This update addresses the following recent developments and court decisions involving e-discovery issues:
- An en banc Eleventh Circuit decision holding that a court order issued pursuant to the Stored Communications Act to compel the production of third-party telephone records containing cell tower location information did not violate the Fourth Amendment;
- A D.C. Circuit decision upholding the bulk of the monetary sanctions imposed by the trial court on plaintiffs for their “dilatory, dishonest and intransigent conduct” during discovery;
- A Fourth Circuit opinion vacating a district court’s award of lost profit damages for failing to apply the appropriate spoliation sanction standard; and
- A Northern District of California decision citing proportionality in allowing computers to be discarded after finding no evidence that the computers contained relevant information and determining that the benefits of maintaining the computers did not outweigh their storage cost.
1. In United States v. Davis, 2015 WL 2058977 (11th Cir. May 5, 2015), the United States Court of Appeals for the Eleventh Circuit, sitting en banc, held that a court order pursuant to the Stored Communications Act to compel the production of third-party telephone records containing cell tower location information did not violate the Fourth Amendment. Quartavious Davis committed seven armed robberies over a two-month period across southern Florida. At his trial, in addition to accomplice and eyewitness testimony, the Government introduced telephone records obtained from MetroPCS pursuant to the Stored Communications Act, 18 U.S.C. § 2701, showing the numbers Davis dialed, the numbers from which he received calls and the cell tower that connected each call. Id. at *1-*2. The cell tower sites were in the general vicinity of the robberies. Davis objected that the collection of these records violated the Fourth Amendment and that such records should be excluded. The District Court denied Davis’s objection and a jury found Davis guilty of several counts of the Hobbs Act robbery, conspiracy and knowing possession of a firearm in furtherance of a crime. Id. at *1. A panel of the Eleventh Circuit held that the government had violated the Fourth Amendment by obtaining the cell tower records but affirmed the conviction based on the good faith exception to the exclusionary rule. U.S. v. Davis, 754 F.3d 1205 (11th Cir. 2014). Upon a request for rehearing en banc by the Government, the en banc Eleventh Circuit vacated the panel opinion and reheard the case. The Eleventh Circuit held that the Government’s collection of cell tower location information and call records did not constitute a search and, even if it did, was reasonable under the Fourth Amendment. First, the Eleventh Circuit found that the collection of call record and cell tower location information did not constitute a search. Under Katz v. United States, 389 U.S. 347 (1967), a court must first determine whether “the individual [has] manifested a subjective expectation of privacy in the object of the challenged search,” and, second, whether “society [is] willing to recognize that expectation as reasonable.” Davis, 2015 WL 2058977, at *7 (quoting California v. Ciraolo, 476 U.S. 207, 211 (1986)). The Eleventh Circuit found that individuals have no reasonable expectation of privacy in MetroPCS’s records. Davis has no ownership interest in these records. “Instead,” the Eleventh Circuit stated, “those cell tower records were created by MetroPCS, stored on its own premises, and subject to its control.”Davis, 2015 WL 2058977, at *11. Cell phone users know that they must transmit signals to cell towers and that users are disclosing their location when they make or receive calls. In reaching this determination, the court relied on the Supreme Court jurisprudence in United States v. Miller, 425 U.S. 435 (1976) and Smith v. Maryland, 442 U.S. 735 (1967) that individuals have no reasonable expectation of privacy in records owned and maintained by third parties. Davis, 2015 WL 2058977, at *8-*13. Second, the Eleventh Circuit found that, even if the collection of MetroPCS’s records were deemed to constitute a search, such a search was reasonable. Id. at *16-*17. Any intrusion on Davis’s privacy expectations was minimal. The court noted that “there was no overhearing or recording of anyconversations;” “there is no GPS real-time tracking of precise movements;” and the Stored Communications Act “incorporates additional privacy protections that keep any intrusion minimal” by requiring specific showings before a “neutral and detached magistrate.” Id. at *17 (emphasis in original). Specifically, the Stored Communications Act requires a showing of “specific and articulable facts” that there are “reasonable grounds to believe” that the records or other information sought are “relevant and material to an ongoing criminal investigation.” Id. (quoting 