New Case Denies Both Production Under Rule 26(b)(2)(B) and Sanctions for Spoliation Under Unspoken Rule 37

A sexual harassment case in Atlanta recently used the two-tiered analysis of Rule 26(b)(2)(B) to reject plaintiffs’ over broad discovery request. Petcou v. C.H. Robinson Worldwide, Inc. 2008WL 542684 (N.D. Ga., Feb. 25, 2008). When subsequent discovery about discovery under Rule 26(b)(2)(B) revealed that email was destroyed after the EEOC charge was filed, the plaintiffs moved for sanctions. Sanctions were denied using the routine operations analysis of Rule 37(f), although the rule itself was never mentioned.

In this case four female plaintiffs alleged harassment “based on offensive comments and images on coworkers’ computer screens, as opposed to e-mails the Plaintiffs themselves received.” Id. at *3. Plaintiffs’ counsel served a request for production on the defendant, C.H. Robinson Worldwide, Inc., a transportation company with over 5,300 employees, for “any documents relating to or evidencing the presence of pornography . . . , including but not limited to email. . . .” The request initially had no date range, but was later clarified to include an eight year time span from 1998 to 2006.

Vague Request

This was, in my view, a vague and poorly worded request to produce. As such, it not only violated a legion of case law, but also the fourth principle of the Sedona Principles (all 14 Sedona Principles are listed on the right hand side of this blog):

4. Discovery requests for electronically stored information should be as clear as possible, while responses and objections to discovery should disclose the scope and limits of the production.

The request here literally required the responding party to search through all of its electronic files (and paper records), not only to look for pornographic materials, but also for records that might somehow “relate to or evidence the presence of pornography.” First of all, even the Supreme Court cannot define pornography, nor tell what pornography is unless and until they actually see it (one person’s porn may be another’s art photo). Thus the request literally requires a search of all records in the company, including all email, to try and determine if any of these records meet this elusive criterion.

Magistrate Judge Gerrilyn G. Brill, who is very experienced in discovery issues, understood this flaw well, and held:

As an initial matter, the Court finds that Plaintiffs’ discovery requests were extremely broad. The original requests were not limited by time, sender, or recipient. Even as later revised by Plaintiffs, the requests would require a search of all e-mails of all employees in the Atlanta North and Atlanta South branches for a six-year period. Moreover, it is unclear how Defendant would determine whether e-mails were “relating to or evidencing the presence of pornography” or were “of a sexual or gender derogatory nature” without examining the content of each and every e-mail and without making judgments about what constitutes pornography.

Petcou v. C.H. Robinson Worldwide, Inc., supra at *2.

Plaintiffs’ counsel should have known that defendant would object to such a vague and over broad request. In my experience, such obviously objectionable requests are either made out of naive error, or in the hope that defense counsel will err and not make a proper, timely objection, or the court will err and not sustain the objection. Should that happen, and believe me it occasionally does, the requesting party (here plaintiffs’ counsel) then has the responding party over a barrel, as it would obviously cost any large company a small fortune to comply with such broad and vague requests.

In this case, defense counsel did their job. Defendant timely objected to the request, including I assume the standard litany that the request was vague, over broad, and designed more to harass with burdensome discovery, than to uncover relevant facts. The defendant also objected on the grounds that much of the ESI requested was not reasonably accessible under Rule 26(b)(2)(B). Still, the plaintiffs moved to compel, hoping they would have better luck with the judge. In fairness, plaintiffs were anyway forced to file a motion on another document category requested, where defendant objected to “computer-generated reports of attempts by its employees to access adult website.” Id. at *1.

Judge Brill granted plaintiffs’ motion on the easily accessible reports, but denied it as to the pornography related request. Id. She did, however, tell plaintiffs they could renew the motion, as to emails only, if later discovery uncovered new grounds to undercut defendant’s claim that such discovery was overly burdensome. Plaintiffs then initiated what is called “discovery about discovery.” They took depositions concerning defendant’s computer system and document retention policy to try and disprove defendant’s Rule 26 claim that the email sought was not reasonably accessible.

If you are ready for a humorous interlude at this point, see the video below of John Cleese providing his in depth analysis of Rule 26 (thanks to his sponsor, Iron Mountain, and their funny website: friendlyadvicemachine.com).

John Cleese on Rule 26

What Plaintiffs’ Rule 26(b)(2)(B) Discovery Uncovered

The depositions taken by plaintiffs did not really undercut defendant’s inaccessibility position under Rule 26, but did give plaintiffs grounds to argue spoliation and Rule 37(f) (renumbered as Rule 37(e)).

The depositions established that defendant has an Outlook storage system where email is initially kept on exchange servers. Employees may freely delete any of their own emails they choose, and deleted emails can only be easily recovered for eight days thereafter. (I assume that the deleted files folder is automatically emptied after a file resides there for eight days, or some equivalent system.) Further, after an employee leaves the company, all of their email is deleted from the servers in ten days.

It is, of course, not difficult to access email located live on an exchange server. But for reasons not fully explained in the opinion (presumptively most of the key players to this litigation had previously left the company), the court concluded it was unlikely any such emails still existed on the servers:

E-mails of Defendant’s current employees that have not been deleted by those employees may still be on Defendants’ server and may be retrieved without great expense. However, it is very unlikely that e-mails from the period relevant to this lawsuit, sent to or from individuals who were employed during that period, are still on Defendants’ servers.

Id.

The depositions also established the email exchange servers are backed-up onto tapes every three to five days as part of the company’s disaster recovery plan. All of the different servers are included together, and the various emails servers are not segregated onto different backup tapes. The opinion implies that these daily tapes are not recycled on a weekly or monthly basis, but are kept for at least two years. The depositions established that the cost to simply retrieve email from a single backup tape was from between $325 to $365. (This is a low per-tape retrieval cost, and was probably predicted restoring a large number of tapes, here approximately 229 tapes.) The testimony established that it would cost approximately $79,000 just to recover emails for one employee from two years worth of tape. Id. (The opinion’s reference here to two years is why I assume the defendants did not have tapes older than that. At an average of $345 per tape, the defendant thus had approximately 229 tapes to restore.)

Rule 26 Applied to Prohibit Discovery

Judge Brill held that the testimony as to the $79,000 restoration cost met the defendant’s burden of proof under Rule 26(b)(2)(B) that “deleted e-mails from the period relevant to this lawsuit are not reasonably accessible because of undue burden and cost.” The next step in analysis under the rule to see whether there is good cause to have the ESI produced anyway, in spite of the undue burden and cost. Here the burden of proof shifts to the requesting party to establish good cause under the dictates of Rule 26(b)(2)(C). As Judge Brill explains:

Rule 26(b)(2)(C) directs the Court to consider, inter alia, whether “the burden or expense of the 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.”

Id.

Magistrate Judge Brill then goes on to conclude that good cause has not been established, primarily because the over broad nature of the request would require defendants to examine every email in the system. The volume of email existing over the two-year span of the backup tapes is not stated, but, for a company such as this with 5,300 employees, there would typically be millions of emails. The cost to review this much email would be astronomical. Of course, plaintiffs could have tried to avoid all of this with a clear and very focused request to produce.

In addition, plaintiffs could have focused the search somewhat by requesting production of specific pornographic images with known hash values. See Krause v. Texas, 243 S.W. 3d 95 (1st DCA, Oct. 31, 2007). This is the way police searches are normally conducted on computers to locate pornography, especially child pornography. This kind of hash search can be automated for known files, and thus might have slightly lessened the burden on defendant to search for pornography, especially if the requests were limited to known pornographic images. But, a hash search technique would still require restoration from backup tapes, and then breakdown of the attached files from the exchange packaging files so that all attachments could then be searched as individual files. You cannot hash search backup tapes, nor all emails packed together in an exchange format. They can only be searched after the individual emails and attachments have been unpacked. The limits of hash search in this kind of situation are very well described in Craig Ball’s critique of the original version of this blog, where I overstated the powers of hash. My thanks to Craig Ball for catching and pointing out this mistake to me in such a complementary manner. FN 1.

