Qualcomm Agrees To $8.5 million Sanctions For e-Discovery Violation

Posted by Gregg Mayer on Friday, February 29th, 2008   

Qualcomm, Inc. has agreed to pay more than $8 million in sanctions for apparently hiding the existence of damaging email during litigation.

The discovery violation came to light during a patent dispute between Qualcomm and competitor Broadcom.

In January, a federal magistrate judge ordered Qualcomm to pay $8.5 million in sanctions for not disclosing email to Broadcom despite Qualcomm’s lawyers’ knowledge of the existence of the email. It was described as a “monumental” discovery violation.

According to a law.com article:

The attorneys “assisted Qualcomm in committing this incredible discovery violation by intentionally hiding or recklessly ignoring relevant documents, ignoring or rejecting numerous warning signs that Qualcomm’s document search was inadequate, and blindly accepting Qualcomm’s unsupported assurances that its document search was adequate,” [Judge] Major wrote.

The judge also sanctioned Qualcomm for intentionally withholding “tens of thousands of e-mails.” Qualcomm will have to pay Broadcom’s $8.5 million attorney fees — though that award mirrors a sanction already imposed by another judge.

Late this month, Qualcomm has paid the money. As reported on the e-Discovery law blog:

Qualcomm states that it acccepts the sanctions imposed by Magistrate Judge Barbara Lynn Major and is not appealing or filing any objections to the January 7, 2008 Sanctions Order. Qualcomm further advises that it has now paid to Broadcom the full $8,568,633.24 monetary sanction ordered by the Magistrate Judge, and notes that it is participating in good faith in the CREDO program.

Read the full report, including Qualcomm’s court pleading, here.

Judge warns: ‘You can’t just throw up your hands’ at ESI obligations

Posted by Gregg Mayer on Friday, February 29th, 2008   

In a slow-developing lawsuit in New York, a federal judge recently took the County of Suffolk to task for its “lack of diligence” in disclosing electronically stored information (“ESI”).

In a nutshell: the county at first said it only had two email messages to disclose; then, the county acknowledged that it had email on inaccessible back-up tapes, including several back-up tapes damaged by a water pipe burst; later, the county said the tapes could be restored at a great expense, and the water pipe burst was not so bad; finally, the county hired a vendor that restored more than 2,400 pages of email, most of which needed to be disclosed.

It is a remarkable case of e-Discovery gone awry.

How The Case Developed

The case is Toussie v. County of Suffolk. As brief background, Toussie sued the county in 2001 for a violation of his civil rights for denying him an opportunity to purchase 31 acres of property, according to The New York Times.  A second lawsuit with additional plaintiffs commenced in 2005 and was joined with the first lawsuit.

During the discovery process – a process where both sides disclose evidence to the other side – the county disclosed only two emails. Toussie complained this was insufficient – after all, what business, let alone a county, only has two emails to disclose with so much communication taking place over computers? The court agreed with Toussie.

The court ordered the county to search its servers for email. The county responded it did not have the resources to fully search the back-up tapes. Moreover, it was clear the county did not implement a litigation hold on email once the litigation was underway. This lapse drew the court’s ire at a subsequent hearing:

You can’t just throw up your hands and say we don’t store email in an accessible form and then expect everybody to walk away. The question is, how can a plan be implemented to provide for some production.

Threatened with sanctions

Pressed by the court to do something, the county estimated it would cost nearly $934,000, and take 960 man hours, to retrieve email. The county said hiring an outside consultant would cost between $617,000 and $672,000. In addition, the county said it would take approximately two-and-one-half years to restore all of the email and complete production.

After receiving the county’s estimates, the court scheduled another hearing to try to implement a less costly and time-consuming search. At this next hearing, however, the county lawyers said a water pipe had burst and destroyed some of the back-up tapes. No one had told the other lawyers or the judge of this disaster.

The court threatened a spoliation sanction for the lost email, and the county responded it would hire an outside vendor to restore the tapes that were not damaged. The cost to hire the vendor would range from $418,000 to $963,500.

Following the threatened sanctions, the county was able to restore some tapes on its own. Then, the outside vendor was asked to restore 417 back-up tapes. Of those, the vendor could not restore 9 percent – or 36 tapes. The water pipe burst, it turns out, had only damaged “one tray of tapes,” and other tapes were not recoverable for other reasons, such as formatting problems. (It is worth noting the vendor was able to restore the 400-plue tapes in under 80 days – far less time than the two-and-a-half years the county initially estimated.)

