E-Discovery Law Alert : New York & New Jersey Attorneys for Electronic Discovery and Corporate Information Management Law

Although the Federal Rules of Civil Procedure were updated in 2006 specifically to deal with electronically stored information (“ESI”), Bankruptcy Courts and Bankruptcy practitioners have had little bankruptcy-specific guidelines for managing ESI and electronic discovery issues. As a result, the ABA commissioned the Electronic Discovery (ESI) in Bankruptcy Working Group “to study and prepare guidelines or a best practices report on the scope and timing of a party’s obligation to preserve [ESI] in bankruptcy cases.” On March 15, 2012, the Working Group published their interim report on ESI in bankruptcy cases in an effort to invite and stimulate comments from a wider audience regarding how ESI issues should be handled in (i) large Chapter 11 cases; (ii) middle market and smaller Chapter 11 cases; and (iii) Chapter 7 and Chapter 13 cases.

The Working Group’s primary focus has been on a Chapter 11 debtor-in-possession’s obligation to preserve ESI in connection with adversary proceedings, contested matters and the bankruptcy case itself, as well as the obligation of non-debtor parties to preserve ESI. Although the report differentiates between cases based on the size of the bankrupt entity and whether it has commenced a reorganization or liquidation proceeding, the principles espoused throughout the report are similar, with the differences primarily being focused on the economic constraints of each type of case.

The proposed standards, not surprisingly, contemplate that the duty to preserve ESI applies in the bankruptcy context. Tracking the traditional standards, the duty to preserve ESI arises when the lawsuit is filed or potential litigation matters become reasonably anticipated. Conversely, the actual or anticipated filing of a bankruptcy case would not, by itself, require a debtor to preserve every piece of information in its possession. Instead, it would, in general, be appropriate for the debtors to continue following routine document retention programs, consistent with the reasonable anticipation of contested matters and adversary proceedings.

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Last month, the Hon. Peter E. Doyne, A.J.S.C. found jury foreperson Daniel M. Kaminsky to be in criminal contempt pursuant to R. 1:10-2 for violating several orders of the trial judge that prohibited jurors from engaging in any independent research during trial as set forth in In re Kaminsky, (N.J. Sup. Ct., Bergen County, Mar. 12, 2012). After a mistrial was declared in the underlying criminal drug case and two fellow jurors reported Kaminsky’s Internet use, the Court found beyond a reasonable doubt, in the context of an Order to Show Cause hearing and related in camera proceedings, that (1) Kaminsky conducted independent research; (2) the act was contemptuous; and (3) the conduct was willful and contumacious, “with a complete disregard of the court’s authority and instructions.” Although the foreperson was subject to a maximum punishment of six months in prison, a $1,000 fine or both, he was only fined $500.

During the proceedings, the jury was repeatedly advised that Internet and other independent research was prohibited because their deliberations and the verdict should be based solely on the evidence introduced in the courtroom. They were informed of the prohibition during the voir dire process, after being sworn, before each break, and at the end of the day. Nonetheless, during the deliberation phase, the jury foreperson researched the defendant's potential punishment on the Internet, concluding that the penalty could range from ten to twenty years. He found this result to be particularly severe because the defendant was a young man, to the point that the foreperson became physically sick and very emotional at the thought of the defendant be subjected to a long incarceration.

One of the jurors who reported the foreperson felt he had become “tainted” because his independent research concerning the potential penalty drove his deliberations and likely influenced two other jurors. The Court concluded that the foreperson had not researched the specifics of the case at issue was of no moment. Similarly, that the trial judge did not specifically “elucidate every single possible subject which a juror is prohibited from researching” was not relevant. The critical fact was that the foreperson was relying on information that was not admitted as evidence, thereby disobeying the Court’s instructions.

