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Practice Points

September 30, 2016

Potential Damages Award Largely Immaterial in Determining Whether to Limit ESI Production

With discovery disputes centering on electronically stored information (ESI) becoming more prevalent, the Federal Rules of Civil Procedure have attempted to clarify parties’ obligations with respect to ESI-based differences. In one instance, the rules provide instruction that certain ESI may be withheld if unduly burdensome or would result in the answering party incurring an unreasonable expense. Practitioners should be aware that courts have been unpersuaded by argument comparing the actual amount in controversy versus the expense in producing ESI in an attempt to convey unreasonableness.

The U.S. District Court for the Northern District of Georgia recently rendered an opinion holding that the amount of potential damages is largely immaterial in determining whether to limit the production of ESI as allowed by the Federal Rules of Civil Procedure. In Mitchell v. Reliable Security, LLC, 1:15-cv-03814-AJB, 2016 WL 3093040 (N.D.Ga. May 23, 2016). The court held “that the public value of allowing a . . . plaintiff opportunity to access information relevant and quite possibly necessary to her discrimination suit far outweighs the asserted cost [of production].”

In Mitchell, the defendant sought to produce certain ESI in PDF format rather than in its native format, arguing that production in its native format would be much more costly and, in lieu of the relatively low amount of damages at issue—about $10,000—unreasonable. In so doing, the defendant relied upon Fed. R. Civ. P. 26(b)(2)(B) in moving for a protective order to limit discovery.

The court, in denying the defendant’s motion for a protective order, held that while there was no reason to believe that the production requested was modified since the commencement of the lawsuit, it was not unreasonable for the plaintiff to verify whether certain documents were manipulated, modified, altered, or changed. As such, the plaintiff was entitled to receive the requested documents in their native format rather than in PDF format. The fact that the defendant would incur additional cost to disclose the production in its native format, especially in light of the potential low amount of damages, did not trigger the protection contemplated in Fed. R. Civ. P. 26(b)(2)(B) as the court held that policy concerns trumped any financial concerns.

While the Federal Rules of Civil Procedure provide an avenue for withholding ESI due to unreasonableness or expense, attorneys should be cognizant that the rules also provide that the court may order such discovery over the withholding party’s objection upon a showing of good cause.

Jason M. Wiley, Armstrong Teasdale, LLP, Las Vegas, NV


September 28, 2016

Need for ESI Discovery Trumps Objections, Especially Where Claims and Defenses Overlap

In the ongoing battle between plaintiffs seeking ESI discovery and defendants resisting these attempts, the plaintiffs have tallied an interesting win.  See Labrier v. State Farm Fire & Cas. Co., No. 2:15-cv-04093-NKL (W.D. Mo. May 9, 2016).  The defendant, State Farm, argued that it could not answer certain interrogatories for multiple reasons, but the court rejected each of them in turn.

First, State Farm argued that the time and cost of matching up information in one database with the information in another were prohibitive.  But the court found that claim "incredible," observing that "data sorting is what computers do in much higher levels in very short amounts of time."

Second, State Farm refused access to its computer system based on proprietary concerns.  But the court turned this justification against State Farm, finding that "[a] litigant cannot keep its own system secret and then refuse to gather the information itself."

Third, the court noted that much of the information that plaintiffs sought in the interrogatories overlapped with information that State Farm would need to collect to support its own affirmative defenses.  As such, the court would not hear State Farm’s complaint about collecting this double-duty information.

Like any discovery disputes, the rulings in Labrier may or may not apply to your case.  The court in Labrier did appear to have lost patience with State Farm and was ready to grant the motion to compel.  Still, some general lessons can be taken from this case. 

First, courts may not be as sympathetic to cost concerns for ESI as one might think in the new proportionality-centric era, as courts know that computers can match data and run some searches with great speed.  Second, a defendant cannot have it both ways when it comes to searches of internal systems: One must either gather the information oneself, or let the other party in.  And finally, where the plaintiff's claims and the defendant's defenses overlap, the court might be particularly willing to grant a motion to compel for materials within that overlap.  As solace, though, a defendant should remember that such reasoning goes both ways.

Kenneth J. Duvall, Bilzin Sumberg Baena Price & Axelrod LLP, Miami, FL


September 28, 2016

Indiana Court Compels Production of Spreadsheets in Native Format

The U.S. District Court for the Northern District of Indiana recently compelled the production of spreadsheets in native format. In Apex Colors, Inc. v. Chemworld Int’l Ltd., No. 2:14-CV-273-PRC (N.D. Ind. June 16, 2016), the plaintiff Apex Colors, Inc. filed a second motion to compel defendant Chemworld Int’l Ltd. to respond to Apex’s discovery requests. Included with the typical motion to compel responses and production of documents was Apex’s request that the court compel Chemworld to produce spreadsheets in their native Excel format rather than that PDF format in which Chemworld had produced them.

The court looked to Federal Rule of Procedure 34(b)(2)(E)(i) and (iii) regarding the production of electronically stored information, which states that “[a] party must produce documents as they are kept in the ordinary course of business or must organize and label them to correspond to the categories of the request” and that “[i]f a request does not specify a form for producing electronically stored information, a party must produce it in a form or forms in which it is ordinarily maintained or in a reasonably useable form or forms.” Based on this rule, the court compelled the production of the spreadsheets in native format, finding that (1) Chemworld failed to object to the request that the spreadsheets be produced in native format in its initial responses to the discovery requests; (2) the PDF format in which Chemworld produced the spreadsheets was not searchable and was, therefore, not reasonably useable; and (3) Chemworld did not argue that it would be difficult to produce the spreadsheets in Excel format.

In addition to granting Apex’s motion to compel, the court awarded Apex its reasonable costs, including attorney fees, incurred for bringing the part of the motion related to the production of spreadsheets in native format, holding that Chemworld “offered no rationale for failing to provide spreadsheets in native format.”

Angela S. Fetcher, Stoll Keenon Ogden, Louisville, KY


August 31, 2016

"Seemingly Conflicting Responses" Lead to "Discovery on Discovery"

Abundant case law distinguishes between confidentiality orders intended to limit access to discovery materials and sealing orders intended to restrict access to materials filed with courts. Likewise, abundant case law addresses the standards that a party must meet to file materials under seal. Nonetheless, parties continue to seal materials and courts continue to admonish parties to “get it right.” McKinstry v. Richard Holmes Enterprises, LLC, Civil No. 15-96-ART (S.D. Ky. Aug. 18, 2016),provides yet another judicial admonition.

This action arose out of a bankruptcy. A trustee was appointed to administer the assets of the bankrupt company. Most of the assets consisted of claims against a business and its officers. The claims were resolved through settlement, the funds disbursed to creditors, and the bankruptcy court closed the case. One creditor (RHE) moved to reopen the case but failed to comply with a condition imposed by the bankruptcy court, which caused the bankruptcy court to reject the creditor’s motion. RHE’s appeal was rejected by the U.S. District Court for the Western District of Kentucky. RHE sought reconsideration and asked that its motion be filed under seal because it addressed “confidential settlement matters.” It appears that sealing was commonplace with regard to settlement documents but, each time, the district court cautioned that,“[s]hould a member of the public want to read the sealed documents, the parties would have the burden of showing why he should not.” The district court granted the sealing request but required RHE to file a public version of its motion with confidential settlement information redacted. “Before uncapping its black marker, however, RHE apparently had a change of heart. Rather than comply with the Court’s order, RHE has now moved to unseal the entire record in this appeal.” The trustee “would rather keep the record the way it is – sealed.” After disposing of a jurisdictional argument made by the trustee, the district court turned to the merits.

The district court began with the recognition of a strong presumption in favor of “open” court records and that only the most compelling reasons can justify sealing. Even assuming that a compelling reason exists, a sealing order must be narrowly tailored:

Thus, if a party files a thousand documents, but only a part of one contains confidential information, the Court will seal the part of the one, not all of the thousand. That party therefore must go ‘document by document,’ providing the Court with ‘reasons and legal citations,’ as to why any given part of the record should stay secret. [citations omitted].

The trustee in McKinstry argued that filed materials should remain under seal because these included settlement amounts and sealing would protect the privacy of third persons. However, the trustee failed to show where those reasons applied on a “document by document” basis. The district court ordered that the record be unsealed but afforded the parties an opportunity to consider whether any filings that mention the settlement amount should remain under seal.

McKinstry reminds attorneys that a party seeking to seal has a heavy burden. In particular, attorneys must recognize that “compelling reasons” and “narrow tailoring” are standards derived from the First Amendment and the common-law right of access and not the relatively lax “good cause” standard for confidentiality orders under Fed. R. Civ. P. 37(c) or comparable state rules. A failure to meet this heavy burden runs the real risk that materials that are filed become “public.”

Ronald Hedges, Dentons, New York, NY


August 31, 2016

Don't File Documents under Seal Unless "Justified"

Responses to requests for electronically stored information (ESI) can lead to discovery collateral to the merits and instead focused on the responses. Knaggs v. Yahoo!, Inc., No. 15-mc-80281 (N.D. Ca. July 20, 2016), provides a perfect example, albeit in a proceeding unfamiliar to many attorneys.

The petitioner in Knaggs was a British national serving a 20-year sentence in England for conspiracy to import drugs. Evidence offered against him obtained by the prosecution from Yahoo apparently showed that he and his co-conspirators used a Yahoo email account in furtherance of the conspiracy. The petitioner appealed the conviction and argued that the Yahoo-derived evidence violated British law. The petitioner commenced a proceeding under 28 U.S.C. § 1782 in aid of his appeal and sought information from Yahoo about the manner in which Yahoo gathered the evidence it provided. This led to a series of discovery disputes and explanations by Yahoo that the court characterized to be “seemingly conflicting” and that “create[d] a situation where the petitioner cannot be certain he understands the process of information gathering he seeks to challenge” on appeal. On this basis, the court allowed the petitioner to serve a proportionate request for documents and take a limited Rule 30(b)(6) deposition.

What might an attorney take from Knaggs? First, expect federal courtsto actively manage a discovery dispute and limit discovery requests consistent with proportionality. Second, attorneys must appreciate that explanations offered for what a party does and why it does what it does should be reasoned and consistent to avoid discovery about discovery. By the way, don’t be misled by pundits who announce that the scope of discovery has changed. It hasn’t. What is hoped will change will be the unwillingness of attorneys to be cooperative within the adversary system and to exercise proportionality in, among other things, making discovery requests.

Ronald Hedges, Dentons, New York, NY


August 31, 2016

Seeking Damages Against a Public Official: The Significant Hurdle of Qualified Immunity

Plaintiffs who seek damages from public officials must overcome, among other things, arguments that officials are entitled to qualified immunity. Pauly v. Vasquez, Civ. No. 15-783 JCH/KBM (D.N.M. Aug. 10, 2016), demonstrates how difficult that might be.

Pauly arose from what the judge characterized to be the “offensive and unprofessional” behavior of a police officer who took images on his cell phone of a decedent who had been shot by another officer and who texted the images to friends. The decedent’s father and brother commenced a civil-rights action against the texting officer and others on the theory that taking and texting the images violated a right of privacy under the Fourteenth Amendment. The officer, the only defendant left after others had been dismissed, moved to dismiss on the basis of qualified immunity, arguing that the right was not “clearly established” at the time of the imaging and texting. The court granted the motion.

“A right is clearly established if the ‘contours of the right’ are ‘sufficiently clear that a reasonable official would understand that what he is doing violates that right.’” Pauly at 5 (citations omitted). The court held that the plaintiffs had failed to show that the constitutional right asserted—“a privacy right of close family members to control dissemination of ‘death scene photographs’”—had been clearly established. In so holding, the court rejected the plaintiffs’ reliance on, among other things, case law that addressed statutory and common law, rather than constitutional, rights in images of decedents.

Pauly demonstrates that a plaintiff bringing a civil-rights claim against a public official carries a heavy burden to satisfy a court that the official has a “fair and clear warning” of what the Constitution requires of him or her. Absent controlling precedent from the Supreme Court, the relevant court of appeals, or “the weight of authority from other courts,” a plaintiff cannot prevail. Attorneys should recognize this heavy burden in both the prosecution and defense of civil actions seeking damages against police officers to protect against meritless claims and avoid unnecessary motion practice.

Ronald Hedges, Dentons, New York, NY


August 31, 2016

Factual Events Between Lawyers and Clients Not Protected by Attorney-Client Privilege

Lawyers should be aware that not all interactions between them and their clients are protected by the attorney-client privilege and immune from discovery in litigation. This very issue was addressed recently in Coffey-Garcia v. South Miami Hosp., Inc., 194 So.2d 533 (Fla. 3d DCA 2016) in which the court held “[t]he privilege protects only communications to and from a lawyer; it does not protect facts known by the client independent of any communication with the lawyer, even if the client later tells the fact to the lawyer.”

In Coffey-Garcia, the plaintiffs, both individually and as guardians of their eight-year-old daughter, commenced a medical-malpractice action against the defendants for alleged negligent practices related to their daughter’s birth. The applicable statute of limitations for medical malpractice is two years “from the time the incident giving rise to the action occurred or within two years from the time the incident is discovered, or should have been discovered with the exercise of due diligence.” In interpreting the statute, the Florida Supreme Court had previously held that the discovery of the incident meant “not only knowledge of the injury, but also knowledge that there is a reasonable possibility that the injury was caused by medical malpractice.” Tanner v. Hartog, 618 So.2d 177, 181 (Fla. 1993).

After being served with the lawsuit, the defendants conducted an investigation to determine the date that the plaintiffs first comprehended a reasonable possibility that the child’s injury was caused by malpractice. To that end, the defendants deposed the child’s mother seeking to discover what lawyers she had consulted regarding her daughter’s condition and which dates said consultations occurred. After testifying that the plaintiffs’ counsel was not the first attorney consulted, the mother declined to answer further questions based on the attorney-client privilege. Thereafter, the defendants moved to compel and the trial court ordered the mother to “answer all questions related to the following issues: (a) when she first sought legal counsel; (b) the names of the attorneys with whom she consulted; and (c) the reasons why she first sought out legal counsel and any subsequent counsel.” The defendants appealed the order.

On appeal, the District Court of Appeal of Florida affirmed the order with respect to the first two categories, and quashed the order with respect to the final category. In affirming, the court held that divulging of the names of attorneys and dates of previous consultations does not require the disclosure of any communication that the mother had with any attorney. It simply requires the occurrence of a consultation with a lawyer regarding a general topic. The court further held that “the general purpose of the work performed is usually not protected from disclosure by the attorney-client privilege because such information ordinarily reveals no confidential professional communications between attorney and client.” Coffey-Garcia, 194 So.3d at 538 (citing In re Grand Jury Subpoena, 204 F.3d 516, 529 (4th Cir.2000)).

In quashing the order’s third category, the court noted that the directive requires the mother to answer “all questions related to the reasons why she first sought out legal counsel and subsequent counsel” which would allow for inquiry into confidential communications. The court held that communications of legal advice from counsel to the mother would be protected by the attorney-client privilege. That disclosure of these communications would assist the defendants in their determination of when the plaintiffs discovered that there was a reasonable probability that medical malpractice caused the daughter’s condition is of no consequence, as the need for information does not justify an invasion of the privilege.

Litigators must realize that the attorney-client privilege will not extend to all interactions with their clients. While specific communications will fall under the privilege umbrella, general facts and information independent of communication with counsel is subject to discovery.

Jason M. Wiley, Armstrong Teasdale, LLP, Las Vegas, NV


July 29, 2016

When Might a Corporation Be Responsible for the Loss of ESI by a Manager?

The U.S. District Court for the District of Delaware recently decided the issue of when a corporation may be responsible for the loss of electronically stored information (ESI) by its manager in GN Netcom, Inc. v. Plantronics, Inc., No. 12-1318-LPS, 2016 WL 3792833 (D. Del. July 12, 2016).

Plantronics is an antitrust action brought against the defendant, Plantronics, Inc., arising out of its implementation and enforcement of a distributorship program. The plaintiff moved for sanctions based on the “intentional and admitted deletion of emails” by a senior manager.

The manager deleted a number of emails. Once the manager’s conduct had been discovered by in-house counsel, the defendant’s IT department and “a leading forensics expert” became involved in the investigation and attempted recovery of the lost information.

In imposing sanctions under Rule 37(e), the court rejected the defendant’s argument that it had not acted in bad faith with the intent to deprive the plaintiff of the lost ESI. The manager had acted with that intent and, “given his position as a senior executive *** [his] actions undertaken in bad faith can properly be attributed” to the defendant. In other words, a senior manager’s intent can “bind” a corporate party when sanctions are sought.

The court imposed a $3,000,000 monetary sanction on the defendant payable to the plaintiff that was treble a financial penalty that the defendant had imposed on its manager. The court left open the possibility of evidentiary sanctions and elected to allow the jury to determine whether or not the lost ESI would be unfavorable to the defendant.

Plantronics demonstrates that corporate parties must establish frameworks within which senior management make preservations decisions and which allow some measure of timely oversight in what those decisions are.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


July 29, 2016

Separating the Decision from the Hype: What Attorneys Should Be Cautious About

Some judicial decisions generate considerable public comment that goes beyond the actual holding. One example is Microsoft Corp. v. United States, No. 14-2985 (2nd Cir. July 14, 2016). Attorneys should take care not to be misled by the public comment but should focus on the decision itself. That focus forms the basis for a meaningful conversation with clients or potential clients with regard to civil or criminal matters.

Microsoft arose out of a criminal investigation. At issue was whether the Stored Communications Act, 18 U.S.C. § 2701 et seq., allowed the government to secure the content of a Microsoft customer’s email account from a server located in Ireland. The Second Circuit Court of Appeals said no. In doing so, the court relied on, among other things, the presumption against extraterritoriality affirmed by the United States in RJR Nabisco, Inc. v. European Community, No. 15-138 (June 20. 2016). In other words, the Second Circuit interpreted a statute to reach a conclusion.

Nonetheless, Microsoft has been hailed as a vindication of the individual’s right of privacy against an overreaching government, and a vindication of the private sector. But let’s put that in context.

Take Gary v. State, A16A0666 (Ga. Ct. App. July 15, 2016). The defendant in that casewas convicted under a Georgia statute of criminal invasion of privacy for aiming his cell phone camera underneath a woman’s skirt in a store and recording video. The court threw out the conviction based on its interpretation of the phrase, “private space.” After the defendant was indicted, the statute was amended, perhaps to address conduct like that of the defendant. Although this is reprehensible, it was not a crime under the statute at the time of the offense.

Attorneys should not be misled by surrounding hype. Decisions must be read and relied on for content and not what commentators make of the decisions. Reliance on the latter can be a disservice to the attorney and the client.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


July 29, 2016

Class Action Settlements Should Be in the Sunshine

Shane Group, Inc. v. Blue Cross Blue Shield of Michigan, Nos. 15/1544/1551/1552 (6th Cir. June 7, 2016), is the latest in a long line of decisions that vindicate public access to documents filed with courts, and illustrates the difference between protective and sealing orders. Attorneys must appreciate this difference as they deal with confidential or other sensitive information in civil litigation.

Shane Group is a class action based on “credible allegations” that the defendant engaged in price fixing that affected “millions of Michigan citizens.” The parties reached a tentative settlement, which they submitted to the presiding U.S. district judge for approval. The judge “sealed most of the parties’ substantive filings from public view, including nearly 200 exhibits and an expert report upon which the parties” based the settlement. Class members objected to the settlement without the ability to review the sealed documents. The judge approved the settlement. The court of appeals vacated the settlement and sealing, and remanded to afford the proponents of sealing an opportunity to “demonstrate—on a document-by-document, line-by-line basis” that the “demanding requirements for a seal” had been met and for an “open and vigorous examination of the settlement’s fairness to the class.”

The court of appeals emphasized the distinction between Rule 26(c)(1) protective orders, which allow a judge to limit access to discovery materials and requires a finding of “good cause,” and orders that limit access to substantive filings, which requires a showing of compelling reasons as well as narrow tailoring to seal only what is necessary. Although “blanket” protective orders are valid, sealing orders require detailed analysis. As the Sixth Circuit observed, “[t]he line between these two stages, discovery and adjudicative, is crossed when the parties place material in the court record.” Suffice it say the district judge “conflated the standards” and entered the seal based on the existence of good cause: “One can only conclude that everyone in the district court was mistaken as to which standard to apply. But one point is unmistakable: on the showings set forth on this record, every document that was sealed by the district court was sealed improperly.”

What does Shane Group teach? First, it is one thing to exchange materials in discovery and another to file substantive materials with a court. Second, the standards governing confidentiality and sealing orders are drastically different. Third, the party seeking to seal substantive materials must have a thorough understanding of exactly what it wants to be sealed, why it wants the materials sealed, and how it will analyze and present its detailed analysis to a court. A failure to do so may result in the materials being subject to unrestricted access by the public. That is the price we pay for the First Amendment.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


July 29, 2016

District Court Holds Both Parties Have Some Stake in Addressing Proportionality

In a decision interpreting Federal Rule of Civil Procedure 26(b)(1)—amended in December 2015 to include an express proportionality guideline—the U.S. District Court for the Southern District of Ohio recently held that “there is no reason why both sides should not be required to address the issue of proportionality” in document-production disputes. Wilmington Tr. Co. v. AEP Generating Co., No. 2:13-cv-01213, 2016 U.S. Dist. LEXIS 28762, (S.D. Ohio Mar. 7, 2016).

In Wilmington Trust, the plaintiff Wilmington Trust Co. moved to compel production of two sets of documents that were not part of the original production: (1) documents from the years 2009 and 2010 and (2) documents from a four month post-complaint period. The defendant, AEP Generating Co., objected to producing the 2009 and 2010 documents after its preliminary review of those documents concluded, “it would be a waste of resources to search for any documents in the 2009–10 time frame because nothing of significance was happening then.” For the post-complaint documents, AEP argued, “given that [Wilmington Trust’s] claims are based on contractual breaches which were supposedly complete when the complaint was filed, no documents created after that time could possibly be relevant.” In response, Wilmington Trust argued that it was “simply inconceivable that [AEP] stopped discussing or communicating about matters relevant to the case” during the 2009–2010 period or after the complaint was filed. Based on these facts, the court reasoned, “[c]learly, the question of proportionality is raised by this scenario.”

The court analyzed the motion under Rule 26(b)(1), “which now describes the proper scope of discovery as encompassing ‘any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action . . . and whether the burden or expense of the proposed discovery outweighs its likely benefit.’”

The court noted that “[c]ourts have, in evaluating the proportionality issue, suggested that both parties have some stake in addressing the various relevant factors.” It also noted that, “[c]ertainly, a responding party must still meet its burden of explaining how costly or time-consuming responding to a set of discovery requests will be, because that information is ordinarily better known to the responder than the requester.” Nonetheless, “once that information is presented, there is no reason why both sides should not be required to address the issue of proportionality, especially since the requesting party can explain as well as the responder—and perhaps better—why the information it is seeking is important to resolving the case and why it would be a good use of the other party’s resources to search for it.”

The court did not compel production of the documents from 2009 and 2010. To the court, “it seem[ed] likely that the volume of documents is small . . . [and] that it will be very costly and time-consuming” to review and produce the documents. AEP would have had to search as many as one million pages of documents from 2009 and 2010 and manually review about 200,000 of those pages. For the initial production in the case, AEP decided not to conduct a full review of those one million pages after their interviews with the likely document custodians and initial searches of documents from those years identified few responsive documents. Because Wilmington Trust’s only argument in response was that the search “would produce some relevant documents,” the court decided that the motion to compel production was not proportional to the needs of the case under Rule 26(b)(1).

The post-complaint documents, however, stood “in a different posture.” The court was “not persuaded that the date on which the complaint was filed is some sort of talismanic date after which no relevant documents could possibly have been produced.” The court declined to make “such a categorical judgment” because a categorical judgment was not possible and did not “comport with reality.” Additionally, the court noted that AEP had not “presented any specific argument about undue burden, apart from their general assertion that they have disassembled their review teams.” Believing that “a categorical approach to post-complaint documents is not appropriate,” the court directed “that some further effort be made to locate and produce any responsive documents” from the post-complaint period.

In light of Wilmington Trust, both parties should be prepared to explain why producing—or not producing—documents is proportional to the needs of the case under the various relevant factors of amended Rule 26(b)(1).

Eric B. Levasseur and Sarah Lewis, Hahn Loeser & Parks, LLP, Cleveland, OH


June 30, 2016

Supreme Court Decides State Agency Must Face Suit in Different State

The “Full Faith and Credit Clause” of Article IV of the Constitution states that “[f]ull faith and credit shall be given in each state to the public acts, records, and judicial proceedings of every other state.” In Franchise Tax Bd. Of Cal. v. Hyatt, 578 U.S. ___ (2016), the Supreme Court addressed the application of this clause to challenges of state law. In this case, certiorari was granted to decide: 1) whether to uphold Nevada v. Hall, 440 U. S. 410 (1979) (and therefore find that a state agency of California could be subject to the jurisdiction of a Nevada court), and 2) whether it was a violation of the Full Faith and Credit Clause to subject an out-of-state agency to harsher penalties than would generally be assessed to an in-state agency.

The plaintiff in the case alleged, as part of a claim filed in the underlying action in Nevada, that the defendant committed multiple torts through its allegedly “abusive audit and investigation practices, including rifling through [the plaintiff’s] private mail, combing through his garbage, and examining private activities at his place of worship” to answer questions regarding his residency and payment of taxes. In an earlier decision, the agency argued that it was immune to this type of suit under California law and that, due to the Full Faith and Credit Clause, it should be immune to this suit in Nevada as well. However, rejecting that argument, the court awarded the plaintiff $500 million in damages. The court stated that it rejected the agency’s argument because “Nevada’s courts, as a matter of comity, would immunize California where Nevada law would similarly immunize its own agencies and officials . . . but they would not immunize California where Nevada law permitted actions against Nevada agencies [as was the case in regard to intentional torts].” On appeal, the state agency argued that, even if it was found to have committed these violations, there should be a $50,000 cap imposed on damages as required by similar laws in both California and Nevada. Although the Nevada Supreme Court “accepted the premise that Nevada statutes would impose a $50,000 limit in a similar suit against its own officials,” it awarded the plaintiff $1 million in damages. The case in front of the Supreme Court is an appeal, by the California agency, of the Nevada Supreme Court’s decision.

Justice Breyer, writing the majority opinion, stated that because the Court was evenly split on the issue, Hall would be upheld and the current law that a state agency of one state could be subject to the jurisdiction of a court in another state would remain unchanged. This is crucial here because, as demonstrated by the arguments raised by the agency, the question of jurisdiction (and thus which state’s law should apply) was at the heart of the appeal. Additionally, the majority opinion found that the actions taken by Nevada were not only “hostile” toward the out-of-state agency, but also contrary to Nevada’s own laws. Therefore, this “special rule of Nevada law” was found to have violated the Full Faith and Credit Clause.

In his dissenting opinion, Chief Justice Roberts discussed the concept of states enforcing the laws of other states. In this regard, he says that while “state courts must give full faith and credit to those laws . . . it is clear that state courts are not always required to apply the laws of other States.” Chief Justice Roberts believed that, because Nevada had “a ‘sufficient’ policy interest in” assessing higher damages to out-of-state agencies, the state’s actions were not “hostile” and did not violate the Full Faith and Credit Clause.

It is clear that there are many situations where one state’s agency can be subject to the jurisdiction of a court in another state. However, this case demonstrates that in these situations, under the Full Faith and Credit Clause, while the state in which the court lies is “not require[d] . . . to apply another State’s law that violates its ‘own legitimate public policy,’” that state’s “choice of law” cannot be hostile toward another state’s laws. This means that although one state may be subject to the jurisdiction of a court in another state, the first state’s laws do not lose their importance.

Angela S. Fetcher and Adam H. Wetherington, summer associate, Stoll Keenon Ogden PLLC, Louisville, KY


June 30, 2016

Law Firm Sanctioned for Altering Documents Produced in Discovery

The alteration of documents produced in discovery will not be tolerated by the courts. In Sweet People Apparel, Inc. v. Saza Jeans, Inc., Case No. CV 14-1143 DMG-AS (C.D. Cal., Mar. 28, 2016), the Court was tasked with ruling on a post-decision motion for sanctions. The motion for sanctions was filed by the plaintiff, and alleged that “defendants’ attorneys altered documents, pursued claims and defenses in bad faith, made provable misrepresentations to the Court, and did not produce all responsive material in their possession.”

In Sweet People, the court granted the plaintiff’s motion for sanctions against the defendants’ law firm in the amount of $25,000. In doing so, the court relied on case law to support the contention that the defendants’ actions of misrepresentation and document alteration amounted to bad faith. Specifically, the court held “[a]t the very least, Defendants’ counsel knew or should have known that they had altered the documents and were aware of the risk that Plaintiff was being misled by the alterations.” The court reasoned that this conduct justified the imposition of monetary sanctions because “this type of conduct cannot be countenanced.”

The court was not persuaded by the defendants’ argument that because the plaintiff did not suffer any prejudice as a result of these issues at trial, sanctions were not proper. In fact, citing Nursing Home Pension Fund v. Oracle Corp., 254 F.R.D. 559, 565 (N.D. Cal. 2008), the court stated “[w]hen acting under its inherent authority, however, a district court need not consider prejudice to the party moving for sanctions, and prejudice has not been required when a party moves for lesser sanctions [than dismissal].”

Interestingly, the trial court agreed with the plaintiff that the defense law firm’s conduct was unacceptable, stating that “lawyers never should alter or change the substance of a document. That was done. That was improper.” However, the trial court did not let this fact significantly impact the trial, holding “that it is not a ‘fair aspersion’ to cast on the Defendants themselves if they were not the ones who made the changes.”

This decision should read as a warning to attorneys nationwide that an effort to alter documents in discovery in an attempt to mislead opposing counsel will not be tolerated. In addition, where possible, courts will avoid punishing the client for the bad-faith actions of the client’s attorneys. Instead, expect more post-verdict sanctions directed at the pocketbook of the attorneys and law firms that take the step of attempting to mislead and obstruct the judicial process.

Angela S. Fetcher and Stephen McCallister, summer associate, Stoll Keenon Ogden PLLC, Louisville, KY


June 30, 2016

District Court Holds No Sanctions for Negligently Deleting Text Messages

In a decision highlighting the step-by-step analysis to be undertaken by courts considering sanctions under amended Rule 37(e) of the Federal Rules of Civil Procedure—which governs the loss or destruction of electronically stored information (ESI)—the U.S. District Court for the Southern District of Florida recently held that spoliation sanctions were not warranted against an individual who negligently failed to preserve text messages. Living Color Enters., Inc. v. New Era Aquaculture, Ltd., No. 14-cv-62216, 2016 U.S. Dist. LEXIS 39113 (S.D. Fla. Mar. 22, 2016). Even though the individual inadvertently deleted relevant messages that could not be replaced, the missing text messages did not prejudice the requesting party and there was no evidence that the messages were deleted in bad faith or with an intent to deprive the other side of access to the text messages.

In Living Color, Living Color Enterprises, Inc., moved for sanctions against Daniel Leyden, the defendant, for spoliating text message evidence. Leyden never disabled a function on his cell phone that automatically deleted text messages after 30 days. Therefore Leyden’s phone erased some relevant text messages after the start of litigation. Recipients of Leyden’s text messages were able to provide Living Color with many (but not all) of the relevant, missing messages that Leyden had deleted.

In determining whether to award sanctions, the district court looked to newly amended Rule 37(e), which guides courts dealing with spoliated ESI such as text messages. Under Rule 37(e), the court must answer three preliminary questions: (1) Should the evidence have been preserved?; (2) was the evidence “lost because a party failed to take reasonable steps to preserve it?”; and (3) is the evidence incapable of being “restored or replaced through additional discovery?”

The answers to these preliminary questions determine the court’s next steps. If the court answers yes to all three preliminary questions, the court next considers whether the movant was prejudiced by the loss of the ESI under Rule 37(e)(1) or whether the opposing party intended to deprive the movant of ESI under Rule 37(e)(2). However, if the answer to any of the preliminary questions is no, then the court need not consider Rule 37(e)(1) or 37(e)(2), and sanctions are not warranted.

Rule 37(e)(1) gives judges the “discretion to determine how best to assess prejudice in particular cases.” The Advisory Committee Notes explain that the facts of the case before the court will guide the judge deciding whether prejudice exists.

In Living Color—after answering all three preliminary questions in the affirmative—the court nonetheless found that Living Color suffered no prejudice from the missing text messages. Even though Leyden inadvertently lost relevant ESI, Living Color received the vast majority of the missing messages from other people to whom Leyden sent the same messages. Living Color failed to explain how the missing text messages would support its factual theories. Believing that Leyden’s description of the missing messages was credible, the court found “the asserted missing text messages appear[ed] to be unimportant, and the abundance of preserved information appear[ed] sufficient to meet the needs of” Living Color. The court therefore did not grant spoliation sanctions under Rule 37(e)(1).

Similarly, under Rule 37(e)(2), the court found that Leyden did not intend to deprive Living Color of ESI when he failed to disable the automatic-delete function on his phone. Leyden regularly deleted messages to keep his phone running efficiently—a routine practice the court noted was common among many cell phone users. While Leyden activated the automatic-delete setting prior to the start of litigation and was arguably negligent in failing to disable it, the court nonetheless found that negligent conduct—even a grossly negligent act—that causes the loss of ESI does not evidence the necessary intent to deprive or the bad faith required for Rule 37(e)(2) sanctions.

Finally, in dicta, the court highlighted that the Advisory Committee’s comment that amended Rule 37(e)’s analytical framework now “forecloses reliance on inherent authority or state law” in fashioning a remedy for spoliated ESI. Rule 37(e)—and Rule 37(e) only—now presumably controls. As the court further noted, however, to the extent Rule 37(e) only applies to ESI and not other tangible documents or evidence, courts will now potentially be required to grapple with whether two different standards apply based on the applicable discovery medium.

Despite the growing ubiquity of text messaging and its potential importance in the discovery process, the Living Color decision instructs that not all spoliated ESI, including text messages, will result in sanctions under amended Rule 37(e).

Eric B. Levasseur and Sarah Lewis, Hahn Loeser & Parks, LLP, Cleveland, OH


June 30, 2016

Inherent Power and Amended Rule 37(e): What Applies When ESI Is "Lost?"

The December 1 amendments to the Federal Rules of Civil Procedure were intended to, among other things, bring some degree of uniformity to the imposition of sanctions (politely described as “remedial measures”) for the loss of electronically stored information (ESI). Amended Rule 37(e) established, in effect, two separate regimes for the imposition of remedial measures based on the intent of the spoliator, one premised on specific intent (Rule 37(e)(2)) and the other on a negligent, grossly negligent, or reckless state of mind (Rule 37(e)(1)). That uniformity, nevertheless, does not extend to all the elements set forth in Rule 37(e).

Several non-exhaustive examples should suffice. First, and perhaps foremost, Rule 37(e) requires that a duty to preserve exist before remedial measures might be imposed. However, the rule defers to the common law to define when such a duty might arise under the unique facts of a particular loss of ESI. Second, the rule allows the imposition of remedial measures only if the spoliating party failed to take “reasonable steps” to avoid the loss. However, the rule does not describe what steps might be deemed reasonable. What might be reasonable under a unique set of facts might be unreasonable after another.

Another unanswered question is whether a judge might impose sanctions for the loss of ESI based on his or her exercise of inherent power. Does Rule 37(e), in effect, “preempt” reliance on inherent power when ESI is lost in a federal action? The district courts are already split on the answer. Compare Cat3, LLC v. Black Lineage, Inc., No. 14-cv-05511, 2016 WL 154116 (S.D.N.Y. Jan. 12), motion for sanctions withdrawn and action dismissed with prejudice, 2016 WL 1584011 (S.D.N.Y. Apr. 6, 2016) and Friedman v. Philadelphia Parking Auth., No. 14-6071, 2016 U.S. Dist. LEXIS 32009 (E.D. Pa. Mar. 10, 2016) (inherent power available) with Living Color Enterprises, Inc. v. New Era Aquaculture, Ltd., No. 14-cv-62216, 2016 WL 1105297 (S.D. Fla. Mar. 22, 2016) (no inherent power). The U.S. Supreme Court might just have given the definitive answer!

In Dietz v. Bouldin, No. 15-458, 579 U.S. ___ (June 9, 2016), the Court held that a United States district court had the inherent power recall a jury after it had been discharged to correct a legally impermissible verdict. In doing so, the Court described these limits in inherent power:

First, the exercise of an inherent power must be a ‘reasonable response to the problems and needs confronting the court’s fair administration of justice.” *** Second, the exercise of an implied power cannot be contrary to any express grant of or limitation on the district court’s power contained in a rule or statute.

In reaching its decision the Court observed that, “[t]he Federal Rules of Civil Procedure set out many of the specific powers of a district court” but that none addressed a judge’s power to rescind an order discharging a jury and recalling it assuming that certain conditions were satisfied.

How might Dietz apply to sanctions for the loss of ESI? Rule 37(e) sets out the parameters for the loss of ESI. To that extent it is an express grant as well as a limitation on the imposition of remedial measures. Would not resort to inherent power be contrary to Rule 37(e)? Time will tell but I expect that Rule 37(e) will be recognized as the sole means to remedy the loss of ESI. Of course, other rule-based sanctions remain available for failure to comply with orders regarding ESI and, beyond the rules, as do punishment for contempt and attorney misconduct.

Dietz should serve as a reminder that, although federal judges do have inherent power, that power is limited and must be defined in the context of rules or statutes that might, in effect, preempt resort to inherent power. Attorneys should appreciate this limitation, recognize that resort to inherent power by a judge is unlikely, and look to applicable rules or statutes for relief in the first instance.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


May 31, 2016

Nonparty Ordered to Preserve ESI Days after Case Was Filed and Before Defendant Was Served

In a case filed under the Telephone Consumer Protection Act (TCPA) designed to protect persons from receiving unsolicited, so-called junk faxes, the U.S. District Court for the Southern District of Ohio entered a narrowly tailored preservation order to a nonparty to preserve electronically stored information (ESI) on an expedited basis, just days after filing and before service of process on defendants. This case is noteworthy in the court’s careful balancing of the respective needs of the plaintiff with the rights of a nonparty, and reflects a well-informed and insightful approach to what could have been an expensive and unpleasant discovery dispute.

The plaintiff sought a preservation order against nonparty, WestFax, Inc., to preserve a long list of categories of ESI referencing the defendants. The plaintiff contended that the order was necessary due to the document-retention policy of WestFax, which could result in destruction of ESI before normal discovery efforts would secure it due to the fact that the nonparty was under no duty to preserve the ESI without such an order. The motion was filed without notice to the nonparty, and even before the defendant was served.

Examining the requirements under Federal Rule of Civil Procedure 26(d) with respect to expedited discovery and case law pertaining to the issuance of preservation orders, the court granted the motion in part, finding that the plaintiff satisfied the burden of the rule to show the need for such an order and the lack of a viable alternative to preserve necessary information. But the court also tailored the order narrowly because the plaintiff failed to show the need to preserve such an expansive list of ESI categories and failed to demonstrate that WestFax would not be unduly burdened or put to “undue expense” from the broad order the plaintiff sought.

In reaching its ruling, the court demonstrated an informed understanding of the potential costs to the nonparty associated not only with the breadth of ESI categories sought be preserved, but also the forensic format in which the plaintiff sought the ESI to be preserved. Though the court did not directly engage in a cost-shifting analysis, it did cite the Sedona Principles’ admonishment that “[c]ivil litigation should not be approached as if information systems were crime scenes that justify forensic investigation at every opportunity to identify and preserve every detail. . . .” The court then limited the scope of ESI WestFax was required to preserve in recognition of its duty to protect the nonparty from “significant expenses,” and then still afforded WestFax a right to object to the court if its objections could not be worked out with plaintiff’s counsel.

This case is instructive as to what a plaintiff must show to obtain expedited discovery (and preservation orders generally) as well as the types of defenses available to nonparties when faced with expansive (and potentially expensive) requests to preserve ESI even before being requested to produce such information in response to a subpoena. It also stands as a good example of how a court should approach its role in pretrial discovery, respecting and balancing all interests affected through well-reasoned and informed analysis.

Robert J. Will, Lewis Rice LLC, St. Louis, MO


May 27, 2016

Attorney-Client Privilege Extended to Client's Consultant

A recent decision by the U.S. District Court for the District of Nevada has extended the protections of the attorney-client privilege to communications with outside entities providing services to the attorney’s client. The ruling applies to those outside entities that are the “functional equivalent of the [attorney’s client] and the legal advice appears to have been provided with respect to the [outside entity’s] actions on behalf of the [client] or its officers.” Grand Canyon Skywalk Development, LLC v. Cieslak, No. 2:15-cv-1189, 2015 WL 890921 (D. Nev. Mar. 7, 2016)

In Grand Canyon Skywalk Development, the court was faced with the issue of whether the attorney-client privilege extends to communications and documents pertaining to an outside entity where that outside entity sought the communications and documents. Litigation was commenced between developers of the Grand Canyon Skywalk (a tourist attraction built on Hualapai Indian tribal land) and Scutari & Cieslak (S&C), a public-relations firm hired by the Hualapai Indian Tribe. The developers allege that when the relationship between the tribe and the developers began to fracture, S&C launched a defamatory campaign designed to disparage the developers, who then sued S&C and its principals. As an affirmative defense, S&C allege that the firm acted in good faith and on advice from the law firm of Gallagher & Kennedy (Gallagher), who served as the tribe’s hired counsel. Thereafter, S&C filed third-party claims against the tribe.

During discovery, S&C subpoenaed documents from Gallagher and served a deposition subpoena on a Gallagher attorney (Hallman, Esq.) who worked on the matter. Gallagher and the tribe moved to quash the subpoenas based, in part, that disclosure is shielded by the attorney-client privilege.

The magistrate judge issued an order that held that the confidential communications in which Hallman Esq. provided legal advice to S&C regarding the statements that S&C made about the developers are within the scope of the tribe’s attorney-client privilege and cannot be compelled by deposition. On objection, the district-court judge affirmed the magistrate judge’s opinion with respect to the subpoenaed attorney and extended the attorney-client protection to those communications and documents deemed to be legal services that the Gallagher firm provided to S&C. Specifically, the district court held that the protection was extended “to protect confidential communications in which any Gallagher attorney provided legal advice to S&C regarding the statements that the public-relations firm made about the developer.” Litigators must be cognizant of this holding where their outside clients were providing services to an attorney’s client where the outside client served as the “functional equivalent” of the attorney’s client. The ruling makes it clear that privileged information is non-discoverable, but that the law firm and/or attorney’s knowledge of relevant, non-privileged information remains discoverable.

Jason Wiley, Armstrong Teasdale LLP, Las Vegas, NV


May 27, 2016

"Irresponsible and Shiftless Behavior" Leads to the Loss of ESI and Paper

O’Berry v. Turner, No. 15-cv-00064 (M.D. Ga. Apr. 27, 2016) addressed the loss of both. Or was it the loss of either?

O’Berry started out as a routine personal-injury action arising out of a motor-vehicle accident. The plaintiffs sought damages for injuries sustained in a collision with a tractor-trailer driven by the defendant driver in the course of his employment with the corporate defendants. The plaintiffs’ attorney sent a preservation demand to the employers and was advised that “all measures necessary” would be taken to preserve the information described in the letter. Unfortunately, that didn’t happen.

The plaintiffs demanded production of the defendant driver’s log as well as electronically stored information (ESI) from an onboard software system. When nothing was produced, the plaintiffs moved for sanctions. Testimony established that the employers had no preservation policy. Instead, a risk manager printed out the relevant information, placed it in a manila folder, and stored the folder in a box. When the manager returned from a medical leave and looked for the folder he could not find it. In the interim, any ESI was deleted pursuant to a records-retention policy.

The court imposed sanctions under Rule 37(e)(2). It found that the duty to preserve had been triggered no later than the employers’ receipt of the preservation letter, that the employers had failed to take reasonable steps to avoid the loss of the ESI, and that the ESI “had been lost forever.” The court then found that, based on the facts described above among others, the employers had acted with intent to deprive the plaintiffs of the ESI. The court imposed a mandatory adverse inference against the employers.

What lesson can be drawn from O’Berry? Probably the only one is that organizations should have formal procedures in place to reasonably assure compliance with the duty to preserve and that compliance should be monitored. Beyond that, O’Berry raises a number of questions. These include: Might a duty to preserve be met by “conversion” of ESI into paper form? When analyzing the loss of both ESI and paper, does Rule 37(e) or case law that predated the effective date of that rule govern? When should “irresponsible and shiftless behavior” in preservation efforts, as in O’Berry, warrant a finding of intentional conduct and the imposition of Rule 37(e)(2) sanctions?

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


May 27, 2016

Discovery of Databases and Confidentiality Protective Orders: Perfect Together?

In Thorne Research, Inc. v. Atlantic Pro-Nutrients, Inc., No. 13-cv-784 (D. Utah Mar. 22, 2016), the court allowed the forensic examination of a database that comingled plaintiffs’ data with that of unrelated third parties. In doing so, the court substituted reliance on a confidentiality order for a ruling on the merits of the discovery request.

Thorne Research is a patent-infringement action. The defendant sought an order compelling the plaintiffs to turn over a “complete copy” of a database so that the defendant could inspect metadata to “independently determine the legitimacy” of the alleged invention date. The plaintiffs argued that the database did not contain such metadata and that, in any event, the database was maintained by a third party and, in effect, stored with databases of other entities as well as the third party that was highly confidential. The parties submitted conflicting affidavits on the merits of the motion. Ruling on the briefing without oral argument, the court found that the defendant sought information that was “clearly relevant” and concluded that the defendant should have the opportunity to “conduct a forensic analysis as to whether the metadata exists in its native format.” While the court acknowledged the plaintiffs’ concerns about disclosure of the confidential information of others, it concluded that an “attorneys eyes only designation,” allowed by an existing protective order, “should provide a sufficient safeguard.”

Thorne Research suggests that, when discoverable information is comingled with information that is not relevant, a protective order offers a means to access the former while protecting against disclosure of the latter. The wisdom of such an approach may be questionable, however, at least when a ruling on the existence of that information has not been made.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


April 29, 2016

Beneficiary Client May Have Standing to Assert Claims Related to a Trust

A recent decision by an Illinois appellate court has clarified and distinguished the creation of a beneficiary’s legal interest in an irrevocable trust in that jurisdiction. Practitioners in those states that have not adopted the Uniform Trust Code should be cognizant of case precedent in that jurisdiction to determine whether their beneficiary client has standing to assert claims related to the operative trust.

In Trzop v. Hudson, 43 N.E.3d 178 (Ill. Ct. App. 2015), the court was faced with the issue of whether individuals listed as successor beneficiaries at the creation of an irrevocable trust, but who were expressly excluded through an amendment to said trust, had standing to contest whether said amendment was a product of undue influence, incapacitation, and/or tortious interference where the primary beneficiary was still alive.

In Trzop, the trial court granted the primary beneficiary/intervenor’s motion to dismiss the plaintiffs’ complaint. In so doing, the court relied exclusively on case law examining the creation of a legal interest in beneficiary to a will that held that a beneficiary lacked standing to challenge the amendment of a will because the interest in the testator’s property would not vest until the death of that individual. On appeal, the Illinois appellate court reversed the trial court and distinguished the creation of a legal interest in a trust versus a will.

Specifically, the court held, “[w]hile a beneficiary has no interest in a will until the death of the testator, the beneficiary of a trust has an interest the moment the trust is created.” (emphasis added). The court further held, “The principal distinction between a will and a trust is that in the former, the beneficiary has no interest until the death of the testator, while in the latter, [the] beneficiary has an interest the moment the trust is created . . . The fact that a beneficiary’s actual enjoyment of the trust res is contingent upon the settlor’s death does not negate the existence of a present interest in the beneficiary during the settlor’s lifetime.”

Note that the court’s decision in Trzop and its progeny applies to irrevocable trusts. Courts have routinely held that a beneficiary lacks standing to challenge provisions of a revocable—or inter vivos—trust where the settlor was still alive. See Linthicum v. Rudi, 148 P.3d 746 (Nev. 2006); MacIntyre v. Wedell, 12 So.3d 273 (Fla. Ct. App. 2009). Practitioners must distinguish the type of trust at issue and research controlling case precedent to determine whether their beneficiary client has standing to assert claims pertaining to the trust.

Jason Wiley, Armstrong Teasdale LLP, Las Vegas, NV


April 29, 2016

Rules Amendments Impact Indiana Federal Court Decision on Subpoena Challenge

The 2015 amendments to the Federal Rules of Civil Procedure are already impacting discovery decisions made by the first line of defense for practitioners in most federal cases: magistrate judges. In Noble Roman’s, Inc. v. Hattenhauer Distrib. Co., Case No. 1:14-cv-01734-WTL-DML (S.D. Ind. March 24, 2016), a magistrate judge was faced with a challenge by the plaintiff Noble Roman’s to subpoenas for records and a Rule 30(b)(6) deposition issued by the defendant Hattenhauer to a major shareholder of Noble Roman’s, Privet Fund Management, LLC. The case was a dispute between Noble Roman’s and Hattenhauer regarding royalty payments of $64,000 under certain franchise agreements. Although the court had previously denied Noble Roman’s motion to quash the subpoenas, the court permitted it to file a motion for a protective order, which it did.

In deciding the motion for protective order, the court first looked at Hattenhauer’s argument that Noble Roman’s lacked standing to challenge the subpoenas. The court discussed that standing is a doctrine of subject-matter jurisdiction that determines whether a court can decide a case. The magistrate judge stated that the issue was not really one of “standing,” but rather one of whether a statute or the Federal Rules deny a party relief for the injury he or she asserts is threatened by the conduct of another. The court found that Noble Roman’s had sufficient interests—such as employee and attorney time, effort, and expense to review the requested documents and traveling to and preparing for the deposition—with respect to the subpoenas, and that the court had the constitutional power to adjudicate Noble Roman’s objections to the subpoenas. In so doing, the court stated that

it is the strength of litigants’ legitimate interests in the control of expansive discovery and corralling the spiraling costs of litigation that led to a series of changes to the federal discovery rules over the last thirty plus years that emphasize the power—and duty—of the district courts actively to manage discovery and to limit discovery that exceeds its proportional and proper bounds.

The court ultimately granted the motion for a protective order. The magistrate judge first reviewed the history of the amendments to Rule 26, stating that the 2015 rule amendments were “designed to protect against over-discovery and to emphasize judicial management of the discovery process, especially for those cases in which the parties do not themselves effectively manage discovery.” The court found that the 23 categories of documents and Rule 30(b)(6) testimony sought in the subpoenas had only “an attenuated and indirect relationship” to Hattenhauer’s defenses and counterclaims. Hattenhauer had argued that all of its deposition topics and document responses were relevant. The court stated, “That’s not good enough.” The court found that Hattenhauer’s duty was to demonstrate that the discovery is proportional to the needs of the case, which it failed to do. In granting the motion for protective order, the court found that “Hattenhauer’s documents and depositions subpoenas to Privet Fund constitute discovery run amok.”

It is clear that magistrate judges are taking the Federal Rules amendments seriously and are stepping up their gatekeeping functions when it comes to limiting costly and time-consuming discovery. No longer will litigants be permitted to serve broad, overreaching discovery requests and subpoenas under the guise that since all of the requests are “relevant,” the discovery is acceptable. Instead, they will need to prove to the court that the discovery is proportional to the needs of the case.

Angela S. Fetcher, Stoll Keenon Ogden, PLLC, Louisville, KY


March 30, 2016

What Can Happen When There Is a Breach of a Duty to Retain Rather Than Preserve?

Retention obligations can arise from statutes or regulations. These obligations are distinct from preservation obligations imposed by the common law once a party knows of, or reasonably anticipates, litigation. A failure to preserve can have serious consequences. Austrum v. Federal Cleaning Contractors, Inc., No. 14-cv-81245 (S.D. Fl. Jan. 8, 2016)demonstrates that a failure to retain also can.

Austrum was an employment-discrimination action. The defendant argued that, in the plaintiff’s employment application, the plaintiff stated that he would only work at night despite the defendant not having such a position available. The plaintiff disputed this. An Equal Employment Opportunity Commission regulation required the defendant to retain the application for one year from the decision not to hire the plaintiff. Instead, the defendant violated the regulation and discarded the application one month later. This was before the plaintiff filed a charge of discrimination, on which event the regulation required the application be kept until final disposition. In other words, the defendant violated a duty to retain long before a duty to preserve arose. The U.S. District Court for the Southern District of Floirida found that an adverse-inference instruction was appropriate because the plaintiff had been prejudiced by the employer’s action and that the employer acted in bad faith.

Austrum is a reminder of the importance of understanding what, if any, retention obligations are imposed on employers and, more generally on any entities, regulated by law. A breach of those obligations can be costly.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


March 30, 2016

Is a Filed Complaint a "Judicial Document" and Why Should Anyone Care?

According to Bernstein v. Bernstein Litowitz Berger & Grossman LLP, No. 15-0374-cv (2d Cir. Feb. 24, 2016), a complaint is a “judicial document.” This is important to anyone who wants access to a complaint and anyone who wants to seek to seal one.

The facts of Bernstein are straightforward. The plaintiff, a partner in a law firm, alleged in a complaint that he had been forced to resign because he “blew the whistle” on unethical billing practices. After the firm argued that he had disclosed “confidential client information” in the complaint, the plaintiff secured permission to file it under seal for a limited time. The parties entered into a confidential settlement and then sought a permanent sealing. The district court denied the request. The Second Circuit Court of Appeal affirmed.

The Second Circuit first held that the complaint was a judicial document notwithstanding the settlement because the filing of the complaint initiated the action brought by the plaintiff. That holding triggered the presumption of public access under the First Amendment because “experience and logic” supported access. Analyzing access under the common law, the Second Circuit concluded that there was a strong presumption of access because the complaint was highly relevant to the exercise of judicial power under Article III and no rationale rebutted the presumption. Finally, the Second Circuit rejected the argument that sealing was appropriate as the complaint contained client confidences.

What does Bernstein teach? First, caution should be exercised before any filing in a federal court. Whatever is filed might be deemed a “judicial document” and that would trigger presumptions of access. Second, be careful in what is pled because anything in such a document might become public knowledge regardless of its content.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


March 30, 2016

Court Orders Discovery of Personnel Files Requires Individualized Showing of Relevancy, Proportionality, and Particularity

The recent amendments to Rule 26(b) of the Federal Rules of Civil Procedure command that all discovery be both relevant to a party’s claim or defense and proportional to the needs of the case. In the case of In re Xarelto (Rivaroxaban) Products Liab. Litig., MDL 2592, 2016 WL 311762, at *1 (E.D. La. Jan. 26, 2016), the U.S. District Court for the Eastern District of Louisiana recently applied the standard articulated in Rule 26(b) to hold that a plaintiff in a products liability multidistrict litigation case cannot discover a non-party employee’s personnel file without an individualized showing of relevancy, proportionality, and particularity.

The parties in the case agreed that the plaintiffs were entitled to the “custodial files” maintained by the defendants’ employees. But, the plaintiffs also sought to discover the employers’ personnel files on the basis that such files were relevant to the plaintiffs’ “rush to the market” liability theory and employee bias. The defendants argued that heightened privacy and public-policy concerns associated with personnel files maintained by an employer trump a plaintiff’s broad non-particularized requests for such files.

