Spoliation: New Law, New Dangers ABA National Legal Malpractice Conference
Speakers Ronald C. Minkoff Partner Frankfurt Kurnit Klein & Selz PC New York, NY Heather K. Kelly Partner Gordon & Rees, LLP Denver, CO Honorable Craig B. Shaffer United States Magistrate Judge for the District of Colorado Denver, CO Lisa R. Midkiff Esq. CPCU, RPLU Director of Claims B&B Protector Plans, Inc. Tampa, FL
Today s Agenda Rule Changes (Judge Schaffer) Hypothetical Case (Ron Minkoff) Application of Hypothetical to the New Rules on Spoliation (Panel) Practice Pitfalls and Potential Malpractice Implications (Heather Kelly & Lisa Midkiff)
Issues With Prior Federal Rule LACK OF UNIFORMITY ON STANDARD FOR ADVERSE INFERENCE JURY INSTRUCTIONS Some circuits hold can be imposed for the negligent loss of ESI Others require a showing of bad faith Resulted in a tendency to over preserve ESI out of a fear of serious sanctions if actions are viewed in hindsight as negligent.
Evolution of New Federal Rule Duke Conference in 2010 proposed Amendments published for comment in 2013 three public hearings in 2014 with testimony from more than 100 individuals over 2000 written comments submitted became effective on 12/1/15
Rationale for New Rules cooperation proportionality active judicial case management more uniformity in the areas of ESI preservation and spoliation
Rule 26(b)(1): Scope of Discovery Rule 26. Duty to Disclose; General Provisions; Governing Discovery (b) Discovery Scope and Limits... Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties relative access to relevant information, the parties resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.
What s Missing? any matter relevant to the subject matter reasonably calculated to lead to the discovery of admissible evidence existence, description, nature, custody, condition, and location of any documents or other tangible things
The Advisory Committee Note the present amendment... reinforces the Rule 26(g) obligation of the parties to consider [proportionality factors] in making discovery requests, responses, or objections the parties and the court have a collective responsibility to consider the proportionality of all discovery and consider it in resolving discovery disputes the burden or expense of proposed discovery should be determined in a realistic way and applied in an even-handed manner
Advocating for New Rule Don t treat the new rule like the old one. A party may not refuse discovery simply by making a boilerplate objection that it is not proportional. Think through cases early, and develop a description of what proportional to the needs of the case should mean. Develop a thoughtful definition of proportional discovery, perhaps as early as the 26(f) conference or initial scheduling conference. Ask courts to include in Rule 16 scheduling orders a requirement for a conference prior to any motion relating to discovery.
Fed. R. Civ. P. 37(e) If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court:
(1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or (2) only upon finding that the party acted with the intent to deprive another party of the information s use in the litigation may: (A) presume that the lost information was unfavorable to the party; (B) instruct the jury that it may or must presume the information was unfavorable to the party; or (C) dismiss the action or enter a default judgment.
The Concerns Underlying Rule 37(e) reduce the burden of preserving information for litigation in response to the grow of ESI over-preservation as a default reaction to the threat of sanctions address the lack of uniformity among the federal circuits
Initial Burdens of Proof the moving party must show that ESI was lost, that the missing ESI was relevant under Rule 26(b)(1), and was subject to a preservation obligation to avoid curative measures or sanctions, the non-moving party bears the burden of showing that it took reasonable steps to preserve ESI, and that the missing ESI can be restored or replaced through additional discovery
The Advisory Committee Note perfection in preserving all relevant [ESI] is often impossible another factor in evaluating the reasonableness of preservation efforts is proportionality... a party arguing that preservation requests are disproportionate may need to provide specifics about these matters in order to enable meaningful discussion of the appropriate preservation regime preservation orders may become more common given the proposed changes to Rules 16(b)(3)(B)(iii) and 26(f)(3)(C) Nothing in the rule limits the court s powers under Rules 16 and 26 to authorize additional discovery... the Committee Note cites with favor the balancing analysis in Rule 26(b)(2)(B) and Rule 26(c) (1)(B) [E]fforts to restore or replace lost information through discovery should be proportional to the apparent importance of the lost information to claims or defenses.
Rule 37(e)(1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice
The Advisory Committee Note An evaluation of prejudice from the loss of information necessarily includes an evaluation of the information s importance in the litigation. The rule leaves judges with discretion to determine how best to assess prejudice in particular cases. the authority to order curative measures no greater than necessary does not require the court to adopt measures to cure every possible prejudicial effect
Range of Curative Measures forbidding the spoliator from putting on certain evidence permitting the parties to present evidence and argument to the jury regarding the loss of evidence giving instructions to the jury to assist in their evaluation of such evidence or arguments curative measures cannot have the practical effect of measures that would require a finding of intent under subsection (2) (e.g., requiring the jury to presume or infer)
Rule 37(e)(2) only upon finding that the party acted with the intent to deprive another party of the information s use in the litigation may: (A) presume that the lost information was unfavorable to the party; (B) instruct the jury that it may or must presume the information was unfavorable to the party; or (C) dismiss the action or enter a default judgment.
