electronic discovery applicable rules and case law · the volume of esi typically dwarfs paper...

1

Electronic Discovery Applicable Rules and Case Law

Devin Lawton Palmer, Esq.

Boylan Code LLPCulver Road Armory

145 Culver Road, Suite 100Rochester, New York 14620

585.232.5300www.boylancode.com

[email protected]

2

Electronically Stored Information (ESI)

What is it?•

Advisory Committee involved in drafting Federal Rules defined this as “any type of information that is stored electronically.”

•

Broadly defined under Federal Rules of Civil Procedure 34(a)(1)(A).

•

ESI should be defined expansively.Emails and attachments, Word Documents, PDFs, text messages, Web browsing history, writings, drawings, graphs, charts, photographs, sound recordings, images, excel spreadsheets, voicemails, etc.

3

Electronically Stored Information (ESI)

Where is it?

•

Anywhere. •

If a computer devise has a memory capacity it has the ability to hold ESI.

•

Desktop PC, Laptop, iPad, smartphones, thumb drives, CDs and DVDs, the Cloud (internet and remote servers), corporate and internet email, social media (facebook, Twitter, LinkedIn), network backup tapes, etc.

4

Metadata

What is it?

•

Additional information about the ESI, attached to or embedded within the ESI.

•

Data of data.

•

E.g. Word Document -

date created, author, last modified, previous drafts, file size, etc.

5

So what makes ESI any different than paper files for litigation purposes?

•

The legal duty to preserve is really the same.

6

The Duty to Preserve

•

The obligation to preserve evidence arises when the party has notice that the evidence is relevant to litigation or when a party should have known that the evidence may be relevant to future litigation. Once a court has concluded that a party was under an obligation to preserve the evidence that it destroyed, it must then consider whether the evidence was intentionally destroyed, and the likely contents of

that evidence. The determination of an appropriate sanction for spoliation, if any, is confined to the sound discretion of the trial judge, and

is assessed on a case-by-case basis.

Fujitsu Ltd. v. Fed. Express Corp., 247 F.3d 423 (2d Cir. N.Y. 2001).

7

The Duty to Preserve (cont.)

•

A company must preserve relevant information (both paper and ESI) as soon as they know or reasonably anticipate that they will become

involved in litigation; not

when they receive the Complaint.

•

The scope of the preservation duty extends to the key players in

the lawsuit, meaning individuals likely to have discoverable information that the disclosing party may use to support its claims or defenses.

•

The duty is also prospective; i.e., a party is required to retain in existence at the time to duty to preserve attaches, as well as any relevant documents created thereafter.

8

The Duty to Preserve (cont.)

•

“Although some cases have suggested that the definition of what must be preserved should be guided by principles of ‘reasonableness and proportionality,’

this standard may prove too

amorphous to provide much comfort to a party deciding what files it may delete or backup tapes it may recycle. Until a more precise definition is created by rule, a party is well-advised to retain all relevant documents (but not multiple identical copies) in existence at the time the duty to preserve attaches.”

Orbit One Communs. v. Numerex Corp., 271 F.R.D. 429, 2010 U.S. Dist. LEXIS 123633 (S.D.N.Y. 2010)

9

What is “Relevant”?

•

“In the context of discovery, relevance is to be interpreted broadly and includes any matter that bears on, or that…reasonably could lead to other information that could bear on, any issue that is or may be in the case.”

–

Schindler v. KPMG LLP, 2011 U.S. Dist. LEXIS 116427, *15 (S.D.N.Y. 2011).

10

Spoliation

Spoliation: “The intentional destruction of evidence and when it is established, fact finder may draw inference that evidence destroyed was unfavorable to party responsible for its spoliation.”

Black’s Law

Dictionary (6th Ed.).–

Fed. R. Civ. P. 37(d) and N.Y. CPLR § 3126 allow for the sanction against opposing parties including the dismissal of their actions for failing to comply with discovery requests.

–

Sanctions can include monetary penalties, contempt, dismissal of claims and defenses.

11

• Generally speaking, ESI be viewed as just a new bullet under the centuries old concept of preservation and spoliation? This is just technology creating an abundance of new evidence that is difficult and costly to preserve and produce and easy to intentionally (or unintentionally) destroy.