The court, in making its determination, pointed to the U.S. Court of Appeals for the Fifth Circuit’s premiere decision on personnel-file production—Coughlin v. Lee, 946 F.2d 1152, 1155–57 (5th Cir. 1991)—and identified six factors from that case relevant to the determination of privacy and discovery interests in a civil case against a private defendant:

1. the impact upon persons who have given information of having their identities disclosed

2. whether the information sought is factual data or evaluative summary

3. whether the party seeking the discovery is an actual or potential defendant in any criminal proceeding either pending or reasonably likely to follow from the incident in question

4. whether the plaintiff's suit is non-frivolous and brought in good faith

5. whether the information sought is available through other discovery or from other sources

6. the importance of the information sought to the plaintiff's case

The court emphasized the importance of a “case to case” analysis of the variables when evaluating whether personnel files are discoverable and noted that such files tend to contain personal, embarrassing material. Additionally, the court noted that the Fifth Circuit rulings only allowed for the disclosure of personnel records when the files contained material highly relevant to the case at hand and were requested with particularity. Accordingly, the court held that because the plaintiffs did not issue their discovery requests on a witness-by-witness basis, they failed to demonstrate sufficient relevancy, proportionality, and particularity under the Federal Rules of Civil Procedure and Coughlin to overcome the privacy concerns associated with the personnel records.

Xarelto emphasizes special privacy concerns to be associated with an employer’s personnel files. Therefore, a one-size-fits-all discovery request for personnel records in a civil case against a private defendant is likely insufficient under Rule 26(b)’s standard of relevance and proportionality.

Elizabeth A. Rutledge, Baker Donelson, New Orleans, LA


February 29, 2016

What Might a "Judicial Document" Be and Why Should You Care?

Definitions matter, as evidenced by United States v. HSBC Bank USA, 12-cr-763 (E.D.N.Y. Jan. 28, 2016). In particular, depending on how a document is defined, it may become subject to public access.

In the case, HSBC had entered into a deferred-prosecution agreement with the government. Among other things, HSBC consented to the appointment of a monitor whose report was ordered to be filed with the court under seal at the government’s request. In response to a non-party’s request for access, the court unsealed the report, concluding that it was a “public document.” The court found that the report was relevant to the judge’s supervision of the deferred-prosecution agreement and of HSBC. The judge analyzed the report under the First Amendment and found that both “experience” and “logic” supported a right of access. However, he narrowly tailored the document to redact personal identifiers of HSBC employees and to protect against disclosure of HSBC processes that criminals might exploit.

This decision provides two important lessons for attorneys. First, any document filed with a court might be deemed “judicial” and subject to public access. Second, access to such a document might, in appropriate circumstances, be limited to protect significant interests.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


February 29, 2016

Proportionality in Practice

The December 1, 2015, amendments to the Federal Rules of Civil Procedure put a spotlight on proportionality in discovery. Proportionality was moved to Rule 26(b)(1) and factors were set out to guide judges in making decisions about what “proportional” discovery should be under the facts of individual civil actions. Two recent decisions illustrate that decision-making.

In Siriano v. Goodman Mfg. Co, 14-cv-1131 (S.D. Ohio Dec. 9, 2015), the court required the production of voluminous information despite the defendants’ argument that more than “4,000 hours of lawyer review time over several months” would be required to comply. Why? The court found, among other things, that the information sought was “directly related” to the claims in issue, it was “highly unlikely” that the information could be found elsewhere, and the information was “easily accessible” to the defendants.

In Oracle America, Inc. v. Google Inc., 10-cv-03561 (N.D. Ca. Dec. 3, 2015), the plaintiff sought to add 22 Google employees to an existing list of 27 “custodians” for collection and production of electronically stored information” (ESI). Although the court criticized both parties for their failure to address proportionality, it noted that the plaintiff had secured ESI from 17 of the proposed additional custodians years before and that the plaintiff had information available to have made a “more refined selection.” These facts led the court to find that the burden would exceed the benefit of the designations sought by the plaintiff and allowed only 10 additional custodians to be designated.

These two decisions demonstrate that any judicial calculus of what might be proportional in a given action will be fact specific and dependent on the parties’ submissions, which are central to any finding. Moreover, given the discretion vested in federal judges, it might be best for adversaries to cooperate in limiting discovery rather than present a dispute about scope of discovery to a judge.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


February 29, 2016

Kansas District Court Examines “Arising Under” Federal-Question Jurisdiction in Removed Action

In a decision examining the contours of federal-question jurisdiction under 28 U.S.C. § 1331—which provides district courts original jurisdiction over “all civil actions arising under the Constitution, laws, or treaties of the United States”—the District of Kansas recently remanded a removed action when it found that the alleged federal interest was not substantial enough to warrant federal jurisdiction. Vazquez v. Baldinger, No. 2:15cv09254, Dec. 22, 2105 (ECF #34).

In Vazquez, the plaintiff sued Sprint Nextel Corp. and certain related defendants in Kansas state court alleging malicious prosecution and other state-law claims. Vazquez’s malicious-prosecution action followed prior federal litigation between the parties, wherein Sprint alleged various federal and state-law claims against Vazquez and his company, including claims under the Lanham Act and Computer Fraud and Abuse Act, arising from Vazquez’s allegedly improper reselling of Sprint cellphones.

Sprint removed Vazquez’s state suit to the District of Kansas on federal-question grounds, arguing that resolution of some of Vazquez’s malicious-prosecution claims would require construction of the federal laws underlying Sprint’s original claims. Moving to remand, Vazquez countered that whether Sprint had probable cause to bring its prior federal claims was a factual issue alone, and not substantial enough to warrant federal-question jurisdiction.

In granting Vazquez’s motion to remand, the Vazquez court began by noting that while 28 U.S.C. § 1331’s “arising under” jurisdiction is ordinarily invoked when the plaintiff’s cause of action is created by federal law, state-law claims may still “arise under” federal law if a federal issue is (1) necessarily raised; (2) actually disputed; (3) substantial; and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress. However, the court cautioned that these cases represent “a special and small category,” and the exercise of federal jurisdiction is only justified where there is a “serious federal interest in claiming the advantages sought to be inherent in a federal forum.”

Though finding that Vazquez’s malicious prosecution claim could “conceivably require a court to construe federal law,” the Vazquez court also found there to be no “substantial” issue of federal interest that would justify federal jurisdiction. According to the court, the substantiality inquiry looks to the importance of the issue to the federal system as a whole, not simply to whether it is significant to the parties to the instant action, which will likely always be the case. Moreover, where the alleged basis for federal jurisdiction requires a fact-intensive inquiry as opposed to a question of law, and the case is unlikely to impact future decisions in the federal system, jurisdiction is not likely to be found.

The Vazquez court did, however, deny Vazquez’s request pursuant to 28 U.S.C. § 1447(c) for attorney fees and costs stemming from the allegedly improper removal, finding that Sprint had an objectively reasonable basis for the removal. Echoing the Supreme Court, the court noted that the established “arising under” jurisprudence “is not only confusing but sometimes resembles a canvas that Jackson Pollock got to first.” Even so, attorneys should use caution when removing state-law claim under the “arising under” jurisdiction.

Eric B. Levasseur, Hahn Loeser & Parks LLP, Cleveland, OH


February 29, 2016

It's Not the How, It's the Why—At Least in Malicious-Prosecution Cases

It does not matter that you may have negligently tried to SLAPP someone—it matters why you sought to SLAPP someone in the first place, at least according to a recent holding in Perez v. Zagami, LLC, No. A-3268-14T2. (N.J. App. Jan. 12, 2016), regarding a malicious-prosecution case. Luis Perez successfully obtained the dismissal of Zagami, LLC’s strategic lawsuit against public participation (SLAPP) against Perez. Zagami had alleged defamation, commercial disparagement, trade libel, interference with business relations, and civil conspiracy following Perez’s objections to the renewal of Zagami’s liquor license. Following the dismissal, Perez filed a “SLAPP-back” malicious-prosecution case against Zagami, meeting each of the elements of a malicious-prosecution case by claiming that Zagami’s complaint “(1) lacked probable cause, (2) was actuated by malice, (3) had concluded in Perez’s failure, (4) caused Perez to incur substantial attorney’s fees, and (5) had the effect of discouraging Perez from participating in future public proceedings.” Zagami asserted the defense of privilege, noting that it had filed the complaint on advice of counsel. This prompted Perez to amend the complaint to assert a claim against the law firm that filed the lawsuit on behalf of Zagami as allowed under New Jersey law.

The firm brought a motion to dismiss arguing that Perez could not support his claims without appropriate expert testimony set forth in an affidavit of merit, a procedural prerequisite to proceed with professional negligence suits under New Jersey law. The firm stated that it had provided its advice as a professional service and, as typically required in malpractice style suits, Perez would have to present expert testimony regarding the appropriate standard of care. The New Jersey Superior Court Appellate Division disagreed. Rather, the court stated the parties had to look at the underlying elements of the claim to determine the nature of the claim. The court then decided that the question of duty did not play a substantive role.

In doing so, the court set forth the five elements that a plaintiff must prove to succeed in a malicious prosecution case before noting that the claim does not look to the alleged negligence of the attorney in filing the claim but rather “the attorney’s motive for filing the litigation. “ The court continued “[t]he nature of the legal inquiry is not whether [the firm] performed their work in accordance with the applicable standard of care, but whether [the firm] provided advice and filed the claim with a malicious intent.” As none of the elements of a malicious prosecution claim go to the duty owed a non-client by an opposing counsel, the court held that a plaintiff does not need to present expert testimony to establish the standard of care to state a valid cause of action.

The case serves as a reminder that courts look to substance over form. In determining the nature of the claim, the first step involves a look at the elements of the claim. If the prima facie elements of the claim do not involve the establishment of a duty, the claim is likely not a professional-negligence or malpractice suit requiring expert testimony on the same. As seen here, the prima facie elements of a malicious prosecution case question the intent or motive of the alleged bad actor and a plaintiff need not provide expert testimony regarding the duty owed by the attorney as required in a malpractice suit.    

Mark Flores, Frost Brown Todd LLC, Lexington, KY


January 31, 2016

When Might Materials Be Filed under Seal?

There are times when a party or parties to a civil litigation seek to produce materials under a confidentiality order or file materials under seal. What standards govern sealing orders? Center for Auto Safety v. Chrysler Group, LLC, No. 15-55084, ___ F.3d ___, 2016 WL 142440 (9th Cir. Jan. 11, 2016), provides an answer.

Chrysler is a putative class action. The parties entered into a stipulated protective order pursuant to Fed. R. Civ. P.26(c) as part of the discovery process. The plaintiffs moved for a preliminary injunction and both they and Chrysler attached “confidential” documents to memoranda submitted on the motion. The district court allowed the documents to be filed under seal. The Center for Auto Safety moved to intervene and sought access to the sealed documents. The district court denied the relief sought, relying on a distinction between “dispositive” and “non-dispositive” motions. It held that the preliminary injunction motion fell into the latter category, that only “good cause” was required to justify sealing, and that the parties had made that showing. In doing so, the district court rejected the center’s argument that a compelling reason was required to sustain the sealing of the documents.

The Ninth Circuit reversed. Rather than focus on the dispositive versus non-dispositive labels, the majority opinion focused on the relationship of the preliminary injunction motion to the merits of the action—specifically, “whether the motion at issue is more than tangentially related to the underlying cause of action.” The majority noted that preliminary injunctions are “extraordinary and drastic” remedies that affect the substantive rights of parties and that public access to documents submitted on such motions promotes the “public interest in understanding” the judicial process, and remanded for a party to demonstrate compelling reasons to keep the documents sealed. One judge dissented, contending the majority had overruled circuit precedent and “vitiated” Rule 26(c).

What might be discerned from Chrysler? First, there is a distinction between confidentiality and sealing orders. The former requires a showing of good cause. The latter, depending on the nature of the materials to be sealed, may require good cause or compelling reasons. Second, courts look to the particular proceeding in issue to determine which “sealing” standard applies. Attorneys should appreciate these distinctions when moving to seal anything in a state or federal action.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


January 28, 2016

Seventh Circuit: Agency Failed to Exercise Good Faith in FOIA Response

In Rubman v. United States Citizenship & Immigration Services,800 F.3d 381 (7th Cir. 2015), the Seventh Circuit recently held that the U.S. Citizenship and Immigration Services (USCIS) failed to perform an adequate search of its records in response to a Freedom of Information Act (FOIA) request because it generated a new document in response to the request instead of searching its existing internal documents for responsive material.

David Rubman submitted a FOIA request to USCIS requesting “copies of all documents reflecting statistics about H-1B visa applications” for the past four years. USCIS responded to the request by providing a single document—a chart of data that USCIS created specifically in response to his request. Rubman objected to this response and renewed his request for “ALL documents reflecting statistics” about H-1B visa applications, including any internal reports. USCIS responded by saying that the data table was “complete and accurate” and that providing further documents would “only create additional confusion.” Specifically, USCIS explained in its response that it interpreted Rubman’s request as one for statistics; therefore, it had created the data table itself summarizing the statistics. Rubman sued USCIS and challenged the adequacy of the search it performed. The district court granted summary judgment in favor of USCIS.

On appeal, USCIS argued that its search was adequate because its interpretation of the request, and its resulting search of records, were reasonable. The court of appeals disagreed, holding that for a search to be “adequate” it must be performed in good faith by using reasonable methods for detecting responsive material. Moreover, the court held that a request for “documents” is “reasonably understood . . . as one for preexisting internal agency records,” not records that the agency creates in response to the request. Accordingly, when USCIS refused to perform an additional search for preexisting internal agency records after Rubman objected to the data table, USCIS failed to perform an adequate search, as FOIA requires it to do. As a result, the court held, USCIS was not entitled to summary judgment.

Rubman is important not only because it defines what constitutes an “adequate search” but also because it provides an example of what conduct does not meet that mark. Under the lessons of Rubman, government agencies should avoid unilaterally interpreting FOIA requests without input from the requester. In addition, government agencies should carefully perform good-faith searches for responsive material in response to FOIA requests rather than create new documents that summarize data found elsewhere in preexisting agency records.  

Philip Heleringer, Stoll Keenon Ogden PLLC, Louisville, KY


December 31, 2015

Amendments to the Federal Rules: More Hype Than Substance?

Long-anticipated amendments to the Federal Rules of Civil Procedure became effective December 1, 2015. Most commentary on the amendments has been upbeat and, indeed, some have proposed that the amendments will bring a sea change to civil litigation in the U.S. courts. We will see in a year or two whether and what changes there will be. However, it might be worthwhile to consider the “uncertainties” of the amendments. Here are a few:

1. Beyond the federal rules, what will be the reaction of U.S. district courts to the amendments? Will local courts adopt or, more realistically, amend existing local rules or practices to “implement” the amendments? Attorneys and corporate parties who litigate across the United States are already faced with procedural variations in local rules and practices. Will these variations increase?

2. Rule 1 stresses “cooperation” among attorneys and parties. At the same time, failure to comply with the aspirational goal of Rule 1 cannot give rise to sanctions. Cooperation was already required by Rules 26(f), 26(c) and 37(b). What might cooperation mean now under the rules? What might a judge expect or require attorneys to bring a civil action along to a “just, speedy and inexpensive determination?” Moreover, attorneys did not wake up on December 1 and cast aside their “pre-existing” experiences and attitudes as litigators. How will they react to a call for cooperation?

3. Amended Rule 16(b)(3)(v) might be one of those “sleepers” that effects a true change in litigation conduct. It allows judges to require parties to participate in a conference as a prelude to any formal discovery motion practice. This is eminently sensible. This procedure should save both time and money. However, to be done right, the attorneys must have a clear understanding of what they seek or resist and why they take the positions they do. As someone who has been on the federal bench, sat as a special master, and dealt with ESI issues, I can attest that attorneys sometimes “shoot from the hip” and fail to appreciate or understand ESI. What will judges expect at these conferences, especially judges who are trying “something new?” What should attorneys be prepared to present as proof? My District of New Jersey experience has taught me that informal resolution of discovery disputes is a great practice. But it might time for that experience to become common everywhere. Informal resolution might be even more problematic if done on an ad hoc basis by individual judges within single judicial districts. We shall see.

My comments only touch the surface of the amendments. There is a lot to be absorbed by attorneys and swift change in practice might be expected from judges as well as clients seeking to conserve monetary resources. Attorneys should understand the amendments and the pressures that might be imposed on them to “comply” with what might be “new.”

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


December 31, 2015

Court Finds Communications with Outside Consultant Protected by Privilege

In a decision testing the contours of the attorney-client privilege, a federal district court recently held that a company’s communications with an outside, senior level management consultant were protected from disclosure by the attorney-client privilege because the consultant functioned as a “de facto employee” of the company. Goad Co. v. Honeywell Int’l, Inc., No. 4:14-cv-00545 (W.D. Mo. Sept. 1, 2015).

In Goad, Honeywell moved to compel the production of certain communications between Goad and its outside management consultant (Hampton), which Goad withheld from production on privilege grounds. Honeywell argued that even if Hampton functioned as a senior management employee, his presence was not “necessary or essential” to the transmission of information to Goad’s counsel for the protection of Goad’s interests, and therefore his presence “belie[d] the necessary element of confidentiality and vitiate[d] the attorney-client privilege.”

In opposition, Goad argued that courts have applied the attorney-client privilege to communications involving a wide variety of third-party independent contractors, including financial consultants, independent credit-counseling consultants, invention consultants, insurance consultants, and public-relations consultants. Goad argued that numerous decisions have “recognize[ed] the practicalities of modern business practice,” and extended the privilege to protect communications with outside consultants who “function as the client’s employee or agent.” Therefore, Goad urged, because Hampton was “integrally involved with the company, functioning as a de-facto director who maintains an insider’s knowledge of the company’s operations, and who has access to confidential information regarding Goad’s central management,” his communications bore the markings of confidential communications and were entitled to protection.

In denying Honeywell’s motion to compel, the court found that Hampton “operat[ed] closely with Goad’s senior management” and “participate[d] in high-level strategic planning, management restructuring decisions, general operations, and other tactical business decisions.” Recognizing the “unique role played by consultants in advising companies,” the Court agreed with prior Eighth Circuit precedent and found that there was “no principled basis to distinguish [the consultant’s] role from that of an employee” where the consultant is a “functional extension of the company.” See In re Beiter Co., 16 F.3d 929 (8th Cir. 1994).

While the Goad decision certainly reaffirms the flexibility of the attorney-client privilege to account for changing modern business practices that increasingly rely on non-employee consultants, the fact-intensive inquiry underlying these decisions cannot be overstated. Involving outside consultants in communications between corporate clients and their counsel—no matter how essential or important the client might deem them to the company’s operations—should still be viewed skeptically and reviewed carefully in advance lest the door start opening to an inadvertent waiver of the privilege.

Eric B. Levasseur, Hahn Loeser & Parks LLP, Cleveland, OH


December 31, 2015

New Year, New Discovery Scope? FRCP Rule 26(b) Amendment

On December 1, 2015, several amendments to the Federal Rules of Civil Procedure went into effect. The coming year no doubt will bring court decisions implementing the rules and will start to demonstrate what impact the amendments will have on the scope of discovery. Commentators have debated the practical impact of the amendments, but until the cases sort that out, litigators should keep in mind some of the most substantial revisions including, in the first instance, the changes to the scope of discovery set out in Rule 26(b).

Rule 26(b) defines the scope and limits of discovery. The overall scope is unchanged, limited to information that is “relevant to any party’s claim or defense and proportional to the needs to the case.” But the oft-quoted language that followed, limiting discovery to that “reasonably calculated to lead to the discovery of admissible evidence,” has been removed from the revised rule. The revision makes explicit what has been cut, with the addition of the direct statement: “Information within this scope of discovery need not be admissible in evidence to be discoverable.” Discovery of non-privileged information not admissible in evidence remains available so long as it is otherwise within the scope of discovery. In place of the prior limit is the requirement that discovery must be “proportional to the needs of the case,” considering six identified factors:

  • the importance of the issues at stake in the action
  • the amount in controversy
  • the parties’ relative access to relevant information
  • the parties’ resources
  • the importance of the discovery in resolving the issues
  • whether the burden or expense of the proposed discovery outweighs its likely benefit

Proportionality is not a new concept in the discovery process, and the factors in the new Rule 26(b)(1) are not entirely new. The former Rule 26(b)(2)(C)(iii), limited discovery if “the burden or expense of proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the parties’ resources, the importance of the issues at stake in the action and the importance of the discovery in resolving the issues.”

Nonetheless, the commentary to the amendments makes clear that the amendment is intended to make an impact. Moving the factors is meant to “reinforce[] the . . . obligation of the parties to consider these factors in making discovery requests, responses or objections.” But the amendments do not place the burden of addressing all proportionality considerations with any one player. Rather, the “parties and the court have a collective responsibility to consider the proportionality of all discovery and consider it in resolving discovery disputes.” How that plays out remains to be seen.

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


November 30, 2015

"Form or Forms" Of Production: How Do You Ask for What?

One of the “hot topics” in the discovery of electronically stored information (ESI) revolves around the form in which it can be requested and produced. Several recent decisions illustrate the debate.

We begin where everything about discovery should begin: What do the applicable rules provide? Rule 34(b) of the Federal Rules of Civil Procedure allows a party to “specify the form or forms” in which it wants ESI to be produced. If a party objects to the request—or if no form was specified, the responding party “must state the form or forms it intends to use.” The rule goes on to speak of, among other things, production of ESI “in a form or forms in which it is ordinarily maintained or in a reasonably usable form or forms” absent specification by the requesting party.

The hot topic is whether production should be in “native format.” The Sedona Conference Glossary: E-Discovery and Digital Information Management (4th edition: 2014) defines that as follows: “Electronic documents have an associated file structure defined by the original creating application. This file structure is referred to as the native format of the document.” Suffice it to say that there are those in the “ESI review” community who take the position that “native is best” because it allows for the reviewer to, among other things, see every possible metafield associated with particular ESI and perform every possible analysis of the ESI. One alternative to native is, for example, the “TIFF Plus” form. Which form or forms is best?

Courts have taken various approaches to what might be a perplexing question. In re: Benicar (Olmesartan) Products Liability Litigation, No. MDL-15-2606 (D.N.J. June 30, 2015) compared native with TIFF Plus and opted for the latter, as did Johnson v. RLI Ins. Co., No. 14-cv-00095 (D. Alaska Aug. 31, 2015). Both decisions recognized, however, that certain ESI might warrant native. Contrariwise, interpreting a controlling Texas rule, In re Lloyds, Nos. 13-14-00651-CV (Tex. Ct. App. Oct. 28, 2015), held that the court below had not erred when it ordered native (and “near-native”) production against an undue-burden argument.

There is unlikely to be any definitive ruling on what might be the “best” form. Rule 34(b) of the Federal Rules of Civil Procedure allows for discretionary choices by requesting and producing parties as well as discretionary decisions by judges. What the case law does suggest is that parties—and their attorneys—should understand what form or forms exist, what form or forms would be reasonably usable without undue burden, and what proofs are required to support any request or objection.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


November 30, 2015

When Might Social Media Postings Lead to Contempt?

Under what circumstances might a litigant’s postings on social media rise to the level of contempt? In re: Marriage of Weddigen, 2015 IL App (4th) 150044 (2015) draws a line.

An Illinois Supreme Court rule prohibited the taking of photographs in a courtroom. Nonetheless, James Weddigen, a party to a post-dissolution-of-marriage proceeding, secretly recorded a hearing, posted a comment about doing so on Facebook, and encouraged others to bring their phones into courthouses and do the same. A trial court found Weddigen in indirect civil contempt for his postings and his encouragement to others. The court ordered Weddigen to purge himself by “recanting” on Facebook, imposed a daily sanction until he did so, and awarded Weddigen’s ex-wife—who commenced the contempt proceeding—her costs and attorney fees. The Illinois Appellate Court reversed. In doing so, it focused on the nature of contempt and the procedural rights afforded those alleged to be in contempt.

The appellate court looked to the purpose for which the sanctions had been imposed. Weddigen’s conduct could form the basis for either criminal or civil contempt and the trial judge’s procedures blurred the distinction between the two: “Rather than coercing respondent into complying with the court’s directives of refraining from recording any hearing, the court sought to punish and sanction respondent for his past conduct of posting comments.” What began as a civil contempt proceeding morphed into a criminal one and the trial court failed to afford to Weddigen due-process rights. Moreover, although the “purge conditions” imposed on Weddigen were in the nature of civil contempt, those were vacated for a lack of procedural safeguards.

Weddigen demonstrates the nature of contempt outside the presence of the court and the importance of the sanction sought and imposed in determining whether conduct could give rise to a civil or criminal contempt. Weddigen further demonstrates that a respondent is entitled to various protections before he or she can be held in contempt.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


November 30, 2015

Federal Claims Court Requires "Systematic, Reliable Plan" for Collection of Documents and ESI

In a decision of particular interest to attorneys responsible for coordinating large document and electronically stored information (ESI) productions from multiple custodians, the U.S. Court of Federal Claims recently held that a producing party must be able to establish a “systematic, reliable plan” for the collection of information, or run the risk of having to perform its collection process a second time. New Orleans Reg’l Physician Hosp. Org., Inc. v. The United States, 122 Fed. Cl. 807 (Fed. Cl. 2015).

The New Orleans decision stemmed from a reimbursement dispute between a New Orleans-based Medicare Advantage health plan and the Centers for Medicare and Medicaid Services (CMS) in the wake of Hurricane Katrina. After certain deposition testimony called into question document and information collection efforts by CMS, the plan moved to compel production, requesting among other things an order that the parties “work together . . . on a list of custodians, search terms and protocols for production[.]” As part of its briefing order concerning the plan’s motion to compel, the court required CMS to submit detailed affidavits or declarations from the individuals who performed searches for potentially responsive documents or ESI.

Reviewing the affidavits, declarations and general discovery record, the court began by noting certain concerns with process of CMS for identifying and collecting responsive information, including (1) that a “formal litigation hold” was not put in place until nearly a year-and-a-half after the plan first expressed its reimbursement concerns to CMS, and about six months after the complaint was filed; (2) that only two of twenty-three document custodians were aware of the litigation hold; (3) that none of the CMS custodians used a list of 28 search terms identified by CMS for searching records; and (4) that certain electronic data was destroyed following the retirement of a key custodian.

Against this background, the New Orleans Court noted that “[a] proper search for discoverable documents requires careful planning, oversight and monitoring by the party’s counsel.” Accordingly, “[c]ounsel must take affirmative steps to monitor compliance so that all sources of discoverable information are identified and search[,]” and the responding party “must be able to ‘explain the rationale for the method chosen to the court, demonstrate that it is appropriate to the task, and show that it is properly implemented.’” In short—and what the court ultimately determined did not occur in the New Orleans case—the responding party must be able to show that it “put into place a systematic, reliable plan to find and produce all relevant documents in the case.”

The court ultimately granted the plan’s motion to compel in part, ordering that the parties “collaborate . . . to identify records’ custodians and a comprehensive set of search protocols.”

The New Orleans decision serves as a stark reminder to counsel managing large document productions of the need for vigilance and continued, reasonable monitoring of a client’s production efforts. But it also serves as a reminder that many of these problems are avoidable in the first instance through careful planning at the parties’ Rule 26(f) conference and reaching early agreement on the processes and protocols for preserving and searching ESI. The lesson is simple: Do it right the first time, or run the risk of having to do it a second time.

Eric B. Levasseur, Hahn Loeser & Parks LLP, Cleveland, OH


October 30, 2015

What Happens When All Parties Are Responsible for Delay?

There are circumstances when one party is responsible for e-discovery-related delay in a civil action. But what happens when delay is attributable to all parties? One judicial answer appears in Johnson v. Ford Motor Co., No. 13-cv-06529 (S.D.W.Va. Sept. 11, 2015).

The plaintiffs in this multi-district litigation sought sanctions against Ford Motor Company. The plaintiffs argue that Ford failed to conduct a proper search of a key employee’s custodial file, improperly withheld materials pertaining to investigations undertaken by the employee, and failed to produce a proper privilege log. The court ordered Ford to produce a privilege log and awarded reasonable expenses to the plaintiffs but declined to impose additional sanctions. Its rationale included this:

For months, the undersigned has encouraged, prodded, and pressured the parties to agree on search terms; even threatening to hire a third-party expert to develop the terms if the parties could not resolve their issues expeditiously. Despite the Court’s repeated urging, the parties only recently agreed to terms. Consequently, the delay in discovery occasioned by the lack of search terms can be attributed to both parties.

This caseshould be seen as a “poster child” for cooperation between adverse parties. The December 1, 2015, amendments to the Federal Rules of Civil Procedure emphasize cooperation. Federal judges will enforce cooperation and, as Johnson demonstrates, recognize when parties fail to cooperate and grant or deny relief as appropriate for such failure.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


October 30, 2015

When Might Both Retained and In-House Counsel Be Sanctioned for Discovery Abuse?

Under what circumstances might discovery-related sanctions be imposed on both in-house counsel for a party and the party’s retained counsel? Sun River Energy, Inc. v. Nelson, No. 14-1321, 2015 WL 5131947 (10th Cir. 2015), addresses this question and the relationship between both counsel.

The plaintiff in that case failed to disclose a D&O policy in its initial disclosures, as a consequence of which the defendants were time-barred from asserting a claim under the policy. The district court imposed monetary sanctions on Sun River Energy’s in-house counsel as well as its counsel of record. On appeal, the Tenth Circuit Court of Appeals affirmed the sanctions against retained counsel but reversed as to the party’s in-house counsel. The Tenth Circuit’s ruling demonstrates when—and how—attorneys can be sanctioned for discovery abuse.

First, the Tenth Circuit held that Rule 37(c)(1) does not authorize sanctions against in-house counsel. Rather, the rule authorizes awards only against a party. Second, the Tenth Circuit rejected the argument that the sanction was an appropriate exercise of the district court’s inherent power as there was no finding that in-house counsel had acted in bad faith as required by Chambers v. NASCO, 501 U.S. 32 (1991). The outcome was different as to counsel of record.

Counsel of record had been sanctioned under Rule 37(b)(2). In appealing the sanction, retained counsel argued that his conduct had been substantially justified because he had assumed that in-house counsel had determined that the policy was irrelevant and because he believed that the policy could not be applicable. The Tenth Circuit gave short shrift to his arguments, noting that counsel could not “rely on his practical abdication of . . . [his] duty of oversight and inquiry” nor fail to exercise legal judgment regarding the possible availability of coverage.

Sun River Energy demonstrates that counsel of record cannot rely on assumptions as to what in-house counsel might or might not have determined in the discovery context but, rather, must make an appropriate inquiry of the client. The decision also demonstrates the importance of knowing what must be proven for sanctions against attorneys under the Federal Rules or inherent power.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


September 30, 2015

What Is a “Reasonable Expectation of Privacy?”

Expectations of privacy can differ between participants in an oral communication. Huff v. Spaw, No. 14-5123 (6th Cir. July 21, 2015), demonstrates that one party may have a reasonable expectation of privacy while the other may not.

Huff was a Title III action brought by a husband and wife against the defendant for unlawful interception of an oral communication. The husband inadvertently placed a “pocket-dial call” to the defendant while speaking with his wife. The defendant remained on the call for 91 minutes, transcribed what she heard, and recorded some of the conversation between the husband and wife. The district court granted summary judgment in favor of the defendant, finding that neither husband nor wife had a reasonable expectation of privacy in their conversation. The court of appeals affirmed, in part.

The Sixth Circuit held that the husband, by not having taken any precautions against placing the inadvertent call, had no privacy right to enforce in a Title III action. “Huff is no different from the person who exposes in-home activities by leaving drapes open or a webcam on and therefore has not exhibited an expectation of privacy.” On the other hand, the wife, who “made statements in the privacy of her hotel room, was not responsible for exposing those statements to an outside audience, and was . . . unaware of the exposure, . . . exhibited an expectation of privacy.”

On a daily basis, attorneys and their clients engage in conversations such as those in issue in this case. They do so using, among other things, smart phones that can often provide “unintended” or not understood services. Huff demonstrates the importance of knowing what mishaps might be expected to occur when using new technologies and the possible consequence of making an error in doing so.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


September 30, 2015

When Might Testimony From Electronic Information Require an Expert?

Testimony derived from electronic information is commonplace. What are not common, however, are decisions that explore when that testimony should come from an expert rather than a lay witness. Collins v. State, No. 2013-CT-00761-SCT (Miss. Aug. 20, 2015), explores the distinction.

The defendant had been convicted of murder. The evidence included GPS locations found in cell phone records. The Mississippi Supreme Court distinguished between testimony that “simply describes the information in a cell phone record . . . [or] merely informs the jury as to the location of cell towers” from testimony that “goes beyond the simple description of cell phone basics . . . [and] purports to pinpoint the general area in which the cell phone user was located based on historical cellular data.” The court held that the latter required that a witness be qualified as an expert. The conviction was reversed, in part, because the testifying officer had not been qualified as an expert.

Collins was a criminal trial. However, evidence rules apply in both criminal and civil proceedings. As more and more evidence is derived from electronic information, attorneys must take care to lay a proper foundation for that evidence and understand that testimony from an expert may be required. Failure to do so may lead to the reversal of a favorable ruling or judgment.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


August 31, 2015

Sealing E-Discovery Vendor Invoices: Why and How?

“[T]hese invoices reveal confidential and sensitive information regarding Apple’s pricing agreements with Catalyst.” Apple, Inc. v. Samsung Electronics Co., Case No.: 11-CV-01846-LHK (N.D. Ca. July 7, 2014). Apparently relying on this statement, made in support of an application for an award of costs under 28 U.S.C. § 1920, a federal court sealed pricing arrangements made between Apple and its e-discovery vendor. The court concluded that a motion for an award of post-judgment costs was non-dispositive, that only good cause was needed to seal a “non-dispositive” document, and that the pricing information constituted a “trade secret” under Ninth Circuit precedent. The sealing of such information may be rare. Nevertheless, it happens.

This sealing order raises several questions:

1. Is a post-judgment award of statutory costs truly non-dispositive? The traditional dichotomy between dispositive and non-dispositive motions has focused on whether these go to the merits as opposed to discovery. Isn’t an award of costs analogous to the former and not the latter?

2. The award of costs in Apple followed a long and contentious litigation. What public interests did the court weigh in electing to protect pricing information? Doesn’t the public have an interest in understanding the costs of litigation?

3. Whose “trade secret” was being protected? Surely not Apple’s unless Apple contended that its pricing arrangement with a vendor for the purposes of a specific litigation would somehow cause it competitive harm when it negotiates with vendors for future litigation-services? Is that the “confidential and sensitive” information referred to above? The “cat is out of the bag” with regard to past pricing.

4. Is the true holder of the trade secret the vendor? Do vendors negotiate different prices with different litigants? Or, do vendors establish uniform prices across all types of litigation involving varying volumes and varieties of electronically stored information (ESI)? If the vendor is the holder of the trade secret, why didn’t the vendor move to seal the pricing information?

5. Finally, there is an institutional problem with sealing of e-discovery pricing information: How can courts be expected to weigh the reasonableness of applications for e-discovery-related costs absent a body of precedent that will allow a specific application to be weighed against others?

These are questions that judges should ask and moving parties be prepared to answer before any application to seal with regard to a post-judgement award of ESI-related costs is granted.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


July 21, 2015

The Limits of Confidentiality and Sealing Orders

Two recent decisions from U.S. district courts at opposite ends of the nation illustrate circumstances under which discovery materials, which are presumptively “private” and not subject to public access, nevertheless become accessible to the public and its surrogate, the press. The decisions are Constand v. Cosby, Civil Action No. 05-1099 (E.D. Pa. July 6, 2015) and Mendez v. City of Gardena, Case No. 2:13-cv-09042-SVW-AJW (C.D. Ca. July 14, 2015). Both address the unsealing of materials filed under seal during motion practice.

Constand is, as a consequence of its result, well-known: The plaintiff commenced a civil action in 2005 against the defendant, “an internationally known entertainer,” for assault and other tortious conduct. The defendant was deposed and, during his deposition, apparently admitted to the purchase of a drug that he planned to give to women without their knowledge. After the deposition, the plaintiff filed discovery and sanction motions, attaching excerpts of the deposition. The court entered a temporary sealing order removing the briefs and deposition excerpts from public view pending a full hearing to determine whether the materials should be permanently sealed. Before the motion was decided, the action settled. In 2014, the Associated Press (AP) moved to intervene to secure access to the sealed filed materials, including the filed deposition, and the court granted the AP’s motion.

Mendez was a civil-rights action arising out of a detention and “shooting spree” by police officers. Video footage taken by police-car cameras was produced during discovery under a confidentiality order and later filed as part of a summary-judgment motion. Before the motion was decided, the plaintiffs took a voluntary dismissal. Thereafter, various media organizations sought access to the footage. The court granted that relief on July 14, 2015, and denied the defendants’ request for a stay to allow them to appeal.

These decisions are important to illustrate some basic propositions regarding orders sealing discovery materials that are filed in connection with motion practice:

  • There is right of access to unfiled discovery materials and such materials can be made “confidential” on a showing of good cause and the issuance of a Rule 26(c) protective order.
  • The First Amendment gives the public a right of access to materials filed with courts at least if those materials are filed in connection with dispositive motions.
  • The press may intervene to challenge a sealing order (as well as a protective order), at least if the motion to intervene meets appropriate standards as to, among other things, jurisdiction.
  • Turning to the merits, the proponent of sealing must show compelling reasons (however that may be defined) for denying public access.
  • The showing must be based on “current evidence” and broad allegations of unspecified harm are insufficient to overcome public access.

Constand and Mendez caution against the “viability” of any sealing order in civil litigation. That is not to say that parties in a specific action may not agree to filing materials under seal and that a judge may not challenge that agreement. Nonetheless, those materials may be relevant to the public interest. Attorneys should be aware of the differing standards for issuance of a protective order as opposed to a sealing order, be prepared to meet those standards, and recognize that, although broad confidentiality orders may be appropriate, specificity in requesting that filed materials be sealed is appropriate. Attorneys should also take care in drafting confidentiality and sealing orders to “cover all the bases” and be certain to include within the scope of such orders everyone in possession of the protected materials.

Notably, the complete transcript of deposition in Constand has become public, apparently because the transcript was in the possession of a court-reporting service that was not within the scope of any confidentiality order. See G. Bowley & S. Ember, “Bill Cosby Deposition Reveals Calculated Pursuit of Young Women, Using Fame, Drugs and Deceit,” New York Times A1 (July 19, 2015).

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


July 21, 2015

How Do You "Unmask" an Anonymous Defamer?

“What showing must be made by a defamation plaintiff seeking disclosure of an anonymous speaker’s identity?” Thomson v. Doe, No. 72321-9-1 (Wash. Ct. App. July 6, 2015). In a case of first impression, the Washington Court of Appeals of the State of Washington answered by providing a road map for substituting a real person for a “Jane Doe” defendant.

The plaintiff in Thomson is an attorney from Florida. She filed a civil action in Florida against an anonymous individual who posted a review of her on Avvo Inc., an “online lawyer review and rating system.” Thomson then filed a subpoena in a Washington trial court to compel Avvo to identify the poster. Avvo refused and forced Thomson to file a motion to compel. The trial court denied Thompson’s motion and she appealed. Both Avvo and Doe were in the caption on the appeal. In affirming the denial, the court of appeals described what a plaintiff such as Thomson must do to pierce an anonymous poster’s anonymity.

The court of appeals recognized that anonymous speech is protected by the First Amendment but that defamatory speech is not entitled to that protection. It then recognized that, “when faced with a defamation claim, courts aim to strike a balance between the right to protect one’s reputation and the constitutional right to free speech.” That balancing test requires a consideration of the type of speech in issue: Is the defamed plaintiff a “public figure?” If so, actual malice must be shown. If the speech involves a “purely private concern,” less stringent protection is necessary.

The court held that, because the appeal before it had “First Amendment consequences,” it would apply a de novoreview standard. It then turned to “the requisite showing a defamation plaintiff must make on a motion to unmask an anonymous defendant.” To determine the appropriate showing, the court looked to two leading decisions, Dendrite Internat’l, Inc. v. Does No. 3, 775 A.2d 756 (N.J. App. Div. 2001) and Does No. 1 v. Cahill, 884 A.2d 451 (Del. Sup. Ct. 2005). Dendrite created a four-part test that Cahill modified.

After reviewing these decisions, the court of appeals affirmed the decision of the trial court and made the following rulings:

  • “Notice is a crucial element.” Although Thomson had not attempted to give notice, Doe conceded that Avvo did so.
  • “[W]hen addressing a defamation plaintiff’s motion . . . , the court must consider the nature of the speech at issue when determining the appropriate evidentiary standard to apply.” The court held that an “intermediate level of protection” should be afforded Doe’s post because it fell between “commercial” and “political.” Thompson at No. 72321-9-1.
  • Neither a showing of good faith nor a motion-to-dismiss standard would be appropriate. Instead, given the posture of the proceeding, “supporting evidence should be required before the speaker is unmasked.” Id. Thomson submitted none when she moved to compel compliance.

The court of appeals did address a final issue, which it characterized to be “Avvo’s attempt to serve as the arbiter of Doe’s identifying information.” Once Avvo secured information from Doe to enable it to respond to the subpoena, “Avvo should have afforded the trial court the opportunity for in camera review, so that it too could ground its decision in fact rather than speculation.” Id.

Attorneys and other professionals resort to social media and websites for professional and marketing purposes. Attorneys and other professionals should expect that, when they do so, responses may be uncomplimentary and even defamatory. Thomson cautions that anonymous speech on social media is protected by the First Amendment and that a defamation plaintiff must establish certain elements before he or she can substitute a real person for a fictitious defendant.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


July 16, 2015

Sixth Circuit Holds Certain Electronic Discovery Taxable as Costs

Recognizing the ever-increasing use of electronic discovery as a substitute for traditional “paper discovery,” the Sixth Circuit recently held that a prevailing party was entitled to recover the cost of imaging an opponent’s personal-computer hard drive as taxable costs under 28 U.S.C. § 1920. Colosi v. Jones Lang LaSalle Americas, Inc., 781 F.3d 293 (6th Cir. 2015). While acknowledging concern about “expanding the scope of § 1920 to include expensive electronic discovery procedures not contemplated by Congress,” the Sixth Circuit nonetheless found that because the requesting party’s only way to obtain the information for use in discovery was through imaging the hard drive—and the imaging thus was not merely a question of convenience or expediency—taxing the imaging costs was appropriate.

In Colosi, a wrongful-termination suit, the defendant-employer sought certain discovery from the plaintiff employee. In response to the requests, Colosi “delivered her computer to her attorney’s office and demanded that [the employer] send a third-party vendor to image its hard drive under her attorney’s supervision.” The employer did so, and after prevailing in the district-court litigation, was permitted to tax as costs under 28 U.S.C. § 1920 the cost of imaging Colosi’s hard drive. The Sixth Circuit affirmed.

Under 28 U.S.C. § 1920, a court may tax as costs, inter alia, “[f]ees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.” Therefore, the Sixth Circuit found that its first task was to determine “whether imaging a hard drive, or other physical storage device, falls within the ordinary meaning of ‘making copies.’” Looking to dictionary definitions of “copy” and considering Congress’s amendment of section 1920 in 2008 to change the term “paper” to “materials,” the court found that “a plain reading of the statute authorizes courts to tax the reasonable cost of imaging, provided the image file was necessarily obtained for use in the case.”

In so holding, the Sixth Circuit distinguished the Third Circuit’s decision in Race Tires America, Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158 (3rd Cir. 2012). In Race Tires, the prevailing party sought to tax as costs “the entire cost of its electronic discovery, including imaging hard drives, deduplicating image files, populating a database, reviewing the files for discoverable information, redacting privileged information, converting the responsive documents to an agreed-upon format, and burning these documents files onto a DVD for production.” The Third Circuit found that only converting the documents into an agreed-upon format and burning those files to a DVD were “functional equivalent[s]” of “making copies.”

The Sixth Circuit disagreed with the “functional equivalent” approach, finding at least imaging a hard drive to be within the ordinary meaning of “making copies of any materials.” In further support, the Colosi court noted that courts will “contrast copies necessarily produced to meet discovery obligations, [costs for] which are recoverable, with copies produced solely for internal use or the convenience of counsel in conducting discovery.”

While Colosi no doubt turns in significant part on the fact that the only option available for obtaining the discoverable information was to comply with Colosi’s “demand” that her computer be imaged at her attorney’s office, it nonetheless portends a growing trend of courts finding certain electronic discovery matters taxable as costs when used in lieu of traditional paper discovery to obtain information necessary for use in the case.

Electronic means used principally to increase a reviewing party’s convenience or expedite the review process (de-duplication costs, indexing costs, etc.)—even though possibly decreasing the overall cost of discovery—will likely not be taxable. But other electronic means tied perhaps more closely to traditional notions of “copying” of the underlying data (imaging costs, reproducing DVDs, etc.) should be tracked as potentially recoverable costs. Indeed, while Colosi was limited to a single computer, its rationale would seemingly apply with equal force where multiple computers might need to be imaged, and the resulting cost significant.

Eric B. Levasseur, Hahn Loeser & Parks, LLP, Cleveland, OH


July 16, 2015

U.S. v. Davis: Cell Phone Location Information May Be Compelled

In U.S. V. Davis, ___ F.3d ___ (11th Cir. May 5, 2015), the Eleventh Circuit en banc ruled that a "court order authorized by the Stored Communications Act [SCA] … compelling the production of a third-party telephone company's business records containing historical cell tower location information" does not violate the Fourth Amendment and is constitutional.

Davis, along with accomplices, was accused of committing seven armed robberies. Davis and five co-defendants were indicted. Davis was charged with the robberies and conspiracy to commit the robberies. The prosecution obtained a court order for stored telephone communications records pursuant to the SCA, specifically requesting clearly delineated records that were both historical and tailored to the crimes under investigation. The SCA permits governmental entities to "require a telephone service provider to disclose a record . . . pertaining to a subscriber to or a customer of such service (not including the contents of communications)' if a 'court of competent jurisdiction' finds 'specific and articulable facts showing that there are reasonable grounds to believe' that the records sought 'are relevant to an ongoing criminal investigation.'"

Davis was linked to one of the phone numbers' SCA documents. The records obtained showed (1) the telephone numbers called from and to the phone; (2) whether a call was incoming or outgoing; (3) the date, time, and duration of a call; (4) the number of the cell tower that connected the calls; and (5) the sector number associated with the tower (with the fourth data, "historical cell tower location information"). The records did not contain (1) content of calls; (2) cell phone contents; (3) data for text messages; or (4) cell tower location when the phone was on but not used for a call. No GPS or real-time location information was sought. Davis moved to suppress the records claiming that the records were a Fourth Amendment search, requiring probable cause and a search warrant. His motion was denied.

In addition to codefendant and eyewitness testimony, surveillance videos, and Davis's DNA, the prosecution introduced at trial (1) telephone records showing the numbers of Davis' calls and the cell tower that connected each call; (2) an employee of the cell phone company to identify and describe the location of the cell towers; and (3) a police witness to identify the locations of the robberies and the cell towers in conjunction with the calls connected from Davis' phone during six of the seven robberies. Although the use of cell-tower location is not precise, the testimony was that (1) the cell tower used is usually the closest cell tower to the user; (2) the cell tower has a circular radius of coverage that varies; and (3) a tower sector number is used to indicate the general direction of a user to the tower and the user may be anywhere in the sector. The prosecution argued that as the calls to and from Davis's cell phone were connected through cell towers located near the robbery locations, Davis was also near the robberies.

After he was convicted by a jury, Davis appealed, claiming that (1) the prosecution violated his Fourth Amendment rights by obtaining the historical cell-tower location information without a search warrant, and (2) the SCA is unconstitutional as it allows disclosure of the historical cell-tower location information, both without probable cause. The convictions were affirmed initially, finding a violation of Davis's Fourth Amendment rights but applying the good-faith exception to the exclusionary rule. That decision was vacated, resulting in this en banc de novo rehearing.

The court found that the SCA creates a statutory standard less than the probable-cause standard for a search warrant, but exceeds the constitutional requirements of third-party compulsory subpoena processes as it requires a court order. There are also privacy-protection provisions and a prohibition upon telephone companies from voluntary disclosures without the satisfaction of the SCA's statutory standard. Under these protections, Davis could not establish a Fourth Amendment violation.

The Eleventh Circuit reviewed what constitutes a "search" under the Fourth Amendment, finding that there is no reasonable expectation of privacy in certain third-party business records. It also reviewed factual distinctions and date/records collected and used, including the type of data collected and disclosed and its evidentiary use. The lack of reasonable expectation of privacy in the records obtained and their use, resulted in the finding that the order compelling the records was supported by the SCA and Fourth Amendment principles, and is not constitutionally unreasonable.

Jessica K. Hew, Burr & Forman LLP, Orlando, FL


June 30, 2015

Patent-Infringement Plaintiffs Must Make "Modest" Effort to Compute Damages

In a decision that portends interesting challenges for plaintiffs in future patent-infringement actions, the U.S. District Court for the Northern District of California recently held that a plaintiff in a patent-infringement action must make a least a “modest” effort to compute its damages as part of its Rule 26(a) initial disclosures, despite the fact that the infringing defendant might possess much of the information necessary for a plaintiff to calculate damages with any measure of precision. Corning Optical Communications Wireless, Ltd. v. Solid, Inc., No. 5:14-cv-3750, 2015 U.S. Dist. LEXIS 49069 (N.D. Cal. April 14, 2015).

The Corning decision arose in the context of the district court’s resolution of a motion to compel filed by the defendant/alleged infringer (Solid), seeking to compel the plaintiff/patent holder (Corning) to respond to an interrogatory targeted at Corning’s damages. Solid’s interrogatory requested that Corning identify, inter alia: (i) its theory of damages, (ii) apportionment among the defendants, and (iii) the method used to calculate its damages (e.g., lost profits, reasonable royalty, or some other measure). Corning responded by indicating that this information would be forthcoming as part of its expert report.

To resolve the dispute, the court focused on Corning’s Rule 26(a) initial disclosure obligation to provide “a computation of each category of its damages” and documents on which the computation is based. The court acknowledge the unique challenge posed by this requirement to plaintiffs in a patent-infringement action, and that the Advisory Committee notes to Rule 26(a) all but expressly exempted patent cases from this early-disclosure obligation.

According to the court, the case presented a classic chicken-and-egg scenario: “[t]o provide meaningful calculations, patentees need lots of information from accused infringers. But the expense of producing lots of information can only be justified by a meaningful calculation suggesting that substantial dollars are actually at stake.”

The answer, the court found, was “not simply to give up and hope for the best,” but rather to require “more modest disclosures” from patent plaintiffs. Citing earlier precedent, the court found that just because “some material is as yet unknown does not excuse nondisclosure of what is or should be known. [A] plaintiff is not required to do the impossible but is required to do the best it can.” When additional or more definitive information later comes to light, a party may always supplement.

Emphasizing that proportionality is “part and parcel of just about every discovery dispute,” the court found that these initial damage disclosures were critical to enable a court to effectively resolve discovery disputes in patent cases. Without at least some sense of what a case is worth, the court has no guideposts for determining what discovery is, and what discovery is not, proportional under the particular facts of a given case.

The court proceeded to grant Solid’s motion to compel, ordering Corning to produce a rather detailed list of additional information in supplement to its initial disclosures and Solid’s damages interrogatory.

Plaintiffs in patent-infringement actions should be careful to note the scope of the supplementation ordered by the Corning court, which was at least as broad (if not broader) than the combination of Corning’s initial-disclosure obligations and Solid’s damages interrogatory. Whether and to what extent the timing of the Court’s resolution of this dispute (shortly before expiration of the discovery deadline) played a part in its fashioned remedy is unknown, but the decision could present unique challenges to patent plaintiffs required to make their initial disclosures earlier in the case. The solution to that problem, the court would appear to indicate, is to clearly state the basis for the plaintiff’s inability to provide additional information, and supplement at a later date.

Eric B. Levasseur and Mindy Garland, Hahn Loeser & Parks, LLP, Cleveland, OH


June 30, 2015

Does the First Amendment Encompass a "Custom" License Plate?

In Children First Foundation, Inc., v. Fiala, No. 11-5199 (2d Cir. May 22, 2015), the appellant foundation, “a nonprofit organization dedicated to promoting adoption,” challenged New York State’s rejection of its application for a custom plate that included “Choose Life.” The state relied on a policy against placing “controversial, politically sensitive messages on license plates, which stemmed from highway safety concerns.” The district court ruled in the foundation’s favor, finding the policy violated the foundation’s First Amendment rights and that, in the alternative, the policy was facially unconstitutional because it gave the commissioner of the Department of Motor Vehicles unbridled discretion to approve custom plates.

The court of appeals reversed. It held:

(1) Messages on custom plates are “private speech” that are protected by the First Amendment.

(2) The plates themselves are government property and constitute a “nonpublic forum.”

(3) Any restriction on speech in that forum must be reasonable and content-neutral.

(4) The exclusion of controversial issues was “sufficiently well-established and has been uniformly enforced so as to render the Commissioner’s discretion adequately bridled.”

(5) There was no basis to disturb the commissioner’s decision, which was “consistent with the state’s legitimate interest in keeping its roadways safe and avoiding the appearance of state endorsement.

(6) Conclusory statements by the foundation of discrimination that violated its Fourteenth Amendment rights were insufficient to establish a “constitutional harm.”

One circuit judge dissented, concluding that the policy placed “no meaningful limit on the Commissioner’s discretion.”

Custom license places are a common feature of motor vehicles throughout the United States. Children First Foundation demonstrates that the content of these license plates is subject to reasonable regulation by the states and that there is no “free ride” to the content of one’s plate. One wonders how the court’s constitutional analysis might apply to analogous electronic media that is government-sponsored in this digital age.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


June 30, 2015

Is the Lanham Act in Conflict with the First Amendment?

How can a court balance the Lanham Act, which is intended to protect against consumer confusion arising out of the misappropriation of a trademark, with the “expressive right to comment on social issues under the First Amendment?” Radiance Foundation, Inc. v. National Association for the Advancement of Colored People, No. 14-1568 (4th Cir. May 19, 2015), provides an answer.

Radiance, “a non-profit organization focused on educating and influencing the public about issues impacting the African American community,” and its founder posted articles on websites that criticized the National Association for the Advancement of Colored People (NAACP) and used its marks in doing so. In response to a cease-and-desist letter sent by the NAACP, Radiance and its founder brought a declaratory-judgment action, and the NAACP counterclaimed for trademark infringement. The district court ruled in the NAACP’s favor, finding that the use of the marks created a likelihood of confusion among consumers. The court of appeals reversed.

The Fourth Circuit held: “The NAACP does not have actionable claims for trademark infringement here, and Radiance’s use of the NAACP’s marks or colorful imitations falls squarely within the exceptions to trademark dilution specifically included in the Lanham Act to avoid encroachment on free speech rights.” The court focused on the statutory requirement that “the infringer’s use be ‘in connection with’ goods or services in a manner that is ‘likely to cause confusion’ among consumers . . .”  and concluded that neither element had been met.

