This Sidley Update addresses the following recent developments and court decisions involving e-discovery issues:

  1. a Western District of Washington decision in which the court sanctioned a lawyer who “inexcusabl[y]” relied on outdated case law and pre-2015 amendments to Federal Rule of Civil Procedure 26(b) in motions practice before the court
  2. a Tax Court opinion rejecting an Internal Revenue Service (IRS) motion to compel the production of documents in a case involving the use of predictive coding, finding that the producing party made a “reasonable inquiry” as required by the discovery rules in using predictive coding
  3. a Southern District of Mississippi order denying defendant’s request for direct access to certain hard drives where defendant had not shown that plaintiff had failed to provide the requested information contained on those hard drives
  4. an Eastern District of North Carolina case denying plaintiffs’ motion to compel defendant to produce documents from a nonparty parent corporation after finding that the defendant had no legal right to obtain the documents on demand

1. In Fulton v. Livingston Financial LLC, 2016 WL 3976558 (W.D. Wash. July 25, 2016), U.S. District Judge James L. Robart sanctioned a lawyer who “inexcusabl[y]” relied on outdated case law and pre-2015 amendments to Federal Rule of Civil Procedure 26(b) in motions practice before the court.

In this Fair Debt Collection Practice Act case, defense counsel argued in a motion to compel or exclude medical evidence that because plaintiff had not sought treatment for a medical condition, he did not seek recovery in the case for any medical condition, and, accordingly, plaintiff’s medical records and treatments “were not at issue.” Id. at *6. Judge Robart found counsel’s inference “so unreasonable as to constitute a misrepresentation to the court,” as the plaintiff did seek recovery for emotional distress. Id. at *6, *8.

In this Fair Debt Collection Practice Act case, defense counsel argued in a motion to compel or exclude medical evidence that because plaintiff had not sought treatment for a medical condition, he did not seek recovery in the case for any medical condition, and, accordingly, plaintiff’s medical records and treatments “were not at issue.” at *6. Judge Robart found counsel’s inference “so unreasonable as to constitute a misrepresentation to the court,” as the plaintiff did seek recovery for emotional distress. at *6, *8.

Judge Robart also found that defendant’s counsel had “misstate[d] the law” regarding discovery by citing cases analyzing preamendment Rule 26, given that the “highly publicized amendments took effect on December 1, 2015.” Id. at *7. The judge noted that he had indicated at a hearing that the amended rules had “dramatically changed” what information was discoverable, and he declared that such citations to outdated caselaw were “inexcusable” and “inexplicable.” Id. at *7, *8.

Judge Robart sanctioned counsel in an oral ruling. In addition to awarding plaintiff his fees and costs incurred in litigating the motion, Judge Robart ordered defense counsel to provide a copy of his offending motion to the supervising members of his firm, with the explanation that the court had entered sanctions against him “for quoting provisions of the civil rules that are badly out of date, and also making direct misrepresentations to the court.” Id. at *8. He also threatened an additional sanction of requiring defense counsel to report this sanction on future pro hac vice applications. Id.

Defense counsel filed a memorandum in response to the court’s oral ruling, stating that he had acted in good faith and noting that his conduct did not affect the administration of justice in the case. For these reasons, defense counsel requested that the court exercise its discretion in not taking disciplinary action or, in the alternative, limiting the disciplinary action to an informal, private admonition that would not need to be reported on future pro hac vice applications. Id.

As the defense counsel’s memorandum was not denominated a motion for reconsideration, Judge Robart declined to reconsider his oral ruling and instead considered only whether to impose the additional pro hac vice reporting sanction. Id. at *8. Judge Robart rejected as “post hoc speculation” defense counsel’s claim that because preamendment Rule 26 could have applied “insofar as just and practicable,” his citation to preamendment cases was in good faith. Id. Judge Robart also noted that counsel had not advanced such an argument in support of his motion, nor had he made any reference whatsoever to the amended rule.

