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

On March 2, 2012, we reported on Magistrate Judge Andrew Peck's February 24, 2012 decision in Monique Da Silva Moore, et al., v. Publicis Groupe & MSL Group, Civ. No. 11-1279 (ALC)(AJP) (S.D.N.Y. Feb. 24, 2012), wherein Judge Peck issued the first judicial opinion approving the use of predictive coding "in appropriate cases." You can read that blog post here. On April 25, 2012, District Judge Andrew L. Carter, Jr. rejected plaintiffs' bid to overturn that decision, and cleared the way for the use of computer-assisted ESI review in this case and others. Monique Da Silva Moore, et al., v. Publicis Groupe & MSL Group, Civ. No. 11-1279 (ALC)(AJP) (S.D.N.Y. Apr. 25, 2012).

Judge Peck originally approved the use of predictive coding in Da Silva Moore based on several factors, including the parties' theoretical agreement with the concept, the need to review an enormous data set in excess of 3 million documents, the superiority of computer-assisted review over the alternatives (manual review or keyword searches), the need for cost effectiveness and proportionality under Fed. R. Civ. P.26(b)(2)(C) and the “transparent” process defendants proposed. But he did so over plaintiffs' continued objections, which were detailed in the papers plaintiffs submitted to District Judge Carter on February 22, 2012, and which Judge Peck essentially disposed of in his opinion issued two days later.

When defendants responded to plaintiffs' objections on March 7, 2012, plaintiffs' cried foul and requested leave of District Judge Carter to respond. In sum, plaintiffs contended Judge Peck's written analysis went well-beyond the rationale he articulated from the bench at the February 8, 2012 hearing on which his opinion was based and, further, relied on materials not previously discussed or referenced by the parties. Plaintiffs also objected to the inequity of allowing defendants to respond to plaintiffs' objections after having the advantage of digesting Judge Peck's decision. District Judge Carter granted plaintiffs' request, and plaintiffs filed further detailed objections to defendants' protocol and Judge Peck's rulings. For good measure, plaintiffs also informally asked Judge Peck (by letter) to recuse himself from the case based largely on his participation and comments at e-discovery conferences discussing his support for the use of predictive coding. Judge Peck refused and, in his April 2, 2012 Order, defended himself against plaintiffs' accusations of bias and specifically cautioned plaintiffs to "re-think their scorched earth approach" to the litigation. Judge Peck also predicted his admonition would fall on deaf ears, and it did; on April 13, 2012, plaintiffs formally moved for his recusal, which is pending.

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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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“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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By now, attorneys should know to advise their clients to watch out for Friend requests from jurors during a trial. The latest debacle concerning jurors use of social media involves a juror “friending” a party and then bragging about his resulting dismissal from the panel. For that juror, his Facebook antics landed him a three-day jail sentence. Click here and here for additional coverage regarding this incident.

Back in December, a Florida man serving jury duty sent a Friend request to the defendant. The defendant told her attorney about the request, and Circuit Judge Nancy Donnellan dismissed the juror and admonished him for his actions. But, the story doesn’t end there.

After his dismissal, the ex-juror took to his Facebook page again. This time, he posted a comment: “Score . . . I got dismissed!! [A]pparently they frown upon sending a friend request to the defendant . . . haha.” Unfortunately for the ex-juror, court officials became aware of the post, leading Judge Donnellan to call the ex-juror back into Court to face criminal contempt charges. At the end of a two-hour hearing, Judge Donnellan commented, “I cannot think of a more insidious threat to the erosion of democracy than citizens who do not care.” She sentenced the ex-juror to three days in jail, and he was led from the courtroom in handcuffs.

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The dual issues of over-preservation and proportionality took center stage in a recent Southern District of New York class and collective action litigation, leading to a Magistrate’s opinion in Pippins v. KPMG, No. 11-377 (S.D.N.Y. Oct. 7, 2011), and a District Court’s affirmance in Pippins v. KPMG, Civ. No. 11-377 (S.D.N.Y. Feb. 3, 2012), which are sending shock waves through the e-discovery community. The effect of those shock waves here is particularly acute for FLSA and other employment-related class action defendants where the targeted company often possesses and controls ESI pertaining to sometimes thousands of potential plaintiffs.

Pippins arose out of allegations under the Fair Labor Standards Act, 29 U.S.C. § 201 et seq. and the New York State Labor Law, Article 19, § 201 et seq.(and corresponding regulations). In the October opinion, United States Magistrate Judge Cott rejected Defendant KPMG’s application for a protective order to limit its preservation efforts to a random sample of 100 hard drives from the computers used by the several thousand potential putative class members. The Magistrate Judge ordered KPMG to preserve all hard drives at issue because he was, as the District Judge perceived it, impeded by the lack of any information from KPMG that would enable the court to “balance the value of any data contained on the hard drives against the cost of preserving it.” Judge Cott’s opinion sent panic throughout the legal community because it expanded the preservation obligation to potential class action plaintiffs without a balancing or proportionality analysis under F.R.C.P. 26(c).

On February 3, 2012, in a frank and somewhat scathing opinion, United States District Judge McMahon affirmed the Magistrate holding that his opinion was correct in every respect, save for perhaps the Magistrate’s reluctance to involve Judge McMahon earlier in the process. By way of background, Judge McMahon had stayed discovery while resolving the Motion to Conditionally Certify the Class, which she ultimately granted after Pippins I on January 3, 2012. While the motion was pending, KPMG filed its motion for a protective order. KPMG’s primary objection was cost-related, arguing that at the price of $600 per hard drive, the financial burden of preserving hard drives of 7,500 potential opt in plaintiffs in the FLSA matter and 1,500 putative state class members would “swallow the amount at stake.” In fact, KPMG noted that they had already incurred more than $1.5 million in its preservation of about 2,500 former employees’ laptops. As an alternative, KPMG requested that Plaintiffs be obligated to bear the costs of preserving hard drives beyond the initial 100 offered.

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Late last year, Magistrate Judge Andrew Peck of the U.S. District Court for the Southern District of New York, one of the most prominent judicial thought leaders in e-discovery, wrote an article entitled Search, Forward in which he opined that computer-assisted ESI review "should be used where it will help 'secure the just, speedy and inexpensive' (Fed. R. Civ. P. 1) determination of cases", but he forecast that lawyers awaiting a judicial opinion endorsing predictive coding might have "a long wait." As it turns out, the wait wasn't very long at all; on Friday, February 24, 2012, less than 6 months after the publication of his article, Judge Peck himself issued the first judicial opinion approving the use of predictive coding "in appropriate cases."

Judge Peck issued his opinion in Monique Da Silva Moore, et al., v. Publicis Groupe & MSL Group, Civ. No. 11-1279 (ALC)(AJP) (S.D.N.Y. February 24, 2012), a gender discrimination suit brought by five female plaintiffs against Publicis Groupe, "one of the world's 'big four advertising conglomerates,'" and MSL Group, its U.S. public relations subsidiary. Faced with more than 3 million documents to be reviewed, the parties agreed to use predictive coding -- a process involving senior attorney review and coding of a "seed set" of documents that are then used to train a computer to search the entire data set for relevant documents and cull them -- but they disagreed regarding the methodology.

Defendants' ESI proposal contemplated a series of "iterative rounds" to test and refine the searches and stabilize the training of the search software, with production to plaintiffs of both relevant and irrelevant documents returned by the refined searches. Plaintiffs would then be invited to provide feedback to allow further refinement of the searches. Plaintiffs objected to defendants' protocol and submitted their own, which the Court apparently rejected.

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Twenty-five years ago in Aerospatiale v. District Court of Iowa the United States Supreme Court admonished lower courts that international comity compels them to “take care to demonstrate due respect for any special problem confronted by the foreign litigant on account of its nationality or the location of its operations, and for any sovereign interest expressed by a foreign state.” And for the last twenty-five years, courts generally have not heeded that advice, giving short-shrift to the idea that foreign privacy or data protection laws must be enforced if the result is to limit discovery of relevant information. At the urging of lawyers and several influential organizations, that could finally be changing.

Recent announcements from two influential groups — the American Bar Association and The Sedona Conference® — make it clear that those who practice in the area of cross-border disputes need courts to better balance the tension between the need for information and the “due respect” owed to foreign data protection and privacy laws in connection with the collection and production of electronically stored information (ESI) originating outside the United States.

Recognizing the complexities of modern civil litigation and the frequency with which lawyers now confront gathering ESI in other countries, the ABA on February 6, 2012 issued a Report and Resolution 103 urging all courts to “consider and respect” the “data protection and privacy laws of any applicable foreign sovereign, and the interests of any person who is subject to or benefits from such laws, with regard to data sought in discovery in civil litigation.” The ABA Report accompanying Resolution 103 recognizes that failing to give “due recognition to the concerns of privacy and data protection of other nations can result in a host of negative consequences,” for example, potential adverse rulings overseas against U.S. litigants as well as stunting “the growth of global commerce, including the cross-border movement of personnel and the hiring of local employees.”

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A key non-party fact witness is fairly the target of a subpoena seeking production of ESI. In Wood v. Town of Warsaw, North Carolina, the United States District Court for the Eastern District of North Carolina held that ESI preserved on a former town manager’s personal computer must be made available for a search by a forensic expert in response to the Plaintiff’s subpoena.

Raymond Wood, the former police chief of the town of Warsaw, North Carolina, alleged that his dismissal by former town manager Jason Burrell was motivated by the town’s desire to have “younger blood in the chief’s office.” Plaintiff sued for age discrimination under the Federal Age Discrimination in Employment Act. During discovery, Plaintiff directed a subpoena to non-party Burrell requesting, among other things, a search of Burrell’s personal computer using to be agreed-upon search terms.

Resisting the subpoena, Burrell argued that the proposed search would be time-consuming, costly and an invasion of his personal privacy. He further claimed that he did not use his personal computer for work-related purposes, and that if any responsive documents existed on his personal computer, he would produce them since they would be otherwise responsive to the subpoena. In response, Plaintiff argued that the proposed search was reasonably calculated to lead to the discovery of admissible evidence, that he had already agreed to pay for the cost of the proposed search by a forensic expert, that he had submitted proposed search terms to Burrell’s attorney and that the only cost to Burrell would be a privilege review by his personal attorney.

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In Evans v. Mobile County Health Department, 2012 U.S. Dist. LEXIS 8530 (S.D. Ala. Jan. 24, 2012) , a magistrate judge sitting in the Southern District of Alabama (Southern Division) was recently faced with the question of whether plaintiff's intentional burning of a personal computer, which contained discoverable ESI, was worthy of an imposition of sanctions.The defendant, Mobile County Health Department, filed motions to compel discovery and to impose sanctions stemming from plaintiff’s alleged spoliation of critical information and repeated failures to produce discoverable documents and ESI. Based upon the facts and arguments presented to the magistrate, most notably plaintiff Evans’ admission that she destroyed and replaced her personal computer, the Court granted defendant’s motions.

During the discovery phase of plaintiff Evans’ reverse discrimination and retaliation action, defendant requested production of all documents including “all forms of electronically stored information” related to certain allegations in her complaint. This preservation request was mandated in a June 23, 2011 Order. After producing a small and limited amount of documents, Plaintiff was deposed in early September 2011. During this deposition, plaintiff admitted to forwarding relevant materials from her work computer to her home computer. She further admitted to having e-mails on her home computer reflecting her complaints of disparate treatment on account of race. At no time during her deposition did plaintiff give "any hint" that the same personal computer had been destroyed in July or August of that year.

In response to the defendant’s post-deposition motion to compel discovery, plaintiff revealed for the first time that the hard drive on her personal computer crashed and that the 13 year old computer had been replaced. According to plaintiff, the computer was checked by the “Geek Squad” at a local Best Buy store and she was allegedly told to “just buy another computer.” Plaintiff took this advice. However, instead of simply preserving the old computer or turning it over to her attorney, despite litigation being in full swing, plaintiff destroyed it by burning it in her yard a few months before her deposition. Plaintiff’s justification for destroying the computer was to eradicate personal financial records that she could "not risk getting into the wrong hands because of the threat of identify theft." Based upon this newly revealed information, defendant moved before the Court for sanctions, seeking dismissal of all of plaintiff’s claims.

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New York’s First Department Appellate Division is the first New York state appellate court to expressly adopt the “reasonable anticipation trigger” articulated in Zubulake v. UBS Warburg LLC, 220 FRD 212 (S.D.N.Y. 2003): “Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents.” Id. at 218. On January 31, 2012, the First Department affirmed the November 9, 2010 Order of the Honorable Richard B. Lowe III which awarded an adverse inference sanction to plaintiff, Voom HD Holdings LLC (“Voom”) against defendant EchoStar Satellite, L.L.C. (“EchoStar”). Voom H.D. Holdings LLC v. EchoStar Satellite LLC, 2012 N.Y. Slip Op. 00658 (1st Dep’t 2012). The First Department found the Zubulake standard to be “harmonious” with existing New York precedent in the traditional discovery context and “provides litigants with sufficient certainty as to the nature of their obligations in the electronic discovery context and when those obligations are triggered.”

The facts of the Voom case provide a familiar example of the breakdown and souring of relationships between business counterparties in advance of an actual litigation. In mid-2007, EchoStar determined its 15-year “affiliation agreement” with Voom was disadvantageous and, by June 2007, EchoStar’s vice chairman had begun exploring ways to terminate the contract. By July 2007, EchoStar had plainly advised Voom that it believed Voom had committed “material breaches” of the contract and EchoStar reserved its “rights and remedies in equity or at law.” For its part, Voom implemented a litigation hold automatically preserving emails on July 31, 2007; EchoStar did not. Nonetheless, EchoStar continued to threaten Voom with termination of the contract throughout the fall of 2007 and into January 2008. EchoStar’s apparent motivation was to force Voom into retrading the contract resulting in more advantageous terms to EchoStar. On January 30, 2008, EchoStar formally terminated the agreement; Voom brought suit in New York State Supreme Court the following day.

