2009-05-26 Privilege Logs, Spoliation, and Some Existentialism

Five decisions for this week, including one from U.S. Magistrate Judge Facciola on privilege, privilege logs, and eDiscovery. Also, decisions from the Southern District of Florida ordering forensic imaging of a computer, the Tenth Circuit analyzing spoliation standards, standards for review of a district court’s discovery order decision involving spoliation findings and decision whether (or not) to imposing sanctions, from District Judge Patel from the Northern District of California involving spoliation sanctions remedies, and, last but not least, a decision from the Southern District of New York engaging in a bit of spoliation metaphysics.

Privilege Logs: First up is a decision from Magistrate Judge Facciola (D.D.C.) addressing privilege log adequacy issues and their applicability to ESI.
Spoliation: Four spoliation decisions on the menu. The first is a decision from the Southern District of Florida involving the discoverability of deleted files and a party’s request for direct access to a producing party’s computer and ESI. The second decision is from the U.S. Court of Appeals for the Tenth Circuit addressing (what else) Tenth Circuit spoliation standards, and the interplay between those standards and the preservation regulations promulgated under Title VII and the ADA. The third decision is from the Northern District of California, and discusses preservation duty triggers (actual and constructive) spoliation sanctions standards imposition in the Ninth Circuit, and the types of remedies (evidential and monetary) available for spoliation. Last but not least, a spoliation decision from the Southern District of New York, holding that evidence must be shown to have existed in order to assert a spoliation claim.

SWT

Decisions:
NLRB v. Jackson Hospital Corp., ---F.Supp. 2d---, 2009-WL1351415 (D.D.C. 2009)
Bank of Mongolia v. M&P Global Financial Services, Inc., 2009 WL 1117312 (S.D. Fla. 2009)
Turner v. Public Service Co. Of Colo., --- F.3d ----, 2009 WL 1132126 (10th CIr. 2009)
RealNetworks, Inc. v. DVD Copy Control Ass'n, Inc., 2009 WL 1258970 (N.D. Cal. 2009)
Hawknet Ltd. v. Overseas Shipping Agencies, et al., 2009 WL 1309854 (S.D.N.Y. 2009)

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Case: NLRB v. Jackson Hospital Corp.
Citation: ---F. Supp. 2d---, 2009 WL 1351415 (D.D.C. 2009)
Date: 2009-05-15
Topics: Privilege log sufficiency and adequacy, remedies for privilege log inadequacy or insufficiency, stipulations regarding privilege of ESI based discovery

U.S. Magistrate Judge John Facciola of the U.S. District Court for the District of Columbia provides the digest with this decision, issued in his capacity as special master (appointed by the U.S. Circuit Court of Appeals for the D.C. Circuit).

Author’s Note: While not an eDiscovery decision per se (non-ESI discovery decisions do affect eDiscovery, after all) any decision from Magistrate Judge Facciola in this arena is always instructive, and often entertaining. In this instance, one issue involved the sufficiency of a privilege log. Recall that privilege logs (required to be produced, where discovery material is withheld under Fed. R. Civ. P. Rule 26(b)(5). Privilege logs in the eDiscovery arena are worthy of special attention because (imo) the metadata associated with ESI can provide precisely the information required to be disclosed in a privilege log. Moreover, although a challenge to the “reliability” of a privilege log for paper documents might seem far-fetched, a challenge to the reliability of ESI metadata (also ESI, imo) falls in line with evolving approaches to digital evidence generation, acquisition management.

Ok, back to the decision.

Challenges to Privilege Log Adequacy

First, it should be clear that the adequacy of a privilege log may be made by a party pursuant to Fed. R. Civ. P. Rules 34 and 37, or sua sponte by the court. In this instance, it appears that defendant Jackson Hospital Corp. raised this issue (together with a variety of others) in its appeal to the D.C. Circuit Court of Appeals, and provided the basis for remand to M.J. Facciola for his decision as special master.

Magistrate Judge Facciola typically never minces words, and the first sentence in the Court’s analysis is no exception:

“The privilege log submitted by the NLRB in this case leaves much to be desired.” N.L.R.B. v. Jackson Hosp. Corp., ---F.Supp.2d ----, 2009 WL 1351415, 2 (D.D.C.,2009)

We're not off to a good start.

The Court then provides a short analysis of the privilege log rule set forth in the Federal Rules:

“The rule requires that the party who is claiming privilege expressly make the claim and “describe the nature of the documents ... not produced ... and do so in a manner that, without revealing information, itself privileged or protected, will enable other parties to address the claim.” Fed.R.Civ.P. 26(b)(5).” Id., at *2.

The Court found that “all too many” of defendant NLRB’s entries “fail[ed]” to meet this requirement.

Courts will frequently provide a party with the opportunity to supplement privilege logs deemed inadequate or insufficient. Here, the Court describes how a party might remedy such inadequacies:

“The inadequacy of a privilege log can be remedied in four ways:

1. Permit the party another chance to submit a more detailed log;
2. Deem the inadequate log a waiver of the privilege;
3. In camera inspection of the withheld documents; or
4. In camera inspection of a select sample of the withheld documents.” Id.

It should be kept in mind that a waiver of privilege is really not a remedy or second bite at the apple, but more in the nature of a fairly severe sanction. The Court realizes this in its depiction of waiver as “draconian.” That said, the Court discusses the impact of an inadequate privilege log on the Court, describing waiver as “least consumptive” of judicial resources, and “in camera of all withheld documents” to be “most forgiving” but “most consumptive” of judicial resources.


“Unringing the Bell”

The Court also brings to light the ever-present problem that the finder of fact (here, the court) will see documents that are privileged, and that even though judges “routinely disregard inadmissible evidence, “it may be difficult to unring the bell.”

Inadequacy of Privilege Logs as Factor in Shaping Remedy for Insufficiency

The facts and circumstances surrounding the inadequacy of a privilege log may itself provide context and basis for a court’s choice of remedy, and the Court articulates this in classic Facciola style:

“Shaping a remedy may also be a function of how inadequate the log is when viewed against other factors. The context of the creation of the document, for example, viewed from the perspective of the history of the litigation, may permit reasonable inferences about the document that eliminate any need for in camera inspection.” Id.

“Stated in another way, the Court does not leave its common sense at the door when it examines a privilege log and the legitimate inferences that it draws from an entry in a privilege log may rescue that entry from being condemned as inadequate in the first place-relieving the Court of any obligation to review it in camera-even though the privilege log as to that entry could and should have been more specific.” Id.

Privilege Log Challenges Are Symmetric

For those who might view privilege log challenges as a tool to be put into routine eDiscovery use, the Court also cautions practitioners to be mindful that the tool is two-edged:

“Finally, lawyers have a healthy respect for their own skins and know that if they demand work product from opposing counsel it will only be a matter of time before that gun is turned around and aimed at them.” Id.

Stipulations as to Privilege and ESI

The Court takes the approach that “sophisticated counsel,” i.e., those aware that certain classes and categories of information are “presumptively privileged” will take appropriate measures to address privilege, and privilege logs, early on in litigation. These measures may well take the form of a stipulation between the parties agreeing that:
“…[C]ertain categor[ies] of information [are] so clearly likely to be work product that [they] need not even be logged on a privilege log; [their] privileged nature is conceded. Id., at *3.

The Court then goes on to state that this approach, and such agreements, may be particularly helpful to both the parties (and a court) where ESI is involved:

“All these impediments to securing information that is presumptively protected by the work product privilege may lead sophisticated counsel to agree that a certain category of information is so clearly likely to be work product that it need not even be logged on a privilege log; its privileged nature is conceded. Such agreements may become common now that the search for electronic data, subject to a Request to Produce, can yield amounts of potentially privileged information that is staggering; this Court, for example, has a case in which there are over 9,000 entries in the privilege log based on a production described as “hundreds of thousands of documents.” Id.

