Spoliation Instruction But No Terminating Sanctions in Coding Trade Secrets Case

The United States District Court for the Southern District of Texas declined to impose litigation ending discovery sanctions for several claims of spoliation, but does plan to issue a spoliation instruction in Quantlab Technologies Ltd. v. Godlevsky, No. 4:09-cv-4039, 2014 U.S. Dist. LEXIS 20305, filed February 19, 2014.

Plaintiff, Quantlab Technologies Ltd. (“Quantlab”), is a quantitative financial research firm that employed two of the defendants, Dr. Godlevsky and Dr. Kuharsky (“the defendants”), in its research and technology departments.  The defendants wrote algorithms and code that transformed Quantlab from a company on the verge of bankruptcy into a profitable stock trading company.  The defendants were fired from Quantlab in 2007 after they had inquired about the legality of Quantlab’s trading practices.  The defendants then joined a new trading start-up, SXP Analytics, where they also wrote high-frequency trading strategy code to analyze the stock market.  Litigation over whether the defendants were using Quantlab’s trade secrets began in 2007.  The FBI raided SXP Analytics in 2008, seizing hundreds of thousands of files that may have come from Quantlab.  Following the raid, the defendants left SXP Analytics, which was eventually dissolved in 2012. The defendants then attempted to form a new high-frequency trading start-up called Singletick.

The Quantlab trade secret litigation followed the defendants throughout their subsequent career.  Because Quantlab claimed that the defendants relied on its code to develop their own code, Quantlab argued that “each iteration of code written by Defendants since Dr. Kuharsky and Dr. Godlevsky departed from Quantlab’s employ is relevant to determining whether that code was impermissibly based upon Quantlab’s version.”  Id. at *39.  Since litigation had begun as soon as the defendants were terminated and the instant suit was filed in 2009, Quantlab argued that the defendants had had a duty to preserve their computers ever since 2007 and definitely since 2009.

The court took time to set forth the legal standards that apply to issuing discovery sanctions, and then analyzed each claim of spoliation against each defendant individually, reasoning that whether a party has a duty to preserve evidence is a fact specific inquiry.

The first spoliation claim was against SXP Analytics founder, Emmanuel Mamalakis, for wiping and/or giving away 23 computers used by his developers.  The work stations were wiped or given away in 2012 as part of winding up SXP Analytics.  The court found that Mr. Mamalakis had a duty to preserve the work stations even though they had not yet been the subject of a specific discovery request.  Before Mr. Mamalakis got rid of the work stations, he had been served with many Requests for Production.  In light of those, “Mr. Mamalakis should have known that significantly altering or disposing of computers used by SXP employees was unwise.” Id. at *42.  The court rejected Mr. Mamalakis’s arguments that he did not have the requisite state of mind for spoliation because part of his decision to wipe computers was to inexpensively wind up SXP Analytics and that he believed any relevant evidence from the work stations could also be found on the servers, which he kept.  The court found Mr. Mamalakis acted in bad faith “because Mr. Mamalakis intentionally wiped and gave away numerous computers nearly three years after initiation of this lawsuit and concealed it from the court.”  Id. at *48.  The evidence on the workstations was relevant and prejudiced Quantlab because information on the servers would only show the code a developer uploaded to the server and would not contain detailed information about what the developer was looking at when he wrote the code or what versions of the code the developer went through before uploading it to the server.  But the court refused to impose terminating sanctions finding that whether Quantlab would have used evidence from the work stations was still “somewhat speculative” so the evidence was only “moderately relevant” and its loss was only “moderately prejudicial.”  Id. at *53.

The second spoliation claim was against Dr. Godlevsky because when Quantlab requested all computers Dr. Godlevsky had used since 2007, he only provided one laptop.  Quantlab did not allege specific acts of spoliation, but brought a spoliation claim on the theory that “there must be more.”  Id. at *54 [emphasis omitted].  Dr. Godlevsky admitted that he had another personal laptop, which he never used for coding, that he had disposed of after the hard drive had failed and that he had used many USB drives over the years that he did not keep track of.  The court found that Dr. Godlevsky should have known in 2007 that litigation was likely so that he could not be careless with evidence and that he definitely had a duty to preserve since 2011.  Even if Dr. Godlevsky intended to argue that the evidence was not relevant, he still had a duty to preserve it.  The court found that Dr. Godlevsky’s carelessness with his electronic devises constituted bad faith, but not “the most culpable state-of-mind possible.” Id. at *61.  The evidence was likely relevant, especially evidence on devices that had been seized by the FBI and had been connected to computers containing Quantlab code.  But the court declined to impose litigation-ending sanctions because the bad faith was not strong enough.

