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Preservation of Electronically Stored Information and Amended Rule 37(e) of the Federal Rules of Civil Procedure


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GARY A. ADLER: Welcome back, everyone, to Preservation of Electronically Stored Information and Amended Rule 37(e). Our panel for this topic-- Tom Allman, Melissa Clark, and Jeff Fowler. Tom Allman is an attorney, consultant, and law professor. And, in my view, if you look up e-discovery in the dictionary, there's a picture of Tom.

Tom's Chair Emeritus of the Sedona Working Group on Electronic Production Retention, and, also, served as one of the editors of the PLI Electronic Discovery Desk Book, and is a frequent speaker and writer on the topic of corporate compliance and electronic discovery. He served as a General Counsel and Chief Compliance Officer from 1993 to 2004 and was an early advocate of what became Rule 37(e) of the Federal Rules of Civil Procedure. Tom is Chair Emeritus at the Sedona Conference Working Group on Electronic Production and Retention and the Lawyers for Civil Justice E-discovery Committee and has published widely on the topic of technologically neutral rulemaking including the authoritative work on the topic of state rulemaking. He also teaches e-discovery as an Adjunct Professor at the University of Cincinnati College of Law.

Melissa Clark is a partner at Milberg LLP where she has spent more than a decade litigating complex and class action financial privacy and consumer cases. She's a member of her firm's e-discovery practice group and is frequently responsible for spearheading discovery and ESI negotiation in complex cases. Melissa has taught legal research, writing, and management communication skills as a Senior Fellow at Tulane Law School and an Adjunct Writing Instructor at Tulane University's Freeman School of Business.

Jeff Fowler is a partner in O'Melveny and Myers' Los Angeles office and Chair of the Firm's Electronic Discovery and Document Retention Practice. Jeff's practice focuses on the intersection of e-discovery, information management, cybersecurity, and privacy law. Jeff's extensive experience spans a decade and includes a participation in some of the first and largest electronic discovery matters. Jeff regularly consults with clients on topics related to electronic discovery, including document retention practices, data security issues, trade secret misappropriation investigations, and litigation preparedness plans. Jeff is a regular speaker and writer on electronic discovery and information technology issues. He's also co-author of Preserving Electronically Stored Information, a Practical Approach. Panel, please.

THOMAS Y. ALLMAN: Thank you very much, Gary. And we are really blessed to have with us two of the most qualified people that work on this. Let's see if we can get our panel up here.

GARY A. ADLER: I think that's probably it loading.

THOMAS Y. ALLMAN: The topic of our [INAUDIBLE] is Rule 37(e). And as is indicated by this very first panel of our overhead, this is a rule that has, in some view, maybe not met its expectations, but maybe it has. So the first thing I'd like to do is find out a little bit about the composition of our audience here.

First of all, anyone who is an in-house lawyer, please raise your hand. It's great to see you folks. It's nice to have some in-house lawyers.

All right, now, I'm going to ask this question of everyone, including the in-house lawyers. How many of you have actually had to deal with Rule 37(e) in a litigated case? Could you raise your hand?

Now, that is fascinating, isn't it? We have one person out of the entire room. How many of you have had cases where Rule 37(e)-- that is to say the doctrine that covers the loss of electronically stored in information that should have been preserved. How many of you have litigated spoliation motions where the rule should have been, but was not cited?

OK. I'm going to ask the gentleman who raised his hand. What kind of a case was it where you had Rule 37(e)?

AUDIENCE: It was a trade secrets case where my client was accused of spoliating the evidence. And we had to have motion practice on that.

THOMAS Y. ALLMAN: And did both sides deal with 37(e) and the court as well?

AUDIENCE: Yeah.

THOMAS Y. ALLMAN: OK. Well, look at this chart. I had the misfortune of reading every case that comes out on spoliation. And here's what the current record looks like. For every case that applies it, or every two cases that apply it, there is at least one that doesn't.

And as we go through this today, we're going to be asking you a really fundamental question. Why is this happening? Why isn't Rule 37(e) the gold standard for all spoliation cases?

As I've indicated in the lower right-hand side, in about 25 of the 117 decisions where it was not cited, it would have made a real difference. And if you don't believe me, what I would suggest you do is take a look at my memorandum, which you have in your materials, in which we discuss some of these cases. So let's open up by talking about Rule 37(e) itself.

It was adopted and became effective at the end of 2015. But the language that you see in front of you, namely that it should have been preserved in the anticipation or conduct of litigation, that's the common law rule. And so the key decision was that the Rules Committee decided they were not going to attempt to define the duty to preserve.

Instead, they incorporated into the rule and deal with the back end. And the back end of a spoliation motion is what happens, under what conditions happens, if spoliation has occurred. So let's start out with the key fundamental concept of whether or not ESI is lost. And for purposes of getting our discussion started here, I'm going to ask Melissa if she could tell us a little bit about how this topic was dealt with in the Steves decision.

MELISSA R. CLARK: So in Steves, the plaintiff had hired a consultant, John Pierce, to help advise on their doorskin business. And the consultant had actually been a former employee of defendant, JELD-WEN. So in addition to having some confidentiality obligations to JELD-WEN, because he was a former employee, Steves had actually, or at least there was some evidence, that Steves had been paying Pierce to go to JELD-WEN's job sites and talked to its current employees.

And shortly after Steves and Pierce began working together, Pierce said, you know what? I think my confidentiality obligations with JELD-WEN create a problem here. JELD-WEN might make trouble is how he put it.

So he had a great idea. He emailed the Steves brothers, the two principals at the company and said, I have an idea in case this comes up with JELD-WEN. First of all, let's talk to lawyers. Second of all, let's destroy evidence.

