Many lessons can be taken away from the 2013 electronic data discovery opinions.
First, be careful not to rely on the federal taxation-of-costs statute to recoup all EDD expenditures. The Fourth Circuit and the Federal Circuit both narrowly defined recoverable costs, albeit with slight variances. However, a federal court in California awarded defendants substantial attorneys’ fees associated with computer-assisted document review in a patent and trade secret case where defendants won summary judgment.
Although many commentators predicted an increase in the use of predictive coding technology in 2013, that prediction was not evidenced by any increase in the number of published opinions addressing its use. After predictive coding was approved by several courts in 2012, predictive coding received little further analysis in court opinions in 2013. Finally, courts in 2013 continued to grapple with when to award sanctions for spoliation of electronically stored information at a time when proposed amendments to Federal Rule of Civil Procedure 37 address precisely this issue.
Following are brief summaries of a few intriguing e-discovery case opinions from 2013 regarding attorneys’ fees and costs, the use of predictive coding, and sanctions for spoliation of evidence.
Attorneys’ Fees and Costs
Country Vintner of N. Carolina, LLC v. E. & J. Gallo Winery, Inc., 718 F.3d 249 (4th Cir. 2013).
In Country Vintner, the U.S. Court of Appeals for the Fourth Circuit analyzed what expenses related to ESI are taxable under the federal taxation-of-costs statute, 28 U.S.C. § 1920(4), as “fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.” The court adopted the Third Circuit’s reasoning in Race Tires America, Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158 (3d Cir. 2012), and held that only the costs of converting electronic files to non-editable formats and transferring files onto discs were taxable as “costs of making copies of any materials.” The court also decided that ESI processing charges were not taxable as fees for exemplification.
The Fourth Circuit specifically agreed with the Third Circuit’s reasoning that §1920(4) “does not state that all steps that lead up to the production of copies of materials are taxable” and “does not authorize taxation merely because today’s technology requires technical expertise not ordinarily possessed by the typical legal professional.” Indeed, the court stated that 28 U.S.C. § 1920(4) imposes rigid controls on cost-shifting in federal courts. The Fourth Circuit therefore agreed that only the conversion of native files to .tiff and PDF formats and the transfer of files onto CDs constituted “making copies” under §1920(4), and that none of defendant’s expenses constituted “fees for exemplification.”
CBT Flint Partners, LLC v. Return Path, Inc., 2013 WL 6510953 (Fed. Cir. Dec. 13, 2013)
The U.S. Court of Appeals for the Federal Circuit interpreted the federal taxation-of-costs statute more broadly in CBT Flint Partners. The Federal Circuit divided the EDD costs at issue into three categories: 1) copying or imaging computer hard drives or other source media that contained the requested documents; 2) organizing, indexing, decrypting, de-duplicating, filtering, analyzing, searching and reviewing extracted documents in a database; and 3) copying the documents selected for production onto memory media, such as hard drives or DVDs.
The Federal Circuit concluded that converting documents to a uniform production format (for instance, .tiff) to produce an image of the original source and its metadata, converting documents to formats that cannot be edited, creating load files to the extent that those files contain information required by the requested production, scanning documents, and copying documents onto production media are generally recoverable as “making copies” under 28 U.S.C. §1920(4). The Federal Circuit acknowledged that its application of section 1920(4) to include recovery for costs of imaging source media and extracting documents in a way that preserves metadata was broader than the application of that statute by the Third Circuit in Race Tires and the Fourth Circuit in Country Vintner.
Gabriel Technologies Corp. v. Qualcomm Inc., 2013 WL 410103 (S.D. Cal. Feb. 1, 2013)
In Gabriel, the U.S. District Court for the Southern District of California awarded defendants more than $12.4 million in attorneys’ fees under federal and state statutes permitting awards of attorneys’ fees in patent and/or trade secret cases. Within that award, more than $2.8 million was included for “computer-assisted, algorithm-driven document review” conducted by the defendants’ vendor H5.
The court reviewed defendants’ request for fees incurred for the “computer-assisted, algorithm-driven document review” and found the “decision to undertake a more efficient and less time-consuming method of document review to be reasonable under the circumstances.” The court noted that the nature of plaintiffs’ claims resulted in significant discovery and document production and defendants seemingly reduced the overall fees and attorney hours required by performing electronic document review at the outset.
In re: Biomet M2a Magnum Hip Implant Prods. Liab. Litig., No. 3:12-MD-2391 (N.D. Ind. Apr. 18, 2013)
In Biomet, the U.S. States District Court for the Northern District of Indiana was tasked with deciding whether Biomet’s e-discovery procedures satisfied its discovery obligations. The court concluded that Biomet’s use of keyword culling and de-duplication in order to reduce the universe of electronic documents prior to using predictive coding satisfied its obligations under Rules 26(b)(2)(C) and 34(b)(2).