EchoStar issued a “litigation hold” only after Voom commenced suit. Justice Lowe found this hold insufficient for several reasons, including because: (i) the hold did not suspend EchoStar’s automatic and permanent purge of deleted emails 7 days after an email’s deletion; this automatic purge was not suspended until four months after litigation was initiated; (ii) EchoStar relied on its employees -- many of whom were presumably not attorneys -- to self collect and determine whether documents were potentially responsive to litigation, and to then remove each one “from EchoStar’s pre-set path of destruction.” Most important to the First Department’s adoption of Zubulake, Justice Lowe found the hold to be too little too late in that “EchoStar’s concession that termination would lead to litigation, together with the evidence establishing EchoStar’s intent to terminate, its various breach notices set to [Voom], its demands and express reservation of rights, all support the conclusion that EchoStar must have reasonably anticipated litigation prior to the commencement of this action.” Specifically, Justice Lowe found that EchoStar should have “reasonably anticipated litigation no later than June 20, 2007, the date [EchoStar’s corporate counsel], sent Voom a written letter containing EchoStar’s express notice of breach, a demand, and an explicit reservation of rights.”

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Though some practitioners might be in denial, the follow-up sanctions orders in Lester v. Allied Concrete Co. et al. dated May 27, 2011 and September 23, 2011 should leave no room for doubt that preservation of social media is as important as any other electronic data or discovery. Similarly, the penalty for intentionally destroying such evidence may reach beyond the purse strings.

As reported late last year in a blog posting regarding Lester Part I, defense counsel moved for sanctions against plaintiff Isaiah Lester and his attorney, Matthew B. Murray, for spoliation of Facebook evidence. Ultimately, although defense counsel’s request for a new trial was denied after the jury had reached a $10.6 million verdict related to the tragic death of Lester’s wife in an automobile accident, Lester and Murray were ordered to pay defense counsel respectively, $180,000 and $542,000. But the sanctions did not end there; Murray’s misconduct was referred to the Virginia State Bar and allegations of Lester’s perjury were referred to the local prosecutor.

During discovery, defendants sought production of the contents of Lester’s account because they believed it would help their case on the issue of damages. Defendants were inspired to pursue this evidence after discovering a photo on Facebook depicting “Lester clutching a beer can, wearing a T-shirt emblazoned with ‘I [heart] hot moms.’” Specifically, they served discovery requests that sought information relating to Lester’s Facebook account including screen-prints and attached the compromising picture.

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In a rare New York State appellate decision concerning e-discovery, the First Department took the opportunity to address claims by a subpoenaed nonparty of inaccessibility of electronically stored information (ESI).

The case, Tener v. Cremer, 2011 N.Y. Slip op. 6543 (1st Dep’t 2011), involved an alleged defamatory post originating from one of New York University’s computers. Plaintiff served NYU with a subpoena seeking identification of persons who accessed the Internet on a certain date via a certain IP address. In connection with motion practice on the subpoena, NYU explained that computers that accessed the web through NYU’s portal are identified in a text file listing that is automatically overwritten every 30 days. NYU claimed not to possess the technical capability or software, if such exists, to retrieve a text file that had been created more than a year earlier and written over at least 12 times during that period. Plaintiff argued that NYU had not even attempted to retrieve the data, and that the term “written over” simply meant that the old data had been allocated to free space within the system and was likely retrievable using commercially available software.

In evaluating NYU’s claim of inaccessibility, the Court adopted a hybrid standard based on the Federal Rules of Civil Procedure and e-discovery guidelines published by the Commercial Division of the Nassau County Supreme Court (the “Nassau Guidelines”). The Court cited Fed. R. Civ. P. 45(d)(1)(D)’s requirement that on a showing by a subpoenaed party that ESI was “not reasonably accessible because of undue burden or cost,” the party seeking disclosure could still obtain the discovery if it demonstrated good cause. Finding good cause to be shown since the sought after data was the only way to determine who defamed the plaintiff, the Court adopted the Nassau Guidelines approach to determining whether the data is “so ‘inaccessible’ that NYU does not have to comply with the subpoena.” This approach applies a cost/benefit analysis that weighs the burden and expense of recovering and producing the ESI against the relative need for the data.

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The Third Circuit in Reilly v. Ceridian Corp. affirmed the district court’s dismissal of a putative class action against payroll processing company Ceridian for a data breach, holding that the plaintiffs lacked standing because their alleged injuries were too speculative.

In December 2009, an unidentified hacker breached Ceridian’s Powerpay system and potentially gained access to personal and financial information belonging to approximately 27,000 employees at 1,900 companies. It was unknown, however, whether the hacker read, copied, or understood the data. Two individual plaintiffs filed suit on behalf of all individuals whose information was exposed in the security breach, alleging that they (1) had an increased risk of identity theft, (2) incurred costs to monitor credit activity, and (3) suffered emotional distress.

Concluding that the plaintiffs lacked standing, the court emphasized the necessity of an injury-in-fact, which must be actual or imminent, not conjectural or hypothetical. An increased risk of future harm from an unknown third party is insufficient. Although the plaintiffs speculated that the hacker would misuse their information, the court found that there was no evidence suggesting that would happen and there could be no injury unless and until the plaintiffs’ conjectures came true. That the plaintiffs voluntarily expended time and money to monitor their financial situation did not change the court’s conclusion.

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The Judicial Improvements Committee of the Southern District of New York issued a report announcing the initiation of a Pilot Project Regarding Case Management Techniques for Complex Civil Cases (the “JIC Report”) in October 2011. The pilot project, which became effective on November 1, 2011, is designed to run for 18 months and for now, applies only to specific matters designated as “complex cases.” The project, which seeks to enhance the caliber of judicial case management, arose out of recommendations from the May 2010 Duke Conference on Civil Procedure and E-Discovery. This blog posting focuses on that portion of the pilot program devoted to the discovery of electronically stored information (“ESI”).

For these designated cases (which include class actions, MDL actions, patent & trademark, product liability, securities, stockholder, antitrust and environmental cases), parties are required to submit, no later than 7 days before the initial pretrial conference, an initial report containing a “protocol and schedule for electronic discovery, including a brief description of any disputes regarding the scope of electronic discovery.” Similarly, parties are required to provide, among other things, “[a]ny recommendations for limiting the production of documents, including electronically stored information.” The JIC Report attaches an initial pretrial conference check list as Exhibit A and a joint electronic discovery submission and proposed Order as Exhibit B.

The form Joint E-Discovery Submission (“the Submission”) requires counsel to certify that they are sufficiently knowledgeable about their clients’ technology systems and can discuss issues concerning electronic discovery or, if not, have involved a competent person to address those issues. The Submission provides several categories for the parties to address prior to the preliminary conference, including, among other things: (1) preservation obligations, (2) search and review protocols, (3) sources of ESI production, (4) forms of production, and (5) cost allocation.

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In a trademark infringement case involving two restaurants, Katiroll Company, Inc. v. Kati Roll and Platters, Inc. et al., Plaintiff sought a spoliation inference, alleging various discovery abuses involving several types of evidence including social media. Specifically, Plaintiff requested sanctions for the individual Defendant’s failure to preserve his Facebook pages in two different ways. Recognizing that Facebook users change their pages frequently given the nature of the media at issue, Chief Judge Brown of the District of New Jersey crafted a creative remedy, which was based in large part on the level of prejudice to Plaintiff.

Regarding the first Facebook issue, Plaintiff sought PDF versions of Defendant's Facebook pages before they were taken down pursuant to Plaintiff’s take-down request. The Court declined to sanction Defendants for actions taken at Plaintiff’s request because it would be "unjust."

Plaintiff also sought a spoliation inference because the individual Defendant altered his profile picture on Facebook. The prior picture reflected the infringing trade dress of the restaurant at issue but was not preserved. The Court recited the four requirements for a spoliation inference, which the Chief Judge described as the mildest of sanctions: (1) whether the evidence was in the party’s control; (2) whether the evidence was actually suppressed or withheld; (3) whether the evidence was relevant vis-à-vis the claims or defenses at issue; and (4) whether it was reasonably foreseeable that the evidence at issue would subsequently be discoverable. The Court concluded that the most important consideration in determining what level of fault is required to support the second factor (an issue that is disputed within the District) is the degree of prejudice to the movant. Specifically, the Court concluded that a negligence standard may be appropriate if there was substantial prejudice whereas intentional conduct would be required if minimal prejudice resulted.

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In a recent case in California, Facebook account holders filed a putative class action lawsuit against Facebook, alleging that Facebook knowingly forwarded personal information to online advertisers without its users’ consent. In In re Facebook Privacy Litigation, Plantiffs asserted eight causes of action against Facebook, including violations of the Electronic Communications Privacy Act, 18 U.S.C. §§ 2510, et seq. and various California laws (both statutory and common law), and all were dismissed.

At issue was the mechanism that sends a “Referrer Header” to an advertiser when a Facebook user clicks on an advertisement posted on the website. Plaintiffs asserted that when an advertiser receives a “Referrer Header” from Facebook, which indicates the webpage address the user was viewing before clicking on the advertisement, the advertiser is able to obtain substantial information about a user, including the user’s name, gender and picture. The court explained that in sending these “Referrer Headers,” Facebook “shares users’ personal information with third-party advertisers without users’ knowledge or consent, in violation of [Facebook’s] own policies.”

The court looked closely at the following language of the Wiretap Act, 18 U.S.C. § 2511(3)(a), which provides in part that an entity:

providing an electronic communication service to the public shall not intentionally divulge the contents of any communication (other than one to such entity, or an agent thereof) while in transmission on that service to any person or entity other than an addressee or intended recipient of such communication or an agent of such addressee or intended recipient.

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Law enforcement must establish probable cause to obtain a suspect’s cell-site-location records according to a recent federal decision, In Re Application of the United States of America for an Order Authorizing the Release of Historical Cell-Site Information.  In that case, Judge Nicholas G. Garaufis of the United States District Court for the Eastern District of New York ruled that a prosecutor’s application for access to a criminal defendant’s cell-site-location records pursuant to the Stored Communication Act (“SCA”) was insufficient to allow their release. Judge Garaufis determined that access to records revealing a criminal defendant’s movements over an extended period of time constitutes a “search” under the Fourth Amendment. Accordingly, such information can only be released upon a showing of probable cause and the issuance of a warrant.

In its sealed application, the U.S. Attorney sought an order authorizing the release of 113 days worth of cell-site-location records relating to an individual who was a target in a criminal case. The prosecution relied on the SCA, which authorizes the release of electronic communications upon a showing of “specific and articulable facts” suggesting that the “contents of an electronic communication are relevant and material to an ongoing criminal investigation” (a standard lower than a probable cause).

Judge Garaufis acknowledged that “electronic surveillance of an individual’s location as he travels in public has traditionally not been construed as a Fourth Amendment search,” while electronic surveillance within one’s home has been. However, the Fourth Amendment can be implicated when use of electronic means allows law enforcement to obtain information that it could not obtain by physical observation “outside the curtilage of the house.” In rendering his decision, Judge Garaufis relied on the D.C. Circuit’s opinion in United States v. Maynard, which held that use of a GPS to track a defendant over a four-week period qualified as a search under the Fourth Amendment. The Maynard Court determined that while there is no reasonable expectation of privacy concerning a single trip between two points, an individual does have an expectation of privacy in the “totality” of one’s movements.

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The Fifth Annual Gibbons E-Discovery Conference kicked off with an interactive overview of the important judicial decisions from 2011 that shaped and redefined the e-discovery landscape. Before an audience of general and in-house counsel, representing companies throughout the tri-state area, the esteemed panel of speakers, including Michael R. Arkfeld, Paul E. Asfendis, and Mara E. Zazzali-Hogan, moderated by Scott J. Etish, tackled the issues faced by the courts over the past year. Through a series of hypotheticals, the panelists and attendees analyzed and discussed how to handle the tough e-discovery issues that arose and how the courts’ decisions again reshaped the e-discovery landscape as we know it. Litigation hold protocols and spoliation concerns, the use of social media in discovery with its attendant ethical concerns, and the use of social media and the Internet in the courtroom were the hot topics of the day. This interactive overview of the past year’s hot button, e-discovery issues was an instant success and clearly set the tone for the remainder of the conference.

Right out of the gate, the panelists and audience examined and debated Judge Scheindlin’s aggressive litigation hold protocol set forth in Pension Committee and the ramifications and aftermath it has since had on litigants. The attendees were treated to an in-depth, interactive discussion of two critical opinions from 2010-11 decided in the Southern and Western Districts of New York. These decisions made it clear that there are other approaches to the problems raised in Pension Committee other than the “gotcha game” that has since ensued. The panelists and attendees discussed the significance of the split in authority clearly seen in Pension Committee (S.D.N.Y), Orbit One (S.D.N.Y.) and Steuben Foods, Inc. (W.D.N.Y.). The implications of whether the more liberal and practical approach found in the Orbit One and Steuben Foods decisions were also discussed at length, during which time the attendees were asked to offer their insights on whether and how they would approach their existing litigation hold protocols as a result of these recent opinions. This examination served as a perfect segue into the analysis of other key issues raised by litigation hold protocols and the production of electronic evidence, including spoliation of evidence, sanctions, and waiver of privileges by inadvertent production of data.

