E-Discovery Update

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

  1. a Southern District of California case denying defendant’s motion for spoliation sanctions. The documents at issue could be forensically recovered, could be found on other devices or were not critical to the merits of the case.
  2. a Northern District of Illinois order finding that plaintiff had spoliated evidence in bad faith. The court granted defendant full access to plaintiff’s Gmail account in native format to seek to recover the deleted emails. The court denied defendant’s request for an adverse inference without prejudice to reconsideration of that sanction after completion of defendant’s review of plaintiff’s Gmail account.
  3. an Eleventh Circuit decision rejecting a defendant’s motion to dismiss an indictment because of the government’s violation of the defendant’s attorney-client privilege. The court ruled that even in an era of vast technological changes in communication, a defendant still must show “demonstrable prejudice” to obtain a dismissal of an indictment based on the government’s invasion of attorney-client privilege.
  4. an Eastern District of New York ruling refusing to reconsider a prior ruling denying a motion to compel. The court found that defendants had complied with the prior ruling by providing an affidavit regarding the methodology of the searches conducted.

1. In Erhart v. BofI Holding, Inc., 2016 WL 5110453 (S.D. Ca. Sept. 21, 2016), United States District Judge Cynthia Bashant denied defendant’s motion for spoliation sanctions because the documents at issue could be forensically recovered, could be found on other devices or were not critical to the merits of the case.

Plaintiff Charles Erhart brought a whistleblower retaliation action against defendant BofI Holding, Inc., which countersued, claiming plaintiff had violated California state law and the Computer Fraud and Abuse Act by publishing BofI’s confidential information and deleting hundreds of files. Id.

Erhart received his BofI-issued laptop upon joining the defendant as an internal auditor in September 2013. Id. Eighteen months later, Erhart requested, and was granted by BofI, an unpaid leave of absence beginning on March 6, 2015. Id. While on his leave of absence, Erhart met with regulators at the Office of the Comptroller of the Currency to report BofI’s alleged wrongdoing. Id. Around the same time, BofI informed Erhart that he was not authorized to keep his BofI laptop while he was on leave, and Erhart returned the laptop to BofI. Id. After receipt of the laptop, BofI’s forensic analyst determined that Erhart had deleted hundreds of files from it. Id.

BofI sought a terminating sanction against Erhart, claiming Erhart engaged in a pattern and practice of destroying relevant evidence to prejudice BofI and hindered BofI’s ability to defend itself in this action. Id. BofI requested that the court give an adverse inference jury instruction and impose monetary sanctions against Erhart. Id. In response, Erhart argued that the defendant was complaining about copies of documents already in its possession. Id.

The court first noted that as movant BofI had the burden to prove that spoliation took place. Id. at *3. The court pointed out that deleting a computer file does not necessarily destroy the file because it may still be recoverable or be available on servers or other computers. Id. If the files Erhart deleted were recoverable, BofI would not have met its burden of demonstrating these files had been destroyed. Id.

The court then reviewed the status of each of the five devices that BofI alleged contained files deleted by Erhart, which included personal computers and flash drives. The court concluded that it was unclear what, if any, potentially relevant evidence had been destroyed on any of these five electronic devices. Id at *5. Almost all of the deleted files were likely recoverable — either by extracting them from the recycle bin or by using more sophisticated data recovery techniques — and most of the potentially destroyed files appeared to be duplicates available from other sources. Id. Nonetheless, the court noted that it was possible that a fraction of the deleted files that had been permanently destroyed were relevant and not available from other sources. Id. The court thus considered whether it was appropriate to impose spoliation sanctions against Erhart. Id.

The court applied the three-part test developed by the Second Circuit and used by various courts to determine whether to impose spoliation sanctions: “(1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed ‘with a culpable state of mind’; and (3) that 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. (citing Apple Inc. v. Samsung Elecs. Co., 888 F. Supp. 2d 976, 989-90 (N.D. Cal. 2012)).

