E-Discovery Update

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

  1. a Northern District of California decision finding spoliation by plaintiff in failing to preserve customer communication emails after sending defendant a letter threatening litigation; finding prejudice to defendant relating to certain of those spoliated emails; and allowing defendant to present evidence regarding such communications and perhaps evidence of spoliation in response to plaintiffs’ evidence or arguments at trial
  2. a Southern District of New York decision by Magistrate Judge Andrew Peck ruling that a party in civil litigation cannot be forced to use technology-assisted review, i.e., predictive coding, if that party prefers to use an acceptable alternative method of keyword searching
  3. a Western District of Washington ruling that plaintiff failed to demonstrate good cause under Fed. R. Civ. P. 26(b)(2)(B) to order production of archived emails deemed not reasonably accessible but allowing plaintiff to obtain the documents if he bore the retrieval and restoration costs
  4. a Northern District of Indiana case granting plaintiff’s motion to compel production of spreadsheets in native Excel format pursuant to Fed. R. Civ. P. 34(b)’s requirement that electronically stored information (ESI) be produced in reasonably useable form and awarding sanctions for defendants’ failure to do so

1. In Matthew Enterprise, Inc. v. Chrysler Group LLC, 2016 WL 2957133 (N.D. Cal. May 23, 2016), Magistrate Judge Paul S. Grewal found that plaintiff’s failure to preserve customer communication emails after it sent defendant a letter threatening litigation constituted spoliation, that for at least some of the ESI the defendant demonstrated prejudice and that the defendant, as a remedy, could present evidence regarding customer communications and perhaps evidence of spoliation in response to plaintiffs’ evidence or arguments at trial.

The plaintiff dealership sent defendant a letter in 2012 threatening litigation over defendant’s incentive programs and alleged Robinson-Patman Act violations relating to a rival auto dealership opened 14 miles away. Plaintiff, however, failed to preserve communications from its customers or internal emails relating to those allegations. An outside vendor used by plaintiff deleted these emails, and the plaintiff discarded locally stored communications when it changed email providers. Id. at *1. Some customer contact information from other data sources was located and produced. Id. at *2.

After receiving, in its view, inadequate responses to its discovery requests, the defendant filed a motion for spoliation and sanctions seeking to preclude plaintiff from offering evidence relating to the incentive program, the diversion of sales to the new dealer and plaintiff’s pricing response to the rival dealership. Id. at *3. Magistrate Judge Grewal applied the three-part test from the revised Rule 37(e) for spoliation, which requires a showing that (1) the ESI “should have been preserved in anticipation or conduct of litigation”; (2) the ESI “is lost because a party failed to take reasonable steps to preserve it”; and (3) “it cannot be restored or replaced through additional discovery.” Id. at *3 (quoting Fed. R. Civ. P. 37(e)). The magistrate judge found that there was “no question” that spoliation had occurred, as plaintiff “took literally no action to preserve the information.” Id. The plaintiff did not dispute that it should have preserved the emails and communications that were deleted, and the magistrate judge found that these documents were “lost forever” and could not be replaced through additional discovery.

Finding spoliation, the magistrate judge proceeded to address whether there was prejudice to the defendant. The magistrate judge found no prejudice with respect to the lost internal emails, finding that the defendant “has not ‘come forward with plausible, concrete suggestions’ about what the internal emails might have contained.” Id. at *4 (quoting Hynix Semiconductor Inc. v. Rambus Inc., 897 F. Supp. 2d 939, 981 (N.D. Cal. 2012)). Regarding the customer communications, however, the magistrate judge found that such loss was relevant to defendant’s claims and defenses because the lawsuit “hinges on [plaintiff’s] negotiations with customers and the reasons that customers chose other dealerships.” Matthew Enterprise, 2016 WL 2957133, at *4. The magistrate judge noted that defendant should have had the opportunity “to ask the jury to decide whether [defendant’s] anecdotal evidence undercut [plaintiff’s] statistical showing, but plaintiff’s “lackadaisical attitude toward document preservation took away that opportunity.” Id.

