Litigation and Trial - Max Kennerly : Philadelphia Trial Lawyer Max Kennerly : Business and Commercial Litigation : Civil Attorney : The Beasley Firm : Philadelphia Pennsylvania

Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 217 (S.D.N.Y. 2003) is, as I wrote before, the Tale of Genji for electronic discovery. It is as widely-cited as all but the most prominent of Supreme Court opinions.

Gregory P. Joseph brings us selections from Judge Scheindlin’s new magnum opus on the subject, Pension Comm. of Univ. of Montreal, 2010 U.S. Dist. LEXIS 4546 (S.D.N.Y. Jan. 15, 2010):

In an era where vast amounts of electronic information is available for review, discovery in certain cases has become increasingly complex and expensive. Courts cannot and do not expect that any party can meet a standard of perfection. Nonetheless, the courts have a right to expect that litigants and counsel will take the necessary steps to ensure that relevant records are preserved when litigation is reasonably anticipated, and that such records are collected, reviewed, and produced to the opposing party. As discussed six years ago in the Zubulake opinions, when this does not happen, the integrity of the judicial process is harmed and the courts are required to fashion a remedy. Once again, I have been compelled to closely review the discovery efforts of parties in a litigation, and once again have found that those efforts were flawed. As famously noted, "[t]hose who cannot remember the past are condemned to repeat it." By now, it should be abundantly clear that the duty to preserve means what it says and that a failure to preserve records — paper or electronic — and to search in the right places for those records, will inevitably result in the spoliation of evidence.

The Court granted sanctions in the form of an adverse inference / spolitation instruction and monetary compensation to opposing counsel.

Going forward, courts will no longer accept excuses when corporations allow relevant evidence to be destroyed by failing to implement adequate controls:

After a discovery duty is well established, the failure to adhere to contemporary standards can be considered gross negligence. Thus, after the final relevant Zubulake opinion in July, 2004, the following failures support a finding of gross negligence, when the duty to preserve has attached:

• to issue a written litigation hold;
• to identify all of the key players and to ensure that their electronic and paper records are preserved;
• to cease the deletion of email or to preserve the records of former employees that are in a party's possession, custody, or control; and
• to preserve backup tapes when they are the sole source of relevant information or when they relate to key players, if the relevant information maintained by those players is not obtainable from readily accessible sources.

(Emphasis and formatting added).

Consider yourselves warned.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Inquirer reports on a hearing I attended on Tuesday in The Inquirer's bankruptcy:

In a scathing rebuke, the judge overseeing the bankruptcy of Philadelphia Newspapers L.L.C. yesterday described the investigation of an unauthorized taping of a meeting between the company and its senior lenders as a "fine mess."

The investigation of the taping, done by one of the officers of the largest creditor, was directed by a committee of the unsecured lenders, or second-tier creditors. By failing to take sworn depositions and seek key e-mails, the committee left its interim report on the taping open to questions and criticism, Superior [ed - I don't know what they mean by "Superior," though he is the Chief] Bankruptcy Court Judge Stephen Raslavich said.

* * *

[The investigation] stems from a meeting between the company's senior lenders and its top managers at Philadelphia Newspapers' offices at 400 N. Broad St. on Nov. 17, 2008. Vincent DeVito, a managing director of CIT Group Inc., was found taping the meeting without the knowledge or permission of everyone in the room, a violation of Pennsylvania law.

Philadelphia Newspapers, in court filings, contends that its relationship with its senior lenders deteriorated dramatically after its officials made an issue of the taping. The company has asked the court for permission to hire the firm of Elliott, Greenleaf & Siedzikowski P.C. to investigate the incident to see if its interests had suffered.

That request was initially rebuffed by the court, which appointed the committee of unsecured creditors to conduct the investigation. The company asked the court to reconsider, given what it contended were inadequacies in the investigation directed by former Pennsylvania Superior Court Judge Robert A. Graci, who now works for the firm that represents the unsecured creditors' committee.

