March’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 California order denying defendant’s motion to compel for failure to show that the requested discovery complied with amended Fed. R. Civ. P. 26(b)(1)’s requirement that it be proportional to the needs of the case;
2. A Southern District of Ohio decision applying the relevance and proportionality principles of the amended Federal Rules of Civil Procedure in upholding plaintiffs’ requests for production and stating that the court would play a more active role in reaching cost-effective discovery solutions;
3. A Southern District of California case vacating an adverse inference order on the ground that amended Fed. R. Civ. P. 37(e) limits such orders to situations in which a party intended to deprive another party of use of the electronically stored information (ESI); and
4. A Middle District of Georgia order granting defendants’ motion to preclude plaintiff ’s use at trial of arguments or evidence of defendants’ spoliation, finding that the deletion of documents was not malicious or done in bad faith and that there was no evidence of prejudice to plaintiff given the subsequent recovery of documents from the deleted email account.

1. In Gilead Sciences, Inc. v. Merck & Co., Inc., 2016 WL 146574 (N.D. Cal. Jan. 13, 2016), Magistrate Judge Paul S. Grewal denied defendant’s motion to compel for failure to show that the requested discovery was proportional to the needs of the case in accordance with amended Fed. R. Civ. P. 26(b)(1).

In this patent dispute regarding a chemical compound, defendant sought discovery related to a photograph that plaintiff’s expert had produced in related litigation of “various tubes of compounds.” Id. at *1. The photograph indicated that the label of one of the tubes listed the same molecular weight as the disputed compound. Id. Plaintiff’s expert testified that he received these compounds from the founder of a company acquired by plaintiff, and plaintiff produced a confirming letter from the expert’s source. Plaintiff also produced a laboratory notebook identifying the compounds as distinct from the disputed compound. Id.

Defendant moved to compel the production of the tubes themselves — arguing that “it should not have to take Gilead’s word as to what exactly was in those tubes.” Id. Magistrate Judge Grewal pointed out that the amended Rule 26(b)(1) “fix[es] the scope of all discovery demands in the first instance” based on the factors set forth in the amended rule:

“What will change — hopefully — is mindset. No longer is it good enough to hope that the information sought might lead to the discovery of admissible evidence. In fact, the old language to that effect is gone. Instead, a party seeking discovery of relevant, non-privileged information must show, before anything else, that the discovery sought is proportional to the needs of the case. The present dispute offers a good example of the wisdom of the Advisory Committee on Civil Rules in elevating proportionality in defining the scope of permissible discovery.” Id. (footnote omitted).

Upon reviewing the evidence, the magistrate judge denied Merck’s motion to compel. He noted that the defendant had not produced any evidence showing that plaintiff’s statements were false and found that “without more specific information triggering some reason for doubt, the Court must take the producing party ... at its word.” Id. at *2 (citation omitted).

The magistrate judge stated that production in this case would require plaintiff to “produce discovery on all sorts of compounds that bear no indication of any nexus to the disputes in this case.” Id. Such a result, stated Magistrate Judge Grewal, would be “untenable” and comparable to “requiring GM to produce discovery on Buicks and Chevys in a patent case about Cadillacs simply because all three happen to be cars.” Id. He concluded: “[i]n the absence of any reason to doubt the proof Gilead has tendered ... , and given the cost and potential delay introduced by the requested production, Merck’s request is precisely the kind of disproportionate discovery that Rule 26 — old or new — was intended to preclude.” Id. at *2.

2. In Siriano v. Goodman Manufacturing Co., L.P., 2015 U.S. Dist. LEXIS 165040 (S.D. Oh. Dec. 9, 2015), Magistrate Judge Elizabeth Preston Deavers applied the amended standard for the scope of permissible discovery under the Federal Rules of Civil Procedure in finding that plaintiffs’ requests for production were relevant and proportional and stated that the court would play a more active role in reaching cost-effective discovery solutions.

Plaintiffs brought an action against defendants for breach of warranty and other claims relating to allegedly defective air conditioning units. Plaintiff requested documents from defendants regarding the allegedly defective coils in the purchased units, but defendants resisted, stating that the requests were unduly burdensome and disproportional, requiring more than 4,000 hours of attorney review time over several months, and were also outside the bounds of the scope of discovery to which the parties had stipulated in a related case. Id. at *15. Plaintiffs then filed a motion to compel.

Magistrate Judge Deavers rejected defendants’ assertion that the parties were bound to the stipulated scope of discovery in the related proceeding. Even assuming the defendants were correct that the parties had filed a Rule 26(f) report limiting the scope of discovery in a related case, that stipulation was not entered in the present proceeding, and Magistrate Judge Deavers noted, “the Court always retains the sound discretion to determine the appropriate scope of discovery.” Id. at *14.

Turning to the question of proportionality, Magistrate Judge Deavers began with an assessment of the amendments to the Federal Rules of Civil Procedures. She noted that “‘Restoring proportionality’ is the touchstone of revised Rule 26(b)(1)’s scope of discovery provisions.” Id. at 16 (quoting Advisory Committee notes to 2015 amendments). The revised Rule 26(b)(1) requires consideration of “the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery out-weighs its likely benefit.” Id. (quoting Fed. R. Civ. P. 26(b)(1)).

The court found these factors were satisfied in this case. The discovery sought by plaintiffs “is directly related to their claims”; it is “highly unlikely” that plaintiffs could discover similar information elsewhere; it is “much more efficient” for defendants to collect and provide the requested information than third parties; defendants’ resources “vastly exceed” the plaintiffs’ resources; defendants’ discovery thus far has consisted only of electronic documents already collected in related proceedings; and the amount in controversy is “potentially very large.” Siriano, 2015 U.S. Dist. LEXIS 165040, at *16-*17. Further, the court faulted defendants for not proposing any less expensive alternatives to discovery and noted that the test is not whether the discovery would be expensive but rather whether it is unduly burdensome.