In addition to the considerable discussion afforded to the recent changes in the litigation hold area, the panelists next offered a thought-provoking analysis of the important developments shaping the continued evolution of e-discovery disputes stemming from discovery requests for information maintained by a litigant or witness on social media host sites. As social media has become a modern replacement for face-to-face communications, its role in the litigation of cases has increased exponentially. The panel debated the primary question of whether counsel should be afforded access to the private sections of a litigant’s Facebook, MySpace or other social media account and how the courts and local bar associations answered this question over the past year. The discussion also focused on what measures counsel can and should employ to obtain access to this private information once litigation is threatened. As the panel emphatically stressed, the past year’s decisions and bar association opinions clearly demonstrate that “friending” a litigant or using deceptive practices to gain private access is extremely risky and could result in discipline. The issue of spoliation of evidence in this context, an issue recently addressed by the District of New Jersey in Katiroll Company, Inc. was also addressed by the panel.

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On October 3, 2011, the United States Court of Appeals for the Ninth Circuit determined that the Electronic Communications Privacy Act of 1986 (“ECPA”), 18 U.S.C. §§ 2510 2522, applies to foreign citizens, giving them the same privacy protections Congress afforded U.S. citizens in connection with the disclosure of electronic data by third-parties service providers.

The facts of Suzlon Energy Ltd v. Microsoft Corporation demonstrate how U.S. law can be used both as a sword and a shield with respect to gathering information abroad.The case arose because of a civil fraud proceeding in the Federal Court of Australia by Suzlon Energy against a citizen of India named Rajagopalan Sridhar. Mr. Sridhar maintained a Microsoft Hotmail email account, and his emails were stored on a domestic server by Microsoft. Suzlon sought Sridhar’s emails from Microsoft by having issued a subpoena in accordance with 28 U.S.C. § 1782, which allows the gathering of evidence for use in a foreign proceeding.The Court was tasked with resolving whether Microsoft would be required to produce Mr. Sridhar’s emails notwithstanding language in the ECPA providing that “a person or entity providing an electronic communication service to the public shall not knowingly divulge to any person or entity the contents of communication while in electronic storage by that service.” 18 U.S.C. § 2702(a)(1). Microsoft is an “electronic communication service” because it “provides to users . . . the ability to send or receive wire or electronic communications.” “Users,” in turn, constitute “any person” who uses the service.

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Gibbons is pleased to announce that the Honorable Edwin H. Stern (ret.) will present a brief keynote address where he will provide an insider's view of some e-discovery concerns facing the courts today at the Gibbons Fifth Annual E-Discovery Conference, which will be held at the Sheraton Meadowlands Hotel & Conference Center in East Rutherford, NJ.

Mr. Stern joined Gibbons P.C. earlier this month as Counsel in the firm's Business & Commercial Litigation Department after completing his temporary assignment to the New Jersey Supreme Court.

“Gibbons is highly regarded by jurists throughout the state and is becoming a go-to law firm for retired judges who want to devote their considerable insight, knowledge, and professional skills to solving problems for clients while also mentoring younger generations of attorneys,” notes Patrick C. Dunican Jr., Chairman and Managing Director of Gibbons. “We are proud and excited that someone of Edwin Stern’s caliber is deepening a bench of eminent retired jurists that includes John Gibbons, James Zazzali, and Andrew Moore.”

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Due to the overwhelming popularity of our Fifth Annual E-Discovery Conference, we have changed the location of the event to the SHERATON MEADOWLANDS HOTEL & CONFERENCE CENTER, located at Two Meadowlands Plaza, East Rutherford, NJ. The Sheraton Meadowlands is only a few miles from downtown Newark, and is accessible via the New Jersey Turnpike, Garden State Parkway, and taxi service from the New Jersey Transit Secaucus train station (one stop from Newark or New York Penn Station).

This new venue allows us to accommodate additional attendees, so please call (973) 596-4452 or email rsvp@gibbonslaw.com as soon as possible to reserve your spot at the conference.

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In its October 3, 2011 issue, the editorial team of LitigationWorld chose Mark S. Sidoti’s September 28, 2011 blog post entitled New Jersey District Judge Grants Spoliation Sanctions Citing Negligent Litigation Hold Procedures as its Pick of the Week. LitigationWorld is a free weekly email newsletter that provides helpful tips regarding electronic discovery, litigation strategy, and litigation technology. Each week, the editorial team chooses the most noteworthy and insightful articles on the litigation web published during the previous week and, from those, selects one as their Pick of the Week.

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The American Bar Association recently published Formal Opinion 11-460 to provide guidance to attorneys regarding their ethical duty upon discovering emails between a third party and the third party’s attorney. The Opinion interprets Model Rule 4.4(b) literally, concluding that neither that rule nor any other requires an attorney to notify opposing counsel of receipt of potentially privileged communications. The Opinion is of particular note because it directly contradicts the New Jersey Supreme Court’s opinion in Stengart v. Loving Care Agency, Inc. 201 N.J. 300 (2010).

Formal Opinion 11-460 addresses the increasingly familiar situation in employment litigation where counsel’s review of an employee’s workplace computer reveals potentially privileged emails between the employee and his/her attorney. The specific question posed by the Opinion is whether the employer’s counsel has any legal or ethical duty to inform opposing counsel. In answering the question in the negative, the ABA concluded that Model Rule 4.4(b) only addresses emails that were “inadvertently sent,” and since the emails in question were not “inadvertently sent” by either party, Model Rule 4.4(b) is inapplicable. The ABA acknowledges that its Opinion is in direct contrast to the New Jersey Supreme Court’s decision in Stengart. Specifically, in Stengart, the New Jersey Supreme Court held that defense counsel violated New Jersey RPC 4.4(b), which is substantially similar to Model Rule 4.4(b), by not setting aside and notifying opposing counsel of their possession of emails between Stengart and her counsel, which were obtained through a forensic image of Stengart’s work laptop.

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On September 27, 2011, Chief Judge Randall Rader of the Federal Circuit announced that the Advisory Council of the Federal Circuit unanimously adopted a Model Order regarding e-discovery in patent cases. Its purpose is to serve as a “starting point” for district courts to streamline and reduce e-discovery costs, emphasizing email production limits.

E-mail discovery must be phased in after initial disclosures and production of basic documentation about patents, prior art, accused devices and financials have progressed. E-mail document requests must be propounded on specific issues; global requests will not cut it. Most importantly, e-mail discovery requests are required to be specifically limited as to custodians, search terms and timeframes, with only five custodians and five search terms per custodian per party permitted, absent a showing of distinct need. The Model Order mandates cost shifting for disproportionate electronic production requests, and also that inadvertent production of privileged documents does not constitute waiver.

The Model Order was motivated by cost concerns in patent litigations, based upon the finding that these types of cases “stood out for their high discovery expenses.” Thomas E. Willging et al., Discovery and Disclosure Practice, Problems, and Proposals for Change: A Case Based National Survey of Counsel in Closed Federal Civil Cases 38-39 (Fed. Judicial Ctr. 1997). Chief Judge Rader more expansively remarked that “the greatest weakness of the US court system is its expense,” and that the burden of extensive e-requests generally outweighs any benefit, noting that e-discovered documents rarely appear on trial exhibit lists and even more rarely are seen in appeals. All this is true.

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The Bench Bar Media Committee of the New Jersey Supreme Court (“Committee”) has adopted, and forwarded to the Supreme Court, Guidelines for the Usage of Electronic Devices in New Jersey state courts. The proposed Guidelines comprehensively address the use of Electronic Devices in the courtroom, the common areas of a courthouse and the grounds of a courthouse. If adopted by the Supreme Court, the proposal will represent a major revision to the existing Guidelines.

The Guidelines broadly define the term “Electronic Device” as any portable device that has the capability to broadcast, record or take photographs. Acknowledging the rapid evolution in this area, the Guidelines provide that similar devices “whether now in existence or later developed” will fall within the purview of the Guidelines.

The Guidelines then define the permitted uses of Electronic Devices on the courthouse grounds, in common areas and in the courtroom.

A. COURTHOUSE GROUNDS
The Guidelines allow virtually unrestricted use of Electronic Devices, including the use of such devices for photography, recording or broadcasting, on the grounds outside the courthouse. The only caveats are security and insuring that the utilization of such devices does not interfere with ingress and egress to and from the courthouse.

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Failure to properly preserve electronic evidence continues to provide at-risk litigants with the ability to steer the court from scrutiny of the merits, and drastically shift the balance of litigation leverage.

The latest example of this is NVE, Inc. v. Palmeroni out of the District of New Jersey. This case involved NVE’s claims of breach of fiduciary duty against its former employee Palmeroni. At least on the specific Complaint allegations, NVE’s case against Palmeroni seems formidable -- while working as a NVE salesman, the defendant allegedly entered into secret kickback arrangements with product purchasers, and formed a dummy entity with another NVE employee to divert sales of NVE’s products for their own benefit. Palmeroni was terminated in 2006 and later sued by NVE. Seems like a pretty good case, if the court and a jury could get to it.

But the defendant, not unexpectedly, had other ideas. After initial discovery and communications between counsel raised concerns, Palmeroni moved for spoliation sanctions claiming the NVE has discarded relevant documents and destroyed key sources of relevant information before the litigation commenced but after it was on notice of the potential for litigation. District Judge Esther Salas granted the motion, directing an adverse inference instruction and monetary sanctions in the form of attorneys fees incurred to pursue the missing evidence and costs of the motion. The Court specifically found that NVE:

1. failed to institute and document a litigation hold as of the date of the defendants termination -- years before the complaint was filed;
2. permitted the retirement and effective destruction of an invoicing and sales data system at or around the time of the defendant's termination;
3. disposed of relevant stored documents -- purportedly in the ordinary course of business -- several years after the litigation hold was triggered, without knowledge of or input from counsel; and
4. delayed in notifying the defendant of the destruction of the evidence until well into the discovery process.

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Even after a particular case has concluded, the risk of sanctions arising from e-discovery violations persists. Green v. Blitz U.S.A. was one of many products liability suits alleging injuries resulting from the defendant’s failure to equip its gas can with a “flame arrester.”

Over a year after the conclusion of the trial and entry of final judgment in Green, the court entered monetary and non-monetary sanctions against the defendant for its failure to adequately preserve and identify potentially relevant documents. Because the matter had closed, many of the non-monetary sanctions under Rule 37(b)(2) were not available. Accordingly, the court fashioned a creative non-monetary sanction requiring the defendant (1) to provide the sanctions opinion to all plaintiffs in any litigation against the defendant for the prior 2 years; and (2) to file the opinion with any court in any new lawsuit in which the defendant is a party for 5 years following entry of the opinion.

Like many opinions issuing sanctions for e-discovery violations, at first glance, Green appears to present somewhat extreme facts reflecting the defendant’s electronic discovery failures:

• The defendant’s employee charged with the collection of relevant information testified that he was computer illiterate;
• That employee did not perform any electronic search for emails or talk to the IT department in connection with his search;
• No litigation hold directive was given to employees; and
• Over the course of the relevant period, numerous emails were sent by the IT department instructing employees to delete old emails.

The result: numerous relevant and inculpatory documents were never produced (and others, likely, were not preserved).

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In 2008, Congress adopted Federal Rule of Evidence 502. FRE 502 was designed to promote discovery by providing litigants with a tool to control review costs in large-scale document or electronic evidence productions while avoiding the risk of wholesale subject matter waiver in cases of inadvertent production of privileged materials. Under Rule 502, where privileged material (or other information protected from disclosure) is inadvertently revealed, the disclosing party retains the privilege so long as it took reasonable steps both to prevent the disclosure and to rectify its mistake. Although it is still in its infancy, Rule 502 nonetheless appears to be living up to expectations. Indeed, as two recent federal decisions demonstrate, FRE 502 is not simply a tool available to litigants but rather, it is yet another weapon in a judge’s arsenal, permitting the court to manage discovery and protect privilege, through sua sponte entry of clawback orders.

In Radian Asset Assurance, Inc. v. College of Christian Brothers of New Mexico, District Judge James O. Browning resolved a dispute concerning Christian Brothers College’s production of approximately fifty back up tapes. Confronted with the absence of an agreement by the parties, as well as Radian Asset’s concession that the back up tapes it sought likely contained data that was largely non-responsive, Judge Browning imposed a clawback order pursuant to Rule 502. Judge Browning’s imposition of the Rule 502 order was both an acknowledgement of the Court’s power to manage discovery as well as a consideration of the relative value of requiring Christian Brothers College to engage in an expensive review of voluminous data that, by Radian Asset’s own admission, was likely to be of little value. Recognizing that the costs of an extensive pre-production review were outweighed by the small likelihood of discovering relevant information, Judge Browning used Rule 502 to allow liberal access to discovery while reducing costs to the producing party.

In Rajala v. McGuire Woods, Magistrate Judge David J. Waxse of the District of Kansas reached the same conclusion. Articulating the procedural basis for his sua sponte imposition of a clawback order, Magistrate Judge Waxse reasoned that, while Rule 502 does not expressly authorize a court to enter a clawback order on its own initiative, Federal Rule of Civil Procedure 26 provides a court with broad power to manage discovery, including the entry of an appropriate protective order. Essentially, Judge Waxse reasoned that Rule 26 provides the Court with the power to manage discovery and enter appropriate relief and that a clawback provision under Rule 502 is one of the tools at the court’s disposal to exercise its Rule 26 authority.

