Adherence Required: This decision from the United States District Court for the Eastern District of Wisconsin discusses under what circumstances a requesting party’s expert might be permitted direct pre-review access to ESI. Also, a somewhat less-than-gentle reminder that failure to adhere to local court rules might result in decidedly less-than-gentle consequences.
Discussions About How to Locate and Interpret Metadata Held Work Product; Disclosure to Independent Auditor Held Not to Waive Work-Product Privilege: In this “not-for-citation” (but nonetheless published) decision from the U.S. District Court for the Northern District California, the Court finds first that discussions between counsel and its consultant about metadata were protected by attorney work product privilege. The court also addresses whether a disclosure (that included ESI) to an independent auditor waives work-product privilege.
Spoliation: What’s an eDiscovery and digital evidence digest without a spoliation decision? (Please, this was a rhetorical question). The is from the United States District Court for the District of Arizona, addresses Ninth Circuit standards for determining both imposition and sanctions determination standards, records retention policies.


Decisions: Henderson v. U.S. Bank, N.A., 2009 WL 1152019 (E.D. Wis. 2009)
S.E.C. v. Schroeder 2009 WL 1125579 (N.D Cal. 2009)

Reed v. Honeywell Intern., Inc., 2009 WL 1125542 (D. Ariz. 2009)

Case: Henderson v. U.S. Bank, N.A.

Citation: 2009 WL 1152019 (E.D. Wis. 2009)
Date: 2009-04-29
Topics: Requesting party’s right to search pre-privilege review of requested ESI; ESI storage media; party’s concealment of ESI or lack of expertise to search ESI (including metadata) might trigger requesting party to pre-privilege ESI review, adherence with local rules

This decision from the United States District Court for the Eastern District of Wisconsin arises from a claim of unenforceability of a “confidentiality and non-solicitation” agreement asserted by the plaintiff, a former employee of defendant bank. Before the court is defendant’s motion to compel “production of certain electronic devices,” which include desktops, laptops, flash drives, and other “similar electronic storage devices…” together with “all passwords, access codes” and the like.

Ok, so much for the easy part. We have counterclaims in play here, and accordingly, yesterday’s plaintiff became today’s counter-defendant. The original defendant bank (now sitting in the shoes of a plaintiff) had an interesting ESI discovery approach.

Counterclaiming plaintiff’s (defendant bank’s) request for production provided further that its consultant would “duplicate the devices,” and create images of the hard drives. The original devices would then be returned to counterclaim defendants (the original plaintiff) together with copies of the images so created. The defendant/counter-plaintiff bank then stated that:

“[i]t would stipulate to measure to protect confidential information stored on the devices, and stated that it was not seeking information protected by the attorney-privilege.” Henderson v. U.S. Bank, N.A. 2009 WL 1152019, *1 (E.D. Wis. 2009)

Not surprisingly, the plaintiff/counter-defendant objected, asserting in a lumberingly Luddite fashion that:

“[S]uch a request is the e-discovery equivalent of requesting all of counterclaim defendants’ filing cabinets. Rather than making such an unlimited request, argue counterclaim defendants, [counterclaim plaintiff] must as for specific categories of [ESI] and allow counterclaim defendants to search their own devices and produce responsive information” Id.

The first problem here, of course, is that placing a requesting party in charge of examining and adverse party’s documents for privilege or confidentiality is somewhat akin to putting the fox in charge of the hen house.

Defendant bank, for its part, wanted to conduct its own search of plaintiff’s ESI (and storage devices) -a perverse variant of self-help, one might presume- so that it could determine whether counter-defendant had stolen and “was using” the bank’s confidential information.

