September's Notable Cases and Events in E-Discovery

1. In In re Modern Plastics Corp., 2018 WL 1959536 (6th Cir. 2018), the Sixth Circuit affirmed the bankruptcy court’s award of over $165,000 as reasonable costs and fees to nonparty subpoena recipients in connection with their collection and review of documents responsive to several burdensome subpoenas.

This case arose out of an adversarial bankruptcy proceeding brought by New Products Corporation (NPC) against the Chapter 7 trustee and his surety alleging that the trustee breached his fiduciary duties with respect to NPC’s real estate holdings. In the course of these proceedings, counsel for NPC served Fed. R. Civ. P. 45 subpoenas on the following nonparties: Bank of America (BoA), two of BoA’s attorneys at the law firm Dickson Wright, PLLC (DW) as well as the firm itself, Evergreen Development Company, LLC (Evergreen) and 3 OCIR 337, LLC (OCIR) (individually and collectively, respondent(s)).

Three subpoenas served on BoA and DW sought production of all communications, computer records and emails, in 36 categories dating back to January 2005, along with a privilege log. Id. at *1. Upon receipt of the subpoenas, counsel for BoA and DW emailed NPC counsel, explaining that it would take time to determine what might exist in response to the numerous requests. After some negotiations, NPC counsel responded that he would grant a short extension but expected the production of documents to commence within the month. BoA and DW then sent timely responses and objections to the subpoenas, pointing out the exceedingly broad scope of the requests and the resulting undue burden on the respondents, including that many of the documents were obviously privileged. BoA and DW stated that they were proceeding in good faith on the critical assumption that they and NPC would be able to agree to a protective order limiting the scope of production, setting ground rules and methods of collection for electronically stored information (ESI) and establishing protections for privileged and confidential information. Their letter also noted that the order would have to address reimbursement of costs.

NPC counsel then served a fourth subpoena — this time on OCIR, requesting 58 broad categories of documents dating back to 2005. Shortly thereafter, NPC counsel answered the BoA/DW responses and objections by demanding production of the documents, requesting a call and asking to see a draft of the proposed protective order. BoA and DW declined the offer to schedule a call but wrote in an email the next day that respondents were working on their responses, and soon thereafter sent NPC counsel a proposed protective order. BoA and DW advised NPC counsel that they had identified six boxes of documents and 8,000 emails (not including BoA’s emails), noting that they would welcome any limitation of search terms or custodians.

BoA, DW and OCIR thereafter informed NPC counsel on October 27, 2014, that they had identified some 13,000 potentially responsive documents that would need to be reviewed prior to production. The email again invited NPC counsel to limit the review and production by applying appropriate search terms or other limitations since, “[a]s it stands, BOA’s review is likely to be quite expensive, and as you are aware, [NPC] has agreed to reimburse BOA for all costs incurred in connection with this compliance.” NPC counsel did not respond until December 29, at which time it sought a telephone conference. In the meantime, NPC counsel served a fifth subpoena, this time on Evergreen, requesting 57 different categories of documents going back to 2005.

Respondents wrote NPC counsel on January 5, 2015, that their review had been completed but that no documents would be produced without a protective order in place. They also informed NPC counsel that they expected reimbursement of more than $150,000 in costs. NPC counsel objected that this was unreasonable.

Respondents filed a motion for a protective order, and NPC filed a motion to compel. The bankruptcy court held a hearing on the motions and granted the motion for a protective order, ordered production of the documents and denied the motion to compel as moot, noting that the issue of costs would be determined later. The cost-shifting issue was subsequently litigated in a full evidentiary hearing with testimony from NPC counsel, a DW partner and a third-party vendor that performed the electronic records searches for BoA.

