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Summaries, news and resources relating to eDiscovery in Delaware and beyond.
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This is the third in a series of posts summarizing the 7 most important eDiscovery cases in Delaware in 2014.
Herbert Chen and Derek Sheeler v. Robert Howard-Anderson, Steven Krausz, Robert Abbott, Robert Bylin, Thomas Pardun, Brian Strom, Albert Moyer, Jeanne Seeley, and Occam Networks, Inc., C.A. No. 5878–VCL, Oral Argument on Plaintiffs' Motion to Compel Production of Documents by Defendants and Jefferies and for Sanctions Against Defendants and the Court's Rulings, September 4, 2014.
While the Chen v. Howard-Anderson case has been discussed in the corporate arena as an important case relating to Delaware fiduciary law, 102(b)(7) exculpatory provisions, and Revlon duties, the case also highlights the importance of transparency in the discovery process. Chen is a reminder of how seriously the Courts in Delaware treat counsel’s discovery obligations. More ›
This is the second in a series of posts summarizing the 7 most important eDiscovery cases in Delaware in 2014.
The second case is 112359 Factor Fund, LLC and Five Nine Group, LLC v. Flux Carbon Starter Fund, LLC, Mary Carroll, Kevin Kreisler, and James L. Sonageri, C.A. No. 9568–VCL, Telephonic Oral Argument on Plaintiffs' Motion to Compel and Rulings of the Court, 06/20/2014.
In response to Plaintiffs' Motion to Compel, the Defendants claimed they did not have sufficient time or resources to review all 73,000 documents yielded by the search terms used. Vice Chancellor Laster was not swayed by these arguments. An Order had been entered earlier in the case requiring the parties to not only meet and confer regarding search terms, but to also "do more than the standard" and "confer regarding the use of an early data assessment tool…to focus on the custodians and time periods most likely to have responsive electronic documents”. Defendants’ reasons for missing the production deadline included delays in collecting the documents from their clients and insufficient manpower to properly review them. The Vice Chancellor found these explanations to be insufficient. The Court explained that in an expedited case, the parties need to think about approaches other than the “old school attorney-by-attorney review”. Had an early data assessment tool been appropriately used, as instructed, the number of search hits would not have come as a surprise and counsel could have thought ahead and planned appropriately to meet the discovery deadlines. The Court ordered that a copy of the transcript be given to Defendants clients, to help them understand that not complying with a discovery order will have serious consequences. More ›
The Court of Chancery continued to focus on eDiscovery throughout 2014. During the next few weeks we will be recapping 7 cases that covered various topics including preservation, designation of confidential material and the drafting of privilege logs. We will cover the cases in chronological order.
The first case is Sustainable Biofuels Solutions, LLC v. Tekgar, LLC and Michael Catto, C.A. No. 8741--VCP, Oral Argument on Plaintiff’s Motion to Compel and for Sanctions, Defendants’ Motion to Dismiss, and Rulings of the Court, 01/28/2014
In this dispute between a joint venture entity and one of its founding members, Plaintiff filed a Motion to Compel based on Defendants’ untimely production of emails, their blanket designation of 21,000 produced documents as Attorneys’ Eyes Only in violation of a Confidentiality Order, and lack of transparency throughout the eDiscovery process.
Before addressing the Motion to Compel, Vice Chancellor Parsons first reminded the parties of the Supreme Court case Christian v. Counseling Resources Associates, where the Supreme Court put litigants on notice that if they act without Court approval in modifying a scheduling order, they do so at their own risk. By choosing not to involve the Court, the party waives its right to dispute the opposing party’s late filings going forward. The Supreme Court advised that the best way to still “avoid motion practice and ill-will by agreeing to reasonable extension requests…[is to] promptly file a proposed amended scheduling order for the trial court’s signature.”
The court next found that the Defendants had failed to comply with their obligations under the confidentiality order by designating over 21,000 documents as Attorneys' Eyes Only. Under the order, designation required review by an attorney and a good faith basis for such designation. The court stated that "there is no way that an attorney could have looked at these documents and made a reasonable determination that there was a good faith basis for designating them as Confidential - Attorneys' Eyes Only..." The Defendants stated that they received the documents from their client at a late date and thus were rushed in their review. This necessitated the overdesignation of the documents.
Given that Vice Chancellor Parsons felt the Plaintiff had notified the Court “pretty promptly” of the discovery issues and that the Defendants had failed to comply with their obligations under the Confidentiality Order, the Court imposed sanctions of $10,000 in attorneys’ fees against the Defendants and gave them a strict deadline to complete any necessary dedesignations. The Defendants were further ordered to answer the Plaintiff’s questions regarding how they unilaterally refined the agreed-upon search terms and exactly what files were searched and to generally operate with a greater degree of transparency.
Three key takeaways can be taken from this case. First, if an attorney is unsure of who to proceed on eDiscovery issues, he or she should reach out to a colleague or vendor for guidance and assistance. The Vice Chancellor wrote that “It’s not unusual in cases of this type and in many, probably the majority, of the cases in the Court of Chancery that electronic discovery is proceeding by way of search terms and searches of custodians. That’s the way it’s usually done. If it’s a surprise to any attorney…then that attorney needs to associate himself or herself with people who know what they’re doing and are more familiar with it.”
The second takeaway is that the court should be promptly informed of any agreement regarding changes to a CMO.
Finally, parties need to factor in the time it takes to actually review documents in order to avoid situations such as confidentiality or privilege overdesignations. Parties should give themselves more than enough time to factor in the perhaps most important step between collection and production...attorney review of documents.
