This update addresses the following recent developments and court decisions involving e-discovery issues:
- A Sixth Circuit decision affirming summary judgment for defendant and the district court’s denial of an adverse inference against defendant after finding its conduct was merely negligent in failing to issue a litigation hold and preserve information on a laptop hard drive that had crashed;
- A Northern District of California decision quashing a subpoena seeking the complete forensic imaging of two laptops that contained sensitive trade secrets and protected attorney-client communications and rejecting plaintiff’s fall-back position of a third-party forensic review because plaintiff previously refused that very offer by the subpoena recipient during the meet and confer process;
- A Southern District of Florida case in which the Court issued two decisions finding that the plaintiff had failed to fulfill its discovery obligations, and ordering plaintiff to implement a litigation hold, hire a forensic analyst, consult with document custodians to develop search terms and produce documents on a strict timeline; and
- A Northern District of California decision ordering the United States to continue to pay for a database relied on by the defendants in a criminal case, holding that the Government’s plan to deactivate the database before trial would prejudice the defendants’ ability to prepare a defense and offended the court’s notion of fairness.
1. In Automated Solutions Corp. v. Paragon Data Systems, Inc., 756 F.3d 504 (6th Cir. 2014), the Sixth Circuit Court of Appeals affirmed a grant of summary judgment to defendant, upholding the district court’s determination to deny an adverse inference after concluding that defendant’s failure to preserve evidence was merely negligent where it failed to issue a litigation hold and preserve information on a laptop hard drive that had crashed.
Automated Solutions Corp. (“ASC”) sued Paragon Data Systems, Inc. for violations of copyright, trademark, contract and tort law in connection with Paragon’s development of software code that, ASC alleged, was derived from and related to copyright-protected code that it owned. Id. at 510. ASC requested production of the computer used by a Paragon employee to draft the contested code. The computer, however, had crashed, and the files were not transferred to a new computer or backed up. Paragon also was unable to determine whether the failed hard drive was part of its collection of “dead drives” maintained in storage. Based on a forensic report that confirmed the inability to recover the files associated with the development of the contested software, ASC filed a motion for sanctions and argued that Paragon had deliberately destroyed the missing evidence. Paragon, in turn, filed a motion for summary judgment based on ASC’s inability to support its claims. Id. at 511.
The district court dismissed ASC’s copyright claims because ASC failed to identify what portions of the software it owned were protected under the Copyright Act. The court also found that at most Paragon was negligent for failing to institute systematic document retention procedures and that an adverse inference instruction was not appropriate at the summary judgment stage. Id. at 511-12.
The Sixth Circuit, applying an abuse of discretion standard, reviewed whether the district court erred in finding that ASC had failed to satisfy at least one of the requirements for spoliation sanctions, which require:
“(1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed with culpable state of mind; and (3) that the destroyed evidence was relevant to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.” Id. at 513.
The Sixth Circuit affirmed the district court’s decision, rejecting ASC’s several challenges. First, ASC contested the district court’s finding that ASC had failed to meet its burden of showing that the lost evidence would be relevant to the dispute. The party seeking an adverse inference instruction “must adduce sufficient evidence from which a reasonable trier of fact could infer that the destroyed [or unavailable] evidence would have been of the nature alleged by the party affected by its destruction.” Id. at 514 (quoting One Beacon Ins. Co. v. Broad. Dev. Group, Inc., 147 Fed. Appx. 535, 541 (6th Cir.2005)). The Sixth Circuit affirmed the district court’s conclusion that ASC did not meet such a showing. While ASC argued that Paragon was negligent in not preserving the hard drive, a finding of negligence “does not advance a showing of relevance.” Automated Solutions Corp., 756 F.3d at 514.