[LAUGHTER]

He didn't put it exactly that way, but he was much more specific. He had actually testified in a trade secret case where JELD-WEN had sued a former plant manager. And he sort of understood how discovery would work.

And so he said it would be wise for us to take certain precautions. And he outlined what those should be. Let's delete emails from everywhere-- our servers, our sent mail, our inbox, delete all of our files. And what I'll do is I'll recompose and redraft everything I've sent you to remove any reference to my conversations with current employees.

THOMAS Y. ALLMAN: And this is in an email, right?

MELISSA R. CLARK: This was in an email, yeah.

THOMAS Y. ALLMAN: OK.

[LAUGHTER]

MELISSA R. CLARK: It was actually Steves that had the great idea to go sue JELD-WEN for breach of contract and antitrust. And Pierce was served with a subpoena and didn't have a whole lot to produce, surprise, surprise. But Pierce said, this is just my policy.

For as a matter of security, I delete everything. I don't keep much in my inbox. The Steves brothers didn't respond to many of my emails. And the court found this credible despite his email, in part because Pierce had left a voicemail for one of the Steve brothers saying that this was his policy.

So, unsurprisingly, the defendant sought spoliation jury instructions. They wanted an instruction that Pierce had deleted or failed to retain relevant documents and that the jury could consider those actions when assessing his intent and knowledge. And that case has some interesting discussion about the other elements of Rule 37, because that nice email from Pierce provided a great roadmap to when the duty to preserve arose and the scope of preservation. But, ultimately, this case turned on whether the data was actually lost and whether it could be recovered.

THOMAS Y. ALLMAN: Well, Melissa, it sounds to me like this guy is headed for a fall. What happened in the case?

MELISSA R. CLARK: Well, the court said most of this data isn't really lost. Because under Rule 37(e), it's only lost if it's really irretrievable from another source.

THOMAS Y. ALLMAN: Are you telling me you did not get sanctioned?

MELISSA R. CLARK: Well, he had a pretty good ride. Unfortunately-- well, maybe fortunately for Pierce, the court held that defense counsel had not really done enough to find out if the information was really irretrievable. Some of it was in Steves' hands. And the court said, you know, at least luckily for Pierce, there was no indication that Steves had followed his advice to delete everything.

So the question was was there some forensic tool or recovery tool that could be used to get Pierce's data back. So even though Pierce had admitted that he deleted everything, the court said that JELD-WEN needed to show it made some good faith attempt to explore its alternatives before proceeding spoliation sanctions. It talked about forensic examination and said, you know, maybe JELD-WEN didn't have to go that far to show loss.

Pierce admitted it was lost. But JELD-WEN did need to go farther to show that it was irretrievable. And because of that, it denied JELD-WEN's motion for sanctions.

THOMAS Y. ALLMAN: So maybe this is an outlier case. But do not overlook the possibility that you can argue, look, if you can get this information from another custodian who has a copy of that incriminating email, or if you can maybe do a forensic examination, maybe that means that the rule does not even apply. And this is the case in a really well-written and persuasive opinion that makes that argument for the person who wants to avoid spoliation sanctions. Jeff, do you want to say anything about this? Or shall we just pass on to--

JEFFREY J. FOWLER: I can't help but say something about it I think

[LAUGHTER]

THOMAS Y. ALLMAN: All right.

JEFFREY J. FOWLER: I've had coffee. I'm ready to go. You know, this is an extreme situation where you have a witness who, essentially, admitted that their policy is to delete important stuff.

But there are other instances that we see all the time where corporations send out litigation hold notices and attempt to preserve custodian's files, sometimes hundreds of custodian's files. And over the course of litigation, some of those custodians become more important than they originally seemed. And you find out, when you prepare them for their deposition, that they didn't do a very good job of preserving relevant data.

I find that, in those instances, it is tempting for outside counsel to think that the thing to do is to go to court and concede that this witness has destroyed relevant evidence. And I had one matter that I was engaged to step into, in fact two matters, where outside counsel did that before figuring out whether the emails of that particular custodian might be in the hands of other custodians, which is what this case is talking about, essentially. And my takeaway is don't be so eager to concede loss.

Make sure that, even if you have one or two rogue custodians, that it's really the case that they had relevant data that couldn't be recovered from other custodians. Emails, by their very nature, exist in at least two places most of the time. And so the chance that a single custodian's deletion is going to truly lead to actual loss is pretty limited.

And yet, as lawyers, we don't necessarily think that way, because it's a more of an IT question. And so I often find that outside counsel are quick to say, you know, we have these five custodians. Two of them don't have their emails.

And the question is, well, how do you know that? They may not have their copy. So, you know, to me, the takeaway here is, you know, luckily, the court recognized it. But don't be so quick to concede that you've lost your emails.

THOMAS Y. ALLMAN: And let me give, as a footnote-- take a look back at this rule. And look at the second part of the rule. It says, not only has to have been lost, because of a failure to take reasonable steps, but it cannot be restored or replaced through additional discovery.

So that's another kind of related argument that this judge talks about. And that is, if you don't take it upon yourself to look around and see what else can be done to restore this, you're not going to be in a very good position to make the argument that it really cannot be restored. So, anyhow, we're starting off here with some defensive techniques, but this is really important.

Let's skip for a second to another kind of overarching problem. And that's the World Trade Center's case where they had both ESI and documentary evidence involved. Jeff, let me ask you this. What does that mean in terms of Rule 37(e)?

JEFFREY J. FOWLER: Yeah. Well, it meant, in this case, that the court applied two different standards, one for the paper documents that were alleged to have been destroyed and for the ESI. So they had two separate analyzes, which in reading the case I found a bit unfortunate. Ultimately, the court found that there had not been relevant data that had been lost.