The Advisory Committee Note Subdivision (e)(2) does not include a requirement that the court find prejudice to the party deprived of the information... because the finding of intent... can support not only an inference that the lost information was unfavorable to the party that intentionally destroyed it, but also an inference that the opposing party was prejudiced[.] but [t]he remedy should fit the wrong and... severe measures should not be used when the information lost was relatively unimportant or lesser measures... would be sufficient to redress the loss
Open Question Under Rule 37(e) which party has the burden of providing prejudice under subsection (1) should the judge or jury find intent to deprive under subsection (2) can an employee s intent to deprive be imputed to senior management or the employer
Socialnomics
When Worlds Collide: a Hypothetical In December 2015, Aparicio, a 300-employee corporation, retained Banks & Santo, LLP ( B&S ) to represent it in a coverage dispute in the U.S. District Court for the Northern District of Illinois with Blackhawk Insurance ( Blackhawk ) regarding environmental damage to one of its properties. The damage resulted in a $500,000 loss, which Blackhawk refused to cover. The case went disastrously: though Aparicio was the plaintiff, it failed to preserve certain electronically stored information and the lawsuit was ultimately dismissed.
Employing New Rule 37(e) New Rules focus on reasonable steps and information cannot be restored or replaced. Use the new discretion provided by this rule when making preservation decisions, including the scope of litigation holds and the number of custodians. Think through the issues early in litigation, and prepare to articulate what was preserved and what steps were taken to preserve it. Keep in mind the new scope of discovery when making preservation decisions. Use the explicit power in Rule 16 to include preservation in scheduling orders.
When Does Rule 37(e) Even Apply? When Will Proposed Rule 37(e) Apply? ESI that should have been preserved in the anticipation or conduct of litigation lost Because a party failed to take reasonable steps to preserve the information AND Information cannot be restored or replaced through additional discovery
Hypothetical: Proportionality During the lawsuit, the parties exchange discovery requests: Blackhawk seeks all and every email from twenty (20) Aparicio employees sent and received over a 10 (ten) year period. Twelve (12) of the twenty (20) identified employees had played minor roles in dealing with the problem, while eight (8) were more centrally involved. Blackhawk provides just a handful of broad search terms. Aparicio s outside e-discovery vendor, E-Discovery, Inc., says this will result in turning over one million emails for the ten (10) year period, at a cost to Aparicio (before legal fees) of $250,000. Despite Aparicio s request, Blackhawk refuses to limit its request further. How will the Court react to Blackhawk s approach? How does proportionality apply here under Fed. R. Civ. P. 26(b)(1)? Will E-Discovery, Inc. s fees incurred by Aparicio to respond to the request matter to the proportionality analysis? What if only 500,000 emails were involved, at half the cost?
Hypothetical: Objections to Discovery In return, Aparicio alleges Blackhawk had a pattern and practice of charging high insurance rates and then declining coverage. Aparicio seeks Blackhawk s: (a) rate schedules for the past five (5) years; and (b) all coverage denials for environmental claims for the last five (5) years. Blackhawk provides a blanket objection, stating that the requests are vague, overbroad, and request information that is neither relevant nor reasonably calculated to lead to the discovery of admissible evidence, without specificity or a partial response. Is this response sufficient under Fed. R. Civ. P. 34(b)(2)? If not, how should Blackhawk phrase its response to comply with Rule 34(b)(2)?
Impact of New Rules? Prejudice is not defined and is susceptible to inconsistent, and ad hoc interpretation. Rules are silent as to who has the burden to prove prejudice. Opportunity to cure seems, on its face, to be a welcome alternative to sanctions, curative measures also can be debilitating. Reasonableness of efforts to preserve is in the eye of litigants No bearing on state courts unless and until lawyers successfully advocate for consistency with federal standards. Currently, some state courts recognize either the tort of intentional spoliation or negligent spoliation, or in some cases, both. New technologies will continue to outpace the glacial pace of rule changes, leaving parties continuing to develop long range broad policies designed to capture an ever changing technological landscape that they cannot possibly project accurately.
How do we advise our clients?
Hypothetical: Reasonable Steps Aparicio has a long-standing document retention policy in which it clears all deleted items from each employee s email annually, and does not archive them. Aparicio implemented this policy six (6) months before its legal counsel, B&S, sent it a litigation hold letter, but after it learned of the environmental problem. Does this constitute reasonable steps under Fed R. Civ. P. Rule 37(e)? Under the amended Rule 37(e), when did Aparicio have a duty to preserve relevant ESI? Assuming the court finds that amended Rule 37(e) has been violated, what options does it have in terms of sanctions? Same facts as above. Assume Aparicio had no back-up tapes, but just happened to keep paper copies of all deleted items? Is this sufficient to invoke Fed. R. Civ. P. 37(e) to restore or replace through additional discovery?
