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May 10, 2012

Insurance Company, Defense Firm Sued over Facebook Hacking

File under “what were they thinking!!??” According to this complaint filed in Cuyahoga County, Ohio, an insurance company and the firm that it retained to defend—I kid you not—a dog-bite case, hired a private investigator for the express purpose of hacking into the Facebook page of a 12-year-old girl (the dog-bite victim) and obtaining photos and private information. The investigator apparently appropriated (how is not clear) the login information for one of the girl’s friends and was thereby able to get past the privacy settings on the girl’s account, downloading pictures and posts and passing them along to the defense firm. The complaint also discloses that the investigator used a neighborhood copy shop to print out the photos for him. The complaint alleges violations of the federal Stored Communications Act, a state-law analogue, civil conspiracy, and intentional infliction of emotional distress. One wonders whether this activity (if true) could result in licensure problems for the insurance company, the private investigator, and the attorneys involved. Keep your eyes glued to your inbox for the upcoming Spring 2012 issue of the PP&D e-newsletter, which will feature an article on the ethics of using social media in case investigations including state ethics rules on using false pretenses to access social media. (Hat tip: Sharon Nelson/Ride the Lightning for publicizing this case).

— Seth H. Row, Parsons Farnell & Grein LLP, Portland, OR

April 26, 2012

Nevada Decision Highlights Text Message Authentication Issues

Text messages certainly aren’t new technology, but in April 2012, the Supreme Court of Nevada pointed out “new analytical challenges” courts face when considering the admissibility of a text message. In a criminal case, Rodriguez v. State, --- P.3d ---, 2012 WL 1136437, 128 Nev. Adv. Op. 14, the Supreme Court of Nevada held that the state had not properly authenticated 10 of 12 text messages admitted at the defendant’s trial, because the state failed to sufficiently demonstrate that the defendant was the author of the messages.

For purposes of civil litigation in Nevada and other jurisdictions, the Rodriguez decision highlights the care that must be taken during pretrial discovery to ensure that text messages can be properly authenticated at trial. Evidence that a text message was sent from a cellular phone bearing the telephone number assigned to a person will not be sufficient in Nevada and other states to identify the person as the author of the message. Therefore, if authorship is contested, pretrial discovery efforts likely will need to go beyond simply obtaining cellular phone records that link name and telephone number, but provide little other information to support authentication.

The Supreme Court of Nevada reasoned that cellular telephones are not always exclusively used by the person to whom the phone number is assigned. As a result, additional evidence may be required to corroborate the identity of the actual sender of a text message. Circumstantial evidence to corroborate the sender’s identity “may include the context or content of the messages themselves, such as where the messages contain factual information or references unique to the parties involved.” Additionally, the proponent of the text message likely will be required to explain the purpose for which the text message is being offered.

To avoid problems or surprises when attempting to authenticate a text message at trial, civil litigants can consider pretrial discovery such as requests for admissions regarding authorship of pertinent text messages, or possibly even deposition or trial subpoenas to a non-party author whose text messages are critical evidence for trial.

— Matthew Bakota, Buckley King Co., LPA, Cincinnati, Ohio

April 26, 2012

Va. Court Gets Jump on Federal "Celebrity" Predictive Coding Cases

We have written in this space before about the two “celebrity” federal court cases now winding their way toward resolution on whether “predictive coding” e-discovery technology can be used to satisfy a producing party’s obligation to search for documents. Those cases are Kleen Products, now under consideration in the Northern District of Illinois, and the Da Silva Moore case in the Southern District of New York, which recently saw a formal motion to recuse Magistrate Judge Peck, who had granted the defendants’ request to use the technology.

Getting the jump on both of these cases is Global Aerospace, Inc. v. Landow Aviation, L.P., pending in the Loudoun County, Virginia, Circuit Court, in which the trial judge permitted the defendants to use predictive coding over the objection of the plaintiffs. The defendants claimed to have 250 GB of data amounting to (it claims) over two million documents. The defendants pointed out the well-documented deficiencies in standard keyword searching and linear review. The plaintiffs, like the plaintiffs in Da Silva Moore, objected to deviating from the “standard practice of human review of documents” and claimed that the defendant over-collected electronically stored information, resulting in the purported impossibility of using human review. The plaintiffs did not rebut the defendants’ point about the failings of “traditional” review, however. As in Da Silva Moore, the defendants pledged to reveal the “seed set” of documents to the other side and pledged to take other quality-control measures, citing to Judge Peck’s decision in Da Silva Moore.

The court’s order is on a form that does not provide any analysis of the competing claims —but it does leave plaintiffs the right to object to the results after production is made.

— Seth H. Row, Parsons Farnell & Grein LLP, Portland, OR

April 26, 2012

Preservation of ESI on Mobile Devices in the Headlines

When I speak to attorneys—particularly in-house counsel—about preservation of data on employees’ mobile devices I typically get two responses: “It’s too disruptive to the business to haul in all those phones” and/or “my employees know better than to conduct business using anything that isn’t synced to our server.” Well now “ripped from the headlines” comes a story showing why those two responses really aren’t true, and aren’t good enough. The federal government has filed its first criminal charges in connection with the Deepwater Horizon debacle, but the charges have little to do with environmental damage. No, the government is going after a BP engineer, Kurt Mix, for deleting text messages off of his iPhone. Mr. Mix apparently used his phone to text-message with a contractor involved in the “Top Kill” attempt to stop the flow about how badly that strategy was working. BP distributed a preservation directive (aka a “litigation hold”) to Mr. Mix and others, and set a date for a vendor to image his mobile device. But before he turned his phone in, Mix deleted damaging text messages that contradicted public pronouncements about the viability of the “Top Kill” strategy.

This story should serve as a cautionary tale, for inside and outside counsel. Presumably BP kept itself out of trouble by including in their preservation directive mobile devices—indeed the government is using BP’s directive as prima facie evidence that Mix intentionally interfered with the investigation. What if BP had assumed, as many of my audience members do, that everything would be synced with the server? What if BP had issued a directive but not made plans to actually image the devices, and hadn’t found out about the deletion until much later, when deleted texts on the device would have been overwritten? (According to news reports some of the text were recovered forensically—unclear whether that was off of the phone). At least in a high-profile, high-exposure case, the “preserve everything” mantra preached by so many in the e-discovery community appears to be borne out, once again.

— Seth H. Row, Parsons Farnell & Grein LLP, Portland, OR

April 12, 2012

Federal Circuit Rejects Settlement-Negotiations Privilege

On April 9, 2012, in In re MSTG, Inc., Misc. Dkt No. 996, the Court of Appeals for the Federal Circuit issued an order denying a petition for a writ of mandamus that sought to overturn a district-court order in a patent-infringement case requiring the plaintiff MSTG to produce documents related to settlement negotiations with third parties including previous defendants. The documents were sought in connection with the issue of the reasonable royalty that could be the measure of damages if the plaintiff prevailed on the liability issues. MSTG argued that, similar to the mediation privilege, there should be a settlement-negotiation privilege that protected the documents sought in discovery.

As an initial matter, the court decided that the petition would be decided as a matter of Federal Circuit law rather than Seventh Circuit law—the underlying infringement action was pending in the Northern District of Illinois—finding that “whether a privilege or other discovery limitations protect disclosure of information related to reasonable royalties” “implicates the jurisprudential responsibilities of [the Federal Circuit] within its exclusive jurisdiction” and so should be decided as a matter of Federal Circuit law.

The court refused to accept MSTG’s argument based on Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc. 332 F.3d 976, 979–83 (6th Cir. 2003) that Rule 501 of the Federal Rules of Evidence supported a privilege that would prevent the discovery of litigation settlement negotiations (but not the settlement agreements themselves). Applying the reasoning from various Supreme Court cases, the Federal Circuit found several factors weighed against the recognition of a settlement privilege:

The court also noted that Rule 26 of the Federal Rules of Civil Procedure was an effective method for preventing any abuse in requests for the production of documents related to settlement negotiations. The court also explicitly noted that it was not ruling on the admissibility of any settlement-negotiation documents; rather the only issue presented was whether documents related to the negotiations were immune from production.

For all those reasons, the Federal Circuit denied the petition for writ of mandamus and left intact the district court’s order that the settlement-negotiation documents must be produced.

— Steven R. Trybus, Jenner & Block, LLP Chicago IL

March 30, 2012

Third Circuit Limits Recoverable E-Discovery Costs

On March 16, 2012, the Third Circuit Court of Appeals weighed into a debate raging among district courts on whether broad e-discovery costs are taxable on the bill of costs under 28 U.S.C.A. § 1920 and thus recoverable by the prevailing party. Race Tires America, Inc. v. Hoosier Racing Tire Corp., No. 11-2316 (3d Cir. Mar. 16, 2012).

The court’s analysis starts with Fed. R. Civ. P. 54(d)(1), which states that “unless a federal statute, these rules, or a court order provides otherwise, costs—other than attorney’s fees—should be allowed to the prevailing party.” These costs include “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.A. § 1920(4). Thus, the critical determinations are which e-discovery tasks constitute “exemplification” or “making copies” and whether these costs were “necessary” for use in the case.

In Race Tires, the district court held that the prevailing defendants could recover all charges incurred by e-discovery vendors for the collection, processing, and production of electronically stored information (ESI). The case was an antitrust lawsuit filed by Race Tires America, a tire supplier, against a competitor, Hoosier Racing Tire Corp., and Dirt Motor Sport (DMS), a motor-sports sanctioning body. During the litigation, Hoosier hired an e-discovery vendor to help produce 430,733 pages of ESI, costing over $125,000. DMS produced over 178,413 documents in electronic format, also using a vendor, for a cost of $240,000. The district court awarded the prevailing defendants all costs, noting that the plaintiff had agreed to the defendants’ ESI procedures, that the plaintiff was aggressive with its discovery requests, and that the defendants’ vendors had performed highly specialized tasks not akin to mere paralegal work. Cf. Klayman v. Freedom’s Watch, Inc., No. 07-22433 2008 WL 5111298, *2 (S.D. Fla. Dec. 4, 2008) (denying costs for vendor collection and processing of ESI because tasks—to “search for and retrieve discoverable . . . documents” —would be done by paralegals and attorneys in a case with paper records).

On appeal, the Third Circuit noted the conflict among courts on taxation of e-discovery expenses and analyzed the legislative history and the purpose and public policy behind limiting taxable costs. Starting with the U.S. rule that litigants generally bear their own costs to ensure open access to courts, the Third Circuit viewed the costs statute as an exception to this important principle, an exception limited to the express language of the statute. The court rejected consideration of whether the activities are performed by third-party consultants with “technical expertise,” explaining that “[n]either the degree of expertise necessary to perform the work nor the identity of the party performing the work of making copies is a factor that can be gleaned from §1920(4).”

The Race Tires analysis rejected considerations relied upon by other district-court cost awards in the Third Circuit, such as the recent decision in In re Aspartame Antitrust Litigation. No. 07-CV-1732, 2011 WL 4793239 (E. D. Pa., Oct. 5, 2011). The Aspartame decision methodically reviewed e-discovery costs in itemized fashion, noting that “e-discovery saves costs overall by allowing discovery to be conducted in an efficient and cost-effective manner.” The court awarded costs for actions that significantly “reduced the pool of potentially responsive documents”—e.g. data storage, imaging hard drives, keyword searches, de-duplication, data extraction, and processing. Aspartame, at *3. Costs also were awarded for the creation of load files (specifically requested in discovery), optical character recognition (because “searchable documents are essential in a case of this complexity and benefit all parties”), privilege screens, hosting data, and related technical support. Id. The Race Tires decision makes this cost-savings and efficiency analysis irrelevant.

The Third Circuit in Race Tires also rejected equitable concerns as justification for an award “of costs that Congress has not made taxable.” This does not affect the possibility of cost-shifting sanctions under other federal rules (e.g. if a request proves unduly burdensome). Focusing exclusively on the language in the costs statute that permits taxation for “making copies,” the Third Circuit also rejected costs for word searching and de-duplication, noting that this cost was more akin to an attorney searching paper records to determine whether they were responsive to a request, a task that has never been taxable as a cost.

The court concluded that only a narrow band of e-discovery costs was taxable. As the court explained:

The court then limited taxable costs to scanning and file-format conversion and awarded only $30,370 in costs to Hoosier’s electronic-discovery vendors. Noting that the vendors’ bills were too brief, full of jargon, and in some instances outright unintelligible, the court left open the door to a case-by-case consideration of e-discovery costs as taxable as long as they fit within the rubric of “making copies.” For example, in some instances, the cost of copying a hard drive, not allowed in this case, may be taxable. The decision offers guidance to practitioners in the Third Circuit, but in other jurisdictions it may add fuel to the raging debate because so little of the costs were taxable under the costs statute.

Two practice pointers can be drawn from the Third Circuit decision. In cases with high e-discovery bills, counsel should seek advance relief under Rule 26(b)(2)(B) to limit, share, or shift vendor costs. The standards for relief give the district court more options than the narrow “copy” standard for taxable costs. And courts are more likely to award costs if vendor bills are detailed and in plain English, a consideration to make clear at the outset of the retention. An affidavit from the vendor when the application for costs is filed may also serve to explain otherwise obtuse technical jargon for the court.

— Mor Wetzler and Carla Walworth, Paul Hastings LLP, New York, NY

March 30, 2012

Sixth Circuit Clarifies Pleadings Standard: "Plausible" vs. "Persuasive"

In early March 2012, the Sixth Circuit reminded its district courts that the pleading requirements articulated by the Supreme Court in Iqbal and Twombly require that facts pleaded be plausible, not necessarily that they be persuasive, to survive a motion to dismiss. Mediacom Southeast LLC v. BellSouth Telecommunications, Inc. d/b/a AT&T Kentucky, No. 10-6117 (2012).

In 2009, AT&T sought to introduce a video service in Hopkinsville, Kentucky, based on authority provided to it by its perpetual, state-wide telephone franchise granted in 1886. The City of Hopkinsville sued, claiming that the telephone franchise did not allow AT&T to offer such services over its telephone wires. After Hopkinsville and AT&T settled, Mediacom, an incumbent cable provider in Hopkinsville, intervened seeking the same declaration that Hopkinsville originally sought—asserting that AT&T was required under the Kentucky Constitution and local law to obtain a new cable franchise. The district court granted AT&T’s motion to dismiss under Fed R. Civ. P. 12(b)(6), finding that as a matter of law, AT&T’s franchise permitted it to offer the service.

On appeal, the Sixth Circuit found that the district court made two errors that warranted reversal. First, the district court did not apply the appropriate standard of review for a motion to dismiss, and improperly assigned the burden of proof to the non-moving party, Mediacom. Second, to make its findings, the court relied on “self-serving facts” written by AT&T in a stipulated agreement, “facts that conflicted with the well-pleaded facts in the complaint.”

The appellate court agreed that Mediacom’s “claim” may indeed turn on a single legal question—“whether the transmission of IP video signals is outside the scope of AT&T Kentucky’s existing franchise.” But the court explained that this would be a question of law on a motion for summary judgment, assuming there were no genuine issues of material fact, but that it was not the proper inquiry for a motion to dismiss. Quoting Twombly, the court emphasized that “[a]t this stage, the single question is whether plaintiff’s complaint includes ‘enough facts to state a claim to relief that is plausible on its face.’”

Moreover, the Sixth Circuit took issue with the district court’s statement that “Mediacom’s contention that AT&T Kentucky requires a separate franchise to offer its IP video service [was] unpersuasive.” The appellate court found that this “improperly placed the burden of proof on the plaintiff.” If this was the only “error” identified in the district-court opinion, the reversal might seem odd. But the Sixth Circuit later explained that by “crediting the defendant’s, rather than the plaintiff’s version of facts,” the district court’s construction of Fed. R. Civ. P. 12(b)(6) “unduly raises the pleading standard beyond the heightened level of Iqbal and Twombly, forcing the plaintiff’s well-pleaded facts to be not only plausible, but persuasive. That is not the appropriate burden at this stage of the litigation.”

This decision is interesting because it stands alongside relatively few appellate decisions that refine the pleading standard under Twombly and Iqbal. However, some of the court’s language may be misleading if taken out of context. After all, a district court may dismiss a complaint for failure to state a claim based on a question of law, as long as the court credits the well-pleaded facts in the complaint, rather than the defendant’s version of facts as happened here. Without a doubt, this decision makes clear that “persuasiveness” is not the proper standard. After all, the Supreme Court had explained in Twombly that “a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely.”

— Mor Wetzler, Paul Hastings LLP, New York, NY

March 27, 2012

Drama Continues in Da Silva Battle Over Predictive Coding

Earlier in this column we reported on U.S. Magistrate Judge Andrew J. Peck’s issuing the first reported decision approving the use of predictive coding to handle a large volume of e-discovery. Federal Bench Begins Coming to Terms with Predictive Coding, February 28, 2012. The impact of that order was blunted somewhat by the fact that the plaintiffs in the case—Da Silva Moore v. Publicis Groupe SA, No. 11 Civ. 1279 (ALC) (AJP) (S.D.N.Y.)—appeared to have already agreed to the defendants’ use of the novel computer-assisted document-review technology, making Judge Peck’s endorsement a bit of a non-event. Now, however, the plaintiffs have withdrawn their assent, putting the validity of the technology squarely in play. Claiming that their agreement was always conditioned on quality controls that the defendants did not agree to, the plaintiffs have filed strenuous objections to Judge Peck’s order with the Article III judge, Hon. Andrew Carter. The plaintiffs argue that Judge Peck should have put the defendants’ assertions about the technology through the Daubert process and have even attacked Judge Peck’s impartiality, alleging that Judge Peck is too cozy with the vendor community and certain members of the e-discovery glitterati. K&L Gates’s blog has objective coverage and links to the documents; Craig Ball takes on plaintiffs’ allegations of bias.

— Seth H. Row, Parsons Farnell & Grein LLP, Portland, OR

March 16, 2012

Privilege Waived on Inadvertently Produced Email: Lessons Learned

On February 28, 2012, the Southern District of New York found that defendants in an Fair Labor Standards Act (FLSA) collection action waived the attorney-client privilege for an inadvertently produced email. Jacob et al. v. Duane Reade Inc. et al., No. 1:11-cv-00160 (S.D.N.Y.). The case offers several important lessons regarding safeguarding the attorney-client privilege in discovery.

The plaintiffs are assistant store managers who allege that they were improperly treated as exempt from overtime. The employer defendants inadvertently produced an email from one human-resources representative to another recounting her conversation with an in-house attorney (identified by name) regarding FLSA compliance. The email repeated advice from the attorney that the assistant store managers needed to perform certain tasks for their responsibilities to exempt them from the coverage of the FLSA. The email also reflected a proposal for training management personnel so that they would understand that they were exempt and understood their management responsibilities.