Although the Court recognizes the counter-plaintiff’s concerns and rights to request, it also notes that, without more, this does not give a requesting party a carte blanche right to makes its own ESI search:

“However, although U.S. Bank is entitled to request and review this information, Rule 34(a) does not give U.S. Bank the right to conduct its own search of the electronic devices. Rather, “[l]ike the other discovery rules, Rule 34(a) allows the responding party to search his records to produce the required, relevant data.” In re Ford Motor Co., 345 F.3d 1315, 1317 (11th Cir.2003). Thus, U.S. Bank cannot simply request all of counterclaim defendants' electronically-stored information and search it at will. It must instead request specific categories of information and allow counterclaim defendants an opportunity to search their own data and produce responsive materials.” Id.

Requesting Party’s Right to Search - Under Some Circumstances

What is interesting is that the Court leaves some leeway for a requesting party to search an adversary’s ESI “under some circumstances”:

“I note that in some circumstances it may be appropriate to allow a requesting party direct access to a responding party's electronically-stored data, such as where the court has cause to believe that a responding party has concealed information or lacks the expertise necessary to search and retrieve all relevant data, including metadata or residual data. Id. at 1317; Fed.R.Civ.P. 34 advisory committee's note (comment on 2006 amendments to Subdivision (a), penultimate paragraph) (“The addition of testing and sampling to Rule 34(a) with regard to documents and electronically stored information is not meant to create a routine right of direct access to a party's electronic information system, although such access might be justified in some circumstances.”). In the present case, I have no reason to think that counterclaim defendants would not perform a diligent search of their electronic information and disclose any and all responsive information. Should U.S. Bank have any doubts about counterclaim defendants' ability to search their own electronic files, it can depose counterclaim defendants after they have responded to U.S. Bank's specific requests and question them about their retrieval efforts. Any deficiencies can be addressed between counsel or, if necessary, pursuant to a subsequent motion to compel. Id., at *2.

So, the Court has articulated circumstances under which a requesting party’s expert may review ESI. The use of the phrase “cause to believe” is interesting, because it does not discuss the burden placed upon a moving party in making such a showing. U.S. District Judge Adelman’s decision appears to place limits on appears in turn to be the somewhat more expansive language (e.g., “routine right of direct access to a party’s electronic information system”) contained in the Advisory Committee notes.

Accordingly, a court may therefore compel a pre-search, pre-redaction, and pre-privilege review production of ESI (including the ESI storage media or devices) where it has cause to believe a producing party:

1. Has concealed information; or
2. Lacks the expertise to search and retrieve all relevant data, including metadata or residual data.

Methinks Judge Adelman is delivering a stern warning to the parties - the specter of requesting party ESI search potential still looms large, at least in this matter:

“As discussed, U.S. Bank has not identified any specific electronic information for production, and thus counterclaim defendants have not had the opportunity to search their own electronic devices and produce responsive materials. Accordingly, U .S. Bank's demand for direct access to electronic materials is premature, and its motion to compel will be denied.” Id., at *2

Adherence to Local Court Rules

I have this thing about adherence to local rules, and for two reasons. First, non-adherence may cause a pleading to be disregarded by a court, and annoy the judge. Second, it will undoubtedly annoy the judge. Here, the parties appeared to have played fast and loose with requests for extensions of time and leave for exceeding page limitations.

First, the tee-up:

“I must discuss one other matter. As required by the scheduling order, U.S. Bank filed its motion to compel pursuant to Civil Local Rule 7.4. Under that rule, counterclaim defendants were required to file their brief in opposition to the motion within five days, and the brief was to be limited to three pages. However, they did not file their brief on time and it exceeded the page limit. They did file a motion asking for additional time to file their brief (though not pursuant to Civil Local Rule 7.4, as required), but I had not ruled on the motion by the time the brief was due, and in any case the motion did not request permission to file a brief in excess of the page limit. Although I routinely grant requests for extensions and to exceed page limits and normally do not rigorously enforce the local rules, I find that counsel for plaintiff and counterclaim defendants have taken too many liberties in the present case. Not only have they disregarded the local rules and the scheduling order in connection with the present motion, they have exhibited similar behavior in connection with the pending motion for judgment on the pleadings. In support of that motion, counsel filed a twenty-page reply brief, which is five pages longer than the local rules allow. Although counsel filed a contemporaneous motion for leave to file a brief that “modestly exceeds” the fifteen-page limit (Mot. to Extend Page Limit at 1),
FN* the brief obviously has been doctored to appear shorter than it really is. For example, counsel included arguments in a page-long footnote and a number of single-spaced, bullet-point paragraphs. Although no local rule prohibits the use of long footnotes or single-spaced paragraphs, the court estimates that had the arguments appearing in these sections been included in traditional, double-spaced text, the brief would have exceeded the page limit by ten pages. Had counsel been forthright about their brief's length, I likely would have granted their request to exceed the page limit without further ado.”