The third spoliation claim was against Dr. Kuharsky regarding a few specific devices, including one that Dr. Kuharsky had plugged into his computer approximately 50 times.  Dr. Kuharsky admitted that he had a duty to preserve evidence ever since 2007 and the court found bad faith for losing the specific devices.  But like the claims against the other defendants, while the evidence was likely relevant, it was not certain that it would have been used in Quantlab’s case, so prejudice to Quantlab could not be readily determined.  The court determined that loss of the specific devices warranted a spoliation instruction against Dr. Kuharsky, but that there was not a strong enough showing of culpability or prejudice to warrant litigation ending sanctions.

This case serves as a reminder to institute appropriate litigation hold procedures when litigation becomes reasonably likely.

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Connecticut Appellate Court Dismisses Appeal of Discovery Order Finding that the Order Did Not Constitute a Final Judgment

 

In Radzick v. Connecticut Children’s Medical Center, No. 34952, 2013 Conn. App. LEXIS 454 (Conn. App. Ct. Sept. 17, 2013) the Connecticut Appellate Court dismissed defendant Connecticut Children’s Medical Center’s (“CCMC”) appeal of a trial court discovery order. Francisco A. Sylvester, an employee of CCMC, treated Jonathan Radzick, a minor, for Chron’s disease. Sylvester prescribed Remicade as part of his treatment of Jonathan and Jonathan died from T-cell lymphoma. Paul Radzick, plaintiff and administrator of Jonathan Radzick’s estate, brought suit, alleging that Sylvester knew that Remicade’s manufacturer had circulated warnings about fatal T-cell lymphoma and that Sylvester failed to obtain parental permission to prescribe Remicade for Jonathan.

In discovery, plaintiff sought to determine what Sylvester knew about Remicade and when. Specifically, plaintiff wanted to search three computers Sylvester had access to during the time he treated Jonathan. The discovery dispute centered around electronically stored information (“ESI”) on those three computers. On July 19, 2012, the trial court granted plaintiff’s motion to compel and ordered plaintiff be permitted to image the hard drives of the three personal computers Sylvester had used, and that their contents be forensically examined. The court addressed defendant’s concern that the computers contained confidential patient information and private information from use by Sylvester’s family members by requiring that anyone involved with imaging or investigating the computers sign a protective order. The court also required that the forensic investigation of the computers be conducted by an independent forensic consultant who would be hired and supervised by a discovery master. Sylvester appealed.

The appellate court looked to the two prong test in State v. Curcio, 191 Conn. 27, 463 A.2d 566 (1983) to determine if the July 19, 2012 discovery order was an appealable final judgment. Under Curcio, in order to be appealable, the order must satisfy at least one of these two prongs: (1) the ruling must terminate “a separate and distinct proceeding,” or (2) the ruling must so conclude “the rights of the parties that further proceedings cannot affect them.”

The Court of Appeals rejected Sylvester’s argument that the July 19, 2012 order was akin to other discovery orders that met the first prong in which discovery orders directed at nonparties authorized public disclosure of confidential information. However, the July 19, 2012 order was directed at Sylvester, a party, and protected confidential information of nonparties that may be on his computers by appointing a discovery master and including an in camera review before any information was to be disseminated.

The appellate court held that the July 19, 2012 order also did not meet the second prong, reasoning that the rights of the defendants are not “irretrievably lost” because of the order. In fact, the rights of the defendants may never even be compromised because of the safeguards in the order. The court dismissed the appeal.

This case serves as a reminder of the potential importance ESI can play in the outcome of a case and of the importance of maintaining proper ESI retention and production protocols.

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How Will Proposed Changes to Federal e-Discover Rules Affect Your Practice?

The Federal Rules of Civil Procedure (Rules) may change the case management, scope, and sanctions related to e-discovery in federal courts, starting in late 2015. Proposed changes seek to encourage early and active case management, ensure proportionality in e-discovery, and advance cooperation among parties. 