The magistrate judge rejected defendant’s suggestion of preclusive sanctions as too severe. Acknowledging the “significant prejudice,” the magistrate judge ruled that the defendant could use evidence of later customer communications in support of its claims, and to the extent that the plaintiff made certain arguments regarding customers, the defendant could present evidence relating to the spoliation. The magistrate judge also awarded attorney’s fees to the defendant. Id. at *5.

2. In Hyles v. New York City, 2016 WL 4077114 (S.D.N.Y. Aug. 1, 2016), Magistrate Judge Andrew J. Peck ruled that a party in civil litigation cannot be forced to use technology-assisted review, i.e., predictive coding, if that party prefers to use an acceptable alternative method of keyword searching.

Plaintiff, a black female employed by the New York City Finance Department, asserted discrimination and hostile environment claims against defendant under state and federal discrimination statutes. Id. at *1. During discovery, the parties sought rulings from the court as to the proper scope of ESI discovery, including issues related to custodians, date range, and search methodology—specifically, the use of keyword searches vs. technology-assisted review (TAR). Id.

In connection with the dispute over the method defendant would use to retrieve ESI from custodians, plaintiff’s counsel had consulted an e-discovery vendor and proposed that the defendant should use TAR as a more cost-effective and efficient method of searching for and producing ESI. Id. at *2. Defendant declined to use TAR, both because of cost and concerns that the parties, based on their recent history in discovery negotiations, would not be able to collaborate to develop the seed set for a TAR process. Id. Plaintiff asked the magistrate judge to require defendant to use TAR.

Magistrate Judge Peck agreed with plaintiff that in general, TAR is cheaper, more efficient and superior to keyword searching. Id. He also acknowledged that plaintiff’s counsel was correct in arguing that parties should cooperate in discovery, indicating that he was a signatory to and strong supporter of the Sedona Conference Cooperation Proclamation. Id. Further, he noted he was an advocate for the use of TAR in appropriate cases, citing his prior decisions in Da Silva Moore v. Publicis Groupe, 287 F.R.D.182 (S.D.N.Y. 2012) and Rio Tinto PLC v. Vale S.A. 306 F.R.D. 125 (S.D.N.Y. 2015). Hyles, 2016 WL 4077114, at *2.

At the same time, however, Magistrate Judge Peck pointed out that he was a firm believer in Sedona Principle 6, which provides that “Responding parties are best situated to evaluate the procedures, methodologies, and technologies appropriate for preserving and producing their own electronically stored information.” Id. at *3(citing Best Practices Recommendations & Principles for Addressing Electronic Document Production, The Sedona Principles: Second Edition, Principle 6). He noted that plaintiff’s counsel had admitted that plaintiff had no authority to support her request to force defendant to use TAR and also looked to precedent, agreeing with a recent Tax Court decision stating:

“[T]he Court is not normally in the business of dictating to parties the process that they should use when responding to discovery. If our focus were on paper discovery, we would not (for example) be dictating to a party the manner in which it should review documents for responsiveness or privilege, such as whether that review should be done by a paralegal, a junior attorney, or a senior attorney. Yet that is, in essence, what the parties are asking the Court to consider — whether document review should be done by humans or with the assistance of computers.” Id. (citing Dynamo Holdings Ltd. P’ship v. Comm’r of Internal Revenue, 2014 WL 4636526, at *3 (T.C. Sept. 17, 2014)).

The magistrate judge stated that based on this precedent and the principles set forth in Sedona Principle 6, the defendant, as the responding party, is best situated to decide how to search for and produce ESI responsive to plaintiff’s document requests, and it is not up to the court or the requesting party to force the defendant as the responding party to use TAR when it prefers to use keyword searching. Hyles, 2016 WL 4077114, at *3. Notwithstanding that plaintiff may be correct that production using keywords may not be as complete as it would be if TAR were used, Magistrate Judge Peck indicated that the standard is not perfection or using the “best” tool but whether the search results are reasonable and proportional. Id.