Takeaways: Submitting inadequate or insufficient privilege logs is risky business. Where both counsel are sophisticated, and where meaningful cooperation has taken place, Court’s may suggest (and later order) that counsel enter into a preliminary stipulation regarding privileged materials in cases involving ESI.


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Case: Bank of Mongolia v. M&P Global Financial Services, Inc.
Citation: 2009 WL 1117312 (S.D. Fla. 2009)
Date: 2009-04-24
Topics: Requesting party’s motion for direct access to producing party’s ESI and hardware; availability of ESI from third party sources as basis for ordering forensic imaging, deleted computer files held discoverable, violation of local rule requiring explanation to be provided in connection with discovery request objection

This decision from the Southern District of Florida involved a motion to compel defendant’s response to plaintiff’s request for document production. In this RICO (Racketeer Influenced and Corrupt Organization Act) plaintiff Bank alleged that defendants conspired to defraud plaintiff of 23 million dollars. Plaintiff Bank served defendants with a request for document production. One day after the deadline for production, plaintiff’s counsel sent an email asking when plaintiff could expect a response, but received no response. Five days later, plaintiff’s counsel left a voice mail with defendants’ counsel, but again received no response. Plaintiff then filed a motion to compel production, which was not responded to by defendants, resulting in U.S. District Judge Rosenbaum’s issuance of an order to show cause directing that defendants file their response. This decision is a written memorialization of the oral order granting the motion to compel.

I'm digesting this decision, so of course, this is where things get interesting. The defendants provided a one page response, stating that (1) certain documents were not in their possession, (2) certain other documents would be provided “in the near future” and in some very chopped language apparently claiming that these documents were to be “…obtain[ed] them from a foreign country,” and (3) objected to certain other documents requests as “vague and burdensome.”

Blognote: Federal Civil Procedure fans might chuckle at notion of asserting a “vague and burdensome” objection after ignoring a discovery request, and where such an assertion is made only after an order compelling production…

Ok, back to the decision. Plaintiff maintained, inter alia, that defendants had spoliated certain documents, that defendants had failed to provide a valid explanation for their failure to timely respond to discovery requests, and that any objections to privilege were, of course, waived.

Request to Allow Requesting Party Access to Producing Party’s Electronic Records and Hardware

It’s not often that we see a request for a party to have direct access to a producing party’s ESI and computers, but that’s an issue now facing the court:

“In light of the M & P Defendants' failure to produce all responsive documents and the lack of a valid excuse, Plaintiff requests that Defendants be sanctioned for their conduct by allowing Plaintiff access to Defendants' electronic records and computer hardware to allow Plaintiff to locate all responsive documents.” Bank of Mongolia v. M&P Global Financial Services, Inc., 2009 WL 1117312, at *2 (S.D. Fla. 2009)

The Court held a hearing on plaintiff’s motion (which included an assertion that defendants had spoliated evidence). The Court then undertakes an analysis of the steps defendants had taken to comply with plaintiff’s discovery requests and plaintiff’s assertions in support of its motion.

A Producing Party’s ESI “What-Not-to-Do,” or, How to Tee Up a Requesting Party’s Justification to Search a Producing Party’s ESI and Computers

The defendant here provided the Court with a list of what it had failed to do in connection with its obligation to respond to plaintiff’s discovery requests. The phrase “let me count the ways” comes to mind:

“On April 20, 2009, Plaintiff and the M & P Defendants presented argument at a hearing on Plaintiff's Motion. At the hearing, the Court inquired of the M & P Defendants as to whether they had provided all responsive documents to Plaintiff, as Defendants had indicated in paragraph 1 of Defendants' Response to Plaintiff's Request for Production.

“The M & P Defendants conceded that they had not performed a search of all deleted and unsaved electronic documents and requested twenty days for Defendants' own computer expert do a thorough search of all electronic documents, including deleted and unsaved documents.

“When the Court requested information regarding the steps that Defendants had taken to conduct a search for responsive documents, counsel for the M & P Defendants was not in a position at that time to set forth Defendants' search methodology.” 2009 WL 1117312 at *2.

Defendants also asserted that certain classes of documents requested were not under their control and could not be produced. The documents located in a “foreign country,” defendant submitted, would be “coming soon” or “shortly.”

The Court wasn’t buying, and orally granted plaintiff’s Motion to Compel, including awarding attorneys fees and costs.

But wait, it doesn’t end here. Let’s go to the Court’s analysis.

The Purpose of Discovery

Many decisions are written concerning the scope of discovery, but, there have not been many recent cases discussing the reason for discovery in the first place. Indeed, Fed. R. Civ. P. Rule 26 provides the “what you may do” but not (by presumably by intent) does not provide the context for conducting discovery. The Court draws upon 1946 vintage Advisory Committee Comments to the amendments to Fed.R. Civ. P. 26(b) notes to explain the philosophical underpinnings for the adoption of Rule 26:

“R. 26(b), Fed.R.Civ.P. The Advisory Committee Notes to Rule 26 indicate that “[t]he purpose of discovery is to allow a broad search for facts, the names of witnesses, or any other matters which may aid a party in the preparation or presentation of his case.” Adv. Com. Notes, 1946 Amendment, R. 26, Fed.R.Civ.P. (citations omitted) (emphasis added). Indeed, the Advisory Committee Notes approvingly cite language from a case stating that “the Rules ... permit ‘fishing for evidence as they should.’ “ Id. (citation omitted); see also Hickman v. Taylor, 329 U.S. 495, 507 (1947) (“No longer can the time-honored cry of ‘fishing expedition’ serve to preclude a party from inquiring into the facts underlying his opponent's case.”)” [Emphasis in original]. Id., at *4

District Judge Rosenbaum that notes that federal courts, including the Eleventh Circuit, have long recognized the “wide scope of discovery allowed under the Federal Rules of Civil Procedure,” but also recognizes that:

“[T]he scope of permissible discovery is not unbounded. Requested discovery must be relevant, and it must not impose undue burden, under the tests described in Rule 26(b)(2)(C).” Id.

Waiver of Objections to Discovery Requests Under Federal and Local Court Rules

With that in mind, the Court then states first that defendants’ objections were based upon assertions of vagueness and overbreadth, but not relevancy. With the acknowledgment that the material requested was relevant, the Court then addresses defendants’ discovery action (or failure to act). Here, another discovery “what-not-to-do”:

The Court then makes short shrift of defendants’ assertions that document production requests were “vague and overbroad,” finding violations of both local court rules as well as the Federal Rules of Civil Procedure. First up: the Court’s waiver analysis under the federal rules.

Succinctly put, an untimely response (and in this case, repeatedly ignored requests for explanation in connection therewith) will, without good cause shown, effect a waiver:

“With the exception of the M & P Defendants' objection to document request 16 “as too vague and burdensome,” the M & P Defendants do not contest the relevance of Plaintiff's production requests. As for their objection to document request 16, the Court concluded that the M & P Defendants' objections were waived, in light of Defendants' untimely response to Plaintiff's document requests and their repeated failures to respond to Plaintiff's inquiries regarding the whereabouts of Defendants' responses. See Williams v. Bridgestone/Firestone, Inc., 2008 WL 4755675, *1 (S.D.Fla. Oct. 28, 2008); United Steel Workers of America, AFL-CIO-CLC v. Ivaco, 2002 WL 31932875, *4 (N.D.Ga. Jan. 13, 2003) (citing Marx v. Kelly, Hart & Hallman, P.C., 929 F.2d 8,12 (1st Cir.1991) and In re United States, 864 F.2d 1153, 1156 (5th Cir.1989)); Pitts v. Francis, 2008 WL 2229524, *2 (N.D.Fla. May 28, 2008) (noting that the Advisory Committee Notes to Rule 34, Fed.R.Civ.P., explain that Rule 34's requirement that objections be made timely and stated with reasons “is essentially the same as that in Rule 33” that provides that “ ‘[a]ny ground [for an objection to an interrogatory] not stated in a timely objection [ i.e., thirty days] is waived unless the court, for good cause, excuses the failure.’ ”).” Id.

