A trio of recent decisions puts discovery of electronically stored information (“ESI”) and sanctions related to destruction of ESI back in the spotlight. Although these three cases were all in federal court, January 1, 2008 amendments to Indiana Trial Rules 26 and 34 align Indiana with the corresponding Federal Rules of Civil Procedure when it comes to discovery of ESI.
Lawyers in the Dock
Although the trial rules speak in terms of parties seeking discovery from other parties, we know that parties rarely engage in or respond to discovery all on their own. They are assisted by their attorneys. Lawyers have an important role to play in facilitating discovery consistent with the governing rules. In fact, the role of lawyers in the discovery process has an ethical dimension. Indiana Rule of Professional Conduct 3.4 provides in part:
A lawyer shall not (a) unlawfully obstruct another party’s access to evidence or unlawfully alter, destroy or conceal a document or other material having potential evidentiary value. A lawyer shall not counsel or assist another person to do any such act; [or] (d) in pretrial procedure, make a frivolous discovery request or fail to make reasonably diligent effort to comply with a legally proper discovery request by an opposing party;
Southern District of Indiana U.S. District Court Judge Larry McKinney’s June 2009 discovery sanction opinion in the Red Spot Paint case (not an ESI case) also demonstrates that a federal court, acting under its inherent authority to control proceedings, can cause discovery sanctions in the form of attorney fees and costs to be assessed against both a client and its attorneys. 1100 West, LLC v. Red Spot Paint & Varnish Co., Inc., (U.S.D.C. S.D.Ind. June 5, 2009). In that case, Judge McKinney allocated half of the attorney fees and cost sanctions against Red Spot’s attorneys and, extraordinarily, their law firm.
Three recent cases illustrate the extent to which discovery disputes over ESI impose burdens on judicial, party and attorney resources. In one of the recent cases, U.S. District Court Judge Shira A. Scheindlin noted that she and her two law clerks had collectively spent 300 hours of time just dealing with the motion for ESI discovery sanctions. Pension Committee of the University of Montreal Pension Plan v. Bank of America Securities, LLC, at 25 n. 56 (U.S.D.C. S.D.N.Y. January 15, 2010). I think she was joking when she said that their blended hourly rate was thirty dollars per hour—which may be factually true, but certainly not an accurate measure of value. In an era of scarce judicial resources, this is unfortunate, whatever the hourly rate.
Judge Scheindlin is best known for her comprehensive and cutting edge opinions on discovery of ESI in the Zubulake cases. In fact, she actually titled her opinion in Pension Committee, “Zubulake Revisited: Six Years Later.” The first twenty-five pages of her opinion are a virtual hornbook on the duty to preserve ESI and the appropriate and highly nuanced judicial response to spoliation of ESI.
She discusses the culpability standards associated with spoliation, running from negligence through gross negligence and willfulness to bad faith. She discusses the duty to preserve evidence when litigation is pending or becomes reasonably foreseeable, including the importance of counsel for a party providing adequate and written litigation hold notices to clients, and she clarifies that failure to preserve evidence under these circumstances is spoliation. She engages in a very complex discussion of the burdens of proof when determining whether there has been spoliation and the degree of culpability, and she remarks on the difficulty and importance of finding the right balance for fear of encouraging discovery misconduct on the one hand and rewarding parties to game the discovery system by attempting to leverage unfair advantage from the other side’s benign or unintentional discovery violations. Finally, she discusses at great length the remedies for sanctionable discovery violations, including so-called “terminal sanctions” (entry of default judgment or dismissal), further discovery, cost-shifting, fines, preclusion of certain evidence, and giving special jury instructions.
Judge Scheindlin ended up finding gross negligence on the part of some of the parties and ruled that it warranted a special jury instruction on spoliation that will permit the jury to infer from the spoliation that the lost evidence was relevant and would have been favorable to the innocent party. Needless to say, an award of costs and attorney fees was also a part of the sanction, even against the parties who were merely negligent.
