This update addresses the following recent developments and court decisions involving e-discovery issues:
- A Second Circuit opinion finding that sanction orders imposed pursuant to Fed. R. Civ. P. 37 for failure to comply with discovery orders were not reviewable under the collateral order doctrine;
- A Fifth Circuit ruling that the provisions of the Stored Communications Act do not apply to unauthorized access to data stored on a personal cell phone;
- A Northern District of Illinois order affirming a Magistrate Judge’s decision to require a “spoliation charge” as a sanction for defendant’s destruction of taped conversations that led to plaintiff’s termination; and
- A Southern District of New York opinion finding that the inadvertent production of information in metadata of redacted documents did not constitute a waiver of privilege by the producing party and highlighting the role of Fed. R. Evid. 502(d) stipulations in addressing inadvertent production issues.
1. In Linde v. Arab Bank, PLC, 2013 WL 203404 (2d Cir. Jan. 18, 2013), the Second Circuit held that a district court’s entry of sanctions for failure to comply with multiple discovery orders was not reviewable under the collateral order doctrine and that a writ of mandamus was inappropriate.
Victims of terrorist attacks and their families brought an action against the defendant under the Anti-Terrorism Act seeking monetary damages for allegedly providing financial services and support to terrorist groups. The plaintiffs sought and the court issued various orders compelling production of documents indentifying the account numbers and accounts from which payments were disbursed to terrorists and their families for the commission of terrorist acts and into which such payments were made at the Bank. The district court imposed sanctions against the defendant for failure to comply with its orders over several years. Pursuant to Federal Rule of Civil Procedure 37(b), the District Court adopted an adverse inference jury instruction and precluded the defendant from introducing certain evidence relating to the undisclosed materials. The adverse inference instruction would permit – but not require -- the jury to infer from the defendant’s failure to disclose that the defendant provided financial services to designated terrorist organizations and did so knowingly. Id. at *1.
The defendant brought this appeal seeking reversal of the sanctions and petitioning the court for a writ of mandamus to vacate the orders of the District Court. It claimed that the adverse inference instruction was unduly harsh because the defendant could not disclose the requested documents due to foreign bank secrecy laws that would have subjected it to criminal prosecution and other penalties. The defendant also argued that the District Court order unduly prejudiced the defendant and would predetermine the outcome of the litigation. Id.
The Second Circuit first considered a threshold jurisdictional issue. Appellate courts have jurisdiction limited to reviewing “final decisions” of the district court. 28 U.S.C. § 1291. The defendant argued that the District Court’s order fell within the “small category of decisions that, although they do not end the litigation, must nonetheless be considered ‘final.’” Id. at *2 (quoting Swint v. Chambers County Comm’n, 514 U.S. 35, 42 (1995)). The defendant also argued that the Second Circuit had jurisdiction to issue a writ of mandamus. Linde, 2013 WL 203404 at *2.
The Second Circuit held that the District Court’s sanctions order was not reviewable. Under the judicially developed collateral order doctrine, a District Court’s order is appealable only if it is conclusive, resolves important questions separate from the merits, and is effectively unreviewable if appealed from final judgment. Id. at *7 (citing Swint, 514 U.S. at 42). In Cunningham v. Hamilton County, 527 U.S. 198 (1999), the Supreme Court had held that the appellate court lacked jurisdiction to hear an interlocutory appeal of the District Court’s monetary sanctions under Fed. R. Civ. P. 37(a)(5), which required an attorney to pay fees and costs relating to a discovery dispute. Linde, 2013 WL 203404 at *8 (citing Cunningham, 527 U.S. at 200-03). In Cunningham, the Supreme Court adopted what it called a “categorical approach” to deciding whether classes of orders are reviewable. Linde, 2013 WL 203404 at *8 (citing Cunningham, 527 U.S. at 206). The Second Circuit stated that it has “treated Cunningham as prohibiting interlocutory appeals of Rule 37 sanctions, at least in cases where those sanctions’ primary component is attorney’s fees or costs imposed against an attorney under Rule 37(a).” Linde, 2013 WL 203404 at *9.
Even if Cunningham were not interpreted to categorically bar the defendant’s appeal, the Second Circuit found that the defendant’s interlocutory appeal did not meet the collateral order doctrine’s three-part test. First, the order was “final” under the first element of this test, but the Second Circuit found that it was “intertwined with the merits of this case,” and could be effectively reviewed on appeal from final judgment of the underlying action. Id. at *9-*10. Second, the Second Circuit stated that review of the District Court’s imposition of sanctions would require judgment of the underlying merits of the case by evaluating the adequacy of the defendant’s production to date and the “importance of the information sought relative to the merits of the case.” Id. at *10. Finally, the Second Circuit noted that any harm could be remedied after trial by reversal based on a conclusion that the instructions were erroneous and prejudicial to the defendant. Id.
