This Sidley Update addresses the following recent developments and court decisions involving e-discovery issues:
- a Second Circuit decision quashing a warrant issued under the Stored Communications Act for email records stored overseas, finding that the Act has no extraterritorial application;
- a Southern District of New York decision ruling that defendants are not entitled to seek discovery relating to unpled defenses;
- a Northern District of Georgia order rejecting defendant’s disproportionate cost argument in a civil rights case and requiring defendant to produce documents in native format; and
- an Eastern District of New York ruling that a transgender prison plaintiff claiming discrimination could seek electronically stored information (ESI) on individual defendants’ personal computers for evidence of motivation or bias.
1. In In the Matter of a Warrant to Search a Certain E-Mail Account Controlled and Maintained by Microsoft Corp. (Microsoft Corp. v. United States), 2016 WL 3770056 (2d Cir. Jul. 14, 2016), the U.S. Court of Appeals for the Second Circuit granted Microsoft’s motion to quash a warrant issued under the Stored Communications Act for email records stored overseas, finding that the Act has no extraterritorial application.
The United States sought documents related to a narcotics investigation and served a Stored Communications Act (SCA) warrant on Microsoft for emails related to the suspected offense. Microsoft produced certain responsive information but determined that the contents of the requested emails resided at a data center in Dublin, Ireland, operated by its subsidiary. Microsoft moved to quash the warrant with respect to the electronic content stored in Dublin. The magistrate judge denied Microsoft’s motion, ruling that the SCA authorized the government to require the disclosure of information stored on servers abroad. Microsoft appealed the decision to the chief judge of the district court, who in a ruling from the bench adopted the magistrate judge’s decision. Microsoft appealed the denial of the motion to quash (and the district court’s subsequent contempt order) to the Second Circuit. Id. at *1.
The Second Circuit held that an SCA warrant does not operate beyond the territory of the United States. Applying the presumption against the extraterritorial operation of federal statutes, the court began by determining whether the language of the SCA provided a “clear indication” of extraterritorial application. It found that “[n]o relevant definition provided by [the SCA] suggests that Congress envisioned any extraterritorial use for the statute.” Id. at *9. Further, the court noted that “warrant” is a term of art and that its use in the SCA is “fully consistent with the historical role of warrants as legal instruments that pertain to discrete objects located within the United States, and that are designed to protect U.S. citizens’ privacy interests.” Id. at *11.
The government argued that the law of subpoenas should apply and relied on a Second Circuit case involving the extraterritorial application of subpoena powers. The court noted, however, that its precedent authorized the use of a subpoena extraterritorially only where the foreign defendant was compelled to turn over documents regarding illegal conduct, the effects of which were felt in the United States. Id. at *13 (citing Marc Rich & Co., A.G. v. United States, 707 F.2d 663, 666-67 (2d Cir. 1983)). Indeed, “Microsoft convincingly observes that our Court has never upheld the use of a subpoena to compel a recipient to produce an item under its control and located overseas when the recipient is merely a caretaker for another individual or entity and that individual, not the subpoena recipient, has a protectable privacy interest in the item.” Microsoft Corp., 2016 WL 3770056, at *13.
The Second Circuit then considered whether the “focus” of the SCA’s warrant provisions permit the exercise of a warrant to receive emails stored overseas. The court found that it did not, concluding “that the relevant provisions of the SCA focus on protecting the privacy of the content of a user’s stored communications.” Id. at *15. The government argued that the SCA prescribes the methods to obtain records and that this is the proper “focus” of the statute. The Second Circuit disagreed, stating that “it is fair to conclude based on the plain meaning of the text that the privacy of the stored communications is the ‘object of the statute’s solicitude,’ and the focus of its provisions.” Id. (quoting Morrison v. Nat’l Australian Bank Ltd., 561 U.S. 241, 267 (2010)). Because the data was stored outside the United States, the Second Circuit concluded that “the conduct that falls within the focus of the SCA would occur outside the United States” — namely the seizure of data and its transfer to the United States government — “regardless of the customer’s location and regardless of Microsoft’s home in the United States.” Microsoft Corp., 2016 WL 3770056, at *17. Though there may be strong policy considerations for permitting access to the data, in the Second Circuit’s view, the statute does not permit the government to obtain access to data stored outside the United States.
