2014 ESI CASE LAW UPDATE. Peter M. Moore Virginia. Kenneth L. Racowski Philadelphia

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1 Gregory J. Bautista White Plains Daniel M. Braude White Plains 2014 ESI CASE LAW UPDATE Peter M. Moore Virginia Kenneth L. Racowski Philadelphia Jason R. Waters Virginia INTRODUCTION In 2013, litigants and courts faced a wide variety of issues concerning the discovery of electronically stored information (ESI). These developments highlight emerging trends and persistent problems, as well as opportunities for improved litigation efficiency and otential traps for the unwary. Wilson Elser s 2014 ESI Update highlights the key developments and cases in the ever-growing body of law concerning these ESI topics: Proposed Amendments to Federal Rules of Civil Procedure & Discovery Sanctions Proposed revisions to Rule 37 of the Federal Rules of Civil Procedure attempt to clarify the standards for imposing discovery sanctions. Continuing disputes among courts regarding the appropriate standard for issuing sanctions emphasize the need for guidance in the Federal Rules. But the proposed amendment to Rule 37 received significant criticism as soon as it was announced. Cooperation Courts continue to look to the parties and their counsel to cooperate effectively and meaningfully to anticipate, prevent and resolve discovery disputes. As the growing body of case law in this area demonstrates, parties that fail to approach ESI issues in a cooperative manner incur unjustified and unnecessary risks. Proportionality Although still an all-too-often ignored discovery principle, the proportionality rule continues to gain attention from both courts and litigants as a way to impose meaningful controls and limit costs associated with ESI. Search Methodology & Predictive Coding Beginning with Magistrate Judge Andrew Peck s decision in Da Silva Moore v. Publicis Groupe, several courts have embraced predictive coding in ESI cases. This trend continued in 2013 with one court awarding significant ESI costs for predictive coding in a patent case that the court determined to be objectively baseless and pursued with subjective bad faith. Predictive coding cases in 2013 also illustrate the need for counsel to become familiar with the nuances and costs of this technique before committing to a potentially onerous discovery protocol. Form of Production Several decisions in 2013 addressed disputes over the form that a party s ESI production must take and the requesting party s ability to control how it will receive materials requested from its opponent. The National Association of College and University Attorneys 1

2 Possession, Custody or Control & Third-Party Issues Litigants continue to encounter difficulties over the issue of whether a party has sufficient legal control over ESI to be fairly required to produce materials that may be in the possession of a third party, including ESI in the personal custody of certain employees. Taxable Costs As litigants struggle with the growing costs associated with ESI, they continue to look to the courts to impose taxable costs for ESI under 28 U.S.C. 1920(4). Several cases in 2013, however, marked a trend away from allowing significant recovery for ESI costs as taxable items for a prevailing party. Shifting Costs Several courts addressed attempts to shift the cost of ESI to the requesting party in various circumstances, and these cases produced varying results. Nevertheless, the opportunity remains for the attentive litigant to attempt to minimize the costs of ESI by seeking an order shifting costs in the appropriate circumstances. Social Media The battle between privacy and transparency continues to rage in terms of the discoverability of social media as ESI. These cases produced a wide variety of approaches and results as courts attempt to balance the interests of full and fair discovery with individual privacy interests in their social media content. Obligation of Counsel to Understand Technology The increasing popularity of predictive coding, the continuing disputes over the form of production, and technical complications relating to litigants search methodologies emphasize a growing need for technological competence among attorneys. The breadth of these issues highlights the wide variety of ESI topics that courts and litigants face every day in modern civil litigation. They also emphasize the robust nature of the emerging body of case law in this area; and they frequently reflect significant disagreements among the various courts addressing ESI matters. No area of disagreement is quite as contentious as the standard for imposing discovery sanctions for spoliation of ESI. And no development in 2013 was as significant as the proposed amendment to Rule 37 to address this issue. Accordingly, we begin this year s ESI update with a discussion of the proposed amendment and the divergent opinions about the standard for imposing sanctions that the amendment aims to address. PROPOSED AMENDMENTS TO FEDERAL RULES OF CIVIL PROCEDURE & DISCOVERY SANCTIONS The federal case law surrounding the obligation of litigants, and potential litigants, to preserve discoverable materials continued to evolve throughout Courts frequently demonstrate an absence of uniformity in the imposition of spoliation sanctions. To a large extent, the inconsistency in this area results from the variation in standards across the federal circuit courts. Some circuits require a showing of both prejudice and bad faith before imposing a severe discovery sanction. Other courts order sanctions upon the mere showing that a party negligently failed to preserve discoverable evidence. For example, the Second Circuit stated, The sanction of an adverse inference may be appropriate in some cases involving the negligent destruction of The National Association of College and University Attorneys 2

3 evidence because each party should bear the risk of its own negligence. Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99 (2d Cir. 2002). The recently proposed amendment to Rule 37(e) of the Federal Rules of Civil Procedure may resolve this split regarding the imposition of preservation-related sanctions. Specifically, the amendment, proposed in August 2013, seeks to alleviate the perceived need among many litigants to over-preserve ESI while bringing uniformity to the imposition of spoliation sanctions across the federal courts. Rather than leaving courts to rely on their inherent authority, proposed Rule 37(e) sets forth specific guidelines for imposing sanctions. In addition to permitting courts to order standard curative measures, such as ordering additional discovery or the payment of reasonable expenses, the proposed rule would limit the situations in which a severe sanction can be imposed. As proposed, the Rule would permit a severe sanction only if the court finds that a party s failure to preserve caused substantial prejudice in the litigation and that the failure was willful or in bad faith. Alternatively, the proposed Rule would permit severe sanctions only in the case of a negligent or grossly negligent failure that irreparably deprives a party of any meaningful opportunity to present or defend an action. The amendment may balance the problem of inconsistent approaches to discovery sanctions among the various courts. Specifically, litigants may no longer find themselves subject to case-determinative sanctions merely due to simple negligence. At the same time, if other curative measures are insufficient, the negligent spoliating party may remain subject to severe sanctions, albeit only upon a showing that its adversary was harmed irreparably by the loss of discoverable material. Among the critics of the proposed amendment, some commentators fear the possibility that the proposed Rule will place the burden of proving prejudice on an innocent party who may be unable to produce the evidence needed to make such a showing as a result of the spoliation. Most notably, Judge Shira Scheindlin addressed this issue in a footnote in Sekisui Am. Corp. v. Hart, which was issued on the same day that the public comment period for the proposed amendment began. Sekisui Am. Corp. v. Hart, 945 F. Supp. 2d 494 (S.D.N.Y. 2013). Years after her decisions in Zubulake and Pension Committee, Judge Scheindlin returned to the issue of ESI sanctions in Sekisui: A decade ago, I issued a series of opinions regarding the scope of a litigant s duty to preserve electronic documents and the consequences of a failure to preserve such documents falling within the scope of that duty. At its simplest, that duty requires a party anticipating litigation to refrain from deleting electronically stored information (ESI) that may be relevant to that litigation. Such obligation should, at this point, be quite clear In this breach of contract action, Judge Scheindlin held that a magistrate judge s refusal to sanction Sekisui was clearly erroneous and contrary to law. The magistrate declined to recommend sanctions based on a lack of prejudice or showing of relevance with regard to Sekisui s preservation shortcomings. Judge Scheindlin disagreed, finding that Sekisui failed in its ESI obligations in three ways. First, Sekisui did not issue a litigation-hold letter until more than 15 months after the duty to preserve was triggered. Second, Judge Scheindlin faulted The National Association of College and University Attorneys 3

