This Sidley Update addresses the following recent developments and court decisions involving e-discovery issues:
- a U.S. Supreme Court ruling that a federal court exercising its inherent authority to sanction bad-faith conduct by ordering a litigant to pay the other side’s legal fees is limited to awarding fees the innocent party incurred solely because of the misconduct
- a Northern District of Iowa decision denouncing improper “boilerplate” discovery objections
- a Northern District of California opinion finding that defendants had unreasonably withheld responsive documents from production and ordering defendants to produce all documents responsive to the agreed search terms but rejecting plaintiffs’ request to find a waiver of privilege based on an inadequate privilege log
- a Northern District of Indiana case granting a motion to compel defendant to produce electronically stored information (ESI) after defendant failed to respond to repeated email requests to settle on a list of search terms
1. In Goodyear Tire v. Haeger, 581 U.S. __, 2017 WL 1377379 (April 18, 2017), the U.S. Supreme Court unanimously ruled that a federal court exercising its inherent authority to sanction bad-faith conduct by ordering a litigant to pay the other side’s legal fees is limited to awarding fees the innocent party incurred solely because of the misconduct.
In 2005, the Haeger family sued Goodyear after one of the Goodyear G159 tires on their motor home failed while they were driving on the highway, causing the motor home to swerve off the road and flip over. Id. at *3. During discovery, the Haegers repeatedly asked Goodyear to turn over internal test results for the G159, but the company’s responses were both slow in coming and unrevealing in content. The parties ultimately reached a settlement without going to trial.
Months after the settlement, the Haegers’ attorney learned that Goodyear had done testing on the tire in question that had not been provided to the Haegers during discovery. The attorney filed a motion for sanctions with the district court and argued that Goodyear had committed discovery fraud by knowingly concealing crucial tests. The district court determined that Goodyear had deliberately tried to frustrate attempts to resolve the case on its merits. The district court also determined that while it could not impose sanctions because the matter was settled, it could award the Haegers attorney’s fees for all costs incurred after Goodyear’s responses to the first discovery request, which came to approximately $2.7 million. Alternatively, the district court made a contingent award of $2 million if “linkage between [Goodyear’s] misconduct and the [Haegers’] harm is required.” This contingent award was based on estimates provided by Goodyear. Id. at *4.
Goodyear appealed, but the U.S. Court of Appeals for the Ninth Circuit held that the district court had not abused its discretion and affirmed the award of sanction fees. Goodyear appealed the matter to the Supreme Court.
The U.S. Supreme Court, in a unanimous opinion by Justice Elena Kagan (Justice Neil Gorsuch taking no part in consideration of the case), held that a federal court exercising its inherent authority to sanction bad-faith conduct by ordering a litigant to pay the other side’s legal fees is limited to awarding “the fees the innocent party incurred solely because of the misconduct — or put another way, to the fees that party would not have incurred but for bad faith.” Id. at *1.
The Court began its opinion by noting that federal courts possess inherent power to sanction parties for abuse of the litigation process, including awarding attorney’s fees. Id. at *5. It noted, however, that civil sanctions must be compensatory rather than punitive in nature, and fee awards must be limited to reimbursing the victim for losses sustained. That means a court, when invoking its inherent sanctioning authority, can award only those fees incurred because of the misconduct at issue, requiring the court to find a “causal link” between the litigant’s misbehavior and legal fees paid by the opposing party.
The Court stated that the appropriate causal standard is the “but for” test. Id. (citing Fox v. Vice, 563 U.S. 826, 836). Quoting Fox, the Court indicated that when the cost would have been incurred even absent the discovery violation, the court, limited only to compensation, “must leave it alone.” As an example, the court noted that if a plaintiff initiated a case in complete bad faith, so that every cost of defense is attributable only to sanctioned behavior, the court may make a blanket award. Id. at *6. Similarly, if a court finds that a lawsuit, absent litigation misconduct, would have settled at a specific time — for example, when a party was legally required to disclose evidence fatal to its position — then the court may grant all fees incurred from that moment on. The Court explained that in both scenarios all fees in the litigation “meet the applicable test: They would not have been incurred except for the misconduct.” Id.
The Court noted that while the parties agreed with each of these legal principles, the dispute was over the application of those principles in this particular case. Id. at *7. Goodyear contended that it required throwing out the trial court’s fee award and instructing the court to consider the matter anew, while the Haegers maintained, to the contrary, that the award could stand.
The Court rejected the Haegers’ argument that the lower courts applied the correct legal standard, concluding that the district court did not make the required findings of causation. The Court also found that the Haegers had not shown that had Goodyear produced the contested reports, those reports would have led “straightaway” to a settlement. Id. at *8. Nor had the Haegers shown that the discovery misconduct permeated the suit in such a way to make it a “but for” cause of every subsequent legal expense; the district court’s contingent $2 million award showed that some subsequent expenses were not caused by the discovery abuse. The Court also rejected the Haegers’ request to default to the $2 million contingent award because even though the district court considered causation in issuing that lower award, the Court concluded that the district court’s discussion was too sparse to show that it applied the proper legal principles. Id.