On the request for issuance of a writ of mandamus, the Second Circuit held that the defendant had not established that it had a “clear and indisputable right” to such “drastic relief.” Id. at *2. The defendant claimed that a writ of mandamus was appropriate because the District Court improperly balanced the interests of the parties and the foreign nations affected, offended international comity, and violated due process. Id. at *13-*20. The Second Circuit held that District Court properly considered and balanced the interests of the parties, id. at *20-*22, and that the District Court’s order was not a due process violation because the sanction was not so severe as a default judgment and did not amount to a clear abuse of discretion. Id. Finally, the Second Circuit held that mandamus was inappropriate because review after final judgment would provide appropriate relief. Id. at *22-*24.
2. In Garcia v. City of Laredo, 702 F.3d 788 (5th Cir. 2012), the Fifth Circuit ruled that the protections against unauthorized access under the Stored Communications Act do not apply to data stored on a personal cell phone.
The case began after Garcia, a former Laredo, Texas police dispatcher, was fired. According to Garcia, the spouse of a police officer removed Garcia’s cell phone from an unlocked locker, accessed text messages and images on the phone, and provided the texts and pictures to Garcia’s supervisors, believing she had found evidence of misconduct. Id. at 790. Based at least in part on these images and texts, Garcia was terminated. Id. Garcia brought suit against various defendants on several counts, arguing that the Stored Communications Act (“SCA”), 18 U.S.C. §2701 et seq., protected the data and text on her cell phone, which defendants accessed without her consent. The District Court found that the SCA did not apply and granted summary judgment in favor of the defendants. Id.
The Court of Appeals affirmed. Reviewing de novo, the Court began by considering the terms of the SCA. That statute, in relevant part, provides that whoever “intentionally accesses without authorization a facility through which an electronic communication service is provided . . . and thereby obtains, alters, or prevents authorized access to a wire or electronic communication while it is in electronic storage in such system” is guilty of a crime. Id. at 791 (citing 18 U.S.C. § 2701(a)) (court’s emphasis).
Garcia argued that her cell phone was a “facility” in which electronic communication was kept, but the Court rejected that claim. Id. at 791-92. The Court noted that the SCA did not define the term “facility”; however, “electronic communication service” (“ECS”) is defined as “any service which provides to users thereof the ability to send or receive wire or electronic communications.” Id. at 792. The Court of Appeals reviewed the scope of SCA in the case law and concluded that the SCA clearly applied to information stored with a phone company, an internet service provider (“ISP”), or electronic bulletin board system – but not to information stored on personal computers or cell phones. For example, the Court noted the recent decision of the Northern District of California concluding that the SCA did not apply to iPhones because iPhones did not constitute “facilities through which an electronic communication service is provided.” Id. (quoting In re iPhone Application Litig., 844 F. Supp. 2d 1040, 1057-58 (N.D. Cal. 2012)). In short, in the view of the Court, the statute “envisions a provider (the ISP or other network service provider) and a user (the individual with an account with the provider), with the user’s communications in the possession of the provider.” Id. at 793 (internal quotation and citation omitted) (court’s emphasis). An individual’s cell phone does not provide an electronic communication service “just because the device enables use of electronic communication services.” Id. (court’s emphasis). Accordingly, the Court of Appeals affirmed the lower court’s dismissal of the suit.
3. In Banks v. Enova Financial, 2012 WL 5995729 (N.D. Ill. Nov. 30, 2012), the District Court affirmed a Magistrate Judge’s decision providing for a “spoliation charge” to the jury as a sanction against defendant for destroying the taped conversations leading to plaintiff’s termination.
Banks was an employee of defendant’s subsidiary, which made short-term cash advances to customers over the internet, and Banks received calls from customers seeking to make payments. On November 6, 2008, a customer contacted Banks’ supervisor claiming that Banks had hung up on the customer twice in one day. The supervisor and a human resources representative listened to tapes of the calls, and on November 13, 2008, the defendant fired Banks. On November 22, 2008, Banks filed an EEOC charge (although the defendant stated that it did not learn of the charge for more than a year, until December 23, 2009). The plaintiff filed a claim against the defendant for unemployment benefits on December 9, 2008. After Banks won unemployment benefits, the defendant appealed the award on January 8, 2009. The following month, on February 6, 2009, the defendant deleted the taped conversations in accordance with its standard retention policy. On June 30, 2010, Banks filed this suit over his termination. Id. at *1-*2.