4 Sekisui for waiting another seven months to notify its outside IT vendor of the hold. Finally, Sekisui instructed the outside IT vendor to permanently delete all s for two key custodians long after the duty to preserve had been triggered. The last point received the bulk of the court s analysis. Sekisui provided a good-faith explanation for directing its vendor to delete s, stating that they needed to free server space. Unfortunately for Sekisui, this argument failed to persuade Judge Scheindlin, who found no analytical distinction between the two types of willful destruction. As such, Judge Scheindlin refused to draw a distinction between willful destruction made in good faith and willful destruction with a malevolent purpose. Despite the fact that Sekisui still produced over 40,000 s for the two key custodians, the finding of willfulness permitted the court to presume that the destroyed ESI was relevant and that its destruction was prejudicial. As a result, the court ordered that an adverse inference instruction would be given to the jury because Sekisui s destruction of ESI was intentional and its failure to meet even the most basic document preservation obligations constitutes gross negligence. Other courts decline to follow Sekisui, and the split among federal courts concerning spoliation sanctions is illustrated by the decision of the District of Kansas in Herrmann v. Rain Link, No (D. Kan. July 19, 2013), magistrate s recommendation adopted by, No , 2013 WL (D. Kan. Aug. 7, 2013). In Herrmann, Judge Richard D. Rogers of the District of Kansas adopted the recommendations of Magistrate Judge K. Gary Sebelius who found it undisputed that defendants failed to properly preserve documents and [ESI] and in some cases destroyed documents and ESI. Nevertheless, the court determined that a spoliation sanction was not proper under the Tenth Circuit s standards. In this employment discrimination action, Wayne B. Herrmann alleged that Rain Link violated the Americans with Disabilities Act based on a series of events culminating in the termination of his employment. Rain Link did not dispute that it anticipated litigation to be imminent upon receipt of a letter from the Kansas Human Rights Commission, which advised that the plaintiff had filed an administrative charge of discrimination. As it was clear that Rain Link failed to preserve potentially relevant materials, the court quickly moved to a prejudice analysis. In support of its motion for spoliation sanctions, plaintiff cited a 2007 bankruptcy opinion from the District of Kansas that relied on Judge Scheindlin s Zubulake opinions for the proposition that when evidence is either willfully or intentionally destroyed in bad faith, that fact alone is sufficient to demonstrate relevance [of the destroyed documents]. However, since 2007, the Tenth Circuit has required a demonstration of prejudice for a spoliation sanction to be imposed. In fact, the court explained that a party seeking spoliation sanctions has the burden to demonstrate actual prejudice rather than theoretical prejudice. Under this standard, the court found that plaintiff failed to demonstrate prejudice, and as a result, there was no need to conduct a detailed bad faith analysis. The National Association of College and University Attorneys 4

5 The absence of uniformity across the federal courts as to spoliation sanctions is further demonstrated by the Eighth Circuit s decision in Hallmark Cards, Inc. v. Murley, 703 F.3d 456 (8th Cir. 2013). Hallmark commenced a trade secret misappropriation claim against Janet Murley, a former employee. In breach of a termination and severance agreement, Ms. Murley retained confidential trade secret materials that she later disclosed to a Hallmark competitor upon being retained as a consultant. During discovery, Ms. Murley was ordered to turn over her computer for analysis by a computer expert. The expert determined that the defendant had deleted 67 documents from her computer during the two days leading up to the expert s review. As a result of the defendant s conduct, the trial court gave an adverse inference instruction to the jury, which awarded the full amount of damages sought by Hallmark $735,000, the amount of Hallmark s severance payment to Ms. Murley, plus $125,000, the amount of compensation Ms. Murley had received for her consulting position. Ms. Murley appealed to the Eighth Circuit, which reviewed the propriety of the trial court s sanction. The appellate court explained that a district court is required to make two findings before an adverse inference instruction is warranted: (1) there must be a finding of intentional destruction indicating a desire to suppress the truth, and (2) there must be a finding of prejudice to the opposing party. Ms. Murley argued that the trial court acted improperly in giving an adverse inference instruction to the jury because the court had not made an explicit finding that she had acted in bad faith. However, the Eighth Circuit found that the trial court record permitted it to make an inference that the trial judge had made a finding of bad faith even though it failed to explicitly announce this finding. Based on the notion that an adverse inference brands one party as a bad actor, the Eighth Circuit held that a district court must issue explicit findings of bad faith and prejudice prior to delivering an adverse inference. Although the court reversed the award for $125,000 for defendant s consulting compensation on unrelated grounds, the court upheld the jury verdict on the basis that the trial court s failure to issue explicit findings of bad faith and prejudice were harmless error. Specifically, the court found strong indications in the record that the trial judge, in fact, made findings of bad faith and prejudice, even if those findings were only implicit in the decision. Preservation obligations do not end once a litigation hold has been issued. This was the lesson learned by German pharmaceutical company Boehringer Ingelheim and one of its U.S.-based subsidiaries in the ongoing Pradaxa product liability litigation in the Southern District of Illinois. In re Pradaxa Prods. Liab. Litig., No. 3:12-md-02385, 2013 WL (S.D. Ill. Dec. 9, 2013), mandamus granted in part, denied in part, No , 2014 WL (7th Cir. Jan. 24, 2014). Judge David R. Herndon s December 9, 2013, opinion in In re Pradaxa addressed a wide range of e-discovery failures by two of the Boehringer Ingelheim defendants throughout their ESI preservation, collection and production obligations. Notably, the court focused on the failure to properly implement litigation holds. The defendants initial preservation efforts began in the spring of 2012 upon issuing narrow litigation hold[s] as to some employees. The court suggested that this approach might have been acceptable initially. In fact, having examined the holds in camera, Judge Herndon found nothing problematic with their language or scope. Rather, as the decision explained, the problem was in the implementation. The National Association of College and University Attorneys 5