Last, the Court considered the argument that Goodyear waived its right to challenge the $2 million contingent award because Goodyear argued for the $700,000 reduction, which therefore suggested acceptance of the remainder of the award. Id. at *9. The Court, however, declined to address this issue and ordered the court of appeals to consider it on remand.
For these reasons, the Court reversed the rulings of the lower courts and remanded the case for further proceedings.
2. In Liguria Foods, Inc. v. Griffith Laboratories, Inc., 2017 WL 976626 (N.D. Iowa Mar. 13, 2017), Judge Mark W. Bennett delivered a scathing critique of the practice of using generic “boilerplate” objections that violate the letter and spirit of the Federal Rules of Civil Procedure.
In this action for breach of implied warranty of fitness and merchantability, a manufacturer of pepperoni products sued the manufacturer of a food seasoning used in the preparation of the pepperoni, alleging that defendant’s spice mixture had caused plaintiff’s pepperoni products to spoil prematurely, leading to a decline in sales. Id. at *3.
When reviewing the parties’ discovery responses as part of an unrelated discovery dispute, Judge Bennett noted that the responses likely did not comply with the Federal Rules of Civil Procedure. Judge Bennett ordered the parties to file under seal all their written discovery responses and then entered an order to show cause why both sides should not be sanctioned for filing improper responses.
Judge Bennett included in the opinion a table summarizing the objectionable discovery responses. The offending responses included several objections that were repeated throughout the parties’ submissions, including (1) “subject to and without waiving its general and specific objections”; (2) “not reasonably calculated to lead to the discovery of admissible evidence”; (3) “overbroad, unduly burdensome”; (4) “seeks documents protected by the attorney-client privilege and/or work product immunity doctrine”; (5) “premature”; and (6) “reserves the right to supplement.” Id.
At the hearing to show cause, counsel for both parties did not dispute that their responses were improper under the rules. Id. at *5. Counsel explained that boilerplate discovery responses “had a lot to do with the way they were trained, the kinds of responses that they had received from opposing parties, and the ‘culture’ that routinely involved the use of such ‘standardized’ responses.” In addition, counsel noted a concern over the inadvertent waiver of future objections and pointed out that the responses had not been included for an “improper purpose” such as cost, delay or harassment, and that the parties had worked cooperatively and professionally regarding discovery. Id.
In a written opinion issued after the show cause hearing, Judge Bennett first concluded that the parties’ discovery responses violated Rules 26, 33 and 34. As Judge Bennett explained, Rule 26(d) does not recognize as a valid, substantive objection that a discovery request is “premature,” and Rule 26(b)(5)(A)(iii) requires that a party describe privileged documents through a privilege log or similar document when invoking privilege. In addition, Rules 33 and 34 require specificity when responding to a discovery request. See Fed. R. Civ. P. 33(b)(4) (“The grounds for objecting to an interrogatory must be stated with specificity. Any ground not stated in a timely objection is waived unless the court, for good cause, excuses the failure.”); Fed. R. Civ. P. 34(b)(2)(B) (“[T]he response must either state that inspection and related activities will be permitted as requested or state with specificity the grounds for objecting to the request, including the reasons.”); Fed. R. Civ. P. 34(b)(2)(C) (“An objection must state whether any responsive materials are being withheld on the basis of that objection.”). “[T]he mere statement by a party that the interrogatory [or request for production] was overly broad, burdensome, oppressive and irrelevant is not adequate to voice a successful objection.” Liguria Foods, Inc., 2017 WL 976626 at *9 (quoting St. Paul Reins. Co., Ltd. v. Commercial Fin. Corp., 198 F.R.D. 508, 511-12 (N.D. Iowa 2000)). Finally, Judge Bennett rejected counsel’s suggestion that boilerplate objections preserve arguments that the parties can raise later in the proceedings. Rules 33 and 34 make clear that “any grounds not stated in a timely objection is waived” and “the idea that such general or ‘boilerplate’ objections preserve any objections is an ‘urban legend.’” Id. at *11.
Judge Bennett next considered whether to impose sanctions under Rule 26(g), which gives courts the power “to impose sanctions on the signer of a discovery response when the signing of the response is incomplete, evasive, or objectively unreasonable under the circumstances.” Id. at *13 (citation omitted). Though the discovery responses were inconsistent with the rules, Judge Bennett declined to impose sanctions because there was not evidence that counsel intended for their boilerplate objections to delay or impede the proceedings. Instead, counsel had a “cooperative and professional relationship during discovery” and “did everything that the court might expect them to do to confer and cooperate to work out issues about the scope of discovery.” Judge Bennett did encourage (though did not require) counsel to take certain steps that they had suggested as alternatives to sanctions to educate their colleagues and law students on proper discovery responses. Id. at *15. Joining Magistrate Judge Andrew Peck, who “issued a discovery wake-up call” regarding boilerplate objections in Fischer v. Forrest, 2017 WL 773694 (S.D.N.Y. Feb. 28, 2017), Judge Bennett concluded by “pledg[ing] to do [his] part — enough of the warning shots across the bow”:
“The conduct identified in the Show Cause Order does not warrant sanctions, notwithstanding that the conduct was contrary to the requirements for discovery responses in the Federal Rules of Civil Procedure. NO MORE WARNINGS. IN THE FUTURE, USING ‘BOILERPLATE’ OBJECTIONS TO DISCOVERY IN ANY CASE BEFORE ME PLACES COUNSEL AND THEIR CLIENTS AT RISK FOR SUBSTANTIAL SANCTIONS.” Liguria Foods, Inc., 2017 WL 976626 at *17 (capitalization in original).