Bad Faith Required
A second recent case dealing largely with the same topic, but unlike Pension Committee, finding bad faith on the part of the culpable parties, is Rimkus Consulting Group, Inc. v. Cammarata, (U.S.D.C. S.D.Tex. February 19, 2010). That decision, by U.S. District Judge Lee H. Rosenthal, is similarly comprehensive, cites extensively to Pension Committee, and teases out a distinction among the circuits over the degree of fault that is necessary to support severe sanctions (as opposed to costs, attorney fees and the like). Judge Rosenthal identified the standard in the Fifth Circuit, noted that it is in line with the standard in numerous other circuits, including the Seventh (citing Faas v. Sears, Roebuck & Co., 552 F.3d 633, 644 (7th Cir. 2008)), and contrasted it with the Judge Scheinlin’s and the Second Circuit’s standard (allowing severe sanctions on a finding of gross negligence). She determined that gross negligence was an insufficient basis for ordering severe sanctions and went on to find that that bad faith was present and warranted a special jury instruction similar to that ordered by Judge Scheindlin in Pension Committee.
Finally, a third case, that started out pretty scary for some lawyers, ended with a whimper instead of a bang, but not before a huge investment of lawyer and judicial time. In a long running patent infringement case between Qualcomm, Inc. and Broadcom Corp., an issue over ESI discovery compliance was referred to California U.S. Magistrate Judge Barbara L. Major. In January of 2008, she ordered over $8 million in discovery sanctions jointly and severally against Qualcomm and a number of its outside counsel. Outside counsel had been prevented from trying to foist responsibility for the discovery failings on its own client because Qualcomm asserted the attorney-client privilege.
On objections to the order by the sanctioned lawyers, U.S. District Court Judge Rudi M. Brewster (quite reasonably, in my estimation) reversed the sanctions order because the Magistrate Judge failed to recognize the self-defense exception to the attorney-client privilege. This impaired the ability of the sanctioned lawyers to defend themselves to such a degree that it violated their due process rights. Judge Brewster remanded the matter to the Magistrate Judge for further proceedings. In the ensuing fifteen months, a massive effort was undertaken to demonstrate that the discovery problems were the fault of the client, not its attorneys.
On April 2, 2010, Magistrate Judge Major issued a new order declining to sanction the attorneys, concluding that even though a number of the attorneys made “significant errors” in conducting discovery, they did not act with the requisite bad faith required for the court to exercise its inherent authority to order monetary sanctions against them. As to the sole Qualcomm attorney who had the misfortune of signing the discovery under F.R.Civ.P. 26(g)(1), the Magistrate Judge found that he had not failed to make “reasonable inquiry” before certifying Qualcomm’s discovery responses.
Seventh Circuit Developments on E-Discovery
On October 1, 2009, the Seventh Circuit Electronic Discovery Committee, a committee initially conceived by the Chief Judge of the U.S. District Court for the Northern District of Illinois, James F. Holderman, and broadly supported by other groups, including the Seventh Circuit Bar Association, issued a report setting forth an e-discovery pilot program for the Seventh Circuit. Phase one of the pilot program is to run from October 1, 2009 to May 1, 2010, after which the experience under the pilot program will be evaluated and a second phase lasting for another year will be developed.
The first phase sets forth various principles relating to discovery of ESI, including a statement of general purpose to assist “courts in the administration of Federal Rule of
Civil Procedure 1, to secure the just, speedy, and inexpensive determination of every civil case, and to promote, whenever possible, the early resolution of disputes regarding the discovery of electronically stored information (“ESI”) without Court intervention. Understanding of the feasibility, reasonableness, costs, and benefits of various aspects of electronic discovery will inevitably evolve as judges, attorneys and parties to litigation gain more experience with ESI and as technology advances.”
Some observations from an e-discovery dilettante: (1) Just the three cases I have discussed in this column (four if you add Red Spot) account for a staggering investment of attorney and judicial resources devoted to cleaning up the messes left behind when e-discovery is not conducted competently and in good faith.
(2) It is no longer amateur hour. It is way too late in the day for lawyers to expect to catch a break on e-discovery compliance because it is technically complex and resource-demanding. If you get involved in a case involving e-discovery, associate with counsel who has been down that road before and learn how it works for the first time using a safety net.
(3) As unseemly as it is to see clients and their lawyers point fingers at each other over responsibility for e-discovery lapses, in the end, it will often be necessary. Qualcomm illustrates the bad things that can happen to lawyers when they are initially tarred with the same brush as their clients. It also illustrates the importance of lawyers taking a thoroughly documented leadership role in directing client compliance with the often-rigorous demands of e-discovery.