The Committee on Rules of Practice and Procedure made draft versions of these rules available for public comment through February 15, 2014. The proposed changes to the Rules as related to e-discovery are summarized in this Alert, and all of the proposed changes are available here.

These changes may impact your practice, positively or negatively, depending on who you represent and the nature of the cases you try. Therefore we strongly encourage you to submit comments prior to the February 15 deadline, or to participate in one of the three public hearings on the proposed rules (Washington, D.C., on November 7, 2013; Phoenix on January 9, 2014; or Dallas on February 7, 2014).

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Posted in Articles, case, civil, comment, cooperation, eDiscovery, Federal, management, of, preservation, Procedure, proportionality, Public, rules, Sanctions

Google Invited to the Apple v. Samsung Discovery Dispute: Court Orders Third Party Google to Produce Search Terms and Custodians used to Respond to Apple’s Requests for Production

 

by Terri A. Thomas

In the continuing patent infringement saga between Plaintiff Apple, Inc. (“Apple”) and Defendants Samsung Electronics Co., Ltd., Samsung Electronics America, Inc., and Samsung Telecommunications America, LLC (collectively “Samsung”), Magistrate Judge Paul S. Grewal of the District Court of Northern California ordered third party Google, Inc. (“Google”) to produce a list of the search terms and custodians Google used to respond to Apple’s requests for production. Case No. 12-CV-0630-LHK (PSG), Dkt. 501, filed May 9, 2013.

Apple was not, in the present motion, seeking to compel additional discovery from Google, nor was it opposing Google’s objections to Apples requests; Apple sought only to know “how Google created the universe from which it produced documents” in order to “evaluate the adequacy of [its] search”. Google initially objected based on attorney-client privilege and work-product grounds, though recognized that “courts generally have not found protection for that type of information.” See Formfactor, Inc. v. Micro-Probe, Inc., Case No. C-10-03095 PJH (JCS), 2012 U.S. Dist. LEXIS 62233, 2012 WL 1575093, at *7 n.4 (N.D. Cal. May 3. 2012) (listing cases explaining why search terms are not work product). The court considered Google’s complaint that “the impact of requiring non-parties to provide complete ‘transparency’ into their search methodology and custodians in responding to non-party subpoenas whenever unsubstantiated claims of production deficiencies are made would be extraordinary”, and that providing its list of search terms and custodians would open it to further burdensome discovery by Apple.

The court cites to The Sedona Conference Cooperation Proclamation (The Sedona Conference, Preface (Nov. 2012)) and the principles of “cooperative, collaborative, and transparent discovery”, and relies heavily on Judge Nolan’s holding in DeGeer v. Gillis, wherein Her Honor stated that “[t]he proper and most efficient course of action would have been agreement by [the third party and the defendants] as to search terms and data custodians prior to [the third party’s] electronic document retrieval.” 755 F. Supp. 2d 909 (N.D. Ill. 2010). 

The court ultimately held that “transparency and collaboration is essential to meaningful, cost-effective discovery”, and such policies apply equally to parties and third-parties alike, and ordered Google to produce its search terms and custodians to Apple.

This case makes clear that search terms and custodians are not protected work product. If a third-party has to disclose search terms and custodians, certainly parties to litigation will have to do so. Courts are continuing to require greater transparency in the discovery process, and requesting and producing parties would be well-served in cooperating and attempting to reach agreement on search terms and custodians early in the discovery planning process.

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U.S. District Court for the Northern District of California Adopts New Electronic Discovery Guidelines Effective November 27, 2012

by Terri A. Thomas

The U.S. District Court for the Northern District of California unanimously adopted new guidelines regarding the discovery of electronically stored information (“ESI”). The guidelines are tools “designed to promote cooperative e-discovery planning . . . that is tailored and proportionate to the needs of [a] particular case.” The Court released:

·         Guidelines for the Discovery of Electronically Stored Information (“ESI Guidelines”);

·         An ESI checklist for use during the Rule 26(f) meet and confer process; and

·         A Model Stipulated Order Re: the Discovery of Electronically Stored Information.

These documents are available in full at http://www.cand.uscourts.gov/eDiscoveryGuidelines

In addition, as part of the Joint Case Management Statements filed by the parties pursuant to Civil Local Rule 16-9, the parties must certify that they have each reviewed the ESI Guidelines and confirm that the parties have met and conferred pursuant to Fed. R. Civ. P. 26(f) regarding reasonable and proportionate steps taken to preserve evidence relevant to the issues reasonably evident in the action.