No Spoliation, But Must Pay Attorney Fees

In the end, the vendor retrieved more than 2,400 pages of email messages, of which only 200 were withheld due to attorney-client privilege issues. There were still problems with this ESI disclosure, according to Toussie, and there were still missing email messages. Toussie still wanted spoliation sanctions against the county.

The court concluded, however, that even if there were some missing email messages, that was not enough to warrant a dismissal or adverse jury instruction:

While the evidence is clear that at least 9% of the back up tapes were destroyed and the plaintiffs may be correct that e-mails have been deleted by users, there is no reason to believe that any of those e-mails would have provided any additional support of plaintiffs’ claims.

Accordingly, the plaintiffs have not sufficiently demonstrated that the destroyed/lost emails were favorable or relevant and the motion for a default judgment or an adverse inference instruction is denied.

The county was ordered to pay Toussie’s attorney fees for the e-Discovery debacle.

For another discussion of this case, and to read the court opinion, see the e-Discovery Team blog.

E-Discovery In A Criminal Setting

Posted by Gregg Mayer on Thursday, February 28th, 2008   

The Federal Rules of Civil Procedure (”FRCP”) only govern civil proceedings.  Criminal cases have their own set of procedural rules.  Occassionally, however, a federal judge overseeing a criminal case comes across an unusual aspect of procedure and turns to the FRCP for guidance.   This happened recently with an e-Discovery issue in a criminal case.

In United States v. O’Keefe, the defendant, an employee of the Department of State in Canada, is charged with receiving gifts for expediting visa requests for his co-defendant. As part of the criminal case, the government was ordered to search its electronic files for relevant evidence.

O’Keefe complained that the government’s e-Discovery disclosures were inadequate. Specifically, O’Keefe argued the government did not specify what process it used to preserve ESI, did not disclose metadata, and did not use the correct search terms in retrieving ESI for the case.

In the court’s Feb. 18, 2008 opinion, the judge noted that since there was no criminal rule of procedure governing ESI, the court would look to the Federal Rules of Civil Procedure:

In criminal cases, there is unfortunately no rule to which the courts can look for guidance in determining whether the production of documents by the government has been in a form or format that is appropriate. This may be because the “big paper” case is the exception rather than the rule in criminal cases. Be that as it may, Rule 34 of the Federal Rules of Civil Procedure speak specifically to the form of production…It is foolish to disregard [the rules] merely because this is a criminal case, particularly where, as is the case here, it is far better to use these rules than to reinvent the wheel when the production of documents in criminal and civil cases raises the same problems.

I. Preservation Of Government’s ESI 

Utilizing the FRCP, the court looked to the rationale of the FRCP 37(e) – the “safe harbor” provision – to reject O’Keefe’s argument that the government failed to preserve ESI.

The court explained that the government could not be liable for destroying ESI as part of its good faith, routine operation. The government’s ESI retention policy provided for ESI to be put on backup tapes for two weeks, and then those tapes would be reused. No other backup archive existed. The government enforced this policy. As explained in the opinion:

The government’s destruction of evidence pursuant to a neutral policy and without any evidence of bad faith does not violate the due process clause if the evidence was destroyed before the defendants raised the possibility that it was exculpatory and the government had no objective reason to believe that it was exculpatory.

This principle finds its analogue in the Federal Rules of Civil Procedure, which indicate that, absent exceptional circumstances, sanctions will not be awarded for a party’s failure “to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.” Fed. R. Civ. P. 37(e).

Consequently, unless O’Keefe could offer specific evidence that the government destroyed ESI it was “obliged to preserve,” then there was no claim for failure to preserve ESI.