In this case, the court found that BofI had not established that the spoliation criteria were satisfied for each claimed instance of spoliation, as it determined that any such files were not destroyed “with a culpable state of mind.” Erhart, 2016 WL 5110453, at *6. After Erhart gave BofI all company-related devices, the court issued a restraining order that required Erhart to delete all BofI confidential information in his possession, which he did, and the court, noting that the order was ambiguous, stated that it would not construe the ambiguity against Erhart to find that he acted with a culpable state of mind when he destroyed certain files after the order was issued. Id.

Nevertheless, the court assumed, “for the sake of argument,” that BofI satisfied the three-part test by demonstrating that Erhart engaged in spoliation by destroying a small number of files at issue on Erhart’s BofI-issued laptop and considered whether a sanction was appropriate. Id. at *7. The court considered three factors to determine what, if any, sanction was appropriate: “(1) the degree of fault of the party who altered or destroyed the evidence; (2) the degree of prejudice suffered by the opposing party; and (3) whether there is a lesser sanction that will avoid substantial unfairness to the opposing party.” Id. (citing Apple, 888 F. Supp. 2d at 992).

In this instance, even if spoliation had occurred, the court found that sanctions were not appropriate because BofI had not suffered any meaningful prejudice. Erhart, 2016 WL 5110453, at *6. Only a fraction of the files deleted on Erhart’s BofI-issued laptop (29 of 878) had been destroyed. Id. Further, as to the 29 files that had been destroyed, the court found that Erhart had rebutted the presumption that some of these files (e.g., one with a subject line “REFRIGERATOR!!”) involved “the merits of the case.” Id. For many of the files that had been permanently deleted from the laptop, the court indicated that the metadata from these files suggested there were identical copies in BofI’s possession. Id. The court concluded that spoliation sanctions were not appropriate, as BofI could obtain the evidence it needed by obtaining the files from the recycle bin of the appropriate computer or by getting a copy of the file from its own electronic records. Id. at *8.

2. In Cohn v. Guaranteed Rate, Inc., 2016 WL 7157358 (N.D. Ill. Dec. 8, 2016), United States District Court Judge John Robert Blakely ruled that plaintiff had spoliated evidence in bad faith, granted defendant full access to plaintiff’s Gmail account in native format to seek to recover the deleted emails and denied defendant’s request for an adverse inference without prejudice to reconsideration after completion of defendant’s review of plaintiff’s Gmail account.

Plaintiff Melissa Cohn was hired by defendant Guaranteed Rate, Inc. (GRI), in 2012 and signed a branch manager agreement (BMA) and asset purchase agreement (APA). Id. at *1. By November 2013, the relationship between Cohn and GRI had soured. During that month, Cohn sent various emails suggesting that a lawsuit between Cohn and GRI was imminent and that Cohn had been having discussions with her counsel discussing her issues with GRI. Id. In February 2014, Cohn’s counsel sent GRI a letter concerning GRI’s alleged breaches of the BMA and APA, and GRI’s counsel sent multiple letters suggesting that litigation over these alleged breaches was a distinct possibility. Id. Cohn’s employment at GRI ended in August 2014, and she filed a lawsuit against GRI in November 2014. Id.

During discovery, GRI requested documents, including emails from Cohn’s personal Gmail account, relating to plaintiff’s communications with GRI’s competitors. Cohn agreed to produce those emails, but no such electronically stored information (ESI) was provided to GRI. Id. GRI then served third-party discovery requests on a number of its competitors and received numerous documents of Cohn’s communications with those competitors. Id. After GRI revealed these emails, Cohn admitted that she had deleted these emails from the Gmail account. Id.

In addition to Cohn’s failure to produce documents from her Gmail account, GRI cited evidence of Cohn’s instructing her subordinates to delete emails, despite litigation being reasonably foreseeable. Id. at *2. For example, GRI found a June 2014 email in which Cohn instructed a subordinate to begin communicating with Cohn via personal email and to permanently delete emails on subject matter directly relevant to the imminent litigation. Id.

Based on these facts, the court analyzed whether it was appropriate to impose sanctions under Rule 37(e). Before imposing sanctions, the court indicated that it must find that (1) there was a duty to preserve the specific documents and/or evidence, (2) the duty was breached, (3) the other party was harmed by the breach and (4) the breach was caused by the breaching party’s willfulness, bad faith or fault. Id. at *3.