But, you know, had the court found that relevant data-- I think we're going to talk about a case later where the court actually came up with different standards for the paper and the ESI that, you know, meant for a less consistent approach. To me, there are a couple of takeaways from World Trade Centers. This was a copyright infringement case over the course of many years, where one party threatened to sue the other early, a little bit before the lawsuit was filed.

And the court found that the threat of the lawsuit initiated the duty to preserve. I think that's an important point. And it's something that we sometimes overlook, which is, you know, litigators aren't often involved in contract negotiations or early resolution of these disputes and that it's incumbent upon all of us to keep this issue in mind as parties are negotiating.

And is there a point at which one of them, in this instance, actually threatens litigation? And the court, you know, found here that the duty to preserve triggered at that threat of litigation before the lawsuit was filed. But they also found, incidentally-- and I think this is also very important-- that the fact that the party had not issued a litigation hold notice was not a per se violation of their duty to preserve, that they had taken the steps.

And that those steps included informing people orally, that certain things needed to be preserved. Some of the paper in question, in fact, there was an office move. And there was evidence that effort had been made during the office move to make sure that the relevant data was saved, even though they were throwing a lot of stuff away.

THOMAS Y. ALLMAN: But what do you think, Jeff? Do you think that's nutty to say you should have one standard that applies if you lose ESI and another standard that applies if you lose a hard copy document of an email?

JEFFREY J. FOWLER: I think-- I mean--

THOMAS Y. ALLMAN: How many of you think this is a nutty distinction? OK. Not many. Who would like to defend it? Who can tell me why you think--

JEFFREY J. FOWLER: I'll take a shot at defending it.

THOMAS Y. ALLMAN: OK.

JEFFREY J. FOWLER: I don't know. Does that interrupt audience participation?

THOMAS Y. ALLMAN: Oh, no. That's all right. The audience doesn't want to touch this one with a 10-foot pole.

JEFFREY J. FOWLER: So here is the defense. I don't know that I agree with this, by the way. But I'm a defense lawyer, so I'll defend.

The idea is that physical evidence is a bit easier to preserve and that, with ESI, it's more elusive. So there should be a more forgiving standard, particularly in these instances where, as in this case, there was an email server that had migrated in all sorts of technical mumbo-jumbo that can lead to the destruction of ancillary, perhaps, you know, duplicative evidence that's harder to parse. Whereas, with physical evidence, there is more of a possibility of preserving that evidence, especially if it's not just a bunch of paper boxes, but also some sort of actual physical evidence, like the tire that led the car off the road. So, you know, I can see where there would be a distinction made, you know, for that kind of evidence. So that's my best shot.

GARY A. ADLER: I know, Jeff, that you said you didn't necessarily agree with it. And I got to say I think it was probably, for a person with nefarious intent, it would be easier to think you could get away with doing away with corporeal evidence versus ESI. Because if you convince yourself that there are only four copies of that memo and you throw them away and they're from, you know, 1952 so they're not on a server somewhere, you might convince yourself they're really all gone. Whereas, things that are on somebody's computer are everywhere.

THOMAS Y. ALLMAN: In any event, we're stuck with it, ladies and gentlemen. So you've got to remember, if it's to your advantage-- we haven't been open about this. But, generally speaking, the ability to get a spoliation sanction is tougher with respect to tangible property and physical hard copy documents-- I'm sorry, it's easier, because the inherent power is what you're dealing with.

And under the New York doctrine under residential funding, all it takes is mere negligence or gross negligence to support a massive amount of spoliation sanctions. Whereas, the ESI doctrine has a higher bar, the one that requires intent to deprive. So you have to decide in your individual instances which is to your advantage.

Now, the in-house lawyers in a room know, as I used to know as an in-house lawyers, you don't think way in-house. You don't calibrate your retention policies based on whether or not you're going to escape if it's only bad faith versus, let's say, negligence. But for the advocates in the room, this is something you need to keep in mind.

And I hate to beat this dead horse, but we've given you two important distinctions here. First, it's really got to be lost and not available in some other way. And, secondly, it's got to be ESI for Rule 37(e) to apply.

So let's talk for a minute about the toughest thing that I had as an in-house lawyer, which was deciding what had to be preserved and when it has to be preserved. And I'm just going to ask that-- I'm going to start with Melissa. Melissa, you have some interesting observations about how you feel this is going. Tell us what you think about this question of what do you have to preserve and when do you have to preserve it.

MELISSA R. CLARK: I think the question that's easier to answer is what don't you have to preserve and when don't you have to preserve it, because that's a shorter, if not nonexistent, list. The reality is that technology is changing really rapidly. And, you know, I represent a lot of consumer plaintiffs who handle data in much different ways.

But even on the corporate side, you have employees who are handling business through personal accounts, talking about their company. Maybe they have LinkedIn profiles that talk about their work on a project. And after a lawsuit is filed, they want to look back at what they wrote.

We have apps now that have notifications. How do you preserve a notification that pops up? And how do you preserve the metadata for that notification? Is it proportional to have to go down on these roads?

So, you know, I've seen a whole list. I mean, you have a great list you're on the slide in front of you. But browsing history, spam emails have become relevant. And those are sometimes auto-deleted. So you have to have really early discussions with your client and with the opposing party to find out what's out there, what's proportional in terms of preserving all of these different sources, and how the technology might kind of get ahead of you in terms of preserving this if there's automatic deletion or things are going to disappear after a certain amount of time.

JEFFREY J. FOWLER: Yeah. You know, I think that the Rule 37(e) came at the right time. Because I have found, in my practice, that it has tempered-- it has done what it was intended to do, which was not only align the jurisdictions on a standard, but also gotten courts and parties to really think through whether the destruction of what has become infinite ESI is truly sanctionable and warranted as such. Because it is the case that data is now everywhere.