Radiance Foundation reconciles the Lanham Act with free expression: “The most scathing speech and the most disputable commentary are also the ones most likely to draw their intended target’s ire and thereby attract Lanham Act attention. It is for this reason that law does not leave such speech without protection.”

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


June 30, 2015

When are Private Police Records "Public?"

Might the records of private police forces be subject to state freedom-of-information laws and available to the public? It depends, as evidenced by State ex rel. Schiffbauer v. Banaszak, 2015-Ohio-1854 (May 21, 2015).

The relator in this mandamusproceeding was a news editor at Otterbein University, a private college in Ohio. She sought the production of criminal reports of students and nonstudents whose cases had been referred to a municipal court by Otterbein’s police department. Otterbein declined the request, contending that it was not subject to Ohio’s Public Records Act. The relator then commenced an original mandamus action in the Ohio Supreme Court.

The court rejected Otterbein’s argument and compelled production. It characterized the question before it as whether the Ottenbein police department was a “public office” as that term is defined in the act. Looking to the statutory scheme under which the department was established, the court concluded that the department exercised a governmental function under Ohio law and was therefore a “public office” under the act and subject to its production requirements.

Banaszak should be seen through the lens of statutory interpretation. The court looked to enabling legislation and determined whether an entity created under that legislation was subject to a freedom-of-information law. Banaszak teaches that, under certain circumstances, an otherwise “private” entity may be “public” for the disclosure of information.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


May 27, 2015

The Law of Defamation: "Figures" and "Concerns" Matter at Least for Now?

What standards govern the law of defamation today? Cummins v. Bat World Sanctuary, No. 02-12-00285-CV (Tex. Ct. App. Apr. 9, 2015), explores this question.

Mary Cummins interned with Bat World Sanctuary (BWS), which operated a “rehabilitation center to treat injured bats for re-release.” After she left the internship, Cummins began an email and online campaign against BWS and its founder, Amanda Lollar. They sued Cummins for defamation and secured a damage award against her. Cummins challenged the award on appeal and argued, among other things, that Lollar and BWS were public figures and that statements made by Cummins were matters of public concern. These arguments required the court of appeals to address the standard of proof for defamation in Texas.

Proceeding from a review of New York Times v. Sullivan, 376 U.S. 254, 84 S.Ct. 710, 726 (1964), the Texas Court of Appeals held that several factors shaped the relationship between the common law of defamation and the First Amendment: “The first is whether the plaintiff is a public official or figure, or is instead a private figure. The second is whether the speech at issue is of public concern.” The court noted that certain questions as to burdens of proof remained unanswered by both the U.S. Supreme Court and the Texas Supreme Court and observed that changes in technology might lead to change in defamation law: Although the process still serves the important purposes of informing and educating the public, “private citizens now have a greater ability to also serve that role, though usually to a lesser degree.”

The Texas Court of Appeals decided the appeal based on the “categories” of the parties before it. However, the court’s observation about “the advent of the internet and the widespread use of social media,“ raises the question of whether the First Amendment should afford greater protection to the “professional” press than to “amateur” bloggers and tweeters and, if not, might “bad facts” lead to “bad law” that dilutes the “freedom of the press.”

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


May 26, 2015

Authentication of Social-Media Content

Social media is pervasive. Not surprisingly, the content of social media may be relevant to claims or defenses in civil actions and to the prosecution of crimes. How can social-media content be admitted into evidence? Sublet v. State, No. 42 (Md. Ct. App. Apr. 23, 2015), provides guidance on authentication, which is often the stumbling block to admissibility of content.

The defendant in Sublet was accused of various offenses that arose out of a fight. He contended that someone else started the fight and attempted to introduce a printout from the Facebook page of the alleged perpetrator, who denied that she authored the content. The trial judge refused to admit the printout because the password to the account was not a secret, others might have accessed the account and changed the content, and no expert testimony had been offered to contradict the denial. The defendant was convicted. His conviction was affirmed by an intermediate court and came before the Maryland Court of Appeals on a petition for certiorari.

Interpreting Maryland Rule of Evidence 901, which was based on the equivalent federal rule, the Maryland court adopted the reasoning of United States v. Vayner, 769 F.3d 125 (2d Cir. 2014), and held that the role of the trial judge was to function as a “gatekeeper,” making a preliminary determination of authentication before any content could go to the jury. The court noted several non-exclusive ways to authenticate social-media content: (1) through the purported creator, (2) through a search of the purported creator’s computer, and (3) through the social-networking website. The court affirmed the conviction, concluding that no showing had been made to permit a reasonable juror to find that the printout was authentic.

Sublet stands for the proposition that social-media content can be authenticated in different ways. Trial counsel must understand these approaches to authentication so they can argue for or against admissibility.

(Note: Sublet addressed the admissibility of social-media content in three separate convictions).

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


May 26, 2015

"Act of Production" or "Collective Entity"?

Is there a conflict between two doctrines articulated by the Supreme Court when an individual custodian of the records of a small corporation is subpoenaed to turn over corporate records? The Third Circuit’s answer is no. In the Matter of the Grand Jury Empaneled on May 9, 2014(3d Cir. May, 15, 2015).

An anonymous corporation had been held in contempt by a U.S. district court for refusing to comply with a grand-jury subpoena. The subpoena had been served on its custodian of records, identified as John Doe, who was the sole owner and employee of the corporation. John Doe argued on appeal that compliance with the subpoena would violate his Fifth Amendment privilege against self-incrimination.

John Doe relied on the act-of-production doctrine, which recognizes that an individual can refuse to comply with a subpoena when doing so would contain something “testimonial” that might be used against him. However, the subpoena at issue was not directed to John Doe as an individual but, rather, to him as the corporate custodian. That implicated the collective-entity doctrine, which holds that an individual cannot rely on the Fifth Amendment to avoid production of corporate records because he would be acting in a representative rather than an individual capacity. The Third Circuit rejected the argument and held that Supreme Court precedent had affirmed the distinction between an individual and representative act of production. This holding reflects the continuing viability of the distinction.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


April 30, 2015

Clarifying the Limits of Res Judicata

In Marcel Fashions Group, Inc. v. Lucky Brand Dungarees, Inc., the U.S. Court of Appeals for the Second Circuit found that the doctrine of res judicata did not bar a plaintiff’s claims of trademark infringement when a second lawsuit sought relief for the same type of infringing conduct against the same defendant. The court, relying on its decision in TehcnoMarine SA v. Giftports, Inc., 758 F.3d 493 (2d Cir. 2014), held that a previous lawsuit does not “immunize” a defendant from further violations occurring after the complaint is filed in that first lawsuit. Indeed, according to the court, a finding to the contrary would be “anomalous and unacceptable.”

In Marcel Fashions Group, Inc., the plaintiff received a federal trademark registration for “Get Lucky,” and sold jeans under that mark for multiple years. In 1990, the defendant began selling jeans and other casual apparel under the mark “Lucky Brand.” In 2001, the plaintiff filed an unfair-competition and trademark-infringement action against the defendant, which was settled in 2003. Under the settlement agreement, the defendant agreed to stop using the phrase “Get Lucky,” but could continue using the trademark “Lucky Brand.”

In 2004, a licensee of the plaintiff launched a “Get Lucky” clothing line, and the defendant filed a lawsuit against the licensee and the president of the plaintiff, alleging that they had engaged in unfair business practices infringing on the defendant’s trademarks. The licensee and president of the plaintiff counterclaimed, asserting infringement and breach of the 2003 settlement agreement between the parties. At the conclusion of trial, the parties negotiated and jointly drafted a final order, which prohibited the defendant from using the “Get Lucky” mark and stated that the defendant infringed on the mark “by using Get Lucky, the Lucky Brand trademarks, and any other trademarks including the word ‘Lucky’ after May 2003.”

Six years later the plaintiff instituted this lawsuit, seeking damages and injunctive relief for the same type of conduct that it previously sought relief for: alleged infringement of its “Get Lucky” trademark by the defendant using the “Lucky Brand” marks. The district court granted the defendant’s motion for summary judgment, finding that the plaintiff’s claims in the instant action “were precluded by res judicata because they were essentially the same claims as the 2005 Action for which the court had made a final disposition.”

The Second Circuit vacated the district court’s grant of summary judgment, holding that “[w]inning a judgment based on the defendant’s violation of the plaintiff’s rights does not deprive the plaintiff of the right to sue the same defendant again for the defendant’s further subsequent similar violations.” The court explained the two doctrines of res judicata—claim preclusion and issue preclusion. The district court’s ruling was based on claim preclusion, which bars litigation of claims “raised and adjudicated in a prior litigation between the parties (and their privies) [and] claims that might have been raised in the prior litigation but were not.” Preclusion under this doctrine requires a showing that (1) the previous action involved an adjudication on the merits; (2) the previous action involved the same adverse parties or those in privity with them; and (3) the claims asserted in the subsequent action were, or could have been, raised in the prior action.

The court found the third element dispositive, concluding that a prior judgment “cannot be given the effect of extinguishing claims which did not even then exist and which could not possibly have been sued upon in the previous case.” Accordingly, the 2005 action, which resulted in an award of damages to the plaintiff for violations occurring “after May 2003” (the date of the settlement agreement) did not cover infringements that had not yet occurred and may never occur after the complaint was filed in the 2005 action. Moreover, that the plaintiff did not pursue its demand for an injunction specifically prohibiting the use of the “Lucky Brand” marks in the 2005 action did not “immunize[] the losing defendant from liability for future infringements.” In other words, “[a] plaintiff’s failure to seek an injunction in a first suit for infringement is not tantamount to an authorization to the defendant to use the plaintiff’s mark at will in the future.”

Adam Braveman, Paul Hastings LLP, New York, NY


April 28, 2015

Fourth Circuit Sheds Light on Spoliation Motions

The Fourth Circuit recently issued an opinion that reaffirmed the standard for a party to win a spoliation motion, finding that only documents that a party knew or should have known were relevant to the claims had to be preserved. Blue Sky Travel & Tours, LLC v. Al Tayyar (4th Cir. Mar. 31, 2015) involved a breach-of-contract dispute between two travel agencies. During discovery, one entity, Blue Sky, sought certain financial documents and invoices between the other entity, ATG, and the Ministry of Higher Education of Saudi Arabia to whom airline tickets were resold by ATG under the agreement between Blue Sky and ATG. However, at a deposition, Blue Sky also sought invoices between ATG and the Ministry, including those that went through other entities besides Blue Sky. While no formal discovery was ever issued seeking the documents related to third-party invoices, the court on a motion to compel ordered that ATG produce the documents.

After ATG failed to comply fully with this order and others, the court entered orders for sanctions against ATG upon Blue Sky’s motions. In seeking reconsideration of one of these sanctions orders, ATG argued for the first time that it did not retain these invoices from the third parties, but entered them into a spreadsheet and destroyed the invoices after submitting them to the ministry. Blue Sky filed a spoliation motion, seeking the sanction of a default judgment. At a hearing on the sanctions motion, the magistrate judge stated that ATG was “required by law to preserve. Any document retention policy [it] had had to be stopped.” The magistrate judge rejected ATG’s argument that it was not on notice that invoices related to parties other than Blue Sky were relevant, stating that ATG “completely failed to fulfill [its] obligation[s] to preserve documents subsequent to the initiation of this litigation.” The sanction of an adverse instruction permitting the jury to presume the amount of profits ATG had made from reselling the tickets originally purchased by Blue Sky was entered. The district court confirmed.

On appeal, the Fourth Circuit agreed with ATG that the district court had applied an incorrect legal standard. According to the Fourth Circuit, spoliation is sanctionable if the party “(1) had a duty to preserve material evidence, . . . (2) willfully engaged in conduct resulting in the loss or destruction of that evidence, [and] (3) at a time when the party knew, or should have known, that the evidence was or could be relevant to the litigation.” According to the court, the magistrate judge and district judge failed to make a finding on whether ATG destroyed or failed to preserve the evidence at issue with knowledge that it was relevant. The court found that the district court’s statement that ATG had a duty to preserve all documents was not correct, as only documents that the party knew or should have known were relevant had to be preserved. The court remanded the case back to the district court on the spoliation issue for the court to decide the date on which ATG knew or should have known that invoices relating to third parties were relevant and when ATG destroyed the invoices.  

Angela S. Fetcher, Stoll Keenon Ogden PLLC, Louisville, KY


April 21, 2015

Sixth Circuit Reinforces "Strong Federal Policy" in Favor of Arbitration

In a decision affirming the “strong federal policy” in favor of arbitration where ambiguity might exist in the parties’ arbitration agreement, the Sixth Circuit recently enforced and found no waiver of an arbitration provision in a class-action settlement and consent decree. Shy v. Navistar Int’l Corp., No. 14-3251, 2015 U.S. App. LEXIS 4974 (6th Cir. March 27, 2015).

The Shy decision stemmed from a class-action suit in which certain retirees challenged Navistar’s allegedly improper attempts to reduce its costs for retired employee health and life-insurance benefits. As part of a settlement and consent decree, a supplemental benefit trust was established, and was to be managed by a supplemental benefit committee (SBC). Navistar was required to make annual contributions to the trust based on a profit-sharing formula tied to Navistar’s economic performance. The settlement agreement contained a provision requiring arbitration before an accounting firm if the SBC disputed the “information or calculations” provided by Navistar relating to the profit-sharing formula.

The SBC later alleged that Navistar was manipulating its corporate structure and accounting analysis to skirt its obligations under the profit-sharing plan and settlement agreement. The SBC sent a demand letter to Navistar requesting additional financial information and requesting Navistar agree to arbitration; Navistar provided the financial information, but did not directly respond to the arbitration request. Subsequently, the SBC was permitted to intervene in the underlying class-action suit, and moved to enforce the settlement agreement.

Though it did not raise the arbitration requirement in response to the SBC’s motion to intervene, Navistar later moved to dismiss the SBC’s intervenor complaint on that ground. Navistar argued that all of the SBC’s allegations ultimately related to the “information or calculations” for the profit-sharing plan, and were thus arbitrable. The SBC argued that its claims were broader than that and fell outside the more narrow scope of the arbitration provision. The district court disagreed, finding that the dispute was subject to arbitration, but also that Navistar waived the arbitration through its conduct.

On appeal, the Sixth Circuit vacated and remanded the district court’s decision, holding that not only was the dispute arbitrable, but that Navistar had not waived its right to arbitrate. Based on its review of the SBC’s allegations and the arbitration clause, the Sixth Circuit found that while certain of the SBC’s allegations potentially involved questions of contract interpretation and accounting, they bore a sufficient nexus to an “information or calculations” dispute that was subject to arbitration. Citing the “strong federal policy” in favor of arbitration and that any ambiguity in an arbitration provision—even one limited in scope—must be resolved in favor of arbitration, the Sixth Circuit found the dispute arbitrable.

Disagreeing with the district court’s analysis, the Sixth Circuit also found that Navistar did not waive arbitration. Noting that a party only waives arbitration where it “acts in a manner ‘completely inconsistent with any reliance on an arbitration agreement’ or delays asserting arbitration ‘to such an extent that the opposing party incur[s] actual prejudice,’” the court found that Navistar’s (i) refusal to respond to the SBC’s demand letter; and (ii) failure to first raise arbitration in response to the SBC’s motion to intervene and decision to not raise it until responding to the intervenor complaint, did not rise to the level of waiver.

A dissenting opinion critiqued the majority for allowing the federal presumption in favor of arbitration to override the principle that a court may only submit to arbitration those disputes that the parties agree to arbitrate. Finding that the SBC’s allegations were broader than the more narrow scope of the arbitration provision concerning “information or calculation” disputes, the dissent found arbitration inappropriate. The dissent also found both prongs of the Sixth Circuit’s waiver inquiry—inconsistency with reliance on arbitration and actual prejudice—satisfied in the case.

Eric B. Levasseur, Hahn Loeser & Parks, LLP, Cleveland, OH


March 30, 2015

There Better Be a Compelling Reason to Limit Access to a Proceeding

In re: Wall Street Journal, No. 15-1179 (4th Cir. Mar. 5, 2015) demonstrates a fundamental proposition of the American criminal justice system: The common law and the First Amendment “shed the light of day” on criminal proceedings and trials and the public has a right of access absent an exceptional reason to abridge that right.

The U.S. district judge presiding over a high-profile criminal prosecution in the District of West Virginia, sua sponte,issued a sweeping order that restricted access to the docket and prohibited extrajudicial statements a day after the grand jury returned the indictment. Various news organizations moved to intervene and challenge the order. The district judge allowed intervention and made some modifications to the order but, in essence, maintained the restrictions on access and statements. The news organizations petitioned for mandamusrelief and the Fourth Circuit Court of Appeals, in a per curiam opinion, granted the petition and vacated district judge’s order.

The Fourth Circuit first noted the well-established proposition that the public has a qualified right of access to criminal trials and trial-related documents. That right must be balanced against a defendant’s right to a fair trial. To overcome the right of access, there must be specific findings of (1) a substantial probability that the defendant’s right would be prejudiced that closure would prevent and (2) that there were no reasonable alternatives to closure. There were none:

Having carefully reviewed the record, although we commend the district judge’s sincere and forthright proactive effort to ensure to the maximum extent possible that [the defendant’s] right to a fair trial before an impartial jury will be protected, we are constrained to conclude that the order here cannot be sustained.

The lesson is simple: Absent compelling reasons, the public has a right to know what is going on in criminal proceedings through access to filed materials, trials, and the like. Restrictions on that right are rare and attorneys should be prepared to litigate criminal matters in open forums.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


March 27, 2015

Can Privileged Documents Be Withheld under a Public Information Act?

In City of Dallas v. Paxton, No. 13-13-00397-CV (Tex. Ct. App. Feb. 12, 2015), the Texas Court of Appeals addressed whether confidential attorney-client communications of Dallas were exempt from disclosure under the Texas Public Information Act “when the City was late in requesting an attorney general decision on the information.”

Dallas had received a request for information. The act required Dallas to ask for a decision from the attorney general about withholding the privileged communications within 10 days of receipt of a written request. Thereafter, the act permits withholding only if a “compelling reason” existed. Dallas did not meet the deadline, and the attorney general concluded that the attorney-client privilege was not a compelling reason. Dallas challenged that conclusion. The trial court rejected what it characterized as Dallas’s argument that “all attorney-client privileged information may always be withheld by governmental bodies, even when an opinion from the Attorney General is not timely requested.” The trial court did hold, however, that “there could be a cogent and compelling argument made that allows particular information to be withheld based on confidentiality,” but that Dallas had not done so.

The court of appeals reversed. It held that information “made confidential by law” was exempted from disclosure under the act and that, by establishing that the information in issue was subject to the attorney-client privilege, a “compelling reason” existed for nondisclosure.

This decision, of course, interprets the specific text of one state’s equivalent to the federal Freedom of Information Act. Nonetheless, it is instructive on a general level in several contexts. First, statutory interpretation is central to any analysis of what must be disclosed and may be withheld under any public-disclosure law. Second, the attorney-client privileged information, given its protected status under our laws, may be withheld from production.  

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


March 17, 2015

Two Islands Requires Indispensable Parties for Temporary Injunction

In Two Islands Development Corporation v. Clarke, (Fla. 3d DCA Feb. 25, 2015),the court was asked to decide whether a real estate development's underlying fee owner and developer are indispensable parties to an action for a temporary injunction filed by neighboring individual landowners. The neighboring landowners sought an injunction against the construction of a sidewalk along the outer boundary of their lots against the appellants/developers and owners of their subdivision. Under the factual circumstances, the Third District Court of Appeals reversed the trial court, vacating and remanding the injunction, finding that the neighboring fee owner and its developer were indispensable parties to the injunction action. The court further found that a bond hearing would be required to not only determine the damages to the appellants, but to also protect the neighboring fee owner and its developer from damages by the issuance of the injunction.

The city granted an administrative site plan approval for a residential subdivision on a southern island, waiving the construction of a sidewalk on the south side of the street unless the northern island was developed with residential units other than single family homes. The appellees owned three of the lots upon which an easement for "the installation and maintenance of public utilities" runs across the outer boundary of the lots, as well as the lots on either side of the street. The appellants filed a permit application for the construction of the south side of the street within the easement, with the sidewalk being complete on all lots except the ones owned by appellees, who filed this lawsuit.

The appellees sought to challenge the construction of the sidewalk on their lots by seeking an injunction. At the evidentiary hearing, the appellants' made an ore tenus motion for the intervention of the owner and developer of the north island due to "the direct and immediate and substantial impact" on the interests of such owner and developers as necessary, indispensable parties based on the permitting of a residential condominium project on the northern island. The trial court denied the appellants' motion, claiming that the appellees would be prejudiced if the owners and developers of north island were to intervene at that time, and granted the temporary injunction prohibiting the construction of the sidewalk and requiring each appellee to post a $20,000 bond.

In reversing the trial court, the Third District found that the injunction causes a delay in the residential condominium development building permit based upon the requirement that the south sidewalk be completed on the southern island. The injunction, preventing the completion of the south sidewalk, thus frustrates the issuance of the building permit for the north island development. This interference with the owner and developers of the north island gives these non-parties the right to be heard, especially where 60 percent of the condominium is under contract for sale and contingent upon the issuance of the building permit, as well as the closing on a $145 million loan without the building permit.

"A court is without jurisdiction to issue an injunction which interferes with rights of those who are not parties to the action." "The general rule in equity is that all persons materially interested, either legally or beneficially, in the subject-matter of a suit must be made parties either as complainants or defendants so that a complete decree may be made binding upon all parties." "A party is 'materially interested' or 'indispensable' when it is 'impossible to completely adjudicate the matter without affecting either that party's interest or the interests of another party in the action." Based on these premises of law, the Third District vacated the injunction, and deeming the owner and developers of the north island as indispensable parties and subject to a bond hearing on foreseeable damages pursuant to Fla. R. Civ. P. 1.610(b).

Jessica K. Hew, Burr & Forman LLP, Orlando, FL


March 17, 2015

Fifth Circuit Vacates Entry of Default Judgment Where Complaint Not Supported By Well-Pleaded Allegations

In a notable decision for those seeking to obtain or vacate default judgments in federal court, the Fifth Circuit Court of Appeals recently decided that a district court erred in entering a default judgment where the plaintiff’s complaint was not supported by well-pleaded allegations, and that a plaintiff could not cure an otherwise deficient complaint through the presentation of additional evidence at a default judgment prove-up hearing. Wooten v. McDonald Transit Assoc., Inc., 775 F.3d 689 (5th Cir. 2015). But, an interesting dissent questioned whether the Wooten majority opinion went too far and would eviscerate the role of default judgments in promoting the efficient administration of justice, and unfairly reward recalcitrant defendants.

Wooten arose from a complaint alleging claims for discrimination and retaliation under the Age Discrimination in Employment Act (ADEA). After the defendant employer failed to timely respond to the complaint, a default was entered. Wooten then moved for default judgment, and the matter was set for hearing to prove-up the amount of damages. Wooten provided testimony at the hearing that “elaborated on [the] factual allegations” in what the Fifth Circuit generally described as a threadbare complaint. A default judgment was entered that same day, and the district court subsequently denied the defendant-employer’s motion to set aside the default judgment, inferring that the employer knowingly and intentionally failed to respond to the complaint. An appeal followed.

The Fifth Circuit began by recognizing that its decision would necessarily implicate the competing policy interests behind default judgments: a preference for resolving cases on the merits versus the need for the efficient administration of justice and conservation of limited judicial resources.

Recognizing that a default judgment must be supported by well-pleaded allegations and have a sufficient basis in the pleadings, the Fifth Circuit noted that Wooten’s complaint failed to satisfy the Iqbal/Twombly plausibility standard, let alone allege each of the prima facie elements of an ADEA claim. The question then became whether Wooten’s testimony at the Rule 55(b)(2) prove-up hearing—which amplified and otherwise provided a sufficient factual basis for his complaint—could substitute to support a default judgment in the face of the defective pleading.

The Fifth Circuit determined that it could not. The court noted that while a Rule 55(b)(2) prove-up hearing provides the district court wide latitude to test the appropriateness of an entry of default judgment, such a hearing “presupposes valid allegations in the complaint.” Thus, an entry of default judgment was improper as “there can be no judgment absent competent pleadings.” The Fifth Circuit found further support for this approach in Rules 5(a) and 54(c), finding that “the purpose of these rules is to ensure that defendants have notice of the contours of all claims upon which they may be held liable, and can therefore decide on the basis of the pleadings whether to default or defend.” The Fifth Circuit found that permitting a plaintiff to effect a de facto amendment of its deficient pleading through a Rule 55(b)(2) prove-up hearing would defeat the purpose of these rules and deny defendants the ability to “weigh the costs of default against the costs of defending the action.”

Under the Wooten approach, a district court faced with a facially deficient complaint at a default judgment hearing has three options: (1) dismiss the complaint sua sponte under Rule 12(b)(6) without prejudice and allow the plaintiff to amend and refile; (2) grant leave to amend the complaint to include the facts presented at the default hearing; or (3) treat the hearing evidence as a de facto amendment of the complaint and allow the defendant leave to answer the complaint as amended. The court recognized that all three options “open up” the default and provide the defendant another opportunity to answer.

The dissent critiqued the majority’s approach as tipping the scales too far in favor of defaulting defendants, and questioned the practical implications of the decision. It questioned whether the opinion would have a chilling effect on the default process, forcing district courts to sua sponte test the sufficiency of every complaint, and discourage courts from entering default judgments where the complaint is “anything short of absolute perfection.” The dissent also found the majority approach fundamentally unfair, “allowing the defaulting defendant to lie behind the log until after a Rule 55(b)(2) hearing, then have the option to jump into the fray and litigate the merits as though his default had never occurred.”

In sum, Wooten not only provides an additional safety net for defendants in default, but also reinforces the importance for plaintiffs of satisfying the Iqbal/Twombly pleading standards.

Eric B. Levasseur, Hahn Loeser & Parks, LLP, Cleveland, OH


February 23, 2015

Practical Consequence of Returning an Inadvertently Produced Document

Assume that a party inadvertently produced an allegedly privileged document. Assume further that the document was returned pursuant to a claw-back agreement, Fed. R. Civ. P. 26(b)(5)(B), or a state equivalent to that federal rule. Would it be reasonable for the producing party to “share . . . the nagging suspicion that [the receiving party’s] trial preparation and presentation of their case had benefitted from confidential information obtained from [the privileged document]?” Maldonado v. State of New Jersey, 225 F.R.D. 120, 141 (D.N.J. 2004) (For a number of reasons, including a “taint” derived from knowledge of privileged information, the judge in Maldonado disqualified local and pro hac counsel.). Stinson v. City of New York, 10 Civ. 4228 (S.D.N.Y. Oct. 10, 2014), addressed the consequence of that scenario.

The defendants in Stinson secured an order compelling the plaintiffs’ attorneys to return two inadvertently produced documents. The documents had been seen by the attorneys before the defendants invoked 26(b)(5)(B). Although ordering the return of the documents, the court held that the attorneys could “rely on any material learned prior to [the notification of the inadvertent disclosure] in challenging Defendants’ assertion of privilege.”

The lesson is that practitioners should remain diligent in their production of documents, including asking themselves the following questions: How else could such information be used? Could it be used to develop a line of questioning? To impeach an adversary witness with statements made reflected in the information? See, e.g., United States ex rel. Barko v. Halliburton Co., No. 1:05-cv-01276-JSG (D.D.C. Nov. 20, 2014) (attorneys may cross-examine witnesses about whether they spoke with their attorneys as long as content not inquired into). These concerns should weigh on the mind of any attorney when making a production.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


February 23, 2015

Can Expungement Lead to Libel?

What happens when news media publish accurate reports of an arrest after charges are dropped and records “erased” under state law? Can the media be liable for libel and related claims? In Martin v. Hearst Corp., No. 13-3315 (2d Cir. Jan. 28, 2015), the court of appeals gave a simple answer: No.

The appellant in Martin had been arrested and charged with drug-related offenses. The charges were “nolled” and records of her arrest and prosecution destroyed pursuant to Connecticut’s Criminal Erasure Statute. Local news outlets reported on her arrest when it happened. The reports remained available online after the records were destroyed. The plaintiff sued, asserting “various publication-related torts.” She argued that the statute “rendered it factually false to continue to state that she had been arrested.” The district court granted summary judgment in favor of the defendants on all claims. The court of appeals affirmed.

The appellate court reasoned,

the Erasure Statute requires the State to erase certain official records of an arrest and grants the defendant the legal status of one who has not been arrested. But the Erasure Statute’s effect ends there. The statute creates legal fictions, but it does not and cannot undo historical facts or convert once-true facts into falsehoods.

The court of appeals also rejected the argument that the reports were defamatory because they did not mention that the charges had been nolled: “The news reports . . . do not imply any fact about Martin that is not true. . . . Reporting Martin’s arrest without an update may not be as complete a story as Martin would like, but it implies nothing false about her.”

Martin did not focus on the “protected” status of news media (i.e., the press) under the First Amendment. Instead, it looked to traditional tort principles that are presumably available to any “publisher” of information. Martin stands in stark contrast to the principle embodied in the European “right to be forgotten,” that is, that links to personal information that is available online must be removed when the information, among other things, is no longer relevant.  

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


February 23, 2015

Tenth Circuit Clarifies Jurisdiction Citizenship Analysis

In a decision that should be of significant interest to federal practitioners, the Tenth Circuit Court of Appeals recently clarified whether, for purposes of diversity jurisdiction, the citizenship of the trust’s trustees or its beneficiaries controls when the trust entity (as opposed to the individual trustees) is a party to the action. Conagra Foods, Inc. v. Americold Logistics, LLC, No. 13-3277, 2015 U.S. App. LEXIS 1201 (10th Cir. Jan. 27, 2015). Following a thorough review and reconciliation of Supreme Court precedent, the Tenth Circuit held that where a trust entity is named as a party to an action, the citizenship of the trust’s “membership” controls for purposes of diversity jurisdiction. According to the Tenth Circuit, a trust’s “membership” cannot be limited solely to its trustees, and includes the trust beneficiaries. Whether the trustees may be a part of the trust’s “membership” was a question reserved for another day.

In Conagra, following an appeal of a summary-judgment ruling in favor of the defendants and the submission of the parties’ merit briefs, the Tenth Circuit sua sponte questioned whether the underlying action had been properly removed from state court on the basis of diversity jurisdiction, and whether a jurisdictional defect existed. The Tenth Circuit requested supplemental briefing on whether the notice of removal filed by the two defendants—Americold Logistics, LLC and Americold Realty Trust—sufficiently established diversity jurisdiction where it did not identify the citizenship of the beneficial shareholders or beneficiaries of the trust.

Relying on Navarro Savings Ass’n v. Lee, 446 U.S. 458, 100 S. Ct. 1779, 64 L. Ed. 2d 425 (1990), the Americold entities argued that the trust’s citizenship was determined solely by the citizenship of its trustees who had the power to control and actively administer the trust assets. Therefore, because the trustees were completely diverse from the plaintiffs, there was no jurisdictional defect. The plaintiffs agreed with the Americold entities’ analysis.

The Tenth Circuit disagreed, distinguishing Navarro and subsequent authorities that followed it, and contrasting it with the Supreme Court’s later decision in Carden v. Arkoma Assoc., 494 U.S. 185, 110 S. Ct. 1015, 108 L. Ed. 2d 157 (1990). According to the Tenth Circuit, “Carden makes clear . . . [that] Navarro stands for the [] limited proposition that if a trustee is the proper party to bring a suit on behalf of a trust, it is the trustee’s citizenship that is relevant, rather than the trust’s beneficiaries.” “When the trust itself is a party to the litigation, however, the trust’s citizenship is derived from the citizenship of all its members.” In other words, Navarro’s focus was limited to determining the appropriate real party in interest when the trustees themselves were parties to the lawsuit, whereas Carden’s focus was on determining the citizenship of an unincorporated entity that is a party to a lawsuit.

Based on its review of the applicable authorities, the Tenth Circuit “distill[ed] the following rule[:] When a trustee is a party to litigation, it is the trustee’s citizenship that controls for purposes of diversity jurisdiction, as long as the trustee satisfies the real-party-in-interest test set out in Navarro. When the trust itself is party to the litigation, the citizenship of the trust is derived from the all the trust’s ‘members.’”

Who then are the trust’s “members” for purposes of determining the real parties in interest, and hence the citizens for diversity purposes? The Tenth Circuit left this question partially unresolved. On one hand, the court found that “at a minimum, a trust’s membership includes the trust’s beneficiaries,” and that “any potential definition of the term ‘members’ that is limited to trustees would be inconsistent with [Carden].” On the other hand, the court determined that “[g]iven the unique facts of this case, it is unnecessary to go any further and determine whether a trust’s membership also includes its trustees”: a question the Tenth Circuit expressly left “for another day, when the issue is properly briefed.”

As applied to the facts of Conagra, the Tenth Circuit found that because the Americold entities’ supplemental briefing focused exclusively on arguing the Navarro reasoning, and because they declined to offer any evidence of the citizenship of at least the beneficiaries of the Americold trust entity, they failed to carry their burden of demonstrating the existence of diversity citizenship. As a result, the Tenth Circuit remanded the matter to the district court with instructions to vacate its judgment on the merits and remand the action to state court.

Just as with determining the citizenship of limited-liability companies, Conagra serves as valuable reminder of the care that needs to be taken in determining the citizenship of trust entities for purposes of diversity jurisdiction and removal.

Eric B. Levasseur, Hahn Loeser & Parks, LLP, Cleveland, OH


February 23, 2015

2nd Cir. Affirms Dismissal in Favor of Arbitration in Sutherland Case

In a case that has garnered significant attention from employers and employees alike, the Second Circuit recently affirmed the Southern District of New York’s dismissal of an employee’s putative class action alleging claims under the Fair Labor Standards Act of 1938, concluding that the employer did not waive its right to demand arbitration by waiting three months to file its motion to compel arbitration after filing its answer. Sutherland v. Ernst & Young, LLP, No. 13-4868, 2015 U.S. App. LEXIS 773 (2nd Cir. Jan. 20, 2015) (“Sutherland II”).

Sutherland II followed the Second Circuit’s prior pro-arbitration decision in the case. Sutherland v. Ernst & Young, LLP, 726 F.3d 290 (2nd Cir. 2013) (“Sutherland I”). In Sutherland I, the Second Circuit held that an arbitration agreement may require employees to waive their right to bring, or participate in, class-action litigation, even where the expected cost of pursing litigation individually was likely to far exceed any anticipated recovery. Sutherland I expanded to the employment context the Supreme Court’s prior holding in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304, 186 L. Ed. 2d 417 (2013) that the “effective vindication of a federal statutory right” exception to the enforceability of arbitration provisions would not serve to invalidate an otherwise enforceable arbitration provision regarding antitrust claims, even if the there was no economic incentive to pursue those claims individually.

Following Sutherland I, on remand to the district court, it granted Ernst & Young’s motion to dismiss and to compel arbitration. Affirming that decision in a short opinion, the Second Circuit noted that it considered three factors in determining whether a party waived its right to arbitration by expressing its intention to litigate the matter: (1) the time elapsed from when the litigation was commenced until the request for arbitration; (2) the amount of litigation to date, including motion practice and discovery; and (3) proof of prejudice. The Second Circuit noted that the “key” to the wavier analysis is prejudice, and that a finding of waiver is appropriate only where prejudice has been demonstrated.

The court opined that it had previously recognized two types of prejudice: (1) substantive prejudice, such as when a party loses a motion on the merits and then attempts, in effect, to relitigate the issue by invoking arbitration; and (2) prejudice due to excessive cost and time delay. As to the latter, the Second Circuit noted that it had previously refused to find waiver due to delay unless accompanied by a showing of substantial motion practice or discovery.

Turning to the merits, the Second Circuit rejected Sutherland’s argument that he was prejudiced by Ernst & Young’s “procedural gamesmanship.” Noting that Ernst & Young had filed its motion to compel arbitration within three months after filing its answer; neither party had undertaken significant motion practice or discovery in the interim; and Sutherland failed to make any other showing of prejudice, the court rejected Sutherland’s waiver argument and affirmed the district court’s dismissal of the action in favor of arbitration.

Eric B. Levasseur, Hahn Loeser & Parks, LLP, Cleveland, OH


February 23, 2015

Pending or Threatened Litigation Not Necessary to Invoke Common-Interest Privilege

In a December slip opinion, Ambac Assur. Corp. v. Countrywide Home Loans, Inc., No. 2014 NY Slip Op 08510, the New York Appellate Division declined to continue the viability of what it called the “New York approach” to common-interest privilege, and held that to maintain a common-interest-privilege claim, the parties need not point to pending or threatened litigation. Although the court noted that neither it, nor the New York Court of Appeals (the state’s highest court), had directly addressed the issue, the Appellate Division acknowledged a string of New York cases holding that the common-interest privilege “applie[d] only with respect to legal advice in pending or reasonably anticipated litigation.” The court rejected that approach as dated, saying, “in today’s business environment . . . business entities often have important legal interests to protect even without the looming specter of litigation.” As such, the court concluded that pending or reasonably foreseeable litigation is not a necessary element of the common-interest privilege.

At issue in Ambac Assurance Corporation were several hundred documents containing pre-merger communication between one defendant, Bank of America, and a subsidiary of the other defendant, Countrywide Financial Corp. The plaintiff argued that Bank of America must produce pre-merger communications because these communications were significant to the plaintiff’s successor-liability claims against Bank of America, and because the documents may show that Bank of America was “put on notice of the prevalence of unreported fraud at Countrywide well before the [merger].” Bank of America refused to produce the documents, claiming that the communications were subject to the common-interest privilege. The trial court agreed with the plaintiff, finding that “New York law requires pending or reasonably anticipated litigation in order for the common interest doctrine to apply.” The court ordered production of the documents.

The Appellate Division reversed, finding that, contrary to the trial court’s decision, “litigation need not be actual or imminent for communications to be within the common interest doctrine.” The court noted federal cases, Delaware cases, and the Restatement [Third] of the Law Governing Lawyers as persuasive authority that “[s]o long as the primary or predominant purpose for the communication with counsel is for the parties to obtain legal advice or to further a legal interest common to the parties, and not to obtain advice of a predominately business nature, the communication will remain privileged.” The court found the arguments especially persuasive in the merger context before it. The court did not rule whether any specific documents were privileged; rather it remanded the case and instructed the trial court to review the documents and determine which, if any, are subject to the common-interest privilege. Subject to further action by the New York Court of Appeals, this decision removes the requirement of pending or threatened litigation as an impediment to claiming the privilege.

Jeffrey G. Close, Chapman and Cutler LLP, Chicago, IL


January 31, 2015

Judge Takes Plaintiffs to Task on Discovery Process

In a recent breach-of-contract case, a magistrate judge, fed up with the plaintiff’s discovery practices, took it upon himself to “fashion a new and simpler approach to discovery that keeps the core of [the defendant’s] counterclaims in mind.” Armstrong Pump, Inc. v. Hartman, No. 10-CV-446S (W.D.N.Y. Dec. 9, 2014).

Defendants Optimum and Hartman licensed rights under several patents to plaintiff Armstrong, and the underlying lawsuit is a dispute concerning payments pursuant to that license. The events leading up to the latest motion were characterized by delay and contention, and included the plaintiff ignoring the judge’s admonishment “not to engage in piecemeal production of materials it has located that are responsive to [the defendant’s] unobjectionable requests.” Addressing the latest motion to compel, the court expressed its frustration with “the continual and growing animosity between the parties, an animosity that has slowed the progress of the case and that has required repeated judicial intervention.”

In the decision, the court granted in part the defendant’s motion to compel and, in light of the plaintiff’s piecemeal production and other discovery failures, fashioned a “new and simpler approach” to discovery. Its “simpler” approach, however, would cause most e-discovery practitioners to shudder.

The court identified 13 search terms/phrases that it noticed in exhibits to the motion papers and that the court determined “refer to or hint at” the topic at issue. It then ordered the plaintiff to “search ALL corporate documents, files, communications, and recordings for EACH of the [listed search terms].” The court added: “[The plaintiff] will maintain a list of every server, computer, file room, or other place searched, and a list of all positive search results. For each positive result, Armstrong will [give the plaintiff] a full copy of the document in question.” The court also ordered the plaintiff and all counsel of record to file a sworn statement confirming their “good-faith effort to identify sources of documents; that a complete search of those sources for each of the [identified] phrases occurred; and that the search results [were] furnished to [the defendant].”

Such an order does not take into account multiple issues, such as what would be required to define, identify, and search “ALL” corporate documents, files, communications, and recordings; whether the phrases are appropriate (indeed they overlap substantially), likely to lead to responsive documents, or will produce extensive false hits; what it would take the plaintiffs to review positive search results for privilege, even if not relevance review is conducted; what it could take the defendants to sort through a full dump of all documents related to a particular technology; the potential need to redact sensitive business information; and more.

Although the court’s solution is far from ideal, the court’s frustration with the parties is evident. The court noted that despite the bickering between parties, neither had ever filed a motion for a protective order “[n]or ha[d] any party foregone passive-aggressive snarking and filed a formal motion under Rule 11 or 28 U.S.C. § 1927 to complain about material misrepresentations in motion papers.” “Instead,” the court continued, “the parties would prefer that the Court forget what the actual claims are in this case and start obsessing over details. . . .”

The biggest lesson from this decision is the importance of working with opposing counsel to agree to discovery protocols, and then abiding with those protocols as much as possible. The stakes undoubtedly can be high for discovery violations or for parties unable to work out discovery disputes. But now parties can consider another potentially negative result—having a federal judge without recent hands-on experience in e-discovery step in and dictate the process “with absolutely no exceptions or extensions.”

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


January 28, 2015

Salazar Tolls Florida Medical-Malpractice Statute of Limitations

In a case of first impression, the Florida Third District Court of Appeal in Salazar v. Coello, (Fla. 3rd DCA, Dec. 17, 2014), held that the state statute tolling the medical-malpractice statute of limitations applies to all potential defendants once a timely notice of intent of litigation is served. The Third District reversed and remanded a trial court's summary judgment in favor of the appellees/defendants by evaluating the question of whether the tolling statute, which is effective upon receipt of a notice of intent to initiate litigation, tolls the statutes of limitation only as to the defendant receiving the notice or if it also tolls it for other likely defendants that have not been served with the notice. The court applied the 90-day tolling period to all possible defendants, resulting in timely notice and the reversal of summary judgment.

On August 22, 2007, the appellant suffered a physical injury believed to be the result of medical malpractice. The appellant was aware or should have become aware shortly after the injury that the appellees provided anesthesia during surgery. On August 10, 2009, the appellant obtained an automatic 90-day extension until November 20, 2009, to file a claim under Fla. Stat. § 766.104(2). The appellant sent notices of intent to initiate litigation to the surgeon and the hospital on October 21, 2009, which were received on October 22, 2009. Litigation could not be filed for 90 days based on Fla. Stat. § 766.106(3)(a). Fla. Stat. § 766.106(4) states that, "the statute of limitations is tolled as to all potential defendants" during the 90-day period.

The court noted that the appellant had until February 19, 2010, to send any additional notices of intent or to file suit based on the calculation of the 90 days, plus the 30 days left on the original statute of limitations, from October 22, 2009. The surgeon and the hospital were sued on March 23, 2010, under agreements to further extend the statute of limitations.

The appellees were sent notices of intent to initiate litigation on February 12, 2010, which were received on February 16, 2010. The appellees claimed that the statute of limitations expired on November 20, 2009, and the notices were untimely. They argued that the appellant must "notify each prospective defendant" pursuant to Fla. Stat. § 766.106(2), and that pursuant to Fla. Stat. § 766.106(4), "[t]he notice of intent to initiate litigation shall be served within the time limits set forth in [Fla. Stat. §] 95.11." The appellees argued that the statute of limitations ran on November 20, 2009, as to all defendants, except the surgeon and hospital, and that the 90-day tolling did not apply to them, as they were "prospective defendants" of the appellant who should have received notice prior to November 20, 2009, to toll the statute of limitations.

The appellant countered that the October 21, 2009, notices to the surgeon and hospital resulted in a tolling of the statute of limitations to "all potential defendants" per Fla. Stat. § 766.106(4) and that all notices were timely. The Third District agreed with the appellant, stating, “the Notices of Intent received by the surgeon and the hospital on October 22, 2009 did toll the statute of limitations, not only as to the surgeon and the hospital, but as to all . . . defendants, however denominated (and regardless of whether they received those notices or not).”

The court decided that Fla. Stat. § 766.106(4) "means what it says[,]" and the notices were timely sent within the proper calculation of applicable law. The Third District reached its conclusion based on the concept that the legislature intended to give the required broad meaning to the statutes and prevent frivolous claims while still providing access to the courts, citing to Burbank v. Kero, 813 So.2d 292 (Fla. 5th DCA 2002), and CORA Health Services v. Steinbronn, 867 So.2d 587 (Fla. 5th DCA 2004). The court further deemed that the use of the words "potential" and "prospective" were actually synonymous based on the usage throughout the Florida statutes.

Additionally, the Third District found that the appellant's complaint was timely filed based upon the 90-day tolling of the statute of limitations upon the appellees' receipt of the February 16, 2010, notices of intent and the additional 60 days provided under Fla. R. Civ. P. 1.650(d)(3) and Fla. Stat. § 766.106(4). The appellant's June 8, 2010, complaint was within the time period, and thus timely filed.

The accurate and correct calculation of the tolling periods of a statute of limitations should always be carefully considered and calculated based on all applicable statutes and rules of procedure governing the particular subject matter of the claim to be filed to ensure timeliness of the filing.

Jessica K. Hew, Burr & Forman LLP, Orlando, FL


January 26, 2015

"Clear and Present Danger" Must Exist to Exclude Press and Public

In KPNX-TV Channel 12 v. Stephens, No. 1 CA-SA 14-0213 (Ariz. Ct. App. Dec. 16, 2014), the Arizona Court of Appeals addressed a challenge to the closing of the penalty phase of a murder trial to the press and the public. The court vacated the closure order.

Jody Arias had been convicted of first-degree murder. The jury deadlocked on the penalty and a new jury empaneled for the retrial of the penalty phase. Arias “wanted to testify in mitigation outside the presence of the press and the public and asked the court to seal the transcript of the testimony.” After argument in Chambers, the court closed the courtroom to everyone except the victim’s family and sealed Arias’s testimony until after a verdict.

The Arizona Court of Appeals noted that exclusion of the public was an “extraordinary measure” that could only occur if there was a “clear and present danger that the judicial process will be subverted by an open hearing,” a standard adopted in the Arizona Rules of Criminal Procedure. Once the danger was found to exist, the party seeking closure must demonstrate four “constitutional factors” before closure might be granted. Arias’ argument was that a public presence would affect her ability to think and answer questions given threats against her. The appellate court rejected that argument: “[w]hile we do not discount the volume or nature of Arias’ mail or the fact that some people may wish her ill, her concern does not, as a matter of law, amount to an extremely serious substantive evil warranting closing the trial. . . .”

What lesson does this decision teach? Closure is an extraordinary measure and only the most compelling reasoning will justify closure of a criminal trial. Counsel should also consider what circumstances might justify closure of a civil trial.

Ronald J. Hedges, Ronald J. Hedges LLC, Kackensack, NJ


January 26, 2015

Public Access to Corporate Records: Private Entity or Public "Agency?"

It would not be unusual for a private corporation to enter into a “business” relationship with a public entity. When the corporation does so, can it fall within the definition of a state freedom-of-information law such that its records become accessible to the public? Not surprisingly, the answer is, “it depends.”

In Frederick v. City of Falls City, 289 Neb. 864 (2015), the Nebraska Supreme Court considered whether the records of a Nebraska mutual-benefit corporation were “public records” under state law. Three city officials sat on the corporate board, 63 percent of corporate revenues came from public sources, and the corporation was formed to promote economic development in a city and in adjacent areas. The court concluded that a “four-part functional equivalency approach is the appropriate analytical model for determining whether a private entity which has an ongoing relationship with a governmental entity can be considered an agency.” Reviewing the facts before it, the court reversed the lower court and concluded that the corporation was not the functional equivalent of a public agency and that its records were not subject to public access.

What does this mean for public/private sector relationships? First, the records of a private corporation might be deemed public records and subject to public access. Second, counsel should be consulted to determine what the functional equivalent test of a particular state is and how that test would be applied under the facts.

Ronald J. Hedges, Ronald J. Hedges LLC, Kackensack, NJ


December 31, 2014

Protecting Statutory Privilege under State Law

When we hear “privilege” we often think of the attorney-client privilege or work-product protection. Of course, other privileges exist. These may be created by statute or case law. Casa W, LLC v. Superior Court, B256155 (Ca. Ct. App. Nov. 19, 2014), addresses one of the latter, California’s tax-return privilege. Casa W also addresses the obligations of parties and judges when production of otherwise protected materials is sought under an exception to a privilege.

Casa W arose out of a dispute involving the management of property owned by a limited liability company (LLC). In aid of their litigation, the plaintiffs (members of the LLC) sought discovery of financial records, including tax returns, of the LLC as well as those of a nonparty LLC that owned an adjacent property. The only member of the nonparty LLC was the individual defendant. The trial court initially denied the plaintiffs’ request for the returns, relying on a “privilege against forced disclosure of tax returns” in “civil discovery proceedings” recognized by the California Supreme Court in Schnabel v. Superior Court, 5 Cal. 4th 704 (1993). Thereafter, the plaintiffs made an ex parte application to the judge, which led to a discovery conference and the appointment of an expert to analyze the financial transactions of the two LLCs. More than a year later, after the expert stated that she needed certain financial records from the individual defendant as well as the nonparty LLC’s tax returns, the plaintiffs moved to compel production. The trial court granted the motion and ordered the nonparty LLC to produce the returns subject to a protective order. The individual defendant sought and was granted interlocutory review of the order.

The California Court of Appeal reversed. First, the appellate court held that it would review the order on an interlocutory basis because the order could undermine a privilege. The appellate court then described the motion that led to the order as appearing to have “materialized out of pretrial thin air” because no subpoena had been served on the nonparty LLC and no discovery demand had been made to the individual defendant for production of the nonparty LLC’s returns. The court of appeal also held that the court-appointed expert was not authorized to conduct discovery. Then the court of appeal turned to the privilege in issue.

“In any event, putting aside the procedural irregularities . . . , the trial court erred by compelling [the nonparty] LLC to produce its tax returns.” As noted above, Schnabel recognized a privilege against forced disclosure. The court of appeal acknowledged that the privilege was not absolute and that exceptions to it existed. However, the trial court failed to address any exception. Instead, the trial court’s “only apparent concern was that the expert wanted the returns.” This “wish” was insufficient to compel disclosure.

The court of appeal addressed one exception in detail, that being whether a public policy greater than that of confidentiality of the records existed. The court of appeal found none. It noted that, “[r]epeated discovery abuse that precludes a party from obtaining discoverable financial information by alternative means” might justify production of tax returns. However, there was no such misconduct in the record, there were no findings of discovery abuse by the trial court, and there was no motion to compel production that had been ordered by the trial court.

What lessons can be learned from Casa W? First, procedure counts: There were “irregularities” that led up to the issuance of the trial court’s order that alone could have led to reversal. Second, there are distinctions between party and non-party status that must be recognized. For example, the obligation to proceed by subpoena cannot be ignored. Third, appellate courts will not hesitate to protect privileges by interlocutory review, if appropriate. Finally, trial judges must enforce procedural rules as well as substantive law related to privilege.

Ronald J. Hedges, Ronald J. Hedges LLC, Kackensack, NJ


December 30, 2014

District of Nevada Provides Guidance for Subpoena Procedure

The December 2013 amendments to the Federal Rules of Civil Procedure ushered in significant changes for subpoena practice under Rule 45. In a decision of interest to all federal practitioners, the District of Nevada recently provided a roadmap for the issuance and enforcement of, and motions to quash or modify, subpoenas under amended Rule 45. See Agincourt Gaming, LLC v. Zynga, Inc., No. 2:14cv708 (D. Nev. Aug. 15, 2014).

Agincourt arose from patent litigation pending in the District of Delaware. The defendant (Zynga) caused to be issued from Delaware subpoenas duces tecum to a corporate entity (Bally) and four individuals, requiring compliance in the District of Nevada. While Bally was located in the District of Nevada, it was undisputed that the individual respondents resided and/or worked in the Northern District of California. Bally and the individual respondents moved to quash the subpoenas on various grounds in the District of Nevada. Zynga opposed the motion to quash and moved (i) to transfer the Bally subpoena to the District of Delaware under Rule 45(f) and (ii) to dismiss the motion to quash filed by the individual respondents for lack of jurisdiction.

The District of Nevada began by acknowledging the significant changes to Rule 45 and that amended Rule 45 should apply to all proceedings pending on December 31, 2013 “insofar as just and practicable.” Thus, while the underlying patent litigation was commenced in Delaware in 2011, amended Rule 45 was held to apply to the subpoenas challenged in 2014.

As for the individual respondents, the Nevada court noted that while under the prior version of Rule 45, the “issuing court” possessed jurisdiction to quash or modify subpoenas, under the amended rule, “the court for the district where compliance is required” has jurisdiction. Because the place of compliance must be “within 100 miles of where the person resides, is employed, or regularly transacts business in person” (see Fed. R. Civ. P. 45(c)(2)(A)), and the individual respondents all resided or worked in the Northern District of California, the court held that it lacked jurisdiction to quash the subpoenas. The Nevada court emphasized that “Rule 45 makes clear that the place of compliance is tethered to the location of the subpoenaed person,” and rejected the individual respondents’ contention that because the responsive documents were located in the District of Nevada, it was proper to move to quash in that district. For like reason, the court held that while judicial economy and the avoidance of inconsistent results would seem to favor transfer of the motion to quash against the individual respondents to the District of Delaware, it could not do so because “[t]he plain text of Rule 45(f) imbues the discretion to transfer subpoena-related motions with the district court where compliance is required [i.e., the Northern District of California].” Thus, while the Northern District of California might subsequently deem transfer to Delaware appropriate, under Rule 45(f), it was the California court’s decision to make.

The court sua sponte considered and found appropriate a transfer of the motion to quash to the Northern District of California not under Rule 45(f), but in the interests of justice under 28 U.S.C. § 1631 (“Whenever a civil action is filed in a court . . . and that court finds that there is a want of jurisdiction, the court shall, if it is in the interest of justice, transfer such action . . . to any other such court in which the action . . . could have been brought[.]”).

Turning next to the Bally subpoena, the court recognized that prior to the 2013 amendments to Rule 45, document subpoenas were required to be issued from the court where compliance was required, and the power to quash or modify was reserved to that court alone. Following the 2013 amendments, a subpoena now “must issue from the court where the action is pending,” while the power to quash or modify is reserved to the court where compliance is required. Amended Rule 45 contemplated this and provided that “[w]hen the court where compliance is required did not issue the subpoena, it may transfer a motion under this rule to the issuing court if the person subject to the subpoena consents or if the court finds exceptional circumstances.” The Nevada court found the requisite exceptional circumstances to exist under the facts of the case, and transferred Bally’s motion to the District of Delaware.

While the 2013 amendments to Rule 45 were no doubt enacted to simplify the federal subpoena process, as Agincourt makes clear, traps remain for the unwary when issuing and moving to quash federal subpoenas.

Eric B. Levasseur, Hahn Loeser & Parks LLP, Cleveland, OH


December 30, 2014

When Is the Qualified First Amendment Privilege Waived?