6 By June 2012, it became clear that hundreds of Pradaxa lawsuits across the country were about to be filed. Despite this notice, the defendants maintained their narrow litigation hold and fail[ed] to adopt a companywide litigation hold as of June 2012 when they knew nationwide Pradaxa product liability litigation was imminent. Rather, the defendants made unilateral decisions as to which employees should be subject to their holds, even excluding a particular employee because he was not deemed important enough, despite the fact that the employee had been intimately involved with Pradaxa research. In an after-the-fact attempt to justify preservation failures, the defendants asserted that they implemented a reasonable hold strategy based on a measured and proportioned approach to cost benefit analysis dependent on scope of litigation. Judge Herndon rejected this explanation and found that the defendants proportionality claim smacks of a post-debacle argument in desperation to salvage a failed strategy regarding production evasion. According to the court s opinion, the Boehringer defendants did not commit isolated or discrete e-discovery failures. Rather, there was an ongoing pattern of conduct that Judge Herndon addressed three months earlier when issuing a ruling from the bench: I ve never seen a litigation where the problems are just ongoing and continual, and every month or every week there s an issue of this failure and that failure and the other failure. It just is astounding. After detailing umerous e-discovery failures by the Boehringer defendants, the court ordered an additional review of several large sets of documents under a very short time frame, plus an award of attorneys fees to Boeringer s adversaries and a fine of more than $900,000. Beyond the award of fees, imposition of fines and instructions of an adverse inference, the most severe sanction for the failure to preserve ESI remains outright dismissal of a claim or action in its entirety. This year, the Fifth Circuit affirmed the dismissal of a wage-andhour class action for plaintiffs failure to comply with court orders requiring the preservation and production of ESI. Moore v. CITGO Ref. & Chems. Co., L.P., 735 F.3d 309 (5th Cir. 2013). In its second discovery order on the topic, the district court instructed plaintiffs to either produce responsive s or provide their private addresses and passwords. The order further provided a monetary sanction of $100 for each deleted . Many of the plaintiffs ignored the order. Of those plaintiffs who disclosed their passwords, three actively deleted s after the date of the order and a fourth made no effort to preserve his s. After an evidentiary hearing, the court gave all but three of the plaintiffs the choice of either dismissal of their claims with prejudice or the imposition of a monetary sanction. Plaintiffs elected to dismiss their claims with prejudice. Subsequently, the court entered summary judgment against the remaining three plaintiffs after they failed to timely designate an expert on damages. Moore v. CITGO is notable for several reasons. First, the defendant won dismissal of the entire class action as a result of discovery violations. Plaintiffs failure to preserve and produce ESI that may have been essential to CITGO s defense pared down the class significantly. Then, the remaining plaintiffs failure to designate a damages expert led to the end of the case before it reached any adjudication on the merits. Second, the result demonstrates that the sanction power for failure to preserve ESI can be wielded by a large, corporate defendant against individual plaintiffs. Against a landscape of often asymmetrical ESI burdens, this case may be a harbinger The National Association of College and University Attorneys 6

7 of an increased willingness by courts to level the playing field when it comes to ESI preservation and sanctions. Third, this case resulted in a relatively rare appellate order affirming a district court s implementation of severe ESI-related sanctions. Accordingly, it will likely result in a significant number of citations by parties seeking sanctions for the failure to preserve ESI. These cases demonstrate the various ways in which the courts address discovery sanctions as well as the diverse approaches to determining the reasonableness of and necessity for sanctions. Proposed Rule 37 also demonstrates that there is an awareness of the lack of uniformity in these decisions and the burden this lack of uniformity places on litigants. Ultimately, however, regardless of the difficulties involved, litigants bear responsibility for ensuring compliance with their preservation obligations and bear the risks for failing to meet those obligations. As such, it is important for litigants to fully appreciate the scope of their obligations and to work diligently with their counsel at the outset of litigation to minimize the possibility of sanctions. COOPERATION Courts continue to emphasize meaningful cooperation regarding ESI issues throughout litigation. Meanwhile, litigants continue to try to strike an appropriate balance between diligent advocacy and the court s expectations for productive cooperation among parties and counsel. Some courts have gone so far as to enact local guidelines to facilitate cooperation in ESI with the hope that such efforts will avoid unnecessary discovery disputes. For example, effective November 27, 2012, the Northern District of California enacted guidelines concerning cooperation, with the stated purpose of encourage[ing] reasonable electronic discovery with the goal of limiting the cost, burden and time spent while ensuring proper preservation of evidence and fair adjudication. Concerning the parties Rule 26(f) meetand- confer obligations, the guidelines suggest several topics for early discussion, including preservation, systems that contain discoverable ESI, search and production protocols, phasing discovery, protective orders, and opportunities to reduce cost and increase efficiency. The guidelines also recommend that parties designate an e-discovery liaison that is knowledgeable about e-discovery issues. Similar guidelines have been enacted in the Southern District of New York, the Eastern District of Michigan and other venues. Court decisions have also focused on the expectation that parties will cooperate productively with each other about ESI issues. Perhaps the most thorough discussion in 2013 of the expectation of cooperation between parties was Magistrate Judge Terrence P. Kemp s opinion in Ruiz-Bueno v. Scott, No. 2:12-cv-0809, 2013 WL (S.D. Ohio Nov. 15, 2013). In this wrongful death case, the plaintiffs moved to compel the defendants response to two interrogatories. Specifically, the plaintiffs sought to learn what efforts the defendants made to comply with the plaintiffs previous discovery requests and what procedures or methods were used to search for responsive ESI. The defendants responded to each interrogatory by objecting on the grounds that the information sought was irrelevant and unrelated to the claims or defenses in the case and that the Defendants discovery methods have no bearing on any aspect of this case. After determining that discovery about discovery was permissible, the court turned to the facts of the case, noting that it was the plaintiffs distrust of the diligence with which the defendants The National Association of College and University Attorneys 7

8 searched for ESI to be at the heart of the current dispute. The court also infer[red] that the defendants resisted responding to plaintiffs interrogatories not only because they believed that discovery about discovery was irrelevant, but because they believe that they had, through counsel s representations, satisfactorily addressed any concerns about whether they had made a good faith effort to locate and produce all relevant s. Magistrate Judge Kemp observed that in an ideal world (a situation which apparently does not exist here), these types of disputes would never be presented to the Court because counsel would have recognized, early in the case, the potential for disagreements about proper search protocols, and would have actively sought to avoid such disagreements through collaboration. Citing to the meet-and-confer obligations articulated in Rule 26(f), Magistrate Judge Kemp stated that the parties discussion can and should include cooperative planning, rather than unilateral decisionmaking, about matters such as the sources of information to be preserved or searched; number and identities of custodians whose data will be preserved or collected ; topics for discovery; [and] search terms and methodologies to be employed to identify responsive data. According to Magistrate Judge Kemp, When that occurs, each party is able to exert some measure of control over the e-discovery process, and, in turn, have some measure of confidence in its results. Rather than cooperating, the defendants were hesitant to share any information concerning data collection and preservation with the plaintiffs. Through representations of counsel, the defendants explained that the lack of ESI in the case was due to the relatively infrequent use of within the defendant s office, but did not explain how they proceeded to search for such communications beyond counsel asking each defendant, twice, to produce his or her relevant s. The court noted that an organization such as the defendants office, a sheriff s department, presumably has access to and control over the entirety of its ESI, including employee-generated ; or that its litigation counsel should undertake a more comprehensive search instead of relying on 50 different employees to search s in an unspecified manner. The court advised that this issue could have been avoided if either as part of the Rule 26(f) planning process, or once it became apparent that a dispute was brewing over ESI, counsel should have engaged in a collaborative effort to solve the problem. The court suggested that the defendants would have to state explicitly how the search was constructed or organized. The plaintiffs would then have an opportunity to provide suggestions on how to make the search more thorough. The court was careful to note that not all of the plaintiffs suggestions would have to be followed, but that the discourse between the parties would change the nature of the dispute from one about whether plaintiffs are entitled to find out how defendants went about retrieving information to one about whether those efforts were reasonable. The court also dismissed the argument that this type of collaborative approach and sharing of information was an intrusion into privileged areas or less-thanzealous advocacy for clients. The court recognized that a collaborative discovery process is also completely consistent with the lawyer s duty to represent the client zealously. It cannot be seriously disputed that compliance with the spirit and purposes of these discovery rules requires cooperation by counsel to identify and fulfill legitimate discovery needs, yet avoid seeking discovery the cost and burden of which is disproportionately large to what is at stake in the litigation. The court continued, Counsel The National Association of College and University Attorneys 8

9 cannot behave responsively during discovery unless they do both, which requires cooperation rather than contrariety, communication rather than confrontation. The court observed that discovery about discovery may not be appropriate in every case, but it ordered the defendants to respond to the plaintiffs interrogatories in this instance. The court also noted that cooperation was expected, and if not forthcoming, it will reluctantly consider whether sanctions are needed in order to force the type of cooperation which the Rules of Civil Procedure require. In the Northern District of California, Judge William H. Orrick faced a similar discovery dispute over a party s approach to responsive document identification and collection. In Banas v. Volcano Corp., No. 12-cv , 2013 WL (N.D. Cal. Oct. 4, 2013), the defendant decided to identify documents responsive to the plaintiff s discovery requests by triangulating its employees. Rather than searching every employee s s, the defendant selected a subset of employees who would likely have received documents from or sent documents to other employees who might have been involved in the matter. As a result of this process, more than 225,000 documents were produced on a rolling basis. During the course of 18 depositions, the plaintiff found that certain employees were not within the triangulated subset of employees whose s were searched. Additionally, the plaintiff determined that only a small number of responsive documents were produced by the defendant for one witness, while plaintiff held a much larger population of documents from that witness. The court first referred to the meet-and-confer obligation recommended by the district court in its Model Stipulated Order Regarding Discovery of Electronically Stored Information. Although it is not required, the Model Stipulated Order provides that the parties should meet and confer about methods to search ESI. The court then noted that although the triangulation approach may have been reasonable, the court did not get the impression that this approach was discussed in advance with the plaintiffs. The plaintiffs requested that the defendant conduct a search of the electronic files of the witnesses who were deposed to ensure that the production was complete. Absent a prior agreement to the triangulation approach, the court found this request reasonable. The court also found that given the lack of agreement to the manner and method by which the original search was conducted, this production will ensure that defendant has met its obligations under the Federal Rules of Civil Procedure. In the Southern District of New York, Magistrate Judge James Francis emphasized the need for cooperation in discovery in U.S. Bank Nat l Assoc. v. PHL Variable Ins. Co., No. 12 Civ. 6811, 2013 WL (S.D.N.Y. Apr. 22, 2013). In addressing the sixth discovery dispute presented to the court over the preceding seven months, Magistrate Judge Francis cautioned the parties to take their obligation to cooperate in discovery seriously so as to avoid burdening the court with repeated disputes. The court made specific mention of both the Federal Rules of Civil Procedure and Local Civil Rule 26.4, which encourages cooperation among counsel to efficiently resolve discovery disputes without intervention from the court. PROPORTIONALITY Meaningful cooperation among counsel should create discussion about the proportionality of discovery to be sought in the litigation. If such cooperation does not produce an agreement in The National Association of College and University Attorneys 9

10 this regard, then the proportionality principle of Rule 26(b)(2)(C) provides an opportunity to limit the scope and cost of ESI. Nevertheless, proportionality remains an underused option in the litigators ESI toolkit. Even so, 2013 produced some interesting decisions building on the slowly emerging body of case law in which courts attempt to strike an equitable balance among fairness to the parties, the cost and burden of discovery, and the interests of civil justice. For example, proportionality played a role in the latest round of significant ESI decisions to emerge from the Apple v. Samsung patent-infringement litigation in the Northern District of California. Magistrate Judge Paul Grewal issued a decision on a motion to compel from Samsung seeking financial information from Apple. Apple, Inc. v. Samsung Elec. Co., Ltd., No. 12-CV-0630, 2013 WL (N.D. Cal. Aug. 14, 2013). Among other items, Samsung asked the court to compel Apple to produce financial data by product and to disclose sales information for the iphone and ipad in the United States. Samsung complained that Apple s prior production related to worldwide sales as opposed to financial data for sales performance in the United States. Samsung also complained that Apple s data related to product lines rather than to specific models. Apple did not dispute that the requested information was relevant and discoverable. In fact, Magistrate Judge Grewal observed that the financial data was highly relevant to Samsung s damages claims and defenses as well as Apple s damages claims. Apple complained, however, that it did not maintain the data in such a granular format in the ordinary course of its business. Apple also professed that it would take a herculean effort to produce the information in the format that Samsung requested. Ultimately, the court concluded that Apple does have the financial databases that it could query to generate at least some of the reports sought by Samsung. And courts frequently require parties to produce reports from dynamic databases because the technical burden of creating a new dataset for the instant litigation does not excuse production. Magistrate Judge Grewal stated that the court was generally dubious of generalized claims of undue burden. Characterizing the proportionality rule under Rule 26(b)(2)(C) as an all-to-often [sic] ignored discovery principle, however, the court found that Samsung s requested production would yield limited value. Specifically, the court noted that the parties had already exchanged expert discovery. In this respect, Samsung s experts were clearly somehow able to apportion the worldwide, product line inclusive data to estimate U.S. and product-specific damages. As a result, Magistrate Judge Grewal thought it would be senseless to require Apple to go to great lengths to produce data that Samsung is able to do without. Nevertheless, the court also precluded Apple from using more granular data to Samsung s detriment as a way to protect Samsung from an undue prejudice arising from Apple s reporting limitations. Another significant proportionality decision in 2013, In re Biomet M2A Magnum Hip Implant Prods. Liab. Litig., No. 3:12-MD-2391, 2013 WL (N.D. Ind. Apr. 18, 2013), considered a situation involving an extraordinary and costly production in multidistrict litigation. In this case, the defendant applied keyword culling to limit a collection of 19.5 million documents. This reduced the document collection to 3.9 million files, or 1.5 terabytes of data. Deduplication reduced the document collection even further to 2.5 million files. Statistical sampling revealed to a 99 percent degree of confidence that 0.55 percent to 1.33 percent of the excluded materials were responsive. Then, Biomet performed predictive coding to evaluate the The National Association of College and University Attorneys 10

11 production set. At the time of plaintiff s motion, Biomet had incurred $1.07 million in discovery for ESI, and it projected an additional $2 million to $3.25 million in future discovery costs. Despite Biomet s costly, multi-tiered discovery process, plaintiff s counsel wanted more. Specifically, plaintiff s counsel believed the court should require Biomet to go back to the beginning and apply predictive coding to the original collection of 19.5 million files. Yet, during the discovery process, Biomet invited the plaintiffs to provide additional keyword searches. Plaintiffs declined this offer and maintained that Biomet should not have engaged in any production until the Judicial Panel ruled on whether to centralize the case in multidistrict litigation. Judge Robert Miller of the Northern District of Indiana disagreed. Specifically citing the Seventh Circuit Principles Relating to the Discovery of Electronically Stored Information and several publications from The Sedona Conference, the court found no reason to criticize Biomet s approach. Rather, Judge Miller thought that plaintiff s request for an order compelling Biomet to perform predictive coding to the entire 19.5 million document collection sits uneasily with the proportionality standard in Rule 26(b)(2)(C). The court noted that such an order would entail costs in the low seven-figures. He also found that this would not be productive because statistical sampling showed that there was an extremely low probability that responsive materials were excluded from the original set. As a result, the court concluded that the cost of plaintiff s proposed approach significantly outweighed the benefit of the additional discovery. Finally, proportionality played a significant role in discovery during a putative class action arising from the marketing and sale of mortgage-backed securities. In re Morgan Stanley Mortgage Pass-Through Certificates Litig., No. 09-CV-02137, 2013 WL (S.D.N.Y. Sep. 11, 2013). In this case alleging strict liability and negligence under the Securities Act of 1933, the parties agreed to more than 30,000 search terms on a list spanning more than 1,600 pages. But they were unable to agree on the custodians or date ranges to be searched. Applying the proportionality principle to the parties proposed discovery protocols, the court limited the categories of custodians based on the subject matter of the litigation. The court also imposed certain restrictions on date ranges for certain categories of custodians. Morgan Stanley, Biomet, and Apple demonstrate how the proportionality analysis is specific to the factual and legal issues of each particular case. But they also demonstrate how the proportionality principle is all too frequently ignored by parties in litigation involving significant ESI issues. SEARCH METHODOLOGY & PREDICTIVE CODING Several significant ESI decisions in 2013 related to litigants search methodologies and the emerging use of predictive coding technology. As previously discussed, defendants in the Biomet case employed several different techniques, such as keyword culling, statistical sampling, and predictive coding, that were approved by the court. Following Magistrate Judge Andrew Peck s lead in Da Silva Moore v. Publicis Groupe, SA in the Southern District of New York, other courts continued to join a growing chorus of approval for predictive coding in The National Association of College and University Attorneys 11

12 One such court approved defense counsel s use of predictive coding in a particularly dramatic fashion when it included costs associated with predictive coding as part of a $12.5 million award for attorneys fees in patent litigation. Gabriel Techs. Corp. v. Qualcomm Inc., No. 08cv1992, 2013 WL (S.D.Cal. Feb. 1, 2013). According to 35 U.S.C. 285, the court may award reasonable attorneys fees to the prevailing party in patent litigation in an exceptional case. The court found that plaintiff s patent claims in Gabriel were objectively baseless and that plaintiff made them in subjective bad faith. As such, the court proceeded to determine how to allocate attorneys fees under section 285. Defense counsel requested a total award of nearly $13.5 million, which included $10.2 million for attorneys fees to lead counsel. An amount for document review attorneys, nearly $400,000, was included, and $2.8 million was included for the costs of conducting predictive coding.collection to 3.9 million files, or 1.5 terabytes of data. Deduplication reduced the document collection even further to 2.5 million files. Statistical sampling revealed to a 99 percent degree of confidence that 0.55 percent to 1.33 percent of the excluded materials were responsive. Then, Biomet performed predictive coding to evaluate the production set. At the time of plaintiff s motion, Biomet had incurred $1.07 million in discovery for ESI, and it projected an additional $2 million to $3.25 million in future discovery costs. Regarding the predictive coding element, the court discussed the algorithm applied to Qualcomm s 12 million electronic records. The court also addressed the interaction between the predictive coding technique and the use of contract attorneys to undertake a more efficient and less time-consuming method of document review. Under the circumstances of this particular case, Judge Anthony J. Battaglia found Qualcomm s approach to be reasonable. Notably, the court previously ordered plaintiff to pay an $800,000 bond to proceed with the litigation and frequently questioned [p]laintiff s inadvisable decision to continue forward with theirclaims beyond the date of the bond order. As such, the court reduced the award for attorneys fees to the amount incurred after the date of the bond order. At that time, defense counsel had incurred $1 million in fees and the court accordingly reduced the total award to $12.5 million. Although predictive coding continued to gain acceptance, an admiralty case from the Southern District of Alabama cautions attorneys and litigants to become familiar with the technology and, in particular, the costs associated with it, before committing to a predictive coding protocol. Northstar Marine, Inc. v. Huffman, No. 1:13-cv (S.D. Ala. Aug. 27, 2013). In this case, the parties entered into a remarkable ESI protocol committing to immediately arrange to use computerassisted search technology that permits efficient gathering of documents, deduplication, maintaining the relationship between s and attachments, full text Boolean searches of all documents in one pass, segregation or tagging of the search results, and export of all responsive files without cost to the other party. They also agreed to produce materials immediately and in native format including all metadata. After entering into the protocol, defendants advised plaintiff s counsel that they had collected their ESI and were ready to make their production. At the same time, defendants inquired about the status of plaintiff s review. After two follow-up s, plaintiff s counsel responded that its provider was unable to perform the tasks necessary to collect the ESI at issue and that plaintiff was trying to locate other outside providers. Immediately thereafter, defendants filed a motion to compel. In response, plaintiff did not include any objections to defendants discovery requests. Rather, plaintiff asserted that it was having difficulty locating an inexpensive provider. The The National Association of College and University Attorneys 12

13 court found this unacceptable. As of the date of the court s order, plaintiff had not even begun collecting its ESI material because it [was] still attempting to locate an inexpensive search technology provider to assist with the process. According to the court, Plaintiff s attempts to find an inexpensive provider certainly do not constitute due diligence. As predictive coding continues to gain momentum, courts have also shown an increasing willingness to allow discovery about discovery to evaluate litigants search methodologies. Most notably, as previously discussed in our section on Cooperation, in Ruiz-Bueno v. Scott, No. 2:12-cv-0809, 2013 WL (S.D. Ohio Nov. 15, 2013), plaintiffs submitted interrogatories to learn about defendants search procedures when defendants discovery responses raised concerns about the small volume of ESI. Defendants objected to plaintiffs attempt to conduct discovery about discovery, and plaintiffs moved to compel. Defendants argued that the sought discovery did not constitute any nonprivileged matter that is relevant to any party s claim or defense, as specified in Rule 26(b)(1). Although the court found this argument appealing inits simplicity, Magistrate Judge Kemp found that Rule 26 makes clear that information about the existence, description, nature, custody, condition, and location of persons who know of any discoverable matter is within the proper scope of discovery. The court went back to the Advisory Committee Notes from 1946, which explained that the purpose of discovery is to allow a broad search for facts, the names of witnesses, or any other matters which may aid a party in the preparation or presentation of his case. And, according to Magistrate Judge Kemp, sometimes informationabout discovery is a matter which may aid a party in the preparation of his case. Nevertheless, the court emphasized that discovery about discovery may not be appropriate in every case. In the circumstances of this particular dispute, when plaintiffs expressed some skepticism about the sufficiency of defendants efforts to produce s defendants should have been forthcoming with information not only about why the results were as they were, but how defendants looked for responsive documents. Because that did not happen, the court ordered defendants to respond to the discovery requests aimed at their search methodology. Of course, Apple v. Samsung contributed to the authority on this emerging topic. Apple Inc. v. Samsung Electronics Co., Ltd., No. 12-CV-0630, 2013 WL (N.D. Cal. May 9, 2013). This time, Apple sought non-party discovery from Google. Specifically, Apple moved to compel Google to produce search terms and a list of custodians that it used in response to Apple s requests for production. Apple suggested that Google s production may be deficient, but it wanted to compel discovery about discovery before deciding whether to attack the sufficiency of Google s responses. Google initially claimed that its search terms and choice of custodians were privileged attorney work-product, but it abandoned this position no doubt because case law suggests otherwise. In response to Apple s motion, Google complained that the requested discovery about discovery would be unduly burdensome. According to Magistrate Judge Grewal, [a]t the heart of its opposition is Google s belief that its status as a third party exempts it from obligations parties may incur to show the sufficiency of their production, at least absent a showing by Apple that [Google s] production is deficient. The court found that Google s position raised an important question: Is it extraordinary to The National Association of College and University Attorneys 13

14 expect third parties to be transparent about their discovery methods? To answer this question, Magistrate Judge Grewal relied on DeGeer v. Gillis, 755 F. Supp. 2d 909 (N.D. Ill. 2010), a case the parties omitted from their briefs. In DeGeer, Magistrate Judge Nan Nolan encountered a similar situation and ordered the third party to produce its search terms and custodian list. Magistrate Judge Nolan found that the third party s conduct violated the principles of an open, transparent discovery process. But she also faulted the defendant for failing to provide search terms or custodians. Rather, she found that such issues should be a part of cooperation and transparency among parties and non-parties. As a result, in Apple v. Samsung, Magistrate Judge Grewal found that Google s attempt to stand outside of these tenets because of its third-party status is unpersuasive. He agreed that Google should not be compelled to subsidize litigation to which it is not a party. But he found that Google confused undue burden with its obligations, once subject to a subpoena, to participate in transparent and collaborative discovery. Magistrate Grewal concluded, Thirdparty status does not confer a right to obfuscation or obstinacy. Yet, the court also criticized Apple s failure to explore meaningful collaboration on obtaining the materials it believed Google omitted from its production. Nevertheless, the court found that compelling production of search terms and custodians would aid in uncovering the sufficiency of Google s production and serve the greater purposes of transparency in discovery. FORM OF PRODUCTION The form in which a party produces ESI frequently receives little attention from litigants responding to discovery. But this issue can present significant problems for the unwary. Rule 34(b)(1)(C) makes it clear that a requesting party may specify the form or forms in which electronically stored information is to be produced. Although various district courts have applied Rule 34(b) differently, they have been consistent in holding that the requesting party is entitled to specify the form of production. This includes native format productions, if requested. District of Connecticut Magistrate Judge Donna F. Martinez addressed form of production issues in ruling on the plaintiff s motion to compel ESI discovery in Saliga v. Chemtura Corp., No. 3:12-cv-832, 2013 WL (D. Conn. Nov. 25, 2013), an employment discrimination case in which the plaintiff alleged discrimination based on her race, gender and religion. After noting The Sedona Conference s cooperation principles, Magistrate Judge Martinez turned her focus to the plaintiff s concerns about the form of defendant s production. Specifically, the plaintiff requested that the defendant produce in native format. As the court noted, native format production is the form in which the document was created, which includes application metadata, or data about data. The defendant objected to native production, stating that it is standard practice to produce ESI in searchable PDF or TIFF and there is no basis or need to produce s in native format. The defendant also pointed out that documents produced in native format cannot be Bates stamped or marked confidential and that working with the documents (during deposition, motion practice and trial) in native format will be more difficult than other formats. The National Association of College and University Attorneys 14

15 Although Magistrate Judge Martinez acknowledged that TIFF is the most common choice as noted in Effective Use of Courtroom Technology: A Judge s Guide to Pretrial and Trial (Federal Judicial Center, 2001), she was not swayed by the defendant s argument. Pointing out that the defendant did not raise the argument that a native format production would be unduly burdensome or unreasonably expensive, Magistrate Judge Martinez held that the rule says that the requesting party may specify the form in which [ESI] is to be produced, Fed. R. Civ. P. 34(b)(1)(C), and the defendant has not shown compelling reasons why it cannot produce the information in the format requested by the plaintiff. Similarly, in RPM Pizza, LLC, d/b/a Domino s Pizza v.argonaut Great Cent. Ins. Co., No , 2013 WL (M.D. La. Nov. 15, 2013), Magistrate Judge Stephen Riedlinger of the Middle District of Louisiana ordered the defendant to produce ESI in the form specified by the plaintiff. The plaintiff s document requests contained instructions designating the form in which it wanted ESI produced and the metadata for each electronic document produced. Specifically, the plaintiff directed production of audio, video, database files and slide presentations in native format. The plaintiff requested that the defendant produce the remaining files as single-page TIFF images with specified metadata. In response, the defendant produced documents in PDF format with no metadata. The defendant failed to specifically object to the form of production in its initial responses, arguing that the plaintiff failed to demonstrate why it was necessary to produce documents in the requested format. The court rejected that argument, stating that the simple answer is that [plaintiff] is not required to do so. As provided under Rule 34(b)(2)(E), [plaintiff] properly included an instruction specifying the form for producing ESI and [defendant] waived any objection by not asserting it timely. The plaintiff s motion to compel was granted. Finally, in Crissen v. Gupta, No. 2:12-cv-355, 2013 WL (S.D. Ind. Nov. 7, 2013), Magistrate Judge William G. Hussman addressed a dispute over the defendant s production of certain documents in a non-searchable PDF format when the document requests failed to specify the form of production. Plaintiff argued that the defendant converted the produced materials from their original Microsoft Word format. As a result, plaintiff argued that the conversion caused the loss of metadata potentially demonstrating important facts concerning who created the documents and when the documents were revised or printed. Although the court recognized the defendant s argument that the plaintiff s first requests made no mention of the form in which electronically stored information was to be produced, it recognized that Rule 34 requires production in a form in which it is ordinarily maintained or in a reasonably usable form or forms. According to the court, Rule 34 requires that a requesting party s obligation to specify a format for production is superseded by a responding party s obligation to refrain from converting any of its electronically stored information to a different format that would make it more difficult or burdensome for the requesting party to use. However, the court was uncertain, based on the information before it, whether he defendant only had access to the documents in PDF format. Therefore, the court ruled that if the defendant only possessed the documents in PDF format, it could respond The National Association of College and University Attorneys 15

16 that it had already produced the documents in their native format and would be under no obligation to convert the documents to Word. On the other hand, if the defendant had the documents in Word format prior to plaintiff s request, then it would be required to produce them in Word format. POSSESSION, CUSTODY OR CONTROL & THIRD-PARTY ISSUES Another area that continues to create exposure for litigants is their failure to appreciate and evaluate those documents and people over which they legally maintain possession, custody or control for the purpose of determining their preservation and production obligations under the Federal Rules. As noted in Wilson Elser s 2013 ESI Update, litigants often fail to appreciate the full scope of these duties as they relate to private data maintained by third-party vendors and related businesses. These issues continued to play a significant role in In Dugan v. Lloyds Bank, PLC, No. 12-cv-02549, 2013 WL (N.D. Cal. Sept. 4, 2013), the class-action plaintiffs sued Lloyds Bank, PLC for breach of contract and consumer protection statutes as a result of dual bcurrency loans they obtained from Lloyds Bank. These loans were subject to a variable interest rate to be set at 1.5 percent above Lloyds Bank s cost of funds, the interest rate paid by the bank to depositors. As such, the plaintiffs sought to depose specific people and requested documents from specific custodians regarding the calculations for Lloyds Bank s cost of funds. Lloyds Bank refused, however, arguing that the identified witnesses and custodians did not work for Lloyds Bank. Rather, they were affiliated with its parent company, Lloyds Banking Group (LBG), which was not a party to the lawsuit. The plaintiffs then sought to compel Lloyds Bank to produce the information, and Lloyds Bank countered by arguing that because Lloyds Bank and LBG are separate legal entities, the LGB documents and witnesses were not within Lloyds Bank s custody or control. Ultimately, the district court agreed with Lloyds Bank and denied the plaintiffs motion to compel. Specifically, the court noted that under Rule 34, Lloyds Bank must produce documents under its possession, custody or control. The plaintiffs argued that Lloyds Bank had control over the information sought because of the corporate relationship between the two companies. The court, however, was unconvinced. It noted that under Ninth Circuit precedent, control means the legal right to obtain documents on demand. Specifically, even if a company might have the practical ability to obtain documents, they are not in its control if the related organization could legally and without breaching any contracts refuse to turn over the information. Plaintiffs sought to have the district court adopt a more expansive definition of control based on the parent-subsidiary relationship between the two companies, but the court declined. Instead, the district court reiterated that plaintiffs, as the party seeking discovery, bore the burden of proving that Lloyds Bank had control over LBG s documents. The plaintiffs demonstrated that (1) Lloyds Bank was a wholly owned subsidiary of LBG; (2) LBG previously provided documents and witnesses to support Lloyds Bank s defense in the lawsuit; (3) both companies share the same ten-member board of directors; and (4) LBG played a role in administering, and ultimately profited from, the loans at issue in the lawsuit. However, the court found this insufficient. Rather, in deciding that plaintiffs had not demonstrated that The National Association of College and University Attorneys 16

17 Lloyds Bank had the legal right to obtain the documents requested, it relied primarily on a declaration from Lloyds Bank s attorney. The declaration stated that (1) Lloyds Bank is a subsidiary of LGB; (2) LGB provides banking and financial services through its subsidiaries, including Lloyds Bank; (3) the boards of the two separate entities maintain separate meeting agendas and minutes; and (4) Lloyds Bank has no ownership interests in LGB and no contractual or legal right to obtain the documents or information requested. The court reached a similar conclusion in Kickapoo Tribe of Indians of the Kickapoo Reservation of Kansas v. Nemaha Brown Watershed Joint Dist. No. 7, 294 F.R.D. 610 (D. Kan. 2013). Kickapoo arose from a lawsuit seeking specific performance, declaratory judgment and compensatory damages against multiple defendants, including the Watershed District, regarding its water rights along two rivers in Kansas. During the litigation, the Kickapoo Tribe sought production of documents in the possession of former Watershed District board members and employees. The Watershed District refused to produce the requested material on the basis that it could not compel former directors and employees to produce documents that are in their possession, but not in the possession of the Watershed District. Essentially, the Watershed District argued that the Tribe was attempting to shift the burden for discovery improperly from third parties to the Watershed District. Interestingly, the Tribe argued that the Watershed District had a duty to maintain these records pursuant to the Government Records Preservation Act (GRPA), which it argued required the Watershed District to maintain records produced by its employees, and the Kansas Open Records Act (KORA), which required the Watershed District to make its records available to the public. The district court rejected the Kickapoo Tribe s arguments outright. Specifically, the court stated, The relevant question here is not whether the [Watershed] District has a duty under GRPA and/or KORA to retrieve responsive documents that may be in the possession of former Board members, staff, or employees. Rather, the relevant question is whether the [Watershed] District has possession, custody or control of the documents requested by the Tribe under Fed. R. Civ. P. 34(a)(1). As in Dugan, the court stated that the party seeking the documents bears the burden of demonstrating that the opposing party has control over the documents. As a result, the court held that the Tribe failed to demonstrate that the Watershed District had the legal right to obtain the requested documents from its former directors and employees. Similarly, in Cotton v. Costco Wholesale Corp, Case No , 2013 WL (D. Kan. July 24, 2013), the plaintiff, a former Costco employee, sued his former employer alleging racial discrimination in violation of 42 U.S.C. 1981, Title VII, and the Kansas Act Against Discrimination. Mr. Cotton sought production of ESI related to four of his Costco co-workers, including text messages sent or received by these co-workers on their individual personal cell phones. The court again stated that parties only have a right to request documents and ESI that are in the possession, custody, or control of the opposing party and that documents are deemed to be in the opposing party s control if they have a legal ight to obtain the documents on demand. Mr. Cotton did not allege that Costco issued the cell phones to its employees, that the employees used their phones for work-related purposes or that Costco otherwise had any right to obtain their employees text messages on demand. Therefore, the court denied his request for text messages sent from his co-workers personal cell phones. The National Association of College and University Attorneys 17

18 However, the court reached a different outcome in Puerto Rico Tel. Co., Inc. v. San Juan Cable LLC, Civil No , 2013 WL (D.P.R. Oct. 7, 2013). In that case, plaintiff Puerto Rico Telephone Company (PRTC) moved for sanctions in the form of an adverse inference instruction against the defendant San Juan Cable, LLC d/b/a OneLink for spoliation of evidence for failing to preserve relevant s from the personal accounts of three former OneLink officers. When the litigation began, OneLink sent a litigation-hold notice to its employees, including the three officers at the center of the dispute, informing them of their duty to preserve all relevant evidence including ESI. Approximately one year after litigation began, PRTC served its first discovery requests, coinciding with the time that the three executives at issue left OneLink. At the close of discovery, it became apparent that three relevant chains had been lost and could not be located in OneLink s files or the files of its former officers. The three chains originated from the personal accounts of the three former officers. The court determined that because (1) PRTC was able to demonstrate that the former officers used their personal accounts to manage the company for as long as seven years prior the their departures and (2) OneLink was aware that these officers were using their personal accounts to engage in company business, OneLink s duty to preserve electronic data extended to those personal accounts. Ultimately, the court refused to grant the adverse instruction because it determined that the three chains were recovered from other sources and, accordingly, there was no prejudice to PRTC. The court also found that there was no evidence that OneLink deleted the chains in bad faith. However, the holding is an important cautionary tale for litigants: While Cotton demonstrates that the courts recognize that employers do not necessarily have control over the personal electronic data of their employees, Puerto Rico Tel. Co. demonstrates that when those employees use their private electronic media to conduct company business, employers may still need to take steps to preserve that data in the event of possible litigation. TAXABLE COSTS Last year, two competing interpretations emerged concerning the court s ability to tax ESIrelated costs under Rule 54(d)(1) and 28 U.S.C See Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158 (3d Cir. 2012), and In re Online DVD Rental Antitrust Litig., No. M , 2012 WL (N.D. Cal. Apr. 20, 2012). On one hand, Race Tires adopted a strict interpretation of section 1920 and allowed the prevailing party to tax only limited categories of ESI-related expenses. On the other hand, Online DVD Rental emphasized the court s discretion in this regard, allowing a wide range of ESI-related items to be taxed. Based on the courts decisions in 2013, the Third Circuit s reasoning in Race Tires appears to be prevailing among the various courts considering this issue. As background, Rule 54(d)(1) allows a prevailing party to recover from the opposing party certain costs and expenses incurred during litigation unless a federal statute provides otherwise. The types of costs and expenses that may be taxed pursuant to the district court s authority are enumerated in 28 U.S.C Prevailing parties have sought recovery of ESI costs and expenses under section 1920(4), which allows fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case. The National Association of College and University Attorneys 18