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In succession to remarks he made this past Fall about the soaring costs of electronic discovery in IP cases and unveiling the Model Order Regarding E-Discovery in Patent Cases, Federal Circuit Chief Judge Randall Rader recently told the ABA Section of IP Law that both the bar and the bench together, must continue to rein in the high costs of e-discovery. Chief Judge Rader suggested that attorneys’ need to limit their e-discovery requests and courts should consider implementing rules to facilitate efficient and cost effective discovery, as many have begun to do. The text of Chief Judge Rader’s speech may be viewed here.

The Chief Judge noted that in other countries, discovery practice is much more restrictive than in the U.S., making patent litigations, among other cases, easier and quicker to handle. In recent years, there has been significant movement in the U.S. to curtail e-discovery. For example, the Districts of Delaware, Kansas and Maryland all have adopted some form of default standards for e-discovery. The Seventh Circuit is in the second phase of its electronic discovery pilot program, and the U.S. International Trade Commission is considering implementing its own rules.

Most recently, in early March, the Eastern District of Texas proposed a Model Order that is based off of Chief Judge Rader’s Model Order, but differs in many ways. The Federal Circuit’s Model Order suggests that a requesting party be limited to e-mail discovery from five custodians with five search terms per custodian, while the Eastern District of Texas’ proposal calls for limits of eight custodians and 10 search terms. Additionally, the Eastern District of Texas’ proposal provides for limited written discovery and a deposition before the service of e-mail production requests.

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Pinterest, a play on words of “pin” and “interest,” is a virtual, online “pin board,” where user’s can organize and share things they find on the web. While Pinterest is attracting a loyal community of social media users, the site is also the source of some concern for those same users and owners of intellectual property.

The stated Mission of Pinterest is “to connect everyone in the world through the ‘things’ they find interesting . . . a favorite book, toy, or recipe [which] can reveal a common link between two people. With millions of new pins added every week, Pinterest is connecting people all over the world based on shared tastes and interests.” According to the website, a “pin” is an image added to a user’s Pinterest “board” from either a website or as an uploaded image from a user’s computer. Users add the “Pin It” applet to their web browser, which then allows a user to add a pin (an image) by clicking on the “Pin It” button, and adding the requested pin to the user’s pinboard.

For those individuals and companies looking to capitalize on the free promotion that Pinterest offers, they can add a “Pin It” button to their webpages which looks and functions similarly to the buttons offered by other social media websites. Adding another “button” to companies’ webpages is another avenue to increase the social awareness of a brand or products. While many brand owners, companies and individuals will appreciate being “pinned” by users, there will undoubtedly be those who object.

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“Anonymous” copyright infringers -- in this case the downloaders of a pornographic video -- should take note of a recent decision. In what is becoming increasingly common, a court was recently asked by a copyright holder to issue an order requiring non-party Internet Service Providers (“ISP”) to identify individual Internet users for purposes of filing a copyright lawsuit against them pursuant to 17 U.S.C. § 101 et seq.

In Digital Sin, Inc. v. John Does 1-176, 12-cv-00176 (S.D.N.Y., Jan. 30, 2012), Plaintiff, a producer of digital porn, in this case “My Little Panties #2,” sought and obtained Internet Protocol (“IP”) addresses from which their video had been illegally downloaded and shared by a “swarm” or group of interacting users -- 176 IP addresses in all. After filing suit against 176 John Doe defendants in the Southern District of New York, Digital Sin filed a motion for expedited discovery, seeking access from the ISPs to the names as well as the e-mail, physical and Media Access Control addresses of the individuals connected to those IP addresses.

District Judge Alison J. Nathan found “good cause” for Digital Sin’s request under Fed. R. Civ. P. 26(d) and (f) to issue pre-meet and confer Rule 45 subpoenas so as to avoid the federal law, 47 U.S.C. § 551(c), barring ISPs from disclosing the identities of putative defendants without a court order. Judge Nathan determined that expedited discovery was necessary to prevent the requested data from being lost as a part of the routine deletions by ISPs.