It's one of the things that I find fascinating about e-discovery, which is this is never going to petrify. We're always going to have different forms of evidence. And one of the things that I've found, as someone who consults companies on these issues, is that the concern about cyber attacks has, you know, sort of increased company sensitivity to containing their data, which has been a good thing for discovery as well.

There's been sort of a positive byproduct of companies focusing on making sure that they have control of their data. By having more control of their data, we in the litigation business have a better chance of being able to find it. And so, you know, there has been this interesting alignment with concerns about cybersecurity and what employees are doing with company data.

One last comment-- I find this interesting-- is that a lot of start-ups with interesting business communication ideas-- it's been my observation-- have come up with a smart way of getting companies to align with them. And that is to go directly to the employees and get employees to start using these apps and these tools. And, you know, things like Dropbox, Slack, you know, these tools were not-- it was not a situation where these companies went to the corporation and said, hey, would you like to enter into a contract with us.

What happened was employees started using the product. And companies had to come up with a solution. And there was such a groundswell of demand for the product that the company had to come to the table and negotiate some sort of deal with these providers.

So one thing to keep in mind, especially if you're in-house counsel, is that your employees may be using tools that you don't even realize they're using. And the easiest solution sometimes is, rather than beat them, to join them. Come up with a way of engaging the provider in some sort of agreement to make sure that the data is protected.

THOMAS Y. ALLMAN: So let's now turn then to that portion of the rule that walks this ground. And that's the reasonable steps litigation hold portion. I'm going to start out by asking-- actually, I'm going to go right back to you, Jeff, and ask you to tell us about the very first case we've listed here.

This EPAC litigation is a massive piece of litigation. And this is an extraordinary opinion which, if you are willing to take the time to read through it, is well worth your time. So tell us a little bit about it.

JEFFREY J. FOWLER: I was going to say I think of all the opinions that I read in preparation for this, I would focus on EPAC. It is fascinating. One of the things that's fascinating to me, I think, and it's in the first paragraph is that the magistrate judge called it a quagmire of adversarialism which, in addition to being very poetic, I think sort of sums up how it became massive.

It doesn't really seem like the litigation itself was all too massive. It was a breach of contract case brought by a printing company against a publisher arguing that the publisher attempted to get out of a contract with the printing company, you know, in breach of the contract. The complaints that they were making about the publisher were false and designed to allow-- I'm sorry-- the publisher to get out of the printing contract.

THOMAS Y. ALLMAN: Well, how good of a job did they do on their litigation holds?

JEFFREY J. FOWLER: Well, so they didn't do a very good job, at least that's what the special master found.

THOMAS Y. ALLMAN: By the way, the special master is Craig Ball. I don't know how many you know who Craig Ball is, but he is a really prominent practitioner in the forensic and the technological side. And he was hired to write a-- and did write a massive special masters report.

And this opinion is the magistrate judge reviewing and basically rewriting Craig Ball's opinion to fit what the judge thinks fits. But the core to this opinion has to do with the conduct of in-house lawyers with respect to litigation holds. And tell us a little bit about that.

JEFFREY J. FOWLER: Yeah. I mean, you know, it was interesting, because what the court and special master Ball found was that the division of HarperCollins that was really the defendant here had not taken reasonable steps. Interestingly, they did issue a litigation hold around the time that the dispute flamed, around the time that the court found was the trigger of the duty to preserve. But it was a form hold notice that, it appeared, had not been properly followed and, more importantly, that the company had not taken steps to inform IT and kind of go through an analysis to figure out and make sure that certain things were preserved.

The two-- well, the three major items that were alleged to not have been preserved were, number one, a bunch of printed copies of the books that would have shown whether or not the printer had done a good job. So we have paper. And the court did apply a different standard.

Then we had a database, which would have indicated the transactional history and, essentially, you know, numerically, I guess, how many books have been printed, et cetera. And then, finally-- email at the defendant HarperCollins and that, in fact, there had been an auto-delete on the email and evidence that somewhere around 750,000 emails had been deleted during the course of the preservation period. Now, it was also the case that the court found that-- and I think this was largely the result of the special master's opinion.

The defendant did, once the special master was engaged, opened its doors. And if I understand, you know, Craig actually went to the company and interviewed witnesses and was quite involved. And there had been quite a transparent effort to figure out what had happened. And I have to believe that that helped, you know, temper any kind of concern that counsel was being uncooperative at that point.

But what's also the case is that both parties were sort of engaged in a scorched Earth kind of approach. And there was mention in the opinion that EPAC, in particular, had been so aggressive that that also had some influence on the court's ultimate decision. What I found interesting-- and I'm looking at my notes here, because I want to make--

THOMAS Y. ALLMAN: Well, let me ask the blunt question.

JEFFREY J. FOWLER: Yeah.

THOMAS Y. ALLMAN: Rule 37(e) requires what of a lawyer or his client with respect to litigation holds? What are you supposed to do?

JEFFREY J. FOWLER: Take reasonable steps.

THOMAS Y. ALLMAN: Did they take reasonable steps in this case?

JEFFREY J. FOWLER: I mean, Craig Ball found that they-- I don't remember what language he used. But it was quite clear that they had not taken reasonable steps.

GARY A. ADLER: And did he not blame the in-house lawyer for it?

JEFFREY J. FOWLER: He did.

THOMAS Y. ALLMAN: Yeah. So here we have an in-house lawyer who doesn't take reasonable steps, doesn't follow up and doesn't make sure that litigation holds were being taken. Does that mean that the company failed, that the company had an intent to deprive when this led to the loss of the EDI?

