E-Discovery Law Review : Electronic Discovery Lawyers & Attorneys : Cozen O'Connor Law Firm : Data Preservation & E-Discovery Disputes

The Clerk for the U.S. District Court for the Eastern District of Pennsylvania recently ruled that there is a heavy presumption that prevailing parties may recover certain e-discovery costs under 28 U.S.C. § 1920. Federal Rule of Civil Procedure 54(d)(1) allows prevailing parties to submit bills of costs for certain expenses, enumerated in 28 U.S.C. § 1920, for taxation by the Clerk against the non-prevailing parties. For example, that statute provides for the taxation of costs related to obtaining copies of transcripts and printing. More significantly, the statute provides for the taxation of “[f]ees for exemplification and the cost of making copies of any materials where the copies are necessarily obtained for use in the case.” 28 U.S.C. § 1920(4). While the term “exemplification” is undefined, federal district clerks have traditionally awarded, as exemplification and copying costs, those costs related to the production of paper documents, photographs, models, maps, blow-ups, charts, and diagrams.

In expanding the categories of production costs recognized as “exemplification” expenses, the Clerk of Court for the Eastern District of Pennsylvania, in Hank’s Beverage Co. v. Ajinomoto Co., Civ. No. 06-cv-1732 (E.D. Pa. Jul. 26, 2011) (slip op.), awarded to the prevailing defendants e-discovery exemplification costs totaling over $500,000. These costs, which do not include the fees incurred by counsel in reviewing the documents, were related to the production of documents, such as processing native files, restoring back-up tape files, hosting and storing documents in electronic databases, scanning hard copy documents, de-duplicating documents, and filtering the documents to capture the documents containing the agreed-upon search terms. The court described these allowable expenses as the “costs of hiring a private company that possesses the technology to search for, and/or to recreate, copies of evidence in electronic form, for the purpose of making the alleged facts contained in the exhibits more clear to the finder(s) of fact . . . .” The court explained that such costs are justified for taxation because “generally, neither attorneys nor employees of attorneys are competent to conduct such a search, or to recreate such documents in paper format.”

The Clerk in Hank’s Beverage further explained that there is a heavy presumption that “the 'prevailing party' automatically is entitled to costs as a matter of course once it has been shown that the costs sought are arguably of the types of costs listed in 28 U.S.C. § 1920.” With this heavy presumption, the Clerk cannot, for example, disallow costs because the losing party is indigent or because the suit was brought in good faith. The “heavy presumption” of automatic taxation exists because the taxation of costs, as opposed to attorney’s fees, is simply “ministerial.” Likewise, since the award of costs is not punitive, the prevailing parties need not demonstrate any bad acts of their adversaries. The Clerk, however, may find that the prevailing parties are undeserving of such costs for their own bad acts or improprieties.

The Clerk’s willingness to treat e-discovery costs as taxable against the non-prevailing party will likely give pause to parties with e-discovery intensive cases. Prevailing parties, in submitting their post-trial bills of cost, should be mindful to request the taxation of e-discovery costs by the Clerk after a victory.  

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 In a recent post on this blog, fellow contributor Mike Zabel addressed how a prevailing party might recover the costs of e-discovery in litigating disputes in federal court under 28 U.S.C. § 1920. In Eon-Net LP v. Flagstar Bancorp, No. 2009-1308, 2011 U.S. App. LEXIS 15650 (Fed. Cir. July 29, 2011), the Court of Appeals for the Federal Circuit highlighted another avenue for litigants in patent cases to recover costs based on discovery violations, affirming sanctions of nearly $500,000 for litigation misconduct. Under 35 U.S.C. § 285, the court may award the prevailing party in a patent dispute reasonable attorneys fees in “exceptional cases.” Plaintiff Eon-Net engaged in improper tactics and made a habit of filing nuisance infringement cases – well over one hundred of them in total – but the court began its exceptional case discussion with Eon-Net’s “retention policy.”

Eon-Net adopted a policy that it would not retain relevant documents and destroyed important documents pursuant to that policy. Indeed, Eon-Net’s principal testified that “I don’t save anything so I don’t have to look.” Flagstar, 2011 U.S. App. LEXIS 15650, at *18. Eon-Net’s approach actively rejected any duty to save documents related to the infringement claim upon which the suit was brought and violated its duty to preserve evidence during prior lawsuits on the same patents. Id. Based on this misconduct, as well as Eon-Net’s improper legal tactics, the court affirmed a costs award that approached $500,000.