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Two recent decisions in the same case illustrate that, when it comes to imposing sanctions for spoliation of evidence, what matters is not simply whether you’ve intentionally deleted relevant evidence, but how you go about deleting it, and what the record reflects about your intentions. Although both the plaintiff and the defendant in E.I. du Pont De Nemours and Co. v. Kolon Industries, Inc., Civil Action No. 3:09cv58, demonstrated that the other intentionally destroyed relevant evidence, as is detailed below, the Court sanctioned only defendant Kolon Industries, Inc. (“Kolon”) based on its manifest bad faith (read the decision here). As is discussed in an earlier post on Gibbons’ E-Discovery Law Alert (which you can read here), plaintiff E.I. du Pont de Nemours and Company (“DuPont”) escaped a similar fate based on its demonstrable good faith. In short, this case teaches that the intentional deletion of relevant evidence does not per se lead to sanctions. Rather, the parties’ conduct — or misconduct, as the case may be — must be judged contextually.

Dupont filed a Complaint against Kolon on February 3, 2009, alleging trade secret misappropriation, theft of confidential business information, and conspiracy based on Kolon’s efforts to recruit former DuPont employees and otherwise unlawfully obtain DuPont’s proprietary information. When Kolon produced in discovery screenshots of key employees’ computers taken after they had notice of the Complaint that appeared to show that they marked emails with instructions such as “Delete,” “Need to Delete,” “Remove All” and “Get Rid Of,” DuPont moved for sanctions for spoliation of evidence.

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Parties in all types of cases often post pictures and messages on Facebook that might be detrimental to their cases. After his wife died tragically in an automobile accident, and he brought a wrongful death case, Isaiah Lester did just that when he posted a photo of himself wearing an “I [love] hot moms” t-shirt and garter belt on his head while he had a beer in hand. That was his first bad choice.

The defense attorneys, who represented the driver of the vehicle and his employer, saw the picture and requested similar pictures and screen shots from Lester’s Facebook account. The next day, Lester’s attorney, Matthew B. Murray (who is the Virginia Trial Lawyers Association’s immediate past-president), allegedly instructed his paralegal to advise Lester to delete some Facebook pictures. Lester, however, purportedly informed Murray that he had deleted his Facebook account. Clearly, these actions reflect additional unwise decisions. Defense attorneys are now challenging the $10.6 million verdict, which may be the state’s largest wrongful death case.

What was even more egregious according to defense counsel, however, was that Murray denied that Lester had a Facebook account on two specific dates on which he in fact did. They further contend that to add insult to injury, Murray denied up until the time of trial that he dictated any alteration of the Facebook account. Defense attorneys also contend that if the misrepresentations made to the court and opposing counsel were not sufficiently disconcerting, that Murray then deliberately withheld evidence, namely, a “stink bomb” e-mail reflecting that indeed, Murray had essentially directed his client to delete pictures from his Facebook page. Lester and Murray were also accused of other improprieties.

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Magistrate Judge Paul W. Grimm, a renowned authority on e-discovery, recently published an article in the Richmond Journal of Law and Technology discussing Federal Rule of Evidence 502. Judge Grimm’s article, “Federal Rule of Evidence 502: Has It Lived Up To Its Potential?,” provides a comprehensive analysis of Rule 502, offers frank criticism of court decisions interpreting the rule and outlines do’s and don’ts for practitioners.

Judge Grimm lauds the goals of Rule 502 but laments that “to date it has not lived up to its promise.” As explained in the Advisory Committee notes, Rule 502 has two main purposes: (1) to resolve disputes regarding inadvertent disclosures and subject matter waiver of privileged information and (2) to address complaints that litigation costs to protect against subject matter waiver have become prohibitive. While the goals of the rule are clear, Judge Grimm notes that they cannot be achieved if the courts do not interpret the rule correctly:

It cannot function as intended if some courts interpret it in a manner that is not in concert with its purposes, because without uniform application, there can be no predictability. Absent this predictability, the rule is robbed of its primary justification.

The article examines each section of Rule 502. Rule 502(a) limits the circumstances under which a subject matter waiver will be found. Subject matter waiver occurs only when: (1) the waiver is intentional; (2) the disclosed and undisclosed communications concern the same subject matter; and (3) the communications ought in fairness be considered together. Judge Grimm first explains that “intentional” means that while no showing of intent to waive the privilege is required, the disclosure must be voluntary (i.e., not inadvertent). Second, he notes that neither Rule 502(a) nor the accompanying Advisory Committee notes make a distinction between fact work product and opinion work product for purposes of subject matter waiver. He explains, however, that courts have declined on fairness grounds to require production of opinion work product under Rule 502(a) and, indeed, emphasizes that fairness is the touchstone of Rule 502(a). Noting “a party cannot have its cake and eat it too,” Judge Grimm explains that the rule was principally designed to prevent a party from producing protected information in a selective manner.

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On June 17, 2011, United States District Court Judge Scheindlin issued a brief opinion and order withdrawing her February 7, 2011 opinion, which had held that certain metadata should be considered an “integral part” of an electronic record and must be produced by the government in responding to a Freedom of Information Act (“FOIA”) request. Our prior posting on this opinion can be found here. The Court withdrew its June 2011 opinion because “subsequent admissions” have revealed that the Court’s decision “was not based on a full and developed record.”

While Judge Scheindlin’s order makes clear that her February 2011 opinion will have no precedential value, it is not likely the end of this story. This influential jurist’s strongly worded views on the importance of metadata namely, that it is “well accepted, if not indisputable, that metadata is generally considered to be an integral part of an electronic record,” National Day Laborer Org. Network v. United States Immigration and Customs Enforcement Agency, 2011 U.S. Dist. LEXIS 11655, at *11 (S.D.N.Y. Feb. 7, 2011), are likely to resurface in her future opinions and those of other courts when the right facts present. Likewise, given the considerable attention afforded to this and other e-discovery rulings by Judge Scheindlin, we would also anticipate that the withdrawn opinion’s list of metadata that “should accompany any production of a significant collection of ESI,” id. at *27 n.41, will likely be viewed by other courts as guidance on this issue.

Accordingly, counsel should continue to be mindful of the guidelines set forth in the February 2011 opinion, both with respect to their meet and confer obligations and to assuring that their preservation and collection efforts are sufficient to, among other things, permit the production of metadata.

Jennifer A. Hradil is a Director on the Gibbons E-Discovery Task Force.

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A Pennsylvania trial court recently became one of a growing number of courts to rule that a plaintiff’s non-public Facebook and MySpace postings are discoverable. On May 19, 2011, in Zimmerman v. Weis Markets, Inc., No. CV-09-1535, 2011 WL 2065410 (Pa. Comm. Pl. May 19, 2011) the Court of Common Pleas of Pennsylvania granted the defendant’s motion to compel the plaintiff, a former employee of the defendant, to disclose his Facebook and MySpace passwords, user names and log in names. Notably, the Court reasoned that because the plaintiff voluntarily posted all of the pictures and information on his Facebook and MySpace sites, he had no reasonable expectation of privacy to the postings although the posts were on non-public pages.

Key to the Zimmerman Court’s decision was the fact that the defendant demonstrated that the public portions of the plaintiff’s Facebook and MySpace pages contained postings and pictures directly contrary to the plaintiff’s claim that a work related accident had caused his health to be seriously and permanently impaired. The Court held that: (1) because the plaintiff had put his physical condition at issue, the defendant was entitled to “discovery thereon” and (2) based on a review of the publicly accessible portions of the plaintiff’s Facebook and MySpace pages, there was a reasonable likelihood of additionally relevant information on the non-public portions of the social media sites. Specifically, despite the plaintiff’s deposition testimony that he never wore shorts due to his embarrassment of a scar on his leg from the accident, the public portions of his MySpace page contained pictures of the plaintiff in shorts with his scar visible, as well as recent pictures of the plaintiff with his motorcycle. In addition, the public portions of the plaintiff’s Facebook page stated his interests included “ridin” and “bike stunts.”

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Courts frequently grapple with questions raised by the use of social media in the legal process. From the admissibility of social media to limitations on its use by jurors, courts are continuing to develop new tools and best practices to ensure the outcome of a case is not impacted by social media sites.

While the issues raised by new social media technologies have primarily concerned those actually involved in a trial (i.e., the parties, their counsel, and members of the jury), that is beginning to change. Outside observers and news reporters are utilizing social media to report on trial happenings, sometimes in real-time. During a recent murder trial, a reporter for the London (Ontario, Canada) Free Press used Twitter to provide hundreds of updates as events unfolded. Similarly, in the media firestorm surrounding the Casey Anthony murder trial in Florida, at least one news outlet has assigned a reporter whose sole job is to blog from the gallery throughout the trial. This sort of real-time, play by play coverage of high profile legal proceedings poses new issues for courts, and may pose particular concerns in those jurisdictions where cameras are not permitted in the courtroom.

Policing the tweets, texts and blog posts of courtroom observers may test the limits of judicial power. By way of example, a courtroom observer is not subject to lengthy pre-trial screening and instruction like jurors, does not fall within ethics rules like attorneys, and is not subject to sanctions like a party to a lawsuit. Assuming that tweeting and texting from a courtroom is prohibited (it is not clear that even well written courtroom rules would preclude the occasional tweet, and, as noted, at least some courts are readily allowing members of the media to openly tweet and blog), a judge has limited powers to deal with the misbehaving courtroom observer. In all likelihood, the tweeting observer would be removed from the courtroom, but little else would be done. It is especially unlikely that any sort of contempt proceeding would be initiated. Perhaps most importantly, courts can do nothing to scrub Twitter, Facebook or other social media site of the content posted from the back of the courtroom. Courts would have to rely upon its instructions to the jury and trust that the jurors are not viewing media coverage or social media sites discussing their case.

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Please join the Gibbons E-Discovery Task Force and the NJ Chapter of Women in E-Discovery in its presentation of "The Internet and Social Media in the Courtroom," hosted at Gibbons on Tuesday, June 21, 2011, from 6:30 to 7:30 pm. CLE credit is available for NJ and NY, and pending for PA. Jennifer A. Hradil will moderate a panel featuring Mara E. Zazzali-Hogan, Jennifer Marino Thibodaux, and Suzanne Herrmann Brock, regarding the use of social media in litigation and the courtroom.

We will discuss how attorneys can use social media and the internet as a resource to research potential jurors and as a discovery tool to obtain potential evidence.

For additional information or to register, contact Andrea Smith at (973) 596-4451 or rsvp@gibbonslaw.com.

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Sports. Steroids. E-Discovery? Former middleweight champion Shane Mosley asserted claims of defamation against defendant Victor Conte, owner of Bay Area Laboratory Cooperative (BALCO), regarding Conte’s statements that Mosely allegedly used illegal steroids in his championship bout with Oscar De La Hoya. Mosely requested that a computer forensics expert be permitted to conduct key word searches on defendant’s computer hard drives and equipment. Defendant objected, claiming that all relevant documents had been disclosed and that a computer search would be futile. The New York Supreme Court disagreed. Mosley v. Conte, No. 110623/2008, 2010 N.Y. Misc. (Sup. Ct. New York Co. Aug. 17, 2010).

Specifically, Mosley requested that defendant’s computers be searched using search terms based off of the names and email addresses of Mosley, other relevant meeting participants, news reporters, and persons in the publishing industry. Id. at *9-10. Defendant argued that the searches would be futile for several reasons, including: (1) he did not communicate with several persons via email and (2) he had lost substantial data through computer crashes over time. Id. at *12-13. The Court held that defendant’s representations as to the lack of ESI were “insufficient to constitute a satisfactory response to any legitimate requests for ESI.” Id. at *17. Defendant’s affidavit was also insufficient to oppose the searches because it failed to “substantiate” his claims that no relevant ESI would be yielded by running the proposed searches and was equivocal in merely stating that “most” documents were discarded or that he did not “generally” save emails. Id. at *17-19. The Court further held that defendant’s claim that the search would be futile because he did not email with Mosley was “not persuasive” because the search terms were designed to yield communications about Mosley and not just with him. Id. at *21. Finally, defendant’s claims of computer crashes were insufficient because he failed to “indicate whether he saved the computers that crashed or attempted to retrieve or transfer any materials from the old computers onto their replacements.” Id. at *18. The Court did, however, limit Mosley’s proposed search terms due to overbreadth by eliminating terms that consisted of last names only, the name of one of defendant’s former employees, and email domain names that would have yielded all communications with each news organization, whether they pertained to Mosley or not. Id. at *25, 27 and 30.

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Acknowledging the widespread use of electronic communications in commercial transactions, courts and legislatures have recognized e-mails as binding legal documents. The Appellate Division of the Supreme Court of New York recently reinforced this trend by holding that an e-mail from a real estate broker could satisfy the writing and subscription requirements of the New York statute of frauds. In Naldi v. Grunberg, the plaintiff sued the owner of a commercial property in Manhattan claiming that the owner breached the plaintiff’s right of first refusal when the owner sold the property to another buyer. The plaintiff had offered through his broker to purchase the property for $50 million. The owner’s broker responded three days later with an e-mail that included the following statements:

Counteroffer: $52 million

DD: No due diligence period although complete unfettered access and first right of refusal on any legitimate, better offer during a 30 day period

Notwithstanding the $52 million counteroffer, the owner’s attorney sent the plaintiff’s attorney a draft contract for sale of the property at $50 million. The draft contract did not reference any right of first refusal. The plaintiff later learned that the owner was negotiating a sale of the property to another buyer for $52 million. The plaintiff sought to exercise a right of first refusal, but the owner rejected his efforts and completed the sale to the other buyer.