FN 1. I am really appreciate Craig taking the time to point out my error. It is exactly the kind of thing I hoped would happen when I started this writing exercise some 18 months ago. No one is perfect, despite our best efforts (and I put about 12 hours into researching and writing the original version of this essay). We all make mistakes, including people with far more expertise than me. Online writing in a blog format like this facilitates immediate peer review. The only alternative is the academic law review process. This traditional peer review model takes months, if not years, to hash out the truth. This kind of delay is unacceptable in today’s world, especially in a subject like e-discovery which changes so rapidly. Here Craig pointed out my hash error in his own online publication in just two days! What a wonderful thing. This is exactly why I write my e-discovery books online, in 2,500 to 3,000 chunks at a time, every weekend. When my blogs are later reworked and converted into my next book, the writings will already have had the benefit of the review and insights of my peers in the discovery world, including Craig Ball’s recent review. So dear reader, should you note an error, or just disagree with one of my many opinions, please let me know about it. Leave a comment below or write about it in your own blog as Craig has done. This will allow my next book, which, by the way, is now more that half way completed, to be far better than any solo, non-peer reviewed effort. End Footnote.

In addition to the disproportionate cost of the over broad search requested, the Judge concluded that the email information sought was indirect and cumulative. The plaintiffs did not claim harassment because they were emailed sexually explicit materials, but because they saw these images on other’s computers. For that reason, proof of pornographic emails was not important enough to the issues in the case to justify the burden. In Judge Brill’s words:

Finally, although the e-mails would corroborate Plaintiffs’ testimony regarding the prevalence of pornography in the workplace, they would provide little, if any, relevant information that Plaintiffs themselves have not already provided.

Id. at *2.

Judge Brill employed the analysis of Rule 26(b)(2)(B) and concluded that “the burden or expense of the proposed discovery as a whole outweighs its likely benefit.” In fact, her analysis relied primarily upon the proportionality factors stated in Rule 26(b)(2)(C). As other commentators have noted, the good cause provisions of new Rule 26(b)(2)(B) do not really change discovery analysis. Thomas Y. Allman, The “Two-Tiered” Approach to E-Discovery: Has Rule 26(b)(2)(B) Fullfilled Its Promise? 14 Richmond J.L. & Tech. 7, at pgs. 31-33. But still, the two tiered analysis does focus the parties, and the court, on the unique properties of ESI that impact traditional burden and cost analysis, and the problems of finding and retrieving certain types of ESI. Id.

This case shows how this kind of two-tiered accessibility road map can assist in attaining a just result. Judge Brill considered the relative inaccessibility of the email on the backup tapes and denied the motion to compel as to those emails. But the discovery on accessibility had shown that one witness still had active data on the exchange servers. The email of this one witness was easy to access. For that reason, the motion to compel was granted for that one witness only and defendant was ordered to produce:

… undeleted e-mails (if any), sent prior to 2007, by a current employee who has been specifically named by Plaintiffs as having had sexually explicit material on his computer;

Thus, this case provides an example of how the focused good cause analysis of 26(b)(2)(B) can lead the parties and the court to a just result. Under a general Rule 26(b)(2)(C) proportionality analysis this live data exception for one witness might have been missed, and all email discovery might have been prohibited.

Spoliation Motion

The Rule 26 discovery uncovered the fact that defendant did not initiate a litigation hold at the time the original EEOC complaint was filed in 2001. Instead, defendant waited to place a hold on its normal document destruction policies until after suit was filed in 2007. Thus between 2001 and 2007 defendant continued to allow current employees to delete any emails they wished, even emails that could have been relevant to the EEOC claims. The defendants also continued its usual policy of deleting all emails from employees who left the company during that time.

Plaintiffs now argue that defendant should have suspended its usual practice when the EEOC complaint was filed, and the destruction of emails thereafter constitutes spoliation for which sanctions should be entered. This is in accord with the holding of Judge Scheindlin in Zubulake IV that the duty to preserve was triggered when an EEOC charge was filed, and perhaps even before that when Zubulake’s supervisors were convinced she would sue. Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003).

The problem with plaintiffs’ argument is that they never asked defendant to save emails, and almost six years passed before they filed suit. Instead, they were silent for years before filing the motion for sanctions in 2007. This fact, coupled with the undisputed evidence that all of the email destruction was made in accordance with normal and usual procedures, caused Judge Brill to deny their motion:

In this case, Defendant deleted its employee’s emails in accordance with its normal retention and destruction schedule even after an EEOC complaint alleging company-wide sexual harassment had been filed in June of 2001. However, the plaintiffs in that case did not request company-wide preservation of e-mails, nor did they provide Defendant with the names of individuals in Atlanta whose e-mails should be preserved. It does not appear that Defendant acted in bad faith in following its established policy for retention and destruction of emails.

Although the opinion does not cite new Rule 37(e), it follows the analysis of the rule, and provides a good example of its operation. Here is the language of the new rule:

New Rule 37: Failure to Make Disclosures or Cooperate in Discovery; Sanctions.

(f)* Electronically stored information. Absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good faith operation of an electronic information system.

*Note, after 2008 rules renumbering 37(f) has now become 37(e).

The court found that the emails were destroyed according to the company’s normal retention and destruction policies. In other words, the information was lost through the routine operation of an electronic information system. Judge Brill found the destruction was in good faith because there was no evidence to the contrary, and because plaintiffs never sent a preservation demand letter.

Concluding Thoughts on Rule 37 Safe Harbor

This case would have presented a closer question if the plaintiffs had sent a demand letter upon filing the EEOC complaint. Then there might be a question as to whether the failure to depart from routine operations was in good faith. For instance, is it good faith to refuse to stop destroying emails of departing employees after receiving a demand notice? If you do place a hold on a routine procedure, how long should you continue the hold? Is it reasonable to expect an employer to incur additional expenses for six years to keep old emails on the off chance a law suit might someday be filed?

These are difficult questions, the answer to which depends on a host of facts and circumstances. Certainly the mere sending of a demand letter in and of itself should not trigger a hold obligation. In most circumstances the letter should, however, trigger a careful legal evaluation of duties. Is the threat credible enough to warrant a hold notice, and if so, what computer files should be preserved, and what routines should be stayed? A threat might be just credible enough to barely trigger a hold. In those circumstances it might be reasonable to limit the extent of the hold and construe it narrowly.

It is difficult enough to know what information may be discoverable based on the wording of a complaint. It is nearly impossible to get it right before a suit has even been filed. You might expect one kind of law suit, and end up getting hit by another. This is by no means an exact science. Unless there is a very specific and targeted preservation demand letter, the whole exercise of predicting which ESI might become discoverable is inherently error prone.

We all need as much help in this difficult guessing game as possible. Fortunately, the Sedona Conference provides us with guidance in its publication The Sedona Conference Commentary on Legal Holds: The Trigger & The Process. It lists multiple factors to consider in order to make a reasoned credible threat analysis. If a company considers these factors in good faith, and makes a reasoned credible threat assessment, then it should receive the protection of Rule 37 from sanctions when its projections later prove incorrect. For more information and discussion about the Sedona Guideline on holds see my previous blog The Sedona Conference Releases Two New Must-Read Commentaries on “Email Management” and “Legal Holds”.

It is important to remember that a Rule 37 safe harbor analysis is only needed in circumstances where the threat evaluation was wrong, or the guesstimate on scope of hold was wrong. The company did not think they would sue, but in fact they did. Or they thought they would sue, but guessed wrong as to what computer evidence would be discoverable. As long as the guess was reasonable and made in good faith, the protection of the rule should remain.

Predicting the future is always hazardous and no one is right all of the time. This is especially true in the emotional world of litigation, where it is common for tempers to flare and demand letters to fly, only to subside later with time. No one ever knows for sure whether another will later file suit or not. Further, the law is extremely complex and legal theories change constantly. Even after a complaint is filed, it is very common for amended complaints to be filed, and new and different theories to arise.

This means that in order for Rule 37 to work, there has to be plenty of room for error, so long as a reasoned, credible process is followed. When it comes to credible threat assessments and the application of Rule 37, courts will have to focus on reasonability of process, not accuracy of crystal ball. Companies threatened with litigation (and these days, who isn’t?) can help courts to do that, and thus help themselves stay within the protection of the rule, by documenting any assessments they make that a threat is not credible. On occasion, when large sums of money or important issues might be involved, a third party review of such decisions may be appropriate. This way they can confirm the rationality of the assessment, and make sure it is not a delusional exercise in wishful thinking.

