March's Notable Cases and Events in E-Discovery

1. In Herzig v. Arkansas Found. for Med. Care, Inc., 2019 WL 2870106 (W.D. Ark. July 3, 2019), Judge P.K. Holmes III held that technologically sophisticated plaintiffs’ use of an ephemeral messaging application that automatically deleted messages between them, when earlier communications had proven to be responsive to requests for production, constituted intentional bad-faith spoliation of evidence.

In this employment discrimination litigation, IT professionals at a medical care facility who developed an in-house medical review software sued their former employer alleging age discrimination. Id. at *2. The software contained a flaw that permitted unauthorized access to protected health information, and defendant terminated the plaintiffs after discovering the flaw and conducting an investigation. Id. at *3-*4.

During the Rule 26(f) conference, plaintiffs agreed to take “reasonable measures to preserve potentially discoverable data from alteration or destruction,” including information on their cellphones. In their initial responses to discovery requests, however, plaintiffs claimed to not have any responsive documents. Plaintiffs eventually produced a limited set of text messages and, following a motion to compel, produced additional text messages, but the date of the last-produced text messages was well before the end of the discovery period. One of the plaintiffs stated at his deposition late in the discovery process that plaintiffs had begun using the ephemeral messaging application Signal on their phones to communicate during the course of the litigation: “Signal allows users to send and receive encrypted text messages accessible only to sender and recipient, and to change settings to automatically delete these messages after a short period of time. [Plaintiffs] set the application to delete their communications.” Id. at *4.

Following disclosure of plaintiffs’ use of Signal, defendant filed a motion to dismiss or for an adverse inference due to spoliation in conjunction with a motion for summary judgment. As to the sanctions motion, defendant argued that using Signal and automatically deleting messages was contrary to plaintiffs’ obligation to impose litigation holds and update their responses to discovery requests. Plaintiffs countered that “they had no duty to allow [defendant] to see all their communications, only communications responsive to the requests for production” and that defendant had no evidence that they “had responsive communications using Signal or that the destruction of those communications was in bad faith.” Plaintiffs alleged that they used Signal only to arrange meetings with one another or their attorney. Id.

In addressing the standard of review, the court noted that it had “inherent authority to fashion appropriate sanctions for conduct which abuses the judicial process.” Id. at *1 (citing Stevenson v. Union Pac. R. Co., 354 F.3d 739, 745 (8th Cir. 2004)). To impose “[a] spoliation-of-evidence sanction requires ‘a finding of intentional destruction indicating a desire to suppress the truth.’ ” Herzig, 2019 WL 2870106 at *1 (quoting Greyhound Lines, Inc. v. Wade, 485 F.3d 1032, 1035 (8th Cir. 2007)). “If the movant shows the spoliation was done in bad faith, the Court may give an adverse inference or dismiss the case.” Id. (citing Menz v. New Holland N. Am., Inc., 440 F.3d 1002, 1006 (8th Cir. 2006)).

The court concluded that plaintiffs had spoliated evidence in bad faith based on their actions and technological knowledge. Plaintiffs had “numerous responsive communications with one another and with other [of defendant’s] employees prior to responding to the requests for production” and did not disclose their use of Signal until discovery was nearly complete.” Id. at *5. Having found that plaintiffs’ prior communications were responsive, the court inferred that the “content of their later communications using Signal were responsive” and relied on the following facts supporting their conclusion “that the decision to withhold and destroy those likely-responsive communications was intentional and done in bad faith”:

[Plaintiffs’] familiarity with information technology, their reluctance to produce responsive communications, the initial misleading response from [one plaintiff] that he had no responsive communications, their knowledge that they must retain and produce discoverable evidence, and the necessity of manually configuring Signal to delete text communications.

The court held that the “intentional, bad-faith spoliation of evidence was an abuse of the judicial process and warrant[ed] a sanction.” Ultimately, however, the court did not decide on an appropriate sanction because it chose to grant the defendant summary judgment based on the underlying merits of the case. Id.

2. In Philmar Dairy, LLC v. Armstrong Farms, 2019 WL 3037875 (D.N.M. July 11, 2019), Magistrate Judge Stephan M. Vidmar denied plaintiff’s Fed. R. Civ. P. 37(e) sanctions motion for failure to prove either defendant’s preservation obligation or an intent to deprive plaintiff of a relevant photograph, but also ruled pursuant to Fed. R. Evid. 403 that defendant could not mention the discarded photograph because any evidentiary value of the photograph to defendant was outweighed by possible prejudice to the plaintiff.

