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eDiscovery Case Law: Defendant Sanctioned for Abandonment and Sale of Server; Defendants' Counsel Unaware of Spoliation

An Illinois District Court ordered heavy sanctions against the defense for spoliation “willfully and in bad faith” of documents stored on a server, in a case revolving around damages sought for breach of loan agreements.

In United Cent. Bank v. Kanan Fashions, Inc., No. 10 C 331, 2011 WL 4396856 (N.D. Ill. Sept. 21, 2011), the defendants were found to have hidden and sold (or fabricated the sale of) a server which was subject to discovery. The defendants also misled their own counsel about their discovery procedures with regard to its preservation obligations and the sale of this crucial server. Accordingly, a magistrate judge ruled in favor of sanctions against the defendants based almost entirely on recommendations made in United Cent. Bank v. Kanan Fashions, Inc., No. 10 CV 331, 2011 WL 4396912 (N.D. Ill. Mar. 31, 2011):

  • Although the defendants’ counsel reminded them several times of their obligation to preserve evidence, and the defendants claimed at all times that they were taking the necessary steps to ensure a smooth and correct discovery process, they misled their own attorneys. In fact, the defendants proceeded to sell a server that contained information relevant to the suit.
  • The circumstances associated with the sale were extensive, involving the defendants defaulting on a loan on the warehouse in which the server was stored. When they made plans for foreclosure on the warehouse, they also made arrangements that the bank would purchase the lease on the server, originally held by a different lender, without informing their defense lawyers.
  • When defense counsel learned of the foreclosure and these arrangements, the defendants maintained that they could get access to the server as needed for discovery.
  • Several months later, the court ordered the defendants to retrieve either the server or a forensic copy of its contents for discovery. It was only a few days later that the defendants informed their counsel and the court that the server had been sold by the bank to a business in Dubai.
  • All of the above took place after the defendants had been repeatedly informed of the need to preserve evidence for discovery, and of their obligations with regard to ESI.
  • The circumstances of the sale of the server were so unusual that the court concluded that the defendants had, themselves, had a hand in the sale of the server to Dubai and the removal of the server from the court’s reach.
  • The magistrate judge found that defendants were solely responsible for the spoliation, having deliberately misled the court, the plaintiffs, and the defendant’s own counsel.
  • Defendants were ordered to pay sanctions that include reimbursement of the plaintiff for all costs related to the Motion for Sanctions. Defendants are also “barred from introducing any evidence regarding the data on the warehouse server”. The jury is to be “informed of the Defendants’ abandoning of the server” and instructed that the spoliation of the server “may be considered evidence that the server contained evidence unfavorable to Defendants’ position.”
  • The plaintiff’s request for sanctions against the defense counsel was dismissed by the magistrate judge.

So, what do you think? Have you ever been involved in a case where a similar instance of spoliation took place? Please share any comments you might have or if you’d like to know more about a particular topic.

eDiscovery Strategy: "Command" Model of eDiscovery Must Make Way for Collaboration

Last week’s article on Law Technology News summarizes the message put forward by several speakers at the fifth annual Colorado Association of Litigation Support Professionals E-Discovery Summit, held on October 7, 2011. In her article E-Discovery ‘Command’ Culture Must Collapse, Monica Bay discusses the old “command” style of eDiscovery, with a senior partner leading his “troops” like General George Patton – a model that summit speakers agree is “doomed to failure” – and reports on the findings put forward by judges and litigators that the time has come for true collaboration.

The highlights of the summit as far as a collaborative model of eDiscovery include thoughts by U.S. Magistrate Judge Michael Hegarty and Florida attorney William Hamilton, who say the time has come for adversarial, command-style eDiscovery to be replaced by a collaborative model, even with opponents, to result in a more effective discovery process.

Here is a brief summary of their opinions on the future of eDiscovery.

U.S. Magistrate Judge Michael Hegarty: Negotiation and Early Presentation of ESI are Key

Judge Michael Hegarty, of the U.S. District Court (Colorado), believes that minimal court intervention in discovery is best, but that mistakes are often made early on that cause discovery problems with respect to ESI.