What counsel does not want to hear from any judge:

“As it stands, however, the brief adds to my concerns about counsel's disregard for the local rules and scheduling order.” Id., at *2.

And, of course, the Court’s coup de grace:

“Despite counsel's conduct, I will grant their pending requests. But I caution counsel for plaintiff and counterclaim defendants that they must from now on follow the local rules and scheduling order to the letter. Any requests to depart from the local rules or scheduling order must be made by motion under Rule 7.4. If a motion to depart is pending at the time a brief or other paper is due, counsel should assume that the motion will not be granted and must comply with the rule or scheduling order as written. I will impose sanctions for any future violations.” Id., at *3

Takeaways: Ask for whatever ESI may be relevant, or may reasonably lead to relevant information, but remember that e-discovery production operates in identical fashion to paper-based document production, in turn meaning that, without good cause, it will be the producing party who searches, identifies, determines what is confidential or privileged, and withholds accordingly.

And always, always, read and comply with local court rules.

Case: S.E.C. v. Schroeder
Citation: 2009 WL 1125579 (N.D. Cal. 2009) [Not for citation, per opinion]
Date: 2009-04-27
Topics: Discussions between attorney and consultant in connection with metadata protected by attorney work product privilege, non-party ESI production, no waiver of work product privilege by disclosure to independent auditor,

This decision from U.S. Magistrate Judge Howard Lloyd of the United States District Court for the Northern District of California arises out one of the many stock-option grant backdating cases (here, against KLA-Tencor). In this matter, non-party discovery (including ESI discovery) was sought from both KLA-Tencor (the defendant in the underlying backdating action) as well as the law firm (and several of its attorneys retained by KLA-Tencor as independent counsel to its “Special Committee” investigation of the backdating allegations. In essence, the defendant here was KLA-Tencor’s ex-CEO, and sought certain documents from non-parties KLA-Tencor and the independent counsel retained by the “Special Committee” created to investigate the alleged option grants backdating.

Discussions About Metadata Held Protected By Attorney Work Product Privilege

Without providing much by way of explanation, Judge Lloyd rules that communications about “locating” and “interpreting” metadata that took place between the Special Committee independent counsel and its retained consultants were protected from disclosure by the attorney work product privilege:

“Communications between Skadden and its consultant, LECG, need not be produced. The withheld communications reportedly contain “documents related to methods for document review and retention, discussions regarding how to locate and interpret metadata, a collection of documents that LECG deemed important related to a particular witness, and emails discussing special projects that LECG completed during the investigation.” (Miller Decl. ¶ 34). It is not apparent that any of those communications were disclosed beyond Skadden and LECG. Further, it appears that these communications comprise opinion work product, and Schroeder has not demonstrated a substantial need for any facts that might be contained in them. Schroeder's motion as to these documents is denied. ” S.E.C. v. Schroeder 2009 WL 1125579, at *12 (N.D.Cal. 2009)

This decision, which addresses a quasi non-party’s obligations to produce, might have resulted in a different ruling had the issue arisen between the actual parties engaged in the lawsuit. I think that the issues relating to “how to locate and interpret” might have been addressed by the parties’ counsel during the Fed. R. Civ. P. Rule 26(f) meet and confer.

Which brings to mind an interesting issue. Although it appears that the court has designated this decisions “Not for Citation,” one wonders whether it will be cited nevertheless for the proposition that discussions about metadata production (rather than metadata itself) are protected by work product privilege.