The plaintiffs challenged the assertion of privilege, arguing that the email was a business document incorporating business advice. The court rejected this argument, explaining that “business matters are often informed by legal requirements.” On the face of the document, the in-house attorney received information from business managers and gave legal advice on the requirements of the FLSA. “This type of advice—how to comply with regulatory or statutory requirements—is precisely the type of legal advice one would expect in-house counsel to provide to business people,” the court explained. The court concluded that only the first half of the email was privileged because the proposals regarding training reflected a business strategy rather than legal advice

Regarding waiver of the privilege, the court noted that in the Second Circuit, a disclosing party may demonstrate, in appropriate circumstances, that its production of privileged material in discovery does not constitute a waiver of the privilege or work-product immunity and that it is entitled to the return of the mistakenly produced documents. Under the “flexible test” applied to determine whether inadvertent disclosure waives privilege, courts balance 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.”

In this case, the court found that the defendants’ precautions were reasonable. During discovery, the defendants identified relevant documents from preserved ESI by using a list of search terms. A team of 10–15 supervised contract attorneys reviewed these documents. To identify potentially privileged communications in the “voluminous” production, the defendants also searched for and flagged documents with the first and last names of their outside and in-house attorneys. The document in question was not identified because it was not sent to or from an attorney, no attorney was copied on the email, and the attorney present at the meeting that the email covered was referred to only by her first name, Julie. Therefore, the court found that the defendants’ precautions were reasonable.

However, the court found that the privilege was waived because the defendants did not act promptly to rectify the disclosure of the privileged email. The day after the document was produced, the defendants’ outside counsel was present at a deposition where the plaintiffs’ counsel used the document as an exhibit for cross-examination, and the defendants’ counsel conducted redirect on the document without asking the witness for the identities and roles of the people who were mentioned. While the employer’s counsel professed that they were not aware that the individual mentioned in the email was an in-house lawyer, the court noted that defense counsel was present for a deposition three weeks earlier where the in-house attorney was specifically identified.

Moreover, the court pointed to “numerous red flags” that should have alerted counsel that the email was likely to contain privileged information, including the subject line of the email and the advice given at the meeting. As the court noted, defendants even had argued that the plaintiffs’ counsel should have been aware that the email might be privileged and that therefore the plaintiffs’ counsel should have alerted defense counsel that they received it.

Finally, the court noted that because the email had already been the subject of deposition questions, and because the defendants so delayed in seeking the return of the email, the concerns of fairness and prejudice tipped in the plaintiffs’ favor. The court determined that the waiver extended only to the email that was produced, and not to all attorney-client communications on the subject of the email.

— Mor Wetzler, Paul Hastings LLP, New York, NY

February 28, 2012

Federal Bench Begins Coming to Terms with Predictive Coding

In his article Search, Forward: Will manual document review and keyword searches be replaced by computer-assisted coding?, L. Tech. News, Oct. 2011, Magistrate Judge Andrew J. Peck of the Southern District of New York noted that no court had ruled on the use of computer-assisted, or predictive coding in a reported opinion. Judge Peck has now filled that void with his opinion in Da Silva Moore v. Publicis Groupe & MSL Group, 11 Civ. 1279 (S.D.N.Y. Feb. 24, 2012) (Dkt. No. 96), which “recognizes that computer-assisted review is an acceptable way to search for relevant ESI in appropriate cases.” This written opinion follows Judge Peck’s ruling from the bench on February 8, 2012.

Simply stated, computer-assisted, or predictive-coding computer programs can code a large number of documents for relevance or particular issues by extrapolating from a much smaller sample, or “seed set,” of documents manually coded by an attorney. Generally, an attorney need only code a small percentage of the total number of documents to achieve a viable seed set, resulting in potentially great savings of cost and time. Additionally, as noted by Judge Peck, studies have shown that predictive coding is at least as accurate as, if not more accurate than, manual review or keyword searches in identifying relevance over a large number of documents.

In Da Silva Moore, an employment-discrimination action, Judge Peck found that predictive coding was appropriate considering: (1) the “parties’ agreement”; (2) the vast number of documents; (3) the “superiority of computer-assisted review to the available alternatives”; (4) the need for cost effectiveness and proportionality under Rule 26; and (5) the transparent process proposed. The defendants suggested using predictive coding to cull to a more manageable number the approximately three million documents collected from the agreed-upon custodians. The plaintiffs were open to this process but had concerns about the efficacy of the particular computer program employed by the defendants’ e-discovery vendor.

The plaintiffs first objected based on the lack of a relevance standard in the defendants’ method. Judge Peck dismissed this concern stating that “[r]elevance is determined by plaintiffs’ document demands,” and the program “is only as good as the training that it gets.” The program “learns” what documents are relevant based on the seed set of documents coded by the defendants’ counsel and reviewed by the plaintiffs’ counsel. The program continues to “learn” as counsel for both parties correct the results of the program’s extrapolation of the seed set to the total document set over a number of iterations. Judge Peck found this process to be “totally transparent,” belying the plaintiffs’ concern with a relevance standard.

The plaintiffs also objected that the defendants’ method fails to set a permissible number of incorrect codings by which to determine whether the program “actually works.” Judge Peck stated that this question necessarily implicates a proportionality analysis and cannot be decided until the quantity and quality of mis-codings is known and is compared to the cost of a more accurate process. He found that the acceptable number of mistakes or type of mistakes (i.e., did the program miss a “smoking-gun,” or merely “more of the same thing”) can only be determined after the predictive-coding program produces results to evaluate.

Finally, the plaintiffs objected that there was no evidence that the defendants’ program could do what they claimed it could. Judge Peck’s opinion indicates that he sees this concern as no more worrisome than the (un)reliability of manual review or keyword searches. Fatigued people make mistakes, and keyword searches are notoriously over- and under- inclusive, yet attorneys often assume the efficacy of these methods. Judge Peck appears to have been satisfied with the representations of the defendants’ counsel and e-discovery consultant regarding the efficacy of the predicative-coding program at issue, pending an evaluation of its actual results.

the plaintiffs also asserted that Judge Peck erred by failing to analyze the reliability of the defendants’ predictive-coding program under Rule 702 and Daubert. Judge Peck ruled, however, that Rule 702 is irrelevant to document discovery, and is limited to the question of what evidence will be admitted at trial. The central concern of the evidentiary “gatekeeping” standards—that bunk science will be presented as the truth—is simply not present during discovery where the parties and the court will continue to evaluate whether the defendants’ method of production is responsive to the plaintiffs’ requests on an ongoing basis. Thus, while Judge Peck encouraged litigants to take advantage of the efficiencies of predictive coding, he emphasized that his decision was not license for defendants to rely solely on a computer program to fulfill their responsibilities under Rule 26. In the judge’s words, “computer-assisted review is not a magic, Staples-Easy-Button, solution.”

— Peter E. Wilhelm, White & Case LLP, New York, NY

February 27, 2012

New E-Discovery Best Practices for Federal Criminal Practice

In early February 2012, the government's Joint Electronic Technology Working Group, led by the Department of Justice, issued a protocol for managing discovery of electronically stored information (ESI) in post-indictment federal criminal cases. The protocol includes general principles, specific recommendations, strategies, and a case checklist.

The director of the Administrative Office of the U.S. Courts and the U.S. Attorney General created the working group, which includes members of the federal criminal-defense bar and federal prosecutors. Its goal was to examine efficient ways that electronic technology can aid the collection, analysis, and presentation of evidence in the federal criminal-justice system, focusing on cases where the volume and/or nature of ESI produced as discovery significantly increases the complexity of the case. The working group concluded that 10 “basic principles” should guide post-indictment ESI discovery in federal criminal cases. Underlying those 10 principles is the ethic that counsel should methodically, diligently, and proactively work together to resolve concerns regarding ESI before producing and transmitting data.

The protocol limits itself to the discovery phase of criminal cases and emphasizes that the recommendations and strategies are intended to apply only to disclosure of ESI under Federal Rules of Criminal Procedure 16 and 26.2, Brady, Giglio, and the Jencks Act, and they do not apply to, nor create any rights, privileges, or benefits during, the gathering of ESI as part of the parties’ criminal or civil investigations. Nonetheless, the protocol offers a framework that should ensure a thorough discussion regarding complicated ESI discovery issues in federal criminal cases and should help narrow the range of issues presented to judges in the future.

The protocol recommends that counsel discuss a host of topics in their meet-and-confer to develop a plan for producing ESI discovery materials. The working group stresses that these plans should not bind counsel, but rather will lay out a roadmap for ESI production and transmission. Following this roadmap, counsel should continue their discussion in greater detail and agree to the style and format of, among other things, the following:

1. a table of contents
2. format of production
3. treatment of proprietary or legacy data and ESI security
4. whether privileged documents exist and how those documents will be segregated from the production set
5. addressing confidential and personal information
6. naming conventions that will take into account the need, for example, to cross-reference audio files, monitoring logs, and call transcripts in a Title III wire-tap case
7. software and hardware limitations
8. forensic (mirror) images of hard drives
9. what metadata will be produced
10. a reasonable schedule for the production and review of ESI

On each of these topics, and others, the working group provides recommendations that allow flexibility and will encourage fruitful discussion regarding many of these issues. The case checklist is especially useful for parties facing issues regarding production of ESI, and will be of interest to practitioners beyond the criminal context.

— Mor Wetzler and Carla Walworth, Paul Hastings LLP, New York, NY

February 23, 2012

Indiana Weighs In on Protections for Anonymous Posters

On February 21, 2012, the Court of Appeals of Indiana addressed whether a non-party news organization can be compelled to disclose to a defamation plaintiff the identity of an anonymous commenter—an issue of first impression in the state. In re Indiana Newspapers Inc. (Miller v. Junior Achievement of Central Indiana, Inc.), No. 49A02-1103-PL-234 (Ind. App. Feb. 21, 2012).

The court held that Indiana’s shield law—which creates an absolute privilege for a journalist’s source—does not apply to anonymous posters who comment online on newspaper websites. The court explained that an anonymous person who comments on an already published online story and whose comment was not used by the news organization in carrying out its news-gathering and reporting function cannot be considered a “source” protected by the shield law.

Next, to strike a balance between protecting anonymous speech and preventing defamatory speech, the court considered what proof a plaintiff must provide as to the defamation claim before the anonymous speaker is revealed. Although the court found that the statement at issue constituted defamation per se, the plaintiff still had to prove actual malice under Indiana law, which would be impossible without the commenter’s identity. “While we do not want defamatory commenters to hide behind the First Amendment protection of anonymous speech, we must balance the prospect of too readily revealing the identity of these anonymous commenters.”

To achieve this balance, the court noted the inconsistent tests applied by other states and considered two tests most commonly adopted—the Dendrite test and the Cahill test. Under the Dendrite test, to learn the identity of an anonymous online commenter, the plaintiff must: (1) notify the anonymous commenter via the website on which the comment was made that he or she is the subject of a subpoena or application for an order of disclosure and allow the commenter time to oppose the application or subpoena; (2) identify the exact statements he or she believes to be defamatory; and (3) produce prima facie evidence to support every element of the plaintiff’s cause of action before the disclosure of the commenter’s identity. If the plaintiff can satisfy all three of those factors, then the trial court must (4) “balance the defendant’s First Amendment right of anonymous free speech against the strength of the prima facie case presented and the necessity for the disclosure of the anonymous defendant’s identity to allow the plaintiff to properly proceed.” Dendrite International, Inc. v. Doe No. 3, 775 A.2d 756 (N.J. Super. Ct. App. Div. 2001).

In contrast, the Cahill test consists only of the first and third Dendrite requirements: The plaintiff must make reasonable efforts to notify the defendant and must present enough evidence to withstand a summary-judgment motion. The Cahill court found the second and fourth Dendrite factors unnecessary: The second prong, setting forth the alleged defamatory statements, was part of the summary-judgment inquiry of the third prong, and the fourth prong of balancing interests was also inherent in the summary-judgment inquiry and added no additional protection. Doe v. Cahill, 884 A.2d 451 (Del. 2005).

The Indiana court found that the Dendrite test drew the most appropriate balance, because it contained the two elements the court considered most important in deciding the issue: a summary-judgment standard and a balancing of interests. “The summary judgment standard is highly protective of speech and balancing the right of the injured party to seek redress against the anonymous speech rights ensures that no party’s rights are unnecessarily infringed.” The court explained that in balancing the parties’ rights, the trial court should consider factors including the type of speech involved, the speaker’s expectation of privacy, the potential consequence of a discovery order to the speaker and others similarly situated, the need for the identity of the speaker to advance the requesting party’s position, and the availability of other discovery methods.

However, the court found the Dendrite test unworkable in Indiana because Indiana’s defamation per se law requires proof of actual malice, and such proof would be impossible without identifying the commenter. The court modified the test to require prima facie evidence to support only those elements of the defamation claim that do not depend on the commenter’s identity before the news organization is compelled to disclose that identity.

This test now stands along a variety of other standards applied by different states. It remains to be seen when the Supreme Court will address this national inconsistency and settle the issue.

— Mor Wetzler, Paul Hastings LLP, New York, NY

February 21, 2012

Google Loses Attempt to Exclude Email from Oracle Trial

On February 6, 2012, the U.S. Court of Appeals for the Federal Circuit denied Google’s request to prevent Oracle America, Inc. from using certain email communications from one of Google’s engineers at trial.

On August 12, 2010, Oracle filed a patent lawsuit, alleging that Google’s Android operating system had been designed using patented and copyrighted features of Oracle’s Java programming language. Shortly before Oracle filed its lawsuit, engineer Tim Lindholm wrote an email to Andrew Rubin, the executive in charge of Google’s mobile division. Lindholm said he was asked by company cofounders Larry Page and Sergey Brin to “investigate what technical alternatives exist to Java for Android and Chrome” and included his conclusions and recommendation “to negotiate a license for Java under the terms we need.”

Read the full case note.

— Mor Wetzler, Paul Hastings LLP, New York, NY

February 14, 2012

Proportionality Test Applicable to Evidence Preservation

Judge McMahon's recent opinion in Pippins v. KPMG LLP confirms that the "proportionality" test of Rule 26(b)(2)(C)(iii) is applicable to a party's decision to preserve evidence. Pippins v. KMPG LLP, No. 11-CV-377 (S.D.N.Y. February 3, 2012). However, the opinion suggests that parties should proceed cautiously in making pre-litigation preservation decisions based on proportionality. Prudence still dictates preserving all relevant, non-duplicative evidence created by or for the key players in the litigation.

Read the full case note.

— James P. Gagen, White & Case LLP, Washington, D.C.

January 26, 2012

Georgia Federal District Court Dismisses Renewal Action as Untimely

In an issue of first impression, the U.S. District Court for the Middle District of Georgia in Goins v. City of Quitman, No. 7:11-cv-117 (M.D. Ga. Jan. 9, 2012), held that Georgia’s renewal statute allowed re-filing of federal claims within six months of the voluntary dismissal of those claims, not within six months of the much-later voluntary dismissal of state-law claims in the same action.

The plaintiffs in Goins first brought suit in state court in 2009, alleging various federal and state-law claims based on police officers’ use of a Taser on Samuel Lee Baker, who died shortly after the tasing incident. The defendants removed the suit to federal court and filed motions to dismiss. In June 2010, while the motions to dismiss remained pending, the plaintiffs withdrew their federal claims by amending their complaint to include only state-law claims. As a result, the federal district court remanded the suit back to state court. In February 2011, the plaintiffs voluntarily dismissed the state-court action.

Read the full case note.

— Margaret G. Foley, Buckley King LPA, Las Vegas, NV

January 25, 2012

How to Avoid Unauthorized Practice of Law in Document Review

Vendors seeking to assist attorneys in offloading substantial portions of discovery-practice need to be careful not to cross the line into the unauthorized practice of law, according to a new ethics opinion by the District of Columbia Bar. On January 12, 2012, the District of Columbia Court of Appeals Committee on the Unauthorized Practice of Law released Opinion 21-12 regarding the “Applicability of Rule 49 to Discovery Services Companies.” This opinion provides guidelines for attorneys and discovery vendors regarding supervision of large-scale document reviews and vendors’ marketing practices, which are intended to prevent the unauthorized practice of law (UPL). Under these guidelines, the role of discovery-service providers in the e-discovery process must be limited to administrative, technical, and logistical tasks. This opinion and these guidelines additionally make clear that the onus of supervising a discovery project rests squarely on the shoulders of the D.C. Bar member who holds the attorney-client relationship with the client.

Rule 49 of the District of Columbia Court of Appeals provides:

The ‘practice of law’ includes “[f]urnishing an attorney or attorneys, or other persons” to provide legal services. Rule 49(b)(2)(F).

Opinion 21-12 provides the following “principles” to provide guidance regarding “the permissible scope of services that may be performed [by document services companies]” without running afoul of the UPL rules. Opinion, at 7.

First, Rule 49’s UPL rules apply only to the provision of legal services in the District of Columbia. To the extent a discovery provider advertises itself as being able to assist with any discovery project occurring in the district, even if the vendor is not physically located in the district, then Rule 49’s prohibitions apply because such company would be viewed as “holding itself out” as being able to provide legal services in the district. Opinion, at 7–8.

Second, in line with the committee’s prior 1999 Opinion 6-99, contract-attorney companies cannot make the final selection of contract attorneys to staff on a project, nor can the companies provide legal supervision over the contract attorneys. Both of those tasks must be handled by a member of the D.C. Bar with an attorney-client relationship with the client. The company’s role should be limited to the administrative aspects of the review (i.e., finding and interviewing reviewers, handling payroll and taxes, making sure the reviewers show up to work, etc.). A company is allowed to provide and supervise a person doing non-legal work if that person is not identified to the client as a lawyer. Opinion, at 8.

Third, a discovery-service company cannot use broad-based statements in its marketing materials (i.e., that the company is an “end-to-end” vendor or can provide “soup-to-nuts” solutions) without including a UPL disclaimer. This disclaimer must appear on the same page, in the same font, and in proximity to the potentially misleading statement. Statements regarding the legal expertise of the company’s staff also must contain similar disclaimers. Opinion, at 8–9.

Although the committee previously examined Rule 49 and its applicability to legal-services providers in 1999 and 2005, the committee saw fit to re-examine its prior decisions because companies providing discovery services “have dramatically expanded the scope” of their offerings. Opinion, at 4. The committee noted that these companies “offer a host of related services, from e-discovery consulting to database management to the eventual production of documents in litigation,” and that the companies also may “offer the physical space where the document review will take place, computers for conducting the review, and servers for hosting the document review.” Id.

The committee was concerned with the companies’ use of broad language in their marketing materials, including “one-stop shopping” and “comprehensive review and project management,” and about the marketing of companies’ management staff as having legal expertise that would be used in the discovery process. Opinion, at 4–5. Although the committee noted that some services provided by the companies may not “cross the line into legal practice,” such as administrative tasks, allowing discovery companies to make broad-based statements could mislead the public by implying that the companies are providing a legal judgment. Opinion, at 6.

