This Sidley Update addresses the following recent developments and court decisions involving e-discovery issues:
- a Northern District of Illinois decision denying plaintiff’s motion for sanctions for failure to preserve emails, concluding that plaintiff had failed to demonstrate prejudice as a result of the deleted emails but also barring defendants from using certain emails in a summary judgment motion or at trial
- a Southern District of Ohio opinion discussing in detail the standards under Fed. R. Evid. 502 in holding that a party had inadvertently produced but nonetheless waived the attorney-client privilege with respect to 43 documents
- a Seventh Circuit opinion affirming the grant of summary judgment and finding that the district court did not abuse its discretion in imposing sanctions against a party in connection with its untimely discovery responses and multiple missed deadlines
- a District of Connecticut decision denying plaintiff’s motion to compel defendant to conduct an additional search for electronically stored information (ESI) where plaintiff’s allegation that defendant had withheld responsive communications was based on speculation and was inconsistent with an affidavit from defendant’s counsel
1. In Snider v. Danfoss, LLC, 2017 WL 2973464 (N.D. Ill. July 12, 2017), U.S. Magistrate Judge Iain D. Johnston denied plaintiff’s motion for sanctions for failure to preserve emails, concluding that plaintiff had failed to demonstrate prejudice as a result of the deleted emails but also barring defendants from using certain emails in summary judgment or at trial.
Plaintiff brought an action against her former employer, alleging retaliation against plaintiff for reporting sexual harassment. Two months after reporting sexual harassment, plaintiff was transferred to a position that she viewed as a demotion and claimed this action was in retaliation for her complaint. Defendant maintained that plaintiff’s transfer was performance-related. Id. at *1.
A week after the transfer, plaintiff’s attorney sent a preservation request to defendant that foreshadowed legal action based on this employment action, and two weeks later, plaintiff left her job. Approximately 90 days after plaintiff left, all of plaintiff’s emails were deleted pursuant to defendant’s email retention policy. Notably, the woman to whom plaintiff reported the harassment, who was plaintiff’s acting supervisor, left her position with defendant about nine months later, and her emails were also deleted pursuant to defendant’s policy. During this period, plaintiff filed her lawsuit.
During discovery, when plaintiff’s counsel requested copies of plaintiff’s emails and the acting supervisor’s emails, it was revealed that these emails had been deleted, which the magistrate judge characterized as “not best practices, to put it mildly.” Id. at *1-*2. Defendant was able, however, to produce emails from one of defendant’s human resources representatives, including emails to and from plaintiff and the acting supervisor. In addition, hundreds of responsive emails from the supervisor responsible for plaintiff’s transfer — including emails to and from plaintiff and to and from plaintiff’s acting supervisor — were produced after the discovery cutoff date for in camera inspection by the magistrate judge, who ultimately ordered them to be provided to plaintiff. The magistrate judge noted that the inspected emails generally did not support plaintiff’s claims and that some of the emails in fact supported defendant’s theory of the case, but he ruled that any emails provided for in camera review that had not previously been produced to plaintiff could not be used by defendant on summary judgment or at trial. Id. at *3 & n. 7.
Turning to the motion for sanctions, the magistrate judge reviewed Fed. R. Civ. P. 37(e) to analyze whether defendant should be sanctioned for failure to preserve ESI. Looking at the requirements of the rule, the magistrate judge stated that the preservation obligation “appears to be based on a prospective standard” and should be viewed as from the time the litigation was anticipated or ongoing and from the perspective of the party controlling the ESI:
Using hindsight to determine that the ESI “should have been preserved” is far too easy. Accordingly, the better interpretation of this provision is that the determination of what ESI “should have been preserved” is viewed at the time litigation is anticipated or ongoing, not when it is discovered that the ESI was lost. And this prospective standard is from the viewpoint of the party who controls the ESI. Id. at *4 (citing Alabama Aircraft Indus., Inc. v. Boeing Co., 2017 WL 930597 (N.D. Ala. Mar. 9, 2017)).