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In September 2010, the Third Circuit Court of Appeals became the first federal appeals court to rule on the question of whether the government is required to establish probable cause to obtain cell site location information (“CSLI”) from a cell phone provider. See In the Matter of the Application of the U.S. for an Order Directing a Provider of Electronic Communication Service to Disclose Records to the Government, 620 F.3d 304 (3d Cir. 2010). CSLI includes historical information that is collected by cell towers during cell phone calls, which can later be used to render some opinions as to the location of the cell phone during those calls.

The court held that the Stored Communications Act, 18 U.S.C. § 2703(d), permits a court to require the production of CSLI to the government upon “a showing of ‘specific and articulable facts establishing reasonable grounds’ that the information sought is ‘relevant and material to an ongoing criminal investigation.’” Id. at 313. However, the court also held that a court may, in its discretion, require a showing of probable cause that would support the issuance of a warrant. Id. at 320. There is little, if any, guidance in the court’s opinion as to when such a showing should be required.

The opinion, either directly or by implication, expresses some judicial views as to privacy interests raised by CSLI. For example, by virtue of this holding, the court rejected the view that CSLI is tantamount to information from a “tracking device,” i.e., one that “permits tracking of the movement of a person or object,” for which a warrant is required pursuant to Fed. R. Crim. P. 41(d). However, given the speed with which technology changes, future technology may easily alter this result. The court also did not comment on whether a request for information from cell phones or cars equipped with GPS technology would yield the same result. The court likewise rejected the view that cell phone users do not have an interest in protecting CSLI because users “voluntarily share” this information when they make a cell phone call. This conclusion was based, at least in part, upon the view that cell phone users are not generally aware that this information is collected and stored by their service provider.

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When a party voluntarily dumps data on its adversary without first conducting a meaningful privilege review, that party may be deemed to have waived any applicable privileges, particularly where it fails to timely argue that a privilege review would be too costly. That is the lesson of In re Fontainebleau Las Vegas Contract Litig., 2011 U.S. Dist. LEXIS 4105 (S.D. Fla. Jan. 7, 2011), a cautionary tale of the dangers of data dumping. After repeatedly failing to meet court-ordered production deadlines, in response to a subpoena, Fontainebleau Resorts, LLC (“FBR”) essentially dumped on the requesting parties (the “Term Lenders”) three servers containing approximately 800 GB of data—without first conducting any meaningful privilege review. Consequently, in its January 7th decision, the court granted the Term Lenders’ motion seeking a declaration that FBR waived its privilege claims. Had FBR litigated this matter differently, it might have protected its privileged information.

Poorly positioning itself from the outset, FBR did not seek any relief in connection with the underlying subpoena until approximately six months after it was served. During this interim, FBR did not argue, other than in a “conclusory and boilerplate objection,” that conducting a privilege and responsiveness review would be unduly burdensome or expensive. Indeed, in opposing the Term Lenders’ motion to compel, rather than attacking the scope of the subpoena or seeking to shift costs, FBR attributed its production delay to “logistical and coordination difficulties” and requested additional time to review the servers. After failing to comply with the court-ordered, extended deadline to produce following the Term Lenders’ motion to compel, on the Term Lenders’ motion for sanctions, the court again afforded FBR additional time to produce responsive documents. At the hearing on the Term Lenders’ motion for sanctions, FBR for the first time made an oral request to shift the costs of the privilege review, but the court denied this informal application.

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The explosion of social media and the universal availability of electronic devices have presented a host of courtroom issues the judicial system must address, ranging from substantive legal questions like the admissibility of Facebook accounts and Twitter postings, to more ministerial issues such as the extent to which electronic devices may be utilized by counsel in the courtroom. While different courts have reached varied conclusions on these questions, courts have uniformly rejected any attempt by jurors to use technology to research a case or to post information about a case to social media sites, and increasingly use pre-trial and post-closing jury instructions.

The Judicial Conference of the United States has endorsed proposed model jury instructions aimed at advancing two goals:

1. Preventing jurors from independently researching a case, including through the internet or other electronic means; and
2. Preventing jurors from communicating about the case, including by electronic means such as e-mail or Facebook.

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In her most recent e-discovery opinion, United States District Court Judge Scheindlin held that certain metadata should be considered an “integral part” of an electronic record and must be produced by the government in responding to a Freedom of Information Act (“FOIA”) request. National Day Laborer Org. Network v. United States Immigration and Customs Enforcement Agency, 2011 U.S. Dist. (S.D.N.Y. Feb. 7, 2011). Judge Scheindlin also expressly admonished practitioners for failing to meet and confer concerning the form of ESI productions and reminded counsel that such cooperation and communication is required “to comply with the expectations that courts now demand of counsel with respect to expensive and time-consuming document production.” Had counsel in the case before her done so, the costly motion practice attendant to this FOIA production could have been avoided.

Under FOIA, the government is required to produce information in any form requested, provided that “the record is readily reproducible by the agency in that form or format.” 5 U.S.C. § 552(a)(3)(B). Given the dearth of case law interpreting this provision, the court looked to Rule 34 for guidance, noting that, in the context of civil litigation, “[b]y now, it is well accepted, if not indisputable, that metadata is generally considered to be an integral part of an electronic record.” 2011 U.S. Dist. LEXIS 11655, at *11. In the court’s view, producing a significant volume of images without accompanying load files, in effect, inappropriately downgrades the ESI. Id. at *30.

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As discussed in a recent post, there exists a dichotomy between the New York state and federal courts with respect to which party should bear the cost of producing inaccessible data.

A recent New York Supreme (Trial) Court decision held that New York’s standard “requester pays” rule only applies to data that is not “readily available.” Silverman v. Shaoul, 2010 N.Y. Slip Op. 20507, 2010 N.Y. Misc. (Sup. Ct. New York Cty. Nov. 3, 2010). Defendants there relied on T.A. Ahern Contractors Corp. v. Dormitory Auth. “for the proposition that New York law is well-settled in that the ‘party seeking discovery bears the cost incurred in its production.’” The Silverman court analyzed each of several cases often cited to support the “requester pays” rule in New York. Id. (citing, e.g., Lipco Elec. Corp. v. ASG Consulting Corp., 2004 N.Y. Slip Op 50967[U] (Sup. Ct. Nassau Co. 2004); and Delta Fin. Corp. v. Morrison, 13 Misc. 3d 604, 891 N.Y.S.2d 908) (Sup. Ct. Nassau Co. 2006). The court explained that the “requester pays” rule was developed and applied in cases that, for example, involved “the retrieval of deleted, electronically stored information.” Id. at *3 (quoting Waltzer v. Tradescape & Co., 31 A.D.3d 302, 304, 819 N.Y.S.2d 38 (1st Dept. 2006) ). Other cases shifted the cost of discovery to the requesting party because “separate program[s]” had to be devised and new databases created in order to acquire, read and collate the data. Id. (citing Lipco, 2004 N.Y. Slip Op 50967, at 6-7).

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Despite recent decisions from courts of last resort on State and federal levels, some jurisdictions are not extending full protection to otherwise privileged communications made through work-issued computers and PDAs. We last wrote on this issue after the New Jersey Supreme Court held that an employee did not waive the attorney-client privilege when using a company computer to communicate with her attorney via a personal password-protected e-mail account. Stengart v. Loving Care Agency. A short time later, in Quon v. Arch Wireless, the United States Supreme Court determined that the search of an employee’s text messages on a work-issued pager was reasonable and did not violate the employee’s Fourth Amendment rights. In the wake of these holdings, courts in other jurisdictions continue to make their own path through this new area of law. In Holmes v. Petrovich Development Company, LLC, the latest in the line of cases, the California Court of Appeals held that an employee’s e-mail communications with her attorney from her work computer did not constitute “‘a confidential communication between client and lawyer’” under Section 954 of the California Evidence Code.

In Holmes, the plaintiff sued her former employer for discrimination, retaliation, wrongful termination, invasion of privacy and intentional infliction of emotional distress. The plaintiff claimed that she was humiliated and had no choice but to resign from her job as an executive assistant after her boss asked questions about her plans for maternity leave, suggested that she had been less than candid in disclosing her pregnancy and forwarded e-mails regarding her circumstances to other officials at the company. The day before she resigned, the plaintiff consulted an attorney using her work e-mail account on a company computer, even though she (1) had been told of the company’s policy that company computers were to be used only for work and that personal e-mails were prohibited; (2) had been warned that the company would monitor the use of the computers and might inspect files and messages at any time; and (3) had been advised that employees using company computers to create or maintain personal information or messages have no right of privacy with respect to such information or messages. The employer accessed plaintiff’s e-mails with counsel from the company computer system and used the e-mails in depositions and to support their motion for summary judgment. The plaintiff objected to the use of the communications in connection with the motions for summary judgment and again at trial on grounds that the communications were protected by the attorney-client privilege. The trial court ruled that plaintiff’s e-mails were not privileged because they did not meet the definitional requirements of Section 954.

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Confidentiality agreements and protective orders are a commonplace, yet indispensable, feature of modern commercial litigation. These agreements are typically the end result of a series of negotiations between counsel specifically designed to balance the seemingly incompatible objectives of ensuring ready access to vital evidence and ensuring that sensitive information, such as trade secrets, remains carefully shrouded from the public eye and industry competitors. The importance of ensuring that sensitive information remains confidential vis-à-vis the world at large during a lawsuit cannot be overstated. Confidentiality agreements often provide detailed provisions addressing who may access information and how information may be used. Once the litigation has concluded, parties are often faced with the sometimes challenging task of ensuring that all confidential information is either returned to the producing party or destroyed. Without proper planning, it may be difficult to put the proverbial genie back into the bottle.

It is this final step that became the subject of a recent case decided by the Appellate Division of the Supreme Court of New York, Oxxford Info. Tech., Ltd. v Novantas LLC. Upon settlement of the underlying litigation, plaintiff’s counsel learned that large volumes of defendants’ confidential business data had inadvertently been backed up onto the plaintiff’s law firm’s disaster recovery back-up tapes. After analyzing the situation, plaintiff’s counsel determined that the identification and complete removal of all of the defendants’ confidential information from its back-up systems would be extremely costly. Thus, plaintiff moved to modify the confidentiality order to permit its counsel to retain the information on the tapes subject to certain proposed safeguards. The motion was denied, and plaintiff appealed.

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Magistrate Judge John M. Facciola recently struck down, without prejudice, a motion for sanctions for the alleged destruction of electronic communications, finding it “premature to consider the question of sanctions until discovery ends and the Court can assess accurately what prejudice, if any, the loss of the electronically stored information has caused.” Davis v. Grant Park, No. 08-cv-1764 (PLF/JMF), 2010 U.S. Dist. LEXIS 118853, at *3-*4 (D.D.C. Nov. 9, 2010). Deeming the assessment of prejudice the critical issue, and citing D’Onofrio v. SFX Sports Group, Inc., No. 06-cv-687 (JDB/JMF), 2010 U.S. Dist. (D.D.C. Aug. 24, 2010) (Facciola, J.), Judge Facciola determined that “the nature and extent of the loss suffered” could not be “accurately gauged” until “all the information that is available” is gathered, which occurs at the close of discovery. Id. at *3. As such, the court directed plaintiff to decide whether to renew the motion after discovery ended, noting further that a renewed motion should “show as clearly as possible the nature of the prejudice,” and that defendant’s submission should “make a similarly precise showing in opposition.” Id. at *4. The decision is consistent with D’Onofrio, wherein Judge Facciola instructed, “[i]t is only after establishing the prejudice the plaintiff suffered that any resulting sanction will fairly address that prejudice, consistent with this Circuit’s insistence that any sanctions imposed be a function of the prejudice done to a party by its offending opponent.” 2010 U.S. Dist. LEXIS 86711, at *11 (citing Bonds v. District of Columbia, 93 F.3d 801, 808 (D.C. Cir. 1996)). Judge Facciola’s directive serves as an important reminder to litigants that any sanctions imposed should ultimately bear a relationship to the prejudice suffered by the other party, and that such prejudice may not be discernable until the close of discovery in a contested matter.

Jennifer Marino Thibodaux is an Associate in the Gibbons Business & Commercial Litigation Department.

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Some traditional practices from the paper era don’t translate well to the world of e-communication. And some are downright dangerous. Back in the day, attorneys would often “bcc” their clients on correspondence to adversaries, an efficient and relatively safe means of keeping the client apprised. No longer in the age of email, where the ability to instantly respond invites quick, at times reactionary, replies that can easily fall into the wrong hands, with potentially devastating consequences.

Such was the case in Charm v. Kohn, 27 Mass. L. Rep. 421, 2010 Mass. (Mass. Super. Sept. 30, 2010). In Charm, defendant Kohn’s counsel sent an email to plaintiff’s counsel, with a copy to co-defense counsel, and a blind copy to Kohn. With the intention of communicating with his counsel only, Kohn inadvertently responded to the email using the “reply to all” function. This circulated his otherwise privileged communication to all recipients of the original email -- including opposing counsel. Minutes later, Kohn’s counsel realized what happened and emailed opposing counsel demanding that Kohn’s email be deleted. Opposing counsel declined, and defense counsel did not raise the issue again until the summary judgment stage (at which time plaintiff advised the court that this type of careless transmission had happened another time, even earlier in the case).

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Obtaining data and images from social networking sites (“SNS”) such as Facebook, LinkedIn and MySpace has become commonplace in civil and criminal litigation. However, issues surrounding proper authentication of this information at trial remain unresolved. The New York Supreme Court’s recent opinion in People v. Karon Lenihan, 1714/2008 (Sup. Ct., Queens Cty. Nov. 12, 2010)highlights judicial skepticism surrounding the use of SNS evidence.