Opinion 21-12 provides clarity to discovery-services vendors by outlining more clearly their role in the discovery process, which is limited to administrative, technical, and logistical functions. The opinion also will assist attorneys overseeing such projects by reminding them of their supervisory role over document reviews.

— Meytal McCoy, White & Case, Washington D.C.

January 25, 2012

First Circuit: State Did Not Waive Sovereign Immunity by Removal

In Bergemann v. Rhode Island Dept. of Env. Mgmt., No. 11-1407 (1st Cir. 2011), the First Circuit weighed in on an issue that has divided the circuit courts: whether a state waives its sovereign immunity by removing an action to federal court. The First Circuit, persuaded and guided by prior decisions from the Fourth Circuit and the D.C. Circuit, held that a state does not waive the defense of sovereign immunity by removal, provided that the removal does not give the state an unfair advantage.

The state-court action in Bergemann was one of a series of actions that police officers filed against Rhode Island regarding the state’s handling of certain wage and benefits matters. In addition to certain state-law claims, the officers alleged that Rhode Island’s failure to compensate them for lunch breaks violated the Fair Labor Standards Act (FLSA). Capitalizing on the FLSA claim, Rhode Island removed the action to federal district court and moved to dismiss the FLSA claim based on sovereign immunity. The federal district court granted that motion.

On appeal, the First Circuit acknowledged that a state could waive its immunity defense by (1) participating in a federal program that required its forfeiture, (2) expressing consent to a suit, or (3) engaging in conduct during litigation tantamount to consent. But the First Circuit held that waiver by litigation conduct occurs only when a state employs “procedural maneuvering” to gain an inequitable advantage. For instance, the First Circuit noted that it would be unfair to permit the state to bring a claim in federal court and shield itself from liability on a counterclaim by invoking sovereign immunity. But, using the same rationale, the First Circuit found that a state did not waive sovereign immunity when it sought an order in federal court to overturn an administrative arbitration award on the basis that it was entitled to immunity from damages.

The First Circuit looked to the nature of Rhode Island’s immunity defense in both state and federal court and held that Rhode Island consistently maintained that it was immune from the FLSA claims. As such, Rhode Island had not waived its immunity by removing the case to federal district court.

— Alicia R. Whiting-Bozich, Buckley King, LPA, Cleveland, OH

January 17, 2012

New Year Brings New and Revised State-Court Rules for E-Discovery

More than 30 states now have civil discovery rules regarding e-discovery modeled (more or less) on the 2006 amendments to the Federal Rules of Civil Procedure. A few states have recently adopted e-discovery rules (including Oregon, Connecticut, and North Carolina). Tom Allman, an adjunct professor at the University of Cincinnati College of Law and chair emeritus of Working Group 1 of the Sedona Conference, has published a new guide to state e-discovery rules and gave a recent webinar hosted by vendor Fios discussing the new rules, trends in rulemaking, and differences between state rules and the federal rules. The webcast can be accessed here and his paper can be downloaded here.

— Seth H. Row, Parsons Farnell & Grein LLP, Portland, OR

January 11, 2012

Court Refuses to Dismiss Employment Case Compared to Iqbal

McGee v. City of Chicago, No. 11 C 2512, 2011 WL 4382484 (N.D. Ill. Sept. 16, 2011) centered on alleged claims of employment discrimination against the City of Chicago and two of its employees, Ellen O’Connor and Rosemarie Andolino. Plaintiff Jill McGee brought several section 1983 claims, most of which were dismissed under 12 (b)(6) for failure to state a claim, on the grounds that section 1983 cannot be used to remedy Americans with Disabilities Act (ADA) and Family Medical Leave Act (FMLA) violations. McGee had filed a complaint with the Equal Employment Opportunity Commission (EEOC) and the Illinois Department of Human Rights (IDHR) under section 1983, on violation of the ADA, the FMLA, and the Equal Protection Clause of the 14th Amendment, as a result of the allegedly discriminatory behavior that she experienced at the hands of the City of Chicago and its employees, two of her supervisors.

Read the full case note.

— Michelle D. Golden, M.P.A., J.D., Ave Maria School of Law, Naples, FL

January 11, 2012

Court Questions Plausibility Standard, Then Dismisses Complaint

In Dennis Black, et. al, v. Pension Benefit Guaranty Corp., No. 09-13616, 2011 WL 3875055 (E.D. Mich. Sept 2, 2011), the court, like several courts across the country, expressed concerns about the effects of “plausibility pleading” on the accessibility of the federal courts to citizens in all categories of cases. The court noted the potential of the plausibility standard set forth in Twombly and Iqbal to chill a potential plaintiff’s lawyers’ willingness to bring an action and also make it more likely that a case will be terminated under Rule 12 (b)(6), thereby reducing a citizen’s ability to employ the nation’s courts in a meaningful manner. However, in spite of this concern, the court in Pension acknowledged that it still was bound to assess the particular pleading before it by the plausibility standard set forth in Twombly/Iqbal.

Read the full case note.

— Michelle D. Golden, M.P.A., J.D., Ave Maria School of Law, Naples, FL

January 4, 2011

New York Bar Association Publishes E-Discovery Best Practices

Recently, the New York State Bar Association’s Commercial and Federal Litigation Committee published Best Practices in E-Discovery in New York State and Federal Courts, containing 14 guidelines to serve as e-discovery best practices. The report is simple, practice-oriented, and summarizes the current state of e-discovery law in New York. It also contains a glossary of commonly used electronically stored information (ESI) terms. The report openly acknowledges the uncertainty that surrounds many e-discovery issues and, unsurprisingly, calls for greater cooperation and collaboration between counsel during e-discovery. Additionally, the report frequently stresses the importance of being well informed and keeping up to date on new developments in both law and technology.

Report at 1.

The guidelines follow the general arc of litigation, and focus on pre-litigation preservation, collection and production, review, and e-discovery costs.

The preservation guidelines (1–3) discuss the murky rules surrounding when there is a pre-litigation duty to preserve ESI, what ESI should be preserved, what a litigation-hold notice should say, and to whom it should be given. The report emphasizes that the answers to these questions will be very fact-specific, but that an attorney should err on the side of caution when deciding preservation issues.

The collection and production guidelines (5–9) highlight the importance of a well-informed “meet and confer” conference, specificity in requests for production, and the organization needed for a careful collection and production. The report emphasizes that for e-discovery to be as time- and cost-efficient as possible, attorneys need to familiarize themselves with their client’s information systems. Also, the guidelines suggest that attorneys make their production requests as specific as possible, including requesting the form of production. In addition to specific requests, the guidelines ask that objections to production also be specific, avoiding boilerplate objections. If there is no agreement regarding production, the guidelines suggest that the attorneys seek judicial intervention before production begins, to obviate the need for a costly second round of production. Finally, the guidelines caution attorneys to be careful with how ESI is being collected, because certain methods of collection can alter or destroy ESI.

The review guidelines (10–11) focus on conducting an efficient review of the produced documents and non-waiver agreements, in those cases where privileged documents are inadvertently delivered to opposing counsel. The guidelines give suggestions for searching through the produced documents and suggest the use of automated search tools when the volume of materials is too large. Additionally, the guidelines remind attorneys of the availability of non-waiver agreements to maintain privilege for inadvertently sent documents, under Federal Rule of Evidence 502 and New York Rule of Professional Conduct R.4.4(b).

The cost guidelines (12–14) stress the importance of controlling e-discovery costs, cost shifting, and court sanctions for spoliation of ESI. The guidelines suggest that, in situations where there will be a costly production, the parties should attempt to reach a cost-sharing agreement. The guidelines also note that the cost allocation is different in federal court versus New York state xourt. In federal court the producing party usually pays the cost of production, whereas some New York state courts have held that the party requesting the ESI should pay for production.  The guidelines also remind attorneys that destruction of ESI or the failure to preserve relevant ESI can result in sanctions for spoliation.

While the report may prove too simplistic for an experienced e-discovery practitioner, the guidelines it contains are a helpful baseline and checklist for any attorney.

— Erin Aycock, White & Case LLP, New York, NY

December 29, 2011

New Federal Jurisdiction and Venue Rules Take Effect January 6

The new year brings with it new rules related to jurisdiction and venue in federal courts.

The Federal Courts Jurisdiction and Venue Clarification Act of 2011, which takes effect on January 6, 2012, contains provisions that amend 28 U.S.C. §§ 1332, 1391, 1404, 1441, and 1446. The act also repeals 28 U.S.C. § 1392 and adds the following new code sections: 28 U.S.C. §§ 1390 and 1455.

Practically speaking, the act significantly changes the process for removing cases from state court to federal court. The act provides that each defendant has 30 days after service to remove a state-court action to federal court. The act also provides that all defendants—including earlier-served defendants—must join in or consent to removal before the state-court action will be removed to federal court.

For a state-court action that includes (1) claims based on a federal question and (2) non-removable state-law claims, the act provides that only the federal question claims will proceed in federal court, while the non-removable state-law claims will be remanded to state court. Moreover, only the defendants against whom the federal question claims are asserted are required to join in or consent to removal in such a situation.

As to removal based on diversity of citizenship, the act more clearly defines the “citizenship” of foreign corporations and insurers. The act also allows a defendant to include in its notice of removal information from the state-court action (i.e., discovery responses) to establish that the amount in controversy exceeds the required amount where the complaint otherwise (1) seeks only nonmonetary relief or (2) pursuant to state pleading practice (a) does not state a specific sum, or (b) seeks damages over and above an amount specifically stated. And where the federal court finds that a plaintiff deliberately and in bad faith failed to disclose the actual amount in controversy to prevent timely removal, the act allows removal even though more than one year has passed since the state-court action was filed.

To see all of the act’s provisions affecting practice in federal court, please review the act, H.R. 394, which the president signed into law as Public Law 112-63 on December 7, 2011.

— Matthew Bakota (Cincinnati) and Stacy Chubak Hinners (Cleveland), Buckley King Co., LPA

December 22, 2011

Debate Rages over Public-Policy Impact of Iqbal/Twombly

Here at PP&D we have followed the developments in the law since the Supreme Court’s twin decisions in Iqbal and Twombly closely. Those two decisions (in 2007 and 2009) changed one of the most fundamental aspects of pretrial practice: the standard that is applied on a motion to dismiss to factual pleadings in the complaint. The Court replaced the old standard, under which a complaint would be dismissed if there was no set of facts under which the claims could entitle the plaintiff to relief. After Iqbal/Twombly, to survive a motion to dismiss the complaint must include allegations making entitlement to relief not just possible, but plausible. Since the decisions, the courts of appeals and trial courts have attempted to apply the new standard, with some variance in the results, as we have chronicled on this website, particularly with our well-known Iqbal/Twombly case chart.

Immediately following the decisions there was much discussion of the public-policy implications of the new standard, with some predicting that civil rights and other disadvantaged plaintiffs would find their access to justice through the federal courts further curtailed. However, a March 2011 study by the Federal Judicial Center (FJC), updated in November 2011, found that there had barely been any change in the rate at which motions to dismiss have been granted, which some have argued shows that there have been no adverse public-policy impacts of the new standard.

A Yale researcher has recently completed a new analysis suggesting that the FJC analysis was incomplete and failed to account for “defendant selection, “plaintiff selection” and “bilateral selection” effects of Iqbal/Twombly and that the decisions have actually produced a large impact on the number of cases that are getting past the pleadings stage and into discovery. The paper, “Locking the Doors to Discovery?” is forthcoming as a note in the Yale Law Journal, concludes that as many as 16 percent of cases facing a motion to dismiss have been stopped from reaching discovery on at least some claims, as a direct result of Iqbal/Twombly, largely due to defendants being more willing to “roll the dice” on a motion to dismiss against a stronger class of complaints. However, the report does not conclude that the impact has been felt disproportionately in civil-rights cases.

— Seth H. Row, Parsons Farnell & Grein LLP, Portland, OR

December 21, 2011

As 2011 Winds Down, Two Important E-Discovery Developments

This year has seen its share of important cases, as we have chronicled here in the News & Developments page of PP&D. (On that note, look for 2012 to bring you a dedicated page collecting all of our e-discovery-related content, for easier searching). But as 2011 winds down we have two new developments to report that portend even bigger things to come in 2012.

First off, the District of Delaware updated its default standards for e-discovery, on December 8, 2011. As you will remember, that district was first out of the gate with e-discovery rules in 2004, anticipating the Federal Rules of Civil Procedure changes by a full two years. Delaware’s federal courts now continue the forward-thinking trend. The updated rules specifically address the hottest topic right now in e-discovery: the duty to preserve, specifically with regard to unallocated space. The rules state that such data need not be preserved absent a showing of good cause. Also, like the heavily discussed model order released this fall for patent cases (see Aaron Gould’s October 25, 2011 N&D on that topic) the Delaware rules appear to set a presumptive initial limit on the number of custodians from whom electronically stored information can be demanded, and set default limits on the number of search terms. The rules set default standards for form of production as well: static images with load files, native format reserved only for spreadsheets, and similar file types.

Hot on the heels of those new rules, on December 13, 2011, the House Judiciary Subcommittee on the Constitution finally held its oft-postponed hearing on civil procedure in the federal courts specifically addressing the burdens of e-discovery. Partisan battle lines were drawn early with Chairman Trent Franks (R) taking the position most commonly associated with “big business”: that the discovery rules create unfair burden and expense. Two minority members of the committee often associated with consumer protection and civil rights interests then elicited testimony that only a small proportion of cases involve huge or seemingly disproportionate discovery costs. The House committee also heard testimony about the efforts of the Judicial Conference’s Advisory Committee on Civil Rules, Discovery Subcommittee, to tackle the issues of preservation and sanctions and the impact that those are having on the expense of discovery. The Advisory Committee is specifically considering changes to the federal rules that would clarify when the duty to preserve attaches and how far-reaching preservation must be. The House committee ended its hearing with the sentiment that the Advisory Committee should be permitted to complete its work and make a recommendation as to further action, before Congress acts.

The new Delaware rules, the model patent rules, and the congressional attention all appear to point to the same place: a feeling among many that additional guidance and limits on e-discovery are needed. It is expected that the Judicial Conference’s Advisory Committee will make a decision on recommendations in March 2012. The group working on this issue held a “mini-conference” in September 2011 for invited participants, the materials for which are available here. Look for PP&D to bring you extensive analysis of the considerations at play as this issue develops, including exclusive content from some of the few non-judges invited to participate in the mini-conference, in a few months.

— Seth H. Row, Parsons Farnell & Grein LLP, Portland, OR

December 6, 2011

Discovery Allowed Regarding Litigation Hold Despite Lack of Spoliation

In an unusual move, a federal magistrate judge in the District Court of Nevada has permitted discovery regarding a litigation-hold notice despite the fact that there is no suggestion of spoliation.

Without a good-faith basis that information has been destroyed or wrongfully withheld, a litigation-hold letter is generally not discoverable; this is especially so when the letter contains privileged material. See, e.g., Major Tours, Inc. v. Colorel, No. 05-3091 (D.N.J Aug. 4, 2009). But, in Cannata v. Wyndham Worldwide Corp., No.10-68 (D. Nev. Nov. 17, 2011), a federal magistrate judge in the District of Nevada, relying upon the infrequently cited case In re eBay Seller Antitrust Litigation, No. 07-CV-01882(RS) (N.D. Cal. Oct. 2, 2007), determined that the details surrounding a litigation hold letter were indeed discoverable.

The plaintiffs in this sexual harassment and discrimination claim sought information regarding the litigation-hold letter that the defendant had distributed. The defendant first sought, in an emergency motion for a protective order, to limit the discovery to the names of the recipients and a previously produced, redacted, interoffice memorandum with preservation-hold instructions. The court denied this motion. The plaintiffs, unhappy with the defendant’s responses to further discovery requests, returned to court. This required the court to spell out the precise scope of discoverability with regard to the litigation-hold letter. Relying on In re eBay Seller Antitrust Litigation,the court determined that although the litigation-hold letter itself was privileged, the details surrounding the litigation hold were discoverable. Specifically, the court found discoverable: who received the letter; when the letter was sent; what locations of electronically stored information (ESI) were covered (desktops, etc.); and what kinds and categories of ESI the letter directed employees to preserve and collect. Referring to its previous order, the court noted that the plaintiffs were entitled to know what actually happened in response to their substantive discovery requests. Additionally, the court noted that these requests may, “ultimately benefit [the] defendants if questions ever arise concerning [the] defendants (sic) efforts to preserve relevant ESI.”

In In re eBay Seller Antitrust Litigation, the court, without analysis, determined that the defendant could not foreclose all inquiry into the contents of litigation-hold letters. The court held that the plaintiffs were entitled to information about what categories of ESI employees were instructed to preserve and collect and what specific actions the employees undertook to carry out those instructions. The court acknowledged that this information could, “indirectly, implicate communications from counsel to the employees, [however,] the focus can and should be on the factsof what eBay’s document retention and collection policies are[.]” Id. at *3.

While most courts continue to require some good-faith basis to believe that spoliation has occurred before they will allow “meta-discovery” (i.e., discovery about the steps taken to respond to discovery requests), it is unclear whether or not more courts will pick up on the In re eBay Seller Antitrust Litigation thread and allow more, costly, meta-discovery in cases without spoliation issues.

— Erin Aycock, White & Case LLP, New York, NY

November 22, 2011

Third Circuit Adopts the "Later-Served" Rule

A recent decision from the Third Circuit Court of Appeals highlights the longstanding circuit divide on the proper method of calculating the thirty-day deadline for removal in multi-defendant litigation. In Delalla v. Hanover Ins., Nos. 10-3933 and 11-1532, (3d Cir., Oct. 12, 2011), the Third Circuit joined the Sixth, Eighth, Ninth, and Eleventh Circuits by adopting the “later-served” defendant rule for multi-party actions in which codefendants are served on different dates. Under the approach embraced by the Third Circuit, each individual defendant has an independent right to seek removal within thirty days of receipt of service irrespective of when the other defendants are served.

In Delalla, the plaintiffs filed a lawsuit in state court alleging legal malpractice against their former attorneys and an insurance company in connection with the settlement of a trademark dispute. The plaintiffs staggered service of process, serving the insurance company nine days before the attorney defendants. The attorney defendants removed the case to federal court within thirty days of being served, but their notice of removal was filed more than thirty days after the insurance company received service. The plaintiffs subsequently moved to remand the action to state court, arguing that removal was untimely because the thirty-day window began to run from the date the insurance company was first served. The district court denied the plaintiffs’ motion and applied the “later-served” rule, holding that the attorney defendants’ notice of removal was timely because it was filed within thirty days from when they received service.