28 U.S.C. § 2703(c), (d)). The Court noted that the productions of such records serve a compelling government interest and are “routinely used to investigate the full gamut of state and federal crimes.” Davis, 2015 WL 2058977, at *17. The Eleventh Circuit concluded that the balance of interests “amply supports” the reasonableness of the Stored Communications Act order for the collection of MetroPCS’s records. Id. at *18. Several judges on the Eleventh Circuit wrote separately in concurring and dissenting opinions, raising concerns relating to the third-party doctrine, the potential for Government abuse and the ubiquity of technology. The majority countered that cell phone use is ubiquitous and “some citizens may want to stop telephone companies from compiling cell tower location data or from producing it to the government” but stated that such issues should be resolved by the legislatures and not the courts. Id. at *12. 2. In Parsi and Nat’l Iranian Am. Council v. Daioleslam, 778 F.3d 116 (D.C. Cir. 2015), the U.S. Court of Appeals for the D.C. Circuit affirmed the bulk of the monetary sanctions imposed by the trial court on plaintiffs for their “dilatory, dishonest and intransigent conduct” during discovery. Plaintiffs, an Iranian-American advocacy organization and its President, filed a defamation suit on April 25, 2008, against defendant, an amateur investigative journalist living in Arizona, alleging that he defamed them by publicly stating that they were lobbying for the Islamic Republic of Iran. Id. Sidley Austin represented the defendant in both the trial and appellate courts. The discovery proceedings were contentious, with “the parties trad[ing] recriminations over [plaintiffs’] apparent failure to produce documents responsive to several of [defendant’s] requests for production.”Id. at 119. On September 16, 2011, defendant moved for summary judgment and for sanctions against plaintiffs for their alleged misconduct. Id. On September 13, 2012, the District Court granted defendant’s motion for summary judgment and granted in part, and denied in part, his motion for sanctions. Id. (citing Parsi v. Daioleslam, 890 F.Supp.2d 77 (D.D.C. 2012) (summary judgment); Parsi v. Daioleslam, 286 F.R.D. 73 (D.D.C. 2012) (sanctions order)). As support for the sanctions, the District Court invoked both its inherent authority and Fed. R. Civ. P. 37. Parsi, 778 F.3d at 119 (citation omitted). On April 9, 2013, the District Court entered a final judgment in defendant’s favor, awarding him US$183,480.09 in sanctions, plus post-judgment interest. Id. Plaintiffs did not appeal the award of summary judgment but did appeal a portion of the sanctions award. Id. In its opinion, the D.C. Circuit summarized plaintiffs’ alleged misconduct during discovery. Id. at 120-25. Among other things, the District Court had found that plaintiffs, despite defendant’s requests for production, had (i) “failed for ten months to produce [Microsoft] Outlook calendar records for any of its employees,” id. at 120, (ii) violated three court orders over a 13-month period compelling plaintiffs to produce their office server for forensic imaging, resulting in multiple, costly (and wasted) imagings by defendant, id. at 120-22, (iii) withheld meeting notes from a program called “Salesforce,” which plaintiffs had claimed to use on an “experiment[al]” basis, only to later admit that was not the case, id. at 123-24, (iv) taken over two and a half years to produce complete membership lists despite being ordered to do so, id., and (v) failed to produce discoverable documents that defendant later obtained by subpoenaing plaintiffs’ own witnesses (who had received the documents from plaintiffs). Id. at 124-25. With respect to the server in particular, plaintiffs repeatedly had changed their story about whether they even had a server and, if so, what kind they used—at times claiming not to have a server, then producing certain employees’ computers (while omitting others later found to be relevant) in lieu of a server, then admitting to having a “shared drive,” but again claiming not to have a server, then producing a server that had been in use for only a part of the relevant time period and, finally, producing their original server covering the entire relevant time period. See id. at 120-22. The D.C. Circuit explained that “[d]istrict courts have ‘considerable discretion’ in managing discovery,” and “possess broad discretion to impose sanctions for discovery violations under Rule 37.” Id. at 125 (citations omitted). In assessing discovery-related sanctions imposed by a district court, the D.C. Circuit stated that an appellate court reviewed Rule 37 sanctions on an abuse-of-discretion basis, with the imposition of attorneys’ fees under the district court’s inherent authority subject to the “highly deferential standard” of clear error. Id. (citations omitted). The D.C. Circuit emphasized, however, that