Karon Lenihan was convicted of second degree murder for shooting Patrick Hernandez. Before trial, Lenihan’s attorney requested, in limine, a ruling as to whether he could cross-examine two of the People’s witnesses about their alleged gang membership by using pictures Lenihan’s mother downloaded from MySpace four days after the shooting. Lenihan alleged the photographs showed the witnesses making hand signs and wearing clothing that signified an affiliation with the Crips gang, and that the witnesses’ gang affiliation was a possible motive for them to fabricate their story and frame Lenihan. The court denied Lenihan’s motion and affirmed its decision in a written opinion on Lenihan’s post trial motion to set aside the verdict. The judge set forth several grounds for barring the pictures downloaded from MySpace, including questions regarding authenticity. Specifically, the Court held as follows:

In light of the ability to ‘photo shop,’ edit photographs on the computer, defendant could not authenticate the photographs.

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Orbit One Communications, Inc. v. Numerex Corp., 2010 WL 4615547 (S.D.N.Y. Oct. 26, 2010) represents a dichotomy in jurisprudence on ESI preservation efforts and the imposition of automatic sanctions. In Orbit One, Magistrate Judge James C. Francis, IV found that regardless of how inadequate a litigant’s preservation efforts may be, sanctions are not appropriate without proof that “information of significance” has been lost. The court determined that the threshold determination must be “whether any material that has been destroyed was likely relevant even for purposes of discovery.” In so holding, the court discussed and diverged from Judge Shira A. Scheindlin’s decision in Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC, which earlier held that sanctions may be warranted for inadequate preservation efforts even if no relevant evidence is lost. 685 F. Supp.2d 456, 465 (S.D.N.Y. 2010).

In Orbit One, defendant Numerex acquired substantially all of Orbit One’s assets through an asset purchase agreement. Numerex also entered into employment agreements with Orbit One principals and David Ronsen, the founder of Orbit One. Shortly thereafter, Orbit One’s sales became poor and revenues were not meeting projections. On January 7, 2008, Ronsen commenced litigation against Numerex. During discovery, Orbit One’s information technology (“IT”) administrator Christopher Dingman disclosed that he was not informed of the litigation hold regarding the Numerex litigation (or of a litigation hold regarding an earlier instituted matter) and that certain actions taken by him and at Ronsen’s direction resulted in the loss of ESI data from Ronsen’s desktop computer, laptop and email account. Upon discovery that information had been deleted and removed, Numerex sought an adverse jury instruction against Orbit One and Ronsen on the ground that these parties are responsible for the spoliation of electronically stored information.

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A recent article in the New York Law Journal by the secretary of the e-discovery committee of the Commercial and Federal Litigation Section of the New York State Bar Association underscored the confusion that remains in New York courts with respect to which party is responsible for bearing the cost of electronic document production. The article discusses cases that, on the one hand, state “what many have long believed was the rule in New York,” that “generally, the cost of [electronic] document production is borne by the party requesting the production.” Response Personnel, Inc. v. Aschenbrenner, 77 A.D.3d 518, 519, 909 N.Y.S.2d 433, 434 (1st Dept. 2010) (emphasis added). On the other hand, the First Department has also held that they “see no reason to deviate from the general rule that, during the course of the action, each party should bear the expenses it incurs in responding to discovery requests.” Clarendon Nat. Ins. Co. v. Atl. Risk Mgmt., Inc., 59 A.D.3d 284, 286, 73 N.Y.S.2d 69, 70 (1st Dept. 2009) (citing Waltzer v. Tradescape & Co., L.L.C., 31 A.D.3d 302, 819 N.Y.S.2d 38 (1st Dept. 2006)).

Some New York state trial courts have recently interpreted this conflicting guidance from the First Appellate Department to require each party to bear its own expense in responding to discovery, but that “an exception to the general rule allows discovery cost allocation determinations when the discovery costs at issue concern electronically stored information that is not readily available.” T.D. Bank, N.A. v. J&T Hobby, LLC, Index No. 021293/09, 2010 N.Y.  (Sup. Ct. Nassau Co. Sept. 1, 2010); see also Silverman v. Shaoul, Index No. 603231/08, 2010 N.Y.  (Sup. Ct. New York Co. Nov. 3, 2010).

The article notes that the meaning of what electronic documents are “not readily available” will need to be determined with more clarity by future cases and questions whether the First Department has suggested that courts take into consideration a party’s ability to bear the expense of producing electronic documents in allocating the cost of electronic discovery.

Paul A. Saso is an Associate on the Gibbons E-Discovery Task Force.

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As was recently reported in the New York Law Journal, one of the issues for discussion at the recent annual meeting of the New York State Bar Association this January was the need for more uniformity, and possibly even a bright-line rule, to govern issues of document preservation. This was the focus of a panel including two New York State Supreme Court justices and three federal judges from the Southern District of New York - District Judge Shira Scheindlin and Magistrate Judges Andrew Peck and James Francis.

The panel noted that, while there has been much guidance on the topic of litigation holds in the context of ongoing lawsuits, the waters surrounding the scope of a party or prospective party’s duty to preserve relevant evidence are far murkier. Judge Scheindlin, author of the seminal Zubulake and Pension Committee e-discovery opinions, commented that a rule governing document preservation should ideally address several issues, including when the preservation obligation is triggered, the scope and duration of the preservation obligation, the form of litigation holds and potential protection of same as work product, available sanctions and the burden of proof with respect to spoliation. Much of the discussion focused on a rule proposed by professor A. Benjamin Spencer of Washington & Lee University Law School, which would address some of the above topics. Professor Spencer’s proposed rule would:

• allow a prospective litigant to petition the court for a preservation order before commencing a formal lawsuit assuming the petitioner could satisfy the court regarding the subject matter of the potential action, its interest in the action, facts which the petitioner would seek to establish and identification of expected adverse parties. The court could then issue an order which would bind potential adverse parties as long as suit was filed within 60 days of the order.
• identify four exclusive circumstances that would constitute “reasonable anticipation of litigation” and trigger the preservation obligation: (1) receipt of a preservation order; (2) receipt of written notice raising the prospect of litigation or requesting preservation; (3) notice of an act or occurrence of “sufficient magnitude to make related litigation probable”; or (4) steps in anticipation of asserting or defending against a claim.
• create a rebuttable presumption of culpability in the event of spoliation, but excuse even intentional spoliation where substantially justified, such as where a party can show that the costs of preservation are not proportional to the stakes in the dispute.

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In McCann v. Harleysville Insurance Co. of New York, 910 N.Y.S.2d 614, 2010 N.Y. App. Div. LEXIS 8396 (N.Y. App. Div. Nov. 12, 2010), New York’s Appellate Division, Fourth Department affirmed the trial court’s refusal to compel Plaintiff to produce information regarding or provide access to her Facebook account. Plaintiff was injured in an auto accident with one of Harleysville’s insured. She filed a personal injury suit against the insured, which resulted in a settlement. Plaintiff thereafter commenced a new action directly against Harleysville for certain uninsured/underinsured auto insurance benefits.

During discovery, Harleysville sought disclosure of photographs from Plaintiff and an authorization for access to her Facebook account. Upon Plaintiff’s refusal, Harleysville moved to compel disclosure of Plaintiff’s Facebook account information. Harleysville argued that the information sought was relevant to whether McCann suffered a serious injury in the accident without specifying why. The trial court disagreed, finding that Harleysville’s request was “overly broad,” but noted that the denial was without prejudice “to service of new, proper discovery demands.” Harleysville then made a second request for access to Plaintiff’s Facebook account, which the Fourth Department noted specified the type of evidence Harleysville sought. Plaintiff again refused to disclose her Facebook account information and Harleysville again moved to compel. The trial court again denied the motion, finding that Harleysville failed to establish the relevancy of the evidence sought, and further granted Plaintiff’s cross-motion for a protective order.

On appeal by Harleysville, the Fourth Department, in a succinct opinion, held that the trial court properly denied Harleysville’s two motions to compel. The Court likened Harleysville’s motions to a request for permission to conduct a “fishing expedition” into Plaintiff’s Facebook account in hopes of finding relevant evidence. It disagreed, however, with the trial court’s entry of a protective order, determining that Harleysville should be allowed to seek disclosure of Plaintiff’s Facebook account in the future.

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Following the lead of other state courts, Delaware’s Court of Chancery -- known for handling of some of the nation’s most complex corporate matters -- has adopted guidelines for the preservation of electronically stored information (“ESI”).

The guidelines reference counsel’s “common law duty to their clients and the Court” to preserve ESI, noting that a “party to litigation must take reasonable steps to preserve information, including ESI, that is potentially relevant to the litigation and that is within the party's possession, custody or control.” At a minimum, this means that “parties and their counsel must develop and oversee a preservation process,” including the dissemination of a litigation hold notice. The guidelines further indicate that “counsel oversight” is “very important” and that the adequacy of such oversight is to be evaluated on a “case-by-case basis.” The guidelines reference “serious consequences,” i.e., potential sanctions, that may befall a party “or its counsel” if ESI is not adequately preserved, and note that in some cases a preservation notice must be sent prior to the commencement of litigation. The guidelines specifically state that “the Court will consider the good-faith preservation efforts of a party and its counsel” when deciding whether sanctions are warranted in a given case.

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That was the lesson of a recent case out of the New York State Supreme Court, Nassau County, where the court refused to order a forensic examination of a plaintiff's personal computer hard drive.

DeRiggi v. Krischen arose out of the death of a woman during a routine surgical procedure to treat lower back pain. Plaintiffs alleged that her death was the result of perforation of the left common iliac vein by a "Spine Jet HydroDisectomy" system utilized during the procedure. Plaintiffs further alleged, among other things, that the manufacturer of the system misrepresented the risks affiliated with its use, and one of the plaintiffs, the decedent's husband, testified at deposition that he and his wife visited the manufacturer's website prior to the surgery and read that the procedure "felt like a bee sting and nothing more."

Based on that testimony, the manufacturer defendant sought a forensic examination of the plaintiff husband's personal computer hard drive to ascertain whether he and his wife had in fact visited the manufacturer's website. The defendant was willing to stipulate that only its expert forensic analyst would view the contents of the hard drive, that the expert would sign a nondisclosure and confidentiality agreement regarding the exam, and that the only information that would be disclosed regarding the exam was a 'yes' or 'no' in response to whether the computer was used to visit the manufacturer's website prior to the July 2008 procedure.

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New Jersey’s Appellate Division recently held in State v. Lyons, __ N.J. Super. __, 2010 N.J. Super. LEXIS 227 (App. Div. Nov. 30, 2010) that Defendant Richard Lyons’ placement of child pornography in a shared online folder constituted an offer and distribution of child pornography in violation of N.J.S.A. 2C:24-4b(5)(a). Lyons’ computers contained videos of children engaged in sexual activities, including one that a detective discovered and downloaded when he accessed a shared folder on Gnutella, a peer-to-peer file sharing network, accessible via LimeWire software program. In his statement to police, Lyons admitted that he:

• was very familiar with computers and the Internet;
• understood that the file-sharing program LimeWire would result in any file he downloaded going into a shared folder for others to obtain;
• knew he could have changed LimeWire’s default setting so that sharing was not the default, but he “just forgot;” and
• knew that possessing, viewing and distributing pictures or videos of children under the age of sixteen constituted a crime.

The Appellate Division framed the question before it, which had never been addressed in a New Jersey published opinion, as follows: “[W]hether the State presented some evidence to the grand jury that defendant knowingly committed at least one of the statutorily prohibited actions with the material on his computer as charged in each count.” In analyzing this novel question, the court examined the genesis of the child pornography statute, noting that in the past fifteen years the statute has been amended to include “computer programs” and “computer files” in the list of prohibited materials and to include the “Internet” as a prohibited means of distributing such illegal materials. The court also examined the relevant portion of N.J.S.A. 2C:24-4b(5)(a), which makes it a second-degree crime to “knowingly” give, provide, publish, distribute, disseminate or offer “through any means, including the Internet” any “photograph, film, videotape, computer program or file” of a child engaged in a prohibited sexual act.

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In Spring 2009, the Joint E-Discovery Subcommittee of The Association of The Bar of the City of New York issued a Manual for State Trial Courts Regarding Electronic Discovery Cost-Allocation, highlighting the different approaches taken by state and federal courts in New York. One key difference is how they approach cost shifting when it comes to the production of inaccessible ESI.

Although the producing party in federal court often pays for the production of their material, for certain “inaccessible” ESI (such as backup tapes), New York federal courts do allow for cost-shifting. The test for allowing cost-shifting is set forth in the seminal Zubulake case and requires the courts to examine the following seven factors: (1) the “extent to which the request is specifically tailored to discover relevant information;” (2) the “availability of such information from other sources;” (3) the “total cost of production, compared to the amount in controversy;” (4) the “total cost of production, compared to the resources available to each party;” (5) the “relative ability of each party to control costs and its incentive to do so;” (6) the “importance of the issues at stake in the litigation;” and (7) the “relative benefits to the parties of obtaining the information.” See also Quinby v. WestLB AG, 245 F.R.D. 94, 101 (S.D.N.Y. 2006) (cost-shifting is appropriate “only when electronic discovery imposes an undue burden or expense on the responding party”).

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On November 16, 2010, the Appellate Division, in McGee v. Township of East Amwell, Dkt. No. A-1233-09T2, 2010 N.J. Super., held that emails among township officials and a former supervisor regarding an employee’s termination from employment are subject to the “advisory, consultative or deliberative” exemption to the New Jersey Open Public Records Act. Plaintiff Joan McGee had appealed the Government Records Council’s (GRC) final decision denying her request for reconsideration of the GRC’s decision that the emails were exempt from disclosure.