The entire transcript can be found here: Transcript of Sustainable Biofuels v. Tekgar
In James v. National Financial LLC, C.A. 8931-VCL (Del Ch. Dec. 5,2014) the Court of Chancery outlined Delaware Counsel's discovery obligations as well as the type of sanctions that may be imposed for not complying with those obligations.
Plaintiff James moved for entry of default judgment against Defendant National after the Defendant failed to comply with a court order requiring it to produce a specific document (a previously produced spreadsheet that included more detailed information) as well as retain an IT consultant to assist with collection of that document. The Defendant was also ordered to provide an affidavit from the IT consultant attesting to how the document was collected.
No affidavit was produced. The updated spreadsheet did not have the information required by the court. National did retain an IT consultant, but, according to the court, this was a half-hearted attempt.
Vice Chancellor Laster granted James' Motion for Sanctions. In writing for the court, the Vice Chancellor stated that "National's discovery misconduct calls for serious measures. Although I believe that entry of a default judgment would be warranted on these facts, I will not grant that remedy in light of the Delaware Supreme Court's guidance about invoking the ultimate sanction and the availability of less punitive consequences." Instead, the court awarded attorneys' fees and ruled that the lack of information contained in the requested document resulted in an admission.
The Vice Chancellor took special care to discuss Delaware counsel's role in the discovery process. First, the Court reiterated that Delaware counsel was not merely there to sign papers and act as a mail drop. Delaware counsel is expected to be involved in the case. The Vice Chancellor, in citing State Line Ventures, LLC v. RBS Citizens, 2009 Del. Ch. LEXIS 233 (Del. Ch. Dec. 2, 2009), stated that "Even when forwarding counsel has been admitted pro hac vice and is taking a lead role in the case, the Court of Chancery does not recognize the role of purely 'local counsel'...our Rules make clear that the Delaware lawyer who appears in an action always remains responsible to the Court for the case and its presentation."
Second, the court emphasized Delaware counsel's role in discovery. The Vice Chancellor stated "The court expects Delaware counsel to play an active role in the discovery process, including in the collection, review and production of documents. If Delaware counsel does not directly participate in the collection, review and production of documents, then at a minimum Delaware counsel should discuss with co-counsel the court's expectations."
When read with other recent cases, it is clear that Delaware counsel should, at the very least, provide advice to co-counsel regarding the collection, review and production of documents. This case, along with other recent cases such as Chen v. Howard-Anderson and In Re ISN Software Corp., demonstrates how seriously the Court of Chancery takes the eDiscovery process and points to an emerging body of law on the subject.
I hate to say I told you so, but...wait, no I don't.
Yesterday, the Delaware Supreme Court issued its opinion in this matter affirming the Court of Chancery's spoliation finding. The Court held the spoliation finding proper, because Genger took affirmative steps to overwrite unallocated space, saying:
We do not read the Court of Chancery’s Spoliation Opinion to hold that as a matter of routine document-retention procedures, a computer hard drive’s unallocated free space must always be preserved. The trial court rested its spoliation and contempt findings on more specific and narrow factual grounds—that Genger, despite knowing he had a duty to preserve documents, intentionally took affirmative actions to destroy several relevant documents on his work computer. These actions prevented the Trump Group from recovering those deleted documents for use in the Section 225…
Compare with my statements below that
The [Court of Chancery] opinion in this case does not require preservation of all unallocated space in every case. Genger was sanctioned because he took affirmative steps to overwrite unallocated space, in violation of the Court's order... [T]here is nothing in this opinion that creates any requirement to preserve unallocated space. Rather, the opinion only says you shouldn't go out of your way to destroy it.
I feel quite vindicated in my defense, considering there were some persons and organizations of import in the eDiscovery community lined up on the other side. Obviously, reasonable minds can disagree, especially in interpreting court decisions. Ultimately, I am thankful that the Supreme Court's decision should allay any fears created by certain interpretations of the Court of Chancery's spoliation decision.
ORIGINAL POST (2011-03-11 13:20:45):
I had almost given up on writing this post considering how long it has been since I posted In Defense of Genger, Part I and (more importantly) how long it has been since the publication of the posts I am taking issue with. However, the ongoing confusion about this case has prompted me to action.
If you have read Part I, you are familiar with the Court of Chancery's decision in TR Investors LLC v. Genger, C.A. 3994-VCS (December 9, 2009) and with the allegations made by Leonard Deutchman, General Counsel at LDiscovery LLC, in a two-part post hosted by Law.com. <!--You also understand why there's a picture of Austin Powers.--> For those who are not familiar, Mr. Deutchman asserts that the Court got the decision wrong because it (1) does not understand the technology involved (Part 1) and (2) does not understand the law of eDiscovery (Part 2).
It's sufficient to say that I respectfully disagree with Mr. Deutchman on both charges. Rebutting his posts was a fun, interesting exercise for me, but it didn't seem terribly important. I saw it as an esoteric debate between eDiscovery geeks. That has changed, because, today, a prominent media outlet has published a post that elevates the confusion about this opinion and will cause unnecessary fear among corporate counsel.
The latest case of hand-wringing and confusion over this decision comes to us from none other than Forbes by way of Daniel Fisher's post "Delaware Ruling Would Require Massive Data Backups." Mr. Fisher opens his post stating that:
A little-noticed decision by a Delaware court has the potential to impose huge costs on companies unless it is reversed, computer-security experts say...[e]xperts say retaining such data would be prohibitively expensive since the unallocated space is essentially a trash bin that is altered each time a key is tapped.