Judge Robart likewise rejected counsel’s “disingenuous” characterization of his motion as discussing “general case law as an idea of what relevance is” under Rule 26, a standard that counsel noted was not altered by the 2015 amendment to the rule. Judge Robart pointed out that counsel had not limited his motion to a discussion of the relevance of the evidence but rather had argued that the evidence was “relevant, non-privileged, and thus discoverable.” Id. at *9. By relying on preamendment cases in an argument on discoverability and making “no reference to the proportionality requirement,” counsel “misrepresented the scope of discoverable information in a motion to compel or exclude evidence” and then failed to “own[] up to his misrepresentation,” which was “tantamount to bad faith.” Id.

Judge Robart nonetheless found that his original sanctions would “nearly suffice” to deter counsel from misrepresenting facts or the law in the future and thus decided that counsel did not need to report the sanctions on future pro hac vice applications. Id. He did add, however, an additional sanction, requiring counsel to disclose the sanctions imposed if, at any point in the next five years, a federal court threatened or imposed sanctions on him. Id. In Judge Robart’s view, “[t]his requirement will alert courts presiding over future cases that [defense counsel’s] misrepresentations in this case constitute strikes one and two against him. Future courts will then be sufficiently informed to properly sanction any further bad faith by [defense counsel].” Id.

2. In Dynamo Holdings L.P. vs. Commissioner, 2016 WL 4204067 (U.S. Tax Ct. July 13, 2016), Judge Ronald L. Buch of the United States Tax Court rejected an IRS motion to compel the production of documents in a case involving the use of predictive coding, finding that the producing party made a “reasonable inquiry” as required by the discovery rules in using predictive coding.

In previous proceedings, the court authorized Dynamo to use predictive coding for the first-level review of a large pool of documents contained on two backup tapes. Id. at *1. Pursuant to the court’s previous order, the IRS and Dynamo had agreed that Dynamo would run a search for terms provided by the IRS on the potentially relevant documents. Id. at *2. Dynamo made available to the IRS several samples of randomly selected documents from the universe of potentially relevant documents, from which the IRS identified the documents it deemed relevant. Id. at *3. These selections were used to create a predictive coding model, which a computer can use to identify conceptually similar documents. Id.

After this process, Dynamo delivered approximately 180,000 documents to the IRS, constituting all nonprivileged documents identified by the predictive coding model. Id. After receipt and review of these documents, the IRS believed the response was incomplete and served Dynamo with a new discovery request asking for all documents containing certain specified search terms. The IRS subsequently filed a motion to compel production of approximately 1,600 documents responsive to these search terms that were not identified and produced using the predictive coding model. Id. Dynamo disputed this figure — stating that some documents had actually been produced and some were outside the relevant time frame — and claimed that the number of documents in dispute was approximately 750. Id. at *4.

In reviewing this issue, the court noted that the IRS’s motion to compel was predicated on two myths: (1) the myth that human review constitutes the “gold” standard by which all searches be measured and (2) the myth of a “perfect response.” Id. at *5. The court ultimately denied the IRS motion, explaining that document review results are never perfect. Id. The court stated that the IRS was seeking a perfect response but that both the Tax Court Rules and Federal Rules of Civil Procedure require only that the responding party make a “reasonable inquiry” when complying with a discovery request. Id. at *6. The court explained that when the responding party is signing the response to a discovery demand, it is not certifying that it has turned over everything; it is certifying that it has made a reasonable inquiry and to the best of its knowledge, its response is complete. Id. The court ruled that the use of predictive coding does not change this standard. Id. The court found that Dynamo made a reasonable inquiry in responding to the IRS’s discovery demands when it used predictive coding to produce any documents that the algorithm determined was responsive, and Dynamo’s response was complete when it produced those documents. The court summarized its holding as follows:

There is no question that petitioners satisfied our Rules when they responded using predictive coding. Petitioners provided the Commissioner with seed sets of documents from the backup tapes, and the Commissioner determined which documents were relevant. That selection was used to develop the predictive coding algorithm. After the predictive coding algorithm was applied to the backup tapes, petitioners provided the Commissioner with the production set. Thus, it is clear that petitioners satisfied our Rules with their response. Petitioners made a reasonable inquiry in responding to the Commissioner’s discovery demands when they used predictive coding to produce any documents that the algorithm determined was responsive, and petitioners’ response was complete when they produced those documents. Id.