Where a threat of litigation is accompanied with a specific and focused preservation demand, the rationale for an incredible evaluation should be especially strong. Further, if there is a specific preservation demand, and the decision is made to implement a hold, but to preserve less that is demanded, extraordinary care is again advised. In all close questions such as this you should communicate with opposing counsel and attempt to reach a compromise. If they do not respond, or respond but are unwilling to reach a reasonable compromise, then at least document your efforts and the parties’ rationales. That will go a long way in providing protection. If all else fails, and the potential dollar exposure justifies the expense, a preemptive suit for a declaratory judgment may even be appropriate. You will be breaking new ground to be sure, but as the landscape of litigation changes, new strategies such as this should be considered to cope with the new challenges these changes present.

Trade Secrets Case Uses MD5 Hash and Keyword Search to Protect Defendants’ Rights - Magistrate’s Privilege Waiver Order Is Reversed

A District Court Judge in Philadelphia recently reversed a Magistrate’s order requiring a defendant in a trade secret case to produce a forensic image of two of its computers. Bro-Tech Corp. v. Thermax, Inc., 2008 WL 724627 (E.D. Pa. March 17, 2008). The computers in question were defendant’s servers located in Michigan and India. The order required production of full images to plaintiff’s counsel.

The defendant was willing to produce forensic images to plaintiff’s computer forensic expert, not its legal counsel. Defendant wanted to protect its confidential information on these servers by limiting the expert’s search to the trade secret documents, or files that might contain information about these secrets. Accordingly, defendant would only agree to allow the expert to search for files with matching MD5 hash values, matching file names, or files containing plaintiff’s keywords. Hash value searches are often used in trade secret cases. See Eg. Creative Science Systems, Inc. v. Forex Capital Markets, LLC, 2006 WL 870970, at *4 (N.D. Cal. 2006). As I explained at pages 17-20 of my article, HASH: The New Bates Stamp, 12 Journal of Technology Law & Policy 1 (June 2007), “the irreversibility quality of hashing makes it possible to perform a hash search of a computer for specific hash values without revealing the actual contents of the computer searched.”

Further, defendant was only willing to allow these searches of its servers if it could protect its attorney-client communications and work product. To do this, defendant proposed the standard procedure typically used for productions of this kind. See Playboy Enterprises v. Wells, 60 F. Supp.2d 1050 (S.D. Cal. 1999). After plaintiff’s expert performed the search of the forensic images, the files found would first be produced to defendant for a privilege review. Defendant would have a right to remove any privileged files, prepare a log of the files removed, and produce the rest to the plaintiff.

Judge Cynthia M. Rufe agreed with the defendant. She held that it was clear legal error for the magistrate to require production of the forensic images “without any limitation as to the scope of the disclosure or prior filtering for privileged or work-product materials that the images might hold.” In other words, she reversed because the order was too broad and did not protect defendant’s secrecy rights. Instead, the Magistrate erroneously assumed that the defendant had waived all of its confidentiality rights to all of the information on the servers by the mere act of having these servers examined by its forensic expert.

Case Background

Before I go into the intricacies of the waiver argument, it is helpful to review the case background. It is a trade secret action brought by Bro-Tech against one of its competitors, Thermax, and seven former employees who went to work for Thermax USA, Ltd.. The plaintiff, Bro-Tech Corporation, a/k/a “The Purolite Company,” designs and manufactures chemical solutions, namely ion exchange resins, used to remove impurities from water and air. The twenty eight page amended complaint alleges twelve causes of action:

Purolite asserts the following causes of action: (1) misappropriation of trade secrets; (2) misappropriation of trade secrets through inevitable disclosure; (3) common law unfair competition; (4) breach of contract; (5) breach of the duty of loyalty; (6) tortious interference with existing and prospective business relationships; (7) conversion; (8) violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030; (9) commercial disparagement; (10) unjust enrichment; (11) violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §1962(c) and (d); and (12) civil conspiracy.

Defendants responded by denying all allegations, and the competitor corporation, Thermax, counter-sued. Thermax alleged that Bro-Tech was intentionally interfering with its relationships with its customers by making false accusations that Thermax stole Bro-Tech’s trade secrets. They also claimed that Bro-Tech itself stole trade secrets, in a kind of two wrongs cancel each other out defense, known as a “clean hands” affirmative defense (it seldom works). In other words, this is a typical trade secret case with competent counsel on both sides. In fact dozens of lawyers from Philadelphia and New York have appeared of record in this case, including Baker & McKenzie for the defendants.

The amended complaint seeks, among other things, temporary and permanent injunctive relief requiring the return of any trade secrets that the individual defendants took with them or disclosed to their new employer, Thermax. Apparently to avoid a temporary injunction hearing early in the case, the defendants, in 2005, agreed to a Stipulation and Order (”the May 23 Order”) that “imposed an ongoing obligation on Defendants to return to Plaintiffs any Purolite files in their possession, and then to purge said files from their possession, custody and/or control.” Bro-Tech Corp. v. Thermax, Inc., supra at *1.

In late 2007, plaintiff deposed the defendant’s computer forensic expert, Stephen Wolfe, of the Huron Consulting Group. Wolfe testified that he had searched forensic images of defendant, Thermax’s Michigan and India servers, to see if they contained the hash values, file names, or keywords used by plaintiff’s expert, Lawrence Golden, to identify plaintiff’s trade secret files. Here is how the court described it:

Wolfe searched India and Michigan servers for (1) the unique electronic “fingerprints” (or MD5 hash values) of all Purolite documents identified as such in this litigation; (2) the file names of the identified Purolite documents; and (3) certain search terms drawn from the Golden Exhibits.

Id.at FN 8.

Wolfe admitted in his deposition that his search uncovered a number of matching files. Wolfe then filtered out files that were obviously false hits, such as standard application files that happened to contain the keywords. He then submitted the rest of the files with hits to Thermax’s legal counsel for review. Wolfe did not actually review the contents of the India and Michigan files himself, but he did review the contents of files on other Thermax computers. The court explains that:

. . . hits in the India or Michigan servers apparently were not substantively evaluated by Wolfe, but were categorized and identified according to more superficial file characteristics, filtered for “false hits” by reference to external attributes, and submitted to Thermax’s counsel for review of the actual content of the files.

Id.

The plaintiff responded to this testimony by arguing that the hits Wolfe admitted finding on Thermax’s servers in India and Michigan showed that the May 23rd Order had not been followed. The order required Thermax to return and purge any trade secrets on all of its computers. Plaintiff argued that it was therefore entitled to production of the full images of these servers and moved to compel. Magistrate Judge Carol Wells agreed after an evidentiary hearing that production was required to permit a determination of whether Defendants had violated the May 23rd Order. Judge Wells ordered the production of the full images to “designated counsel only.” Bro-Tech v. Thermax, 2008 U.S. Dist. LEXIS 8970 (Feb. 7, 2008).

Defendant appealed the Magistrate Judge’s ruling to the District Court Judge arguing clear legal error on two grounds. First, they argued:

that before any disclosure of the contents of the India and Michigan servers to counsel for Purolite occurs, Thermax has the legal right to filter the information to be disclosed in order to remove any attorney-client communications or work product material therein.

Id. at *2.

Second, defendants argued that:

they should be required to disclose to Purolite (after a review for privileged materials) only files which yield hits during a targeted search of the India and Michigan servers for evidence of Purolite files, and not, as the February 7 Order requires, to disclose the entire content of the India and Michigan servers for Plaintiffs’ counsel’s review.

Id.

Plaintiff argued that the magistrate’s order should be upheld because only inspection of the entire India and Michigan servers by Plaintiff’s counsel could ensure that no violation of the order had occurred. Plaintiff also argued that defendant had waived privilege to any confidential content on these servers “by disclosing the servers to Stephen Wolfe, who authored an expert report for Defendants, albeit one which did not, in any way, concern the content of the India or Michigan servers.” Id.

