January’s Notable Cases and Events in E-Discovery

1. A ruling from the Southern District of Ohio granting sanctions for one party’s failure to adequately prepare a corporate representative designated to testify in response to a Rule 30(b)(6) notice as to certain topics related to its collection and production of ESI.

In Oro BRC4, LLC v. Silvertree Apartments, 2021 WL 2373667 (S.D. Ohio. June 10, 2021), U.S. Magistrate Judge Elizabeth A. Preston Deavers imposed sanctions on one of the defendants for failing to adequately prepare a corporate representative designated to testify in response to a Rule 30(b)(6) notice as to certain topics related to its collection and production of ESI.

This opinion arose from a Rule 30(b)(6) deposition noticed and taken by plaintiff of a corporate representative of one of the defendants, relating (among other topics) to that defendant’s collection and production of ESI during discovery. Id. at *1. The witness, Matthew C. Cook, who was defendant’s head of information technology, testified during the Rule 30(b)(6) deposition that (1) he had received the deposition notice less than 72 hours before the deposition, (2) he did not review any documents other than his own emails in preparation for the deposition, and (3) he did not speak to or interview any of defendant’s current or former employees. Cook also testified that he was not aware of an obligation to learn information regarding the topics from other employees of defendant and was testifying only as to his own personal knowledge. Id. at 1-2.

After the deposition, plaintiff filed a motion for sanctions, arguing that defendant failed to properly prepare Cook for the Rule 30(b)(6) deposition and seeking (among other relief) a second Rule 30(b)(6) deposition and attorney’s fees and expenses to prepare for and conduct the first and second Rule 30(b)(6) deposition, plus an additional “$10,000 award as a deterrent.” Id. at *3. In response to the motion, defendant conceded that Cook “does not possess the best memory” but argued that Cook’s “poor memory” did not equal sanctionable conduct.

Magistrate Judge Deavers began her analysis by surveying the relevant standards under Rule 30(b)(6), noting that “the duty to prepare a 30(b)(6) witness extends not only to the matters within the designee’s personal knowledge, but also to all matters reasonably known by the corporation.” A party, therefore, has the responsibility under Rule 30(b)(6) to prepare its designee “to the extent matters are reasonably available, whether from documents, past employees, or other sources.” Specifically, the company is required “to make a good faith effort to find out the relevant facts possessed by the corporation — to collect information, review documents, and interview employees with personal knowledge just as a corporate party is expected to do in answering interrogatories.”

Magistrate Judge Deavers also noted that “absolute perfection is not required of a 30(b) (6) witness,” but producing an unprepared Rule 30(b)(6) witness is tantamount to a failure to appear, which may warrant sanctions under Federal Rule of Civil Procedure 37(d). Id. at *4. Rule 37(d) “provides for a variety of sanctions for a party’s failure to comply with its Rule 30(b)(6) obligations, ranging from the imposition of costs to preclusion of testimony and even entry of default.” The party seeking sanctions must make at least an initial showing — with record citations — suggesting that the designee’s preparation was inadequate. Before imposing sanctions, courts should compare the testimony elicited in the deposition to the topics noticed under Rule 30(b)(6) to determine the adequacy of the witness’ preparation. Magistrate Judge Deavers described the various sanctions available under Rule 37(b)(2) and noted that “the burden of proof is on the sanctioned party to establish that its failure to comply was due to inability and not to willfulness, bad faith, or any fault of the party.” Furthermore, “[f]ault, in this context, includes gross negligence.”

Magistrate Judge Deavers found that the transcript from Cook’s deposition clearly demonstrated that Cook fell far short of the standards required by Rule 30(b)(6). Id. at *5. Cook testified that the only things he did to prepare included going through his own emails “to refresh his knowledge,” talking to counsel, and obtaining a police report. In addition, he testified that he did not talk to any other employees of defendant to obtain any information and repeatedly testified that he received the 30(b)(6) deposition notice only three business days prior to the deposition. Ultimately, Magistrate Judge Deavers agreed with plaintiff that Cook “failed to gather any memories but his own” in preparation for the deposition, which falls “far short of what was required of Mr. Cook” and defendant, namely to “designate a deponent who could testify about information known or reasonably available to the organization.” Id. at *6.

