You Don’t Want Discovery Overdraft Charges

Discovery deadlines matter. Wells Fargo learned that the hard way with producing a relevant email 8 months after the close of discovery. Given the nature of the relevancy to the lawsuit, limited additional discovery was reopened.

Opps_iStock_Here is the short overview of the case: Plaintiff’s asked Wells Fargo if the other Defendants (now dismissed) were a legitimate business engaged in securities sales. The bank said yes and the Plaintiff transferred $80,000 to the Defendant’s bank account in order to purchase securities that would yield a return of $280,000.

The second transaction involved reinvesting $250,000 of the promised $280,000 to fund a $500,000 loan to renovate an office building, plus an additional $50,000 transaction fee. Gazian v. Wells Fargo Bank Na, 2015 U.S. Dist. LEXIS 69701, *2-3.

The Plaintiffs attempted to withdraw $30,000 and transfer the $250,000 to the Defendants. Wells Fargo informed the Plaintiffs that the dismissed Defendants accounts had been emptied and no money would be transferred to the Plaintiffs. Id.

The Plaintiff’s sued Wells Fargo on the theory the bank “knowingly or negligently made false representations to Plaintiffs” about the dismissed Defendants. Gazian, at *3.

Enter the late-produced email message:

From: BROWN, Patrick [Wells Fargo]

Sent: Tue 8/2/2011 5:36:42 PM

Re: HSBC Bank Guarantee Registration Number BH5843[.]

I have conducted a review on the signor, Craig Cason, for this account, [redacted]7443 — Increase Capital Investments LLC and found several items of concern . . .

This individual has been investigated by the SEC for securities violations and accusations of fraud.

The address on the account is a virtual office that can be rented for $50/month, used frequently by shell companies to give the appearance of legitimacy even though no actual business is conducted there.

The client has filed multiple bankruptcies and has several outstanding judgments (some in excess of $100K), which is not consistent with someone purporting to have $250mil in assets.

Please do not process the receipt of this security. We will be restricting the account and referring the matter to our Security Fraud group. Additionally, please DO NOT disclose this information to the client or the outcome of our review. Please advise the client that we cannot assist him with his request.

Gazian, at *4.

The Defendants claimed this messaged pertained to another securities deal and was not relevant. Gazian, at *5. The Plaintiff and the Court did not agree.

The Court reopened discovery so the Plaintiffs could conduct 5 additional depositions of no more than 20 hours of depo time; 10 additional requests for production; and 10 additional interrogatories. The Court went further to say that the additional depositions and written discovery could inquire into the preservation of emails sent to and from one of the Wells Fargo custodians. Gazian, at *7-8.

Bow Tie Thoughts

A lawsuit can hinge on one smoking gun email that was produced late. This sort of situation is one that needs to be avoided by litigants. The problem when this happens is often one of not having an effective information governance solution, or not issuing a litigation hold correctly, or not collecting ESI, or not knowing how to leverage early case assessment tools to find potentially relevant information. To put it mildly, disaster can happen for many reasons.

How can parties avoid these situations? Use sound technologies to manage data that can issue a litigation hold and preserve relevant ESI. This does require determining what is relevant, but these are problems that can be solved by knowing what actions to take and the tools to properly litigate a case.

Rule 34: As Basic As You Get

Magistrate Judge Paul Grewal is one of the new heroes of eDiscovery jurisprudence. In Venture Corp. Ltd. v. Barrett, the good Judge opened with the following on Rule 34:

Most lawyers (and hopefully judges) would be forgiven if they could not recite on demand some of the more obscure of the Federal Rules of Civil Procedure. Rule 80 (Stenographic Transcript as Evidence) and Rule 64 (Seizing a Person or Property) come to mind. But Rule 34 (Producing Documents, Electronically Stored Information, and Tangible Things) is about as basic to any civil case as it gets. And yet, over and over again, the undersigned is confronted with misapprehension of its standards and elements by even experienced counsel. Unfortunately, this case presents yet another example.

Venture Corp. Ltd. v. Barrett, 2014 U.S. Dist. LEXIS 147643, 1 (N.D. Cal. Oct. 16, 2014).

Here is what happened: The Defendant served discovery requests on the Plaintiff and wanted the discovery and organized and labeled to identify the requests to which they were responsive; The Plaintiff did not want to do that and instead produced 41,000 pages of discovery, which ended with the Court ordering re-production for not following either Rule 34(b)(2)(E)(i) or (ii). Venture Corp. Ltd., at *1-2.

The Tactical Document Dump

tic-tac-toe-150614_1280Federal Rule of Civil Procedure Rule 34 is supposed to prevent the “document dump,” which was the attorney Cold War equivalent of a doomsday weapon.

Its deterrent was the threat of the opposing side also unleashing a document dump, introducing mutually assured destruction in civil discovery.