No Waiver of Work Product Privilege for Disclosure to Independent Auditors

The defendant here sought “the production of documents and communications between the Special Committee and KLA's outside auditors,...includ[ing] a PowerPoint presentation” presented to the independent auditors by the Special Committee’s independent counsel. In short, defendant here claimed a “broad subject matter waiver” as to any documents disclosed to the independent auditor. Moreover, the Special Committee’s independent counsel asserted that the information disclosed was attorney work product, and that there was no waiver because the independent auditor was not “adversarial” to the independent counsel:

“Schroeder argues that these disclosures effected a broad subject matter waiver as to any documents that were so disclosed. Skadden maintains that the information that was disclosed is attorney work product. It contends that there was no waiver because PwC is not adversarial to KLA. See Bergonzi, 216 F.R.D. at 497 (“Work product protection is waived where disclosure of the otherwise privileged documents is made to a third party, and that disclosure enables an adversary to gain access to the information.”).” S.E.C. v. Schroeder 2009 WL 1125579, at *8 (N.D.Cal. 2009)

The Court then begins with a case law analysis, showing a “split” as to whether disclosure to an independent auditor waives attorney work product privilege. The Court first cites two cases from the Northern District of California and one from the Southern District of New York holding that a waiver had occurred, but then relies on a more recent options backdating decision from the Southern District of New York finding no waiver, and sides with that more recent decision:

“Courts are split over the question whether disclosure to an independent auditor waives protection. Some courts find a waiver on the ground that the auditor acts as a “public watchdog” with interests that are not necessarily aligned with those of the company being audited. See, e.g., Medinol, Ltd. v. Boston Scientific Corp.., 214 F.R.D. 113, 116 (S.D.N.Y.2002) (concluding that work product protection as to the special litigation committee's materials was waived when the information was disclosed to an outside auditor); Diasonics Securities Litig., No. C83-4584, 1986 WL 53402 (N.D. Cal., June 15, 1986) (concluding that the work product protection did not apply to documents disclosed to an auditor acting as a public accountant rather than as a consultant). Cf. Samuels v. Mitchell, 155 F.R.D. 195, 200-201 (N.D.Cal.1994) (finding no waiver where documents were disclosed to an auditor that acted as a consultant rather than as a public accountant).”

“Nevertheless, under the circumstances presented here, this court finds that the better view, recently followed by another court in this district in a different stock option backdating case, is that espoused by Merrill Lynch & Co. v. Allegheny Energy, Inc., 229 F.R.D. 441 (S.D.N.Y.2004). That court concluded that disclosures to outside auditors do not have the “tangible adversarial relationship” requisite for waiver. Id. at 447. The court reasoned: A]ny tension between an auditor and a corporation that arises from an auditor's need to scrutinize and investigate a corporation's records and book-keeping practices simply is not the equivalent of an adversarial relationship contemplated by the work product doctrine. Nor should it be. A business and its auditor can and should be aligned insofar as they both seek to prevent, detect, and root out corporate fraud. Indeed, this is precisely the type of limited alliance that courts should encourage. For example, here Merrill Lynch complied with Deloitte & Touche's request for copies of the internal investigation reports so that the auditors could further assess Merrill Lynch's internal controls, both to inform its audit work and to notify the corporation if there was a deficiency.” Id. at 448.” S.E.C. v. Schroeder, 2009 WL 1125579, at *9 (N.D.Cal. 2009)

“As noted by the court in Roberts, this view “furthers the strong public policy of encouraging critical self-policing by corporations. Indeed, sanctioning a broad waiver here would have a chilling effect on the corporation's efforts to root out and prevent corporate fraud and disclose the results as necessary to its auditors.” 254 F.R.D. at 381-82.” Id.

Result: “Schroeder's motion as to these documents is denied.”