The magistrate judge’s analysis of the Rule 37(e) issue focused on the question of prejudice. Id. at *6-*7. He reasoned that there were four possible categories of lost emails: (1) plaintiff’s emails could have refuted defendant’s proffered reasons for her transfer (i.e., that she had conflicts with her coworkers); (2) plaintiff’s emails could have supported defendant’s proffered reasons for her transfer; (3) the acting supervisor’s emails could have refuted defendant’s proffered reasons for the transfer; or (4) the acting supervisor’s emails could have supported defendant’s proffered reasons for the transfer. Id. at *7.
Magistrate Judge Johnston first concluded that the loss of plaintiff’s email could not be deemed prejudicial because plaintiff had firsthand knowledge of their content. The magistrate judge then determined that the loss of plaintiff’s acting supervisor’s emails did not prejudice plaintiff because any prejudice resulting from the loss of positive emails was “minimized” by the other email productions, particularly the production of the supervisor’s emails and his deposition. He particularly noted the lack of evidence regarding the specific nature of the missing ESI and reasoned that it was pure speculation that the missing emails would benefit plaintiff.
The magistrate judge also concluded that plaintiff had presented no evidence that defendant destroyed the emails with the requisite intent to deprive. Instead, the evidence presented on the issue of intent indicated that defendant acted with a “pure heart but empty head.” Id. at *8.
Ultimately, the magistrate judge denied plaintiff’s motions for sanctions, but he did prohibit defendant from using any of the emails produced for the first time for in camera inspection in either a summary judgment motion or at trial.
2. In Irth Solutions, LLC v. Windstream Communications LLC, 2017 WL 3276021 (S.D. Ohio Aug. 2, 2017), Magistrate Judge Kimberly A. Jolson denied a motion to compel the return of privileged materials and held that defendant had inadvertently produced but nonetheless waived the attorney-client privilege with respect to 43 documents.
In this action for, among other things, breach of contract and violation of a license agreement, plaintiff served defendant with requests for production of documents. After plaintiff agreed to an extension of time, the discovery was due on Dec. 31, 2016. Id. at *2. The deadline passed without further extension and, on Jan. 27, 2017, defendant provided plaintiff with a partial production of documents. The production contained 43 privileged documents. As defendant’s counsel would explain at a later hearing, the documents allegedly went through two levels of review by seventh-year and second-year associates. Magistrate Judge Jolson would note that despite two levels of review, defendants produced 43 privileged documents where 13 contained the word “legal” and two contained a signature block indicating that the author was in-house counsel. Id. at *3.
Defendant noticed that it had produced the privileged documents while it was in the process of preparing a privilege log, and, on Feb. 8, 2017, defendant contacted plaintiff and requested a clawback. Id. at *2. The parties had agreed earlier in the litigation that while a court order under Fed. R. Evid. 502(d) was unnecessary, the inadvertent production of privileged materials would not operate as a waiver and the producing party would promptly clawback inadvertently produced privileged documents. Id. at *1. Plaintiff disputed that the documents’ production had been inadvertent and refused to return or destroy the privileged documents. Id. at *2. Plaintiff did represent that after defendant requested the clawback, the privileged documents were “sequestered” and not discussed between defendant and defendant’s counsel. Id. at *3.
Six weeks after defendant produced 43 privileged documents and tried to claw them back, defendant produced the same 43 privileged documents a second time. Id. at *4. Defendant had agreed to replace certain documents from the initial production with text-searchable versions, but in the course of assembling that production, the litigation support staff working for defendant’s counsel apparently used the wrong folder of documents containing the privileged documents when processing the production. A seventh-year associate performed a “spot check” of the production and did not notice that the privileged documents were still there.
Defendant filed a motion asking Magistrate Judge Jolson to compel plaintiff to return the privileged documents and to impose sanctions for plaintiff’s failure to comply with the clawback. Id. at *1. Magistrate Judge Jolson first concluded after an in camera review that the 43 documents were indeed protected by the attorney-client privilege or the work-product doctrine. Id. at *5.