12

How does ESI differ from paper discovery?

•

The volume of ESI typically dwarfs paper documents. •

Determining where to find the ESI is a monumental task in and of itself:‒

Cell phones, laptops, desktops, removable media such as thumb drives, etc.

•

ESI itself is fundamentally different:‒

Turning off/on a computer can destroy or alter ESI‒

ESI may be automatically created, updated or destroyed by the computer system

‒

Although ESI can be deleted, it often continues to exist and may be recovered

13

How does ESI differ from paper discovery?

•

More than 90% of all information created and stored is in the form of ESI.

•

80% of all business records are never converted to paper.

•

“In a small business, whereas formerly there was usually one four-drawer file cabinet full of paper records, now there is the equivalent of two thousand four-drawer file cabinets full of such records stored electronically."

-Electronic Discovery: A Call for a New Rules Regime for the Hawaii Courts, 32 Hawaii L. Rev. 153 (2009).

14

•

“The world was a far different place in 1849, when Henry David Thoreau opined (in an admittedly broader context) that ‘the process of discovery is very simple.’

That hopeful maxim has given way to rapid

technological advances, requiring new solutions to old problems. The issue presented here is one such problem, recast in light of current technology: To what extent is inaccessible electronic data discoverable, and who should pay for its production?”

-Zublake v. UBS Warburg, LLC, 217 F.R.D. 309, 311 (S.D.N.Y. 2003).

15

Records Management Program

•

A company should have a records management program to minimize the cost of storing and maintaining ESI.

•

Allows a company to delete old and worthless records and free up physical and digital storage space.

•

Ensures that records it is legally required to retain are preserved.

16

Records Management Program (cont’d)

•

It also ensures documents are deleted that may have acted as evidence against the company.

•

Inadvertent deletion will reduce the company’s ability to defend or prosecute a claim.

•

Avoids the expense of ESI discovery searches by knowing in advance where information is maintained or if it has been destroyed in the ordinary course.

17

Records Management Program (cont’d)

•

Having a written program in place also is very helpful in demonstrating to a Court why the company had a legitimate purpose for destroying certain ESI and did so in the ordinary course of its business.

•

Keep in mind the best means of ensuring ESI is not recoverable is to physically destroy the magnetic medium on which it is located.

•

Monitor to ensure the Records Management Program is working properly.

18

Duty to Preserve ESI

•

Like the physical evidence discussed above in Fujitsu Ltd. v. Fed. Express Corp, a company’s duty to preserve relevant ESI is triggered not on the date of the lawsuit, but as soon as it knows or reasonably anticipate that it will become involved in litigation.

•

At the moment it can reasonably anticipate potential litigation, a company must override its Record Management Program where it calls for the destruction of relevant ESI.

19

Duty to Preserve ESI (cont.)•

At that time the company should:

(a) issue a litigation hold (discussed below);

(b) locate the relevant ESI (work with in house IT and may require forensic IT assistance);

(c) collect and preserve the ESI (notice to key personal);

(e) review the ESI (relevant, responsive, confidential, protected); and

(f) produce the ESI into accessible and/or agreed upon form form.

•

Failure to preserve may result in sanctions.

20

Duty to Preserve ESI (cont.)

Cloud computing•

Much of today’s information is no longer stored and controlled onsite, but remotely on the servers of vendors.

•

Relevant information stored in cyberspace rather than file cabinets or even company PCs and servers.

•

As discussed later, FRCP 34 requires the production of ESI in the responding party’s “possession, custody, or control.”

21

Cloud computing (cont.)

•

Courts appear to be wrestling with a company’s obligation to preserve ESI in the hands of these third-parties.

•

While a company has access to the ESI, is it really in “control”

of the information for

purposes of FRCP?•

Requiring these third-parties to preserve greatly increases the costs of potential litigation.

22

Written Litigation Hold

•

To meet its obligations, the litigant "must suspend its routine document retention/destruction policy and put in place a 'litigation hold' to ensure the preservation of relevant documents."