The Florida Supreme Court recently upheld a trial court's order requiring the production of documents subpoenaed in a constitutional-validity challenge of the Florida legislature's 2012 congressional redistricting plan. Bainter v. League of Women Voters of Florida, No. SC14-1200 (Fla. Nov. 13, 2014). The court held that the qualified First Amendment privilege was waived based on the totality of the circumstances and the inexcusable delay in asserting the privilege.

Bainter was subpoenaed for deposition and the production of documentation. At the deposition, Bainter produced documentation, claiming that the documentation was complete. Through questioning, Bainter discussed his interest in the political process but there was no implication of a violation of Bainter's First Amendment right to freedom of association. The trial court found that the documents produced were not complete.

After service of a subsequent subpoena for documents, the appellants, who were non-parties, filed a motion to quash, relying on relevancy, burdensomeness, and over-breadth. At the hearing, no First Amendment issue was raised. After a second hearing, in which the same objections were addressed with no First Amendment claims being raised, the trial court denied the motion to quash, but limited the scope of the documents to be produced. The appellants filed an unsuccessful petition for writ of certiorari, claiming that the trial court "authorized discovery beyond the scope of matters reasonably calculated to lead to admissible evidence” but failing to identify any claim as to a First Amendment violation.

The appellants subsequently produced documents with qualifications. This production led to a motion for contempt and sanctions, including a waiver of confidentiality and privilege. At the hearing, the appellants stated that the privilege was "proprietary business information[,]" of trade secrets. Again, no First Amendment violation was raised. The appellants were found in contempt, with the trial court requiring production, a privilege log, submission of withheld documents for an in camera review, and an award of sanctions.

In submitting the privilege log to the trial court, the appellants claimed, for the first time, that the First Amendment "freedom of association" was violated. After an in camera review, using the First Amendment balancing test, 538 documents were identified as subject to production but should be treated as confidential. After the trial court denied the appellants' motion to close the courtroom to the public during the use of the documents at trial, the appellants appealed the discovery rulings to the Florida Court of Appeal, which ultimately passed through to the Florida Supreme Court.

In its review of the record, the supreme court used Fla. R. Civ. 1.280(b)(6)'s standard for parties: The withholding of privileged but otherwise discoverable information must expressly claim the privilege and describe the nature of the item not produced "in a manner that, without revealing information itself privileged or protected, will enable the other parties to assess the applicability of the privilege or protection." The supreme court recognized that the appellants failed to expressly claim that the documents were privileged or provide a privilege log during the numerous hearings and motions addressed by the trial court. The supreme court also recognized that Bainter discussed the documents in his deposition, without any claim of privilege. The supreme court found that, "[b]y responding to the deposition questions and acknowledging discussions with other political consultants without ever revealing the true nature of those communications or asserting a First Amendment privilege, in conjunction with the failure to timely assert the qualified privilege after the deposition testimony and months of additional hearings, we conclude that Bainter waived his ability to later claim that the documents revealing those communications were privileged on that basis."

As illustrated in Bainter,waiver may occur by the lack of appropriate objections and the compliance with the spirit of the rules. While the appellants were non-parties not traditionally subject to the privilege requirements of Fla. R. Civ. P. 1.280(b)(6), the privilege was waived for the failure to uphold the standards required to maintain the privileges asserted. Further, the collective concerted actions of the appellants, not just the actions of each individual considered separately, resulted in the establishment of waiver by the totality of the circumstances.

As a holiday post-script, the Miami Herald reported that the appellants sent out a holiday card,

Its animated Christmas card comes with jingling bells and features Pat Bainter in a Santa coat with colleagues Matt Mitchell and Mike Sheehan at his side. It announces "But there's one 'secret' we've made sure they'll never get."

A countdown clock notes that the message will self destruct in 15 seconds, and the card then slides into a paper shredder and ends with: "Merry Christmas."

Jessica K. Hew, Burr & Forman LLP, Orlando, FL


December 29, 2014

Eleventh Circuit Dismisses Hundreds of Cases Against Tobacco Companies

On September 10, 2014, the Eleventh Circuit decided In re Engle, dismissing hundreds of personal-injury, loss-of-consortium, and wrongful-death cases brought against tobacco companies. The underlying issue was plaintiffs’ counsel’s failure to provide accurate information regarding the claims. The court found that, contrary to counsel’s arguments, the responsibility to provide accurate information to the court was not diminished by the overwhelming amount of claims that plaintiffs’ counsel had taken on.

During the course of the litigation, in an effort to streamline and identify invalid claims, the district court ordered a stay, allowing plaintiffs’ counsel to obtain updated information about the plaintiffs through questionnaires. Although plaintiffs’ counsel did not submit all of the questionnaires by the court-ordered deadline, many problems arose from the questionnaires that had been submitted. For example, there were 521 personal-injury claims in which the plaintiffs were already dead when the claims were filed. After discovering this information, plaintiffs’ counsel requested permission to amend any erroneous claims. The district court denied the request, finding that it failed to “set forth the substance of the proposed amendment.” Moreover, the court noted that plaintiffs’ counsel had no new information to justify the amendments that it sought; all “new” information was available when the original claims were filed.

In upholding the district court’s decision, the Eleventh Circuit focused on two elements of the case; the 521 personal-injury cases that were filed after the plaintiffs had died, and the 39 wrongful-death claims in which the plaintiffs had died more than two years before the original case was filed in 1992. Plaintiffs’ counsel admitted that he had lost contact with many of the clients that he had represented in the 1990s tobacco suits, and that he had filed claims on behalf of clients that he did not know whether they were living or deceased.

The Eleventh Circuit also addressed plaintiffs’ counsel’s requested leave to amend under Rules 15 and 17 of the Federal Rules of Civil Procedure. Rule 15 allows a party to amend its pleading within a short time after its original filing if it has the opposing party’s consent, while Rule 17 requires the court, before dismissing a case, to allow opportunity to amend to list the correct party in a suit, provided that the amendment is made within a reasonably short time after the original erroneous filing. Here, plaintiffs’ counsel never justified why there was no timely amendment. The court explained that Rules 15 and 17 are not meant as a right to change all pleading errors; rather they apply when it is difficult to determine who the proper party is or when an understandable mistake was made. In other words, the rules cannot be used as a “placeholder” to keep the statute of limitations from running while attorneys investigate claims and decide who the proper parties should be. Here, because plaintiffs’ counsel did not make any effort to amend until after the court ordered questionnaires, the court held that the request to amend was too late and that “counsel slept on whatever rights they may have had. . . .” Engle, at 109.

The court also discussed plaintiffs’ counsel’s excuse for not asking for leave to amend sooner; that the court-ordered stay “absolved . . . counsel of any obligation to fix their mistakes in a timely manner,” and that counsel was overwhelmed by the thousands of cases that he had to file, thereby creating an unforeseen hardship in being able to contact each plaintiff (or beneficiary of deceased plaintiff) and organize and properly file each claim.

The court did not find these excuses persuasive. According to the Eleventh Circuit, the number of claims does not allow for basic rules of conduct to be ignored. If counsel were allowed to amend as requested, it would diminish the standard of care in mass-tort actions, thereby allowing plaintiffs to add unlimited erroneous claims without consequences. The court also disagreed with plaintiffs’ counsel’s argument that the stay prevented it from fixing the errors for years, and that counsel had no obligation to do so while the stay was in place. The court cited plaintiffs’ counsel’s actions in filing a motion to amend after a client died during this stay as evidence that counsel knew that the stay did not prevent amendments. This was especially true considering that all of the information was available before the claims were ever filed. As such, the Eleventh Circuit affirmed the district court’s dismissal.

Kristen Bloschak, Law Offices of John Rue


November 26, 2014

Unaccepted Settlement Offer Does Not Moot Individual and Putative Class Claims

The Ninth Circuit Court of Appeals reconfirmed its holdings in Diaz v. First Am. Home Buyers Prot. Corp.,, 732 F.3d 948 (9th Cir. 2013), that a plaintiff’s individual claim was not mooted by his refusal to accept a Fed. R. Civ. P. 68 settlement offer, and Pitts v. Terrible Herbst, Inc., 653 F.3d 1081 (9th Cir. 2011), that putative class claims are not mooted when the plaintiff rejects a Rule 68 settlement offer before moving for class certification. Gomez v. Campbell-Edwald Co., No. 13-55486 (9th Cir. Sept. 19, 2014).

In Campbell-Edwald, the plaintiff appealed an adverse summary-judgment ruling on personal and putative class claims brought pursuant to the Telephone Consumer Protection Act, 47 U.S.C. § 227(b)(1)(A)(iii)(2012). The plaintiff alleged that Campbell-Edwald permitted a third-party vendor to send unsolicited text messages on behalf of the United States Navy, with whom Campbell-Edwald had a marking contract. Before addressing the merits of the summary-judgment motion, the Ninth Circuit addressed whether it had jurisdiction to hear the appeal.

Campbell-Edwald filed a motion to dismiss the appeal, arguing that the personal and putative class claims were mooted when the plaintiff refused to accept the Rule 68 settlement offer. The Ninth Circuit denied the motion without prejudice but, in its opinion, rejected Campbell-Edwald’s arguments on the merits. The Ninth Circuit noted that it previously resolved identical mootness arguments in Diaz and Pitts. But Campbell-Edwald argued that the Ninth Circuit precedents were clearly irreconcilable with the U.S. Supreme Court’s decision in Genesis Healthcare Corp. v. Symczyk, 133 S.Ct. 1523 (2013), which held that a plaintiff’s failure to accept a settlement offer mooted a collective action brought pursuant to section 16(b) of the Fair Labor Standards Act. The Ninth Circuit disagreed with this argument, holding that Campbell-Edwald overstated the relevance of the Supreme Court case because it did not apply to class actions. The Ninth Circuit noted that the Supreme Court specifically recognized that Fed. R. C. P. 23 class actions are fundamentally different from collective actions under the Fair Labor Standards Act. The Ninth Circuit also noted that at least 10 courts have expressly stated that the Genesis ruling does not apply to class-action claims. Therefore, because Genesis is not “clearly irreconcilable” with Diaz and Pitts, the Ninth Circuit was bound by its precedent that individual and putative class claims are not moot when the plaintiff does not accept a Rule 68 settlement offer.

As recognized by the Ninth Circuit, courts are reading the holding in Genesis narrowly. Thus, in class actions, parties should recognize the effect of a Rule 68 offer of judgment, especially if the case is within the jurisdiction of the Ninth Circuit.

Tracy A. DiFillippo, Armstrong Teasdale LLP, Las Vegas, NV


November 26, 2014

Court Declines to Require Predictive Coding for Privilege Review

A federal court in the Southern District of West Virginia recently declined to require defendants to use only machine-based review for privilege. The decision in Good v. American Water Works Co., No. 2:14-01374 (S.D.W.Va. Oct. 29, 2014), is part of the class-action litigation surrounding the Freedom Industries chemical spill in West Virginia. The parties reached agreement on all aspects of the discovery protocol but the issue of privilege review and Rule 502 clawbacks.

The dispute turned on the different protections afforded to the production of privileged materials under Rule 502(b) and (d). Rule 502(b) generally protects against inadvertent waiver under a multi-factor analysis that considers, among other things, the reasonableness of precautions taken by the producing party. However, as the defendants in the case pointed out, this analysis of whether the privilege holder “took reasonable steps to prevent disclosure” is inherently unpredictable. In contrast, orders under Rule 502(d) provide far broader protection against privilege waivers. Such orders generally protect privilege holders regardless of whether a disclosure was inadvertent and regardless of any reasonableness analysis of the preventative steps taken by the privilege order.

The defendants sought a 502(d) order and permission to conduct some manual review for privilege. The plaintiffs, on the other hand, argued that if defendants planned to do manual review, then they did not need the protections of a 502(d) order and should proceed under 502(b). The plaintiffs saw “no practical reason for Defendants to engage in any kind of manual privilege review prior to production of documents other than to delay the production of documents.” The plaintiffs went so far as to say that they “can see no very good reason for any kind of privilege review at all prior to production,” but they were “willing to agree to computer-assisted searches and other machine-based privilege reviews as a compromise because those are unlikely to result in any significant delays.” The court disagreed, noting that the defendants’ proposed approach was reasonable. (“Defendants have every reason to implement efficient review techniques and avoid the high costs of manual privilege review for all but the most sensitive document categories.”)

The court therefore declined to order the exclusive use of machine-based review, but encouraged the defendants to use computer-assisted review in combination with manual/human review of documents. Nonetheless, the court expressed its expectation that “defendants will marshal the resources necessary to assure that the delay occasioned by manual review of portions of designated categories will uniformly be minimized so that disclosure of the entirety of even the most sensitive categories is accomplished quickly.” The court nonetheless left open the possibility of mandating machine-based review if “it becomes apparent that undue delay is thwarting the progress of the case” beyond compliance with the court’s discovery schedule. Accordingly, there may be further interesting developments in this case in the near future.

Keywords: litigation, pretrial practice, discovery, predictive coding, privilege review, rule 502, clawback, e-discovery

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


November 26, 2014

Procedural Lapses Send Smokers’ Claims Up In Smoke

In a recent, lengthy opinion, the Eleventh Circuit affirmed dismissal of more than 700 lawsuits filed on behalf of Florida smokers and their families for a variety of procedural failures. 4432 Individual Tobacco Plaintiffs v. Various Tobacco Companies, Nos. 13-10839; 13-12901; 13-14302 (11th Cir. Sept. 10, 2014). The 700 dismissed cases were part of claims filed on behalf of more than 4,000 putative plaintiffs after a related class action (the “Engleaction”) was decertified.

After the Engle action was decertified, the court allowed a one-year “savings period” for the refiling of individual claims. Counsel for the putative plaintiffs, Wilner, had previously undertaken to represent thousands of smokers, and when the Engle action was decertified, Wilner attempted to reestablish contact with at least some of these smokers. As the one-year savings period was set to run, although unable to contact all of his “clients,” Wilner filed prophylactic personal-injury actions on behalf of at least some of these clients.

During an interlocutory appeal of the trial court’s ruling on the preclusive effect of certain jury findings in the early stages of the Engle action, the trial court generally stayed proceedings with respect to most of the individual cases, and attempted to work with the parties on case-management protocols to work through the 4,432 cases. After roughly four years of machinations and the involvement of a special master, the trial court dismissed with prejudice a total of 750 cases: 588 lawsuits were filed on behalf of plaintiffs who were dead before the personal-injury actions were filed, 160 lawsuits filed on behalf of related loss-of-consortium plaintiffs, and two wrongful-death cases that were time-barred when filed. The trial court dismissed the defective claims, citing among other things, lack of demonstrated diligence in assuring that the lawsuits were properly filed in the first place, and lack of candor and diligence in bringing the matter before the court. The Eleventh Circuit affirmed.

The Eleventh Circuit opened its opinion by noting that “any lawyer worth his salt knows, a dead person cannot maintain a personal injury action,” and that “a lawyer’s responsibilities to the court are not diluted even by an ocean of claims.” The Eleventh Circuit did not decide whether the trial court was correct in finding that the filings were an incurable nullity ab initio. Rather, the Eleventh Circuit agreed that the putative plaintiffs’ counsel failed to demonstrate pre-filing diligence and failed in its duty of candor and diligence post-filing.

Specifically, the Eleventh Circuit first reviewed the district court’s denial of leave to amend the 588 personal-injury cases pursuant to Rules 15 and 17 of the Federal Rules of Procedure, and found the district court’s denial “eminently reasonable.” Because plaintiffs’ counsel failed to show that the 588 mistakes were “understandable” under Rule 17, the Eleventh Circuit found that the district court properly disallowed the substitution of surviving family members as plaintiffs under Rule 17(a)(3). The Eleventh Circuit also rejected the appellants’ argument that their delay in seeking to amend the complaints (including complaints filed on behalf of plaintiffs who had been dead 25 years at the time of filing) was not “undue” under Rule 15 due to the four-year stay imposed in 2008.

The Eleventh Circuit next denied the appellants’ request for leave to amend the 160 loss-of-consortium cases, characterizing this request as an attempt “to make an end run around the court’s denial of their earlier requests for leave to amend the predeceased plaintiffs’ personal injury claims to do the same thing.” The court agreed with the district court’s note that the appellants had “slept on whatever rights they may have had to amend their complaints.”

Finally, the Eleventh Circuit rejected appellants’ argument that they should be allowed to amend two wrongful-death suits filed after the statute of limitations had tolled in 1992. The Eleventh Circuit agreed with the district court that any amendment to those complaints would be either futile or unjustified under Rule 15, mostly because the amendments would not be based on information unavailable when the original complaints were filed.

Thus, all appeals were dismissed. The court summarized its findings with its admonishment, “a lawyer’s responsibilities to the court are not diluted even by an ocean of claims.”

Jeffrey G. Close, Chapman and Cutler LLP, Chicago, IL


October 30, 2014

11th. Cir. Applies Atlantic Marine's Modified Forum Non Conveniens Doctrine

In its first decision applying the modified forum non conveniens doctrine announced by the U.S. Supreme Court in Atlantic Marine Construction Co., Inc. v. U.S. District Court for the Western District of Texas, ___ U.S. ___, 134 S.Ct. 568, 187 L.Ed. 2d 487 (2013), the Eleventh District recently affirmed the dismissal of a personal-injury complaint filed in the Southern District of Florida where the plaintiffs’ claims were subject to a Bahamian forum-selection clause. Pappas v. Kerzner International Bahamas, Ltd., No. 14-11098, 2014 U.S. App. LEXIS 17829 (11th Cir. Sept. 17, 2014).

The Pappas court held consistent with Atlantic Marine, that if a forum-selection clause requires that a dispute be litigated in a non-federal forum, the proper vehicle for enforcing a valid forum-selection clause is a motion to dismiss for forum non conveniens, not a FRCP Rule 12(b)(3) motion to dismiss for improper venue. On the other hand, when a forum-selection clause specifies a different federal forum from the place of original filing, the proper vehicle to enforce the forum-selection clause in that situation is a motion to transfer venue under 28 U.S.C. § 1404(a).

In Pappas, the plaintiffs alleged negligence and loss-of-consortium claims for injuries allegedly sustained on a water slide at the Atlantis Resort located in Paradise Island, Bahamas. The plaintiffs commenced a diversity action against the owner of resort (Kerzner) in the Southern District of Florida.

Kerzner sought to enforce its forum-selection clause by moving to dismiss under Rule 12(b)(3), arguing inter alia (1) that during the online reservation process, plaintiffs “clicked the box” acknowledging Kerzner’s standard terms and conditions that disclosed the forum-selection clause; (2) Kerzner immediately sent a reservation confirmation email to plaintiffs, again with a link to the terms and conditions; and (3) that the plaintiffs, during check-in, signed an “acknowledgement, agreement and release” form containing the forum-selection clause.

The district court granted Kerzner’s motion to dismiss, albeit under prior precedent holding Rule 12(b)(3) to be the proper vehicle for enforcing a valid forum-selection clause specifying a non-federal forum. Following dismissal, based on the intervening Atlantic Marine decision, the plaintiffs moved for reconsideration. The district court granted the unopposed motion for reconsideration, allowing the parties to brief “whether the forum-selection clause could be enforced under the modified forum non-conveniens doctrine set forth in Atlantic Marine.”

On reconsideration, applying Atlantic Marine, the district court found that plaintiffs “had not met their burden of showing that dismissal of their complaint was unwarranted,” and that “all of the public interest factors—the only factors relevant under the Atlantic Marine analysis—favored dismissal.” The district court granted Kerzner’s renewed motion to dismiss, and the plaintiffs appealed.

On review, the Eleventh Circuit framed its analysis in a two-part inquiry: (1) whether the forum-selection clause is valid and enforceable (a de novo review); and (2) if so, whether the district court properly applied the modified forum non conveniens doctrine articulated in Atlantic Marine (an abuse-of-discretion review).

With respect to enforceability, the Eleventh Circuit noted that “[f]orum-selection clauses are ‘presumptively valid and enforceable unless the plaintiff makes a ‘strong showing’ that enforcement would be unfair or unreasonable under the circumstances.’” Id. (internal citation omitted). A forum-selection clause is unreasonable when procured by fraud or overreaching, and where a forum-selection clause is not negotiated, “whether there was fraud or overreaching . . . [is determined] by looking to ‘whether the clause was reasonably communicated to the consumer.’” Id. (internal citation omitted).

The Pappas Court found the Kerzner forum-selection clause valid and enforceable, noting in particular that the online disclosures of Kerzner’s standard terms and conditions disclosed the forum-selection clause in advance of in-person acknowledgement, and there was no evidence that the plaintiffs’ personal acknowledgements were secured by fraud or overreaching. As a result, the forum-selection clause was “reasonably communicated” to the plaintiffs.

Turning to application of Atlantic Marine’s modified forum non conveniens doctrine, the Eleventh Circuit held that the district court did not abuse its discretion in concluding that analysis of the public-interest factors “counseled in favor of the Bahamas as the forum.” Preliminarily, the circuit found that as a result of the plaintiffs’ agreement to the forum-selection clause, the private-interest factors applicable in a traditional forum non conveniens analysis “‘weigh[ed] entire[ly] in favor of the preselected forum’—the Bahamas.” Id. at *13 (internal citation omitted).

The Eleventh Circuit next addressed the public-interest factors, which included: “the administrative difficulties flowing from court congestion[,], the local interest in having localized controversies decided at home[,] and the interest in having the trial of a diversity case in a forum that is at home with the law.” Id. (internal citation omitted). Finding that the district court properly considered each of these factors and that its assessment was not unreasonable, the Eleventh Circuit affirmed the dismissal under Atlantic Marine’s modified forum non conveniens doctrine.

Eric B. Levasseur, Hahn Loeser & Parks, LLP, Cleveland, OH


October 29, 2014

Securing "Government Data" for Civil Litigation

Attorneys may seek access to electronic or other information that is “criminal” in nature for use in civil litigation. Gregerson v. Hennipin County, A14-0487 (Minn. Ct. App. Oct. 6, 2014) demonstrates limitations that may be imposed on such access.

Gregerson arose from a civil action brought to recover damages from various defendants. After the civil action was filed, a law-enforcement agency secured two search warrants in its investigation of alleged criminal activity by several of the defendants—unrelated to the plaintiff’s claims—seized several computers, and imaged hard drives. The plaintiff sought data from the agency for use in his civil action. The agency refused to comply with a subpoena sent by the plaintiff and also refused to comply with a request for access to the data made by the plaintiff under the Minnesota Government Data Practices Act. The plaintiff then sued the agency to compel compliance with the act. The trial court granted the agency’s motion for summary judgment, concluding that the data were not “government data” under the act. The plaintiff appealed this decision to the Minnesota Court of Appeals.

The court of appeals affirmed. It agreed that the data on the imaged hard drives were “government data” because the data had been collected and maintained by a governmental entity. The court of appeals, however, ruled that the plaintiff could neither receive copies of, nor search, the hard drives because federal law “classified” the data as private or confidential and thus exempt from disclosure under the act. Citing Riley v. California,134 S. Ct. 2473 (2014), and noting that the warrants allowed the drives to be seized only for specific purposes, the court of appeals held that the owner or owners of the drives continued to have a reasonable expectation of privacy in the data that were not within the scope of the warrants. The court of appeals also rejected the argument that the Fourth Amendment would not apply to a “private” search the plaintiff would conduct.

Gregerson was decided under the specific text of a state statute. Nevertheless, it demonstrates that access to data maintained by a governmental agency may not be available to a private litigant. It also demonstrates what may well be an expansion of Riley’slogic outside a “strictly” criminal context.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


October 29, 2014

Apple v. Samsung: Waiver Takes More Than an Offer

Circumstances might lead an attorney to offer to produce documents that he or she asserted are subject to the attorney-client privilege or work-product protection to an adversary in an attempt to forestall litigation about that assertion. A recent decision in the Apple v. Samsung saga illustrates the possible consequence of doing so. Apple, Inc. v. Samsung Electronics Co., Case No. 11-CV-01846-LHK (PSG) (N.D. Ca. Sept. 19, 2014).

Samsung had been ordered by a magistrate judge to produce documents pertaining to the release of a report in violation of a protective order. Samsung offered to do so, but sought a stipulation from Apple and a non-party that production would not waive the privilege or work-product protection. There was no stipulation, and Samsung did not produce the documents. The magistrate judge found that the offer amounted to a waiver.

The district judge reversed: “Samsung contends that [the magistrate judge] erred as a matter of law in concluding that an unfulfilled offer to produce documents waives privilege or work-product protection as to those documents . . . Samsung is correct. The Ninth Circuit has held that ‘[t]he triggering event [for waiver] is disclosure, not a promise to disclose.’” The district judge remanded for a ruling on the issue of “[w]hether Samsung waived or is otherwise not entitled to assert privilege over those documents for any other reason.” (Note that the district judge dealt with other issues in her opinion).

What lessons can be learned from this opinion? First, waiver of a privilege does not result from an offer to produce. Rather, actual production is required. In other words, it doesn’t hurt to attempt to cooperate. Second, to avoid waiver problems that could arise from production, parties in federal litigation should consider securing a non-waiver agreement under Federal Rule of Evidence 502(e) or, either through agreement or a contested motion, a Rule 502(d) order.

Ronald J. Hedges, Ronald J. Hedges LLC, Hackensack, NJ


October 29, 2014

11th Cir. Affirms § 1927 Sanctions Against Attorney for Frivolous Motions

In a cautionary decision for attorneys that routinely practice in federal court, the Eleventh Circuit Court of Appeals recently affirmed a $60,865 sanctions award against an attorney under 28 U.S.C. § 1927 for the filing of three frivolous motions in a personal-injury action. Oliva v. NBTY, Inc., No. 13-14254 (11th Cir. Sept. 22, 2014).

Under 28 U.S.C. § 1927, “[a]ny attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably may be required by the court to satisfy personally the excess costs, expenses and attorneys’ fees reasonably incurred because of such conduct.”

In Oliva, after granting summary judgment in favor of the defendants, the defendants moved for an award of sanctions under 28 U.S.C. § 1927 and the district court’s inherent authority for the fees and costs incurred in responding to three motions filed by plaintiffs’ counsel: “(1) to strike defendants’ motion for summary judgment, (2) to allow the addition of a claim for punitive damages after the close of discovery, and (3) to present spoliation evidence.” The district court magistrate issued a report and recommendation in favor of the sanctions, which was subsequently adopted and elaborated upon in the district court’s order.

On appeal, the Eleventh Circuit began by clarifying that while a sanctions award under 28 U.S.C. § 1927 is typically reviewed for abuse of discretion, where a party is put on notice by a magistrate of “the consequences of failing to object to [a] report and recommendation’s factfindings and the party does not object,” the fact findings are reviewed only for plain error.

Turning to the merits, the Eleventh Circuit rejected plaintiffs/appellants’ arguments that the district record was insufficient to allow for a meaningful review; that a settlement agreement between the parties barred an award of sanctions; and that the $60,865 award was an abuse of discretion.

The Eleventh Circuit noted that for an award of sanctions under 28 U.S.C. § 1927, the “attorney’s conduct must be so egregious that it is tantamount to bad faith,” a determination that “turns on the attorney’s objective conduct, not his subjective intent.” Id. at *7–8 (internal citation omitted). “Sanctions are warranted when an attorney knowingly or recklessly pursues a frivolous claim or obstructs litigation.” The Eleventh Circuit noted that negligent conduct alone was insufficient for an award of sanctions, and that “reckless” conduct is that which “grossly deviates from reasonable conduct.”

Judged against this standard, the court affirmed the award of sanctions where the record supported findings that plaintiffs/appellants’ counsel filed motions “based on statements that he knew or should have known (by checking his own records) were false,” and deliberately waited to file certain motions in an effort to “ambush” defendants after the close of discovery.

The Eleventh Circuit further rejected the argument that parties can circumscribe the court’s authority to award sanctions under 28 U.S.C. § 1927 by way of a settlement agreement, commenting that “[a] settlement . . . even if the amount of it [is] keyed to attorney’s fees, does not negate the district court’s authority under § 1927 to punish [counsel] personally for unreasonably and vexatiously multiplying the proceedings.” In so holding, the Eleventh Circuit would appear to have confirmed that section 1927 sanctions are not only compensatory and designed to deter vexatious conduct, but in fact punitive.

Because the court found that the district court did not abuse its discretion in awarding sanctions under 28 U.S.C. § 1927, it did not reach the separate question of whether the sanctions were appropriate pursuant to the district court’s inherent authority.

Eric B. Levasseur, Hahn Loeser & Parks, LLP, Cleveland, OH


October 1, 2014

2nd Cir. Applies Domestic Transaction Test to Private Action under CEA

Under the Supreme Court’s decision in Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), federal statutes are presumed not to have any effect outside the United States absent a clearly expressed affirmative intent by Congress. Applying Morrison, the U.S. Court of Appeals for the Second Circuit examined the territorial scope of the Commodities Exchange Act (CEA) in Loginovskaya v. Batrachencko, Docket No. 13-1624-cv, 2014 U.S. App. LEXIS 17257 (2d Cir. Sept. 4, 2014). The CEA is a remedial statute designed to protect an innocent commodities-market investor, particularly through its anti-fraud provisions in section 4o. In a 2–1 ruling, the Second Circuit concluded that a CEA private action must allege a commodities transaction within the United States. The strongly worded dissent accused the majority of misunderstanding commodities law and misapplying Morrison’s presumption against extraterritoriality.

As alleged in her complaint, the plaintiff is a Russian citizen who resides in Russia, where a representative of the Thor Group approached her with investment opportunities. The Thor Group is a New York-based financial-services firm that manages programs investing in commodities futures and real estate. The plaintiff entered into two investment contracts with Thor and transferred $720,000 to Thor’s accounts in New York. After her investment lost significant value and she sought the return of her funds unsuccessfully, the plaintiff learned that Thor used investors’ funds in a manner inconsistent with the investment contracts. Under CEA § 22 affording a private right of action, the plaintiff filed suit in the Southern District of New York alleging fraud prohibited by section 4o. The district court dismissed plaintiff’s CEA claims for failure to plead a domestic-commodities transaction.

In affirming the dismissal, the Second Circuit’s majority opinion, written by Judge Dennis Jacobs and joined by Judge Christopher F. Droney, noted that the CEA is silent as to extraterritorial reach. Under Morrison, such silence compels a presumption that the CEA is primarily concerned with domestic conditions. The majority considered how this presumption affects the “focus of congressional concern” in the CEA, reviewing first the threshold requirements to bring a private suit under section 22 before turning to the merits of the plaintiff’s fraud claims under section 4o. In making its decision, the majority stressed that the focus of congressional concern in section 22 is transactional, covering “domestic conduct, domestic transactions, or some other phenomenon localized to the United States.” Consequently, a private right of action under the CEA may exist only when one of the transactions listed in section 22 occurred within the United States.

In the majority’s view, the plaintiff failed to allege sufficient domestic transactional conduct to avoid dismissal. She purchased her interest in Thor in Russia, and Russia is where the “meeting of the minds” occurred. She failed to show that the transfer of title or the point of irrevocable liability for her interest occurred in the United States. The plaintiff’s wire transfers of funds to New York were simply actions necessary to carry out the transactions, not transactions themselves.

In his dissent, Judge Raymond J. Lohier Jr. criticized the majority for applying the presumption against extraterritoriality to section 22. The dissent stressed the expansive purpose of the CEA to protect market participants and stated that Morrison’s territorial limitation should apply only to section 4o’s substantive anti-fraud provisions. Justice Lohier concluded that the plaintiff had pled fraudulent acts that were sufficiently domestic to fall with the scope of section 4o.

The decision illustrates the impact that Morrison can have on federal statutes and should be a warning to foreign plaintiffs attempting to bring a claim under the CEA.

Steven M. Richard, Nixon Peabody LLP, Providence, RI


October 1, 2014

Article III's Standing and Ripeness Expanded in Sixth Circuit

On August 27, 2014, the Sixth Circuit entered an opinion that appears to expand the scope of Article III standing and ripeness in the circuit. In Kiser v. Reitz, No 13-3956 (6th Cir. Aug. 27, 2014), the plaintiff, Dr. Russell Kiser, who trained as both a general dentist and as an endodontist, challenged an Ohio State Dental Board regulation that provided that “if a dentist chooses to advertise as a ‘specialist’ in a recognized field, he may not practice or advertise services outside the scope of that specialty.”

In August 2009, the board sent Kiser a written warning for practicing outside the scope of his advertised specialty and advised that he could no longer hold himself out as an endodontic specialist if he wanted to practice in the field of general dentistry. The board sent Kiser a second letter recommending that he seek legal counsel, and enclosed a copy of the relevant regulations and the first letter from August 2009 in response to his request for approval of advertising material in which he listed both general dentistry and endodontics.

Kiser filed suit for injunctive and declaratory relief on the grounds that the advertising regulations promulgated by the board unconstitutionally restricted “his First Amendment rights by limiting truthful advertisement of the full range of services for which he is licensed.” The district court dismissed Kiser’s complaint on the basis that it lacked subject-matter jurisdiction because the claim was not ripe for adjudication. Kiser appealed.

The Sixth Circuit reversed, holding that Kiser alleged facts showing that he faces a credible threat that the board’s regulations will be enforced against him in the future and that he therefore has standing to assert his challenge to the regulations. In so holding, the court reviewed the standing doctrine under which Article III courts are constitutionally limited to deciding actual “Cases” and “Controversies.” It found that the ripeness requirement prevents premature adjudication of claims that have only abstract disagreements or may not even occur, protecting parties from judicial interference before the effects of a formal decision are felt in a tangible way. The Sixth Circuit used the constitutional-standing framework to address Kiser’s claim, stating that “the Supreme Court has cast into some doubt the continuing vitality of the long-established prudential aspects of the ripeness doctrine.” In a footnote, however, the court also stated that Kiser would meet the prudential ripeness factors of hardship to the parties and fitness of the record for review.

To pursue a claim in federal court, a plaintiff must show (1) that he or she has suffered an injury in fact, (2) a causal connection between the injury and the conduct complained of, and (3) that it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision. The injury in fact is an actual or imminent concrete invasion of a legally protected interest. In a pre-enforcement challenge, ripeness usually turns on the first factor, injury in fact.

Here, the Sixth Circuit found that Kiser showed a credible threat of future harm adequate to demonstrate that he suffered from an injury in fact because (1) Kiser demonstrated an intention to engage in conduct affected with a constitutional interest, namely truthful commercial speech; (2) the intended conduct of advertising as a specialist while continuing to practice general dentistry was prohibited by the regulations, and because the board warned him of this conduct in the past, similar speech in the future would likely result in similar proceedings; and (3) a credible threat of prosecution existed because the board threatened to enforce the regulations against him, even though an official enforcement action had not yet begun. The court also noted that administrative sanctions are serious enough on their own to create a constitutional injury in fact, particularly as in this case when they threaten one’s livelihood. The case was remanded back to district court for further proceedings.

The takeaway from this case is that constitutional standing in the Sixth Circuit has been expanded to allow a plaintiff to proceed with a case if he or she has been threatened with enforcement of a rule or law that would affect his or her livelihood. Moreover, the Sixth Circuit will now likely consider the prudential factors (hardship and fitness for resolution) in deciding whether a case is ripe.

Angela Fetcher and Rachael Warf, Stoll Keenon Ogden PLLC, Louisville, KY


October 1, 2014

Beware of Confidentiality Provisions in Settlement Agreements

It is not uncommon for parties in civil cases to enter into settlements that include confidentiality provisions. Gulliver School, Inc. v. Snay, 137 So.3d 1045 (Fla. Dist. Ct. App. 2014), offers a textbook example of the consequences of the failure to maintain confidentiality.

In Gulliver School, a former headmaster settled an age-discrimination action against the school. The settlement agreement included a confidentiality provision whose both “existence and terms” were to be kept confidential. If the headmaster breached the confidentiality provision, the agreement provided that he would forfeit $80,000. Four days after the agreement was signed, the headmaster’s college-aged daughter posted on Facebook: “Mama and Papa Snay won the case against Gulliver. Gulliver is now officially paying for my vacation to Europe this summer.” The school refused to pay the $80,000 and the headmaster moved to enforce the settlement. The trial court found that neither the headmaster’s disclosure to his daughter or her posting (to 1200 of her friends, including current or former students of the school) constituted a material breach. The Florida District Court of Appeal reversed: “before the ink was dry . . . and notwithstanding the clear language . . . Snay violated the agreement. . . . His daughter then did precisely what the confidentiality agreement was designed to prevent, advertising to the Gulliver community that Snay had been successful. . . .” The headmaster was left with $10,000 in back pay. His attorneys received $60,000.

The remedy for the breach in Gulliver School might seem harsh. However, that remedy should sensitize counsel negotiating a settlement of the need to advise their settling client that, should the settlement include a confidentiality provision and that provision be breached, the breach might lead to severe consequences for the client.

Ronald J. Hedges


October 1, 2014

Litigation Involving Public Entities May Involve Alternative Routes to Discoverable Information

Attorneys who litigate against public entities should be aware of the interplay—and distinction—between discovery under the applicable civil rules and access to materials under the Freedom of Information Act and its state equivalents. Information that is not discoverable under the rules might be available under public-records laws. The Washington Court of Appeals recently addressed the difference in Washington State Dept. of Transp. V. Mendoza De Sugiymaa, 330 P.3d 209 (Wash. Ct. App. 2014).

The Washington Public Records Act (PRA) provides that “[r]ecords that are relevant to a controversy to which an agency is a party but which records would not be available to another party under the rules of pretrial discovery . . . are exempt from disclosure.” The plaintiff in this employment-discrimination action sought the production of over 174,000 emails from the Washington State Department of Transportation (DOT). The trial judge issued a protective order, finding the request unduly burdensome. The plaintiff then made a request for the emails under the PRA. The DOT denied the request, citing the exemption. This led to the “extraordinary result that Mendoza de Sugiyama became[] the only person in the state that could not obtain the requested records.” The DOT filed a separate action seeking a declaration that it need not comply with the request. The judge in the declaratory-relief action ruled against the DOT. The Washington Court of Appeals affirmed. The appellate court noted that the Washington Supreme Court has held that the purpose of the exemption was for records subject to work-product protection and attorney-client privilege. The trial court in the employment-discrimination case “did not determine that the e-mails . . . were undiscoverable and thus unavailable under the civil rules, only that her particular request created undue burden.” Therefore, the plaintiff could seek the emails under the PRA.

A cautionary note is in order. Mendoza De Sugiyama does not establish a rule of universal application. Rather, it was decided under the specific text of a state statute. Nonetheless, the decision suggests an alternate route of access to information in litigation with public entities, which attorneys should at the least explore.

Ronald J. Hedges


August 28, 2014

Sua Sponte Order of Remand Based on Timeliness Vacated

The Ninth Circuit Court of Appeals recently vacated a district-court order remanding a case to state court on the ground that the defendants had removed the case too late. Smith v. Mylan Inc., No. 12-56028 (9th Cir. Aug. 4, 2014). The Ninth Circuit’s opinion addressed whether the statutory one-year time limitation for removal of diversity cases is procedural or jurisdictional in nature.

In the underlying case, the plaintiffs filed a wrongful-death action in state court in December 2010. On January 30, 2012, the state court dismissed the last remaining non-diverse defendant, and two weeks later, on February 9, 2012, the defendants removed to federal court, invoking diversity jurisdiction. The plaintiffs did not file a motion to remand or otherwise object to removal; however, on May 3, 2012, the district court sua sponte remanded the case pursuant to 28 U.S.C. § 1447(c) for lack of subject-matter jurisdiction, holding that the case was improperly removed more than one year after it was filed in state court. The defendants appealed the lower court’s decision.

On appeal, the Ninth Circuit was faced with the question of whether 28 U.S.C. § 1446(b)’s one-year time limitation for removal based on diversity is a jurisdictional or procedural requirement. The court examined its previous decisions concluding that section 1446(b)’s 30-day time limit for removal by the defendant after receipt of a complaint is merely a formal and modal requirement and not a jurisdictional rule. The court clarified that although the 30-day time limit for removal is mandatory and not permissive, a timely objection to a late petition may ultimately defeat removal. However, the court added that a party may still waive the timeliness issue and be estopped from later objecting by sitting on his or her rights. The court concluded that section 1446(b)’s one-year time limitation should and would be construed in the same manner as its 30-day time limitation and treated as a procedural rather than a jurisdictional requirement. Accordingly, the court found that because procedural defects are indeed waivable, a district court lacks authority to remand based on timeliness absent a timely filed motion to remand. The Ninth Circuit noted that this conclusion is consistent with those from its sister circuits citing to decisions from the Sixth, Fifth, Eleventh, and Third Circuits. The court also reasoned that a finding that section 1446(b)’s one-year time limit is a procedural requirement is supported by the language of the statute and its legislative history.

Because the plaintiffs did not file a motion to remand, the Ninth Circuit found that they implicitly waived any procedural defect associated with the defendants’ removal. Accordingly, the district court’s sua sponte order of remand was in excess of the court’s statutory authority and thus vacated by the Ninth Circuit.

Tracy A. DiFillippo and Tracy M. O'Steen, Armstrong Teasdale LLP, Las Vegas, NV


August 28, 2014

Attorney Malpractice Lawsuit Tolled Pending Outcome of Underlying Suit

The U.S. District Court of Nevada certified a question to the Nevada Supreme Court concerning whether an attorney-malpractice action is tolled pending the outcome of the underlying suit. In Brady, Vorwerck, Ryder & Caspino v. New Albertson’s Inc., 130 Nev. Adv. Op. 68 (Nev. Aug. 7, 2014), the Supreme Court answered the certified question in the affirmative. The issue before the Supreme Court was whether the amendments to Nevada Revised Statute 11.207(1)—statute of limitations for attorney-malpractice actions—negated the applicability and purpose of the litigation-malpractice-tolling rule.

The underlying lawsuit was a slip-and-fall case in which the plaintiffs filed an action against New Albertson’s, Inc. and Farm Road Retail, LLC. New Albertson’s hired the law firm Brady, Vorwerk, Ryder & Caspino (BVRC) to represent it in the case. New Albertson’s filed a cross-claim against Farm Road pursuant to an indemnity agreement. The plaintiffs served requests for admissions on New Albertson’s and BVRC belatedly served the responses. Because the responses were frivolous, the trial court ordered New Albertson’s to refile the responses, which BVRC did on behalf of New Albertson’s. The plaintiffs filed a motion for partial summary judgment, arguing that the refiled responses violated the trial court’s order. As a discovery sanction, the trial court deemed the New Albertson’s refiled responses as admitted, resulting in the trial court granting partial summary judgment on the issue of liability against New Albertson’s. Subsequently, the plaintiffs and New Albertson’s settled.

Farm Road also filed a motion for summary judgment. The trial court granted the motion, concluding that indemnity claims byNew Albertson’s failed because its settlement with the plaintiffs was a direct result of the discovery abuse committed by New Albertson’s. New Albertson’s appealed but the appeal was dismissed because New Albertson’s and Farm Road settled.

Two years after New Albertson’s settled with the plaintiffs in the underlying lawsuit, New Albertson’s filed an attorney-malpractice lawsuit against BVRC. BVRC sought to dismiss the suit, arguing that the malpractice action was barred by the statute of limitations.

The Nevada Supreme Court first acknowledged that there are several tolling theories that may apply to statute of limitations for attorney-malpractice actions, including:

(1) the occurrence rule, which starts the statute of limitations when the lawyer commits the act of malpractice; (2) the continuous representation rule, which starts the statute of limitations when the attorney-client relationships ends, (3) the damage rule, which starts the statute of limitations when the actionable damages occur, although some jurisdictions disagree on how much damage must occur to trigger the statute of limitations; (4) the discovery rule, which starts the statute of limitations when the claimant discovers, or reasonably should have discovered, the material facts for the action, including the damages; and (5) the litigation malpractice tolling rule, which provides that the damages for a malpractice claim do not accrue until the underlying litigation is complete and, thus, a malpractice claim does not accrue and its statute of limitations does not begin to run during a pending appeal of an adverse ruling from the underlying litigation.

Id. Nev. Rev. Stat. 11.201(1), as amended, places a four-year and two-year limitation on attorney-malpractice claims: “within 4 years after the plaintiff sustains damages or within 2 years after the plaintiff discovers or through the use of reasonable diligence discovers the material facts which constitute the cause of action, whichever occurs earlier.”

In analyzing the two-year time period in the statute, the supreme court recognized that some jurisdictions have held that the accumulation of some damages is sufficient to trigger the attorney-malpractice claim’s statute of limitations. Other jurisdictions focus on the end of the litigation and final accumulation of damages to trigger the commencement of the statute of limitations. The Supreme Court noted that its case law prior to the amendment of the statute was in line with the latter jurisdictions. After reviewing the amended statute, the Supreme Court explained that the discovery-rule language remained unchanged. Thus, its prior case law holding that the statute of limitations for attorney-malpractice actions is tolled pending the outcome of the underlying lawsuit, including any appeals, remains. The supreme court maintained this rule because it permits the final resolution of the damages incurred during the litigation, including any changes on the appeal, thereby preventing judicial resources from being spent on a claim for damages that may be reduced or cured during litigation.

Tracy A. DiFillippo, Armstrong Teasdale LLP, Las Vegas, NV


July 24, 2014

Ninth Circuit: Malpractice Suit Is "Core Proceeding" for Jurisdictional Purposes

The Ninth Circuit Court of Appeals recently upheld a bankruptcy court’s decision dismissing a legal-malpractice action against counsel for the unsecured creditors’ committee in a bankruptcy case. Schultze v. Chandler, No. 12-15186 (9th Cir. July 18, 2014). The court’s opinion addressed whether the lower court exercised proper jurisdiction and whether dismissal of the malpractice claim was appropriate.

After Colusa Mushroom, Inc. filed a Chapter 11 bankruptcy case, an unsecured creditors’ committee was formed and David Chandler was employed to represent the committee. A plan of reorganization was confirmed where Colusa would sell its business to Premier Mushroom, LP. Pursuant to the plan, unsecured creditors would receive pro rata shares of the proceeds. A note was executed for the sale price and as collateral, Premier granted a security interest in its personal property. Premier later defaulted on its payment obligations. Following default, it was discovered that Colusa’s counsel failed to file the financing statements necessary to perfect the security interest in Premier’s personal property. In the interim, Premier obtained additional loans also secured by the personal property resulting in over-encumbered assets. Failing to perfect the security interest meant the recovery following Premier’s default was significantly less.

The plaintiffs filed suit against Chandler in state court for legal malpractice, alleging that Chandler was negligent by not ensuring perfection of the estate’s security interest in Premier’s personal property. Chandler removed the action to bankruptcy court, and the plaintiffs moved for remand. The bankruptcy court denied remand, holding that it had federal jurisdiction over the malpractice action. Chandler then filed a motion to dismiss, arguing he owed no duty to individual members of the committee. The bankruptcy court agreed and the motion was granted. The plaintiffs appealed and the district court affirmed the ruling.

On further appeal, the Ninth Circuit held that the bankruptcy court had jurisdiction over the malpractice action as the case constituted a “core” proceeding arising under Title 11. The court’s decision addressed the difference between “core” proceedings, matters that would have no existence outside of bankruptcy law, and “non-core” proceedings, those matters that involve rights unconnected to bankruptcy. The court stated that a post-petition claim brought against a court-appointed professional is a “core” proceeding. The court noted that Chandler’s employment as committee counsel was approved by the bankruptcy court, that his compensation was approved by the bankruptcy court and governed by the bankruptcy code, and that his duties pertained solely to acts occurring in connection with administration of the bankruptcy estate. Accordingly, the court stated that the malpractice claim fell “easily within the definition of a core proceeding.”

The Ninth Circuit rejected the plaintiffs’ argument that their claim was based upon state law so it could not be a core proceeding. The court looked to 28 U.S.C. § 157(b)(3) noting that the statute clearly states that whether a proceeding is core or non-core “shall not be made solely on the basis that its resolution may be affected by State law.”

The court also rejected the plaintiffs’ argument that their claim did not invoke any right created by bankruptcy law and did not involve administration of the bankruptcy estate so no jurisdiction existed. The court clarified that a core matter arising under or in Title 11 need not be based on a right expressly created by the bankruptcy statutes. Instead, the rule is that the matter must “have no existence outside of the bankruptcy case.” The court reasoned that the basis for the malpractice claim occurred within the administration of the bankruptcy estate and that any alleged duties owed by Chandler arose from obligations created under bankruptcy law. Since the plaintiffs’ claim essentially called into question the administration of the estate, the court concluded that the legal-malpractice claim was inseparable from the bankruptcy case.

Additionally, the court noted that its key inquiry was whether the plaintiffs’ claim arose in a case under Title 11 and not whether the claim will affect administration of the bankruptcy estate.

After concluding that jurisdiction was proper, the court affirmed the dismissal of the malpractice claim, ruling that Chandler did not owe an individual duty of care to the plaintiffs.

Tracy A. DiFillippo and Tracy M. O'Steen, Armstrong Teasdale LLP, Las Vegas, NV


July 24, 2014

Texas Supreme Court Clarifies Spoliation under Texas Law

Courts cannot ignore modern technology in relation to discovery issues, especially when the volume of electronic data being generated and stored has increased exponentially. With the increase of electronic-data discovery requests, it is no surprise that there has been an increase in allegations of spoliation of evidence. Spoliation of evidence is the withholding, alteration, or destruction of evidence relevant to a legal proceeding. Understanding that litigating parties and courts are forced to address numerous spoliation issues in light of the electronic-data-discovery age, the Supreme Court of Texas finally clarified Texas law regarding spoliation. In Brooks Brothers, Ltd. v. Aldridge, No. 10-0846, ___ S.W. 3d ___ (2014), the court held that before imposing the harsh remedy of a spoliation jury instruction, the trial court must find that a party intentionally spoliated evidence.

This was a slip-and-fall-premises-liability case. At issue was whether it was appropriate for the trial court to charge the jury with a spoliation instruction when additional surveillance video footage surrounding plaintiff Jerry Aldridge’s fall in defendant Brookshire Brothers’ store was automatically erased. Aldridge slipped and fell on grease that had leaked out of a container at a Brookshire Brothers store. After Aldridge reported the incident, Brookshire Brothers took a report and preserved a short segment of the video footage, which showed Aldridge entering the store, falling, and leaving the store. It did not include any footage that might have shown whether Brookshire Brothers was aware of the spilled grease—a major issue in the case. Initially, Aldridge asked for a copy of the video surveillance that showed his fall. A year later, Aldridge’s attorney requested two-and-a-half hours of additional footage, but the video footage was not available because it was the company’s practice to record over video surveillance every 30 days.

During the trial, a Brookshire Brothers’ executive testified that he decided to retain and copy the eight-minute footage to identify Aldridge entering the store and actually falling. The executive also testified that he did not preserve additional footage because he did not believe it was relevant and he did not know that there would be ligation as a result of the incident. The trial court admitted evidence relating to the destruction of the video recording, charged the jury with a spoliation instruction, and permitted the jury to decide whether spoliation occurred. The jury returned a verdict in favor of Aldridge and awarded damages, which the court of appeals affirmed.

The Supreme Court of Texas took this opportunity to clarify spoliation standards in Texas. In its holding, the court set forth a two-step process in analyzing a spoliation issue: (1) The trial court, not the jury, must determine whether a party spoliated evidence, and (2) if spoliation occurred, the court must assess the appropriate remedy. In making the legal determination of whether a party spoliated evidence, the court must find (1) that the party had a duty to reasonably preserve evidence, and (2) that the party intentionally or negligently breached that duty. The court acknowledged that a trial court has broad discretion to impose a remedy for spoliation but such remedy must be proportionate—relate directly to the conduct giving rise to the sanction and may not be excessive. The court noted that the trial court should evaluate the level of culpability of the spoliating party and the degree of prejudice to the nonspoliating party. The court determined that the harsh sanction of a spoliation instruction should only be used when the trial court finds that the spoliation was an intentional act. The court carved out a “narrow caveat” to this rule, stating that a spoliation instruction may be appropriate when the spoliation occurred as a result of negligence if the destruction of the evidence irreparably prevents the nonspoliating party from having a meaningful chance to present a claim or defense.

The court concluded that the trial court abused its discretion in charging the jury with a spoliation instruction because there was no evidence that Brookshire Brothers allowed the additional footage to be erased with the requisite intent to conceal or destroy relevant evidence or that Aldridge was irreparably deprived of any meaningful ability to present his claim.

Tracy DiFillippo, Armstrong Teasdale LLP, Las Vegas, NV


June 30, 2014

SCOTUS Rules Against Argentina in Bonds Discovery Case

In a 7–1 decision (Justice Sotomayor took no part in the decision), the U.S. Supreme Court in Republic of Argentina v. NML Capital, Ltd., held that the Republic of Argentina was not immune from post-judgment discovery of information concerning its non-U.S. assets. The Court’s focus in the case was whether the Foreign Sovereign Immunities Act of 1976 (FSIA) limits the discovery available to a judgment creditor in a federal post-judgment execution proceeding against a foreign sovereign.

This case involves litigation over Argentina’s obligations to bond investors. Argentina defaulted on its external debt and one of its creditors, NML Capital, Ltd., prevailed on collection actions in the Southern District of New York. In an attempt to collect on its judgments, NML pursued discovery of Argentina’s property. In doing so, NML served subpoenas on two of Argentina’s banks, seeking a broad array of information regarding Argentina’s bank accounts. One of the banks, Bank of America, and Argentina filed a motion to quash while NML moved to compel compliance. The district court denied the motion to quash and granted the motion to compel, ruling that “extraterritorial asset discovery did not offend Argentina’s sovereign immunity, and it reaffirmed that it would serve as a ‘clearinghouse for information’ in NML’s efforts to find and attach Argentina’s assets.” Republic of Argentina, 573 U.S. at ___ (2014). The district court limited the information sought through the subpoena to discovery that was reasonably calculated to lead to attachable property.

Only Argentina appealed the decision to the Second Circuit, arguing that the district court’s order transgressed the FSIA because it permitted post-judgment discovery on Argentina’s extraterritorial assets. The Second Circuit disagreed, ruling that Argentina’s sovereign immunity was not infringed because NML was only seeking discovery from third-party banks, not attachment of sovereign property.

The Court acknowledged that Fed. R. Civ. P. 69(a)(2) allows a creditor to conduct post-judgment discovery in accordance with the rules of the state where the court is located. New York law permits creditors to seek discovery on issues relevant to the satisfaction of the judgment. N.Y. Civ. Prac. Law § 5223. The Court, however, did not address the questions raised at oral argument regarding whether these rules applied to discovery outside the jurisdictional limits of the court because Argentina did not raise these issues in its appeal. Rather, Argentina’s only objection to the subpoenas was the FSIA, which governs the determination of whether a foreign state is entitled to sovereign immunity. The Court recognized that the FSIA contains certain immunities for foreign states but noted that it does not contain a provision forbidding or limiting discovery in aid of execution of a foreign-sovereign judgment debtor’s assets.

Argentina also argued that a judgment creditor cannot seek discovery on certain property that it could not ultimately execute upon. The Court rejected this argument, noting that NML was seeking the discovery because it does not know what property Argentina has or where it is to even make a determination of whether such property is attachable. NML was seeking information about Argentina’s worldwide assets generally to allow NML to determine what is subject to execution. The Court stated that if the request turns up information that Argentina regards as immune, then the issue must be addressed with the district court.

