March’s Notable Cases and Events in E-Discovery

This Sidley Update addresses the following recent developments and court decisions involving e-discovery issues:

1. a Texas ethics opinion stating that attorneys are not prohibited from searching for, extracting or using inadvertently transmitted confidential metadata and are not obligated to inform the sending party about such inadvertent transmission
2. a Northern District of Illinois order directing that a jury be told of the destruction of video evidence that prejudiced a plaintiff but leaving it to the jury to determine whether the destruction was intentional and, if the jury so found, instructing the jury pursuant to Fed. R. Civ. P. 37(e)(2) to presume that the evidence would be unfavorable to defendant  
3. a Western District of Kentucky ruling that defendant in a product liability suit must produce not only information regarding other incidents involving four potential defects at issue in the case but also information regarding other incidents that could not be excluded as being related to those four defects, along with documents from defendant’s former counsel and independent third parties that currently perform services for defendant  
4. a Western District of Virginia decision rejecting defendant’s proportionality and cost-shifting arguments and requiring the defendant to conduct searches on various laptops and an email exchange server at its own cost

1. In Texas Ethics Opinion No. 665, released in December 2016, the Professional Ethics Committee for the State Bar of Texas stated that attorneys must undertake “reasonable measures” to prevent the inadvertent transmission of a client’s confidential metadata but are not prohibited from “searching for, extracting, or using” inadvertently transmitted confidential metadata and are not obligated to inform the sending party about such inadvertent transmission.

This opinion involved the transmission of a draft settlement agreement containing metadata that revealed a client’s confidential information to an opposing counsel, and the committee indicated that this opinion applied only to situations involving the voluntary transmission of documents outside the normal course of discovery. The committee pointed out that the production of electronic documents in normal discovery is governed by court rules and other law, which may prohibit the removal or alteration of metadata. Opinion No. 665 at 4.

The committee stated first that an attorney is obligated to undertake “reasonable measures” to prevent the inadvertent transmission of the client’s confidential metadata. In so finding, the committee cited Texas Disciplinary Rule of Professional Conduct 1.01, which generally prohibits an attorney from representing a client “in a legal matter which the lawyer knows or should know is beyond the lawyer’s competence,” along with Texas Rule 1.05, which generally prohibits an attorney from knowingly revealing a client’s confidential information. Opinion No. 665 at 2.

The duty of competence requires that an attorney understand that electronic documents may include metadata that contains a client’s confidential information. It further obligates an attorney to take reasonable measures to prevent the inadvertent transmission of confidential metadata to another party. The committee noted that commonly used methods to prevent the inadvertent transmission of metadata are the use of metadata-scrubbing software, conversion of a document into another format and transmission by fax or hard copy. Whether these actions satisfy the attorney’s ethical obligations depend on the factual circumstances of the case, such as the steps taken by the attorney, the sensitivity of the metadata and the recipient of the inadvertently transmitted metadata. Id. at 2-3.

The committee next discussed an attorney’s receipt of a document containing metadata with confidential information of another party and concluded that an attorney is not prohibited from “searching for, extracting, or using” confidential metadata that was inadvertently transmitted. Nor is an attorney obligated to inform the party that inadvertently transmitted the confidential metadata. The committee based its findings on the “absence of specific provisions” in the Texas Rules that correspond to the inadvertent transmission of metadata. Opinion No. 665 at 3. The committee, however, advised caution and noted that Texas Rules 3.03(a)(1) and 8.04(a)(3) — which generally prohibit dishonest conduct and false statements — apply. An attorney who has reviewed another party’s metadata must not “through action or inaction” make a misleading or false representation that does not take into account the attorney’s knowledge of the metadata. Opinion No. 665 at 3.

The committee further noted that professional ethics standards in other jurisdictions include specific rules on the metadata issue. As an example, the committee cited Rule 4.4(b) of the American Bar Association Model Rules of Professional Conduct, which requires that a lawyer receiving documents or electronically stored information (ESI) on a client matter from another lawyer, and knows or reasonably should know that the material was inadvertently sent, shall promptly notify the sender. The committee also pointed out that Texas attorneys may be otherwise bound by court rules, the ethical rules of other jurisdictions or other applicable laws.