Magistrate Judge Deavers rejected defendant’s argument that Cook was the “most knowledgeable” employee to answer plaintiff’s questions and that his preparation was adequate. She found that “[t]his is not enough” because while it was undoubtedly helpful that Cook had the most personal knowledge of any employee of defendant, “it was not necessary for Mr. Cook to have any personal knowledge to have been adequately prepared to testify on behalf of” defendant: “Under Rule 30(b)(6), there is no obligation to select a person with personal knowledge of the events in question, so long as the corporation proffers a person who can answer regarding information known or reasonably available to the organization.”

Having concluded that Cook was unprepared for his deposition, Magistrate Judge Deavers next addressed the appropriate remedy under Rule 37(d). Id. at *7. Under Rule 37(d), sanctions may include any of the following orders listed in Rule 37(b)(2)(A)(i)-(vi): (i) directing that the matters embraced in the order or other designated facts be taken as established for purposes of the action, as the prevailing party claims; (ii) prohibiting the disobedient party from supporting or opposing designated claims or defenses or from introducing designated matters in evidence; (iii) striking pleadings in whole or in part; (iv) staying further proceedings until the order is obeyed; (v) dismissing the action or proceeding in whole or in part; or (vi) rendering a default judgment against the disobedient party. Magistrate Judge Deavers also noted that Rule 37(d) “mandates the award of attorney’s fees in most cases, regardless of what other sanctions are imposed.”

Magistrate Judge Deavers first ordered that plaintiff would be permitted to take a second Rule 30(b)(6) deposition as to certain of the topics in the original deposition notice. Id. at *8. She also found that defendant’s failure to prepare Cook was not substantially justified and ordered defendant to pay (1) plaintiff’s reasonable costs and expenses associated with attending the second deposition, including court reporter costs and the fees for plaintiff’s ESI consultant to attend, and (2) plaintiff’s reasonable attorneys’ fees associated with the motion for sanctions. Magistrate Judge Deavers also admonished defendant that if its next corporate representative was similarly unprepared for the second Rule 30(b)(6) deposition then she would impose more severe penalties, which may include additional monetary sanctions.

2. An order from the District of Arizona granting a request from the FTC for spoliation sanctions and an adverse inference based on spoliation of evidence from email and messaging applications used to hide evidence from the FTC.

In F.T.C. v. Noland, 2021 WL 3857413 (D. Ariz. Aug. 30, 2021), U.S. District Judge Dominic W. Lanza granted the FTC’s motion for spoliation sanctions against defendants, Success By Health (SBH) and members of SBH’s leadership team (the Individual Defendants), and granting the FTC’s request for an adverse inference based on the Individual Defendants’ intentional spoliation of evidence from email and messaging applications used to hide evidence from the FTC.

The FTC alleged that SBH operated as an illegal scheme and that the Individual Defendants made false statements to SBH’s affiliates. Id. at *1. After the FTC issued a subpoena to Wells Fargo seeking individual defendant James Noland’s and SBH’s financial information, Wells Fargo inadvertently disclosed the subpoena to Noland on May 15, 2019. Id. at *2. On May 16, one day after receiving the subpoena, Noland invited one of the other Individual Defendants, Scott Harris, and the SBH Leadership Council to download Signal, a mobile messaging application that emphasizes user privacy. It was undisputed that Noland and the other Individual Defendants began using Signal for the first time that same day. The Individual Defendants also began encouraging other SBH employees and affiliates to install Signal and turned on the auto-delete function to ensure that messages exchanged were not preserved. Around the same time he began using Signal, Noland began using and encouraging SBH employees and affiliates to use ProtonMail, a Switzerland-based encrypted email service that similarly emphasizes user privacy.

A few days after beginning to use Signal and ProtonMail, Noland contacted the FTC through his attorney and offered to cooperate with its investigation. The FTC responded that while it had no present requests, Noland and the company should suspend any ordinary-course destruction of documents, communications, and records. The Individual Defendants instructed one another and other SBH employees and affiliates to continue using Signal and ProtonMail for sensitive or important items throughout the remainder of 2019. Id. at *3. Some unencrypted text messages simply referenced “Signal” or “ProtonMail” or directed recipients to check one or the other.