Despite the fact that Mr. Fisher twice refers to "experts" (plural) as the source for these hyper-ventilations, his lone identified source for the post is Daniel Garrie, a lawyer and managing director at Focused Solution Recourse Delivery Group LLC , a computer consulting firm in Seattle. <!--Garrie and Deutchman are both lawyers with eDiscovery vendors. Is there anything to that?--> Mr. Fisher's post continues:
“It’s almost impossible for large companies with massive amounts of equipment to comply,” said Garrie... “I don’t even know if it’s possible,” said Garrie. “I mean, anything’s possible with enough money,” but companies would have to take bit-level images of their hard drives on a regular basis and store them somewhere, to be retrieved each time they are sued. That means all the time for most large companies. The costs would be “exponentially larger,” than current electronic discovery measures. “Several large global companies,” clients he declined to name, “have expressed concern.”
Let me clear up the confusion: The opinion in this case does not require preservation of all unallocated space in every case. Genger was sanctioned because he took affirmative steps to overwrite unallocated space, in violation of the Court's order and without first telling anyone. The routine, passive overwriting of unallocated space was NOT the cause for any sanctions here, so there is nothing in this opinion that creates any requirement to preserve unallocated space. Rather, the opinion only says you shouldn't go out of your way to destroy it. Big, BIG difference. <!--If there are doubts about the Court of Chancery's understanding of eDiscovery, please see their recently released "Guidelines for Preservation of Electronically Stored Information" that clearly embraces the principles of cooperation, reasonableness, and proportionality.-->
To Mr. Garrie's credit, he is consistent—he is co-author of an article in the Northwestern Journal of Technology and Intellectual Property that makes the same mistaken arguments, and he filed a brief with the Delaware Supreme Court arguing for reversal of the Genger opinion. I obviously disagree with Mr. Garrie's opinions on this matter, but I am here to help, so I say:
Mr. Garrie, for the “[s]everal large global companies [that] have expressed concern,” please send them a link to this post and tell them not to worry.
I don't actually expect Mr. Garrie will do that, but perhaps some of his clients will stumble upon this post, in which case here is my advice to them:
If you act cooperatively and transparently, you will be fine. If you find yourself in a similar position to Mr. Genger's, share your concerns with opposing counsel and the court before you do anything. Don't take matters into your own hands and violate a court order by wiping a hard drive in the middle of the night—it's bad form and will only get you in trouble.
Stayed tuned for the decision of the Delaware Supreme Court—
I may have a lot of words to eat...
<!--Thanks to flickr user cliff1066™ for the Austin Powers pic.-->
No doubt jealous of all the attention our beloved Judge Shira Scheindlin receives, two days ago U.S. Court of Appeals for the Tenth Circuit Judge Neil M. Gorsuch issued an order in Lee v. Max International, LLC affirming a terminating sanction in discovery. Woo hoo!
In one fell swoop, Judge Gorsuch does the following:
1) Establishes a "3 Strikes and You're Out!" rule:
How many times can a litigant ignore his discovery obligations before his misconduct catches up with him? The plaintiffs in this case failed to produce documents in response to a discovery request. Then they proceeded to violate not one but two judicial orders compelling production of the requested materials.
After patiently affording the plaintiffs chance after chance, the district court eventually found the intransigence intolerable and dismissed the case as sanction. We affirm. Our justice system has a strong preference for resolving cases on their merits whenever possible, but no one... should count on more than three chances to make good a discovery obligation. (emphasis added)
2) Enlightens us on the karma of discovery:
[T]here is such thing as discovery karma. Discovery misconduct often may be seen as tactically advantageous at first. But just as our good and bad deeds eventually tend to catch up with us, so do discovery machinations.
3) Establishes the "gimlet eye" standard of review:
We view challenges to a district court’s discovery sanctions order with a gimlet eye.
The lesson: Don't mess with District Judges and Magistrates in discovery.
Read the coverage at Above the Law where ALL YOUR DOCS ARE BELONG TO US.
<!--Thanks to flickr user Andrew Scott for the Gimlet Eye pic (to the left).-->
A colleague recently spoke to Vice Chancellor Laster about this opinion, and the Vice Chancellor reportedly said, "No self-collection in my Court." I'm not sure that statement addresses my distinction between collection and review, but it does reinforce the Vice Chancellor's opposition to unsupervised custodian document collection.
Also, below is the presentation I made for use in briefing this case for the Herrmann Technology Inn of Court:
Recently, Vice Chancellor Laster gave some of us a jolt with a bench ruling on a discovery dispute in Roffe v. Eagle Rock Energy GP, et al., C.A. No. 5258-VCL (Del. Ch. Apr. 8, 2010). The ruling addresses the issue of client self-collection and a lawyer's oversight duties.
The Association of Corporate Counsel's (AAC) website carried a summary of the ruling authored by Morgan Lewis & Bockius LLP that stated:
Vice Chancellor Laster ruled from the bench that confirmatory discovery—like formal discovery—requires the defendant’s attorney to be physically present during the collection of electronically stored information from his/her client; self collection by the client is not permitted.
[P]ointed out that lawyers have an affirmative duty to be actively engaged in the collection process to the point that a lawyer should meet in person with the client to physically review his or her electronic information repositories wherever they may be located (including, if necessary, personal computers if that is where relevant information is stored).
I think Kevin's summary is much closer to the mark, and I'll explain why in a minute. First, the language causing concern is on lines 12-19 on page 10 of the attached transcript and reads as follows:
[Y]ou do not rely on a defendant to search their own e-mail system... There needs to be a lawyer who goes and makes sure the collection is done properly... we don't rely on people who are defendants to decide what documents are responsive, at least not in this Court.
The AAC article suggests there are two things implicated by this, and other supportive, language in the ruling: (1) client self-collection is not allowed, and (2) an attorney must be present during data collection. I think that interpretation assumes the worst and goes too far.