In a July 23, 2015, order that was amended on reconsideration, the bankruptcy court concluded that NPC and its counsel should pay the reasonable attorney fees and costs incurred by BoA, OCIR and Evergreen as a sanction to “enforce[e] counsel’s duty to mitigate the burden of discovery on non-parties” and determined that the award of “significant and reasonable expenses” incurred in complying with the subpoena was consistent with the cost-shifting provisions of Rule 45(d)(2)(B). The bankruptcy court independently assessed the reasonableness of the charges and reduced the attorneys’ fees and costs from approximately $80,000 to $47,000 for BoA (plus $57,000 in third-party vendor expense) and from approximately $115,000 to $61,000 combined for OCIR and Evergreen.

NPC and its counsel did not pay, and respondents filed a motion for contempt, which the bankruptcy court granted, ordering NPC and its counsel to comply with the payment order and awarding respondents $4,726 in additional costs and fees incurred in litigating the contempt proceedings. NPC and its counsel appealed to the district court, which affirmed, and they then appealed to the Sixth Circuit, arguing that an award of attorneys’ fees and costs as a sanction under Rule 45(d)(1) or as cost shifting under Rule 45(d)(2)(B) was an abuse of discretion.

Writing for a unanimous court, Judge Ralph Guy, Jr. rejected appellants’ arguments as to both the sanctions and cost-shifting issues. Regarding sanctions, the court explained that the award of sanctions was not an abuse of discretion because the subpoenas had in fact been unduly burdensome. NPC and its counsel argued that sanctions were impermissible because there was no finding of bad faith, but Judge Guy explained that this was a misreading of the Sixth Circuit’s prior decisions. He acknowledged that bad faith was “usually required,” but this notwithstanding, a “failure narrowly to tailor a subpoena may be a ground for sanctions” (internal quotation marks and citations omitted). The court noted that the “bankruptcy court specifically found, after undertaking a case-specific inquiry, that the subpoenas issued to [respondents] were unduly burdensome for reasons that included the undisputedly broad scope of the requests in terms of the number of categories, the breadth of each category, and the temporal reach of the requests.” Further, as an experienced lawyer, NPC counsel “would have known that complying with such subpoenas would involve considerable time and resources, implicate significant concerns about customer privacy for BOA, and require review for privileged communications and attorney work product.” Furthermore, the Sixth Circuit found that the bankruptcy court did not err when it “found that much of the expense could have been avoided either initially, or by engaging with Respondents’ counsel to address the concerns, tailor the document requests, or comment on the proposed protective order.” The Sixth Circuit therefore agreed that the subpoenas imposed an undue burden and that the bankruptcy court did not abuse its discretion in concluding that sanctions were warranted.

With respect to cost-shifting, the Sixth Circuit noted that Rule 45(d)(2)(B) provides that if an objection is made to a third-party subpoena and the court orders the nonparty to comply, the court must protect the nonparty from significant expenses resulting from compliance. Id. at *5. NPC and its counsel argued that this claim was forfeited because the respondents had voluntarily produced their documents, but the court pointed out that this was technically incorrect: “[A]lthough the expenses were incurred after objection but before an order was entered, the documents actually were not produced until after a protective order was entered requiring it” (emphasis in original). Moreover, respondents had indicated their intent to seek reimbursement from the outset. In addition, while the NPC and its counsel were correct that some of respondent’s objections below had been untimely, those matters had been forfeited because NPC and its counsel had not raised the waiver issue before the bankruptcy court. Id. at *6. The award of costs and fees was thus also warranted under Rule 45(d)(2)(B).

Finally, the Sixth Circuit held that the award of contempt was appropriate, as contempt was “an appropriate means of enforcing the order to pay discovery sanctions.” It therefore affirmed the bankruptcy court’s decisions arising out of the discovery dispute.

2. In Satmodo, LLC v. Whenever Communications, LLC, 2018 WL 3495832 (S.D. Cal. July 20, 2018), Judge Anthony J. Battaglia allowed plaintiff to inspect all of defendants’ electronic devices to determine whether the devices were used in an online fraud and required defendants to provide a list of all its devices and produce any browser history records relevant to the allegations.