Discovery sanctions under Rule 37 and prevailing party costs under 28 U.S.C. § 1920 allow litigants to recoup discovery costs in certain circumstances. The threat of sanctions under either of those rules should be sufficient to keep parties from engaging in outrageous conduct such as the conduct of the plaintiff in Flagstar. When an opposing party engages in such tactics, however, parties to patent litigation should keep the “exceptional case” rule in mind as another tool for recovering costs lost due to discovery misconduct.

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A corporate defendant discovers that it will be subject to litigation, yet it actively destroys probative, relevant evidence. Many of us have read, or heard of, opinions where judges have punished a spoliating-defendant by issuing sanctions anywhere from an adverse inference instruction to an entry of default judgment. In recent years, however, it is not only the client that has felt the weight of the responsibility in discovery matters. Starting with Zublake v. UBS Warburg (“Zublake V”), 229 F.R.D. 422 (S.D.N.Y. 2004), courts all over the country have emphasized the duty placed on counsel—both in-house and outside—to ensure that clients comply with their discovery obligations.

Many courts have quoted Zubulake V’s famous line, stating that counsel “must take affirmative steps to monitor compliance so that all sources of discoverable information are identified and searched.” In Qualcomm Inc. v. Broadcom Corp., 05-cv-1958, 2008 U.S. Dist. LEXIS 911 (S.D. Ca., Jan. 7, 2008), for example, the Southern District of California found Qualcomm’s counsel responsible for a “monumental discovery violation” because counsel “did not conduct a reasonable inquiry into the adequacy of Qualcomm’s document search and production.”

This responsibility is not restricted to outside counsel. In Danis v. USN Communications, Inc., No. 98 C 7482, 2000 U.S. Dist. LEXIS 16900 (N.D. Ill. Oct. 23, 2000), the court recognized that in-house counsel did not establish any meaningful document retention program. In-house counsel failed to: 1) give notice to employees to preserve documents; 2) provide criteria as to what should and should not be saved; 3) review any documents that were being thrown away; and 4) review existing practices related to document retention.

Although both in-house and outside counsel can be, and have been, sanctioned for failing to adequately monitor their clients’ compliance with discovery obligations, the following are some steps that can be taken to avoid this result:

• Be proactive. Identify the triggering events that give rise to the duty to preserve. Once that obligation is triggered, issue a timely and comprehensive litigation hold.

• Communicate effectively and often. Do not assume that employees understand what the litigation entails, what their obligations are under the litigation hold, or what documents may be relevant to the litigation.

• Identify and interview key employees. Focus on employees who are likely to have relevant information to: educate them as to the case; learn about, and preserve, relevant information; and ensure compliance with your litigation hold.

• Contact opposing counsel. Explain your process for collecting relevant information to opposing counsel. If the other side has any issues with your process, it is better to resolve these sooner rather than later.

• Communicate frequently. Do not assume that once you issue a litigation hold, your obligations are fulfilled. Do frequently follow-up to ensure that all employees are preserving potentially relevant documents and data.

• Consider the Court’s involvement. One of the clearest ways to ensure that your clients’ discovery obligations, and yours, are fulfilled is to ask the court to set specific standards with respect to the scope and duration of preservation and how data will be reviewed and produced. Being willing to seek court intervention early on will educate the court as to the volume of information and the cost involved and may lead the court to set limits on ongoing preservation and document production.

The responsibility for compliance with the rules with respect to discovery is shared between the client and their counsel. In-house and outside counsel and the various custodians of potentially relevant information need to work as a team and keep the lines of communication open to ensure that their obligations are fulfilled. This allows all involved to comply with their discovery obligations and to identify key documents—favorable and unfavorable—early on and develop their litigation strategy accordingly.
 

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Once a litigation hold has been drafted, the next steps are to effectively issue, implement, and monitor the hold. These steps are equally critical to ensuring a litigation hold is successful. 

6.      How is an effective litigation hold notice issued?

·                     An effective litigation hold notice cannot be issued unless, and until, key personnel are identified and informed. This includes personnel in a company’s IT department who are responsible for overseeing the preservation of electronic documents. Also, designate one contact person for all preservation related questions. This ensures that information is provided to personnel in a consistent manner. 

·                     The litigation hold MUST be in writing! Many courts require that a litigation hold be in writing in order to be valid. Similarly, ask personnel to complete written acknowledgements, detailing receipt of the litigation hold notice, their understanding of the hold notice, and their agreement to comply with the hold notice. 