Finally, the committee noted that the use of another party’s metadata may lead to material harm to the client, including the possibility of procedural disqualification of the client’s attorney. In a situation where a client will be exposed to material risk by a lawyer’s intended treatment of an opponent’s inadvertently transmitted confidential information contained in metadata, the lawyer is obligated under Texas Rule 1.03(b) to explain the situation to the client and alternatives that may be available to allow the client to make an informed decision.

2. In Cahill v. Dart, 2016 WL 7034139 (N.D. Ill. Dec. 2, 2016), U.S. District Court Judge John Z. Lee ordered that a jury be told of the destruction of video evidence that prejudiced a plaintiff but left it to the jury to determine whether the destruction was intentional and, if the jury so found, instructing the jury pursuant to Fed. R. Civ. P. 37(e)(2) to presume that the evidence would be unfavorable to defendant.

Following plaintiff’s arrest for driving on a suspended license, an officer claimed he observed plaintiff drop a small package of cocaine during processing of the plaintiff at a police station lockup and subsequently charged plaintiff with felony drug possession. Id. The parties disagreed over what happened at the station; plaintiff stated that he had not possessed cocaine at any time at the station and thus had not dropped the package and claimed he never said otherwise. Id. By contrast, the processing officer testified that he observed plaintiff drop the cocaine after patting him down, and another defendant officer claimed that the plaintiff “confessed upon being told that surveillance cameras would have captured him dropping” the cocaine. Id.

Cameras at the station captured the incident on video. After plaintiff was charged with possession, his counsel immediately issued a subpoena for the video. Id. Defendants initially indicated to plaintiff that all video footage had been destroyed, but it turned out that some video of plaintiff still existed. Id. at *2. It was later discovered that an arresting officer had submitted a request on the evening of the arrest for video of plaintiff discarding the cocaine, which the officer said had happened at approximately 9:20 p.m. to 9:40 p.m. Id.

The video was eventually provided to plaintiff. It began at 9:16 p.m. and did not show plaintiff dropping anything. Instead, when the video begins, the small white package was already on the floor, and plaintiff was not on camera. Id. At the 15-second mark, plaintiff appeared on the video, having been brought across the room by an officer from somewhere off camera and placed right next to the package, where, in the words of the court, he “seem[ed] to be completely oblivious to its presence.” At this point, one of the officer defendants “thoroughly searche[d] [plaintiff] while both men ignore[d] the package. Upon completion of the search, [the officer] kick[ed] the package, pick[ed] it up, and open[ed] it before leaving the room with it.” Id.

After viewing the available video, the prosecuting attorney dismissed the case, and plaintiff thereafter filed his lawsuit for malicious prosecution and violation of the Fourth Amendment against defendants. Plaintiff filed a motion for sanctions for spoliation of evidence arguing that defendants had a duty to preserve the video footage from plaintiff’s time in the lockup and intentionally failed to do so because the video would have proven his innocence. Id. The motion proposed sanctions ranging from default judgment to an adverse inference instruction and a prohibition on defendants’ use of certain evidence. Id. Plaintiff also sought attorneys’ fees related to the filing of the motion. Id.

At the motion hearing, the technician who processed the arresting officer’s video request testified that he saw the footage of plaintiff dropping the package but could not explain why the available video began after that point and further testified that he did not check the copy he made to ensure it contained the “crucial event.” Id. The magistrate judge concluded that defendants’ failure to preserve was “grossly negligent” though “not intentional” and that plaintiff suffered “substantial prejudice.” Id. at *3. Thus, the magistrate judge recommended that defendants be barred from making arguments or presenting evidence that the lost portion of the tape showed plaintiff dropping the cocaine but would allow testimony from one officer who said he saw it happen. Id.

Plaintiff objected to the magistrate judge’s recommended sanctions and appealed the matter to Judge Lee, who determined that a request for sanctions was a dispositive matter requiring de novo review pursuant to 28 U.S.C. § 636(b)(1). He adopted the recommendations of the magistrate judge with modifications, concluding that in light of the uncontested finding of prejudice, the jury should be informed that video was missing because of defendants’ failure to fulfill their preservation duty. Id. at *4.