Tracy DiFillippo, Armstrong Teasdale LLP, Las Vegas, NV


June 30, 2014

Party Cannot Use Predictive Coding to Contravene Discovery Protocol

In Progressive Cas. Ins. Co. v. Delaney, No. 2:11-cv-00678-LRH-PAL, 2014 WL 2112927 (D. Nev. May 20, 2014), the court held that the plaintiff could not abandon a prior discovery protocol in favor of predictive coding. The parties had agreed to a discovery protocol to cull 1.8 million documents using agreed-upon search terms used in related cases. The search terms reduced the number of potentially responsive documents to 565,000. The plaintiff, however, after manually reviewing approximately 125,00 of these documents, unilaterally decided that the agreed-upon process was too expensive and burdensome. Instead of proceeding as agreed, and without informing the court or requesting party, the plaintiff began to apply predictive coding. FDIC, the requesting party, objected and sought production of all 565,000 documents identified through keyword searching, subject to a clawback, arguing that this would avoid any further delay and would shift the cost of further review to the FDIC. Alternatively, it argued that if the plaintiff were allowed to use predictive coding, then predictive coding should be applied to the full pre-search term set of 1.8 million documents.

In addressing the propriety of the plaintiff’s departure from the discovery protocol, the court generally expressed support for predictive coding. It explained: “Predictive coding has emerged as a far more accurate means of producing responsive ESI in discovery. Studies show it is far more accurate than human review or keyword searches which have their own limitations.” However, the court noted that in this case, the proposed process lacked transparency, and, unlike in cases approving the use of technology-assisted review, discovery had been contentious. The court explained that the plaintiff was “unwilling to engage in the type of cooperation and transparency that its own e-discovery consultant has so comprehensibly and persuasively explained is needed for a predictive coding protocol to be accepted by the court or opposing counsel as a reasonable method to search for and produce responsive ESI.” The takeaway lesson is clear: “Had the parties worked with their e-discovery consultants and agreed at the onset of this case to a predictive coding based ESI protocol, the court would not hesitate to approve a transparent mutually agreed upon ESI protocol.” But as the court made clear, “this is not what happened.”

Mor Wetzler, Paul Hastings LLP, New York, NY


June 30, 2014

Based on ESI Advances, Party's Argument of Discovery Burdens Rejected

In an antitrust litigation, the court rejected the plaintiff’s claim that it should not be obligated to provide certain discovery that would require review of a large volume of documents produced by defendants. In re Domestic Drywall Antitrust Litig., 13-MD-2437, ___ F. Supp. 2d ___(E.D. Pa. May 12, 2014). The court disagreed, based partly on “the abilities of an ESI base and search program for finding documents,” and ordered the plaintiff to answer the defendants’ “contention” interrogatories. In considering the impact of electronically stored information (ESI), the court went as far as to distinguish earlier decisions, which it noted were

mostly decided before the proliferation of computer programs which enable counsel to search a large collection of documents for specific facts, without significant burden. Although there is a significant expense factor in collecting the documents and having them appropriately entered into an electronic form, once that expense has been undertaken, which is a normal expense in complex litigation, the actual searching for documents for specific facts is not expensive.

The court added:

Although ESI is often condemned as overly expensive and unproductive, there are some cases in which its benefits vastly outweigh its costs. This case is likely such a case. . . . Given contemporary tools of discovery, ESI plays an important part, and must be considered in ruling on discovery disputes. In this case, the agreement of counsel for 1,100 search terms and the millions of documents produced as a result can only be reviewed, and the relevant information efficiently extracted, by the use of computer-based programs. There is no question that the availability of ESI has promoted a beneficial improvement in the productivity of lawyers.

The plaintiffs had argued that the interrogatories were premature, but the court pointed to information in the plaintiffs’ briefs that they acquired detailed knowledge of documents produced. The court rejected the argument that the requests were premature, based on the “abilities of an ESI base and search program for finding documents.”

The decision is notable in two respects. First, its willingness to distinguish prior case law based on technological developments may pave the way for parties to make similar arguments to change precedent in discovery disputes. The court emphasized: “Ignoring the capabilities which ESI allows the parties to search for and produce factual information in a case of this nature is like pretending businesses still communicate by smoke signals.” Second, the court’s emphasis on search functionality without considering the cost of review or analysis of the documents emphasizes the need to educate the court appropriately as to the true costs of discovery.

Mor Wetzler, Paul Hastings LLP, New York, NY


May 31, 2014

NV Court Expands Mandate of Production of Memory-Refreshing Documents

Recently, the Supreme Court of Nevada held that, when properly invoked at a hearing, Nevada law mandates disclosure of any documents used to refresh the witness’s recollection before or while testifying—regardless of the privilege. See Las Vegas Sands Corp. v. The Eighth Judicial District Court, 319 P.3d 618, 623 (Nev. 2014). The court in Las Vegas Dev. Assoc., LLC v. The Eighth Judicial District Court, 130 Nev. Op. 37 (May 29, 2014), expanded this mandate to apply to depositions as well as in-court hearings.

The underlying action involved a dispute regarding a real-estate transaction. In connection with that dispute, the real party in interest, KB Home Nevada, Inc. (KB Home), took the deposition of one of the petitioners’ principals, George Holman. At the deposition, Holman testified that before his deposition, he reviewed two memoranda prepared by his attorneys and his handwritten notes, to refresh his recollection and in preparation for the deposition. Holman explained that the memoranda were summaries of conversations he had with his attorneys regarding the case. During the deposition, KB Home requested the two memoranda and the handwritten notes but Holman refused to produce the documents based on the attorney-client privilege and work-product doctrine. KB Home filed a motion to compel the production of the memory-refreshing documents. The trial court granted the motion and ordered the production of the memory-refreshing documents, finding that Holman reviewed and relied on the entirety of the documents in preparation of his deposition.

The Supreme Court of Nevada denied the petitioners’ request for a writ of prohibition or mandamus challenging the trial court’s order compelling discovery of purportedly privileged documents. The Court first explained that it recently addressed the intersection of Nev. Rev. Stat. 50.125 and Nevada privilege law in Las Vegas Sands Corp., and held that the statute compared to its federal counterpart, Federal Rule of Evidence (FRE) 612, lacks the discretionary prong to halt the disclosure of privileged documents used to refresh a witness’s recollection prior to testifying. But now the court needed to address whether the term “hearing” in Nev. Rev. Stat. 50.125 applied to depositions as well as in-court hearings. Because the Nevada legislature used FRE 612 in drafting Nev. Rev. Stat. 50.125, the court looked to federal case law interpreting FRE 612. In doing so, the court concluded that federal courts interpreted FRE 612 as applying to deposition and deposition testimony by operation of Federal Rule of Civil Procedure (FRCP) 30(c), which provides that “examination and cross-examination of a deponent proceed as they would at trial under the Federal Rules of Evidence.” The court noted that Nevada Rule of Civil Procedure 30(c) was substantially similar to FRCP 30(c) because both rules provide that deposition examination proceed as permitted at trial. Based on this reasoning, the court held that memory-refreshing documents used by a witness at a deposition should not be treated differently from those used by a witness before or at a trial.

Tracy DiFillippo and Conor Flynn, Armstrong Teasdale LLP, Las Vegas, NV


May 31, 2014

Considering a 30(b)(6) Deposition to Explore E-Discovery Methods?

A couple of recent decisions address a party’s ability to use a Rule 30(b)(6) deposition to inquire about an opponent’s e-discovery methodology.

In Miller v. York Risk Servs. Grp., No. 2:13-cv-1419 JWS, 2014 WL 1456349 (D. Ariz. Apr. 15, 2014), the court faced the question of whether beginning the discovery process with “wide ranging inquiry into the manner and method by which a party stores and manages electronically stored information (ESI) is a helpful and appropriate approach to obtaining substantive information.” The plaintiff had sought to begin discovery with a Rule 30(b)(6) deposition regarding “the manner and methods used by Defendant to store and maintain electronically stored information.” The plaintiffs argued that starting with this deposition would “allow them to tailor their discovery requests to avoid potential disputes over what may be discovered.” The court concluded that this was not the proper approach. The court explained that “starting discovery with such an inquiry puts the cart before the horse and likely [would] increase, rather than decrease, discovery disputes.” Instead, the court reasoned, “discovery should start with inquiries that seek substantive information.”

A New Jersey recently court granted a protective order preventing a Rule 30(b)(6) deposition into the plaintiff’s search methodology. Koninklijke Philips N.V. v. Hunt Control Sys., Inc., Case No. 11-3684, 2014 WL 1494517 (D.N.J. Apr. 16, 2014). In this intellectual-property dispute, the plaintiff sought a protective order to prevent the defendant’s deposition, which the defendant claimed was necessary to determine whether the plaintiff was using “appropriate search tools for ESI discovery.” The defendant claimed that several categories of produced documents were materially deficient and sought a deposition to ascertain why the plaintiff did not use the “state-of-the-art document search and location tools” that the defendant’s expert claimed the plaintiff had available. The court agreed with the plaintiff, who argued that its approach to e-discovery was reasonable. The court agreed that the defendant’s proposed approach was unduly burdensome, that the benefits of the deposition did not outweigh the burden, and that it was not clear that using other search methodology would substantially alter the production already made.”

Mor Wetzler, Paul Hastings LLP, New York, NY


May 31, 2014

District Court Revives $2.3 Billion False Claims Act Action

In a recent decision by the U.S. District Court for the Southern District of New York, Judge Kevin P. Castel reversed the bankruptcy court on a technical issue. The issue was whether certain False Claim Act (FCA) claims against the debtor were discharged by the debtor’s confirmed plan of reorganization under section 1141(d)(6)(A) of the Bankruptcy Code, or whether the claims could still be excepted from discharge notwithstanding the confirmed plan. In re: Hawker Beechcraft Inc., 1:13-mc-00373 (S.D.N.Y. Mar. 27, 2014).

The decision raises issues for debtors and bankruptcy practitioners related to post-confirmation liabilities for pre-petition claims. However, the more interesting part for readers here might be how Judge Castel applied layers of principles of grammatical and statutory construction to reach a persuasive conclusion that section 1141(d)(6)(A) did not necessarily discharge the FCA claims upon confirmation, and reversed the bankruptcy court.

For example, Judge Castel first relied on a comma and the coordinating conjunction “or,” and the parallel construction, to find that subsection (A) of section 1141(d)(6) was composed of two unnumbered independent clauses. Judge Castel provides citations for this grammatical approach to statutory construction.

Relying on the dictionary definition of “kind” to mean: “a group of people or things that belong together or have a some shared quality . . . ,” the Court found that the language “of the kind” in section 1141(d)(6)(A) brought in only the “definitional” or descriptive portions of section 523(a), which described the kind of debts that were not necessarily subject to discharge upon confirmation, not the procedural requirements of section 523(c).

Other principles of construction relied on by the Court, usually with citation, may seem more familiar (citations and quotations omitted):

When the legislature uses certain language in one part of the statute and different language in another, the court assumes different meanings were intended.

When differentiating “a” and “the”: “The” is used as a function word to indicate that the following noun or noun equivalent has been previously specified, and the court must search for the “natural place” for “the” to relate back (the “referant”).

When two statutes cover the same situation, the more specific takes precedent over the more general one.

In pari material” is an interpretive principle requiring that adjacent statutory subsections that refer to the same subject matter should be read harmoniously.

The presumption of validity of Official Forms falls away where inconsistent with a statutory directive.

Space does not permit a full explication of, or justice to, Judge Castel’s use and development of these principles. But, using layer upon layer of venerable principles, he builds to his persuasive conclusion, and his decision to reverse the bankruptcy court and revive the potential FCA liability.

The appeal is In re: Hawker Beechcraft Inc., case number 1:13-mc-00373, in the U.S. District Court for the Southern District of New York.

The adversary case is U.S. ex rel. Minge et al. v. Hawker Beechcraft Corp., case number 1:12-ap-01890; and the bankruptcy case is In re: Hawker Beechcraft Inc., case number 1:12-bk-11873, both in the U.S. Bankruptcy Court for the Southern District of New York.

Jeffrey G. Close, Chapman and Cutler, LLP, Chicago, IL


May 31, 2014

California Considers Ethical Duties of Attorneys Handling E-Discovery

The State Bar of California Standing Committee on Professional Responsibility and Conduct recently issued an interim formal opinion seeking public comment regarding attorneys’ ethical duties in the face of e-discovery. The issue presented by the California State Bar asks “What are an attorney’s ethical duties in the handling of discovery of electronically stored information?”

This opinion lags behind other state bars, several of which have already addressed the question. See, e.g. “New York Bar Association Publishes E-Discovery Best Practices,” January 4, 2012, (discussing New York State Bar Association’s publication of Best Practices in E-Discovery in New York State and Federal Courts). Other states have grappled with similar ethical issues when confronting cloud data storage (see, e.g. “Florida Joins States Addressing Ethics in the ‘Cloud,’”), and the Sedona Conference offers various related materials and guides.

The interim opinion focuses on the ethical duty of competence, recognizing that an attorney’s obligations under that duty necessarily evolve in the face of new technologies. The opinion’s digest adds:

Attorney competence related to litigation generally requires, at a minimum, a basic understanding of, and facility with, issues relating to e- discovery, i.e., the discovery of electronically stored information (“ESI”). On a case-by-case basis, the duty of competence may require a higher level of technical knowledge and ability, depending on the e-discovery issues involved in a given matter and the nature of the ESI involved.

The interim opinion examines various federal cases and ethics rules, including the ABA Model Rules of Professional Conduct.

The interim opinion later considers a list of tasks identified by Judge Scheindlin in 2010, tasks that the interim opinion states that attorneys handling e-discovery should have the requisite level of familiarity and skill to perform, “either by themselves or in association with competent co-counsel or expert consultants.” (citing Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC, 685 F.Supp.2d 456, 462-465 (S.D.N.Y. 2010).

Of course, attorneys also must consider other ethical duties raised by e-discovery practice, including the duty to supervise, duty of confidentiality, the duty of candor, and others. Counsel should review guidance from the states, courts, and groups (such as the Sedona Conference) who have already weighed in on these ethical questions, and should be sure to stay updated about e-discovery trends and developments.

Mor Wetzler, Paul Hastings LLP, New York, NY


April 29, 2014

Protective Order Clawback Provision Need Not Define "Inadvertence" or "Prompt"

In a trademark-infringement action, the Western District of Washington settled a dispute over how detailed a protective order must be for a clawback provision to be applicable. A clawback provision usually allows for inadvertently produced privileged materials to be returned or destroyed if the producing party provides prompt notice to the other party. The specific provision at issue in the case allowed a party to obtain the return of documents subject to the attorney-client privilege by “promptly notifying the recipient(s) and expressly articulating the basis for the asserted privilege or immunity.” RIPL Corp. v. Google, Inc., No. 2:12-cv-02050-RSM, Slip Op. at 3 (W.D. Wash. Dec. 17, 2013).

At issue in this case were privileged documents that the defendant produced on July 2, 2013. The defendant’s counsel did not realize that they were disclosed until August 12, 2013, while preparing for the defendant’s 30(b)(6) deposition. The next day, the defendant conducted a search for any other privileged documents, and informed the plaintiff’s counsel of the disclosure and that the defendant was exercising its right to claw back the documents. The plaintiff refused to return or destroy the documents at issue. The plaintiff later filed documents under seal that quoted the privileged documents at issue.

The defendant filed a motion to enforce the protective order and clawback provision, and sought sanctions for the plaintiff’s use of the privileged material, among other motions. In opposing the motion to enforce, the plaintiff argued that (1) because the protective order did not define “prompt” or “inadvertent,” the court should apply the balancing test of Federal Rule of Evidence 502(b) to determine that the defendant waived its right to assert the privilege; and that (2) the defendant’s clawback request was not “prompt” under the protective order. The court first reviewed Federal Rule of Civil Procedure 26 and Federal Rule of Evidence 502, noting that parties may enter into clawback agreements that can supplant the balancing test of Rule 502. The court then rejected plaintiff’s argument that the protective order could be ignored, stating that there is “no requirement that, in order to supplant Rule 502(b), an agreement provide adequate detail regarding ‘what constitutes inadvertence, what precautionary measures are required, and what the producing party’s post production responsibilities are to escape waiver.’” Rather, “terms like ‘inadvertence’ and ‘prompt’ need not be defined in the protective order.” The court next noted that other courts have found “prompt” notice when the opposing party was notified within a few days of the disclosure. Because the defendant provided notice one day after the disclosure was discovered, the court found that notice to be prompt. The plaintiff was ordered to comply with the protective order and delete or destroy all unredacted copies of the documents. Moreover, the court found that it was improper for the plaintiff to “hold the documents hostage for roughly two months in violation of the Protective Order,” and ordered the plaintiff to pay the defendant’s fees and costs for the motion, as a sanction for refusing to comply with the protective order.

Mor Wetzler, Paul Hastings LLP, New York, NY


April 29, 2014

Advisory Committee Approves Proposed FRCP Amendments

On April 10–11, 2014, the Advisory Committee on Civil Rules met to review proposed amendments to the Rules of Civil Procedure. The proposed amendments included changes to Rules 1, 4, 16, 26, 34, and 37. The Advisory Committee’s agenda book is available here. These rules now will be submitted to the Committee on Rules of Practice and Procedure for its review and potential approval at its next meeting May 29–30, 2014.

For more information about the proposed rules, check out our committee’s recent article titled “FRCP Proposed Amendments: Changing the Rules.” For other recent developments, you can see earlier news posts, such as “Public Comment Period Ends for Proposed FRCP Changes,” March 31, 2014, below.

Mor Wetzler, Paul Hastings LLP, New York, NY


April 29, 2014

New Proposed Rule Relating to Privilege in New York State Court

The New York Commercial Division Advisory Council has proposed a new rule related to the production of privilege logs in the New York Commercial Division. The new rule suggests the use of “categorical designations” of privilege instead of the traditional logging of each single document. The use of the new “categorical” approach would be addressed as part of an initial meet-and-confer between the parties. If any party objects to the use of a “categorical” approach to logging documents and requires the designation of single documents on a log, the party producing the log, “upon a showing of good cause, may apply to the court for the allocation of costs, including attorney’s fees incurred.” As a safeguard to ensure that the party receiving a “categorical” privilege log obtains sufficient information regarding the basis for each assertion of privilege in a “categorical” log, the attorney responsible for the log would be required under the proposed rule to certify to the underlying facts supporting the privilege assertions relating to each category of documents.

The goal of the new proposed rule is to cut costs and promote efficiency in the production of documents and privilege logs. The creation of traditional document-by-document privilege logs can be incredibly time-consuming and costly especially in litigations involving large document productions. The proposed rule would enable parties to produce privilege logs more efficiently and for less cost because the number of entries would be dramatically reduced. This would also allow parties to address any challenge to privilege earlier in the litigation. The main risk related to the proposed move to “categorical” privilege logs is that documents with questionable privilege assertions could be concealed within larger categories of documents. This risk is somewhat reduced by the requirement that the party producing the log must certify to facts relating to the documents in each category and that a party would be entitled to a document-by-document log with an agreement as to the allocation of cost.

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


April 29, 2014

Upcoming Deposition? Prepare, Prepare, Prepare

Do you have a deposition coming up? Our committee offers many great resources to help you prepare, including practical advice on how to prepare any witness for deposition (“Your Questions Answered: Preparing Your Witness for a Deposition”), specific advice on how to prepare your client to be deposed (“The Power Prep: Effective Preparation of Your Client for a Deposition”), analysis of whether deposition breaks are discoverable (“Discoverability of Deposition Breaks”), subpoena advice (“Can I Get a Witness: Obtaining Out-of-State Deposition Subpoenas”), understanding attorney work-product objections in a 30(b)(6) deposition (“Protecting Work Product in Rule 30(b)(6) Depositions”), expert-witness deposition preparation (“The Practical Witness: Preparing for Depositions”), and even advice for what to do if you want to depose opposing counsel (“So You Want to Depose Opposing Counsel?”).

Mor Wetzler, Paul Hastings LLP, New York, NY


March 31, 2014

Judge Orders Disclosure of Online Commenters’ Identities

On March 26, 2014, a federal district court judge in New Orleans ordered the Times-Picayune to provide a magistrate judge with information about two users of the newspaper’s website who posted critical pseudonymous comments about former New Orleans Affordable Homeownership (NOAH) director Stacey Jackson. The ruling instructs the newspaper to turn over information about “aircheck” and “jammer1954,” both of whom posted comments about Jackson, who faces federal charges of taking kickbacks from contractors who got work from the quasi-city agency she headed after Hurricane Katrina.

Jackson’s attorney had been trying to build a claim for prosecutorial misconduct based on comments about Jackson that former Assistant U.S. Attorney Sal Perricone has admitted making. After the commenting activities of Sal Perricone and others were uncovered, Jackson’s attorney first sought to review a series of reports prepared at the request of U.S. District Judge Kurt Engelhardt, who last September cited prosecutorial misconduct as the reason for granting a new trial for the five former New Orleans police officers convicted in the Danziger Bridge shootings following Hurricane Katrina.

Magistrate Judge Joseph Wilkinson denied the request for access to the documents after personally reviewing the reports. But in an order issued in December 2013, Judge Wilkinson singled out three handles—“aircheck,” “jammer1954,” and “campstblue”—the latter moniker traced to Perricone—as authors of "the most egregious" comments left under an Aug. 8, 2008, article about a grand-jury investigation into Jackson's actions at NOAH, a New Orleans program to pay contractors for gutting and other work on Katrina-damaged houses.

Jackson’s lawyer then subpoenaed the Times-Picayune for information about “aircheck” and “jammer1954.” Magistrate Judge Wilkinson authorized the subpoenas in January.

The newspaper objected, citing the commenters’ First Amendment right to post anonymously. Magistrate Judge Wilkinson said he would examine the information and provide it to Jackson’s lawyer only if the information suggested that the two commenters were in fact federal officials.

The newspaper sought review by the district court of Judge Wilkinson’s decision. First, the newspaper argued that even if the commenters were federal officials, the comments would not warrant dismissal of the indictment because the comments were relatively innocuous and were posted nearly five years before Jackson was indicted on corruption charges. The newspaper also argued that information in the newspaper’s possession is unlikely to clearly identify “aircheck” and “jammer1954,” because commenters on the site only need to provide the newspaper with an email address. The newspaper argued that even other information requested, such as IP address information, might only show which Internet service provider or wi-fi-enabled coffee shop the commenters used.

U.S. District Judge Mary Ann Vial Lemmon rejected these arguments and ordered the newspaper to produce the requested information by April 1. The newspaper has requested a stay of the order pending an appeal to the Fifth Circuit Court of Appeals.

Mor Wetzler, Paul Hastings LLP, New York, NY


March 31, 2014

Public-Comment Period Ends for Proposed FRCP Changes

On February 18, 2014, the public-comment period closed for the proposed changes to the Federal Rules of Civil Procedure. The proposed amendments impact Rules 1, 4, 6, 16, 26, 30, 31, 33, 34, 36, 37, 55, 84, and the Appendix of Forms. Over 2,350 comments were received.

In addition to the comment period, three public hearings addressed the proposed changes. Transcripts from recent hearings are publicly available:

  • • Civil Rules Public Hearing Transcript, Dallas, TX (Feb. 7, 2014)

  • • Civil Rules Public Hearing Transcript, Phoenix, AZ (Jan. 9, 2014)

  • • Civil Rules Public Hearing Transcript, Washington, D.C. (Nov. 7, 2013)

Upcoming process: Multiple steps remain before rule changes can take effect. Next, the Civil Rules Advisory Committee will evaluate the various comments received from the bench, bar, and general public. It then may choose to discard, revise, or transmit the proposed amendment as contemplated to the Standing Committee. The Standing Committee independently reviews the findings of the Advisory Committee and, if satisfied, recommends changes to the Judicial Conference, which in turn recommends changes to the U.S. Supreme Court. The Court considers the proposals and, if it concurs, officially promulgates the revised rules by order before May 1, to take effect no earlier than December 1 of the same year unless Congress enacts legislation to reject, modify, or defer the pending rules.

Mor Wetzler, Paul Hastings LLP, New York, NY


March 31, 2014

Minority-Owned Corp. Has Standing to Bring Race-Discrimination Suit

In a case of first impression, the U.S. Court of Appeals for the Fourth Circuit found that a minority-owned corporation had standing to sue for race discrimination under Title VI of the Civil Rights Act of 1964. Carnell Constr. Corp. v. Danville Redev. & Hous. Auth., Nos. 13-1143, 13-1229, 13-1239 (4th Cir. Mar. 6, 2014).

The plaintiff, Carnell Construction Corp., was a contractor that won a bid to build subsidized rental units in a public, federally funded housing project in Danville, Virginia. After work on the project began, the relationship between Carnell and the Danville Redevelopment and Housing Authority steadily deteriorated. In December 2008, Carnell’s president complained about race discrimination to the Housing Authority’s executive director, explaining his perception that Carnell was “being singled out as a minority contractor,” and was “expected . . . to work for free” on “excessive” project modifications. At Carnell’s request, the parties attempted to mediate their grievances, but were unsuccessful in their efforts. In May 2009, the housing authority informed Carnell that it would not extend its contract beyond the stipulated completion date regardless of whether the work was completed. Carnell filed a lawsuit based on breach of contract and race discrimination under Title VI. The housing authority brought counterclaims for breach of contract.

After extended litigation including three trials, the jury at the third trial found in favor of Carnell on its breach-of-contract claims but not on its race-discrimination claim, and post-trial rulings limited Carnell’s damages. The parties filed cross-appeals.

The Fourth Circuit first addressed whether Carnell, as a corporate entity, had standing to assert race-discrimination claims under Title VI. Carnell’s constitutional standing was not disputed, but the defendants asserted that Carnell’s Title VI claims ran afoul of one of the standing doctrine’s “judicially imposed, prudential limits on federal jurisdiction, which requires that ‘a plaintiff’s grievance must arguably fall within the zone of interests protected or regulated by the statutory provision . . . invoked in the suit.’” The defendants argued that Carnell was not a “person” within the meaning of the statute, which provides that “[n]o person in the United States shall, on the ground of race, color, or national origin, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance.” 42 U.S.C. § 2000d. Relying primarily on dicta from the Supreme Court’s decision in Village of Arlington Heights v. Metropolitan Housing Development Corp., 429 U.S. 252, 263 (1977), the defendants argued that a corporate entity lacks “race, color, or national origin.”

The Fourth Circuit noted that other circuits had concluded that corporations have standing to assert race-discrimination claims, including claims brought under Title VI. The Fourth Circuit was persuaded by the Second Circuit’s holding that when a corporation satisfies constitutional requirements for standing, prudential considerations should not prohibit that corporation from alleging that a defendant, on racial grounds, has acted to obstruct purposes that the corporation was created to accomplish.

The court also agreed with the Ninth Circuit that a minority-owned corporation may establish an “imputed racial identity” for purposes of demonstrating standing to bring a claim of race discrimination under federal law. The Fourth Circuit thus concluded that a corporation that is minority-owned and has been properly certified as such under applicable law can be the direct object of discriminatory action and establish standing to bring an action based on such discrimination. Turning to the record before it, the court found that Carnell had standing to bring its race-discrimination claim because Carnell was a minority business enterprise, publicly represented itself as a minority business enterprise, was owned by an African-American, and was properly certified. 

Mor Wetzler, Paul Hastings LLP, New York, NY


March 31, 2014

Nevada Law Mandates Production of Memory-Refreshing Documents

Under federal law, production of documents used by a witness to refresh his or her recollection before testifying is within the court’s discretion. Fed. R. Evid. 612(a). The Supreme Court of Nevada in Las Vegas Sands Corp. v. The Eighth Judicial District Court, 130 Nev. Adv. Op. 13 (Feb. 27, 2014), held that, when properly invoked at a hearing, Nevada law mandates disclosure of any documents used to refresh the witness’s recollection before or while testifying—regardless of the privilege. The court noted that Nev. Rev. Stat. 50.125 lacks the discretionary prong that its federal counterpart, Federal Rules of Evidence (FRE) 612, contains.

The real party in interest, Steve Jacobs, filed a breach-of-employment-contract action against petitioners Las Vegas Sands Corp. and Sands China Ltd., and nonparty Sheldon Adelson, the CEO of Las Vegas Sands (collectively “Sands”), arising out of Jacobs’s termination as president and CEO of Sands’ Macau operations. During a hearing to consider sanctions as a result of Sands’ conduct in the discovery process, Sands’ attorney admitted that, prior to testifying, he reviewed his billing records, as well as emails from Jacobs, to refresh his memory regarding the chronology of events. Jacobs argued that these records were openly discoverable under Nev. Rev. Stat. 50.125, which requires a party to disclose any documents used to refresh a witness’s recollection. Sands objected based on the work-product doctrine and the attorney-client privilege. Without addressing this issue, the trial court imposed sanctions on Sands. Two months later, Jacobs filed a motion to compel production of the purportedly privileged documents, which the trial court granted.

The Supreme Court of Nevada granted Sands’ request for a writ of prohibition, ordering that the trial court halt the production of the purportedly privileged documents. The Supreme Court acknowledged that FRE 612(b) is similar to Nev. Rev. Stat. 50.125 in that it provides that when a party uses a writing to refresh her or her memory, the adverse party is entitled to have the writing produced at the hearing for purposes of inspection, cross-examination, and admission into evidence. However, the supreme court noted that FRE 612(a) significantly differs from Nev. Rev. Stat. 50.125 because it distinguishes between when a witness’s uses the writing to refresh his or her memory while testifying as opposed to using the writing before testifying. When the witness uses the writing to refresh his or her recollection prior to testifying, it is within the court’s discretion to decide whether justice requires disclosure. The Supreme Court noted that FRE 612 was passed 40 years ago but the Nevada legislature never opted to amend Nev. Rev. Stat. 50.125 to add the discretionary prong. The supreme court was careful to note that the use of the document for recollection purposes requires the disclosure to opposing counsel and does not constitute any further waiver of the work-product doctrine or the attorney-client privilege at a later point.

However, because Jacobs failed to demand production, inspection, and admission of the documents at or near the sanctions hearing and waited until well after the trial court entered its sanctions order, the supreme court ruled that Jacobs’s demand was untimely. In making this ruling, the Supreme Court recognized that the purpose of Nev. Rev. Stat. 50.125 is to test the witness’s credibility at the time of the hearing and not to encourage “fishing expeditions.” Both FRE 612 and Nev. Rev. Stat. 50.125 are rules of evidence, not general discovery rules.

Tracy DiFillippo and Conor Flynn , Armstrong Teasdale, LLP, Las Vegas, NV


February 28, 2014

ABA Questions NSA's Handling of Privileged Information

On February 20, 2014, the American Bar Association asked the National Security Agency (NSA) to clarify what policies and practices the agency has in place to protect privileged information that it intercepts. The letter from ABA president James Silkenat stems from a New York Times article indicating that one of the Edward Snowden documents leaked in summer 2013 showed that an Australian intelligence agency had offered to share with the NSA communications it had intercepted between Indonesian officials and the American law firm the officials had hired to represent their government in a trade dispute with the United States. Citing the New York Times report, Silkenat expressed concern that if confidential information was intercepted and shared with the NSA, it could be used improperly by the U.S. government or third parties. The letter emphasized that the “attorney-client privilege is a bedrock legal principle of our free society and is important in both the civil and criminal contexts.” Silkenat urged the NSA not to actively seek confidential communications between U.S. law firms and their clients. Silkenat further added that if the NSA obtains confidential information inadvertently or from a foreign intelligence service, the NSA should respect attorney-client privilege and “take all appropriate steps” to ensure that such information is not disseminated further to other agencies or third parties.

Mor Wetzler, Paul Hastings LLP, New York, NY


February 28, 2014

Alleged Inequitable Conduct Does Not Invoke Crime-Fraud Exception

The Eastern District of Pennsylvania recently had to decide whether an earlier finding of fraud on the Patent and Trade Office (PTO) implicated the crime-fraud exception to the attorney-client privilege. In the context of a motion to compel, the judge found that communications between a drug maker and its attorneys remained protected by the attorney-client privilege, despite an earlier finding in a related case that the company’s researcher and attorney engaged in inequitable conduct to obtain the patent in question. King Drug Co. of Florence Inc. vs. Cephalon Inc. et al., No. 2:06-cv-01797 (E.D. Pa, Jan. 9, 2014).

The case is an antitrust lawsuit alleging that a settlement of earlier patent-infringement litigation between drug manufacturers had violated the Sherman Act. As part of that earlier litigation, the same court held in 2011 that the patent was invalid and unenforceable because of inequitable conduct, or fraud on the patent office. Specifically, the court found that, in prosecuting its patent, the drug maker had acted with “specific intent to deceive the PTO,” that its misrepresentations and omissions were material, and that those allegations were proven by clear and convincing evidence.

In the antitrust lawsuit, plaintiffs pointed to that earlier decision in arguing that the crime-fraud exception to the attorney-client privilege applied and that therefore, they were entitled to all communications relating to: (1) the prosecution, issuance, and reissuance of the patent, (2) its listing, (3) the earlier patent-infringement litigation by the drug maker against generic manufacturers, and (4) the negotiation of and making of the settlement agreements with the generic manufacturers.

The court initially discussed the crime-fraud exception to the attorney-client privilege in the context of case-law instructions that “the decision to pierce the privilege is regarded as an ‘extreme remedy,’ to be made only after due consideration and caution.” The crime-fraud exception states that communications made between an attorney and a client in furtherance of a future crime or fraud are not protected by the attorney-client privilege. The court next considered the burden of proof on the party seeking to invoke the exception, finding that the privilege is destroyed “where there is a reasonable basis to suspect that the privilege holder was committing or intending to commit a crime or fraud and that the attorney-client communications or attorney work product were used in furtherance of the alleged crime or fraud.” Id. at 9 (emphasis added).

Turning to the elements of the exception, the court pointed to the “in furtherance” element, which requires the movant to show that a given communication was “meant to facilitate future wrongdoing by the client.” Id. at 7 (emphasis in original). It is not enough for the communications to be “related to” or “relevant evidence of” fraudulent conduct. The court emphasized that the plaintiffs offered nothing more than “an over-broad and general approach” that “all the attorney communications relating to” the four events were “necessarily made ‘in furtherance’ of fraud.” The court was not prepared to override the attorney-client privilege unless the plaintiffs could establish that the drug maker “sought the advice of its attorneys intending that the resulting advice would be used to facilitate a future fraud.” The court rejected the application of the exception, noting that despite extensive discovery, the plaintiffs were unable to “patch together” any type of record to establish that the communications at issue were in furtherance of future fraud, and that such a categorical approach offers no way to distinguish between any communications made in furtherance of future fraud and communications that legitimately relate to the patent prosecution. Finally, the court rejected the plaintiffs’ request for an in camera review.

Mor Wetzler, Paul Hastings LLP, New York, NY


February 28, 2014

Sanctions Reversed and Discovery Allowed in Medical-Lien Subpoena

In Dodd v. Cruz, No. B247493, 2014 WL 461158 (Cal. Ct. App. Feb. 5, 2014), the California Court of Appeal for the Second District found that the lower court had abused its discretion in granting a third party’s motion to quash a defendant’s subpoena and granting the third-party monetary sanctions. In the case, plaintiff Barry Dodd was injured in an accident while riding as a passenger in a car driven by defendant Maria Francesca Cruz. After the accident, Dodd allegedly retained an attorney who referred him to Coast Surgery Center of South Bay, a medical provider that performed surgery on Dodd’s shoulder. At the time of his surgery, Dodd did not know what Coast would charge for the procedure, but he did know that the charges would be on a “lien basis.” Dodd later learned that the cost of the surgery was between $40,000 and $50,000, and he sued Cruz for damages.

On the same day as Dodd’s surgery, Coast sold its account receivable and its lien against Dodd for the payment of his surgery to Medical Finance LLC (MedFi), a company that purchases accounts receivables from health-care providers at a discount. Dodd’s attorney was the president of MedFi, and the brother of MedFi’s vice president was one of Coast’s limited partners. Based on these facts, Cruz claimed that there was an improper arrangement among MedFi, Dodd’s lawyer, and Coast. Cruz also contested the value of Dodd’s medical expenses for his injury. During discovery, Cruz subpoenaed MedFi, seeking documents related to the lien as well as associated contractual documents between MedFi and Coast. MedFi moved to quash the subpoena and sought monetary sanctions against Cruz and her counsel. The superior court not only granted MedFi’s motion to quash, but it also imposed sanctions, awarding MedFi $5,600 in attorney fees.

The Second District Court of Appeal reversed both the denial of discovery and the imposition of sanctions. The court found that although discovery orders typically are not appealable, “[a] superior court’s decision on a discovery matter [ ] can be reviewable on appeal if it ‘necessarily affects’ an appealable order.” Thus, “if a nonappealable substantive ruling on a discovery matter is ‘inextricably intertwined’ with an appealable order directing monetary sanctions, the substantive ruling may be reviewed.” Here, because the lower court’s ruling granting MedFi’s motion to quash was “inextricably intertwined” with its imposition of $5,600 in monetary sanctions (i.e., if the motion to quash was denied, there would be no basis for sanctions), the entire decision was appealable.

Turning to the merits of the case, the appellate court held that the lower court abused its discretion by granting MedFi’s motion to quash and imposing sanctions. The court noted that pursuant to California’s Civil Discovery Act, the scope of permissible discovery is “very broad,” and superior courts are “obligated to construe the discovery statutes liberally in favor of disclosure.” Moreover, the broad scope of discovery “is equally applicable to discovery of information from a nonparty as it is to parties.” Accordingly, as long as the requested documents were relevant to the amount of economic damages, if any, Dodd recovered for his medical treatment at Coast, the documents should be discoverable.

In contrast to states that allow plaintiffs to recover the full amount billed for medical services, California law allows recovery for only the “reasonable value” of medical services, and no more than the amounts actually paid. Id. (emphasis added) (citing Howell v. Hamilton Meats & Provisions, Inc., 257 P.3d 1130, 1137–38 (Cal. 2011)). In other words, damages for past medical expenses are limited to the lesser of the amount paid and the reasonable value of the services; the amount a health-care provider actually bills a plaintiff is not relevant. Here, because the amount MedFi paid for the lien would be evidence of what the medical provider (Coast) believed was the “reasonable value” of its services, Cruz’s subpoena for documents regarding this issue was proper. Additionally, Cruz was entitled to documents related to MedFi’s collection policies and procedures, as they could be relevant to the amount of medical expenses Dodd actually incurred. Accordingly, the court reversed the Superior Court’s decision granting MedFi’s motion to quash and motion for sanctions.

In an interesting footnote, the appellate court also observed that Dodd’s attorney could be setting himself up for a significant conflict of interest by both serving as the president of Medical Finance and representing Dodd. His fiduciary duty to Medical Finance requires him to ensure that the company fully collects on its lien, but his duty to Dodd requires him to minimize the amount subtracted from any judgment. If a jury does not segregate medical expenses in its verdict, how is Dodd’s attorney to reconcile his competing duties? How is he to reconcile them when negotiating a potential settlement?

Colin Schreck, Shook, Hardy & Bacon LLP, San Francisco, CA, and Adam Braveman, Paul Hastings LLP, New York, NY


February 25, 2014

Judge Posner Questions Continued Validity of Hearsay Exceptions

In a recent concurring opinion, Judge Richard Poster of the Seventh Circuit Court of Appeals questions the validity of two exceptions to the hearsay rule. U.S. v. Boyce, No. 13-1087 (7th Cir. Feb. 13, 2014). The case involved an appeal from a criminal conviction, and the issue involved the admissibility of statements made during a 911 call when the 911 caller did not testify at trial. The statements were hearsay, out-of-court statements offered to prove the truth of the matter asserted (namely, that the defendant had a gun), but were admitted at trial under two exceptions to the hearsay rule—the “present sense impression” and “excited utterance” exceptions. The appeals court found no abuse of discretion in the district court’s admission of the statements under exceptions to the hearsay rule, and thus affirmed the district court’s judgment.

In his concurrence, Judge Posner agreed that the statements undoubtedly were both an excited utterance and a present-sense impression, but questioned “whether either should be an exception to the rule against admission of hearsay evidence.” The “present sense impression” exception applies to “a statement describing or explaining an event or condition, made while or immediately after the declarant perceived it.” But Posner argued that immediacy does not guarantee truthfulness: “It’s not true that people can’t make up a lie in a short period of time. Most lies in fact are spontaneous.” The “excited utterance” exception allows into evidence “a statement relating to a startling event or condition, made while the declarant was under the stress of excitement that it caused.” This exception assumes that an unreflective utterance is reliable, but Posner pointed to the “distorting effect of shock and excitement upon the declarant’s observation and judgement” and quoted “folk psychology” as stating that “[o]ne need not be a psychologist to distrust an observation made under emotion stress.” Posner argued that this exception “rests on no firmer ground than judicial habit, in turn reflecting judicial incuriosity and reluctance to reconsider ancient dogmas.”

Ultimately, Posner suggests a simplified analysis of hearsay, under which “hearsay evidence should be admissible when it is reliable, when the jury can understand its strengths and limitations, and when it will materially enhance the likelihood of a correct outcome.”

Mor Wetzler, Paul Hastings LLP, New York, NY


January 29, 2014

Obligations for Interrogatories versus Document Production Requests

On January 3, 2014, Magistrate Judge Boyd N. Boland of the District Court of Colorado sanctioned a corporate defendant for failing to properly answer an interrogatory. Health Grades, Inc. v. MDx Medical, Inc., No. 11-cv-00520-RM-BNB (D.Co. Jan. 3, 2014). The plaintiff, Health Grades, Inc., alleged that a website controlled by the defendant, MDx Medical, Inc., infringed on a Health Grades patent for an Internet system that connected health-care providers and patients. To prove its claim, Health Grades had to demonstrate that MDx’s website required health-care providers to input at least three separate data elements, such as gender, age, or years in the profession. During discovery, Health Grades submitted an interrogatory requesting that MDx “state in detail . . . [the] bases for any assertions of non-infringement of the patent in suit on a claim-by-claim, element-by-element basis.” Following MDx’s conclusory and vague initial response and a successful motion to compel by Health Grades, MDx subsequently stated that it did not have any knowledge of any health-care providers who had entered such data elements into its website. Thereafter, MDx filed a motion for summary judgment on the basis that Health Grades had no evidence that any health-care provider had ever provided such data elements. In response, Health Grades filed a motion for sanctions under Federal Rules of Civil Procedure (FRCP) 26(g) and 37(b) for MDx’s attorneys’ failures to assure the propriety of an interrogatory answer “after a reasonable inquiry” and for MDx’s failure to comply with the order compelling discovery.

In granting Health Grades’ request for sanctions, the court highlighted an important difference between interrogatories and requests for the production of documents. MDx argued that a further response to Health Grades’ interrogatory was unnecessary because it would require MDx to “design[] specific queries in order to have an analysis run on the MDx database, so as to create documents and information that could answer the question of whether any provider has ever edited three or more of the data elements,” and that “MDx had no obligation to do anything of the sort.” In rejecting MDx’s argument, the court first noted that under FRCP 34, “[i]t is true . . . that a party cannot be compelled to create, or cause to be prepared, new documents solely for their production.” However, the court viewed a party’s discovery obligations under FRCP 33 to be broader, holding that interrogatories must be answered “directly and without evasion in accordance with information that the answering party possesses after due inquiry.” According to the court, this “due inquiry certainly required MDx to gather the information available from its database, either by designing necessary queries or otherwise.” This was true even if the data was not maintained in the format requested. Finding that MDx’s failure to provide the information “seriously interfered with the judicial process,” the court, inter alia, ordered that MDx “make the necessary inquiry, including the duty to design any specific query necessary to run the analysis on MDx’s database” and pay Health Grades its reasonable expenses, including attorney fees, caused by MDx’s failure to fulfill its discovery obligations.

The Health Grades opinion illustrates that, with respect to interrogatories, courts will not be sympathetic to litigants who argue that they have no obligation to construct specific search queries or run analyses of their data to extract responsive information. For companies with significant amounts of electronically stored data, this could mean incurring substantial costs in searching and analyzing large sets of information. Nevertheless, the decision also makes clear that a party’s duty in responding to interrogatories is limited to “what is in records available to it, or . . . information others have given it on which it intends to rely in its suit.” Accordingly, the duty of due inquiry does not appear to extend to information that is not available to and within the control of the responding party.

Kevin Broughel and Jeanette Kang, Paul Hastings LLP, New York, NY


January 29, 2014

New Framework to Determine Recoverable E-Discovery Costs

The Federal Circuit Court of Appeals recently offered a new analytical framework (applying Eleventh Circuit law) to the ongoing debate regarding the extent to which e-discovery costs may be recovered by the prevailing party under 28 U.S.C. § 1920(4). In spirit, CBT Flint Partners, LLC v. Return Path, Inc. remained consistent with the Third and Fourth Circuits’ narrow application of this statute to e-discovery costs. However, it diverged from these circuits in holding that recoverable costs can include fees for source-material imaging and document extraction to the extent these processes relate to the production of requested metadata. Case No. 2013-1036 (Fed. Cir. Dec. 13, 2013).

Recovering Costs
Courts have been grappling with the applicability of section 1920(4) to e-discovery costs for several years. Fed. R. Civ. P. 54(d)(1) authorizes district courts to award certain costs to the prevailing party, and section 1920 in turn lists the expenses that may be “taxed” as costs under Rule 54(d). At issue in CBT Flint was section 1920(4), which authorizes recovery for “the costs of making copies of any materials where the copies are necessarily obtained for use in the case.” Courts have held previously that the costs of duplicating electronically stored information (ESI) produced pursuant to Rule 26 or other discovery rules are recoverable under this statute. However, the “preparatory or ancillary costs commonly incurred leading up to, in conjunction with, or after duplication” are not. The challenge lies in distinguishing between the two.

To identify recoverable costs, the Federal Circuit applied a new analytical framework to the facts of CBT Flint. This framework breaks down the process of collecting, reviewing, and producing the relevant ESI into three stages and addresses separately the costs incurred during each stage.

Stage 1: Imaging Source Media and Extracting Data
The first stage involves imaging hard drives and then extracting “whole-source images” from this source data. The court explained that when this step is necessary, such as where metadata must be produced and could be lost simply by copying a document, these imaging and extraction costs are “fairly considered” costs of making copies and thus recoverable. The court highlighted that these costs are only recoverable to the extent that they are necessary to copy information required to be produced. Thus a party could not recover imaging and extraction costs when it undertook this step “just to make copies for [its] convenience.” Moreover, only the portions of this cost applicable to produced documents may be recovered; the party requesting costs might demonstrate document-specific costs or request prorated costs where more documents are imaged and extracted than ultimately produced.

The court noted that this portion of its opinion differed from Third and Fourth Circuit precedent, under which these costs might be considered unrecoverable preparatory activities. In contrast, the Federal Circuit held the imaging and extraction costs it reviewed were akin to the costs of scanning paper documents or converting electronic files to non-editable formats, which would be recoverable in the Third and Fourth Circuits.

Stage 2: Decrypting, De-Duplicating, Reviewing, and Analyzing Documents
For the second stage of discovery, in which documents are organized into a database, imaged, decrypted, de-duplicated, searched, and reviewed, the court applied “common-sense judgments guided by a comparison with the paper-document analogue” to determine that most stage-two costs were recoverable. As a general premise, costs associated with document review are not recoverable under section 1920(4). Thus the court held that the costs of acquiring, installing, and configuring a data-hosting server would not be recoverable. Nor would keyword searching or data analysis: Although the requester may have requested specific data, only “making copies” is recoverable under section 1920. Similarly, decryption did not fall under the rubric of “making copies”; the physical analogue might be the costs associated with retrieving documents from secure storage, and those costs would not be fairly considered a cost of “making copies.” Nor would the cost of de-duplicating documents be recoverable.

In contrast, the court held that the costs associated with creating load files could be recovered to the extent those files contain information required by the requested production. The court explained it would consider the cost of bluesheeting hard-copy productions to be part of the cost of making copies, and thus the load file similarly should be a recoverable cost.

Stage 3: Copying Production Data onto Production Media
As to the final stage of production, the parties did not dispute that the costs of copying responsive documents to production media (e.g. CDs or hard drives) were recoverable as part of the cost of making copies.

The parties disagreed, however, as to the costs of producing requested source code, which was provided through secure access to a computer and not by permitting the requesting party to take possession of a production copy. The court held that where “legitimate trade secret concerns” prevented a party from providing a production copy to its adversary, the costs associated with providing alternative access would be recoverable. Thus, for example, the costs of providing a secured computer, installing the review software on the computer, and copying the source files to that computer could be recovered under section 1920(4).

Although CBT Flint offers successful litigants the chance to recover slightly more in costs than other circuits, it also reinforces that, generally, the vast majority of e-discovery costs are borne by those who incur them. Litigants and attorneys seeking to contain e-discovery costs will more likely find success through the thoughtful use of e-discovery protocol, strategies for efficient processing and review, Rule 26 motions to shift costs, and cost-sharing agreements with opposing parties.

Jess Oliva and Mor Wetzler, Paul Hastings LLP, New York, NY


January 29, 2014

Court's Jurisdiction Does Not Cross Oceans in Titanic Lanham Act Case

Following the Supreme Court’s 2010 decision in Morrison, courts have considered challenges to the extraterritorial application of various other federal statutes. In a recent case challenging the extraterritorial application of the Lanham Act, the Northern District of Georgia declined to follow the Second Circuit’s Vanity Fair test in favor of the First Circuit’s more recently articulated framework. RMS Titanic, Inc. v. Zaller, No. 1:13-cv-0625-WSD (N.D. Ga. Oct. 17, 2013).

Plaintiffs RMS Titanic, Inc., and Premier Exhibitions, Inc., are both Florida corporations with their principal places of business in Georgia, which design and “stage” exhibitions that educate visitors about various aspects of the Titanic’s history, including the building process, experience of the passengers on board, and artifacts recovered from the ship’s wreckage.

Defendant Thomas Zaller is an American citizen and former employee of Premier. The plaintiffs allege that Zaller obtained Premier’s intellectual property during his work on its Titanic exhibition in Singapore and used that intellectual property to build and market his own Titanic exhibition in Macau, China. Zaller is the CEO of the corporate defendants, including Imagine Exhibitions, PTE, LTD, a Singapore corporation.

The plaintiffs asserted several claims, including trade-dress infringement under the Lanham Act. In their motion to dismiss the complaint, the defendants argued, inter alia, that the court lacked subject-matter jurisdiction over the Lanham Act claim because the alleged tortious acts all occurred outside of the United States.

In analyzing the issue of subject-matter jurisdiction, the court described several cases that applied the Lanham Act extraterritorially. The court noted that in Steele v. Bulova Watch Co., 344 U.S. 280 (1950), the Supreme Court held that the Lanham Act applied where a U.S. citizen produced counterfeit watches in Mexico because congressional power reaches both the conduct of U.S. citizens (even if the conduct occurs abroad) and foreign commerce that affects commerce in the United States. The court then discussed the Second Circuit’s well-known Vanity Fair balancing test, which provides that courts may apply the Lanham Act extraterritorially where: (1) the defendant is a U.S. citizen; (2) the plaintiff’s trademark rights would be the same under both U.S. law and the law of the foreign jurisdiction where the alleged infringement took place; and (3) the defendant’s alleged infringement has a “substantial effect on United States commerce.” Vanity Fair Mills, Inc. v. T. Eaton Co., 234 F.2d 633, 642 (2d Cir. 1956).

The court analyzed other circuits’ modifications of the Vanity Fair test and noted that the Eleventh Circuit, in International Café, S.A.L. v. Hard Rock Café International, 252 F.3d 1274 (11th Cir. 2001), “cited Vanity Fair with approval, but did not explicitly adopt the Second Circuit’s formulation of the test required by the Supreme Court’s holding in Bulova.” Ultimately, the court concluded that the Eleventh Circuit would agree with the “analytical structure” that the First Circuit recently articulated in McBee v. Delica Co., Ltd., 417 F.3d 107 (1st Cir. 2005). Under the McBee framework, a court must first ask whether the defendant is a U.S. citizen or whether the allegedly infringing conduct occurred in the United States. If so, the court would have subject-matter jurisdiction pursuant to Congress’s power to regulate the activities of U.S. citizens and the domestic conduct of any party. If neither of those two factors is present, the court would have subject-matter jurisdiction to apply the Lanham Act to a “foreign defendant’s foreign activities” only if the activities had a “‘substantial effect on United States commerce, viewed in light of the purposes of the Lanham Act.’ ” RMS Titanic, at *15, quoting McBee, 417 F.3d at 111.

Applying the McBee framework to the RMS Titanic case, the court held that it had subject-matter jurisdiction over the plaintiffs’ Lanham Act claim as asserted against Zaller and the U.S. corporate defendants, due to their U.S. citizenship and the plaintiffs’ allegations that these defendants marketed the infringing exhibition in the United States.

The court held that it did not have subject-matter jurisdiction to adjudicate the Lanham Act claim against Imagine-Singapore because it was a foreign entity and the plaintiffs failed to allege that Imagine-Singapore committed any infringing acts within the United States. Further, the plaintiffs did not allege that Imagine-Singapore’s actions abroad, including its presentation of the Titanic exhibition in Macau, substantially affected U.S. commerce or would substantially affect U.S. commerce in the future. Finally, the court found that although Imagine-Singapore arguably affected one of the plaintiffs’ business relationships by securing sponsorship of its Macau exhibition from the National Geographic Society, a former sponsor of the plaintiffs’ exhibitions, this “effect” was not substantial enough to warrant a finding of subject-matter jurisdiction.

The plaintiffs also had advanced a “reverse alter ego” argument for disregarding Imagine-Singapore’s status as a foreign defendant and establishing subject-matter jurisdiction. The plaintiffs asserted that because Imagine-Singapore had an office in Atlanta and Zaller controlled its activities, the court should pierce the corporate veil and hold Imagine-Singapore liable as an alter ego of Zaller, to whom the statute applied because of his U.S. citizenship. The court rejected the plaintiffs’ argument, noting that it was “a misapplication of the alter-ego theory and it [was] illogical.”

Accordingly, the court held that it lacked subject-matter jurisdiction over the Lanham Act claim against Imagine-Singapore and dismissed Imagine-Singapore from the action.

Katherine Kenney, Adam Braveman, and Mor Wetzler, Paul Hastings LLP, New York, NY


January 29, 2014

Pleading Standard Considered Based on Parties’ Prior General Release

In this multiple plaintiff/multiple defendant lawsuit, one defendant sought summary judgment against one plaintiff based on a settlement agreement containing a general release executed by both of the parties in a prior lawsuit. Hernandez, et al. v. Creative Concepts, Inc., No. 2:10-CV-02132-PMP-VCF (D. Nev., Aug. 16, 2013). The court denied summary judgment, finding that the affirmative defense—“Plaintiffs’ claims are waived or released”—did not give the plaintiff fair notice that the defendant would rely on the settlement agreement and general release in defending the current lawsuit. The court then analyzed the motion for summary judgment as a de facto motion to amend the answer, and held that the defendant must meet the requirements of FRCP Rules 16(b) and 15(a) to amend after the entry of a scheduling order.