On appeal, the Third Circuit affirmed the district court’s decision and adopted the “later-served” rule, concluding that it “represent[ed] the most faithful and equitable reading of the removal statute.” In reaching this decision, the Third Circuit rejected the “first-served” rule embraced by the Fifth Circuit and the so-called “intermediate” approach adopted by the Fourth Circuit. Under both the “first-served” and “intermediate” approaches, no defendant may seek to remove a case more than thirty days after the first defendant is served. (The “intermediate rule” requires a notice of removal to be filed within the first served defendant’s thirty-day window, but gives later-served defendants thirty days from the date they were served to join in the notice of removal.)

Although the Third Circuit acknowledged that its decision conflicts with the holdings of the Fourth and Fifth Circuits, it found that the plain text of the federal removal statutes supported its adoption of the “later-served” rule. In addition to this textual argument, the Third Circuit determined that the “later-served” rule was the more equitable approach because it gives each defendant an equal amount of time in which to decide whether or not to file a notice of removal. Thus, “a defendant’s right to removal is protected without regard to when that defendant was served.”

In sum, the Third Circuit’s holding in Delalla sets forth a bright-line rule for determining the time allowed for removal in multi-defendant lawsuits. Nonetheless, the conflicting case law on this important question of civil procedure makes it very likely that the U.S. Supreme Court will intervene and issue authoritative guidance in the near future.

— Christopher L. Williams, Proskauer Rose LLP, New Orleans, LA

November 16, 2011

Government May Obtain Twitter Data Without Warrant

Last week, federal prosecutors obtained a crucial victory in the criminal investigation of Wikileaks when federal Judge Liam O’Grady of the Eastern District of Virginia upheld an order requiring that Twitter produce records concerning Wikileaks, its founder Julian Assange, and three Twitter subscribers (petitioners) with suspected ties to Wikileaks. The decision  requires that Twitter produce records, including the petitioners’ Twitter user names, all contact information associated with the accounts, billing records, and all user activity records from their Internet protocol (IP) addresses, even though the petitioners are not actual targets in the Wikileaks investigation. Twitter notified the petitioners about the government’s request, although it lacked a legal duty to notify. The prosecutors obtained the Twitter data, without a warrant, using the Stored Communications Act (SCA). Judge O’Grady’s analysis of Fourth Amendment privacy issues may have far-reaching e-discovery and privacy-related implications in future cases.

The government began investigating Wikileaks in 2010 after the website published classified information about the Iraq and Afghanistan wars, including a controversial video depicting a violent 2007 military mission in Iraq. Rather than securing a warrant for the petitioners’ Twitter account data, the prosecutors sought a court order for production of the data from Twitter under the Stored Communications Act. Under the SCA, the government need not notify a customer or subscriber of an “electronic communication service” that it is seeking their records if the government: (1) seeks non-content records about the customer or subscriber and if it (2) can offer specific facts that prove the records are relevant and material to an ongoing criminal investigation. 18 U.S.C. § 2703(c)(3),(d). The SCA, however, requires notice to subscribers, and a warrant, for certain information, especially if the government seeks the content of electronic communications. The petitioners agreed that the government requested non-content records rather than particular Twitter electronic communications.

The petitioners filed two motions to prevent Twitter from producing their data. The petitioners’ first motion sought to vacate the order because the government did not offer sufficient proof that the petitioners’ Twitter activity related to the Wikileaks investigation. The petitioners also argued that the order violated their privacy rights under the Fourth Amendment. Judge O’Grady began his opinion by deciding that the government’s sealed affidavit contained enough specific facts that showed the Twitter records were relevant to the ongoing Wikileaks criminal probe. The import of Judge O’Grady’s decision, however, lies in his analysis of the petitioners’ Fourth Amendment rights regarding their Twitter account data.

The government’s request primarily focused on the Internet protocol (IP) address information associated with the petitioners’ Twitter accounts. Every computer connected to the Internet transmits data from a specific IP address; most websites, like Twitter, keep records of those IP addresses and of specific user information. In his ruling, Judge O’Grady clarified that gaining online access necessarily demands that all Internet users transmit their IP address information out of private home spaces and onto online routers that then convey traffic to specific websites. Thus, because the petitioners made their IP addresses public to all routers conveying information to Twitter, they lacked a reasonable expectation of privacy in that data. Judge O’Grady also noted that there was no evidence that the government monitored the petitioners’ private spaces using the public IP address information, and suggested that any privacy concerns should be directed at Twitter, which maintains the subscriber IP logs.

Twitter’s privacy policy further weakened the petitioners’ Fourth Amendment claims. Under the Fourth Amendment’s third-party doctrine, individuals lack a reasonable expectation of privacy in information they relinquish voluntarily. Here, the court noted that the petitioners, like all Twitter users, willingly exposed their IP address to access the website. In addition, the petitioners accepted Twitter’s privacy policy, which states that Twitter may disclose user information if it believes, as it did here, that disclosure “is reasonably necessary to comply with a law, regulation or legal request.” Twitter, therefore, correctly complied with the government’s request because the government sought data about a viable criminal investigation.

Judge O’Grady’s ruling additionally rejected the petitioners’ second motion, which sought to unseal documents filed in support of the order. The court essentially concluded that disclosing the underlying affidavits and other records would jeopardize the government’s criminal investigation of Wikileaks because those documents contained extremely sensitive information, including data regarding potential additional investigative targets. Likewise, Judge O’Grady reasoned that the supporting affidavits should remain secret despite the immense publicity surrounding the case. Ultimately, even though Judge O’Grady’s decision upsets privacy advocates, his analysis arguably follows established precedent under the SCA, and probably allows additional warrantless disclosures of electronic records.

— Rafael Rosario, White & Case LLP, New York, New York

November 10, 2011

First-filed FCA Complaints Need Not Meet Heightened Standard to Bar Later Complaints

In a matter of first impression, the Federal Circuit in U.S. ex rel. Batiste v. SLM Corp., No. 10-7140 (D.C. Cir. Nov. 4, 2011), held that first-filed complaints under the federal False Claims Act, 31 U.S.C. §§ 3729-3732 (FCA), need not meet the heightened pleading standard of Fed. R. Civ. P. 9(b) to bar later complaints. Although the Federal Circuit observed that qui tam complaints generally must satisfy Rule 9(b)’s particularity requirements or be subject to dismissal, the court declined to read into section 3730(b)(5) of the FCA a second application of Rule 9(b). The Federal Circuit refused to adopt a policy of conducting its own Rule 9(b) analysis of complaints filed in other federal district courts as part of its analysis of the first-to-file bar of section 3730(b)(5).

Relator Batiste’s complaint alleged that student-loan administrator SLM Corp. (commonly called Sallie Mae) defrauded the government by presenting claims for funds to the government, each of which included false certifications that the data submitted with the claims were correct and conformed to federal law. The complaint further alleged that SLM Corp. also unlawfully put student loans into forbearance. Batiste formerly worked as a senior loan associate at a subsidiary of SLM Corp. and allegedly acquired personal knowledge of the fraudulent scheme.

The Federal Circuit observed that a former employee of another SLM Corp. subsidiary had filed a qui tam complaint in the Southern District of Indiana more than two years before Batiste. The court further observed that the prior complaint alleged the same corporation-wide scheme and the same material elements of fraud. The court found that the prior complaint, which was pending when Batiste filed his own complaint, sufficed to equip the government to investigate SLM Corp.’s alleged fraudulent practices and was the “first-filed” under section 3730(b)(5) of the FCA.

Batiste, with support from the United States as amicus curiae, attempted to avoid the first-to-file bar by arguing that that the first-filed complaint failed to meet Rule 9(b)’s heightened pleadings requirements for fraud claims. Therefore, Batiste argued, the first-filed complaint could not bar his later complaint that met those requirements. The Federal Circuit rejected this argument and the “strange judicial dynamic” it would create in future qui tam cases if a district court conducted a review of the sufficiency of a complaint in another district court and, potentially, reached a different conclusion. The court found that Batiste’s argument also would be contrary to the FCA’s goal of minimizing duplicative claims, would encourage opportunistic behavior, and would have a negligible impact on desirable whistle-blowing.

— Matthew J. Bakota, Buckley King Co, L.P.A., Cincinnati, OH

November 10, 2011

Spoliation of Facebook Evidence Leads to Sanctions, Verdict Reduction

A Virginia trial court recently imposed over $700,000 in monetary sanctions on a former managing partner of a well-known personal-injury firm, and his widowed client, for, among other things, obstructing the production of Facebook screen shots. The brazen misconduct, by both the experienced attorney and his widowed client, also influenced the court’s substantial reduction of a $10.6 million trial award. Perjury charges may now await the widowed client, and his attorney likely faces disciplinary action from the Virginia State Bar. Such harsh consequences could likely have been avoided by complying with a relatively simple electronic-discovery request.

The tragic accident underlying the suit occurred on June 21, 2007, when a cement truck crashed into the plaintiff, Isaiah Lester, and his wife, Jessica. Lester sued Allied Concrete Co. for negligently causing the accident that resulted in his wife’s death, and for his own injuries. Matthew B. Murray, managing partner of the Allen Firm’s Charlottesville, Virginia, office, represented Lester.

A September 1, 2011, order, issued by the Virginia Circuit Court, explains how Murray and Lester destroyed readily available electronic evidence. In March 2009, Allied served interrogatories requesting screen shots of all pages from Lester’s Facebook account as of the date of Murray’s response to the interrogatories. Murray was concerned that Lester’s Facebook page could harm the case. Lester’s Facebook account, for instance, contained a picture of him holding a beer and wearing an “I [heart] hot moms” t-shirt. Murray spoke with one of his paralegals and later that day, the paralegal emailed Lester and told him to “clean up” his Facebook account. Murray and his paralegal, however, crucially overlooked that Facebook content, like most electronic information online, often can be retrieved once “deleted.”

The plaintiff followed Murray’s advice and deactivated his Facebook account on April 14. The next day, Murray’s response to the interrogatories noted that his client could not produce any Facebook screen shots because Lester lacked an account. When Allied contested Murray’s response, Murray asked his paralegal to notify Lester about reactivating his Facebook account. Lester complied, and promptly deleted 16 pictures from his Facebook page. Murray then produced pictures from Lester’s reactivated Facebook account, without ever informing opposing counsel about Lester’s deleted content.

Both parties retained experts who, after reviewing Lester’s Facebook IP logs, confirmed that evidence spoliation occurred when Lester deleted the 16 photos. Interestingly, Allied’s expert recovered all but one of the allegedly deleted photos. Relying on the expert testimony, and other evidence presented at an evidentiary hearing, the trial court gave the jury an adverse-inference instruction permitting the jury to infer that the deleted Facebook content likely harmed Lester’s case. Despite the instruction, and Murray’s questionable trial tactics, which included crying during the trial and stating that the defendant “killed” Lester’s wife, a jury found Allied negligent and awarded Lester a hefty $10.6 million.

After the trial, in the September 1, 2011, order, the Virginia Circuit Court concluded that Murray had violated Virginia Supreme Court Rule 4.1(g)—which regulates the signing of discovery requests—by drafting a misleading response to Allied’s interrogatories, and by instructing Lester to deactivate his Facebook account. The court further sanctioned Murray because he knowingly submitted a privilege log that excluded the email his paralegal sent Lester about “cleaning up” the Facebook account. Notably, the court also reduced Lester’s trial award by over $4 million, and remitted that amount to Jessica Lester’s parents, because it found the jury’s award overlooked the economic and emotional harm Jessica Lester’s parents suffered. Murray and Lester’s conduct during discovery and at trial appear to have contributed to the court’s considerable reduction. In addition to reducing the trial award, the court also required that Murray pay $542,000 in sanctions and that Lester pay $180,000. The court’s final order is available here. Lester’s case reinforces the importance of adequately preserving and producing readily available electronic information, and illustrates how evidence spoliation can harm a winning case.

— Rafael Rosario, White & Case LLP, New York, New York

October 25, 2011

Federal Circuit Releases Model E-Discovery Order for Patent Cases

The U.S. Court of Appeals for the Federal Circuit has recently unveiled a model e-discovery order intended to limit e-discovery in patent cases. The stated purpose of the order is to control excessive e-discovery, including disproportionate and overbroad e-mail production requests, which carry staggering time and production costs and have a debilitating effect on litigation. The court believes that e-discovery in patent litigation generally pertains to a narrow set of issues. The order is intended to narrow the scope of parties’ e-discovery requests to the most relevant aspects of a patent case. The court hopes the order in practice will curb disproportionate e-discovery costs, with the goal of making the court more available to all parties seeking to vindicate their patent rights.

Highlights of the order include the following:

• Costs will be shifted for disproportionate electronically stored information (ESI) production requests pursuant to Rule 26. Meaningful compliance with the order and efforts to promote efficiency will be considered in cost-shifting determinations. Likewise, a party’s nonresponsive or dilatory discovery tactics will be considered.

• General ESI requests under Rule 34 and 45 shall not include metadata, absent a showing of good cause.

• Requests for email production must be separate from other general ESI requests and must pertain to specific issues, not general discovery of a product of business.

• Each requesting party is limited in its email requests to five custodians per producing party and five search terms per custodian. The parties may jointly agree to modify these numbers without the court’s leave. The court will consider contested requests for up to five additional custodians per producing party and five additional search terms per custodian, upon a showing of distinct need.

• Pursuant to Rule 502, the inadvertent production of a privileged or work-product-protected ESI is not a waiver in the pending case or in any other federal or state proceeding.

The order disfavors the use of broad email requests and places specific limits on the manner and use of these types of requests in patent cases. The court specifically states in its introduction, that it views email requests as tangential to the most significant issues in patent litigation. Therefore, it is unclear whether the order foreshadows the use by other Courts of limitations on e-mail requests or is merely a product of this Court’s view as to the relevance of emails to patent cases. The court’s statements regarding the pertinence of email requests to patent litigation seems to limit the applicability of the order’s provisions on email requests, especially in cases—such as employment actions—where emails commonly play an important role.

However, an important takeaway from this order is that the significance of ESI and categories of ESI will be different in every case. It is important for parties and courts to work together to tailor e-discovery based on relevance to the issues with the goal of curbing discovery abuse and bringing down litigation costs. It is clear from this order and the Seventh Circuit’s Pilot Program that courts are now more willing to take a proactive role to provide parties with e-discovery guidelines that go beyond what is provided for in the rules, to further those goals. Litigants can expect that more of these types of programs, orders, and guidelines are forthcoming from other courts and jurisdictions.

Look for a full analysis of the implications of this model order on other arenas of civil litigation in an upcoming issue of our newsletter.

— Aaron H. Gould, Podvey, Meanor Catenacci, Hildner Cocoziello & Chattman, P.C., Newark, NJ

October 25, 2011

9th Cir. Tightens Requirements, Rigor of Class-Certification Analysis

On September 16, 2011, the Ninth Circuit Court of Appeals held in Ellis v. Costco Wholesale Corp., No. 07-15838, slip op. (9th Cir. Sept. 16, 2011)that a trial court was required to examine the merits of individual class members’ claims in the context of a class-certification dispute. Ellis involves claims brought by Costco employees asserting gender discrimination against the wholesaler, and is strikingly similar to Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011) decided by the Supreme Court last term, in which female employees were denied class certification. The proposed Ellis class consisted of current and former female Costco employees who had allegedly been passed over for various management promotions nationwide.

In Dukes, the class representatives attempted to certify the largest class action in United States history. In the majority opinion, Justice Scalia underscored the importance of careful and “rigorous” consideration when determining whether the FRCP 23(a) threshold requirements for class certification—numerosity, commonality, typicality, and adequate representation—have been met. The Dukes decision overruled 9th Circuit precedent that allowed monetary damages in an FRCP 23(b)(2) (injunctive and declaratory relief) class action, where the plaintiffs subjectively intended that the injunctive relief claim be “predominant.” At the time that Wal-Mart was decided, the Ellis plaintiffs had already received class certification from the U.S. District Court for the Northern District of California, and Costco’s appeal was awaiting review by the 9th Circuit.

In Ellis the Ninth Circuit held that under Dukes the “commonality” inquiry under FRCP 23(a) must involve consideration of the merits, inasmuch as the plaintiff must show a “common question” connecting individual employment decisions to the claim. The Ninth Circuit took issue with the trial court’s consideration of expert testimony; the trial court seems to have relied on the mere fact that the plaintiffs’ expert’s testimony was admissible under Daubert, without thereafter conducting a “rigorous analysis” of the persuasiveness of the evidence. This places a greater onus on the court reviewing a request for certification to decide factual contentions regarding the merits when deciding whether to grant or deny certification. Therefore, the certification proponent must be prepared to make a greater showing on the merits than may have been required in some courts before.

Ellis also applied Dukes’holding thatindividualized damages claims will generally render FRCP 23(b)(2) certification inappropriate because of Due Process concerns. Although the Ellis plaintiffs’ claims were similar to the claims in Dukes for individual backpay, which were fatal to that certification effort, the Ninth Circuit in Ellis did not simply reverse the trial court’s certification under FRCP 23(b)(2). Rather, the appeals court permitted the trial court to reexamine the issues, including whether to certify both an FRCP 23(b)(3) and an FRCP 23(b)(2) class, and whether punitive damages could be sought by an FRCP 23(b)(2) class.

Are the federal courts trying to limit the number of class actions litigated or protect the non-representative class members from prejudice to their interests? Likely, both policies are at work in these cases. Prepare for more bright lines and limitations in the area of class-action litigation as this area of law develops along with the federal courts’ interpretation of the federal rules.

— Marcelis Morris, Loyola Law School

October 14, 2011

Courts Are Expanding Recovery of E-Discovery "Costs"

“The court is persuaded that in cases of this complexity, e-discovery saves costs overall by allowing discovery to be conducted in an efficient and cost-effective manner.” With that opening, Judge Legrome Davis of the Eastern District of Pennsylvania has joined the raging debate over taxation of e-discovery expenses as “costs” under 28 U.S.C. § 1920.  This case first grabbed the e-discovery version of “headlines” when in July 2011 the clerk of court issued a 70-page written decision awarding over $500,000 in e-discovery costs. That decision was appealed to the district court, which on October 5, 2011 affirmed in part and reversed in part the clerk’s determinations. In re Aspartame Antitrust Litigation, No. 07-CV-1732  (E. D. Pa., Oct. 5, 2011). The court agreed that e-discovery costs for items like processing, de-duplication, hosting, keyword and privilege searching, and forensic-tape restoration should be awarded, but the court denied costs for the use of a “concept search” function used by defendants (Attenex Document Mapper) as “advanced technology” that “exceeds necessary keyword search and filtering functions” and was “acquired for the convenience of counsel.” E-discovery practitioners will note the discrepancy between this court’s apparent treatment of keyword searching as a kind of gold standard and recent comments from the judiciary (in opinions and industry publications) criticizing keyword searching and endorsing “advanced technology” such as concept searching and predictive coding.