  • He remarked on how common it is for litigators to neglect to mention discovery of electronic materials in early conferences, and how “detrimental” that can be to cases.
  • Judge Hegarty noted that a great deal of eDiscovery is unduly complicated because lawyers don’t understand the scope of what it is possible to do with electronic materials. “It’s easy for a party to say, ‘We can’t do that,'” he said, “but it’s hard to imagine that something can’t be done.” He noted the lack of understanding as a key source of friction, and finds that he often has to wade in and order parties to purchase software that will make it possible for them to conduct complete discovery.
  • The bottom line, according to Hegarty, is that the vast majority of cases never go to trial – surprisingly less than one percent of Colorado cases ever see a courtroom – and that’s the way it should be. “We can’t have discovery disputes sit around for months,” he said. It’s important to facilitate a communication process that includes ESI where appropriate in order to settle cases and move them along.

William Hamilton: Support Staff Make Like Possible for Attorneys

William Hamilton is a partner at Quarles and Brady in Tampa, Florida. He is also a professor at the University of Florida’s law school, Levin College, where he teaches “Electronic Discovery and Digital Evidence”. Hamilton is also dean of an online graduate certificate program in eDiscovery at Bryan University, and chair of the advisory board of the Association of Certified E-Discovery Specialists (ACEDS).

  • Hamilton’s speech focused heavily on the role of support staff, the people who “make life possible for attorneys”. He says paralegals and technology staff have a larger role to play in discovery than ever before, but must be careful not to cross over into unauthorized legal practice as they assist litigators.
  • He pointed out a need for change in the very culture of legal practice, where “[h]ierarchy culture disenfranchises everybody”. Bad decision making results from choices made by: “1) habit, 2) reputation, 3) haste, and 4) ‘pure command decisions”, he noted.
  • “Only 10 percent of lawyers ‘get’ e-discovery,” says Hamilton. It’s time for that to change, he says, as a new paradigm for discovery of electronic materials is born.

Learn more about the Colorado Association of Litigation Support Professionals E-Discovery Summit on the Association’s website or read the complete article on Hamilton and Hegarty’s presentations at Law Technology News.

So, what do you think? Is a top-down approach to eDiscovery still viable, or is there a real need for the process to change to a more collaborative and communicative one? Please share any comments you might have or if you’d like to know more about a particular topic.

eDiscovery Case Law: Court Says Lack of eDiscovery Rules for Criminal Cases is a Crime

A New York district court recently ordered the United States Government to reproduce thousands of pages of electronic discovery materials in a criminal case involving the distribution of cocaine.

In United States v. Briggs, No. 10CR184S, 2011 WL 4017886 (W.D.N.Y. Sept. 8, 2011), the Government produced thousands of pages of electronic documents and a number of audio recordings, none of which were text searchable. The court ultimately decided that the onus of producing searchable materials for eDiscovery fell on the Government itself.

  • Defendants requested that the Government reproduce the discovery materials in a searchable format, but the Government refused, stating that it had used a program “routinely used” in criminal cases and would not bear the storage burden or cost of reproducing the documents.
  • The defense argued that the volume of production was virtually impossible to navigate without the ability to sort or search the documents, and that the materials presented for discovery lacked some relevant information. The court later made the comparison that a paper equivalent to this discovery situation “would be if the Government took photographs of thousands of pages… put them in boxes, and invited inspection by defense counsel.”
  • In light of the absence of a rule or standard for discovery of electronic materials in criminal cases such as this one, the court referred to other criminal cases in which the same issues were discussed, including United States v. Warshak, 631 F.3d 266 (6th Cir. 2010) and United States v. O’Keefe, 537 F. Supp. 2d 14 (D.D.C. 2008). Both of these cases dealt at some point with similar debates over document format and extensive discovery production, with different findings of whether the producing party was required to produce in the requested format.
  • The court decided that, in light of the absence of a clear standard, the Government was the party “better able to bear the burden of organizing these records for over twenty defendants in a manner useful to all” and ordered the Government to produce the files in searchable PDF or native format.
  • Finally, the court expressed its hope that the Advisory Committee on Criminal Rules would soon establish rules addressing the production of ESI in criminal cases.