The ESI Guidelines were developed to “encourage reasonable electronic discovery with the goal of limiting the cost, burden and time spent, while ensuring that information subject to discovery is preserved and produced to allow for fair adjudication of the merits.” Most notably, the ESI Guidelines expressly adopt the proportionality standards articulated in Fed. R. Civ. P. 26(b)(2)(C) and 26(g)(1)(B)(iii) and apply it to preservation obligations. ESI Guidelines 1.03; 2.01. The ESI Guidelines also encourage cooperation between the parties, beginning at the early stages of discovery, and the appointment of e-discovery liaisons who are versed in the technical aspects of e-discovery for the respective parties.

In an effort to aid in and further encourage cooperation between the parties, the Court created a Rule 26(f) checklist for use during the meet and confer process, which highlights the relevant areas the Court believes parties should be addressing at the 26(f) stage relative to ESI. This includes designation of information that “the party believes could contain relevant information but [] has determined, under the proportionality factors, should not be preserved.”

Finally, the Court drafted a Model Stipulated Order. The Model Order specifically calls for the parties to identify the dates and custodians for whom ESI is to be preserved, with the caveat that custodians may be added or removed as reasonably necessary. The Model Order also requires the party to designate relevant information, which, because of proportionality standards, will not be preserved. Additionally, the Model Order calls for the parties to agree on the production format and any phasing of discovery, and includes a Fed. R. Evid. 502(d) agreement that production of privileged and work-product documents will not constitute a waiver of such privilege(s). Of course, as this is a Model Order, the Court indicates in the Model Order itself its willingness to modify the Order by Stipulation of the parties or good cause.

In adopting the ESI Guidelines and Model Order, the Court attempts to provide some measure of clarity to parties of their preservation obligations; however, at least initially, this is based largely on cooperation and agreement between the parties. Still, such Model Orders and Guidelines are an important step in ensuring early communication of e-discovery issues.

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Posted in Articles, courts, discovery, e-discovery, eDiscovery, electronically stored information, ESI

Judge Orders Parties to Keep it “Kleen”

            The first rule of successful lawyering is that one must be a zealous advocate for his or her client. While this mantra is essential to best practice, it should not be followed to the exclusion of traditional trial etiquette. This was the message propounded by the Honorable Nan R. Nolan of the United States District Court for the Northern District of Illinois in her recent order calling for collaboration and cooperation during eDiscovery. 

            In Kleen Products, LLC v. Packaging Corp. of America, Plaintiffs brought a class action suit against manufacturers of containerboard charging antitrust violations under Section 1 of the Sherman Act. The first of many disputes in the litigation concerned the use of predictive coding technology, a form of computer-assisted review used to aid document search and production. Plaintiffs sparked this debate when they asked Judge Nolan to order Defendants to revamp their system of production to employ a specific kind of content-based analytics.  Judge Nolan signed a joint Stipulation and Order in August, in which Plaintiffs agreed to withdraw their demand that Defendants apply this particular methodology with respect to any requests for production served prior to October 1, 2013.  

            In response to the current flood of motions pertaining to interrogatories and document requests, Judge Nolan’s order emphasizes cooperation and proportionality, quoting the Sedona Conference’s Cooperation Proclamation at the outset: “Lawyers have twin duties of loyalty: While they are retained to be zealous advocates for their clients, they bear a professional obligation to conduct discovery in a diligent and candid manner. . . . Cooperation does not conflict with the advancement of their clients’ interests—it enhances it.” These words of wisdom were directed predominantly at Plaintiffs’ most recent set of interrogatories, which, according to Judge Nolan, “violated the spirit of cooperation that this Court has encouraged.” Only three days after one of the defendants, Georgia Pacific, went above and beyond to produce certain requested information pertaining to individuals within its corporate structure who had received the litigation hold notice, Plaintiffs issued a Sixth Set of Interrogatories demanding extensive background information on each person identified. Judge Nolan referred to the proportionality standards of FRCP 26(b)(2)(C)(iii) in granting Georgia Pacific’s motion for a protective order.