Yesterday, Raslavich made it clear that he shared those concerns, dressing down Graci for failing to take sworn depositions and issuing his interim report before seeing key e-mail files requested from DeVito.

An important piece of background that Graci himself brought up, albeit fairly late in his colloquy with Judge Raslavich: Graci's background is in criminal work, specifically in representing the Commonwealth of Pennsylvania in appeals.

Civil litigators wouldn't dream of conducting an investigation through unsworn interviews, and most litigators start with requests for important documents, like emails, then follow up with depositions. Typically, only one deposition is permitted for each witness, so you need to make it count. From that perspective, Graci's investigation looks like a joke.

Yet, most criminal investigations are performed exactly the opposite way, through informal interviews followed by document requests and possibly more interviews. Typically, prosecutors don't even get to talk to the defendant at all, given the defendant's right to remain silent, much less depose them.

That's what Graci's used to. As he said at the hearing, he initially contemplated using depositions or sworn statements, then figured that would have added another layer to the proceedings (such as endless objections by the attorneys representing the witnesses) and would have delayed everything without providing any clear benefit. So he switched gears and conducted it like a criminal investigation.

That is to say, his technique was in no way evidence that the investigation was a sham, in bad faith, or the result of incompetence. Judge Raslavich told him as much.

But there's a problem: Graci wasn't there just to get to the bottom of what happened, but to ensure the appearance of propriety. As it stands now, Judge Raslavich has to grapple with the Inquirer's legitimate complaint that, whatever the merits of the investigation, there's no record for them and their lawyers to review, just the conclusions.

The odds of there being an inadequacy or impropriety in the investigation are slim, but they're not zero, which may render the whole thing a nullity.

A good lesson and question for all lawyers -- what does your paper trail look like?

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Conglomerate catches a political bait-and-switch afoot in the TARP regulations:

After the hullabaloo about the $440,000 AIG retreat in October 2008, and news in January of John Thain's $1.2 million office renovations, and the Citigroup plane fiasco, the luxury expenditures section of ARRA was inevitable.  The Act requires that the boards of TARP recipients adopt "a companywide policy regarding excessive or luxury expenditures ..." . . .

Buried in Treasury's June 15 interim final rule on TARP Standards for Compensation and Corporate Governance is a requirement that the boards of TARP recipients by September 19th "adopt an excessive or luxury expenditures policy, provide this policy to Treasury and its primary regulatory agency, and post the text of this policy on its Internet website, if the TARP recipient maintains a company website.  After adoption of the policy, the TARP recipient must maintain the policy during the remaining TARP period." 

As the executive summary explains, Sarbanes-Oxley provided a similar method of disclosure of codes of ethics under Section 406.  this doesn't work.  Letting companies make up their own rules and then disclose when they break them is a bad idea.  Clearly the incentive for the company is to make the policy as weak as possible.  

Note that these regulations, unlike Section 406, don't require disclosure of any waivers granted from the policy, just the policy itself and any amendments to it. 

It's just part of the modern Orwellian trend among corporations in which policies are given names describing them as the exact opposite of what they really are.

"Document retention" policies usually say little about retaining documents and a whole lot about destroying them. "Employee leave" and "sexual harassment" policies typically create Byzantine procedures for taking leave and filing complaints designed to provide a basis for terminating the employee or ignoring the harassment.

No surprise to see the government getting in on the act.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

At The National Law Journal (via How Appealing):

In a case stemming from an employer's theft of e-mails from the personal account of an employee who had sued him for sexual harassment, a panel of the 4th U.S. Circuit Court of Appeals recently became the first circuit to hold that plaintiffs must prove actual damages in order to be eligible for an award of statutory damages under the federal Stored Communications Act.

But the unanimous panel, led by Chief Judge Karen Williams, also ruled that a showing of actual damages is not required for awards of punitive damages or attorney fees. Van Alstyne v. Electronic Scriptorium Ltd., No. 07-1892.