Judge Gerard Lynch filed a concurrence. He agreed with the court’s conclusion that the SCA did not operate extraterritorially but believed that it should not be based in any privacy interest. Instead, he found that the statute simply did not permit an extraterritorial application. Judge Lynch, however, stated that “I believe even more strongly that the statute should be revised, with a view to maintaining and strengthening the Act’s privacy protections, rationalizing and modernizing the provisions permitting law enforcement access to stored electronic communications and other data where compelling interests warrant, and clarifying the international reach of those provisions carefully balancing the needs of law enforcement (particularly in investigations addressing the most serious kinds of transnational crime) against the interests of other sovereign nations.” Id. at *26.
In this case, Sidley submitted a brief to the Second Circuit on behalf of amicus curiae AT&T Corp. and other parties in support of Microsoft.
2. In Lifeguard Licensing Corp. v. Kozak, 2016 WL 3144049 (S.D.N.Y. May 23, 2016), Magistrate Judge James C. Francis ruled that defendants were not entitled to seek discovery relevant to unpled defenses.
Lifeguard Licensing Corp., owner of trademarks for the designation LIFEGUARD and LIFE GUARD for use on certain swimwear and other clothing, and Popularity Products, LLC, sued Ann Arbor T-Shirt Company, LLC, and others for trademark infringement. The defendants filed a motion to dismiss and also served pre-answer requests for production. The plaintiffs refused to produce discovery responsive to defendants’ requests seeking information on defendants’ likely defenses and counterclaims, which had not been pled at that time due to the pendency of the motion to dismiss.
The defendants filed a motion to compel, arguing that the plaintiffs could not file suit and then refuse to answer discovery regarding defendants’ likely defenses and counterclaims. Id. at *2. Magistrate Judge Francis described how the Federal Rules of Civil Procedure prior to Dec. 1, 2015, had permitted discovery “regarding any nonprivileged matter that is relevant to any party’s claim or defense” and “[f]or good cause, the court may order discovery of any matter relevant to the subject matter involved in the action.” Fed. R. Civ. P. 26(b)(1) (amended Dec. 1, 2015). The December 2015 amendment deleted the second quoted portion of the Rule so that discovery, as Magistrate Judge Francis stated, “now extends only as far as information relevant to claims or defenses.” Id. at *2. The magistrate judge noted that even before the amendment, “it was well-established that information relevant only to claims not yet pled was beyond the scope of discovery, at least without leave of court.” Id. A rule that permitted discovery of unpled claims would, the magistrate judge stated, risk wasting resources regarding claims or defenses that are never pled; dilute the Rule 11(b) obligations on parties and counsel to conduct an investigation reasonable under the circumstances before filing a pleading; and run contrary to the plain reading of the Rule 26(b)(1), which does not permit discovery of “likely,” “anticipated” or “potential” claims. Id. at *3.
Based on this reasoning, Magistrate Judge Francis denied defendants’ motion to compel responses to unpled claims. He rejected defendants’ claim that such an action was inequitable, noting that, if defendants had wanted to pursue such discovery, they could have filed an answer simultaneously with or shortly after filing their motion to dismiss. Id. at *3-*4.
Magistrate Judge Francis also addressed other claims raised by the parties. He denied defendants’ request for an order requiring plaintiffs to hire a third-party forensic firm to review plaintiffs’ systems for relevant documents but granted defendants’ request for an order requiring plaintiffs to conduct a further search of its records. The magistrate judge found that the plaintiffs failed to conduct a search “sufficient to make confident representations concerning the completeness of their production” and that they should be required to search sources of potentially relevant documents. Id. at *4. The magistrate judge also denied plaintiffs’ objection that they were not required to disclose documents relating to prior litigations and denied plaintiffs’ request for attorneys’ fees.
3. In Mitchell v. Reliable Security, LLC, 2016 WL 3093040 (N.D. Ga. May 24, 2016), Magistrate Judge Alan Baverman rejected defendant’s argument that costs were disproportionate and unreasonable in a civil rights case and required defendant to produce documents in native format.
Plaintiff sued the defendant company for workplace and pregnancy discrimination. Plaintiff requested that defendant provide responsive discovery in native format with metadata, but defendant objected that such production would impose unreasonable costs — approximately $3,000 more to produce 3 GB of data in native format, consisting of an extra $2,000 for ESI processing and $1,000 for paralegal time. Defendant argued that such costs were disproportionate because plaintiff’s damages were likely less than $10,000 and proposed that the production be made in PDF format. Id. at *1.
