This Sidley Update addresses the following recent developments and court decisions involving e-discovery issues: 1. A Southern District of New York ruling granting in part plaintiffs' motion to compel and awarding attorneys'
fees but denying without prejudice their request for spoliation sanctions because plaintiffs had not demonstrated bad faith or the relevance of missing documents; 2. A District of Connecticut court ruling that plaintiffs' motion to compel the production of all 38,000 documents returned by a set of search terms was "simply untenable" but that the parties should confer regarding various approaches to electronically-stored information (ESI) discovery to ensure that relevant documents were produced; 3. An Eastern District of New York decision citing revised Federal Rules of Civil Procedure 37(e) in modifying a prior order recommending adverse inference instructions to deny the sanctions request without prejudice to its refiling at trial; and 4. An Eastern District of Michigan ruling requiring the production of a USB drive of defendant's documents downloaded by plaintiff during her employment and prior to her subsequent filing of an employment discrimination claim.
1. In Granados v. Traffic Bar & Restaurant, Inc., 2015 WL 9582430 (S.D.N.Y. Dec. 30, 2015), Magistrate Judge James C. Francis IV granted in part plaintiffs' motion to compel and awarded attorneys' fees but denied without prejudice their request for spoliation sanctions because plaintiffs had not demonstrated bad faith or the relevance of missing documents.
A group of restaurant servers and bartenders sued their former employer and others for alleged Fair Labor Standards Act and state law violations. Defendants failed to respond to the complaint or oppose the entry of a default judgment but later persuaded the court to vacate entry of the default judgment. Id. at *1-*2. The case proceeded to discovery, but defendants did not comply with their discovery obligations, failing to produce documents, providing unverified interrogatory responses and claiming that numerous documents were destroyed but with no explanation. They also failed to show up for scheduled depositions. Plaintiffs sought sanctions in the form of a default judgment or, in the alternative, entry of an order to compel discovery, an award of attorneys' fees and spoliation sanctions.
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Magistrate Judge Francis reviewed plaintiffs' requests in turn. First, he faulted defendants for their discovery shortcomings and entered a discovery order giving defendants 14 days to provide responsive documents, describe the documents that had been destroyed and provide verified answers to plaintiffs' interrogatories.
Second, Magistrate Judge Francis determined that the plaintiffs had failed to make a sufficient showing of spoliation. A party seeking spoliation sanctions must show that "(1) the party with control over the evidence had an obligation to preserve such evidence, (2) the party that destroyed or failed to produce evidence in a timely manner had a culpable state of mind and (3) the missing evidence is relevant to the moving party's claim or defense such that a reasonable trier of fact could find that it would support that claim or defense." Id. at *4 (citation omitted). Plaintiffs cited defendants' statement that documents had been destroyed but did not argue (or provide evidence relating to) defendants' bad faith or the relevance of the destroyed documents. For these reasons, the magistrate judge denied the spoliation motion but noted that plaintiffs could file a subsequent motion once more had been learned about the destruction of relevant evidence.
Third, Magistrate Judge Francis granted plaintiffs their attorneys' fees as sanctions for the missed depositions. Though he found that defendants' failure to attend the depositions was willful and that they failed to remedy the situation, the magistrate judge denied plaintiffs' request for a default judgment or more severe sanctions on the ground that the less severe sanction requiring payment of attorneys' fees would "adequately remedy the violation and deter future misconduct." Id. at *6. He warned defendants that "this order serves as a warning to the defendants that further misconduct, including failure to comply with the order to compel or to attend properly noticed depositions, will result in more serious sanctions." Id.
2. In Gardner v. Continental Casualty Co., 2016 WL 155002 (D. Conn. Jan. 13, 2016), Magistrate Judge Joan Glazer Margolis ruled that plaintiffs' motion to compel the production of all 38,000 documents returned by a set of search terms was "simply untenable" but that the parties should confer regarding various approaches to ESI discovery--which might include "sampling and iterative refinement" or a "quick peek protocol."
Plaintiffs filed a motion to compel production of all 38,000 documents returned by an agreed on set of search terms for ESI of 23 custodians, arguing that defendants' production of 2,214 pages of documents (274 pages of which consisted of copies of the complaints) was inadequate. Id. at *2. Plaintiffs pointed out that defendant's claims administrator had provided more extensive discovery and argued that defendants should not be permitted to produce a "cherry-picked" collection of documents. Id. Defendant responded that it previously produced over 16,800 documents to plaintiffs and spent considerable time and expense reviewing the 38,000 documents for relevance and privilege. Id. Plaintiffs replied that they should not be required to "accept defendant's `just trust us' approach" to relevance and that the whole search-term exercise was designed to avoid "a prolonged and detailed debate over what ESI documents are `responsive' to the discovery requests." Id
Magistrate Judge Margolis rejected the plaintiffs' claim for production of all 38,000 documents, finding such a claim to be "simply untenable." Id. at *3. The magistrate judge noted that "[a]s every law school student and law school graduate knows, when performing a computer search on WESTLAW and/or LEXIS, not every case responsive to a search command will prove to be relevant to the legal issues for which the research was
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performed. Searching tens of thousands, and hundreds of thousands, of electronic documents is not different." Id.
The magistrate judge shared, however, the plaintiffs' concern that not all relevant documents had been produced, noting that the claims administrator had produced relevant documents not produced by the defendant. Id. Accordingly, the magistrate judge directed that the parties confer regarding different methods to ensure that relevant materials are produced. Citing Strauch v. Computer Sciences Corp., 2015 WL 7548506 (D. Conn. Nov. 24, 2015) [see April 2016 E-Discovery Update], Magistrate Judge Margolis suggested that the parties consider engaging in variations of the "sampling and iterative refinement" or "quick peek protocol" discussed in Strauch. Gardner, 2016 WL 155002, at *3.
3. In SEC v. CKB168 Holdings, Inc., 2016 U.S. Dist. LEXIS 16533 (E.D.N.Y. Feb. 2, 2016), United States Magistrate Judge Roanne L. Mann cited the amended standards of Fed. R. Civ. P. 37(3) in modifying a prior order recommending adverse inference instructions to deny the sanctions request without prejudice to its refiling at trial.
During discovery, defendants provided the Securities and Exchange Commission (SEC) with a hard drive containing 32 gigabytes of "back office data," but the SEC found that the hard drive did not contain requested information as to whether the defendants explored a public offering. Id. at *10. The SEC sought sanctions, and the magistrate judge contemplated two possible explanations for the missing data: The materials never existed, or the materials existed at some point and defendants destroyed or failed to maintain them. Id. at *11.
Taking first the possibility that the defendants never contemplated a public offering, the magistrate judge found that the defendants would be acting in bad faith in failing to confirm that fact. As to the alternative involving the failure to preserve the public-offering evidence, the magistrate judge determined that the defendants would have been grossly negligent in failing to do so. The magistrate judge found that in either alternative the defendants acted with a sufficiently culpable state of mind to support spoliation sanctions in accordance with the prevailing Second Circuit standard set forth in Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 113 (2d Cir. 2002), which permits imposition of sanctions based on a showing of simple negligence. CKB168 Holdings, U.S. Dist. LEXIS 16533, at *5.
Based on this standard, the district court issued a report and recommendation with the following two-part adverse inference instruction against defendants:
"(1) From the fact that the  Defendants produced no evidence of any actual plans or preparations to take [their company] public, the jurors may infer that no such documents ever existed and that the  Defendants had no plan and made no preparations to take [their company] public.
(2) To the extent that the jurors find that any unproduced evidence ever existed, they may infer that the unproduced evidence would support the Plaintiff's allegation that the  Defendants had no plan and made no preparations to go public." Id. at *12.
The magistrate judge noted, however, the amendments to the Federal Rules of Civil Procedure, including the sanctions provisions of Rule 37(e), that took effect on December 1, 2015. In light of this rule change, the district
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court ordered both plaintiffs and defendants to file new submissions addressing the impact of the Rule 37(e) revisions on the court's original report and recommendation. Id. at *6-*7.