an award of attorneys’ fees under the district court’s inherent authority must be supported by a finding of bad faith conduct based on clear and convincing evidence. Id. at 131 (citing Shepherd v. Am. Broadcasting Cos., Inc., 62 F.3d 1469, 1478 (D.C. Cir. 1995)). The D.C. Circuit held that plaintiffs’ “dilatory, dishonest and intransigent conduct” warranted upholding “the bulk” of the district court’s sanctions. Id. at 118. The D.C. Circuit chastised plaintiffs for “engag[ing] in a disturbing pattern of delay and intransigence,” noting that, “[s]eemingly at every turn, [plaintiffs] deferred producing relevant documents, withheld them, or denied their existence altogether.” Id. As the D.C. Circuit further explained, “[m]any of these documents went to the heart of [defendant’s] defense. [Plaintiffs’] failure to produce documents in a timely manner forced [defendant]—whom they had haled into court—to waste resources and time deposing multiple witnesses and subpoenaing third parties for emails the appellants should have turned over.” Id. (emphasis in original). “Even worse,” the D.C. Circuit continued, “[plaintiffs] also misrepresented to the District Court that they did not possess key documents [defendant] sought. Most troublingly, they flouted multiple court orders.” Id. The D.C. Circuit ultimately affirmed all but a few thousand dollars worth of sanctions, reversing and remanding the District Court’s award only “in a couple of minor respects.” Id. at 118, 132-33. Specifically, the D.C. Circuit reversed the District Court’s award of sanctions based on plaintiffs’ alterations to a twelve-year-old document just days before it was produced (removing the word “lobbying”); although plaintiffs offered no explanation for the alterations, the District Court had not found bad faith and thus that portion of the award had to be reversed. Id. at 132-33. In addition, the D.C. Circuit remanded the District Court’s award of sanctions for plaintiffs’ false interrogatory answers for a determination as to whether such answers were made in bad faith. Id. In all other material respects, the District Court’s sanctions award was affirmed. Id. 3. In Blue Sky Travel & Tours, LLC v. Al Tayyar, 2015 WL 1451636 (4th Cir. Mar. 31, 2015), the United States Court of Appeals for the Fourth Circuit vacated the district court’s lost profit damages award based on spoliation sanctions imposed without any findings regarding the date the alleged spoliator knew of the documents’ relevance to the case or the date the documents were destroyed.
The case involved a breach of contract dispute between Blue Sky Travel and Tours, LLC (Blue Sky) and Al Tayyar Group (ATG), two travel agencies that had entered into an arrangement whereby Blue Sky would purchase airline tickets on behalf of ATG’s client and ATG would share half its profits from such purchases with Blue Sky. The client was the Saudi Ministry of Higher Education that purchased tickets to facilitate travel by Saudi students studying abroad. ATG became dissatisfied with Blue Sky's performance and ceased sending ticket requests to Blue Sky, which then filed suit alleging that ATG had breached its contract. Blue Sky requested all invoices ATG had sent to its client, including invoices from other vendors. ATG represented that it had not retained the invoices from other vendors. The Magistrate Judge admonished ATG for failing to preserve such evidence and imposed spoliation sanctions, ruling that an adverse inference instruction was appropriate that permitted the jury to presume that ATG had made $20 million in profits from its client.
The trial was bifurcated. The jury determined whether there was a contract that required compensation to Blue Sky and the District Judge resolved the lost profits issues. The District Court construed the adverse inference instruction as an evidentiary presumption applicable at the damages hearing. The jury found that ATG had breached its agreement with Blue Sky and awarded damages of $1.9 million. The District Judge ruled that ATG had not rebutted the presumption that it had $20 million in profits and awarded Blue Sky $10 million as lost profits. ATG appealed arguing that, inter alia, the district court abused its discretion in imposing sanctions for failing to retain invoices of vendors other than Blue Sky. The Fourth Circuit vacated the lost profit determination and remanded the case to the district court for further proceedings. The appellate court cited the following test for imposition of spoliation sanctions:
“A party may be sanctioned for spoliation if the party (1) had a duty to preserve material evidence, and (2) willfully engaged in conduct resulting in the loss or destruction of that evidence, (3) at a time when the party knew, or should have known, that the evidence was or could be relevant in litigation.” Id. at *8 (citing Turner v. United States, 736 F.3d 274, 282 (4th Cir. 2013)).