II. Metadata 

On the metadata argument, the court explained that the government appeared to have complied with the FRCP.  The government disclosed the ESI as PDF or TIF images.  O’Keefe had not specifically requested the ESI in its native format with metadata.  As a result, the government’s production in PDF or TIF was appropriate unless there was a specific reason the metadata was needed. The court explained:

Under Rule 34 of the Federal Rules of Civil Procedure, a distinction between documents and electronically stored information is made in terms of the form of production. As established above, a party is obliged to either produce documents as they are kept in the usual course of business or it “must organize and label them to correspond to the categories in the request.” Fed.R.Civ.P. 34(b)(E)(i). But if, as occurred here, electronically-stored information is demanded but the request does not specify a form of production, the responding party must produce the electronically-stored information in the form in which it is ordinarily maintained or in a reasonably usable form or forms. Fed.R.Civ.P. 34(b)(E)(ii). Additionally, a party “need not produce the same electronically stored information in more than one form.” Fed.R.Civ.P. 34(b)(E)(iii).

If one were to apply these rules to this case, it appears that the government’s production of the electronically stored information in PDF or TIFF format would suffice, unless defendants can show that those formats are not “reasonably usable” and that the native format, with accompanying metadata, meet the criteria of “reasonably usable” whereas the PDF or TIFF formats do not.

However, the opinion noted that the government seemed willing to re-disclose the ESI with metadata after O’Keefe complained. If for some reason that did not work out, the judge wrote that O’Keefe should file a motion to compel – a legal maneuver where one party requests the court force another party to do something.  If a motion to compel was filed, the court would then decide whether the government needed to disclose metadata.

III. Search Terms 

Last, the court rejected O’Keefe’s arguments pertaining to the search terms used unless O’Keefe could offer more specific arguments about why they were deficient.  The court explained:

Whether search terms or “keywords” will yield the information sought is a complicated question involving the interplay, at least, of the sciences of computer technology, statistics and linguistics…Given this complexity, for lawyers and judges to dare opine that a certain search term or terms would be more likely to produce information than the terms that were used is truly to go where angels fear to tread.

O’Keefe illustrates the expanding use of ESI in the courtroom. Moreover, O’Keefe highlights the importance of a routine retention policy. When followed, that policy may preclude sanctions during litigation, even in a criminal setting.

What Happens To A Spoliator?

Posted by Gregg Mayer on Thursday, February 28th, 2008   

A spoliation finding may be the worst thing that could happen to a company involved in litigation.

Generally, spoliation of evidence is when you do not preserve evidence after you reasonably anticipate litigation. This includes deleting email after being on notice to save it. Consequences for spoliation include an adverse jury instruction, or even a default judgment.

One of the most famous ESI spoliation findings was in Zubulake v. UBS Warburg.  Spoliation in Zubulake resulted in an adverse instruction and ultimately led to a multimillion dollar jury verdict.

A less well-known case is Leon v. IDX Systems Corporation, which was affirmed by the Ninth Circuit Court of Appeals. Leon is an example of intentional spoliation.

In Leon, an employee and employer were involved in litigation over whether the employee could be fired without violating the anti-retaliation provisions set out in federal law.

At issue in the case was a laptop computer the company issued to the employee. When trouble started brewing between the two, the employer told the employee not to destroy or modify files on the laptop.

The employee did not listen. He purposely deleted files and then wrote a program to wipe any deleted files from unallocated space on the hard drive. This did not sit well with the court.

Both the trial judge and the Ninth Circuit Court of Appeals concluded the employee purposely deleted files that he knew he should not, and he was a spoliator. Consequently, the employee’s lawsuit against the employer was dismissed. Moreover, the employee was fined $65,000 to pay his employer’s attorney fees because of his intentional destruction of evidence.

Here is how the Ninth Circuit explained spoliation:

A party’s destruction of evidence qualifies as willful spoliation if the party has some notice that the documents were potentially relevant to the litigation before they were destroyed…Moreover, because the relevance of … [destroyed] documents cannot be clearly ascertained because the documents no longer exist, a party can hardly assert any presumption of irrelevance as to the destroyed documents.

The district court concluded that Leon’s behavior amounted to willful spoliation because he knew he was under a duty to preserve all data on the laptop, but intentionally deleted many files and then wrote a program to write over deleted documents. The court rejected Leon’s explanation that the deleted documents were “personal,” observing that “personal” documents are highly relevant to an employment discrimination claim and noting the IDX-proffered evidence that work-related documents were also deleted and written over.

Spoliation can be fatal to a party’s litigation. Although Leon is an extreme example, it offers a warning that steps should be taken to preserve ESI, including email, when under a duty to implement a litigation hold.