The FTC initiated the present action on January 8, 2020, and moved for an ex parte temporary restraining order (TRO) on the same day, which the court granted. The court additionally appointed a receiver of SBH and affiliated entities. The TRO instructed the Individual Defendants to deliver documents related to SBH and affiliated entities to the receiver and to turn over keys, codes, usernames, and passwords necessary to obtain access to assets or documents pertaining to these entities.

Noland participated in a deposition on February 5, during which he failed to disclose the existence of his Signal and ProtonMail accounts when asked whether he had ever used encrypted communications to conduct SBH business. Later, in their initial discovery responses pursuant to the court’s Mandatory Initial Discovery Pilot Project, the Individual Defendants again failed to disclose the existence of Signal or ProtonMail messages.

Noland sent an email on May 29 from his ProtonMail account to a redacted individual that the FTC claimed was the previous director of sales for SBH, Robert Mehler. Id. at *4. Noland asked Mehler to solicit declarations from SBH affiliates and prepare a list of information they should include in their declarations. After sending this email, Noland deleted it without disclosing it to the FTC, and the email came to the FTC’s attention only months later via an anonymous SBH affiliate. Later, just prior to providing their cell phones to be imaged, the Individual Defendants deleted the Signal app from their phones without the knowledge of their counsel, the receiver, or the FTC. The deletion of the app resulted in a total inability for the parties or outside forensic experts to recover the contents of the Signal messages.

The FTC eventually learned about the Individual Defendants’ use of Signal but not before the Individual Defendants produced discovery that included Excel spreadsheets containing text message communications through the app WhatsApp. Notably, all communications between Noland and SBH leadership in their WhatsApp thread ceased around the time the Individual Defendants began using Signal and ProtonMail, after averaging 10 to 21 messages per day from 2017 to that point. Noland and other individual members of SBH leadership also exchanged thousands of text messages through iOS between 2017 and May 2019, when Noland invited the SBH leadership to install Signal. The FTC asserted that the WhatsApp and iOS messages from prior to their use of Signal reveal that the Individual Defendants and associates discussed relevant matters on those platforms prior to their switch to Signal and ProtonMail. Id. at *5.

On October 30, 2020, counsel for the Individual Defendants sent a letter to 22 SBH employees or affiliates seeking their Signal and ProtonMail communications with the Individual Defendants on relevant topics after they became aware of the unavailability of the Individual Defendants’ messages and emails. Only 10 responded, and each stated he or she did not have messages or emails to produce, in part due to Signal’s auto-delete feature or because they suspended or cleared their ProtonMail accounts.

In depositions taking place in December 2020, Individual Defendants admitted that Noland installed Signal in May 2016 and around that time asked other Individual Defendants to install it as well. One of the other Individual Defendants admitted that Noland informed him about receiving the FTC subpoena in May 2019, and several Individual Defendants admitted to deleting Signal from their phones just before imaging as part of a coordinated plan.

Judge Lanza began his analysis with Federal Rule of Civil Procedure 37(e). Judge Lanza first examined whether ESI was lost, stating that while it was undisputed that the Individual Defendants deleted the Signal app and messages and that they used Signal to communicate about SBH business, the parties disagreed about the precise mechanism by which the Signal messages were lost. The Individual Defendants raised Signal’s auto-delete feature that deleted messages shortly after being read by the recipient. The FTC considered this explanation “implausible” in part due to the fact that this explanation was provided weeks after the Individual Defendants admitted to deleting the Signal apps but also irrelevant as the Individual Defendants still caused the ESI to be lost. Citing the Sedona Conference’s Primer on Social Media, Judge Lanza agreed with the FTC for purposes of the threshold inquiry, stating that the precise mechanism did not matter, just that the Signal ESI was lost. Id.; see Sedona Conference, The Sedona Conference Primer on Social Media, Second Edition, 20 Sedona Conf. J. 1, 90-91 (2019).