-Zublake, 229 F.R.D. 431 (S.D.N.Y. 2003)

23

Written Litigation Hold (cont’d)

•

A company has a duty to issue a “litigation hold”

to preserve all relevant ESI as soon as it knows or reasonably anticipates that it will become involved in litigation.

•

Based primarily on case law rather than state/federal statute.

•

No requirement that hold be made in writing, but it is certainly better practice.

•

The hold notice serves as a “freeze”

on routine disposal activities.

•

The hold should describe in detail what type of ESI needs to be retained so that employees can easily identify what must be preserved and what can be deleted under its normal practice.

•

Must take affirmative steps to monitor compliance so that all sources of discoverable information are identified and searched.

24

Written Litigation Hold (cont’d)•

Generally, the company’s law firm issues a written litigation hold to the company upon its engagement.

•

The law firm also works with the company’s officers to draft an internal litigation hold within the company.

•

The hold may need to be re-issued or updated as needed.•

Contemporaneously, the company should meet personally with the key employees in the potential lawsuit to ensure they are aware of their duties to preserve relevant ESI (document those meetings).

•

In addition to notice to its own employees, a company should also issue a written litigation hold to third-party consultants, agents and affiliates that are possession of the company’s relevant ESI.

•

Failure to issue a litigation hold may result in sanctions.

25

Written Litigation Hold (cont’d)

•

The preservation obligation runs first to counsel, who has a duty to advise his client of the type of information potentially relevant to the lawsuit and of the necessity of preventing its destruction

•

Where the client is a business, its managers, in turn, are responsible for conveying to their employees the requirements for preserving evidence.

26

Pension Comm. Of the Univ. of Montreal Pension Plan v. Banc of Am. Sec., 285 F. Supp. 456 (S.D.N.Y. 2010):

•

Court addressed the issue of spoliation of ESI, among other evidence.

•

Plaintiffs failed to issue timely written litigation holds and were “careless”

and “indifferent”

in their document collection efforts, resulting in relevant records including ESI, being lost and destroyed.

•

In sanctioning the plaintiffs, the Court noted that the parties were not required to “meet a standard of perfection”

in preserving evidence, but plaintiffs fell well short of the expected mark.

•

Level of sanctions is dependent upon the level of culpability which she defined as either negligent, grossly negligent or willful.

•

Decision stands as a stark reminder of how imperative proper preservation and collection efforts are in the discovery process.

27

Voom HD Holdings LLC v. EchoStar Satellite LLC, 2012 N.Y. App. Div. LEXIS 559 (1st Dept. Jan. 31, 2012):

•

EchoStar’s records management program required the automatic and permanent deletion of emails seven days after they were sent or removed from an inbox.

•

In the Summer of 2007 EchoStar sent a letter to Voom identifying a breach in the contract between the parties, demanding it comply with the contracts terms.

•

The parties continued to negotiate in good faith until February 2008 when a lawsuit was commenced.

•

In June 2008, EchoStar finally ended its policy of automatically deleting emails.

•

In defense, EchoStar argued it was in good faith negotiations and had no duty to preserve emails.

28

Voom (cont.):

•

The Court disagreed, holding that EchoStar should have reasonably anticipated litigation when it sent out its demand letter in the summer of 2007.

•

At that time, not the commencement of litigation, EchoStar should have implemented a litigation hold and preserved ongoing emails.

•

“In the world of electronic data, the preservation obligation is not limited simply to avoiding affirmative acts of destruction.”

-

Since computer systems generally have automatic deletion features, it is necessary for a party facing litigation to take active steps to halt the process.

29

Voom (cont.):

•

The Court also took great issue with the limited “litigation hold”

issued by EchoStar which basically

offered little guidance and vested total discretion in the employee to determine what constitutes relevant ESI.

–

Merely requesting that its employees save emails they believe to be relevant is not enough.

•

“EchoStar’s spoliation of electronic evidence was the result of gross negligence at the very least.”

30

Zublake v. UBS Warurg, LLC, 217 F.R.D. 309 (S.D.N.Y. 2003):

•

While cases predate Zublake, this is the seminal e- discovery decision.