So, what do you think? Was the court fair to put the onus of searchable text production on the Government? Should there be similar rules governing eDiscovery issues in the Federal Rules of Criminal Procedure as there are in the Federal Rules of Civil Procedure? Please share any comments you might have or if you’d like to know more about a particular topic.

eDiscovery Case Law: Are Attachments Part of the Email Or Are They Separate?

A Special Master recently investigated the legal standard concerning whether or not attachments must be produced with the emails to which they were attached in discovery proceedings, and determined that there is no certain answer to be found in case law precedent.

In Abu Dhabi Commercial Bank v. Morgan Stanley & Co, Inc., No. 08 Vic. 7508(SAS), 2011 WL 3738979 (S.D.N.Y. Aug. 18, 2011), the defendants argued that SEI Investments (“SEI”) was at fault for neglecting to produce certain attachments to emails as part of discovery, and that SEI was obligated to produce these attachments and explain their absence. This request ultimately delved into issues of precedent and legal standard:

  • SEI stated that it had already produced the documents that were relevant and were not protected by privilege, and argued that it was not obligated to produce the attachments in question because they were non-responsive to discovery.
  • A Special Master was convened to consider the issue and to establish the legal standard for this type of discovery question.
  • The Special Master found a number of conflicting examples: In some cases, the obligation to produce attachments with the relevant emails was implied, but most of these instances assumed that attachments were required to be produced and focused solely on the format of production. In a number of cases, producing attachments with their emails has been the norm; however, in other cases, emails and attachments were treated as separate in terms of privilege determination.
  • The Special Master concluded that “conceptually” the two could be viewed separately, or they could be seen as a single unit for the purpose of discovery, and advised that the decision should generally be made by the parties involved in advance, during pretrial discovery talks.
  • In this case, the Special Master questioned SEI’s argument for not producing the attachments in question, and at the same time, argued against the probably unnecessary expense of forcing SEI to produce all attachments to all emails previously included in discovery.
  • Therefore, the Special Master made a series of recommendations that were adopted by District Court Judge Shira Scheindlin. These included: a) Production of the non-privileged attachments to the 126 emails previously identified by the defendants, as well as a complete list of any such documents that it proves unable to produce; b) permission for the defendants to request further such attachments as deemed relevant and necessary to this case; and, c) a meeting between all parties to discuss this issue and reach an agreement on policy regarding the production or withholding of email attachments and their format.

So, what do you think? Do you believe that email attachments should generally be produced as a matter of course with the emails to which they were attached, or that they should be considered as separate documents for the purpose of discovery? Please share any comments you might have or if you’d like to know more about a particular topic.

eDiscovery Trends: Social Media Lessons Learned Through Football
 

The NFL Football season begins tonight with the kick-off game pitting the last two Super Bowl winners – the New Orleans Saints and the Green Bay Packers – against each other to start the season.

An incident associated with my team – the Houston Texans – recently illustrated the issues associated with employees’ use of social media sites, which are being faced by every organization these days and can have eDiscovery impact as social media content has been ruled discoverable in many cases across the country.

Last year’s NFL rushing leader, Arian Foster, recently “tweeted” a picture of the MRI image showing his injured hamstring to all of his followers on Twitter. The “tweet” provided an explanation of where his hamstring was specifically damaged.

The problem is that NFL teams guard specific injury information regarding their players as if they were trade secrets and in a sport where sidelining your opponents’ best players is a competitive advantage, telling those opponents where your injury is located is not a wise move (what was he thinking?).  Also, there are strict guidelines within the NFL regarding the disclosure of injury information because (big surprise!) it can impact betting on the games.

Foster, who subsequently “tweeted” that he was just joking around, provided yet the latest reminder that former congressman Anthony Weiner and many others have provided before: think before you hit send.

But, as bad as the consequences can be to individuals who post content on social media sites unwisely, it can be just as bad (or worse) for organizations that employ those individuals.

