March’s Notable Cases and Events in E-Discovery
[Editor’s Note: This article was first published March 15, 2023 and EDRM is grateful to Robert Keeling, Chair of the EDRM Global Advisory Council and our Trusted Partner, Sidley, for permission to republish.]
This Sidley Update addresses the following recent developments and court decisions involving e-discovery issues:
- an order from the U.S. District Court for the Northern District of California granting monetary and adverse inference sanctions for several discovery failures, including for failing to turn off the auto-delete function for Skype message data and failing to preserve text messages, but declining to grant sanctions for messages lost as a result of a migration process
- a ruling from the U.S. District Court for the Northern District of California sustaining the Defendant’s objection to an interrogatory on the grounds that it called for attorney work product because answering the interrogatory would require Defendant’s lawyers to investigate facts and draw conclusions from those facts in reliance on their own impressions and opinions
- a decision from the U.S. District Court for the Southern District of New York ordering the Defendant to produce electronically stored information (ESI) that Defendant claimed it did not have the practical ability to produce because the ESI contained proprietary information of a third party and had been transferred to the third party, finding that Defendant did not meet the “high bar” for showing impossibility
- an opinion from the U.S. District Court for the Northern District of California granting sanctions against Defendant and its outside counsel for significant and repeated bad-faith discovery conduct, including making frivolous arguments, withholding discoverable documents from production, and producing documents in difficult and obscure formats
1. An order from the U.S. District Court for the Northern District of California granting monetary and adverse inference sanctions for several discovery failures, including for failing to turn off the auto-delete function for Skype message data and failing to preserve text messages, but declining to grant sanctions for messages lost as a result of a migration process.
In Resolute Forest Products, Inc. v. Greenpeace International, No. 17-cv-02824-JST (KAW), 2022 WL 16637990 (N.D. Cal. Nov. 2, 2022), The Honorable Kandis A. Westmore, Magistrate Judge, addressed competing sanctions motion involving spoliation based on a party’s custodian’s failure to turn off the “auto delete” option on their Skype chats and the other party’s failure to preserve text messages and custodial documents.
In this action for defamation, Plaintiff alleged that Defendant made a number of false or misleading press releases and reports about Plaintiff’s sustainability practices. Id. at *1. After a “highly contentious discovery process,” both parties filed motions for spoliation sanctions.
Plaintiff’s motion sought sanctions for Defendant’s failure to preserve Skype messages during a “critical” time period that it claims could have demonstrated Defendant’s knowledge of the falsity of its statements. Id. at *8. Judge Westmore explained that Defendant lost some of the Skype message data at issue because Microsoft, without notice to Defendant, migrated Skype from a peer-to-peer system to a centralized system, affecting where data was stored. Id. at *2. Other Skype message data was lost because one of Defendant’s custodians had failed to uncheck the auto-delete option on Skype. Id. at *2‒3, 8.
Because Plaintiff’s motion was brought under Rule 37(e) for loss of ESI, Plaintiff was required to demonstrate that Defendant failed to take reasonable steps to preserve the data it lost. Id. at *8. Judge Westmore held that Defendant had taken reasonable steps to preserve the Skype data lost due to the Microsoft migration because Microsoft moved the data without Defendant’s knowledge. She rejected Plaintiff’s argument that there were other steps that Defendant could have taken to preserve this data because the existence of those methods “did not adequately explain why [Defendant]’s reliance on the messages being retained is not reasonable, particularly in the absence of any evidence in the record that such reliance was not warranted.” Id. at *9.
However, Judge Westmore held that the failure to turn off the auto-delete option on Skype was not reasonable. She found that the resulting loss of the Skype message data was prejudicial because the messages were between custodians “during a critical period.” She rejected Defendant’s argument that Microsoft may still have copies of those messages as Defendant itself expressed doubt about whether Microsoft would. Id. at *10. Despite this, Judge Westmore found that terminating sanctions or adverse jury instructions were not warranted under Rule 37(e) because the spoliation was of “limited scope” and there was no evidence that Defendant intended to delete the messages. Judge Westmore ordered Defendant to pay attorneys’ fees for the time meeting and conferring about the Skype message spoliation and 10% of the cost of filing the motion for sanctions, and ordered a jury instruction “of a short factual statement regarding the spoliation of this evidence” that “should inform the jury that [Defendant] had a duty to preserve all Skype messages, but that despite this duty, certain Skype messages were lost during the period that [Defendant] failed to turn off the auto-delete function on his Skype account.”
