Upper Management

Should One IT Person Hold the Keys to the Kingdom? How the “Philippine Love Bug” Case Highlights the Vulnerability of Such a Policy

Background Omega Engineering Corporation, an international company based in New Jersey, was once the employer of Timothy Lloyd. To put Omega’s importance into perspective, the U.S. Navy and NASA were two of their clients for highly specialized and sophisticated industrial process measurement devices. According to testimony during the trial, Lloyd worked at Omega as its sole system administrator from 1985 through 1996. In 1995, Lloyd had undergone Novell network training and installed Novell software on Omega’s computer system. Additionally, Lloyd was the only person who maintained and had top-level access to the Omega network. Between 1994 and 1995, Lloyd became belligerent and increasingly truculent. Due to his poor interpersonal skills, he was demoted in May 1995 from manufacturing to  support engineer. A woman who had once been Lloyd’s subordinate and had engaged in a romantic relationship with Lloyd, was the individual responsible for replacing Lloyd as manufacturing supervisor. In June 1996, Lloyd instituted a policy to “clean up” all of the individual computers in Omega’s manufacturing department. It was unclear as to why Lloyd was implementing company policies after his demotion. Nonetheless, the policy required employees to save their files to the company’s file server and prohibited them from making their own backups. Lloyd’s manager became suspicious of this policy and requested from Lloyd access to the file server. Lloyd never complied. By the end of June, upper management had enough of Lloyd’s behavior and terminated him in early July 1996. On July 31, Omega’s file server would not boot up. All of Omega’s manufacturing programs on the server, which contained instructions for operating the machines, were gone. Multiple computer experts were brought in to recover the files, but to no avail. The files had not only been deleted, but also had been “purged,” meaning that they were rendered unrecoverable.  A leading expert on Novell networking testified at trial that this could only have been done intentionally and by someone with supervisory-level access. The government’s theory included that on July 30, anyone who would log on to the server at any time after that date would “detonate” a program installed by Lloyd that would destroy the information on the Omega file server. The government’s theory was bolstered by the fact that the Secret Service recovered missing Omega backup tapes that had been reformatted as well as a master hard drive from the file server. This had the same string of commands that had functioned as the time bomb program found on the Omega file server. The Decision Ultimately, Lloyd was found guilty of computer sabotage. The jury had deliberated for over twelve hours over the span of three days and had requested testimony in the jury room before they reached their verdict. However, three days after the verdict, one juror said that she had seen on the news, during the trial, about a computer virus called the Philippine “love bug” which allowed the perpetrator to cause great harm by flooding the victim computers and causing them to crash. Whether this affected her decision is unclear; however, the defendant claimed that his 6th Amendment rights had been violated. The district court agreed, granting a new trial. On review, the Court of Appeals reversed the district court’s holding. After a lengthy discussion, the court said that there were significant dissimilarities between the “love bug” and the “time bomb” and most jurors would not confuse the two. Therefore, the appellate court found, the defendant was not prejudiced. Lloyd’s managers should never have allowed a single employee hold as much power as they did. This case highlights the vulnerabilities the company subjects itself to if that is allowed to happen. For example, Omega lost over 1,200 programs and many current and potential clients as well. Akiva Shepard received his J.D. from Seton Hall University School of Law in 2014. Akiva has worked for a New York State Supreme Court Judge in Kings County, and for a NJ real estate firm. 

Employers—Got Resumes? Don’t Toss Them Just Yet

Plaintiff Erick Zayas joined with the Equal Employment Opportunity Commission (EEOC) to sue Ventura Corp. for employment discrimination on the basis of sex in 2007. In essence, Zavas complained that Ventura’s long-standing tradition of hiring women for the position he applied to was discriminatory. Furthermore, Zavas alleged that Ventura destroyed relevant evidence. In its answer, Ventura stated that the fact that no men have filed applications or have not met the position requirements did not support the plaintiffs’ assertion of discrimination. However, during limited discovery a list revealed that qualified men did in fact apply and accounted for 34.5 percent of qualified applicants. The central issue involved application materials received by Ventura. These included materials submitted by e-mail and hard copy resumes. The court first notes that spoliation is “the failure to preserve evidence that is relevant to pending or potential litigation.”  The duty to preserve relevant evidence arises once litigation is reasonably anticipated. The court noted that since Ventura was notified in 2007 that it was being charged with sexual discrimination, at that point Ventura should have reasonably anticipated litigation and was thus under the duty to preserve. Ventura attempted to make a statutory argument that resumes did not need to be preserved. The relevant statute, 29 CFR 1602.14 (see http://www.law.cornell.edu/cfr/text/29/1602.14), makes reference to “application forms” and “test papers.” Ventura argued that it required neither application forms nor test papers and that resumes were not mentioned. However, the court rejected this argument. The court noted that the statute also includes the language, “other records having to do with hiring.” The court ultimately held that resumes therefore clearly applied. Ventura’s Human Resource Analyst testified that certain documents were shredded or taken to a warehouse as a result of an office restructuring in 2009. Furthermore, the HR Analyst wasn’t able to find the said documents. The plaintiffs were therefore able to establish that Ventura either lost or destroyed the resumes between 2007 and 2010. Because Ventura was on notice since 2007, the disappearance of these documents constituted a violation of its duty to preserve relevant evidence. Soft copies of resumes delivered by e-mail were also lost in the same time period. In fact, th plaintiffs were able to produce a relevant e-mail to and from Ventura, while Ventura was not able to produce the very same e-mail. This e-mail alone and the fact that other relevant e-mails likely existed in the 2007-2010 period but were nowhere to be found, was sufficient to infer that Ventura likely destroyed them. The court held that sanctions were in order for Ventura’s violation of its duty to preserve. As a result of Ventura’s failure to preserve relevant evidence, the court imposed a “spoliation instruction” or adverse inference instruction. Such an instruction allows the trier of fact to infer that the content of the destroyed relevant evidence was damaging to Ventura’s case. Lesson learned? If you intentionally or unintentionally destroy relevant evidence while under a duty to preserve, an adverse inference instruction will likely bring swift defeat and sway the trier of fact against you. It’s best to preserve evidence and maintain your credibility with the court and trier of fact even with bad facts. Rocco Seminerio is a Seton Hall University School of Law graduate (Class of 2014). Mr. Seminerio focuses in the areas of Estate Planning, Elder Law, and Health Law. He graduated from Seton Hall University in 2011 with a degree in Philosophy. He also has an interest in the life sciences.

Greater Rights in Contract Mean Greater Obligations in Discovery

In Haskins v. First Am. Title Ins. Co., the court was asked whether a title insurance company (the "Insurer") is in "control" of documents that are in not in the Insurer's possession, but where the Insurer has the contractual right to direct those with possession to produce the documents.  The district court found in the affirmative, demonstrating that in some circumstances, the more extensive one's contractual rights, the more extensive its obligations in discovery. The plaintiffs sought class certification, which defined the class as all New Jersey consumers who paid premiums in excess of regulated title insurance refinance rates during the class period.  The plaintiffs alleged that the Insurer had overcharged for title insurance over a period of several years.  During discovery, plaintiffs sought certain documents in the possession of certain independent title agents, who were not employees of the Insurer, but with whom the Insurer had a contractual relationship.  The representative contracts made all documents "available for inspection and examination by [the Insurer] at any reasonable time."  The court inquired as to whether such documents are in the "control" of the Insurer, because pursuant to Fed. R. Civ. P. 34(a), a party may request another party to produce documents within that party's "possession, custody, or control."  Thus, if such documents were in the "control" of the Insurer, the plaintiffs could properly request that they be produced in discovery. The Insurer argued that it should not be required to produce documents in the physical possession of its agents because it does not possess or control the requested documents.  However, the court did not struggle to conclude that the Insurer's agency contracts plainly indicate that it has control over and access to the documents.  It drew this conclusion based on the premise that there is control if a party “has the legal right or ability to obtain the documents from another source upon demand.” Haskins demonstrates the potential for increased discovery obligations for those that have negotiated extensive rights in contract.  That is, the greater rights in contract, the potential for broader obligations in discovery.  While this factor may not drive the decision making for those negotiating contracts, contract parties should at least be aware of this consequence Adam L. Peterson 2014 graduate of Seton Hall University School of Law.  While at Seton Hall, Adam was a member of the Seton Hall Law Review and prior to law school Adam was an Environmental Analyst with the New York State Department of Environmental Conservation. 

Independent Contractors Beware, You’re Not Protected

Richard Fraser was an independent contractor working for Nationwide Mutual Insurance Company when he was fired in 1998. Although Fraser argued that he was fired for reporting illegal policies that Nationwide had implemented, Nationwide stated he was fired because he was disloyal to the company. Nationwide found that plaintiff had drafted (but not sent) two letters to two Nationwide competitors, Erie Insurance Company and Zurich American Insurance, expressing Contractors Association members' dissatisfaction with Nationwide and seeking to determine whether Erie and Zurich would be interested in acquiring the policyholders of the agents in the Contractors Association. After discovering the letters, Nationwide also searched its mail file server and found e-mails revealing company trade secrets. Fraser filed a wrongful termination suit against Nationwide, arguing that Nationwide’s accessing Fraser’s e-mail account without permission violated the Electronic Communication Privacy Act and a parallel Pennsylvania statute. The trial court granted Nationwide’s motion for summary judgment and Fraser appealed. The Third Circuit Court of Appeals affirmed the trial court’s ruling that Nationwide had access to the independent contractor’s emails. Nationwide was found to not have violated the ECPA because Nationwide had provided the independent contractor with the e-mail account, the e-mail was hosted on Nationwide’s servers, and the e-mails were acquired after transmission of the e-mails. Therefore, the court held that the e-mails were not intercepted by Nationwide. Title 1 of the ECPA prohibits the interception of e-mails, but Nationwide argued that since the e-mails were reviewed after the transmission of the e-mail, that no interception had occurred. The court agreed and found that for one to intercept e-mail, he must occur contemporaneously, at the time of the transmission. Therefore, as long as the seizure of e-mail occurs after the e-mail is transmitted, a company does not need permission to access the independent contractor’s e-mails. Salim received his B.A. in Applied Communications, with a minor in Legal Studies, from Monmouth University. He received his J.D. from Seton Hall University School of Law in 2014. Salim’s past experiences include interning for a personal injury law firm prior to attending law school, as well as judicial internships in the Civil and Family Divisions.

Defendant’s “Hands-Off” Approach Insufficient; Sanctions Ordered

In this case, Peerless Industries, Inc.  sued defendants Crimson AV, LLC claiming patent infringement and design patent infringement arising out of defendant’s manufacture and sale of certain TV mounts. While not a defending party, Sycamore Manufacturing Co., Ltd. (“Sycamore”) is plaintiff's former supplier of these TV mounts and played a vital role in the alleged infringement. Sycamore is located in China, while Peerless and Crimson are both located in the United States. Plaintiffs filed two motions: (1) a motion to compel the deposition of the Sycamore’s president, Tony Jin, and (2) a renewed motion for sanctions, both of which were granted. It was also determined in a previous case that Jin exercised managerial control over both Sycamore and Crimson. Therefore, plaintiff satisfied that Mr. Jin is a managing agent of Crimson. The court stated, “Plaintiff must simply show ‘that there is at least a close question as to whether the witness is a managing agent.’ We already found this to be the case. Furthermore, Mr. Jin clearly satisfies the ‘paramount test,’ which is whether the individual identifies with the corporation's interests as opposed to an adversary's.” The court further ordered that without any showing of hardship, Jin’s deposition would have to take place in the United States and not in China. As for the plaintiff’s renewed motion for sanctions, this motion marked the third time the plaintiff filed a motion regarding the same set of documents. The plaintiff argued that at the deposition of Crimson’s managing director, “it became clear that defendant did not conduct a reasonable investigation regarding Sycamore’s document production or Sycamore’s document retention for purposes of this litigation.” The plaintiff then filed a renewed motion for sanctions. The defendant and Sycamore asserted that certain documents in Sycamore’s possession had been produced. The plaintiff noted, that defendants did not represent that all requested documents were produced or that they were searched for but no longer existed. The plaintiff argued that the defendant wanted to rely on the same declarations as opposed to issuing more specific responses. The court stated that since it had determined Jin was principal of both Crimson and Sycamore and that he exercised a considerable amount of control over both corporations, that he was able to obtain all relevant documents from Sycamore. However, the court found that defendant took a “back seat” approach and instead used a third-party vendor to collect the documents. Finding that neither Crimson nor Jin had apart in the process of obtaining the requested discovery, the court granted the plaintiff’s motion for sanctions. The court held that this “hands-off’ approach is insufficient. “Defendants cannot place the burden of compliance on an outside vendor and have no knowledge, or claim no control, over the process. Finally, the court held that defendants must show that they in fact searched for the requested documents and, if those documents no longer exist or cannot be located, they must specifically verify that it is they who cannot produce. Salim received his B.A. in Applied Communications, with a minor in Legal Studies, from Monmouth University. He received his J.D. from Seton Hall University School of Law in 2014. Salim’s past experiences include interning for a personal injury law firm prior to attending law school, as well as judicial internships in the Civil and Family Divisions. Currently, Salim is taking part in the Immigrants’ Rights/International Human Rights Clinic at Seton Hall Law.

Federal Judge Sanctions Corporate Defendant and Its Counsel for Gross Negligence, Bad Faith, and Failure to Comply With Discovery Requests and Court Order

In Brown v. Tellermate Holdings Ltd., Tellermate Holdings, the defendant company, terminated two employees for allegedly failing to meet sales targets over several years.  The employees, feeling that they were wrongfully terminated due to their age, filed an employment discrimination action against the company as well as other entities and individuals associated with Tellermate. Throughout pre-trial proceedings, the case was plagued with numerous discovery mishaps.  The plaintiffs requested from the defendant company data stored and maintained by Salesforce.com,[1] which would, in theory, evidence plaintiffs’ sales records over the last few years in addition to allowing the plaintiffs to compare their sales figures with other (younger) employees.  However, even though numerous discovery conferences were held, numerous discovery motions filed with the court, and several discovery orders issued by the court, the defendant corporation failed to produce the requested data and documents.  Ultimately, the plaintiffs filed for judgment and sanctions under Federal Rule 37(b)(2); the court held a three-day evidentiary hearing on the matter. The presiding judge, United States Magistrate Judge Terence P. Kemp, identified three areas in which the defendant company or its counsel failed in its obligations to the plaintiffs and the court in relation to production of documents and data: Defendant’s counsel failed to understand how Tellermate’s data stored with Salesforce.com could be obtained and produced to plaintiffs, which resulted in counsel making false statements to the plaintiffs’ counsel and the court; By failing to understand how the defendant’s data was stored and maintained, defendant’s counsel took no steps to preserve the integrity of the information in Tellermate’s database located with Salesforce.com; Defendant’s counsel failed to learn of the existence of documents relating to a prior age discrimination charge until almost a year after plaintiffs requested the documents; Defendant’s counsel produced a “document dump” resulting from counsel’s use of an overly-broad keyword search that yielded around 50,000 irrelevant documents, which plaintiffs’ counsel could not review within the time period ordered by the court. The Salesforce.com Data Judge Kemp found that Tellermate’s failure to preserve and produce the data logged on Salesforce.com’s website irreparably deprived the plaintiffs of reliable information necessary in supporting their claims.  Although defendant’s counsel initially stated that Tellermate “does not maintain salesforce.com information in hard copy format,” “cannot print out accurate historical records from salesforce.com,” and that “discovery of salesforce.com information should be directed at salesforce.com, not Tellermate,” the court found such statements to be on their face false.  In fact, Tellermate did have access to the information sought by the plaintiffs as one, and sometimes two, of Tellermate's employees enjoyed the highest level of access to the Salesforce.com information.  The court determined that the information eventually produced by the defendants could not be trusted as “even a forensic computer expert has no way to detect hat changes, deletions[,] or additions were made to the database on an historical basis.”  Because of Tellermate’s failure to preserve the Salesforce.com data, Judge Kamp precluded Tellermate from providing evidence showing that the plaintiff-employees were terminated for their alleged underperformance. Counsel’s Obligations With Respect to ESI The court found that the defense’s counsel fell short of their well-established obligations[2] to critically examine the documents and data Tellermate provided to them.  Tellermate made false representations to its counsel about the data’s availability and therefore caused undue delay in document production as well as false and misleading arguments to be made to plaintiffs’ counsel and to the court.  Subsequently, the plaintiffs were forced to file discovery motions before the court to address these discovery issues which produced the Salesforce.com data that was never properly preserved albeit its significance to the plaintiffs’ case. Judge Kemp ultimately determined that counsel for the defendant conducted an inadequate investigation of Tellermate’s electronic data while simultaneously failing to understand the most basic concepts of cloud computing and cloud storage, which led to counsel’s failing to preserve key electronic data. Control of Data Stored in the Cloud As mentioned above, Tellermate and its counsel repeatedly represented to the plaintiffs and to the court that it did not possess and could not produce any of the Salesforce.com data requested by plaintiffs.  Additionally, the defendants asserted that in light of those facts, the defendants could not preserve the data stored on Salesforce.com’s databases at any point prior to litigation. Judge Kemp dismissed these claims.  The court concluded that, without any factual basis whatsoever, no substantive argument could be made that Tellermate was prohibited from accessing the information stored on the Salesforce.com databases or that Salesforce.com was responsible for preserving Tellermate’s information and data as it was the entity that maintained possession and control of the data. In reality, Tellermate was the custodian of the data stored on the Salesforce.com databases.  While information can be stored in locations outside the immediate control of the corporate entity by third party providers, it can still be under the legal control of the owner of the data and therefore must be produced by the owner under Federal Rule 34(a)(1)(A).  Additionally, had Tellermate’s counsel critically examined the agreement between Tellermate and Salesforce.com, it would have realized that Tellermate was the owner of all data created by its employees and that Tellermate could, at any time, download the data stored on the Salesforce.com databases for preservation and production purposes. Limitations on Document Production to Avoid “Document Dumps” Tellermate produced to the plaintiffs 50,000 pages of irrelevant documents, classified by Judge Kemp as a “document dump.”  Tellermate’s counsel refused to disclose which search terms it used in deciding which documents to produce to the plaintiffs, claiming that the search terms were privileged.  In actuality, the court discovered, Tellermate’s counsel only used the full names and nicknames of employees as its search terms, which obviously yielded irrelevant documents.  Without reviewing the returned documents, and because the court’s deadline for producing relevant documents was rapidly approaching, Tellermate’s counsel produced to the plaintiffs the documents as “Attorney’s Eyes Only.” The court recognized that a protective order was permitted only when counsel held a good faith belief that such information constituted a “trade secret or other confidential research, development, or proprietary business information, and that such material was entitled to a higher level of protection than otherwise provided in the protective order.”  Tellermate could not demonstrate entitlement to this level of protection with respect to the search terms used in procuring documentation for discovery: The alleged burden imposed by a high volume production does not provide the producing party or its counsel free reign to choose a given designation and ignore the Court’s order pertaining to that designation. First, the court looked to whether competitive harm would result from the disclosure of the types of documents produced by Tellermate to a competitor; however, Tellermate’s memorandum on the issue did not contain any evidence about the harm which might result if the plaintiffs were permitted to review any particular document that was labeled “Attorney’s Eyes Only.” Second, Tellermate’s argument as to the harm it would experience was entirely conclusory and was not supported by evidence: Apart from the general concept that disclosure of some types of sensitive information to a competitor may result in harm, it contains no particularized argument which is specific to [the plaintiff], the way in which he was competing with Tellermate, and how the disclosure of any one of the 50,000 pages marked as attorneys-eyes-only would harm Tellermate’s interests. The court was astounded that Tellermate continually failed to meet the burden required to designate the documents as “Attorney’s Eyes Only” and, up until the hearing date, made no effort the redesignate a single page of the 50,000 produced in order to permit the plaintiffs from viewing the documents. Sanctions The court had absolutely no qualms with an award of attorneys’ fees for all motion practice connected to the preservation and production of the Salesforce.com data.  “Had Tellermate and its counsel simply fulfilled their basic discovery obligations, neither of these matters would have come before the Court, or at least not in the posture they did.”  The court took great concern to the extraordinary lengths the plaintiffs had to go to in order to obtain the documents maintained by the defendant and, even after several rounds of motions, were not able to obtain all of them.  The “Attorney’s Eyes Only” designation on the 50,000 documents produced was also unfounded, the court held, and unduly precluded plaintiffs from necessary evidence that supported their case, which warranted fees under Federal Rule 37(a)(5)(A). Conclusion Tellermate provides a warning to all attorneys that the realm of technology in which their clients are constantly interact with is always changing.  Therefore, so does the practice of electronic discovery.  Counsel must always meet its duties with respect to ESI by engaging in discussions with its clients and opposing counsel about ESI; being aware, and perhaps even knowledgeable, of new and emerging technologies; and investigating and assessing with its clients the sources and status of potentially relevant ESI.  By forgoing these practices, counsel opens itself and its clients to easily avoided and costly sanctions. Daniel is the Editor-in-Chief of eLessions Learned and a third-year law student at Duquesne University.  To read more about him, click here. [1]       Salesforce.com is a cloud-based customer relationship management system with more than 100,000 corporate customers around the world.  Tellermate and its employees used Salesforce.com to track their sales and other interaction with customers.  The court recognized that each sales person using the Salesforce.com management system could add, remove, or otherwise change data on their sales account. [2]       See Zubulake v. UBS Warburg LLC, 382 F.Supp.2d 536 (S.D.N.Y. 2005) (counsel had an affirmative duty to monitor preservation an d ensure all sources of discovery information were identified).

Large Volumes of ESI Irrelevant in Determining Accessibility

In W Holding Co., Inc. v. Chartis Ins. Co. of Puerto Rico, the receiver of Westernbank, FDIC-R brought action under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) against the banks’ directors and officers (D & O’s) for gross negligence, breach of fiduciary duties, fraudulent conveyances, and adverse domination. Prior to discovery, FDIC-R proposed an order establishing a protocol for discovery of Wesernbank’s ESI and to reduce the number of written interrogatories it would receive. The D & O’s offered a competing protocol. The court denied FDIC-R’s request to alter the number of interrogatories and issued a separate order to establish ESI protocol. When FDIC stepped in as a receiver for Westernbank, it possessed 6.8 terabytes of ESI and over 900,000 paper documents. FDIC spent $2.1 million to put the ESI into a system called DMS iConnect (“DMS”), an internal database where the relevant paper documents were scanned into digital images and processed to generate searchable text. FDIC waned to use a second contractor-maintained system called Relativity to give its litigation opponents searchable access to selected data, which will cost $450 per gigabyte to move. FDIC-R wanted D & O to share in the costs. FDIC–R advanced three rationales in support of its proposal: (1) ESI production costs are analogous to “copying costs” borne by the requestor; (2) the Westernbank ESI is “not reasonably accessible” under Rule 26(b)(2)(B); and (3) the seven-factor test applied in Zubulake III requires cost-shifting in this case. The court disagrees with all three FDIC-R’s arguments. As to the argument that production costs are analogous to copying costs, the Court felt that FDIC-R failed to explain how those costs are outside the realm of gathering and preparation expenses customarily borne by responding parties. As for accessibility, the Court disagreed with FDIC-R’s position that Federal Rule of Civil Procedure 26(b)(2)(B) required cost-shifting when large volumes of ESI were involved. To be inaccessible, the FDIC-R would have to argue the “cost or burden” of production is tied to “some technological feature that inhibits accessibility.” However, the FDIC-R failed to raise any technological issues. The court further noted that the relevant data had already been uploaded into a searchable and organized retrieval system. The court also rejected FDIC-R’s third argument that the seven-factor test in Zubulake III requires cost shifting. Zubake also requires that the date in question be inaccessible, which the Court already stated was not. Finally, as to the request to limit the number of interrogatories, the Court believed the requests were “too speculative to merit a ruling at this time.” The Court felt that until the parties take more affirmative discovery steps, there is no ground for the Court to alter the defaults under the Federal Rules of Civil Procedure. Salim received his B.A. in Applied Communications, with a minor in Legal Studies, from Monmouth University. In 2014 he received his J.D. from Seton Hall University School of Law in 2014. Salim’s past experiences include interning for a personal injury law firm prior to attending law school, as well as judicial internships in the Civil and Family Divisions.

No such thing as Plain Language in E-Disco—Court Called on to Define “Making Copies.”

Phillips v. WellPoint, Inc., involved an application for costs by the prevailing defendant, WellPoint.  Among the costs sought to be recovered by WellPoint were $83,642.83 for "the process of scanning hard copy documents so that they could be produced in electronic format" and for services “for the preparation of native electronic files and documents for production in electronic format.”   WellPoint sought to recover these as costs of "making copies." Federal Rule of Civil Procedure 54(d)(1) provides that “[u]nless a federal statute, these rules, or a court order provides otherwise, costs—other than attorney's fees—should be allowed to the prevailing party.”  Those costs may include: (1) Fees of the clerk and marshal; (2) Fees for printed and electronically recorded transcripts necessarily obtained for use in the case; (3) Fees and disbursements for printing and witnesses; (4) Fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case; (5) Docket fees under section 1923 of this title; (6) Compensation of court appointed experts, compensation of interpreters, and salaries, fees, expenses, and costs of special interpretation services under section 1828 of this title. 28 U.S.C. § 1920 (emphasis added). In evaluating the extent to which costs associated with producing electronically stored information ("ESI") are recoverable, the court, with no in circuit precedent on point, analyzed and ultimately adopted the Third Circuit's reasoning from Race Tires America, Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158 (3d Cir. 2012).  In Race Tires, the Third Circuit found that the scanning of hard copy documents and the conversion of native files to TIFF were costs recoverable within the statutory meaning of “making copies.”  However, the Third Circuit further found that although “extensive ‘processing’” may be “essential to make a comprehensive and intelligible production” of ESI, not all costs of producing ESI—such as the preliminary steps in the discovery process, such as locating documents, travelling to the location of the documents, or screening potentially relevant documents for privilege—are recoverable. Applying these principles, the court found the majority of costs sought by WellPoint to be non-recoverable.  Only costs for imaging of hard copy files and conversion of documents into single TIFF images were recoverable.  Conversely, the following costs were not recoverable:  the extraction of document text; the process of rehabilitating documents in which the metadata fields and document text were damaged; applying bates stamp numbers; creating an image load file; creating a concordance-ready data load file; working with the clients in establishing production requirements; conducting quality control.  The result was WellPoint only recovered $26,711.00 of the $83,642.83 sought. Adam L. Peterson is a student Seton Hall University School of Law, Class of 2014 graudate.  At Seton Hall, Adam was a member of the Seton Hall Law Review and prior to law school Adam was an Environmental Analyst with the New York State Department of Environmental Conservation. 

Court Denies Motion to Compel Forensic Computer Examination Based on Proportionality Grounds

A common problem in e-Discovery is what to do when your adversary is withholding relevant information.  An even worse problem is when you know your adversary is withholding relevant information, but you are not precisely certain what that information is.  This was the problem for the defendant in NOLA Spice Designs, LLC v. Haydel Enterprises, Inc. who sought—but was ultimately denied—a forensic examination of the plaintiff’s computers. In NOLA Spice Designs, a trademark infringement case, the defendant filed a motion to compel the plaintiff to submit its computers to forensic examinations.[1]  The plaintiff challenged the motion by arguing that the forensic examinations failed the proportionality requirement of Federal Rule of Civil Procedure 26(b)(2).  This rule prevents a party from requesting discovery when “the burden or expense of the proposed discovery outweighs its likely benefit.”  In the context of forensic computer examinations, the court explained such an examination will not be permitted when the request is overly broad and the connection between the computer and claims are “unduly vague or unsubstantiated in nature.”  Although the court noted that forensic computer examinations are not uncommon in civil discovery, the court clarified that a mere suspicion that your adversary is dishonestly withholding information is an insufficient basis to order a forensic computer examination. The defendant in NOLA Spice Designs requested the forensic computer examination on the basis that it “has good reasons to believe that something in Plaintiff’s statements is not true” and “that is has suspected all along that its opponents have records that they refuse to produce.”  The court characterized the defendant’s reasons as the precise type of skepticism and unwarranted suspicion of dishonesty that are insufficient to warrant an invasive computer forensic examination. Moving forward, litigants should be mindful that courts may be sensitive to confidentiality and privacy concerns when overly broad discovery is requested.  Although electronic discovery permits litigants to exchange massive amount of information, that exchange is still subject to the traditional rules of discovery, such as proportionality.  In order to combat the hurdle of proportionality, a party who is suspicious that an opponent is withholding information should limit its discovery requests to the specific information that is suspected of being withheld.[2]  If the requesting party obtains some information, then it will at least have a reasonable basis to proceed with broader discovery requests because the party can prove to the court that the opposing party has not been forthright.  This puts the requesting party in a far greater position than merely seeking an intrusive computer forensic examination with no basis other than mere suspicion of dishonest activity. Helvidius Priscus, a Seton Hall University School of Law graduate (class of 2014), served on the executive board of the Seton Hall Law Review and was a member of the Interscholastic Moot Court Board.  Helvidius now clerks for a Justice on the Supreme Court of New Jersey.  [1] “Computer forensics is the practice of collecting, analyzing and reporting on digital information in a way that is legally admissible.”  Forensic ctrl, Introduction to Computer Forensics, http://forensiccontrol.com/resources/beginners-guide-computer-forensics/ (last visited Feb. 12, 2014). [2] Of course, it is difficult to ask for something if you are not sure what exactly you are missing.  Nonetheless, the court in NOLA Spice Designs made clear that asking for everything is not the way to go.  Starting with small and specific discovery requests (even if they are shots in the dark) may be the better choice because a court is unlikely to find that such requests fail the proportionality requirement.

Judge Sheindlin Hits Spoliating Plaintiff with Adverse Inference Instruction

In Sekisui Am. Corp. v. Hart, District Court Judge Shira Sheindlin reversed a decision of the lower court and imposed sanctions against a plaintiff for its willful spoliation of electronically stored information (ESI).  The critical point on which Judge Scheindlin and the magistrate judge opposed was whether a showing of bad faith is necessary to impose spoliation sanctions or whether a showing that the ESI was willfully destroyed is enough.  For Judge Scheindlin, where the spoliation is willful the non-spoliating party need not prove malevolent purpose: It is well-settled in the Second Circuit that: [A] party seeking an adverse inference instruction based on the destruction of evidence must establish (1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed with a culpable state of mind; and (3) that the destroyed evidence was relevant to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense. It is the third prong of the test that was squarely tackled in this case—whether the destroyed evidence was relevant and whose burden is it to prove or disprove this factor.  Sekisui American Corporation (Sekisui) brought a breach of contract suit against Richard Hart and Marie Louise Trudel-Hart relating to the Sekisui's purchase of America Diagnostica, Inc. (“ADI”), a medical diagnostic products manufacturer of which Mr. Hart was president.  During discovery, Sekisui revealed that ESI in the form of e-mail belonging to certain ADI employees (including Mr. Hart) had been deleted or were missing. It later became clear that Sekisui did not institute a litigation hold until more than fifteen months after sending a Notice of Claim to the Harts and in the interim, Sekisui permanently deleted the Hart’s documents and data. By way of explanation, Sekisui maintained that the destruction of Hart’s ESI was largely due to the actions of ADI's former Head of Human Resources (Taylor), who had acted without direction from Sekisui.  Sekisui further asserted that Taylor made the unilateral decision to delete Hart’s e-mail for the purpose of freeing up space on the ADI server after determining that Hart was no longer receiving work-related e-mail.  Before directing Northeast Computer Services (“NCS”)—the vendor in charge of managing Sekisui’s information technology systems—to permanently delete Hart’s ESI, Taylor apparently “identified and printed any e-mails that she deemed pertinent to the company,” which e-mails, totaling approximately 36,000, were produced to the Harts.  Notwithstanding these measures, there was no way for the parties or the court to determine how many e-mails were permanently deleted and lost. In light of these developments, the Harts requested that the court impose sanctions on Sekisui for the spoliation of evidence.  Specifically, the Harts requested:  1) an adverse inference jury instruction based on the destruction of Hart’s ESI; and 2) sanctions for spoliation based on the alleged or actual loss of the e-mail folders of several other ADI employees.  The Magistrate declined to issue any sanctions, finding that the Harts failed to show any prejudice resulting from the destruction of the ESI (i.e., failed to show that the deleted e-mails were relevant to its defenses).  The Magistrate Judge concluded that the destruction of Hart’s ESI “may well rise to the level of gross negligence,” but decided that such destruction was not willful because “there has been no showing that Taylor directed [the e-mails’] erasure for any malevolent purpose.”  The magistrate judge declined to presume either relevance or prejudice despite his finding that Sekisui “may” have acted in a grossly negligent manner. Judge Sheindlin, however, took a starkly opposite position.  Judge Sheindlin expressly rejected the premise that the law requires a showing of malice in order to establish intentionality with respect to the spoliation of evidence. In the context of an adverse inference analysis, Judge Sheindlin found no "analytical distinction" between destroying evidence in bad faith, i.e., with a malevolent purpose, and destroying it willfully.  Accordingly, Sekisui's good faith explanation for the destruction of Hart’s ESI (suggesting that Taylor’s directive was given in order to save space on the server) did not change the fact that the ESI was willfully destroyed. And when evidence is destroyed willfully, the destruction alone “is sufficient circumstantial evidence from which a reasonable fact finder could conclude that the missing evidence was unfavorable to that party.” On the above rationale, Judge Sheindlin found the Magistrate Judge's decision to be clearly erroneous and contrary to law, and directed that an adverse inference instruction would be provided to the jury.  This case underscores the importance of timely and prudently implementing a litigation hold, when such duty attaches. Adam L. Peterson is a student at Seton Hall University School of Law, Class of 2014.  Adam is a member of the Seton Hall Law Review and prior to law school Adam was an Environmental Analyst with the New York State Department of Environmental Conservation.