Banks subsequently filed a motion to compel production of ESI and sought sanctions claiming that the defendant had spoliated the taped conversations that led to his termination. In reviewing the claim, Magistrate Judge Nan Nolan found that the defendant should have preserved the tapes because it knew, or should have known, that litigation concerning the tapes was imminent based on Banks’ termination, his meeting with his supervisors concerning the tapes, the unemployment-claim dispute, and the EEOC charge. Id. at *3. The Magistrate Judge also found that the defendant had not destroyed the tapes in bad faith but had been grossly negligent in doing so. Thus, the Magistrate Judge imposed sanctions, including a “presumption [against the defendant] at the summary judgment stage of a factual dispute as to whether plaintiff hung up on the customer, and if the case proceeds to trial, the court should instruct the jury with a ‘spoliation charge.’” Id. at *1. The Court noted that a “spoliation charge” was distinguishable from an “adverse instruction” in that a spoliation charge would “not require the jury to presume that the lost evidence is both relevant and favorable to the innocent party.” Id. (emphasis in original).
On appeal to the District Judge, the defendant argued that the Magistrate Judge lacked authority to sanction the defendant, as the Magistrate Judge was relying on her “inherent authority to regulate litigation,” which requires a showing of bad faith to impose sanctions, as opposed to her authority to impose sanctions pursuant to Fed. R. Civ. P. 37 for violation of a court order. Id. at *2. The District Court rejected this claim, finding that there was no authority for such a proposition and citing case law indicating that any “‘distinctions between Rule 37 and the inherent powers of the court are distinctions without differences.’” Id. (quoting Gates Rubber Co. v. Bando Chem. Indus., Ltd., 167 F.R.D. 90, 107 (D. Col. 1996)).
Judge Coleman acknowledged that, in the absence of a showing of bad faith, defendant’s gross negligence would be insufficient to warrant a typical “adverse inference instruction.” Banks, 2012 WL 5995729, at *2. Judge Coleman pointed out, however, that the spoliation charge was not an adverse inference instruction and that the lesser spoliation charge was a sanction that the Magistrate Judge had “broad discretion” to impose. Id.
The defendant also challenged the Magistrate Judge’s finding that defendant had a duty to preserve the audio recordings at the time of their destruction. The Court stated that it may “disagree with the magistrate judge’s finding that plaintiff’s termination itself, or even the meeting at which Banks was actually discharged from his employment, put defendant on notice that it should preserve the audio recordings.” Id. at *3. Notwithstanding this statement, Judge Coleman concluded that the Magistrate Judge did not clearly err in concluding that Banks’ unemployment claim gave the defendant notice that litigation was imminent. Judge Coleman explained that Banks’ assertion in the December 2008 unemployment dispute—that he was not discharged for hanging up on a customer—was “central” to his claim for unemployment benefits. Id. For that reason, the defendant should have known that the taped conversations and the basis for Banks’ termination were matters in dispute and should have taken steps at that time to preserve the audio recordings, as the unemployment hearing occurred two months prior to their destruction. On that basis, the Court affirmed the Magistrate Judge’s ruling, concluding that “this Court is not left with the firm conviction that a mistake has been made in this instance.” Id.
4. In Brookfield Asset Mgmt v. AIG Financial Products Corp., 2013 WL 142503 (S.D.N.Y. Jan. 7, 2013), Magistrate Judge Frank Maas ruled that the inadvertent production of certain information revealed in metadata in redacted documents did not constitute a waiver of privilege by the producing party, and, in any event, the Fed. R. Evid. 502(d) stipulation executed by the parties and entered by the court provided that no such waiver would occur during discovery.
The inadvertent production issue arose during a discovery dispute relating to certain of defendant’s board minutes. The Magistrate Judge had previously ruled that the relevant portions of the minutes were privileged, and thus drafts of the minutes were also privileged. 2013 WL 142503 at *1. Defendant’s lawyers had produced a redacted version of the draft minutes; however, the redacted text was reviewable in the corresponding metadata. The Magistrate Judge found that this inadvertent production did not change the privileged status of the documents, as neither the party nor its counsel waived its privilege as a result of an error by an e-discovery vendor. Id.
Furthermore, the Magistrate Judge ruled that even if the defendant or its lawyers had made a mistake, the privilege was not waived. The parties, at the court’s urging, had previously entered into a Fed. R. Evid. 502(d) stipulation, which provided, in relevant part, that the production of the defendant’s documents in this proceeding would “not . . . constitute a waiver by Defendants of any privilege applicable to those documents.” Id. Accordingly, the defendant had the right to claw back the documents, in the words of the Magistrate Judge, “no matter what the circumstances giving rise to their production were.” Id.
This decision highlights the role of Fed. R. Evid. 502 stipulations as a means by which parties can address the inadvertent production of privileged materials in advance of the discovery process.