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The burdens associated with a massive document review of electronically-stored information (“ESI”) will not, in and of themselves, preclude a court from finding that a party has waived the attorney-client privilege with respect to an inadvertently produced document. In Jacob v. Duane Reade, Inc., Magistrate Judge Katz of the United States District Court for the Southern District of New York held that a privileged, two-page email that was inadvertently produced during the review of over two million documents in less than one month did not have to be returned and that the privilege had been waived because the producing party, Duane Reade, had failed to timely request its return. Duane Reade had used an outside vendor and review team to conduct its review of this large volume of ESI. The document in question concerned a meeting among several individuals, including an in-house attorney at Duane Reade. Duane Reade argued that the email was inadvertently produced because it was neither from nor to an attorney, and only included advice received at a meeting from an in-house attorney, identified in the email only by the first name “Julie.”

After determining that the email was a privileged communication, the Court considered whether Duane Reade waived the privilege by producing it. Under the Second Circuit test for determining whether a party’s inadvertent disclosure constitutes a waiver of the privilege, the Court addressed the following factors: “(1) the reasonableness of the precautions to prevent inadvertent disclosure; (2) the time taken to rectify the error; (3) ‘the scope of the discovery;’ (4) the extent of the disclosure; and (5) an over [arching] issue of fairness.”

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Although in recent years employers have become increasingly focused on the preservation, discovery and production of electronically-stored information, the Third Circuit’s January 4, 2012 decision in Bull v. United Parcel Service serves as a reminder to companies that original documents can and often do play a critical role in employment litigation matters. The preservation and discovery of originals should not be overlooked. Employers should be certain to both request original documents in discovery (and pursue their production through motion practice as necessary) and take necessary steps to preserve originals when litigation is threatened or commenced.

In Bull, the Third Circuit was asked to review the District of New Jersey’s dismissal with prejudice of the plaintiff’s discrimination claim as a sanction for her failure to produce original notes from her health care provider. The primary issue in Bull was whether the production of only copies, when the original documents were available, constituted spoliation and justified the harsh sanction imposed by the District Court. The Third Circuit agreed with the District Court, in part, holding that “producing copies in instances where the originals have been requested may constitute spoliation if it would prevent discovering critical information.” However, the Court determined that based upon the facts of this case, the District Court had abused its discretion when it dismissed the plaintiff’s claims with prejudice.

Factual and Procedural Background

After suffering a work-related injury to her shoulder. UPS offered Plaintiff Lauren Bull a temporary work assignment and, when that assignment ended, she was out of work on Workers’ Compensation. Bull returned to work with restrictions imposed by her health care provider that, in the view of UPS, made it impossible to assign her work. Thereafter, Bull submitted two notes, a few months apart, from a different health care provider. UPS found the two notes to be inconsistent and illegible and requested, but was never provided with, the originals. Bull did not respond to requests that she provide a new doctor’s note and more information, and her discrimination suit followed.

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A Third Circuit Court of Appeals panel, including the Hon. Thomas I. Vanaskie, one of the leading judicial authorities in e-discovery, has spoken -- e-discovery-related cost recovery pursuant to 28 U.S.C. §1920 has limits; the costs must bear a reasonable connection to duplication of materials in the traditional sense to be recoverable by a prevailing party. As the first United States Court of Appeals decision to directly address this closely watched issue, this opinion may disarm a potentially powerful weapon in the already limited arsenal of parties burdened with excessive e-discovery costs.

The case is Race Tires America, Inc., et al. v. Hoosier Racing Tire Corporation et al., No. 11-2316 (3d Cir. Mar. 16, 2012) . It began in September 2007, when Race Tires filed its $90 million suit accusing Hoosier Racing Tire Corp. and Dirt Motor Sports Inc. of violating the Sherman Act by allegedly monopolizing the market for specialized tires. In September 2009, U.S. District Judge Terrence F. McVerry granted motions for summary judgment by Hoosier and Dirt Motor, finding that they had not committed antitrust violations, which was later affirmed by the Third Circuit. The defendants subsequently sought reimbursement of prevailing party costs pursuant Fed. R. Civ. P. 54(b) and §1920.

