February's Notable Cases and Events in E-Discovery

E-Discovery Update

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

1. A Northern District of Texas ruling that the 2015 Federal Rules of Civil Procedure amendments did not alter the burden borne by a party resisting discovery;
2. A Southern District of Ohio decision modifying a sanction imposed on defendants after finding that the severity of the prejudice suffered by plaintiffs was not supported by the evidence;
3. A Southern District of Georgia decision rejecting discovery objections based on the self-critical analysis privilege and subsequent remedial measures rule because the privilege was not recognized under state law and the subsequent remedial measures rule governed admissibility at trial rather than production in discovery; and
4. A Washington State Court of Appeals opinion holding that Washington state has not recognized a general duty to preserve evidence and reversing a judgment based on erroneous trial court rulings that permitted the suggestion of an adverse inference in the absence of bad faith or gross negligence.

1. In Carr v. State Farm Mutual Auto. Ins. Co., 2015 WL 8010920 (N.D. Tex. Dec. 7, 2015), Magistrate Judge David L. Horan ruled that the 2015 Federal Rules of Civil Procedure amendments did not alter the burden borne by a party resisting discovery in finding that plaintiff must provide requested discovery related to his medical condition.

Plaintiff William Oran Carr sued his insurance company over an automobile accident with an underinsured motorist. The defendant asserted that plaintiff did not adequately respond to discovery requests, having failed to appear for a deposition, to reschedule the deposition or to supplement his responses to requests for production and answers to interrogatories.

Magistrate Judge Horan ordered plaintiff to reschedule his deposition and to respond to the outstanding requests for supplementation. In so ordering, Magistrate Judge Horan overruled plaintiff’s objections that defendant sought information protected by the physician-patient privilege, ruling that Texas law recognized an exception to the privilege where the information sought was relevant to a condition relied on as a claim or defense. He did order the parties to conclude a confidentiality agreement that would govern information about plaintiff’s medical information.

Magistrate Judge Horan also considered the effect of the 2015 Rule 26 amendments on the burden borne by a party resisting discovery. Prior to the amendment, the burden rested with the party challenging a discovery request to demonstrate that the request was not relevant or was otherwise objectionable. Id. at *4. Effective December 1, 2015, the Federal Rules of Civil Procedure were amended to, among other things, provide that the scope of permissible discovery must meet the proportionality standards set forth in amended Fed. R. Civ. P. 26(b)(1). The amendments indicated that they were to govern in all proceedings commenced after their effective date and, insofar as just and practicable, in all proceedings then pending. Magistrate Judge Horan determined that applying the amended rules in this case was both just and practicable. Id. at *6.

Magistrate Judge Horan concluded that the Rule 26 amendments did not change the challenging party’s burden. He traced the history of the proportionality principles in the Federal Rules since their introduction in 1983 and reviewed the Advisory Committee Notes discussing their role over time. Id. at *7-*8. He noted that a party may seek to resist discovery on additional grounds — namely those factors identified in Rule 26(b)(1) — but stated that “a party seeking to resist discovery on these grounds still bears the burden of making a specific objection and showing that the discovery fails the proportionality calculation mandated by Rule 26(b).” Carr, 2015 WL 8010920, at *9. Pointing to the Committee Notes, the magistrate judge underscored that the party seeking discovery may need to make a showing of relevance and proportionality and take into account the additional factors specified in the amended rule. “But the amendments to Rule 26(b) and Rule 26(c)(1) do not alter the basic allocation of the burden on the party resisting discovery.” Id.

2. In Brown v. Tellermate Holdings Ltd., 2015 WL 4742686 (S.D. Ohio Aug. 11, 2015), District Court Judge James L. Graham modified a magistrate judge’s sanction imposed on defendants after finding that the severity of the prejudice suffered by plaintiffs was not supported by the evidence.

Former salespersons brought age discrimination claims against defendants Tellermate Holdings and others. To support their claims, plaintiffs sought defendants’ records maintained by the customer relationship management application Salesforce.com; documents relating to a former salesperson who had also alleged age discrimination as well as documents relating to the performance evaluations of plaintiffs’ coworkers. Id. at *2-*4.

After discovery disputes over these requests, plaintiffs filed a motion for sanctions and attorneys’ fees and requested default judgment. The magistrate judge resolved these disputes largely in plaintiffs’ favor. First, the defendants had claimed that they could not access records and historical data on Salesforce.com and that they were contractually prohibited from producing such records, but the magistrate judge concluded from defendants’ own testimony that these claims were either “false or irrelevant.” The magistrate judge also faulted defendants for failing to issue a preservation notice and found that, because defendants had the ability to access and manipulate data on Salesforce.com, such records were no longer reliable. Id. at *2-*3.

Second, without providing a privilege log, the defendants had claimed that only two of the documents relating to the former salesman were withheld due to privilege. Subsequently, the defendants provided a privilege log listing 30 documents withheld due to the attorney-client privilege. Id. at *3.