·                     When issuing the litigation hold, effective communication is key. Describe the litigation in general terms with understandable language, and avoid legal terms at all costs. Broadly state where relevant data and information could be located. Provide instructions on how to preserve relevant information. Finally, explain the consequences for non-compliance, particularly the importance of not destroying or altering relevant information.   

7.      How should the litigation hold process be maintained and reviewed? 

·                     A litigation hold is not static. It is a continuing obligation, of which personnel constantly should be reminded. Send reminder notices and encourage personnel to ask questions if any exist. Always consider whether new players or data is involved. Continually document the steps taken to implement and monitor the litigation hold. Depending on the situation, an entity may have a responsibility to utilize outside counsel to monitor the litigation hold process.        

8.      When and how should a litigation hold be released? 

·                     A litigation hold may be released when a party no longer is reasonably aware of the possibility of litigation. When releasing the hold, contact all parties who received the original litigation hold notice, and notify them that their obligations under the hold have ceased. At this time, any document destruction policies may be reintroduced. 

·                     Examples of when a litigation hold should be released include the withdrawal of a complaint, the completion of a deal, and the exhaustion of the appeals process. 

9.      Are litigation holds discoverable? 

·                     Normally, litigation holds are not discoverable. However, litigation holds can become discoverable if questions or concerns surround a party’s efforts to preserve relevant information. This is why documenting the litigation hold process is crucial.  

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        Developing, drafting and implementing a litigation hold are critical to the e-discovery process. A litigation hold ensures that all relevant information is preserved and later helps to ensure that discovery can be responded to efficiently, accurately, and appropriately. Accordingly, a successful litigation hold reduces the possibility of sanctions during the e-discovery process.  

This first post on litigation holds, provides answers to questions about the beginning of the litigation hold process. The second post, will more thoroughly address the actual implementation of the hold. 

1.      What is a litigation hold?

·                     During a litigation hold, parties to the litigation preserve, keep, and store potentially relevant information. Parties also must suspend any document destruction policy they follow, for both printed and electronic documents. 

2.      When should a litigation hold be issued?

·                     A litigation hold should be issued when a party is reasonably aware that it will be a party to litigation. For a plaintiff, triggers could include filing a complaint, seeking advice of counsel, or sending a cease and desist letter. For a defendant, triggers could include receiving a summons or complaint, receiving official notice of a government investigation, or receiving notice of an accident, receiving discovery requests. 

3.      Are litigation hold policies and practices necessary? 

·                     Yes! Before litigation even arises, it is necessary to implement litigation hold policies and train employees on those policies. Have a process, follow the process, implement the process, and document the process! 

4.      What types of issues should be identified before issuing a litigation hold notice? 

·                     First, a party needs to identify types of electronically stored information that could contain relevant information. Types of electronically stored information range from data stored on computers (laptops and desktops), to cell phones, to personal data devices (Blackberries, Iphones, etc.), to voicemails. A party also must identify where this data physically is stored and whether the data has multiple storage locations.  

·                     Second, a party needs to identify the players. Players are any individuals who might have been a witness to a relevant event, or individuals who otherwise were exposed to information surrounding a relevant event. Always consider whether the individuals surrounding key players, especially secretaries and assistants, would have relevant information. 

5.      How should the litigation hold process be developed? 

·                     Parties can freely decide how to collect relevant data. In considering the scope of the litigation hold, there are many factors to consider such as the: cost to gather data; number of key players involved; locations of players involved, need to secure an outside expert; location of data; types of data; and accessibility of the data. 

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The duty to preserve electronic evidence is triggered once a party “reasonably anticipates” litigation. Silvestri v. GMC, 271 F.3d 583, 591 (4th Cir. 2001);  Pension Committee of the Univ. of Montreal Pension Plan v. Banc of Am. Securities, LLC, 685 F. Supp. 2d 456, 466 (S.D.N.Y. 2010). At that point, parties have an obligation to suspend their routine document retention and destruction policies and implement a “litigation hold” to safeguard all relevant evidence.  The United States Court of Appeals for the Federal Circuit recently reaffirmed the “reasonably foreseeable” standard in Micron Tech., Inc. v. Rambus, Inc., No. 09-1263, 2011 WL 1815975 (Fed. Cir. May 13, 2011). The Court of Appeals explained that the standard is an objective one, “asking not whether the party in fact reasonably foresaw litigation, but whether a reasonable party in the same factual circumstances would have reasonably foreseen litigation.” Id. at *6.  Significantly, the Court in Micron rejected the argument that “litigation be ‘imminent, or probable without significant contingencies’” in order to trigger the duty to preserve. Id. According to the Court, this argument is based on “an overly generous reading of several cases” and is at odds with the flexible reasonably foreseeable standard.  Id. 

