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

  1. a U.S. District Court for the Northern District of Texas ruling that the fiduciary exception to the attorney-client privilege could not be invoked by assignees of beneficiaries’ rights as participants or beneficiaries in an insurance plan because the assignment did not assign the beneficiaries’ rights to assert the attorney-client privilege or to sue for breach of fiduciary duty
  2. a U.S. District Court for the District of Oregon decision addressing several discovery issues, including that (1) sanctions or an adverse inference were not warranted in connection with defendants’ failure to produce notebooks allegedly used by a witness to take notes during meetings, (2) a union president’s deletion of his electronic calendars was spoliation, (3) additional Rule 30(b)(6) testimony was appropriate due to defendants’ failure to adequately prepare a designated witness and (4) additional Rule 30(b)(6) testimony was not required on the defendants' litigation hold process because plaintiff did not specifically mention that topic in the Rule 30(b)(6) notice
  3. a New Jersey Superior Court, Appellate Division, ruling affirming a trial court dismissal of claims against Ford for the alleged failure of its airbag to deploy, finding that plaintiff was responsible for spoliation of an airbag restraint control module (RCM) by failing to preserve it
  4. a Florida District Court of Appeal decision quashing an order allowing forensic examination of lawyers’ data due to overbroad search terms and remanding with directions to limit the search terms to protect against the disclosure of privileged or irrelevant information

1. In Advanced Physicians, S.C. v. Connecticut Gen. Life Ins. Co., 2019 WL 1745966 (N.D. Tex. Apr. 17, 2019), Magistrate Judge Rebecca Rutherford ruled that the assignee of beneficiaries’ rights as participants or beneficiaries in an insurance plan could not invoke the fiduciary exception to the attorney-client privilege because the assignment did not assign the beneficiaries’ rights to assert the attorney-client privilege or to sue for breach of fiduciary duty.

Advanced Physicians, S.C. provided chiropractic and medical diagnostic services to certain beneficiaries of the NFL Player Insurance Plan (the Plan). Beginning in 2015, Cigna Health and Life Ins. Co., which makes determinations on claims filed under the Plan, denied the claims of beneficiaries who received Advanced’s services because the underlying injuries were “work-related” and thus not compensable under the Plan. The beneficiaries assigned “their rights as participants or beneficiaries in the Plan and their causes of action against the Plan” to Advanced, which sued Cigna for Employee Retirement Income Security Act (ERISA) violations to recover benefits to which it claimed the beneficiaries were entitled under the Plan. When Advanced served written discovery, requests for production and interrogatories, Cigna objected on privilege grounds. Advanced moved to compel, arguing that the fiduciary exception to the attorney-client privilege applied because the documents relate to Cigna’s acts of Plan administration. Id. at *1.

The fiduciary exception to the attorney-client privilege applies “‘when a trustee obtains legal advice related to the exercise of fiduciary duties’ such that ‘the trustee cannot withhold attorney-client communications from the beneficiary of the trust.’” Id. at *2 (quoting United States v. Jicarilla Apache Nation, 564 U.S. 162, 165 (2011)). The Fifth Circuit has applied this exception in the ERISA context, finding that “[w]hen an attorney advises a plan administrator or other fiduciary concerning plan administration, the attorney’s clients are the plan beneficiaries for whom the fiduciary acts, not the plan administrator.” Id. (quoting Wildbur v. ARCO Chem. Co., 974 F.2d 631, 645 (5th Cir. 1992)). Therefore, “an ERISA fiduciary cannot assert the attorney-client privilege against a plan beneficiary about legal advice dealing with plan administration.” Id. (quoting Wildbur, 974 F.2d at 645).

Magistrate Judge Rutherford assumed, for the purpose of deciding the motion to compel, that the documents in Cigna’s privilege log did in fact contain confidential communications concerning administration of the Plan. Magistrate Judge Rutherford looked to an instructive case from the Northern District of Texas, Klein v. Federal Ins. Co., 2014 WL 3408355 (N.D. Tex. July 14, 2014), in which the plaintiffs sought to compel the defendant to produce documents that defendant claimed were subject to attorney-client privilege in the plaintiffs’ class action against CVS and Retrac, Inc. The defendant in Klein provided insurance coverage to CVS and Retrac, and CVS assigned to the plaintiffs “all of their rights, if any, under the Federal Policy to seek indemnity coverage.” Id. at *3 (quoting Klein, 2014 WL 3408355, at *11). The Klein court determined that nothing in the assignment indicated that CVS intended to waive the attorney-client privilege or to assign to the plaintiffs the right to assert the privilege and, therefore, denied the plaintiffs’ motion.