19 In 2013, most district courts addressing this issue adopted the Third Circuit s reasoning and holding in Race Tires. But they exhibited some variation as to what specific types of ESI costs constituted copying under section 1920(4). For example, the Fourth Circuit, in Country Vintner of N.C., LLC v. E. & J. Gallo Winery, Inc., 718 F.3d 249 (4th Cir. 2013), fell in line with Race Tires. The Federal Circuit, however, in CBT Flint Partners, LLC v. Return Path, Inc., 737 F.3d 1320 (Fed. Cir. 2013), distinguished Race Tires and Country Vintner and allowed recovery of additional ESI costs. Adopting the Third Circuit s persuasive reasoning in Race Tires, the Fourth Circuit affirmed a cost award of only $ of the approximately $110,000 in ESI-related costs the prevailing party had originally sought. Country Vintner of N.C., LLC v. E. & J. Gallo Winery, Inc., 718 F.3d 249 (4th Cir. 2013). Following the district court s order of summary judgment in its favor, Gallo sought to tax several categories of e-discovery costs. The district court found that the only tasks that involved copying were the conversion of native files to TIFF or PDF formats and the transfer of images to CD or DVD. The Fourth Circuit affirmed, closely following the analysis in Race Tires. Although the untaxable activities may be essential to make a comprehensive and intelligible production of ESI, the Fourth Circuit found that this fact does not mean that the services leading up to the production constitute making copies. The presumption is that the responding party must bear the expense of complying with discovery requests. Similarly, taxation is not warranted merely because today s technology requires technical expertise not ordinarily possessed by the typical legal professional. Having awarded less than two-tenths of a percent of the total costs sought, the court further justified the result by citing Taniguchi v. Kan P. Saipan, Ltd., 132 S. Ct (2012). Although Taniguchi involved translation costs rather than ESI-related costs, the Supreme Court explained that taxable costs under section 1920 are of narrow scope and are limited to relatively minor, ncidental expenses. Drawing on Race Tires and Taniguchi, the Fourth Circuit suggests that the more appropriate avenue for defraying ESI costs is under Rule 26 rather than section To the extent that the costs of complying with discovery requests are excessive, a party may invoke the district court s discretion under [Fed. R. Civ. P. 26] to grant orders protecting [it] from undue burden or expense including orders conditioning discovery on the requesting party s payment of the costs of discovery. In this case, Gallo had moved for a protective order, arguing that Country Vintner s discovery requests were overbroad, vague, ambiguous and not reasonably calculated to lead to the discovery of admissible evidence. The district court, however, denied Gallo s motion and adopted Country Vintner s proposal for handling ESI. Interestingly, after denying all but a tiny fraction of the costs Gallo sought, the Fourth Circuit suggested that Gallo should have appealed the district court s denial of its motion for a protective order. When, as here, a district court denies a protective order, the movant can appeal that decision; it cannot obtain the same relief from [section] 1920, which impose[s] rigid controls on costshifting in federal courts. The National Association of College and University Attorneys 19

20 Distinguishing Country Vintner and Race Tires, the Federal Circuit found recoverable those costs necessary to duplicate an electronic document in as faithful and complete a manner as required by rule, by court order, by agreement of the parties, or otherwise. CBT Flint Partners, LLC v. Return Path, Inc., 737 F.3d 1320 (Fed. Cir. 2013). Specifically, the court concluded that [t]o the extent a party is obligated to produce electronic documents in a particular format with particular characteristics intact (such as metadata ), the costs to make duplicates in such a format or with such characteristics preserved are recoverable. Applying this broader standard, the court allowed costs for imaging documents and metadata from source media, creating load files, and copying responsive documents to production media. The court disallowed costs for data-hosting, keyword searching, indexing, decryption, deduplication, and certain preparatory and planning steps. Although the court s general approach and analysis was consistent with Race Tires and Country Vintner, the Federal Circuit acknowledged that its application of section 1920(4) differed from the Third and Fourth Circuits regarding the costs of imaging source media and extracting documents in a way that preserves metadata. Those courts put hard-drive imaging and metadata extraction in the same category as unrecoverable preparatory activities, such as searching, reviewing for responsiveness, and screening for privilege. The Federal Circuit concluded, however, that there was no good reason to distinguish copying one part of an electronic document (i.e., the part that is visible when printed) from copying other parts (i.e., parts not immediately visible) when both parts are requested. Yet, despite In re Online DVD Rental Antitrust Litig., the same court adopted a stricter approach in the application of section 1920(4) to ESI costs in Ancora Techs., Inc. v. Apple, Inc., No. 11- CV-06357, 2013 WL (N.D. Cal. Aug. 26, 2013). In Ancora Techs., the Northern District of California allowed costs for the conversion of its opponent s production to TIFF, but it denied the significantly greater costs for storage and hosting of ESI, as well as costs incurred for replacing corrupted ESI and resolving technical issues during the processing of ESI. The majority of district courts considering the issue adopted the Race Tires rationale and applied section 1920(4) to ESI costs strictly during See Alzheimer s Inst. Of Am., Inc. v. Elan Corp. PLC, No. C (N.D. Cal. Jan. 31, 2013); Amana Soc y, Inc. v. Excel Eng g, Inc., No. 10-CV-168, 2013 WL (N.D. Iowa Feb. 4, 2013); Phillips v. Wellpoint Inc., No. 3:10-cv-00357, 2013 WL (S.D. Ill. May 16, 2013); Chi. Bd. Options Exch., Inc. v. Int l Secs. Exch., LLC, No. 07 CV 623, 2014 WL (N.D. Ill. Jan. 14, 2014). However, the Northern District of Texas was an outlier in allowing a party to tax the entire cost of its electronic production in United States ex rel. Dekort v. Integrated Cost Guard Sys., LLC, No. 3:06-cv-1792, 2013 WL (N.D. Tex. Mar. 27, 2013). Relying on a series of opinions that preceded Race Tires, the court awarded all ESI-related costs on the basis that electronic scanning and imaging of paper documents is the modern-day equivalent of exemplification and copies of paper. This was, of course, the same rationale applied by the district court in Race Tires that the Third Circuit castigated when it reversed the award. Nevertheless, the Northern District of Texas made no attempt to parse the various underlying tasks or steps relating to The National Association of College and University Attorneys 20