On the issue of self-collection, when the Court says not to "rely on a defendant to search their own e-mail system" and "we don't rely on people who are defendants to decide what documents are responsive," I believe the Court refers specifically to the practice of a client acting as document reviewer and sole arbiter of responsiveness. That is well understood to be a bad practice, so there is nothing shocking about this pronouncement.
I do not think the Court, in this ruling, has said that client bulk self-collection is impermissible. I see nothing in this ruling that would prohibit a client from gathering a mass of potentially responsive documents, e.g. full email accounts for all custodians, with guidance from counsel and turning them over to counsel for review. Counsel must review all potentially responsive documents and make final responsiveness determinations.
On the issue of requiring counsel's physical presence during collection, I again think the AAC article's interpretation of the Court's ruling goes too far. The AAC article seems to rely on the word "goes" in the Court's statement that "[t]here needs to be a lawyer who goes and makes sure the collection is done properly" for the proposition that counsel must 'go' and be physically present for collection. I think we get the spirit of the Court's statement by removing the 'go' part: "[t]here needs to be a lawyer who... makes sure the collection is done properly." That is well understood to be a best, if not required, practice, so there is nothing shocking about this pronouncement either.
To be fair, there are other references in the ruling to lawyers 'getting on a plane' to get data, but these suggestions seem to be case specific. In this case, Plaintiff was supposed to be conducting confirmatory discovery on three board directors but only collected from two. The third was a Mr. Smith. So the Vice Chancellor suggests that someone get on a plane to go get Mr. Smith's documents ("And you certainly need to put somebody on a plane to go out and see Mr. Smith." page 10, line 20; "So the question for me would be, one, how fast can you do this right? And that means not only the e-mails from Mr. Smith. As I say, somebody should have been on a plane a long time ago to go through his e-mails. And if he chose to use his personal computer, well, that was his bad choice. All right? And if he has it mixed in other stuff that he gets, 150 e-mails a day, or whatever, that was his bad choice. That makes it all the more essential that a lawyer get on a plane, and go and sit down with Mr. Smith, and go through his e-mail and make sure that what is produced is -- what is responsive is appropriately produced." page 12, lines 1-13). This seems to be a specific issue with Mr. Smith in this particular case requiring the physical presence of counsel to ensure collection of, perhaps, an unwilling participant.
I think my reading of this transcript aligns with Kevin Brady's in that lawyers need to be engaged in the discovery process and may need to be physically present during data collection. If, however, my interpretation is wrong and a lawyer is required to be present during collection that may only be conducted by a vendor, the cost of discovery in Delaware may be on the rise.
I rise now to defend the Court of Chancery's decision in TR Investors LLC v. Genger, C.A. 3994-VCS (December 9, 2009) against the allegations made by Leonard Deutchman, General Counsel at LDiscovery LLC, in a two-part post hosted by Law.com. I promised at the end of April that a defense would be forth coming but wanted to give everyone time to read the two posts to which I respond.
Mr. Deutchman asserts that the Court got the decision wrong because it (1) doesn't understand the technology involved (Part 1) and (2) doesn't understand the law of eDiscovery (Part 2). I have decided to respond in two parts to keep each of my posts digestible.
In Part 1, Mr. Deutchman aims to discredit the Court's technical competence, and his first criticism makes unsupported assertions about the Court's findings.
The court ruled that by wiping the unallocated space of the two drives, the defendant violated the standstill agreement and was thus in contempt of court. To reach its holding, the court had to make factual leaps and draw legal conclusions that are in my view questionable.
The court's first factual leap was that because temporary files could have resided intact in unallocated space, they were, in fact, intact prior to the wiping. More specifically, the longer leap is that because temporary files could have resided intact in unallocated space, temporary files important to plaintiffs were destroyed by the wiping.
In my reading, the Court did not assume or conclude that any particular files resided in unallocated space. Read as a whole, the opinion finds that files existed in unallocated space, some of which may have been relevant, but no one will ever know because Genger destroyed them. The Court fines Genger for willful destruction of data in direct and clear violation of a Court order.
Mr. Deutchman's second criticism was that "that the files [the Court] believed continued to reside in unallocated space if the defendant had not wiped them would have been important to the matter." Here Mr. Deutchman's merely reiterates Genger's "No harm, no foul" defense—or, as Ralph Losey refers to it, the "pig-in-a-poke" defense—to which the Court replied:
For a party to intentionally violate an order not to destroy or tamper with information and then to claim that he did little harm because no one can prove how much information he eradicated takes immense chutzpah. For a court to accept such a defense would render the court unable to govern situations like this in the future, as parties would know that they could argue extenuation using the very uncertainty their own misconduct had created.
Finally, Mr. Deutchman's concludes his first post by suggesting the Court is technically incompetent by claiming the Court thinks of unallocated space as a back up system.
It is important to note that nowhere in typical computer usage or professional information technology practice is the unallocated space on a hard drive regarded as "back up" in the way that the court does here.
No IT professional or typical user would consider unallocated space to be a "backup" space, akin to an external drive or backup tape used to affirmatively back up files, simply because forensic searching could possibly locate therein lost files in their deleted or temporary states.
While the Court of Chancery is likely not full of techno geeks, they seem to more than adequately understand the technology involved. In any case, the Court does not liken unallocated space to a backup system. On this point, the Court said "the information on the unallocated space of the TRI system therefore acted somewhat as a back-stop reservoir of documents that had been deleted from the active files of TRI users," and that the unallocated space was "a data source that would have acted as a back-stop in case relevant evidence had been deleted in the months when the motivation to delete would have been at a zenith." (Emphasis added.) Frankly, Mr. Deutchman's attempt to impugn the Court with this allegation is bizarre considering the plain and clear language quoted above.