A month prior to initiating this lawsuit in late 2009 (Lawsuit 2), the plaintiff and the defendant executed a settlement of a separate lawsuit (Lawsuit 1) involving claims unrelated to Lawsuit 2. In this settlement agreement, the plaintiff released the defendant “from any and all claims, grievances, demands or causes of action which [the plaintiff] may own or hold at any time prior to the date of this Agreement.” Three years later, the defendant sought summary judgment against the plaintiff in Lawsuit 2, arguing that the general release barred all of his claims against the defendant in this lawsuit. Open and shut? Read on.

The plaintiff was represented by Law Firm A in Lawsuit 1, but at the same time as the settlement agreement was being negotiated and finalized, the plaintiff and his new co-plaintiffs had retained a different lawyer, Lawyer B, to represent them in Lawsuit 2. In addition, the defendant was aware when it signed the settlement agreement that the plaintiff had retained Lawyer B for Lawsuit 2. Neither Law Firm A nor the defendant’s counsel in Lawsuit 1 contacted Lawyer B about the negotiation and settlement. It appears that, by the time the motion for summary judgment was filed, the defendant may have had different counsel involved as well. In the end, though, it didn’t really matter who knew what when.

The court first considered whether the affirmative defense had been adequately pled. The plaintiff claimed that affirmative defenses must meet the same requirements as complaints under Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007); the defendant argued that they do not. The court refused to decide the application of Twombly, holding that the defendant’s affirmative defense did not meet the more liberal pleading standard that predated Twombly. The affirmative defense did not identify whether the defendant was relying on “waiver” or “release,” and it did not give notice as to which this affirmative defense applied of the 13 plaintiffs at the time. As a consequence, the defendant did not give fair notice to the plaintiff that it would to defend on the basis of the plaintiff’s release of claims.

Second, although in the Ninth Circuit, the trial court has discretion to allow a defendant to raise an affirmative defense for the first time by motion, “‘if the delay does not prejudice the plaintiff (citations omitted),’” the court held that a defendant should no more be able to raise a new matter by amendment than can a plaintiff without meeting the requirements of FRCP Rules 16(b) and 15(a). Once a scheduling order is entered, the party seeking to amend after the deadline has passed must meet the “stringent, ‘good cause’” requirements under Rule 16(b), which focus on the “moving party’s diligence.” If the moving party is able to show good cause, then the court will turn to whether the amendment is appropriate pursuant to Rule 15(a), which looks to “undue delay and prejudice to the other party.” The court ordered the parties to brief the questions of amending the scheduling order under Rule 16(b) and NPL’s answer under Rule 15(a), effectively treating the motion for summary judgment as a motion to amend.

Shannon Spangler, Shannon L Spangler P.C., Knowledge Strategy Solutions, LLC, Kansas City, MO


December 30, 2013

Forensic Review Not Discoverable if No Intent to Rely on It at Trial

In Massachusetts Mutual Life Ins. Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., Civ No 2011-30285-PBS, --- F.R.D. ---, 2013 WL 5328307 (D. Mass. Sept. 23, 2013), the court held that, although the plaintiff repeatedly cited the results of a forensic review conducted by an outside consultant in its complaint, the undisclosed portions of the review and related materials were protected from disclosure because the plaintiff told the court that it did not intend to rely on the review as evidence at trial. In this case, which involved the sale of mortgage-backed securities, prior to filing its complaint, the plaintiff conducted a detailed forensic review of the collateral underlying the securitizations at issue. The review analyzed information from public sources as well as proprietary sources, and determined that the underlying collateral did not satisfy various representations made by the defendant in its offering materials. The plaintiff cited the results of the review throughout its complaint and, in an ancillary proceeding, asserted that the review demonstrated that the complaint satisfied the Twombly and Iqbal standard that the complaint “stated a claim to relief that was plausible on its face.” The defendant argued that the plaintiff’s reference to the review put the review at issue and waived any privilege or protection. The court disagreed. Applying Federal Rule of Evidence 502(a), the court held that, while the plaintiff waived the information actually disclosed in the complaint, “fairness” did not require the disclosure of any additional non-disclosed information relating to the same subject matter. Under FRE 502(a), disclosure of privileged information in a federal proceeding waives undisclosed privileged information only if the disclosure is voluntary, the undisclosed material relates to the same subject matter, and fairness requires additional disclosure. Here fairness did not require further disclosure because the plaintiff made it clear that it did not intend to introduce the review into evidence or otherwise rely on it in the case. This distinguished this case from those in which reference to a privileged review or investigation waived the entirety of the review by putting the review “at issue,” because those disclosing parties intended to rely on the disclosed information as evidence in the case. The court explained that this result makes practical sense, because it enables a plaintiff to meet its pre-filing due-diligence duties, and to demonstrate that its complaint satisfies the Twombly and Iqbal standard, without fear of waiving privilege with respect to the entirety of the pre-filing investigation.

David M. Greenwald, Jenner & Block LLP, Chicago, IL


December 18, 2013

Forum-Selection Clause May Be Enforced by § 1404(a) Motion to Transfer

On December 3, 2013, the U.S. Supreme Court in Atlantic Marine Construction Co. v. United States District Court reversed the Fifth Circuit’s refusal to enforce a forum-selection clause. In a unanimous decision, the Court held that a forum-selection clause may be enforced by a motion to transfer venue under 28 U.S.C. § 1404(a).

The case involved a construction contract between a general contractor, Atlantic Marine Construction Co., whose principal place of business was in Virginia, and a subcontractor, J-Crew Management, Inc., a Texas corporation, for work to be performed in Texas. The subcontract contained a forum-selection clause in which the parties agreed that Virginia was the appropriate forum regarding all disputes between the parties. A dispute arose regarding payment and J-Crew filed suit against Atlantic Marine in the Western District of Texas. Atlantic Marine moved to dismiss the suit pursuant to section 1406(a) and Fed. R. Civ. P. 12(b)(3) arguing that the forum-selection clause made venue “wrong” and “improper” in the Western District of Texas. In the alternative, Atlantic Marine requested that venue be transferred to the Eastern District of Virginia under section 1404(a).

The Court rejected Atlantic Marine’s dismissal argument based upon venue being wrong under section 1406(a) or improper under Rule 12(b)(3). The Court explained that whether venue is proper is governed by section 1391 and a contractual provision cannot change that. It was important for the Court to note that accepting Atlantic Marine’s argument that venue was improper when it contravened a forum-selection clause would mean that there would be some cases in which there was no proper venue—if the forum-selection clause pointed to a state or a foreign venue. The Court stated that its conclusion was supported by two prior decisions: Van Dusen v. Barrack, 376 U.S. 612 (1964) and Stewart Organizations, Inc. v. Ricoh Corp., 487 U.S. 22 (1988).

The Court accepted Atlantic Marine’s alternative argument that the forum-selection clause may be enforced through a motion to transfer under section 1404(a). Under such a motion, courts generally should transfer the case to the forum as specified by the forum-selection clause absent extraordinary circumstances not related to the convenience of the parties. The Court recognized that the typical section 1404(a) analysis to transfer venue not involving a forum-selection clause requires courts to evaluate both the convenience of the parties and the various public-interest considerations. However, when a forum-selection clause is involved, the typical analysis is adjusted because of the following reasons (1) the plaintiff exercised its “venue privilege” before the dispute arose when it entered into the contract, (2) by agreeing to a forum-selection clause, the parties waived the right to challenge the preselected forum as inconvenient, and (3) the law of the court in which the plaintiff inappropriately filed suit should not follow to the preselected forum. Thus, the Court held that the “interest of justice” is served by enforcing the parties’ forum-selection clause unless there are unusual circumstances. The Court did not find any unusual circumstances and therefore, enforced the parties’ forum-selection clause.

It is important to note that the Court was intrigued by Duke professor Steven Sach’s argument in an amicus brief that Atlantic Marine could have filed a motion to dismiss pursuant to Rule 12(b)(6) because the forum-selection clause is a complete defense to the litigation in Texas. The Court declined to address the argument because Atlantic Marine had not filed such a motion.

Tracy A. DiFillippo, Armstrong Teasdale LLP, Las Vegas, NV


December 18, 2013

Third-Party Invoices as Business Records in Summary Judgment

A recent opinion by Judge Jack B. Schmetterer from the U.S. Bankruptcy Court for the Northern District of Illinois points up some very interesting issues about the use of evidence, particularly business records, in federal practice. Reid v. Climatemp, Adv. No. 10-ap-2680 (JBS), Bankr. N.D. Ill., Nov. 26, 2013 (In re 3RC Mech. & Contr. Svc. LLC).

Starting with the axiom that summary judgment must be made and opposed on admissible evidence, Judge Schmetterer denied a motion to strike certain third-party invoices offered in support of a motion for summary judgment. Judge Schmetterer first pointed out that third-party invoices are not the business records of the receiving entity—at least in the Seventh Circuit: “Statements made by third parties in an otherwise admissible business record cannot properly be admitted for their truth unless they can be shown independently to fall within a recognized hearsay exception.” Citing U.S. v. Christ, 513 F.3d 762, 769 (7th Cir. 2008). Judge Schmetterer goes on to distinguish decisions from other circuits, and even two district-court opinions from the Northern District of Illinois. These courts favor the view that documents created by third parties may be admissible when they are “integrated” into another business’s own business records and are relied on by the receiving business. Judge Schmetterer rejects this view, saying that the Seventh Circuit precedent is “unequivocal” on the issue. Similarly, Judge Schmetterer dismisses state law accepting third-party invoices as prima facie evidence of the amount paid and the reasonableness of the payment, noting that such a rule is “squarely rejected by federal practice.”

However, Judge Schmetterer then found that the third-party invoices could be admissible for some purposes, as long as they were not offered for the truth of the matter asserted, but for the effect they had on a party or the witness. Judge Schmetterer denied the motion to strike and allowed the exhibits to the extent that they were limited to showing why the proffering party did something, and not the truth of the facts stated on the invoice (e.g., that certain work was done) or the reasonableness of the invoice amounts.

Jeffrey G. Close, Chapman and Cutler LLP, Chicago, IL


November 29, 2013

PP&D Roundtable Analyzes Proposed Changes to Federal Rules

On November 20, 2013, the Pretrial Practice and Discovery Committee of the ABA Section of Litigation presented a Roundtable entitled “Proposed Changes to the Federal Rules.” John Barkett and Elizabeth Cabraser, two members of the U.S. Judicial Conference Advisory Committee on Civil Rules, explained many of the proposed amendments, described the purpose behind each amendment, and discussed the feedback the committee has received so far.

As the speakers explained, the primary goal of the proposed amendments is to reduce the high cost of litigation, especially related to discovery, by promoting more active judicial case management, encouraging judges and lawyers to work together, and emphasizing proportionality. The proposed amendments seek to reduce cost and delay in litigation and achieve the ultimate goal of Rule 1: “. . . to secure the just, speedy, and inexpensive determination of every action and proceeding.”

The speakers discussed the proposed amendments in the context of four broad categories: case management, proportionality, cooperation, and sanctions. More specifically, case-management-related amendments to Rules 4, 16, and 26 seek to reduce the time for service of the summons and complaint, shorten the time in which the judge must issue a scheduling order, add preservation of electronically stored information to the topics addressed in scheduling orders and discovery plans, and amend the timing for discovery requests. Proposed amendments focused on proportionality would revise Rule 26 to eliminate examples of discoverable material and “good cause” language in 26(b)(1) and incorporate the “proportionality factors” from Rule 26(b)(2)(C) into Rule 26(b)(1); amend Rule 30 to reduce the presumptive number and the duration of depositions; amend Rule 31 to reduce the number of presumptive depositions by written questions; revise Rule 36 to limit the number of requests for admission; and revise the deadlines and requirements for document requests and objections under Rule 34. The proposed discovery amendments have resulted in intense debate over whether the presumptive limits will severely limit otherwise meritorious discovery. With respect to cooperation, the proposed amendments would expressly add “cooperate” to Rule 1. Sanctions-related revisions would establish a nationwide standard for sanctions under Rule 37 focusing on culpable as opposed to merely negligent conduct, and have resulted in intense debate.

The committee is seeking additional comments, which can be submitted online. The committee also welcomes testimony at its public hearings, which will occur on January 9, 2014 in Phoenix, Arizona, and February 7, 2014 in Dallas, Texas. Those who wish to speak at the public hearings must submit a request at least 30 days in advance of the hearing. The public comment period ends February 15, 2014.

A recording of the Roundtable and a more detailed article regarding the proposed amendments will be available shortly.

Mor Wetzler and Katherine Kenney, Paul Hastings LLP, New York, NY


November 29, 2013

Employee Who Creates Privileged Document May Be Unable to Waive Later

Ideally, most attorneys do not need to be reminded of some privilege basics: An email seeking confidential legal advice from an attorney is privileged. Forwarding that email to a third party can waive the privilege. But the New Jersey Appellate Division recently had the opportunity to review a more complicated version of this basic fact scenario.

The complexity arose from the fact that the author of the email was an employee of a local university. Although the basic principles of attorney-client privilege are the same whether dealing with an individual, a local university, or a multinational corporation, the application of that privilege to an organizational client is more complex, and may increase in complexity as the size and location of the institution grows. As this case teaches, just because an employee can create a document subject to the attorney-client privilege, it does not mean that the employee also can waive the privilege.

In Hedden v. Kean University, the Appellate Division of New Jersey was faced with determining whether the university could still claim attorney-client privilege over an email that its former women’s head basketball coach had drafted to university counsel and later provided to the National Collegiate Athletic Association (NCAA) in a separate proceeding a year earlier. Dkt. A-4999-12T2 (Oct. 24, 2013). The answer was yes.

The court first noted that under Upjohn, communications by mid- or low-level employees within the scope of their employment to corporate counsel for the purposes of aiding counsel in providing legal advice were protected by attorney-client privilege. Here, because the coach was acting within the scope of her employment and seeking legal advice in confidence, a divided panel held that the email was privileged.

As to the “closer question” of whether the university waived that privilege when the same employee disclosed the email to third-party NCAA, a divided panel again held that the university had not. The court explained, “Simply put, the authority to waive the attorney-client privilege does not belong to each and every employee of the corporation, but rather is held by the organizational client, namely the officers and directors of the organization.” Because the coach did not act in a managerial capacity when she disclosed the email, and because she was not acting at the university’s direction, she was neither expressly nor impliedly authorized to disclose the email, and the university could still assert the privilege.

The court also found that the university did not waive the privilege by failing to object to disclosure to the NCAA a year earlier: “The fact that the University did not voice an objection at the time or take affirmative steps to reverse [its employee’s] unilateral action does not defeat assertion of the privilege by its true holder.”

Yet counsel would be wise to take steps to object to unauthorized release of privileged information rather than relying on their organizational client’s “true holder” status. Writing in dissent, Judge Guadagno questioned the university’s motives in “[sitting] idly by when a purportedly privileged document was disclosed to the NCAA,” and cautioned that attorney-client privilege “cannot be doffed and donned like a raincoat on a cloudy day.”

Nonetheless, relief may be available to organizational clients if a lower-level employee unilaterally discloses privileged information. Based upon Hedden, counsel should bear in mind that the subset of employees who may create a document subject to attorney-client privilege may be larger than the group of employees who may validly waive that privilege.

Mor Wetzler and Jess Oliva, Paul Hastings LLP, New York, NY


November 25, 2013

Duty to Preserve in 7th Cir. Triggered Only by "Imminent" Litigation

A common question in spoliation cases is: At what point did the duty to preserve arise? Many courts hold that the duty to preserve evidence is triggered when a party reasonably anticipates litigation. However, some courts have held that the duty to preserve evidence does not arise that soon. In this regard, the Southern District of Illinois recently analyzed two standards for assessing when the duty to preserve is triggered prior to the initiation of litigation: when a litigant knew or should have known that litigation was imminent or when a litigant knew or should have known that litigation was reasonably foreseeable. The district court held “that the duty to preserve is triggered only when a litigant knew or should have known that litigation was imminent (at least in the Seventh Circuit).” In re Pradaxa (Dabigatran Etexilate) Prods. Liab. Litig., MDL No. 2385, 2013 WL 7355164, at *10 (S.D. Ill. Sept. 25, 2013).

The district court analyzed this question in the context of a products-liability suit against Boehringer Ingelheim Pharmaceutical, Inc. (BIPI), where the plaintiff’s steering committee (PSC) moved to compel production of emails and other documents of Wa’el Hashad, a former BIPI employee. BIPI, in accordance with its document-retention policy, had destroyed Hashad’s documents by November 2011.

The PSC asked the court to impose spoliation sanctions, specifically an adverse inference, because BIPI’s duty to preserve Hashad’s custodial documents arose as soon as it had reason to anticipate the Pradaxa litigation. Specifically, the PSC contended that certain events from before November 2011, including clinical-trial litigation, privilege-log entries, adverse-event reports, and “internet chatter,” all related to the subject drug Pradaxa, had triggered BIPI’s duty to preserve Hashad’s custodial documents. Conversely, BIPI asserted that it had no duty to preserve relevant documents until litigation was “imminent.”

In determining when the duty to preserve is triggered in the Seventh Circuit, the district court examined two cases, Trask-Morton v. Motel 6 Operating L.P., 534 F.3d 672 (7th Cir. 2000) and Norman-Nunnery v. Madison Area Technical College, 625 F.3d 422 (7th Cir. 2010). In Trask-Morton, the Seventh Circuit noted in dicta that other “courts have found a spoliation sanction to be proper only where a party has a duty to preserve evidence because it knew, or should have known, that litigation was imminent.” 534 F.3d at 681. The Trask-Morton court then concluded that the defendant “had no reason to suspect litigation” until the plaintiff sent a demand letter, thereby not deciding whether the Seventh Circuit followed the “imminent litigation” standard or the “reasonable anticipation” standard. Likewise, in Norman-Nunnery, the Seventh Circuit again noted that some courts had adopted the imminent-litigation standard. 625 F.3d at 429. There, however, the court held that a spoliation inference was not warranted because “the documents were lost before [the alleged spoliator] knew or should have known that litigation was imminent.” Id. (emphasis added). The court did not refer to the “reasonable anticipation” standard.

Based on these cases, the Southern District of Illinois took the view that the Seventh Circuit had adopted the imminent-litigation standard, and thus found that a spoliation inference here would be inappropriate. The court noted, however, that even if the “reasonable anticipation standard applied,” a spoliation inference was not warranted because (1) “BIPI had no reason to anticipate litigation—imminent or otherwise in November 2011” and (2) “even assuming BIPI owed a duty to preserve in November 2011, there [wa]s no evidence of bad faith.” Pradaxa, 2013 WL 5377164, at *10.

The court found that BIPI’s duty to preserve the documents arose in February 2012, when the PSC sent a demand letter for the first post-launch Pradaxa product-liability case. The court rejected the PSC’s claim that earlier clinical trial cases put BIPI on notice for future products-liability litigation related to Pradaxa. For example, one case, which settled in September 2011, sought indemnification from BIPI for alleged malpractice and failure to obtain informed consent for a Pradaxa clinical trial. The district court explained that this complaint lacked any allegations that Pradaxa itself was defective or that BIPI failed to warn of Pradaxa’s risks. The other clinical trial case, which settled in January 2009, included an allegation, as in the instant litigation, that BIPI failed to warn patients about Pradaxa’s potentially fatal bleeding risk, but that alleged injury occurred before the Food and Drug Administration approved Pradaxa with a required warning about the potentially fatal bleeding risk. Thus, the clinical trial litigation did not trigger a “general duty” to preserve relevant documents for potential products-liability litigation.

With respect to the PSC’s other assertions, the court concluded that the adverse event reports, which discussed serious or fatal bleeding events and were cited as a risk on Pradaxa’s label, did not put BIPI on notice for products-liability litigation related to that risk. Additionally, the court, after in camera review, determined that the privilege-log entries were related to the two clinical-trial cases, and therefore did not trigger BIPI’s duty to preserve documents for future products-liability litigation. Finally, the court agreed with BIPI’s assertion that imposing a duty to preserve for any “internet chatter,” including a blog post on a plaintiff-side pharmaceutical-injury firm, would force pharmaceutical companies into a “perpetual litigation hold.”

Accordingly, the court held that a spoliation inference was inappropriate because litigation was not imminent at the time the materials were destroyed pursuant to BIPI’s document-retention policy.

Adam Braveman and Katherine Kenney, Paul Hastings LLP, New York, NY


November 12, 2013

New Arbitration Appellate Rules Available

In early November 2013, new rules by the American Arbitration Association (AAA) went into effect, offering parties an optional standardized procedure for pursuing appeals within the arbitration process. Many parties previously had designed their own appellate-arbitration procedures, but the AAA's new standardized procedure went into effect on November 1. Without agreeing to an appellate arbitration procedure, parties are limited to challenging an arbitration award in state or federal court, venues that permit a more limited review of an arbitrator’s decision under narrow grounds. However, an appellate arbitration procedure, such as the one set forth in the new AAA rules, may permit a much broader scope for the appeal.

Under the rules, parties may use the appellate arbitral process only where there is an agreement of the parties, either by contract or stipulation. Parties may appeal on the grounds that the underlying award is based on errors of law that are material and prejudicial or on determinations of fact that are clearly erroneous. The appellate process does not replace the modification of award remedies available under the AAA's Commercial Rules, and that remedy may need to be pursued before filing an appeal.

Under the new rules, the parties may appoint an appeal tribunal or agree to a method of appointment. Otherwise, the AAA will appoint an appeal tribunal made up of three appellate arbitrators from the panel (unless the parties agree to use just one arbitrator). Appeals generally will be determined upon the written documents submitted by the parties, with no oral argument. A party may request oral argument, in which case the appeal tribunal may schedule argument at its discretion. The rules include a briefing schedule and a requirement that the tribunal, within 30 days after service of the last brief, either: 1) adopt the underlying award as its own, 2) substitute its own award for the underlying award by incorporating those aspects of the underlying award that are not vacated or modified, or 3) request additional information and notify the parties of the tribunal's exercise of an option to extend the time to render a decision, not to exceed 30 days. The appeal tribunal may not order a new arbitration hearing or send the case back to the original arbitrators for corrections or further review. The AAA estimates that under these standardized procedures, an appeal will be completed in approximately three months.

Parties should review the rules carefully before adopting them wholesale. For example, the rules provide that the appellant must pay the fees and expenses of the appeal tribunal, and may be assessed the appellee's costs, potentially including attorney fees, if the appellant is not determined to be the prevailing party by the appeal tribunal. Appellate arbitration procedures can offer many benefits, and a standardized set of rules may make negotiations smoother, but parties must understand the implications of these standardized rules to make an informed decision regarding which rules would be best for them to adopt and which should be amended by agreement of the parties.

The new AAA rules are available on the AAA's website along with additional information.

Mor Wetzler, Paul Hastings LLP, New York, NY


October 28, 2013

Court Denies Discovery Where Spoliation Claim Merely "Speculative"

Although litigation holds are generally privileged, there are circumstances, such as when spoliation occurs, in which a litigation hold can become a proper subject of discovery. In Little Hocking Water Ass’n Inc. v. E.I. Du Pont de Nemours & Co., the Southern District of Ohio refused to permit discovery of litigation-hold letters and communication when there was no “preliminary showing” of spoliation because the plaintiff’s claims were merely speculative. No. 2:09-CV-1081, 2013 WL 5311292, at *4 (S.D. Ohio Sept. 20, 2013).

In the case, Little Hocking Water Association, Inc., a non-profit water-supply association, sued DuPont, alleging various violations of the Resources Conservation and Recovery Act with respect to DuPont's waste-disposal practices. After extensive discovery, in response to an earlier motion to compel, the court permitted limited discovery into details related to DuPont's preservation, or lack thereof, of historical data and related technology to determine whether a basis for sanctions existed. At the time, the court excluded the plaintiff’s desired line of inquiry into DuPont's duty to preserve the well-pumping records at issue, “including the circumstances surrounding holds that were issued (or should have been issued) in connection with DuPont's governmental filing obligations or with other litigation involving DuPont.”

Following the permitted discovery regarding preservation of the well-pumping data, including deposition of DuPont’s 30(b)(6) representative on the issue of preservation, the plaintiff sought leave to conduct “full discovery on when the duty to preserve” the water-well-production data arose. The plaintiff based this request in part on testimony by DuPont’s 30(b)(6) designee, which the plaintiff alleged revealed “additional information related to the preservation and/or destruction of the well pumping data. . . .” Specifically, the plaintiff pointed to DuPont’s 30(b)(6) designee’s testimony that, “at least twenty (20) CDs containing well pumping data ‘[were] missing or have been destroyed,’” and that “DuPont disposed of VAX literature in a ‘dumpster’ as part of the process of shutting down the VAX computer system (during this litigation).” Thus, the plaintiff sought leave to, among other things, conduct full discovery on when the duty to preserve the well data arose, including production of litigation-hold communication and letters. DuPont opposed the motion, arguing that this discovery would be duplicative because DuPont previously produced a massive amount of documents on the subject of well-pumping data, and pointed to the court’s earlier refusal to allow discovery on the issue of the duty to preserve. Moreover, DuPont contended that the plaintiff mischaracterized the 30(b)(6) deposition testimony as to supposedly missing or destroyed information. Specifically, DuPont argued that Little Hocking did not establish a preliminary showing of spoliation because many of the “missing” CDs were actually duplicates, and the allegedly destroyed literature consisted merely of an outdated instruction manual for the computer system.

The court denied the plaintiff’s motion without prejudice. In making its decision, the court disagreed with the plaintiff’s reliance on Major Tours, Inc. v. Colorel, a District of New Jersey decision that found that there was a preliminary showing of spoliation sufficient to require the production of litigation-hold letters. In that case, one of defendant’s 30(b)(6) witnesses testified that he did not preserve anything despite probable instructions to preserve, and another 30(b)(6) witness testified that she did not know what a litigation-hold letter was. No. 05-3091, 2009 WL 2413631, at *2, *4 (D.N.J. Aug. 4, 2009). Turning back to the question before it, the court first explained that a determination of whether a “preliminary showing” of spoliation has been made is necessarily a fact-based inquiry and determining the “scope of the duty to preserve is a highly fact-bound inquiry that involves considerations of proportionality and reasonableness.” DuPont argued that its actions were reasonable and proportional based on the millions of relevant documents that it had produced, including the production of documents related to well-pumping data.

Reviewing the record, the court found that the plaintiff had not made a preliminary showing of spoliation, and that the plaintiff’s contention of spoliation was “speculative at best.” Rather, the court concluded that there was “no evidence to contradict” DuPont’s representation that the only “literature” disposed of was an instruction manual, and that many of the missing CDs were actually duplicates. Thus, the plaintiff had failed to make a preliminary showing of spoliation to warrant the additional discovery requests. Although the court denied the plaintiff’s motion, the court ordered DuPont to provide, by affidavit or declaration, a statement of its ability to “translate into a readable format well pumping data” for certain specified years to determine whether more well-pumping information existed that could be produced.

Adam Braveman and Mor Wetzler, Paul Hastings LLP, New York, NY


October 28, 2013

Court Denies Request for Native Production, Permits Searchable PDFs

A magistrate judge in the Eastern District of North Carolina recently decided a motion to compel additional production by defendants, including a demand for supplemental searches and the production of all electronically stored information (ESI) in native format. Westdale Recap Props. v. Np/I&G Wakefield Commons (E.D.N.C. Sept. 26, 2013). The court granted the request for supplemental searches and production in accordance with the parties' discovery plan, but denied the request for native production, finding that “production in the form of searchable PDF's is sufficient."

The case involved a dispute over the sale of a shopping plaza. The plaintiff purchasers' complaint included claims for fraud, unfair and deceptive trade practices, negligent misrepresentation, and punitive damages. The parties agreed on a discovery plan but could not agree as to format of production of ESI. The plaintiffs sought production of all ESI in native format, but the defendants sought to produce in the form of searchable PDFs.

The plaintiffs argued that they needed native production "so that metadata will not be destroyed" and that "metadata is critical where, as here, a fraud claim is at issue." The court found that the plaintiffs' "contention that production of ESI in the form of searchable PDF files would destroy the associated metadata appears unfounded." The court explained further: "While the PDF files would not necessarily contain the metadata, [defendant] represents that the metadata would remain intact and plaintiffs have not shown to the contrary." Moreover, the court added that the plaintiffs had not demonstrated an adequate need to have the ESI produced in native format. Nonetheless, the court left open the possibility that, after review of the production, the plaintiffs could seek production of particular ESI in native format by filing another motion later.

The decision does not contain information about the format of documents at issue or how they were maintained in the regular course of business, so it is difficult to determine whether the production as searchable PDFs was the less burdensome, cheaper, or forensically sound solution. Nonetheless, the decision highlights the need to have counsel knowledgeable in e-discovery who can argue issues such as burden, need, or altering of metadata, can have meaningful discussions with opposing counsel regarding e-discovery protocols, and can educate the court about these issues.

Mor Wetzler, Paul Hastings LLP, New York, NY


October 28, 2013

SCOTUS Ends Recusal Battle in Da Silva Moore

The case of Da Silva Moore  v. Publicis Group SA, 1 Civ. 1279 (S.D.N.Y.) garnered many headlines for being the first federal case to endorse predictive coding. In the case, Magistrate Judge Andrew Peck became the first federal judge to approve an e-discovery protocol that included predictive coding. Judge Peck rejected the plaintiffs' objections to the defendants' predictive-coding protocol (including, for example, an objection that the process would not be transparent), and stated that predictive coding is “acceptable in appropriate cases.” The plaintiffs not only challenged the decision on the merits, but also sought to recuse Judge Peck, claiming he was biased about the use of predictive coding. The plaintiffs focused on Judge Peck’s publicly stated views that predictive coding could be used in the right circumstances, as well as his participation in organizations and presentations that discuss the development and use of predictive coding. Judge Peck refused to recuse himself, and the plaintiffs challenged his decision in the district court. The district court rejected the plaintiffs' claims of impartiality, holding that “Judge Peck’s decision accepting computer-assisted review, reached upon consideration of the applicable law, was not influenced by bias, nor did it create any appearance of bias.” The district court added that predictive coding “does not inherently favor one party over the other in this case.”

The plaintiffs filed a mandamus petition in the Second Circuit. Mandamus is a "drastic and extraordinary" remedy reserved for those exceptional circumstances when the district court has committed a clear abuse of discretion or usurpation of judicial power. See, e.g., Cheney v. U.S. District Court, 542 U.S. 367, 380 (2004). Unsurprisingly, the Second Circuit denied the petition, holding that plaintiffs had "not clearly and indisputably demonstrated that Magistrate Judge Peck abused his discretion in denying their district court recusal motion, or that the district court erred in overruling their objection to that decision," (alterations and citation omitted).

On July 11, 2013, the plaintiffs filed a petition for a writ of certiorari with the U.S. Supreme Court. The legal question presented was “Should a court of appeals review a judge’s denial of a motion to recuse de novo or for an abuse of discretion?” But the plaintiffs’ main reason for seeking cert was apparent in the petition, which argued

[T]he impact here of the standard of review is stark: Judge Peck avowedly used this case to set a global precedent in favor of predictive coding—a technique that had never before been adopted, and that is now (in large part thanks to Judge Peck) gaining footing. Judge Peck’s decision was nothing short of a landmark, and the precedent it set continues to reverberate in discovery disputes throughout the United States.

Because certiorari is granted rarely and only for "compelling reasons" (see U.S. Supreme Court Rule 10, Considerations Governing Review on Writ of Certiorari), it comes as no surprise that the Supreme Court denied the cert petition.

Now that the Da Silva Moore plaintiffs have exhausted all appeals for their motion seeking Judge Peck's recusal, hopefully the focus of the discussion will return to the merits—the strengths and weaknesses of predictive coding.

Mor Wetzler, Paul Hastings LLP, New York, NY


October 22, 2013

Citizenship Determined by Whether LLC's Sole Member Is Trust or Trustee

According to a recent Southern District of New York decision, WBCMT 2007-C33 N.Y. Living, LLC v. 1145 Clay Ave. Owner, LLC, a corporation's citizenship for jurisdictional purposes may depend on whether a limited liability corporation (LLC) identifies its sole member as a “trust” or “trustee” in its operating agreement. ___ F. Supp. 2d ___, No. 13 Civ. 2222, 2013 WL 4017712, at *3 (S.D.N.Y. July 30, 2013).

It is well established that “diversity jurisdiction is available only when all adverse parties to a litigation are completely diverse in their citizenships.” Herrick Co., Inc. v. SCS Comm’cns, Inc., 251 F.3d 315, 322 (2d Cir. 2001). With respect to “artificial entities,” an LLC “has the citizenship of all its members,” and a trust has the citizenship “of both its trustees and beneficiaries.” WBCMT 2007-C33 N.Y. Living, LLC v. 1145 Clay Ave. Owner, LLC, ___ F. Supp. 2d ___, No. 13 Civ. 2222, 2013 WL 4017712, at *1 (S.D.N.Y. July 30, 2013) (citations omitted). In the instant case, the plaintiff was an LLC whose sole member, as defined in its operating agreement, was a trustee with numerous beneficiaries. Id. (Specifically, the operating agreement stated that “’U.S. Bank National Association, as trustee for the registered holders of Wachovia Bank Commercial Mortgage Trust, commercial mortgage pass-through certificates, series 2007-C33’ is the sole member of the company.”). The defendants contested jurisdiction by arguing that “when an LLC names a trustee as a member, courts must also look to the citizenship of the trust beneficiaries to determine the LLC’s citizenship.” Id. Because some of the trust beneficiaries were either New York or Delaware companies, the defendants alleged that diversity between the parties did not exist.

Judge Pauley of the Southern District of New York, ruling on this “unsettled question of law,” found otherwise. According to the court, “[w]hen an LLC’s sole member is a trust, it is necessary to determine the trust’s citizenship in order to answer the ultimate question of the LLC’s citizenship. When, however, an LLC’s sole member is a trustee, the LLC’s membership is determined by the citizenship of the trustee alone.” Id. at *3 (citations omitted) (emphasis added). Accordingly, the trustee, “[a]s a national banking association, [] ‘is a citizen of the State in which its main office, as set forth in its articles of association, is located’—here, Ohio.” Id. at *3.

In light of this decision, when forming an LLC in the context of a trust, a company should keep in mind the potential implications of its corporate structure for jurisdiction purposes, including whether they would rather be in federal court should litigation ensue. This Southern District of New York decision is instructive with respect to how courts will determine citizenship for purposes of diversity jurisdiction, and companies should draft the operating agreement with this guidance in mind.

Adam Braveman, Paul Hastings LLP, New York, NY


September 24, 2013

LinkedIn Endorsement Violation Trend

On September 11, 2013, Florida appears to have concurred with New York's June 2013 opinion that individual lawyers may not list a "specialty" unless board certified in the area listed.

A recently disclosed, Internet-circulated opinion from an assistant ethics counsel of the Florida Bar in response to an ethics inquiry as to "whether you may list your areas of practice under the LinkedIn header 'Skills and Expertise' when you are not board certified[,]" concluded in the negative. (Florida Bar ethics opinions are confidential and the Florida Bar Ethics Hotline cannot confirm nor deny the issuance of such ethical opinion. The substance of the opinion as to the question and its answer has, however, been verbally confirmed by this author on September 20, 2013, with the Florida Bar Ethics Hotline.) In making its decision, the Florida Bar apparently relied upon its Rule 4-7.14(a)(4) (the words "certified," "specialist," or "expert" are only permissible when certified by the Florida Bar or an accredited certification program by the American Bar Association or a state with similar certification standards to Florida); its Rule 6-3.4(c) (certification is only for individual lawyers); and the New York State Bar Association Opinion 972 (reaching a similar conclusion). The South Carolina Bar also indicated in a February 2013 notice to its members that the third-party endorsement creates a Rule 7.4 problem, but provided a methodology on how to hide such third-party endorsements.

Complicating the issue is Hayes v. Grievance Commission of the Eighth Judicial District, 672 F.3d 158 (2d Cir. 2012). Hayes addresses the ability to place a disclaimer to comply with Rule 7.4(c), finding that there was an unconstitutional infringement to commercial speech as applied to the Hayes plaintiff. Florida, however, has stated that the provision of "language in the LinkedIn profile indicating that you are not board certified and not an expert will not remedy the issue under its Rule 4-7.14(b) (potentially misleading language may be used if information or language is provided to clarify such misleading issue). (Florida Bar Ethics opinions are confidential and the Florida Bar Ethics Hotline cannot confirm nor deny the issuance of such ethical opinion. The substance of the opinion as to the question and its answer has, however, been verbally confirmed by this author on September 20, 2013, with the Florida Bar Ethics Hotline.)

New York allegedly has requested comments as to the issue. The filing period for the review of the opinion issued by the Florida Bar expires on October 10, 2013. The Florida Bar is also reviewing the issue as to law firms on October 8, 2013, at its Standing Committee on Advertising.

Jessica K. Hew, Burr & Forman LLP, Orlando, FL


September 19, 2013

No Harm Allegations Run "Fowl" for New York Poultrygeist Suit

Simply alleging economic losses suffered in the state where its business was located was insufficient for a producer to bring intellectual-property claims resulting from unlicensed foreign distribution of the spoof-horror flicks Poultrygeist: Night of the Chicken Dead and Citizen Toxie: The Toxic Avenger IV. The Second Circuit ruled in Troma Entertainment, Inc. v. Centennial Pictures Inc., ___ F.3d___, No. 12-1883, 2013 WL 4766854 (2d Cir. Sept. 6, 2013) that there was no personal jurisdiction over defendants Lance Robbins and King Brett Lauter because Troma failed to establish a non-speculative and direct New York-based injury as required by New York’s long-arm statute. Troma argued that personal jurisdiction may be exercised in the Eastern District of New York over Robbins and Lauter pursuant to section 302(a)(3)(ii) of New York’s long-arm statute. This provision confers personal jurisdiction over an individual who “commits a tortious act without the state cause injury to person or property within the state . . . if he . . . expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce.” N.Y.C.P.L.R. § 302(a)(3)(ii). Although Troma alleged that it lost money in New York where it is based, its complaint did not make any allegations suggesting that the defendants’ tortious conduct harmed the Poultrygeist and Citizen Toxie producer in a particular locality. Therefore, the Second Circuit held that the district court correctly ruled that it did not have the power to exercise jurisdiction over Robbins and Lauter.

Tracy A. DiFillippo, Armstrong Teasdale LLP, Las Vegas, NV


September 18, 2013

Seventh Circuit Addresses Niceties of Appellate Review in Bankruptcy

A recent Seventh Circuit opinion points up nicely the flux and complexities of bankruptcy appellate procedure in 2013. Patterson v. Somers Dublin Ltd., ___ F.3d ___, No. 12-2463, 2013 WL 4767495 (7th Cir. Sept. 6, 2013). The Seventh Circuit first found that there is no express time limit for certification of an interlocutory direct review from the bankruptcy court to the circuit court where the certification was on the bankruptcy court’s initiative or the parties’ joint certification, disagreeing with In re Amer. Mtg. Holdings, Inc., 637 F.3d 246, 254 (3d Cir. 2011). The Patterson court pointed out that in In re Amer. Mtg., the Third Circuit relied on 28 U.S.C. § 158(d)(2)(E), but also that section 158(d)(2)(E) addressed only the time for a party to make a request to the bankruptcy judge for certification, not the time for the parties to jointly certify, or for the bankruptcy judge to act on its own initiative—other options provided by Bankruptcy Rule 8001. The court went on to look at other possible sources for time limitations, and finding none, allowed the appeal.

Next, in what is arguably dicta, the Seventh Circuit examined the issue of “waiver” of the bankruptcy court’s jurisdictional limitations under Stern v. Marshall,131 S. Ct. 2594 (2011). In Stern, the U.S. Supreme Court held that a bankruptcy court, as an Article I court, could not constitutionally enter a final judgment on state-court claims, even if they were “core” to the bankruptcy proceeding. The Seventh Circuit noted its own recent decision in Wellness Int’l Network v. Sharp, ___ F.3d. ___, No. 12-1349, 2013 WL 4441926 (7th Cir. Aug. 21, 2013) holding that that the bankruptcy court’s constitutional limitations could not be waived by inaction (what the Seventh Circuit called “forfeiture”), but noted that it was an open question, in the Seventh Circuit at least, as to “the effect of express and mutual waiver.” The court noted the question of forfeiture was before the Supreme Court on certiorari in Executive Benefits Ins. Agency v. Arkinson, ___ U.S. ___, 133 S. Ct. 2880 (No. 12-1200) (2013). But the court determined that it would not decide the issue, as the question before it was within the bankruptcy court’s jurisdiction without consent or waiver.

Jeffrey G. Close, Chapman and Cutler LLP, Chicago, IL


September 17, 2013

How Best to Control Cost of E-Discovery?

Many have cited the supposed runaway costs of e-discovery in support of the current proposal by the Rules Advisory Committee to the Federal Rules of Civil Procedure that would limit the scope of written discovery and other forms of discovery. (Check out an excellent summary of the proposed revisions by John Barkett.) But in the same way that some feel that raising taxes on gasoline is a better way to discourage folks from buying Hummers, some advocate a different, deterrent approach to controlling e-discovery costs: permitting those costs to be fully taxed as “costs” under Rule 54 and 28 U.S.C. § 1920. Several circuit courts have confirmed, at this point, that e-discovery cost will rarely if ever be taxed, according to this blog post by e-discovery guru Josh Gilliland. These decisions were bolstered last year by the Supreme Court’s decision in Taniguchi v. Kan Pacific Saipan,which confirmed that the statute should be read very narrowly. Gilliland argues that allowing e-discovery costs to be fully taxed would discourage requesting parties from sending overly broad requests for production to large companies that by necessity have large troves of data that must be searched. While Gilliland does not explicitly posit this as an alternative method of reigning in costs to the rules-based approach, that is one natural progression of the point that he makes, and it is one worth considering. Many of the commenters on the proposed rules have made the point that the discovery rules already permit the court to put limits on the scope of discovery and that what is needed is for courts to play a more active role in limiting discovery. Might the threat of full taxation of costs, as an adjunct to those steps, be a better way to limit abuses than wholesale changes to the rules? Join the discussion at our LinkedIn group and let other members of the committee know what you think.

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


August 30, 2013

No Privilege Between Company and Unlicensed Foreign In-House Lawyer

A recent ruling by the Southern District of New York should serve as a warning with respect to information shared with unlicensed foreign in-house attorneys. In Anwar v. Fairfield Greenwich Ltd., Magistrate Judge Maas found that communications between a company and its unlicensed in-house lawyer in the Netherlands were not privileged, and thus were discoverable. The litigation, which involves multiple investor actions stemming from the Bernie Madoff Ponzi scheme, included the deposition of Renger Boonstra, a senior in-house lawyer at a Netherlands branch of Citco Bank. Although Mr. Boonstra is a lawyer, he is not a licensed attorney, and never was licensed in any jurisdiction. Dutch law does not require licensure for serving as in-house counsel in the Netherlands. During the deposition, counsel for the defendants instructed Mr. Boonstra not to answer certain questions based on the attorney-client privilege. The plaintiffs challenged this instruction, requesting an order to overrule the privilege objections, and moved to compel disclosure of several of Mr. Boonstra’s email communications previously withheld on privilege grounds.

Judge Maas agreed with the plaintiffs and held that under either Dutch or American law, Mr. Boonstra’s communications were not privileged. Under Dutch law, the court first noted that Dutch law affords a “legal professional privilege” to licensed in-house counsel, but offers no recognized privilege for unlicensed lawyers, “[n]or does there appear to be any exception to that rule in circumstances where a client reasonably believes that its conversations are privileged.” Similarly, under U.S. law, “the attorney-client privilege generally applies only to communications with attorneys who are licensed to practice law.” Although courts have found communications with non-attorneys to be privileged in limited circumstances, such as when the client “reasonab[ly] believe[s] that the person to whom the communications were made was in fact an attorney,” (this was the conclusion by the Southern District of New York in Gucci America, Inc. v. Guess?, Inc.) those circumstances were not present here. For example, Mr. Boonstra had never been licensed in any jurisdiction, there was no evidence that he ever held himself out as a licensed attorney or performed tasks that would have suggested that he was a licensed attorney, and, although Dutch law permits both licensed and unlicensed attorneys to practice as in-house lawyers, it includes several distinctions between them including affirmative representations by the lawyers’ employer that apply only to licensed lawyers. Thus, according to the court, the defendants could not credibly argue that they were reasonably mistaken as to Mr. Boonstra’s licensure status.

Last, the court noted that even if the defendants mistakenly believed that Dutch law protected their communications, the “reasonable belief exception” would not apply. This is because the exception only covers “excusable mistake[s] of fact,” while a client’s belief about the law of privilege is predicated upon a mistake of law. Accordingly, the court overruled the defendants’ privilege objections and granted the plaintiffs’ motion to compel. In light of this decision, it would be wise to advise clients—especially international ones—about the potential absence of privilege protections for communications with unlicensed in-house attorneys.

Adam Braveman and Mor Wetzler, Paul Hastings LLP, New York, NY


August 30, 2013

Reduction in Fee Award Based on Inflated Billable Hours

At the ABA Annual Meeting in San Francisco, the Pretrial Practice & Discovery Committee presented a fascinating panel discussion about the rise of alternative fee arrangements, and the impact this may have on the billable hour. Sticking with the theme of the billable hour, a federal judge from the Southern District of New York recently slashed more than $25 million from a $97 million fee request, finding that the firm over-billed for low-wage contract attorneys.

Earlier this month, Judge Stein approved a settlement between Citigroup and a group of investors who claimed that the bank misrepresented its exposure to certain mortgage-backed securities. (See Law360 articles here and here). As part of the settlement, lead counsel Kirby McInerney LLP included a $97 million fee request. A substantial portion of the fees requested was generated from work performed by contract attorneys, who were billing at a blended rate of $465 per hour. Additionally, approximately one-fourth of the fees requested resulted from work performed after the parties agreed in principle to the settlement.

After hearing argument on the issue, Judge Stein reduced the attorney-fee request by more than $25 million, concluding that the award should not include $23.5 million billed by contract attorneys after the parties agreed in principle to the settlement. Additionally, Judge Stein decreased the fee request by another 10 percent for “waste and inefficiency,” citing an example of two contract attorneys spending approximately 300 hours reviewing a one-day deposition. Thus, the total approved award was reduced to $70.8 million.

This is but one issue in the hotly contested billable-hour debate. In addition to various client concerns that were discussed during the ABA panel discussion, the impact that contract-attorney hourly rates can have on the lodestar amount in protracted litigation greatly affects both settlement discussions and court approval. It remains to be seen whether this recent decision leads to more clients opting for fixed amount or alternative fee arrangements with respect to large contract-attorney document reviews, or if the billable-hour business model will continue to survive.

Adam Braveman, Paul Hastings LLP, New York, NY


August 16, 2013

Comment Period Opens on Amendments to Federal Discovery Rules

The comment period has now opened on significant proposed changes to the rules governing discovery in civil litigation in federal court. These proposed changes were the subject of much discussion at the recent ABA Annual Meeting, including at a panel on whether open courts are a dying concept, in part because it has become too expensive to take a case to trial, prompting businesses and individuals to use alternative dispute resolution or early settlements. One of the panelists sits on the rule-making committee, and posited that these amendments, which have the potential to dramatically restrict discovery and theoretically reduce the cost of civil litigation, could be part of the “solution” to the problem. What do you think of these new rules? Let us know over on our LinkedIn page and look for more news and developments as well as an in-depth article examining the proposed changes on this page in the coming months.

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


August 12, 2013

Is the Billable Hour Dead?

At the just-completed ABA Annual Meeting in San Francisco, our committee presented a fascinating CLE discussion about alternative fee arrangements (AFAs). You can read a review and more in-depth summary courtesy of ABA Now. The panel included Lyn Brantley, in house counsel at DuPont; Jean Bertrand and Bobby Poundstone, partners in firms that use both AFAs and hourly billing; and Patrick Lamb, founding partner of the Valorem Law Group, which uses AFAs only and is an innovator in the area. This author’s takeaway: The billable hour is not dead. Why? Some cases simply lack the kind of predictability that make an AFA make sense, even one as intricately fashioned and customized as those discussed by the panelists. Second takeaway: If you do an AFA, think long and hard about the contingencies, what has happened in every one of the last 10 similar matters, and do an early case assessment (for which you can ask to bill hourly), then have a frank conversation with your potential client. Look for the materials for this program to be posted to this website (under “Related Resources”) in the next week.

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


July 31, 2013

When Is It Okay to Delete Text Messages?

A common issue for legal teams in companies with bring-your-own-device (BYOD) policies involves the preservation issues surrounding the lack of visibility and control over employees’ devices used for work and the difficulty in searching for and extracting for preservation potentially relevant information on those devices. Pennsylvania courts recently faced this issue in the context of deleted text messages, denying a motion for spoliation sanctions where the defendants routinely deleted text messages and other data to “clean up” their personal electronic devices. The court explained what many users of mobile devices already know—the volume of messages and limited amount of phone storage made it difficult to retain all data and still use the phone for messaging.

In the case, PTSI, Inc. v. Haley, et al, (Pa. Super Ct. May 24, 2013), the plaintiff sued two former employees after they opened a competing sports-training facility. The plaintiff brought claims including conversion, breach of the duty of loyalty, and breach of fiduciary duty. During discovery, PTSI sought sanctions based on the defendants’ deletion of electronic records from their computers and phones, including text messages. PTSI claimed the information was “vital to the prosecution of this case” and could not be “feasibly reconstructed or retrieved without enormous time and expense to PTSI, if at all.” The trial court denied the motion and granted the defendants’ summary-judgment motion. On appeal, the appellate court affirmed the sanctions ruling, finding no abuse of discretion.

Under Pennsylvania law, courts apply the following factors to determine appropriate sanctions:

(1) the degree of fault of the party who altered or destroyed the evidence; (2) the degree of prejudice suffered by the opposing party; and (3) whether there is a lesser sanction that will avoid substantial unfairness to the opposing party and, where the offending party is seriously at fault, will serve to deter such conduct by others in the future.

Pennsylvania courts also are to consider proportionality, “[a]s with all other discovery,” using the five factors spelled out in the comments to the Pennsylvania Rules of Civil Procedure:

(i) the nature and scope of the litigation, including the importance and complexity of the issues and the amounts at stake; (ii) the relevance of electronically stored information and its importance to the court’s adjudication in the given case; (iii) the cost, burden and delay that may be imposed on the parties to deal with electronically stored information; (iv) the ease of producing electronically stored information and whether substantially similar information is available with less burden; and (v) any other factors relevant under the circumstances.

The plaintiff claimed that the defendants had violated the court’s May 26, 2011 preservation order “by intentionally deleting text messages and electronic records from their phones and/or computers.”

The trial court found that the amount in controversy and “the level of importance and complexity of the issues did not weigh in favor of imposing sanctions and that the deleted material was not relevant or important to its decision.” Moreover, the court said that PTSI could not show that its former employees’ “innocent clean up of personal electronic devices to allow them to function was unusual, unreasonable or improper under the circumstances.” The court reasoned that because the defendants “routinely deleted text messages, often on a daily basis, so as not to unduly encumber their iPhones” and because of “the volume of text messages that are frequently exchanged by cell phone users and the limited amount of storage on cell phones, it would be very difficult, if not impossible, to save all text messages and to continue to use the phone for messaging.” Furthermore, the court found that the order of preservation was entered after relevant data would have been created and deleted, and that similar information was available from other sources and custodians—the forensic examiner in the case “exhumed” more than 1,000 emails from the employees’ computers. Finally, the court concluded that any spoliation inference could not defeat the summary-judgment motion.

The appellate court applied a deferential review and agreed with the trial court’s reasoning, finding no abuse of discretion.

The implications of this decision may prove case- or fact-specific, but companies would be wise to revisit their document-retention and BYOD policies with an eye toward e-discovery and preservation issues.

Mor Wetzler, Paul Hastings LLP, New York, NY


July 30, 2013

Impact of American Express Co. Already Being Felt

As reported in last month’s News and Developments, although the Supreme Court’s decision in American Express Co. v. Italian Colors was overshadowed by other cases this term, the ruling was expected to have considerable impact. Unsurprisingly, the impact of the decision is already being felt. This past month saw two appeals of district-court decisions that refused to enforce contractual waivers of class arbitration. Both appellants are relying on American Express Co. to reverse the decisions below.

In American Express, the Supreme Court held that pursuant to the Federal Arbitration Act, unless an arbitration clause is unenforceable due to a contract defense, or Congress provides a “contrary congressional command,” a class-arbitration waiver must be rigorously enforced. This rule applies even when the cost of individually arbitrating a claim greatly exceeds an individual’s potential recovery. Thus, in American Express, the Court upheld a class-arbitration waiver between American Express and its merchants despite the merchants’ claims that it would cost each merchant as much as $1 million to arbitrate its claim while the potential recovery for each merchant was only about $40,000.

The Court’s decision means that several earlier decisions may require different outcomes. In one case, Citigroup Inc. is appealing a decision by the Southern District of New York that refused to compel individual arbitration in a collective action that accused the bank of misclassifying its home-lending specialists as exempt from the Fair Labor Standard Act’s (FLSA) overtime-pay requirement. Specifically, Citigroup Inc. contends that pursuant to American Express, the FLSA does not provide for an unwaivable collective-action right. Conversely, the plaintiffs argue that FLSA § 216(b), which provides that an action may be brought “by any one or more employees for and in behalf of himself or themselves and other employees similarly situated” is a “congressional command” that precludes a collective-action waiver.

Similarly, Ernst & Young is appealing a decision by the Southern District of New York that refused to enforce an arbitration agreement requiring employees to individually arbitrate their claims. There, a collective action was filed by accountants claiming that Ernst & Young misclassified them as exempt from overtime pay under the FLSA. The district court concluded that the contractual waiver of class arbitration was unenforceable, and Ernst & Young appealed. In both cases, the Second Circuit has asked the parties to brief how the Court’s American Express decision affects the case. As illustrated by these examples, the Supreme Court’s decision provides businesses a valuable tool to stop, or at least significantly curtail, class arbitration. It remains to be seen how lower courts will interpret the Court’s decision, especially with respect to the FLSA.

Adam Braveman, Paul Hastings LLP, New York, NY


July 30, 2013

First Amendment Protects Certain Aspects of Legal Blogging

With the accessibility and popularity of legal blogging on the rise, it is crucial for attorneys to understand what information is permissible to include in blogs. This is especially true for information about clients, as attorneys must frequently decide what, if any, client information can be publicized. In Hunter v. Virginia State Bar ex re. Third District Committee, the Virginia Supreme Court issued an opinion that helps define the contours of this dilemma.

Horace Frazier Hunter is an attorney in Virginia who authored a blog titled “This Week in Richmond Criminal Defense.” The blog contained posts discussing a myriad of issues, but Hunter focused mostly on cases where he obtained a favorable result for his client. Hunter’s clients did not consent to these blog posts, nor did Hunter include disclaimers on his blog, which are required for attorney advertising. As a result of failing to receive client consent and failing to include advertising disclaimers, the Virginia State Bar (VSB) conducted a disciplinary hearing to determine whether Hunter’s posts were commercial speech, and whether an attorney may discuss public information related to a client without the client’s consent.

