October 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 Second Circuit decision rejected Judge Scheindlin’s Pension Committee ruling on litigation hold notices and held that the failure to issue a written litigation hold was only one factor to be considered in determining whether discovery sanctions should be imposed;
2. A Pennsylvania federal court decision allowed cost shifting in the context of class certification where the class plaintiffs had requested extensive discovery;
3. A Ninth Circuit ruling upheld entry of a default judgment against a defendant for its multiple discovery failures; and
4. A Northern District of Illinois ruling sanctioned a defendant for providing inadequate testimony in response to a Rule 30(b)(6) notice by limiting the defendant’s testimony at trial to the positions taken during the Rule 30(b)(6) depositions and preventing the defendant from calling other witnesses on those issues.

1. In Chin v. Port Authority of N.Y. & N.J., 685 F.3d 135 (2d Cir. 2012), the Second Circuit disagreed with Judge Scheindlin’s ruling in Pension Committee that the failure to issue a written litigation hold constituted gross negligence warranting the issuance of an adverse inference instruction and held that it was only one factor to be considered in determining whether discovery sanctions should be imposed.

The case involved 11 Asian Americans currently or formerly employed as police officers by the Port Authority of New York and New Jersey who brought suit alleging that they were not selected for promotion due to their race. A unanimous jury found in favor of seven of the plaintiffs awarding, inter alia, back pay and compensatory damages. The Port Authority appealed, arguing that evidence predating the statute of limitations should not have been admitted, that the evidence was insufficient to support the jury’s verdict, and that the damages and relief were excessive and based on time-barred claims. The four non-prevailing plaintiffs cross-appealed, one of whom argued that the district court erred in failing to order an adverse inference instruction due to the Port Authority’s destruction of promotion records.

The Second Circuit held that the district court properly admitted evidence predating the limitations period and that there was sufficient evidence for a reasonable jury to conclude that the Port Authority discriminated against the plaintiffs. The Second Circuit held, however, that the district court erred in permitting a pattern-or-practice disparate treatment theory in a non-class action and in considering harms predating the statute of limitations under the “continuing violation” doctrine. On this basis, the Second Circuit vacated the award of compensatory damages for all seven of the prevailing plaintiffs and vacated the back pay award made to four of the seven plaintiffs. The Second Circuit affirmed the district court with respect to the four non-prevailing cross-appellants.

One of these cross-appellants, Howard Chin, argued that the district court abused its discretion in denying his motion seeking an adverse inference instruction due to the Port Authority’s destruction of documents relating to promotion decisions. The Port Authority did not dispute that it failed to preserve such documents even though it was under an obligation to do so. It admitted that it had failed to implement a document retention policy and that as a result 32 promotion folders used to make promotion decisions had been destroyed.

The Second Circuit ruled that the district court did not abuse its discretion in refraining from giving an adverse inference instruction to the jury. The Second Circuit disagreed with Judge Scheindlin’s decision in Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Secs., LLC, 685 F.Supp.2d 456, 464–65 (S.D.N.Y. 2010), that failure to issue a litigation hold amounted to gross negligence. Instead, the Second Circuit adopted the view that “‘the better approach is to consider [the failure to adopt good preservation practices] as one factor’ in the determination of whether discovery sanctions should issue.” Chin, 685 F.3d at 162 (quoting Orbit Comm’ns, Inc. v. Numerex Corp., 271 F.R.D. 429, 441 (S.D.N.Y. 2010) (brackets in original)). According to the Second Circuit, even if the Port Authority had been grossly negligent and the documents were relevant, such findings merely gave a district court the discretion to issue an adverse inference instruction. In this instance, the district court determined that the destroyed documents played a limited role in the promotion process, and there was ample evidence regarding the employees’ qualifications. “Under these circumstances,” the Second Circuit held, “the district court did not abuse its discretion in concluding that an adverse inference instruction was inappropriate.” Id.

2. In Boeynaems v. LA Fitness International, LLC, 2012 WL 3536306 (E.D. Pa. Aug. 16, 2012), the Court held that cost shifting was appropriate in the context of class certification where the class plaintiffs requested extensive discovery, at least until the issue of class certification was resolved.