In concluding his opinion, Magistrate Judge Peck reaffirmed his support of TAR in appropriate cases and indicated that “[t]here may come a time when TAR is so widely used that it might be unreasonable for a party to decline to use TAR. We are not there yet.” Id. Accordingly, he denied plaintiff’s motion.

3. In Elkharwily v. Franciscan Health System, 2016 WL 4061575 (W.D. Wash. July 29, 2016), U.S. District Judge Robert J. Bryan ruled that plaintiff failed to demonstrate good cause under Fed. R. Civ. P. 26(b)(2)(B) to order production of archived emails on backup tapes deemed not reasonably accessible but found that plaintiff could obtain the documents if he bore the retrieval and restoration costs.

In this employment litigation, plaintiff moved to compel defendant to produce archived emails concerning the denial of plaintiff’s request to obtain medical staff membership and privileges. Defendant produced ESI from live email accounts but argued that that production of all responsive ESI would be unduly burdensome because it did not have an email archiving system and thus would have to restore the emails from backup tapes, a process that would require 1,400 hours in labor and $157,500 in costs. Id. at *1-*2.

The court found that the production would be unduly burdensome under Rule 26(b)(2)(B). Id. at *3. Plaintiff argued that good cause existed under Rule 26(b)(2)(B) to compel production because defendant failed to preserve the emails in a more accessible format, despite plaintiff’s warning of potential litigation in a July 2013 teleconference with defendant’s counsel after the denial of his appeal by the defendant’s review board. Id. Judge Bryan did not credit plaintiff’s account that this teleconference occurred in light of testimony from defendant’s counsel that he did not recall any such conversation and would have recorded any such teleconference with plaintiff in his time-billing system but had no such entry during the relevant period. Id. In addition, plaintiff sent an email in late July 2013 to the lawyer working with defendant’s appellate review committee thanking the lawyer for informing him of the decision rejecting his appeal and stating “I guess there is nothing else I can do” without making reference to his potential lawsuit. Id.

The district judge noted that the emails were discoverable, and he ruled that plaintiff could provide notice to the defendant to get access to the backup tapes and undertake the retrieval and restoration of the emails at his own expense. Id.

4. In Apex Colors, Inc. v. Chemworld International Ltd., Inc., 2016 WL 3344659 (N.D. Ind. June 16, 2016), United States Magistrate Judge Paul R. Cherry granted plaintiff’s motion to compel production of spreadsheets in native Excel format pursuant to Fed. R. Civ. P. 34(b)’s requirement that ESI be produced in reasonably useable form and awarded sanctions for defendants’ failure to do so.

Plaintiff served discovery on defendants, who failed to provide responses on a timely basis, and plaintiff filed a motion to compel. There were subsequent meet and confer sessions, with plaintiff providing defendants with a detailed list of outstanding discovery. Id. at *1. Plaintiff filed a second motion to compel following defendants’ incomplete production and raised a number of issues relating to inadequate discovery responses, which the magistrate judge addressed. Id. at *2-*4.

One issue plaintiff raised was the defendants’ refusal to provide spreadsheets in their native Excel format. Id. at *4. Defendants claimed, without citation to any law, that plaintiff was not entitled to production in Excel form and instead produced .pdf versions of the requested spreadsheets. Id. The magistrate judge ruled that defendants had waived this objection by failing to raise it in their first response to plaintiff’s request for production of documents in “native electronic format.” Id. Magistrate Judge Cherry further determined that because defendants’ .pdf versions of spreadsheets were not searchable, they were not “reasonably useable” as required by Rule 34(b)(2)(E)(ii). Id. Given this finding, the magistrate judge granted plaintiff’s motion to compel production of spreadsheets in native Excel format. Id. at *5. He also granted plaintiff’s motion for sanctions because defendants “offered no rationale for failing to provide the spreadsheets in native format” and awarded plaintiff its reasonable costs incurred in bringing the portion of its motion addressing the spreadsheet issue. Id.