JEFFREY J. FOWLER: No. That's the interesting thing. That was what I found that the-- this is where Rule 37(e) has made a difference I think. You know, what the opinion stated, as I recall, is that there had been a massive-- and I don't remember the language. But it was something like an arrogant failure or something like that, to take reasonable steps to reach out to IT, which had led to the destruction of, particularly, the ESI, but that there was no evidence that this was the result of an intent to deprive. It seemed more evidence of a sort of an utter disregard or a failure to follow reasonable steps.

And there was another piece of interesting evidence which we always deal with in spoliation cases, which is there was some reference to a Department of Justice investigation where HarperCollins had taken a much more conservative approach to preservation, suggesting that there was evidence in this case of steps that the company had taken in other litigation, which is an issue that we face a lot when dealing with spoliation claims. That is, you know, do you get evidence of how the company handles litigation holds in other matters to prove that they didn't do a good job in your matter? And in this case, the evidence did come out.

THOMAS Y. ALLMAN: So the takeaway we want you to walk away with is that, in this particular case, the actions of an in-house lawyer in failing to do his job as the court saw it with respect to implementing and following up on litigation holds, caused the court to hold that the company had not taken reasonable steps. But it did not deprive the company of the right to argue under 37(e) that harsh measures were not available for loss of the ESI, because there was no intent to deprive. So there's these moving parts in 37(e). Reasonable steps are crucial. But if you don't have that intent to deprive, you're not going to be able to argue for and you are in the position of arguing against harsh measures.

MELISSA R. CLARK: I think that goes back a little bit to, Gary, what you said earlier about the idea that maybe you are less likely to get caught if you destroy hard copy evidence. And maybe that's true. But you might be able to get out of it a little more easily if it's electronic, because the technology now is advancing so quickly. The volume of data is so incredibly huge that, even when there are these reasonable steps or lack thereof, there's not necessarily an intent to deprive. Sometimes in-house counsel or outside counsel or even IT just gets in a little bit over their head and doesn't quite make sure they catch it all before it goes out the door.

JEFFREY J. FOWLER: And, you know, in this case, and I think interestingly, the remedy, what the court ultimately found was, for emails, it found that there was no evidence that relevant emails had been lost. Because there was a massive effort during this period with the special master to find emails on backup tapes and other sources where they were able to produce a bunch of emails. So the remedy there was reopened depositions to allow the party to benefit from the late-produced emails.

With regard to the paper books, the court applied the non-Rule 37(e) common law standard and found that the negligence of the destruction of the books was enough to instruct the jury a rebuttable jury instruction that the books would have favored the printer, the plaintiff. It was rebuttable. And then thirdly, as for the warehouse data, which was the data that appeared to be the most-- there was more evidence of actual loss. The court decided to instruct the jury-- not provide an adverse inference, but instruct the jury that, if the data existed today, it would show whether or not, and then some of the allegations.

And I don't recall the specifics of the printing allegations, but, essentially, that the data would be probative. So the instruction was going to be they destroyed it, and it would have been probative, as opposed to presume that it would be relevant or presume that it would prove x. So that was the middle ground that the court found. Which I remember, I think, Tom, when we did this presentation a couple of years ago, one of the questions that you raised was can a curative measure be a jury instruction. And what we found in these cases that you've summarized is that that's going on.

THOMAS Y. ALLMAN: In any event, we have reasonable steps at the core of Rule 37(e). And a lot of us, including myself, used to openly say, well, that's the safe harbor. You take reasonable steps, you're not going to get sanctioned.

And that is true. It is necessary for the court to have found a failure to take reasonable steps before you go to the next step. But as Melissa just alluded to, the failure to show intent to deprive, in this case, is not enough to show a failure to take reasonable steps.

There is your safe harbor. For those of you in the corporate world who are worried about doing the best you can, following reasonable corporate policies, you have this ultimate protection. If you do that and you do not have an intent to deprive, you're not going to get sanctioned. And maybe, Jeff, that is what you were trying to say a minute ago when you said this is the core point of this rule.

Let me skip the Duncanson case and go to the Western Power case. Because that's kind of an amusing sidelight to the question of is it reasonable to say I did everything I could, but I got hacked. So maybe, Melissa, you want to tell us about that one.

MELISSA R. CLARK: Yeah. And this goes back to what you said, Jeff, a little bit ago, that companies are now very aware of cyber attacks. So they're sort of consolidating the data. In this case, plaintiff was a manufacturer's representative. And plaintiff and worked for defendant and was supposed to pay a commission.

And there was a fight over the agreement about commission and how it was calculated. So shortly after discovery commenced, plaintiff produced a spreadsheet showing it's calculation of the unpaid or underpaid commission. And soon after that, defendant was a victim of a cyber attack, lost everything, everything that the plaintiff wanted.

Luckily for them, they did manage to find a spreadsheet that they created before the cyber attack showing their own version of the commission. So there was some dispute over that. And plaintiff moved for spoliation sanctions.

And defendant said, we did take reasonable steps. Plaintiff wasn't prejudiced, because it had already done its underpayment calculation. But Rule 37(e) is inapplicable when a loss occurs due to a software attack. And Transamerican argue that, because the software attack affected all of its servers, that even if it had made extra copies, even if it had put it somewhere else, there was nothing that they could have done to avoid this loss.

The court acknowledged the rule and acknowledged this pseudo-safe harbor for software attacks, but said that the rule also states that the court may assess whether a defendant adequately protected against the risk of that attack. And that's a fact intensive question. So the court allowed the motion for sanctions to be deferred until trial and evidence of what those reasonable steps were, even though there was clearly an outside intervener here.

