December’s Notable Cases and Events in E-Discovery

[Editor’s Note: This article was first published December 14, 2022 and EDRM is grateful to Robert Keeling, Chair of the EDRM Global Advisory Council and our Trusted Partner, Sidley, for permission to pubish.]d

This Sidley Update addresses the following recent developments and court decisions involving e-discovery issues:

1. a ruling from the U.S. District Court for the District of New Jersey denying the Defendants’ application to use technology-assisted review (TAR) to produce documents because the parties had not agreed to use TAR and because the Defendants did not substantiate the need for their request to use TAR
2. an order from the U.S. District Court for the Northern District of California ordering nonparty golfers to collect and produce electronically stored information (ESI) from their sports agents, finding that the ESI was within the golfers’ possession, custody, or control
3. a decision from the Court of Appeals of Texas denying a request to overturn an order requiring certain parties to produce accounting database records in their dynamic native format as opposed to in static Excel files
4. an opinion from the U.S. District Court for the Eastern District of New York finding that the Plaintiff failed to preserve relevant evidence, including from messaging applications on mobile devices, when it instituted its document hold in 2019 at the time it filed its complaint, rather than in 2016 when it first believed Defendants’ product violated Plaintiff’s trade dress rights, but also finding that there was not enough circumstantial evidence to conclude that Plaintiff acted with an intent to deprive Defendants of any ESI

1. A ruling from the U.S. District Court for the District of New Jersey denying the Defendants’ application to use TAR to produce documents because the parties had not agreed to use TAR and because the Defendants did not substantiate the need for their request to use TAR.

In In re Allergan Biocell Textured Breast Implant Products Liability Litigation, 2022 WL 16630821 (D.N.J. Oct. 25, 2022), Special Masters Judge Joseph A. Dickson (Ret.) and Brittany Manna evaluated Defendants’ proposed protocol for the use of TAR to produce documents, as well as Plaintiff’s opposition to the use of TAR.

Defendants applied to the Special Masters to use TAR (or predictive coding) for the remainder of its document production. Plaintiffs opposed Defendants’ use of TAR and instead requested that Defendants be ordered to proceed with its search term and linear review or be ordered to implement the TAR protocol to Defendants’ full custodial set of documents. Id. at *1.

In support of their application, Defendants argued that “applying TAR after the application of search terms is standard practice and commonly used to promote efficiency and reduce costs.” Defendants also argued that they were in the best position to determine the proper review methodology, and, based on the large number of documents, the best method was to apply TAR protocols to the remaining 560,000 documents (comprising 3.5 million pages) after the application of search terms. Defendants’ e-discovery vendor estimated that manual review of the remaining documents would take approximately 20 weeks, and Defendants argued that using TAR would thus be more efficient.

Defendants rejected Plaintiffs’ suggestion to apply TAR protocols before applying search terms, arguing it would impose a burden and be inefficient, as they had collected and indexed over nine terabytes of data prior to the application of the parties’ search terms. Defendants also cited to case law to argue that their proposal was “consistent with the majority of courts that have addressed whether a producing party may utilize TAR after search term culling.”

Plaintiffs argued that using TAR prior to the application of search terms “creates no additional burden on the Defendants and will increase the accuracy of the review.” Id. at *2. Plaintiffs further argued that applying TAR to unreviewed documents after search terms had been applied would be “prejudicial and unreasonable because it will exclude documents from review and reduce the ‘efficiency and accuracy’ of the review process.” Plaintiffs raised Defendants’ lack of supporting data and argued that any alleged burden must be weighed against the needs of the case, importance of the issues, and amounts in controversy, and presented alternative case law to support their arguments.

The Special Masters began their analysis with the determination that contrary to Defendants’ argument, there was no accepted “general principle” that parties can apply TAR after applying search terms. Rather, the Special Masters stated that courts “find solutions to the problems confronting them” but do not “settle the question of which method is better.” The Special Masters distinguished a case cited by Defendants by noting that in that case, the requesting party had undergone an analysis of the burden and cost of the discovery, which had not been done here. Id. at *3. Further, that court explicitly stated that it was not judging which method was superior to the other. The other case cited by Defendants also noted that the use of predictive coding is a judgment call. The Special Masters commented that both cases were decided eight to nine years ago, “which is a lifetime in the world of technological development and advancement of TAR.”