The court determined that Cohn had a duty to preserve her communications with GRI’s competitors by at least Nov. 30, 2013, since at that point Cohn was making explicit references to legal action against GRI and its officers and had already retained the attorney who represented her in the current lawsuit. Id. at *3. For these reasons, the court found that Cohn and her counsel should have been able to foresee by November 2013 that her communications with GRI’s competitors would be material to a potential legal action. Id.

The court next determined that because Cohn admitted to deleting emails with third-party competitors from her personal Gmail account after November 2013, these deletions were an obvious breach of her duty to preserve those materials. Id. The court then considered whether GRI was harmed by the breach. The court noted that the prevailing rule in the Seventh Circuit was that “bad faith destruction of a document relevant to proof of an issue at trial gives rise to a strong inference that production of the document would have been unfavorable to the party responsible for its destruction” and that the “crucial element in a spoliation claim” is whether the documents were “destroyed for the purpose of hiding adverse information.” Id. at *4 (internal citations omitted). The court found that the evidence showing that Cohn purposefully moved her conversations with GRI’s competitors to her Gmail account, asked the competitors to hide the information she sent and asked her GRI subordinate to delete emails demonstrated that the emails were deleted for the purpose of hiding adverse information and compelled a finding of bad faith. Id.

The court then turned to consideration of the appropriate remedy. GRI requested the most extreme sanctions — dismissal of Cohn’s claims, entry of default judgment or issuance of adverse inference instructions at trial — and sought the native production of Cohn’s entire Gmail account. Id. The court denied GRI’s request for the dismissal of Cohn’s claims and entry of default judgment but did order the native production of Cohn’s entire Gmail account to GRI to determine whether any deleted emails could be retrieved. Id. As to defendant’s request for an adverse inference, the Court denied the request without prejudice, stating that GRI could renew its request after it completed its review of Cohn’s Gmail account:

GRI’s request for an adverse inference instruction is denied without prejudice. Hopefully, the production of Cohn’s full Gmail account will obviate the need for such instructions. If, at the time pretrial submissions come due, GRI nevertheless remains convinced that such instructions are appropriate, it is invited to renew its motion with specific proposals regarding the same. Id.

3. In United States v. DeLuca, 2016 WL 6211820 (11th Cir. Oct. 25, 2016), the United States Court of Appeals for the Eleventh Circuit denied a defendant’s appeal to dismiss an indictment due to the government’s violation of defendant’s attorney-client privilege. The court ruled that even in an era of vast technological changes in communication, a defendant still must show “demonstrable prejudice” to obtain a dismissal of an indictment based on the government’s invasion of attorney-client privilege.

A federal grand jury returned a 33-count indictment alleging that Stephen DeLuca, president and sole shareholder of Delco Oil Co., defrauded financial institutions. Id. at *1. As part of its investigation, the Federal Bureau of Investigations searched Delco’s offices and seized the company’s computers and hard drives. Id. The government also acquired an external hard drive relevant to the investigation that included communications between DeLuca and his lawyers. Id. DeLuca and the government entered into a stipulation regarding treatment of potentially privileged documents found on these devices that required review by a separate government “filter team” apart from the prosecution team that would inform DeLuca of any document that the government claimed was not privileged to allow DeLuca to contest such a determination before a magistrate judge prior to disclosure of such document to the prosecution team. Notwithstanding the stipulation, an email communication between DeLuca and his attorneys was provided to the prosecution team in charge of DeLuca’s trial without prior notice to DeLuca. Id.

DeLuca’s first trial ended in a hung jury, and he learned that the government had accessed his privileged communications just prior to the start of the second trial, after the government filed an amended exhibit list that included an email from DeLuca to his attorney. Id. at *2. DeLuca filed a motion to dismiss the indictment based on the government’s violation of both his attorney-client privilege and the stipulation. Id. The district court reserved ruling on the motion until after the trial. Id. The prosecution never ultimately entered the email at issue into evidence at trial. At the end of the second trial, the jury found DeLuca guilty of all charges. Id.