•

First, Zublake is often cited for its finding that “Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy [as to ESI] and put in place a litigation hold to ensure the preservation of relevant documents.”

•

In addition, it is regularly relied upon with regard to its ruling on how to deal with the cost allocation associated with ESI discovery.

31

Zublake (cont.):

•

Facts:–

Plaintiff sues former employer for gender discrimination and requests certain emails from former employer during lawsuit.

–

Plaintiff demanded damages of roughly $19 million.–

Plaintiff believed relevant information from five (5) backup tapes of the Defendant.

–

Defendant claimed the costs of searching, retrieving, reviewing and producing this information, estimated at $275,000.00, was prohibitive.

32

Zublake (cont.):

•

Decision:–

Information/documentation was relevant and discoverable.

–

The Court established cost allocation test where cost to produce ESI could be shifted from producing party to requesting party.

–

The responding party to the discovery has the burden to prove costs should be shifted

33

Zublake (cont.):

• This cost allocation test is as follows:–

Producing party to bear initial costs–

However, cost shifting to requesting party may be permitted in the discretion of the Court. The following seven (7) factors will be considered:

1.

Whether request is specifically tailored to relevant information;2.

Availability of requested info from other sources;3.

Total cost of production vs. request for relief;4.

Total cost of production vs. resources available to each party;5.

Ability of each party to control costs and its incentive to do so;6.

Importance of issues at stake; and7.

Relative benefits to each party of obtaining the information.

34

Zublake (cont.):

–

Cost shifting only applies to searching and retrieving the information.

•

Responding party always bears the costs of reviewing and producing the ESI once it is converted into accessible information (including attorneys’

fees).

–

In the end, the Court allowed UBS to shift only 25% of the costs associated with retrieving the backup tapes to Zublake.

35

Zublake (cont.):

•

Zublake has been cited 721 times (this is just one of four Zublake decisions)

•

It has been discussed in 184 law review articles.

•

It became the foundation for Federal and State rules regarding ESI and Electronic Discovery.

36

Federal Rules of Civil Procedure (FRCP)

December 1, 2006, Federal Rules of Civil Procedure were amended to specifically address issues concerning the discovery and production of ESI

37

Federal Rules of Civil Procedure (FRCP)

•

FRCP 26(f) –

Parties must meet and confer before any Court ordered Pre-Trail conference

Discovery issues, including specific issues related to E-discovery should be discussed here.

38

Federal Rules of Civil Procedure

FRCP 16 – Pre-Trial Conference•

Parties must meet at least 21 days before the conference

•

Scheduling Order will likely result from Conference, could provide:–

Provisions regarding discovery of ESI

–

Any agreements regarding ESI reached by the parties.

39

FRCP 26(f) (cont.)

Agreements regarding ESI discovery:•

Sampling: Run a system-wide keyword search, whereby counsel could then preserve a copy of each “hit.”

•

Parties could negotiate a list of search terms to be used in identifying responsive documents, and counsel would only be obliged to review documents that came up as “hits.”

40

FRCP 26(f) (cont.)

Agreements regarding ESI discovery:

•

Non-waiver of privileged material inadvertently produced.

•

What type of sources required (backup, emails)

•

Forensic review?•

Form of the eventual production of the ESI.

41

•

FRCP 26(b)(2) - Discovery Scope and Limits (Said to essentially codify the Zublake decision)

(B) Specific Limitations on Electronically Stored Information. A

party need not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden or cost. On motion to compel discovery or for a protective order, the party from whom discovery is sought must show that the information is not reasonably accessible because of undue burden or cost. If

that showing is made, the court may nonetheless order discovery from such sources if the requesting party shows good cause, considering the limitations of Rule 26(b)(2)(C). The court may specify conditions for the discovery.


42

FRCP 26(b)(2) - Discovery Scope and LimitsWhat is “Reasonably Accessible”?

•

There is no bright line rule –

determined on a case by case basis.

•

Zublake provides that ESI is “reasonably accessible”

where it is stored in a readily accessible format that “does not need to be restored or otherwise manipulated to be usable.”