The Special Masters criticized the declaration from Defendants’ e-discovery vendor, which presented the costs Defendants had incurred to date for their review, explaining that it did “not detail how those costs will be increased or decreased based upon the implementation of TAR either before search terms are applied or after search terms are applied.” The Special Masters added that Defendants had had numerous opportunities to provide a cost-benefit analysis or statistical sampling but had not done so, and they had not explained why their method would be more efficient.

The Special Masters were also not persuaded by Defendants’ burden argument and noted that the nine terabytes of data should still be maintained on a database. They stated that after reviewing Defendants’ submissions and the declaration from Defendants’ e-discovery vendor, “the question of the benefit of using both search terms and TAR remains unanswered.”

The Special Masters commented that TAR requires transparency and cooperation among counsel in the review and production of ESI, calling this “an overriding principle to be taken from all of the cases cited by the parties.” The Special Masters continued that an important factor was the fact that the parties had not agreed to the application of TAR. Id. at *4. The Special Masters also noted that the case management order and ESI protocol required cooperation and collaboration amongst the parties on search terms, TAR, and other things. Specifically, the ESI protocol required agreement of the parties for any revisions to the protocol. The Special Masters found that “the Defendants have not set forth an adequate basis for ordering the application of TAR after the application of search terms, over the objection of the Plaintiffs.”

The Special Masters concluded by stating that ESI discovery costs would inevitably be high but that it was impossible to predict which method was the most economical, and implementing TAR at this stage “open[ed] the door for potential disputes that may arise related to the accuracy of the review process and will further delay the completion of discovery and drive costs upward.” Finally, the Special Masters stated that application of TAR at this point would not reveal documents that search terms had precluded. Therefore, “[b]ecause Plaintiffs did not bargain for this at the outset, over a year ago, it is inappropriate to force them to accept it now.”

The Special Masters thus denied Defendants’ application to apply TAR after the application of search terms and ordered Defendants to continue with the originally chosen review method of linear search term review.

2. An order from the U.S. District Court for the Northern District of California ordering nonparty golfers to collect and produce ESI from their sports agents, finding that the ESI was within the golfers’ possession, custody, or control.

In Mickelson et al v. PGA Tour, Inc., No. 5:22-cv-04486-BLF (N.D. Cal. Nov. 17, 2022), U.S. Magistrate Judge Susan Van Keulen addressed whether ESI held by the sports agents of certain nonparty golfers was within their possession, custody, or control such that the nonparties could be required to collect and search the ESI.

This federal antitrust litigation was brought against the PGA Tour by professional golfers who claimed that the PGA Tour unlawfully suspended them after they joined the competing LIV Golf Invitational Series. Certain of the golfers, referred to as the nonparty players, later voluntarily dismissed their claims and exited the lawsuit.

In discovery, the PGA Tour served subpoenas on the nonparty players seeking the production of documents and included within the definition of the responding party the nonparty players’ “attorneys, agents …, member[s], or employee[s], or any other person acting on [their] behalf.” Id. at 1. The nonparty players objected to this definition, arguing that they were not obligated to search for and produce relevant, nonprivileged materials in the possession or custody of their agents, managers, and others who represented them and spoke on their behalf in connection with the issues in dispute in the litigation. See Joint Statement Regarding Non-Party Player Objections to the Tour’s Requests For the Production of Documents, Docket No. 153 (Joint Statement), at 1.

Magistrate Judge Van Keulen stated that the Federal Rules of Civil Procedure “require production of documents that are within the ‘possession, custody, or control’ of the responding person or entity” and that this standard applies “no matter whether the responding person is a party to the litigation or a third-party subject to Rule 45.” Nov. 17, 2022 Order at 1 (quoting Fed. R. Civ. P. 34(a)(1)). She further explained that “control” is generally defined as “the legal right to obtain documents upon demand” and that “under established Ninth Circuit law, materials in the possession of an agent are within the ‘control’ of the responding person and must be produced.” Id. at 2.

The nonparty players argued that they did not have the legal right to demand that their “sports agents hand over ESI stored on their phones and in their email accounts for search term review.” Joint Statement at 4. The nonparty players further argued that their “agents could legally — and without breaching any contract — refuse to turn over such documents.”