Judge Lanza similarly concluded that ProtonMail ESI was lost. Id. at *8. At a meet-and-confer conference and later in their response to the FTC’s motion for sanctions, the Individual Defendants’ counsel admitted that a May 2020 email from Noland’s ProtonMail account that the FTC had previously uncovered was not produced because Noland had deleted it. The parties disagreed on the volume of emails lost, but Judge Lanza concluded that it was undisputed that at least this one email was lost.

Judge Lanza then examined whether there was a duty to preserve the lost ESI. He stated that under Rule 37(e), sanctions are available only if the loss of ESI occurred at a time when litigation was pending or reasonably foreseeable, and the ESI was foreseeably relevant. He explained that in the Ninth Circuit, litigation is reasonably foreseeable when parties have some notice that the documents were potentially relevant to the litigation before they were destroyed. Judge Lanza added that this was an objective, fact-specific standard. He stated that the mere existence of a potential claim did not trigger the duty to preserve documents, nor did litigation have to be imminent or probable without significant contingencies.

The FTC argued that the Individual Defendants’ duty to preserve ESI arose in May 2019 when they became aware of the FTC’s investigation, or alternatively in January 2020 when they were served with the TRO. The FTC argued that, at minimum, the Individual Defendants violated their post-TRO preservation obligations to at least preserve pre-TRO messages that were still available. The Individual Defendants argued that when they learned about the investigation in May 2019, they believed that the investigation had concluded. They did not address continuing to delete Signal messages and ProtonMail emails after the TRO and preliminary injunction were entered.

Judge Lanza held that the Individual Defendants’ document preservation obligations arose in May 2019 when the FTC emailed Noland’s counsel stating that Noland and the company should suspend any destruction of documents, communications, and records in the ordinary course of business. Id. at *9. Judge Lanza found that Noland’s subjective belief that the FTC’s rejection of his offer to cooperate signaled the close of the investigation against him was not objectively reasonable. He elaborated that Noland was aware that the FTC had recently subpoenaed his bank records and requested the suspension of document destruction and that he was still subject to a consent order arising from a previous FTC enforcement action. Judge Lanza also stated that the availability of Rule 37(e) sanctions did not hinge on whether the duty to preserve arose in May 2019 or January 2020.

Judge Lanza found that the FTC carried its burden of showing the reasonable foreseeability of the relevance of the Signal and ProtonMail messages. The FTC argued that the Individual Defendants could not assert a presumption of irrelevance of the lost ESI, although its relevance could not be ascertained. Further, it was undisputed that the deleted messages included discussion of relevant matters and that the Individual Defendants did not get to pick the evidence they believed to be relevant and destroy the rest. The Individual Defendants argued that most of the missing ESI was irrelevant, consisting of identities and contact lists of the individuals with whom they communicated, and, post-TRO, the overwhelming majority of evidence was public. Judge Lanza was more persuaded by the FTC’s arguments, noting admissions that Signal was used to discuss SBH matters and that parties that deleted documents were not entitled to a presumption of irrelevance as to those documents. 

Judge Lanza bolstered his conclusion by pointing to the deleted ProtonMail email and stated that it was reasonable to infer that other relevant information was discussed on Signal and ProtonMail. The communications produced from prior to May 2019 showed that the Individual Defendants discussed relevant matters on other messaging platforms before learning that they were under investigation by the FTC and switching to Signal and ProtonMail. Judge Lanza observed that it “strained credulity” to infer that the Individual Defendants simply stopped communicating about anything related to their business on any text-messaging platform when they installed an encrypted messaging service for the purpose of discussing “anything sensitive” and “important matters.”

Judge Lanza next briefly discussed areas in which the parties were in agreement. First, the parties agreed that the Individual Defendants failed to take reasonable steps to preserve the deleted communications. Judge Lanza added that this conclusion was true regardless of whether the messages were lost due to intentional deletion, intentional use of an auto-delete function, or a combination of the two. Judge Lanza then stated that based on the agreement of the parties, the court found that the lost discovery could not be restored or replaced through additional discovery. Id. at *11. Judge Lanza also noted that Rule 37(e)(2) did not require a finding of prejudice to another party from loss of the information. However, Judge Lanza addressed potential prejudice when discussing the appropriate sanction.