Second, ASC challenged the district court’s conclusion that Paragon’s backup tapes were not subject to a duty to preserve evidence. The district court had found that a “‘litigation hold does not apply to inaccessible backup tapes (e.g., those typically maintained solely for the purpose of disaster recovery), which may continue to be recycled on the schedule set forth in the company’s policy.’” Id. at 514-15 (citing Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y.2003)). ASC asserted that Paragon was under an obligation to preserve the backup tape once the computer hard drive failed. The Sixth Circuit upheld the district court’s determination because backup tapes are for a limited purpose of disaster recovery and deleted daily, even when they may be the last remaining copy. Automated Solutions Corp., 756 F.3d at 515.
Third, ASC argued that the district court erred in finding that Paragon’s failure to preserve evidence was “at most” negligent and not willful or grossly negligent. In particular, ASC cited language in Pension Committee of University of Montreal Pension Plan v. Banc of America Securities, 685 F. Supp.2d 456 (S.D.N.Y. 2010), that “the failure to issue a written litigation hold constitutes gross negligence because that failure is likely to result in the destruction of relevant information.” Automated Solutions Corp., 756 F.3d at 516 (quoting Pension Committee, 685 F.Supp.2d. at 465) (quotations omitted). The Sixth Circuit, noting that the Second Circuit had rejected this language from Pension Committee in Chin v. Port Authority of New York & New Jersey, 685 F.3d 135 (2d Cir. 2012), held that a “case-by-case approach is the law in our circuit” and that the “ultimate determination of culpability” lies within the district court’s discretion. Automated Solutions Corp., 756 F.3d at 515-16. While the Court did not “applaud Paragon’s conduct,” the Sixth Circuit found that the district court did not commit clear error or abuse its discretion and upheld the district court’s grant of summary judgment on all of ASC’s claims. Id. at 517-22.
2. In Boston Scientific Corporation v. Lee, 2014 WL 3851157 (N.D. Cal. Aug. 4, 2014), Magistrate Judge Paul S. Grewal quashed a subpoena seeking the complete forensic imaging of two laptops that contained sensitive trade secrets and protected attorney-client communications. The Magistrate Judge also rejected plaintiff’s fall-back position of a third-party forensic review because plaintiff previously refused that very offer by the subpoena recipient during the meet and confer process.
Boston Scientific Corporation (“BSC”) brought an action in Massachusetts against Dongchul Lee, a former employee alleging theft of BSC’s trade secrets after Lee left BSC to work for its competitor Nevro. In discovery, BSC requested that Nevro produce the computers assigned to Lee. Nevro quarantined the first computer assigned to Lee and produced a number of documents from it. When BSC requested more, Nevro offered that an independent vendor could review the full forensic image of the laptop and identify relevant documents. BSC rejected Nevro’s request and filed a subpoena requesting the forensic image of this laptop and a second laptop assigned to Lee. Nevro filed a motion to quash. Id. at *1.
Magistrate Judge Grewal granted Nevro’s motion to quash. After reviewing the parties’ positions on BSC’s demand for a complete forensic image, the Magistrate Judge concluded that a complete forensic image “demands too much,” finding that “[s]uch imaging will disclose privileged communications related to the litigation as well as irrelevant trade secrets from a nonparty-competitor.” Id. at *6. Such protected matter, held the court, is “plainly not permitted under Rule 45,” and plaintiff offered “no precedent justifying, let alone requiring, the production of protected matter from a nonparty without any protection, and for good reason. There does not appear to be any.” Id. The Magistrate Judge also noted that forensic imaging “remains highly invasive” and involves a risk of accidental disclosure of a company’s “crown jewels,” a “particularly pronounced” threat “in competitor-competitor litigation, like this one.” Id.
Second, Magistrate Judge Grewal rejected BSC’s fall-back position of hiring a forensic expert to image the laptops and identify relevant documents. He noted this is a common approach taken in such cases and is the very proposal that Nevro initially offered to BSC in an earlier meet and confer session. Magistrate Judge Grewal rejected BSC’s acceptance of Nevro’s offer at such a late hour. The court stated, “to allow Boston Scientific now to seek shelter from a fallback position that Nevro previously tendered in good faith would make mockery of both parties’ obligation to meet and confer in good faith from the start. The time to tap flexibility and creativity is during meet and confer, not after.” Id. at *7.