In this litigation, plaintiff alleged that defendants had engaged in a “click fraud” scheme designed to drive up the costs of plaintiff’s paid online advertising. Id. at *1. As part of the scheme, defendants would allegedly click on plaintiff’s online advertisements for the sole purpose of forcing plaintiff to pay for the click. Plaintiff moved to compel responses to special interrogatories, demands for inspection and requests for production that defendants had opposed.

Judge Battaglia first addressed plaintiff’s special interrogatories seeking to identify all “computing devices” used by defendants or otherwise used to click on one of plaintiff’s ads. Id. at *2. Plaintiff asked defendants to identify the operating system for each device and provide a list of all employees. Defendants initially refused to respond but later provided a list of company IP addresses compiled by an in-house IT professional. Defendants conceded that this list of IP addresses did not fully respond to the interrogatories. Id. at *3. Judge Battaglia concluded that the request was proportional to the needs of the case under Fed. R. Civ. P. 26 and ordered defendants to respond. In particular, Judge Battaglia noted that the information could be used by plaintiff to make a list of devices to inspect, while defendants had exclusive access to the devices, and the burden associated with identifying the devices was minimal.

Turning to the core of the discovery dispute — plaintiff’s demand for inspection — Judge Battaglia considered whether to order defendants to permit plaintiff to inspect and make a forensic copy of all of defendants’ computers and electronic devices. Plaintiff argued that the inspection would be used to determine what IP addresses each device used and whether any devices had been modified, altered or wiped clean prior to determining the currently used IP address. Defendants argued that the request was overbroad and intrusive and proposed an alternative “live test” where the devices would click on a landing page to see if the device ID for that device matched any of the device IDs used in the click fraud scheme. Id. at *4. Defendants also noted that their own investigation by an expert found only 20 website clicks associated with IP addresses used by defendants.

Balancing the proportionality factors under Rule 26, Judge Battaglia held that inspection was warranted, with the court setting out an inspection protocol to protect the privacy and business interests of defendants and their employees. Judge Battaglia noted that defendants had sole access to the devices, the inspection might reveal evidence of click fraud and there was no evidence that plaintiff were on the “proverbial goose-chase” in making the request. The protocol set limits on the types of information that plaintiff could collect and would permit plaintiff to make a forensic copy of a device only if it could not obtain the information it needed within a reasonable time during the on-site inspection. Id. at *5.

Finally, plaintiff moved to compel the production of documents related to any attempts by defendants to access plaintiff’s website. Id. at *6. Defendant objected that plaintiff provided no suggestion of what a responsive document might be, but Judge Battaglia noted that items such as browser history may contain information about attempts to access the website. Accordingly, Judge Battaglia ordered defendants to search for information stored in browser histories or similar repositories for any references to plaintiff’s website and to produce any results.

3. In Hinostroza v. Denny’s Inc., 2018 WL 3212014 (D. Nev. June 29, 2018), Magistrate Judge Nancy J. Koppe granted a motion to compel plaintiff in a slip-and-fall case to produce medical, police and insurance records relating to prior accidents, certain social media content, and various email and text messages.

In this litigation, plaintiff allegedly slipped and fell at defendant’s restaurant and claimed multiple injuries and physical impairments, including future lumbar surgery due to the accident. Id. at *1. Defendant propounded discovery requests and sought to have plaintiff provide releases to allow defendant to obtain certain documents. Plaintiff provided some releases, and the parties met three times to resolve their differences but were unable to reach agreement on various discovery issues. Accordingly, defendant filed a motion to compel regarding requests for (1) medical records, police reports and insurance documents related to a 2015 car accident and medical records for two 2012 slip-and-fall incidents; (2) text messages and emails between plaintiff and witnesses; (3) activity tracker information; (4) social media content; and (5) releases for plaintiff’s employment records. Plaintiff objected to the requests on the grounds that the requests were irrelevant, overbroad or unduly burdensome.