At the disciplinary hearing, one of Hunter’s former clients testified that he did not consent to information about his cases being posted on Hunter’s blog, and that he found the information to be embarrassing or detrimental to him. Additionally, a VSB investigator testified that other former clients felt similarly. Hunter admitted that he did not receive consent from his clients to blog about their cases, but argued that all of the information that he posted on his blog was public information. The VSB found that Hunter violated the Virginia Rules of Professional Conduct by “disseminating client confidences” obtained in the course of representation. The VSB also concluded that Hunter’s blog constituted legal advertising, and thus required Hunter to include a disclaimer.

Hunter appealed this decision to a three-judge panel of the Virginia Circuit Court. The panel upheld the VSB’s decision regarding advertising, but found that Hunter’s inclusion of public information about his clients on his blog was protected by the First Amendment. The parties then appealed to the Virginia Supreme Court, and the Virginia Supreme Court agreed with the Virginia Circuit Court panel’s findings.

With respect to whether the blog constituted advertising, the Virginia Supreme Court noted that, because Hunter admitted that part of his motivation for the blog was economic and that “[h]e unquestionably reference[d] a specific product, i.e., his lawyering skills as twenty-two of his twenty-five case related posts described cases that he ha[d] successfully handled,” Hunter’s posts constituted commercial speech. Accordingly, the court required Hunter to include a disclaimer on his blog. With respect to whether Hunter “disseminated client confidences,” the court found that because all of Hunter’s blog posts involved cases that had concluded, and all of the information that was contained within Hunter’s blog was public information, which would have been protected speech had the news media or others disseminated it, Hunter’s blog was protected by the First Amendment. In other words, “[t]o the extent that the information is aired in a public forum, privacy considerations must yield to First Amendment protections. In that respect, a lawyer is no more prohibited than any other citizen from reporting what transpired in the courtroom.”

This case is but one example of an attorney-client conflict that can result from authoring a legal blog. With the rise of legal blogging, there will certainly be more of these types of disputes in the future.

Adam Braveman, Paul Hastings LLP, New York, NY


July 30, 2013

Ill. High Court Adopts Expansive Personal-Jurisdiction Interpretation

In its first opportunity to apply the U.S. Supreme Court’s latest decision on the subject of specific personal jurisdiction, J. McIntyre Machinery, Ltd. v. Nicastro, the Illinois Supreme Court recently issued an opinion that will limit the circumstances in which foreign product manufacturers may obtain dismissals on personal-jurisdiction grounds in Illinois. McIntyre v. Nicastro, 131 S. Ct. 2780 (2011), dismissed New Jersey state tort claims against J. McIntyre, a British company, finding that J. McIntyre’s contacts with New Jersey, which were limited to the sale of the one machine at issue, were insufficient to establish specific jurisdiction. However, Nicastro failed to produce a majority opinion and left unresolved whether Justice Brennan’s stream-of-commerce theory, first articulated in Asahi Metal Industry Co. v. Superior Court of California, Solano County, 480 U.S. 102 (1987), would become obsolete. Indeed, although six justices agreed that the claims against J. McIntyre must be dismissed, only four justices outright rejected Justice Brennan’s approach and applied Justice O’Connor’s Asahi opinion, which requires purposeful availment of the forum state and more than mere placement of a product into the stream of commerce. The decision was hailed as a victory for foreign manufacturers but the unresolved spilt between the applicable jurisdiction tests outlined by Justice Brennan and Justice O’Connor has limited its impact. See a discussion of McIntyre v. Nicastro here.

Applying McIntyre, the Illinois Supreme Court recently issued an opinion that will limit the circumstances in which foreign product manufacturers may successfully dismiss cases on personal-jurisdiction grounds in Illinois. The case, Russell v. SNFA, arose from a fatal helicopter crash in Illinois and involved a suit against several product manufacturers, including a foreign component-part manufacturer with no direct sales to the United States. After analyzing applicable U.S. Supreme Court precedent, Illinois’s highest court found that the foreign component-part manufacturer had sufficient minimum contacts with Illinois to satisfy specific jurisdiction requirements where its products were sold in Illinois through a U.S. distributor, despite the fact that the defendant made no direct sales in Illinois and lacked knowledge that its component parts were marketed or sold in Illinois. This decision will increase the significant hurdles facing product manufacturers seeking personal-jurisdiction dismissals in Illinois and may increase the likelihood of other state and federal courts exercising personal jurisdiction over foreign manufacturers whose products are sold through U.S. distributors. Additional analysis and discussion of Russell v. SNFA is available here.

Mor Wetzler, Paul Hastings LLP, New York, NY


June 28, 2013

Lessons from the Trayvon Martin Case

In the highly publicized trial of George Zimmerman, charged with second-degree murder for the death of Trayvon Martin, earlier this month an appellate court provided a pretrial procedure lesson relating to depositions of counsel and privilege protections relating to witness interviews.

Zimmerman was charged by information on April 11, 2012. On March 19, 2012, Benjamin Crump, an attorney retained by Martin’s family, conducted a telephone interview of Witness 8, a potentially crucial witness in the case because she is alleged to have been on the phone with Martin moments before his death. Crump recorded the interview, but the recording is incomplete and of poor quality. Two members of the media were present with Crump during the interview, and portions of the recorded interview were aired on national television the following day.

George Zimmerman sought to depose Crump, but on the day of the scheduled deposition, Crump filed a 15-page affidavit with the court, asking the court to accept the affidavit in lieu of deposition. After a hearing, the trial court denied Zimmerman’s request to depose Crump. The trial court found that Crump was an “opposing counsel” under the test of Shelton v. American Motors Corp., 805 F.2d 1323, 1327 (8th Cir. 1986) and thus could only be required to submit to deposition on a showing that: (1) no means existed to obtain the desired information other than to depose opposing counsel; (2) the information sought was relevant and non-privileged; and (3) the information was crucial to preparation of the case. The trial court found that Zimmerman did not meet this burden, and Zimmerman sought certiorari review. The appellate court granted the writ (finding it would be unable to ascertain the degree of harm resulting from the wrongful denial of the discovery in a plenary appeal), and reversed the trial court.

Initially the appellate court found that Crump’s representation of Martin’s family does not make him an “opposing counsel” because he was not acting as a lawyer for the state or the defendant, and his interview of Witness 8 could not be found to constitute trial preparation in the pending criminal case. As the court explained, the Shelton test was designed to protect trial attorneys from unnecessary depositions, to prevent the discovery process from being abused in a pending case in a way “that could potentially lead to the disclosure of the attorney’s litigation strategy.” The court found that the test did not apply where the attorney had knowledge of facts relevant to the subject matter of the litigation “and is merely advising a client with respect to a related matter.”

The court also found that there was no work-product protection over the substance of the interview and surrounding circumstances because the interview was conducted in the presence of two media representatives who later aired portions of the interview on national television. The court added that the information provided by Witness 8 is relevant, and the witness’s prior statements and circumstances of the interview could be relevant if Witness 8 testifies at trial.

Although not a basis for its decision, the court rejected the suggestion that Crump could avoid deposition by use of an affidavit. The court nonetheless limited the deposition to the circumstances surrounding the interview and the contents of the interview. Defense counsel was not permitted to inquire into Crump’s mental impressions regarding Witness 8, the reasons why Crump conducted the interview in the manner in which he did, the reasons Crump attempted to locate the witness, or the methods employed to do so.

Mor Wetzler, Paul Hastings LLP, New York, NY


June 28, 2013

Pro-Arbitration Decision Handed Down by Supreme Court

On June 20, 2013, the U.S. Supreme Court issued a significant 5–3 decision in American Express Co. v. Italian Colors, limiting plaintiffs’ ability to bring a class-action lawsuit if they are a party to an arbitration clause that includes a class-arbitration waiver. Although this decision was overshadowed by other cases this term—e.g., Shelby County, which struck down provisions of the Voting Rights Act of 1964—the importance of American Express Co. to the business community should not be overlooked, and there is no doubt that this decision will have far-reaching effects for years to come.

Justice Scalia delivered the opinion of the Court, holding that under the Federal Arbitration Act, courts cannot invalidate a contractual waiver of class arbitration on the ground that individually arbitrating a claim would be so costly for each plaintiff that it would exceed potential recovery. In other words, the Court concluded that an arbitration clause must be rigorously enforced according to its terms, including a class-arbitration waiver, even if the result is that a plaintiff will not have an economic incentive to arbitrate his or her individual claim.

The plaintiffs in American Express Co. were merchants who accepted American Express credit cards. Their agreement with American Express contained an arbitration clause requiring that all disputes between the parties be resolved by arbitration. The agreements also included a class-arbitration waiver, meaning that there was no right for any claims to be arbitrated on a class-action basis. Despite this arbitration clause, the merchants brought a class-action antitrust lawsuit against American Express under the Sherman Act. Specifically, the merchants alleged that American Express used monopoly power to force the merchants to accept credit cards that charged higher fees than its competitors before it would allow them to accept its corporate and premium cards. With respect to the class-arbitration waiver, the merchants presented evidence showing that for each individual merchant to provide expert analysis on its antitrust claim could cost as much as $1 million, while the potential recovery for each merchant was only approximately $40,000. Consequently, because the cost of arbitration would exceed the cost of potential recovery, the merchants argued that they would have no economic incentive to pursue their antitrust claims individually in arbitration, and thus they were effectively precluded from vindicating their rights under federal law.

The Court disagreed and found that the arbitration clause must be enforced. In reaching its decision, the Court noted that unless the arbitration clause is unenforceable due to a contract defense, or Congress provides a "contrary congressional command," the Federal Arbitration Act's mandate to enforce arbitration agreements trumps any interest in ensuring the prosecution of low-value claims. In light of this decision there can be little doubt that class waivers in arbitration clauses will be strictly enforced. Accordingly, this is a strategic contractual provision that could gain significant traction in the near future, and it is something that both defense and plaintiff attorneys should keep an eye on.

Adam Braveman, Paul Hastings LLP, New York, NY


June 28, 2013

Overtime Pay for Contract Attorneys May Be on the Horizon

A lawsuit filed in the Southern District of New York could affect whether and how law firms work with contract attorneys to perform large-scale document reviews. On March 4, 2013, attorney William Henig sued Quinn Emanuel Urquhart & Sullivan, LLP, on behalf of a putative class consisting of all of the firm’s contract attorneys, alleging that contract attorneys should not be exempt from the Fair Labor Standards Act (FLSA) rules regarding overtime pay. Complaint at ¶¶ 28–36. Henig worked as a contract attorney at Quinn Emanuel for approximately six weeks, and during that time he performed approximately 60 hours per week of document review. Henig claims that for the hours that he worked in excess of 40 hours per week, he is entitled to overtime pay (one-and-one-half times his hourly wage). Quinn Emanuel moved to dismiss the complaint, as did Providus, the temporary staffing agency that placed Henig at the firm, and that is also a defendant in the suit.

The FLSA’s professional exemption provides an overtime-pay exemption for “any employee who is the holder of a valid license or certificate permitting the practice of law or medicine or any of their branches and is actually engaged in the practice thereof.” 29 U.S.C. § 541.304(d) (emphasis added). Thus, the key issue before the court is whether performing document review falls within the “practice of law.” According to Henig, his job duties as a contract attorney were of such a routine nature that “[i]t is impossible that such mundane work requiring no legal knowledge or skill whatsoever could be considered the ‘practice of law’ for purposes of the Fair Labor Standards Act’s (“FLSA”) professional exemption.” He also argued that “[t]his type of work requires no legal analysis or skill on the part of the document reviewer, and under these circumstances the document reviewer is not rendering any legal advice or opinion.”

In its motion to dismiss, Quinn Emanuel disputed Henig’s characterization of document review as “extremely routine,” instead claiming that document review “involves exercises of discretion and judgment” and is a “core attorney function” that should be considered the “practice of law.” Quinn Emanuel noted that “[a]lthough document review is sometimes perceived as a less glamorous litigation task, it is often of critical import.” The motion explained that was, for example, why it had “contracted for a licensed attorney rather than an out-of-work actor.” Quinn Emanuel reiterated in its reply brief that because contract attorneys must be practicing attorneys—i.e., not disbarred or suspended attorneys—the legal work that they perform while conducting a document review inherently falls under the FLSA’s professional exemption. The motion to dismiss also questioned whether the law firm could actually be liable for any alleged violation of federal or state labor laws because it was not actually Henig's employer.

The decision in this case could impact not only overtime, but the use and scope of contract attorney reviews in the future.

The case is William Henig v. Quinn Emanuel Urquhart & Sullivan LLP et al., case No. 13-cv-01432, in the U.S. District Court for the Southern District of New York.

Adam Braveman and Mor Wetzler, Paul Hastings LLP, New York, NY


June 28, 2013

Privacy Rights, Social Media, and Employment in Texas

Twitter, Vine, Instagram, Facebook, MySpace . . . it seems that the list of social-media networks increases each year. And apparently, the more these outlets increase, the more some employers request access to these accounts that are owned by both employees and prospective employees. In Texas, Senator Juan Hinojosa is calling for employer-employee boundaries with regard to social media. On January 29, 2013, the senator proposed S.B. 118, which seeks to prohibit an employer from requiring or requesting access to the personal accounts of employees and job applicants through electronic communication devices; and establishing such activities as an unlawful employment practice.

The bill defines electronic communication device as “a computer, telephone, personal digital assistant, or similar device that uses electronic signals to create, transmit, and receive information.” If enacted, an employer would be found to commit an unlawful employment practice “if the employer requires or requests that an employee or applicant for employment disclose a user name, password, or other means for accessing a personal account of the employee or applicant, including a personal e-mail account or a social networking website account or profile, through an electronic communication device.”

The proposed legislation would not prohibit an employer from maintaining lawful policies that govern an employee’s use of employer-provided electronic communication devices. Therefore, employers would still be able to create policies that dictate an employee’s usage of personal electronic devices during work hours, employee use of employer-provided communication devices, and employer-provided email accounts. The proposed legislation also would not prohibit employers from obtaining information about an employee or an applicant for employment that is in the public domain or that is otherwise lawfully obtained.

The proposed bill is still on the table and no final vote has been reached to determine its effect. However, it is clear that employees in Texas can rest peacefully, knowing that someone in Austin is fighting for their privacy. On the other hand, some critics such as Travis Crabtree at JDSUPRA, believe that while the proposed bill is a giant leap in the direction of privacy, it also opens the door to future problems such as “shoulder surfing,” which occurs when when an employer asks an employee to log in to his or her accounts while the employer watches over her shoulder. Hopefully, an employer won’t engage in such practices; however, it is both a possibility and a potential loophole because  the bill does not define “other means for accessing a personal account”in the section that describes the prohibited activity. In the meantime, all individuals regardless of location are well advised to take precaution when posting information on their public timelines because even if you have a protected account, you could be required to disclose your password for employment purposes and subsequently lose your protection. For more information on privacy laws in your state, please visit your state legislature’s website.

Erika L. Glenn, Arias, Ozzello & Gignac, LLP, Houston, TX


June 17, 2013

Proportionality: More Than a Trend

The federal judiciary took another step toward the largest sea change in federal discovery since the 1993 amendments added initial disclosures. On June 3, 2013, the Committee on Rules of Practice and Procedure approved, for publication and comment, proposed amendments making fundamental and philosophical changes to the way discovery will be pursued and accomplished. Publication will start August 15, 2013. Subject to comments, the new rules may be enacted in December 2013.

The new rules, if enacted as proposed, would change the standard of discovery from “reasonably calculated to lead to the discovery of admissible evidence” to “relevant” and “proportional.” Proportionality is a key touchstone to the proposed rule changes.

Specifically, among other things, the proposed amendments would:

  • reduce the presumptive limit of depositions from ten to five;
  • reduce the presumptive time limit for the duration of a deposition from one day, of seven hours, to six hours;
  • reduce the presumptive limit on written interrogatories from 25 to 15;
  • create new presumptive limits on requests to admit of 25 (not including requests related to document authenticity); and
  • create new or express obligations with respect to objections to document requests (objections must be specific, and include a statement of whether documents have been withheld on the basis of the objection).

There are many other proposed changes to timing and requirements related to discovery and pretrial practice, including a requirement for face-to-face Rule 16(b) conferences—no more telephone conferences.

The proposed amendments can be found, in full with advisory committee comments, in the April 2013 Advisory Committee Report.

Jeffrey G. Close, Chapman and Cutler LLP, Chicago, IL


April 29, 2013

"Auto-Deleted" Facebook Account Leads to Sanction

Do your clients have discoverable social media? If so, are you familiar with those sites’ terms of service? A recent case out of New Jersey suggests it might well be worthwhile to find out.

In Gatto v. United Airlines, the plaintiff had deactivated a discoverable Facebook account. 10-cv-1090-ES-SCM (D.N.J. Mar. 25, 2013). Two weeks later, following its standard procedure, Facebook deleted the account and all data contained therein. Though the plaintiff claimed innocent intent, Magistrate Judge Mannion granted an adverse-inference sanction for spoliation of evidence (but denied a motion for fees), holding that the plaintiff’s culpability “is largely irrelevant” for purposes of an adverse-inference sanction.

Plaintiff Gatto claimed a workplace accident rendered him permanently physically disabled and limited his physical and social activities. As has become common in these types of claims, the defendants requested discovery of the plaintiff’s social media. Following an order from Magistrate Judge Waldor (because the plaintiff did not initially provide an authorization for the release of documents and information from Facebook), Gatto executed an authorization for the release of information relating to his Facebook account, and his attorney agreed to change the password and provide it to counsel for the purpose of accessing documents and information from Facebook.

Counsel for another defendant subsequently accessed Gatto’s Facebook page, triggering an automated email to Gatto that an unfamiliar IP address had accessed his account. In response to an inquiry from plaintiff’s counsel, the defendant replied indicating that the account was accessed and that plaintiff’s authorization was sent to Facebook with a subpoena to obtain the entire contents of the account directly from Facebook. Ten days after the access, and one day after the defendant confirmed it had accessed the account, the plaintiff deactivated his Facebook account, resulting in the automatic deletion of account data when he did not reactive his account within two weeks. The defendants moved for spoliation sanctions.

Addressing the claim for an adverse-inference instruction, the court found that all four requirements were met. First, the Facebook account was “clearly within” the plaintiff’s control, as he “had authority to add, delete, or modify his account’s content.” Second, the account was relevant to the litigation, as the plaintiff alleged a limited ability to work or socialize, and posts, comments, status updates, or other posted information “would be relevant to the issue of damages.” Third, it was reasonably foreseeable that the account would be sought in discovery; the initial discovery request had been sent five months earlier and explicitly asked for documents and information related to social-media accounts. Finally, whether there was “actual suppression or withholding of evidence” was straightforward. Though the plaintiff argued he did not intentionally spoliate evidence, but rather that he had been involved in contentious divorce proceedings and his account had been “hacked into” on numerous occasions, the court explained that “culpability is largely irrelevant.” As long as the defendant had intentionally deactivated his account, resulting in the loss of relevant data and prejudice to the opposing party, an adverse-inference instruction was appropriate.

In contrast, Magistrate Mannion declined to award the defendants attorney fees and costs. The court noted that awarding fees and costs is not mandatory but a matter of discretion, and it found that monetary sanctions were not necessary because Gatto did not appear to have been motivated “by fraudulent purposes or diversionary tactics, and the loss of evidence will not cause unnecessary delay.”

This case highlights the need for counsel to be well versed in the importance of locating and halting auto-delete functions as part of a litigation hold. It is important to remember that when dealing with social-media discovery, the control over the “auto delete” function may reside with a non-party. As social media, data-management outsourcing, and cloud computing expand, it will become increasingly important to remain mindful of external auto-delete analogues as part of a litigation hold and ongoing discovery strategy.

Mor Wetzler and Jess Oliva, Paul Hastings, New York, NY


April 29, 2013

Facebook, MySpace Pages Not "Purposefully Directed" Out of State

Courts have recently tackled the question of whether maintaining a social-media page—such as a Twitter or Facebook account—meets the requirements of minimum contacts with a state to establish personal jurisdiction. For example and background discussion, see this committee’s post, “Friending International Shoe” (August 1, 2012), or “When Companies ‘Friend,’ ‘Like’ & ‘Tweet’ Their Way to Distant Courts,” New York Law Journal, (Oct. 11, 2012). Some decisions have indicated that a company’s use of social media may subject it to jurisdiction in different fora, depending on the level of social-media “interaction” it has with particular customers in a particular forum.

A recent Iowa court applied this analysis to find that a business’s advertisements via Facebook and MySpace were not “purposefully directed” to a neighboring state’s residents so as to subject the business to specific personal jurisdiction there. The plaintiffs in Woodhurst v. Manny’s Inc., 2013 WL 1452929 (Iowa App. Apr. 10, 2013) brought suit against a bar in Illinois located just a few miles from the Iowa border. The plaintiffs alleged that the bar was liable for serving alcohol to one of its patrons who crossed over to Iowa and shot one of the plaintiffs. The Iowa court dismissed the suit for lack of personal jurisdiction over the defendant, and the Iowa Court of Appeals affirmed.

The appellate court recognized that advertising in another state may serve as a means of establishing personal jurisdiction, but added that to serve as a “jurisdictional hook,” those advertisements must actively solicit and target out-of-state residents. The court analyzed the plaintiffs’ arguments that jurisdiction existed based on print and radio advertisements, finding those advertisements insufficient to establish jurisdiction because they related to an Iowa location unrelated to the Illinois location involved in the allegations, or fell short of the “purposeful activity” requirement needed for personal jurisdiction. Turning to the bar’s Facebook and MySpace pages, the court found no evidence that the company had “purposefully directed” its advertisements via its Facebook and MySpace pages to Iowa residents.

Although some earlier decisions had analyzed a website’s level of “interactivity” (see, e.g., Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997)), this decision indicates that despite their interactivity, Facebook and MySpace pages may not be enough to meet the requirements of minimum contacts if they are not directed to residents of a particular state. However, the analysis may remain fact-specific, because courts have found personal jurisdiction based on information in social-media pages. See, e.g., Juniper Networks, Inc. v. Juniper Media, LLC, No. 11-03906 WHA (N.D. Cal. Jan. 17, 2012) (finding jurisdiction based on information in LinkedIn profiles and Twitter account).

Businesses must pay close attention to this developing case law and to their use of social media to minimize the fora in which they may find themselves “haled” into court.

Mor Wetzler, Paul Hastings LLP, New York, NY


April 29, 2013

Court Orders Tiered Predictive Coding

In a multidistrict litigation, a Northern District of Indiana court recently ruled that a defendant’s use of predictive coding following other culling methods was reasonable. In re: Biomet M2a Magnum Hip Implant Products Liability Litigation (N.D. Ind., Apr. 18, 2013). The order described the issue as follows: “[Defendant] has produced 2.5 million documents to plaintiffs in this docket’s constituent cases, and the Plaintiffs’ Steering Committee believes production should run to something closer to 10 million documents.”

The defendant’s process consisted of a three-step culling of documents. The defendant began with keyword searching, which reduced the data set from 19.5 million documents and attachments to 3.9 million documents and attachments (1.5 terabytes of data). The defendant then removed duplicate documents, reducing the 3.9 million to 2.5 million documents and attachments. After de-duplication, the defendant applied predictive-coding technology to identify relevant documents from the remaining 2.5 million documents and attachments. The defendant’s e-discovery costs at the time of the order were $1.07 million and were expected to total between $2 million and $3.25 million.

The plaintiffs believed the production volume should have been much higher and claimed that the initial “less accurate keyword search” was an “insufficient” way to narrow the volume at the first stage and thus had “tainted” the entire process. The plaintiffs sought to compel the defendant to restart the process and employ predictive coding on the original volume of 19.5 million documents. The defendant objected on multiple grounds, including that this approach would cost it “millions more than the millions it already has spent in document production,” thus violating the proportionality rule under FRCP 26(b).

The court agreed with the defendant, finding that its process was reasonable under FRCP 26(b) and 34(b)(2). As the court explained, the issue before it was not “whether predictive coding is a better way of doing things than keyword searching prior to predictive coding,” but rather whether defendant’s procedure satisfies its discovery obligations and whether it must also do what plaintiffs seek. The court found that defendant complied fully with its discovery obligations. It had cooperated with the plaintiffs to set up its process, offered plaintiffs the opportunity to suggest additional search terms and even offered to produce the rest of the non-privileged documents from the post-keyword 2.5 million so that plaintiffs could verify the defendant was producing the relevant documents. The plaintiffs declined those offers, believing they were “too little to assure proper document production.” It demanded instead a re-do of the entire process by which the plaintiffs and the defendant would have input into the predictive-coding process. The court disagreed, explaining that the requirement for cooperation does not require “counsel from both sides to sit in adjoining seats while rummaging through millions of files that haven’t been reviewed for confidentiality or privilege.”

The court explained that the plaintiffs’ demand that the defendant “go back to square one and institute predictive coding at that earlier stage sits uneasily with the proportionality standard in Rule 26(b)(2)(C).” The confidence tests that the defendant ran as part of its process suggested that a comparatively modest number of documents would be found by doing so. The court noted that inherent in its decision was the assumption that the defendant would remain open to meeting and conferring on additional reasonably targeted search terms and to producing the non-privileged documents included in the statistical sample. Finally, the court offered the plaintiffs the option to apply predictive coding as they sought if they were willing to bear the expense.

Mor Wetzler, Paul Hastings LLP, New York, NY


April 24, 2013

Pro Bono Help for Migrant Youth

Witness discovery, witness preparation, deposition preparation, cross-examinations, approaching the bench . . . it is mind-boggling that there are clients who choose to tackle these tasks pro se and turn down legal representation. But what about those for whom the only choice is pro se representation? Shockingly, some migrants as young as 14 must represent themselves in immigration courts across the United States each day. The New York Times recently highlighted the story of a young migrant teen caught in the system, and made it clear that her experience is not unique. In an attempt to escape gang violence, this 13-year-old teen girl trekked across Mexico and into the United States for six months alone before being caught by Border Patrol. After being caught, she then faced the task of tackling the justice system—again, alone. With no money and no resources, hiring an attorney was not an option. However, thanks to an organization founded by the Microsoft Corporation and Angelina Jolie, this teen received free legal representation through K.I.N.D. (Kids In Need of Defense). With offices in seven U.S. cities (Baltimore, Boston, Houston, Newark, New York, Los Angeles, and Washington D.C., and an affiliate in Seattle), K.I.N.D. seeks to improve the experience of unaccompanied youth who enter the U.S. immigration system alone. K.I.N.D. relies on the help of many kinds of volunteers and particularly volunteer attorneys. K.I.N.D. tells interested attorneys that they do not need to fret if they have no experience, because no prior experience in immigration matters is needed. K.I.N.D. provides pro bono attorneys with thorough training and step-by-step guidance in each phase of the process. Attorneys don’t even have to be part of a large law firm to assist because the cases are not time-consuming and do not require complex resources. For more information on how you can get involved with K.I.N.D. visit


March 27, 2013

Document Retention Policy Only as Good as Intention Behind It

E-discovery sanctions may prove more powerful than patents, as memory-chip developer Rambus, Inc. has learned. In January 2009, the District of Delaware dismissed Rambus’s patent-infringement claims against rival Micron Technology, Inc. as a sanction for spoliation based on Rambus’s bad-faith implementation of its document-retention policy. After a partial vacate-and-remand by the Federal Circuit in 2011, Rambus once again saw its claims dismissed in January 2013 due to a finding of bad-faith and prejudicial spoliation. Though enforcement is stayed pending a second appeal to the Federal Circuit on this issue, this case stands as a reminder that document-retention policies are only as good at the intent behind them.

On remand from the first decision, the Federal Circuit asked the district court to explain the basis for each of three findings necessary to dismiss a case as a spoliation sanction: (a) bad faith, (b) prejudice, and (c) how dispositive sanctions meet “the trifold aims of: (1) deterring future spoliation of evidence; (2) protecting the defendants’ interest; and (3) remedying the prejudice defendants suffered as a result of [Rambus’] actions.” Micron Tech., Inc. v. Rambus, Inc., Civ. No. 00-792-SLR (D. Del. Jan. 2, 2013) (Rambus III) (quoting Micron Tech., Inc. v. Rambus, Inc., 645 F.3d 1326, 1329 (Fed. Cir. 2011) (citation omitted)). The district court reviewed its earlier findings of fact and, in a strongly worded opinion, found a sufficient basis to support all three.

Bad Faith      
The most recent decision turned on the determination that Rambus had acted in bad faith. Though document-retention policies employed for “legitimate business reasons such as general house-keeping” will not subject a company to a finding of bad faith, the court found Rambus’s actions evinced spoliation of “the worst type: intentional, widespread, advantage-seeking, and concealed.” Rambus at 44.

First, though Rambus argued that its document-retention policy was routine and content-neutral, the court held it was in fact developed as part of Rambus’ licensing and litigation strategy, as part of rendering Rambus “battle-ready” in the words of one officer. Moreover, even though Rambus had considered several potential adversaries as part of its litigation strategy, the court held that the requisite bad faith “need not be directed toward any specific litigant but only toward a potential litigant.” Id. at 24.

Second, the court noted Rambus selectively implemented its document-retention policy. Rambus’s vice president of intellectual property had instructed employees to “look for things to keep” that would help Rambus’ litigation position, and he urged them to expunge documents harmful to patent enforcement. Id. Moreover, the only backup tape out of 1,270 to survive degaussing (demagnetizing) was found to contain a document that supported Rambus’s litigation position.

Third, the court held that Rambus’s actions implicitly acknowledged that the implementation of its document-retention policy was improper: Employees were discouraged from emailing questions about the policy, and a draft presentation (subsequently edited) stated that a “shredding party” was part of Rambus’s licensing-and-litigation-readiness initiative.

Finally, the court noted that several of Rambus’s witnesses gave false testimony relating to the purpose of its document-retention policy, which further suggested a “cover up” of Rambus’s bad faith. Id. at 28.

Significantly, Rambus’s argument that the implementation of its document-retention policy occurred before the duty to preserve attached was unavailing. Because the raison d’être of the policy was to frustrate adverse litigants’ fact finding, the court held it could still find bad faith. And even though “[a]t some point, the bad faith upon which a policy is predicated may dissipate, . . . that point has not been reached in the current case as it represented the exact sort of litigation that was meant to be frustrated by the document retention policy.” Id. at 28.

The question of prejudice “turn[ed] largely” on the court’s finding of bad faith: Because Rambus had acted in bad faith, it was Rambus’s “heavy burden” to demonstrate Micron suffered no prejudice, a burden Rambus did not meet. The court agreed that Micron’s defenses of anticipation and obviousness likely would not be harmed by spoliation (such defenses must be proven via publicly available information). However, Micron’s ability to bring claims or defenses based on improper use of trade-group information could well have been harmed by spoliation, as could Micron’s inequitable conduct defense. Micron thus made “plausible, concrete suggestions” as to what evidence might have been destroyed, thus showing prejudice, and Rambus was unable to rebut this argument.

Propriety of Dismissal as a Sanction
Finally, the court held that Rambus’s bad-faith spoliation supported each of the three factors supporting a dispositive sanction. First, Rambus’s “purposeful, thorough document destruction” on several occasions evidenced a high degree of fault. The court noted that even after Rambus was actively engaged in litigation with three different adversaries, its in-house counsel nonetheless expressed the desire to “more effectively” implement a new document-retention policy. Second, the “wide range and sheer amount of material destroyed, along with Rambus’ bad faith, make it almost certain that the misconduct interfered with the rightful resolution of the case” to the extent that “adjudication of the case on the merits is not possible.” Finally, the court held that lesser sanctions were insufficient to deter future conduct. The “temptation to destroy unfavorable evidence at the outset of high stakes [sic] litigation would overshadow the prospect” of monetary sanctions. The court explained that an adverse jury instruction is appropriate only where there is a low degree of prejudice, and an evidentiary sanction would have the same substantive outcome as a dispositive outcome, but would require an entire trial.

Because the appropriate sanction for spoliation of the “worst kind” is the sanction that is the most onerous, the court held the patents-in-suit unenforceable against Micron.

Mor Wetzler and Jess Oliva, Paul Hastings, New York, NY


March 26, 2013

How to Proactively Prepare Your Witness for a Successful Deposition

The Pretrial Practice & Discovery Committee recently worked with the ABA Center for Professional Development to present a CLE on March 26, 2013, titled “The Best Defense Is a Good Offense: How to Proactively Prepare Your Witness for a Successful Deposition.” A write-up of the presentation will follow, and the full materials are available online. In addition, the presenters provided this very useful checklist of dos and don’ts in preparing a witness:


  • Do tell your witness to keep your conversations confidential.
  • Do tell your witness at the start and end of each preparation session to always tell the truth. See 18 U.S.C. § 1623 (fines and imprisonment of up to five years for perjury).
  • Do tell your witness to keep his or her answers short.
  • Do tell your witness to only answer the questions that are asked (i.e., no volunteering or speculating).
  • Do know your facts (review all pleadings, discovery responses, key documents, etc.).
  • Do understand how the other side can use your witness to their advantage.
  • Do identify all key good and bad documents relating to your witness.
  • Do organize your documents in a logical fashion, usually by issue.
  • Do identify all prior inconsistent statements by your witness.
  • Do tailor the background information about the case to your witness.
  • Do tell your witness to follow the three golden rules: (1) Pause before answering; (2) only answer the question that is being asked; (3) tell the truth.
  • Do get your witness comfortable with “I don’t know” and “I don’t understand.”
  • Do have a protocol with your witness for how to handle breaks and what the law in your jurisdiction is with respect to communicating with your witness. See Hall v. Clifton Precision, 150 F.R.D. 525, 529 (E.D. Pa. 1993) (holding conferences between lawyer and witness during breaks prohibited).
  • Do a mock examination if possible.
  • Do tell your witness that a professional appearance is important.
  • Do preserve objections (when necessary) that are not already preserved for trial. See FRCP 32(d)(3)(B).


  • Don’t show documents to your witness that you don’t want produced to the other side. See Thomas v. Euro RSCG Life, 264 F.R.D. 120 (S.D.N.Y. Feb. 18, 2010) (waiver found where privileged notes shown to witness prior to deposition to refresh recollection of previous conversations by witness).
  • Don’t allow nonparties to attend preparation sessions and break privilege.
  • Don’t forget to ask your witness about potentially relevant evidence that may exist outside of the record.
  • Don’t give long lectures to your witness.
  • Don’t use legal jargon to explain the theories of the case to your witness.
  • Don’t allow your witness to reveal privileged matters. If you suspect that the testimony being given is privileged, instruct the witness not to answer further. In re County of Erie, 546 F.3d 222, 230 (2d Cir. 2008) (holding privilege not waived by virtue of deposition testimony where the attorney terminated further questioning before the substance of privileged matters revealed).
  • Don’t increase your witness’ anxiety level by not acknowledging it.
  • Don’t let your witness be baited by opposing counsel into losing his or her composure during the deposition (this goes for attorneys too). See GMAC Bank v. HTFC Corp., 248 F.R.D. 182, 186 (E.D. Pa 2008) (ordering witness and counsel jointly and severally liable for $30,000 in sanctions, plus retaking of deposition in front of magistrate judge, where witness gave repeated evasive and non-responsive answers, used vulgar language, and repeated self-initiated breaks); Van Plisum v. Iowa State Univ. of Sci. Tech., 152 F.R.D. 179, 180-81 (S.D. Iowa 1993) (plaintiff’s attorney sanctioned where thirty percent of transcript reflected “discussion, argument, bickering, haranguing, and general interference” and plaintiff’s attorney “engaged in ad hominem attacks on [opposing counsel’s] ethics, litigation experience and honesty.”).
  • Don’t meet for the first time on deposition day in opposing counsel’s reception area.
  • Don’t let your witness bring anything with him or her to the deposition.
  • Don’t allow your witness to engage in small talk with opposing counsel.


March 25, 2013

Florida Joins States Addressing Ethics in the "Cloud"

Florida recently joined a growing list of state-bar professional-responsibility committees that have issued ethics opinions regarding lawyers’ use of online data storage or “cloud” computing. So far, these opinions all have concluded that online file storage is permissible under the ethics rules as long as both the lawyer and the service provider or vendor take certain steps to ensure compliance with the lawyer’s duty of confidentiality, competence, and supervision of non-lawyers. This practice, also called “cloud computing,” involves storing data in servers that are owned and maintained by third-party vendors. The practice can create efficiencies and reduce costs, but entrusting online-data-storage vendors with confidential client information can create a number of ethical dilemmas for lawyers. Many of the ethical concerns arise because the data is not stored internally and the lawyer does not have total control over its security and management. The states that have issued opinions directly addressing the ethics of cloud computing are: Alabama, Arizona, Iowa, Massachusetts, Nevada, New York, North Carolina, Oregon, Pennsylvania, Vermont, and most recently, Florida.

All of these opinions require lawyers to exercise “reasonable care” to ensure they meet their ethical obligations to their clients. The opinions generally recommend that the lawyer or law firm obtain a basic understanding of cloud computing, stay up-to-date on current developments in such technologies, take steps to have competent technical personnel investigate the vendor’s security measures prior to and after selecting the vendor, review the vendor’s security procedures and service agreements periodically, and notify the client when using online data storage. Beyond notifying the client, Massachusetts stated lawyers generally should obtain express consent from the client when storing confidential client information online, even though strategic decisions about representations are generally the lawyer’s to make. Some states highlight particular service-agreement terms that lawyers should review, such as access to the data after termination of the agreement, limited vendor liability, or choice of dispute-resolution method and forum. Some states, such as Pennsylvania, have noted that some vendors may use servers located in a different geographic area, and lawyers should assess the software’s security measures and the ethics rules of the geographic areas in which the data are stored.

The opinions also provide guidance for cloud-computing vendors. They state that vendors should be aware of and be sure to implement the types of measures, procedures, and policies that ensure the law firms’ compliance with confidentiality, competence, and supervision duties. Vendors should give firms the right to investigate or audit security practices, include in an agreement the details of how the vendor will handle confidential client information, and maintain up-to-date data-protection measures such as data encryption, password protection, firewalls, data backup, limiting information access to unauthorized users, and monitoring of those who have access. Vendors also should communicate with the lawyer any procedures that the vendor will take in the event of a data breach or a data loss, and what will happen to the data if either party terminates the agreement.

On January 25, 2013, the Florida Bar’s Standing Committee on Professional Ethics issued Proposed Advisory Opinion 12-3, making Florida the eleventh state to conclude that cloud computing is acceptable in the legal industry. Like the other ethics opinions, the Florida opinion posited a standard of “reasonable care” for lawyers who use online-data-storage technologies and generally agreed with the recommendations made by the other states’ bar associations. The opinion noted that cloud computing implicates the professional duties of confidentiality, competence, and proper supervision of non-lawyers. To ensure compliance with those rules, the opinion stated that lawyers have an obligation to remain current in developments in cloud-computing technologies, and that lawyers must perform due diligence in researching the outside service provider to ensure it has adequate safeguards in place to protect confidential client information. Referencing the Iowa Bar ethics opinion, the Florida opinion also recommends that lawyers should be sure they can access the data without limitations, and lawyers also should be able to control which third parties can have such access.

Because the practice of cloud computing continues to grow in popularity, there undoubtedly will be more states addressing the ethical concerns, and lawyers using cloud computing should take care to read these opinions to ensure that they are compliant in any state.

Mor Wetzler and Jeanette Kang, Paul Hastings LLP, New York, NY


March 22, 2013

Non-Viable Claim Prevented from Destroying Diversity Jurisdiction

On March 6, 2013, the U.S. Court of Appeals for the Eighth Circuit reversed and remanded a lower court decision, which may make it more difficult for future plaintiffs to remand cases from federal to state court.

In Donner v. Alcoa, Inc., No. 12-1415 (8th Cir. March 6, 2013), plaintiff George Donner was diagnosed with pulmonary fibrosis resulting from exposure to aluminum. He had worked in various capacities at an aluminum-products plant for 27 years. Mr. Donner and his wife filed suit in state court against Alcoa, Inc., the manufacturer of the aluminum that was used at the plant, sounding in negligence, strict liability, and loss of consortium. Because the plaintiffs were residents of Missouri and the defendant was incorporated in Pennsylvania, the defendant removed the action to the Western District of Missouri federal court on diversity grounds. The plaintiffs eventually made the court aware of their intention to refile their state claims and add Western Forms, Mr. Donner’s former employer and a Missouri company, as a defendant to the lawsuit, which would destroy diversity jurisdiction. The plaintiffs then sought and received voluntarily dismissal of their federal causes of action.

The defendant, Alcoa, Inc., appealed the district court’s ruling granting voluntary dismissal of the plaintiff’s federal claims. The defendant alleged that Mr. Donner had accepted workers’ compensation benefits from Western Forms, wiping out the alleged state claims, and that with no viable claim against Western Forms, the plaintiffs were merely forum shopping. The plaintiffs argued that Mr. Donner had not officially accepted the workers’ compensation agreement, although he had already been receiving and cashing the workers’ compensation payments. The plaintiffs also claimed that the district court had no need to make a determination regarding an affirmative defense because there was no guarantee that Western Forms would raise it.

The Court of Appeals for the Eighth Circuit found that the circumstances surrounding the voluntary dismissal should have caused the lower court to examine the merits of the plaintiff’s new claims more closely, and that the lower court had abused its discretion by failing to take the viability of the plaintiff’s claims against Western Forms into account. The Court stated that to determine whether a party has presented a proper explanation for its desire to dismiss, “[s]ometimes, such an inquiry will necessarily require the district court to examine the merits of a plaintiff’s proposed claims against a diversity-destroying defendant . . .” The court also did not find the lack of finalization of the workers’ compensation claim compelling, as it did not change the fact that the plaintiff had already elected to take the benefits. The court reversed the decision and remanded it for further review.

The court’s decision places more responsibility on lower courts to examine the underlying claims against a diversity-destroying defendant when a voluntary dismissal is being sought. This may raise the bar for granting voluntary dismissals, making forum shopping through claims with questionable merit more difficult in the future.

B. Justin Goggins, Paul Hastings LLP, New York, NY


February 26, 2013

No Sanctions in In re Pfizer Securities Litigation

Paper files, electronic document storage, legacy servers, backup tapes, email, voicemail, instant messaging: Tracking a company’s ESI and producing responsive data challenges even the most seasoned attorneys. A recent case out of the Southern District of New York provides some relief and guidance to discovery counsel, holding that a good-faith effort to meet discovery requirements, combined with production of relevant documents, may be sufficient to avoid sanctions even where a party has inadvertently, even if negligently, breached its duty to preserve evidence.

The plaintiffs in In re Pfizer Securities Litigation (S.D.N.Y.) claim the pharmaceuticals giant misled investors during a five-year period by failing to properly disclose the cardiovascular side effects of two drugs. In January, Magistrate Judge Pitman considered and denied motions for discovery sanctions, finding no more than negligence and that the moving party did not suffer prejudice.

The court began its analysis with an in-depth discussion of spoliation doctrine in the Second Circuit. A party alleging spoliation must demonstrate: (1) breach of a duty to preserve evidence, (2) culpability for the breach, and (3) prejudicial loss of relevant evidence. In the case of bad-faith spoliation, an inference that the lost evidence was unfavorable to the spoliator is permissible. The court noted the Southern District is split as to whether the obligation to preserve extends to counsel (see, e.g. Zubulake) and held that in the absence of Second Circuit precedent and on the facts of this case, it would consider sanctions against parties only.

The court first addressed the plaintiffs’ motion for spoliation, much of which revolved around Pfizer’s production of data from so-called eRooms. These virtual workspaces permitted Pfizer employees (and, in one case, employees of both Pfizer and its marketing partner Pharmacia) to share documents and calendars, archive emails, instant-message colleagues, and conduct informal polls. The eRoom software could track log-in and log-out information, among other data. Pfizer decommissioned and archived its eRooms in 2011, seven years after litigation had commenced. The plaintiffs alleged Pfizer had a duty to maintain the eRooms in the same state as when litigation began; Pfizer replied that whatever documents were contained in the eRooms would have been duplicative of documents maintained by eRoom participants.

As a general rule, litigants are free to choose among the many ways to manage electronic data and are not obligated to preserve multiple identical copies of documents. Zubulake 220 F.R.D. at 218. Here, however, the court noted that the data in the eRooms, even if largely duplicative “have a value in [and] of themselves as compilations.” Pfizer at 43. “The manner in which Pfizer and its employees internally organized documents is relevant because it allows Plaintiffs to draw connections and understand the narrative of events in a way not necessarily afforded by a custodial production.” Pfizer at 44. Thus, the court found Pfizer breached its preservation obligation by failing to maintain this metadata.

However, the court also found Pfizer’s conduct was “at most” negligent. It did not conceal the existence of the eRooms or other centralized databases at issue, and “most important[],” once the existence of the eRooms was brought to its attention, Pfizer worked diligently with plaintiffs to produce relevant documents, even waiving privilege and relevance review. Pfizer at 47–48. “Although its efforts may not have been perfect, Pfizer did endeavor to meet all its obligations once additional document repositories were identified and did produce an additional 20 million pages of documents.” Pfizer at 48.

Ultimately the court declined to sanction Pfizer, because the plaintiffs did not adequately demonstrate how the missing metadata and other documents would have been helpful to them. Pfizer did not maintain historical membership lists for eRooms, for example, nor did metadata record who viewed or accessed which documents. Moreover, the documents maintained in the eRooms likely were duplicated in members’ custodian files, and in some cases the plaintiffs did not demonstrate that the allegedly missing documents existed.

While determining what electronic evidence to preserve and what to produce continues to require careful analysis, discovery counsel may rely upon knowing that a good-faith effort to produce relevant material—and to remedy inadvertent mistakes along the way—might provide relief from sanctions down the road.

Jess Oliva and Carla Walworth, Paul Hastings LLP, New York, NY


February 21, 2013

Eighth Circuit Okays Redaction of Complaint if "Practicable"

On February 11, 2013, the Eighth Circuit issued a decision requiring the Western District of Arkansas to either explain its reasons for concluding that an entire complaint should remain under seal, or to determine whether a redacted version of the complaint could be filed. See IDT Corp., et al. v. eBay et al., No. 11-3009, 2013 WL 490751 (8th Cir. Feb. 11, 2013).

In IDT, the Eighth Circuit reviewed on appeal the district court’s denial of the Arkansas Public Law Center’s (APLC) motion to unseal a complaint filed by IDT Corp. and Net2Phone, Inc. in an antitrust suit against eBay, Inc., Skype, Inc., and Skype Technologies S.A (collectively, “Skype”). The antitrust litigation was an offshoot of a series of patent-infringement disputes between Skype, eBay, IDT, and Net2Phone involving the exchange of highly sensitive business information produced pursuant to protective orders. Three weeks after the antitrust complaint was filed, the companies agreed to a settlement in all of the pending litigations. Subsequently, APLC moved to intervene in the antitrust litigation and unseal the antitrust complaint. The district court granted APLC’s motion to intervene, but after an in camera review of the antitrust complaint, denied APLC’s motion to unseal. Because the antitrust complaint contained information produced pursuant to the protective orders, the district court stated that the “parties’ interests in protecting their confidential information outweighs any general interest of public access.”

The Eighth Circuit discussed the strength of the “common-law right of access to judicial records,” but noted that the right is not absolute. The court stated that it must balance the companies’ interests in protecting confidential information against the public’s interest in accessing judicial records. Moreover, the weight given to the presumption of the public’s access to judicial records should be viewed in light of the role the particular record plays in the court’s exercise of its Article III powers. Here, the district court only reviewed the antitrust complaint to determine whether it should be sealed, and did not adjudicate any portion of the claims on the merits. The Eighth Circuit concluded that the antitrust complaint was of little relevance to the district court’s exercise of its judicial power, and the weight of the presumption of public access was low.

Based on the above reasoning, the Eighth Circuit found no abuse of discretion in the district court’s determination that the antitrust complaint contained sensitive information. Nevertheless, the court noted that the record was unclear as to why the entire complaint should be sealed. Consequently, the Eighth Circuit vacated the order and remanded it to the district court to either explain why it was necessary to seal the entire complaint, or alternatively, to unseal a redacted version of the complaint if “practicable.”

While the “common-law right of access to judicial records” remains intact, the Eighth Circuit’s decision solidifies the understanding that this right is not absolute and must be reviewed in light of the role the judicial records play in a federal court’s exercise of its Article III powers. However, to avoid a similar holding, parties should take care to sufficiently explain to a district court why redaction of a judicial record would be either appropriate or inappropriate, and district courts should include such discussions in orders deciding upon motions to seal or unseal.

Alanna Frisby, Weil Gotshal, New York, New York


February 20, 2013

Follow FRE 502(d), Take "Inadvertent" out of Inadvertent Disclosure

A recent one-page opinion by the magistrate judge in a $1 billion dollar matter pending in the U.S. District Court for the Southern District of New York appears to confirm what experts have been saying for some time: a clawback order under Federal Rule of Evidence 502(d) can be drafted to protect privileged documents whether the disclosure was inadvertent or not. See, Brookfield Asset Mgmt., Inc. v. AIG Financial Products Corp., No. 09-Civ. 8285 (PGG)(FM), 2013 WL 142503 (S.D.N.Y. Jan 7, 2013).

In deciding that AIG was entitled to return of its privileged documents, the court stated, “Even if AIG or its counsel had dropped the ball (which they did not), the parties at my urging had entered into a Rule 502(d) stipulation, which I so ordered.” The court had to look no further than the broad language of the stipulated order—which contained no inadvertence language—to order return of the disputed documents to AIG. FRE 502(d) itself contains no reference, or limitation, to inadvertent production. Cf. FRE 502(b).

Today, almost every expert agrees that engaging in discovery in federal court without a proper FRE 502(d) order may be malpractice. Drafting a proper one is the trick. See, e.g., Potomac Elec. Pwr. Co. v. U.S., 107 Fed. Cl. 725 (Ct. Fed. Cl. 2012) (refusing to enter order that could permit intentional and strategic, selective disclosure of privileged information). See also Brookfield, supra.

For more on this important topic, keep an eye out for the upcoming Pretrial Practices & Discovery newsletter.

Jeffrey G. Close, Chapman and Cutler LLP, Chicago, IL


January 28, 2013

Looking Back to Move Forward: E-Discovery in 2012

Over the past 12 months, global digital data increased nearly 50 percent, Twitter added one million followers per month, and we learned that it is possible to build a $1 billion photo-sharing service entirely based on cloud-computing space. As technology moved forward, so did related case law. The court decisions in 2012 involving e-discovery have shed some light on issues, highlighted inconsistencies, and at times raised new questions that hopefully will be addressed in the near future.

Cooperate, Cooperate, Cooperate (a.k.a. Proportionality?)
Cases in 2012 featured an increased focus on cooperation among counsel. The year started with a strong warning of the cost of failing to cooperate with opposing counsel. In Pippins v. KPMG, the court denied KMPG’s motion to reduce or shift the $1.5 million cost of preserving putative class members’ hard drives where KPMG did not permit plaintiffs and the court access to the hard drives to determine what information the drives contained or to make a proportionality determination. Pippins v. KPMG, 279 F.R.D. 245 (S.D.N.Y. 2012). Courts across the nation have not yet settled on a standard for deciding which party pays for e-discovery costs, and this issue remains ripe for consideration by the Advisory Committee on Civil Rules in 2013 when evaluating amendments to the Federal Rules of Civil Procedure.

Several months later, Magistrate Judge Facciola admonished counsel that “there is a new sheriff in town,” who will enforce a “new regimen in which the parties, without surrendering any of their rights, must make genuine efforts to engage in [a] cooperative discovery regimen.” Tadayon v. Greyhound Lines, Inc., 10-1326 (ABJ/JMF) (D.D.C. June 6. 2012).

And on September 28, 2012, just days before retiring, Magistrate Judge Nan R. Nolan issued a 53-page order in Kleen Products that began by admonishing counsel not to “confuse advocacy with adversarial conduct.” Kleen Products, LLC, et al. v. Packaging Corp. of Amer., et al., 1:10-cv-05711 (N.D. Ill., Sept. 28, 2012). Addressing a scope of discovery dispute, Judge Nolan emphasized that determining proportionality under Rule 26 is untenable absent the cooperation of opposing counsel and concluded by listing three lessons or best practices: (1) start early—speak with opposing counsel and start thinking about discovery early; (2) every party to a case should have a specialist assigned to a case, preferably an attorney; and (3) phase in e-discovery—don’t try to get all relevant documents at once, but address the most relevant “low-hanging fruit” first.

Litigation Holds Remain at the Forefront
Cases in 2012 affirmed the importance of proper litigation holds through extensive discussion and sanctions, although inconsistent guidance persists, and courts remain split on whether there must be prejudice or even any spoliation to warrant sanctions.

For example, in State Nat’l Ins. Co. v. County of Camden, a district judge upheld sanctions ordering a party to pay costs up to $70,000 for not issuing a litigation hold on its email system, despite no evidence of spoliation. 08-cv-05128-NLH-AMD (D.N.J. Mar. 21, 2012). In contrast, in Danny Lynn Elec. V. Veolia ES Solid Waste, despite a failure to preserve electronically stored information, the court found neither bad faith nor prejudice and denied a motion for sanctions. 2:08CV192-MHT, 2012 WL 786843 (M.D. Ala. Mar. 9, 2012).

Even within the boundaries of the state of New York, home to Pension Committee and Zubulake, 2012 brought seemingly conflicting guidance for litigation holds. In Chin v. Port Auth. of New York & New Jersey, 685 F.3d 135 (2d Cir. 2012), the court appeared to diverge from the Zubulake gold standard, finding that failure to institute a litigation hold did not constitute negligence per se, instead favoring a case-by-case approach where the failure to preserve documents is one of several factors considered to determine whether to issue sanctions. However, other courts in 2012 continued to jump on the Zubulake bandwagon, including Voom Holdings LLC v. EchoStar Satellite LLC, 939 N.Y.S. 2d 321 (N.Y. App. Div. 1st Dep’t 2012), in which the state court adopted Judge Scheindlin's standard and found the defendant’s failure to issue a litigation hold and suspend automatic deletion of corporate emails before litigation commenced constituted gross negligence and warranted severe sanctions.

Addressing Technology: Predictive Coding, the Cloud, and Social Media
Case law around predictive coding moved rapidly in 2012, which saw not only the first court to accept predictive coding, but also the first court to sua sponte order it. Starting with Da Silva Moore v. Publicis Groups, ___ F.R.D. ___, 2012 WL 607412 (S.D.N.Y. Feb. 24, 2012), there were multiple courts-issued opinions in 2012 approving technology-assisted review (TAR), including Global Aerospace v. Landow Aviation in Virginia, No. CL 61040 (Vir. Cir. Ct. April 23, 2012), and In re Actos (Pioglitazone) Prods. Liability Litig., 6:11-md-2299 (W.D. La. July 27, 2012). These opinions approved TAR due to detailed procedures that accounted for thorough training, sampling, and quality control to ensure defensible results. However, TAR opinions were not limited to cases where it was proposed by one of the parties. Noting that otherwise quick-to-settle indemnity cases frequently get bogged down in expensive discovery, the Delaware Court of Chancery ordered sua sponte that both parties leverage TAR and share a vendor in EORHB v. HOA Holdings, LLC. Case no. 7409-VCL (Del. Chanc. Oct. 29, 2012) (bench order).