3. In Procaps S.A. v. Patheon Inc., 2014 WL 800468 (S.D. Fla. Feb. 28, 2014), and 2014 WL 1047748 (S.D. Fla. Mar. 18, 2014), Magistrate Judge Jonathan Goodman, after finding that the plaintiff had failed to fulfill its discovery obligations, ordered plaintiff to implement a litigation hold, hire a forensic analyst, consult with document custodians to develop search terms and produce documents on a strict timeline.
Procaps S.A. sought $350 million in damages from Patheon Inc. in an antitrust suit. Procaps, however, did not implement a litigation hold despite a court order, nor did Procaps’ lawyers meet with Procaps’ employees to discuss the retention of electronically stored information (“ESI”). Patheon filed a motion for forensic analysis of Procaps’ ESI. Patheon’s counsel continued not to consult with Patheon employees, and Procaps filed a subsequent motion to compel Procaps to propose adequate search terms and consult with ESI custodians regarding such terms.
The court granted both motions. Magistrate Jude Goodman, citing the dictum from “Cool Hand Luke” about a “failure to communicate,” noted numerous inadequacies in Procaps’ efforts to collect and maintain ESI. Procaps’ counsel never traveled to meet with the client in Columbia, where Procaps was based, permitted the client to self-collect ESI without the benefit of seeing Patheon’s document requests, allowed custodians to use a single search term to collect and store emails, and never actually implemented a litigation hold. Procaps I, 2014 WL 800468, at *1. Procaps argued that there was no evidence that ESI had been deleted. The Magistrate Judge rejected this argument, concluding that “the ESI and document searches were inadequate—a scenario which strongly suggests that some (and perhaps even a significant amount of) responsive discovery from Procaps has not yet been located and mandates a comprehensive forensic search of Procaps’ ESI and other sources of relevant documents.” Id. at *3.
Given this conclusion, Magistrate Judge Goodman ordered Procaps to, among other things: engage a forensic expert to conduct a forensic analysis; implement a litigation hold; confer with Procaps employees to identify appropriate search terms; make available to the forensic expert all relevant materials and personnel necessary to locate and search such materials; and follow particular timeframes and procedures for reviewing and producing materials to Patheon. The court also awarded $24,115 in attorneys’ fees to Patheon as the prevailing party. Id. at *3-*7.
One month after this order, Patheon filed a subsequent motion to compel Procaps to consult with its ESI custodians and provide adequate search terms. This motion was filed after several exchanges between the parties’ counsel in which Procaps was not willing to agree that it had an obligation to consult with Procaps’ custodians regarding appropriate search terms, including search terms in Spanish. After this motion was filed, Procaps’ counsel expressed agreement with the “basic rule” that “outside counsel ‘must carefully craft the appropriate keywords, with input from the ESI’s custodians as to the words and abbreviations they use.’” Procaps II, 2014 WL 1047748, at *4 (quoting William A. Gross Constr. Assocs., Inc. v. Am. Mfrs. Mut. Ins. Co., 256 F.R.D. 134, 135-36 (S.D.N.Y. 2009)). Up to this point, however, Procaps’ counsel had not consulted with its client and, instead, provided search terms that Patheon believed were inadequate. The Magistrate Judge stated that “[b]y refusing to say whether Procaps agreed with Patheon’s view on the steps which Procaps’ counsel needed to take in order to adequately obtain sufficient search terms, Procaps’ counsel, in effect, sent the message that he disagreed” with the need to consult ESI custodians to develop search terms. Procaps II, 2014 WL 1047748, at *5 (emphasis in original). Instead, Procaps’ counsel merely provided terms that he thought were adequate.