Postings on social media sites by employees can range from simply embarrassing for an organization from a public relations standpoint to downright damaging to the organization in the form of disclosure of confidential information.  The risk is clear.  Yet, in the socially technological world in which we live today, it is impractical for organizations to “ban” use of social media sites by their employees.  It’s going to happen and companies have to be prepared to address it.

The best way to address it is to implement a sound social governance policy that provides guidelines for acceptable and unacceptable behavior on social media sites and the consequences for the unacceptable behavior.  Implementation includes education with training examples that clarify any ambiguities.  This blog post from last year illustrates factors to address in a good social governance policy.  Hopefully, someone from the Texans is explaining these concepts to Arian Foster.

So, what do you think? Does your organization have a social governance policy?  Does it train employees on the use of that policy? Please share any comments you might have or if you'd like to know more about a particular topic.

eDiscovery Case Law: Sanctions for Spoliation, Even When Much of the Data Was Restored

A Virginia court recently ordered sanctions against the defendant in a case of deliberate spoliation of electronic discovery documents.

In E.I. Du Pont De Nemours & Co. v. Kolon Indus., Inc., No. 3:09cv58, 2011 WL 2966862 (E.D. Va. July 21, 2011), the defendant was found to have committed spoliation “in bad faith” in a manner that constituted a “violation of duty… to the Court and the judicial process,” as follows:

  • The defendant, Kolon Industries Inc., was charged with misappropriation of trade secrets, conspiracy, information theft, and other allegations.
  • Within two days of receiving the plaintiff’s February 4, 2009 complaint, the defendant issued a litigation hold to upper-level employees. Several days after that, on February 10, a second hold notice was sent to all employees in English – even though most of Kolon’s staff members did not speak English.
  • Subsequently, many of the defendant’s key employees were found to have deleted files and emails that may have been relevant for discovery. After extensive investigation, the plaintiff’s expert discovered that the defendant had demonstrably deleted at least “17,811 files and email items” that should have been preserved for discovery.
  • The court determined that employees had deleted ESI “in bad faith,” conducting intentional spoliation and alteration of relevant evidence in direct contravention of the demands of discovery.
  • Even though many (but not all) of the documents were recovered (most from backup tape), the court rejected the defendant’s argument that “there can be no spoliation finding because many documents were recovered” and eventually produced, stating: “The fact that technology permits the undoing of spoliation does not change at all the fact that spoliation has occurred.”
  • Accordingly, the court leveled sanctions against the defendant, ordering it to pay the plaintiff’s legal fees, costs and expenses on this motion, and ordered an adverse inference instruction to the jury.  However, the court found that default judgment requested by the plaintiff was not appropriate, citing defendant’s attempts to place two litigation holds and the “good fortune that many deleted items were recoverable because of the preservation of Kolon’s backup tapes.”

So, what do you think? Were the sanctions appropriate, or should recovery of much of the deleted data have spared the defendant in this case? Have you ever been involved in a case where deleted electronic documents were recovered and sanctions avoided? Please share any comments you might have or if you’d like to know more about a particular topic.

eDiscovery Case Law: "Untimely" Motion for Sanctions for Spoliation Denied

A recent ruling by the US District Court of Tennessee has denied a motion for sanctions for spoliation on the grounds that the motion was “untimely.”

In Am. Nat’l Prop. & Cas. Co. v. Campbell Ins., Inc., No. 3:08-cv-00604, 2011 WL 3021399 (M.D. Tenn. July 22, 2011), the plaintiff argued that the defendants’ admitted failure to preserve evidence “warrants a harsh penalty,” but the court found in favor of the defense that the motion was untimely.