The In re Asparatme decision comes on the heels of another decision out of Pennsylvania, Race Tires of America, Inc. v. Hoosier Racing Tires Corp., No. 07-1294 (W.D. Pa. May 6, 2011) in which Judge McVerry of the Western District offered the understatement that “[E]-discovery has become a necessary and sometimes costly function of civil litigation.” In Race Tires the court awarded the prevailing two defendants over $350,000 in e-discovery expenses, finding that the expenses were authorized under the category of “fees for exemplification and the costs of making copies of any materials where the materials are necessarily obtained for use in the case.” The court held that because the plaintiff had agreed to the procedures used by defendants and had been aggressive with its discovery requests, and because the defendants’ vendors had performed highly specialized tasks not akin to paralegal work, the defendants would recover all of their costs.

Race Tires was an antitrust case involving suppliers of dirt-track auto-racing tires. The case was marked by extensive and repeated disputes between the parties over electronic discovery. The parties attempted to control the disputes with an e-discovery case-management order specifying what types of documents would be produced in what formats and setting goals for agreement on keywords, but ended up filing 11 discovery-related motions. The plaintiff was particularly aggressive in discovery, resulting in the defendants collecting over 490 gigabytes from their servers.

Both courts noted that since a 2008 change in the statute permitting costs for copying “any materials” (the prior statute had said “copies of papers”), no court had categorically rejected e-discovery costs under section 1920. Most courts have awarded costs for scanning paper documents into electronic form. But some courts have refused to award costs for thoroughly processing electronically stored information and creating databases. See Fells v. Va. Dept. of Transp., 605 F. Supp.2d 740, 741 (E.D. Va. 2009); see also Specht v. Google, Inc., No. 09-2572 (N.D. Ill., June 27, 2011) (no e-discovery costs where parties did not agree to exchange electronically). And, some courts have denied costs for vendor collection and processing data, reasoning that such expenses were similar to paralegal work, which is not recoverable under the statute. See Klayman v. Freedom’s Watch, Inc., No. 07-22433 (S.D. Fla. Dec. 4, 2008). Although both the Race Tires court and the In re Aspartame courts went out of their way to limit their conclusions to the facts presented, and the awards have been or are likely to be appealed, both decisions (and other similar decisions, like Tibble v. Edison Int’l, No. 07-5359 (C.D. Cal. Aug. 22, 2011), which awarded costs for forensic searching) are being hailed for their recognition of the complexity, and necessity, of sophisticated e-discovery in modern litigation.

Stay tuned for further news & development updates on this issue and a fuller treatment in our committee newsletter.

— Seth H. Row, Parsons Farnell & Grein, LLP, Portland, OR

September 29, 2011

Federal Criminal Cases and Electronic Data Discovery

A federal magistrate judge in the Western District of New York recently called for the Advisory Committee on the Federal Rules of Criminal Procedure to adopt rules explicitly dealing with discovery of electronically stored information (ESI).  In U.S. v. Briggs,No. 10CR1845, (W.D.N.Y. Sept. 8, 2011), Magistrate Judge Hugh Scott granted a defense request that the government be required to produce documents in a searchable or native, rather than a static, format, because the government was in the better position to make the documents more useable to the defendants. The court appeared to reject the Sixth Circuit’s decision in United States v. Warshak, 631 F.3d 266 (6th Cir. 2010), which had refused a defense request for similar relief on the ground that Fed. R. Crim. P. 16 is “entirely silent” on the form of discovery.  The Briggs court held that it had the inherent power to order the re-production of the ESI over the government’s objection that its IPRO database only maintained the documents in static TIFF format, but bemoaned the lack of guidance in the rules, noting the likelihood that even routine cases will soon involve massive amounts of ESI.

Briggs comes on the heels of a prominent decision by U.S. District Judge Jose Linares in New Jersey applying evidence spoliation case law developed in the civil context to the government’s ESI preservation obligations. In U.S. v. Suarez, No. 09-932, 2010 WL 4226524 (D. N.J. October 21, 2010), Judge Linares held that the government had an obligation to preserve text messages exchanged between three FBI agents and an informant during the course of a corruption investigation. The text messages were manually deleted from the agents’ BlackBerry devices and deleted from FBI servers pursuant to a 90-day purge policy. The court held that litigation (an indictment) was “reasonably anticipated” when the text messages were sent. The court imposed a serious sanction—an “adverse inference” jury instruction—relying on Judge Scheindlin’s well-known Pension Committee decision. The defendant was acquitted.

Will the Advisory Committee heed Judge Scott’s request for consideration of rules addressing ESI?  There are substantial differences in the basic procedural rules and discovery practice between criminal and civil cases, and vastly different policy and equitable considerations, but many similar issues as well. Look for further developments to be reported on the committee’s website or in the newsletter.

 

— Seth H. Row, Parsons Farnell & Grein, LLP, Portland, OR

September 15, 2011

Application of Iqbal in the Sixth Circuit

A recent opinion issued by the Sixth Circuit Court of Appeals further illustrates the implications of Iqbal and Twombly on antitrust cases. See New Albany Tractor, Inc. v. Louisville Tractor, Inc., No. 10-5100, 2011 WL 2448909, ___ F.3d ___ (6th Cir. June 21, 2011).

In New Albany Tractor, the plaintiff (New Albany Tractor), a retail seller of riding lawnmowers, sued two companies higher up the distribution chain: a lawnmower manufacturer (Scag) and its distributor (Louisville Tractor). New Albany Tractor claimed that Louisville Tractor and Scag maintained a discriminatory pricing scheme in violation of the Robinson-Patman Act, asserting that Scag “controlled” Louisville Tractor such that it was a “strawman” doing the bidding of Scag. New Albany Tractor supported this assertion by alleging that Scag did not allow retailers in Louisville Tractor’s exclusive sales area to purchase from any other Scag distributor, and that Scag “allowed” Louisville Tractor to sell at the prices it did. The defendants moved to dismiss, arguing that, under Iqbal and Twombly, New Albany Tractor had not sufficiently alleged that Scag controlled Louisville Tractor’s prices. After initially denying the motion based on a misunderstanding as to the source of a pricing sheet submitted in opposition to the motion (a sheet created by Louisville Tractor, not Scag), the district court reconsidered its prior ruling and dismissed New Albany Tractor’s complaint with prejudice.

The Sixth Circuit affirmed. Outlining the applicable substantive legal principles, the Sixth Circuit explained that Robinson-Patman prohibits a seller (such as Scag) from providing the same product to two customers at different prices in a manner that gives one buyer a competitive advantage over the other. Id. at *3. Stating a claim under Robinson-Patman, therefore, requires a plaintiff to allege: 1) two or more contemporaneous sales by the same seller; 2) at different prices; 3) of commodities of like grade and quality; 4) which had the requisite anticompetitive effect; and 5) caused injury to the plaintiff. Id. at *3.

The Sixth Circuit concluded that New Albany Tractor’s antitrust claim failed at the threshold, because it did not allege sufficient facts to raise a reasonable inference of a contemporaneous sale by Scag to two different buyers. New Albany Tractor attempted to satisfy this element by relying on the “indirect purchaser doctrine,” which “prevent[s] a manufacturer from insulating itself from Robinson-Patman liability by using a ‘dummy’ wholesaler to make sales at terms actually controlled by the manufacturer.” Id. at *4. But New Albany Tractor failed to plead sufficient facts to demonstrate control: The Sixth Circuit explained that the mere existence of an exclusive distributorship in a market area does not violate Robinson-Patman, and the allegation that Scag “encouraged” or “allowed” Louisville Tractor to sell at the prices it did is insufficient to raise a reasonable inference that Scag “forced Louisville Tractor to sell at a certain price or that this price was discriminatory.” Id.

Finally, the Sixth Circuit held that the district court did not abuse its discretion in dismissing New Albany Tractor’s complaint “with prejudice.” New Albany Tractor received “substantial additional time to come up with more specific evidence of control by Scag over Louisville Tractor or of a differential in price paid between plaintiff and other retailers,” yet it “was unable to do so” because such facts were “unavailable” to New Albany Tractor. Id. at *5. Under these circumstances, dismissal with prejudice was not an abuse of discretion, the Sixth Circuit explained, because “Iqbal specifically orders courts . . . to refuse to order further discovery.” Id.

New Albany Tractor thus highlights the resourcefulness needed to develop evidence of price discrimination sufficient to allege a Robinson-Patman violation under the indirect purchaser doctrine after Iqbal and Twombly. The Sixth Circuit surmised that “Scag and Louisville Tractor are apparently the only entities with the information about the price at which Scag sells its products,” explained that such “pricing information is necessary in order for New Albany to allege that it pays a discriminatory price for the same Scag equipment,” and suggested that, “[b]efore Twombly and Iqbal, courts would probably have allowed this case to proceed so that plaintiff could conduct discovery in order to gather [that] pricing information[.]” Id. at 3. Counsel seeking to allege Robinson-Patman Act claims now will need to find other ways—besides filing a lawsuit based on a suspected violation of the act—to secure the requisite pricing information.

— Benjamin C. Sassé, Tucker Ellis & West LLP, Cleveland, OH

September 15, 2011

Tenth Circuit Rules No Post-Trial Appeal of Denied 12(b)(6) Motion

On August 8, 2010, the Tenth Circuit ruled that once the plaintiff had prevailed at trial, defendants could not appeal the pretrial denial of a motion to dismiss for failure to state a claim. ClearOne Communications Inc. v. Biamp Systems et al., Nos. 09-4097, 10-4090 and 10-4168 (10th Cir. 2011).

ClearOne had brought the case in January 2007 alleging that certain former employee defendants established their company using trade secrets (software code) wrongfully taken from their former employer. In 2008, a federal jury found that the defendants misappropriated ClearOne’s trade secrets by using the company’s Honeybee code to make their product.

Read the full case note.

— Mor Wetzler, Paul Hastings LLP, New York, NY

June 11, 2011

Government Contractor Sues Lawyers for Discovery Blunders

On June 2, 2011, J-M Manufacturing Company, Inc. has moved to raise the stakes once again in the world of e-discovery, filing suit against its former attorney at McDermott Will & Emory LLP in California state court for alleged discovery missteps and “abusive” billing practices that includes demands for punitive damages, attorney fees, and penalties. J-M Mfg Co., v. McDermott Will & Emory LLP, No. BC462832 (Cal. Sup. Ct., County of Los Angeles).

According to J-M’s complaint for damages, J-M had engaged the McDermott firm to represent the company in connection with a 2006 False Claims Act suit brought by a former employee and related federal and state governmental investigations concerning allegations of intentional misconduct in connection with purportedly defective sewer systems installed by J-M around the United States. In the course of assisting J-M in responding to discovery in the False Claims Act suit and certain federal and state investigatory subpoenas, McDermott hired contract attorneys to handle the review of J-M’s records for responsiveness and privilege. Allegedly, McDermott’s attorneys failed to adequately supervise the work of these contract attorneys, relying on “limited spot-checking” only, without “thoroughly review[ing] the categorizations” of vetted documents or “conduct[ing] any further privilege review.” As a consequence, J-M complains, some 3,900 privileged documents were produced, and the company has been unsuccessful in recovering them.

Additionally, J-M further complains that McDermott engaged in fraudulent, oppressive, and malicious misconduct by, among other things, “marking up” the fees and costs paid to the contract attorneys retained by the firm to conduct the deficient document review without disclosure and without contractual or other authority to engage in such mark-ups.

The suit highlights the critical importance of sound quality control and project management functionality within law firms in the e-discovery arena, not to mention the ongoing debate over proper practices with respect to billing for contract attorneys (and the relative merits of using contract lawyers versus staff attorneys).

June 11, 2011

Court Refuses to Require Production in Native Format

A recent decision demonstrates how principles of proportionality and estoppel can mitigate the consequences of early over-commitments during initial case discovery planning.

Read the full case note.

March 28, 2011

Court Imposes Sanctions More Than a Year after Settlement

In an unusual step, the court recently imposed discovery sanctions in a case tried and settled under a high-low settlement agreement in 2008.

Read the full case note.

March 21, 2011

Facciola Holds Spoliation Sanctions Premature until Close of Discovery

Magistrate Judge John M. Facciola rejected a motion for sanctions (without prejudice) based on the alleged destruction of electronic evidence on grounds of prematurity.

Read the full case note.

March 21, 2011

No Relief for Firm That Stored Confidential ESI on Backup Tapes

A New York court has refused to modify a confidentiality stipulation to ease the burden of complying with document-destruction requirements on the discovering parties' counsel.

Read the full case note.

March 2, 2011

Supreme Court Rules No Personal Privacy Rights for Corporations

On March 1, 2011, the U.S. Supreme Court ruled unanimously that a corporation, unlike an individual, does not have "personal privacy" that could be violated by disclosure of facts obtained during a law-enforcement investigation.

AT&T participated in the Federal Communications Commission’s (FCC) "E-Rate Program," providing telecommunications equipment and services to elementary and secondary schools in exchange for federal reimbursement. AT&T later informed the FCC that it had violated E-Rate rules and overbilled the government for its services. The FCC’s Enforcement Bureau began an investigation and requested that AT&T produce certain information. AT&T complied with the information requests. In December 2004, the Enforcement Bureau terminated its investigation and AT&T agreed to pay the FCC $500,000, without conceding liability.

In April 2005, CompTel, a non-profit trade association, brought a request under the Freedom of Information Act (FOIA) seeking all information that the Enforcement Bureau obtained in its investigation of AT&T and the E-Rate program. The FOIA allows the public to gain access to some documents filed with the government, unless the documents fall within a statutory exception. AT&T objected to the disclosure under several FOIA exemptions. Exemption 7(C) of the FOIA, 5 U.S.C. § 552(b)(7)(C), exempts from mandatory disclosure records or information compiled for law-enforcement purposes when such disclosure could reasonably be expected to constitute an unwarranted invasion of "personal privacy."

In August 2005, the FCC granted in part and denied in part the FOIA request. The FCC determined that certain information fell within various FOIA exemptions, but rejected AT&T’s argument that it was a "corporate citizen" with personal privacy rights. In denying AT&T’s administrative appeal, the FCC held that Exemption 7(C) applies only to individuals. AT&T appealed to the Third Circuit, which held that because a "person" includes a corporation as defined under FOIA, a corporation may have a personal privacy interest within Exemption 7(C)’s meaning. The Third Circuit held that a corporation, like a person, can suffer "public embarrassment, harassment, and stigma" due to law-enforcement investigations. The FCC appealed to the Supreme Court.

The Supreme Court rejected the argument—relied on by AT&T and the Third Circuit—that by expressly defining the noun "person" to include corporations, Congress necessarily defined the adjective form of that noun—"personal"—also to include corporations. The Court used several examples to establish that a noun and its adjective form can have a different meaning. The Court then turned to the ordinary meaning of "personal," finding that the word ordinarily refers to individuals. Especially within the context of the statutory phrase "personal privacy," the word "personal" "suggests a type of privacy evocative of human concerns—not the sort usually associated with an entity like, say, AT&T." Moreover, the Court considered that treatises in print around the time the exemptions were drafted support the conclusion that "personal privacy" did not apply to corporations.

AT&T argued that the Court recognized "privacy" interests of corporations in the Fourth Amendment and double-jeopardy contexts, but the Court limited its analysis to the statutory language of the FOIA exemption, finding those other cases "too far afield to be of help here." The Court instead compared the term "personal privacy" to the language of other FOIA exemptions and agreed with a memorandum issued by the attorney general shortly after Exemption 7(C) was passed. That memorandum explained that the exemption applies to individuals and not to corporations. In so holding, the Court noted its prior dicta that the memorandum is a reliable guide for the Court in interpreting FOIA.

In a bit of humor perhaps not appreciated by AT&T, the Court concluded: "The protection in FOIA against disclosure of law-enforcement information on the ground that it would constitute an unwarranted invasion of personal privacy does not extend to corporations. We trust that AT&T will not take it personally."

— Mor Wetzler and Carla Walworth, Paul Hastings, New York, NY

February 28, 2011

Amended Rules for Multidistrict Litigation Take Effect

The newly amended Rules of Procedure of the U.S. Judicial Panel on Multidistrict Litigation took effect in late 2010. The amendments substantially reorganized the rules and made a number of substantive changes, including the following:

Electronic Filing. The amended rules officially adopt the Electronic Case Filing system (ECF), bringing proceedings before the panel in line with most other federal courts. As of October 4, 2010, pleadings before the panel must be filed electronically. Pro se litigants are excepted.

Corporate Disclosure. The rules now require broader disclosure for nongovernmental corporate parties. Under Rule 5.1(a), corporate disclosure statements must disclose all parents, subsidiaries, and other affiliates as well as any publicly held company that owns 10 percent or more of the party’s stock. In addition, Rule 5.1(a) requires that a party disclose “any publicly owned corporation, not a party to the matter, that has a financial interest in the outcome of the matter (e.g., by reason of insurance, a franchise agreement, or an indemnity agreement) and [] the nature of that interest.” The most obvious impact of this change is that defendants may need to disclose any insurance carriers that issued policies covering the claims at issue.

Motion Practice. The procedures governing motions and panel orders have been reorganized. Before the recent amendments, the rules were arranged generally by the three principal proceedings of the panel: transferring actions for consolidated or coordinated pretrial proceedings, transferring “tag-along” actions, and remanding actions to the transferor court. In the amended rules, the provisions governing motion practice are now designated and organized by the method used to initiate these proceedings (i.e., by a litigant or by order of the panel). The rules now also expressly account for a variety of other motions—Rule 6.3 governs “motions for miscellaneous relief” such as requests for extensions of time, exemptions from ECF requirements, page-limit extensions, and expedited consideration of motions.

Revised Deadlines. Several deadlines have been adjusted, including those for notices of appearance (Rule 4.1), corporate disclosure statements (Rule 5.1), motion responses and replies (Rule 6.1), notices of opposition and motions to vacate in response to conditional transfer orders and conditional remand orders (Rules 7.1 and 10.2), and responses and replies to show cause orders (Rule 8.1). Practitioners are advised to double-check applicable deadlines in light of the recent amendments.

Tag-Along Actions.While the prior version of the rules defined “tag-along actions” as those actions sharing common questions of fact with actions previously transferred under section 1407, the definition now also includes actions that share common questions of fact with actions subject to a pending motion to transfer to create a multidistrict litigation. (Rule 1.1(h).)

