Examining E-Discovery Trends and Key Developments: A 2014 Year in Review

Transcription

1 Examining E-Discovery Trends and Key Developments: A 2014 Year in Review George B. Breen, Esquire and Daniel C. Fundakowski, Esquire Epstein Becker & Green, P.C. Washington, D.C. Introduction The ever-increasing volume of electronically-stored information ( ESI ) has affected all aspects of litigation. Largely due to the attendant advances in electronic data storage (including cloud storage), the amount of ESI maintained by businesses has grown exponentially. In fact, experts believe that at least 90 percent of all corporate information is now created or stored in an electronic format. 1 This wealth of ESI has both significantly increased the costs of litigation and document production, and has required the judicial process to adapt as well. Due to the substantial volume of stored ESI, predictive coding or technology assisted review has been used as part of document production in litigation and investigations, and is increasing as an alternative to linear review or keyword searching. Although 2014 was marked by a wealth of significant e-discovery opinions and developments, predictive coding was involved in many of them. Indeed, judges issued more opinions involving predictive coding in 2014 than in any other year. Moreover, the judiciary s increased focus on technology has led to more practical opinions and guidance on complex e-discovery issues and disputes. This paper provides background on some of the basics about predictive coding and highlights the notable opinions from 2014 on e-discovery. Towards that end, this paper also explores the proposed 2015 amendments to the Federal Rules of Civil Procedure that are most significant to e-discovery, the principles driving those amendments, and illustrates how this trend is consistent with the Sedona Principles on electronic discovery. 1 See Caroline Tinsley and Allison Lee, Easing the Burden: Curbing E-Discovery Costs by Promoting Predictability, FOR THE DEFENSE, Jan. 2013, at 22.

2 I. E-Discovery: Background, Relevant Rules, and Guidelines A. Mechanics of Predictive Coding Technology and Barriers to Entry Predictive coding is a form of computer-assisted review designed to minimize the time and expense associated with traditional, manual review of large volumes of ESI. Through the manual coding of a relatively small sample of documents (known as seed sets ), the predictive coding software can be trained to evaluate the responsiveness or non-responsiveness of documents relative to a discovery request. The parties (typically through their counsel or experts) select seed sets from the total universe of documents to be searched by using search criteria. These selected documents become the primary data used to train the predictive coding software to recognize patterns of relevance in the universe of documents. Through the use of predictive coding, a party responding to discovery requests is typically presented with a significantly smaller and potentially more responsive set of documents to review (such as those requiring privilege determinations). Although predictive coding is not a new technique, its implementation continues to face barriers to entry. Some believe that predictive coding is unproven technology and that key documents may be overlooked; others contend it is more reliable. 2 Opponents argue that its use may result in increased litigation costs, including those associated with reaching agreement on the use of predictive coding, delineating the coding protocols, and resolving predictive codingrelated disagreements with the court. They also point to the attendant concerns about sharing information with an opposing party that historically has not been shared such as which documents are used in the iterative process to train the program and how those documents were coded. Notwithstanding these concerns, the use of predictive coding continues to grow. 2 See, e.g., Federal Housing Finance Agency v. HSBC North America Holdings, Inc., 2014 U.S. Dist. LEXIS 19156, at *32 33 (S.D.N.Y. Feb. 14, 2014) (citing a study where manual reviewers identified between 25% and 80% of relevant documents, while technology-assisted review returned between 67% and 86%). 2

3 B. The 2015 Amendments to the Federal Rules of Civil Procedure On August 15, 2013, the Judicial Conference s Advisory Committee on Civil Rules ( Advisory Committee ) proposed significant amendments to the Federal Rules of Civil Procedure ( Proposed Rules ). 3 After unanimous approval by the Judicial Conference in October 2014, the Supreme Court will next vote to approve or reject the amendments. If approved, Congress will then vote on the amendments in April Assuming Congress does not vote to modify, reject, or defer the rules package, the amended rules will become effective in December Notwithstanding that the amended rules will not be effective until late 2015, courts have already started to reference them in recent opinions. 4 The Proposed Rules are expected to have a significant impact on e-discovery and focus chiefly on three issues: (1) fostering cooperation among counsel and early case management; (2) emphasizing proportionality in discovery requests; and (3) clarifying document preservation standards and sanctions. The latter two issues are the most relevant for purposes of this paper. 5 The Advisory Committee has proposed a wholesale change to Federal Rule of Civil Procedure 26(b)(1) that would affect the scope of discovery and the proportionality standard. In its current form, discovery under current Rule 26(b)(1) is extraordinarily broad, as parties may 3 Although outside the scope of this paper, the Advisory Committee also proposed changes to the Federal Rules of Bankruptcy Procedure, the Federal Rules of Criminal Procedure, and the Appendix of Forms. The Advisory Committee unanimously approved and submitted proposed amendments to Rules 1, 4, 16, 26, 30, 31, 33, 34, 37, and 55, and a proposed abrogation of Rule 84 and the Appendix of Forms, with a recommendation that these changes be approved and transmitted to the Judicial Conference. 4 See, e.g., Pettit v. Smith, 2014 U.S. Dist. LEXIS , at *37 n.6 (D. Ariz. Sept. 9, 2014); Hawley v. Mphasis Corp., 2014 U.S. Dist. LEXIS , at *24 n.4 (S.D.N.Y. July 22, 2014). 5 The Advisory Committee proposed an amendment to Federal Rule of Civil Procedure 1 to emphasize the need for cooperation among parties. The current rule provides that the civil rules should be construed and administered to secure the just, speedy, and inexpensive determination of every action and proceeding. The Proposed Rule would provide that the rules be construed, administered, and employed by the court and the parties to secure the just, speedy, and inexpensive determination of every action and proceeding. The Proposed Rule expressly calls upon the parties and the court to conduct the litigation and adhere to the rules in a fashion so as to minimize needless expense and delay. 3

4 obtain information regarding any nonprivileged matter that is relevant to any party s claim or defense, including any information that appears reasonably calculated to lead to the discovery of admissible evidence. The Advisory Committee has proposed three key modifications to current Rule 26. First, Proposed Rule 26(b)(1) would limit discovery to that which is proportional to the needs of the case and provides five illustrative factors for consideration. 6 Second, Proposed Rule 26(b)(1) strikes the phrase that discovery may include information that is reasonably calculated to lead to the discovery of admissible evidence which the Advisory Committee noted has been historically broadly interpreted. Third, Proposed Rule 26(b)(2)(C) will require judicial intervention if the proposed discovery is outside the scope permitted by Rule 26(b)(1). Perhaps most noteworthy among the Proposed Rules is a complete reworking of the sanctions provision of Federal Rule of Civil Procedure 37(e), which broaden the court s ability to sanction litigants for improper preservation or destruction of ESI. Current Rule 37(e) provides that 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, goodfaith operation of an electronic information system. Although Proposed Rule 37(e) does not purport to dictate when a duty to preserve ESI is triggered, it does provide for both curative measures and sanctions. Pursuant to Proposed Rule 37(e)(1), a court may order curative measures, upon a finding that another party was prejudiced from loss of the information. More severe sanctions, such as an adverse inference instruction or dismissal of the case, are permitted 6 The relevant part of the Proposed Rule reads: Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party s claim or defense and proportional to the needs of the case, considering [1] the importance of the issues at stake in the action, [2] the amount in controversy, [3] the parties relative access to relevant information, [4] the parties resources, the importance of the discovery in resolving the issues, and [5] whether the burden or expense of the proposed discovery outweighs its likely benefit. 4

5 under proposed Rule 37(e)(2), but only upon finding that a party acted with the intent to deprive another party of the information s use in the litigation C. Sedona Conference Updates Consistent with the judicial trend towards more meaningful cooperation throughout e- discovery, in December 2014 the Sedona Conference released an updated version of its publication, The Sedona Conference Cooperation Proclamation: Resources for the Judiciary, which is intended to aid judges in the management of electronically stored information... including resolution of discovery disputes and offers strategies for case management or dispute resolution that encourage the parties, when possible, to reach a cooperative resolution at each stage. 8 The Sedona Conference is perhaps best known for its 2007 publication, The Sedona Principles Addressing Electronic Document Production, which consists of guidelines and best practices, and has become one of the most influential e-discovery publications to date. 9 One of the most frequently cited Sedona Principles in the e-discovery context is Principle 6: Responding parties are best situated to evaluate the procedures, methodologies, and technologies appropriate for preserving and producing their own electronically stored information. By relying on this principle, a party can, inter alia, support its right to choose the ESI retrieval mechanism that it deems most appropriate for the document production whether that is predictive coding or a traditional linear review. 7 Proposed Rule 37(e) applies when electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery. 8 The Sedona Conference Cooperation Proclamation: Resources for the Judiciary may be downloaded free of charge from the Sedona Conference website: 9 The Sedona Principles Addressing Electronic Document Production may be downloaded free of charge from the Sedona Conference website: 5

6 II. Survey of Significant E-Discovery Cases from produced a number of decisions that have impacted the e-discovery landscape, several of which are discussed below: A. Procedural E-Discovery Disputes: Agreement on Search Protocols and Predictive Coding While predictive coding continued to be a key point of contention among litigants in 2014, most noteworthy is how courts appear to exhibit increased comfort with it as an alternative to linear review. For example, in Federal Housing Finance Agency v. HSBC North America Holdings, Inc., the District Court for the Southern District of New York issued an order highlighting the value of predictive coding. 10 In this case, the defendants sought to use documents produced in prior litigation to demonstrate that the plaintiff failed to comply with its discovery obligations in the current proceedings. The court rejected the request to challenge the completeness of the plaintiff s discovery in this fashion, finding that doing so would risk reopening the entire issue of document production. The court noted that no one could or should expect perfection from this process and found that predictive coding which the defendants had employed in this matter had a better track record in the production of responsive documents than human review, and denied the defendant s request to challenge the completeness of the document production. The court also cited a publication that human review produced percent of relevant documents, while predictive coding returned between percent. In Dynamo Holdings Limited Partnership v. Commissioner of Internal Revenue, the United States Tax Court held that predictive coding was the most effective way to secure the U.S. Dist. LEXIS (S.D.N.Y. Feb. 14, 2014). 6

7 just, speedy, and inexpensive determination of the matter. 11 In that case, the respondent sought two back-up storage tapes of ESI with metadata, which the petitioners asserted would take many months and cost $450,000 to review and produce. The petitioners offered to use predictive coding to identify the nonprivileged information on the tapes which were responsive to the respondent s discovery requests. The respondents objected claiming that predictive coding was unproven technology and wanted the tapes produced in full (offering a claw-back agreement to attempt to address concerns about privileged material). The court, acknowledging that the technology industry now considers predictive coding to be widely accepted held that predictive coding could be used to respond to the document requests. There were two notable, and divergent, decisions this year addressing the issue of switching to predictive coding midway through a traditional linear review. In Bridgestone Americas, Inc. v. IBM, the District Court for the Middle District of Tennessee permitted the plaintiff to switch horses in midstream from traditional keyword searching to predictive coding, notwithstanding the defendant s opposition and a conflicting case management order. 12 The plaintiff requested that the court permit the use of predictive coding in the review of over two million documents for responsiveness. The defendant opposed the request, noting that it was an unwarranted change to the original case management order which did not contemplate predictive coding, and that it would be unfair to use predictive coding after an initial screening had been done with keyword search terms. In granting the request, the court acknowledged that the plaintiff had agreed to provide the seed set documents used to train the predictive coding software, and noted that openness and transparency in what Plaintiff is doing will be of critical importance U.S. Tax Ct. LEXIS 40 (T.C. Sept. 17, 2014) U.S. Dist. LEXIS (M.D. Tenn. July 22, 2014). 7

8 On the other hand, in Progressive Casualty Insurance Company v. Delaney, the District Court for the District of Nevada rejected the plaintiff s unilateral decision to switch to predictive coding during a linear review. 13 The parties had agreed on search terms to be applied to ESI documents, and applying the search terms to the 1.8 million documents that were collected produced a set of approximately 565,000 documents. Plaintiff s counsel, believing that manual review would be too time intensive and expensive, utilized predictive coding techniques to review the ESI documents without defendants agreement to amend the parties stipulated ESI protocol. When the plaintiff requested the court to modify the stipulated ESI protocol, the defendant objected on grounds that employing predictive coding at that point would lead to numerous satellite disputes. Further, defendants argued that courts that had allowed predictive coding stressed the need for transparency and cooperative engagement by all parties conduct that the plaintiffs had disregarded by unilaterally developing and implementing the predictive coding methodology without input from the defendants. Notwithstanding that the court found that [p]redictive coding has emerged as a far more accurate means of producing ESI in discovery it held that employing predictive coding at that point would only result in additional delays and disputes. Thus, plaintiffs were required to produce without review all 565,000 hit documents that were responsive to the keyword search terms (although there was a claw-back agreement in place and the plaintiffs were permitted to apply a privilege filter and withhold documents identified as more likely privileged ) U.S. Dist. LEXIS (D. Nev. May 20, 2014). 8

9 B. Document Production Disputes 1. Disputes on Scope and Proportionality of Discovery Requests Pursuant to Federal Rule of Civil Procedure 26, a party may obtain discovery on any nonprivileged information that is relevant to any claim or defense in the lawsuit. 14 However, because discovery can be prohibitively expensive, even to the point where it prevents parties from fully and fairly litigating their claims, Rule 26 must also play a gatekeeping role in subjecting discovery to a proportionality rule. That is, pursuant to Rule 26, a judge will perform what is essentially a cost-benefit analysis when determining whether to permit parties to engage in expensive and protracted e-discovery. In Boston Scientific Corp. v. Lee, the District Court for the Northern District of California granted a third party s motion to quash the plaintiff s subpoena for the defendant s laptops. 15 In the case, the defendant resigned from employment with the plaintiff company, executed a confidentiality agreement, and then commenced employment with a competitor to the plaintiff. The former employer sued the defendant, alleging a breach of the confidentiality agreement and Massachusetts trade secret law on the grounds that the defendant unlawfully took work product and trade secrets. During discovery the former employer sought a forensic image of two laptop computers that the defendant used for work at the competitor employer. The parties disagreed, as the laptops contained privileged and highly sensitive information including trade secrets not at issue in the case. After the former employer issued a subpoena for forensic images of the defendant s two laptops, the competitor employer moved to quash. In granting the competitor employer s motion, the court found that [n]o doubt there exists discoverable information on the 14 Fed. R. Civ. P. 26(b) ( Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter. ) U.S. Dist. LEXIS (N.D. Cal. Aug. 4, 2014). 9

10 two laptops, but by demanding nothing less than a complete forensic image of not just one but two laptops belonging to a direct competitor, [the former employer] demands too much. The court also then refused to permit the plaintiff s alternative proposal of retaining an independent vendor to review the forensic image of the laptops in question (a prior offer by the competitor employer that the former employer had rejected outright), holding that granting the request at this point would make a mockery of both parties obligation to meet and confer in good faith and asserting that [t]he time to tap flexibility and creativity is during the meet and confer, not after. 2. Disputes on Attorney-Client Privilege and Inadvertent Disclosures Federal Rule of Evidence 502 protects against the waiver of attorney-client privilege or work product protection upon the disclosure of protected information in discovery. Pursuant to this rule, the disclosure of privileged material does not automatically trigger a waiver under certain circumstances. In Good v. American Water Works Company, the District Court for the Southern District of West Virginia granted the defendants motion for a Rule 502(d) order that encouraged (but did not solely require) computer-assisted privilege review, over the plaintiffs proposal which would have required an order limiting privilege review to computer assisted methods and disallowing linear privilege review altogether. 16 The plaintiffs would only agree on a pure quick peek/clawback arrangement which would place never-reviewed, never privilege-logged documents in their hands as quickly as physically possible at the expense of any opportunity for care on the part of a producing party to protect a client s privileged and work product protected information. On the other hand, the defendants did not wish to forego completely the option to manually review U.S. Dist. LEXIS (S.D. W. Va. Oct. 29, 2014). A claw-back agreement allows parties to stipulate to excuse and provide for the return of privileged documents produced during discovery without fear that the inadvertent disclosure waives the attorney-client privilege or work product protection. 10

11 documents for privilege and work product protection. The court endorsed the option of predictive coding and encouraged its use in conjunction with linear review, holding that [i]nasmuch as defendants cautious approach is not prohibited by the text of Rule 502, and they appear ready to move expeditiously in producing documents in the case, their desired approach is a reasonable one. 3. Disputes on Production Formats and Methods Although parties often seek production in native formats with metadata intact, responding parties often prefer PDF or TIFF formats for productions due to the desire to apply redactions. 17 Although parties frequently agree on production format with a stipulated e-discovery order, disputes still arise as to what constitutes compliance. In Melian Labs, Inc. v. Triology LLC, the District Court for the Northern District of California denied the defendant s motion to compel the plaintiff s production of all s and spreadsheets in native format. 18 In this trademark dispute, the parties had agreed on and filed a case management conference statement the Joint Rule 26(f) Report stipulating that electronic documents would be produced in paper, PDF, or TIFF formats, and spreadsheets and certain other electronic files in native format when it is more practicable to do so. The defendant argued that the plaintiff s production of 7 large PDF image documents, which each appear to be a compilation of ESI improperly collected and produced, violated Federal Rule of Civil Procedure 34(b)(2)(E), because they were not produced in their native format and are not reasonably usable. The defendant further argued that the plaintiff failed to comply with the Joint Rule 26(f) Report by refusing to produce all spreadsheets in native format. In denying the 17 TIFF stands for Tagged Image File Format, which is a widely used and supported graphic file format[] for storing bit-mapped images, with many different compression formats and resolutions. See Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158, 161 n.2 (3d Cir. Pa. 2012) U.S. Dist. LEXIS (N.D. Cal. Sept. 4, 2014). 11

12 defendant s motion, the court held that the defendant s complaint was purely one of form and that because the plaintiff had complied with the parties Joint Rule 26(f) Report, the mere fact that producing the documents in a searchable format would ease [defendant s] review does not render [plaintiff s] production deficient. In Venture Corp. Ltd. v. Barrett, the District Court for the Northern District of California ordered the plaintiff to try again with respect to complying with the Rule 34 requirements for document production. 19 The parties disputed the format of the plaintiff s document production, particularly how the plaintiff proceeded to produce approximately 41,000 pages of material by flash drive and , which contained no custodial index, no table, no information at all just folders of the files themselves. The court found that there is no serious question that a grab-bag of PDF and native files is neither how the [plaintiff] ordinarily maintained the documents and ESI nor is [it] in a reasonably useable form as required by Federal Rule of Civil Procedure 34(b)(2)(E)(ii). Thus, the court held that the plaintiff was required to (1) either organize and label each document it has produced or it shall provide custodial and other organizational information along the lines outlined above and (2) produce load files for its production containing searchable text and metadata within 21 days. 4. Parties Seeking Discovery About Discovery Courts seldom issue orders permitting a party to obtain discovery about discovery and litigants often oppose requests of this nature on the grounds that discovery is not a claim or defense for purposes of Rule 26 and is therefore not a proper subject for discovery U.S. Dist. LEXIS (N.D. Cal. Oct. 16, 2014). 20 See, e.g., Ruiz-Bueno v. Scott, 2013 U.S. Dist. LEXIS (S.D. Ohio Nov. 15, 2013) (court granting plaintiff s motion to compel for discovery about discovery in wrongful death case where the plaintiff served a second set of interrogatories regarding search methodologies due to what was perceived as an unusually small document production). 12

13 In Freedman v. Weatherford International, the District Court for the Southern District of New York denied the plaintiff s request for a report comparing the defendant s document search term results against searches conducted in other matters. 21 In this securities fraud case, the plaintiff believed that the defendants document production was deficient because the defendants had failed to produce eighteen s that were produced by third parties. The plaintiff contended that the defendants should have produced the same information as the third party, and filed a motion to compel the production of reports that would allow a comparison of the documents produced in this case with those from two other prior investigations to identify additional relevant documents that have not been produced here. In ruling on this discovery on discovery issue, the court held that the suggested remedy is not suited to the task, and found that only three of the eighteen s produced by the third party would have been identified by a search using the terms in the prior investigations. The court held that although it is unsurprising that some relevant documents may have fallen through the cracks the remedy being sought is unlikely to remedy the alleged discovery defects and denied the motion to compel production of the comparative report. 5. E-Discovery Cost Shifting, Reimbursement, and Taxation of Costs The default rule in allocating discovery costs is that each party pays its own costs of production, even when those costs are significant. 22 However, Federal Rule of Civil Procedure 26(c)(1) authorizes issuance of a protective order to protect a party from unduly burdensome or expensive discovery. Although Rule 26 is silent on allocation of discovery costs, courts have U.S. Dist. LEXIS (S.D.N.Y. Sept. 12, 2014). 22 See Oppenheimer Fund v. Sanders, 437 U.S. 340, 358 (1978) ( Under those rules, the presumption is that the responding party must bear the expense of complying with discovery requests, but he may invoke the district court s discretion under Rule 26(c) to grant orders protecting him from undue burden or expense in doing so, including orders conditioning discovery on the requesting party s payment of the costs of discovery. ). 13

14 discretion to shift some or all of such costs to the requesting party when doing so is necessary to protect a responding party from undue burden or expense. Before a court will shift discovery costs to the party requesting discovery, the responding party must show good cause supporting how the discovery is unduly burdensome or expensive. 23 Because Rule 26 is silent on allocation of costs, it is not uncommon for litigants to challenge the court s authority to shift costs in this regard. Proposed Rule 26(c)(1)(B) ameliorates this issue by expressly providing that a protective order may specify[] terms, including time and place or the allocation of expenses, for the disclosure of discovery. 24 In Zeller v. South Central Emergency Medical Services, Inc., the District court for the Middle District of Pennsylvania applied the seven Zubulake factors in holding that the costs for restoring and searching the Plaintiff s s should be shared by the parties, up to a maximum contribution by $1,500 by the plaintiff. 25 In this wrongful termination case, the defendants contended that the plaintiff should equally share in the costs of the e-discovery (including 23 Federal Rule of Civil procedure 26(b)(2)(B) provides that, upon a showing of good cause by the responding party, a court may issue a protective order to protect a party from whom discovery is sought. Good cause exists where the burden and expense of compliance with the proposed discovery outweighs its likely benefit. See Fed. R. Civ. P. 26(b)(2)(C)(iii). Although an in-depth discussion of this analysis is outside the scope of this article, courts typically look to the seven Zubulake factors when determining whether an e-discovery request violates the Rule 26 proportionality test and cost shifting is warranted. See Zubulake v. UBS Warburg LLC, 216 F.R.D. 280, (S.D.N.Y. 2003). The seven Zubulake factors are as follows, weighted in the following order: (1) the extent to which the request is specifically tailored to discover relevant information; (2) the availability of such information from other sources; (3) the total cost of production, compared to the amount in controversy; (4) the total cost of production; (5) the relative ability of each party to control costs and its incentive to do so; (6) the importance of the issues at stake in the litigation; and (7) the relative benefits to the parties of obtaining the information. 24 As the Advisory Committee explained, [e]xplicit recognition [of cost shifting] will forestall the temptation some parties may feel to contest this authority [to allocate costs]. Recognizing the authority does not imply that costshifting should become a common practice. Courts and parties should continue to assume that a responding party ordinarily bears the costs of responding. See Summary of the Report of the Judicial Conference Committee on Rules of Practice and Procedure, at B-45 (Sept. 2014), available at 25 C.A. No. 1:13-CV-2584 (M.D. Pa. May 20, 2014). 14

15 forensic analysis); the plaintiff contended that he should not bear any such costs since he was not the one seeking forensic analysis of the discovery. The court found that the information sought was inaccessible without the forensic analysis, turned to the Zubulake factors to determine whether the costs should be shifted to the plaintiff, and found that the factors militated in favor of cost shifting. Working through the Zubulake factors, the court noted that the request to shift costs was specifically tailored to discovery [of] relevant information because the parties had agreed on search terms, that neither party had identified another source for the information, and how the use of an independent vendor to conduct the forensic examination meant that neither party ha[d] any more ability than the other to control the cost. Federal Rule of Civil Procedure Rule 54 addresses taxation of costs and provides, in pertinent part, that Unless a federal statute, these rules, or a court order provides otherwise, costs other than attorney s fees should be allowed to the prevailing party. 26 In Kuznyetsov v. West Penn Allegheny Health System, the District Court for the Western District of Pennsylvania upheld the Clerk of Court s taxation of costs for $60, jointly against the named plaintiffs, including costs associated with optimal character recognition ( OCR ) conversion, scanning paper documents, and TIFF services. 27 The case arose as a collective action filed pursuant to the Fair Labor Standards Act ( FLSA ), which was ultimately decertified holding that the 824 optin plaintiffs were not similarly situated. Following that ruling, the plaintiffs filed a Motion for Voluntary Dismissal, which was granted without prejudice as to the opt-in plaintiffs, but with prejudice as to the three named plaintiffs. The named plaintiffs appeal to the Third Circuit was dismissed for lack of jurisdiction. Following the unsuccessful appeal, the defendants filed a Bill 26 Fed. R. Civ. P. 54(d)(1) U.S. Dist. LEXIS (W.D. Pa. Oct. 23, 2014). OCR is a means of translating images of text, such as scanned documents, into actual text characters. See Frye v. Baptist Mem l Hosp., Inc., 507 F. App x 506, 508 (6th Cir. 2012). 15

16 of Costs seeking a total of $78, After soliciting objections (to which the named plaintiffs responded), the clerk taxed costs in the amount of $60, Rejecting the plaintiffs contention that the e-discovery costs including OCR costs were not necessary and were awarded at unreasonably high rates, the court held that the plaintiffs requested the information in OCR format, and that the rates of five cents per page for TIFF services and twenty-four cents per page for scanning paper documents were reasonable. In response to the plaintiffs request to vacate the costs, the court noted that the named plaintiffs had assumed the associated risks in bringing their claims as a collective action. 6. Preservation of ESI, Spoliation, and Sanctions Preservation of ESI involves a delicate exercise for companies, many of which try to strike a balance between over- and under-preserving. Preservation has become a focal issue for litigants and the judiciary, as the proper recourse when a party loses ESI has caused a circuit split (with some courts holding that an adverse inference jury instruction can be imposed for a mere negligent loss, while others require a showing of bad faith). Proposed Rule 37(e)(2) is expected to ameliorate the split, as a finding of intent to deprive another party of the information s use in the litigation would be required for an adverse inference instruction or dismissal. In Painter v. Atwood, the District Court for the District of Nevada found that an adverse inference instruction was appropriate when a plaintiff deleted Facebook comments. 28 In this sexual harassment lawsuit, the defendant filed a motion for spoliation sanctions after the close of discovery asserting that the plaintiff and her two main witnesses intentionally destroyed text messages and Facebook posts contradicting the plaintiff s claims and deposition testimony U.S. Dist. LEXIS (D. Nev. Mar. 18, 2014). 29 See also id. at *4 ( The duty to preserve evidence begins when a party reasonably should have known that the evidence is relevant to anticipated litigation. ). 16

17 The court found that although the plaintiff had spoliated evidence by deleting certain Facebook posts, the text messages were deleted prior to when she had an obligation to preserve evidence. With regard to the deleted Facebook posts, the plaintiff s counsel argued that the plaintiff was a 22-year old girl who would not have known better than to delete her Facebook comments. The court rejected that argument, finding that [o]nce plaintiff retained counsel, her counsel should have informed her of her duty to preserve evidence and, further, explained to plaintiff the full extent of that obligation. Although the defendant had sought dismissal of the case, the court found that dismissal was too drastic and found an adverse inference instruction to be the appropriate sanction. In Calderon v. Corporacion Puertorriquena De La Salud, the District Court for the District of Puerto Rico ordered an adverse inference instruction to be given at trial because the plaintiffs attempted to conceal text messages. 30 In this Title VII discrimination case, the defendants after receiving discovery from the plaintiff issued a subpoena to T-Mobile. T- Mobile complied with the subpoena and produced phone and text messaging records that were not among those produced by the plaintiff in discovery. 31 The court found that spoliation occurred and an adverse inference was warranted at trial, as the plaintiff reasonably foresaw litigation and had a duty to preserve relevant evidence.... In Ewald v. Royal Norwegian Embassy, the District Court for the District of Minnesota declined to order sanctions on the grounds that monetary sanctions would be unlikely to deter either party, as the costs and fees of each party had substantially outweighed the amount in F. Supp. 2d 48 (D.P.R. Jan. 16, 2014). 31 Although the plaintiffs moved to quash the subpoena, the court denied the motion because doing so would only result in re-issuance and there was no basis for concluding either that the defendants are attempting to engage in trial by ambush or that the T-Mobile information otherwise affects plaintiffs ability to litigate their case. 17

18 controversy. 32 In this case, the plaintiff presented evidence relating to one missing (but potentially relevant) text message, the subject of which the plaintiff had failed to pursue via other avenues of discovery. The court noted that, even if the plaintiff were prejudiced, sanctions would not be appropriate since there was only approximately $100,000 in controversy, yet the parties had each incurred costs and fees exceeding $1 million. The court held that because monetary sanctions are unlikely to deter either party, they are not warranted. In T & E Investment Group, LLC v. Faulkner, District Court for the Northern District of Texas upheld the earlier recommendation of a magistrate judge to order an adverse inference sanction for spoliation of evidence, along with monetary sanctions against the defendant, for manipulating metadata to avoid production of evidence. 33 In this case, the court ordered that a third party independent computer forensic expert jointly selected by the parties shall be permitted by defendants to have access to all of the computers used by the defendants during the year 2011, wherever located, for examination of their hard drives and an expert was identified. Following the expert s forensic examination, he determined that one of the computers produced by an individual defendant had been manipulated. The plaintiffs then moved for sanctions for spoliation of evidence, and to hold the defendants in contempt. At the motions hearing, the expert testified that the defendant created a new profile on [the computer] PCL-03, copied data to it, and used a bulk file changer to alter the data in an apparent attempt to make it look like that was his computer that he used all the time. Although the individual defendant testified that he used the bulk file changer to attempt to change the files to read only so that they could not be deleted the expert concluded this testimony was false, as no files were actually marked as read only. The court found that the individual defendant acted in bad faith when he U.S. Dist. LEXIS (D. Minn. Apr. 1, 2014) U.S. Dist. LEXIS (N.D. Tex. Feb. 12, 2014). 18

19 materially altered PCL-03 to make it appear that he had used that computer for a number of years and made false statements to the Court about doing so. The court found that plaintiffs carried their burden to show that the individual defendant s bad faith spoliation had prejudiced them. Thus, the magistrate judge recommended an adverse inference instruction and a $27,500 monetary sanction, which the district court judge adopted. In Brown v. Tellermate Holdings Ltd., the District Court for the Southern District of Ohio levied severe sanctions against an attorney who was too hands-off with the e-discovery process and failed to properly understand the capabilities of the cloud systems. 34 In this employment case alleging age discrimination, the plaintiffs filed a motion challenging the defendant s decision to classify approximately 50,000 pages of documents as attorneys eyes only. As part of the plaintiffs case, they sought production of documents and reports from a web-based application (known as salesforce.com ) used by the defendants that tracked sales activities of its employees. The defendants claimed that they could not produce this information for three reasons: (1) they did not maintain the salesforce.com information in hard copy format; (2) they could not print out accurate historical records from salesforce.com; and (3) that discovery requests should be forwarded to salesforce.com, not the defendants. The court disagreed and found that [a]s any competent practitioner would know, the first and third reasons do not justify a party s refusal to provide responsive information over which it has control... the second reason was simply false. Because defendant s counsel failed to diligently communicate with the appropriate client personnel who would have been able to provide accurate information, a loss of relevant information resulted (there was a failure to preserve under the document retention policy) leading to sanctions against both client and counsel. The court awarded fees U.S. Dist. LEXIS (S.D. Ohio July 1, 2014). 19

20 and costs (borne jointly) and prospectively precluded the employer from using any evidence which would tend to show that the [plaintiffs] were terminated for performance-related reasons. In Solara Ventures IV, LLC v. PNC Bank, the Superior Court of Pennsylvania sanctioned a party for failure to comply in good faith when responding to e-discovery requests and otherwise properly carry out their e-discovery obligations. 35 In this breach of contract case, the defendant requested ESI from the plaintiff in October Over the next two years, the court found that the plaintiff responded with a series of inconsistent, seemingly contradictory reasons for its noncompliance with discovery requests. At one point, the plaintiff indicated that although a virus had rendered the ESI irretrievable, the hard drives had purportedly been preserved for inspection. However, the plaintiff later indicated that the virus-ridden computer had been fried and trashed, suggesting that the hard drives had not been preserved. After the plaintiff s March 2012 assertion that a computer virus had not impacted its ability to retrieve correspondence, its April 2012 assertion that s had been double deleted, and then its May 2012 production of two discs containing 740 s that all post-dated commencement of the litigation, the defendants moved for sanctions based on noncompliance with discovery obligations and spoliation of evidence. The plaintiff responded and advised the trial court that it had engaged a technical services company that was able to retrieve approximately 41,000 s. The trial court did not dismiss the case or order an adverse inference, but ordered plaintiff to produce the 41,000 s and awarded attorneys fees to the defendants. 36 After plaintiff failed to comply with the order, the defendants moved for further sanctions. This time, and notwithstanding that plaintiff s counsel claimed that only approximately 2,100 of the 41,000 s were non-privileged and responsive, the trial court dismissed the case and awarded 35 No WDA-2013 (Pa. Super. Ct. Aug. 7, 2014). 36 Defendants had submitted documentation supporting its request for $115, in attorneys fees and costs. 20

21 $70,000 in attorneys fees to the defendants. The Superior Court of Pennsylvania affirmed the sanctions. Although a more severe example, this case is emblematic of the judicial intolerance towards gamesmanship and other obstructive litigation tactics, especially during discovery. Conclusion E-discovery has become one of the most critical issues in contemporary litigation and is expected to remain a top concern for practitioners in As illustrated throughout the selected case law, the judiciary has gained increasing familiarity with predictive coding and this is expected to continue. With the anticipated implementation of the Proposed Rules of Civil Procedure in late 2015, there will likely be a renewed emphasis on cooperation among litigants especially throughout discovery and courts are expected to be swift in remediating obstructive or other tactics that add to the time and expense of civil litigation. 21