Three New Mexico dairies sued Armstrong Farms for failure to deliver 2,647 of 9,322 tons of hay for the 2017 growing season and refusing to refund the amount paid relating to the undelivered hay. Armstrong responded that lightning caused a fire that destroyed the hay it had failed to deliver. One of Armstrong’s employees had photographed the charred remains of the hay, but the photographs were no longer in its possession because the employee bought a new cellphone and discarded the old cellphone with the photographs, all prior to the filing of the lawsuit. In response, Philmar filed a Rule 37(e) motion for spoliations.

The magistrate judge began by stating that plaintiff cited three possible bases for relief: Fed. R. Civ. P. 37(b) (failure to obey a court order), Fed. R Civ. P. 37(e) (spoliation) and the court’s inherent authority. As an initial matter, he concluded that Rule 37(b) was inapplicable because there was no claim of a violation of a court order. As to the other two bases for relief, he determined that the photographs at issue were electronically stored information (ESI) and that Rule 37(e) was, therefore, applicable but noted that amended Rule 37(e) “foreclose[d] reliance on the Court’s inherent authority to sanction for spoliation of ESI.” Id. at *2.

Applying the Rule 37(e) standards, Magistrate Judge Vidmar considered whether an obligation to preserve had arisen at the time the photographs were discarded. Finding that Rule 37(e) preservation obligation was based on a common-law duty, the magistrate judge reviewed prior case law, including cases prior to the 2015 revisions to the federal rules that created the current Rule 37(e). He discussed several cases in which parties had failed to preserve evidence after they knew or should have reasonably known that litigation was imminent and noted that in nearly every case, the plaintiffs had taken an affirmative act toward litigation that placed the defendants on notice. In this case, however, Philmar took no affirmative actions suggesting that litigation was imminent before it eventually filed its claims against Armstrong. The distinction proved critical — the magistrate judge rejected Philmar’s argument that the alleged fire itself was sufficient to provide Armstrong with a reasonable expectation of litigation and denied the motion for sanctions because Philmar failed to demonstrate that defendant had an obligation to retain the photograph. The magistrate judge held that “the lack of interaction between Defendants and Plaintiffs strongly weighs against finding that Defendants reasonably anticipated litigation. Plaintiffs present no evidence demonstrating when — or even if — they sent the Defendants a demand letter prior to suit.” Id. at *4.

The magistrate judge also denied Philmar’s request for relief pursuant to Rule 37(e) on the ground that Philmar had failed to prove that Armstrong’s destruction of the photos was deliberate. In so doing, he pointedly noted that it had not accepted Armstrong’s contention that its destruction of the photos was innocent — rather, the court denied the motion because Philmar provided no evidence to the contrary, stating that the “mere fact that evidence no longer exists does not, in this instance, support an inference of bad faith.... Plaintiffs present no evidence of when Defendants lost the photos.” Id. at *6 (emphasis original).

Despite the court’s denial of Philmar’s motion for Rule 37 relief, Armstrong’s destruction of the photos was not without consequence. The magistrate judge held that although he would “not sanction the Defendants for spoliation of evidence, it nonetheless decline[d] to allow them — or Plaintiffs — to mention the photos at trial.” Id. at *6. He ruled that — due to the destruction of the alleged photos — the “probative value of testimony concerning the photos is low” and was outweighed by their potential for prejudice. The destruction of the photos precluded any “independently verifiable way” of confirming that they ever existed in the first instance, and mentioning them “would suggest that the jury decide whether a fire occurred based on an improper basis.” Id.

3. In Center for Auto Safety v. Goodyear Tire & Rubber Co., 2019 WL 6317762 (Ariz. Ct. App. Nov. 26, 2019), the Arizona Court of Appeals held that a lower court abused its discretion in ordering disclosure of Goodyear tire trade secrets as being in the public interest without addressing the specific provisions of the Arizona Uniform Trade Secrets Act.

This case involved an intervenor’s attempt to unseal records produced by Goodyear Tire & Rubber Co. (Goodyear) in products-liability litigation regarding the suitability of its G159 tire for highway use by motorhomes. In 2005, a family (the Haegers) filed a products-liability action in Arizona federal district court against Goodyear, alleging that the company’s model G159 tire was defective when used by motorhomes on highways. In that action (Haeger I), Goodyear produced a number of documents designated “confidential” and subject to a stipulated protective order. The Haegers did not challenge Goodyear’s production or the confidentiality designations before settling. Shortly thereafter, a second family (the Schalmos) filed a nearly identical products-liability action in Florida. That case was also subject to a protective order regarding Goodyear’s trade secrets and the jury ultimately found that the G159 was defective in design and unsuitable for highway use by motorhomes.

After the jury ruled for the Schalmos, the Haegers’ counsel learned that Goodyear had produced documents in the Schalmos’ case that it had withheld in the Haegers’ case. The Haegers filed an action in superior court, claiming settlement fraud and abuse of process (Haeger II). The court ordered Goodyear to produce the transcript of the Schalmo trial and eventually directed the company to produce more than 30,000 documents. Both parties filed their documents under seal in Haeger II and the Haegers never challenged the protective order itself or the Goodyear’s document confidentiality designations before settling this second case.