I will address Mr. Deutchman's second assault on the Genger decision shortly.
As I suppose we could have expected, 2009 has delivered the most important eDiscovery cases to date, and we’re only half way through the year (or we were when I started writing this series). The District Court started us off before the last of the New Year’s confetti had been swept up by issuing its decision in Micron Technology, Inc. v. Rambus, Inc., C.A. No. 00-792-SLR on January 9, 2009, declaring certain patents unenforceable as a sanction for spoliation. In a suit for patent infringement, Micron claimed Rambus employed a document retention policy that destroyed documents while they had a duty to preserve. The Court said that Rambus was an “aggressive competitor” so should have foreseen litigation as far back as December 1998. All relevant documents destroyed by Rambus after that time was spoliation. As a sanction, the Court decided the patents at issue were not enforceable against Micron.
Not to be out done, and what has really made 2009 interesting, the Court of Chancery has recently issued three opinions with significant eDiscovery implications. On May 18, the Court issued its decision in Triton Constr. Co. v. Eastern Shore Elec. Servs., Inc., 2009 WL 1387115, granting an adverse inference as a sanction for spoliation. In a suit for breach of fiduciary duty, Triton alleged that defendant Kirk had intentionally destroyed evidence on his office computer with a wiping program. Triton’s forensic expert found evidence that Kirk had used the program to annihilate files and emails. Kirk had also been required to produce his personal laptop and thumb drive, which he failed to produce claiming he no longer owned them. The Court didn’t buy it, and issued an adverse inference.
Just days later, on May 29, the Court issued two—yes, two—significant decisions: Omnicare, Inc. v. Mariner Health Care Mgmt. Co., 2009 WL 1515609; and Beard Research, Inc. v. Kates, 2009 WL 1515625. (Oh, what a glorious time it was for eDiscovery nerds everywhere!) In Omnicare, the Court ruled that just because data is on a backup tape doesn’t automatically make it ‘not reasonably accessible.’ Omnicare sued Mariner for breach of contract and moved to compel Mariner to restore backup tapes to retrieve old emails deleted pursuant to their data retention policy. Mariner asked the Court to force Omnicare to pay for the restoration or to allow it hold off on restoration and produce emails from its active files so the parties could assess whether the restoration could reasonably be anticipated to lead to relevant information. The Court looked to Zubulake to analyze the cost-shifting argument, and decided that cost-shifting was not warranted in this case, noting that just because “ESI is now contained on Backup Tapes instead of in active stores does not necessarily render it not reasonably accessible.” Nonetheless, the Court opted not to order the restoration, opting instead for the active file sampling Mariner proposed.
In Beard Research, the Court brought the hammer down on Kates for blatant, repeated, audacious spoliation. Beard sued Kates for tortuous interference and asked the Court to impose sanctions on Kates for spoliation. Kates repeatedly reformatted his laptop’s hard drive, then replaced the drive (but kept it), then wiped the new drive on the eve of the hearing in which he was explicitly told he would be required to turn the laptop over. The Court awarded attorneys’ fees and imposed an adverse inference, and Kates should thank his lucky stars the Court decided to go easy on him.
There we have it—the State of eDiscovery in Delaware. I’m off to the beach for a week.
In Part V of this series, we summarized the cases from late 2006 and all of 2007. Quick summary of those cases: the District Court concluded that imaged files should be the default form of production absent party agreement, the Bankruptcy Court issued summary judgment against a party found to have knowingly destroyed ESI despite reasonably anticipating litigation, the Superior Court declared spoliation requires intent not just negligence, and the Court of Chancery required discovery requests be supported by “a particularized showing of need.” On to 2008.
In a series of cases culminating in State v. Sisson, 2008 WL 162825 (Jan. 17, 2008), the Superior Court dealt with multiple issues of admissibility and validity of electronic evidence in a criminal case. Michael Arkfeld's eLaw Exchange provides the following concise summary:
At trial, Sisson filed a motion to suppress evidence collected at his home pursuant to warrant on four grounds: 1) the evidence was stale 2) the probable cause information was insufficient because the affidavit did not show that “emails sent by an internet ‘screen name’ linked to” Sisson were actually sent by him, nor did it demonstrate reliability of sources 3) ”police intentionally or recklessly omitted information” that Sisson may have been the victim of “spoofing” and 4) that the affidavit was recklessly or intentionally misleading in that it incorrectly suggested that the police had actual possession of “the illegal emails to which pornographic images allegedly were attached.” In a ruling on the probable cause argument, the court held that AOL, an internet service provider, was a reliable informant as it was equivalent to a “citizen eyewitness to a crime” and thus no “independent corroboration” of the information it provided was necessary. The court found that there were sufficient facts set forth in the affidavit to support a finding of probable cause “because the ‘screen name’ associated with the email and linked to Defendant was sufficient to allow a reasonable person to believe that ‘seizable property would be found at the address of the Internet subscriber with whom the name is registered’.”
Sisson subsequently challenged his conviction on several counts of Sexual Exploitation of a Child and Unlawfully dealing in Child Pornography to the Delaware Supreme Court and said conviction was affirmed on all grounds. On Motion for Post Conviction Relief, Sisson argued, in pertinent part, that he suffered ineffective assistance of counsel because his attorneys either did not argue or improperly argued on appeal: that a password was not required for email “spoofing”; “that the detectives acted with reckless disregard for the truth by not stating in the search warrant that they did not have the IP address of the computer that sent the email”; that a username alone was not enough to establish a link between Sisson’s home and the computer that transmitted the email; and that the informants supplying the information for the search warrant (AOL and NCMEC) were unreliable. Defendant’s motion was denied on all counts.