Magistrate Judge Rutherford determined that the assignment in this case was even more limited than the assignment in Klein. Advanced’s “Assignment of Benefits” transferred “the patient’s cause of action against any insurance company refusing to issue payment and any claim against a potentially negligent third party responsible for the patient’s injury.” Id. at *4. Judge Rutherford found nothing to indicate that the beneficiaries had intended to assign their right to assert the attorney-client privilege.

The court further found that because Advanced had not been assigned the right to sue for breach of fiduciary duty, it did not have the right to assert the fiduciary exception to the attorney-client privilege on the beneficiaries’ behalf. The Fifth Circuit has distinguished the rights of a beneficiary to receive covered medical services or reimbursement from the rights of an individual entitled to receive payment as assignee of a beneficiary. “The assignee does not become a ‘beneficiary’ for all purposes under ERISA by virtue of the assignment.” Id. at *5 (citation omitted). Furthermore, to be valid, an assignment of the right to sue for fiduciary-breach claims must be express and knowing “[b]ecause an assignment of a fiduciary duty breach claim affects all plan participants, and unsuccessful claims can waste plan resources that are meant to be available for employees’ retirements.” Id. at *5 (quoting Texas Life v. Gaylord Entertainment Co., 105 F.3d 210, 218 (5th Cir. 1997)).

Magistrate Judge Rutherford found that the beneficiaries’ assignment to Advanced did not expressly mention fiduciary-breach claims and, therefore, such claims were not assigned. “Because Advanced does not hold all of the rights of a Plan beneficiary for all purposes under ERISA by virtue of its assignment, as evidenced by Advanced’s inability to bring an ERISA fiduciary-breach claim against Cigna,” Advanced could not assert the fiduciary exception to the attorney-client privilege on behalf of the beneficiaries.

Because the beneficiaries did not assign Advanced (1) their right to assert the attorney-client privilege or (2) their right to sue for breach of fiduciary duty, Advanced could not assert the fiduciary exception to the attorney-client privilege. Magistrate Judge Rutherford therefore denied Advanced’s motion.

2. In ICTSI Oregon, Inc. v. Int’l Longshore and Warehouse Union, 2019 WL 1500698 (D. Or. April 5, 2019), Judge Michael H. Simon addressed several discovery issues, including that (1) sanctions or an adverse inference were not warranted in connection with defendants’ failure to produce notebooks allegedly used by a witness to take notes during meetings, (2) a union president’s deletion of his electronic calendars was spoliation, (3) additional Rule 30(b)(6) testimony was appropriate due to defendants' failure to adequately prepare a designated witness and (4) additional Rule 30(b)(6) testimony was not required on the defendants' litigation hold process because plaintiff did not specifically mention that topic in the Rule 30(b)(6) notice.

This case involves a labor dispute between ICTSI Oregon, Inc. (ICTSI), and International Longshore and Warehouse Union and International Longshore and Warehouse Union Local 8 (Local 8) (collectively, ILWU Entities) at a Portland port. ICTSI moved for sanctions against the ILWU Entities for alleged “serious discovery misconduct” relating to destroyed relevant notebooks, the union president’s destruction of his calendar, and alleged inadequate preparation of Rule 30(b)(6) witnesses and improper objections during the Rule 30(b)(6) depositions. Id. at *2. The court considered each argument in turn.

The court began by noting that it had inherent authority to impose sanctions as well as authority under Fed. R. Civ. P. 37 to punish failures to provide information requested under Rule 26(a) or (e), failures to appear for a deposition, and spoliation. Judge Simon explained the standard for obtaining spoliation sanctions as requiring a showing that (1) the party having control over the evidence had an obligation to preserve it at the time it was destroyed, (2) the records were destroyed “with a culpable state of mind” and (3) the evidence was “relevant” to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense. Id. (quoting Apple Inc. v. Samsung Elecs. Co., 888 F. Supp. 2d 976, 989-90 (N.D. Cal. 2012)).