The Haegers also sought discovery sanctions in the original federal court proceeding in a case that went to the U.S. Supreme Court. See Goodyear Tire & Rubber Co. v. Haeger 137 S.Ct. 1178 (2017).

During the Haeger II settlement negotiations, Goodyear’s co-defendant in Haeger I, Spartan Chassis, Inc., moved to intervene and obtain documents designated “confidential” in Haeger II under the protective order issued in that case. Shortly thereafter, a third party, the Center for Auto Safety (CAS), intervened and moved to unseal all court records in the case and vacate the court’s blanket protective order. CAS argued that the public had a right to access the sealed record because it contained evidence that could demonstrate an ongoing risk to public safety. After an in camera review, the superior court concluded that many of the documents Goodyear sought to protect were, in fact, trade secrets, but found that Goodyear’s interest in protecting the information “did not outweigh the public’s need for access.” Id. at *3. The court held that Goodyear had not stated its interest in protecting the secrets with sufficient particularity and that the “continued need for confidentiality was reduced by the fact that the G159 tire had been discontinued.” The court stayed its order pending appeal.

The Arizona Court of Appeals held, as an initial matter, that the superior court applied the wrong legal standard to CAS’s motion to vacate the protective order. Id. at *4. The appellate court noted that although federal case law imposes no specific standard on a party that moves to unseal documents, Arizona Rule 5.4 requires a court “to analyze the same factors to unseal a document as it [would] to seal it.” Id. at *6. Thus, a party that wishes to unseal documents bears the burden of establishing good cause for disclosure and the superior court’s use of a complex balancing test rather than a straightforward application of Rule 5.4 was an abuse of discretion. Id. at *5 (“CAS, as a third-party intervenor, must meet a heavy burden to show why the public needs access to confidential trade secrets”).

After a thorough analysis of the Uniform Trade Secrets Act (UTSA), the court of appeals rejected the superior court’s conclusion that public interest considerations justified unsealing Goodyear’s trade secrets. It held that “[g]iven the inflexible command in the UTSA that courts shall preserve the secrecy of an alleged trade secret, we see nothing in the court’s findings to justify the unsealing order.” Id. at *6 (internal quotation marks and citation omitted). The court’s holding rested on its conclusion that “a court may expose trade secrets only in extraordinary circumstances, such as when the information has lost the independent economic value created by its secrecy, or when secrecy represents a significant threat to the public welfare.” Id. at *5.

The court of appeals acknowledged that the public had a strong interest in road safety and prompt removal of a safety hazard, but concluded that this interest had already been largely vindicated by the information available about the Goodyear tire. This information included a letter sent by Haeger’s counsel to the National Transportation Safety Board, along with copies of a number of documents containing trade secrets, and then filed under seal with the court. The Haeger letter had been mistakenly given by a court clerk to a journalist who, not being bound by the court’s protective order, wrote a news story about the letter and published the letter and its contents, including some of the trade secrets at issue. Id. at *3. As a result of this and other information in the public domain, the court of appeals found that the public was already sufficiently on notice about the dangers of the tire and concluded there would be marginal value in unsealing the remaining documents. Id. a *6.

The court further rejected the superior court’s determination that Goodyear’s interest in confidentiality was reduced because the tire model was outdated, noting that “old trade secrets are still protectable” to same extent as new secrets. Id. at *5.

Significantly, the court also held that Goodyear’s prior misconduct during discovery did not alter the court’s analysis about whether the company’s trade secrets should remain protected: “[i]t is true that Goodyear’s conduct during previous discovery has been anything but admirable, but a party’s discovery misconduct (which harms a party to the litigation) is not effectively redressed by the public disclosure of secrets at the request of a third-party intervenor.” Id. at *7.

The court of appeals rejected Goodyear’s claims that the trial court’s actions violated the Full Faith and Credit Clause of the U.S. Constitution and principles of comity by failing to follow the Schalmo court regarding the protective order and the sealed documents. It ruled that the Full Faith and Credit Clause applies only to final judgments, not protective orders, and comity was not at issue because the protective orders in both the Florida and Arizona proceedings had been entered without objection of either party. The court of appeals reversed the ruling of the superior court terminating the protective order and unsealing the documents and remanded the case for further proceedings.

4. In Mafille v. Kaiser-Francis Oil Co., 2009 WL 3219151 (N.D. Okla. July 17, 2019), Magistrate Judge Frank H. McCarthy rejected plaintiffs’ claim that an inadvertently produced email was not privileged and rejected their attempt to depose defendant’s counsel about the matters addressed in the privileged document.