Cloud technology continued to move into focus, with increased emphasis on what questions companies should be asking before they move information to the cloud. 2012 saw more focus on what questions should be asked—What are the discovery obligations? Who controls the data? How secure is the data?—with even the European Union issuing guidelines. Perhaps 2013 will provide more answers.

Social-media governance, collection, and preservation were and will remain hot topics. Social-media tools such as Twitter, Facebook, and LinkedIn continue to pose collection and preservation challenges, as companies contemporaneously work to address the growing force of social media in the workplace (social media raises issues beyond e-discovery, such as privilege, privacy, employee/workplace policies, intellectual property, and cross-border implications to name a few).

Regarding social media, some courts, such as in Robinson v. Jones Lang LaSalle Americas, Inc. allotted broad discovery of social-media data, finding that such data were useful in proving or disproving a party’s allegations. Conversely, the court in Mailhoit v. Home Depot U.S.A. Inc., found that requests for social-media data failed to satisfy Fed. R. Civ. P. 34’s “reasonable particularity” requirement and denied the bulk of the requests.

In conclusion, 2012 legal developments nudged forward several e-discovery trends, but controversy, open questions, and conflicting standards remain. 2013 may bring answers in some areas, but is sure to continue to introduce new technologies, questions, and issues.

Mor Wetzler and Jess Oliva, Paul Hastings, New York, NY


January 14, 2013

Sedona Conference Publishes Updated Version of E-Discovery Guide

The Sedona Conference, a not-for-profit organization dedicated to the advanced study of law, has updated its prominent judicial guide on e-discovery issues. The original version of the guide, The Sedona Conference Cooperation Proclamation: Resources for the Judiciary, was published in 2011. Like the original version, the updated version was authored and reviewed by many respected professionals in the field of e-discovery.

The free guide is available on the Sedona Conference’s website. The guide offers general recommendations and an examination of the existing literature in the area of e-discovery. Moreover, the guide summarizes the various stages of litigation from a judge’s viewpoint, such as preservation of electronically stored information (ESI), meet-and-confer strategies, and the like.

Sedona has set up a password-protected area only for judges on the website. The purpose of the private area is to allow judges from around the nation to share comments, suggestions, techniques, strategies, and other resources with their colleagues, confidentially. Comments from those discussions may appear in the next revisions in addition to suggestions provided by the public.

Naturally, the guide will not only be useful to judges, but also it will assist practitioners in developing their strategies while promoting cooperation between parties. Although the guide is not authoritative, it is expected that many judges and practitioners will use it as a reference guide that takes into account the challenges of modern litigation.

The following are the differences between the updated version and the original version:

Two new sections (stages of litigation) titled Jury Issues and Post-Judgment Costs have been added. The Jury Issues section summarizes practical considerations for judges when encountered with allegations of jury misconduct with the use of social media. The Post-Judgment Costs section summarizes the practical concerns that parties may have with respect to applications for ESI-related costs because such applications if granted may impose significant costs on the losing parties.

After each section that discusses a litigation stage, the Representative Decisions section has been added. That section provides a list of new cases regarding that particular litigation stage.

— Norayr Zurabyan, Loyola Law School, Los Angeles, CA


January 11, 2013

Rewriting the Rules: How Would Judges Improve Discovery?

December marked the Ninth Annual Advanced eDiscovery Institute at Georgetown. At the conference’s closing plenary session, the institute continued its tradition of asking the visiting judges to take the stage to answer questions posed by the audience. The panel, moderated by Ariana J. Tadler, included some of the country’s leading jurists on e-discovery: Hon. John M. Facciola, Hon. James C. Francis, Hon. Lorenzo F. Garcia, Hon. Paul W. Grimm, Hon. Nan R. Nolan, Hon. Andrew J. Peck, Hon. Xavier Rodriguez, Hon. Lee H. Rosenthal, Hon. Shira A. Scheindlin, and Hon. Craig B. Shaffer.

Of the many interesting questions posed to the judges, possibly most intriguing was the carte blanche offered by one question: If they could unilaterally change any one rule in the Federal Rules to improve discovery and e-discovery, what would it be? Their answers are enlightening.

One change proposed would amend Rule 1 of the Federal Rules of Civil Procedure to add a requirement for cooperation among counsel. While there was no consensus around a specific amendment of Rule 1, the jurists agreed that collaboration and cooperation among adversaries are both essential and far too rare. Another modification proposed would require counsel to understand generally and to consider specifically in each case the role of proportionality in discovery. Judges cited examples of blunderbuss discovery, followed by data dumps, and then massive discovery disputes, often without strategic advantage, as a discovery abuse that occurs too often and must be avoided.

Another proposal involved tweaking Federal Rule of Evidence 502 to ensure full implementation of congressional intent to avoid inadvertent privilege waivers and consideration of a mandatory Rule 502(d) clawback order in every case. Rule 502(d) provides that a federal court may enter a confidentiality order providing that the privilege is not waived by inadvertent disclosure connected with the litigation. Judges cited examples of unnecessary privilege disputes that could be avoided through this approach. (One participating magistrate judge jokingly threatened death to the next attorney who expects him to review thousands of arguably privileged documents in camera without first certifying the relevance of each and every such document.)

Some suggested narrowing the scope of discovery, in line with a recommendation to the Federal Rules Committee to modify Federal Rule of Civil Procedure 26. But this view was far from uniform on this panel, as at least one participant said that the current scope of discovery is “just about right.”

And of course, the question of document preservation came up. Judges on the panel wanted to add a rule addressing preservation obligations—trigger, scope, duration, and sanctions—to bring much-needed clarity. Another nuanced suggestion would grant the court authority to address preservation at the outset of a case to ensure clarity and proportionality appropriate to each case.

In all, it is clear there are many open issues to be addressed, and that even among thought leaders, there is much disagreement and little consensus on the federal bench on how best to proceed with refining or revising the Federal Rules as they govern discovery.

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


January 2, 2013

Telephone Negotiations Not Enough to Obtain Personal Jurisdiction

In a decision that came out just after Christmas, Dairy Farmers of America, Inc. v. Bassett & Walker International, Inc., Case No. 12-1723 (8th Cir., Dec. 26, 2012), the Eighth Circuit appears to have narrowed the grounds on which personal jurisdiction may be established based on business dealings between parties who were never in the same place at the same time. Dairy Farmers of America (DFA) sued Bassett & Walker for breach of contract in the Western District of Missouri. Bassett moved to dismiss for lack of jurisdiction, and the district court granted the motion. DFA appealed.

The Eighth Circuit affirmed the trial court, finding the following facts material to the analysis: DFA’s principal place of business is in Kansas City, Missouri. Bassett, by contrast, is an international commodities broker and a Canadian corporation, with its principal place of business located in Toronto, Ontario. In fact, as the 8th Circuit noted, “Bassett is not qualified to do business in Missouri; has no agent for service of process, offices, property, bank accounts, telephone listings, or employees here; and does not advertise or promote its business here. According to the record, no Bassett employee has ever entered Missouri.” Slip op. p. 2. The product Bassett contracted to purchase was manufactured in Colorado and payment went to Illinois, with product to be delivered in Mexico. Slip op. p. 10. This “random, fortuitous, or attenuated” contact was insufficient to support jurisdiction. Slip op. p. 10, citing Burger King Corp.v. Rudzewicz, 471 U.S. 462, 486 (1985).

The Eighth Circuit dismissed the course of dealings between the parties as insufficient to establish personal jurisdiction because the transactions occurred entirely remotely. Bassett purchased $5 million in dairy products from DFA, but each transaction occurred by phone. Basset’s representative was in Toronto, while DFA’s either was in Michigan or on the road, although approval was received from DFA’s Missouri headquarters for each transaction. Delivery and billing also were discussed between a Basset representative in Toronto and someone at DFA’s headquarters. The court of appeals found that, although Missouri courts broadly construe transaction of business, “the use of mail or telephone communications to Missouri is not by itself the transaction of business.” Slip op. p. 6. Nor did the fact that Bassett used credit-support jurisdiction in Missouri such that it should anticipate being hailed into court there. Consequently, the court held that Bassett did not transact business in Missouri and, consequently, it was not within reach of Missouri’s long-arm statute.

The court found that jurisdiction did not exist because Bassett did not conduct business in Missouri, and Bassett lacked sufficient minimum contacts with Missouri. This opinion from the 8th Circuit should be contrasted with recent decisions in which courts have found that offering goods for sale on the Internet is sufficient to support jurisdiction over a party in a foreign state. It may be that the court was particularly troubled by the fact that Bassett is a Canadian company. Nonetheless, there were many different contacts with Missouri advanced by DFA, but none was sufficient. This opinion, therefore, is noteworthy in the way in which it seemingly contracts or limits jurisdiction.

Keywords: litigation, pretrial practice, depositions, witnesses; use at trial; direct and cross examination at trial; special issues

Joan K. Archer, Armstrong Teasdale, LLP, Kansas City, MO


December 28, 2012

The Sedona Conference Primer on Social Media

The Sedona Conference recently published for public comment its Primer on Social Media, intended to provide “primary instruction to the bar and bench in the basics of social media and the law, from definitions, to the use of social media in business, to the discovery of social media in litigation, to professional responsibilities lawyers have in relation to their own use of social media.” (The formal title is The Sedona Conference Primer on Social Media, Public Comment Draft, October 2012).

In part one, the primer notes that “organizations probably cannot completely prevent” workplace usage of social media, and that the “challenge is thus figuring out where on this continuum from toleration to restriction the organization should land.” Primer at 7. The primer also includes a useful summary of the current state of the law regarding privacy, First Amendment and Fourth Amendment rights, and other user expectations that should inform an organization’s decisions about its social-media policy. Primer at 13-16 and 19-26.

Part two of the primer identifies a trend in the case law on social media generally toward permitting broad discovery in the face of privacy concerns. Two recent cases addressing the discoverability of social-media content follow this trend; in these cases, the courts required plaintiffs to provide access to their social-media accounts for in camerareview (a tip of the hat, perhaps, to the users’/plaintiffs’ privacy concerns). See EEOC v. The Original Honeybaked Ham Company of Georgia, Inc., 2012 WL 5430974 (D. Colo. Nov. 7, 2012), and Richards v. Hertz Corp., 2012 WL 5503841, ---N.Y. Supp. 2d---, (NY AD 2d 2012) (Nov. 14, 2012). In EEOC, the court compared the social-media content to a file folder containing “Everything About Me,” noting a “presumption” that it should be produced if there are documents in the folder that meet discovery criteria. “The fact that it exists in cyberspace on an electronic device is a logistical and, perhaps, financial problem, but not a circumstance that removes the information from accessibility by a party opponent in litigation.” This is, in a nutshell, the teaching of part two of Sedona’s primer.

In part two, Sedona also takes on the e-discovery issues that arise in lawsuits where discoverable information may reside in social-media repositories. For example, is the social-media content in the party’s possession, custody, or control? Primer at 34. Does an organization “ha[ve]possession, custody, or control of relevant social media content posted by an employee on an external social media site”? Primer at 35. The analysis may turn on a number of factors, including whether the party/user has the right to obtain his or her social-media content on demand, the service provider’s terms of use, as well as employers’ stated policies with respect to their employees’ use of company devices for personal electronic communications. Primer at 36.

The primer tries to strike a balance between giving concrete guidance and recognizing that both the law and relevant technologies continue to evolve. Nonetheless, it includes a number of foundational guidelines and suggestions that should survive even as the landscape changes. They include:

  • Understand the party’s/user’s privacy settings for each site, and each service providers’ terms of use. Primer at 35–36 and 52.
  • Avoid “[c]asual, incomplete collection of social media” to avoid later authentication problems; consider using a competent vendor to accomplish the collection. Primer at 37.
  • Thoroughly document and verify the processes used to preserve and collect the social-media content and gather evidence from other sources to enhance authentication. Primer at 38-39.
  • Because social-media content is dynamic, preserve and/or collect the data in the early stages of discovery, and consider re-collecting on a periodic basis. Primer at 37.
  • Seek protective orders/confidentiality agreements to maintain the confidentiality of social-media content for both the user/party and any third-parties whose information also might be captured. Primer at 52.
  • If there is a risk of losing relevant evidence, take reasonable steps to encourage or require preservation of social-media content by the service provider pending production by the party/user. Primer at 47.
  • When propounding discovery seeking social-media content, make it specific and reasonably time-limited. Primer at 58.
  • Confer with opposing counsel, and to the extent possible, agree to reasonable procedures for social-media preservation, collection, and production. Primer at 38.


December 13, 2012

Admitting Unauthenticated Cell Records Violates Confrontation Clause

In State v. Hood, 2012-Ohio-5559, the Supreme Court of Ohio noted that if cell phone records are properly authenticated, they are not testimonial evidence and their admission into evidence does not violate the right of a criminal defendant to cross-examine a witness under the Confrontation Clause of the Sixth Amendment to the U.S. Constitution. But if the trial court admits cell phone records that are not properly authenticated as business records, the cell phone records not only are inadmissible hearsay, but also their admission violates a defendant’s right of confrontation. The latter situation is the one the court encountered in Hood.

As background, Hood faced multiple criminal charges based on allegations that he and three other men participated in the armed robbery of persons who had gathered at a home to celebrate the birthday of family and friends, and that Hood shot and killed one of the accomplices upon leaving the house. The investigating police officers obtained the cell phone records of Hood and two of his accomplices. One of the accomplices, Hill, testified against Hood at trial. The records included the call-data logs and the cellular-tower records for the time frame surrounding the robbery. These records were not certified by the cell phone provider, and the subpoenas were not part of the record.

Over objection and subject to later authentication, the prosecutor was permitted to use these cell phone records to question Hill concerning the calls between Hill’s and Hood’s cell phones. The prosecutor then called an investigating police officer to testify to the process by which the police worked with the prosecutor to subpoena and obtain the cell phone records from the provider. After testifying to his on-the-job training and experience in interpreting call-data logs and cellular-tower records, the officer was permitted over objection to interpret the call-data logs, and to opine that calls to and from Hood and Hill on their cell phones surrounding the time frame of the robbery and murder were all within the vicinity of the crime scene.

The cell phone records were offered to prove that cell phone contact had occurred between the co-conspirators up to the time of the crime and immediately after. To be admissible as business records, the cell phone records needed to be authenticated by a knowledgeable person associated with the provider who would testify to the requisite foundation. Neither Hill nor the investigating police office created, maintained, or produced the original records; neither had personal knowledge of the provider’s manner of so doing; and neither could authenticate the subpoenaed cell phone records as the business records of the provider. Thus, the court held that the records were inadmissible hearsay. 2012-Ohio-5559, at ¶¶37–39.

The court reasoned that regularly conducted business activity of cell phone companies is not the production of evidence for use at trial. As a result, subpoenaed business records from a cell phone provider ordinarily are not testimonial, in which case the Confrontation Clause would not affect their admissibility. Id. at ¶¶30–36 (citing United States v. Yeley-Davis, 632 F.3d 673 (10th Cir. 2011), and United States v. Green, 396 Fed.Appx. 573(11th Cir. 2010). But “hearsay violates the Confrontation Clause of the United States Constitution unless it comes within a firmly rooted exception or contains other indicia or reliability.” Id. at ¶40 (citations omitted). In Hood, the failure to properly authenticate the cell phone records as business records of the provider negated their non-testimonial nature so that the admission of this hearsay evidence violated Hood’s right of confrontation. Id.

For purposes of pretrial practice and discovery, in criminal and civil litigation, Hood highlights the importance of establishing the foundation to admit business records prior to trial. In Yeley-Davis, for example, the cell phone records were authenticated by obtaining a certification or affidavit from the providers under Fed. R. Evid. 902(11). A note for Ohio practitioners: Although Yeley-Davis was cited with approval in the Hood opinion, Ohio attorneys should note that the Ohio Rules of Evidence do not have a counterpart to this Federal Rule of Evidence. Therefore, Ohio practitioners will need to look at other avenues to determine whether specific categories of business records, such as hospital, nursing, and residential-care records pursuant to Ohio Rev. Code § 2317.422 and Ohio R. Evid. 902(8), can be properly authenticated and admitted as business records by a certification or affidavit process. In addition, the opinion in Hood points to other evidentiary issues specific to cell phone records: the necessity for a qualified expert or knowledgeable provider representative to interpret the call-data logs or cellular-tower records; and, the necessity to establish a foundation that the owner of the phone made or received a particular call noted in the call-data logs.

Keywords: litigation, pretrial practice, depositions, witnesses; use at trial; direct and cross examination at trial; special issues

Theodore Dunn, Buckley King LPA, Cleveland, OH


December 7, 2012

Minnesota Ruling Further Suggests Employer Caution for Information

The District Court of Minnesota’s recent decision in Bank of Montreal v. Avalon Capital Group, Inc., No. 10-591 (D. Minn. Sep. 6, 2012), further suggests that employers must exercise care to protect confidential and otherwise privileged documents in the hands of a former employee, if the employer wants to maintain that privilege.

Following Minnesota law, and guided by O’Leary v. Purcell Co., Inc., 108 F.R.D. 641 (M.D.N.C. 1985), the Minnesota court held that an employer that terminated a senior employee and allowed him to take documents with him, waived any privilege with respect to those documents when it failed to take steps to protect the confidentiality of the documents; and also when it failed to take reasonable steps to keep the employee from producing the documents to a third-party in response to a subpoena.

In O’Leary, the former president of a company turned over documents to a third person that the company later sought to claim as privileged. There was some dispute as to how the former president came into possession of the documents, and whether he was expressly authorized by the company to have them after the term of his employment. But, it was apparent to the court that the company knew that the former president had the documents after he left the company, and that the company made no efforts to retrieve the documents at issue. In holding that the company had waived privilege with respect to the documents, the court noted that it was the company’s burden to show that the documents had been maintained as confidential, and said:

Although many of the facts relating to plaintiffs’ acquisition of the documents are disputed by the parties, several undisputed facts lead the Court to conclude that defendant Purcell and its corporate predecessor treated the documents here in issue so loosely that they should not be considered “confidential” for purposes of the attorney-client privilege.

. . .

Defendants have shown no evidence of procedures or policies which were followed by [the company] to insure confidentiality of the documents.

In Avalon, the former senior employee left with his laptop and several boxes of documents. There was evidence that the company knew that the employee had documents, if not exactly which or what documents the employee had in his possession. The employee was subpoenaed in the captioned litigation, and the company was provided notice of the subpoena. The former employee turned over some documents, and withheld others, without intervention or objection by the company’s counsel. The company later sought to assert privilege as to both sets of documents.

The Minnesota court had little trouble finding that the company had waived its privilege as to both sets of documents, and denied a protective order as to the turned-over documents, and ordered the withheld documents to be produced. The court noted that the company had made no efforts to retrieve the documents from the employee, and that the employee was not bound to maintain their confidentiality. The court said:

[T]his court does find that such waiver occurred, first when [the former employee] was permitted to leave with the documents, and again when the [former employee] produced the documents in response to subpoena.

The court noted that upon his termination the employee became a third party, and absent a contract or other legal obligation to maintain the confidentiality of the documents, there was “disclosure” and the company could not maintain the confidentiality prong of privilege under Minnesota law.

In light of O’Leary, and more recently Avalon, employers should be cautioned as to their policies and efforts to protect confidential and otherwise privileged documents in the hands of former employees.

Keywords: litigation, pretrial practice, discovery, former employee, privilege, obligation, confidentiality

Jeffrey G. Close, Chapman and Cutler LLP, Chicago, IL


November 30, 2012

Rules Group Recommends New FRCP 37(e) Safe Harbor Language

At its November 2012 meeting, the federal Advisory Committee on Civil Rules voted to recommend to the standing committee on the federal rules that current Fed. R. Civ. P. 37(e) be replaced with new language that would impose a uniform nationwide standard for the imposition of sanctions as the result of spoliation of evidence. The current version of the rule, which came about during the 2006 revisions related to e-discovery, provides a very limited “safe harbor” if information is lost “as a result of the routine, good-faith operation of an electronic information system.” The proposed change would clarify that a court may impose the sanctions listed in Rule 37(g)(2)(A) or give an adverse–inference instruction only if the court finds that the loss of information was willful or in bad faith. The proposal does contain a “safety valve” exception where the loss of information deprived a party of the opportunity to present a claim. The rule also includes some factors to be considered when a court encounters a spoliation question.

When the current Rule 37(e) was adopted, many opined that the rule offered little protection because it appeared (to some) to leave open what standard a court should use in the event that data was lost. The case law has borne this out: Some circuits adopted or have continued to use a “willfulness” or “bad faith” standard but other courts apply a lower negligence standard. (The divergent case law that led to the proposal is summarized in a memorandum by John Barkett in the committee meeting book, Andrew Kuperman has a memo summarizing the Rule 37(e) case law, and Barkett also has a Sound Advice on the topic.) The lack of uniformity in the case law, and the lack of specific guidance in the rules and the commentary, has created a situation in which many companies believe that they “over-preserve” information, out of a fear of sanctions. This has led many (particularly in the corporate defense bar) to call for a wholesale revision to the rules concerning sanctions, and indeed the committee considered many more radical proposals for a number of years. However, it appears that the Discovery Subcommittee (of the full Advisory Committee) could only reach consensus around a more limited, “back end” approach that addresses not what companies are required to do to prevent spoliation, but what standard will be used to judge a company’s efforts. The subcommittee believes that the new standard, which would do away with courts using “inherent authority” to impose sanctions where conduct was less than willful or in bad faith, will give more protection than is currently afforded.

The full Advisory Committee did not adopt all of the language proposed by the subcommittee; the details of what was adopted, and the next steps in the process, are available through the minutes of the committee. We would like to gather everyone’s comments through our LinkedIn discussion page to forward along, as there does not appear to be a formal way to submit comments yet.

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


November 15, 2012

EDPa Looks Past Officers' Location to Determine Corporate Citizenship

A recent decision from the Eastern District of Pennsylvania demonstrates how a pragmatic application of the nerve-center test can produce surprising results. In Moore v. Johnson & Johnson, No. 12-490, 2012 WL 5363123 (E.D.Pa. Nov. 1, 2012), a pharmaceutical products-liability case, the district court denied the plaintiffs’ motion to remand, finding that the defendants had established complete diversity. This result is notable because one of the corporate defendants, the Johnson & Johnson subsidiary alleged to have manufactured the defective product at issue, maintained in Pennsylvania the principal offices for its president, its vice president and chief financial officer, and its corporate secretary. The court looked beyond these officers’ titles to determine that other executives who were not officers, directors, or even employees of the subsidiary in question were the actual corporate leadership of the subsidiary, and that the location of their offices (New Jersey) was the actual nerve center and principal place of business for the subsidiary.

Ordinarily, a corporation’s principal place of business for diversity jurisdiction will be the location where its principal officers maintain their offices. Under the Supreme Court’s nerve-center test as articulated in Hertz Corp v. Friend, 130 S.Ct. 1181 (2010), the corporation’s principal place of business is “the place where a corporation’s officers direct, control, and coordinate the corporation’s activities.” Id. at 1192. In Moore, therefore, the plaintiff seemed to have a strong argument under the nerve-center test that the defendant subsidiary was a citizen of Pennsylvania, given that three most senior corporate officers all maintained their principal offices at the same location within the state and the corporate bylaws clearly gave these officers general charge and supervision of the subsidiary’s business.

Instead, the district court accepted the defendants’ argument that it should look beyond the corporate formalities and find that the appointed officers did not exercise actual control over the corporation. Defendants persuaded the court that the nerve center for the subsidiary was in New Jersey, because the subsidiary was one of many companies that collectively formed a Johnson & Johnson business division under the control of an operating committee and group chairman working in New Jersey. Persuading the district court that it was appropriate under the nerve-center test to look past the location of the subsidiary’s employees, officers, and directors was the key to the defendants’ victory.

The district court’s opinion in Moore cites only two cases, both from the Fifth Circuit, in which a court has identified a principal place of business where no officer, director, or employee of the corporation maintained offices. Neither case was decided under the nerve-center test. Thus the holding in Moore that a corporation’s nerve center can exist entirely outside of and independent from the corporation’s own officers, directors, and employees remains a novel issue that potentially creates tension between state corporate law and the corporate-citizenship analysis for federal diversity jurisdiction.

Moore also demonstrates the extent to which a motion to remand can spawn an entire satellite litigation regarding the citizenship of corporate defendants. The district court’s 57-page opinion refers to an extensive record of document discovery, depositions, affidavits, and briefing. The citizenship of the subsidiary was only one of several relatively complex factual and legal issues the court was required to resolve on the motion to remand, because Johnson & Johnson also challenged three other non-diverse defendants as fraudulently joined.

Expensive battles over jurisdiction carry risk for both sides. For plaintiffs, a motion to remand may mean extensive delay and investment of substantial resources in a satellite dispute that contributes nothing to the resolution of the case on the merits. For defendants, a successful motion to remand can result in a substantial fee award to the prevailing plaintiff for its fees and costs on the motion to remand. Of course, successfully opposing a motion to remand carries its own risk for defendants, because the plaintiff now has additional grounds for appeal from an adverse judgment, on a well-developed record that may be seen in an entirely different light by the reviewing court. When diversity jurisdiction turns upon the nerve-center test, the nuanced approach of the district court in Moore raises the stakes and the risk for both plaintiffs and defendants.

Keywords: litigation, pretrial practice and discovery, diversity jurisdiction, removal, “nerve center”

Matthew F. Prewitt, Schiff Hardin LLP, Chicago, IL


November 13, 2012

Discovery Practice Lessons from the Tabloids

For us staid and buttoned-up lawyers (speaking for myself, only, of course), it seems like sex scandals are the best way to learn the latest and greatest innovations among those with something to hide. The latest trick that I’ve learned comes, sadly, courtesy of General Petraeus and Paula Broadwell. Although the press claims that this trick is known to “teenagers and terrorists alike” I, not being one or the other, didn’t know about it. Apparently the two used a Gmail account that they both could access and instead of actually sending each other emails, they wrote “draft” emails that were never sent, but only stayed in the “drafts” folder, in an attempt to avoid detection. Knowing a tiny bit about computer forensics, this seems like a fairly ineffective way of remaining secretive unless you are only concerned about an email being intercepted during transmission and don’t think that anyone will be able to get access to your computer, where anyone with some training would be able to find out what email accounts you had logged in to. But the real lesson here for the litigator, I believe, is that your template request for production language might need to be tweaked. If your stock language asks for “email to and from” another person or “communications transmitted between you and” another person you might, technically, not be asking for the right stuff if your target has been using this so-called “dropbox” technique to communicate. Perhaps better language to cover this scenario would be something like “all communications, in electronic or non-electronic form, between you and ____, including but not limited to all writings by you that were transmitted to ____, or otherwise created by you or at your direction with the intent and expectation that they would be read by ____.” And if you are in a discussion about what folders within someone’s email account need to be searched, make sure to ask for the drafts folder. So add the “dropbox” technique to the myriad forms of communication that we litigators now have to keep in mind as we craft our discovery requests, along with text messaging, Twitter, Yammer/, Words With Friends, Facebook . . . (you get the idea), and happy discovering.

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


November 13, 2012

How Will the Election Impact Pretrial Practice and Discovery?

While I was finishing up a brief overnight recently I listened to a great summary of what the election might mean for the makeup of the U.S. Supreme Court and the issues that it tackles, on my local NPR station. There is sure to be much discussion in the coming months about which justices might choose to retire, and who might be nominated to replace them, and what that might mean for the loftier constitutional issues that grab the headlines. But it got me to thinking: what impact, if any, might the election have on the more mundane day-to-day world of civil and criminal litigators toiling as most of us do in the pretrial and discovery aspects of a case? We have all experienced the impact of the Iqbal and Twombly decisions on dispositive motions practice—decisions that appear to have had more bark than bite, as chronicled by our Iqbal Task Group. And one issue that impacts pretrial practice will be heard by the Court early next year: whether a company can enforce an arbitration clause that bars class actions where the effect would be to virtually eliminate claims for breach as cost prohibitive (that’s the American Express v. Italian Colors Restaurant case, in which the Second Circuit struck down the clause on antitrust grounds). What issues do you see coming down the pike that might end up before the Court? Join the discussion on LinkedIn and we’ll feature some of your thoughts in upcoming news and developments.

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


October 31, 2012

District of Idaho Says Oral Litigation Hold May Lead to Sanctions

The District Court of Idaho recently found that an oral litigation hold weighed negatively in determining whether a plaintiff’s document-retention policies were adequate. In Scentsy v. B.R. Chase, L.L.C., No. 1:11-cv-00249-BLW (D. Idaho, Oct. 2, 2012), the plaintiff sued the defendants for trade-dress infringement, copyright infringement, and related claims. The plaintiff filed its complaint in May 2011, which is also approximately when the plaintiff’s general counsel approached employees that he believed had documents relevant to the litigation. At the time, the plaintiff’s general counsel made an oral request to maintain this potentially relevant material. No written litigation hold was issued by the plaintiff. Additionally, the plaintiff claimed that it had not considered litigation until March 2011, only two months prior to filing the lawsuit. The defendants, however, argued that the plaintiff first considered litigation over a year earlier.

The court found that regardless of when litigation was first considered, it is generally “completely inadequate” and “borders on recklessness” for a plaintiff to issue an oral litigation hold concurrent with the filing of a lawsuit. The court ultimately found that the likelihood of spoliation due to the timing and the nature of the plaintiff’s oral litigation hold was minimal, and therefore, did not impose sanctions. The court did, however, grant defendants the opportunity to conduct depositions at the plaintiff’s expense, including attorney fees, to determine whether spoliation had occurred. The court also concluded that if spoliation had occurred, it would consider an adverse-inference instruction at trial or the dismissal of the plaintiff’s claims.

Although the court’s finding regarding the sufficiency of an oral litigation hold was also related to the timing of issuance, the decision still presents a stronger condemnation of oral litigation holds than Howard Chin et al. v. The Port Authority Police Asian Jade Society of New York, et al., 10-1904 and 10-2031, a recent Second Circuit opinion. In Chin, which was discussed in a July 17, 2012, News & Development, the court noted that oral litigation holds are not on their face problematic, and that whether an oral litigation hold is appropriate is a fact-specific inquiry.

While different circuit courts seem to view oral litigation holds with different levels of concern or skepticism, written litigation holds remain the safest course of action to avoid confusion, and potential spoliation and sanctions.

Keywords: litigation, pretrial practice, e-discovery, preservation, litigation hold, sanctions, spoliation

B. Justin Goggins, Paul Hastings LLP, New York, NY, and Aaron H. Gould, Podvey Meanor Catenacci Hildner Cocoziello & Chattman, P.C., Newark, NJ


October 31, 2012

N.D. Cal. Decision Highlights Limitations in E-Discovery Cost Recovery

On September 4, 2012, Judge Alsup of the U.S. District Court for the Northern District of California denied Google’s request for nearly $3 million dollars in e-discovery costs incurred in connection with discovery in the blockbuster patent-infringement action brought by Oracle. Oracle Am., Inc. v. Google Inc., No. 10-03561, 2012 WL 3822129 (N.D. Cal. Sept. 4, 2012). In doing so, the court weighed in on a debate among federal courts about which, if any, e-discovery costs are taxable as costs under 28 U.S.C. § 1920 and thus recoverable by a prevailing party. The court’s denial of Google’s costs highlights the difficulty of recovering these kinds of costs under the archaic language of the statute. In denying the costs, the court chided Google for not describing e-discovery costs with “specificity” and rules that a party may not recover costs associated with “intellectual efforts.”

Google sought costs under 28 U.S.C. § 1920(4), which states that the court may tax as costs “[f]ees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.” The judge noted that while a local rule interpreted the statute to provide for the “cost of reproducing disclosure or formal discovery documents,” under Ninth Circuit precedent, “[f]ees for exemplification and copying are permitted only for the physical preparation and duplication of documents, not the intellectual effort involved in their production.” Id., quoting Zuill v. Shanahan, 80 F.3d 1366, 1371 (9th Cir. 1996) (quotations omitted) (emphasis added). Citing Romero v. City of Pomona, 883 F.2d 1418 (9th Cir. 1989), the court further explained that within the Ninth Circuit, “research, analysis, and distillation of data incurred in the preparation of documents (as oppose[d] to the costs of physically preparing the documents) were not taxable costs.”

Applying these principles to Google’s request, the court concluded that many of the line-item descriptions “seemingly bill[ed] for ‘intellectual effort’ such as organizing, searching, and analyzing the discovery documents.” The court expressed particular disapproval for the company’s attempts to bill costs associated with conferencing, preparing for and participating in a “kickoff call,” and communications among coworkers, vendors, and clients, again calling these items “non-taxable intellectual efforts.”

Google argued that Oracle had waived its objection to the bill of costs by failing to make specific objections to each cost item. The court rejected Google’s argument, noting that the court remains limited by applicable statutes in awarding any fees regardless of the parties’ arguments. The court also explained that the party seeking costs has the burden of providing an itemized list with “sufficient specificity.” Applying this rule, the court held that Google had not provided sufficient specificity because so many line-item descriptions billed for non-taxable intellectual efforts. Accordingly, the court denied Google’s requests for fees attributable to e-discovery costs in its entirety.

This decision follows a string of decisions this year that we have written about previously including Race Tires America, Inc. v. Hoosier Racing Tire Corp., No. 11-2316 (3d Cir. Mar. 16, 2012) from the Third Circuit, which also adopted a narrow reading of the statute. The U.S. Supreme Court denied cert in that case on October 1, 2012, which was not a surprise, as many felt that the Court telegraphed a literalist approach to the statute in Taniguchi v. Kan Pacific Saipan, Ltd., from the last term. In that case the Court held that the statute’s inclusion of costs for an “interpreter” did not include costs for a translator to deal with written documents. Some still hope that a genuine circuit split on the costs issue might develop in the face of the exponential growth in e-discovery costs in business litigation, and either result in changes to the statute or the Court revisiting the issue.

Keywords: litigation, pretrial practice, discovery, e-discovery, costs, taxation of costs

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


October 10, 2012

U.S. ITC Proposes E-Discovery Limitations

As in state and federal courts, the production of electronic records has become an expensive endeavor for litigating parties appearing before the U.S. International Trade Commission (ITC). Many reports indicate that the cost of ITC proceedings may exceed the cost of similar court proceedings. As with civil litigation in other courts, the biggest share of litigation expenses results from the discovery stage.

The ITC's discovery rules can be found at 19 CFR 210. These rules were enacted in 1994 and amended in 1998, but not in a significant manner. Thus, the current rules are almost two decades old.

Consequently, after examining various concerns for nearly a year while seeking input from professors, professional organizations, practitioners, and members of the bench, the ITC published proposed rules to limit e-discovery on October 5, 2012. According to the notice of publication, “[t]he intended effect of the proposed amendments is to reduce expensive, inefficient, unjustified or unnecessary discovery practices in agency proceedings while preserving the opportunity for fair and efficient discovery for all parties.”

Many commentators describe the proposal as easy to administer, flexible, and simple. The proposal is similar to the approach adopted by many district and state courts around the country and the Federal Rules of Civil Procedure. However, the proposed rules differ from the Federal Rule of Civil Procedure 26:

  • The proposed rules would require the administrative-law judge to limit discovery when discovery is pertaining to stipulated facts or a waived legal position.
  • The proposed rules would require the judge to analyze the importance of the discovery in resolving the issues instead of analyzing the importance of the issues involved in the case.
  • The proposed rules would expressly set forth deadlines for parties to resolve issues with respect to privileges.

Until the proposed rules are adopted, the ITC will still operate under the archaic rules, and discovery expenses will continue to represent the lion’s share of litigation costs. Written public comments may be filed for consideration until December 4, 2012.

— Norayr Zurabyan, Loyola Law School, Los Angeles, CA


October 1, 2012

Preparing Experts for Deposition

One of our LinkedIn group members recently posted a link to a great blog by his colleague on preparing experts for deposition, part of a series on experts. The blog post includes some great tips, including how to explain the difference between deposition testimony and trial, and the potential hazards of disclosing strategic or background information during preparation. It is a good, practical companion to this article that we published in the Winter 2012 newsletter on the 2010 changes to the federal rules on discovery of draft expert reports and other information from an expert's files, and to these articles that we have published on experts. And our friends at the Expert Witnesses committee published this great year-in-review article in January 2012 on case-law developments under the new rules.

The blog posting also led to a discussion about different practices in different jurisdictions about presentation of expert reports, and direct testimony at trial. Cochair Betsy Collins remarked that in her experience, expert reports are generally not used as evidence, and that she recently encountered a local rule requiring that an expert's direct testimony be read to the jury, rather than elicited through traditional question-answer form (perhaps in recognition of the artificiality of most expert direct). Also noted is that expert preparation needs to include a review of other public testimony (public in the sense that it was not subject to protective order) given by the expert. For example, the insurance industry frequently uses one of a handful of supposed experts on reasonableness of attorney fees in underlying litigation, and there is much material available on those experts that can be used at cross examination. Prepare your expert to explain if their opinions in your case differ from the opinions given in prior cases.

If you would like to share your experiences with expert depositions or discovery, visit our LinkedIn page and join the discussion, and look for a Sound Advice piece on experts by the blog’s author coming soon to the website!

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


August 1, 2012

Twitter to Appeal Order to Produce OWS Tweets

Microblogging site Twitter announced it will appeal the recent decision by a New York judge that required the company to produce the public tweets and user information of an Occupy Wall Street protestor.

As part of an Occupy Wall Street demonstration on October 1, 2011, protesters marched on the Brooklyn Bridge. Malcolm Harris, along with hundreds of other protesters, was charged with disorderly conduct for allegedly occupying the roadway of the Brooklyn Bridge. The district attorney alleged that Harris’s anticipated defense—that he was escorted by the police onto the public roadway—was contradicted by statements Harris may have tweeted while on the bridge.

The district attorney issued a third-party subpoena on Twitter, seeking user information and tweets associated with the account allegedly used by Harris. Harris notified Twitter that he would move to quash the subpoena, and Twitter took the position that it would not comply with the subpoena absent a ruling by the court.

In April, the court found that Harris lacked standing to quash the third-party subpoena on Twitter. The court explained that Harris had neither a proprietary interest nor a privacy interest in the user information and tweets associated with the account. The court denied Harris’s motion to quash and ordered Twitter to comply with the subpoena.

Twitter itself then moved to quash the subpoena, and the court denied that motion as well. First the court re-affirmed its earlier conclusion that Twitter users have no standing to challenge a third-party disclosure request. The court rejected Twitter’s arguments that it otherwise faced an unreasonable burden in either responding to all subpoenas or moving to quash all subpoenas by itself. The court explained that burden was placed on every third-party respondent to a subpoena but that such a burden could not create standing for a defendant “where none exists.” The court added that the Stored Communications Act specifically contemplated the service provider’s standing to challenge an order issued pursuant to it. The court also rejected arguments based on the defendant’s reasonable expectation of privacy, finding that “[t]here can be no reasonable expectation of privacy in a tweet sent around the world.”

Next, the court found that compelled production of the records at issue would not violate any federal or state laws. The court rejected assertions of Fourth Amendment protections, noting that there is no expectation of privacy or proprietary interest in tweets “gifted to the world.” Distinguishing the “physical intrusion” line of recent cases, the court explained: “If you post a tweet, just like if you scream it out the window, there is no reasonable expectation of privacy.” The court also found the subpoena appropriate under applicable state law and the Stored Communications Act (except for information less than 180 days old, which required a warrant).

The court concluded with words of wisdom about the evolving state of social media-related law:

As the laws, rules and societal norms evolve and change with each new advance in technology, so too will the decisions of our courts. While the U.S. Constitution clearly did not take into consideration any tweets by our founding fathers, it is probably safe to assume that Samuel Adams, Benjamin Franklin, Alexander Hamilton and Thomas Jefferson would have loved to tweet their opinions as much as they loved to write for the newspapers of their day (sometimes under anonymous pseudonyms similar to today’s twitter user names). Those men, and countless soldiers in service to this nation, have risked their lives for our right to tweet or to post an article on Facebook; but that is not the same as arguing that those public tweets are protected. The Constitution gives you the right to post, but as numerous people have learned, there are still consequences for your public posts. What you give to the public belongs to the public. What you keep to yourself belongs only to you.

Notably, this decision extends beyond prior rulings, such as last fall’s Eastern District of Virginia order requiring production of Twitter records concerning Wikileaks, its founder Julian Assange, and three Twitter subscribers with suspected ties to Wikileaks.

Mor Wetzler, Paul Hastings LLP, New York, NY


August 1, 2012

Friending International Shoe

It is virtually impossible to download an app, browse the web, or read a magazine without being invited to like, friend, follow, or otherwise engage with companies via social media. To a customer, these contacts can seem impersonal and ephemeral. To courts, they are becoming anything but.

In an interesting new development, courts have begun to include a defendant’s use of social media—Facebook, Twitter, and even LinkedIn—in the “minimum contacts” analysis to determine whether there is personal jurisdiction.

To determine whether a website subjects a defendant to personal jurisdiction, courts frequently analyze how “interactive” the website is between the defendant and residents of a particular forum. The more interactive the website, the more likely that the defendant has “purposefully availed” itself of the forum and thus subjected itself to personal jurisdiction. See, e.g., Zippo Mfg. Co. v. Zippo Dot Com, Inc. 952 F. Supp. 1119 (W.D. Pa. 1997).

Is social media, a company’s quintessential “interactive” advertising option, sufficiently interactive to create personal jurisdiction under this analysis? According to several recent cases, not necessarily.

In Lyons v. Rienzi & Sons, Inc., the Eastern District of New York held that it lacked personal jurisdiction over an Italian company whose address and telephone and fax numbers were in Italy, who conducted all of its work in Italy, and whose website did not permit customers to purchase or request services. 2012 WL 1393020, at *1 (E.D.N.Y. Apr. 23, 2012). Though the defendant company had a Facebook page accessible to users in the United States, the “mere possession” of the account was not “a sufficient predicate for hauling [the company] into a court in New York.” This holding echoes other recent cases that similarly held that the straightforward use of social media, such as maintaining a Facebook account or Twitter feed, does not meet the requirements of minimum contacts. See, e.g., Sweetgreen, Inc. v. Sweet Leaf, Inc., 2012 WL 975415 (D.D.C. Mar. 23, 2012); Thomas v. Barrett, 2012 WL 2952188 (W.D. Mich. July 19, 2012).

However, directing social media specifically toward a forum may help meet the “purposeful availment” requirement of minimum contacts. For example, in January 2012, the Northern District of California denied a defendant’s motion to dismiss for lack of personal jurisdiction based in large part on that company’s use of social media. Juniper Networks, Inc. v. Juniper Media, LLC, No. 11-03906 WHA (N.D. Cal. Jan. 17, 2012). In the Ninth Circuit, specific personal jurisdiction is available when (1) the defendant purposefully directed his or her activities towards the forum; (2) there is a connection between the claim and forum-related activities; and (3) jurisdiction would be reasonable. For the first prong, purposeful direction, a passive website is generally insufficient—there must be “something more” established by reviewing the scope of the defendant’s commercial ambitions, the interactivity of its website, and the defendant’s individual targeting of known forum residents. Id. In applying this test, the court noted that prior to the lawsuit, defendant Juniper Media, LLC’s LinkedIn profile listed its headquarters as Los Gatos, and that several California residents listed Juniper Media as their employer on their personal LinkedIn profiles. The company’s Twitter account listed Los Angeles as the origin of the feed, and its pre-suit website listed headquarters in Los Angeles and its main phone line as having a California area code. Juniper Media’s argument that its Twitter feed and headquarters were in fact Florida-based was unavailing: “A finding of personal jurisdiction does not require defendant’s having actually posted to Twitter from Los Angeles, or maintained a physical headquarters in California—only that defendant represented itself as having done so . . .”

Social media’s potential to increase a company’s reputational or legal liability is well known. Recent decisions open the possibility that social media may also increase the fora in which a company may find itself liable. How much can a company ‘interact’ via social media with its customer base, and with particular customers in particular fora, before it risks being hailed into new jurisdictions? One thing is clear—this is a question worth following.

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


July 17, 2012

2nd Cir. Declines to Require Written Litigation Hold in Every Case

The Second Circuit Court of Appeals has declined to impose a per-se requirement that a written litigation hold be issued in every case, in a July 10, 2012, decision in Howard Chin et al. v. The Port Authority Police Asian Jade Society of New York, et al., 10-1904 and 10-2031. As first reported by John Jablonski on his blog Legal Holds and Trigger Events, the ruling appears to countermand the “rule” set out in Southern District Judge Shira Scheindlin’s influential 2010 Pension Committee decision, which we have written about extensively on this site, including this article (membership required) and this news update on a trial-court decision from the same district that disagreed with Pension Committee. In Pension Committee Judge Scheindlin held that the failure to issue a written litigation hold (aka internal preservation directive) was itself gross negligence, in light of the importance of fragile electronically stored information (ESI) in modern litigation. That is a critical holding in a spoliation dispute, because “gross negligence” relieves the moving party of the burden of showing that the lost evidence would have been relevant. In Chin the court of appeals held that the failure to issue a written hold should be but one factor considered in assessing whether any sanctions should issue, and if so, of what severity. That holding appears to be consistent with the sentiment among practicing litigators that a written litigation hold is simply not necessary in some cases, although it is certainly the best practice to issue one. However, expect continued discussion as numerous stakeholders (including the plaintiff’s bar, those who sell products to assist with preservation obligations, and the corporate defense bar) weigh in on this thorny subject.

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


July 10, 2012

Judge Sparks Quickly Dismisses Lance Armstrong Complaint

On July 9, 2012, the Honorable Sam Sparks of the U.S. District Court for the Western District of Texas dismissed Plaintiff Lance Armstrong’s lengthy complaint against the U.S. Anti-Doping Agency in a terse order that provides training wheels for Armstrong’s next ride into Judge Sparks’ courtroom.

Judge Sparks dismissed without prejudice Armstrong’s complaint and motion for a temporary restraining order for failure to meet the requirements of Federal Rule of Civil Procedure 8(a). Citing Iqbal and Twombly, Judge Sparks found that Armstrong’s complaint was neither short nor plain and, therefore, ran afoul of basic federal pleading standards. According to Judge Sparks, the bulk of the complaint’s 261 numbered paragraphs were “wholly irrelevant to Armstrong’s claims” and “included solely to increase media coverage of this case, and to incite public opinion against Defendants.”

Judge Sparks continued,

[A]lthough his causes of action are, thankfully, clearly enumerated, the excessive preceding rhetoric makes it difficult to relate them to any particular factual support. This Court is not inclined to indulge Armstrong’s desire for publicity, self-aggrandizement, or vilification of Defendants, by sifting through eighty mostly unnecessary pages in search of the few kernels of factual material relevant to his claims.

In closing, Judge Sparks specifically instructed Armstrong to limit any future complaint to include only the following:

(1) the basis for this Court’s jurisdiction; (2) the legal claims he is asserting; (3) against which Defendants each claim is being made; (4) the factual allegations supporting each claim; (5) a brief statement of why such facts give rise to the claim; (6) a statement of the relief sought; and (7) why his claims entitle him to such relief.

Judge Sparks further ordered that Armstrong file any amended complaint within 20 days or have the case closed and dismissed for failure to prosecute, and for failure to comply with the Court’s orders.

Judge Sparks’s order was linked by the New York Times and can be accessed here. Armstrong’s complaint generally challenged potential punishment by the USADA in connection with charges against him alleging “unspecified doping violations.” Armstrong’s complaint asserted claims for “Fifth Amendment procedural due process” and “common law due process” violations, as well as tortious interference with contract. The complaint also sought to enjoin the USADA from imposing sanctions or further pursuing any doping charges against Armstrong.

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


June 28, 2012

Federal Judges Get Update of Pocket Guide to E-Discovery

The Federal Judicial Center has published a new edition of its pocket guide for federal judges on e-discovery. The guide, formally titled “Managing Discovery of Electronic Information: a Pocket Guide for Judges, Second Edition,” can be downloaded here. Why should you read it? This is likely what your judge will be reviewing in chambers the next time you file an e-discovery motion, and will be at their fingertips the next time you bring up e-discovery at a Rule 16 conference. The guide covers everything from managing early issues about form of production to spoliation and sanctions. The new edition updates case law and includes an increased focus on proportionality, and also includes FRE 502 orders in light of revisions to that rule designed to ease the burden of e-discovery. In addition it includes references to the various model orders and protocols by specific federal court jurisdictions that have been promulgated since the original guide was published. The guide is an excellent resource for all litigators, whether e-discovery beginners or experts.

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


June 12, 2012

EDPa Holds U.S. Rules Trump French Blocking Statute

In a recent article in the ABA’s Litigation News, two of our committee’s cochairs (Ian Fisher and Joan Archer) commented on Trueposition, Inc. v. LM Ericsson Tel. Co., an antitrust case in the Eastern District of Pennsylvania in which the court allowed the plaintiff to pursue jurisdictional discovery from a French standard-setting organization, despite protestations from the defendant that doing so would require it to violate a French “blocking statute” meant to limit the export of personal and business data outside of the country during litigation, and did not comply with Hague Convention procedures. The court, applying the factors set out by the Supreme Court in Societe Nationale Industrielle Aerospatiale v. United States District Court for the Southern District of Iowa as interpreted in subsequent lower-court decisions, held that complying strictly with the Hague Convention would be unduly cumbersome, and that the United States' interests in enforcing its antitrust laws outweighed the French interest in confidential data, in the particular circumstances presented. Key to the court’s decision was that the plaintiff’s requests were narrowly tailored.

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


June 11, 2012

Criminal E-Discovery Problems Highlighted in Oregon Ruling

An ongoing fight in a criminal case in Oregon highlights a tension within the Electronic Communications Privacy Act: The act allows the government to obtain personal electronically stored information (ESI) from a third-party provider via subpoena (under an exception to the Stored Communications Act, which generally prohibits access to personal ESI), but no such right is given to the defendant. In the Oregon case, described here, the defendant in a rape case claims that the victim's Internet search history and email (via Gmail) around the time of the event would contradict the victim's story. The defendant sent a subpoena to Google, which refused to comply without account-holder agreement, under the Stored Communications Act. The defendant then asked the trial court to order the DA to subpoena the records under the law-enforcement exception, and the trial court agreed. The DA is refusing to comply with the order, on the basis that it can only obtain a warrant if there is a showing that the requested documents would assist in the investigation. The DA, however, missed a deadline for an interlocutory appeal. The matter is set for a hearing later this month.

The case highlights the tension between the rights of criminal defendants to seek potentially exculpatory evidence that the federal statute has put out of reach and the privacy rights of victims, within the context of a statute that many feel is outdated and in need of revision. There are several articles on these statutes in the archive and stay tuned for more coverage on this issue in the criminal sphere.

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


May 25, 2012

ABA Urges Respect for Foreign Privacy Laws in Discovery

The ABA House of Delegates (HOD) at a recent meeting endorsed a call for U.S. courts to respect the privacy laws of other countries, even if that has the function of restricting discovery in litigation. A nice write-up of the resolution can be found here. The issue of foreign "blocking statutes" and restrictions on the portability of personal data (even business-related email) outside of the foreign jurisdiction has been written about extensively in the PP&D newsletter and other publications. There has a been a particular focus on the issue as it relates to e-discovery, because in some cases foreign-generated and non-foreign-generated ESI may be commingled in a business's repositories, making accidental violation of foreign regulations a risk. Also the unavailability of some sources of discovery due to such regulations has been mentioned in recent high-profile cases such as Da Silva Moore, where Judge Peck noted that email from the defendant's CEO— a French businessman— would not be searched because of complications from French privacy controls. Some have perceived a rise in judicial impatience with these kinds of restrictions, particularly in "asymetrical" litigation involving foreign corporations and U.S.-based plaintiffs. The HOD resolution appears to be aimed at protecting U.S.-based corporations who fear that if U.S. courts order parties to violate foreign regulations, U.S. companies may find themselves facing a more hostile climate if they find themselves in the courts of foreign countries or dealing with foreign regulators. Stay tuned to this website for more updates on this increasingly common problem.

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


May 25, 2012

New Responsibilities Emerge in Plea Bargaining

Plea bargaining is in great use in the United States—more than 90 percent of state and federal convictions result from guilty pleas. Although plea bargaining presents many risks, many legal commentators believe that in light of large expenses and lack of personnel, the criminal process would not survive without it. Recognizing this, in Missouri v. Frye and Lafler v. Cooper, decided on March 21, 2012, the Supreme Court held that plea bargaining is a pretrial critical stage of a criminal proceeding. By recognizing plea bargaining as a critical stage, the Court found that the standards set forth in Strickland v. Washington for effective assistance of counsel applied to plea bargaining stage as well.

In Frye, the defendant's lawyer failed to convey an offer from the prosecution to Frye, and the offer expired. Frye pled guilty and was sentenced to jail. In Lafler, on the other hand, the counsel’s mistake was different. Cooper decided to reject an offer from the prosecution in reliance on his counsel’s erroneous advice, which constituted an ineffective assistance of counsel.

The responsibilities created by these two decisions may be summarized as follows:

Defense Counsel: First, they must communicate any offers they receive to their clients. Second, a clear record must be kept about the details of offers received from the prosecution, such as the expiration dates. Finally, every plea bargaining must be considered as important as trial because it is a critical stage.

Prosecutors’ Responsibilities: Prosecutors may ask for a confirmation from the defense counsel that the offers were shared with the clients.

After Frye and Lafler, defendants have a Sixth Amendment right to effective assistance of counsel during the plea-bargaining stage. Although the rules and responsibilities created by Frye and Lafler seem to be simple, because plea bargaining is not a science, each plea-bargaining situation is likely to come with its nuances and difficulties. However, every person involved in the justice system must now ensure that a defendant has been adequately represented at the plea-bargaining stage.

— Norayr Zurabyan, Loyola Law School, Los Angeles, CA


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:

  • A settlement negotiation privilege, outside of the context of mediation, was not recognized by any state so that the lack of a federal settlement privilege would not frustrate the purposes of any state legislation.

  • A settlement-negotiation privilege was not part of what Congress adopted in Rule 408 of the Federal Rules of Evidence when addressing the admissibility of settlements and settlement negotiations and so the court did not want to strike a different balance than Congress intended.

  • A settlement negotiation privilege was not one of the nine specific privileges suggested by the Advisory Committee of the Judicial Conference.

  • A settlement-negotiation privilege was not necessary to achieve the public good of settlement discussions because disputes have been routinely settled without such a privilege.

  • Any settlement-negotiation privilege would be subject to numerous exceptions that would make any such privilege uncertain and unclear.

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 decisions that allow taxation of all, or essentially all, electronic discovery consultant charges, such as the District Court‘s ruling in this case, are untethered from the statutory mooring. Section 1920(4) does not state that all steps that lead up to the production of copies of materials are taxable. It does not authorize taxation merely because today‘s technology requires technical expertise not ordinarily possessed by the typical legal professional. It does not say that activities that encourage cost savings may be taxed.

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:

No person shall engage in the practice of law in the District of Columbia or in any manner hold out as authorized or competent to practice law in the District of Columbia unless enrolled as an active member of the District of Columbia Bar, except as otherwise permitted by these Rules.

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, 2012

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.

Whether ESI is stored on Facebook, in an iPad, or in the “cloud,” counsel must understand the implications for attendant legal duties—such as preservation, collection and production. Lawyers need not become computer experts; but they do need sufficient knowledge to represent clients competently in a world where “e-discovery” is fast becoming standard “discovery.”

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.” 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.