The “reasonable anticipation” principle is now well-established but not easily applied as it is necessarily shaped by the factual nuances of the parties’ dispute. Thus, although it is easy to conclude that a defendant has a duty to preserve electronic evidence once it is served with a summons and complaint, the duty to preserve is often triggered in the pre-litigation stage. This is because the duty to preserve is triggered once the defendant is aware of a credible threat of litigation, which is often before a complaint is filed. Determining the date that the party knew or should have known that litigation is reasonably foreseeable is often a subject of dispute. Viramontes v. U.S. Bancorp, No. 10-761, 2011 WL 291077 (N.D. Ill. Jan. 27, 2011).

Some guiding principles, however, are clear. For large organizations, it is clear that more than one or two employees must reasonably anticipate litigation in order to trigger the duty. Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 217 (S.D.N.Y. 2003). Thus, in Toussie v. County of Suffolk, No. 01-6716, 2007 U.S. Dist. LEXIS 93988 (E.D.N.Y. Dec. 21, 2007), the Court reasoned that the duty to preserve electronic evidence did not arise until the complaint was filed. The Court reasoned that, although a “handful” of employees expected the plaintiffs’ lawsuit, “there was no evidence to suggest that a substantial number of key personnel anticipated litigation prior” to such time. In Viramontes, the fact that the plaintiff’s supervisor suspected that the plaintiff might sue, based on a pre-litigation letter written by the plaintiff complaining about the supervisor’s allegedly rude behavior, was not enough to find that the defendant-company should have reasonably anticipated future employment discrimination litigation. 2011 WL 291077 at *4. The court reasoned that the letter did not assert that the plaintiff might bring employment discrimination claims and, in fact, it suggested a “non-litigious resolution” to the plaintiff’s complaints regarding her supervisor’s behavior. Id. Furthermore, the plaintiff’s claims under the Americans with Disabilities Act and the Family and Medical Leave Act were not filed until ten months later. 

The indications that litigation may be forthcoming must be more than “vague” statements and the “mere existence of a dispute does not necessarily mean that parties should reasonably anticipate litigation[.]” Goodman v. Praxair Servs., 632 F. Supp. 2d 494, 510 (D. Md. 2009).  Thus, a demand letter may be a sufficient warning that litigation is on the horizon and a letter advising that an attorney has been retained will certainly trigger the duty to preserve. Id. at 511. Conversely, letters written in the midst of the parties’ dispute do not necessarily trigger the duty. In Cache La Pourdre Feeds, LLC v. Land O’Lakes Farmland Feed, LLC, 244 F.R.D. 614, 622 (D. Colo. 2007), a letter stating that its purpose was to put the defendant on notice of the plaintiff’s trademark rights and “determine whether this situation can be resolved without litigation” did not trigger a duty to preserve. These cases demonstrate that the determination of the trigger date on the duty to preserve is a fact-intensive inquiry.

Also of note is the inter-relationship between the timing of the duty to preserve and application of the work product privilege. In Siani v. State Univ. of New York at Farmingdale, No 09-407, 2010 WL 3170664 (E.D.N.Y. Aug. 10, 2010), for example, the plaintiff argued the defendant had a duty to preserve evidence a full year prior to the filing of the complaint because the defendant retained a law firm at that point to represent it in connection with the plaintiff’s allegations of ongoing discrimination. The defendant was hard-pressed to argue to the contrary given that it had marked documents as protected by the work-product privilege around that same time. Id. at *5. The Court reasoned that the “commonsense conclusion” dictated that if “litigation was reasonably foreseeable for one purpose in January 2008, it was reasonably foreseeable for all purposes.” Id. 

In conclusion, whether and when a party reasonably anticipates litigation, thereby, triggering the duty to preserve electronic evidence depends on many factors, including but not limited to, who within the defendant organization anticipates the litigation, the clarity of the threat, and when privileged documents are created and labeled as such. A reasoned evaluation of all factors is needed and the organization is under a duty to re-evaluate should new information present itself.

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