THOMAS Y. ALLMAN: So we don't want to beat this to a-- you know, we're not going to overstate this. But it is an interesting example of, even though you do not have control over things, the question then shifts should you have anticipated that you might not have control over everything. And did you do everything? Did you take every reasonable step you could have taken to have taken into account the fact of a cyber attack?

And this is why some of my colleagues at Sedona come out with big arguments about information governance and hiring all these experts and so on. So it isn't enough that this person was hacked. The question is, should they have anticipated. And did they do something that was reasonable to take care of that possibility?

So let us switch to the responsibilities of counsel. We've been talking about that all throughout this presentation. But in this first case, Jeff, a case from the Northern District of Ohio, there seems to be a real ethical mixture in Rule 37(e) here.

In other words, it isn't enough to just look at Rule 37(e). You've got to take into account your ethics. So what's your reaction to this case?

JEFFREY J. FOWLER: Yeah. I mean, my reaction was that it was pretty unique, but instructive, situation where plaintiff actually brought a sanctions motion against the law firm of defendant who had withdrawn. So this was a sanctions motion against a law firm who had withdrawn without explaining necessarily why. And it came out that the law firm had discovered that its client was altering data and, perhaps, not preserving data.

And so this is a discovery conduct case. To me, the big-- I mean, there were two takeaways. The first one is this ethical question of, to the extent that a counsel has a duty-- what counsel's duty of confidentiality, the scope of its duty of confidentiality, versus its duty of candor to the court.

And I think this is an open question. In this case, the court sided in Ohio professional responsibility rule and claimed that the duty of candor to the court exceeded or superseded the duty of confidentiality. I was thinking this morning-- I didn't get a chance to look.

I'm a California lawyer. I'm not sure that the same analysis would apply in California. I think that the duty of confidentiality is maybe a bit stronger. I'm not sure.

But I think that, to me, there are a couple of sort of practical takeaways, short of answering the question of whether you have an obligation to tell the court when you know your client is destroying evidence. Which is, what I saw in this case and in the record, and it happens a lot, is this sort of miscommunication where you have defense counsel who is constantly affirming that everything has been produced, which is sometimes a mistake. Because you truly don't know. And then-- a court and an adversary who is insisting that there be evidence that everything be produced.

And although, this case, it seems like that might have been more doable and tangible, there are plenty of cases that I've seen where the court is sort of less empathetic to the possibility that data and evidence is ephemeral and that you can't necessarily produce "everything," quote unquote. I have a case that I'm stepping into on behalf of a client who's in a discovery dispute, where the court keeps telling its current outside counsel all means all. And we're trying to figure out a way of explaining to the court that, when you're a massive corporation, all doesn't mean all, you know?

There's no such thing. But in the meantime, how counsel often get themselves in a bit of hot water is by saying, OK, all means all. Your honor, all was produced. And then, of course, you know, you get contradicted when other evidence pops up. And it hurts your credibility.

THOMAS Y. ALLMAN: What we've shown is sort of the EPAC case. We've told you that in-house lawyers, maybe they're not going to get sanctioned themselves, but their company can get sanctioned for failure to do their work. Here, in this case, we've got the outside lawyer who fails to say to the judge, look, we've learned something about what our client is doing.

And because we don't like it, we're getting out of here. We're withdrawing. So let's talk then about industrial quick search. What are the consequences for lawyers who don't maybe measure up to their standards?

MELISSA R. CLARK: Well, the only consequences you really have to face are malpractice. So--

[LAUGHTER]

--industrial quick search is not actually a sanctions case. It's a malpractice case against the lawyers. The client and the underlying copyright action was sanctioned pretty heavily with the dismissal of its claims or its defenses and its counterclaims.

THOMAS Y. ALLMAN: So are you telling me that, even though we've never seen this before, that if these folks out here don't pay attention to their responsibilities with respect to electronic discovery, they can be sued for malpractice?

MELISSA R. CLARK: Absolutely.

THOMAS Y. ALLMAN: And in the Southern District of New York, you can get to the jury?

MELISSA R. CLARK: You can get to the jury.

THOMAS Y. ALLMAN: OK. You better tell them about that.

[LAUGHTER]

MELISSA R. CLARK: So in the underlying case, it was the defendant had taken some interesting actions in production. I won't go into all of the facts, but it's a fun read. One of the things that they did was they had a policy in practice of using scrap paper.

So when it came time to gather all of their relevant data or their hard copy documents and their data, they said, OK, on one side, we've got junk emails and confidential information and proprietary information, so I'm going to pull everything relevant. But I'll copy the relevant part and produce it. And one of the former employees actually called the opposing party and said, I've been removing documents for the purposes of destruction.

They had also deleted some emails about the rewrite of a website after they had instructed their intern to copy a website from one of their competitors. And, as I said, the party was sanctioned pretty heavily. And when they brought their malpractice claim, they said, we asked repeatedly. We asked our attorneys for advice.

What should we do? We told them what we were doing. We never got a preservation instruction. We didn't even know we should have a document potentially policy until well after discovery and we were sanctioned.

And the law firm had two sort of interesting defenses. One was legal. And one was factual. And on the legal side, they said, we didn't owe a duty to tell you to preserve your documents, or your data, or oversee it, because we became counsel in 2003. And you received a cease and desist letter about this in 2001.

Because you were already on notice of this duty, or you should have been because of your previous lawyer, we didn't have that duty. And then maybe the factual argument that, to the extent we did have an obligation, we gave an oral litigation hold, which the court didn't love and led to a fact question that allowed the case to proceed. And, unsurprisingly, the court said, you know, this doesn't cut it.

Maybe it doesn't rise to the level of, you know, bad faith. But when you look at the malpractice standard, failure to fulfill the obligation to institute a litigation hold, a preservation letter, and oversee discovery fell below the ordinary and reasonable skill possessed by members of the legal bar. It's not enough just to come in and implement the legal hold.

You need to oversee it. You need to monitor the client's efforts to retain and produce documents. And, you know, it's applying Rule 37 not just to the client, but to the lawyer. The lawyer has an obligation to take reasonable steps to ensure preservation.

THOMAS Y. ALLMAN: So let me just interrupt and ask the audience to think about this. And then by a show of hands, I'd like to hear what you think. Do you, audience, believe that a lawyer has the responsibility and the duty to cause his client to preserve information that is required to be preserved under Rule 37(e)? Let me see your hands of who think they do.

A very substantial number believe that. And the opinion draws this duty from Zubulake V. And you'll recall Zubulake V is the one where Judge Scheindlin laid out, in great detail, the steps of a litigation hold and a follow up from it and actually makes the assertion that it is the lawyer's responsibility, which I do not agree with, that to ensure that preservation occurs.

And my position is that it's the client's responsibility to see that it occurs. The lawyer's duty is to advise the client and to take reasonable steps under Rule 26(g) to make sure that they've done it, or at least have taken some steps to go that way. But this case goes right to the jugular, applies Zubulake V, says that's enough to get you in front of a jury under a malpractice claim.

This is a dangerous case for all lawyers, inside and outside. And I cannot tell you what's happened to it. I don't know. Does anybody in the room know what's happened to this case?

It's a Southern District of New York case. It was January. So if it was going to be tried, I think we would have heard about it from now.

GARY A. ADLER: I have not heard anything.

THOMAS Y. ALLMAN: Yeah. But it's just sitting out there like a ticking time bomb. And it's going to be cited against you no matter which side of the V you're on down the road. I don't know, Jeff, have you had anybody claim that you or your law firm committed malpractice in this kind of a context?

JEFFREY J. FOWLER: No.

GARY A. ADLER: That was very emphatic.

JEFFREY J. FOWLER: Yeah.

GARY A. ADLER: Are you insured?

JEFFREY J. FOWLER: I mean, I was thinking--

GARY A. ADLER: By the way, are you insured for this?

JEFFREY J. FOWLER: What's that? Yeah.

GARY A. ADLER: Is this an insurable risk?

JEFFREY J. FOWLER: I mean, I'll ask our general counsel. I'm sure it is. I mean, you know, it's not that surprising to me. Now, of course, I'm in e-discovery guy.

So if this weren't the case, I would have a gig. But, you know, it does seem to me that, you know, now the extent to which it is outside counsel's responsibility versus in-house lawyer's responsibility-- I mean, the duty to preserve evidence, you know, far predates Zubulake. The issue is what are the reasonable steps that need to be taken now that evidence is ephemeral.

As we show, I think, in some of these cases, especially since Rule 37(e), there is a story to tell. And that's the job. The job is, at the very beginning of a case and even the smallest case, to think about what story are we going to tell that proves that we did what we needed to do to preserve evidence.

And, now, you don't even have to completely accomplish it, meaning, you know, there can be a custodian or two who fails to preserve. And the rule, you know, at least gives you some opportunity to defend yourself. So, you know, I think that it isn't as scary, I think, as perhaps maybe it could be, so long as you understand that there are steps that can be taken, you know?

THOMAS Y. ALLMAN: This is the first-- yes, in the back.

AUDIENCE: So how does that all square with the advice that typically is given to corporations by counsel on the outside for record retention purposes that less is more?

JEFFREY J. FOWLER: Well, I mean I think that-- you know, I personally temper that advice with unless more is better. Because sometimes it's better to prove the negative. It's not always the case that less is more, especially now that there are ways in the process of discovery to try and limit the actual exposure to having to collect and produce.

There are plenty of clients I have who have decided more is less. You know, but that said, it's also the case that there's a clear difference between what a company does when it's not under a duty to preserve versus when it isn't. Now, what does that mean?

Companies, or often large companies, are under hundreds of litigation holds at a time. So then it is a tight rope, you know, that you're constantly balancing on, which is where can we limit the amount of data that we are preserving where we don't have a duty to preserve it. And where can we make sure to fulfill our discovery obligations?

And Rule 37(e) actually gives us a little more. It's a wider berth now to be able to actually go in and pop the hood and say, OK, well, for all of your, you know, employees that aren't directly related to this massive department of justice investigation, there is some room. But it all depends, also, on the client's portfolio.

There are clients that have so much litigation that they've just decided that the effort to actually get rid of stuff is not worth it, because the risks are too high and, especially, given how massive the particular litigation is. So I mean, I think the punch line here is I actually think that there's more room to have a stricter retention policy, so long as you have a very solid preservation policy, than there was before Rule 37(e).

THOMAS Y. ALLMAN: Does that mean you should have an archival component to it?

JEFFREY J. FOWLER: Well, I mean, you know, interestingly, that is much more driven by IT than it is by, you know, in-house lawyers typically. And that is, you know, is IT investing in archiving tools. And, usually, they are investing in those tools for reasons that have less to do with litigation holds. And some of those tools are helpful. And some of those tools are not helpful or less helpful.

MELISSA R. CLARK: I'm surprised to hear that, because, you know, there's a different hurdle when you're getting back-up tapes and archived information. I would think that there would be an incentive to kind of keep only what you really need to keep active. And, to be on the safe side, archive it.

Make it hard for your opposing council to get to. But it's there, so you're not accused of any wrongdoing. I'm surprised it's so IT driven.

JEFFREY J. FOWLER: Well, and it's because the business's first, you know, objective, typically, is business.

MELISSA R. CLARK: Right.

JEFFREY J. FOWLER: Right? So they have employees who have an interest in keeping stuff. You know, maybe there are issues around efficiency and the fact that now everyone's moving to the cloud, where mailboxes are getting bigger. So, you know, is more of an appetite for having data. And the law department, often, has to just ride the wave.

THOMAS Y. ALLMAN: I think we're going to leave it at that. But I'd love to know. The person who asked the question, are you an in-house lawyer, by any chance?

AUDIENCE: I am, yes.

THOMAS Y. ALLMAN: And is your firm doing more or less?

AUDIENCE: Less. A matter of fact, we're being told to put limits, 45 days rolling off the servers, things like that for record retention purposes.

THOMAS Y. ALLMAN: Yeah. Oh, OK. Very interesting.

JEFFREY J. FOWLER: And that is common. And that's a common time frame.

THOMAS Y. ALLMAN: Are you backing up your stuff by archiving?

AUDIENCE: Backing up, but not archiving. Because archiving costs money.

THOMAS Y. ALLMAN: OK. I remember in my days as a general counsel, the question of who's going to get the money to do what you want to do is a tough one. Let's move on to culpability.

We've already covered culpability pretty well. But I think it's important to make the point about the relationship between intent and reasonable steps one more time. Maybe you could take us through this, Melissa?

MELISSA R. CLARK: Sure. This was a 1983 action brought by a police officer against a new mayor and a new police chief who had down interfered with his job after he supported a mayoral candidate who did not win. And after discovery started, after the litigation, well after defendants admitted that they received a litigation hold, plaintiff sought discovery of text messages.

And according to deposition testimony, the text messages were highly relevant. They were specifically about the police department. They were about the plaintiff.

But it had been years. And both the mayor and the new police chief who had been texting one another didn't have their phones anymore. And this is a really common problem. I think, if I recall correctly, one of them had a company phone. And the other one was using his personal phone.

So this is another concern where, if you've got your employees using their personal devices to talk about business issues, particularly once they become subject to a litigation hold, you have to identify those devices. There was no question they failed to take reasonable steps. They didn't do anything.

They didn't try to back it up. Maybe they saved one phone. They couldn't find it anymore. It had been recycled 10 times over. The text messages were long gone. But despite all that, the court still said there was no intent to deprive here.

THOMAS Y. ALLMAN: And no sanctions?

MELISSA R. CLARK: No sanctions.

THOMAS Y. ALLMAN: I should mention this is a small kind of dispute in the sense that it does not involve the situation we just talked about with the in-house lawyer. So, perhaps, you could excuse it. But this is typical of what you're beginning to see in governmental disputes with their former employees, fireman's cases, prisoner cases. There's a lot of turmoil over the question of whether or not they get a special--

GARY A. ADLER: Dispensation?

THOMAS Y. ALLMAN: Yeah, it really is. But let me ask you this, Melissa. Speaking from plaintiff's party side or requesting party's side, do you think that this intent to deprive standard is having an adverse effect? Are people becoming less willing to take those extra steps necessary to preserve?

MELISSA R. CLARK: I think there's a little bit of that. I think we're still in a transition period, and so there's a lot of caution. And although there might be more clear or limited guidelines about when sanctions can go into place, there's not a lot of clarity about what you do and don't have to preserve.

So a little bit of what I'm seeing is that, you know, when defendants and corporations are willing to engage in these early ESI disclosure discussions, which we really encourage, and we talk about where data resides and what the scope of preservation should be, defendants are feeling more comfortable drawing a line and saying, here's what I'm going to preserve. Anything more than that is just not proportional to this case. It's too expensive.

And maybe there will be a little asterisk to that. If you really want it, if you think you really need it, you preserve it. You pay for it.

You come and get it. You take possession of the devices at issue. But there's certainly a comfort level, recently, that I haven't always seen in drawing a hard line instead of saying, we'll preserve all, and all is all.

JEFFREY J. FOWLER: It's funny, because that hasn't necessarily been my experience. And the reason is because I always say that, you know, there is this quandary associated with early discussion of preservation. And that is that if we are at the beginning of a case before there's any discovery, even the complaint might not even be settled, and we as a defendant are hoping that we're going to convince a judge that we cannot preserve things, our chances are pretty slim.

Courts invite this all the time, particularly in conferences like this, right? They say, look, discuss it. And then come to me, and we'll figure out what you should preserve and what you shouldn't.

The problem is is that, if you're at the beginning of a case and you don't want to preserve voicemail or text messages, or you don't want to preserve more than 50 custodians, getting a court to let you, essentially, destroy evidence before a case is even underway is really challenging. So, you know, it's often not advisable to expose your preservation decision making at the beginning of a case. It's actually often the case that you're better off making a reasonable judgment and dealing with it when the case has unfolded.

And, of course, reasonable is the key. You don't want to be in a situation where you've destroyed something that is truly relevant. But you end up in these hypothetical arguments at the beginning of a lawsuit over what's relevant, what's not relevant, that often, I find, to be unproductive.

And, you know, I'm not convinced that those early discussions always result in a more seamless discovery experience. I sometimes think they advance discovery disputes before they're mature.

THOMAS Y. ALLMAN: Well, thank you very-- thank you, Melissa and Jeff. This has been a great discussion. We have, like, 2 minutes left. Does anybody have a burning question they'd like to put on the table before we leave for lunch?

If not, I'm going to thank you all for participating. And we enjoyed your participation. And we appreciate it very much. And I'm going to turn it back over to Gary.

GARY A. ADLER: Great. Thank you very much to our panel. Thank you to everyone.

[APPLAUSE]

We break until [AUDIO OUT] I believe.

SPEAKER: Yes.

GARY A. ADLER: Yes? Let's just check and make sure I invite you all back for the right time.

SPEAKER: Yes.

GARY A. ADLER: 1:45, please. Thanks very much.

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