Third, the defendants initially claimed there were “unlimited” documents related to performance evaluations of coworkers but subsequently stated they could locate only 20 such documents. In a prior ruling, the magistrate judge ordered production of any additional performance evaluation documents, resulting in production of 50,000 pages, almost all of which defendants marked as confidential and for attorneys’ eyes only. In this dispute, the magistrate judge found that most of the documents were “irrelevant and nonresponsive” and that the confidentiality designations were inappropriate. Id. at *3-*4. The magistrate judge resolved these discovery disputes by rejecting the default judgment but awarding attorneys’ fees and imposing a sanction that precluded defendants from introducing any evidence that would show that plaintiffs were terminated for performance-related reasons. Id. at *4-*5. Both parties appealed.

Judge Graham began his opinion by calling the case “an appalling example of discovery run amok.” Id. at *1. He reviewed the magistrate judge’s order under the Sixth Circuit’s four-part test applied to “extreme sanctions” issued pursuant to Rule 37. This test requires a finding of “willfulness, bad faith, or fault”; a finding of prejudice to plaintiffs; a warning that sanctions could be imposed; and a finding that “less drastic sanctions were first imposed or considered.” Id. at *6 (quoting Freeland v. Amigo, 103 F.3d 1271, 1277 (6th Cir. 1997)).

First, based on their “numerous false and misleading representations,” Judge Graham had “little trouble concluding” that defendants’ actions amounted to “gross negligence and bad faith.” Brown, 2015 WL 4742686, at *6-*7. Second, Judge Graham found that plaintiffs’ expenditure of time, money and effort to compel production “in and of itself” satisfied the prejudice standard and noted that defendants’ activities had rendered the Salesforce.com records of little evidentiary value. Id. at *8. Third, the judge acknowledged that plaintiffs were never explicitly provided notice but found this factor not dispositive. Finally, the judge recognized that the magistrate judge had considered less severe penalties. Id. at *9.

Concluding that the magistrate judge’s ruling satisfied the four-factor test, Judge Graham upheld the award of attorneys’ fees but determined that the sanction was overbroad, finding that the “evidence does not support the magistrate judge’s findings regarding the severity of the prejudice suffered by Plaintiffs.” Id. at *9. He noted that Salesforce.com was a sales and marketing tool whose records were voluminous and of a “haphazard nature” with information that in prior times would have been recorded on “Rolodex cards, calendars, and notebooks.” Id. *10-*11. He found that there was no evidence of any material changes to the Salesforce.com records and indicated that plaintiffs had access to important business documents from defendants’ production that they could use to support their case. Id. at *11-*12. The judge also stated that the defendants’ sales force was small, and plaintiffs had significant personal knowledge of the activities of coworkers that could be used to make their case. Id. Accordingly, the court modified the sanction to (1) prohibit defendants from introducing Salesforce.com records; (2) prohibit defendants from challenging plaintiffs’ use of such records; (3) read an adverse inference instruction in the event that missing Salesforce.com data would corroborate the plaintiffs’ position; and (4) permit plaintiffs to testify as to what the Salesforce.com records would have shown had they been preserved. Id. at *12.

3. In Venator v. Interstate Resources, Inc., 2015 WL 6555438 (S.D. Ga. Oct. 29, 2015), Magistrate Judge George R. Smith rejected discovery objections based on the self-critical analysis privilege and subsequent remedial measures rule because the privilege was not recognized under state law and the subsequent remedial measures rule governed admissibility at trial rather than production in discovery.

Ricky Venator, a truck driver, died while being assisted with removal of a mud flap at an Interstate Paper warehouse. Venator’s wife filed claims against Interstate Paper and other defendants and sought discovery of all reports and documents relating to the incident. Defendants produced many documents but withheld a “Supervisor’s Report of Injury/Illness” and five pages of emails between Interstate Paper and the Occupational Safety and Health Administration. Defendants asserted that the documents were protected by the self-critical analysis (SCA) privilege and were not discoverable because they reflected subsequent remedial measures. The plaintiff filed a motion to compel. Id. at *1.

Magistrate Judge Smith ruled that the documents at issue should be produced. The SCA privilege did not apply because it was not recognized in Georgia. Federal Rule of Evidence 501 “mandates that state law determine privilege applicability when state law ‘supplies the rule of decision’ for ‘an element of a claim or defense.’” Id. at *2 n.2 (quoting Fed. R. Evid. 501). In this case, Georgia law provided the rule of decision, and the magistrate judge found that “Georgia state courts and the state legislature have never recognized the SCA privilege.” Venator, 2015 WL 6555438, at *3. Thus, he held that the documents could not be withheld under the SCA privilege.

Magistrate Judge Smith also rejected defendants’ argument that the requested documents should be withheld because they disclosed subsequent remedial measures. The magistrate judge noted that this rule of evidence “‘governs the admissibility of evidence,’ not ‘pretrial discovery.’” Id. at *4 (quoting Laws v. Stevens Transp., Inc., 2013 WL 941435 at *3 (S.D. Ohio Mar. 8, 2013). He stated that he could not predict how plaintiff would use the documents but that, without regard to admissibility, those documents could lead to the discovery of admissible evidence. Having conducted an in-camera review of the disputed documents, he also found that the Supervisor’s Report was “unquestionably relevant” because it presented a detailed factual summary of the events leading up to Venator’s death. Venator, 2015 WL 6555438, at *4. In a similar vein, the emails addressed whether the defendant had complied with work-safety regulations. Even if some portions of the requested documents related to subsequent remedial measures, the magistrate judge pointed out that they could still be used for impeachment purposes. Id. Accordingly, the magistrate judge found the requested documents to be discoverable and ordered their production.