The Fourth Circuit found that the Magistrate Judge and District Court had failed to apply this standard: “neither the magistrate judge nor the district court made the crucial finding whether ATG destroyed or failed to preserve the evidence at issue, despite having known or should have known that the evidence could be relevant to the case.” Blue Sky Travel, 2015 WL 1451636, at *8. The Magistrate Judge instead stated that, once litigation began, ATG had a duty “to preserve all documents because you don’t know what may or may not be relevant.” Id. (quoting Magistrate Judge)(emphasis by Fourth Circuit). The Fourth Circuit found that this finding constituted an abuse of discretion, as “a party is not required to preserve all its documents but rather only documents that the party knew or should have known were, or could be, relevant to the parties’ dispute.” Id. This finding had been affirmed by the District Court and, in the view of the appellate panel, caused severe prejudice to ATG because “the evidentiary presumption effectively relieved Blue Sky of its burden to prove its damages claim for lost profits.” Id. The appellate court stated that there were two issues that had to be resolved: first, the date by which ATG knew or should have known that the other vendors’ invoices could be relevant to the case; and, second, the date when ATG destroyed those other vendors’ invoices. Id. The Fourth Circuit stated that, on remand, the district court “should determine whether ATG spoliated evidence, what sanctions, if any, are appropriate and whether a new trial on lost profits damages is necessary.” Id. The Fourth Circuit concluded that the spoliation sanction did not affect jury’s finding of liability and award of $1.9 million in other damages. 4. In Lord Abbett Municipal Income Fund, Inc. v. Asami, 2014 WL 5477639 (N.D. Cal. Oct. 29, 2014), the Magistrate Judge Donna M. Ryu, citing the proportionality provisions of the Federal Rules, allowed computers to be discarded after finding no evidence that the computers contained relevant information and determining that the benefits of maintaining the computers did not outweigh their monthly storage cost. Plaintiff Lord Abbett made a request to discard computers that it no longer wanted to pay to retain and store. The computers were used by teachers and students at the Windrush School prior to its closing. The defendants included Windrush board members who had shared the $500 per month storage fees with Lord Abbett until the Board Member defendants prevailed at summary judgment in the underlying suit, at which time they refused to continue paying a share of the storage fees. The Board Member defendants, however, did not consent to Lord Abbett’s disposal of the computers following summary judgment, arguing that the computers might contain relevant information that they might later seek to access. Id. at *1. During the meet-and-confer process, Lord Abbett suggested that the Board Member defendants examine the computers for relevant information, but they declined to do so. Id. Lord Abbett then sought an order permitting it to dispose of the computers, stating that the vendor storing the data, SFL Data, had confirmed that the computers were used by students and teachers only—not by likely custodians of information relevant to the suit. Id. The Board Member defendants argued that they were not aware of SFL Data’s process for determining that the computers were not used by custodians of relevant information and that the computers should be maintained until after the appellate process and any potential trial on remand. See id. Magistrate Judge Ryu granted Lord Abbett’s request, finding under Fed. R. Civ.P. 26(b)(2) that the burden of preserving the computers outweighed the likely benefit of doing so. Id. at *3. She reasoned that there was no indication that the computers contained any potentially relevant information and noted that the Board Member defendants did not appear to have made any efforts to obtain more information about SFL Data’s forensic review, nor did they dispute that Lord Abbett repeatedly had offered to make the computers available for their examination. Id. Finding no evidence that the computers contained relevant evidence, the Magistrate Judge ruled that the burden of the $500 monthly storage cost outweighed the likely benefit of maintaining computers “where there has been absolutely no showing that they contain relevant evidence.” Id. She granted permission to Lord Abbett to dispose of the computers.