Plaintiffs alleged that the defendant, LA Fitness International, LLC, engaged in deceptive practices that amounted to breach of contract relating to LA Fitness members seeking to cancel their membership agreements. To comply with Fed. R. Civ. P. 23’s predominance requirement for class certification, plaintiffs issued several document requests. In response to plaintiffs’ latest discovery request for all member notes relating to customer complaints in five states over a 60-month period, emails from custodians involved in the development, implementation, and oversight of the cancellation policy, and review of paper documents at an off-site facility, defendant responded that it had already reviewed thousands of emails, over 500,000 member notes from five states over a 30 month period, over 1,000 boxes of cancellation requests, and conducted an electronic search of over 32,000 emails of five custodians. Id. at *9-10. In light of the documents already produced and the scope of plaintiffs’ additional requests, the defendant argued that the additional search and production was unjustifiably burdensome—estimated to be in the hundreds of thousands of dollars. Id. at *10.

In a case of first impression as to whether cost shifting is appropriate prior to class certification, the Court held that “where (1) class certification is pending, and (2) the plaintiffs have asked for very extensive discovery, compliance with which will be very expensive, that absent compelling equitable circumstances to the contrary, the plaintiffs should pay for the discovery they seek.” Id. at *11. In reaching this conclusion, the Court noted that plaintiffs had already requested extensive discovery from the defendant, which the defendant had provided at its own expense. Plaintiffs had to meet the predominance requirements of Fed.R.Civ.P. 23 and determine whether it had obtained sufficient discovery from defendant to make that showing. If plaintiffs were ultimately successful in achieving class certification, “this case will suddenly turn from a routine case to a major financial exposure for Defendant.” Id. at *12. As plaintiffs had already obtained significant discovery from the defendant at the defendant’s expense, the Court believed it was appropriate to require the plaintiffs to bear the cost of any additional discovery and to decide whether such additional discovery was needed for their case:

“The Court is persuaded, it appearing that Defendant has borne all of the costs of complying with Plaintiffs' discovery to date, that the cost burdens must now shift to Plaintiffs, if Plaintiffs believe that they need additional discovery. In other words, given the large amount of information Defendant has already provided, Plaintiffs need to assess the value of additional discovery for their class action motion. If Plaintiffs conclude that additional discovery is not only relevant, but important to proving that a class should be certified, then Plaintiffs should pay for that additional discovery from this date forward, at least until the class action determination is made.” Id. at *12.

The Court ruled that plaintiffs should provide the defendant with a detailed listing of all additional documents that they were seeking, being as specific as possible with respect to searches for additional ESI and hard copy documents. Defendant would then have 14 days to respond, summarizing the costs of such production. Then within seven days, plaintiffs were to advise the defendant whether they were willing to incur this expense. If so, the payment had to be made prior to the commencement of production. Id.

To assist the parties, the Court also provided guidance on the standards governing the resolution of the Rule 23 predominance issue, discussing both Third Circuit law and the Supreme Court decision in Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2451 (2011). Boeynaems, 2011 WL 3536306 at *13.

3. In Hester v. Vision Airlines, Inc., 687 F.3d 1162 (9th Cir. 2012), the U.S. Court of Appeals for the Ninth Circuit upheld entry of a default judgment against the defendant on account of its multiple discovery failures.

This case arose out of the alleged failure of the defendant to pass on “hazard pay” bonuses to pilots and crew who delivered supplies for the United States Government during the Iraq and Afghanistan military conflicts. Id. at 1165. In January 2009, the plaintiff filed a class action on behalf of the pilots and crew on theories of unjust enrichment and conversion, seeking more than $21 million in hazard pay. Id. at 1166. The Class sought discovery from Vision requesting “all communications and documents that relate to hazard pay.” Id. At first, Vision denied having any such documents and, at a hearing on a motion to compel, asserted that “there is no hazard pay,” despite the existence of at least one invoice listing various line entries such as “hazardous duty bonus.” Id. At that time, the district court denied the motion to compel, but granted a 120-day extension for the parties to meet and confer further. Id.

Vision ultimately turned over some documents to the plaintiffs, heavily redacted, without any privilege log. Id. The plaintiffs filed a second motion to compel, after which the district court ordered production. When Vision failed to comply, Hester filed a motion for sanctions. Id.

At the hearing on the motion for sanctions, the district court issued an order for Vision to show cause why its Answer should not be stricken and a default entry ordered. In so ruling, the district court stated that Vision’s conduct had “interfered with the Court’s ability to hear this case, delayed litigation, disrupted the Court’s timely management of its docket, wasted judicial resources, and threatened the integrity of the Court’s orders and the orderly administration of justice.” Id. at 1167 (internal quotation omitted). Soon thereafter, Vision responded with a few of the requested documents. At the hearing on the show cause order, counsel for Vision asserted that he had produced to plaintiffs all documents provided by Vision. The district court warned Vision on the record that “based on Vision’s intentional discovery violations, the court ha[d] the authority to strike Vision’s Answer and to enter a default judgment.” Id. At one point during this hearing, the plaintiffs identified, as an example, a single document marked as “page 20,” for which Vision had failed to produce pages 1 through 19. Counsel for Vision admitted that he had recently found an unredacted version of that document, and the district court ordered him to produce the unredacted version of the full document to plaintiffs by day’s end. Id. at 1167-1168. Despite the district court’s order, Vision failed to produce the document by the end of the day and instead produced a different document that had never previously been produced. Id. at 1168.