•

ESI which may be deemed not reasonably accessible (Per Advisor Committee to Federal Rules):–

Backup tapes that are not searchable–

Data from obsolete systems–

Deleted data that would require forensic reconstruction


43

Federal Rules of Civil ProcedureFRCP 26(b)(2) - Discovery Scope and LimitsWhat is “Reasonably Accessible”? (cont’d)

•

Note that even though ESI may be “not reasonable accessible,”

the requesting party may still make an application to show good cause for why such ESI should be discoverable

•

Even ESI that it not reasonably accessible must be preserved if the company knows it is potentially relevant.

–

Court will use balancing test to make a determination–

Current case regarding stolen trade secrets, where Court agreed forensic ESI discoverable to determine whether plaintiff’s recipes were ever stored on competitor’s computers.

44


FRCP 26(b)(2) - Discovery Scope and LimitsProtective Order or Motion to Compel

•

On motion or on its own, the court may limit the frequency or extent of discovery otherwise allowed by these rules or by local

rule if it determines that:–

the discovery sought is unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive;

–

the party seeking discovery has had ample opportunity to obtain the information by discovery in the action; or

–

the burden or expense of the proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the parties' resources, the importance of the issues at stake in the action, and the importance of the discovery in resolving the issues.

45


FRCP 34. - Producing Documents, Electronically Stored Information, and Tangible Things, or Entering onto

Land, for Inspection and Other Purposes

•

(b)(2)(E) Producing the Documents or Electronically Stored Information. Unless otherwise stipulated or ordered by the court, these procedures apply to producing documents or electronically stored information:–

(i) A party must produce documents as they are kept in the usual course of business or must organize and label them to correspond to the categories in the request;

–

(ii) information, a party must produce it in a form or forms in which it is ordinarily maintained or in a reasonably usable form or forms; and

–

(iii) A party need not produce the same electronically stored information in more than one form.

46


FRCP 37 – Failure to Disclose

•

Provides an out where system failure, etc. causes a party to be unable to produce ESI.

•

“Failure to Provide Electronically Stored Information. Absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.”

•

Wilson v. Thorn Energy, LLC, 2010 U.S. Dist. LEXIS 47032 (S.D.N.Y. 2010): Once it became aware of potential litigation, company had

a duty to make a copy of relevant flash drive to ensure it was not

overridden or erased. Despite the fact the flash drive was erased without any apparent malice or intent, the failure to preserve the ESI resulted in the company being sanctioned by the Court. It was not allowed the benefit of FRCP 37.

47

Federal Rules of Evidence

FRE 502 –

Attorney-Client Privilege and Work Product; Limitation on Waiver

•

(b) Inadvertent Disclosure. When made in a federal proceeding or to a federal office or agency, the disclosure does not operate as a waiver in a federal or state proceeding if:

–

(1) the disclosure is inadvertent;–

(2) the holder of the privilege or protection took reasonable steps to prevent disclosure; and

–

(3) the holder promptly took reasonable steps to rectify the error, including (if applicable) following Federal Rule of Civil Procedure 26(b)(5)(B).

48

Federal Rules of Evidence

FRE 502 –

Attorney-Client Privilege (Cont.)

•

Per FRCP 26 –

Should a party inadvertently receive privileged ESI and be notified that said ESI is privileged, it must promptly:

–

Return, sequester or destroy that ESI, and–

May not disclose or otherwise use that ESI, and

–

Must retrieve ESI disclosed to 3rd parties•

Litigation may ensue to determine whether ESI is indeed privileged

49

New York Rules (Amended in 2009)

22 NYCRR 202.12 –

Deals with Preliminary Conference, which may be requested by any party after service.

•

Among other things, issues to be addressed at Preliminary Conference include:

•

Establishing the Scope and Method of Electronic Discovery, including:‒

Retention of data including preservation plan,‒

Establishing the Scope of e-data review,‒

Identification of relevant data,‒

Identification and Redaction of privileged data,‒

Anticipated costs and proposed allocation of costs,‒

Disclosure of how e-data is maintained,‒

Identification of computer systems and individuals who maintain the data.