First, Magistrate Judge Koppe considered the request for documents related to a 2015 car accident and the 2012 slip-and-fall incidents. Id. at *2-*3. Plaintiff denied sustaining any injuries or receiving treatment as a result of the 2015 accident, but defendant responded that plaintiff had visited a neurologist in 2015 and speculated that the visit was crash-related. Magistrate Judge Koppe reviewed the case law and determined that accidents between three and 10 years prior to the incident at issue had been found to be relevant. Id. *3-*4 (citing, inter alia, Adele v. Dunn, 2012 WL 5420256 (D. Nev. Nov. 5, 2012)). Finding that records related to prior injuries would be relevant to determining whether the injuries existed at the time of accident or if the accident caused or aggravated the prior injuries, she ordered plaintiff to produce the medical records relating to the 2012 slip-and-fall incidents; the medical records, insurance records and police reports related to the 2015 crash; and releases for the 2015 crash information. Id. at *3.

Second, Magistrate Judge Koppe addressed defendant’s request for plaintiff’s communications with witnesses to the accident as well as all texts and emails sent by plaintiff in the 48 hours after the accident. Id. at *4. A number of such communications were made by plaintiff using her mobile phone, and plaintiff claimed that this request was burdensome and violated her privacy. She had, however, disclosed the identity of the witnesses and admitted in interrogatory requests that she had discussed the accident with witnesses by text and emails. Defendant claimed that plaintiff’s prior statements about an accident were discoverable under Rule 26(e). The magistrate judge ruled that phone records were discoverable so long as the request was narrowly tailored in date and time and related to a key issue in the case. Applying this rule, the magistrate judge ordered plaintiff to respond to defendant’s request but limited it to text messages, emails and written communications exchanged with the witnesses related to the slip and fall as well as any discussion of resulting physical injuries or emotional distress. With respect to plaintiff’s texts and emails sent in the 48 hours after the accident, the magistrate judge similarly limited the production obligation to those relating to the accident or any resulting physical injuries or emotional distress.

Third, defendant had requested from plaintiff activity tracker information from a FitBit or similar device. Id. at *5. Plaintiff responded that she did not have any documents responsive to this request in her possession, custody or control but reserved the right to supplement her response. Magistrate Judge Koppe found plaintiff’s response insufficient because it failed to describe the search plaintiff conducted for such records and ordered plaintiff to provide defendant with a description of the search.

Fourth, regarding the request for social media content, Magistrate Judge Koppe granted the request but imposed the limitation that the content relate to the alleged accident or plaintiff’s emotional or mental state, expressions and reactions related to the alleged accident. Id. at *7. Magistrate Judge Koppe noted that social media content is generally “neither privileged nor protected by any right of privacy.” Id. at *6 (quoting Mailhoit v. Home Depot U.S.A., Inc., 285 F.R.D. 566, 570 (C.D. Cal. 2012)). In this case, the social media content was also “relevant to claims of emotional distress because social media activity, to an extent, is reflective of an individual’s contemporaneous emotions and mental state.” For these reasons, the magistrate judge ordered plaintiff to identify all social media platforms with which she had an account and have her counsel “review private, direct, and public postings, communications, and messages, as well as photographs which she has posted, and in which she is tagged, referenced, or appears, for the time period of February 22, 2015 to the present.” Noting counsel’s obligations of good faith and candor to the court, the magistrate judge stated that plaintiff’s counsel was “to disclose to Defendant all information which references the alleged accident, is relevant to Plaintiff’s claims, and exhibits Plaintiff’s emotional or mental state, expressions, and reactions related to the alleged accident.” Id. at *7.

Finally, Magistrate Judge Koppe ordered plaintiff to sign releases for her employment records, explaining that these records were relevant to plaintiff’s claims for lost wages and injury to her employment or occupational performance. Id. at *7-8.

4. In Firstsource Sols. USA, LLC v. Tulare Reg'l Med. Ctr., 2018 WL 2949853 (E.D. Cal. June 13, 2018), Judge Dale Drozd denied defendant’s Fed. R. Civ. P. 56(d) request for additional time to disclose its own records to rebut plaintiff’s summary judgment motion and granted plaintiff’s motion.