Discovery is not supposed to be an experiment in game theory. Discovery must be produced one of two ways under Rule 34(b)(2)(E):

1) “[A] party must produce documents as they are kept in the ordinary course of business or must organize and label them to correspond to the categories in the request.” 

2) “[I]f a request does not specify a form for producing electronically stored information, a party must produce it in a form or forms in which it is ordinarily maintained or in a reasonably usable form or forms. A party need not produce the same electronically stored information in more than one form.”

Venture Corp. Ltd., at *2-3.

Apparently no one saw War Games or the Guns of August before producing discovery. This case had a telephonic meet and NOT confer where the Plaintiff claimed the Defendant agreed to accept PDFS or native files in bulk; the Defendant denied such an agreement. Venture Corp. Ltd., at *3.

usb-pen-146884_1280The Plaintiff produced on a flash drive and by email approximately 41,000 of PDF’s and native files with no index, table, or anything but folders with the aforementioned files. Id.

The Court explained that the language of Federal Rule of Civil Procedure Rule 34(b)(2)(E)(i) is clear: if documents are not organized and labeled to correspond to the categories in the request, they must be produced as they are kept in the usual course of business. Venture Corp. Ltd., at *5.

The Plaintiff did not comply with Rule 34(b)(2)(E)(i).

If a party that elects to produce discovery as it is kept in the ordinary course of business, the producing party has the burden to prove their production was made in such a manner beyond a mere claim. Venture Corp. Ltd., at *5-6.

There was substantial he said/she said about the alleged agreement on the organization of the production, with the Plaintiff claiming in an affidavit that Defendant agreed to the production of blended native files and PDFs instead of with a load file and index. Venture Corp. Ltd., at *6-7.

The Court noted that even if there was an agreement on the form of production under Rule 34(b)(2)(E)(ii), that would not absolve the producing party of its obligation to produce ESI as it is kept in the ordinary course of business under Rule 34(b)(2)(E)(i). Venture Corp. Ltd., at *7.

Judge Grewal explained the distinction between Rule 34(b)(2)(E)(i) and (ii):

This distinction matters. Form under subsection (ii) is about whether the production should be native, near-native, imaged as PDF (or more commonly, as TIFFs accompanied by load files containing searchable text and metadata) or in paper (printed out). Providing information about how documents and ESI are kept under subsection (i) “[a]t a minimum . . . mean[s] that the disclosing party should provide information about each document which ideally would include, in some fashion, the identity of the custodian or person from whom the documents were obtained, an indication of whether they are retained in hard copy or digital format, assurance that the documents have been produced in the order in which they are maintained, and a general description of the filing system from which they were recovered.”

Venture Corp. Ltd., at *7-8.

There was no agreement on the form of production, thus the Plaintiff Producing Party had a duty under Rule 34(b)(2)(E)(ii) to show that the production was either 1) as the ESI was ordinarily maintained or 2) in a reasonable form. Venture Corp. Ltd., at *8.

Judge Grewal directly summed up the reality with such a production, that “there is no serious question that a grab-bag of PDF and native files is neither how the Ventures ordinarily maintained the documents and ESI nor is ‘in a reasonably usuable form.’” Id.

The Court ordered the producing party to do the following as a remedy:

(1) Either organize and label each document it has produced or it shall provide custodial and other organizational information along the lines outlined above and

(2) Produce load files for its production containing searchable text and metadata.

Venture Corp. Ltd., at *8-9. [Bold emphasis in original].

Bow Tie Thoughts

Random files make document review a nightmare. I am a big fan of Rule 34(b)(2)(E)(i) because I want discovery organized to correspond to the responsive discovery requests.

It is very easy to set up your review database so there is an entire column with the request for production numbers, empowering the lawyer to issue code responsive discovery to each request. This column can be included in the production to the requesting party.

Some see this as extra work and unnecessary. I see it as a way to organize document review to correspond to the discovery requests in order. Moreover, from a producing party point of view, you want to know what discovery was produced as it relates to discovery request. Any of today’s review applications can issue code according to discovery request if document review is planned, which empowers the producing party to know exactly what is being produced to the opposing party.

An Unsung Hero on the Form of Production

scales-303388_1280Magistrate Judge Paul Cherry is a great jurist whose opinions on the form of production should be taught in first year Civil Procedure classes.

The Judge clearly explains the Federal Rules of Civil Procedure and applies the rules to the case at bar in very concise analysis.

A Plaintiff in a recent case sought consumer credit reports in native file format, which was produced as static images. Judge Cherry provided textbook case analysis which I summarized in my Everlaw Blog guest post Really Thinking Through the Form of Production. Please check it out for my thoughts on the form of production and document review.

Excel-ing at eDiscovery (Guest Post on Everlaw)

spreadsheetMany litigation support professionals think Excel files are the bane of discovery.

Attorneys with a fixation of wanting a Bates Stamp on electronically stored information demand Excel files be converted from their native application to a static image, causing one Excel file to explode into a 500 page PDF.