Compounding the violation of Fed. R. Civ. P. Rule 34 was defendants’ apparent failure to comply with local court rules, in this instance Local Court rule 26.1 G.3.(a) of the U.S. District Court for the Southern District of Florida.

“Moreover, even if Defendants' objections were timely or Defendants could provide good cause for their failure to file their objections timely-neither of which occurred in the instant case, the M & P Defendants' objections were entirely conclusory and contained no explanation as to why Defendants viewed document request 16 as “vague or burdensome.” Such objections do not comply with Local Rule 26.1 G.3.(a) which provides, “Where an objection is made to any interrogatory or sub-part thereof or to any document request under Federal Rule of Civil Procedure 34, the objection shall state with specificity all grounds.”

“Objections that state that a discovery request is “vague, overly broad, or unduly burdensome” are, standing alone, meaningless and fail to comply with both the Local Rules and Rule 34's requirement that objections contain a statement of reasons. See Pitts v. Francis, 2008 WL 2229524, *2. A party objecting on these grounds must explain the specific and particular way in which a request is vague, overly broad, or unduly burdensome. In addition, claims of undue burden should be supported by a statement (generally an affidavit) with specific information demonstrating how the request is overly burdensome. See Benfatto v. Wachovia Bank, N.A., 2008 WL 4938418, *4 (S.D.Fla. Nov. 19, 2008) (citing Convertino v. U.S. Dept. of Justice, 565 F.Supp.2d 10, 14 (D.D.C.2008)). In view of the lack of any statement of reasons why Defendants viewed request 16 as overly burdensome or vague, the Court cited these shortcomings as an additional basis for overruling Defendants' objections. Thus, the Court found that all of Plaintiff's document requests fell within the permissible scope of discovery.” Id. at *5

Blognote: This is but one of an increasing number of decisions where both District Judges and Magistrate Judges emphasize the importance of adhering to local court rules, and wielding a sanctions cudgel for non-compliance therewith.
Deleted Computer Files Held Discoverable

Defendants “forthrightly” acknowledged at the hearing that they had failed to search for documents, including deleted emails, admittedly in their possession. The Court points out that deleted computer files of any type are discoverable:

“At the hearing, the M & P Defendants' counsel forthrightly acknowledged that he was unable to identify the steps taken to identify responsive documents, and conceded that more responsive documents may well exist in Defendants' possession, as Defendant had not attempted to search deleted computer records. Deleted computer files, however, whether e-mails or otherwise, are discoverable. See, Wells v. Xpedx, 2007 WL 12000955, *1-2 (M.D. Fla. April 23, 2007) (“producing party has the obligation to search available electronic systems for deleted emails and files”) (citing to Advisory Committee Notes, Fed.R.Civ.P. 34) (internal citations omitted); see, e.g., Antioch Co. v. Scrapbook Borders, Inc., 210 F.R.D. 645, 652 (D.Minn.2002) (citing Rowe Entertainment, Inc. v. The William Morris Agency, Inc., 205 F.R.D. 421, 427, 431 (S.D.N.Y.2002); Simon Property Group, L.P. v. MySimon, Inc., 194 F.R.D. 639, 640 (S.D.Ind.2000); Playboy Enterprises, Inc. v. Welles, 60 F.Supp.2d 1050, 1053 (S.D.Cal.1999) (other citations omitted).” Id., at *6

Recovery of Relevant Evidence from Third Party Sources Provides Justifies Court Appointment of Independent Computer Expert

The Court’s reaction to what appeared to be defendants’ abusive discovery behavior should come as no surprise. The Court held that it would appoint an independent computer forensics expert to examine defendants’ computers for deleted files, and declined defendants’ request for additional time to select an expert of its own choosing:

“Additionally, based on the discrepancies between Defendants' Response to Plaintiff's Requests for Production and their concession at the hearing that not all documents have yet been produced, and particularly in light of the recovery of apparently responsive documents by the Plaintiffs from third-party sources, the Court determined that an independent expert should be appointed to retrieve any deleted responsive files from Defendants' computers. See U & I Corp. v. Advanced Medical Design, Inc., 251 F.R.D. 667, 676-77 (M.D.Fla.2008) (authorized use of independent computer expert to sample information on hard drives for responsive information); see e.g., Antioch Co., 210 F.R.D. at 652-53 (setting forth procedure for independent expert to “mirror image” party's hard drive to retrieve deleted files, as set forth in Playboy Enterprises, Inc., 60 F.Supp.2d at 1054-55); Simon Property Group, L.P., 194 F.R.D. at 641-42 (following basic structure for an independent expert paid by party requesting information to “mirror image” other party's hard drives to identify deleted files, and following procedure set forth in Playboy Enterprises, Inc.). The Court declined Defendants' suggestion instead that they receive an additional twenty days for their own in-house computer expert to look for responsive information, in view of the M & P Defendants' past lack of response to Plaintiff's request for information, the questionability of some of the M & P Defendants' responses in their Response to Plaintiff's Request for Production, and Plaintiff's presentation of documents responsive to the Plaintiff's Request for Production to the M & P Defendants, but obtained from third parties, which appear to be records that the M & P Defendants should have had.” Id., at *7

Computer Forensic Expert Selection and Management Procedures

District Judge Robinson also provides a good general procedure in connection with the selection and utilization of the services of a computer forensics expert. The following summarizes these guidelines:

1. Independent Computer Expert to Be Appointed by Court: An independent third party computer expert shall be appointed by the Court and shall mirror image the producing party’s computer system.

2. Counsel Meet and Confer Deadline for Expert Designation: The parties have until _______, to meet and confer regarding their designation of an independent computer expert. If the parties cannot agree on an independent computer expert, each party shall submit its recommendation for an independent expert to the Court, and the Court shall select the expert.

3. Confidentiality: The expert selected shall sign a confidentiality order, and shall be allowed to hire other outside support if necessary in order to mirror image M & P Defendants' computer system. Any outside support shall be required to sign the same confidentiality order.

4. Expert as Officer of the Court: The appointed independent computer expert shall serve as an Officer of the Court. Thus, to the extent that this computer expert has direct or indirect access to information protected by attorney-client privilege, such disclosure will not result in any waiver of the producing party’s privilege.

5. Actions to be Taken By Expert: The expert shall mirror image the M & P Defendants' computer system.

6. Requesting Party to Provide List of Search Terms: The requesting party shall provide a list of search terms to the Court to identify responsive documents to requesting party’s document requests by _________. After requesting party has submitted the search terms to the Court, the producing party shall have 5 days to submit its objections to the Court regarding any of the search terms, which the Court will rule upon. The Court will provide the search terms to the independent expert.

7. Expert to Search Image Using Search Terms and Provide Results to Producing Party and the Court: Once the expert has imaged the producing party’s computer system, the expert shall search the image results using the search terms designated by the Court. The results of the search terms will be provided to the producing party and to the Court, along with an electronic copy of all responsive documents (also to be provided to both the producing defendants and the Court).

8. Producing Party to Review Search Terms Results and Either Produce or Identify for Privilege Log: The producing party shall review the search term results provided by the Court's expert and identify all responsive documents. The M & P Defendants shall either produce all responsive documents to Plaintiff or identify those responsive documents not produced on a privilege log to Plaintiff within 20 days of the date that the M & P Defendants receive the search term results from the independent expert. Any privilege log produced shall comply strictly with the Local Rules for the Southern District of Florida.

