December Edition of Notable Cases and Events in E-Discovery

E-Discovery Update

This update addresses the following recent developments and court decisions involving e-discovery issues:

1. A ruling by a Vice Chancellor of the Delaware Chancery Court from the bench ordering use of predictive coding in a complicated indemnification case, which appears to be the first instance in which a court, rather than the parties, has suggested its use;
2. A Seventh Circuit decision allowing authentication of emails in a criminal case by circumstantial evidence;
3. A District of Idaho decision criticizing a plaintiff for its inadequate oral, ad hoc litigation hold and allowing defendant to take additional depositions on potential spoliation issues; and
4. An Eastern District of Louisiana ruling requiring a party to produce extensive information regarding his social media accounts.

1. In EORHB, Inc. v. HOA Holdings LLC, CA No. 7409-VCL (Del. Ch. Oct. 15, 2012), Vice Chancellor J. Travis Laster of the Delaware Chancery Court ordered the parties to use predictive coding or show cause why they should not do so. This appears to be the first time a court has ordered the use of predictive coding on its own without a motion by one or more parties.

The case is a complex commercial indemnity suit involving the sale of Hooters chain restaurants. The Delaware Chancery Court heard arguments on dispositive motions and, after ruling on them from the bench, the Vice Chancellor addressed the parties regarding various remaining indemnification claims.

Discussing how the parties should proceed on the indemnification issues, Vice Chancellor Laster stated from the bench that “[t]he problem is that these types of indemnification claims can generate a huge amount of documents.” Tr. 67. Though neither party had raised the use of predictive coding prior to or at the hearing, Vice Chancellor Laster encouraged the parties to use predictive technologies to cut down on time and resources: “[I]nstead of burning lots of hours with people reviewing, it seems to me this is the type of non-expedited case where we could all benefit from some new technology use.” Id. He stated:

“This seems to me to be an ideal non-expedited case in which the parties would benefit from using predictive coding. I would like you all, if you do not want to use predictive coding, to show cause why this is not a case where predictive coding is the way to go.” Tr. 66.

Vice Chancellor Laster also asked the parties to “talk about a single discovery provider that could be used to warehouse both sides’ documents to be your single vendor. Pick one of these wonderful discovery super powers that is able to maintain the integrity of both side’s documents and insure that no one can access the other side’s information.” Id. If the parties could not agree on a vendor, the parties could submit names to Vice Chancellor Laster, and he would pick one. Vice Chancellor Laster asked if the parties had any questions about his ruling, but neither party provided any reaction at that time.

This case appears to be the first time that a judge has ordered parties to use predictive coding and the same vendor to conduct a review, as opposed to approving the use of predictive coding after a request by a party. See, e.g., Moore v. Publicis Groupe SA, 2012 WL 1446534 (S.D.N.Y. April 26, 2012).

2. In United States v. Fluker, 2012 WL 5275244 (7th Cir. Oct. 26, 2012), the Seventh Circuit held that authentication of emails in a criminal matter could be provided by circumstantial evidence showing that the purported author was listed on the email and was likely to know the contents of the email.

Three defendants were convicted of mail and wire fraud relating to Ponzi schemes that tricked parties into investing millions of dollars in real estate programs with no genuine expectation of return. Id. at *5. On appeal, the defendants raised various arguments, including a claim by one defendant that emails introduced into evidence were not properly authenticated and contained inadmissible hearsay.

The government introduced five emails demonstrating a connection between various fraudulent transactions and the corporate entities used by the defendants to perpetuate the fraud. Federal Rules of Evidence Rule 901(a) provides that email evidence is properly authenticated by “evidence sufficient to support a finding that the item is what the proponent claims it is.” Authentication can be established under Rule 901(b)(1) through the “testimony of [a] witness with knowledge . . . that a matter is what it claimed to be.” In this case, however, neither the sender of the emails, Hayward Borders, nor anyone who witnessed Borders write or send the emails, testified at the trial. Fluker, 2012 WL 5275244 at *8. Thus, the Seventh Circuit stated, authentication under Rule 901(b)(1) was impossible. Id. This, however, did not foreclose the government from authenticating the emails through circumstantial evidence.