Throughout the course of the proceedings, Hoosier and Dirt Motor, using separate e-discovery vendors, claimed that they had incurred in excess of $365,000 in e-discovery costs, for activities including preservation and collection of ESI, processing of the collected ESI, keyword searching, culling for privileged material, scanning and TIFF conversion, optical character recognition (“OCR”) and conversion of videos to DVD format. In the application for costs, the defendants cited §1920(4) to recoup the costs of these activities, claiming that they represented fees for “exemplification” and the “costs of making copies of any materials where the copies are necessarily obtained for use in the case.” 28 U.S.C. §1920(4). The District Court found the amounts charged by the e-discovery vendors taxable as “the electronic equivalent of exemplification and copying” and awarded the costs to the defendants. The ruling was certainly not without precedent from other District Courts, including those within the Third Circuit. In several cases, including In re Aspartame Antitrust Litigation, 2011 WL 4793239 (E.D. Pa. 2011), CBT Flint Partners, LLC v. Return Path, Inc., 676 F.Supp. 2d 1376 (N.D. Ga. 2009), and Tibble v. Edison Int’l, (No. CV 07-5359 (C.D. Cal. Aug. 22, 2011), courts have awarded broad e-discovery costs under §1920(4).

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For the second time this year, New York’s First Department, Appellate Division, has adopted e-discovery standards articulated in Zubulake v. UBS Warburg LLC, 220 FRD 212 (S.D.N.Y. 2003). On January 31, 2012, the First Department’s decision in Voom H.D. Holdings LLC v. EchoStar Satellite LLC, 2012 N.Y. Slip Op. 00658 (1st Dep’t 2012) adopted the Zubulake standard concerning when a party’s preservation obligations are triggered. Read a blog posting on the Voom decision here. Most recently, on February 28, 2012 the First Department held in U.S. Bank N.A. v. GreenPoint Mtge. Funding, Inc., 2012 NY Slip Op. 01515 (1st Dep’t 2012), that, consistent with Voom’s “adopt[ion] [of] the standards articulated by [Zubulake] in the context of preservation and spoliation, [it was] persuaded that Zubulake should be the rule in this department, requiring the producing party to bear the cost of production to be modified by the IAS court in the exercise of its discretion on a proper motion by the producing party.”

The factual scenario in GreenPoint is a familiar one in the wake of the financial crisis of 2008. GreenPoint Mortgage Funding, Inc. (“GreenPoint”), a mortgage loan originator specializing in “no-doc” or “low-doc” loans, initially sold notes on approximately 30,000 residential mortgages it had securitized (then valued at $1.83 billion). After a series of assignments, the notes were assigned to U.S. Bank, NA (“U.S. Bank”), which claimed that less than two years after the initial sale, approximately $530 million worth of loans had been charged off as a total loss or were severely delinquent. In early 2009, U.S. Bank sued GreenPoint alleging, among other things, that GreenPoint committed “‘gross violations’ of the representations and warranties concerning the attributes of the loans and the policies and practices under which the loans were originated, underwritten and serviced.”

A discovery dispute quickly arose with GreenPoint affirmatively seeking a protective order stating that: (i) each party would pay for its own discovery requests; and (ii) U.S. Bank would pay for GreenPoint’s pre-production attorney review time for purposes of privilege and confidentiality assertions. U.S. Bank conceded that its anticipated document discovery from GreenPoint was expected to be “vast, as were the resulting costs,” and that it could run “into the millions of dollars.” The trial court denied GreenPoint’s request that U.S. Bank bear the cost of compensating GreenPoint’s attorneys but agreed that New York required that the party requesting discovery bear the costs (that were not attorney fees) incurred in its production. U.S. Bank appealed.

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