ICTSI’s motion to compel first sought the preclusion of evidence and an adverse inference instruction related to notebooks belonging to one of the ILWU Entities, witnesses. ICTSI claimed that the ILWU Entities gave inconsistent responses regarding the responsive notebooks, including stating that they were destroyed. The official had testified that he does not take notes in notebooks and that he had searched for notebooks and found nothing, but counsel for ICTSI responded with a photo of the official at a meeting with three different colored notebooks.

In later correspondence between counsel, an ILWU Entities attorney pointed out that the photograph of the official did not depict him taking any notes and stated that that one notebook appeared to be the official’s calendar, which was produced, and that the other notebooks were used to “to take stray notes and to doodle.” Id. at *2. The attorney also explained in the letter that such stray notes and doodles would be immediately destroyed by the official and then the notebooks would be destroyed when fully used. In opposing a motion for sanctions, the official also stated that he merely took the three notebooks out of his bag to get other materials needed from his bag but did not use the notebooks during the meeting.

ICTSI contended that the ILWU Entities should be judicially estopped from changing their representation that the journals were destroyed. In considering this request, Judge Simon noted several questions relevant to whether judicial estoppel was appropriate, including: (1) Is the party’s later position “clearly inconsistent with its earlier position?” (2) Did the party succeed in persuading a court to accept its earlier position, creating a perception that the first or second court was misled? and (3) Will the party seeking to assert an inconsistent position “derive an unfair advantage or impose an unfair detriment on the opposing party?” Id. at *3 (quoting Baughman v. Walt Disney World Co., 685 F.3d 1131, 1133 (9th Cir. 2012)). 

Applying these questions, Judge Simon found that the ILWU Entities had not represented that the journals had been destroyed — only that responsive journals did not exist and that “stray notes” were destroyed. Thus, Judge Simon found that “the ILWU Entities have not taken ‘clearly inconsistent’ positions before the Court,” and the doctrine of judicial estoppel did not apply. Judge Simon further found that ICTSI had failed to demonstrate that any evidence had been destroyed or that any notebooks beyond the official’s calendar were relevant. Accordingly, Judge Simon concluded that no sanctions would be awarded on this issue.

ICTSI’s motion to compel next argued that another witness, ILWU’s union president, destroyed his calendars each year even though his information was or should have been subject to a litigation document hold. Id. at *4. The ILWU Entities responded that these calendars were irrelevant and that a prior motion to compel production of calendars of other union personnel had been denied. However, Judge Simon concluded that the calendars contained relevant information about when the union president traveled to Portland and when he met with other union officials. Further, Judge Simon found that the ILWU Entities were on notice that the calendars had potentially relevant evidence beginning in April 2013, when ICTSI issued a document request for those calendars, but the president subsequently destroyed his calendars.

Judge Simon found that there was some fault in counsel’s failure to instruct the president to preserve his calendars but did not believe that such conduct rose to the level of culpable or bad-faith destruction. Nor was there significant prejudice as ICTSI had the opportunity to depose the relevant personnel to ask about meetings and discussions and travel. Judge Simon did find that there was some prejudice resulting from the destruction of the calendars because “there may have been some other meetings or travel noted in the calendars that witnesses no longer remember due to the passage of time, and the president could not recall the specific dates so that ICTSI could track productivity statistics.” But Judge Simon denied ICTSI’s request for an adverse inference instruction and instead stated that both sides could argue to the jury about the issue. “Further, although the ILWU Entities will be able to introduce testimony from [the president] about what information he generally puts in his calendars, they will not be able to introduce evidence regarding any specific information that might have been contained in the destroyed calendars.”

Finally, ICTSI’s motion to compel asserted that Local 8 did not adequately prepare a designee to be a Rule 30(b)(6) deposition witness and made numerous improper objections, resulting in the equivalent of that designee “not showing up” for the deposition. ICTSI further asserted that the ILWU Entities improperly instructed other Rule 30(b)(6) witnesses not to answer questions, including instructing the witness designated regarding electronic discovery not to answer questions regarding how the ILWU Entities communicated their litigation hold obligations to the appropriate personnel. Id. at *6. The ILWU Entities responded that the deposition topics were unreasonably broad and sought privileged material and that the court had indicated that it would not be receptive to a motion for sanctions.