  • The defendants, Tommy Campbell, Marshall C. Campbell and Campbell Insurance, Inc. were previously found to have failed to preserve email evidence from the period between April and July 2009. The plaintiff claimed that these emails contained “damning evidence” and that this discovery spoliation was deliberate.
  • This spoliation was discovered in May 2010, but the plaintiff did not file a motion for sanctions until July 16, 2011 – more than fourteen months after the spoliation was discovered and almost five months after discovery closed in February of 2011.
  • With the trial less than seven weeks way, the court considered this motion for sanctions for spoliation in the light of the summary of the law on spoliation that was provided in Goodman v. Praxair Services, Inc., 632 F.Supp.2d 494 (D.Md.2009). Among other points, the district court in Goodman v. Praxair encouraged courts to be aware of the time between the close of discovery and a motion related to spoliation, as well as cautioning against spoliation motions “made on the eve of trial.”
  • The court rejected the plaintiff’s excuse for the timing on the basis that “because the relevant emails were deleted and cannot possibly be produced, the Motion for Sanctions ‘is not a discovery motion.'”
  • Because of the “disruptive” timing of the motion, and the inability of the plaintiff to effectively explain why they delayed so long in filing a motion after this spoliation was encountered in discovery, the court ultimately ruled against the motion for sanctions, calling it “untimely”.

So, what do you think? Does spoliation of evidence “expire” or should timeliness matter at all in a case like this one? Please share any comments you might have or if you’d like to know more about a particular topic.

eDiscovery Case Law: Bankruptcy Court Denies Foreign Access to Debtor's Emails

A Southern District of New York United States Bankruptcy Court denied access to a debtor’s emails on July 22, in a foreign request involving international eDiscovery.

In re Toft, No. 11-11049 (ALG), 2011 WL 3023544 (Bankr. S.D.N.Y. July 22, 2011), the U.S. Bankruptcy Court determined that to permit a relief request from a German insolvency administrator would directly contravene the “fundamental principles” of U.S. public policy by undermining the right to privacy in electronic communications and the right of parties involved in any court order to receive notice of such proceedings and of their involvement.

  • Dr. Martin Prager, in his role as authorized insolvency administrator in a German bankruptcy proceeding, sought permission to access the mail and electronic correspondence of Dr. Jurgen Toft. Although the majority of such correspondence was located under European purview, two of the email accounts belonging to the debtor were found to be stored on servers owned by U.S. Internet Service Providers (“ISPs”).
  • The Munich District Insolvency Court had previously approved a Mail Interception Order, which had been granted recognition by the English High Court of Justice before being brought before the United States Bankruptcy Court.
  • Prager sought a U.S. court order that would grant comity to his German Mail Interception Order and compel the two American ISPs to provide him with “all of the Debtor’s e-mails currently stored on their servers and to deliver to Prager copies of all e-mails received by the Debtor in future,” without notice being provided to the debtor by either the court or the ISPs.
  • Despite the approval of the English High Court of Justice, the US Bankruptcy Court found that it could not grant relief to Prager’s request. The court determined that to grant access to emails as requested by Prager would be “banned under U.S. law, and it would seemingly result in criminal liability under the Wiretap Act and the Privacy Act for those who carried it out.”
  • In addition, the court observed that providing permission for access to emails without informing the debtor would also be contrary to U.S. law, which requires that all parties involved in any court order must receive notice.
  • As a result, the court concluded that the relief request was impossible to grant without running “manifestly contrary” to U.S. law and public policy, and did not honor Prager’s request.

So, what do you think? Was the court’s rejection of Prager’s request the only answer, or were there other routes that could have been taken in dealing with this international eDiscovery request? Please share any comments you might have or if you’d like to know more about a particular topic.

eDiscovery Breaking News: News International to Suspend Deletion of Emails and Other Documents
 

According to The Independent, staff at Rupert Murdoch’s newspapers has been warned to stop deleting any documents that may be relevant to the current investigations, as a suspension of its usual policy about deletion of documents goes into effect.

Over the course of the 2011 investigation into illegal voicemail hacking by News International employees, there has been contention over the ongoing deletion of documents at the newspaper and its subsidiaries. But only during this past weekend did News International's parent company, News Corp, finally send an email to all of its employees instructing them to take measures preventing the deletion of documents that might be related to the investigation, including emails and other ESI.  Specifically, the email instructed employees to “Please suspend any automatic deletion or discarding of any documents, whether electronic or paper, including emails or drafts of documents… If you are uncertain whether a document is relevant… you should preserve it.”