3. In Johnson v. Serenity Transportation, Inc., 2016 WL 6393521 (N.D. Cal. Oct. 28, 2016), Magistrate Judge Jacqueline Scott Corley held that defendants had unreasonably withheld responsive documents from production, ordered defendants to produce all documents that were responsive to search terms and denied plaintiffs’ request to find a waiver of privilege based on an inadequate privilege log.
After “protracted discovery” in this litigation, defendants agreed to run plaintiffs’ proposed search terms on its ESI. Id. at *1. Defendants then made a production, though the search term report produced to plaintiffs showed many more documents than had been produced. After meet-and-confer efforts, defendants produced an additional 25 documents and a privilege log for three documents.
Plaintiffs filed a motion to compel, asking Magistrate Judge Corley to order defendants to produce all ESI that hit on the agreed upon terms. In particular, plaintiffs cited four documents relevant to their claims that defendants initially withheld from production as evidence that defendants had acted unreasonably. Defendants did not dispute having withheld documents responsive to the search terms, but argued they had no obligation to produce these documents because they were unreasonably duplicative of prior discovery.
Magistrate Judge Corley held that defendants lacked sufficient grounds for withholding documents from production, finding that a producing party does not have “discretion to decide to withhold relevant, responsive documents absent some showing that producing the documents is not proportional to the needs of the case.” Id. (citing Fed. R. Civ. P. 26(b)(1)). Defendants argued that the withheld documents were similar to others that had already been produced, noting, for example, that one of the withheld emails had been produced as a forwarded email to other recipients. Id. at *2. Magistrate Judge Corley rejected this claim, stating that a producing party cannot “unilaterally decide that there has been enough discovery on a given topic.” Because defendants’ conduct suggested that they withheld other relevant ESI, Magistrate Judge Corley ordered defendants to produce all nonprivileged documents responsive to the original search terms.
Plaintiffs also challenged defendants’ privilege log, arguing that the log was insufficient and that there should be a waiver of privilege. Magistrate Judge Corley agreed that the log was “patently inadequate” because it only contained dates, names and generic invocations of the attorney-client privilege or work product doctrine. Nonetheless, Magistrate Judge Corley declined to use the court’s discretion to find a waiver, noting that this claim related to only three documents and the parties had not met and conferred on the issue. Instead, she ordered the defendants to produce an adequate privilege log for all documents withheld on grounds of privilege. Id.
4. In Venturedyne, Ltd. v. Carbonyx, Inc., 2016 WL 6694946 (N.D. Ind. Nov. 15, 2016), Magistrate Judge John E. Martin granted a motion to compel defendant to produce ESI after defendant failed to respond to repeated email requests to settle on a list of search terms.
In this breach of contract action, plaintiff alleged that defendant had failed to pay for dust collection equipment used in steel manufacturing. Id. at *2. After defendant objected to plaintiff’s initial discovery request as overbroad, plaintiff submitted a second set of 28 document requests and proposed a list of 126 keywords that would be used to search defendant’s ESI. Id. at *1. Defendants asked to remove 20 terms from the list, and plaintiff voluntarily removed 28 terms, leaving 78 proposed search terms. At that point, defendant stopped responding to plaintiff’s emails, and plaintiff moved to compel discovery under Rule 37(a).
Defendant argued that plaintiff’s proposed search terms were overbroad and would bring in a significant number of nonresponsive documents. Id. at *2. In addition, defendant noted that it had already turned over documents identified using two specific search terms related to name of plaintiff’s business.
Magistrate Judge Martin ruled that defendant had failed to satisfy its burden of showing that the discovery request and proposed search terms were improper. He explained that the narrow search terms that defendants had used to identify responsive documents likely excluded responsive documents related to the contract between plaintiff and defendant as well as other documents that were “well within the broad definition of relevance in discovery contexts.” In addition, defendant had forfeited its opportunity to limit the search terms at issue by deciding to cut off contact with plaintiff’s counsel. Id. at *3. The magistrate judge emphasized that further negotiations between the parties “would have been the better solution” and likely would have limited defendant’s expenses in reviewing the search terms. Accordingly, Magistrate Judge Martin ordered defendant to produce relevant documents flagged by the 78 search terms that plaintiff had proposed before defendant cut off communication.
Defendant was allowed to withhold privileged documents and ESI that was “truly irrelevant to this case,” but as defendant had not objected to any of the 28 revised document requests, “any documents that are returned by the 78 keywords and are within the scope of the 28 Revised Requests must be produced.” Id.
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