Metadata and Work-Product Privilege

In what appears to be one of the first decisions addressing the issue, U.S. Magistrate Judge

Communications between Skadden and its consultant, LECG, need not be produced. The withheld communications reportedly contain “documents related to methods for document review and retention, discussions regarding how to locate and interpret metadata, a collection of documents that LECG deemed important related to a particular witness, and emails discussing special projects that LECG completed during the investigation.” (Miller Decl. ¶ 34). It is not apparent that any of those communications were disclosed beyond Skadden and LECG. Further, it appears that these communications comprise opinion work product, and Schroeder has not demonstrated a substantial need for any facts that might be contained in them. Schroeder's motion as to these documents is denied.” Id., at *12

Case: Reed v. Honeywell International, Inc.
Citation: 2009 WL 1125542 (D. Ariz. 2009)
Date: 2009-04-27
Topics: Destruction of handwritten notes used to create PowerPoint presentation and final report, records retention policy, Ninth Circuit inherent powers to sanction, spoliation, no bad faith requirement, and sanctions

This decision from the United States District Court for the District of Arizona involves a wrongful termination and USERRA (employment discrimination for service in the armed forces) violations. Here, the plaintiff alleged that defendant destroyed a supervisor’s handwritten notes used to create a report and PowerPoint presentation which provided the bases for terminating the plaintiff’s employment.

It was undisputed that (1) defendant made no efforts to preserve the supervisor’s notes (after the latter left defendant’s employ) and (2) that it was defendant’s “express policy to “require the retention of all investigative notes.” Moreover, plaintiff produced an email showing that defendant had recognized the potential for litigation nearly one year prior to the supervisor’s departure.

Plaintiff’s motion sought the following relief:

“Plaintiff requests that this Court exercise its discretion to impose the specific sanction of excluding evidence relating to the alleged investigation that Defendants claim to have conducted into the allegations against Ms. Reed and her subordinates because of Defendants' failure.”
Ninth Circuit Approach to Inherent Power to Levy Sanctions

There was no discovery motion pending (and, accordingly, no violation of a discovery order) so the Court relied on its “inherent powers” approach in determining whether, and to what degree, sanctions were warranted in this case. Note that there is no requirement for a showing of “bad faith” in asserting destruction of evidence in the Ninth Circuit. In fact, mere “inadvertence” may suffice. Moreover, the Court nonetheless finds prejudice (or at least a substantial litgation impairment) to the non-spoliating party in its despiction of plaintiff’s position as being left “without meaningful alternative” to the destroyed evidence:

“A district court has the inherent power to levy sanctions for spoliation of evidence. U.S. v. $40,955.00 in U.S. Currency, 554 F.3d 752, 758 (9th Cir.2009). As Defendants concede, a party's destruction of evidence need not be in “bad faith” to warrant a court's imposition of sanctions in the Ninth Circuit. Glover v. BIC Corp., 6 F.3d 1318, 1329 (9th Cir.1993). Defendants argue that the loss was inadvertent and that inadvertent losses do not warrant sanctions. Med. Lab. Mgmt. Consultants v. Am. Broad Cos., 306 F.3d 806, 824 (9th Cir.2002) (holding that trial court did not abuse its discretionary power in refusing to order an adverse inference for inadvertently lost slides that were either misplaced or stolen between a hotel room in Geneva and Defendants' expert's landing in New York City). However, in the Ninth Circuit, sanctions may be awarded even for inadvertent loss. Leon v. IDX System Corp. ., 464 F.3d 951, 959 (9th Cir.2006) (affirming $65,000 spoliation sanction where party had some notice of pending litigation but claimed that it overwrote computer files to protect privacy rather than to avoid litigation). Defendants attempt to distinguish this case on the basis that in Leon, there was no secondary evidence available of the files, whereas here, they argue, the Mr. Eden's typed summaries qualify as a reasonable approximation of the underlying handwritten notes and that these typed summaries eliminate any potential prejudice to Plaintiff. However, a review of the typewritten memoranda reveal that they are summaries of what occurred in the meetings rather than “transcriptions” of the notes spontaneously taken during a meeting Plaintiffs are therefore left without a meaningful alternative to Mr. Eden's handwritten notes.” Reed v. Honeywell Intern., Inc., 2009 WL 886844, at *10 (D. Ariz. 2009)