On November 3, 2003, the district court ordered Vision’s Answer stricken and default judgment entered. The district court ordered a jury trial on damages, and the jury returned a verdict of over $4.5 million, which with interest and costs led to entry of a judgment for over $5.2 million.

The Court of Appeals applied the abuse of discretion standard in reviewing the district court’s order imposing sanctions and stated that sanctions resulting in default were appropriate when the violations were due to “willfulness, bad faith, or fault of the party.” Id. at 1169 (citations omitted). The Court of Appeals indicated that a court must consider five factors before striking a pleading or declaring a default judgment: “(1) the public’s interest in expeditious resolution of litigation; (2) the court’s need to manage its docket; (3) the risk of prejudice to the other party; (4) the public policy favoring disposition of cases on their merits; and (5) the availability of less drastic sanctions.” Id. (citing Malone v. U.S. Postal Service, 833 F.2d 128, 130 (9th Cir. 1987).

In its only argument on appeal regarding the sanctions, Vision claimed that the district court had failed to consider less drastic sanctions. Id. Rejecting this claim, the Court of Appeals held that the district court thoroughly discussed less drastic sanctions, explicitly discussed possible alternatives, and warned Vision several times about the possibility of default. Hester, 687 F.3d at 1170. The fact that the district court did not implement a lesser sanction first was not dispositive, especially where, as here, the district court regarded lesser sanctions as “pointless.” Id.

4. In Aldridge v. Lake County Sheriff’s Office, 2012 WL 3023340 (N.D. Ill. July 24, 2012), Magistrate Judge Susan E. Cox sanctioned the defendant Sheriff’s Office for failing to provide adequate Rule 30(b)(6) testimony during discovery. The Magistrate Judge awarded plaintiff certain costs and attorneys’ fees, limited the defendant’s testimony at trial to those positions its witnesses took during the Rule 30(b)(6) depositions, and prevented the defendant from calling other witnesses on those topics.

This case involved sex discrimination claims against the Sheriff’s Office. In March 2012, in response to plaintiff’s Rule 30(b)(6) deposition notice specifying 13 separate topics, the defendant offered a single designee. Id. at *1. Because the designee’s responses to deposition questions were deficient, the defendant later agreed to produce six more designees. Id. The plaintiff complained that these witness, too, were deficient, and therefore she was ultimately not able to obtain testimony on several topics.

The Magistrate Judge noted that a Rule 30(b)(6) witness may testify “vicariously for the corporation, as to its knowledge and perceptions.” Id. (internal quotations and citations omitted). The corporation must “make a conscientious good faith effort” to “designate a person with knowledge on the designated topics,” and it has a duty to “prepare those persons in order that they can answer fully, completely, unevasively, the questions posed by the discovering party.” Id. at *4 (internal quotations and citations omitted).

In this case, the Magistrate Judge found that, even after the poor performance by its original witness, the defendant still failed to ensure that its new designees were prepared for their specific topics, with a few exceptions. Id. The Magistrate Judge admitted, however, that it was “difficult to determine conclusively which topics [were] partially covered, what has not been covered at all, and those topics that have simply not been explored to plaintiff’s satisfaction.” The Magistrate Judge noted that the “Court’s job is not to comb the over 500 pages of deposition transcripts to determine where plaintiff may be prejudiced.” Id. at *5 (emphasis in original).

Finding that the plaintiff had received some of the testimony she had requested in the deposition notice, the Magistrate Judge granted the plaintiff’s motion in part, awarding costs and attorneys’ fees for the second round of Rule 30(b)(6) depositions, but stopped short of barring the defendant’s testimony outright. As the plaintiff had “failed to support her motion with specific areas of prejudice,” an outright bar of the defendant’s testimony was not appropriate. Id. Instead, the Magistrate Judge ruled that the defendant would be limited to the answers provided by its Rule 30(b)(6) witnesses and would not be able to take a position at trial on those topics on which its witnesses did not provide testimony. Id. The defendant would also be prohibited from calling other witnesses at trial on those topics. Id. As summarized by the Magistrate Judge, “[i]n other words, defendant is stuck with the record it has created (which we note, would appear to benefit plaintiff in several respects).” Id.

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