3. In Midwest Feeders, Inc. v. The Bank of Franklin, 2016 WL 3945676 (S.D. Miss. July 19, 2016), Magistrate Judge Michael T. Parker denied defendant’s motion to compel plaintiff to permit direct access to plaintiff’s hard drives, finding that defendant had not shown that plaintiff had failed to provide the requested information contained on those hard drives.

Defendant sought production of certain hard drives in plaintiff’s possession. Plaintiff produced imaged copies of each hard drive, but defendant moved to compel plaintiff to produce the hard drives themselves. Id. at *1. Plaintiff resisted, arguing that Federal Rule of Civil Procedure 34(b)(2)(B) permitted it to produce images of the hard drives in lieu of the physical drives, and noting that the imaged drives it produced to defendant “contain[ed] the exact same data to which [plaintiff] has access.” Id. Plaintiff also offered to make the computers available for inspection at their current location in Colorado.

Magistrate Judge Parker agreed with plaintiff, noting that the Advisory Committee’s comments to Rule 34 stated that it may be necessary to permit direct access to a storage device in some circumstances, but the rules were “not meant to create a routine right of direct access,” as such access is “highly intrusive.” Id. at *2 (internal quotations omitted). Magistrate Judge Parker found that defendant had not made a showing that would justify direct access, noting that defendant had conceded that “the partial set of information provided via imaged copies may be the entirety of what is available on the hard drives.” Id. (internal quotations omitted).

4. In In re NC Swine Farm Nuisance Litigation, 2016 WL 3661266 (E.D.N.C. July 1, 2016), Magistrate Judge Robert B. Jones Jr. denied plaintiffs’ motion to compel defendant to produce documents from a nonparty parent corporation after finding that the defendant had no legal right to obtain the documents on demand.

Plaintiffs moved to compel defendant to produce documents from Smithfield Foods, Inc. (Smithfield). Defendant was the “corporate grandchild” of Smithfield — the wholly owned subsidiary of a wholly owned subsidiary of Smithfield. Id. at *3. Plaintiffs argued that defendant had possession, custody or control of Smithfield’s documents within the meaning of Federal Rule of Civil Procedure 34(a) because defendant had “a close, interconnected relationship” with Smithfield. Id. Plaintiffs claimed that defendant had been absorbed into Smithfield following a corporate restructuring “so that there is no longer a legal distinction between the two.” Id. Defendant opposed the motion on the grounds that it had no control over Smithfield’s documents and no legal right to obtain them, nor did it have access to Smithfield’s servers. Id.

Magistrate Judge Jones stated that the Eastern District of North Carolina does not apply a “practical-ability-to-obtain” standard in determining whether a party has control of documents within the meaning of Rule 34(a). Id. at *3. Instead, the applicable standard was whether the party either has actual possession, custody or control of the documents or has the legal right to obtain the documents on demand. Id. Thus, the interconnected relationship of defendant and Smithfield was not dispositive, nor was the fact that defendant and Smithfield were represented by common outside counsel. Id. at *4. Magistrate Judge Jones concluded that plaintiffs “failed to demonstrate that defendant can require Smithfield to turn over the documents,” noting that none of defendant’s officers or employees were officers of Smithfield and that defendant did not use the same servers as Smithfield or otherwise have access to Smithfield’s documents. Id.

Finally, Magistrate Judge Jones found that there was no need to “expand the definition of control” to compel defendant’s production of Smithfield’s documents because plaintiffs had already served Smithfield with a subpoena for the documents. Id.