            Judge Nolan did, however, grant Plaintiffs’ motion to compel the production of additional document custodians directed at two particular defendants, concluding that “in an antitrust case such as this, Plaintiffs are at least entitled to a sample of lower-level and plant-level employees to determine if they possess significant and non-duplicative information.” Judge Nolan stated that while certain production requests can be found to violate the proportionality standards of FRCP 26(b)(2)(C), the party objecting to discovery must provide specific evidence to demonstrate the burden, which the defendants here failed to do.

            Judge Nolan capped off the final order of her judicial career with some parting guidance to the parties, as well as the legal community at large, regarding eDiscovery propriety and protocol:

 

First, the approach should be started early in the case. It is difficult or impossible to unwind procedures that have already been implemented. Second, in multiple party cases represented by separate counsel, it may be beneficial for liaisons to be assigned to each party. Finally, to the extent possible, discovery phases should be discussed and agreed to at the onset of discovery.    

 

Kleen Products instructs that practitioners should take heed of Judge Nolan’s suggestions and attempt to comply with the spirit of collaborative and proportional eDiscovery. While zealous advocacy remains a hallmark of legal representation, vigorous client activism and cooperative litigation are certainly not mutually exclusive.

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Posted in Articles, Class action, coding, discovery request, eDiscovery, predictive, production, proportionality

Pennsylvania Supreme Court to Address Admissibility of Text Messages as Evidence

 This piece was first published on the blog From the Sidebar and is reprinted with permission.

By Hayes Hunt and Michael Zabel

Today, oral argument will be heard in Commonwealth v. Koch, a case in which the Pennsylvania Supreme Court is confronted with a question that is increasingly important: When to admit a text message into evidence at trial? 

The question matters because electronic messaging – such as text messages or instant messages – is a significant and growing source of potential evidence. In 2010, an estimated 6.1 trillion text messages were sent (that’s over 200,000 messages per second). Attorneys now realize that a key piece of evidence is an exchange of text or instant messages instead of an e-mail or an old-fashioned letter.

When seeking to introduce a text or instant message at trial, one of the biggest evidentiary hurdles is establishing authenticity. (FRE 901). State and federal courts across the country have been applying FRE 901 and its state rule equivalents to text and instant messages.

How do you show that a text message from Joe Smith is a text message from Joe Smith?  The  answer is not as simple as “it came from Smith’s phone number.”  This is no different than what is required to authenticate a handwritten letter.  A letter from Mary Jones may bear her signature, but that signature could be forged.  A court would likely require the proponent produce something beyond the letter itself as evidence such as a witness who could identify her signature.

Similarly, the developing case law across the country says that something more is needed for text messages and instant messages.  Federal and state courts are grappling with the question of what that “something more” can be.  Most commonly (and unsurprisingly), courts favor authentication by means of testimony from either the sender or recipient of the message (People v. Agudelo).  In Koch, the Superior Court held that the text messages at issue were not properly authenticated because there was no confirming testimony from the senders or recipients of the disputed messages and no contextual clues within the messages themselves that revealed the identity of the sender. Interestingly, the court also rejected the idea that the defendant’s physical proximity to the cell phone when it was seized was probative of the defendant’s authorship of the text messages made days or weeks earlier.

It will be interesting to see whether the Pennsylvania Supreme Court agrees with the lower court’s analysis or opts for a different standard of authentication.  Regardless of the court’s answer, however, the safest way to get a text or instant message admitted into evidence will be to produce the sender or recipient of that message at trial.

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Posted in admissibility, admissible, Articles, cell phone, cellular phone, eDiscovery, electronic communication, evidence, instant messages, text messages

Social Media Login and Password Discovery Requests: A Useful Tool in the Quest for Truth or an Invasion of Privacy? One Pennsylvania Court Helps Navigate the Debate

            The July 5, 2012 decision of the Allegheny County Court of Common Pleas in Trail v. Lesko explores the legal landscape relating to the scope of discovery of social media. 

            Judge Wettick spends the majority of the Lesko opinion laying the groundwork for his holding.  The opinion begins with an introduction to Facebook and social networking sites, followed by a synopsis of nine Pennsylvania cases where the discoverability of social media was at issue (many of which were reviewed here) and an overview of the law in other jurisdictions.  He notes that the “consistent train of reasoning” found in the case law is to require the party seeking discovery to point to facts suggesting that relevant information may be contained within the non-public portions of a Facebook profile.  While privacy settings do not offer absolute protection from discovery, it appears that they can go a long way, as courts often use any profile content that is publicly accessible to determine whether a Facebook user’s full profile is potentially relevant. 