Judge Lee then addressed whether plaintiff was entitled to an adverse inference instruction. The court disagreed with the magistrate judge’s determination that plaintiff presented “no evidence of intent” but stated that imposition of an adverse inference instruction was “less clear” and a “close question,” noting that Rule 37(e)(2) allows such sanctions only “if Defendants intentionally allowed the video to be destroyed.” Id. Because the destruction of the video was closely tied to plaintiff’s claim of malicious prosecution, Judge Lee decided that the best course was for the jury to decide the question of intent. Id.

The court then ordered that if plaintiff chose to present argument that the destruction was intentional, the jurors would be instructed that if they were persuaded that the deletion was intentional, they must presume that the lost evidence would be unfavorable to the defendants — the approach “called for by the 2015 Advisory Committee Notes to Rule 37.” Id. The court also ordered that defendants pay plaintiff’s attorneys’ fees related to making the sanctions motion. Id. at *5.

3. In Jackson v. E-Z-GO Division of Textron, Inc., 2016 WL 6211719 (W.D. Ky. Oct. 21, 2016, District Court Judge Thomas B. Russell ruled that defendant in a product liability suit must produce not only information regarding other incidents involving four potential defects at issue in the case but also information regarding other incidents that could not be excluded as being related to those four defects, along with documents from defendant’s former counsel and independent third parties that currently perform services for defendant.

This lawsuit involved an E-Z-GO electric golf cart rollover accident in which a 15-year-old passenger died. Id. at *1. The deceased passenger’s parents brought suit against E-Z-GO alleging that the golf cart’s design was defective and that E-Z-GO failed to provide adequate warnings. Id. Plaintiff sought discovery of incident reports E-Z-GO collected over the years, and the court issued a protective order limiting discovery to those incidents involving four design features at issue: rear-wheel-only braking as opposed to all-wheel-braking, speed governors, speed retardation devices and over-steer technology. Id. at *2. Pursuant to the protective order, plaintiffs were not allowed to inquire about other incidents that did not involve the four design features at issue or about the number of E-Z-GO incidents per year or the number of lawsuits filed against the defendant. Id.

Disputes arose over the scope of the discovery, and the matter was assigned to Magistrate Lanny King. He ruled on the various disputes, ordering E-Z-GO to produce nonprivileged information about prior E-Z-GO incidents relating to any of the four design features of concern. Id. Second, the magistrate judge further directed E-Z-GO to search both internal and external sources and produce information about other E-Z-GO incidents related to any of the four design features at issue and other E-Z-GO incidents for which the defendant was not able to exclude the possibility that the incident may have involved one of the four disputed features. Id. The “internal sources” included company records stored in an off-site facility, records of and correspondence with E-Z-GO’s in-house counsel relating to prior claims and incidents, and defendant’s own risk database. Id. The “external sources” referred to outside vendors that plaintiffs believe were likely to possess relevant information, including insurance companies, outside legal counsel and expert witnesses who provided services for E-Z-GO in prior litigation. Id.

E-Z-GO appealed aspects of the magistrate judge’s order to Senior District Judge Thomas B. Russell. First, E-Z-GO objected to this order on the ground that information regarding past incidents currently in the possession of certain external vendors was not within its “control” within the meaning of Fed. R. Civ. P. 34(a)(1). Id. With respect to incident records from the company’s former counsel, the District Court affirmed the magistrate judge ruling that E-Z-GO had the “legal right to obtain the documents on demand.” Id. at *3. With respect to information possessed by former insurance carriers, former expert witnesses and former litigation consultants, Judge Russell reversed the magistrate judge’s order, finding that the defendant had “no practical ability, and therefore no ‘legal right’ to demand that independent third parties, not involved in the current litigation to perform searches of their documents and produce documents that did not arise out of the current litigation.” Id. (citation omitted).

Second, E-Z-GO claimed that the order required the disclosure of information beyond the scope of discoverable material under Rule 26(b)(1) and beyond the scope of the discovery limits established in the protective order. More specifically, defendant argued that it should not be required to produce information relating to incidents for which the defendant could not exclude the possibility that such incident may have involved one of the four disputed features. Judge Russell disagreed, stating that plaintiffs had demonstrated the relevance of “those reports that cannot be ruled out as having involved one of the four design features.” Id. at *4 (italics in original).