However, Magistrate Judge Van Keulen found that it was “not credible” that the nonparty players could not obtain responsive documents from their own agents, which with the use of limiter terms relate only to the agents’ representation of the nonparty players. Nov. 17, 2022 Order at 2. She further distinguished the caselaw cited by the nonparty players, in particular Rojas v. Bosch Solar Energy Corp., 2020 WL 8617414 (N.D. Cal. Aug. 28, 2020), by noting that the analysis of “control” in the context of complex corporate structures was inapposite.

Accordingly, Magistrate Judge Van Keulen concluded that custodial ESI (email and device-level data) in the actual possession of the nonparty players’ agents was within their “control” within the meaning of Rules 34 and 45. She ordered the nonparty players to run the previously agreed-on search terms over their agents’ ESI, with the addition of added limiter terms designed to limit the scope of the results to materials related to their agents’ representation of the nonparty players and not other potential principals.

3. A decision from the Court of Appeals of Texas denying a request to overturn an order requiring certain parties to produce accounting database records in their dynamic native format as opposed to in static Excel files.

In In re Blair, 2022 WL 3135357 (Tex. Ct. App. Aug. 5, 2022), Chief Justice Yvonne T. Rodriguez for the Court of Appeals of Texas addressed a request by certain Relators in the underlying dispute for a writ of mandamus directing the trial court to vacate its discovery order authorizing access to native accounting database files, where the Relators had previously produced the files in static Excel spreadsheets.

In the underlying dispute, certain real parties in interest to the claims (referred to as the “Real Parties”) alleged they had not received water-sale-income proceeds to which they are entitled under a contract with Relators, who sell water generated on their ranch. Id. at *1. The Real Parties argued that Relators had been generating water to sell to other companies they own while representing they did not have water for the Real Parties. Chief Justice Rodriguez stated that the Real Parties had maintained throughout the litigation that Relators’ accounting records would reveal key information and had requested production of their native accounting files. The native accounting files were accessible through Relators’ vendor WolfePak.

The Real Parties sought the native accounting records to have access to the searchable metadata, which would provide information regarding changes that might have been made in the files. Relators, however, discovered confidential information in the files that could not be redacted, so they produced the native files in a static Excel spreadsheet format. The Real Parties objected to this because they claimed it lacked the searchable metadata. Chief Justice Rodriguez characterized the dispute as one “over the form in which the requested accounting records must be produced.” Id. at *2.

Describing the procedural history, Chief Justice Rodriguez stated that in July 2020 Relators agreed to produce the requested accounting records in native format to avoid having the trial court appoint an auditor. Relators had not voluntarily produced the files by March 2021, and the Real Parties then served requests for production. Relators objected to these requests as overly broad, unduly burdensome, and not reasonably calculated to lead to the discovery of admissible evidence. But the Real Parties’ expert, a certified fraud examiner and master analyst in financial forensics, opined on irregularities in the records and the need for the native files to analyze intercompany transactions and an embedded audit trail that “may reveal if expense records were manipulated after the suit was filed.”

In July 2021, Relators agreed pursuant to a Rule 11 agreement to produce the WolfePak accounting databases within two weeks in the same format and with the same information as was available to Relators or their experts. But Relators did not comply with this agreement because they discovered confidential information in the records, which led to the production of static Excel spreadsheets. Relators claimed that the Rule 11 agreement “only required them to disclose the information in Excel spreadsheet format, which still allows [the Real Parties] to examine whether financial information has been manipulated.” Id. at *3. The special master overseeing the Rule 11 agreement rejected this reasoning, but Relators filed a response to a motion to enforce the agreement, arguing it was impossible to comply with the agreement because they would not be able to redact the confidential information. The Real Parties responded that they could verify transactions and uncover manipulation “with one click, as opposed to the inordinate amount of time it would take to analyze the Excel spreadsheets.”

During a September 2021 hearing, the special master ordered that Relators produce the native files, stating that WolfePak would redact any confidential or privileged information with input from Relators, and Relators were to produce a privilege log. The documents were to be maintained as “Attorneys’ Eyes Only.” The special master also imposed sanctions on Relators. Relators objected to this order, in particular that allowing WolfePak to look through their accounting files would forfeit their attorney-client privilege. The trial court overruled Relators’ objections, leading to the instant writ of mandamus. Id. at *4.

After addressing procedural issues in the writ of mandamus, Chief Justice Rodriguez turned to whether the trial court abused its discretion by ordering Relators to produce responsive records in native format. Chief Justice Rodriguez first laid out the rules under Texas state law for producing electronic data as well as on proportionality of discovery requests. Id. at *5.