Waiver Argument

The magistrate erroneously found waiver on the basis of Rule 26(a)(2)(B), FRCP. This is the expert witness rule that requires a party to disclose all material considered by its expert in formulating an expert report to an opposing party. Plaintiff argued that this disclosure applied to all otherwise privileged materials, regardless of whether the expert actually examined the materials or relied upon them in a report. For authority, plaintiff relied upon Synthes Spine Co., L.P. v. Walden, 232 F.R.D. 460, 463-464 (E.D. Pa. 2005) (disclosure requirements of Rule 26(a)(2)(B) override all claims of attorney-client privilege), and Vitalo v. Cabot Corp., 212 F.R.D. 478, 479 (E.D. Pa. 2002) (overrides work product privilege).

Defendant countered that Wolfe had not examined these two servers as a testifying expert, but rather as a consultative expert, and so Rule 26(a)(2)(B) did not apply. Wolfe had examined and prepared reports on other computers owned by defendants, and thus was a testifying expert for these other computers. But he had not prepared a report to be used as evidence on the Michigan and India servers. Instead, he had only examined these computers to help the corporate defendant, Thermax, evaluate its case. Thus, he was only a consultative expert, and not a testifying expert, as to these two servers.

Although not discussed in this opinion, Thermax probably also argued that even if Wolfe had been a testifying witness as to these servers, and thus Rule 26(a)(2)(B) did apply, its privilege could only be waived as to specific attorney-client communications actually disclosed to Wolfe and relied upon by him to form the expert opinion stated in the report. Since Wolfe testified that he never examined the contents of any files on these servers, there was no disclosure, and, of course, no reliance.

Judge Rufe rejected the Magistrate’s over-broad construction of privilege waiver and allowed defendant to protect its privileged communications. Here is the Judge’s discussion and analysis of the law.

When privileged communications or work product materials are voluntarily disclosed to a third party, the privilege is waived. [FN18] An exception to this rule exists for disclosures to third parties which are necessary for the client to obtain adequately informed legal advice. [FN19] Under this exception, Thermax has not waived its privilege or work product protections in the India and Michigan server files disclosed to Wolfe. When searching these files, Wolfe was functioning in his capacity as “a non-testifying expert, retained by the lawyer to assist the lawyer in preparing the clients’s case.” [FN20] Thermax did not waive any protections it might have in the India and Michigan servers by disclosing them to Wolfe for consultative expert assistance in this litigation. Accordingly, this Order must provide for a privilege and work product filter.

This was obviously the correct decision, not only for the reasons stated, but also because Wolfe had only looked at information about the files (names, hash, and whether they contained key words chosen by plaintiff), and had not actually examined the contents of the files themselves. Further, only a small percentage of the files on these servers had these matching characteristics.

Holding

Here is Judge Rufe’s actual holding reversing the Magistrate’s order:

*3 In this instance, the Court must overrule as contrary to law that portion of the February 7 Order which compels Thermax to produce to Plaintiffs the entire India and Michigan servers for Plaintiffs’ review, without regard for privilege, on Rule 26(a)(2)(B) grounds. Wolfe repeatedly stated under oath that the India and Michigan servers were outside the scope of his expert report, and that he did not consider them in his testifying expert role. [FN15] Instead, his expert report exclusively concerned the contents of other devices. Because the information on the India and Michigan servers was not disclosed to or considered by Wolfe for purposes of his expert report, Rule 26(a)(2)(B) does not apply to the materials on those servers, and does not provide a legal basis for requiring their disclosure to Purolite.

Although Judge Rufe agreed with defendants that they had a right to protect their privileges, she did want a search of these servers performed to determine whether defendants had retained any of plaintiff’s trade secret information in violation of the prior stipulated order:

Notwithstanding the foregoing ruling, the Court wholly agrees with the Magistrate Judge that, in present circumstances, a significant measure of disclosure of the contents of the India and Michigan servers is necessary to ensure that Thermax has not retained Purolite information in violation of the May 23 Order. The fact that Wolfe’s electronic search of the India and Michigan servers using search terms designed to find Purolite information yielded numerous hits suggests the strong possibility (if not providing conclusive proof) that Purolite information is improperly contained in those servers. Furthermore, the parties agree that some disclosure is now necessary, although they disagree on the proper scope of the disclosure. [FN16] Thus, disclosure of the images, to some extent, shall be required.

Id. at *3.

Judge Rufe suggests that if the limited disclosure does reveal any intentional violation of the prior court order to return and purge any trade secrets, then a full search of the imaged server hard drives might be permitted. Such an inspection would include deleted files and slack space, and this might provide further evidence of intentional violation of the order or spoliation:

*4 The Court finds that there is not, at present, evidence of an intentional violation of the May 23 Order by Defendants, as would warrant full disclosure. We know too little about the contents of the files that yielded hits during Wolfe’s search of the India and Michigan servers to reach such a conclusion at this time. Wolfe’s search may have yielded false hits, or may otherwise have signaled files that were properly in Thermax’s possession; conversely, the hits may indicate a Thermax violation. Lacking clear evidence of an intentional violation, the Court will not impose the type of disclosure ordered previously in materially different circumstances involving Defendant Sachdev. Instead, a more measured, yet still significant, disclosure will be required.

Based on these findings, the court followed defendant’s suggested protocol for limited production and required the following:

*5 (1) Within three (3) days of the date of this Order, Defendants’ counsel shall produce to Plaintiffs’ computer forensic expert forensically sound copies of the images of all electronic data storage devices in Michigan and India of which Huron Consulting Group (”Huron”) made copies in May and June 2007. These forensically sound copies are to be marked “CONFIDENTIAL–DESIGNATED COUNSEL ONLY”;

(2) Review of these forensically sound copies shall be limited to:
(a) MD5 hash value searches for Purolite documents identified as such in this litigation;
(b) File name searches for the Purolite documents; and
(c) Searches for documents containing any term identified by Stephen C. Wolfe in his November 28, 2007 expert report;

(3) All documents identified in these searches by Plaintiffs’ computer forensic expert will be provided to Defendants’ counsel in electronic format, who will review these documents for privilege;

(4) Within seven (7) days of receiving these documents from Plaintiffs’ computer forensic expert, Defendants’ counsel will provide all such documents which are not privileged, and a privilege log for any withheld or redacted documents, to Plaintiffs’ counsel. Plaintiffs’ counsel shall not have access to any other documents on these images;

Conclusion

Judge Rufe has, I think, done the right thing under these circumstances. A waiver of attorney-client privilege should never be implied from a forensic expert’s mere review of a party’s computer. Otherwise, parties would be chilled from employing experts and other skillful persons to help them to evaluate a case. Would justice really be served by uneducated guesses, or blind ignorance? Do we really want to discourage clients from telling their lawyer the full story for fear that their secrets will not be safe?

It was obviously not defendant’s intent to waive its privileges in this case. The Magistrate Judge’s finding of waiver appears to have been a kind of improper punishment of defendant for its assumed violation of the prior court order. But, as Judge Rufe implies, that is taking the cart before the horse. The violation of the order has not yet been proven. The hits Wolfe testified to may all be false positives resulting from overly broad keywords by plaintiff’s expert.

In any event, even if a violation is later proven by, for instance, multiple hash value matches (which is a common way to prove trade secret theft), this would still not justify stripping defendants of their attorney client privilege. It might justify sanctions and further search of the computers. It might even result in defendant’s loss of the case on all twelve counts. But even a losing defendant has a right to communicate with their lawyer in private. It is unfair to deprive a litigant of this fundamental right as a punishment for perceived misconduct.

The United States Supreme Court has repeatedly recognized, since at least 1826, that the attorney-client privilege is a fundamental right. Public interest demands maintenance of the privilege so that a client may communicate freely and confidentially with his attorney. In Chirac v. Reinicker, 11 Wheat. (24 U.S.) 280, 294 (1826), the Supreme Court, through Justice Joseph Story, declared that “it is indispensable for the purposes of private justice” that our legal system preserve the confidentiality of facts “communicated by client to counsel” in confidence. Later, in Blackburn v. Crawfords, 3 Wall. (70 U.S.) 175, 192-193 (1865), the Supreme Court quoted with approval the following statement from an earlier English case: “If the [attorney-client] privilege did not exist at all, everyone would be thrown upon his own legal resources. Deprived of all professional assistance, a man would not venture to consult any skilful person, or would only dare to tell his counsel half his case.”