With respect to Defendant’s motion for sanctions, Judge Westmore found that Plaintiff had “failed to search and permitted the destruction of text messages,” which one of Plaintiff’s witnesses testified were used for work communications. Id. at *13. She rejected Plaintiff’s argument that these were not relevant because a witness testified that texts were sent with “some urgency” and because it would be improper for Plaintiff to “unilaterally determine that the text messages contained no relevant information when they never searched them.” She found that Plaintiff failed “to take any reasonable steps to produce or preserve the texts” and so “deprived [Defendant] of communications between employees and with customers, with no ability to determine if they were, in fact, nonsubstantive.”
Judge Westmore awarded, in addition to the attorneys’ fees already awarded to Defendant, fees for 80% of the time spent on Defendant’s motion for sanctions for Plaintiff’s aggregate sanctionable behavior. Id. at *17.
2. A ruling from the U.S. District Court for the Northern District of California sustaining the Defendant’s objection to an interrogatory on the grounds that it called for attorney work product because answering the interrogatory would require Defendant’s lawyers to investigate facts and draw conclusions from those facts in reliance on their own impressions and opinions.
In Securities and Exchange Commission v. Volkswagen Aktiengesellschaft, et al., No. 19-cv-01391-CRB (AGT), 2023 WL 1793870 (N.D. Cal. Feb. 7, 2023), The Honorable Alex G. Tse, Magistrate Judge, addressed whether one of the Securities and Exchange Commission (SEC) interrogatories to Volkswagen called for a response that included information protected by the attorney work product doctrine.
In this civil action by the SEC against Volkswagen, the SEC served Volkswagen with an interrogatory asking Volkswagen to “identify each VW officer, director, or employee … whom the VW Defendants believe knew, prior to May 22, 2015,” about the conduct at issue and to “state in meaningful detail the basis for the VW Defendants’ belief as to each person so identified.” Id. at *1. Volkswagen objected to the interrogatory on the grounds that it sought information protected by the work product doctrine.
Judge Tse explained that a party’s lawyers may act as a conduit for information in response to an interrogatory by gathering information to respond. However, in other instances, a party’s lawyers may need to conduct an investigation to respond to an interrogatory, which could include gathering information from multiple sources and synthesizing it in order to respond. Judge Tse explained that neither of these types of responses “transform[s] what [the attorneys] uncover into protected attorney work product.” He noted that courts have “consistently held that the work product concept furnishes no shield against discovery, by interrogatories or by deposition, of the facts that the adverse party’s lawyer has learned, or the persons from whom he or she had learned such facts.” Id. (quoting Wright & Miller, 8 Fed. Prac. & Proc. Civ. § 2023 (3d ed. rev. 2022)).
But Judge Tse concluded that the SEC’s interrogatory to Volkswagen was different because it asked for opinions, not facts, in that it asked “whom do the VW Defendants believe knew, prior to May 22, 2015,” about the conduct at issue. Judge Tse explained that Volkswagen would need to do more than “gather and synthesize” information to provide a fulsome answer; instead it would need to “evaluate and form opinions about that information.” He noted that “considerable analysis could be required” to do this, that there “could be conflicting circumstantial evidence about whether a particular employee knew,” and that Volkswagen would need to “weigh that evidence and make a judgment call.”
Judge Tse explained that Volkswagen’s lawyers would be responsible for responding to the interrogatory because they investigated Volkswagen’s conduct. Id. at *2. Volkswagen’s lawyers would therefore need to rely on their own impressions and opinions to answer the SEC’s interrogatory, and their response to the interrogatory would reveal their conclusions. Judge Tse concluded that Volkswagen’s work product objection had merit because of the need for Volkswagen’s lawyers to be involved. An attorney’s “mental impressions, conclusions, [and] opinions” are among “the core types of work product” that is “virtually undiscoverable.”