To learn more about a recent case with an Excel file that would not open, and advantages of reviewing Excel files in native file format, check out my guest post on Everlaw.

Nebraska, Where Proportionality is Alive and Well in Discovery

Nebraska stampOne lesson from United States v. Univ. of Neb. at Kearney, is that maybe you should take depositions of key parties and use interrogatories to find out relevant information to your case before asking for over 40,000 records that contain the personal information of unrelated third-parties to a lawsuit.

The case is a Fair Housing Act suit involving claims that students were prohibited or hindered from having “emotional assistance animals in university housing when such animals were needed to accommodate the requesting students’ mental disabilities.” United States v. Univ. of Neb. at Kearney, 2014 U.S. Dist. LEXIS 118073, 2 (D. Neb. Aug. 25, 2014).

A protracted battle over the scope of discovery broke out between the parties. The Defendants argued the search, retrieval, and review for responsive discovery was too expansive and would have been unduly burdensome. Kearney, at *5-6. As the Government’s search requests included “document* w/25 policy,” you can see the Defendant’s point on having broad hits to search terms. Kearney, at *20.

The Government’s revised search terms would have 51,131 record hits, which would have cost $155,574 for the Defendants to retrieve, review, and produce the responsive ESI. Kearney, at *5-6. This would have been on top of the $122,006 already spent for processing the Government’s requests for production. Kearney, at *7.

The Court noted that the Government’s search terms would have required production of ESI for every person with disability, whether they were students or contractors. Kearney, at *6-7. The Government argued the information was necessary, and justified, in order to show discriminatory intent by the Defendants. Id.

The Defendants wanted the scope of the discovery requests narrowed to the “housing” or “residential” content, which would have resulted in 10,997 responsive records. Kearney, at *7.

The Government did not want to limit the scope of discovery and recommended producing all the ESI subject to a clawback agreement [notice not a protective order] for the Government to search the ESI. The Defendants argued such an agreement would violate the Family Educational Rights and Privacy Act by disclosing student personal identifiable information without their notice and consent. Kearney, at *8.

Motion practice followed with the Defendant requesting cost shifting to the Government for conducting searches, the use of predictive coding software, and review hosting fees. Kearney, at *8-9.

The Court ordered the parties to answer specific discovery questions, which the Government did not answer, on “information comparing the cost of its proposed document retrieval method and amount at issue in the case, any cost/benefit analysis of the discovery methods proposed, or a statement of who should bear those costs.” Kearney, at *9.

The Court was not keen on the Government outright searching the personal data of others unrelated to the case. As the Court stated:

The public and the university’s student population may be understandably reluctant to request accommodations or voice their concerns about disparate or discriminatory treatment if, by doing so, their private files can be scoured through by the federal government for a wholly unrelated case. The government’s reach cannot extend that far under the auspices of civil discovery; at least not without first affording all nonparties impacted with an opportunity to consent or object to disclosure of information from or related to their files.

Kearney, at *18-19.

The Court stated it would not order the production of over 51,000 files with a clawback order. Moreover, the cost to review all of the ESI exceeded the value of the request. Kearney, at *19.

The Court did not accept the Government’s claim that it needed to conduct an expansive search. Kearney, at *19-20. The Court stated the following on the fundamentals of civil discovery:

Searching for ESI is only one discovery tool. It should not be deemed a replacement for interrogatories, production requests, requests for admissions and depositions, and it should not be ordered solely as a method to confirm the opposing party’s discovery is complete. For example, the government proposes search terms such as “document* w/25 policy.” The broadly used words “document” and “policy” will no doubt retrieve documents the government wants to see, along with thousands of documents that have no bearing on this case. And to what end? Through other discovery means, the government has already received copies of UNK’s policies for the claims at issue.

Kearney, at *20.

The Court further stated that “absent any evidence that the defendants hid or destroyed discovery and cannot be trusted to comply with written discovery requests, the court is convinced ESI is neither the only nor the best and most economical discovery method for, and depositions should suffice—and with far less cost and delay.” Kearney, at *21.

Bow Tie Thoughts

This case has significant privacy interests, but at its core the issue is one of proportionality. What was the cost of discovery and its benefit? In the end, the cost of expansive search terms that impacted the third party rights of others, outweighed the benefit of the discovery to the case.

The fact we have amazing search technology that can search electronic information does not mean we can forget how to litigate. The use of “search terms” cannot swallow the actual claims of a case.

It is heartening to see a Court say no to the data of unrelated third parties being enveloped into a discovery production. While there are many ways to show discrimination, requesting the electronically stored information, protected by Federal and most likely state law, of third parties should give any Court pause.

The use of predictive coding to focus the scope of discovery, or visual analytics to identify relevant information, or clustering to organizing similar information is fantastic technology to expedite review. However, the fact that technology exists still means lawyers have to use requests for admissions, interrogatories, and have requests narrowly tailored for responsive ESI.