Next, Judge Lanza found that the FTC “easily carried its burden of showing that the Individual Defendants acted with the intent to deprive the FTC of the information contained” in the missing discovery. Id. at *12. Judge Lanza stated that the “most decisive factor” was the timing of the installation of Signal and ProtonMail. The Individual Defendants argued that they switched to Signal in May 2019 for the “innocent reason” of avoiding the infiltration efforts of a former SBH employee. The FTC argued in response that there were no discussions raising concerns about such efforts leading up to the switch to Signal, nor was this raised when discussing the move to Signal itself. Judge Lanza described the argument that this timing was a coincidence as “incredible,” considering they installed the applications a single day after Noland found out the FTC was investigating him and SBH. Further, there was no evidence at this time that their chats were being hacked other than the Individual Defendants’ testimony.

Judge Lanza rejected Noland’s explanation regarding the failure to disclose the ongoing use of Signal and ProtonMail during his February 2020 deposition, namely that he attempted to do so but was cut off by the FTC’s counsel. Judge Lanza stated that Noland’s explanation was not plausible, as he was asked targeted questions regarding the existence of these accounts and could reasonably infer from his conduct that the true motivation was more nefarious. Id. at *13. Judge Lanza went on to say that the contents of the ProtonMail email from May 2020 that the FTC “lucked into” discovering suggested that they were attempting to shape the testimony of third-party witnesses.

The Individual Defendants argued that deleting the Signal app in August 2020 was justified to conceal the names of individuals who were donating to their legal defense from the FTC. Id. at *12. Judge Lanza did not find this relevant, as Noland had testified that Signal was set to auto-delete messages that would prevent the FTC from finding this out anyway. In addition, the justification as stated did not entitle the Individual Defendants to delete Signal altogether.

Judge Lanza then raised the FTC’s request for an adverse inference that the spoliated evidence be presumed unfavorable to the Individual Defendants. Id. at *14. The Individual Defendants argued that the motion related more to the credibility of witnesses as opposed to the loss of potentially relevant evidence, so the FTC’s interests could be vindicated through cross-examination rather than an adverse inference. They further argued that prejudice was minimal because most of the evidence in the case was public or in the FTC’s possession. Judge Lanza held that because the Individual Defendants’ conduct violated both Rule 37(e) and the preliminary injunction, the adverse inference was warranted under Rule 37(e)(2). He found that the destroyed evidence was likely relevant and that some courts would allow even stronger sanctions. Judge Lanza further rejected the Individual Defendants’ argument that this matter would be better addressed through an evidentiary hearing, as they did not identify the evidence they would submit during such a hearing or how it would differ from the evidence already submitted by the parties regarding the FTC’s motion. Id. at *15.

3. A decision from the Northern District of California denying a motion to suppress evidence filed by Theranos founder Elizabeth Holmes, finding that the government did not suppress evidence in a database that Theranos had produced to the government (and then decommissioned) without the private key needed to access the database.

In U.S. v. Holmes, 2021 WL 3395146 (N.D. Cal. Aug. 4, 2021), U.S. District Judge Edward J. Davila denied a motion to suppress evidence filed by Elizabeth Holmes, the founder and CEO of Theranos, Inc., finding that the government did not suppress evidence in a database that Theranos had produced to the government without the necessary private key to access the database and then decommisioned.

Theranos used a bespoke database called the Laboratory Information System (LIS) containing all patient test results and quality control data at Theranos, among other information. Beginning in the fall of 2015, the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) issued multiple subpoenas and document requests relating to Theranos’ databases. In April and June 2018, the DOJ served grand jury subpoenas on Theranos for information from the LIS database and requested a copy of the database itself along with the necessary software to access and search it. On June 5, 2018, a day after the second subpoena, Holmes’ outside counsel at WilmerHale emailed Theranos’ in-house counsel to discuss giving LIS to the DOJ to “let them figure it out” and noting they “won’t know what to do with it[.]” Id. at *2. The email continued, “Our experts are the only ones who understand it, and we don’t want to make them percipient witnesses.” Other emails between WilmerHale and in-house counsel discussed how to produce a copy of the LIS database to the government, and internal Theranos emails revealed that the copy would be encrypted and require both a password and a private key to access its information.