In a very short order in February 2008, the Court of Chancery requires a non-party to submit the credentials of its eDiscovery vendor/consultant. Solow v. Aspect Resources LLC, 2008 WL 441394. Competence of third party vendors and counsel is an issue we’re likely to see more of in the future. In a recent case out of Washington State, the court reduced attorney’s fees in connection with eDiscovery work for inexperience.
In the spring, in In re Kent County Adequate Pub. Facilities Ordinances Litig. (April 18, 2008), the Court of Chancery addresses the issue of attorney-client privilege waiver and applies a test that almost mirrors what will become new FRE 502 a few months later. In response to Petitioners’—landowners and developers—motion to compel in an underlying action, Kent County argued that some of the documents requested were privileged. Kent County asserted privilege over a set of documents it had voluntarily produced to support its motion to preclude the depositions of the individual respondents. The Court found that privilege had been waived for these documents. Another set of documents, however, was produced inadvertently, and Kent County sought to recover them as privileged. The Court, in agreeing to the return of the documents, applied the following test:
In order to determine whether the inadvertently disclosed documents have lost their privileged status, the Court must consider the following factors: (1) the reasonableness of the precautions taken to prevent inadvertent disclosure; (2) the time taken to rectify the error; (3) the scope of discovery and extent of disclosure; and (4) the overall fairness, judged against the care or negligence with which the privilege is guarded.
In applying this test, the Court cited the Delaware Superior Court’s decisions in Monsanto Co. v. Aetna Cas. & Sur. Co., 1994 WL 315238 (Del. Super.) (citing Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., 104 F.R.D. 103 (S.D.N.Y.1985).
In summer 2008, in In re Intel Corp. Microprocessor Antitrust Litig., 2008 WL 2310288 (June 4, 2008), the District Court adopted a special master’s report finding waiver of work product protection. The plaintiffs moved to compel production of Intel’s attorneys’ custodian interview notes relating to litigation hold compliance. The parties had previously reached a privilege waiver agreement, but the special master found that the agreement did not extend to these notes. However, the special master found a privilege waiver for any custodian statements voluntarily disclosed by Intel. The special master opined that finding otherwise would have allowed Intel to "use its sword to assert facts while at the same time shield" the plaintiffs from Intel’s claim of human errors in its performance of its duty to preserve evidence. The special master concluded that protection of the non-core work product had been waived, so granted the plaintiffs motion for production.
Later that summer, the Court of Chancery, in Hexion Specialty Chemicals, Inc. v. Huntsman Corp., 2008 WL 3522445 (Aug. 18, 2008), enforces a “clawback” agreement. Huntsman inadvertently produced an email drafted by one of its outside counsel and sent to another of its outside counsel and its investment banker in connection with a merger with Hexion. The Court found the email privileged and allowed for its clawback pursuant to the confidentiality order.
About a month later, the Court of Chancery, in a letter decision in Kinexus Representative LLC v. Advent Software, Inc., C.A. 1161-CC, reiterates that native or OCR production is not required “without a particularized showing of need.” Advent produced documents in non-searchable TIFF format. Kinexus moved to compel Advent to comply with an instruction to produce searchable ESI. The Court declined to find OCR required by court rules. The Court did find that Advent’s offer to produce “extracted text” was an acceptable compromise but ordered Kinexus to pay for the processing. It’s not clear what format the “extracted text” was provided in. If anyone if familiar with this case and knows how the extracted text was provided, please leave a comment. I’m sure I’m not the only one who is curious about that.
On September 19, 2008, President Bush signed FRE 502 into law. The newly adopted rule was identical to the one approved by the Judicial Conference of the United States in September 2007.
At last, we reach 2009! We’ll cover 2009 in the next and final installment of this series. In the meantime, if you know of significant Delaware eDiscovery cases from 2008 that you think I should have included, please post a comment to let everyone know.
In Part IV, we saw the District Court decide issues with production of unsearchable data, the Court of Chancery comment on the efficacy of printing out electronic documents en mass, and the Superior Court award fees as a sanction for a party’s efforts to frustrate discovery. Let's finish up 2006 then look at 2007.
In late October 2006, the District Court decided Wyeth v. Impax Laboratories, Inc., 248 F.R.D. 169 (Oct. 26, 2006), declining to order a native production. Wyeth had made production in TIFF format. Impax filed a motion to compel production in native format. Because the parties did not agree on a native production at the pre-discovery meeting, and defendant could not demonstrate a need for native files, the Court did not think plaintiff should be made to make an additional production. Relying on its Default Standard for Discovery of Electronic Documents (“E-Discovery”)—adopted after The Sedona Principles were published in 2004 but prior to the 2006 FRCP amendments—the Court declared that, in the absence of prior agreement of the parties, imaged files would be the default format. Contrast with Sedona Principle 12, revised in 2006, which states that, absent agreement of the parties, "production should be made in the form or forms in which the information is ordinarily maintained or in a reasonably usable form."
The next day, in In re Quintus Corp., 2006 WL 3072982 (Oct. 27, 2006), the Delaware Bankruptcy Court issued a default judgment as a sanction for deleted ledgers. The Trustee alleged that the purchasers of debtor’s assets, Avaya, intentionally destroyed some of the debtor’s ledgers that would have shown what liabilities were assumed by Avaya and, of those, which remained unpaid. Avaya argued that the destruction came well before it could have reasonably anticipated litigation. The Court found that Avaya should have reasonably anticipated litigation because Avaya had not paid all the liabilities it assumed as of the time of the hearing. Concluding that Avaya’s willful destruction was overwhelmingly prejudicial to the Trustee, the Court granted summary judgment in favor of the Trustee.