4. In Cook v. Tarbert Logging, Inc., 2015 WL 5771329 (Was. Ct. App. Oct. 1, 2015), Washington Court of Appeals Chief Judge Laurel Siddoway held that Washington state has not recognized a general duty to preserve evidence and reversed a judgment based on trial court rulings that permitted the suggestion of an adverse inference in the absence of bad faith or gross negligence.

Plaintiffs Raymond and Arlene Cook sued defendant Tarbert Logging, Inc. and the local county for claims related to a collision on a snow-covered road between a pickup truck driven by Raymond Cook and defendant’s logging truck. Id. at *1. The plaintiffs kept their heavily damaged truck for several months after the crash, during which time it was examined by their expert, and then sold the remains for parts. The plaintiffs’ expert reached conclusions regarding the truck’s speed at the time of the collision but did not seek to obtain information from the truck’s airbag sensors that would have indicated such speed. Id. at *2.

The defendants moved to exclude on spoliation grounds the plaintiffs’ expert testimony regarding the truck’s collision speed based on plaintiffs’ disposal of the truck and its airbag sensor. The plaintiffs responded that they had retained the truck “for years” and that defendants had not sent a litigation hold notice or shown any interest in examining the wreckage during the period that it had been retained. The trial court ruled that the plaintiffs had a duty to retain the truck and excluded the plaintiffs’ expert’s opinions on the truck speed at the time of the accident. In making the ruling, the trial court stated that the plaintiffs did not act in bad faith or with deliberate intention to destroy evidence. Id. at *3.

At trial, defendants presented evidence that plaintiffs had secured an expert to determine the speed of the vehicle at the time of collision. By prohibiting plaintiffs from rebutting such evidence with testimony from the expert, the trial court permitted the jury to draw a negative inference relating to plaintiffs’ missing expert witness testimony. Ultimately, the defendants won at trial, and the plaintiffs appealed. Id. at *4.

The Washington State Court of Appeals reversed. Writing for the court, Chief Judge Siddoway stated that the existence of a duty to preserve evidence was a question of law subject to de novo review. Id. at *6. Canvassing Washington state decisions, Judge Siddoway cited a decision noting that state spoliation case law was “sparse” and concluded that there was no general duty to preserve evidence under Washington law and no uniformity in the spoliation law of other states. Id. at *9, *11 (citing Homework Contstr., Inc. v. Wells, 138 P.3d 654 (Wash. App. 2006).

Defendants urged the court to consider federal law on spoliation, and the court stated that a “federal common law duty to preserve evidence [was] well established” but concluded that federal case law — including Zubulake v. UBS Warburg, LLC, 220 F.R.D. 212 (S.D.N.Y. 2003) — was not helpful in the circumstances of this case involving “merely negligent destruction of evidence.” Cook, 2015 WL 5771329, at *11-*12. Looking at federal law, the court pointed out that the most recent developments were the changes to the Federal Rules of Civil Procedure, which provide in Rule 37(e) that an adverse inference is permissible only in the case of intentional destruction. Id. at *10. Upon concluding her review of federal and state law, Chief Judge Siddoway stated that “it might be time for Washington to reexamine whether it should recognize the existence of a general duty to preserve evidence” but noted that the parties had not briefed that issue and indicated that it might best be resolved through rulemaking or other means. On the facts of this case, the court ruled that “in light of the [plaintiffs’] merely negligent actions, it is clear that the trial court abused its discretion in permitting evidence and argument suggesting the inference.” Id. at *12.

The court further concluded that the adverse inference that the defendants were “permitted to invite” had a “material effect on the outcome of [the] trial” and prejudiced the plaintiffs, and on that basis, it reversed the judgment in favor of Tarbert Logging and remanded for a new trial. Id. at *15. As the jury had found the county was not negligent in its maintenance of the road, the jury’s finding as to the county was affirmed. Id. at *14-*15.

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Sidley E-Discovery Task Force

The legal framework in litigation for addressing the explosion in electronic communications has been in flux for a number of years. Sidley Austin LLP has established an E-Discovery Task Force to stay abreast of and advise clients on this shifting legal landscape. An inter-disciplinary group of more than 25 lawyers across all our domestic offices, the Task Force monitors and examines issues and developments in the law regarding electronic discovery. The Task Force works seamlessly with our firm’s litigators who regularly defend and prosecute all types of litigation matters in trial and appellate courts, federal and state agencies, arbitrations and mediations throughout the country. The co-chairs of the E-Discovery Task Force are Alan C. Geolot (+1 202 736 8250, ageolot@sidley.com), Robert D. Keeling (+1 202 736 8396, rkeeling@sidley.com) and Colleen M. Kenney (+1 312 853 4166, ckenney@sidley.com).

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