On July 25, 2018, the government requested that Holmes produce the LIS database and any software necessary to access or search it. In its response describing the software needed to use the LIS database copy, WilmerHale did not mention that it would be encrypted and require an additional key to access. That same day, a Theranos employee who was working on preparing the database copy emailed in-house counsel explaining that the database was more like a “whole system with layers of applications and data” and that “if we are just handing over a database I’m not sure it will meet the needs[.]” In-house counsel replied that it was not Theranos’ problem if its database was “inconvenient for outsiders.” In-house counsel then informed WilmerHale that only one Theranos employee knew the private key to the LIS database copy. Ultimately, Theranos was unable to obtain the private key.

When Holmes produced the LIS database copy to the government on August 27, her cover email included the password but failed to mention the required private key. Id. at *3. WilmerHale subsequently represented that it was unaware of additional information or software that would facilitate the government’s access to the database. After this production, Theranos began to decommission and dismantle the original LIS database, and by August 31, Theranos had vacated the facility in which it was housed. At this time, Theranos employees and agents knew that once the system was taken apart, it might be difficult or impossible to rebuild because the encryption key would be lost.

The government tried repeatedly and unsuccessfully to access information from the copy of the LIS database in September and October 2018. In March 2019, the government learned that the original LIS database had been decommissioned and that Theranos had advised the assignee of its assets that it would be a “herculean undertaking to get it up and running again.” In October and November 2020, the government further learned that the LIS database was encrypted and that no one possessed the private key or could access an alternative version of the LIS database. The parties agree that the LIS database copy produced to the government could not be accessed without the private key and that information on the original was lost and potentially irretrievable. Id. at *4.

Judge Davila began his analysis of Holmes’ motion to suppress evidence with the relevant legal standard, noting that Holmes’ motion was based on the government’s duty to preserve potentially exculpatory evidence and that the loss or destruction of such evidence might rise to the level of a due process violation if the government acted in bad faith. A finding of bad faith would require more than mere negligence or recklessness, but sanctions could still be imposed if the government’s conduct did not rise to the level of a constitutional violation, based on balancing the quality of the government’s conduct and the degree of prejudice to the accused. Judge Davila noted that the government bears the burden of justifying its actions, and the defendant bears the burden of demonstrating prejudice.

Judge Davila then listed a number of factors the court weighs in considering each party’s burden: “In evaluating the Government’s conduct, the court should inquire whether the evidence was lost or destroyed while in [government] custody, whether the Government acted in disregard for the interests of the accused, whether it was negligent in failing to adhere to established and reasonable standards of care for police and prosecutorial functions, and, if the acts were deliberate, whether they were taken in good faith or with reasonable justification. ... In evaluating prejudice against the defendant, the court must consider, among other things, the centrality of the evidence to the case and its importance in establishing the elements of the crime or the motive or intent of the defendant; the probative value and reliability of the secondary or substitute evidence; the nature and probable weight of factual inferences or other demonstrations and kinds of proof allegedly lost to the accused; the probable effect on the jury from absence of the evidence, including dangers of unfounded speculation and bias that might result to the defendant if adequate presentation of the case requires explanation about the missing evidence.”

Judge Davila first examined Holmes’ request to suppress evidence of customer complaints, testing results, and other material based on this balancing test. Holmes argued that allowing the government to use that evidence as “evidence of fraud” after failing to gather and preserve the LIS database would violate her rights to present a complete defense and to receive due process, as the entirety of the database was necessary to refute that evidence.

In evaluating that argument, Judge Davila first examined whether the LIS database was potentially exculpatory, noting that Holmes contended that it was “potentially useful evidence” rather than materially exculpatory. Id. at *5. Judge Davila explained that potentially useful evidence constituted “evidentiary material of which no more can be said than that it could have been subjected to tests, the results of which might have exonerated the defendant.” Id. (internal citations omitted). The government argued that the LIS database was either highly inculpatory and would bolster its case against Holmes, or it would be useless to both sides because there was no indication it contained data reflecting the accuracy of Theranos test results.