            In Lesko, the plaintiff alleged serious injuries from a car accident, and the defendant originally claimed he was not the driver of the vehicle involved.  In an increasingly popular attempt at debunking their opponent’s factual assertions, the parties filed cross motions to compel access to each other’s Facebook accounts. 

            Since the defendant denied driving the vehicle involved, plaintiff argued that postings surrounding the time period at issue were relevant to determine the defendant’s whereabouts.  However, in response to Plaintiff’s Request for Admissions, the defendant admitted he was driving the car.[1]  Accordingly, Judge Wettick denied plaintiff’s request, finding that the defendant’s Facebook information was no longer relevant in light of his admission.

            The defendant asserted that Facebook photographs of the plaintiff socializing at a bar and “drinking at a party” cast doubt on his claim of serious injuries.  The Judge was not persuaded, however, noting that since the plaintiff never alleged that he was bedridden, the photos were not inconsistent with his alleged injuries.

            In possibly the most useful part of the opinion for future litigants resisting discovery requests for social networking information, Judge Wettick maps out the basis for his opinion, explaining, “I base my rulings on Pa.R.C.P. No. 4011(b) which bars discovery that would cause ‘unreasonable annoyance, embarrassment, oppression …’  This rule will reach intrusions that are not covered by any constitutional right to privacy or any common law or statutory privileges.”  The Judge explained that a blanket court order to provide Facebook login information likely allows access to much more information than is relevant to the litigation, which could be particularly embarrassing for a person who thought they were only sharing such information with “Friends.”  The opinion then clarifies that discovery must be unreasonably intrusive to be barred.  Thus, although ordering court access to one’s Facebook account might have the unfortunate consequence of causing embarrassment, the sharing of personal information that underlies the entire concept of Facebook can negate a user’s claim to privacy. 

            With this overview of the current legal landscape memorialized in the Lesko opinion, it will be interesting to watch the law evolve as additional courts rule on the discoverability of social media.  Regardless of what happens in the future, one aspect of the developing law has clearly emerged: if a Facebook post is publicly accessible, the user should be prepared to share that post and all related account information with anyone interested — “Friend” or foe.


[1] Question of the day: Did the defendant admit he was driving the car to avoid turning over his prized Facebook login information?

 

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Posted in Articles, discovery of social media in lawsuits, discovery of social networking sites, discovery request, e-discovery, Facebook, Social Media, social media and disclosure of confidential information

Shifting E-Discovery Costs to the Plaintiff in a Potential Class Action: a Pennsylvania Federal Court Tells Plaintiffs’ Counsel to “Make the Investment in Discovery”

In what could be a significant opinion for federal class action defendants seeking to limit their e-discovery costs, a court in the Eastern District of Pennsylvania recently held in Boeynaems v. LA Fitness International, LLC, No. 10-2326, No. 11-2644 (E.D. Pa. Aug. 16, 2012), that plaintiffs who were seeking broad discovery regarding class certification issues – including extensive ESI requests — should share in the costs of the defendant’s discovery production.    

Recognizing that the potential for a class action suit “dramatically increases the economic pressure on the defendant” and that the economic burden of discovery production regarding certification often falls primarily on the defendant, Judge Michael Baylson wrote, “[D]iscovery burdens should not force either party to succumb to a settlement that is based on the cost of litigation rather than the merits of the case.”  Where there is a substantial discovery dispute prior to class certification, Judge Baylson held, “economic motivation and fairness are relevant factors in determining cost-shifting of disputed discovery burdens.” 

In Boeynaems, the five individual plaintiffs had asserted deception and breach of contract actions relating to their attempts to cancel their gym memberships with the defendant.  In the process of seeking class certification for what they anticipated would be a very large class, the plaintiffs sought extensive discovery from defendants.  After the defendant had already provided some discovery  to the plaintiffs, substantial disputes arose between the parties about the scope of remaining discovery to be provided by the defendant.  Among other things, the plaintiffs sought “millions of items” of ESI (electronically stored information).  The cost of production of that ESI, the court noted, was “a significant factor in the defense of the litigation.”

