December's Notable Cases and Events in E-Discovery

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

1. A Court of Federal Claims opinion finding that defendant had failed to undertake sufficient measures to produce relevant documents and granting plaintiff’s motion to compel defendant to work with plaintiff to develop new search parameters for responsive documents; 
2. A Nevada federal court ruling that required defendants to restore and produce electronically stored information (ESI) from backup tapes finding that the cost and burden of restoring the tapes did not render the ESI inaccessible and rejecting cost shifting;
3. A West Virginia federal court ruling that it would be inappropriate for a corporate designee to be forced to testify about the document collection and production practices of more than 100 employees in a case where counsel had already described the process; and 
4. An Alaska federal district court decision ordering the production of native files and metadata associated with various drafts of an affidavit, finding that each draft’s metadata could be highly relevant to the plaintiff’s claims.

1. In New Orleans Regional Physician Hospital Org., Inc., v. United States, 122 F. Cl. 807 (Ct. Claims Aug. 21, 2015), Chief Judge Patricia E. Campbell-Smith found that defendant failed to undertake sufficient measures to produce relevant documents and granted plaintiff’s motion to compel defendant to develop new search parameters with plaintiff for responsive documents. 

Plaintiff disputed its reimbursement for managed care services provided by plaintiff to the Centers for Medicare & Medicaid Services (CMS) during and after Hurricane Katrina in New Orleans. The court ordered focused discovery on CMS’s waivers and contract amendments and its promise to reimburse plaintiff for extra costs of providing services to residents displaced by the hurricane. Id. at 810. Elizabeth Geisler, a retired CMS employee, testified during a deposition that she communicated regularly with and provided written reports to her supervisor regarding plaintiff and its services. Id. at 811. Plaintiff found few of Geisler’s documents in CMS’s production. After an unsuccessful attempt to determine whether CMS conducted a full search of Geisler’s records, plaintiff moved to compel CMS to redo its searches in collaboration with plaintiff.

Chief Judge Campbell-Smith ordered CMS to submit declarations of current and former employees who had been involved in CMS’s discovery efforts. Id. at 812. Plaintiff first raised its concerns with CMS regarding a potential contract breach in August 2010 and filed its complaint in August 2011. Id. at 813. CMS acknowledged that it did not put a formal litigation hold in place until February 2012 and did not distribute the hold to the CMS regional office responsible for oversight of plaintiff’s contract until April 2012. Id. In February 2014, CMS informed plaintiff that it used 28 search terms with 19 custodians, id. at 814, but none of the declarants stated that they used the 28 terms. The court found instead that “the declarations show great variation in the methods and key words used in the searches — to the extent that the employees remembered their efforts,” and only two declarants expressed knowledge that a litigation hold had been put in place. Id. 

On these facts, Chief Judge Campbell-Smith found that CMS “did not put into place a systematic, reliable plan to find and produce all relevant documents in this case.” Id. at 818. She noted that the declarations showed “little oversight by defendant’s counsel over the search efforts of the CMS employees,” and “the custodians were not required to keep any record of the search terms they used and exactly what records they searched.” Id. The court thus granted plaintiff’s request for an order compelling CMS to work with plaintiff to develop new search parameters for responsive documents. Id.

2. In United States ex rel Guardiola v. Renown Health, 2015 WL 5056726 (D. Nev. Aug. 25, 2015), Magistrate Judge Valerie Cooke ordered defendants to restore and produce ESI from backup tapes, finding that the cost and burden of restoring the tapes did not render the ESI inaccessible and rejecting cost shifting. 

In this qui tam case alleging false inpatient reimbursement claims, defendants produced, or agreed to produce, relevant emails for the June 2006–March 2011 and February 2013–June 2014 timeframes. Id. at *1. Plaintiff moved to compel defendants to produce relevant emails from the “gap period” of April 2011 to February 2013. Id. 

