As an attorney who represents businesses with regard to document retention and electronic discovery, and who has obtained discovery sanctions in a Federal RICO case against the adverse party, I followed with great interest recent events where allegations by a former in house counsel involved in an employment dispute spawned the filing of RICO cases against Toyota and certain of its officers and employees that were thereafter voluntarily discontinued.

The assertions made by a former managing counsel for Toyota, Dimitrios Biller, sounded more like a story for a movie. While at Toyota, Biller was responsible for its defense of personal injury claims involving its vehicles. After he resigned and was in an employment related dispute with Toyota and still subject to attorney-client confidentiality obligations, he made public statements claiming that Toyota had deliberately withheld unfavorable crash test evidence and delivered to the US District Courthouse in Marshall, Texas, four boxes of documents that allegedly contained this “smoking gun” evidence.  This Court was the venue for a number of personal injury cases against Toyota.

Pursuant to a Court order, the evidence was sealed and placed on a secure server.

In response to Biller’s assertions, the Dallas firm that represented the plaintiffs in the underlying lawsuits, filed fifteen lawsuits on September 25, 2009, including Lopez v. Toyota Motor Corporation et al., 2:09 CV-00292-TJW alleging that Toyota and its officials had operated a racketeering enterprise designed to obstruct justice. The claims were brought under the Federal RICO statute, which Congress enacted to target organized crime but that has been used and sometimes misused to cast a traditional business dispute into a Federal case. The remedies available where a civil RICO claim has been proven are powerful and include treble damages, attorney’s fees, and injunctive relief. In an extreme case, the Court is authorized to appoint a Federal monitor over the enterprise.

As it turns out, there was a big problem with these RICO cases against Toyota and the problem was that the evidence of misconduct that Mr. Biller asserted he delivered to the Court was not in the materials the Court received.

After the materials were secured, Plaintiff’s counsel was given electronic access to a mirror image copy of the evidence deposited with the Court and after reviewing the documents and finding no evidence to substantiate that Toyota had engaged in any discovery misconduct, counsel voluntarily dismissed the lawsuits.

These events illustrate some important points. Allegations are merely that and must be distinguished from evidence. It is fortunate that the documents were available to disprove the allegations. Allegations of non-disclosure of evidence, if proven, not only threaten to undermine the outcome in litigation but can also trigger an avalanche of ancillary lawsuits.

Jonathan and his team consult nationally with business executives and attorneys to help manage the risks involved in e-discovery and helps companies defend allegations of wrongdoing in complex litigation matters.

If you have any questions or comments about this topic, Jonathan may be reached (214) 999-0080.

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New York Assemblyman Mark Weprin has sponsored Assembly Bill A-06000, to implement e-discovery rules in Article 31 of the Civil Practice Laws and Rules that will apply in all civil cases. He predicts that, as was the situation when similar obligations were incorporated into the Federal Rules of Civil Procedure just a few years ago, there will be a sea-change as to the manner in which civil cases are litigated in the New York Courts.

Based on our consulting experience with general counsel and outside counsel concerning the risks and obligations regarding retention and production of electronically stored information (ESI) and in litigating spoliation motions, Mr. Weprin’s prediction is on point and the following three defenses will no longer suffice:

“We Have Produced What We Could Find”

The defense to a motion to compel that the party has produced what it could find will not suffice in many instances. The question that will invariably follow is whether reasonable steps were taken to preserve the information.  As litigators, we know that whenever a rule turns on the meaning of the term reasonable, a fight will ensue.

“The Evidence Was Not Lost on Purpose”

If the Federal approach in New York is any predictor, it will not be a valid defense to a sanctions motion that the litigant lost the evidence through carelessness as opposed to having done so intentionally to try to get an advantage in the case.  The Second Circuit Court of Appeals has held that the degree of fault necessary to impose the full range of sanctions in a Federal civil case is only that of negligence or carelessness.

“The Lost Evidence Was Not That Important”

Courts ordinarily decide cases on the merits based upon its assessment of the importance of conflicting evidence.  When evidence cannot be produced, the Court’s inability to assess the significance of the evidence-whether a “smoking gun” or merely a collateral point-works to the detriment of the party who failed to preserve it.  Such an approach promises a sea-change because in all other contexts the significance of the evidence to the outcome depends on the Court’s assessment of the evidence.  Here, the Court is empowered to presume that the lost evidence was very significant.

If you have any thoughts, comments or questions about this article, please contact Jonathan Scott at (214) 999-0080.

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Litigation Hold Policy

Senior managers, in-house counsel and litigators take note: last month a new set of e-discovery guidelines emerged. Judge Shira Scheindlin, author of the definitive electronic discovery opinions in the Zubulake case six years ago, has issued another soon-to-be classic opinion in Pension Committee of the Univ. of Montreal Pension Plan, et al., v. Bank of America Securities, LLC, et al., 05 Civ. 9016 (SAS) (S.D.N.Y. Jan. 15, 2010) Amended Opinion and Order. Judge Scheindlin dubbed her decision in Pension Committee, “Zubulake Revisited: Six Years Later,” and in it, set out some examples of common mistakes companies make with respect to records management and e-discovery.

In Pension Committee, Judge Scheindlin enumerates specific conduct that she deems to be per se negligent, or worse. The harsh sanctions that accompany a finding of negligence with respect to electronic discovery is a warning to senior managers and in-house counsel that e-discovery can no longer be passed off to the IT department—the process must be closely managed by legal counsel at every step along the way.

Technically the opinion is only applicable to the federal courts in New York, but Judge Scheindlin’s status as a thought leader in the field of electronic discovery guarantees that the examples set out in this case will elicit serious discussions between senior management, legal departments, and IT groups throughout the country. Because Pension ­Committee is too lengthy for overview in a blog, I intend to highlight some of the key findings in a series of blogs that should get companies thinking about the way they handle electronic discovery and records management.