‒

Scope, extent and form of production

50

New York Rules (Amended in 2009)

22 NYCRR 202.70 -

Local Rules –

Rules of the Commercial Division

•

Specifically requires that:•

“Counsel for all parties who appear at the preliminary conference shall be sufficiently versed in matters relating to their clients' technological systems to discuss competently all issues

relating to electronic discovery. Counsel may bring a client representative or outside expert to assist in such discussions.”

•

Counsel confer with each other regarding anticipated e-

discovery issues which shall be discussed at the preliminary conference. –

This section specifically lists essentially the same issues as set forth at 22 NYCRR 202.12, with the addition of “designation of experts.”

51

Recent Decisions of Note

52

US Bank Nat’l Assoc. v. Greenpoint Mtg. Funding Inc., 2012 N.Y. App. Div. LEXIS 1487

(1st Dept., Feb. 28, 2012):Which Party is to Bear the Burden of Discovery Costs?•

Greenpoint argued that US Bank should have to pay to Greenpoint the cost it incurred in producing ESI and other discovery per US Bank’s request.

•

US Bank argues that the producing party is required to pay the cost to produce, not the requesting party.

•

State Ct rules refers to Zublake and finds –

Producing party is to bear the cost of searching for, retrieving, and producing documents, including ESI–

Court acknowledged the high costs of producing ESI–

Producing party to bear initial costs–

However, cost shifting to requesting party may be permitted in the discretion of the Court per Zublake factors.

53

Wood v. Capital One Services, LLC, 2011 U.S. Dist. LEXIS 61962 (N.D.N.Y. 2011):

Here, the Court actually orders the shifting of costsFacts: •

Plaintiff is a debtor of Capital One –

defaulted on close to 2k owed on his credit card

•

Account sent to collections•

Plaintiff commences suit based upon violations of the Fair Debt Collection Practices Act

•

Plaintiff seeks extensive discovery, mostly consisting of vast amounts of ESI

•

Capital One estimates that it will cost CO approximately 5 million to respond

•

Capital One makes an application requesting that the discovery request be denied or that P be required to bear the cost

54

Wood v. Capital One Services, LLC, (cont.):

Finding:•

Court finds that discovery sought by Plaintiff is generally duplicative and overly burdensome and is far outweighed by the burden associated with Plaintiff’s request for production

‒

Capital One had already produced 1500 documents‒

Plaintiff’s lawsuit, if victorious, would net him about $1,000.00 –

in light of this, the cost of the discovery (in the amount of five million) was not warranted

•

Court orders that CO shall not be required to comply with Plaintiff’s discovery request unless Plaintiff bears the expense tied to responded to those demands

55

Moore v. Publicis Groupe & MSL Group, 2012 U.S. Dist. LEXIS 23350 (S.D.N.Y. 2012):

•

Computer Assisted Review:What is it?•

Use of sophisticated algorithms to enable a computer to determine whether, and to what extent, ESI may be responsive to a discovery request.

•

Traditionally, review required many man hours reviewing each and every document (linear approach).

•

CAD uses small team and requires human review of only a sampling of potentially relevant documents.

•

After it is trained, it automatically searches and groups ESI responsive to the request

56


•

Moore represents one of the first courts to openly approve and recommend CAD.

•

Computer assisted review is an “acceptable way to search for relevant ESI.”

•

“Linear manual review is simply too expensive where, as here, there are over three million emails to review. Moreover, while some lawyers still consider manual review to be the ‘gold standard,’ that is myth, as statistics clearly show that computerized searches are at least as accurate, if not more so, than manual review.” Moore, 2012 U.S. Dist. LEXIS at *28.

57


•

Court noted that CAD review requires human review of only 2% of the documents to get accurate results for the remaining 98%

•

Court noted the goal of FRCP 1, which is “to secure the just, speedy, and inexpensive determination of lawsuits.”

•

For cases requiring the review of extensive ESI, CAD represents a better means of reaching FRCP 1’s goal.

•

While CAD is not perfect, the FRCP do not require perfection.

58


Attorneys from the outset should:•Determine the custodians of the ESI;•Determine the ESI sources;•Work out how the CAD system is to be coded and trained;•Provide for and review a sample set of the ESI that the program deemed irrelevant and require recoding if it is in fact relevant (monitor).