In this breach-of-contract case between the plaintiff fee-collection agency and defendant regional medical center, defendant terminated a 2010 billing and business services contract in September 2014 with an effective termination date of May 31, 2015. The plaintiff continued to perform services for the defendant until the effective termination date, but the defendant refused to pay.

Plaintiff sued in July 2015 for breach of contract. Defendant counterclaimed, alleging that the plaintiff had breached first. The court twice extended the fact discovery deadline at defendant’s request, once by stipulation and once on an ex parte application, but defendant failed to produce documents in its possession supporting its counterclaim and defenses. Plaintiff moved for summary judgment, and defendant opposed both on the merits and pursuant to Fed. R. Civ. P. 56(d), contending that the motion for summary judgment should be deferred until it had the opportunity to provide additional evidence supporting its counterclaims and defenses. Plaintiff also moved for terminating sanctions relating to defendant’s affirmative defenses and counterclaims, arguing that the defendant had failed to produce documents or participate in discovery in good faith. Id. at *1.

The court began its analysis with the Rule 56(d) request, explaining that, under this rule, the court must deny or continue a motion for summary judgment if an opposing party can show that “for specified reasons, it cannot present facts essential to justify its opposition.” Id. at *3 (quoting Fed. R. Civ. P. 56(d)). The court noted that this rule requires additional discovery when the nonmoving party has not had the chance to discover information essential to its opposition and must be supported by an affidavit specifying the facts that need to be discovered as well as the reasons why those facts would preclude summary judgment. Judge Drozd pointed out that the moving party must also establish that it has been diligent in pursuing the discovery it now asserts is necessary. The court was “unpersuaded that discovery should be re-opened in this case” as “defendant has not been diligent here. What defendant seeks is yet further time in which to disclose records within its own possession to plaintiff so that it can both oppose plaintiff’s motion for summary judgment and pursue its own counterclaim.” Id. at *4.

These documents — the billing records of nearly half a million patient accounts — formed the basis for both its defense against the summary judgment motion and for its counterclaim. Despite possessing these documents, defendant did not produce them in a timely manner. The court concluded that “[n]o satisfactory explanation has been presented concerning this lack of diligence on defendant’s part.” Defendant stated that issues with the work done by two sets of consultants meant that documents it produced to plaintiff could not be relied upon, and staffing issues, an impending bond initiative and a recent change in management prevented defendant from completing the task in a timely manner.

The court noted the taxing nature of discovery but nevertheless concluded that the record demonstrated a clear lack of diligence, as defendant knew about the centrality of these documents to its case but still failed to ensure that they were produced in a timely manner: “The failure to produce this discovery material in a timely manner or seek reasonable extensions prior to the close of discovery falls squarely on defendant’s shoulders. Defendant’s lack of diligence should not and will not cause the resolution of this case to be delayed any longer.” Id. at *5.

The court then proceeded to consider the merits of plaintiff’s motion for summary judgment. As an initial matter, it considered whether an affidavit submitted by defendant containing four of the disputed patient accounts was properly before the court. These accounts were not produced in discovery, and the court explained that the evidence was not properly before the court unless that failure was “substantially justified or harmless” pursuant to Rule 37(c)(1). Further, because the evidence was dispositive to both defendant’s counterclaim and defenses, the court noted that Ninth Circuit precedent required that it consider whether the noncompliance was the result of willfulness, fault or bad faith.

The court concluded that there was no excuse for defendant’s noncompliance. Defendant’s delay threatened to push back the resolution of the plaintiff’s claim and was, the court concluded, the result of bad faith, as defendant had engaged in disobedient conduct that was not outside of its control. Id. at *7. Judge Drozd found that no lesser sanctions would sufficiently deter this kind of conduct and therefore held that the evidence would be excluded. Reviewing the evidence before the court, the judge granted plaintiff’s summary judgment motion and then considered in the alternative whether the evidence submitted by defendant would have been sufficient to stave off summary judgment and concluded that it would not.

The court therefore denied the Rule 56(d) motion, ruled that defendant’s billing account evidence was inadmissible and granted plaintiff’s motion for summary judgment.