Chief Justice Rodriguez disagreed with the Real Parties’ argument that this litigation did not involve intrusive electronic discovery, finding that a search of Relators’ accounting databases was more intrusive than a general forensic search of something like a computer. Therefore, the analysis was to center around “whether the trial court could have reasonably determined [that the Real Parties] met their evidentiary burden of showing [Relators] defaulted on their discovery obligations, [Relators’] production was inadequate, and a search of the requested native accounting files would uncover relevant information.”

Chief Justice Rodriguez stated that the record showed that Relators agreed to produce their accounting files in native format on the condition that certain information was redacted but that their CFO determined that the WolfePak software would not allow documents to be omitted or redacted. Id. at *6. She stated that Relators consulted with WolfePak’s customer support and determined that the confidential information could be removed by exporting the databases into Excel spreadsheets, which Relators represented mirrored the information contained in the native database and could be imported into WolfePak to be viewed. Relators stated they took “a substantial amount of time to convert the databases into Excel spreadsheets,” which they immediately disclosed to the Real Parties. Relators maintained that the Excel spreadsheets protected their confidential information and were searchable in a similar manner to the native format.

Chief Justice Rodriguez pointed to the Real Parties’ expert affidavit, which disputed Relators’ claim that the spreadsheets were an adequate substitution, as the native WolfePak file “is a relational database that contains the relationships or links between different types of data, such as invoices and payments, and the Excel spreadsheets … did not link the data in the same way, making a search of the same data in the Excel spreadsheets much more time consuming.” Additionally, the expert stated that there was evidence that a large number of changes had been made to the accounting files on dates relevant to the litigation, and a search of the native files “would reveal when and who made the changes.”

Chief Justice Rodriguez stated that “the trial court could have determined [Relators] defaulted on their obligation to produce the requested data in native form, the static Excel spreadsheet records produced by [Relators] were inadequate because they would not reveal whether the data had been manipulated, the native files would reveal whether the data had been manipulated, and the information contained in the metadata is dispositive to the issues in the case.”

Chief Justice Rodriguez therefore held that “the record supports the trial court’s decision to overrule [Relators’] objections to the special master’s order granting [the Real Parties’] motion to compel” and that Relators were not entitled to the mandamus relief. However, she directed the trial court to reform the discovery order to allow the confidentiality process to be conducted, reasoning that courts “should be mindful of protecting sensitive information and choose the least intrusive means of retrieval.” Id. (internal citations omitted).

4. An opinion from the U.S. District Court for the Eastern District of New York finding that the Plaintiff failed to preserve relevant evidence, including from messaging applications on mobile devices, when it instituted its document hold in 2019 at the time it filed its complaint, rather than in 2016 when it first believed Defendants’ product violated Plaintiff’s trade dress rights, but also finding that there was not enough circumstantial evidence to conclude that Plaintiff acted with an intent to deprive Defendants of any ESI.

In EBIN New York, Inc. v. SIC Enterprise, Inc., 2022 WL 4451001 (E.D.N.Y. Sept. 23, 2022), U.S. Magistrate Judge Taryn A. Merki addressed Defendants’ motion for sanctions based on Plaintiff’s alleged spoliation of ESI including WeChat and KakaoTalk messages on certain custodians’ mobile devices.

In this action seeking damages for trade dress violation and unfair competition pursuant to the Lanham Act, Plaintiff alleged that Defendants sold a hair product with packaging closely resembling the trade dress of Plaintiff’s products. Id. at *1. After Plaintiff filed its complaint in February 2019, it instituted a litigation hold, which included sending a letter to its customers instructing them to preserve records of their purchases and sales of Plaintiff’s products and other products that may infringe on Plaintiff’s intellectual property rights.

In April 2020, Defendants filed a motion to compel seeking an order directing Plaintiff to comply with its discovery obligations and award Defendants’ attorneys’ fees pursuant to Fed. R. Civ. P. 37(a)(5)(A). Id. at *2. Defendants also represented that Plaintiff had not produced any responsive correspondence from the app WeChat, despite the manufacturer’s confirmation that such communications occurred, nor responsive communications through other media (such as KakaoTalk) through which Plaintiff’s sales representatives communicated with retailers regarding the allegedly infringing product. Defendants stated that during meet and confers, Plaintiff claimed that it no longer possessed WeChat communications with its manufacturer. Defendants also stated that Plaintiff had engaged a discovery vendor but had not yet produced any documents at issue and that Plaintiff claimed it was too expensive to conduct e-discovery and review documents for production.