McGee was an employee of the Township of East Amwell who had filed work-related complaints with both the Equal Employment Opportunity Commission (EEOC) and the New Jersey Courts. Thereafter, various township officials, employees and appointees circulated emails regarding the filings. Those emails were the subject of McGee’s OPRA requests. In response to the OPRA requests, the Township asserted that certain of the emails were protected by the attorney-client privilege and denied access to those materials. McGee challenged the denial based on attorney-client relationship before the GRC, arguing that a third-party individual privy to the emails -- McGee’s former supervisor -- was not an employee at the time the emails were created. The Township argued that the withheld emails were protected by privilege (i.e., dual representation of Township and named officials, present and former) and further that the emails were protected from disclosure under OPRA’s “advisory, consultative and deliberative” exemption. In its decision, the GRC found several of the emails should not be produced because they were exempt from OPRA based on the “advisory, consultative or deliberative” exemption, attorney-client privilege, or consisted of protected material contained within a personnel file. The GRC denied a request for reconsideration, and McGee appealed to the Appellate Division.

McGee advanced several arguments before the Appellate Division, including that the “advisory, consultative or deliberative” exemption could not be utilized to deny her access to the remaining emails because a third-party (her former supervisor) was involved in, or privy to, the emails; that the attorney-client privilege did not apply to the emails for the same reason; and that the emails were part of her personnel file and thus the Township could not withhold them from her once she waived her right to confidentiality -- an argument that McGee raised for the first time before the Appellate Division.

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A party has an obligation under the Federal Rules of Civil Procedure to produce materials -- including electronically stored information (“ESI”) -- within their “care, custody or control.” Rule 34 of the Federal Rules construes this to mean either “the legal right” or “the actual ability” to obtain the materials; and New York courts have broadly interpreted this obligation to extend to documents and materials that a party has the “right, authority, or practical ability to obtain.” See In re NTL, Inc. Securities Litigation, 244 F.R.D. 179, 195 (S.D.N.Y. 2007).

The care, custody and control standard is particularly difficult to apply, however, when ESI is held by a non-party that may be a corporate affiliate, a subsidiary (or parent), or some other separate entity that, for whatever reason, has relevant information that may be obtainable by the party. This problem becomes even more acute if the third-party entity is located overseas. Recent cases have touched upon these problems.

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As recently reported by The Press of Atlantic City, on November 4, 2010, the Honorable Raymond Batten, J.S.C., dismissed a potential juror after defense counsel advised that the juror attempted to “friend” his client on Facebook. The potential juror was dismissed from serving in the trial of Atlantic City Councilman Marty Small, LuQuay Zahir and ten others who are accused of voter fraud during the councilman’s unsuccessful bid for mayor in 2009.

When jury selection began, Judge Batten instructed all potential jurors that they were prohibited from contacting the lawyers or defendants in the case. Notwithstanding that instruction, on November 4, 2010, Defendant Zahir advised his counsel, Michael Schreiber, that he received a “friend” request from a woman in the jury pool at the end of a break. Counsel advised Zahir not to respond and promptly brought the issue to Judge Batten’s attention. Further investigation revealed that Defendant Zahir and the potential juror had 93 friends in common on Facebook and that the site suggests that users “friend” each other when they have common “friends.” Judge Batten confronted the juror about her improper communications with Defendant Zahir and advised the juror to remain silent until she had the opportunity to consult with an attorney. To date, it is unknown whether she will face any criminal charges for the “friending” request.

Despite Judge Batten’s repeated instructions to the potential jurors regarding the prohibition on communications with defendants and counsel, the juror at issue obviously did not understand the extent of the prohibition. To avoid any ambiguity, jury instructions should specifically state that electronic communications such as e-mail, text messages and contacts through social networking sites are strictly prohibited.

Mara E. Zazzali-Hogan is a Director in the Gibbons Business & Commercial Litigation Department. Jennifer Marino Thibodaux, an Associate in the Gibbons Business & Commercial Litigation Department, co-authored this post.

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A Pennsylvania Court of Common Pleas has ordered the production of a plaintiff’s social network account passwords and usernames in the recent decision of McMillen v. Hummingbird Speedway, Inc., Case No. 113-2010 CD (Pa. Ct. of Common Pleas, Jefferson Cty. September 9, 2010) In this case, McMillen sued Hummingbird Speedway Inc. and others for injuries he allegedly suffered when he was rear-ended during a cool down lap after a stock car race in 2007 on Hummingbird’s premises. During discovery, Hummingbird requested that plaintiff disclose information regarding social network websites that plaintiff belonged to and asked that plaintiff turn over his log-in and passwords for his accounts. McMillen responded that he had accounts on Facebook and MySpace but objected to any request for his log-in and passwords on the basis that the requested information was privileged and would lead to the production of private communications. Ultimately, Hummingbird filed a motion to compel the production of the requested information as they wanted “to determine whether or not plaintiff has made any other comments which impeach and contradict his disability and damages claims.” The court found that such information is not protected by any evidentiary privileges under Pennsylvania law and thus, is discoverable. Read the entire decision here.

In deciding Hummingbird’s motion to compel, the court first analyzed whether the requested information was even discoverable under Pennsylvania’s discovery rules. The court concluded that, based on Pennsylvania’s broad discovery rules, as long as the information requested is relevant to the litigation, whether directly or peripherally, a party may obtain discovery regarding any unprivileged matter. The court further explained that “as a practical matter, that means that nearly any relevant materials are discoverable, because this Commonwealth recognizes only a limited number of privileges.” The court did not offer any discussion as to whether the information requested by Hummingbird Speedway was actually relevant to the litigation and simply moved on to the more pressing issue -- privilege.

The court handily dealt with McMillen’s argument that his social network account information and the communications made on these sites were of the nature that warranted protection of an evidentiary privilege. After reviewing the relevant policies on Facebook and MySpace, the court found that any expectation of privacy when engaged in communications on such sites was unrealistic. Finding that Pennsylvania did not recognize a privilege for social network communications, the court ordered production of plaintiff’s account information within 15 days to defendants’ counsel. The court further instructed that plaintiff was not to take steps to delete or alter the existing information on his social network accounts.

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In a prosecution for promoting and possessing computer images of child pornography, a Brooklyn appellate panel upheld the conviction of defendant and determined that temporary files automatically “cached” by an internet browser may serve as evidence of promoting and possessing child pornography. People v. Kent, ___ A.D.3d ___, 2010 N.Y. Slip. Op. 7364, 2010 N.Y. App. Div. LEXIS 7405 (App. Div. 2d Dept. Oct. 12, 2010). The defendant, a professor of public administration at a Dutchess County college, was found guilty of 134 counts of possession of a sexual performance and 2 counts of promotion related to his use of an office computer.

Defendant’s improper use of his office computer came to light after he complained about his computer. An employee of the college’s IT department ran a virus scan and discovered a “work” folder containing a large number of images of young girls. The employee removed the hard drive, and the college turned it over to the Police Department of the Town of Poughkeepsie. An investigator on behalf of the Town of Poughkeepsie found that defendant was the only active account user associated with the hard drive, and that there was no evidence that any other user had logged onto the computer, other than IT personnel through an “administrator” account.

The investigation further revealed that defendant had created an alternate profile named “Jim” to access the internet via Mozilla Firefox, and that he had used this alternate profile to access child pornography. Under the “Jim” profile, there was a temporary internet file known as the Web “cache,” an automatic storage mechanism designed to quickly display previously visited web pages. Defendant’s hard drive also contained a trail related to the preferences for the “Jim” profile, which automatically placed any downloaded material into the “work” folder and links to video files that had been played via the Real Player program.

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As previously reported, in Magistrate Judge Grimm’s September 9, 2010, decision and order, often referred to as Victor Stanley II, defendant Creative Pipe, Inc. and its principal, defendant Mark T. Pappas, were sanctioned for intentionally violating the court’s preservation and production orders. Among other things, Magistrate Judge Grimm ordered defendants to pay plaintiff’s costs and attorneys’ fees allocable to their spoliation. Judge Grimm further ordered that Mr. Pappas be imprisoned for no more than two years, “unless and until” he pays the fee award. Judge Grimm regarded this sanction as “absolutely essential” in light of his conviction that, “[w]ithout the threat of jail time, … Plaintiff will receive a paper judgment that does not enable it to recover its considerable out-of-pocket losses caused by Pappas’s spoliation.” By Order dated September 30, 2010, the Honorable Marvin J. Garbis, U.S.D.J., entered Magistrate Judge Grimm’s September 9 order essentially verbatim, including that, “[p]ursuant to Fed. R. Civ. P. 37(b)(2)(A)(vii), Defendant Pappas’s acts of spoliation shall be treated as contempt of this Court, and as a sanction, he shall be imprisoned for a period not to exceed two (2) years, unless and until he pays to Plaintiff the attorney’s fees and costs that will be awarded ….” (Emphasis added.)

Pursuant to Magistrate Judge Grimm’s September 9 decision and order and the relevant local rule, however, defendants were allowed to object to the same order. In that briefing, Mr. Pappas’ counsel argued that “[t]his Court’s power to impose a coercive civil contempt sanction … is limited by a party’s ability to comply with the order,” and further that, “[i]f the fee awarded is so large that Mr. Pappas is unable to pay it, the ordered confinement would not be coercive, but punitive, and could not be imposed without criminal due process protections.” Defendants thus requested that Magistrate Judge Grimm’s order be modified such that, following the quantification of the fee award, Mr. Pappas be permitted to demonstrate his inability to pay it, and further to provide that Mr. Pappas would only be confined if he is able to pay but refuses to do so. The District Court agreed with Mr. Pappas’ counsel and, on November 1, 2010, issued a Memorandum and Order holding as follows: “[T]he Court does not find it appropriate to Order Defendant Pappas incarcerated for a future possible failure to comply with his obligation to make payment of an amount to be determined in the course of further proceedings. Certainly, if Defendant Pappas should fail to comply with a specific payment order, the Court may issue an order requiring him to show cause why he should not be held in civil contempt for failure to comply with that payment order. Also, under appropriate circumstances, criminal contempt proceedings might be considered.” (Emphasis added.)

That same day, the Court further ordered that defendants must pay plaintiff the amount of $337,796.37 by November 5 and, if such payment is not made, defendants must appear on November 8 for a civil contempt hearing. Moreover, if defendants failed to pay and Mr. Pappas failed to appear at the civil contempt hearing, “a warrant may be issued for his arrest so that he shall be brought before the Court as soon as may be practicable.” From the docket it appears that ultimately the parties resolved the issue between them without the need for a further contempt proceeding.

Melissa DeHonney is an Associate on the Gibbons E-Discovery Task Force.

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On October 28, the Gibbons E-Discovery Task Force hosted its fourth annual full day E-Discovery Conference, with more than 100 clients, in-house counsel and other contacts in attendance.

Devoted to the latest developments in electronic discovery and corporate information management, this program included speakers who are among the most respected names in the e-discovery field, including former United States Magistrate Judges John Hughes and Ronald Hedges, e-discovery authority Michael Arkfeld, and representatives of leading corporations and e-discovery service providers. Among the Gibbons attorneys who presented and moderated panels were Task Force Chair, Mark S. Sidoti, Chair of the firm’s Employment Law Department, Christine A. Amalfe, and Task Force members, Luis J. Diaz, Phillip J. Duffy, Scott J. Etish, Lan Hoang and Jeffrey L. Nagel.

The sessions covered are listed below, along with links to the handout materials provided for each session:

• The E-Discovery Landscape: 2010
• E-Discovery in the Cloud
• Electronic Communication Policies & Privacy in the Wake of Stengart and Quon
• Emerging Technologies in ESI Preservation, Collection and Processing

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On September 27, 2010, in State ex. Rel. J.B., the Appellate Division of the Superior Court of New Jersey allowed the State to use two satellite photographic images obtained from Google Earth as illustrative aids.

The case involved the lower court’s determination that a minor was a delinquent. Attempting to discredit the juvenile’s alibi that he was home at the time of an alleged burglary, the State offered into evidence the juvenile’s cell phone records and the testimony of a Verizon representative, who explained that cell phone calls are transmitted through the tower nearest the caller. The prosecution then offered photographs obtained from Google Earth to aid in showing that calls made from the juvenile’s cell phone during the burglary were transmitted through the cell phone tower that was closest to the burglary site (and not the tower closest to the juvenile’s home). Both towers, as well as the site of the burglary and the juvenile’s home, were pinpointed via Google Earth. Defense counsel objected, arguing that the prosecution failed to establish a “‘foundation in terms of how accurate [Google Earth] is.’”

The prosecution then offered the testimony of a police detective who had charted the course between the relevant points using the odometer in his patrol car as well as an atlas map on which the relevant points were marked by approximation. On this foundation, the prosecution again offered the satellite photographs from Google Earth. This time, the trial judge overruled defense counsel’s objection:

The [c]ourt finds that other than very recently what would have happened is . . . that the State would have brought in an atlas map and ask[ed] somebody familiar with the area to point on the map where different locations are and how you would get there. And this is just an updated manner of getting the same information. If the [d]efense wants to show that the information is incorrect, they can certainly do it by either cross examination or they can do exactly what I just suggested and bring in an atlas map and show where the exhibit that the State is offering is incorrect.