The subject of this discovery dispute was an inadvertently produced email in a chain by and among defendant’s management officials involved in the firing of one of the two plaintiffs. Id. at *1. The email at issue identified defendant’s attorney by name and recited her termination recommendation based on the reasons listed in the email. Based on this email’s content, plaintiffs then sought to depose defendant’s attorney.

Defendant stated that in compliance with Fed. R. Civ. P. 26(b)(5)(B), it notified plaintiffs within three days of production that it was claiming a privilege with respect to the email. As the magistrate judge explained, pursuant to Rule 26(b)(5)(B), a party being so notified must

promptly return, sequester or destroy the specified information and any copies it has; must not use or disclose the information until the claim is resolved; must take reasonable steps to retrieve the information if the party disclosed it before being notified; and may promptly present the information to the court under seal for a determination of the claim.

Subsequently, “[p]laintiffs appended the subject email and made reference to its contents in the reply brief in support of [the] Plaintiffs’ motion for sanctions.” In response, defendant argued that the exhibit and all references to it should be stricken and that plaintiffs should be barred from further use of the exhibit. Plaintiffs then sought to substitute the initial exhibit with another similar exhibit and argued that defendant’s attempt to claw back the email was mistaken because the email’s content was not subject to the attorney-client privilege.

Magistrate Judge McCarthy began by stating that “Rule 26(b)(5)(B) could not be more clear.” Under the rule, regardless of whether the plaintiffs disagreed with the defendant’s privilege assertions, “[p]laintiffs were prohibited from making any use of the information, period.” Further, that plaintiffs believed defendant had abandoned any privilege claim was immaterial because under the rule, “[t]he onus for presenting the information to the court for a determination of privilege is on the party receiving production.” Id.

Magistrate Judge McCarthy also rejected plaintiffs’ contention that defendant was at fault for producing the email in question before conducting a full review of every email for privilege. In his view, “[t]he very existence of Fed. R. Civ. P. 26(b)(5)(B) is intended to facilitate the swift production of discovery by providing some comfort to the producing party that privileges are not waived by production in discovery.” Id. at *2.

Magistrate Judge McCarthy then turned to plaintiffs’ assertion that defendant’s privilege assertion was misplaced. From his review of the email at issue, “[i]t is clear from the content of the email string that officials employed by Defendant who were involved with the employment decision for [plaintiff] were awaiting advice from Defendant’s attorney” and that “[a]n email communicating the advice was sent to those within the company who could act on it.” Under these circumstances, Magistrate Judge McCarthy concluded, “[t]he email communicating the advice falls squarely within the attorney-client privilege.” Id.

Magistrate Judge McCarthy also rejected plaintiffs’ assertions that the defendant was attempting to prevent the disclosure of factual information by use of the privilege. Id. at *3. As he stated, “[t]here is no factual information contained in the subject email that has not otherwise been disclosed to Plaintiff[s]” and, further, “[t]here is nothing untoward about Defendant having consulted counsel, about Defendant’s decision makers discussing counsel’s advice, or about their having taken that advice.” Moreover, “[d]efendant has not claimed advice of counsel as a defense, or otherwise taken any action inconsistent with preservation of privilege.” Id.

Finally, Magistrate Judge McCarthy rejected plaintiffs’ argument that they should be permitted to depose defendant’s counsel. Specifically, he rejected plaintiffs’ assertion that “there is a dispute as to the basis for [plaintiff’s] termination that only [Defendant’s counsel] can answer” because in his view, [t]he reasons for [plaintiff’s] termination has been communicated to her.” “[T]here has been no showing that discovery of any evidence supporting those reasons has been denied to the Plaintiffs under a claim of privilege” and “Plaintiff[s] have not shown that the identity of who fired [plaintiff] has anything what-so-ever to do with establishing liability, damages, or a defense against any claim asserted in this case.” Id.

Magistrate Judge McCarthy also noted that “taking the deposition of an opponent’s attorney, either trial counsel or general counsel, often encumbers the case with burdensome collateral issues which unnecessarily increase the cost of litigation and delay the progress of the case.” After reviewing various cases, Magistrate Judge McCarthy concluded that “depositions of opposing counsel should be limited to circumstances where it has been shown that: 1) no other means exist to obtain information than to depose opposing counsel; 2) the information sought is relevant and nonprivileged; and 3) the information is crucial to the preparation of the case.” In this case, he concluded, none of the relevant criteria was met. Id.

Accordingly, Magistrate Judge McCarthy held that plaintiffs were prohibited from making further use of the information gleaned from the privileged and inadvertently produced email. Further, because the contents of the email were not otherwise relevant, Magistrate Judge McCarthy ruled that plaintiffs were to “return or destroy any copies of the subject emails” and required them “to take reasonable steps to retrieve the email if it has been distributed.” He also sealed the exhibit containing the privileged email. Id.