After Patheon filed its second motion, Procaps represented that it had, in fact, obtained input from the ESI custodians regarding appropriate search terms. The Magistrate Judge concluded that Patheon’s motion was therefore moot. Id. Having so stated, the Magistrate Judge nonetheless indicated that he was granting the motion requiring that Procaps’ counsel obtain search word input from the relevant custodians:
“[T]o the extent that there is any doubt about whether this Court is imposing the requirement and to generate a ruling on which a fees award can be based, the Court grants Patheon’s motion and requires Procaps to have its counsel obtain search word input from all the ESI custodians. The Court may enter further orders on the search term methodology and/or the specifics of the search term list after receiving additional information from Procaps about the search term protocol.” Id. (emphasis in original).
As Procaps had fulfilled its obligations only after Patheon filed its motion, the Magistrate Judge awarded Patheon attorneys’ fees in the amount of $3,750, with $1,000 to be paid by Procaps’ lead counsel and the remainder by his firm.
4. In United States v. Shabudin, 2014 WL 1379717 (N.D. Cal. Apr. 8, 2014), Magistrate Judge Nandor J. Vadas ordered the United States to continue to pay for a database relied on by the defendants in a criminal case, holding that the Government’s plan to deactivate the database before trial would prejudice the defendants’ ability to prepare a defense and offended notions of fairness.
The United States Department of Justice created an electronic database to “manage the vast quantities of documents being produced in this action.” Id. at *1. The parties negotiated an agreement for access to the database, including the use of “project managers” to “provide technical as well as substantive support to the participants . . . for the length of the matter.” Id. At some point, the defendants learned that the Government had not uploaded to the database the contents of three hard drives and 159 boxes of hard-copy documents, although it had produced the hard drives directly to the defendants and invited them to review the hard-copy files at their convenience. Id. After the defendants moved to compel the Government to upload the disputed documents to the database, the Government agreed to do so voluntarily as long as only the defendants (and not non-parties) would have access to them. Id. at *2. But once it uploaded the documents, the Government asserted that the extra costs for the upload would exhaust the agreed-to $1.8 million budget—and the database would have to be deactivated—in a four-month period. Id. At that point, the Government noted, the documents in the database would be provided to the defendants to maintain in a separate database at their own cost. Id.
The defendants objected to the Government’s plan to deactivate the database. Id. The Court asked the Government to consider extending the duration of the database, instead of “unilaterally decid[ing] to discontinu[e] paying for non-technical support and paralegal services.” Id. (quotations omitted). The Government also informed the Court that the database transfer would “cost $118,000 and take six to eight weeks” and result in the loss of “metadata that [wa]s created . . . specific to [database] functionality,” including audit histories, user searches, image annotations, and database “artifacts” such as batches, views, and layouts. Id. at *3. Although the Government could not identify when it previously informed the defendants that the database could be wound down prior to trial, the Government argued that the defendants were aware of its two-year duration and should have realized that the allocation of a limited budget for the database meant that it might be deactivated. Id. In response, the defendants argued that the projected duration of the database was an “educated estimate, not a predetermined, un-negotiable, deadline,” and that the Government “did not keep them apprised of ongoing expenditures or that the [d]atabase was near budget.” Id.
Magistrate Judge Vadas sided with the defendants and ordered the Government to continue to pay for the database at the existing level of service for another eight months. Id. at *4. He made that decision based on the facts that: (i) the Government did not previously disclose to the defendants that it “planned to or could” wind down the database before trial, (ii) the Government “voluntarily undertook to upload” the hard drives and hard-copy files, (iii) the Government never disclosed that uploading those documents would impact the duration of the database, (iv) the transfer to a separate database could not be done effectively or at a cost the defendants could afford, and (v) deactivating the database before trial would “prejudice [the d]efendants’ ability to prepare for trial and offends the court’s notion of fairness.” Id. at *3-*4.
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The E-Discovery Task Force of Sidley Austin LLP
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