LESSON 1:

To avoid such a devastating sanction, companies should take the time now to review their litigation hold policy with experienced counsel. Taking Judge Scheindlin’s opinion as an example, in most cases litigation holds must be issued in advance of the filing of a suit. Because of the timeliness requirement, a litigation hold process must allow for swift and comprehensive implementation of the hold as disputes become apparent. Also, the mere issuance of a litigation hold is not enough to avoid devastating e-discovery sanctions. A timely issued hold that does not effectively protect potentially relevant data is meaningless. Companies must carefully outline not only litigation hold triggering events, but they should also review the technology used to implement the hold to ensure compliancethat potentially relevant data is being saved.

Next installment: Ensure there is sufficient legal oversight of your document review and production.

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In January of this year, Judge Scheindlin issued another important e-discovery opinion in Pension Committee of the University of Montreal Pension Plan, et al. v. Banc of America Securities, LLC, et al.As you may know, Judge Scheindlin authored Zubulake, a series of seminal e-discovery opinions in 2004. In Pension Committee, the judge took the opportunity to follow up on her Zubulake decision by highlighting common e-discovery mistakes and the harsh penalties that result from them.

Ensure Counsel Oversees e-Discovery Production at All Stages

In addition to highlighting the importance of fully reviewing and documenting litigation hold policies (click here if you missed the previous post on that subject), Judge Scheindlin’s opinion also reminds businesses not to fall into the trap of relying on IT departments to independently design and implement e-discovery procedures. Judge Scheindlin made clear, by issuing sanctions against the offending parties in the Pension Committee case, that legal counsel must actively participate in the entire process of document preservation and production. The judge said that anything less than total legal oversight would be considered negligence, which in an e-discovery context can be extremely costly. Essentially, when a party fails to have attorney participation in electronic discovery procedures, the judge can shift the costs of electronic discovery from the innocent to the offending party. For large cases, these costs can easily range into the multiple million dollar range. For more significant oversight failures, the judge can issue an adverse jury instruction—a sanction that can easily derail an otherwise winnable case by permitting the jury to infer facts that are detrimental to the offending party.

To avoid costly sanctions, companies must ensure that their e-discovery processes include regular, documented attorney review of all e-discovery production policies. Judges are becoming more and more familiar with the e-discovery process, and a party must show the court that attorneys were involved in the development and implementation of all stages of e-discovery activities. It is no longer acceptable to give the IT department control over the manner and method used to produce electronic information.

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On January 7, 2008, the United States Magistrate Judge Barbara Major issued a sanctions order against Qualcomm and certain in-house and outside counsel for discovery misconduct.  Specifically, the Court ordered that Qualcomm pay $8.5 million in opposing counsel’s fees for withholding critical documents during discovery, and Qualcomm’s attorneys further were referred to the California State Bar for an appropriate investigation.

On March 5, 2008, United States District Judge Rudi M. Brewster vacated the sanctions against the attorneys and remanded to Judge Major to investigate.  Roughly fifteen months later, at untold cost to the attorneys involved, a massive discovery effort came to a close. On April 2, 2010, Judge Major issued an order declining to impose sanctions against the attorneys.  In her order, the Judge states that although there was a “massive discovery failure” resulting from “significant mistakes, oversights, and miscommunication,” the attorneys made significant attempts to comply with their discovery obligations.

Judge Major enumerates the errors that gave rise to the discovery failures, indicating that an “incredible breakdown in communication” was the fundamental problem.  No attorneys, in-house or otherwise, ever met in person with the Qualcomm employees who were likely to be important witnesses. Nor did outside counsel make any attempts to understand how and where data was stored on Qualcomm’s computer network. Finally, there was no single attorney responsible for discovery, resulting in the finger-pointing that occurred among the legal counsel when it came time to defend the discovery process.

In the end, the Judge reasoned that these failures were exacerbated by the lack of candor on the part of Qualcomm employees to such a degree as to foil any good faith attempts by the attorneys to meet their discovery obligations. And although the attorney sanctions were dropped, the cost in time and money for all parties involved should serve as a warning to all in-house counsel, corporate leadership and litigators: effective communication is fundamental to any discovery process. Without it, millions of dollars, thousands of hours, and whole careers are at risk.

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On May 26, 2010, in the case of Crispin v. Christian Audigier, Inc. (C.D. Cal. Case No. No. CV 09-09509), Judge Margaret Morrow of the U.S. District Court of Central California issued a ruling in a copyright suit concerning, in part, the discoverability of private messages sent between users on MySpace and Facebook. This decision marks one of the first examinations of the applicability of federal e-discovery rules to social media site content. In her decision, the judge reversed a magistrate judge’s finding that private messages sent between users over social networking sites are public communications and quashed subpoenas that had been issued in an attempt to obtain copies of those messages.

Elaborating on the differences among the various messaging options offered by social networking sites, Judge Morrow found that messages sent between users via Facebook and MySpace private messaging systems are no different than e-mail under the Stored Communications Act. Under the Act, a third-party company storing private electronic data is not required to turn over the private information unless presented with a federal criminal law warrant. However, the judge limited her decision to private messages sent on social media sites and left unanswered other questions, such as the issue of discoverability, through subpoena, of semi-private postings on user walls visible only to a select few.

Increasingly, courts will be asked to interpret outdated discovery rules against new technologies and heightened public concern over online privacy. Following the recent furor over Facebook privacy settings in the press, we expect to see a court take on the task of a comprehensive examination of social media privacy concerns with respect to electronic discovery, similar to Judge Shira Scheindlin’s Zubulake opinion on general e-discovery issues, before the Supreme Court and Congress undertake revisions to the Federal Rules.

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