Miscellaneous Changes

• The rules no longer require parties to list and respond to factual averments in numbered paragraphs in all motions. (Rules 3.2 and 6.1.)
• There are new provisions related to motions to transfer for coordinated or consolidated pretrial proceedings, including a provision that allows interested parties (such as amicus curiae) to file a response, and a provision that establishes a procedure for amending a motion to transfer. (Rule 6.2.)
• The prior version of the rules provided that the panel could issue a show-cause order­ (rather than a conditional transfer order) in response to a notice of a potential tag-along action if the panel had “reasonable anticipation” of opposition to the transfer. That provision has been deleted from the new rules, and the special procedures (and shorter deadlines) governing conditional transfer orders will apply. (Rules 7.1 and 7.2.)
• The provisions governing remand no longer expressly require that actions transferred only for coordinated or consolidated pretrial proceedings be remanded to the transferor district for trial. (Rule 10.1.)
• For parties urging the court not to hold oral argument on a motion, the page limit for statements of “Reasons Why Oral Argument Should [Need Not] Be Heard” has now been extended from one page to two. (Rule 11.1(b).) In addition, the rules now expressly allow parties to agree to waive oral argument on motions to transfer, and the panel will consider any such agreement in determining the need for oral argument. (Rule 11.1(b)(i).)

February 28, 2011

SDNY Addresses ESI in Context of FOIA Request

Following its notable decisions in the Zubulake cases and Pension Committee, the Southern District of New York has issued another decision addressing the production of ESI, this time in the context of Freedom of Information Act requests.

Read the full case note.

February 14, 2011

Seventh Circuit Enforces U.S. Discovery Against Foreign Litigant

The Seventh Circuit has held that a foreign company may obtain voluminous records under U.S. discovery rules from a non-U.S. company in furtherance of a foreign lawsuit.

Read the full case note.

February 14, 2011

Florida Judge Sanctions DuPont for Fraud on Court

A Florida judge imposed a "civil death sentence" on DuPont based on findings that the company had attempted to exclude and conceal "highly relevant" documents from a master electronic database created in an 18-year-old Benlate lawsuit.

Read the full case note.

February 14, 2011

Southern District of New York Continues to Digest and React to Pension Committee

Magistrate Judge James Francis issued an interesting decision that appears to break ranks with Judge Shira Scheindlin’s landmark Pension Committee decision.

Read the full case note.

February 14, 2011

Absence of Prejudice Gives Litigant Free Pass Despite Spoliation

The Western District of New York has held that despite evidence of spoliation, where no prejudice could be shown, the requesting party is not entitled to sanctions.

Read the full case note.

February 14, 2011

Court Imposes Sanctions Based on Failure of USB Drive

Rejecting an attempt to invoke the safe-harbor rule, the Southern District of New York imposed sanctions when a litigant was unable to produce documents entrusted to a flash drive that later proved defective.

Read the full case note.

February 14, 2011

Court Holds Foreign Litigant to U.S. Discovery Rules

The Southern District of New York provided a reminder that foreign litigants involved in litigation before U.S. federal courts must comply with U.S. discovery rules, or face the consequences.

Read the full case note.

January 26, 2011

Supreme Court to Hear Oral Argument in Astra USA, Inc.

On January 19, 2010, the Supreme Court heard oral argument on whether federal common law may confer an “implied” private right of action upon members of the public to enforce provisions of a federal statutory regime that otherwise confers no such rights if the provisions are incorporated into a government contract intended to “benefit” public interests.

At issue in the case are portions of overlapping federal regulatory schemes—the Public Health Service Act and the Medicaid Rebate Act—that impose drug-pricing regulations on drug manufacturers participating in Medicaid. In short, provisions in these regimes essentially force drug manufactures to enter into an avowed “contract” (more particularly, a “Pharmaceutical Pricings Agreement” or PPA) with the secretary of Health and Human Services imposing predefined pricing ceilings on prescription drugs sold to specified “340B” health-care providers before they may participate in state Medicaid programs. The PPAs specify that they are to be construed in accordance with federal common law, but contain no provisions that would allow a 340B entity—or any “beneficiary”—to enforce its terms. If the secretary believes that a manufacturer is not complying with its PPA, the PPA requires that the secretary initiate an informal dispute-resolution process. In addition, of course, the secretary has a strong arsenal of regulatory and administrative remedies for abusive misconduct, fraud, or the like.

In Astra USA, Inc. v. Santa Clara County, No. 09-1273, the California County of Santa Clara attempted to bring a class action on behalf of 340B health-care facilities in the state, alleging that the defendant pharmaceutical companies had been overcharging for drugs sold to the facilities under the terms of the PPAs they had executed with the federal government. After the case was removed to federal court in the Northern District of California, the federal court issued an unreported decision dismissing all the state claims, including an attempted third-party beneficiary breach-of-contract claim arguing that the 340B entities were intended third-party beneficiaries under the PPA. Notably, while the district court found that the 340B entities were intended third-party beneficiaries under the PPA, the court held that neither the statute nor the pricing agreement reflected an intent to provide them with the right to sue to enforce the incorporated statutory pricing requirements.

On appeal, the Ninth Circuit reversed, finding that federal common law would allow the 340B providers, as third-party beneficiaries of the PPAs, to enforce the statutory drug-pricing ceilings incorporated into the PPAs regardless of whether the statute itself would have permitted a direct action by such parties to enforce those statutory provisions.

The availability of such an indirect/implied right of action now goes before the Supreme Court. The case presents an opportunity for the Court to revisit conflicting case law on the implied-right-of-action doctrine. Compare, e.g., J.I. Case v. Borak, 377 U.S. 426 (1964), with Corr. Serv. Corp. v. Malesko, 534 U.S. 61 (2001) and Alexander v. Sandoval, 532 U.S. 275 (2001).

January 25, 2011

Sixth Circuit Ruling Suggests It May Be Possible to Protest Too Much

Most Iqbal cases turn on the question of whether the plaintiff has pleaded enough to survive a motion to dismiss. Hensley Mfg. v. ProPride Inc., 579 F.3d 603 (6th Cir. 2009), concerns a plaintiff who may have protested too much.

Hensley Manufacturing alleged that it purchased all rights to market the Jim Hensley trailer hitch. But after Mr. Hensley went to work for the competing ProPride, that company tried to capitalize on Mr. Hensley’s celebrity in the trailer-hitch world. It promoted his newly designed hitch by creating print and web marketing pieces hyping the “Jim Hensley Hitch Story.” These pieces all stated that Jim Hensley had no affiliation with Hensley Manufacturing. This did not satisfy Hensley Manufacturing, which filed suit, alleging that ProPride’s use of Mr. Hensley’s name infringed upon Hensley Manufacturing’s trademark, and was likely to confuse consumers.

ProPride moved to dismiss, arguing that using an individual’s name as opposed to a trade name constituted acceptable fair use. The Eastern District of Michigan granted that motion. Hensley Mfg., Inc. v. ProPride, Inc., No. 08-10425 (June 19, 2008). In affirming, the Sixth Circuit noted that Hensley Manufacturing’s complaint amounted to little more than the formulaic recital of the elements of a confusion claim: “a strong likelihood of confusion in the marketplace as to the source of origin and sponsorship of the goods of the Plaintiff and the Defendant.” The court further noted that the exhibits that Hensley attached to its complaint—copies of the print and web marketing pieces—established that there was no confusion between Jim Hensley and Hensley Manufacturing. The Sixth Circuit also referred to the exhibits in holding that ProPride’s use of Mr. Hensley’s name was merely descriptive, and thus met the requirements of fair use. Absent facts alleging ProPride’s bad faith, the dismissal was proper.

Did Hensley Manufacturing’s complaint say too much or too little? For now, the opinion stands as a warning to the plaintiff who would use exhibits to flesh out a short, plain complaint. A court may determine that what the exhibits actually support are the defendant’s theories.

— Barry Miller, Fowler Measle & Bell PLLC, Lexington, KY

January 25, 2011

Application of Iqbal in the Second Circuit

In Arar v. Ashcroft, 585 F.3d 559 (2d Cir. 2009), a Canadian citizen sued under the Torture Victim Protection Act, 28 U.S.C. § 1350, and the Fifth Amendment, based on his rendition to Syria by the U.S. government, claiming he was tortured, forced to falsely confess, and released after one year without ever being charged. The district court dismissed the suit and a divided panel of the Second Circuit affirmed. In a highly unusual move, the Second Circuit then decided, sua sponte, to rehear the case en banc. The en banc panel upheld the dismissal in a 7–4 decision, with four dissenting opinions disagreeing with the majority on, inter alia, whether the complaint passed muster under the “more stringent standard of review for pleadings” established in Iqbal. The majority noted that Iqbal established a new heightened pleading standard, but nonetheless applied earlier cases on conspiracy (decided in 2003) and Bivens (decided in 1981) as the standard against which to evaluate the affirmative defense of qualified immunity on a motion to dismiss. The dissents acknowledged Iqbal’s impact that, “to the extent actions against ‘policymakers’ can be equated with lawsuits against policies, they may not survive Iqbal either.” On one level, the decision is interesting because of the disagreement regarding the complaint’s sufficiency under Iqbal, particularly in its extended exposition on the specific facts and whether they were specific enough. But perhaps even more interesting are the discussions highlighting the unique role of the national-security issue. Just over a month later, the Second Circuit affirmed in part the dismissal of another national security case.

In Turkmen v. Ashcroft, 589 F.3d 542 (2d Cir. 2009), the Second Circuit affirmed dismissal of “length of confinement” claims for failure to state a claim and on qualified-immunity grounds, and reversed the district court’s denial of a motion to dismiss “conditions of confinement” claims so that the district court could reconsider leave to amend and re-weigh the complaint under Iqbal. In support of its qualified-immunity finding, the Second Circuit emphasized the deference given to the executive branch in matters of immigration, foreign policy, foreign intelligence, and national security. The decision quoted the Supreme Court as stating that “‘terrorism’ might warrant ‘special arguments’ for ‘heightened deference to the judgments of the political branches with respect to matters of national security.’” Turkmen, 589 F.3d at 550 (quoting Zadvydas v. Davis, 533 U.S. 678, 696 (2001)). On this basis, the Second Circuit found that there was no authority clearly establishing an equal-protection right to be free of selective enforcement of the immigration laws based on national origin, race, or religion, and affirmed the district court’s dismissal of the length-of-confinement claims.

Outside of national-security context, the Second Circuit appears more willing to let complaints stand post-Iqbal. In one decision, the Second Circuit describes Iqbal as “[t]he Supreme Court’s most recent iteration of the Federal Rules of Civil Procedure Rule 8(a) pleading standard,” belying the notion that Iqbal’s is a new standard. Starr v. Sony BMG Music Entertainment, __ F.3d ___, 2010 WL 99346, at *12 n.1 (2d Cir. Jan 13, 2010) (emphasis added). In one putative civil rights class action challenging an interstate-highway toll policy that afforded a discount to residents of a particular municipality, the Second Circuit confirmed that it must still “construe plaintiffs’ complaint liberally, accepting all factual allegations in the complaint as true, and drawing all reasonable inferences in plaintiffs’ favor.” Slelevan v. N.Y. Thruway Auth., 584 F.3d 82 (2d Cir. 2009). Adding that it “need onlyconsider whether the complaint alleges a plausible claim” under Iqbal, the Second Circuit held the allegations were sufficient and reversed all but one dismissal. Slelevan, 584 F.3d at 92 (emphasis added) (the only dismissal affirmed was of a challenge to the toll policy under the Privileges and Immunities Clause of Article IV by a U.S. citizen residing in Canada). Applying Iqbal, the Second Circuit has also readily reversed dismissals in other contexts, including in three antitrust cases and in securities cases. But see W. Va Inv. Management Bd. v. Doral Fin. Corp., 2009 WL 2779119, at *3 (2d Cir. Sep 3, 2009) (noting that the Private Securities Litigation Reform Act imposes a heightened pleading standard, such that even claims plausible under Iqbal did not survive a motion to dismiss).

— Carla R. Walworth and Mor Wetzler, Paul, Hastings, Janofsky & Walker LLP, New York, NY

January 25, 2011

Application of Iqbal in the Third Circuit

Is a complaint for direct patent infringement that otherwise conforms to Form 18 of the Federal Rules of Civil Procedure sufficient to withstand a motion to dismiss under Iqbal? The answer, according to the Chief Judge of the U.S. District for the District of Delaware, is yes.

In Mark IV Industries Corp. v. Transcore, L.P., No. CA 09-418 GMS,2009 WL 4828661 (D. Del. Dec. 2, 2009), the plaintiff sued the defendant for direct infringement of patents relating to vehicle toll-and-tracking systems. The defendant moved to dismiss, arguing that Iqbal requires a patent-infringement plaintiff to plead specific claims of the patent allegedly infringed, and to describe how the allegedly infringing product works. The court denied the defendant’s motion. In reaching its decision, the court observed that the Federal Circuit Court of Appeals has squarely addressed the pleading requirements in a patent-infringement action (albeit prior to Iqbal), and held that a plaintiff is neither required to plead individual claims of the asserted patents, nor the specifics as to how an allegedly infringing product works. Id. at *3.

The court also noted that Iqbal did not address the “continued vitality of the pleading forms appended to the Federal Rules of Civil Procedure. . . . Absent an explicit abrogation of these forms by the Supreme Court,” the sample pleading forms appended to the Federal Rules of Civil Procedures presumably are “sufficient to withstand attack under the rules under which they are drawn.” Id. at *4 (citing Fed. R. Civ. P. 84 advisory committee’s note (1946 amendment)). Finally, the court drew on its “own judicial experience and common sense” to conclude that, given the practical difficulties of pleading direct patent infringement, Iqbal does not demand more specificity than is otherwise required by Form 18. As a result, the plaintiff’s complaint, which was pled in conformance with Form 18, sufficiently asserted a claim for direct patent infringement. Id.

— Jeffrey Soos, Saiber LLC, Newark, NJ

January 25, 2011

Application of Iqbal in the Fifth Circuit

In a civil-rights suit filed by a former city employee against a city and four city police officers, the district court dismissed the claims under Rule 12(b)(6). Floyd v. City of Kenner, 2009 U.S. App. LEXIS 23913 at *2 (5th Cir. Oct. 29, 2009) (unpub.). On appeal, the Fifth Circuit affirmed in part and reversed in part. Citing Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007) and Iqbal, the Fifth Circuit applied the facial-plausibility pleading requirement. Id. at *4–5. In response to a qualified-immunity defense, the Fifth Circuit held that the court may initially evaluate the complaint using an ordinary pleading standard, require a Schultea reply and then apply a heightened pleading standard for claims against public officials in their individual capacities. Id. at *5–6 (citing Schultea v. Wood, 47 F.3d 1427 (5th Cir. 1995)).

Applying these standards, the Fifth Circuit considered the plaintiff’s claims that he was arrested for misappropriating relief supplies following Hurricane Katrina based on political reasons. Id. at *2. The claims against the police officer who entered the plaintiff’s home and discovered the relief supplies were “presented with sufficient clarity” in the Schultea reply to survive dismissal. Id. at *11–12. The claims against the police officer who filed an affidavit to support search and arrest warrants included sufficient factual specificity in the complaint and the reply to survive dismissal. Id. at *16. On the other hand, the claims against the chief of investigators were “nothing more than speculation,” and the claims against the police chief lacked the detail needed to render them plausible. Id. at *21, 26. The plaintiff also alleged no facts that supported governmental liability for the city under 42 U.S.C. § 1983. Id. at *26. Accordingly, the Fifth Circuit reversed the dismissal of the claims against the two officers and affirmed the dismissal of the claims against the two chiefs and the city.

— Elizabeth Patterson, Abrams, Scott & Bickley, LLP, Houston, TX.

January 25, 2011

Application of Iqbal in the Eleventh Circuit

A recent case from the Southern District of Florida implicates two important facets of Iqbal. In Diaz-Martinez v. Miami-Dade County, 2009 WL 2970468 (S.D. Fla. 2009), the plaintiff was wrongfully convicted and imprisoned for nearly 26 years, but was exonerated by DNA evidence obtained after two witnesses recanted their testimony. In addition, the police had deliberately fabricated and falsified evidence in the criminal prosecution of the plaintiff. The plaintiff sued Miami-Dade County, the investigating officers, their supervisory officers, and others, alleging various claims including supervisor liability under 42 U.S.C. § 1983. The court dismissed several of the plaintiff’s claims based on two separate principles enunciated in Iqbal: 1)failure to state a “plausible claim” within the context of the cause of action; and, 2) making threadbare recitals supported by mere conclusory statements. Diaz-Martinez, pp. 12–13 (citing Iqbal).

In addition to their arguments based on Iqbal pleading standards, the defendants argued that “Iqbal eliminates ‘supervisor liability’ claims,” hinging their argument on a passage from Iqbal in which the Supreme Court rejected the argument that a supervisor’s mere knowledge of a subordinate’s discriminatory purpose amounts to the supervisor’s violating the Constitution. The court rejected this argument and indicated that Iqbal should not be read so broadly. The court explained that the portion of Iqbal cited “stands for the proposition that a supervisor cannot be vicariously liable solely for the acts of a subordinate. However, there is no indication that the Supreme Court intended to wipe out the well-developed body of law surrounding supervisory liability.” Id.at 15.

— William M. Davis, Hawkins & Parnell, LLP, Atlanta, GA

January 25, 2011

Seventh Circuit Enjoins Copycat Class Action

The Seventh Circuit recently enjoined a copycat class action,

Thorogood v. Sears, Roebuck & Co., 624 F.3d 842 (2nd Cir. 2010),

(addressing alleged rust stains left on clothes by dryers sold by Sears Roebuck) filed in California mimicking an unsuccessful class action (by the same plaintiff’s attorneys) in Illinois. The Seventh Circuit was goaded into action after the California court had rejected collateral estoppel arguments and allowed the copycat class action to proceed. According to the Seventh Circuit, “abuse of litigation is a conventional ground for the issuance of an injunction under the All Writs Act,” including instances where a defendant stands at risk of being forced to invoke res judicata or collateral estoppel in multiple jurisdictions “and would be helpless against settlement extortion if [such] a valid defense were mistakenly rejected by the trial court.”  In a stinging supplemental decision, the court strongly rebuked counsel for the putative plaintiffs’ class for arguments made in a rehearing application that the court found to be “over the top.”

January 25, 2011

Eleventh Circuit Rules on DirecTV CAFA Case

In a decision that sparked a firestorm of criticism, the Eleventh Circuit held in July 2010 that the Class Action Fairness Act (CAFA) does not afford federal jurisdiction over an otherwise removable putative class action unless the individual claim of at least one plaintiff in the class exceeds the $75,000 threshold required for ordinary diversity jurisdiction under 28 U.S.C. § 1332(a). Capuccitti v. DirecTV, Inc., 611 F.3d 1252 (11th Cir. 2010). In response to petitions for rehearing en banc by both plaintiffs, the same panel that issued the earlier decision has now vacated its earlier opinion: “Subsequent reflection has led us to conclude that our interpretation was incorrect. Specifically, CAFA’s text does not require at least one plaintiff in a class action to meet the amount in controversy requirement of 28 U.S.C. § 1332(a).” At issue in the case is the legality and enforceability, under Georgia law, of cancellation fees charged by DirecTV to customers attempting early cancellations of their subscriptions.