In analyzing the situation, the court found that the likely benefits of the discovery proposed by the plaintiffs’ steering committee would not equal or outweigh the additional burden on and expense to Biomet. The court also advised that the steering committee’s request that Biomet go back to the entire universe of 19.5 million documents and institute predictive coding “sits uneasily with the proportionality standard in Rule 26(b)(2)(C).”
In August, the court again addressed Biomet’s use of predictive coding and determined that Rule 26(b)(1) did not impose an obligation upon Biomet to identify the specific documents that made up the seed set used to train its predictive coding software. See In re: Biomet M2a Magnum Hip Implant Prods. Liab. Litig., No. 3:12-MD-2391, 2013 WL 6405156 (N.D. Ind. Aug. 21, 2013). The court noted that “Biomet is right that it doesn’t have to identify the seed set, but the Steering Committee is right that Biomet’s cooperation falls below what the Sedona Conference endorses.”
Research Foundation of SUNY v. Nektar Therapeutics, 2013 WL 2145652 (N.D.N.Y. May 15, 2013)
In Research Foundation, the U.S. District Court for the Northern District of New York denied defendant’s motion for sanctions. Defendant had requested an adverse inference instruction and monetary sanctions against plaintiff for failure to preserve documents related to the litigation, failure to timely issue written litigation hold notices, failure to preserve all relevant backup tape data, and failure to suspend its auto-delete practices.
The court denied the relief requested by the defendant, finding that plaintiff had in place a comprehensive document preservation policy, issued both verbal and written litigation hold notices, appropriately preserved backup tapes, and confirmed that no custodian had deleted any documents related to the matter. Although the court noted that a showing of “gross negligence” will in some circumstances suffice to support a finding that the evidence was unfavorable to the grossly negligent party, thus satisfying the relevance factor, the court did not find gross negligence in this case. Defendant therefore needed to produce evidence that spoliation of relevant documents had occurred. Finding that burden had not been met, the court denied defendant’s motion seeking an adverse inference instruction and monetary sanctions.
Sekisui Am. Corp. v. Hart, 2013 WL 4116322 (S.D.N.Y. Aug. 15, 2013)
In Sekisui, the U.S. District Court for the Southern District of New York granted the defendants’ request for sanctions based on plaintiff’s destruction of ESI. In awarding sanctions, Judge Shira Scheindlin reasoned that sanctions were warranted because plaintiff willfully destroyed ESI which was relevant to the action. Scheindlin concluded that plaintiff was grossly negligent in failing to ensure the preservation of relevant documents because it failed to issue a litigation hold until fifteen months after the notice of claim issued and, once the litigation hold was issued, it took plaintiff another six months to notify its IT vendor of the duty to preserve. Following established Second Circuit precedent, Scheindlin noted that no finding of bad faith is necessary before concluding that plaintiff’s destruction was “willful”—if there were an intentional decision to delete the data, whether or not those performing the deletion knew that the data might be relevant to pending or anticipated litigation, the destruction is considered “willful.”
Scheindlin went on to hold that prejudice may be presumed if the destruction of evidence was willful. “To shift the burden to the innocent party to describe or produce what has been lost as a result of the opposing party’s willful or grossly negligent conduct is inappropriate because it incentivizes bad behavior on the part of would-be spoliators.” And, sanctions could be warranted upon a finding of negligent destruction without a finding of bad faith.
In re: Pradaxa Prods. Liab. Litig., Case No. 3:12-md-02385-DRH-SCW (S.D. Ill. Dec. 9, 2013)
The court in In re: Pradaxa recently granted the plaintiffs’ steering committee’s request for sanctions against defendants for various alleged discovery abuses, including, according to the court, the failure to identify a key custodian, the failure to preserve and produce material in the possession of certain employees, production issues related to one of defendants’ shared networks, and the failure to preserve business-related text messages from certain employees’ cell phones. The court also held that the scope of defendants’ litigation hold was grossly inadequate.
Ultimately concluding that defendants’ actions and omissions were in “bad faith,” the court stated that it had previously been required to address numerous discovery issues relating to defendants’ “untimely, lost, accidentally destroyed, missing, and/or ‘just recently discovered’ evidence.” The court had previously warned defendants that “there is a cumulative effect that the court not only can but should take into account.” On December 9, 2013, the court fined defendants nearly $1 million in sanctions ($500 per MDL case) based on the court’s finding of discovery abuses.
As the jurisprudence concerning electronic discovery continues to evolve and grow, we can expect additional new precedents and developments in 2014!
David R. Cohen is a Reed Smith partner and practice group leader for global records and e-discovery group. Email: firstname.lastname@example.org. Patricia Antezana is counsel in the group. Email: email@example.com. Both are based in Pittsburgh.
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