Judge Simon concluded that the ILWU Entities had not adequately prepared their Rule 30(b)(6) witnesses. In his view, the designee’s statement at his deposition that he reviewed only his personal deposition and declaration and was not even provided a copy of the topics on which he was designated as the corporate representative witness demonstrated that the ILWU had not adequately prepared him to be a corporate designee. Judge Simon therefore allowed ICTSI to reopen the Rule 30(b)(6) deposition of Local 8 within 30 days. Judge Simon also allowed ICTSI to take the deposition of an additional individual whose involvement in certain related matters was only recently disclosed.

Judge Simon rejected ICTSI’s claim that the ILWU Entities’ Rule 30(b)(6) witness on electronic discovery issues was not properly prepared to discuss the litigation hold or was improperly instructed not to discuss this topic. According to Judge Simon, the fact that ICTSI did not include the ILWU Entities’ litigation hold in any Rule 30(b)(6) topic precluded questioning on this subject, as “the requesting party must take care to designate, with painstaking specificity, the particular subject areas that are intended to be questioned.” Id. (emphasis in original; citation omitted).

3. In Rubury v. Ford Motor Co., 2019 WL 1057089 (N.J. Sup. App. Ct. Mar. 6, 2019), the New Jersey Appellate Division upheld a trial court dismissal of claims against Ford for alleged failure of its air bag to deploy, finding that plaintiff was responsible for spoliation of an airbag restraint control module (RCM) by failing to preserve it.

This dispute arose in connection with a series of suits brought by plaintiff Frank Rubury against Ford Motor Co. following an accident in which plaintiff allegedly was injured due to the failure of the vehicle’s airbags to deploy.

Six months after the accident, plaintiff called Ford to report the accident and demand damages. Shortly thereafter, a Ford legal analyst wrote to plaintiff requesting information about the accident. Several weeks later, the analyst again wrote to plaintiff to inform him “that in order to conduct an accurate evaluation of his claim, Ford would need to inspect the vehicle’s RCM, a component related to the airbag system.” Id. at *1. Plaintiff wrote back five months later, informing the analyst that his insurance carrier had taken possession of the car, which eventually ended up at an automotive center that “shredded” the vehicle.

Ford denied plaintiff’s claim because it could not examine the RCM. Plaintiff then renewed his demand. Identifying himself as a “published writer,” plaintiff stated that if “Ford did not [promptly] send him cash or a certified check ... he would, among other things, write articles for named publications detailing the airbag failure and Ford’s refusal to accede to his financial demands.” When payment was not forthcoming, plaintiff sued Ford seeking damages from the crash and alleging Ford’s gross negligence in not advising him to preserve the RCM, resulting in its spoliation.

Ford moved to dismiss for failure to state a claim. In that motion, Ford argued that the premise of plaintiff’s lawsuit was mooted by its investigation into the suit, which determined that the RCM had in fact been removed from the vehicle and that the vehicle had been “compacted or crushed but ha[d] not been shredded.”

Ford then wrote to plaintiff to inform him that Ford “would like to make arrangements to ... ship the RCM to Ford in Michigan so Ford can download the RCM.” Id. at *2. The next day Ford again wrote plaintiff, stating that it planned to inspect the RCM at the automotive center on the next day and to “arrange to have [the center] fed ex the RCM to Ford in Michigan for analysis.” Plaintiff chose not to attend.

The trial court dismissed plaintiff’s claims, holding that “Ford did not have a duty to advise [plaintiff] of his legal rights and duties, including his obligation to preserve evidence he believed supported his legal claims against Ford.” The trial court found that plaintiff was responsible for the spoliation of the RCM because inspection of the RCM near the time of the accident was critical to determining the validity of plaintiff’s claims. Plaintiff failed to allow Ford the opportunity to inspect the RCM before its removal from the vehicle, and as a result Ford had “no independent source of evidence or testimony sufficient to permit [it] to mount a defense,” warranting dismissal of the complaint.

Plaintiff then filed a motion to vacate that decision, which the trial court denied. Instead of appealing, however, plaintiff filed a second complaint alleging the same facts. The trial court dismissed this claim as barred by collateral estoppel and res judicata. Again, plaintiff did not appeal the dismissal, but instead filed a third complaint on the same basis, adding allegations that “Ford committed fraud when, during oral argument on its motion to dismiss the first complaint, its counsel did not disclose that Ford was in possession of the RCM.” The trial court again dismissed. Plaintiff sought reconsideration, which the court denied, and he then appealed.