 

January 25, 2011

Supreme Court's Morrison Ruling Could Have Major Securities-Fraud Implications

The U.S. Supreme Court has held that the anti-fraud provisions of section 10(b) of the Securities Exchange Act cannot be employed by foreign plaintiffs suing foreign defendants for misconduct implicating securities traded on foreign exchanges. Morrison v. National Australia Bank Ltd., 130 S.Ct. 2869, _ U.S. _ (2010). The case arose out of a dispute between Australian investors and an Australian bank over alleged fraud in the valuation of the defendant’s stock based on its acquisition of a U.S. subsidiary that allegedly had knowingly overstated its value at the time of its acquisition—an intentional misrepresentation that the plaintiffs claimed was knowingly perpetuated by the Australian defendant. Both the trial court and the court of appeal had found an absence of jurisdiction in the United States, reasoning that the U.S. nexus was too attenuated to support jurisdiction. In short, the courts could find neither domestic conduct nor a domestic effect sufficient to support jurisdiction—a common test for evaluating the reach of federal laws to cases involving foreign interests. While affirming the result, the Supreme Court took a different approach, beginning with an admonition that the case did not implicate the courts’ power to hear the case—something plainly granted in the federal securities laws—but rather implicated jurisdiction only in the sense of the extraterritorial reach of the underlying legislation. In that context, the court observed, “[w]hen a statute gives no clear indication of its extraterritorial application, it has none.” Criticizing the conduct-and-effects test employed by the lower courts, the Supreme Court adopted what it deemed a bright-line test premised upon the text of the legislation at issue. Employing this test, the Court found no affirmative indication within section 10(b) of the Securities Exchange Act. In a concurring opinion, Justice Stevens, with Justice Ginsburg joining, criticized the majority’s decision for taking a flexible rule of thumb beyond the point of even a “clear statement canon,” suggesting that in instances where there is both a clear domestic effect and significant domestic conduct, section 10(b) can and should be applicable, although the Court’s decision would now appear to foreclose that outcome, turning settled law in the area on its head.

 

January 25, 2011

S.D.N.Y. Rules in Loitering Case

In a class action seeking relief against the City of New York for failing to desist in its enforcement of portions of New York’s loitering statute previously declared unconstitutional, the plaintiffs sought discovery sanctions based on the city’s failure to preserve records related to summonses issued under the statute after the successful prosecution of various suits challenging the city’s unlawful prosecution of individuals under those statutes. Casale v. Kelly, 710 F.Supp.2d 347 (S.D.N.Y. April 26, 2010). The lost records accounted for approximately five percent of the total amount of like records believed to have existed. The remaining 95 percent were located and produced. The court found that while the city’s failure to preserve the reports was the result of mere negligence, as opposed to grossly negligent, willful, or intentional conduct, the plaintiffs were able to prove both relevance and prejudice, inasmuch as the lost documents contained “narrative” descriptions pertinent to defenses raised by the city that were not available anywhere else. Concluding that the defendants had thus proven the appropriateness of spoliation sanctions, the court granted an adverse inference and awarded reasonable attorney fees.

 

January 25, 2011

Massachusetts Court Refuses to Impose Sanctions

A Massachusetts court recently refused to impose sanctions in a discrimination case despite evidence of the destruction of electronic documents by several of the defendant’s employees. Makrakis v. DeMelis, 2010 Mass. Super. LEXIS 223 (Mass. Sup. Ct. July 13, 2010). The court’s opinion recounts the issuance of several litigation-hold memoranda to various key persons within the defendant, but also notes that in several instances the holds did not reach all individuals who appeared to have emails potentially relevant to the case. The court further observed that emails were destroyed despite the issuance of the holds and at least some efforts to ensure compliance therewith, finding on the facts that the evidence was sufficient to demonstrate ordinary negligence.

Notably, in reaching its finding of negligent spoliation, the court found that a duty to preserve had arisen well in advance of the filing of the litigation in question, a finding the court based on the defendant’s assertion of work-product protection for documents predating the suit by more than a year.

Despite the foregoing findings, the court ultimately found that the plaintiff had not established the relevancy of the deleted emails, as required for an award of spoliation sanctions. In reaching this result, the court noted that although relevancy may be inferred in some cases based on a sufficiently culpable state of mind on the part of the spoliator, the defendant’s conduct did not demonstrate the necessary willfulness, and that the plaintiff had failed to adduce extrinsic evidence demonstrating that the deleted material would have been favorable to his case.

 

January 25, 2011

SDNY Illustrates Importance of Enforcement of Litigation Holds

In a case illustrating the importance of proper enforcement of litigation holds, the Southern District of New York granted an adverse-inference instruction and imposed a $150,000 sanction for spoliation. Harkabi v. SanDisk, 2010 U.S. Dist. LEXIS 87483 (S.D.N.Y. Aug. 23, 2010). The case was brought over deferred payments claimed by plaintiffs Dan Harkaby and Gidon Elazar pursuant to a contract under which they had sold their technology company to SanDisk. The disputed contract payments were to be based on the amount of sales over a two-year period of SanDisk products incorporating specified technologies transferred to SanDisk as part of the sale of the plaintiffs’ company. According to the plaintiffs’ complaint, SanDisk failed to make the required contractual payments and engaged in related bad faith and abusive conduct.

The basis of the sanctions award was the loss of hard drives from computers that had previously been assigned to the plaintiffs alleged to contain key emails and data that were irretrievably lost when the drives were erased. The court concluded that although SanDisk had imposed an appropriate litigation hold and segregated the hard drives, they were subsequently released and reformatted in contravention of the holds. Notably, although admitting to the erasure of the hard drives, SanDisk had initially asserted that the contents of the hard drives had been preserved, but eventually revealed that it could not locate the files containing that data.

The court found that the loss of the data was ultimately the result of a “cascade of errors, each relatively minor, which aggregated to a significant discovery error.” On this basis, while concluding that terminating sanctions were not warranted, the court concluded that an adverse-inference instruction was justified, and further imposed a monetary sanction of $150,000.

 

January 25, 2011

Harrah's Ruling Serves as Warning to Preserve ESI

Terminating sanctions were recently imposed for discovery abuses in a personal-injury suit against a Harrah’s subsidiary, BL Development, which operates a Harrah’s casino in Mississippi. Maggette v. BL Development Corp., 2010 U.S. Dist. LEXIS 91647 (N.D. Miss. Sep. 2, 2010). The lawsuit arose out of a traffic accident involving a bus operated under contract with Harrah’s to transport customers to its casino. A key issue in the case was whether an agency relationship existed between the Harrah’s entity and the bus operator. Evidently based on long standing concerns over Harrah’s seeming bad faith in responding to discovery requests and in complying with prior discovery orders, the court appointed a special master to investigate the matter. The special master’s investigation revealed significant misconduct by the mid- and low-level Harrah’s IT employees given responsibility for collecting responsive data, including instances of perjury, as well as evidence of potential improprieties by personnel within the company’s legal department and elsewhere. More, the special master was able, with a minimum of time and effort, to locate and recover large amounts of responsive data Harrah’s avowedly had been unable to produce for nearly five years. Having previously issued a “final warning” to Harrah’s that its failure to comply with its discovery obligations and the court’s prior orders would result in the imposition of dispositive sanctions, the Court imposed such a sanction by awarding the plaintiff judgment against Harrah’s on the issue of agency.

 

January 25, 2011

No Spoliation Sanctions Held Against DOJ

In a bid protest arising out of the award of a contract to provide mail management, warehousing, and related support services for the U.S. Department of Justice, the Federal Claims Court refused to impose spoliation sanctions against the DOJ despite evidence that a DOJ contracting officer responsible for the bid award had ordered the destruction of all work papers, drafts, and “obsolete” files related to the contested contract award. Pitney Bowes Government Solutions, Inc. v. United States 94 Fed. Cl. 1 (2010). Notably, although the court found that the destruction of the records in question raised issues of spoliation (raising but not deciding the issue of whether bad faith must be proven to support an award of sanctions for any such spoliation), the court found that because electronic copies of the critical records were later found by the DOJ, the issue of spoliation was mooted.

 

January 25, 2011

Supreme Court Takes Cautious Approach in Ontario v. Quon

In a Fourth Amendment search-and-seizure case, the Supreme Court found that the City of Ontario, California acted reasonably in reading text messages sent by a city police officer on a city-owned pager. In reaching its decision, the Supreme Court assumed both that the officer had a reasonable expectation of privacy in text messages sent or received over the city-issued pager and that the review of the messages by the city constituted a search for purposes of the Fourth Amendment. City of Ontario, California v. Quon, 130 S.Ct. 2619, _ U.S. _ (2010).

The case arose out of a city audit conducted to ascertain whether the city should increase the character limits it would pay for in terms of the usage of pagers issued to officers such as Quon, who was a member of the city’s SWAT team. The city had a contract with Arch Wireless to provide the pagers and wireless pager service, and had set a limit on usage of the devices, beyond which individual users would be required to pay any excess usage charges. Quon regularly exceeded the limit, and was charged for and paid the excess usage charges. When a decision was made by the city to conduct an audit to see if the usage limit imposed by the city should be increased, the city employee conducting the audit ordered and obtained transcripts of the messages sent by and to Quon and other personnel issued pagers by the city. After he was reprimanded for violating city policies governing use of the pagers based on the the review of his message transcripts, Quon sued the city for violating his Fourth Amendment rights. Quon also sued Arch Wireless for violation of the Stored Communications Act, based on its release of his messages to the city. Of note, Quon had no contractual privity with Arch Wireless.

A jury found no violation of the Fourth Amendment (but did find that Arch Wireless had violated the Stored Communications Act). The Ninth Circuit reversed as to the Fourth Amendment violation, finding that Quon had a reasonable expectation of privacy with respect to the communications at issue, that there had been a search for purposes of the Fourth Amendment, and that the city’s audit was not reaosnable in its scope and manner based on its avowed purpose.

In finding no Fourth Amendment violation, the Supreme Court found the review of the message transcripts served a legitimate city interest and was reasonably undertaken. Because the matter could be resolved on this basis, the Court stated that it was unnecessary to address the proper test for assessing the reasonableness of Quon’s expectation of privacy with respect to the communications in question, stressing that “[a]t present it is uncertain how workplace norms, and the law’s treatment of them, will evolve,” which the Court felt “counsels caution before the facts in the instant case are used to establish far-reaching premises that define the existence, and extent, of privacy expectations enjoyed by employees using employer-provided communication devices.”

 

January 25, 2011

Court Holds Web-Based Email Has Reasonable Expectation of Privacy

The New Jersey Supreme Court held that a former employee had an objectively reasonable expectation of privacy as to the confidentiality of email communications with her counsel in anticipation of a discrimination claim that were sent over a company-issued computer through a password protected web-based email account sufficient to trigger protection under the attorney-client privilege—notwithstanding a written company policy stating that communications over company computers could be accessed by the employer. Stengart v. Loving Care Agency, Inc., 201 N.J. 300, 990 A.2d 650 (N.J. 2010). The court felt that the employee had taken reasonable steps by using her private and secure web-based email account and by not saving her password on her company computer. As for the company’s policy regarding access to communications utilizing company computers, the court found it significant that the policy did not expressly address web-based email accounts or adequately warn employees that communications using such an account could be forensically retrieved by the employer.

 

January 25, 2011

Fifth Circuit Affirms Dismissal of Clemens Defamation Suit

In a 2–1 decision, the U.S. Fifth Circuit Court of Appeals affirmed the dismissal of a defamation suit brought in the U.S. District Court for the Southern District of Texas by Roger Clemens against his former trainer, Brian McNamee, for lack of personal jurisdiction. Clemens v. McNamee, 615 F.3d 374 (5th Cir. 2010). Citing to the so-called effects test set forth in Calder v. Jones, 465 U.S. 783 (1984), the majority opinion based its analysis on “whether McNamee’s allegedly defamatory statements were aimed at or directed to Texas.” According to the court, “the statements in this case concerned non-Texas activities—the delivery of performance-enhancing drugs to Clemens in New York and Canada. The statements were not made in Texas or directed to residents of Texas.” Based on this reasoning, the court rejected arguments that McNamee clearly recognized his statements to major news media would harm Clemens in Texas, explaining that Texas was not the focal point of the statements. In dissent, Judge Haynes argued that jurisdiction was present, finding that the “effects test” was met inasmuch as, “taking Clemens’s allegations as true, McNamee intentionally directed his false claims at Texas, where he knew Clemens resided and where it was foreseeable that the brunt of the injury from McNamee’s statements would be felt.”

 

January 25, 2011

Foreign Officials Lose Potential Shield from Immunity

In a decision breaking with all but one of the circuits to address the issue, the U.S. Supreme Court has held that the Foreign Soverign Immunities Act does not grant immunity to individual officials of a foreign government with respect to conduct undertaken in his or her official capacity because the individual is not a “foreign state” entitled to immunity under the statute. Samantar v. Yousuf, 130 S.Ct. 2278, _ U.S. _ (2010). The case involved claims brought under the Torture Victim Protection Act pursuant to the Alien Tort Statute by Somali nationals against a former Somali official for his role in alleged human rights violations in Somalia. Employing a strict textual argument, the Supreme Court concluded that the definition of “agency or instrumentality” of a “foreign state” set forth in the Foreign Soverign Immunities Act could not be reconciled with a clear congressional intent to encompass individual government officials acting in their official capacities. The case came to the Supreme Court from a decision by the Fourth Circuit reversing a lower court decision dismissing the suit on the basis of immunity. The Fourth Circuit’s decision broke from the six other federal circuit courts to have examined the issue.

 

Judicial Conference Approves Access to Audio Files on PACER

On March 16, 2010, the Judicial Conference of the United States approved changes to increase the availability of court opinions and audio files on the Public Access to Electronic Court Records (PACER) system. The conference voted to:

• allow courts, at the discretion of the presiding judge, to make digital audio recordings of court hearings available through PACER for $2.40 per audio file as part of a two-year pilot project
• adjust the Electronic Public Access fee schedule so that users are not billed unless they accrue charges of more than $10 of PACER usage in a quarterly billing cycle (rather than the current one-year period)
• approve a pilot in up to 12 courts to publish federal district and bankruptcy court opinions via the Government Printing Office’s Federal Digital System (FDsys) so members of the public can more easily search across opinions and across courts

All court opinions will remain available through PACER free of charge. The U.S. Party/Case Index will also remain in use, but a new version of the search tool, which includes additional search capabilities and result formats, has been developed and will be rolled out under the new name “PACER Case Locator.”

For more information and details regarding the Judicial Conference’s vote on these matters and more, please click here.

Supreme Court Grants Cert on Time-Barred Claim

On January 15, 2010, the U.S. Supreme Court granted cert in Krupski v. Costa Crociere SpA. The federal district court below granted summary judgment in favor of defendant Costa Crociere SpA, the carrier/vessel operator of a cruise ship aboard which the plaintiff allegedly suffered an injury, on the basis that plaintiff's claims were time-barred. The Eleventh Circuit affirmed this ruling. The questions presented to the U.S. Supreme Court include:

1. Does the Eleventh Circuit's construction of Fed. R. Civ. P. 15(c)(1)(C), which permits an amended complaint to relate back, for limitation purposes, when the amendment corrects a "mistake concerning the proper party's identity," undermine the purpose of the rule?
2. Is the Eleventh's Circuit's conclusion that there can be no "mistake" for purposes of Rule 15(c)(1)(C) when the plaintiff had imputed knowledge of the identity of the added defendant prior to filing suit inconsistent with decisions of other circuits?

Under Fed. R. Civ. P. 15(c), an amended pleading "relates back" to the date of the original pleading if a party brought into the suit by the amendment "received such notice of the action that it will not be prejudiced in defending on the merits" and also "knew or should have known that the action would have been brought against it, but for the mistake concerning the proper party's identity." The plaintiff, citing this rule, contends that her failure to sue Costa Crociere at the outset—she instead sued Costa Cruise Lines N.V., LLC, later amending her complaint to add Costa Crociere—was merely the result of a "mistake" of the sort referenced in Rule 15(c), such that "relation back" saves her claim against Costa Crociere from being time-barred. But no "mistake" purportedly occurred here because (i) the plaintiff kept her ticket and furnished it to counsel shortly after her alleged injury, and Costa Crociere, not Costa Cruise, was clearly identified in the ticket's definition of "carrier," and (ii) the plaintiff did not make a mistake, but chose to sue one potential party and not another, even though the identity of both was known to her. As a result, the lower courts held that the mistake proviso of Rule 15(c), which is meant to resolve problems of a misnamed or misidentified defendant, does not apply here.

SEC Brings First SOX “Claw Back” Action to Recover Executive Bonus Payment

On July 22, 2009, the Securities and Exchange Commission (SEC) announced its filing of the first enforcement action taken solely under section 304 of the Sarbanes-Oxley Act of 2002 (SOX)—otherwise known as the “claw back” provision. In this landmark move, the SEC filed a complaint against the former CEO of CSK Auto Corporation, seeking the return of more than $4 million in bonuses and stock sales to the CEO, who has not otherwise been accused of wrongdoing. CSK filed two restatements of its financials as the result of overstating profits by booking fraudulent vendor allowances between 2002 and 2004. While the CEO was not directly involved in the events that resulted in the restatements, the SEC contends that section 304 entitles it to recover money the former CEO earned while CSK “was engage[d] in wrongdoing.”

Section 304 provides:

1. Additional Compensation Prior to Noncompliance With Commission Financial Reporting Requirements. If an issuer is required to prepare an accounting restatement due to the material noncompliance of the issuer, as a result of misconduct, with any financial reporting requirement under the securities laws, the chief executive officer and chief financial officer of the issuer shall reimburse the issuer for

• any bonus or other incentive-based or equity-based compensation received by that person from the issuer during the 12-month period following the first public issuance or filing with the Commission (whichever first occurs) of the financial document embodying such financial reporting requirement; and
• any profits realized from the sale of securities of the issuer during that 12-month period.

2. Commission Exemption Authority. The Commission may exempt any person from the application of subsection (a), as it deems necessary and appropriate.

Although the SEC used section 304 to obtain a large settlement in another matter in 2007, it has never before filed an enforcement action under this provision alone. This enforcement action was the result of a split vote among the SEC commissioners and raises the question of whether the SEC will begin to use section 304 to “claw back” executive compensation on a regular basis when companies restate their financials.

— Stacey F. Gottlieb, Steptoe & Johnson LLP

DHS Audits Target Hundreds of Employers

The Department of Homeland Security recently notified 652 employers nationwide that their I-9 forms and related documents will be audited for compliance with federal law. The single day's notices outpaced the agency's audit efforts for the entire prior fiscal year, and they highlight DHS' new focus on pursuing criminal and civil sanctions against employers who hire unauthorized workers. The effort also serves as a reminder to all employers of the importance of reviewing I-9 forms and practices internally to ensure compliance with all applicable laws.