ESI Decision In Washington D.C.: Ask For The Metadata In Discovery

Posted by Gregg Mayer on Wednesday, February 27th, 2008   

In a case in Washington D.C., a federal judge ruled that because the plaintiff in a lawsuit did not specifically ask for metadata when requesting electronically stored information (“ESI”), then the defendant did not have to produce it.

The case adds to the evolving discussion in the legal system about when “metadata” must be disclosed.

The case, D’Onofrio v. SFX Sports Group, Inc., involves employment discrimination. The employee sought a business plan from the company. In the dispute before the judge, the employee wanted a business plan – metadata and all – but the company argued the employee did not specifically ask for the metadata and should not get it.

The employee tried to argue for the metadata using two different parts of Rule 34 of the Federal Rules of Civil Procedure. The Federal Rules of Civil Procedure govern court procedure, including discovery issues involving ESI.

First, the employee argued Rule 34(a) only allowed the company to turn over the business plan without metadata “if necessary.” Here’s the relevant part of Rule 34:

(a)…Any party may serve on any other party a request (1) to produce … electronically stored information … in any medium from which information can be obtained – translated, if necessary, by the respondent into reasonably usable form…”

The judge rejected this argument:

Rule 34(a) does not set forth constraints on the manner of production, but instead establishes the permissible scope of a request…In other words, electronic data is subject to discovery if it is stored in a directly obtainable medium. If, however, it is not stored in a directly obtainable medium, a request may be made of the responding party to translate the electronic data into a “reasonably usable form.” …Because the step of translating this type of electronic data adds an extra burden on the responding party, the request may only seek for it to be done “if [the translation is] necessary.” It is not the case that this clause requires the responding party to produce data in its original form unless “necessary” to do otherwise.

In short, Rule 34(a) did not require the company to turn over with the metadata.

Second, the employee argued Rule 34(b) required production of the metadata because, under the Federal Rules of Civil Procedure, the employee could specify the form of the production. Here’s the relevant part of Rule 34(b):

The request [for electronically stored information] may specify the form or forms in which electronically stored information is to be produced.

In court pleadings, this is how the employee asked for the information:

[F]or any documents that are stored or maintained in files in the normal course of business, such documents shall be produced in such files, or in such a manner as to preserve and identify the file from which such documents were taken.

The judge concluded that this request did not specify that the employer had to disclose the metadata. The judge wrote: “a plain reading leads to the conclusion that plaintiff did not make a request that the Business Plan be produced solely in its original format with accompanying metadata.”

Consequently, the employer did not have to disclose the metadata of the business plan.

In a related matter, the employee alleged the company destroyed some electronically stored information. That issue will be litigated at a later hearing date. Check back to CIOLaw.org for updates.

Court Tells Company To Hire Outside Vendor To Retrieve ESI

Posted by Gregg Mayer on Wednesday, February 27th, 2008   

In a lawsuit involving the movie trilogy The Lord Of The Rings, a court ordered New Line Production, Inc., the distributor of the movies, to hire an outside vendor to search for electronically stored information (“ESI”) needed for the litigation.

The judge in the case seemed more than frustrated that New Line apparently failed to retrieve and disclose all of the ESI needed for the litigation. Rather than allow New Line another chance to redo the search on its own, the judge ordered a separate, outside vendor to come in and do the work – at New Line’s expense. The judge wrote:

New Line’s failure to perform any structured search for emails and other electronic documents from the company’s servers and from individual employees’ desktop or laptop computers requires a different solution. Nor does the Court have any confidence that once again ordering New Line to conduct a good faith search for electronic documents will be any more effective than it has in the past. The Court has determined that, under the circumstances here presented, New Line should be required to retain an outside vendor experienced in electronic document retrieval to collect responsive documents.

As noted previously on this blog , it is important for companies to not just archive ESI, including email, but also to be able to implement solutions that permit cost-effective retrieval. Generally, companies have to pay to produce their own ESI during litigation. The more efficiently a company can retrieve ESI, the less it should cost.

As brief background on the lawsuit, director Peter Jackson’s Wingnut Films is suing New Line for not calculating the movie revenue properly, as reported in The Sidney Morning Herald and The New York Times.