Judge Davila cast doubts on Holmes’ argument that the LIS would be exculpatory, as the record did not show Holmes ever informing the government of its exculpatory value or rushing the government in its efforts to access the database copy. The parties disagreed as to whether the LIS database could have been used to assess the accuracy of Theranos test results. Holmes argued that the LIS database could have been used to assess the proportion of tests that were accurate and the reasons why certain tests were inaccurate. On the other hand, the government maintained that external evidence was needed to make this evaluation and had already indicated that Theranos’ test results were questionable. Judge Davila found that Holmes’ arguments did not show how information from the database could be validated without external data, and therefore any exculpatory value was speculative. Id. at *6.

Judge Davila then held that the government had not acted in bad faith. Judge Davila stated that the presence or absence of bad faith turned on the government’s knowledge of the apparent exculpatory value of the evidence at the time it was lost or destroyed. Having already found that any exculpatory value of the LIS database was speculative, Judge Davila reasoned that the exculpatory value was not apparent to the government on August 31, 2018, when it was destroyed. Further, the government did not lose or destroy evidence in its possession; it was never given the additional key required to access its encrypted copy of the LIS database, so the sole working version of the LIS database was only ever in Theranos’ possession until it dismantled the database hardware. He stated that the Ninth Circuit had never found that the nonmoving party acted in bad faith when the usefulness of the evidence was speculative. He added that for the nonmoving party to have acted in bad faith, the Ninth Circuit required it to have been responsible for the destruction or loss of potentially exculpatory evidence. Judge Davila stated Holmes did not cite to case law that suggested the government could be held responsible for its inaction as to the LIS database when it was unaware of and had no control over its destruction.

Judge Davila noted that there were only four days between the government’s having received the LIS database copy and when the original database was dismantled, and he rejected the implication that the government was responsible for failing to immediately realize it could not access the information in the LIS database copy and manage to receive the additional key in those four days. Id. at *7. He also noted the absence of evidence in the record indicating that at the time of the destruction, the government was aware that it would take place, that a separate encryption key was necessary to access the database, that dismantling the database would result in the permanent loss of the key, or that reconstituting the database would be very difficult or impossible.

Judge Davila was also unpersuaded by Holmes’ argument that the government failed to preserve evidence. Id. at *8. To the contrary, Judge Davila described the government as having preserved unusable evidence Theranos produced. Reiterating that it was not clear the LIS database was even exculpatory, Judge Davila held the government did not act in bad faith or commit a due process violation. Further, because the government never actually possessed an accessible copy of the LIS database or cause its loss or destruction, Judge Davila found no need to further analyze the government’s conduct or whether other sanctions were warranted. Judge Davila denied Holmes’ motion to suppress.

Judge Davila then also denied Holmes’ request for an evidentiary hearing on her motion to suppress. Id. at *9. Judge Davila stated that in the Ninth Circuit, an evidentiary hearing on a motion to suppress is necessary when a defendant alleges facts with sufficient definiteness, clarity, and specificity to enable the trial court to conclude that contested issues of facts exist. Id. at *8. Holmes asserted two such factual disputes: first, as to who bears responsibility for the loss of the LIS database, and second, as to the degree of prejudice associated with the government’s failure to collect and preserve the LIS database. Id. at *8-*9. Judge Davila found that no material factual dispute existed as to either of these issues, reiterating his prior analysis, and stated that an evidentiary hearing would therefore be fruitless.

4. An opinion from the Central District of California granting a defendants’ motion to compel discovery of messages from the plaintiff’s internal Slack messaging application.

In Benebone LLC v. Pet Qwerks, Inc., 2021 WL 831025 (C.D. Cal. Feb. 18, 2021), U.S. Magistrate Judge Alexander F. MacKinnon granted defendants’ motion to compel discovery of messages from plaintiff’s internal Slack messaging application. 

During the parties’ initial discovery conferences discussions in this litigation regarding the production of ESI, defendants sought to include messages from plaintiff’s internal Slack messaging application, but plaintiff took the position that Slack messages should be excluded. Id. at *1. Magistrate Judge MacKinnon explained that Slack is a cloud-based software system that allows a company to organize its electronic discussions into user-defined categories called channels. Plaintiff’s employees used Slack, as well as standard email, for their internal communications.