Duty to Preserve

The Court also notes that Northern District decisions follow the Second Circuit doctrinal authority holding that a duty to preserve may arise well in advance of litigation, and may be further arise under a negligence-type standard:

Moreover, “[t]he duty to preserve material evidence arises not only during litigation but also extends to the period before the litigation when a party reasonably should know that the evidence may be relevant to anticipated litigation.” World Courier v. Barone, 2007 WL 1119196 at *1 (N.D.Cal.2007) (quoting Kronisch v. United States, 150 F.3d 112, 126 (2d Cir.1998)). Defendants apparently anticipated litigation on this matter at least a year prior to Mr. Eden's departure and the disappearance of the notes.” Id.

Frustrating Non-Spoliating Party’s Ability to Cross Examine Discrepancies

District Judge Murguia then discusses how defendant’s destruction of the original handwritten notes makes it impossible to cross examine defendant’s former supervisor as to any discrepancies between the destroyed evidence and the later-created typewritten versions:

“Without access to the notes, Plaintiffs are unable to cross-examine Mr. Eden regarding any discrepancies between the handwritten notes and his typewritten summaries. The notes could have revealed inconsistencies in his testimony about what the witnesses told him and might have revealed any exaggerations or mistakes in memory. They also would have revealed any inconsistencies between what the witnesses told him and what they told the ultimate decisionmakers. Plaintiffs are unable to obtain this information from any other source. Plaintiffs thus appear to have established that they are prejudiced by Honeywell's inadvertent loss of Mr. Eden's notes.” Id., at *10-11.

The Court found that spoliation had occurred, and that defendant’s spoliation in turn had prejudiced plaintiff’s ability to prosecute its case.

Sanctions Imposed

Plaintiff’s requested that defendant be prohibited from offering any evidence relating to plaintiff’s conversations with defendant’s former supervior regarding plaintiff’s conduct.

“The only remaining question is the appropriate sanction. Plaintiffs argue that “[t]he appropriate sanction is to prohibit the Defendants from offering any evidence relating to Mr. Eden's conversations with Plaintiff and others in the organization regarding plaintiff's conduct, his alleged investigation, including testimony and other evidence regarding witness interviews or conversations between Mr. Eden and Plaintiff, as well as the product of the alleged investigation, his report and Powerpoint presentation .” (Dkt. # 63 at 7-8)” Id., at 11

The Court thought otherwise, and ruled that the imposition of sanction was more properly brought at trial or conclusion of the case:

“However, any sanctions for misbehavior on the part of Honeywell is more appropriately remedied at trial or at the conclusion of the case. Based on the information presented, the Court is prepared to consider an adverse jury instruction at trial. Striking any and all evidence relating to the BRAVO investigation would essentially constitute a directed verdict as it would likely guarantee a verdict in Plaintiff's favor. A directed verdict appears too harsh a penalty for Defendants' alleged inadvertent conduct. Halaco Engineering Co. v. Costle, 843 F.2d 376, 380 (9th Cir.1988) (“In cases where the drastic sanctions of dismissal or default are ordered, the range of discretion for a district court is narrowed and the losing party's non-compliance must be due to willfulness, fault, or bad faith.”). Plaintiff's motion for sanctions for spoliation of evidence is therefore denied as premature without prejudice to Plaintiff's refiling of the motion as a Motion in Limine or Request for Adverse Jury Instruction prior to trial.” Id., at *10-11

Result: Plaintiff received more or less what she requested. The Court viewed striking evidence as tantamount to a directed verdict, and deemed a directed verdict to be “too harsh a penalty for Defendant’s alleged inadvertent conduct.” The Court denied the motion for exclusion of evidence as a sanction for spoliation without prejudice to plaintiff’s refiling her pleading as motion in limine and request for “Adverse Jury Instruction” prior to trial.


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