Magistrate Judge Jolson next considered whether defendant had waived the privilege under Fed. R. Evid. 502 by producing the documents to plaintiff. While plaintiff had briefly argued that defendant’s production was intentional under Rule 502(a), Magistrate Judge Jolson rejected that argument because there was no evidence that the production was intentional or purposeful. Id. at *7. Accordingly, Magistrate Judge Jolson analyzed the inadvertent disclosure of the privileged documents under Rule 502(b). Under that rule, a disclosure will operate as a waiver if the disclosure is inadvertent; the holder of the privilege took reasonable steps to prevent disclosure; and the holder promptly took reasonable steps to rectify the error. Fed. R. Evid. 502(b). In addition, under Rule 502(e), an agreement between the parties on the effect of disclosure is binding on the parties to the agreement. Fed. R. Evid. 502(e).
Plaintiff challenged whether the disclosure was inadvertent, arguing that defendant’s actions were “negligent, if not reckless” in producing privileged material. However, as Magistrate Judge Jolson explained, Rule 502 “allows for only two options: there is either (1) intentional disclosure of privileged material ... or (2) an unintentional, inadvertent disclosure.” Id. at *8. Thus, negligent or reckless disclosures of documents are analyzed under Rule 502(b) as an inadvertent disclosure. With this in mind, Magistrate Judge Jolson assumed arguendo that defendant had met its burden of showing that the two productions were inadvertent based on the representations of defendant’s counsel. That said, Magistrate Judge Jolson did note that defendant failed to present testimony from the persons “best equipped to explain the allegedly unintentional productions” — the second-year associate who performed the privilege review in connection with the first production and the litigation support staff who processed the second production. Id. at *9.
Having assumed that the production was inadvertent, Magistrate Judge Jolson next considered what effect to give the clawback agreement between the parties when deciding whether a waiver occurred under Rule 502(b). Finding a lack of relevant Sixth Circuit authority, Magistrate Judge Jolson summarized three approaches to reconciling clawback agreements with Rule 502(b):
(1) if a clawback is in place, it always trumps Rule 502(b); (2) a clawback agreement trumps Rule 502(b) unless the document production itself was completely reckless; and (3) a clawback agreement trumps Rule 502(b) only if the agreement provides concrete directives regarding each prong of Rule 502(b). Id.
Magistrate Judge Jolson rejected the first approach as “inconsistent with the underpinnings of Rule 502 and the attorney-client privilege.” Id. at *12. In particular, Magistrate Judge Jolson noted that parties should draft clawback agreements with “care” and that courts should decline to grant blanket protections from waiver regardless of the terms of a clawback agreement. Id. Regarding the second and third approach to clawback agreements, Magistrate Judge Jolson held that under either approach a waiver had occurred. Id. at *13.
Under the second approach, courts have noted that the heightened protections for producing parties under clawback agreements are lost if the disclosure was “completely reckless.” “In analyzing what constitutes complete recklessness, courts have considered the amount of privileged documents inadvertently produced, the amount of documents ultimately reviewed, and the type of review process engaged in by the producing party.” Id.
With respect to the review process, Magistrate Judge Jolson was skeptical that “any meaningful review of the documents occurred” because so many of the privileged documents had clear indicia of privilege such that “[a]ny layperson who understands the basic concepts of privilege would at least have identified these documents as suspect.” As already noted, almost a third of the documents contained the word “legal” and several others had a signature block belonging to in-house counsel. Accordingly, a basic keyword search would have flagged these for further review. In addition, Magistrate Judge Jolson noted that the first production was not the result of a technical error or a case where counsel was reviewing “hundreds of thousands of documents and a few managed to evade review.” Id. at *14. Instead, the production involved but 1,400 readable pages, of which 146, or more than 10 percent, were privileged. Finally, the fact that defendants produced the same privileged documents a second time supported a finding of recklessness where “even the most rudimentary spot check would have raised suspicions.” Based on these considerations, Magistrate Judge Jolson held that defendant’s production was reckless and that defendant waived privilege despite the terms of the clawback agreement.