In response, Plaintiff argued that the COVID-19 lockdown impeded its ability to collect information and documents. The day before it indicated that it would produce documents, Plaintiff requested that its e-discovery vendor process the documents; however, the vendor told Plaintiff there would be a delay. Nonetheless, Plaintiff produced almost 100,000 pages of documents, which Plaintiff argued rendered most of Defendants’ issues moot. During a hearing on Defendants’ motion to compel, Plaintiff represented that it had collected, but not yet reviewed, relevant ESI and was attempting to collect additional ESI from other custodians. The court had granted in part and denied in part the motion to compel, directing the parties to refine the scope and search terms for Plaintiff to review and directing Plaintiff to provide information relevant to the creation and possible deletion of relevant text messages. 

In June 2020, Plaintiff requested, and one of the Defendants agreed to help find, a vendor to assist Plaintiff in processing and collecting additional ESI. Id. at *3. Nonetheless, Plaintiffs still had not produced any text messages by August 2020. Plaintiff stated that with the assistance of a discovery vendor called Haystack, it had collected forensic imaging copies of the smartphones used by 13 employees of Plaintiff, including WeChat and KakaoTalk messages.

However, Plaintiff stated that the WeChat and KakaoTalk messages were encrypted and thus could not be reviewed. Defendant then referred Plaintiff to an e-discovery vendor called Setec Investigations (Setec) that could assist in decrypting the messages. Setec informed Plaintiff that after processing data from the phone of its president, John Park, it found that there were no WeChat or KakaoTalk messages.

Plaintiff represented to the court in October 2020 that its vendors had not been able to locate these text messages on Park’s phone but were processing other phones he owned. The court gave Plaintiff six days to provide either these communications or an affidavit from Park stating that the communications never existed or why he no longer had access to them. Additionally, if the reason Plaintiff was unable to produce the text messages in time was because its ESI vendor could not process them, the ESI vendor was to provide an affidavit containing the reason for such inability. Plaintiff was also ordered to provide a schedule by which it was to process and review the relevant text messages, subject to meet and confers with the defendants.

Plaintiff filed a declaration from Park per the district court’s order explaining why he no longer possessed the text messages. Id. at *4. Park had both a company and personal cell phone at the time the declaration was filed, but because the company cell phone had been obtained after the time period for responsive documents, that phone contained no responsive messages. Additionally, Park changed his personal device during the relevant time period, and the phone he had been using prior had been damaged. While his cell phone provider was able to transfer some iPhone data to his new device from iCloud, only some data was available for transfer, which did not include any WeChat or KakaoTalk messages. Park discarded the phone thereafter, before anticipating any discovery dispute over the data it contained. Park also stated that this occurred two months prior to when Defendants launched the product at issue.

Park stated that by October 2020, his personal phone contained only WeChat communications from his most recent device, but none concerned the design or packaging for this device, nor did any messages on his business phone. Park also stated he did not use SMS messages, KakaoTalk, or any other messaging apps to communicate. Park stated he did not intentionally delete responsive messages, and no responsive messages were inadvertently lost. Park stated that any responsive communications occurred in person at a trade show in Las Vegas, NV in 2014.

Plaintiff also filed a declaration from the director of investigative services at Setec, Michael Kunkel. Kunkel confirmed that Setec was asked to provide a report regarding Park’s devices and that the report did not include WeChat or KakaoTalk messages. Kunkel stated that Haystack might not have been able to create the necessary imaging from Park’s phone, which was described as an Android phone. Kunkel stated that Setec might have success if it acquired Park’s phone.

Defendants later filed the instant motion for sanctions pursuant to Federal Rule of Civil Procedure 37(e) for Plaintiff’s alleged failure to preserve KakaoTalk messages regarding the products at issue. Defendants alleged that despite Plaintiff’s belief “as early as 2016 that Defendants’ product infringed Plaintiff’s alleged trade dress rights and contacting counsel to discuss the matter as early as 2017, Plaintiff did not institute a litigation hold until February 2019 when it filed the instant lawsuit.” Defendants argued that Plaintiff communicated internally and with retailers using KakaoTalk as early as December 2017. Defendants pointed to a 2018 email from Park to himself attaching a KakaoTalk thread created per Park’s instructions involving Plaintiff’s personnel that included responsive messages about the products at issue. Id. at *5. But this thread was not preserved by Park or produced to Defendants.

Defendants also claimed that Plaintiff’s production included a number of separate KakaoTalk chats from 11 custodians, but only one was dated in 2017, five were dated from 2019, and only seven were intercompany threads. Additionally, the thread attached to Park’s email should have been produced because the custodians included members of that thread. Defendants argued that the “unavoidable conclusion is that Plaintiff destroyed or failed to take reasonable steps to collect and preserve before their destruction” responsive KakaoTalk messages. Defendants argued that they were entitled to a presumption that the lost information was unfavorable to Defendants and to attorneys’ fees. Defendants argued they were prejudiced because the destroyed information was not available through other discovery and was relevant to issues in the litigation.

In response, Plaintiff argued that its duty to preserve documents arose with its 2019 demand to Defendants to cease and desist, and at that point, Plaintiff successfully preserved and collected all relevant documents and information, including KakaoTalk messages. Plaintiff also explained that the KakaoTalk platform does not retain data beyond six months.

Magistrate Judge Merki began her discussion with the rules governing Plaintiff’s duty to preserve ESI under Rule 37(e). Magistrate Judge Merki stated that the party moving for sanctions must first show that the party with control over the ESI had an obligation to preserve it at the time it was destroyed. Determining when litigation is “reasonably foreseeable” depends on the extent to which a party was on notice that litigation was likely and that the information would be relevant. The duty arises most commonly once a suit has been filed, but can arise if the party should have known the evidence may be relevant to future litigation. Magistrate Judge Merki noted that a court has the discretion to determine when litigation is “reasonably foreseeable.” This standard is fact-specific and gives the court “the discretion necessary to confront the myriad factual situations inherent in the spoliation inquiry.”

Magistrate Judge Merki stated that once the court has determined that a duty to preserve existed and when it began, the court “must determine whether [pursuant to Rule 37(e)] the party breached its duty to preserve by failing to take reasonable steps to preserve the information.” She noted that courts must consider whether there was a “routine, good-faith operation of an electronic information system” and “the party’s sophistication with regard to litigation.” Id. (quoting Fed. R. Civ. P. 37(e) advisory committee’s note to the 2015 amendment). Magistrate Judge Merki stated, however, that the rule does not apply when information is lost despite reasonable steps to preserve it, but courts should examine what steps parties took to avoid risks. Id. at *5.

Magistrate Judge Merki further explained that before ordering sanctions, a court must determine that the ESI cannot be restored or replaced through additional discovery and that the loss of information either prejudiced another party or took place with the intent to deprive the other party of the information. Id. at *7. The burden of proof does not fall on one party or the other, but generally some proof is needed that the lost evidence was probative and would affirmatively support the movant’s claim. However, because sanctions are intended as a deterrent, such proof is not strictly necessary.

With respect to determining intent, Magistrate Judge Merki stated that the standard differs among courts, with some applying a “preponderance of the evidence” standard and others applying a “clear and convincing evidence” standard. She continued, however, that she need not determine which standard to use because “under either standard, Defendants have not demonstrated that Plaintiff acted with an intent to deprive.” Magistrate Judge Merki provided the following description of intent:

(1) [E]vidence once existed that could fairly be supposed to have been material to the proof or defense of a claim at issue in the case; (2) the spoliating party engaged in an affirmative act causing the evidence to be lost; (3) the spoliating party did so while it knew or should have known of its duty to preserve the evidence; and (4) the affirmative act causing the loss cannot be credibly explained as not involving bad faith by the reason proffered by the spoliator.

Id. (quoting CBF Industria de Gusa S/A v. AMCI Holdings, Inc., No. 13-CV-2581 (PKC) (JLC), 2021 WL 4190628, at *18 (S.D.N.Y. Aug. 18, 2021)). Further, “[i]ntentional failure to take steps necessary to preserve relevant evidence may demonstrate the requisite level of intent.” Id. at *7.

Turning to sanctions, Magistrate Judge Merki stated that if the court finds prejudice but not an intentional deprivation, sanctions may be awarded that are “no greater than necessary to cure the prejudice.” Id. (quoting Fed. R. Civ. P. 37(e)(1)). Sanctions can include forbidding parties from putting on certain evidence, permitting parties to present arguments relating to the loss of information to the jury, and issuing a jury instructions as to how to evaluate this information. In finding intentional deprivation, courts may presume the lost information was unfavorable, instruct the jury that it may or must presume the information was unfavorable, or dismiss the action or enter a default judgment. Id. at *8.