The parties had submitted the issue to the court earlier in discovery, and the court had determined that plaintiff’s Slack messages were relevant but that the court lacked sufficient information to determine whether such discovery would be “proportional to the needs of the case.” The court ordered plaintiff to obtain additional information about its Slack account and the burden of searching and producing such messages and for the parties to meet and confer thereafter.

Defendants later filed a motion to compel plaintiff to include Slack messages in response to certain discovery requests. Plaintiff submitted that its Slack account consisted of approximately 30,000 messages and estimated that review and production of the Slack messages would cost between $110,000 and $255,000, based on a blended attorney rate of $400 per hour for Slack review. Defendants submitted a declaration from their vendor describing a number of tools that software vendors have developed to streamline review and production of Slack messages and explaining how extracting, processing, and reviewing Slack messages could take place using currently available software tools. Defendants’ vendor estimated that it would cost $22,000 for plaintiff to find and produce its responsive Slack messages.

Magistrate Judge MacKinnon began his analysis by discussing the limits of discovery under Fed. R. Civ. P. 26(b). Id. at *2. “[A]ny nonprivileged” information “that is relevant to any party’s claim or defense and proportional to the needs of the case” is discoverable. Id. (quoting Fed. R. Civ. P. 26(b)(1)). “Discovery need not be admissible in evidence to be discoverable.” The court is to consider factors such as “the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” Id. (quoting Fed. R. Civ. P. 26(b)(1)). However, discovery should be limited to the extent it is “unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive.” Id. (quoting Fed. R. Civ. P. 26(b)(2)(C)(i)).

Magistrate Judge MacKinnon then discussed the burden in moving to compel discovery. A moving party has the burden to demonstrate the relevance of its requests. The opposing party then has the burden of showing why discovery should not be allowed and must support its objection “with competent evidence.”

Magistrate Judge MacKinnon stated that there was no real dispute as to the relevance of plaintiff’s Slack messages because plaintiff “uses Slack as part of its internal business communications,” and therefore its “Slack messages are likely to contain relevant information.” The crux of the issue then became whether searching for and producing such messages “would be unduly burdensome and disproportional to the needs of th[e] case.”

Magistrate Judge MacKinnon noted in this regard that defendants had submitted evidence to support its position in the form of the declaration and live testimony from its e-discovery vendor, while plaintiff had relied on attorney arguments and no witnesses. Id. at *2-3. Magistrate Judge MacKinnon credited the testimony from defendant’s witness, finding that third-party tools were available for collecting and reviewing Slack messages, and that review and production of Slack messages had become comparable to email document production through use of these tools. Magistrate Judge MacKinnon also credited defendants’ estimate of $40 per hour contract reviewers for first-level review over plaintiff’s estimate of a blended $400 hourly attorney rate, finding that although defendants’ estimate was “on the low side,” plaintiff’s estimate was “substantially inflated.”

Magistrate Judge MacKinnon determined that the review and production of Slack messages “is generally comparable to requiring search and production of emails and is not unduly burdensome or disproportional to the needs of this case,” provided that the requests and search are appropriately limited and focused “based on the channels or users likely to have responsive information given the relevant issues in this case.” Id. at *3. He noted that while plaintiff is a small company in comparison to defendants, plaintiff nevertheless sought the full range of monetary damages plus injunctive relief against defendants related to “millions of dollars” in sales, and therefore “a focused search for and production of Slack messages is proportional to the needs of this case where [plaintiff] regularly uses Slack messaging for internal business communications and users of Slack include [plaintiff’s] marketing director, COO, and CEO.” Id. at *3. Magistrate Judge MacKinnon therefore granted defendants’ motion to compel to include plaintiff’s Slack messages in response to certain discovery requests.

Magistrate Judge MacKinnon ordered the parties to meet and confer regarding specific requests and ordered plaintiff to provide to defendants “a list of its Slack channels, including the title and a brief description of each Slack channel, the number of messages in each Slack channel, the users associated with each Slack channel, and any other data that will assist the parties in tailoring the Slack review and production.”