Judge Tse rejected an argument by the SEC that the interrogatory was a permissible contention interrogatory. He explained that contention interrogatories are used to learn more about the other side’s case and can ask “for an opinion or contention that relates to fact or the application of law to fact.” But he concluded that the SEC’s interrogatory was not a true contention interrogatory because it was not targeted at uncovering or understanding Volkswagen’s contentions (i.e., Volkswagen’s theories or defenses). Id. at *3.
Judge Tse noted that the primary purpose of the work product rule is to “prevent exploitation of a party’s efforts in preparing for litigation,” id. (quoting United States v. Sanmina Corp., 968 F.3d 1107, 1119 (9th Cir. 2020)), and that the rule applied to the SEC’s interrogatory and served this purpose. He explained that the SEC may want to identify each Volkswagen officer, director, or employee who knew, but the SEC would need to obtain that information through traditional means (e.g., document discovery, depositions, fact interrogatories, requests for admission) and could not compel Volkswagen to form and share opinions about facts that did not directly relate to Volkswagen’s theories or defenses.
3. A decision from the U.S. District Court for the Southern District of New York ordering the Defendant to produce ESI that Defendant claimed it did not have the practical ability to produce because the ESI contained proprietary information of a third party and had been transferred to the third party, finding that Defendant did not meet the “high bar” for showing impossibility.
In Sunlight Financial LLC v. Hinkle, No. 21-CV-6680 (JMF) (BCM), 2022 WL 17487686 (S.D.N.Y. Dec. 7, 2022), The Honorable Barbara Moses, Magistrate Judge, addressed whether Defendant had the practical ability to comply with a discovery order requiring production of ESI containing proprietary information of a third party, where Defendant had given the ESI to the third party and did not retain a copy.
Plaintiff in this action sued one of its former executives and his new employer, claiming that he stole confidential information for the benefit of the competing business. Id. at *1. Shortly after the filing of the lawsuit, the parties negotiated a stipulated preliminary injunction, which the court subsequently ordered (PI Order). The terms of the PI Order were broad, requiring Defendant’s employees to turn over all electronic devices, accounts, and storage systems that contained any of Plaintiff’s nonpublic information to a forensic expert for review and imaging. There was no carveout for any information that Defendant believed to be confidential, proprietary, or trade secret information.
During the course of discovery, it was revealed that Defendant did not produce all of the required ESI, but rather turned over certain ESI to a third party and subsequently destroyed it. Defendant claimed that this ESI contained third-party information that Defendant did not have the legal authority to produce. Id. at *4. Plaintiff filed a motion to compel, and Judge Moses invited the third party to oppose the motion in addition to Defendant. Id. at *5–6.
Judge Moses began her analysis by briefly considering whether the PI Order required Defendant to produce the ESI that was held back. Id. at *6–7. In light of the incredibly broad language in the PI Order, she easily concluded that it did.
Judge Moses then considered Defendant’s and the third-party’s objection that Defendant lacked the legal authority to produce the ESI because it contained the third-party’s proprietary information. Id. at *7–8. Judge Moses explained that a defense based on a party’s inability to comply must meet a high bar that requires the party to prove that compliance is “beyond the realm of possibility.” Id. at *7. Judge Moses contrasted a situation in which a party does not have possession or control over ESI, making it impossible to produce, versus a situation in which a party has possession, but production would put the party in legal jeopardy with a third party. In that situation, production would be required, even if it would result in legal risk elsewhere.
Judge Moses also considered Defendant’s objection that it did not have “possession” over certain employee-owned ESI. Id. at *8. Federal Rule of Civil Procedure 34 asks whether an employee has “access” and a “practical ability” to obtain the employee-owned documents. Judge Moses noted that in this instance, Defendant turned the ESI over to the third party, then destroyed it. Both actions demonstrated that Defendant had possession and could comply with the PI Order.
Judge Moses stated that she was not unsympathetic to the third-party’s desire to keep proprietary information out of the hands of a competitor, but she noted that it had multiple avenues by which it could achieve that goal without violating the PI order. She pointed out that if the third party had not allowed a former contractor to retain custody of propriety information on his personal devices, this issue never would have arisen. Second, she questioned why the third party had not moved (or did not move) to intervene in the action to exclude its proprietary information from the PI Order. Because production of the ESI at issue was not impossible and was covered under the terms of the PI Order, Judge Moses ordered Defendant to produce it. Id. at *9.