Magistrate Judge Merki next concluded that “litigation was reasonably foreseeable when Mr. Park thought Defendants’ product violated Plaintiff’s trade dress rights in 2016 and, a couple of months later, contacted Plaintiff’s counsel to discuss Defendants’ product.” She reasoned that “although litigation may not have been certain, it was ‘reasonably foreseeable.’” Accordingly, she found that Plaintiff “breached its duty to preserve the KakaoTalk messages regarding Defendants’ allegedly infringing products because it failed to take reasonable steps to preserve them.” Id. at *9. She pointed to the marketing thread that took place on KakaoTalk between 2017 and 2018 discussing Defendants’ allegedly infringing product, noting that Plaintiff had produced the thread as an attachment to an email but not the actual messages. 

Magistrate Judge Merki stated that Plaintiff’s defense that KakaoTalk deletes messages after six months “underscores that Plaintiff did not take reasonable steps to preserve potentially relevant KakaoTalk messages[.]” Rather, Plaintiff should have issued litigation holds or other form of notice to participants telling them to save or create copies of the messages. Magistrate Judge Merki commented on the fact that Park forwarded the thread to his personal email almost six months after the thread began, suggesting he thought it would be important to retain and would not have been retained otherwise. Park therefore could have instructed the others to save the messages as well.

Magistrate Judge Merki further commented on the fact that Plaintiff did not collect its employees’ smartphones until 2020, despite the litigation hold’s having been issued in February 2019, nor did Plaintiff produce KakaoTalk messages until October 2020. Plaintiff did not produce the messages until Defendants’ motion to compel, during which time one employee’s phone broke and messages were lost.

On this basis, Magistrate Judge Merki stated she had “little difficulty concluding that Plaintiff failed to take reasonable steps to preserve the messages in question and that they cannot be restored or replaced through additional discovery.” Id. at *10. However, despite this finding, Magistrate Judge Merki stated that the “prejudicial effect” was “relatively minimal,” in particular because Defendants had a portion of the marketing thread from Park’s email. With respect to the other KakaoTalk messages, Magistrate Judge Merki stated “it is entirely unclear what messages may have existed and whether they would assist either party in this litigation.”

Magistrate Judge Merki also found that there was not enough circumstantial evidence to conclude that Plaintiff acted with an intent to deprive Defendants of the ESI. For example, while Plaintiff did not take reasonable steps to preserve ESI, it did take some steps by instituting a litigation hold. Additionally, when Plaintiff’s counsel indicated it would conduct ESI searches in August 2019, they advised Plaintiff to search for and retain materials relating to the pending litigation. Plaintiff also engaged a vendor to download and conduct forensic imaging of cell phones and attempted to resolve the encryption issue with the WeChat and KakaoTalk messages. In October 2020, Plaintiff’s counsel reviewed all records from the smartphones and then filed a joint letter informing the court that Plaintiff produced all available records from the phones. Id. at *11. 

Based on this analysis, Magistrate Judge Merki concluded that “Defendants have not shown that it is more likely than not that Plaintiff intended to deprive Defendants of the ESI or that there was an intent to deprive shown by clear and convincing evidence.” Magistrate Judge Merki added that Plaintiff’s actions were not as negligent as those in the case law cited by Defendants in support of their motion.

Magistrate Judge Merki noted the Advisory Committee’s note to the rule that courts should consider the party’s sophistication with regard to litigation and whether the information was in the party’s control. Plaintiff argued that it did not have the resources or sophistication to archive all of the KakaoTalk messages sent in the course of business prior to having instituted a formal communications policy. Magistrate Judge Merki stated that while this did not absolve Plaintiff, the lack of sophistication with regard to limitation “further support[s] the Court’s conclusion that Plaintiff did not act with an intent to deprive.”

As a result of the above, Magistrate Judge Merki found unwarranted Defendants’ request for a presumption that the lost information was unfavorable to Plaintiff and for award of attorneys’ fees, as “those two sanctions are ‘greater than necessary to cure the prejudice.’” Id. at *12 (quoting Fed. R. Civ. P. 37(e)(1)).LESS

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