Magistrate Judge Jolson also analyzed the waiver question using the third approach to clawback agreements, under which courts will rely on Rule 502(b)(2) to fill in the gaps where the agreement does not explain what reasonable steps the producing party must take to prevent disclosure. Because the parties’ clawback agreement did not specify reasonable steps, Magistrate Judge Jolson held that for the same reasons that defendant’s production was reckless, defendant did not take reasonable steps under Rule 502(b)(2) to prevent the disclosure of privileged materials. Accordingly, defendant had waived the privilege because it could not satisfy all three of the requirements of Rule 502(b). Id. at *15.
As to the scope of the waiver, Magistrate Judge Jolson held that defendant’s actions did not give rise to a subject matter waiver. Because defendant’s production was not intentional, Magistrate Judge Jolson was satisfied that defendant did not put the privileged information “into this litigation in a selective, misleading, and unfair manner.” In addition, plaintiff’s counsel complied with its obligations under Rule 26(b)(5)(B) because of confusion regarding “if and how the clawback agreement applied,” and therefore no sanctions against plaintiff were warranted.
3. In Wine & Canvas Development, LLC v. Muylle, 2017 WL 3528232 (7th Cir. Aug. 17, 2017), the Seventh Circuit, in affirming the grant of summary judgment, found that the district court did not abuse its discretion in imposing sanctions against a party in connection with its untimely discovery responses and multiple missed deadlines.
Wine & Canvas Development, LLC, an Indiana-based company that specializes in hosting “painting nights,” has locations across the country. In 2008, Christopher Muylle and his business partner began discussing a franchise arrangement in which they would move from Indiana to San Francisco to open a Wine & Canvas operation. Muylle and his partner signed a license agreement with Wine & Canvas on behalf of their entity known as YN Canvas CA, LLC. On Aug. 10, 2011, they launched their Wine & Canvas location in San Francisco. Id. at *1.
After the agreement was entered, disagreements arose about the amount of ownership Wine & Canvas would have in the California entity, so Muylle and his partner decided to terminate the license agreement on Nov. 18, 2011 and renamed their business Art Uncorked. Wine & Canvas and its owners filed a trademark infringement claim in November 2011, and Muylle filed trademark cancellation and abuse of process counterclaims while his partner defaulted.
During the proceedings, Wine & Canvas repeatedly failed to fulfill its discovery obligations. Specifically, Wine & Canvas failed to serve written discovery responses on their initial due date, March 20, 2013, and then failed to meet the extended deadline of May 1, 2013, leading Muylle to file a motion to compel, which the district court granted. After Wine & Canvas failed to respond by early June, the district court imposed sanctions and ordered Wine & Canvas to serve its responses by June 14, 2013, a deadline that the court later extended to June 17. But Wine & Canvas served “woefully incomplete responses” at 4:10 a.m. the day after the due date, and defendants asserted that the “final” responses were not only late but also incomplete because they did not itemize Wine & Canvas’s damages. Muylle moved for further sanctions, which the magistrate judge recommended and the district court adopted, in the amount of $2,156, representing Muylle’s costs of filing the sanctions motion. By the end of the case, plaintiffs had been sanctioned three times, “flooded the Court with filings” and submitted “numerous claims that the court has found to be without merit.” Id. (citation omitted).
Extensive pretrial motions lead to the dismissal of most of the claims, with Wine & Canvas’s trademark infringement and false designation of origin claims along with Muylle’s abuse of process counterclaim proceeding to trial. At trial, a jury found in favor of Muylle on all counts, the jury awarded Muylle $270,000 on his counterclaim and the district court granted Muylle $175,882.68 in fees under the Lanham Act. Id. at *2.