9. Computer Expert Fee Payment: Requesting party shall pay for all fees and costs of hiring the independent expert at this time. However, if at a later time there is evidence of the producing party’s improper deletion of electronic documents or any other associated improper conduct, the Court will revisit this issue and consider charging the producing party for the fees and costs of the independent expert or imposing the fees and costs on the parties in a duly appropriate proportioned manner.

10. Expert to Detail Steps Taken in Affidavit: The independent expert shall provide a signed affidavit detailing the steps he or she took in mirror imaging the M & P Defendants' computer system and searching the mirror image for the search terms within 5 days of providing the M & P Defendants and the Court with the results of the search for search terms in the mirror image.

Blognote: In this decision, District Judge Robinson expressly incorporates a mandate for compliance with the Local Florida Rules for the Southern District of Florida into the Court’s order. Moreover, while the Court did not shift fees for the computer expert, it reserved the right to so shift expert fees and costs on producing party where there was “evidence” of improper deletion or “any other associated improper conduct.” What degree of “evidence of…improper deletion…or any other associated improper misconduct” remains to be seen.

Direct Access to Producing Party’s Computers and ESI Not Permitted

Oh, and while the Court made initial reference to the possibility of a requesting party’s direct access to a producing party’s computers and ESI, it was not prepared to go that far:

“While this procedure does not provide Plaintiff access to the M & P Defendants' documents as Plaintiff requested, the M & P Defendants' failure to adequately respond to Plaintiff's request for documents is not sufficient grounds to give Plaintiff unfettered access to Defendants' computer system. See In re For motor Company, 345 F.3d 1315, 1317 (11th Cir.2003). The court anticipates, however, that the procedure set forth above should ensure that all responsive electronic documents will be identified, while minimizing the intrusion into the M & P Defendants' records.” Id., at *8

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Case: Turner v. Public Service Co. Of Colo.
Citation: --- F.3d ----, 2009 WL 1132126 (10th CIr. 2009)
Date: 2009-04-28
Topics: 10th Circuit spoliation standards, bad faith showing is required, and negligence insufficient to impose adverse inference instruction; negligent spoliation may justify imposition of lesser sanctions; Failure to seek sanctions under Fed. R. Civ. P. Rule 37 and Title VII, ADA preservation requirements (29 CFR §1602.14)

This appeal to the U.S. Circuit Court of Appeals for the 10th Circuit, arose from a summary judgment by the District Court of Colorado against the plaintiff-appellant, who had brought a Title VII action against prospective employer alleging sex discrimination. One issue appealed to the 10th Circuit involved plaintiff’s allegations that defendant spoliated notes created at her interview.

Plaintiff’s Diligence and Defendant’s Duty to Preserve Under the Federal Common Law and 29 CFR §1602.14

This decision brings to light an interesting interplay between Federal common law (as interpreted by the 10th Circuit Court of Appeals) and preservation requirements promulgated under Title VII and the ADA (and as set forth in 29 CFR §1602.14). The Court, while acknowledging the Title VII and the ADA might well impose heightened preservation duties upon a prospective employer, there is a concomitant obligation on a plaintiff to diligently defend his or her own interests.

What is noteworthy is that the Court suggests that a federal district court in the 10th Circuit has greater sanctions powers under Fed. R. Civ. P. Rule 37 (involving sanctions for failure to comply with a discovery order) than it has under the “inherent powers” doctrine. What stronger or greater latitude in connection with discovery abuse the court leaves unaddressed, but the net effect was that plaintiff’s failure to avail herself of Rule 37’s discovery abuse procedures somehow diluted the impact of any alleged spoliation that might result in a violation of 29 CFR §1602.14:

“Even in cases where employers destroy evidence they are required to retain under 29 C.F.R. § 1602.14, plaintiffs must be “diligent in the defense of their own interests,” and should seek sanctions under Federal Rule of Civil Procedure 37 to remedy any prejudice caused by spoliation. See Mathis v. John Morden Buick, Inc., 136 F.3d 1153, 1156 (7th Cir.1998). When a plaintiff fails to seek sanctions under Rule 37 and thus “forecloses access to the substantial weaponry in the district court's arsenal,” the plaintiff's only remaining option is to seek sanctions under a spoliation of evidence theory. Id. at 1155; see also Aramburu v. Boeing Co., 112 F.3d 1398, 1407 (10th Cir.1997) (applying the spoliation of evidence doctrine in a discrimination case). Turner v. Public Service Co. of Colorado, 563 F.3d 1136, 1149, 2009 WL 1132126, 11 (10th Cir. 2009).

Tenth Circuit Spoliation Standards – Litigation Must be Imminent

The Court then provides a brief analysis of spoliation sanctions imposition standards for the Tenth Circuit, comprising (sorry, patent counsel) (1) a duty to preserve; (2) real or constructive knowledge that litigation was imminent; and (3) prejudice to the non-spoliating party. Yes, I’ve expanded the two-prong analysis into three, and with good reason. That “because” language inserts an additional condition into the analysis. It’s also wise to keep in mind that, at least in the Tenth Circuit, the knowledge (real or constructive) is that litigation is imminent. Of course, “imminent” will in all likelihood be very fact dependent, but certainly has a sense of impending occurrence. Other circuits (notably the Second, and Ninth) employ a “reasonably foreseeable in anticipated future litigation” test. Anticipated future litigation appears much more expansive than immanency of litigation:

“Spoliation sanctions are proper when “(1) a party has a duty to preserve evidence because it knew, or should have known, that litigation was imminent, and (2) the adverse party was prejudiced by the destruction of the evidence.” Burlington N. & Santa Fe Ry. Co. v. Grant, 505 F.3d 1013, 1032 (10th Cir.2007).” Turner v. Public Service Co. of Colorado, 563 F.3d 1136, 1149-1150, 2009 WL 1132126, 11 (10th Cir. 2009).

Bad Faith Required for Adverse Inferences – Inference of Consciousness of Weak Case

“But if the aggrieved party seeks an adverse inference to remedy the spoliation, it must also prove bad faith. ‘Mere negligence in losing or destroying records is not enough because it does not support an inference of consciousness of a weak case.’ Aramburu, 112 F.3d at 1407.” Id., 563 F. 3d at 1149.

No Adverse Inference Absent Showing of Bad Faith

“Without a showing of bad faith, a district court may only impose lesser sanctions. Henning, 530 F.3d at 1220.” Id., at p. 1149.

Whether these lesser sanctions are evidential (preclusion of evidence, preclusion of testimony about evidence, or preclusion of argument about spoliated evidence) is unaddressed.

Standards for Review of District Court’s Discovery Findings

Most appeals of discovery decisions appear in the form of objections to a U.S. Magistrate’s report and recommendation to a district court, or in the form of objections to a U.S. Magistrate’s discovery order made by a party to a district court. Here, we have a relatively rare appeal of a federal district court’s order to a United States circuit court of appeal. Here now the standards for review.

Appellate Court Review of District Court Findings of Bad Faith or Negligence, Decision to Impose Sanctions

Negligence or Bad Faith Findings –Factual- Reversal Only for Clear Error

Factual findings, made by a federal district court including whether a party acted in bad faith (or otherwise) are reviewed only for clear error:

“We review a district court's finding of bad faith or “mere negligence” for clear error…” Id., at 1150

Decision to Impose Sanctions Reversal Only for Abuse of Discretion

A Court’s decision to impose or deny sanctions for spoliation are legal in nature, and viewed for abuse of discretion:

“…[T]he district court's decision to impose or deny spoliation sanctions for abuse of discretion. Grant, 505 F.3d at 1032.” Id.

Result: The Court of Appeals first found no clear error in the district court finding of lack of bad faith, and “considering the record as a whole” the Court could not say that the district court’s finding lacked factual support. Moreover, the Court found no abuse of discretion by the district court in failing to impose a lesser (read: any) sanction, because there was no showing that the destroyed documents resulted in “actual” as opposed to merely “theoretical” prejudice to the plaintiff.