Shortly after these decisions, on December 1, 2006, the FRCP eDiscovery amendments became effective. The changes were covered quite succinctly by K&L Gates on their Electronic Discovery Law blog.
In the winter of 2007, in Empire Financial Services, Inc. v. The Bank of New York, 2007 WL 625899 (Feb. 20, 2007), the Superior Court ruled that a spoliation claim requires showing of intent to suppress truth, not mere negligence. Empire sought and the Court ordered production of certain accounts in 2001, but Empire did not follow up on production of the remaining accounts. In 2005, Empire sought production of the remaining accounts, but the Bank had, by that time, archived them, making retrieval onerous. Empire alleged spoliation, but the Court found that it was reasonable for the Bank to assume Empire had abandoned its desire for the account data so lacked any intent to make the data inaccessible.
Almost a year later, in the fall of 2007, in RLI Ins. Co. v. Indian River Sch. Dist., 2007 WL 3112417 (D.Del. Oct. 23, 2007), the District Court decline to require adherence with its Default Standard for E-Discovery (“Default Standard”). RLI complained that it did not receive enough ESI(!) from defendants, so, seven months after document discovery had ended, filed a motion to compel defendants to comply with the Default Standard. The Court found, inter alia, that RLI had "depicted no specific instances where any of the defendants actually failed to produce relevant, discoverable email communications” and denied the motion.
About a month later, in Ryan v. Gifford, 2007 WL 4259557 (Nov. 30, 2007), the Court of Chancery, in line with the District Court’s ruling a year earlier in Wyeth, declares that native or OCR production is not required “without a particularized showing of need.” As with everything in eDiscovery, the standard is reasonableness. If you can’t articulate a reason for a discovery demand, you should reconsider. Don’t ask for backup tapes, metadata, or certain forms of production if you can say why you want them.
In the Part VI, we’ll cover seven cases from 2008. In the meantime, if you know of significant Delaware eDiscovery cases from 2007 that you think I should have included, please post a comment to let us know.
In Part III, we saw the Superior Court deal with instant messages, the Court of Chancery issues sanctions for failure to produce and dealt with issues of commingled data, and the District Court sets a fine example of wisdom and humility by reversing its prior order and deftly applying the principle of proportionality. We pick up where we left off, in fall 2005.
A few days after the Rockwell decision, the District Court decided Fenster Family Patent Holdings, Inc., Elscint Ltd. v. Siemens Medical Solutions USA, Inc., 2005 WL 2304190 (Sept. 20, 2005). In this patent infringement suit, the Fenster renewed a motion access to Siemens’ corporate Intranet. The Court previously denied the motion, because Siemens represented that it would produce the requested data in a searchable electronic format. Fenster claimed Siemens did not make good on their representation because they produced over one million pages in hard copy, requiring document-by-document review without the benefit of electronic search. Fenster also claimed Siemens produced other large batches of documents in a non-searchable electronic format. Siemens responded that it would re-produce the unsearchable electronic documents and that other documents were produced in the format in which they had been maintained. The Court found that Fenster had not demonstrated a change in circumstances warranting a different outcome and denied the motion.
In late 2005, the Court of Chancery decided In re Instinet Group, Inc. Shareholders Litig., 2005 WL 3501708 (Dec. 14, 2005). After settling a class action shareholder lawsuit, plaintiffs sought $1,450,000 in fees and more than $173,000 in costs. Although agreeing plaintiffs were entitled to some fees and expenses, Instinet objected to the amount requested claiming plaintiffs' attorneys' inefficiently managed the discovery process. In considering the award, the Court noted that prior to settlement plaintiffs obtained several hundred thousand pages of documents and devoted a substantial amount of time to document review. The court issued a total award of only $450,000, stating,
[T]he obvious inefficiencies involved in this case, highlighted by the plaintiffs' decision to pay nearly $125,000 to convert documents produced in a digital format into a paper format. Rather than simply copying the electronic media to permit the plaintiffs' lawyers working on the case to search and review the document production on a computer screen, the plaintiffs spewed the digital production onto paper and, then, copied the paper for review. This approach both added unnecessary expense and greatly increased the number of hours required to search and review the document production. In fact, the time records submitted include a large number of hours, by multiple attorneys, spent reviewing the documents… Additionally, it would be inappropriate to award the full amount of out-of-pocket expenses, as the very costly decision to “blow back” the digitized document discovery onto paper lacks justification.
I have had several vendors tell me they still periodically get requests to print out everything in a production. To their credit, despite the fact that printing everything would have generated enormous of revenue, the vendors had mostly managed to talk their clients out of these ill-conceived decisions. Please resist all automatic urges to print out entire productions, and consider In re Instinet a cautionary tale.
In early 2006, in Barker Capital LLC v. Rebus LLC, 2006 WL 247114 (Jan. 12, 2006), the Superior Court issues sanction for obstruction in discovery. Barker Capital sued for, inter alia, breach of contract and unjust enrichment. Defendants provided non-responsive interrogatories, offered an unprepared (and ‘obstructionist, arrogant, rude, insolent, sarcastic, and condescending’) 30(b)(6) witness, and, contrary to an affidavit from its general counsel, had failed to disclose various e-mails and other electronic documents. The Court ordered production of all relevant documents, and simply asked Barker Capital to submit an affidavit setting forth all costs related to defendants’ efforts to frustrate discovery.
On April 12, 2006, without comment or dissent, the US Supreme Court approved the entire package of proposed FRCP amendments concerning discovery of electronically stored information. The package included revisions and additions to Rules 16, 26, 33, 34, 37, and 45, as well as Form 35.
