This update addresses the following recent developments and court decisions involving e-discovery issues:
- A Northern District of Indiana decision upholding defendant’s use of keyword and predictive coding technology to review 19.5 million documents and rejecting on cost and proportionality grounds plaintiffs’ efforts to require defendant to re-review all 19.5 million documents using only predictive coding technology;
- A Fourth Circuit decision that a company’s receipt and retention of emails was not sufficient to qualify for the business records exception to the hearsay rule;
- A Maryland federal court ruling rejecting discovery burden arguments and suggesting several opportunities to reduce e-discovery costs, including negotiation of more narrow search terms and entry of a clawback order that would allegedly preclude the need for a privilege review; and
- A District of South Carolina decision adopting a Magistrate Judge’s recommendation rejecting the requested entry of a default judgment and proposing instead adverse inference instructions, additional discovery, and costs as sanctions for spoliation and non-compliance with discovery orders.
1. In In re Biomet M2A Magnum Hip Implant Products Liability Litigation, 2013 WL 1729682 (N.D. Ind. Apr. 18, 2013), Multidistrict Litigation Judge Robert L. Miller found that Biomet’s initial culling via keyword searches from 19.5 to 3.9 million documents, and subsequent use of predictive coding on the culled ESI, was sufficient to satisfy the requirements of the Federal Rules of Civil Procedure. Given the cost and effort involved, Judge Miller rejected the plaintiffs’ request to require the defendant to re-review the 19.5 million documents using only the predictive coding methodology.
In this products liability litigation, the Plaintiffs’ Steering Committee stated that it believed Biomet had nearly 10 million relevant documents, many more than the 2.5 million documents identified by defendant as potentially relevant using keyword searches. Id. at *1. Biomet began producing documents in the summer of 2012 in the various pending cases that were eventually centralized later that year by the Judicial Panel on Multidistrict Litigation (“MDL”). Some of plaintiffs’ counsel had told Biomet to refrain from producing any documents prior to the MDL decision, but Biomet began production before the issuance of the MDL order based on its discovery obligations in several of the pending cases. Id.
Biomet used keyword searches to reduce the universe of possibly relevant documents from 19.5 million to 3.9 million; removal of duplicates further reduced the collection to 2.5 million. Id. Biomet then employed predictive coding – “software that ‘learns’ a user’s preferences or goals” to classify responsive documents with greater accuracy – to identify relevant, non-privileged documents for production. Id. Biomet invited the Steering Committee to suggest additional search terms, but the Steering Committee declined, believing such measures “too little to assure proper document production.” Id. This discovery process, in total, cost Biomet between $2 and $3.25 million. Id.
The Steering Committee argued that the initial use of keyword searches had tainted the entire e-discovery process by beginning with a less accurate body of documents and pointed to articles and evidence indicating that keyword searches identified a low percentage of relevant documents. Id. at *2. Thus, the Steering Committee argued that Biomet should begin its review again, using predictive coding on the entire 19.5 million document data set, which would cost the defendant millions of dollars beyond what it had already spent. Id.
The court concluded that the process already undertaken by Biomet “complie[d] fully with the requirements of Federal Rules of Civil Procedure 26(b) and 34(b)(2),” and punishing Biomet for beginning production before the centralization order was “an uncongenial exercise of whatever discretion [the court] has” in light of Biomet’s obligations in other cases. Id. at *2, *3. According to the court, nothing in Biomet’s process was inconsistent with the Seventh Circuit’s Principles Relating to the Discovery of Electronically Stored Information or the reports of the Sedona Conference. Id. at *2. In contrast, the Steering Committee’s approach “sits uneasily with the proportionality standard in Rule 26(b)(2)(C),” especially when the confidence tests run by Biomet suggested only a modest number of additional documents would be found. Id. Thus, “[e]ven in light of the needs of the hundreds of plaintiffs in this case, the very large amount in controversy, the parties’ resources, the importance of the issues at stake, and the importance of this discovery in resolving the issues,” the court could not conclude that the likely benefits of the Steering Committee’s process equaled or outweighed the additional burden on Biomet. Id. at *3. Judge Miller stated, “[i]f the Steering Committee wishes production of documents that can be identified only through re-commenced processing, predictive coding, review and production, the Steering Committee will have to bear that expense.” Id.