As part of the contentious litigation, Wingnut complained New Line was not disclosing all of the information it should, including ESI. The court agreed. On New Line’s efforts to retrieve ESI, the court summarized the problems:

The testimony of New Line’s custodians demonstrates that New Line’s efforts to locate and collect electronic documents has been less than diligent. Ken Horowitz, who was the designated custodian with respect to documents relating to participant audits of Lord of the Rings and other films, testified at his first deposition that he was not aware of any search for electronic documents on New Line’s servers, on any individual’s desktop or laptop computer, or otherwise…At the second day of his deposition, Mr. Horowitz confirmed that no electronic search had been conducted….

…New Line’s other custodian, Dain Landon, testified that he had undertaken a search of New Line’s servers for documents relating specifically to merchandising agreements. Mr. Landon’s “search” consisted of little more than clicking through various folders on the only two server drives he personally could access…Mr. Landon acknowledged that he did not conduct or arrange for a server-wide search for documents containing the phrase “Lord of the Rings” or any other keywords; indeed, he did not even search for documents with “Lord of the Rings” in the title…

…New Line likewise failed to conduct any search of the company’s email servers for email correspondence containing the phrase “Lord of the Rings” or any other keywords. While some individual employees were asked to collect their emails, others were not; and even those employees who did collect emails were given little or no guidance on where to search (e.g., inbox, sent items, deleted items, archived folders) or how to conduct their search (e.g., keyword searching). Indeed, of the eleven individuals Mr. Landon spoke to in preparation for the second day of his deposition, only three told him that they had even looked for emails, and Mr. Landon had no information regarding how those searches were performed….

With that dismal effort, the court explained what New Line should have done:

At the very least, New Line should have charged its in-house information technology professionals with responsibility to ensure that all of the company’s servers and individual computers were searched, and that they were searched in a manner that was reasonably calculated to capture all responsive documents (e.g., keyword searches of electronic documents and emails). To the extent this could not be accomplished in-house, New Line should have retained an outside vendor…Instead, New Line practically disregarded its obligation to produce electronic documents at all.

Since New Line wholly failed to comply with the court’s order to produce ESI, the court explained that an outside vendor was necessary:

The vendor shall be granted access to New Line’s servers, including without limitation its email server(s), for the purpose of conducting keyword searches for responsive documents and emails. The vendor shall also be granted access to the hard drives from the desktop and laptop computers of specified employees who are connected with this dispute for the purpose of conducting keyword searches. All documents and emails collected by the outside vendor may be reviewed by New Line for privilege and confidentiality designations; however, no documents identified by the vendor may be withheld on relevance grounds.

….The vendor shall prepare a log of all collected documents so that Wingnut can confirm that all such documents are either produced or logged. In the event that the parties are unable to agree upon the identity of the outside vendor, the search protocol, or the individual employees whose desktop and laptop computers will be provided for inspection, those disputes should be promptly submitted to the Court for resolution. New Line shall bear all costs and expenses of the outside vendor.

In short, New Line not only has to redo it ESI disclosures, it also has to pay to let an outside vendor do it. What should have been an efficient retrieval of electronic documents has turned into an e-nightmare.

Courts take the proper disclosure of ESI seriously. With the rapid explosion of email and other ESI, parties must ensure they comply with the Federal Rules of Civil Procedure or face stiff sanctions during litigation. Here, New Line failed to meet its obligations and must pay the consequences.

Employer’s Use Of Employee Email

Posted by Gregg Mayer on Tuesday, February 26th, 2008   

Employees sending email over an employer-owned computer would likely know that the employer could read that email – and possibly use it in litigation against that employee. But what if the employee had sent an email to his own attorney and it was meant to be confidential? Or what if the employee did not know the company had an email policy, or the company did not enforce a policy?

A recent article in law.com explores the question of who owns email. This terrific analysis highlights case law and identifies steps an employer may take in drafting and implementing an email policy. Specifically, the article considers whether an employee may waive attorney-client confidentiality when using a work computer to send email messages. The article explains:

In determining the parties’ respective rights to communications sent from work, the few courts to consider the issue have generally employed a balancing test, which primarily considers the following factors: (1) Does the employer have an e-mail policy? (2) How are employees made aware of the policy? (3) Is the policy uniformly applied? (4) What precautions, if any, did the employee take to protect the confidentiality of the communication?