The panel decision reversed a jury award of $150,000 against Bonnie Van Alstyne's employer, Edward Leonard, and $25,000 against Electronic Scriptorium Ltd., of which Leonard was president. The decision leaves intact a $75,000 punitive damages award against Leonard; a $25,000 punitive damages award against ESL; and an award of $135,723.56 in attorney fees and costs to Van Alstyne.

I don't think most non-lawyers recognize they can recover for conduct like this:

During discovery in ESL's suit, Van Alstyne became suspicious that several e-mails presented by Leonard were from her personal account. In a deposition, he admitted he had accessed Van Alstyne's AOL account after she left the company ...

Let's look a little closer at the law, as explained in the opinion (PDF):

Section 2701 of the SCA creates a criminal offense for whoever "intentionally accesses without authorization a facility through which an electronic communication service is provided" or "intentionally exceeds an authorization to access that facility," and by doing so "obtains, alters, or prevents authorized access to a wire or electronic communication while it is in electronic storage in such system." 18 U.S.C.A.
§ 2701(a)(1-2).

Section 2707 provides a private cause of action for "any . . . other person aggrieved" by a violation of § 2701. 18 U.S.C.A. § 2707(a). Under § 2707, a district court may award equitable or declaratory relief, a reasonable attorney’s fee and other costs, and "damages under subsection (c)." 18 U.S.C.A. § 2707(b). Subsection (c) provides:

The court may assess as damages in a civil action under this section the sum of the actual damages suffered by the plaintiff and any profits made by the violator as a result of the violation, but in no case shall a person entitled to recover receive less than the sum of $1,000. If the violation is willful or intentional, the court may assess punitive damages. In the case of a successful action to enforce liability under this section, the court may assess the costs of the action, together with reasonable attorney fees determined by the court.

Id. § 2707(c).

In the face of the plain meaning of the statute, why was the "actual damages" limitation even contested on appeal?

Likely because the defendant argued that, without actual damages, the plaintiff couldn't recover at all. Not punitive damages, not attorney's fees, not anything. The Court disposed of that summarily:

Although "[t]here is no established federal common law rule that precludes the award of punitive damages in the absence of an award of compensatory damages," People Helpers Found., Inc. v. City of Richmond, 12 F.3d 1321, 1326 (4th Cir. 1993), we have held, in accordance with "the majority rule" that, absent statutory language to the contrary, punitive damages are not recoverable absent proof of actual damage, id. at 1327.

The SCA, we believe, provides such language. Section 2707(c) states, "[i]f the violation [of the SCA] is willful or intentional, the court may assess punitive damages." 18 U.S.C.A. § 2707(c). This sentence lacks the limiting language associated with an award of actual damages and statutory damages, with no references to persons "entitled to recover." The sole limitation is that the violation of the SCA be "willful or intentional," a threshold which the jury found to be met in this case.

Accordingly, we find no error in the district court’s award of punitive damages absent a showing of actual damages. See Saunders, 526 F.3d at 152-155 (approving award of punitive damages under the Fair Credit Reporting Act without award of actual damages); Yohay v. City of Alexandria Employees Credit Union, Inc., 827 F.2d 967, 972 (4th Cir. 1987) (noting "[a]ctual damages are not a statutory prerequisite to an award of punitive damages under the [Fair Credit Reporting Act]"). We must vacate and remand this award, however, for the district court to reevaluate in light of our ruling above that Van Alstyne was not entitled to statutory damages in this case absent proof of actual damages.

So there you go.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

EDD Update discusses the D.C. Court of Appeals affirming a contempt order against the Office of Federal Housing Enterprise Oversight (“OFHEO”) in In re: Fannie Mae Securities Litigation, 2009 U.S. App. LEXIS 9 (D.C. App. Jan. 6, 2009):

OFHEO handled the e-discovery very poorly, to put it mildly, and was held in contempt by the district court in Washington D.C. The agency had not complied with a prior order that their lawyers had consented to. Turns out the consent order allowed the requesting parties to specify any search terms they wanted, so they did. They specified 400 keyword terms which returned over 660,000 documents. The government lawyers clearly did not understand what they had agreed to.  Still, they went ahead with the search and spent $6,000,000 in the process [9% of the agency's entire annual budget]. As is typical, the main costs were for privilege review.