Citing the 2015 amendments to the Federal Rules, E-Z-GO argued that the order compelled discovery of records that were “disproportionate to the areas of claimed, loosely defined defects asserted by Plaintiff.” Id. at *5. Judge Russell “remain[ed] unpersuaded” that the information sought by plaintiffs was “disproportionate to the putative merits of Plaintiffs’ claims” and found that information from former counsel, information from independent third parties that currently perform services for Defendants and claims that may involve one of the four design features of concern were properly discoverable. Id. The court noted that plaintiffs believed that information about past incidents was among their most compelling evidence in this case, and Judge Russell agreed with the magistrate judge that there was no reason to prevent plaintiffs from exploring these incidents further, as “it cannot be said that such past incidents are so far out of proportion to what Plaintiffs claim was a defective design of E-Z-GO’s product so as to bar discovery of them altogether.” Id.

4. In Wagoner v. Lewis Gale Medical Center, LLC, 2016 WL 3893135 (W.D. Va. July 14, 2016), Magistrate Judge Robert Ballou rejected defendant’s proportionality and cost-shifting claims to require the defendant to comply with a request for ESI and to bear the expenses associated with such production.

In this employment discrimination suit, plaintiff was fired from his position as a security guard after 16 weeks of employment. Id. at *1. Plaintiff sued his former employer and supervisors, alleging that he suffered from dyslexia and that his termination, among other things, violated the Americans with Disabilities Act. Id. During discovery, plaintiff sought production of ESI maintained by two custodians (his former supervisors) from various sources for the four-month period surrounding plaintiff’s employment and proposed certain search terms. Id. Defendants objected, arguing that they could not run a global search on their systems and would need to search at least seven laptops and an email exchange server at a cost of approximately $45,000, which was not proportional to the needs of the case where plaintiff’s potential damages were based on a few months of work as a security guard at $12.49 per hour. Id. Defendants also stated that they had already produced relevant ESI from the custodians who had manually gathered relevant emails from their own computers. In the alternative, defendants argued that plaintiff sought information that was not reasonably accessible, and if the court ordered the discovery, the cost associated therewith should be shifted to plaintiff. Id.

Magistrate Judge Ballou granted plaintiff’s motion to compel, holding that defendants had failed to show that the requested ESI was not reasonably accessible or not proportional. Id. at *2. He expressed some skepticism with the $45,000 estimate, which assumed that two custodians created approximately 17,500 documents containing a search term during a four-month period. Id. at *3 n.8. He noted that defendants had obtained only one quote for the work and had not proposed any alternative searches or other means by which to reduce the cost. He also noted that defendants had used an email system that did not automatically preserve emails for more than three days or preserve emails in a readily searchable format. Id. at *3-*4.

Despite discovery costs that would likely surpass plaintiff’s potential recovery in the suit, Magistrate Judge Ballou also concluded that the request for ESI was not unduly burdensome or expensive. Id. at *2 (citing Fed. R. Civ. P. 26(b)(2)(B)). Undue burden or expense turns “primarily on whether the data is kept in an accessible or inaccessible format,” and Magistrate Judge Ballou emphasized that defendants had not presented evidence that the requested ESI was inaccessible and needed to be restored, defragmented or reconstructed. Id. at *3 (citing Zubulake v. UBS Warburg LLC, 217 F.R.D. 309, 318 (S.D.N.Y. 2003)).

In addition, Magistrate Judge Ballou found that the ESI request was proportional to the needs of the case, concluding that “[p]roportionality consists of more than whether the particular discovery method is expensive.” Id. at *4. Though defendants had produced some ESI after a manual search for relevant documents by the custodians themselves, Magistrate Judge Ballou found this process insufficient because a manual search would not include any ESI that was deleted prior to the search. Id. He also noted the asymmetrical discovery issues that can arise in employment cases, “where most, and sometimes all, relevant discovery is in the control of the employer.” Id. Magistrate Judge Ballou concluded that “in light of the limited request, restricted by custodian, search terms and time period . . . the request [was] proportional to the needs of the case.” Id.

Finally, Magistrate Judge Ballou concluded that cost shifting was inappropriate because the ESI sought was reasonably accessible without undue burden or expense. Id. (citing Zubulake, 217 F.R.D. at 318 (“[C]ost shifting should be considered only when electronic discovery imposes an ‘undue burden or expense’ on the responding party”)). Magistrate Judge Ballou therefore ordered defendants to perform the requested ESI search at its own expense with the search terms plaintiff had originally proposed.