Defendants claimed that emails stored on backup tapes in the “gap period” were not reasonably accessible because of undue burden and restoration costs of $136,000, with additional storage and attorney review costs bringing the total to “at least $248,000.” Id. Defendants also alleged that the tape believed to hold the most relevant emails — the March 2011 tape — had already been restored and produced at a cost in excess of $100,000. Id.

The magistrate judge indicated that when considering a motion to compel production of ESI, she must conduct a three-part inquiry: (1) whether the party opposing production has demonstrated that the ESI is not reasonably accessible due to undue burden or undue cost; and if the ESI is not reasonably accessible, (2) whether the party seeking production has nevertheless demonstrated good cause for production and (3) whether cost-sharing is appropriate. Id. at *2 (citing Fed. R. Civ. P. 26(b)(2)(B) & (C);Nogle v. Beach St. Corp., 2012 WL 3687570, at *8 (D. Nev. Aug. 27, 2012)). 

The magistrate judge divided the question of inaccessibility into a two-pronged analysis of “undue burden” and “undue cost.” First, on the issue of undue burden, Magistrate Judge Cooke rejected the defendants’ claim that backup tapes were inaccessible per se, reasoning that the party bearing the burden of establishing inaccessibility “must establish that restoration and production of its particular tapes or other storage media, due to their particular aspects and features, would impose undue burden or cost.” Renown Health, 2015 WL 5056726, at *3. Ultimately, the magistrate judge concluded that, although there may be a high cost, defendants had not shown that the gap-period emails were inaccessible due to undue burden. Defendants demonstrated that restoration was “technologically feasible” as evidenced by the restoration of the March 2011 tape and because defendants indicated that they would rely on a vendor that “[b]y implication ... will ameliorate the burdens of in-house production, though at some cost.” Id. In the magistrate judge’s view, the “remaining question is only whether undue cost of the third-party vendor makes the gap-period emails not reasonably accessible.”Id.

Regarding the question of “undue cost,” the magistrate judge first rejected defendants’ argument that “cost” under Rule 26(b)(2)(B) included document review and storage and therefore rejected defendants’ “$248,000” estimate. Id. at *4. Assessing instead only defendants’ estimate that restoration would cost approximately $136,000, Magistrate Judge Cooke concluded that the amount was not undue, explaining that “[u]ndue cost is examined not as a number alone, but instead within [the] context of myriad facts.” Id. She pointed out that during the gap period, defendants “elected to store typical disaster recovery tapes with archival data,” which was “in effect stor[ing] randomly hundreds of thousands of documents, ... toss[ing] files into banker’s boxes without labels or organization ... [and] then ship[ping] those boxes to the warehouse for haphazard storage, row upon row.” Id. at *5. The magistrate judge noted that it is well known that using backup tapes for archival purposes is likely to cause substantially higher costs for evidence preservation and production in connection with litigation and reasoned that defendants must bear the responsibility of paying for the restoration of such records: 
 

“ESI is now a common part and cost of business. Businesses are best situated to weigh for themselves the costs and benefits of various technology solutions in light of their needs. These needs should include some thought to the risk of litigation and corresponding discovery obligations. To the extent that restoration costs in this case owe to [defendants’] failure to earlier implement a sensible email retention policy and its choice to use an archival/backup solution that did not maintain ESI in an indexed or otherwise searchable manner—a conclusion that [defendants themselves] advance[] — [defendants] must bear some responsibility within the consideration of whether the restoration cost is undue.” Id.

In further support of the determination that the cost of restoration was not undue, the magistrate judge noted that the estimated amount was an “infinitesimally small portion of [defendants’] annual revenues.” Id. at *6.