In June 2006, the Committee on Rules of Practice and Procedure adopted the recommendations of the Advisory Committee on Evidence Rules, approving proposed Evidence Rule 502 (Attorney-Client Privilege and Work Product; Limitations on Waiver) for publishing for public comment.
There are five more cases in 2006, four in 2007, and seven in 2008. We’ll pick up with those case in Part V. In the meantime, if you know of significant Delaware eDiscovery cases from 2005 or the first half of 2006 that you think I should have included, please post a comment to let everyone know.
In Part I of this series, we looked at two cases from the 1990's dealing with Attorney/Client Privilege and Work-Product protection. The next significant case doesn't appear until 2002, when the Court of Chancery tangles with the issue of backup tape restoration.
Upon installing a data storage system, it must be assumed that at some point in the future one may need to retrieve the information previously stored. That there may be deficiencies in the retrieval system (or inconvenience and cost associated with the actual retrieval) cannot be sufficient to defeat an otherwise good faith request to examine the relevant information.
In Part II of this series, we looked at four cases from 2002 and 2003 in which the Court of Chancery and the District Court each got into the eDiscovery thicket, addressing issues with backup tape restoration, keyword searching, allegations of spoliation, and cost-shifting. The next significant case isn’t until 2004 when the Superior Court steps back into the eDiscovery realm.
In late 2004, the Superior Court faces instant messaging issues in Smoot v. Comcast Cablevision, 2004 WL 2914287 (Nov. 16, 2004). Smoot was fired by Comcast for engaging in a “four-hour ‘instant message’ conversation with two of her co-workers on her company laptop. The conversation included numerous sexual references and allusions as well as racially derogatory remarks and instances of profanity.” Smoot applied for unemployment benefits and was denied. She appealed to an Appeals Referee who upheld the denial of benefits. She then appealed to the Unemployment Insurance Appeal Board who also upheld the denial. She then appealed to Superior Court. The Court affirmed the Board’s decision. Comcast caught Smoot because the instant message conversation created a 24-page transcript on her company-owned laptop. This case shows us that ESI isn’t just Word documents and emails; it’s created in myriad ways.
In early 2005, in Beck v. Atlantic Coast PLC, 868 A.2d 840 (Feb. 11, 2005), the Court of Chancery sanctioned plaintiff and plaintiff’s counsel for failure to disclose relevant material from the plaintiff’s web site. In an attempted class action, Beck sought to be class representative in a suit against Atlantic Coast for breach of warranty and fraud related to Atlantic Coast’s software. Unfortunately, Beck never purchased or used the software at the heart of the allegation. Atlantic Coast’s counsel found Beck’s web site where he posted his belief that the software did not work and emails exchanged with the developer in which he posed as potential buyer. The Court dismissed the case with prejudice and ordered Beck and his counsel to pay Atlantic Coast $25,000 and $2,500 to the Court. This is comparatively minor in a post-Qualcomm world, but significant at the time. As the case above, this case also expanded the horizon of discoverable ESI.
Less than a month later, in TIG Insurance Company v. Premier Parks, Inc., 2005 WL 468300 (Mar. 1, 2005), the Superior Court reconsiders its own discovery order after misapprehending just how difficult it is to find needles in haystacks of ESI. TIG insured Premier Parks (“Six Flags”) who was being sued in a class action. The Court ordered TIG to produce information regarding law firms it had chosen to defend class actions against other insureds over the previous five years. TIG tried to comply but had no way to sort by matters which resulted in defending a certified class action so they proposed searching for matters with similar expenditure levels (more than $750,000). Six Flags rejected that proposal. TIG proposed to broaden the search to matters with $500,000 in expenditures. Six Flags again rejected, and proposed sending its expert in to TIG’s systems to search for the information. TIG filed for reargument, asking the Court to refine its discovery order. Six Flags, using language very similar to the Court’s in Kinko’s, argued that “TIG may not use its inadequate computer system as an excuse to avoid valid discovery obligations.” The Superior Court did not agree and amended its prior order to require TIG to search its system for matters with $500,000 in expenditures. This is an excellent example of a court employing the principle of proportionality, principle number two of The Sedona Principles.
In the fall of 2005, in Rockwell Automation, Inc. v. Kall, 2005 WL 2266592 (Sept. 9, 2005), the Court of Chancery deals with commingled personal and proprietary data. The defendant had been terminated by the plaintiff. The plaintiff sought recovery of proprietary materials in defendant’s possession. Defendant returned “computer hardware” to the plaintiff containing the proprietary materials and defendant’s personal and privileged information. The Court ordered that plaintiff “retain, at its expense, a third-party service provider to retrieve and review all documents.” The service provider was to identify plaintiff’s proprietary or confidential documents from the corpus and return them to plaintiff. The Court did not provide any guidance on what method the service provider should use to find plaintiff’s proprietary or confidential documents.
We’ll finish up 2005 in Part IV. In the meantime, if you know of significant Delaware eDiscovery cases from 2005 that you think I should have included, please post a comment to let everyone know.
If you do it soon enough, you may make it into the next post!
Hello and welcome to the Delaware eDiscovery Report! We will be tracking all manner of developments in the realm of eDiscovery, including federal and state case law and rule developments, emerging trends and discussions from groups like The Sedona Conference® and EDRM, vendor technology developments, and project management techniques. Besides tracking eDiscovery developments generally, this blog will pay particular attention to eDiscovery developments under Delaware law.
With an increasing number of states adopting eDiscovery rules (mostly mirroring the Federal Rules), it may surprise many of you to know that Delaware has not adopted any such rules. There is, of course, case law on the subject, and I'd like to kick off the Delaware eDiscovery Report with a chronological development of the significant EDD cases I could find, bringing us all up to speed on the state of eDiscovery in the First State.
Here's the first of multiple installments: