Author: Charlotte Howells

Timing Is Everything: SDNY Limits Relief for Plaintiffs Prematurely Seeking Serious ESI-Related Sanctions Under Rule 37(e)(2)

In DoubleLine Capital LP v. Odebrecht Finance, Ltd., the Southern District of New York issued a decision with important implications regarding the timing of spoliation motions and imposition of e-discovery sanctions under Federal Rule of Civil Procedure 37(e)(2). The decision highlights the challenges litigants face when seeking relief under this provision and, in particular, satisfying the onus to establish an “intent to deprive” the opposing party of deleted discovery. As this blog has previously discussed, the sanctions available under this subsection are available only in “egregious cases,” require a high evidentiary bar, and are highly dependent on timing and the proper development of a factual record. In this securities fraud case, the plaintiffs sought a mandatory adverse inference based on the claim that the defendants destroyed encryption keys needed to access the “MyWebDay” platform, an internal “shadow” accounting system used to track illicit bribe payments, which they contended contained evidence essential to the litigation. Despite ultimately admitting to destroying the encryption keys, the defendants argued that it was too early in discovery for the court to impose sanctions. Specifically, the defendants argued that spoliation sanctions would be inappropriate because the plaintiffs “have not (and cannot) demonstrate that the lost information cannot be replaced in discovery, and therefore have not shown that any relevant facts ‘have...

Amateur Hour Is Over! DR Distributors LLC Offers Crash Course on the Importance of E-Discovery Compliance

In DR Distributors, LLC v. 21 Century Smoking, Inc., et al., United States District Judge Iain D. Johnston issued a scathing 256-page opinion, dropping the proverbial hammer on the defendant and its counsel for repeated and egregious e-discovery failures – a veritable Keystone Kops series of discovery errors and misrepresentations spanning several years. The court imposed sanctions pursuant to Federal Rules of Civil Procedure 26(g) and 37, as well as monetary sanctions, and required the defendants’ former counsel to participate in continuing legal education on electronically stored information (ESI). In sum, Judge Johnston put all attorneys on notice that it “is no longer amateur hour” for attorneys grappling with e-discovery – compliance is not merely “best practices,” but required under the Rules, and courts will address incompetence accordingly. The dispute arose from alleged trademark infringement claims involving electronic cigarettes with confusingly similar marks. The case was initiated in 2012 and assigned to Judge Johnston in 2014, who immediately held a case management conference. At this conference, the court asked counsel if litigation holds were issued, and defense counsel neglected to inform the court that no litigation holds had been issued at that point. Defense counsel also affirmatively stated that the defendant, Brent Duke, the principal of 21 Century Smoking, was generally knowledgeable about ESI, including...

Litigating at the Intersection of Cooperation and Sedona Principle 6

The terms “cooperation” and “transparency” continue to gain traction in the context of litigation discovery, and the emergence of these concepts has been accompanied by a gradual erosion of a party’s ability to respond to discovery with autonomy. Litigants are often forced to make a decision as the expectation of cooperation in discovery intersects with the understanding that it is the responding party who will be in the best position to formulate a comprehensive discovery plan to search for, gather, and ultimately produce its own electronically stored information (ESI). This is based on the premise that the responding party is best situated to understand its own systems, the formats of communication used by employees, and the lingo used to discuss the subject matter of the dispute. The Sedona Conference Principle 6 recognizes that a responding party is in the best position to select relevant technology to appropriately gather and produce relevant information. On the other hand, the Sedona Conference Cooperation Proclamation, the 2016 Amendments to the Federal Rules of Civil Procedure, and countless judicial decisions extoll the benefits of cooperation. The intersection of Sedona Conference Principle 6 with the concepts of “cooperation” and “transparency” has been on full display in several recent decisions involving attempts by a requesting party to force a responding party to...