The judiciary should be wary of unwarranted intrusions upon this essential right. Judge Cynthia Rufe, like Justice Story before her, was correct to reverse the Magistrate Judge and uphold the attorney-client privilege.

Venue Analysis Transformed by e-Discovery and the Digitization of Society

The location and availability of documents have always been important considerations in determining whether venue should be transferred for “the convenience of parties and witnesses, in the interest of justice.” 28 U .S.C. §1404(a). Not any more. Two new cases have shown that the digitization of records and electronic discovery are quickly rendering these criteria obsolete. Victory Intern. (USA) Inc. v. Perry Ellis Intern., Inc., 2008 WL 65177 (D.N.J., Jan. 2, 2008); ICU Medical, Inc. v. RyMed Technologies, Inc., 2008 WL 205307 (D. Del., Jan. 23, 2008).

When parties argue about venue, and what court is better situated to hear a case, they argue about convenience. These arguments not only include the location of witnesses, but, traditionally, also the location of records. If a court is located closer to where the original paper records are stored, that is supposed to be a factor favoring selection of that court.

This law developed in the last century when almost all documents were paper. At that time it made sense. If a case involved a warehouse full of paper records, then the proximity of a court to that warehouse was an important consideration. It made document productions, depositions, hearings and trial easier and less expensive. The proximity to original records was one of several factors of convenience and justice that a court would consider in determining whether to transfer venue.

In this new century, well over ninety percent of business and other records are now in digital form. The electronically stored information can be fairly easily, and sometimes almost instantly, transferred from one computer to another, regardless of where the computers are located. With hash verification in place, the electronic document in the second computer is just as much an original as the electronic document in the first. It is exactly the same computer file. Paper printouts of these multiple original electronic records can then be made anywhere on demand. For instance, they can be made if and when needed for depositions, hearings and trial. The proximity of the courthouse to the location of the computers used to create and store the information is irrelevant.

Victory Intern. v. Perry Ellis Intern.

The Victory case involves a fight over perfume and the right of Victory International to distribute Perry Ellis fragrances. Victory Intern. (USA) Inc. v. Perry Ellis Intern., Inc., 2008 WL 65177 (D.N.J., Jan. 2, 2008). It was brought by a single plaintiff in New Jersey against a host of companies and individuals. As is common in anti-trust type cases like this, the plaintiff, Victory, alleged a long list of complaints:

Victory seeks relief against the defendants for violation of Section 1 of the Sherman Act (15 U.S.C. § 1), violation the Donnelly Act (N.Y. Gen. Bus. Law §§ 340-347), interference with contract, interference with prospective business advantage, breach of contract, fraud, deceit, unjust enrichment, violations of the Florida RICO statute, deceptive trade practices, restraints of trade, and unfair competition under the common law of the State of New Jersey and the other states of the Union.

The plaintiff, and a couple of the defendants, were located in New Jersey where the suit was filed, but thirteen of the defendants were located in South Florida. The defendants moved the District Court in New Jersey to transfer the case to the District Court in Miami. The parties all agreed that both courts had jurisdiction, so it was strictly a venue issue.

Senior New Jersey District Court Judge Walls begins his analysis with the federal statute governing venue transfer: 28 U .S.C. § 1404(a). It states that if two District Courts have jurisdiction, then for “the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.” Judge Walls goes on to explain:

A determination of whether to transfer must incorporate “all relevant factors to determine whether on balance the litigation would more conveniently proceed and the interests of justice be better served by transfer to a different forum.” Jumara v. State Farm Ins. Co., 55 F.3d 873, 879 (3d Cir.1995) “Transfer analysis under Section 1404 is flexible and must be made on the unique facts presented in each case.” McGee & Co., Inc. v. United Arab Shipping Co., 6 F.Supp.2d 283, 288 (D.N.J.1997). “While there is no definitive formula or list of the factors to consider, courts have considered many variants of the private and public interests protected by the language of §1404(a).” Jumara, 55 F.3d at 880.

One of the factors so considered in almost every venue argument in the past was the location and availability of documents and other evidence. Here the plaintiff, Victory, argued that most of the documents underlying this antitrust case were located in New Jersey and New York. That was one of the reasons advanced for opposing the defendants’ motion to have the case dismissed in New Jersey and transferred to Miami. Judge Walls understands the realities of the electronic age. He rejected plaintiff’s argument on the basis of the inherent portability of electronic information and the tools of e-discovery:

This Court gives little weight to the location of documents because of the ease in which documents may be produced through electronic discovery. The location of documents only plays a role “where the documents ‘may not be produced in the [ ] forum.’ “Cadapult Graphic Sys., Inc. v. Tektronix, Inc., 98 F.Supp.2d 560, 568 (D.N.J.2000) (quoting Jumara, 55 F.3d at 879). “[W]hen documents can be transported and/or easily photocopied, their location is entitled to little weight” Clark v. Burger King Corp., 255 F.Supp.2d 334, 339 (D.N.J.2003).

Accordingly, Judge Walls granted defendants’ motion and transferred the suit to Miami.

ICU Medical v. RyMed Technologies

In the other recent venue case, ICU Medical, the roles were reversed. ICU Medical, Inc. v. RyMed Technologies, Inc., 2008 WL 205307 (D. Del., Jan. 23, 2008). Here the defendant moving to have the case transferred alleged that the new court would be better because it was located near the records.

This is a patent suit filed by ICU Medical whose principal place of business is in San Clemente, California. The defendant, RyMed Technologies, is headquartered in Tennessee, but also does substantial business in California. Still, ICU sued RyMed in Delaware, not California, because, like many U.S. businesses, both ICU and RyMed are incorporated there. In fact, the only connection both these defendants had with Delaware was incorporation. That gave the Delaware court proper jurisdiction.

Of course, ICU conceded that the California District Court also had jurisdiction. For this reason, and preferring California to Delaware, RyMed had filed its own lawsuit against ICU in California shortly after it was sued in Delaware. RyMed thought it would have a better chance defending the patent claims in California because ICU had recently lost other cases in that court trying to enforce the same patent. RyMed thus moved the Delaware court to transfer the patent suit to California where it could be consolidated and tried with RyMed’s later filed suit over similar claims.

Delaware District Court Judge Joseph J. Farnan, Jr., found no evidence that ICU had filed the patent case in Delaware for the improper purpose of avoiding precedent in California. He considered the other cases ICU had lost there to be easily distinguishable. Moreover, Judge Farnan did not think the technology issues involved in the patent dispute were very complicated, and so the California Court’s prior experience was given little weight:

The Court acknowledges that the Central District of California’s familiarity with the patents at issue is a factor to consider, but the Court does not find that factor to be dispositive, particularly where, as here, the technology at issue is not complex, and the balance of the factors weighs in favor of ICU’s choice of forums.

Still, RyMed argued for transfer due to convenience, noting that the inventor and other witnesses resided in California, and so did all of ICU’s records pertaining to the patent. Judge Farnan began his venue analysis with a recitation of the law, again relying on Jumara.

The Third Circuit has set forth a list of factors for district courts to consider when deciding whether or not to transfer. Jumara,Id. 55 F.3d at 879-80. These factors include six private interests: (1) the plaintiff’s forum preference as evidenced by his or her original choice, (2) the defendant’s preference, (3) whether the claim arose elsewhere, (4) the convenience of the parties due to their relative physical and financial condition, (5) the convenience of the expected witnesses, but only so far as the witnesses might be unavailable for trial if the trial is conducted in a certain forum, and (6) the location of books and records, to the extent that the books and records could not be produced in a certain forum. Id. at 879.

Judge Farnan then considered RyMed’s record proximity argument, but rejected it. He did so on the basis of the easy transferability of electronic records and the powers of e-discovery to locate and use these records. Judge Farnan begins by setting out the opposing arguments:

RyMed contends: . . . . (5) access to relevant documents and design prototypes will be easier logistically and less expensive if this action is litigated in the Central District of California.