Having found the emails to be “reasonably accessible and discoverable,” the magistrate judge turned to the question of whether plaintiff had established good cause for the emails’ production, noting that “[e]ven when ESI in not reasonably accessible, Rule 26(b)(2)(B) permits the court to order production upon the requesting party’s demonstration of good cause.” Id. In making this determination, the court applied the seven factors for consideration of good cause as identified in the Advisory Committee Notes: “(1) the specificity of the discovery request; (2) the quantity of information available from other and more easily accessed sources; (3) the failure to produce relevant information that seems likely to have existed but is no longer available on more easily accessed sources; (4) the likelihood of finding relevant, responsive information that cannot be obtained from other, more easily accessed sources; (5) predictions as to the importance and usefulness of further information; (6) the importance of the issues at stake in the litigation; and (7) the parties’ resources.” Renown Health, 2015 WL 5056726, at *6 (citing 2006 Advisory Committee Notes to Fed. R. Civ. P. 26(b)). Applying the seven factors, the magistrate judge found that “even were the gap-period emails reasonably inaccessible due to undue burden or undue cost, good cause supports their discoverability.” Id. at *8. 

Last, the magistrate judge turned to cost shifting, which is “appropriate only when the ESI is reasonably inaccessible but the court finds good cause to order its production.” Id. at *9. Even though the magistrate judge already held that the emails at issue were reasonably accessible, she analyzed the facts under the “relevant factors” for cost shifting as set forth in the Zubulake I decision. Those factors include: 
 

1. the extent to which the request is specifically tailored to discover relevant information; 
2. the availability of such information from other sources; 
3. the total cost of production compared with the amount in controversy; 
4. the total cost of production compared with the resources available to each party; 
5. the relative ability of each party to control costs and its incentive to do so; 
6. the importance of the issues at stake in the litigation; and
7. the relative benefits to the parties of obtaining the information. Id. at *10-*11 (citing Zubulake v. UBS Warburg LLC, 217 F.R.D. 309, 324 (S.D.N.Y. 2003)). 

The magistrate judge concluded that even if the gap-period emails were not reasonably accessible, cost shifting would still be unwarranted in this case. Renown Health, 2015 WL 5056726, at *12. 

3. In Johnson v. Ford Motor Co., 2015 WL 6758234 (S.D. W.Va. Nov. 5, 2015), Chief Judge Robert C. Chambers held that it would be inappropriate for a corporate designee to be forced to testify about the document collection and production practices of more than 100 employees in a case where counsel had already described the process.

In this class action, the parties were unable to resolve what documents the defendant, Ford Motor Co., should produce and how. Plaintiffs sought a Rule 30(b)(6) deposition of a Ford designee concerning the methods by which Ford directed its employees to preserve and produce relevant emails and other electronic documents. Ford filed motions to quash and for a protective order with the magistrate judge, challenging plaintiffs’ ability to require a corporate designee to testify about these issues. The magistrate judge denied Ford’s motions, and Ford appealed to the district court.

The district court granted Ford’s objection that a corporate designee should not be forced to testify about the methods of fulfilling discovery requests. Judge Chambers noted that Ford’s counsel already had provided “a practical, useful guide to explain and support Ford’s approach” to discovery. Id. at *2. Ford’s counsel explained in a letter to the plaintiffs and provided to the court how document searches were conducted by more than 100 employees; the time period such searches covered; the subject matters covered; the databases searched; how documents were identified; and whether custodians found documents. The court noted that “[a]t best, a corporate designee could only superficially address how each employee created, managed, retained, and then searched for whatever documents were within the scope of production.” Id. To prepare for such a deposition, the court indicated that the corporate designee would have to consult with more than 100 individuals, and such preparation undoubtedly would be guided by Ford’s counsel, “the same lawyers who supplied the ... letter.” Id. The plaintiffs argued that Ford’s handling of one of its witness supported its view that defendant’s search had been inadequate, but the court rejected that argument, finding that Ford had “supplied a cogent rebuttal that, instead, supports its position.” Id. The district court concluded that plaintiffs had failed to explain how “the limited benefit of a deposition outweighs the burden to Ford” and granted Ford’s objection. Id.