Of course, the News Corp scandal has been not only significant eDiscovery news, but major world news as well.

  • Since January 2011, police have been investigating a list of roughly 4,000 potential targets whose voicemails may have been hacked as part of this scandal – including Hollywood celebrities, sports figures, politicians, and even members of the British Royal Family, most of whom were unaware of how easily their cell phone functions were hacked.
  • The newsroom at News of the World, the newspaper implicated in the systematic phone hacking, has been closed.
  • Sean Hoare, the whistle-blower who disclosed phone hacking at News of the World, was found dead in his home in Watford, Hertfordshire.  No cause of death has yet been identified.
  • During testimony to Parliament last week, Rupert Murdoch was attacked – by a pie wielding comedian, who was thwarted by Murdoch’s wife Wendi.

Although this email sends a positive message about News Corp's willingness to protect eDiscovery information from this point forward, the instruction arguably comes too late to protect the documents and other ESI that have potentially been destroyed in the months since the investigation into the paper's illegal phone hacking began as well as the years when News Corp faced numerous hacking claims during key periods associated with the those claims.  News International has acknowledged that some messages may be recoverable on backup disks, and the police are trying to recover that information now, said Tom Watson, a Labor Party member of Parliament.

From an eDiscovery perspective, this story may become “Enron-esque” before it’s all over.

So, what do you think? Is this instruction from News International a step toward greater openness and responsibility in this investigation, or is it simply a case of too little, too late? Please share any comments you might have or if you'd like to know more about a particular topic.

eDiscovery Trends: How Blocking Statutes Affect International eDiscovery
 

Over the past few weeks, we’ve discussed the general challenges of international eDiscovery, use of the 41 year old Hague Convention for requesting ESI from other countries, use of Section 1782 for foreign entities to request ESI from US entities, and the effect of privacy laws in other countries on discovery requests.

In the course of pursuing discovery requests in foreign nations, US lawyers also often run into another serious legal snag: blocking statutes. These statutes prevent certain types of information from leaving the country where it originates, and can interfere with discovery of evidence in a number of ways.

The purpose of blocking statutes – also known as "secrecy laws" – is to protect information that is considered commercially significant or relevant to national security in the country where it is located, or where it originated. Certain countries have blocking statutes that protect particular industries or types of information. In Switzerland, for instance, the disclosure or transmission of bank account information is forbidden by blocking statutes. Other countries, such as France and Germany, have created blocking statutes that make certain types of discovery illegal within their borders, complicating matters for attorneys requesting information.

A French blocking statute dating back to 1980 has been known to cause problems in the past few years for attorneys, by criminalizing cooperation with US discovery – in one case, resulting in hefty fines for a French lawyer who contravened that blocking statute. In other cases, a refusal to submit documents for discovery based on blocking statutes and the Hague Convention may be overruled by national courts depending on the circumstances of the case and the type of discovery being ordered.

Blocking statutes present an odd legal conundrum, because they don't prevent American attorneys from requesting privileged information or American courts from ordering discovery – they simply make it illegal for that information to be disclosed by nations of the foreign country in question. As a result, American courts and attorneys have sometimes expressed skepticism about the validity of these statutes and the likelihood of penalties being enforced against those who contravene them.

In fact, those who contravene these blocking statutes are seldom charged or fined. When the statutes are enforced, however, the penalties are steep.

Blocking statutes can be frustrating to organizations responding to discovery requests, because they put foreign individuals and organizations who are ordered to submit privileged information in the untenable position of either breaking their own country's laws – and facing penalties for contravening blocking statutes – or receiving sanctions from US courts for refusal to produce discovery documents. In many cases, foreign entities prefer to confront US courts rather than risk penalties in their own home countries, which forces US courts to address the failure to comply with these requests.

So, what do you think? Have you ever had a discovery request denied because of a blocking statute? Please share any comments you might have or if you'd like to know more about a particular topic.