4. An opinion from the U.S. District Court for the Northern District of California granting sanctions against Defendant and its outside counsel for significant and repeated bad-faith discovery conduct, including making frivolous arguments, withholding discoverable documents from production, and producing documents in difficult and obscure formats.
In In re Facebook, Inc. Consumer Privacy User Profile Litigation, No. 18-md-02843-vc, 2023, WL 1871107 (N.D. Cal. Feb. 9, 2023), The Honorable Vince Chhabria, U.S. District Court Judge, addressed a motion for fees and costs in sanctions against Facebook and its outside counsel, Gibson Dunn, for their “concerted, bad-faith effort to throw obstacle after obstacle” against Plaintiffs’ discovery attempts.
The underlying action was a series of consolidated lawsuits against Facebook alleging abuse of personal information in the wake of the Cambridge Analytica scandal in 2016. Id. at *2. Plaintiffs claimed that Facebook permitted certain application developers and business partners to access their information without consent and failed to monitor the use of personal information by its partners. Id.at *3. In discovery, Plaintiffs requested information incidental to an internal investigation at Facebook into the misuse of data by application developers, as well as the personal information for the named plaintiffs that Facebook had collected. But “nearly three years after the plaintiffs’ first request Facebook was still producing” application developer investigation (ADI) information and named plaintiff personal information. Id. at *11, 15. Eventually, Plaintiffs were permitted to move for sanctions instead of continuing to ask Facebook for more information. Id. at *4.
Judge Chhabria began his analysis with a discussion of the court’s “inherent power” to sanction, under which sanctions may be imposed only on a finding of bad faith. Id. at *20–21. He explained that because the sanctions sought in the action were designed to be compensatory, the fees awarded must have been generated “because of” the misconduct. Given that the parties had reached a settlement, he noted that a sanctions award was designed to “cause a corresponding reduction in the amount of money designated to pay attorney’s fees from the settlement fund.” Id. at *20.
Judge Chhabria stated that “[b]ecause a court’s inherent powers must be exercised with restraint and discretion,” it would “only sanction Facebook and Gibson Dunn for the worst of their consistently bad behavior.” Id. at *21 (quotation marks omitted). He spoke about particular examples of sanctionable conduct that allowed the court to find “by clear and convincing evidence” that “Facebook and Gibson Dunn acted in bad faith during much of this litigation.”
Judge Chhabria first concluded that Facebook and Gibson Dunn’s refusal to disclose facts related to the ADI investigation was sanctionable. He stated that after the magistrate judge overseeing discovery had rejected one of Facebook and Gibson Dunn’s arguments about the privileged nature of the ADI, they “engaged in what can only be described as an effort to gaslight their opponents” by making the “frivolous” argument that concessions on unrelated issues and “out-of-context comments” by the magistrate judge allowed them to delay production, supported by supposed “case law … none of which seems to exist.” Id. at *22. Judge Chhabria noted that “[i]t is the height of bad faith to repeatedly resist the disclosure of such probative information by twisting the words of opposing counsel and the magistrate judge.” He stated that after the appointment of a special master, objections, a motion for reconsideration, and finally a threat of sanctions from the district court, Facebook and Gibson Dunn revealed that their previously collected ADI documents “did not include anything from after 2019” even though they had told the special master that “their previous collection was adequate — without ever inquiring into what they had actually collected.” Id. at *23.
Judge Chhabria also found that Facebook and Gibson Dunn used “frivolous arguments” to delay the production of “the named plaintiff’s information.” Facebook and Gibson Dunn continued to refuse to produce certain information that the magistrate judge and special master explained was discoverable “at least three times over the course of two years,” which Judge Chhabria held was sanctionable because “[e]ven if there had been any ambiguity” in the orders, “that ambiguity would have been eliminated by [the] repeated rejection of Facebook and Gibson Dunn’s argument.” He noted that this “short-circuited” the conferral process.