...

Is it just to allow a single government lawyer's goof to drain 9% of an agency's total annual budget, a budget drawn from taxpayer funds?  Should the appellate court have considered an economic analysis of the situation in reaching its decision, and perhaps ruled differently in the face of a possible gross inefficiency? What happened to proportionality and Rule 26(b)(2)(C)? It seems that the court erred in ordering what amounts to a wanton waste of taxpayer funds.

It sounds outrageous, but it has to be viewed in context. OFHEO, though a third-party, was intimately tied to the facts here, and knew well that the defendants -- the executives of Fannie Mae and Fannie Mac -- would want extensive documentation from them. The defendants subpoened that information in the summer of 2006. OFHEO objected (not sure why, maybe just habit), lost, and was ordered to produce the information.

So, what did OFHEO do? Request several extensions and then claim electronically-stored information was not part of the original order.

The court disagreed and ordered them to produce more. Then granted another extension.

Then OFHEO claimed it had produced everything -- which it transparently had not -- so the defendants deposed a records custodian and found mountains which had not been produced.

The defendants moved for contempt, which OFHEO thwarted, at the hearing, by agreeing to the stipulated order at issue.

They then sat on the issue again, then finally hired some contract attorneys immediately prior to the deadline, then requested two more extensions, assured the Court each time they were almost done, then had the contempt order entered against them. Apparently, they still have not produced everything.

I have two thoughts.

First, approach discovery from a strategic, not tactical, perspective. What were all those contract lawyers doing? What "privilege" concerns does OFHEO have? Did they really have to spend taxpayer money to review every document, pre-production, for the possibility that taxpayer money was previously spent providing advice to a public agency? There wasn't another way to do this production? They couldn't have, say, entered into a production agreement permitting them to withdraw documents inadvertently produced? How damaging could they be?

Second, don't play around with the Court, even if you're "only" a third party. It's quite clear that this incident was not a simple error by a lawyer, but rather months of deliberate neglect, even through multiple court events, until well after the last minute. Indeed, it seems that, though some of the language arguments were raised, the "cost" argument was not even raised until appeal itself. Prior to that, OFHEO did not even review the issue thoroughly enough to see how expensive it would be.

No wonder the Court called it "too little, too late."

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Slashdot led me to this erroneous article at The Industry Standard:

According to a recent legal filing (see page 7) in the Psystar vs Apple antitrust case, Apple employees are responsible for maintaining their own documents such as emails, memos, and voicemails. In other words, there is no company-wide policy for archiving, saving, or deleting these documents.

...

An e-discovery lawyer, who asked not to be named because his employer (a firm you probably have heard of) doesn't want him speaking to the press, explained the basic legal requirements surrounding email and document retention to The Standard. "If litigation is anticipated, the party has a duty to preserve potentially relevant documents," he said.

"An employee retention program with no organization or coordination is effectively incapable of compliance," he continued, "barring an act of God, or luck akin to picking every game right in an NCAA pool. Apple's retention policy is negligent."

(Emphasis added). I dissent. Apple did have a policy once the litigation was anticipated:

... Apple claims in the Psystar document that its policy is fine because once the company anticipated litigation:

[Apple] identified a group of employees who could potentially have documents relevant to the issues reasonably evident in this action. Apple then provided those individuals with a document retention notice which included a request for the retention of any relevant documents.

I think the problem here is that the lawyer and/or reporter presumed that, in the absence of a company-enforced "litigation hold" on documents, the employees would not or could not comply fully with that hold.

But that's because they presume Apple works like most companies, destroying documents and files as quickly as they can so as not to leave evidence of anything, thereby (they hope) frustrating plaintiffs' cases.

Yet, as noted by the article itself, Apple also had no deletion policy. As such, relevant documents are likely scattered all over their systems in multiple places, many easily accessible, and, "As a general rule, then, a party need not preserve all backup tapes even when it reasonably anticipates litigation." Zubulake, see below.