The district court noted that it had affirmed generally the scope of discovery ordered by the magistrate judge, finding it to be “sufficient and proportionate to meet the Rules.” Id.

4. In Johnson v. RLI Insurance Co., 2015 WL 5125639 (D. Alaska August 31, 2015), U.S. District Judge Sharon L. Gleason ordered the production of native files and metadata associated with various drafts of an affidavit, finding that the information in each draft affidavit’s metadata could be highly relevant to the plaintiff’s claims. 

Plaintiff was injured in a car accident in which the driver was killed. Id. at *1. The driver was driving a car registered to his brother, who had a personal umbrella liability policy (PUP) issued by defendant. Id. Plaintiff sued the driver’s estate in North Dakota and received a $2.29 million judgment along with an assignment of any claims the estate might have against the defendant arising from the accident. The defendant contended that the driver was not covered by the brother’s insurance policy, and plaintiff then sought a declaratory judgment that the defendant had an obligation to defend and indemnify the estate and sought damages for breach of contract and bad faith. Id. 

During discovery, plaintiff requested that the defendant produce “all documents and information ... which constitute the [defendant’s] claim file for [the driver’s brother],” including any related ESI. Id. The defendant produced a heavily redacted version of the estate’s claims file in PDF and paper format, along with a privilege log. Id. at *2. After this initial production, plaintiff submitted a second document request for documents related to the estate’s claims file “in their original native format with all metadata intact.” Id. Plaintiff also requested — “in their original native format with all metadata intact” — all drafts of the affidavit regarding the deceased driver’s brother’s PUP drafted by the defendant and signed by the brother. Id. Plaintiff, aware that multiple drafts of this affidavit existed, contended that earlier drafts may contain information that reveal defendant’s “pre-conceived position regarding its coverage denial” that is relevant to defendant’s obligation to indemnify the estate. Id. at *5. The defendant objected, asserting that the documents it provided to plaintiff in paper and PDF format — including multiple drafts of the affidavit — were “reasonably usable” and that no further production should be required. Id. at *4. Plaintiff filed a motion to compel production of the native format files. Id. 

The court first looked to Federal Rules of Civil Procedure 34(b)(2)(E)’s requirements that ESI be produced “as they are kept in the usual course of business” and “in a form or forms in which [the information] is ordinarily maintained or in a reasonably usable form or forms.” Id. at *4. Noting that the Ninth Circuit had not provided significant guidance in this area, the court looked to other persuasive authority, including the Advisory Committee Notes for Rule 34(b), the principles articulated by the Sedona Conference, and the Southern District of New York’s metadata discussion in Aguilar v. Immigration and Customs Enf’t Div. of U.S. Dep’t of Homeland Sec., 255 F.R.D. 350, 355-60 (S.D.N.Y. 2008). Johnson, 2015 WL 5125639 at *4. The court quoted from Aguilar’s discussion of the Sedona criteria for deciding whether metadata should be produced: what metadata is ordinarily maintained, its relevance and “the importance of reasonably accessible metadata to facilitating the parties’ review, production and use of the information.” Selection of a form of production should have two “primary considerations”: the need for and probative value of the metadata and the extent to which the metadata will “enhance the functional utility of the electronic information.” Johnson, 2015 WL 5125639 at *4 (citing Aguilar, 255 F.R.D. at 356). 

Based on this authority, the court ordered defendant to produce all drafts of the deceased brother’s affidavit in native format, stating that the metadata of the documents would reveal who made revisions to the affidavit and when these revisions were made. Johnson, 2015 WL 5125639 at *5. The court emphasized that such information would not be visible in a PDF or other static production format. Id. The court also noted that the plaintiff had a heightened need for the metadata, having demonstrated that the additional information contained within each draft’s metadata could be “highly relevant” to his claims in a case where the affiant had died and defendant sought to introduce his signed affidavit into evidence under Federal Rule of Evidence 807’s hearsay exception. Id.