The Seventh Circuit held that a number factors supported the authentication of the emails. First, the email address was listed as “mte-123@hotmail.com,” and the author was identified as “Hayward Borders.” Evidence established that Borders was a board member of More Than Enough, Inc. (MTE), and the Seventh Circuit noted it was “reasonable for one to assume that an MTE Board Member would possess an email address bearing the MTE acronym and have the capacity to send correspondence from such an address.” Id. Second, the Seventh Circuit also found that it was reasonable to conclude that Borders would send the emails at issue because other board members had sent emails to the same recipient. Id. Third, the Seventh Circuit reviewed the content of the emails to determine whether the email’s author had knowledge that Borders would be likely to possess. The Court stated that the emails concerned financial transactions relating to bank accounts and properties that “Borders would be in a position to know and discuss” with the recipient of the emails. Id. Based on these factors, the Seventh Circuit concluded that the circumstantial evidence supported authentication of the emails and on that ground rejected the defendant’s challenge.

The defendant also claimed that the emails were inadmissible hearsay that had been offered to demonstrate that Borders had made certain assertions. The Seventh Circuit found that the emails were not offered for the truth of the matters asserted in the emails and, as they related to the fraudulent scheme, actually contained a number of false assertions. Instead, the emails were offered as proof of a relation between one of the transactions and an entity controlled by the defendants. Id. at *9. Accordingly, as the emails were not offered for the truth of their contents, the hearsay objection was rejected, and the convictions were affirmed on appeal.

3. In Scentsy, Inc. v. B.R. Chase, LLC, 2012 WL 4523112 (D. Idaho Oct. 2, 2012), the district court rejected the defendant’s request for the return of produced images alleged to be work product and allowed additional depositions in connection with a spoliation claim after finding plaintiff’s oral, ad hoc litigation hold to be “completely inadequate.”

This case alleged trade dress and copyright infringement and related claims focused on certain candle warmers designed by plaintiff Scentsy and allegedly copied by defendant Harmony. Id. at *7. Among a variety of discovery claims raised with the Court, Harmony sought the return of produced images of Scentsy candle warmers that Harmony claimed were work product, and Harmony accused Scentsy of spoliation for not producing certain documents.

As part of discovery, Harmony had produced an email with fourteen images of Scentsy warmers, but it then claimed that the email and images were work product and demanded their return. When Scentsy refused to return the images, Harmony sought relief from the Court. The Court noted that Harmony had the burden of proving that the images qualified as work product and that therefore Harmony had to demonstrate that the images were prepared or created in anticipation of litigation. Id. at *4. According to the email accompanying the images, a Harmony employee had located the Scentsy images after the litigation had been filed, but Harmony produced no evidence concerning where or why the images had been obtained. The Court specifically pointed out Harmony’s failure to identify where and why the images were obtained: “It is notable that [the employee] has not indicated where he located the photos, or the specific purpose for which they were obtained. Surely, he would tell the Court where and why he obtained them if they were created in anticipation of litigation.” Id. In the absence of such evidence, the Court found that the email and images were not covered by the work product doctrine.

Harmony also brought a spoliation claim against Scentsy for failure to produce certain documents as a result of an insufficient litigation hold. The Court considered the issue under its inherent discretionary power, as the alleged spoliation occurred before the litigation was filed. Id. at *7. According to the Court, pre-litigation destruction can constitute spoliation where litigation was “reasonably foreseeable,” but not where it was “merely possible.” Id.