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Gibbons’ Fourth Annual E-Discovery Conference kicked off with a panel discussion on the essential e-discovery decisions from 2010. The panel, comprised of renowned e-discovery authority Michael Arkfeld of Arkfeld & Associates, Scott J. Etish, Esq., an associate at Gibbons and member of the firm’s E-Discovery Task Force, and the Hon. John J. Hughes, United States Magistrate Judge for the District of New Jersey (Retired), addressed numerous recent decisions related to the following areas: (1) the need for outside and inside counsel to monitor compliance; (2) obtaining electronically stored information from foreign companies; (3) cooperation between adverse parties; (4) social media discovery; (5) searches and inadvertently disclosed privilege documents; and (6) legal holds and sanctions. The panel provided guidance as to best practices related to numerous areas, including navigating e-discovery challenges in the aftermath of the seminal Pension Committee, Rimkus and Victor Stanley II decisions. A brief summary of all of the cases the panel discussed is available here.

Scott J. Etish is an Associate on the Gibbons E-Discovery Task Force.

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In this technology age, employees increasingly make personal use of workplace electronic communications applications. The legal ramifications of such personal use – and how employers can create policies that balance the right to monitor the workplace with employees’ expectations of privacy – were examined in an informative panel discussion, “Electronic Communications Policies in the Wake of Stengart and Quon” during Gibbons P.C.’s Fourth Annual E-Discovery Conference on October 28, 2010.

Discussion regarding Stengart

The panel kicked off with a discussion of the New Jersey Supreme Court’s March 30, 2010, ruling in Stengart v. Loving Care, which presented novel questions about the extent to which an employee could expect privacy and confidentiality in personal e-mails with her attorney that she accessed on a computer belonging to her employer. The Court held that an employee did not waive the attorney-client privilege when using a company computer to communicate with her attorney via a personal password-protected e-mail account, and that attorneys for the employer who failed to turn over the attorney-client communications found on the computer were subject to sanctions.

A panel member explained that Stengart does not prevent employers from implementing and enforcing unambiguous electronic communications policies or from monitoring employee communications pursuant to such policies. Nor does it prevent employers from imaging and reviewing the contents of an employee’s computer in conjunction with a lawsuit. Employers, however should refrain from reading any communications between an employee and her attorney uncovered as part of such reviews. For further discussion of the Stengart case, see the article co-authored by Richard Zackin and Kristin Sostowski.

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On October 21, 2010, in the highly publicized New Jersey government corruption case U.S. v. Suarez, et ano., No. 09-932, 2010 U.S. Dist. LEXIS 112097 (D.N.J.), the Honorable Jose L. Linares, U.S.D.J., held that the FBI had a duty to preserve Short Message Service electronic communications (i.e., text messages) exchanged between its agents and their cooperating witness, Solomon Dwek, during the course of the investigation of defendants Anthony Suarez (mayor of Ridgefield, NJ) and Vincent Tabbachino (former Guttenberg, NJ councilman and police officer). Despite the lack of evidence of bad faith on the part of the government, because the text messages were not preserved, the Court found clear prejudice to defendants and ordered that the appropriate sanction was a “permissive” adverse inference jury instruction.

From March to July 2009, Dwek assumed the identity of a real estate developer to assist the FBI with its corruption investigation of local public officials. Specifically, the FBI instructed Dwek to meet with the officials to express interest in real estate development projects and to offer bribes to them in exchange for expediting the projects and providing other official assistance. In substance, the text messages exchanged between Dwek and the agents during this period concerned investigation logistics, Dwek’s impressions of what was transpiring during the investigation and the agents’ instructions to Dwek in carrying out the investigation (e.g., encouraging Dwek to be “blatant” and to “dirty up the money”).

Shortly after defendants moved to compel production of the text messages, the government agreed to produce them but later advised that it could not do so. The government explained that Dwek used a personal cell phone to transmit text messages, which his carrier retained for only 3 to 5 days. As to the text messages originating from or received on the agents’ Blackberry® handheld devices, the government ultimately admitted that it failed to preserve many of these messages, notwithstanding its document retention policy concerning “reasonably anticipated or pending litigation.” The government did not issue a litigation hold until on or about January 11, 2010, long after the subject data would have been destroyed in the normal course of business.

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Congress enacted the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030 et seq., in 1984 to combat hackers and to address federal computer-related offenses. The CFAA prohibits individuals from “intentionally access[ing] a computer without authorization or exceed[ing] authorized access, and thereby obtain[ing] ... information from any protected computer.” See 18 U.S.C. § 1030(a)(2)(C). A “protected computer” includes a computer “exclusively for the use of a financial institution or the United States Government” or a computer that is “used in or affecting interstate or foreign commerce or communication.” See 18 U.S.C. § 1030(e)(2). The CFAA provides for criminal fines and penalties as well as a private civil right of action to remedy violations. See 18 U.S.C. § 1030(g). Civil remedies are limited to economic damages. Id.

Recently, proprietary database hosts have attempted to expand the CFAA’s scope to assert claims against third-parties who have accessed proprietary electronic databases by using the login credentials of an authorized or licensed user. Proprietary databases -- like Westlaw, Hoovers, Dun & Bradstreet and LexisNexis -- typically grant password-protected access to authorized users, usually under an individual or enterprise license agreement, so that only authorized users may access the hosted data. Such database hosts commonly provide restrictions on access to their proprietary electronic databases by licensees and typically inform licensed users that user names and passwords (“credentials”) are strictly personal and may not be shared with or disclosed to any third-party.

In State Analysis Inc. v. American Financial Servs. Assoc., 621 F. Supp. 2d 309 (E.D. Va. 2009), the court held that a CFAA claim was valid against a third-party user of licensee’s password, even though the licensee provided the third-party with the password. The court emphasized that, notwithstanding the means by which the third-party received the password, the third-party was still an unauthorized user of database. The court dismissed the CFAA claim against the authorized licensee because the simple allegation that the licensee had misused the credentials was not sufficient to state a claim under the CFAA. In contrast, in AtPac Inc. v. Aptitude Solutions Inc., No. 2:10-cv-00294-WBS-KJM, 2010 WL 1779901 (E.D. Cal. April 29, 2010), the court held that neither a state government licensee nor its new software vendor could be held liable under the CFAA for accessing a former software vendor’s proprietary database. The state government licensee provided its credentials to a new software vendor for purposes of downloading the state government’s data from the former software vendor. The court determined that the CFAA does not apply to the state government licensee because it was an authorized user and was not improperly accessing the data. The court further determined that the new software vendor likewise had no improper motive in accessing the database, and further had no prior knowledge or notice of the limitations to the former software vendor’s license agreement.

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Imagine you are in a New Jersey courtroom and have begun the jury selection process. When presented with one of the prospective jurors, you think that you have read about him or her in a recent article. As a result, you open your laptop and begin to surf the Internet to research the individual, but your adversary objects, stating that he or she does not have a computer. Will the judge rule in your favor? The answer is “yes” based upon the Appellate Division’s recent opinion in Carino v. Muenzen, 2010 N.J. Super Unpub. LEXIS 2154 (App. Div. Aug. 30, 2010).

In Carino, the Appellate Division overruled a trial judge’s decision that barred an attorney from using a computer to Google potential jurors during the jury selection process. There, the trial court discovered through defense counsel’s objection that plaintiff’s counsel was accessing the Internet to Google prospective jurors. Subsequently, the trial court found that plaintiff’s counsel’s use of the Internet provided him with an “inherent advantage” during the jury selection process that resulted in an uneven playing field because he had failed to provide notice to his adversary that he intended to use the laptop for that purpose.

The Appellate Division, however, disagreed, noting that whether an attorney can access the Internet while in the courtroom is not addressed in the Rules of Court. The court also declined to uphold the trial judge’s decision because the judge had not cited any authority that imposes an affirmative obligation on an attorney to notify an adversary of an intention to use the Internet during any trial proceeding. The Appellate Division also relied upon the fact that the vicinage or county where the trial was venued had issued a press release approximately one year earlier announcing the arrival of wireless Internet access in that courthouse “to maximize productivity for attorneys” and other court users. As noted by the appellate court, nothing in that press release, however, referenced a requirement that notice be given to an adversary in advance of accessing the Internet.

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A New York trial court has ordered a personal injury plaintiff to produce her Facebook and MySpace postings, notwithstanding that plaintiff self-designated them as private. Justice Jeffrey Arlen Spinner, in Romano v. Steelcase Inc., 2010 N.Y. Slip Op. 20388, 2010 N.Y. Misc. LEXIS 4538 (N.Y. Sup. Ct., Suffolk Cty. Sept. 21, 2010), reasoned that New York’s "liberal discovery policies" favored allowing access to posts that might undermine plaintiff's claim for loss of enjoyment of life and further that, "as neither Facebook nor MySpace guarantee complete privacy, Plaintiff has no legitimate reasonable expectation of privacy." Read the decision here.

The Romano opinion suggests that, if a discovering party makes a threshold showing that content posted on social media websites is relevant, discovery may be had: "In light of the fact that the public portions of Plaintiff’s social networking sites contain material that is contrary to her claims and deposition testimony, there is a reasonable likelihood that the private portions of her sites may contain further evidence such as information with regard to her activities and enjoyment of life, all of which are material and relevant to the defense of this action." As with traditional modes of discovery, it appears that "fishing expeditions" will not be allowed.

Most of the cases the Romano court cited where access to social media was granted were likewise personal injury actions in which the individual plaintiffs were ordered to produce their online journals. Still, the opinion signals to businesses that they, too, might have to produce content posted on social media sites. With more and more businesses promoting themselves through this medium, the attendant preservation obligations should be considered. Posting potentially discoverable information with third-parties can complicate compliance.

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Recently, the NY Supreme and County courts addressed the topic of electronic discovery at the preliminary conference. The Court issued a Notice amending Section 202.12(b) of the Uniform Rules as well as Rule 1(b) of section 202.70(g) and requiring that in any case “reasonably likely to include electronic discovery” counsel must come to court “sufficiently versed in matters relating to their clients’ technological systems to discuss competently all issues relating to electronic discovery” and may bring a client representative or outside expert to assist in such discussion. A list of some of issues that may be addressed at the preliminary conference stage can be found in 22 NYCRR Section 202.12(c)(3) and includes electronic data retention, a discovery preservation plan, redaction of privileged electronic data, the scope and form of electronic production, anticipated costs, and the identification of individuals responsible for data preservation.

The NY Commercial Division rules at 22 NYCRR Section 202.70(g) and Rule 8(b) contain a similar list and even includes topics such as the identification of experts. There is no question that counsel appearing for a preliminary conference in NY Supreme or County court must have meaningful discussions with their clients concerning electronic discovery and the clients’ technological systems prior to such conference with the court. Having these critical discussions at the outset of a case will benefit both the counsel and the client and will help lead to the early identification of any significant problems that might arise later on during the electronic document and data production phase of a litigation.

Jeffrey L. Nagel is a Director on the Gibbons E-Discovery Task Force.

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The decision in Mt. Hawley Insurance Company v. Felman Production, Inc. demonstrates the importance of a court-approved stipulation regarding the production of electronically stored information (“ESI”). The court in Mt. Hawley found that the plaintiff had waived the attorney-client privilege and work product doctrine for certain documents because counsel had failed to take “reasonable precautions” to ensure that such otherwise privileged documents were not inadvertently disclosed. Such precautions should have included, for example, sampling its production and not delaying to recover privileged documents after their production was known. Importantly, the parties had not agreed to a non-waiver provision when negotiating the production of ESI, as permitted by Fed. R. Evid. 502 (“Rule 502”). Magistrate Judge Stanley’s decision ultimately was affirmed by Judge Robert C. Chambers in Felman Productions, Inc. v. Industrial Risk Insurers.

Mt. Hawley is a good example of failing to heed the admonitions discussed in Victor Stanley, Inc. v. Creative Pipe, Inc., 250 F.R.D. 251 (2008), which discussed the reasonable precautions standard and the impetus of Rule 502. Prior to the adoption of Rule 502, attorneys expended considerable time conducting extensive privilege reviews and often asserted questionable privilege claims to avoid inadvertent waiver. This resulted in excessive costs associated not only with the privilege review itself, but also with post-production disputes regarding overbroad assertions of privilege. Rule 502 precluded automatic subject matter waivers, articulated a uniform standard for inadvertent disclosure waivers and provided a safe harbor for parties who embody non-waiver provisions in a court order.

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In Victor Stanley, Inc. v. Creative Pipe, Inc., 2010 U.S. Dist. LEXIS 93644 (D. Md. Sept. 9, 2010), Magistrate Judge Paul Grimm sanctioned Defendants CPI and Mark Pappas, its president - and threatened to imprison Pappas - for the willful destruction of evidence and violation of his discovery orders. The Court’s lengthy decision gives a comprehensive analysis of preservation and spoliation issues across the federal circuits that will benefit every practitioner and corporate litigant.

Plaintiff sued CPI for violations of copyrights and patents, and unfair competition, based on CPI’s alleged use of copyrighted design drawings and specifications from plaintiff’s website. Certain information initially produced by CPI supported the claims. As the decision chronicles in detail, CPI’s discovery violations persisted from the time Plaintiff’s Complaint was filed, including the following:

• Failure to implement a litigation hold;
• Deletions of electronically stored information (“ESI”) after Plaintiff filed suit;
• Failure to preserve Pappas’ external hard drive after demande for preservation;
• Failure to preserve files and emails after demand for preservation;
• Deletion of ESI after the Court issued its first preservation order;
• Continued deletion of ESI and use of programs to permanently remove files after the Court admonished the parties of their duty to preserve evidence and issued its second preservation order;
• Failure to preserve ESI when the company’s server was replaced; and
• Use of programs to permanently delete ESI after the Court issued numerous production orders.

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