ICU further contends that: . . . . (3) because RyMed’s technical and damages-related documents will primarily come from Tennessee, not California, documents will need to be transferred some distance regardless of where the case is tried, and electronic discovery “eliminates any claim of burden based on location.” (D.I. 16 at 9.)

Judge Farnan then agrees with ICU’s arguments, and denies RyMed’s motion to transfer venue:

With respect to the location of records and other documents, and access to design prototypes, the “technological advances of recent years have significantly reduced the weight of this factor” in the Court’s analysis, because they have “substantially reduc [ed] the burden of litigating in a distant forum.” Affymetrix, Inc. v. Synteni, Inc., 28 F.Supp.2d 192, 205 (D.Del. 1998). Thus, even if the Court credits RyMed’s contention that many of its documents regarding “manufacturing and distribution activities are located in the Central District of California,” rather than in Tennessee at RyMed’s headquarters (D.I. 21 at 6), this factor weighs only minimally in favor of transfer. Affymetrix, 28 F.Supp. At 205.

Conclusion

I agree with these judges. The physical location of documents is now of no importance in most cases in determining appropriate venue. The old cases that include document location on the list of common factors to be considered are, to that extent, no longer valid. The reference has, in effect, been overturned by advances in technology. Unless you have a rare case of voluminous dead-tree only documents, it should not even be argued. It is better to focus on other factors that still have relevance, such as witness location and witness availability. But in today’s world of commonplace air travel and video connections, even these criteria are lessening in importance.

The parochial view is becoming less relevant on all levels. The world is flat as Thomas Friedman likes to say. Technology is pushing us into a new kind of global society. Our laws and legal analysis must also change to adapt to the times. These two venue cases provide a small example of this larger flattening trend.

Sanctions Have Been Lifted Against the “Qualcomm Six” and a New Trial Ordered Where They May Now Speak Freely to Defend Themselves

Just when you thought the Qualcomm case was finally over, it’s back with a vengeance. In an Order dated March 5, 2007, Judge Rudi Brewster vacated Magistrate Barbara Major’s Sanctions Order of January 8, 2007, but, as will be explained, the Sanctions Order was only vacated as to the attorneys sanctioned, and not as to Qualcomm. Qualcomm v. Broadcom, 2008 WL 638108 (S.D.Cal., March 05, 2008). This may seem like a bad deal for Qualcomm, but actually it is a great result for them.

Judge Brewster has ordered a new trial for the Qualcomm Six, the attorneys who were previously sanctioned: Messrs. Batchelder, Bier, Leung, Mammen, Patch, and Young. He held that their rights to due process had been violated in the first Show Cause trial. They were violated because they were not allowed to testify as to what their client, Qualcomm, had said and done concerning the e-discovery issues underlying the sanctions motion. Judge Brewster held that they had a right to defend themselves in that proceeding, and not be silenced by the secrecy restraints of the attorney-client privilege.

Their figurative gag was released when Judge Brewster reversed the magistrate’s earlier order that the self-defense exception to the attorney-client privilege did not apply. In the new trial the secrets of Qualcomm may be revealed. Their former attorneys can give a full explanation of how “over 200,000 pages of relevant emails, memoranda, and other company documents” were hidden from disclosure to the other side. Qualcomm Inc. v. Broadcom Corp., No. 05-CV-1958-B(BLM) Doc. 593 (S.D. Cal. Aug. 6, 2007). If even worse behavior on Qualcomm’s part is revealed in the second trial, Qualcomm will, thanks to clever defense work by their new lawyers, be immune from further punishment. Hard to believe, but true, as I will explain at the end.

The Sanctions Order

The first Show Cause trial, where outside counsel were restrained in what they could say, resulted in the referral of the Qualcomm Six for an ethics investigation by the California Bar. Here is Judge Major’s words in the January 7, 2008, Sanction Order:

As set forth above, the Sanctioned Attorneys assisted Qualcomm in committing this incredible discovery violation by intentionally hiding or recklessly ignoring relevant documents, ignoring or rejecting numerous warning signs that Qualcomm’s document search was inadequate, and blindly accepting Qualcomm’s unsupported assurances that its document search was adequate. The Sanctioned Attorneys then used the lack of evidence to repeatedly and forcefully make false statements and arguments to the court and jury. As such, the Sanctioned Attorneys violated their discovery obligations and also may have violated their ethical duties. See e.g., The State Bar of California, Rules of Professional Conduct, Rule 5-200 (a lawyer shall not seek to mislead the judge or jury by a false statement of fact or law), Rule 5-220 (a lawyer shall not suppress evidence that the lawyer or the lawyer’s client has a legal obligation to reveal or to produce). To address the potential ethical violations, the Court refers the Sanctioned Attorneys to The State Bar of California for an appropriate investigation and possible imposition of sanctions.

Judge Major had requested this investigation because of what she called the Six’es “monumental discovery violations.” The reversal and remand for a new trial provides an opportunity for these lawyers to salvage their careers and tarnished reputations. When they do speak, lawyers from all over the country will be listening; not only the California Bar. It could become a polite attempt to whitewash, but will more likely result in serious mudslinging. In any event, the previously muzzled speech will be interesting.

For background on this case and its many prior twists and turns, see my three prior blogs: Qualcomm’s “Monumental Discovery Violations” Provokes Only Wimpy Sanctions; and before that, Update of Two Prior Sanctions Blogs: Qualcomm and Morgan Stanley, and Heavy Sanctions Loom Against Attorneys for e-Discovery and other “Aggravated Litigation Abuses”

Judge Brewster’s March 5, 2008 Order vacating sanctions against the Qualcomm Six reveals a clever defense strategy by Qualcomm to Judge Brewster’s earlier Order to Show Cause. The Show Cause Order was directed against all fourteen of Qualcomm’s outside counsel, not just the six who were eventually sanctioned, and it was directed against Qualcomm itself. Qualcomm knew that the attorney-client privilege would be an issue in this hearing. It also knew that it owned this privilege, not the attorneys, and that only Qualcomm could waive the secrecy constraints that otherwise silenced its attorneys. Qualcomm refused to waive. This meant that its former attorneys could not divulge the information they learned from Qualcomm. The original fourteen attorneys ordered to show cause could not defend themselves from the court’s allegations by disclosing the confidential communications with their client.

In a situation like this where one person in effect gags another, it is natural to assume that the person gagged would, if they could, say something harmful about the “gaggor.” Otherwise, why else would they be silenced? But, the right of a client to maintain their secrets is so strong in the law that this natural presumption is not permitted when a client asserts this right. Qualcomm knew this, and thus knew it could assert its right to keep its lawyer communications secret, and this could not be used against it in its defense of the Show Cause Order.

I suspect that the party pushing the sanctions against Qualcomm, namely Broadcom, which was its adversary in the underlying patent case, argued against Qualcomm on this point. Broadcom would naturally try to convince the court to hold Qualcomm’s assertion of its secrecy rights against it. In other words, they would ask the court to impose an adverse inference against Qualcomm wherein the court would infer that the hidden communications were detrimental to Qualcomm. Judge Major would not do that, even though she was obviously displeased that she was not hearing the whole truth, and that key facts were being withheld by Qualcomm’s assertion of the privilege. This is explained in footnote 8 at page 25 of her sanctions order:

Recognizing that a client has a right to maintain this privilege and that no adverse inference should be made based upon the assertion, the Court accepted Qualcomm’s assertion of the privilege and has not drawn any adverse inferences from it. October 12, 2007 Hearing Transcript at 4-5. However, the fact remains that the Court does not have access to all of the information necessary to reach an informed decision regarding the actual knowledge of the attorneys.

Qualcomm also knew that its former attorneys were likely to raise the self-defense exception to the attorney-client privilege. This exception frees an attorney from a secrecy vow when necessary to defend him or herself from accusations of wrongdoing by the client. The problem with this defense was that the accusations were being made by Broadcom and the Court, not Qualcomm. The self-defense exception would only apply if Qualcomm tried to defend itself with accusations against its former attorneys. Qualcomm clearly wanted to do this, so it was in something of a quandary. Judge Brewster’s recent order reveals a particularly clever strategy on Qualcomm’s part to overcome that quandary, a strategy which allowed them to both have their cake and eat it too. This desire is, by the way, hardly unique to Qualcomm; most every party in litigation wants this all of the time.