Judge Chhabria rejected Facebook and Gibson Dunn’s argument that Plaintiffs’ personal information was not discoverable because Facebook did not share that information with third parties, explaining that the argument was “obviously contrary to the right of the plaintiffs to test Facebook’s assertions in an adversarial litigation process.” He noted that “even if this argument were somehow not frivolous when Facebook and Gibson Dunn first made it,” their repeated reassertion of the argument after it was rejected by the magistrate judge and special master evinced an intent “to obfuscate and delay,” id. at *24, “in an attempt to push the plaintiffs into settling the case for less than they would have gotten otherwise,” id. at *2. He highlighted that despite Facebook and Gibson Dunn’s argument that “production of any additional named plaintiff data would create a major burden,” they knew that “they had already preserved two additional sources” of personal information, but did not tell Plaintiffs about them, which was sanctionable either because it was deliberate or because Facebook and Gibson Dunn had asserted earlier that producing information would be too difficult without knowing that this was the case. Id. at *24. Judge Chhabria further noted that Facebook and Gibson Dunn chose to produce what personal information they did “in a difficult and obscure format” and did not tell Plaintiffs about potentially better-formatted sources, even as Plaintiffs “consistently complained about the difficulty” with the ill-formatted documents they were given.
Judge Chhabria stated that although Plaintiffs did not seek sanctions for Facebook and Gibson Dunn’s conduct during depositions, that conduct “underscores the conclusion that both the client and its lawyers were operating in bad faith.” Id. at *25. The conduct of Facebook’s witnesses at depositions, such as “miraculously” not remembering “basic facts about Facebook’s data-sharing practices” despite spending “nine hours with Gibson Dunn preparing for the deposition,” demonstrated “obvious hostility to the litigation,” which evinced “Facebook and Gibson Dunn’s failure to ensure … a minimal effort to cooperate.” Id. at *26. Judge Chhabria noted that Gibson Dunn instructed deponents not to answer questions and “loudly and obnoxiously” noted their objections on the record, which “wasted the plaintiffs’ deposition time” and permitted deponents to refuse to answer questions.
Judge Chhabria also noted that Facebook and Gibson Dunn’s “over-designation of documents as privileged” was additional evidence of bad faith. He described that “Facebook’s internal communications” suggested that “Facebook employees are taught to improperly ‘privilege’ documents.” Id. at *27. He also noted that Gibson Dunn baselessly “designated a massive number of documents as privileged” and explained its conduct as the result of “nervous associates over-designat[ing] the documents to avoid waiving privilege,” which was no excuse because Gibson Dunn “has an obligation to ensure that even its nervous associates follow the law” and was “likely” not the real reason because Gibson Dunn was taking “the shortcut of over-designating documents rather than reviewing them properly.”
Judge Chhabria noted that “the blame for this misconduct must be laid equally at the feet of both client and counsel — this sustained, brazen stonewalling campaign could only have occurred if everyone (or almost everyone) was on the same page.” Id. at *21. He rejected Facebook and Gibson Dunn’s argument that their misconduct was the fault of Plaintiffs’ counsel refusing to narrow their searches, stating that this excused none of their conduct, especially since they “had superior access to all the evidence.” Id. at *28. He also rejected Facebook and Gibson Dunn’s attempt to “do some obligatory sword-falling” by admitting to wrongdoing and noting their improved behavior since being threatened with sanctions, noting that their conduct “went from an F to perhaps a D,” and that their improved conduct did not warrant leniency for past behavior because it was likely that Facebook and Gibson Dunn were “executing a different play from the playbook: resist discovery as long as possible, make things increasingly difficult and expensive and frustrating for the opposition, and hope that would drive down the case’s settlement value.”
Judge Chhabria awarded $925,078.51 in fees and costs, which amount was half of the Plaintiffs’ total requested fees and costs, minus certain costs that had been incurred before the conduct at issue. He acknowledged that “this amount is loose change for a company like Facebook, and even for a law firm like Gibson Dunn,” but stated that “it’s important for courts to help protect litigants from suffering financial harm as a result of their opponents’ litigation misconduct,” and his ruling would hopefully “create some incentive for Facebook and Gibson Dunn (and perhaps even others) to behave more honorably moving forward.” Id. at *30.LESS
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