In light of the amended rules, however, and their requirement that the rules of civil procedure be “employed by the court and the parties to secure the just, speedy, and inexpensive determination of every action and proceeding,” Fed. R. Civ. P. 1 (emphasis by court), Magistrate Judge Deavers acknowledged that the amended federal rules “also contemplate active judicial case management.” Siriano, 2015 U.S. Dist. LEXIS 165040, at *19. Accordingly, she did not simply grant the motion to compel but took it upon herself to schedule a conference at which the parties would discuss “whether and to what extent discovery should proceed in phases.” Id. The magistrate judge suggested that phasing of discovery might be appropriate, that the parties consider focusing initially on complaints and warranty claims filed and that the parties “engage in further cooperative dialogue in an effort to come to an agreement regarding proportional discovery.” Id. at *20.

3. In Nuvasive, Inc. v. Madsen Medical, Inc., 2016 WL 305096 (S.D. Cal. Jan. 26, 2016), the court vacated a prior adverse inference order, citing amended Fed. R. Civ. P. 37(e), which limits such orders to situations in which a party intended to deprive another party of use of the ESI.

Chief Judge Barry Ted Moskowitz had imposed an adverse inference order based on plaintiff’s failure to preserve text messages of key custodians. After the amendments to Fed. R. Civ. P. 37(e) took effect on December 1, 2015, plaintiff moved to reconsider the court’s prior order. Chief Judge Moskowitz granted plaintiff’s motion to reconsider and vacated his prior order, explaining that under amended Rule 37(e), an adverse inference instruction is not permitted absent a finding that a party had intended to deprive another party of the use of ESI. Id. at *1-*2. The judge, reviewing the Advisory Committee notes to the amended rules, stated that an adverse inference instruction “falls within the measures that are not permissible absent a finding of intent.” Id. at *2. He noted that the record did not support a finding that plaintiff’s failure to enforce a litigation hold was intentional and, on that basis, vacated his prior order. Id. at *2.

The judge ruled against defendants on their argument that the amended rule should not be applied in this case because the trial had been delayed until 2016. He acknowledged that the “[d]efendants have had some bad luck with respect to the timing of the new rule and trial” but found that the delay occurred “through no fault” of plaintiff. Id. at *3. Defendants claimed they were prejudiced in not being apprised that intent was a relevant factor in litigating the spoliation issue, but Chief Judge Moskowitz disagreed, citing Apple, Inc. v. Samsung Electronics Co., 888 F. Supp. 2d 976, 992 (N.D. Cal. 2012), and finding that intent and the degree of fault of the spoliating party were always at issue. Nuvasive, Inc., 2016 WL 305096, at *3.

The judge also rejected defendants’ contention that they had no remedy or recourse as a result of the court’s ruling. He stated that the parties would be allowed to present evidence at trial regarding loss of ESI and that the jury may consider that evidence along with all other evidence in making its decision. Id. at *3.

4. In West v. Talton, 2015 WL 6675565 (M.D. Ga. Nov. 2, 2015), District Judge C. Ashley Royal granted defendants’ motion to preclude plaintiff’s use of evidence of defendants’ spoliation, finding that the deletion of documents was not malicious or done in bad faith and that there was no evidence of prejudice to plaintiff given the subsequent recovery of documents from the deleted email account.

During discovery, plaintiff discovered that the defendants had not preserved various email accounts (including that of defendant Charles Holt), had overwritten the backup tape of a server containing Holt’s emails and had deleted Holt’s email account from the hard drive of his computer after his resignation. Holt’s computer was subsequently retrieved, and a forensic expert recovered more than 77,000 documents, to which the parties applied search terms to identify more than 1,000 documents that were produced to plaintiff. Id. at *1.

The plaintiffs moved for spoliation sanctions in the form of an adverse inference or the opportunity to present evidence of defendants’ failure to preserve evidence, claiming that plaintiff would have had additional evidence to offer at trial if not for defendants’ spoliation. Plaintiffs alleged that defendants acted in bad faith because they received plaintiff’s complaint prior to the destruction of the evidence. Id. Defendants moved in limine to preclude any evidence or argument regarding defendants’ spoliation of evidence, stating that the loss of evidence occurred as a result of routine operations and that the Holt documents had been recovered and produced to plaintiff. Id.

Judge Royal noted the broad discretion available to courts in considering spoliation issues and stated that the Eleventh Circuit had “recommended a finding of bad faith, as opposed to ‘mere negligence,’ to support imposing sanctions.” Id. at *2 (footnote omitted). The judge indicated that the Eleventh Circuit had established the relevant factors for consideration of spoliation issues to be the prejudice to the moving party, the cure of such prejudice, the practical importance of the evidence and the good or bad faith of the alleged spoliator. Id. (footnote omitted).

Turning to the facts of this case, the judge stated that “it is not clear that Defendants’ failure to preserve Holt’s email account and the server’s backup tapes was a malicious act or done in bad faith” and indicated that the deletions appeared to have carried out “pursuant to a routine procedure.” Id. Even if plaintiff could make a showing of bad faith, the judge noted that it was “completely speculative” that the plaintiff was prejudiced by those events in light of the recovery of Holt’s email account and the production of more than 1,000 documents, a number of which plaintiff was using to support his claim. Judge Royal concluded that spoliation sanctions would be inappropriate and granted defendants’ motion precluding plaintiff’s use at trial of evidence or argument on defendants’ spoliation.

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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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