2. In United States v. Cone, 2013 WL 1502007 (4th Cir. Apr. 15, 2013), the Fourth Circuit held that, while properly authenticated emails could be admitted under the business records exception to the hearsay rule, the simple claim that a company kept and received emails was insufficient to survive a hearsay challenge.
Defendants Donald Cone and Chun-Yu Zhao formed JDC Networking, Inc. to distribute products made by a computer manufacturer. The defendants were convicted in federal district court on criminal counterfeiting and other charges for importing and reselling counterfeit computer equipment bearing the manufacturer’s trademark. Id. at *1. On appeal, among other things, Cone and Zhao claimed that emails from JDC’s customers characterizing its products as “fake” or “counterfeit” were inadmissible hearsay. The district court had denied the defendants’ challenge to the emails, finding that those emails had put Cone and Zhao on notice that they were selling counterfeit goods and therefore were introduced for a non-hearsay purpose. Id. at *19. At trial, Zhao had requested a limiting instruction that the jury should not consider the emails for their truth, but the district court denied that request, stating that “‘[t]he e-mails say what they say and the jury will have to decide if they’re believable or not.’” Id. (quoting district court).
On appeal, the defendants argued that the failure to provide limiting instructions constituted reversible error. In response, the government claimed that there was no error because the emails were also admissible as business records. The Fourth Circuit upheld the non-hearsay grounds for admission of the emails, but was “troubled” by the district court’s rejection of a defendant’s request for a limiting instruction. Id. The Fourth Circuit also rejected the government’s contention that the emails were admissible under Fed. R. Evid. 803(6), the business records exception to the hearsay rule. “While properly authenticated e-mails may be admitted into evidence under the business records exception,” the Fourth Circuit stated, “it would be insufficient to survive a hearsay challenge simply to say that since a business keeps and receives e-mails, then ergo all those e-mails are business records falling within the ambit of [the business records exception].” Id. Email is “‘typically a more casual form of communication than other records usually kept in the course of business,’” and as a result, the Circuit Court reasoned, “‘more specificity is required regarding the party’s record-keeping practices to show a particular email in fact constitutes a reliable business record.’” Id. at *20 (quoting It’s My Party, Inc. v. Live Nation, Inc., 2012 WL 3655470 at *5 (D. Md. Aug. 23, 2012). The Fourth Circuit found insufficient the government’s argument that the emails were business records simply because they were kept as a “regular operation of the business.” Cone, 2013 WL 1502007, at *20. The foundation for the admission of emails requires a greater showing of the company’s business practices and use of emails.
The Fourth Circuit determined that the emails from JDC’s customers were properly admitted for the non-hearsay purposes of proving notice but that the district court should have provided a limiting instruction. The Circuit Court stated that the “court erroneously instructed the jury to consider statements contained in the e-mails for the truth of the matter asserted.” Id. at *20. Nevertheless, the district court’s failure to provide a limiting instruction was deemed harmless error in light of the “overwhelming evidence” supporting the defendants’ conviction. Id. at *21.
3. In In re Coventry Healthcare Inc, ERISA Litigation, 2013 WL 1187909 (D. Md. Mar. 21, 2013), Magistrate Judge Jillyn K. Schulze rejected defendants’ claim that the costs of electronic discovery would be unduly burdensome and noted several opportunities to reduce e-discovery costs, including negotiation of narrower search terms and entry of a clawback order that would allegedly preclude the need to conduct a privilege review.