At the commencement of the Show Cause proceedings, Qualcomm was very careful not to make any direct accusations of wrongdoing on the part of the fourteen attorneys accused in the Show Cause Order. Although the implication was clear in Qualcomm’s defense that it did nothing wrong, that the blame should instead fall on its outside counsel, they made no specific allegations against them. Qualcomm’s former lawyers, in turn, defended by arguing it was their client’s fault, and they could prove it, if only they were released from the attorney-client privilege gag. Again, footnote 8 of the sanctions order explains what happened:

Qualcomm asserted the attorney-client privilege and decreed that its retained attorneys could not reveal any communications protected by the privilege. Doc. No. 659; October 12, 2007 Hearing Transcript at 38. Several attorneys complained that the assertion of the privilege prevented them from providing additional information regarding their conduct. See, e.g., Young Decl. at 12; Leung Decl. at 3-5; Robertson Decl. at 14-16.

The latest Order by Judge Brewster fills in the rest of the story, wherein some of the accused attorneys argued that the self-defense exception should apply:

The retained attorneys thereafter filed the above-referenced motion for a finding of a self-defense exception to Qualcomm’s asserted attorney-client privilege. The self-defense motion was unopposed by Qualcomm, if the hearing could be sealed, and with Broadcom excluded, which was not acceptable to Broadcom. Broadcom did not oppose the motion. The court’s order denying the motion is supported primarily because Qualcomm had not presented any evidence, such as declarations, against its attorneys. Thus, no adversity between Qualcomm and its attorneys was presented by Qualcomm.

The motion to apply the self-defense exception was denied. Qualcomm was thus able to keep is confidences secret by carefully limiting its declarations (affidavits) against is attorneys at that point in the proceedings. This prevented the former attorneys from making a showing of adversity necessary to support the self-defense exception.

Here is where clever defense strategy comes in, and shows the importance of timing and the impact of appeals. After the ruling denying the self-defense exception, a ruling which the attorneys appealed, Magistrate Judge Major went ahead with the Show Cause proceeding with partially silenced attorneys. But then, as part of the proceeding Qualcomm filed several new declarations that were directly adverse to its attorneys. The new statements clearly blamed their attorneys as part of their own defense. Among other things, Qualcomm alleged that its lawyers had failed to ask Qualcomm for discoverable documents, had inadequately prepared witnesses, and failed to advise Qualcomm employees of the company’s defenses prior to their testimony at trial. Still, even though the allegations had changed, the Qualcomm Six remained bound by the prior order, pending appeal. They still could not defend themselves against Qualcomm’s allegations.

In my view, this defense strategy worked spectacularly. In the sanctions order that followed, there were no new sanctions imposed upon Qualcomm whatsoever. Although they were found to have withheld evidence and engaged in misleading conduct, there was no real punishment imposed upon them. It was equivalent to losing on liability, but getting a zero verdict. I know, all the headlines say Qualcomm was punished by a brutal $8,568,633.24 fee award. But as I pointed out in my prior blog, Qualcomm’s “Monumental Discovery Violations” Provokes Only Wimpy Sanctions, that was just for show. Qualcomm had already been ordered to pay these same fees in the underlying case. All the Sanctions Order did was provide another basis for the same award. The court makes clear that Qualcomm will not have to pay twice. So the real effect was a zero sanctions fee award against Qualcomm.

That was an excellent result for Qualcomm. It was thus to be expected that Qualcomm would comply with the Sanctions Order as soon as possible, and pay the $8,568,633.24 fee award to Broadcom. It did so soon after the Sanctions Order was entered, and thus also complied at the same time with the earlier fee award. This meant that the sanctions order was now final as to Qualcomm, and would stand regardless of whether the Qualcomm Six attorneys won their appeal on the right to testify against Qualcomm. Obviously this appeal was now very strong since, in the meantime, Qualcomm had taken off the gloves and was clearly adverse to these attorneys. Qualcomm was thus able to have their cake - the attorney client privilege - and eat it to, because they were able to blame and accuse their attorneys and still keep them silent. Then, before the cake could be taken away, they paid for it.

In the appeal of Judge Major’s decisions by the Qualcomm Six, Judge Brewester considered the new gloves-off declarations of Qualcomm against its attorneys. These new facts established the necessary predicate of adversity to allow the self-defense exception to apply. For that reason Judge Brewster reversed Judge Major’s earlier ruling on this issue. This error is, in turn, the sole reason the sanctions award against the Qualcomm Six was vacated and a new trail ordered. This new trial will only be against the attorneys, not Qualcomm, because the order is final as to Qualcomm. It has already complied with the order, so for them it is too late for a re-do. So now when the attorneys return, unmuzzled, and reveal the secrets of Qualcomm, no matter how damaging these secrets may be to Qualcomm, it will be too late for the Court or Broadcom to do anything about it. Now you see how clever the defense has been.

Here is how Judge Brewster explains it at pages 5-6 of his March 5, 2008 order:

This introduction of accusatory adversity between Qualcomm and its retained counsel regarding the issue of assessing responsibility for the failure of discovery changes the factual basis which supported the court’s earlier order denying the self-defense exception to Qualcomm’s attorney-client privilege. Meyerhofer v. Empire Fire & Marine Ins. Co., 497 F.2d 1190, 1194-95 (2d Cir. 1974); Hearn v. Rhay, 68 F.R.D. 574, 581 (E.D. Wash. 1975); First Fed. Sav. & Loan Ass’n v. Oppenheim, Appel, Dixon & Co., 110 F.R.D. 557, 560-68 (S.D.N.Y. 1986); A.B.A. Model Rules of Prof. Conduct 1.6(b)(5) & comment 10.

Accordingly, the court’s order denying the self defense exception to the attorney-client privilege is vacated. The attorneys have a due process right to defend themselves under the totality of circumstances presented in this sanctions hearing where their alleged conduct regarding discovery is in conflict with that alleged by Qualcomm concerning performance of discovery responsibilities. See, e.g., Miranda v. So. Pac. Transp. Co., 710 F.2d 516, 522-23 (9th Cir. 1983).

The exception applying, the communications and conduct relevant to the topic area of records (electronic or other) discovery pertaining to JVT and its parents, its ad-hoc committees, and any other topic regarding the standards setting process for video compression technology is not privileged information. Weil v. Investment/Indicators, Research & Mgmt., Inc., 647 F.2d 18, 24 (9th Cir. 1981).

Now we wait to hear what the Qualcomm Six have to say. It will probably be interesting and informative, but will pale in drama to Bobby Seale’s statements. He is shown in the picture above, which is a court room artist drawing of an event that actually occurred in Chicago in 1969. Seal, who was then a leader of the Black Panther movement, is the most famous litigant in the U.S. to have been bound and gagged during a trial. This incident occurred near the beginning of what was then known as the trial of the Chicago Eight. They were students and political activists accused of instigating the riots at the 1968 Democratic Convention in Chicago, including then famous “yippies” Abbie Hoffman and Jerry Rubin. After numerous outbursts, Seale was gagged in court, and then sentenced to fours years in prison for his contempt of court. The trial continued for over a year without him in what was thereafter known as the trial of the Chicago Seven. The jury acquitted the Seven of most charges, and the rest were overturned on appeal. No doubt the Six would like a similar result, but I have my doubts.

Inadequate Keyword Searches by Untrained Lawyers May, in Some Circumstances, be Sanctionable

A recent decision in Texas suggests that inadequate keyword searches could lay a predicate for spoliation sanctions when the defective searches cause evidence to be lost. Diabetes Centers of America, Inc. v. Healthpia America, Inc., 2008 U.S. Dist. LEXIS 8362, 2008 WL 336382 (S.D. Tex. Feb. 5, 2008). The plaintiff relied upon an untrained associate attorney to do keyword searches, apparently to decide which emails of a key witness to preserve and produce. The associate’s sleuthing skills were poor and she botched the job. As a result, numerous relevant emails were lost; emails that defendants claimed would have helped their defense.