Apple would likely be able to preserve most of the relevant and unique information by duplicating their internal servers and instructing the key officers and employees to duplicate and produce any documents that could be relevant.

If carried out honestly, such an ad hoc policy would probably work better than most corporate litigation hold "policies," in which the company deliberately retains a pile of useless garbage to dump on the plaintiff's lawyers while also failing to instruct those unaware of the litigation to take reasonable preservation steps.

The duty to preserve is for most companies not that complicated: once a company is aware of litigation, the company should put automatic destruction policies on hold and instruct relevant employees not to destroy anything until the company can find a way to preserve everything that might be relevant to the litigation. Here's how Zubulake, the Tale of Genji for electronic discovery, described it:

anyone who anticipates being a party or is a party to a lawsuit must not destroy unique, relevant evidence that might be useful to an adversary. While a litigant is under no duty to keep or retain every document in its possession . . . it is under a duty to preserve what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery and/or is the subject of a pending discovery request.

Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 217 (S.D.N.Y. 2003).

Aside from case law, there's no explicit rule or statute on preservation; one could do worse than following this modified Federal criminal obstruction of justice statute, 18 U.S.C. § 1519:

Whoever knowingly, reckless or negligently alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to, or which has the effect to, impede, obstruct, or influence [civil litigation of which they are aware] shall be subject to sanctions, fines, adverse inference, and humiliation by trial lawyers.

That's a good rule unless, of course, the company was doing something wrong and intends to hide it, in which case they will start coming up with sneaky ways to pretend to comply with the rules while destroying everything detrimental to their defense.

But beware: even without evidence of intentional destruction, if a plaintiff's lawyer catches a company fooling around with document retention and failing to keep important documents, the plaintiff's lawyer will use it as an excuse to argue the missing documents say whatever the plaintiff's lawyer wants them to say.

• Email This
• Print
• Comments
• Trackbacks (1)
• Share Link

Via Electronic Discovery Law:

Based on the evidence presented, the court found that:

...

•  Defendant reinstalled his computer's operating system after he had received plaintiffs’ requests for copies of various files on his computer

•  Defendant downloaded a program called Aevita Wipe & Delete shortly after he filed his answer in the case, then, in the middle of the discovery period, used that program to permanently delete all traces of certain files on his computer

...

The court found that defendant’s “brazen destruction of evidence” had wholly undermined the integrity of the proceedings and made it impossible to decide the case on the merits.  It concluded that the prejudice to the court and to the recording companies was irretrievable, and that default judgment was the only appropriate sanction, both for its deterrent effect and to remedy the prejudice inflicted on plaintiffs and on the court.

Accordingly, the court struck defendant’s answer and entered default judgment against defendant for $40,500 in statutory damages.

More at EDL, including the opinion.

Sounds like an appropriate remedy, right?

Except that this remedy is rarely applied when a large corporation does it, even if the evidence is clear that they willfully destroyed evidence that would have made the proof or defense of the claim very simple and obvious, like surveillance tapes, internal investigations, and satellite tracking data. The Qualcomm / Broadcom hiding-of-emails case comes to mind (here's the primary sanction order, currently vacated awaiting further fact-finding, check EDL for plenty of info), but other than that few examples come to mind.

Typically, blatant destruction of evidence gets you, at most, a spoliation charge, allowing you merely to argue to the jury that it would have been helpful. Not an instruction that the jury should or must believe it would have been helpful; just an instruction that the jury may infer it was helpful to the other side. And corporations have an escape hatch for that, too, Federal Rule of Civil Procedure 37(e):

(e) Failure to Provide Electronically Stored Information.

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

Someday, someone will explain to me why this provision was needed, considering that "good faith" conduct by definition won't result in sanctions. All it does it muck up sanction arguments, to the benefit of evidence-destroying defendants.

• Email This
• Print
• Comments
• Trackbacks
• Share Link