In this case, Scentsy did not issue a written litigation hold; instead, its General Counsel spoke to individuals and asked them not to delete documents. Scentsy stated that the General Counsel had imposed the oral litigation hold “roughly concurrent with the filing of the Complaint” in May 2011. Id. Scentsy's general policy was to delete emails, but not other documents, after six months. Id. The Complaint addressed issues dating back to 2006, but Scentsy stated that any relevant documents were destroyed long before litigation was contemplated. Id. In addition, the computer of Scentsy’s principal warmer designer crashed in 2010, and as a result, most of the design work relating to Scentsy’s warmers was destroyed at that time, prior to the time that Scentsy was even aware of Harmony’s existence.

The Court stated that it “ha[d] serious concerns with Scentsy’s retention policy and litigation hold process:”

“Generally not deleting documents, and orally requesting certain employees to preserve relevant documents concurrently with filing a lawsuit, is completely inadequate. It is very risky—to such an extent that it borders on recklessness.” Id. at *8.

Having so found, the Court nonetheless concluded that there was very little chance that most of the documents at issue were destroyed because of the inadequate retention policy or litigation hold notice. Indeed, the Court found it had no reason to doubt Scentsy's representation that the bulk of the documents were destroyed in the computer crash and prior to Scentsy even being aware of Harmony. Id.

Having reached this conclusion, the Court considered whether spoliation may have occurred. Harmony argued that litigation was reasonably contemplated in May 2010, and Scentsy claimed that it reasonably contemplated litigation in March 2011. As a result, the Court found that documents may have been destroyed during the two month period between March 2011 and the filing or the lawsuit in May 2011 (per Scentsy) or during the longer twelve month period claimed by Harmony during which litigation was reasonably contemplated. The Court noted that the likelihood of spoliation was “slight” but concluded that “there is no way to know” if documents had been spoliated, “and that uncertainty was caused by Scentsy’s inadequate retention policy and coupled with its late and imprecise litigation hold.” Id.

To address this situation, the Court allowed Harmony to depose appropriate individuals at Scentsy on spoliation issues, with Harmony bearing the costs and attorneys’ fees. Id. at *9. No further sanctions were ordered in the Court’s ruling, but it indicated that it would entertain a motion for issuance of an adverse inference instruction if Harmony presented evidence of spoliation. In addition, the Court also strongly urged Scentsy to implement more robust document retention and litigation hold policies:

“The Court assumes that Scentsy will improve those policies in any future litigation. The failure to do so may result in this or some other court finding that Scentsy's failure to act, in the face of the warnings given in this decision, constitutes the kind of willfulness or recklessness which may result in serious repercussions.” Id.

4. In In the Matter of the Complaint of White Tail Oilfield Services, LLC, 2012 WL 4857777 (E.D. La. Oct. 11, 2012), Magistrate Judge Karen Wells Roby ordered the defendant to produce certain information from his Facebook page, which the defendant had previously agreed to produce, but lacked the technical knowledge to acquire.

White Tail, which filed this suit for exoneration of liability after its boat sank, sought an order from the Court compelling the defendant to produce information for “every social or professional networking or blogger site [he] ha[s] used,” including his account name, login, password, dates used, email addressed used, and any other identifying information for the accounts. Id. at *2. After discussing the standard under Federal Rule of Civil Procedure 26(b), and noting its applicability to electronically stored information, the Magistrate Judge explained that the defendant had withdrawn his objection to these requests, and “agreed to produce all information from his Facebook page.” Id.

The defendant had agreed to produce the information, but he claimed that he “[did] not know how to use” the functionality on Facebook that would allow him to download the required information. Id. The plaintiff, in turn, had contacted Facebook and been told that Facebook would not provide the information to plaintiff, as only a user can request his personal content. Id. Efforts by the defendant’s counsel to obtain the information similarly failed due to computer problems. The Magistrate Judge noted that White Tail, using the defendant's login data, could request a copy of the information, have the information sent to the defendant in accordance with Facebook’s policies, and then the defendant could produce the information to White Tail’s counsel. The Magistrate Judge ordered the defendant to produce the information within seven days. Id. at *3.

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