DHS noted that the companies were not selected for audit randomly, but were chosen based upon reports of unlawful practices or leads obtained through other investigative means. The agency announced in recent months that it would shift its law enforcement efforts from pursuing unauthorized workers to targeting the employers who hire them. Audits are only one of the enforcement tools available to DHS, and can be a precursor to subpoenas, warrants or workplace raids.

Federal law requires employers to 1) complete an I-9 for each employee at the time of hire, 2) verify the employee's identity and authorization to work in the United States, and 3) maintain those records. Employers who receive a notice of audit generally must submit the required records for DHS review within three business days. Accordingly, last week's enforcement efforts underscore the need for employers to have their hiring practices and paperwork in compliance and ready for inspection at any time. All employers should implement careful procedures, provide sufficient training to hiring managers and human resources personnel, and conduct periodic internal audits of their records to ensure compliance with all applicable laws. Legal counsel can provide valuable assistance to a company in auditing its records or responding to requests from law enforcement authorities.

— Lynda Zengerle and Sandra Sanders, Steptoe & Johnson LLP

Ysura v. Pacatello

In Ysura v. Pacatello (No. 07-689, February 24, 2009), the Supreme Court addressed a First Amendment challenge to the Idaho Right to Work Act, which allows public employees to authorize payroll deductions for union dues, but prohibits deductions for union political activities. Both the district court and the 9th Circuit upheld the ban at the state level, however, the Supreme Court struck down the prohibition as it applies to local governments. The Court ruled that the prohibition on payroll deductions applied equally to local governmental units and that such infringement does not infringe on the unions’ First Amendment rights. Chief Justice Roberts delivered the opinion of the Court. Justice Ginsburg filed an opinion concurring in part and concurring in the judgment. Justice Breyer filed an opinion concurring in part and dissenting in part. Justice Stevens and Souter filed dissenting opinions.

U.S. v. Hayes

In U.S. v. Hayes (No. 07-608, February 24, 2009), the Supreme Court considered the required elements of section 922(g)(9) of the federal Gun Control Act. Section 922(g)(9) prohibits persons who have been convicted of a “misdemeanor crime of domestic violence” from possessing a firearm. The defendant, charged under section 922(g)(9), argued that his indictment should be dismissed because the state’s generic battery law did not include a domestic relationship as a defining element. Reversing the 4th Circuit, the Court concluded that the domestic relationship need not be a defining element of the predicate offense, although that relationship must be established beyond a reasonable doubt in a prosecution under section 922(g)(9). Justice Ginsburg delivered the opinion of the Court. Chief Justice Roberts filed a dissenting opinion, in which Justice Scalia joined.

Altria Group Inc. et al v. Good et al.

In Altria Group Inc. et al v. Good et al., (No. 07-562, Dec. 15, 2008), the Supreme Court considered whether federal law preempts state tort claims against tobacco manufacturers over the marketing of “light” cigarettes. The District Court held that the Maine Unfair Trade Practices Act was preempted by the Federal Cigarette Labeling and Advertising Act. The First Circuit reversed. The Supreme Court affirmed the First Circuit, holding that neither the federal law nor the FTC's actions in the field of cigarette labeling preempt the state law claims. Justice Stevens delivered the opinion of the Court, in which Justices Kennedy, Souter, Ginsburg, and Breyer joined. Justice Thomas filed a dissenting opinion, in which Chief Justice Roberts and Justices Scalia and Alito joined.

 

The New Consumer Product Safety Improvement Act Certification Requirements

The Consumer Product Safety Improvement Act (CPSIA) was signed into law on August 14, 2008. Among other things, the CPSIA institutes new product certification requirements that took effect November 12, 2008. Below are some key facts that may be helpful as you work toward incorporating the new certification requirements into your business model.

Who must certify? At least in the initial phase, either the importer (in the case of an import), or the domestic manufacturer (in the case of a product manufactured domestically), must certify compliance with Consumer Product Safety Commission (CPSC) rules, bans, standards, and regulations.

What is the scope of the certification? The new certification requirements [PDF] apply to any products that are covered by rules, bans, standards, and regulations that are administered by the CPSC. These include, but are not limited to, all laws and regulations governed by the Consumer Product Safety Act (CPSA), Federal Hazardous Substances Act (FHSA), Flammable Fabrics Act (FFA), and the Poison Prevention Packaging Act (PPPA). Although on November 10, the commission issued a final rule with immediate effect on the certificate requirements, it remains unclear which (if not all) provisions of the covered acts require certification. It is likely that further regulatory guidance will be forthcoming.

When is the certification needed? Importers and domestic manufacturers must provide the certificates beginning November 12, 2008. For imports, the certificate must be available when the product or shipment is available for inspection in the United States; for domestic products, the certificate must be available “prior to the introduction of the product or shipment in question into domestic commerce.”

Where must the certificate be provided? The certificate must “accompany” the applicable product or product shipments, and be “furnished” to each distributor or retailer of the product. On November 10, 2008, the CPSC clarified, by issuing an emergency ruling, that the certification may be electronic. To certify electronically, a certificate must be identified by a unique identifier provided with the product, and must be accessible via the internet or other electronic means.

What must the certificate say? The certification must include:

• identification of the product
• each rule, ban, standard, or regulation applicable to the product
• identification of the manufacturer, importer, and private labeler, if applicable
• contact information for the individual maintaining records of test results
• date and place of where the product was manufactured and tested
• identification of any third-party laboratory on whose testing the certificate depends

What if an importer fails to provide the certificate? If an importer fails to provide certification, the imported product “shall be refused admission” and “shall be destroyed … unless the Secretary of the Treasury permits the export in lieu of destruction.” In addition, “[a]ll expenses … in connection with the destruction … shall be paid by the owner or consignee.” 15 U.S.C. §§ 2066(e), (f).

Statement of H. Thomas Wells Jr., President, American Bar Association Regarding Congressional Approval of Federal Rule of Evidence 502

CHICAGO, Sept. 10, 2008 -- The American Bar Association commends the House of Representatives for joining the Senate and federal courts in approving important legislation that will bring much needed clarity, certainty and control over spiraling discovery costs in complex federal litigation and in dealings with federal agencies.

It is heartening to see Congress act unanimously on such an important piece of legislation. Plaintiffs and defendants, consumers and businesses, and lawyers and judges worked together to help make litigation more efficient and less costly for everyone. Because the costs of doing business, including legal and regulatory compliance costs, ultimately fall on consumers, this legislation will provide significant economic benefits to all Americans.

Existing law on the effects of inadvertent disclosure of privileged materials during discovery has been inconsistent and uncertain, and it varies widely from one jurisdiction to the next. This has forced lawyers assisting clients in complex litigation matters to devote enormous amounts of time and money to screen each document for possible privilege before producing it to the other side. Electronic data retention has vastly expanded the potential for inadvertent production of protected information and compounded the risk to parties.

The new federal rule of evidence will substantially reduce the potential for harm to clients on both sides by allowing them to retrieve privileged materials produced inadvertently, as long as they had taken reasonable steps to avoid such disclosures and moved promptly to recover them once a mistake was discovered. It also addresses the problem of “subject matter waiver” by providing that when a party produces one privileged document, any resulting waiver of the privilege would not extend to other related documents, as long as there was no intentional and misleading use of protected information. In addition, the rule will make federal court orders protecting against waiver enforceable in both federal and state courts. Finally, it will make confidentiality agreements between parties that are incorporated into court orders enforceable against nonparties.

By clarifying the law in these important ways, the rule will help preserve fundamental attorney-client privilege and work product protections of all parties, while substantially reducing unnecessary discovery costs that would be passed on to consumers.

We especially appreciate the leadership of House Judiciary Committee Chairman John Conyers, Jr. (D-MI), Ranking Member Lamar Smith (R-TX), and Rep. Sheila Jackson Lee (D-TX)—and that of Senate Judiciary Committee Chairman Patrick Leahy (D-VT) and Ranking Member Arlen Specter (R-PA)—in shepherding this legislation to passage.

Federal Rules Published for Comment (Comments Due February 17, 2009)

Proposed amendments to the Federal Rules of Appellate, Bankruptcy, Civil, and Criminal Procedure, and Federal Rules of Evidence have been published for comment by February 17, 2008:

Federal Rules of Appellate Procedure

• Appellate Rule 1 (definition of "state")
• Appellate Rule 29 (conforms to recently revised Supreme Court Rule 37.6 on amicus briefs)
• Appellate Form 4 (conforms to new privacy rules)

Federal Rules of Civil Procedure

• Civil Rule 26 (discovery of expert witness)
• Civil Rule 56 (summary judgment)

The proposed amendment to Rule 26 addresses distinct topics. The first deals with expert witnesses who are not required to prepare a detailed report under Rule 26(b)(2)(B). Under the proposed amendment to Rule 26(a)(2), the party (not the expert witness) must disclose the subject matter of the expected expert testimony and a summary of the expected facts and opinions. The second topic applies the work-product protections of Rule 26(b)(3)(A) and (B) to limit discovery of drafts of expert disclosure statements or reports and, with three exceptions, of communications between expert witnesses and counsel regardless of form (oral, written, electronic, or otherwise). The exceptions are for those parts of the attorney-expert communications regarding compensation, identifying facts or data considered by the expert in forming the opinions, and identifying assumptions relied on by the expert in forming the opinions.

The proposed amendment to Rule 56 aims to improve the procedures for presenting and deciding summary judgment motions and to make the procedures more consistent with those already used in many courts. The changes are procedural only and do not affect the standard for granting summary judgment. The proposed rule requires that unless the court orders a different procedure in a case, a party moving for summary judgment must submit a statement of facts that it asserts are not in genuine dispute and that entitle it to summary judgment. The statement must list the asserted undisputed material facts in separate, numbered paragraphs, with citations to the record. The party opposing the motion must file a response to the statement that addresses each fact by accepting, disputing, or accepting it in part and disputing it in part, either generally or for purposes of the motion only. The statement and response are separate from the briefs. Other proposed changes include addressing the consequences of failing to respond or responding in a way that does not conform to the rule and recognizing the well-established practice of granting summary judgment on part or all of a claim or defense. Comment is especially sought on whether to retain the current language carrying forward the present Rule 56.

Federal Rules of Criminal Procedure

• Criminal Rule 5 (implements the Crime Victims’ Rights Act)
• Criminal Rule 12.3 (implements the Crime ictims’ Rights Act)
• Criminal Rule 15 (authorizes a deposition outside the presence of the defendant in limited circumstances and after court makes case-specific findings)
• Criminal Rule 21 (implements the Crime Victims’ Rights Act)
• Criminal Rule 32.1 (clarifies standard and burden of proof regarding the release or detention of a person on probation or supervised release)

Federal Rules of Evidence

• Evidence Rule 804 (extends corroborating circumstances requirement to all declarations against penal interest offered in criminal cases)(publication of proposed Restyled Evidence Rules 101-415 was deferred until the entire restyled Federal Rules of Evidence have been approved for publication)

Federal Rules of Bankruptcy Procedure

• Bankruptcy Rule 1004.2 (new rule requiring entity filing a chapter 15 petition to state the country of the debtor's main interest, filer to list each country in which a case involving debtor is pending, and setting deadline for challenging the statement asserting the country of the debtor's main interest)
• Bankruptcy Rule 1007 (shortens time for debtor to file a list of creditors after the entry of an order for relief in an involuntary case. Also extends time for individual chapter 7 debtors to file statement of completion of course in personal financial management)
• Bankruptcy Rule 1014 (includes chapter 15 cases in the rule that authorizes the court to determine where cases should go forward when multiple petitions involving the same debtor are pending)
• Bankruptcy Rule 1015 (includes chapter 15 cases in the rule that authorizes the court to order consolidation or joint administration of cases)
• Bankruptcy Rule 1018 (reflects enactment of chapter 15 in 2005), 5009 (adds new subdivisions (b) and (c) to the rule on closing cases and sending notices to individual debtors re completion of personal financial management courses)
• Bankruptcy Rule 1019 (with some exceptions, a new time period to object to a claim of exemption arises when a case is converted to chapter 7 from chapter 11, 12, or 13)
• Bankruptcy Rule 4004 (is amended to: (a) include a new deadline for filing of motions (rather than complaints) under Rule 7001(b) objecting to a debtor's discharge; (b) direct the court not to grant a discharge if a motion or complaint objecting to discharge has been filed unless the objection has been decided in the debtor's favor; and (c) direct the court in chapter 11 and 13 cases to withhold the entry of the discharge if the debtor has not filed with the court a statement of completion of a course concerning personal financial management)
• Bankruptcy Rule 5009 (amended to add new subdivisions (b) and (c) to the rule. Subdivision (b) requires the clerk to provide notice to individual debtors in chapter 7 and 13 cases that their cases may be closed if they fail to file a statement of completion of financial management course. Subdivision (c) requires a foreign representative in a chapter 15 case to file and give notice of the filing of a final report)
• Bankruptcy Rule 5012 (new rule establishing procedures in chapter 15 cases for obtaining approval of an agreement regarding communications and coordinating of proceedings with cases involving the debtor pending in other countries)
• Bankruptcy Rule 7001 (objections to discharge under §§ 727(a)(8), (a)(9), and § 1328(f) are to be commenced by motion rather than by complaint, corresponding to the proposed amendment to Rule 4004)
• Bankruptcy Rule 9001 (amended to add § 1502 to the list of definitions)

Twombly Decision Impacts MDL Litigation—In Re: Pressure Sensitive Labelstock Antitrust Litigation

On May 21, 2007, the Supreme Court decided Bell Atlantic Corp. v. Twombly, 127 S. Ct., in which it considered “what a plaintiff must plead in order to state a claim under § 1 of the Sherman Act.” Id. at 1964. Relying on Twombly, defendants in the Pressure Sensitive Labelstock Antitrust MDL litigation moved to dismiss the claims asserted against them in Plaintiffs’ Second Amended and Consolidated Class Action Complaint. The Court had previously denied certain defendants’ motion to dismiss but defendants argued that decision was made based on the pleading standard that Twombly overruled. The Court disagreed and held that the Second Amended Complaint contained enough fact to “plausibly suggest” that one of the remaining defendants was a willing participant in an unlawful conspiracy to restrain trade, and the motion to dismiss was denied as to that party.  The Court granted the motion to dismiss as to another defendant, however, holding that a cognizable antitrust conspiracy claim has not been presented against it.

The Sedona Conference Releases Commentary on ESI Evidence & Admissibility

The Sedona Conference has prepared a new “Commentary on Non-Party Production & Rule 45 Subpoenas.” The Commentary addresses the changes to Fed. R. Civ. P. 45 that were put into place when the federal e-discovery rules took effect. The Rule 45 amendments establish a fundamental difference between electronically stored information (ESI) and paper documents that are subject to subpoenas. The Sedona Conference has observed that “While Rule 45 provides the procedural roadmap for obtaining [ESI] from non-parties, it does not provide answers to a number of important practical questions for both the requesting party and the responding non-party.” There is little guidance in the case law about how Rule 45’s ESI provisions are to be applied. Thus, the Sedona Conference Working Group 1 on Electronic Document Retention and Production has prepared a Commentary on best practices regarding requests for non-party ESI under Rule 45.

The Commentary discusses the differences between the duties typically required by parties and non-parties as it relates to ESI including issues related to preservation, cost and burden of production, cost-shifting, and considerations for determining who has custody, possession and control of electronic information. The Commentary also addresses best practices for issuing, quashing and enforcing e-discovery subpoenas. Additionally, the Commentary addresses best practices and practical approaches for responding to e-discovery subpoenas, including reasonable accessibility, sampling, privilege, and form of production matters.

Supreme Court Raises Bar to Overcome Batson Challenges

By a 7-2 vote on March 19, 2008, the U.S. Supreme Court found that prosecutor Jim Williams improperly excluded blacks from the jury that convicted Allen Snyder of killing his estranged wife's companion. Snyder is black and the jurors were white. Justice Alito, writing for the majority, said the trial judge should have blocked Williams from striking a black juror. Justices Thomas and Scalia dissented. Thomas said he would not "second-guess" the judge. In a 4-3 decision, the Louisiana Supreme Court ruled that race had no part in the state's decisions involving black potential jurors.

During jury selection in the trial, Williams disqualified all five blacks in the pool of prospective jurors. The Supreme Court ruled in 1986 that prosecutors may not exclude people from a jury solely because of their race. The court already had sent Snyder's case back to the Louisiana courts following a ruling in 2005 that bolstered the prohibition on race bias in jury selection.

The prosecutor's explanation for striking a prospective black juror was "suspicious," said Alito. The prospective juror's supervisor said he did not think a schedule conflict between the upcoming trial and the prospective juror's work would be a problem. In contrast, the prosecutor accepted white jurors who disclosed conflicting obligations "that appear to have been at least as serious as" the prospective black juror who was excused, Alito wrote.

Stephen Bright, Snyder's Atlanta-based lawyer, said the ruling shows there is broad agreement among the justices that courts must closely examine the reasons given for excusing potential jurors when racial motives might be present but not acknowledged. "The disturbing thing is that courts in Louisiana and elsewhere were just deferring to trial judges, no matter the reasons," Bright said. Snyder will get a new trial as a result of the ruling.

— Stacey F. Gottlieb, Steptoe & Johnson LLP

Attorney-client Privilege Bill Passes House

In mid-November, the U.S. House of Representatives took an important step when it approved — by voice vote — the Attorney-Client Privilege Protection Act of 2007.

H.R. 3013, introduced in the House by Rep. Bobby Scott (D-VA) and co-sponsored by Rep. Randy Forbes (R-VA) along with 10 other members from both parties, seeks to strike a balance between the legitimate needs of federal prosecutors and regulators, and the fundamental, constitutional legal rights of individuals and organizations.

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U.S. Supreme Court Changes Pleading Standard Under Sherman Act

In Bell Atlantic v. Twombly (05-1126, decided May 21, 2007), the  U.S. Supreme Court held that in order to bring a claim under §1 of the Sherman Act alleging a conspiracy to restrain trade, plaintiffs must provide enough factual matter to suggest that an agreement was made. In Twombly, plaintiffs alleged that existing local telephone service providers conspired to inhibit the growth of competitive local phone service carriers. The plaintiffs based their allegations on descriptions of parallel conduct by the existing service providers. The Court determined that the complaint must be dismissed, stating that "[a]n allegation of parallel conduct and a bare assertion of conspiracy will not suffice." Justice Souter delivered the opinion of the Court, in which Justices, Scalia, Kennedy, Thomas, Breyer, Alito, and Chief Justice Roberts joined. Justice Stevens filed a dissenting opinion, in which Justice Ginsburg joined in part.