The appellate court conducted a de novo review under the following standard: “A pleading should be dismissed if it states no basis for relief and discovery would not provide one.” Id. at *3 (quoting Rezem Family Assocs., LP v. Borough of Millstone, 423 N.J. Super. 103, 113 (App. Div. 2011)). The appellate court concluded that “[e]ven under the most indulgent reading, [plaintiff’s] third complaint does not allege a cause of action on which relief can be granted” because plaintiff’s claims were barred by collateral estoppel and res judicata.

The appellate court noted that plaintiff in his first complaint asserted that Ford was responsible for the spoliation of the RCM. The trial court rejected that claim, ruling that “Ford’s inability to examine the RCM immediately after the accident was the result of [plaintiff’s] failure to preserve evidence he believed was relevant to his claim.” Id. at *4. The trial court had found that plaintiff allowed the vehicle to be sold after the accident and then waited half a year to contact Ford. After Ford requested access to the RCM, plaintiff discovered that the car was in a junkyard and that the RCM had been removed from the car by a junkyard employee, “likely compromising its integrity and usefulness as evidence of [plaintiff’s] claim.”

The appellate court pointed out that plaintiff could have appealed the order dismissing his original complaint but chose instead to file two additional complaints “raising the claim already resolved in the first matter: that Ford is responsible for preserving the RCM.” The trial court had ruled that Ford did not have that responsibility, and the appellate court ruled that the third complaint raising similar issues was also barred by res judicata and collateral estoppel. Finally, the appellate court held that there was no abuse of discretion in the trial court’s denial of plaintiff’s motion for reconsideration.

4. In Shir Law GroupP.A. v. Carnevale, 2019 WL 1781119 (Fla. Dist. Ct. App. Apr. 24, 2019), the District Court of Appeal of Florida quashed an order allowing forensic examination based on overbroad search terms and remanded with directions to limit the search terms to protect against the disclosure of privileged or irrelevant information.

The Shir Law Group (Shir) represented the Carnevales in their opposition to the dissolution of a condominium association that would have facilitated the sale of all units to a developer. Shir also represented three other condominium owners opposing dissolution. Id. at *1.

The Carnevales sued Shir alleging malpractice and violations of fiduciary obligations and sought discovery from Shir and the developer’s counsel of communications regarding settlement between the developer and Shir’s other clients. The developer’s counsel produced responsive emails that should have been, but were not, included in Shir’s production. In response, the Carnevales moved to compel forensic examination of Shir’s electronic data.

The trial court entered an order granting the Carnevales’ motion and requiring the parties to confer in a good-faith effort to reach an agreement regarding parameters and search protocols to protect against the disclosure of irrelevant and privileged information. Id. at *1–*2.

Shir was unsuccessful in seeking to discuss the search protocols and, without conferring on the issue, Shir and the Carnevales each submitted their proposed search terms to the court. Shir’s list contained 30 terms while the Carnevales submitted over 110. The trial court adopted the Carnevales’ order without refining the list of terms. Shir petitioned the Court of Appeal for a writ of certiorari seeking to quash (1) the trial court’s order granting the Carnevales’ motion to compel the forensic examination of Shir’s electronic data and (2) the trial court’s protocol for the forensic examination of Shir’s electronic data. Shir argued that the search term list was overly broad and would produce thousands of nonresponsive, privileged results. The District Court of Appeal granted the petition. Id. at *2.

Shir practiced condominium and community association law, and the lawyers at issue were both board-certified members of the Florida Bar in condominium and planned development law. The District Court of Appeal found that the search terms would render a large number of unresponsive, irrelevant documents subject to the examination protocol, many of which would be privileged. The District Court of Appeal focused on the proposed term “condo” or “condominium” but stated that “[t]his is just one example of several other words included in the list that effectively ‘grants “carte blanche” to irrelevant discovery.’ ” Id. (quoting Publix Supermarkets, Inc. v. Santos, 118 So.3d 317, 319 (Fla. Dist. Ct. App. 2013)). The District Court of Appeal noted that the purpose of the trial court’s original order was not to allow the Carnevales to go on a “fishing expedition” through their former attorneys’ data, as the protocol was supposed to be designed to protect against the disclosure of irrelevant and privileged information.

The District Court of Appeal quashed the order setting forth the protocol for the forensic examination and remanded with directions to enter an amended order limiting the search terms to “protect against the disclosure of privileged or irrelevant information, without hindering the forensic examiner’s ability to retrieve relevant, non-privileged information, if any.” Id. at *1, *3.