Wine & Canvas raised 14 issues on appeal, one of which involved the award of $2,156 in sanctions against Wine & Canvas. The Seventh Circuit determined the district court did not abuse its discretion in imposing sanctions against Wine & Canvas in connection with its untimely discovery responses. The Seventh Circuit noted that although the discovery responses were late by only one day, the sanctions were “not mandatory” but also were not prohibited “given the wide latitude district courts have in such matters.” The Seventh Circuit also opined that while a heavy sanction (e.g., dismissal or an outsized monetary award) would be unwarranted in response to minor tardiness, that was not the case here because the district court’s sanctions consisted solely of the costs Muylle incurred related to the sanctions motion.
The Seventh Circuit stated that the sanctions were particularly reasonable given Wine & Canvas’s “dilatory conduct prior to the sanctions order” where it had already missed multiple discovery deadlines, causing Muylle to file the motion to compel. The Seventh Circuit concluded: “Against this backdrop, it was not unreasonable for the district court to conclude that even a single day’s tardiness required some sanction to deter future misbehavior.”
4. In Mirmina v. Genpact LLC, 2017 WL 3189027 (D. Conn. July 27, 2017), Magistrate Judge Sarah A.L. Merriam denied plaintiff’s motion to compel defendant to conduct an additional search for ESI where plaintiff’s allegation that defendant had withheld responsive communications was based on speculation and was inconsistent with an affidavit from defendant’s counsel.
After the parties had completed their discovery responses pursuant to initial discovery protocols, plaintiff filed a motion to compel additional responses to certain discovery requests. Id. at *1. Magistrate Judge Merriam denied the motion, except to the extent it requested materials described in the parties’ initial discovery protocols. A few weeks later, plaintiff filed a renewed motion to compel, arguing that defendant had withheld responsive ESI because counsel relied on employees involved in the underlying claims to review their own emails for responsive documents.
Defendant’s counsel submitted an affidavit outlining the steps taken to identify and review ESI. Id. at *2. As part of that process, in-house counsel issued a litigation hold to potential custodians directing the preservation of records and documents that might pertain to plaintiff’s claims, gave search parameters to each custodian and answered questions as they arose. In-house counsel then forwarded documents deemed responsive by the custodians to outside counsel for review, processing and production. Counsel represented that the search for ESI was comprehensive and that all responsive documents were disclosed.
Magistrate Judge Merriam denied the motion to compel defendant to perform an additional search for ESI, accepting the representations from defendant’s counsel about the completeness of discovery responses and noting that plaintiff’s argument regarding missing responsive email was apparently “based on nothing but speculation.” This speculation was insufficient to compel an additional search for responsive documents. Id. (citing Lord v. Int’l Marine Ins. Servs., 2013 WL 1136410, at *3 (D. Conn. Mar. 18, 2013) (denying a motion for discovery sanctions where the plaintiffs provided “no evidence other than mere conjecture that [defendant] has been less than fully forthcoming in its discovery response”); Trilegiant Corp. v. Sitel Corp., 275 F.R.D. 428, 435 (S.D.N.Y. 2011) (denying defendant’s motion to compel, in part, because “defendant cannot simply rely on speculation that [plaintiff] is withholding documents” (citations omitted); Rubinow v. Ingelheim, 2010 WL 1882320, at *7 (D. Conn. May 10, 2010) (denying plaintiff’s motion to compel, in part, where “Plaintiff is unable to articulate any particular reason why she believes that the Defendant is withholding responsive documents, apart from her counsel’s speculation”); Palm Bay Int’l, Inc. v. Marchesi Di Barolo S.P.A., 2009 WL 3757054, at *9 (E.D.N.Y. Nov. 9, 2009) (denying a motion to compel, in part, where “other than innuendo, Defendant has not provided any substantive evidence of Plaintiff’s deliberately withholding such documents”)).
The magistrate judge accepted defendant counsel’s sworn representation that all responsive materials had been produced and denied the motion to compel in the absence of any evidence supporting plaintiff’s contention that defendant had “deliberately or by neglect” withheld communications.
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