Read the full article here.

Document Retention Policies In An E-World

Posted by Gregg Mayer on Tuesday, February 26th, 2008   

More than ever, business documents are e-documents that companies must retain as part of their day-to-day business practices. According to a recently published article in the Louisiana Bar Journal, “a recent study concluded that 93 percent of all ‘documents’ now originate in an electronic format.”

This excellent article discusses reasons for retention policies in an e-world, particularly the storage of email and other ESI:

It should be clear why business clients should care about the proliferation of perpetual “e-documents” in the digital age: in those “e-documents,” the litigation adversary is likely to find a gold mine of information — or possibly the single “e-nugget” that may be the ticket to a large jury award. From the Big-6 accounting titan brought to its knees in the wake of the Enron scandal, to the Wall Street banking house dealt the “death penalty” instruction for repeated failures to announce its trove of digital data, incidents of failed document retention and destruction policies have served a wake-up call on corporate America.

There are several considerations a retention policy must take into account. According to the article, effective records management includes:

• identify those documents that must be maintained in accordance with the law;
• identify those documents that the business must keep to effectively function;
• track the company’s maintenance efforts;
• lay out a schedule for the systematic destruction of records in accordance with the above guidelines;
• effectively destroy the documents that are scheduled for elimination under the program;
• and monitor and audit the company’s execution of the program.

The article is available at the LBJ’s Website here.

Company Must Pay To Reproduce Email Messages With Attachments

Posted by Gregg Mayer on Tuesday, February 26th, 2008   

In a contract dispute in New York, PSEG Power New York, Inc., disclosed thousands of email messages to Alberici Constructors, Inc., but a “technical glitch” caused problems with viewing the email attachments. For some reason, the attachments were divorced from the email messages and could not be matched up.

Alberici wanted to see those attachments and a question arose as to who would pay to reproduce the email messages with the attachments.

“Attempting to reunite these documents has been nothing short of a donnybrook for Alberici,” wrote the New York magistrate judge in an opinion last fall. “It has been frustrated if not completely hamstrung in locating these documents.”

Cost estimates to reproduce the email messages were all over the map: PSEG said it would cost more than $200,000; Alberici said it had a vendor that said it could do the work for $37,500. PSEG did not want to use Alberici’s vendor.

Ultimately, the judge said the costs to reproduce the email fell on PSEG:

We acknowledge that discovery production is rarely perfect or ideal, yet this discovery quagmire created by PSEG’s vendor falls woefully short of comporting with the spirit of Rule 34 [of the Federal Rules of Civil Procedure]…The long-held precept on discovery should not be lost on the parties: relevancy does not turn on admissibility at trial but rather whether the disclosed item is calculated to lead to discovery of admissible evidence, and in this case, these emails and their attachments may do just that. In the total scheme of things, re-production is warranted in this case.

The judge said PSEG could either reproduce the email messages with the attachments or go through the mass of hard copies and match them up. Either way, PSEG had to pay. 

The case illustrates the importance of cost-effective archiving and retrieval on the front end to avoid costly problems during litigation. 

The case is PSEG Power New York v. Alberici Constructors.

Compliance Costs and Implementing Solutions

Posted by Gregg Mayer on Monday, February 25th, 2008   

In Wall Street & Technology, a short article reports that compliance costs for financial institutions are growing faster than net incomes. Compliance costs grew from 2.83 percent of net income in 2002 to 3.69 percent in 2006.

One of the primary reasons for the increase in costs, according to Deloitte, is that institutions are responding to regulation by applying human resources to monitor compliance, rather than investing in scalable technology resources to manage the effort. The research report shows that 60 percent of respondents’ compliance-related spending in 2006 was on compensation, while only 19 percent of spending was on consultants and vendors; 18 percent went to capital expenses, including systems, hardware and software.

As the article notes, finding ways to incorporate more technological solutions may help drive down compliance costs.

Speaking of compliance, a recent article in InformationWeek explores using email archiving to keep up with the fast-paced world of ESI.

Companies can implement online e-mail archiving with little to no capital expense in just a few days. In comparison, installing a fixed content storage system and integrating it with e-mail archiving software is a substantial project. This makes online archiving especially attractive to smaller organizations

Read the full article here. 

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