More Than $750,000 Awarded in TAR Fees Serves as Both Warning and Guidance to E-Discovery Practitioners

Last month, we discussed a recent decision from the United States District Court for the District of Kansas, Lawson v. Spirit AeroSystems, Inc.,  in which the court granted defendant’s motion to shift costs for electronically stored information (ESI) related to expenses incurred undertaking Technology Assisted Review (TAR) for approximately 322,000 documents, at plaintiff’s insistence. The court reasoned that there was good cause warranting cost-shifting because plaintiff insisted on pursuing TAR after it became disproportionate to the needs of the case. Recently, the court entertained defendant’s fee application, in which defendant sought $791,700.21 in expenses incurred in connection with TAR and $83,000 in costs and fees incurred conferring with plaintiff and related motion practice. Plaintiff objected to the amount sought, arguing that reasonable TAR expenses did not exceed $330,000. The court ultimately awarded defendant $754,029.46 in TAR-related expenses and a yet-to-be determined amount of expenses in connection with the fee application. In reviewing the fee application, the court noted that its finding of disproportionality was only reinforced by the parties’ intervening cross-motions for summary judgment, in which only one of the almost 100 exhibits submitted by plaintiff originated from defendant’s TAR production. This lone exhibit was submitted “to support an unremarkable factual contention.” In determining the amount of expenses to allocate to plaintiff, the court examined...

Situational Awareness Matters: Two Courts Evaluate Whether TAR Processes Are Warranted and Reach Very Different Conclusions

Two recent decisions from the United States District Court for the District of Kansas (Lawson v. Spirit AeroSystems, Inc.) and the Northern District of Illinois, Eastern Division (Livingston v. City of Chicago), highlight the increasing prevalence of Technology Assisted Review (TAR) as an e-discovery tool and its role as an emerging source of discovery disputes. We have previously addressed courts that have “endorsed” the use of predictive coding and/or TAR and have recommended that litigants consider such technologies to promote efficiency in the discovery process. We have also noted that courts have been extremely hesitant to impose affirmative requirements upon litigants to use these technologies. As discussed below, these two recent decisions provide a useful analysis of situations – with vastly different outcomes – where a party has introduced TAR procedures into the discovery process. In Lawson v. Spirit AeroSystems, Inc., plaintiff, the former CEO of defendant Spirit AeroSystems, Inc., filed suit based on his claim that the defendant failed to properly disburse his retirement compensation. Defendant claimed that plaintiff violated a non-compete agreement by engaging in consulting services with one of its competitors during the two-year period subject to the restrictive covenant. Plaintiff refuted these allegations, claiming that the companies he serviced did not engage in the same business as defendant. Though the business...

Technology-Assisted Review Is Not Compulsory, but Litigants’ Reluctance to Accept New E-Discovery Technologies Comes With Consequences

A Special Master appointed to administer discovery disputes in In re Mercedes-Benz Emissions Litigation, pending in the District of New Jersey, rejected Plaintiffs’ application to compel Defendants to utilize technology assisted review (“TAR”) or predictive coding in connection with the parties’ negotiation of their search term protocol. While we have previously addressed courts that have “endorsed” the use of predictive coding and/or TAR and have recommended that litigants consider the use of such technologies to promote efficiency in the discovery process, courts will be extremely hesitant to impose affirmative requirements on litigants in carrying out discovery. TAR is a process “in which human reviewers and a computer engage in an interactive process to ‘train’ the computer how to identify responsive documents based on properties and characteristics beyond simple search terms.” Special Master Dennis M. Cavanaugh, U.S.D.J. (ret.) observed that courts have universally concluded that TAR is “cheaper, more efficient and superior to keyword searching.” Nevertheless, the Special Master acknowledged that “responding parties are best situated to evaluate the procedures, methodologies, and technologies appropriate for producing their own electronically stored information.” Thus, while courts have permitted parties to use TAR for document review, no court has compelled predictive coding over another party’s objection. The Special Master followed the approach of the few courts that have addressed...

FOI-led: Supreme Court Restricts Public Access to Confidential Business Information

In Food Marketing Institute v. Argus Leader Media, the United States Supreme Court expanded the meaning of “confidential” information exempt from disclosure under Exemption 4 of the Freedom of Information Act (FOIA). In doing so, the Court reversed the decision of the Court of Appeals for the Eighth Circuit and definitively rejected the “competitive harm” requirement adopted by the D.C. Circuit in National Parks & Conservation Assn. v. Morton. Respondent Argus Leader Media filed a FOIA request with the United States Department of Agriculture (USDA), seeking the names and addresses of all retail stores that participate in a federal food stamp program known as SNAP. Argus Leader also sought each store’s annual redemption data from 2005 to 2010. The USDA declined to disclose store-level SNAP data based on Exemption 4 of FOIA, which precludes disclosure of “trade secrets and commercial or financial information obtained from a person and privileged or confidential.” Argus Leader sued the USDA. The district court ordered disclosure based upon the failure to satisfy the “competitive harm” test, which requires a party to establish confidentiality by proving that disclosure is “likely … to cause substantial harm to [its] competitive position.” The Eighth Circuit affirmed the judgment. In a 6-3 decision delivered by Justice Gorsuch, the Court rejected the competitive harm test and...