The magistrate judge pointed out that the definition of spoliation -- "the destruction or significant alteration of evidence, or the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation" -- presupposes that some evidence existed in the first place. Id. at *9. Thus, if none ever existed, there can be no sanction for spoliation. Id. Although defendants provided the SEC with a hard drive that did not contain certain information that the SEC had requested, the magistrate judge noted that the agency had not presented any evidence that this missing data ever existed in the first place. Id. at *10.
The magistrate judge then reviewed the spoliation request in light of the revised standards of Rule 37(e). Id. at *13. The magistrate judge indicated that a court cannot impose an adverse jury instruction as a sanction for ESI spoliation absent a showing of both a loss of ESI "because a party failed to take reasonable steps to preserve it" and "intent to deprive another party of the use of that information." Id (quoting Fed. R. Civ. P. 37(e)). The magistrate judge found that the existing record was not sufficiently clear to support the factual findings required under the Rule 37(e) revisions. Id. at *14. In fact, the magistrate judge could not even conclude that the defendants destroyed or failed to preserve these materials at all, noting that "there is a strong likelihood that the materials never existed." Id.
Given these findings, the magistrate judge modified her original recommendation and denied plaintiff's amended motion for spoliation sanctions without prejudice, indicating that the SEC could renew its motion based on the evidence adduced at trial. Id.
4. In Bazzi v. YP Advertising & Publishing, LLC, 2016 WL 404059 (E.D. Mich. Feb. 3, 2016), Senior U.S. District Judge Arthur J. Tarnow required the production of a USB drive of defendant's documents downloaded by plaintiff during her employment and prior to her subsequent filing of an employment discrimination claim.
The plaintiff disclosed at a deposition that she had downloaded documents from defendant's computers onto a USB drive while in defendant's employ. Id. at *1. The defendant sought a forensic image of the USB drive to obtain the documents and their associated metadata. The plaintiff refused to turn over the USB drive for forensic imaging but was willing to allow defendant to copy the documents on the drive. Id. Seeking to preserve and obtain the metadata, the defendant refused the offer and moved to compel.
The magistrate judge granted defendant's motion and ordered plaintiff to provide the drive to a third party for forensic imaging at defendant's expense. Id. Plaintiff appealed the order to the district court, arguing that the disclosure of metadata was neither relevant nor likely to lead to the discovery of admissible evidence. Id. Specifically, she argued that it was clearly erroneous to grant the motion without insisting that the defendant produce a written policy governing copying of documents. The magistrate judge had found that the metadata could lead to evidence of plaintiff's conduct that violated the policy, which would be relevant to the defendant's after-acquired evidence defense. Id.
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On appeal, District Judge Tarnow held that the magistrate had not committed clear error, as plaintiff's counsel did not dispute that such a policy had been provided to plaintiff's counsel in discovery and that defendant's copying of documents might have been a violation of such policy. Id.
Plaintiff also argued that it was error to grant the motion because the defendant could have obtained the metadata from its own computer used by plaintiff. Plaintiff argued that, in accordance with Rule 26(b)(3)(A)(ii), defendant must show "that it has a substantial need for the materials to prepare its case and cannot, without undue hardship, obtain their substantial equivalent by other means." Id. at *2 (quoting Fed. R. Civ. P. 26(b)(3)(A)(ii)).
Judge Tarnow rejected this argument as a matter of fact and law. First, as a matter of fact, plaintiff had failed to make any showing that the effort to recover the information from defendant's computer would not impose an undue hardship on defendant. Second, the court pointed out that the plaintiff had misread the law, as Rule 26(b)(3)(A)(ii) applies "only when a party requests `documents and tangible things that are prepared in anticipation of litigation,'" a circumstance that clearly did not apply to the metadata at issue. Bazzi, 2016 WL 404059, at *2 (quoting Fed. R. Civ. P. 26(b)(3)(A)(ii)). Accordingly, Judge Tarnow overruled plaintiff's objection.
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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 inter-disciplinary 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, firstname.lastname@example.org), Robert D. Keeling (+1 202 736 8396, email@example.com) and Colleen M. Kenney (+1 312 853 4166, firstname.lastname@example.org).
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