In determining how to allocate discovery costs between the parties, the court focused on the specific circumstances of the case.  Discovery in the case was called “asymmetrical,” in that discovery production and its attendant expenses were rather small for the plaintiffs, and potentially huge for the defendant.   The court noted while class determination requires a “searching inquiry” and “very detailed analysis,” the plaintiffs had already amassed a very large set of documents that were potentially probative of the class action issue.  With that in mind, the court held that the plaintiffs should bear the economic responsibility of any future discovery efforts in regard to class determination:

The Court is persuaded, it appearing that Defendant has borne all of the costs of complying with Plaintiffs’ discovery to date, that the costs burden must now shift to Plaintiffs, if Plaintiffs believe that they need additional discovery.  In other words, given the large amount of information Defendant has already provided, Plaintiffs need to assess the value of additional discovery for their class action motion.  If Plaintiffs conclude that additional discovery is not only relevant, but important to proving that a class should be certified, then Plaintiffs should pay for that additional discovery from this date forward, at least until the class action determination is made.

Remarkably, in arriving at its decision, the court took into consideration the economic resources of the plaintiffs’ counsel.  The court observed that the plaintiffs’ counsel was a “very successful and well regarded” firm, and reasoned that if that firm “believes that this case is meritorious, it has the financial ability to make the investment in discovery[.]”  The court further noted that while the discovery costs were likely not recoverable from the defendant in the event of  plaintiff victory,[1] the court would likely allow the firm’s “out-of-pocket costs to be deductible from any award to a class, assuming a class was certified.”

Although federal rules have allowed the courts to shift discovery costs for years, Boeynaems appears to be the first instance in which a federal court has  addressed the shifting of discovery costs in a pre-class determination setting.  Judge Baylson’s analysis in Boeynaems should present a useful resource to a defendant who is facing the prospect of class action litigation and seeking to limit the potential for extensive e-discovery costs.


[1] For this proposition, the court cited to the recent, major e-discovery case Race Tires America v. Hoosier Racing Tire Corp., 674 F.3d 158 (3d Cir. 2012).  You can find our analysis of the Race Tires opinion here.

Posted in Articles, Class action, cost sharing, costs, discovery, discovery request, e-discovery, e-discovery compliance, e-discovery costs, e-discovery plan, Eastern District of Pennsylvania, electronically stored information, ESI, federal courts, litigation hold, recovery, recovery of e-discovery costs, Third Circuit, unproduced documents

Impact of Chin Decision on Pension Committee

 

 

     The Second Circuit’s recent decision in Chin v. Port Authority, Nos. 10-1904-cv(L), 10-2031-cv(XAP), 2012 U.S. App. LEXIS 14088 (2d Cir. July 10, 2012), appears to have overruled the 2010 opinion from the Southern District of New York in The Pension Committee of the University of Montreal Pension Plan, et al. v. Banc of America Securities, et al, 685 F. Supp. 2d 456 (S.D.N.Y. 2010).

 

     The Pension Committee decision, written by Judge Shira Scheindlin, was one of the first cases to recognize the importance of issuing written litigation holds. In Pension Committee,the court recognized that the failure to issue a written litigation hold constitutes gross negligence per seSee id. at 465 (citing Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004)). Although some of the plaintiffs in the case issued a written litigation hold, they did not do so until almost three years after commencing their action. Pension Commitee, 685 F. Supp. 2d at 476-477. Moreover, the litigation hold was not issued until years after the Zubulake decision, in which the Southern District of New York articulated the necessity to issue written litigation holds. See id. Based on the conduct of these plaintiffs, the court noted that a jury could infer that any missing documents were relevant, and that the defendants were prejudiced due to their absence. See id. at 478. 

 

     In contrast, in Chin, the Second Circuitrejected the idea that failure to issue a litigation hold necessarily constitutes gross negligence per se,although the decision does not articulate whether the litigation hold at issue was written or oralConsequently, the Chin decision places less of a burden on litigants to issue litigation holds. 

     Nevertheless, because of the potential benefits they provide, parties would be well served to continue to issue written litigation holds. Among the benefits of issuing a written litigation hold are avoiding spoliation issues and ensuring that key evidence is preserved. Further, the time, effort, and cost required to issue a written litigation hold is minimal. In addition, written litigation holds will help to protect those parties litigating in courts outside of the Second Circuit, which have not yet addressed the issue.

 

 

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