“The court moreover did not abuse its discretion when it refused to impose a lesser sanction to remedy PSCo's alleged spoliation. Assuming PSCo had a duty to retain the interview notes under the spoliation doctrine, there is no evidence that Turner was “actually, rather than merely theoretically” prejudiced by their loss. Id., at p. 1150.


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Case: RealNetworks, Inc. v. DVD Copy Control Ass'n, Inc.
Citation: 2009 WL 1258970 (N.D. Cal. 2009)
Date: 2009-05-05
Topics: Spoliation in 9th Circuit, letter of preservation, triggers for duty to preserve, pre-litigation evidence generation and management behavior asserted as basis for violation of duty to preserve and spoliation claim

In this matter, plaintiffs RealNetworks, Inc. and RealNetworks Home Entertainment, Inc. (“Real”) seeks a declaratory judgment that they have neither “breached a license agreement with the DVD Copy Control Association (“DVD CCA”) nor violated the anti-circumvention provisions of the Digital Millennium Copyright Act” (“DMCA”). U.S. District Judge Patel resolves three motions in this not-surprisingly proceedings-heavy litigation. The two relevant motions are plaintiffs’ motion to appoint a discovery referee, and defendant’s motion for sanctions for spoliation of evidence.

Blognote: the DVD CCA is a consortium whose members include content providers Twentieth Century Fox Film Corp., Paramount Pictures, Corp., NBC Universal Corp., Universal City Studios Productions, LLP, Columbia Pictures, Inc., Disney Enterprises, Inc…well, you get the picture.

Some context information will be helpful:

Real sells and distributes a product called “RealDVD” whose features include storing an “image” of copy-protected digital content on a computer hard drive. The DVD CCA members employ a copy-protection mechanism called CSS (Content Scramble System). CSS technology employs encryption processes to scramble content so that it cannot be played without first being decrypted. The CSS technology protects copyrighted content from unauthorized copying.

In short, plaintiff Real’s request for relief included judgment that both RealDVD and Facet did not breach the CSS License Agreement, and did not violate the anti-circumvention provisions of the DMCA. The DVD CCA and “Studio” defendants claimed the opposite.

Here now, the timeline of events (always helpful in a preservation duty-trigger decision)

August, 2007 – The DVD CCA licensed CSS technology to Real.
September 8, 2008 – Defendants “formally advised plaintiff Real that is was in violation of the License Agreement (because RealDVD permitted digital-to-digital copying of DVD content in a personal computer environment) and that plaintiff was in violation of the anti-circumvention provisions of the DMCA.
September 9, 2008 – The parties entered into a standstill/tolling agreement.
September 25, 2008 - Counsel for defendants sent a letter to Real informing it that Studio defendants intended to file a lawsuit against Real and seek injunctive relief.
September 30, 2008 – Plaintiff Real filed an action for declaratory judgment pursuant to 28 USC §§2201, 2202, seeking a declaratory judgment that “in making the RealDVD product, Real did not breach the CSS License Agreement and did not violate the anti-circumvention provisions of the DMCA.
September 30, 2008 – Plaintiff Real released and made the RealDVD product available for download.
September 30, 2008 – Defendants filed an action in the Central District of California, alleging plaintiff Real violated both the CSS License Agreement as well as the DMCA anti-circumvention provisions.
October 14, 2008 – The CD Cal. suit was transferred to the Northern District of California, and related to plaintiff Real’s action for declaratory judgment.
October 3, 2008 – The Court issued defendants’ requested Temporary Restraining Order to restrain and enjoin plaintiff Real from further distribution of the RealDVD product.
October 3, 2008 – The “Studio Defendants” filed a counter-complaint against plaintiff Real alleging breach of the CSS License Agreement, and violations of DMCA anti-circumvention provisions.
October 6, 2008 – (Still with me?) Plaintiff Real’s legal department “emailed a document preservation memorandum to members of the RealDVD team, instructing all recipients to “preserve all documents and electronic and hard copy data from July 2007 to the present relating to any aspect of RealDVD, the CSS License Agreement, and the DVD CCA”
November 11, 2008 – Defendant DVD CCA file a motion for preliminary injunction to join the “Studio” defendants to enjoin Real from producing, selling, offering, or otherwise trafficking its RealDVD product.
November 11, 2008 – Plaintiff Real filed a motion to amend it complaint to add claims for a second Real product (“Facet”) that “share[d[ many of the functionalities of RealDVD…”
December 22, 2008 – The Court granted Real’s motion to amend it complaint to include the Facet product.
February 25, 2009 – The “Studio” defendants filed a motion for sanctions for Real’s alleged spoliation of evidence.
March 2, 2009 – The DVD CCA joined in the motion for sanctions for spoliation of evidence.

Bases For Spoliation Assertions Against Real

Defendants allege that plaintiff Real failed to take adequate steps to preserve evidence from the April 2007 “inception” of the Facet product. The spoliation claims also asserted that plaintiff Real:

“[S]poliated key evidence, specifically notebooks of Senior Program Manager Nicole Hamilton on the Facet project and an ArccOS.zip file.”

Defendant Real, for its part, argued in opposition that:

“…(1) there was no duty to maintain documents until at least the beginning of negotiations between the parties in September 2008, and shortly thereafter, in October 2008, Real instituted a document hold;
(2) that Real was unaware of the existence of these notebooks, because [Senior Program Manager] Hamilton had failed to turn them over when Hamilton’s supervisor had previously asked for all Facet-related materials; and
(3) contrary to defendants’ argument, Real management issues no order to destroy related evidence. Real also subsequently produced the disputed ARccOS.zip file on March 4, 2009."

Sanctions for Spoliation of Evidence

District Judge Patel first sets the context for a court’s ability to sanction, covering imposition under both Fed. R. Civ. P. Rule 37 and a federal court’s “inherent powers:”

“District courts may impose sanctions as part of their inherent power “to manage their own affairs so as to achieve the orderly and expeditious disposition of cases.” Chambers v. NASCO, Inc., 501 U.S. 32, 43, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991); see also Unigard Sec. Ins. Co. v. Lakewood Eng'g & Mfg. Corp., 982 F.2d 363, 368 (9th Cir.1992) (excluding evidence as a sanction for spoliation). This power includes the “broad discretion to make ... evidentiary rulings conducive to the conduct of a fair and orderly trial.” Id. at 368, quoting Campbell Indus. v. M/V Gemini, 619 F.2d 24, 27 (9th Cir.1980).” RealNetworks v DVD Copy Control Ass’n, Inc., 2009 WL 1258970 at *6 (N.D. Cal 2009)

“District courts' inherent power to sanction may be invoked in response to destruction of evidence. If a party breaches its duty to preserve evidence, the opposing party may move the court to sanction the party destroying evidence. See Unigard, 982 F.2d at 365.” RealNetworks, 2009 WL 1258970 at *5

The Three Sanctions for Spoliation

District Judge Patel then describes the “three ways” in which a spoliating party may be evidentially sanctioned: adverse inferences, preclusion of testimony, and dismissal or default. The Court notes that dismissal is reserved for those most egregious acts of spoliation.

“Courts may sanction parties responsible for spoliation of evidence in three ways. First, a court can instruct the jury that it may draw an inference adverse to the party or witness responsible for destroying the evidence. See Glover v. BIC Corp., 6 F.3d 1318, 1329 (9th Cir.1993); Akiona v. United States, 938 F.2d 158, 161 (9th Cir.1991). Second, a court can exclude witness testimony proffered by the party responsible for destroying the evidence and based on the destroyed evidence. See, e.g., Glover, 6 F.3d at 1329; Unigard, 982 F.2d at 368-69. Finally, a court may dismiss the claim of the party responsible for destroying the evidence. See Allstate Ins. Co. v. Sunbeam Corp., 53 F.3d 804, 806-07 (7th Cir.1995); see also Chambers, 501 U.S. at 45 (“outright dismissal ... is a particularly severe sanction, yet is within the court's discretion”); Alexander v. Nat'l Farmers Org., 687 F.2d 1173 (8th Cir.1982) (noting dismissal of claims is a severe sanction and may be warranted for “outrageous” destruction of evidence).” Id., at *5.

Blognote: There are some decisions (and at least one from the Southern District of New York) that appear to provide a fourth evidential sanction; preclusion of argument. Some have mentioned that this might be unconstitutional, but that particular sanction will be revisited in and discussed in future digests.

Ok, back to the decision and to the Ninth Circuit’s approach to bad faith.

Bad Faith Not Required to Warrant Court’s Imposition of Sanctions

The Court then acknowledges that a finding of “bad faith” is not a pre-requisite to the imposition of sanctions for spoliation of evidence. Indeed, as the Court states, mere “notice” that the destroyed evidence was potentially relevant to anticipated litigation is sufficient to impose sanctions:

“A party's destruction of evidence need not be in “bad faith” to warrant a court's imposition of sanctions. Glover, 6 F.3d at 1329; Unigard, 982 F.2d at 368 n. 2. District courts may impose sanctions against a party that merely had notice that the destroyed evidence was potentially relevant to litigation. See Glover, 6 F.3d at 1329; Akiona, 938 F.2d at 161; cf. Unigard, 982 F.2d at 368 n. 2 (sanctions may be imposed for “willfulness or fault by the offending party”).” Id.

Culpability or bad faith may, however, play a role in determining what, rather than whether, sanctions are to be imposed. Moreover, as the Court points out, sanctions should be imposed on a “least onerous” basis serving both a remedial as well as deterrent purpose under the circumstances:

“However, a party's motive or degree of fault in destroying evidence is relevant to what sanction, if any, is imposed. Baliotis v. McNeil, 870 F.Supp. 1285, 1291 (M.D.Pa.1994); see also Schmid v. Milwaukee Elec. Tool Corp., 13 F.3d 76, 79 (3rd Cir.1994) (courts should choose “the least onerous sanction corresponding to the willfulness of the destructive act and the prejudice suffered by the victim”).” Id.

Duty to Preserve Evidence

The Court next turns to an analysis of the duty to preserve evidence as construed by the decisional authority from the various California federal district courts, and District Judge Scheindlin’s seminal preservation holdings from the Zubulake decision-set. It is interesting to note that the Court does not cite any Ninth Circuit decisional authority on the duty to preserve:

“As soon as a potential claim is identified, a litigant is under a duty to preserve evidence which it knows or reasonably should know is relevant to the action. Nat'l Ass'n of Radiation Survivors v. Turnage, 115 F.R.D. 543, 556-57 (N.D.Cal.1987) (Patel, J.); Baliotis, 870 F.Supp. at 1290; see also Unigard, 982 F.2d at 365, 369 (upholding the district court's exclusion of plaintiff's expert testimony based on evidence plaintiff destroyed two years before filing suit). The future litigation must be “probable,” which has been held to mean “more than a possibility.” Hynix Semiconductor Inc. v. Rambus, Inc., 591 F.Supp.2d 1038, 1061 (N.D.Cal.2006) (Whyte, J.). The duty to preserve evidence also attaches when “a party should have known that the evidence may be relevant to future litigation.” In re Napster, Inc. Copyright Litig., 462 F.Supp.2d 1060, 1068 (N.D.Cal.2006), quoting Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 216 (S.D.N.Y.2003).” Id., at *5.

District Judge Patel describes two types of preservation duty triggers. A duty to preserve is triggered once a potential claim is identified, and what must be preserved is evidence either known, or that a litigant should reasonably know is relevant to the action. The second type of trigger, more fully described in the Zubulake decision-set, occurs at a time when prior to the onset of litigation, but where a party knows or should have known that evidence may be relevant to future litigation. It is important to keep in mind that this second trigger has been held to apply to specific anticipated litigation, rather than a general anticipation of “some” (quotes mine) litigation potential involving such evidence.

Defendants’ Motion for Spoliation of Evidence

Here, defendants assert that plaintiff “failed to take adequate steps to preserve evidence and has spoliated key evidence during the course of the instant litigation. Defendants assert that plaintiff Real’s employees were “fully knowledgeable” about the potential for litigation since early 2007 (the timeline above shows that a licensing agreement was entered into in August 2007, and it is probably safe to assume that negotiations had been in progress prior to that time).

The Challenge to Pre-Litigation Evidence Generation and Management Behavior

What’s interesting here are defendants’ further assertions about plaintiff’s pre-litigation evidence generation and management behavior. Specifically, defendants claimed that plaintiffs

“…[C]arefully crafted any discoverable document in a manner helpful to Real’s litigation by using specific words and avoiding certain word phrases.” Id., at *7.

Defendants’ support for these assertions:

[Senior Program Manager Nicole Hamilton, who was employed by Real until one week prior to the commencement of litigation] testified that “she was told by her boss…to delete emails related to the ArccOS and Ripguard Technologies on several occasions.” Id.

“Defendants also learned of [Hamilton’s] notebooks, which she stated were handed over to Real at the time of her termination, but have not been produced in discovery.” Id.

Real Senior Advisor Richard Wolper stated in his deposition that “his own ‘standard practice’ was to keep documents he thought were relevant, and that he might need for his recollection in the future, but also to delete “tons of stuff” every day.

Todd Basche, who consulted with Real on the RealDVD project, “…was never asked to preserve his documents and deleted everything he had related to [the] RealDVD project in April 2008, when his consulting arrangement ended, as was his customary practice.

Based on these and other depositions, defendants alleged that plaintiff Real failed to “take steps to preserve evidence,” including:

“(1) failing to instruct employees to preserve evidence;
(2) possibly destroying Hamilton's notebooks for the Facet technology;
(3) routinely instructing employees to delete possibly relevant emails;
(4) failing to produce ARccOS-related archive files; and
(5) allowing Strategic Advisors Basche and Wolpert on the RealDVD project to destroy project-related documentation. Real has also refused to permit redeposition of Barrett, the supervisor allegedly responsible for the destruction orders.” Id., at *7

No laggards themselves, defendants requested six (count’em, six) sanctions; five evidential and one monetary: a preservation order, a testimony impeachment preclusion on matters involving the withheld notebook, an inference that plaintiff knowingly purchased circumvention technology, preclusion of Real’s fact witness testimony, re-deposition on the issue of spoliation and the second Real product, and of course, monetary award:

“(1) a preservation order for all existing and future documents relating to RealDVD, CSS, ARccOS or Ripguard, including backup tapes;
(2) precluding Real from impeaching or controverting Hamilton's testimony on five areas which the controverted notebooks purportedly cover;
(3) inferring that Real knowingly purchased technologies to circumvent ARccOS and Ripguard;
(4) precluding Real from offering testimony from Basche and Wolpert;
(5) requiring Real to produce Barrett for a deposition on spoliation and Facet; and
(6) requiring Real to pay monetary sanctions as appropriate.” Id., at *8

Particularized Rather Than General Litigation Risk Triggers Duty to Preserve

Plaintiff Real had prepared a PowerPoint deck in April 2007 which stated that the DMCA posed a “risk” to the RealDVD product, and “discusses the ‘threat of a lawsuit.’” Id. at *8.

The Court also points out that Senior Program Manager Hamilton “testified that she was told within hours of being hired in July 2007 that there would be litigation over RealDVD and the idea of litigation over RealDVD was drummed into the team on a daily basis.” Id.

Moreover, the Court notes, Real’s Senior Program Manager also testified that “there were concerns about litigation over [the] Facet [product] and with DVD CCA.” Id.

The PowerPoint presentation under discussion had a bullet point slide entitled “DVD Ripping Issues,” subtitled “Risks,” and bullet points for “DVD CCA Issues and Tactics” and “DMCA Issues.” Id.

Perhaps most revealing was a July 2007 presentation from Real that “has a slide that has a box labeled ‘threats’ and a bullet point stating ‘[legal action by Hollywood on basis of copyright, not DVD CCA license.’” Id.

Nope, folks, can’t make this stuff up.

With this record under consideration, and couching its reasoning under the label “theoretical threat” the Court explains that general knowledge of probable litigation, at least under these circumstances, was insufficient to push the trigger for plaintiff Real’s duty to preserve back to April 2007.

“[I]t is not clear whether the slide from the April 2007 presentation indicates knowledge of probable litigation with DVD CCA or a possible discussion of plans to license CSS technology from DVD CCA. The July 2007 presentation merely references a theoretical threat of litigation “by Hollywood” and not an actual threat by any particular party. Moreover, it indicates that Real did not believe that it would be sued based on the DVD CCA license, given that it was a presentation created before the August 2007 CSS License Agreement. Thus, these presentation slides are not strong indicators of knowledge of probable litigation with defendants. See Hynix, 591 F.Supp.2d at 1061.” Id. at *8.

Indeed, the Court reasons, plaintiff Real’s August 2007 entry into a licensing agreement with defendants DVD CCA:

“…[I]ndicates that Real did not believe that it would be sued based on the DVD CCA license, given that it was a presentation created before the August 2007 CSS License Agreement. Thus, these presentation slides are not strong indicators of knowledge of probable litigation with defendants. See Hynix, 591 F.Supp.2d at 1061.” Id.Not surprisingly, the Court finds that the April 2007 PowerPoint slide deck did not operate to trigger an early (April 2007) duty to preserve evidence:

Thus, these presentation slides are not strong indicators of knowledge of probable litigation with defendants. See Hynix, 591 F.Supp.2d at 1061. Id.

Takeaway: Reasonably foreseeable future or anticipated litigation requires the identification of a specific counter-party, and not a third-person abstraction such as “they” (in this case, the term “they” means “Hollywood”).

The Court then addresses defendants’ argument for an earlier date for the trigger of plaintiff Real’s duty to preserve evidence based on conversation between Real employees in which these employees were instructed to use certain words in emails and documents because there might be litigation “someday.”

“For instance, Barrett stated in an email that ARccOS was not encryption and that he wouldn't call it copy protection. Lynch Dec., Exh. 12. Barrett acknowledged that he instructed members of the Facet team to minimize use of words like “ripping” because the term may be misconstrued.” Id.

Here’s where it gets interesting. Plaintiff real argued that even if a few Real employees recognized the potential for litigation involving a new product, that Real was under no obligation to preserve all documentation “until there was an actual threat or notice of some lawsuit.”

The Court agreed with Real:

“The court agrees with Real that a general apprehension of lawsuits does not create a duty to preserve all documentation related to RealDVD. The cited statements do not rise to a probability that the instant litigation by or against Studio defendants would result.” Id. at *9.

Ok, so I need some talking down. How does a preservation trigger that occurs when litigation is reasonably foreseeable square with the Real’s assertion that it was under “no” obligation to preserve all documents “until there was actual threat or notice of some lawsuit”?
It appears that the Court couches it’s reasoning on the theory that a generalized apprehension of litigation does not trigger a duty to preserve:

“A general concern over litigation does not trigger a duty to preserve evidence. Real had no duty to preserve relevant documents or evidence until a potential claim was identified or future litigation was probable. See Turnage, 115 F.R.D. at 556-57; Baliotis, 870 F.Supp. at 1290; Hynix, 591 F.Supp.2d at 1061.” Id., at *9.

The facts also helped the Court decide in Real’s favor. Engaging in negotiations and entering into a licensing agreement with defendants augured against a finding that Real should have anticipated future litigation with defendants:

“Real participated in discussions about RealDVD with Studio defendants in August 2008, but Real asserts that it was negotiating in good faith and that none of the representatives from the studios threatened litigation during those meetings.” Id., at *9.

So, when did Real know that there was “probable litigation” sufficient to trigger a duty to preserve? Defendants’ September 8, 2008 “formal notice” to plaintiff Real that it was in violation of the DVD CCA License agreement:

“However, shortly before its September 8, 2008 planned announcement of RealDVD, Real was on notice that litigation was probable and a potential claim was identifiable because various studios objected to RealDVD's release and expressed concern that RealDVD violated the CSS License Agreement. As a result of the objections by the studios, Real entered into a tolling/standstill agreement concerning RealDVD. Real was also given actual notice of litigation on September 25, 2008, which created a duty to ensure preservation of its relevant documents and data.” Id., at *9

And when did actual notice of litigation occur? The trigger for Real’s duty to preserve occurred on September 25, 2008, when defendants sent plaintiff a letter stating that they intended to commence litigation.

The score is: Constructive notice as of September 8, 2008, and actual notice as of September 25, 2008. The Court’s finding? No duty to preserve prior to September 2008:

“Thus, beginning in early September 2008, Real knew that there was probable litigation and had a duty to preserve all documents and evidence related to this action. The court finds that Real was not under a duty to preserve evidence in anticipation of litigation prior to September 2008.” Id.

A. Willful Destruction of Documents

Defendants also argued that plaintiff Real engaged in three instances of willful evidence destruction:

“(1) Real has not preserved or produced Hamilton's notebooks;
(2) Real's employees or team members destroyed documents or emails and
(3) Real has not produced the arccos.zip file purchased from overseas hackers.” Id.
Hamilton’s Notebooks

On October 6, 2008, Real distributed an email memorandum instructing various employees to preserve evidence:

“Real distributed an email to members of the Facet and Vegas RealDVD teams, as well as other employees, consultants and officers who may have documents and materials relevant to the litigation, instructing them to preserve documents and hard copy data from July 2007 to the present relating to any aspect of RealDVD, the CSS License Agreement and the DVD CCA.” Id.

The memorandum’s language:

“Please do not destroy, discard, alter or erase any document or computerized information generated on or after July 1, 2007 to the present relating to: (1) RealDVD, including the development, marketing and distribution of RealDVD; (2) the CSS License Agreement and Real's activities under that Agreement, and (3) the DVD CCA, including any communications with the DVD CCA.” Id., at *10

The Court points out that the memorandum states that it was applicable to: “…all electronic and hard copy information, including letters, memos, reports, handwritten notes, e-mails, computer records and programs, data stored on hard drives and backup tapes. Id.

Although District Judge Patel notes that there was a “gap” between early September 2008 and October 6, 2008 (before Real had a preservation policy in place in connection with the instant litigation), the defendants did not claim that there was any willful document destruction during this time.

The Court found that Real’s preservation policy, when deployed, was sufficient for comprehensive preservation of evidence going forward (presumably from October 8, 2008). Maybe not, as the Court also instructed the parties to “negotiate and file a stipulated proposed Preservation Order for all existing and future documents relating to all products at issue or likely to be at issue in this litigation…” Id.

The Court also found that plaintiff Real had failed to take steps to preserve Real Senior Product Manager Hamilton’s notebooks. What appears to be the operative reason for the Court’s finding is that the preservation notice was distributed to Real employees, including Hamilton, one week prior to her termination, and a showing of willfulness did not enter into the Court’s calculus:

“Since Hamilton was terminated less than one week prior to this action, which was within the time period when Real was on notice of probable litigation from Studio defendants, Real was required to preserve any of her relevant work documents. See In re Napster, Inc. Copyright Litig., 462 F.Supp.2d at 1068. Even though Hamilton had not worked on the RealDVD project since June 2008, Real should have known at the time of her termination that her notebooks from the period of time in which she worked on RealDVD were relevant to this action.” Id.

“There is no indication that these notebooks were willfully destroyed by Real, and they may have been inadvertently lost in the course of termination of an employee. However, Real failed to preserve the notebooks after Hamilton's termination, which was during the time they knew about litigation with Studio defendants.” Id.

“Even if it was a single notebook with little relation to the Facet product, as plaintiffs contend, this notebook should have been preserved for possible relevance to this litigation.” Id., at *11
Result: The Court found that the imposition of sanctions for destruction of the notebooks was appropriate:

“Thus, sanctions for failure to preserve Hamilton's notebooks are appropriate. Pursuant to the court's inherent power to impose sanctions, the court GRANTS sanctions against Real for failing to preserve Hamilton's notebooks in relation to this litigation. ” See Chambers, 501 U.S. at 43.” Id., at *11.

eMail Deletions

The Court next addressed defendants’ contention that a Real Senior Strategic Advisor instructed Real employees to delete emails. That advisor testified that he never told anyone to delete emails related to the instant action. Further, the Court noted, the routine post-engagement document destruction by another consultant to Real was found to have occurred prior to the early September 2008 trigger. The Court accorded sufficient credibility to this testimony and found that plaintiff had not deleted emails after the trigger for preservation had occurred in September 2008.

Failure to Initially Produce The ArccOs.zip File

Defendants asserted that sanctions were appropriate because plaintiff Real did not at first produce ESI (the ArccOS.zip file). At first, plaintiff Real stated that the files was corrupted by a virus, but then produced the file on March 4, 2009. Defendants argued that sanctions were still necessary because Real “prevented the production of the file, even though it was not corrupted and contained highly relevant evidence.”

The Court makes short shrift of this argument, and holds that the production, albeit untimely of the file resulted in no prejudice to defendants.

“Since the file has been subsequently produced by Real, defendants have not shown that they were seriously prejudiced by the delay, particularly given the multiple continuances of deadlines in this litigation, and Real has not engaged in willful destruction of the file. Thus, the court DENIES a defendants' request for sanctions in regards to the arccos.zip file.” Id., at *12

B. Order Precluding Real from Impeaching or Controverting Testimony

Defendants’ sanctions motion also requested an order of preclusion, in effect preventing plaintiff Real from impeaching or controverting the testimony of plaintiff’s former Senior Product Manager Hamilton. Since Ms. Hamilton was referred to as a “terminated” employee, one might surmise that she bore some measure of ill will toward her former employer. That said, the Court proceeds with its analysis:

“Defendants move for an order precluding Real from impeaching or controverting Hamilton's testimony based on the following five areas purportedly covered in Hamilton's notebooks: (1) Real's awareness of, and strategies undertaken to circumvent ARccOS and Ripguard; (2) Real's use of CSS-cracking code in the development of Facet and its knowledge that such code was non-compliant with the CSS license specifications; (3) Real's knowledge at the time of entering the CSS license that DVD CCA would view RealDVD to be non-compliant; (4) Real's knowledge that its product would be used by consumers for rent/rip/return or borrow/rip/return purposes; and (5) Real's awareness that movies marked with CGMS flags were marked “do not copy” by content owners.” Id. at *12.

Discoverability from Other Sources and Source Code as Most Comprehensive Record

The Court wasn’t in a buying mood. Although it acknowledged that the contents of Senior Product Manager Hamilton’s notebooks [wa]s unknown, the “above listed topics purportedly covered in the notebooks may be discoverable by other sources of evidence…”

Perhaps most important, the Court goes on to hold that the source code, and not the notebooks, as the “most comprehensive” record on the development of the Facet program.

Result: The Court denied that portion of defendants’ motion for sanctions requesting preclusion of Real’s ability to impeach or controvert certain testimony.

C. Adverse Inference

Defendant argued for an inference instruction that plaintiff Real knowingly purchased DMCA circumvention technology. The basis for this was Real’s purchase of the ArccOS.zip file from an overseas vendor, and the initial delay in production to defendants. The Court, while noting that the production of the ArccOS.zip file was no longer an issue, ruled that it would infer from communications that Real was aware of non-CSS technologies, but denied as premature the request for an inference that plaintiff Real knowingly purchased DMCA circumvention technologies.

D. Preclusion of Testimony

Defendants next argued that Real should be precluded from offering the testimony of certain Real consultants because one consultant deleted all his files following his engagement, and because a second consultant deleted “tons” of emails everyday.”

The Court noted that the first consultant had retrieved documents “through back-up” and “relayed them to plaintiff Real for production.” (One wonders, however, what a consultant might mean when he certifies that s/he has “destroyed” all information after an engagement). As to the second consultant, the Court found that the references to deleting “tons” of email vague, and that that consultant testified that he deleted no litigation-relevant emails.

That, together with the implementation of Real’s litigation hold and preservation policy on all litigation related documents and emails, was sufficient for the Court to find no prejudice to defendants.

Result: The Court denied the motion to preclude testimony.

E. Witness Re-deposition on Spoliation

The Court was apparently unamused by testimony that an official of plaintiff Real’s supervisor Barrett. There was evidence showing that Barrett “had a campaign to destroy documents unfavorable to Real’s litigation,” and this provided basis sufficient for the Court to permit defendants to re-depose Barrett on the topic of spoliation:

“Defendants argue that the court ruled that they were entitled to a redeposition of Barrett on Facet, and because Barrett had a campaign to destroy documents unfavorable to Real's litigation, there is a greater reason for this deposition to go forward. Accordingly, even though defendants have already deposed Barrett once, the court hereby GRANTS defendants' request for a deposition on spoliation and Facet and instructs Real to produce Barrett for a second deposition on these topics.” Id., at 13

Bad juju.

F. Monetary Sanctions

It should come as no surprise that the Court grants defendants’ motions for attorney fees and costs in connection with the spoliation motion:

“Although the court finds no evidence of willful destruction of documents, Real failed to preserve Hamilton's notebooks when it knew there was probable litigation with Studio defendants and knew that Hamilton's notebooks could contain relevant notes from the RealDVD project.” Id., at *14

“The court chooses not to draw an adverse inference against Real for alleged spoliation of evidence, nor will the court exclude witness testimony proffered by Real or dismiss Real's claims based on this failure to preserve evidence at this time. See Glover v. BIC Corp., 6 F.3d at 1329.” Id.

“Pursuant to the court's inherent power to impose sanctions, the court GRANTS monetary sanctions against Real for failing to preserve evidence in relation to this litigation. See Chambers v. NASCO, Inc., 501 U.S. at 43. An award of attorneys' fees and related costs is GRANTED to defendants for pursuing the evidence of spoliation of Hamilton's notebooks and for bringing this part of the sanctions motion.” Id.


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Case: Hawknet Ltd. v. Overseas Shipping Agencies, et al.
Citation: 2009 WL 1309854 (S.D.N.Y. 2009)
Date: 2009-05-06
Topics: Spoliation requires that evidence must be shown to have existed

In this maritime law decision from the Southern District of New York, the Court has before it plaintiff’s motion for an adverse inference based “upon missing documents.”

U.S. District Judge Buchwald makes short shrift of plaintiff’s motion, recognizing that documents must first be shown to have existed as a predicate for asserting the spoliation of same:

“Here, plaintiff has not made an actual showing that evidence has been spoliated. Though plaintiff s argument surely is plausible, they provide no hard evidence that there existed documents which were subsequently destroyed or withheld. Consequently, no adverse inferences will be drawn from the alleged missing documents. Farella v. City of New York, Nos. 05 Civ. 5711, 8264, 2007 WL 193867, at *2 (S.D.N.Y. Jan. 25, 2007) (spoliation sanctions are inappropriate unless the party moving for sanctions can show the documents existed in the first place).” Hawknet Ltd. v. Overseas Shipping Agencies, 2009 WL 1309854, 7 (S.D.N.Y. 2009)

File this decision under: Spoliation, metaphysics of.

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.

SWT

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)

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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.


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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


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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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