Although the court here declined to impose sanctions, that was, in my view, largely because the defense also made mistakes in failing to preserve their email. It was, in effect, a case of off-setting penalties. Sanctions may well have been granted if the moving party had been wearing a white hat. The opinion suggests that sanctions may be appropriate in other cases where evidence is lost because important searches were recklessly entrusted to Inspector Clouseau types.

This case is a warning to everyone who does keyword searches in e-discovery, and especially to anyone who, like the plaintiff’s counsel in this case, over-delegates these searches to young associates with no training or supervision. Care must be used in determining the search procedures and terms. This important task should not be delegated to untrained, unsupervised personnel.

This case underscores the point made by Judge Facciola in United States v. O’Keefe, No. 06-249 (D.D.C. Feb. 18, 2008), that keyword search analysis is a very complex area of e-discovery “where angels fear to tread.” He implies that only fools attempt the task of computer search without expert help. You may not need to hire the e-discovery search equivalent of Sherlock Holmes for every case, but for some cases, it may be a good idea. This is especially true when large amounts of ESI are involved. Then, more sophisticated concept-type search alternatives to keyword search should be considered because keyword searches alone may not work.

Facts of the Case

The defendants in Diabetes Centers alleged that:

Plaintiff (specifically Dr. Kimon Angelides, founder and COO of Diabetes) failed to preserve and produce critical emails that were contrary to Plaintiff’s position in this lawsuit.

To support the alleged spoliation, defendants pointed to relevant emails to and from Dr. Angelides that they obtained from third parties, but were never produced by the plaintiff. Defendants argued that additional emails must exist adverse to the plaintiff, and they must also have been withheld or destroyed. This is typically the way fraud and spoliation are proven, since the alleged spoliator rarely admits to the crime. To quote Holmes: “We balance probabilities and choose the most likely. It is the scientific use of the imagination.” Hound of the Baskervilles.

District Court Judge Nancy Atlas reacted by scheduling an evidentiary hearing on defendants’ motion for sanctions. The motion sought an adverse inference jury instruction as punishment for losing much of the COO’s email. “Come, Watson, come! The game is afoot.” The Adventure of the Abbey Grange.

At the hearing, plaintiff’s counsel came up with a surprise defense to the spoliation motion, a defense which is commonly referred to as the “fall-on-your-own-sword” defense. Here, a lawyer protects his client by taking all of the blame upon himself. (In reality, there is usually more than enough blame for all concerned.) It is a rarely used argument because of the obvious danger of creating a malpractice trap should it not succeed. In spite of this risk, plaintiff’s counsel used this defense here. Fortunately for him, it worked.

Plaintiff’s counsel argued that it was not his client’s fault that relevant emails were lost and not produced; instead it was his fault. Well, actually, he said it was the fault of his associate, a young woman just out of law school. The partner argued that his associate acted in good faith, with no intent to destroy evidence; she just did not know what she was doing. He argued that his law firm, not his client, Dr. Angelides, should be blamed for the missing emails, and they simply made an honest mistake. This is an effective argument. A court might suspect the motives of a party to litigation if emails are mysteriously missing, but are unlikely to suspect the motives of a young lawyer. Of course, it was just an innocent mistake, so no sanctions are appropriate, especially the potentially case-ending adverse inference sanctions sought here. Here is Judge Atlas’ summary of what happened:

Plaintiff’s counsel conceded at the hearing that the task of searching Plaintiff’s records for relevant emails in response to Defendants’ discovery request was entrusted to a junior associate. It is apparent that the associate worked with little or no direction or supervision. The search terms used by the associate were inadequate — they did not even include the term “phone” — and, as a result, she failed to locate or perceive the significance of the emails about which Defendants now complain.

Obviously, the unsupervised associate here did not have a clue, since Judge Atlas states she overlooked the most obvious search term of all. As Sherlock would say: “You see, but you do not observe.” A Scandal in Bohemia.

In addition to the “associate screwed up” defense, plaintiff’s counsel employed another well known strategy: “the best defense is a good offense.” Plaintiff alleged that defendants had intentionally destroyed electronic evidence, and filed its own counter-motion for sanctions. Defendants admitted that they lost some of their email, but claimed it was not their fault because two of their laptops were stolen. The plaintiff alleged that these thefts were a fraud. Further, even if plaintiff could not prove defendants were lying about these convenient losses, plaintiff argued that sanctions should still be imposed against defendants. The alternate ground for sanctions was their negligence for not having made another copy of the emails in the key players’ laptop computers. I presume from the opinion that the alleged thefts happened after suit was filed or the duty to preserve was otherwise triggered.

Defendants claimed that these were bona fide thefts. Further, they claimed it was their usual and normal procedure not to have any email backups. Here is how Judge Atlas summed it up:

Plaintiff alleges that Defendants failed to back up emails that were subsequently lost when the two laptops containing the emails were stolen. (FN2: Plaintiff also questions whether these laptops were actually stolen by third parties.) Steven Kim’s laptop was stolen from a friend’s car outside Kennedy Airport while he and his friend were loading Kim’s bags into the trunk of the car. The laptop belonging to Douglas Kim (no family relation to Steven Kim) was stolen from his Healthpia office cubicle. Email retention on these laptops, although not backed up to a third party or Healthpia server, was handled in accordance with Healthpia’s standard procedures.

These facts remind me of Holmes’ statement in A Case of Identity, “Life is infinitely stranger than anything which the mind of man could invent.”

Case Holding

Who knows what the truth is here? In a situation like this, with credible cross-allegations of wrong-doing by all parties, the judicial response of “a pox on both your houses” is not uncommon, although usually not spoken aloud by the judge. But see JN Intern., Inc. v. M/S Transgene Biotek Ltd., 2006 WL 1559709 (D.Neb., 2006.) (”While continuing to have high regard for the lawyers and the mediator, the phrase ‘a pox on all your houses’ is particularly apt in this circumstance.”). This response is understandable, and since many lawyers know this, it encourages the “offense as best defense” strategy. In this case, Judge Atlas is discrete, and speaks in terms of good faith, not plagues, but still denies relief to both sides:

Neither party has presented evidence of bad faith. The Court credits Defendants’ evidence that the laptops were stolen, and not intentionally destroyed or hidden. Defendants may not have taken adequate steps to preserve emails through a back-up process, but Defendants followed the company’s standard procedures. If anything, there has been a showing of negligence derived from lax electronic document maintenance procedures. Similarly, at most, Plaintiff’s counsel may have been lax in that inadequate direction and oversight was given to the associate to guide her search for relevant and responsive emails. There is no evidence that he or the associate acted in bad faith. The Court, in an exercise of its discretion, denies both parties’ requests for an instruction on spoliation.

. . . . .

The conduct by both sides discussed herein is questionable; all parties have been remiss in fulfilling their own discovery obligations and keeping the opponent informed of pertinent matters. The parties, however, are too quick to criticize the other side for any infraction of the discovery rules. The Court, in an exercise of its discretion, declines to impose sanctions against either party.

Conclusion

The lesson of this decision is clear. If a party in litigation is going to rely upon keyword searches as the basis for evidence preservation, which is in itself a questionable strategy, then it had better be sure the searches used are adequate. Delegation to others should be made with care. Although Sherlock Holmes’ perfection in this area is unattainable, this does not excuse obviously negligent search strategies.

Sherlock was correct to state in The Adventure of the Dancing Men that “What one man can invent, another can discover.” The common law system of discovery is premised on the ability of good detective work to uncover the truth. Yet in the area of computer search, Holmes’ statement in The Reigate Puzzle also applies, “These are much deeper waters than I had thought.”

If you do not have the input of experienced specialists, as Judge Facciola suggests may sometimes be necessary, then you should at least personally engage in careful analysis to be sure your search terms are adequate. You should not simply turn it over to the youngest attorney available and provide no direction or oversight. Just because they are young and comfortable with computers and are good with Google, Westlaw, or Lexis, does not mean they are qualified to do e-discovery searches on their own. Ideally, if you must rely upon search terms as a basis for preservation, then you should try to obtain agreement from opposing counsel on the adequacy of the terms used, or, if that is not possible, seek judicial review at the beginning of the case, not the end.

“Education never ends, Watson. It is a series of lessons, with the greatest for the last.” The Adventure of the Red Circle (Arthur Conan Doyle 1859-1930).