After the second trial, DeLuca filed a renewed motion to dismiss the indictment for prosecutorial misconduct. Id. The district court held an evidentiary hearing on DeLuca’s motion to dismiss. Although the district court found that the email at issue, as well as other email communications were privileged and that the government had violated DeLuca’s attorney-client privilege by viewing privileged communications, it concluded that DeLuca had not shown that he was prejudiced by the violation even if he had established a constitutional violation, so neither dismissal of the indictment nor vacatur of his convictions was appropriate. Id. The district court specifically noted that DeLuca had not come forth with any evidence showing that any privileged material was directly used in the case against him at trial or otherwise influenced the government’s prosecution strategy in any way. Id. Following this ruling, DeLuca appealed to the Eleventh Circuit.

The Eleventh Circuit affirmed, citing its precedent that that dismissal of the indictment as a sanction for a violation of a defendant’s attorney-client privilege is inappropriate absent “demonstrable prejudice.” Id. at *3. Based on this legal standard, the appellate court ruled that the district court’s decision was proper, as even if DeLuca showed that the government deliberately invaded the attorney-client relationship, “dismissal is inappropriate without a showing of prejudice.” Id.

In his appeal, DeLuca did not directly challenge the district court’s finding that he had not demonstrated prejudice as a result of the government’s violation of his attorney-client privilege. Instead, DeLuca argued that existing precedent requiring a defendant to show prejudice should be revisited because this requirement is outmoded as applied to modern-era digital communications and data storage. Id. at *4. DeLuca further contended that it is impossible for a defendant to show prejudice because there is no way to track whether the government accessed privileged material or how the government used the privileged material it accessed. Id.

The Eleventh Circuit rejected this argument, finding that DeLuca provided no compelling reason why establishing prejudice was more difficult in the electronic age than in the age of paper records. Id. The appellate court noted that even if it were to accept the contention that technological changes have made accessing privileged communications easier than it used to be, it did not clearly follow that showing prejudice was more difficult than before. Id. The three-judge panel also indicated that a defendant’s not knowing whether the government had accessed certain privileged information or what the government had done with that information was not a new concern. Id.

Ultimately, as there had been no showing of prejudice based on the government’s violation of DeLuca’s attorney-client privilege, the Eleventh Circuit found that the district court properly concluded that dismissal of the indictment was not appropriate. Id. at *5.

4. In AP Links, LLC v. Russ, 2016 WL 4703655 (E.D.N.Y. Sept. 7, 2016), Magistrate Judge A. Kathleen Tomlinson refused to reconsider a prior ruling denying a motion to compel. The court found that defendants had complied with the prior ruling by providing an affidavit regarding the methodology of the searches conducted and that the reconsideration request impermissibly sought relief not requested in the original motion.

In denying a motion to compel against Jay Russ and Russ & Russ, P.C., Magistrate Judge Tomlinson directed defendants’ counsel to search Jay Russ’s personal laptop and BlackBerry and produce any other responsive documents, or, if there were no other responsive documents, to file an affirmation explaining the methodology used in searching those devices. Id. at *1. Plaintiff argued that defendants had not made any effort to determine whether copies of ESI from defendants’ computer system were made and retained by defendants’ IT vendor and that the court’s prior order had overlooked this issue. Accordingly, plaintiffs sought an order compelling defendants’ counsel, among other things, to require defendants’ IT vendor to conduct a search for a particular unproduced email and to search backup tapes kept by defendants or their IT vendor.

Magistrate Judge Tomlinson denied the motion to reconsider. First, she noted that the motion did not demonstrate that there had been an intervening change in the law or newly discovered evidence that warranted reconsideration, as required by Fed. R. Civ. P. 59 and Local Rule 6.3. Id. at *3. Second, some of the relief plaintiff sought — such as compelling defendants’ counsel to require defendants’ IT vendor to search for the unproduced email — was new and thus was not properly sought in a motion for reconsideration. Id. In any event, Magistrate Judge Tomlinson found that much of the new relief sought was moot, as defendants’ counsel had identified defendants’ IT vendor and provided affidavits attesting to that vendor’s search of defendants’ computer system and backup files, as well as its search of Jay Russ’s personal devices, and none of these searches succeeded in locating the unproduced email. Id. at *4.