NJ Supreme Court Narrowly Construes Shareholder’s Right to Inspection of Corporate Records

In R.A. Feuer v. Merck & Co., Inc., the New Jersey Supreme Court affirmed the Appellate Division’s narrow construction of the scope of a shareholder’s right to inspect a corporation’s records under N.J.S.A. 14A:5-28 and the common law. In the underlying case, a Merck & Co, Inc. shareholder sought documents in order to elicit evidence that Merck acted wrongfully in its acquisition of another pharmaceutical firm. Merck appointed a “Working Group” to respond to the shareholder’s demand, which rejected the shareholder’s request for documents relating to the acquisition. Following this rejection, the shareholder sought twelve broad categories of corporate documents, including documents pertaining to the Working Group’s activities, communications, and formation; documents provided to the board regarding the target pharmaceutical firm and two of its drugs; and the board’s consideration of the shareholder’s demands and the Working Group’s recommendation. Merck disclosed pertinent minutes of the board and of the Working Group, but denied the remainder of the shareholder’s demand. The shareholder sued Merck, alleging entitlement to the documents under N.J.S.A. 14A:5-28(4), which permits a shareholder to compel the corporation to produce its “books and records of account, minutes, and record of shareholders,” and the common law. The trial court denied the shareholder’s request and the Appellate Division affirmed. In a per curiam decision, the New...

Recent ERISA Preemption Decision in District of New Jersey Marks Departure from Prior Precedent

In Glastein v. Aetna, Inc., et al., the U.S. District Court for the District of New Jersey, departing from several recent decisions in the District, denied Defendant Aetna, Inc.’s motion to dismiss a medical provider’s claim for reimbursement of insurance benefits on the ground that such claim was preempted by ERISA. Glastein, an out-of-network orthopedic surgeon, allegedly performed a medically necessary surgery for an Aetna-insured patient. Prior to the surgery, Glastein secured a written authorization for the service from Aetna. Glastein later billed Aetna $209,000, allegedly the “normal and reasonable” charges for the procedure. Aetna did not pay any portion of the charged amount. Glastein sued Aetna, alleging several state common law claims, including breach of contract, promissory estoppel, accounting, and fraudulent inducement. After removing the action from the Superior Court of New Jersey to the District of New Jersey, Aetna moved to dismiss Glastein’s complaint under Federal Rule of Civil Procedure 12(b)(6). Defendant’s sole argument for dismissal was that Plaintiff’s state-law causes of action were expressly preempted by ERISA’s “express preemption” provision, under which ERISA preempts state laws where the state law refers to an ERISA plan or has an impermissible connection with an ERISA plan. In support of its preemption argument, Aetna cited to several recent decisions where the District dismissed complaints alleging...

Access Denied: NJ Appellate Division Clarifies Shareholder’s Right to Inspection of Corporate Records

In R.A. Feuer v. Merck & Co., Inc., the New Jersey Appellate Division, in a to-be-published opinion, narrowly construed the scope of a shareholder’s right to inspect a corporation’s records under N.J.S.A. 14A:5-28 and the common law. A Merck & Co, Inc. shareholder appealed from the dismissal of his complaint seeking various corporate records, including twelve broad categories of documents. The shareholder sought evidence that Merck acted wrongfully in its acquisition of another pharmaceutical firm. After Merck appointed a working group to assess the shareholder’s concerns, the shareholder requested documents pertaining generally to the working group’s activities, communications, and formation; documents provided to the board regarding the target pharmaceutical firm and two of its drugs; and the board’s considerations of the shareholder’s demands and the working group’s recommendation. Merck disclosed pertinent minutes of the board and of the working group, but denied the remainder of the shareholder’s demand. The trial court determined that the shareholder’s demand exceeded the scope of the “books and records of account, minutes, and record of shareholders,” which the shareholder had a statutory right to inspect and that the common law did not expand that statutory right. The Appellate Division affirmed, narrowly construing the plain language of N.J.S.A. 14A:5-28(4). According to the court, “minutes” refers to “shareholder, board, and executive committee...