Plaintiff responded that defendant had not provided any support for the claimed additional expense, that plaintiff sought production in native format because the emails and spreadsheets were susceptible to being manipulated and that the plaintiff’s damages claim ranged from $50,000 to $300,000. Id.
Magistrate Judge Baverman agreed with plaintiff. He found that the defendant had “simply asserted” that that the native production would cost an additional $3,000 but failed to explain the reasons for the additional costs. Id. at *2. As a result “the Court remains ... at a loss to understand why the production of native documents is more costly than production of the PDF files.” Id. at *2. The magistrate judge also stated that even if plaintiff had made an adequate showing of the additional costs, plaintiff demonstrated good cause in seeking the native production. According to the magistrate judge, it was “not at all unreasonable” to verify that the documents had not been manipulated, and “the public value of allowing a civil-rights plaintiff opportunity to access information relevant and quite possibly necessary to her pregnancy-discrimination suit far outweighs the asserted $3,000 cost.” Id.
4. In Sunderland v. Suffolk County New York, 2016 WL 3264169 (E.D. N.Y. June 14, 2016), Magistrate Judge Kathleen Tomlinson ruled that a transgender prison plaintiff claiming discrimination could search ESI on individual defendants’ personal computers for evidence of motivation or bias.
Plaintiff, a transgender inmate at the Suffolk County Correctional Facility (SCCF), brought a civil rights action against New York’s Suffolk County and individual defendants for “fail[ing] to provide transgender inmates with necessary medical treatment” at SCCF and failing to properly train medical staff at SCCF to provide necessary medical care to transgender inmates. Id. According to plaintiff, who had been diagnosed with gender dysphoria, the individual SCCF defendants “did not consider Plaintiff’s condition to be a serious medical condition requiring timely medical attention. To the contrary, they consistently treated Plaintiff’s condition as frivolous and were content to let the next correctional facility deal with Plaintiff’s medical needs.” Id. at *2.
Plaintiff submitted discovery seeking, inter alia, ESI from individual defendants’ computers regarding plaintiff or discussing gender identity or sexual preference issues as well as references to various specified terms. With respect to this discovery, the parties agreed on search terms covering a five-year period to apply to the ESI of relevant custodians, including the individual defendants, on their work computers. Id. Plaintiff also sought production of ESI from the personal computers and email accounts of the individual defendants, which the individual defendants opposed. Plaintiff filed a motion to compel. Id.
The magistrate judge concluded that plaintiff had the right to seek ESI of the individual defendants from their personal computers and email accounts that referenced plaintiff or discussed issues related to gender dysphoria, concluding that the request for information fell “within the broad scope of relevant discovery under Federal Rule of Civil Procedure 26(b).” Id. (citing Cooks v. Town of Southampton, 2015 WL 1476672, at *8 (E.D.N.Y. Mar. 31, 2015)).
In making this ruling, the magistrate judge noted that to the extent such ESI exists on the defendants’ personal computers, it may contain information going to bias or motivation that may show why a personal computer was used for such communications, as well as information that may support plaintiff’s claims of deliberate indifference by the defendants. Sunderland, 2016 WL 3264169, at *3. Magistrate Judge Tomlinson concluded that the request was not unduly burdensome because it was limited to a five-year time period and involved agreed-upon search terms. Id.
The magistrate judge required defendants’ counsel to run the parties’ agreed-upon search terms on the defendants’ personal computers and personal email and produce any responsive ESI from the specified time frame. Id. She also ordered defendants’ counsel to supervise the ESI search and production of the individual defendants’ computers and email accounts and reminded counsel that simply handing over the search terms to the individual defendants to run on their own would not be sufficient. Id.
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Sidley E-Discovery Task Force
The legal framework in litigation for addressing the explosion in electronic communications has been in flux for a number of years. Sidley Austin LLP has established an E-Discovery Task Force to stay abreast of and advise clients on this shifting legal landscape. An interdisciplinary group of more than 25 lawyers across all our domestic offices, the Task Force monitors and examines issues and developments in the law regarding electronic discovery. The Task Force works seamlessly with our firm’s litigators who regularly defend and prosecute all types of litigation matters in trial and appellate courts, federal and state agencies, arbitrations and mediations throughout the country. The co-chairs of the E-Discovery Task Force are Alan C. Geolot (+1 202 736 8250, email@example.com), Robert D. Keeling (+1 202 736 8396, firstname.lastname@example.org) and Colleen M. Kenney (+1 312 853 4166, email@example.com).
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