In a class action against defendants Coventry Health Care, Inc. and others, plaintiffs alleged violations of the Employee Retirement Income Security Act of 1974. Plaintiffs sought discovery of electronic information during the relevant class period, but defendants opposed the requests stating that the timeframe was overbroad and that the requests would impose undue burden. Defendants argued that the application of the plaintiffs’ proposed search terms would result in approximately 200,000 documents and would cost approximately $388,000 to review for responsiveness and privilege. Id. at *4. Plaintiffs argued that they had collaborated with defendants to limit the search terms to designated custodians and that they had agreed to shorten the discovery period to alleviate defendants’ burden. Id.
The Magistrate Judge held that defendants had failed to show that the requested electronic discovery would be unduly burdensome. Under Fed. R. Civ. P. 26, the party seeking to “lessen the burden of responding to electronic records discovery ‘bears the burden of particularly demonstrating that burden and of providing suggested alternatives that reasonably accommodate the requesting party’s legitimate discovery needs.’” Coventry, 2013 WL 1187909, at *3 (quoting Hopson v. Mayor & City Council of Baltimore, 232 F.R.D. 228, 245 (D. Md. 2005)). The Magistrate Judge noted that defendants had not suggested any alternatives and stated that “Rules 26(b)(2) and (c) provide abundant resources to tailor discovery requests to avoid unfair burden or expense.” Coventry, 2013 WL 1187909, at *3-*4. Further, the defendants’ estimated costs would be reduced due to plaintiffs’ agreement to narrow the discovery period by three months. The Magistrate Judge also stated that a clawback order could be issued to protect defendants against a claim of waiver, “such that Defendants need no longer bear the cost of reviewing the ESI for responsiveness and privilege.” Id at *4. The Magistrate Judge concluded that “[i]n light of these options, Defendants have not shown that producing the requested ESI will be unduly burdensome.” Id.
4. In Cytec Carbon Fibers, LLC v. Hopkins, 2012 WL 6050595 (D.S.C. Dec. 5, 2012), Judge Richard Gergel adopted a Magistrate Judge’s recommendations rejecting the plaintiffs’ request for entry of a default judgment and imposing instead various sanctions for discovery violations against several defendants, including adverse inference jury instructions and payment of costs.
The issue arose in an action for fraud, RICO, unfair trade practices, and related allegations by Cytec against numerous defendants in a case regarding construction related goods and services. Id. at *1. In September 2012, Cytec moved to strike the pleadings of certain defendants and impose default judgments against such defendants for failure to comply with the court’s discovery order. Id.
The Magistrate Judge recommended that the motion be granted in part and denied in part. The Magistrate Judge found that one group of defendants’ actions amounted to spoliation of evidence and recommended a sanction of an adverse inference instruction with respect to those defendants, concluding that entry of a default judgment would be too harsh a sanction. Id. With respect to a second group of defendants, the Magistrate Judge determined that their violation of Fed. R. Civ. P. 37 warranted entry of an order that these defendants “provide responses to all outstanding discovery requests and to pay [Cytec’s] costs associated with [its] discovery efforts,” with the sanction of default judgment being held in abeyance pending this group’s compliance with the discovery order. Id.
Noting that, in the absence of specific objections, the clear error standard applied, the court adopted the Report and Recommendation of the Magistrate Judge, ruling that the Magistrate Judge “correctly applied the law to the facts pertaining to each Defendant.” Id. at *2. With respect to the first group of defendants, the court found that the Magistrate Judge properly recognized that “the purpose of sanctions is to level the evidentiary playing field while sanctioning improper conduct” and determined that a “moderate form of sanction that would achieve those ends without unduly punishing Defendants” was appropriate, especially as the sanctionable conduct might have been attributable to mere negligence. Id. As to the second group of defendants, the court approved the Magistrate Judge’s finding that “a ‘less drastic remedy’ than immediate default was appropriate.” Id.
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The E-Discovery Task Force of Sidley Austin LLP
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, ), Colleen M. Kenney (+1.312.853.4166, ), and Joel M. Mitnick (+1.212.839.5871, ).
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