Hypothetical: Advising Our Clients Same facts as above, but assume Aparicio s counsel, Jake Wood at B&S, advised Aparicio that its document retention policy was appropriate. Assume further that the Court finds spoliation and strikes Aparicio s pleadings, resulting in Aparicio having to pay all of Blackhawk s fees. Does Jake Wood have malpractice exposure? What steps could Jake Wood have taken to minimize this exposure
Avoiding Practice Pitfalls New rules focus on reasonable steps and ability to restore or replace through additional discovery New rules help provide reasonable defenses if accused of spoliation and if in federal court, or a state court with similar rules For clients that can be sued in jurisdictions with different rules, nothing has changed Always client and fact specific, but caution still best practice
Before Litigation Reasonable Steps Focus on Reasonable Steps to Preserve ESI provides a safe harbor for clients to put policies and procedures in place before litigation or the anticipation of litigation; If Reasonable Steps taken then no further inquiry into spoliation; What is Reasonable? Nature of the information or data; Costs and time involved in preserving; Sophistication of the client; Likely information would be relevant in future litigation; Is the information in the possession, custody or control of your client?
Steps to Take When Faced With Litigation 1. Issue an Internal Litigation Hold Letter A litigation hold letter: Is timely; Informs all employees, managers, custodians (as relevant in each case) of the litigation or reasonably anticipated litigation; Is tailored to each case; Provides detailed instructions regarding preservation of relevant ESI; Addresses spoliation. Note: Remember to Monitor compliance with the hold and to suspend existing destruction policies.
Steps to Take When Faced With Litigation 2. Issue a Preservation Letter to opposing counsel. A Preservation Letter: Requests preservation of relevant documents; Identifies the relevant types of documents that you determine require preservation. Do not demand preservation of more documents than you would be willing to produce!
Steps to Take When Faced With Litigation 3. Identify key players in the litigation and ensure they are aware of the preservation duty. 4. Take affirmative steps to monitor compliance with the litigation hold. 5. Periodically re-issue the litigation hold to ensure new employees are aware of it and to remind employees of the hold.
Steps to Take When Faced With Litigation 6. Identify sources of potentially relevant information; become familiar with your document retention policies and talk to your IT department. 7. Collect potentially relevant data; where large amounts of data are involved consider hiring an e-discovery vendor. 8. Confer with opposing counsel regarding limits on discovery: time limits, search terms, etc. 9. Notify Human Resources to ensure departing employees accounts are properly managed.
Malpractice Claims Recognized 1. Failing to advise client to preserve data and thing; 2. Failing to ensure parties/third parties preserve data and things; Galanek v. Wismar, 81 Cal. Rptr. 2d 236 (Cal. App. 1999, rev. denied), (recognized legal malpractice claim for negligent spoliation of evidence) 3. Failing to safeguard client s data.
New Malpractice Exposure? 1. Advise clients of the rule changes and focus is on Reasonable Steps and ability to restore or replace; 2. Identify what should have been preserved; 3. If information is not preserved, advise client to attempt to cure;
What Is the Standard of Care? Could vary based on factors including nature of case, nature of business, standard in the industry and jurisdiction; Example Galanek preservation of vehicle in a product liability case was the standard of care; Reasonable Care applies
Hypothetical: Coverage Concerns Aparicio s Environmental Director, an engineer named Frank Thomas, has a personal laptop which he often used for work. He also has personal information on the laptop about his health and family matters information he does not want anyone, including his employer, to see. Attorney Wood advises Aparicio to have Thomas s laptop copied by E-Discovery, Inc., before deciding how to respond to Blackhawk s request. E-Discovery, Inc. damages the laptop while copying it, and a great deal of data is lost. Aparicio later claims this contributed to a bad result in the case, costing Aparicio $500,000. Discuss the potential malpractice exposure and steps Wood/B&S could have taken to avoid any exposure? If a claim was filed against Wood/B&S, would it be covered?
Hypothetical: Coverage Concerns Same facts as above, but assume that Wood/B&S are sanctioned for not preventing the spoliation by E-Discovery, Inc. Will the sanctions be covered by the lawyer s malpractice policy? What if the sanctions are the result of Aparicio s document retention policy discussed above?
What Is Not Covered Under Malpractice Insurance? Any intentional or willful acts; Loss or destruction of any asset or tangible property in attorney s care, custody or control; Property damage; Any fine, penalty or sanction;
What Is Probably Covered? When the client alleges the sanction was caused due to an attorneys negligence; When the client alleges the attorney negligently failed to preserve discovery; Potential for coverage of defense, but no indemnification
Timeliness of Notice to Carrier Triggering Event? Discovery of the loss of information? Conferral regarding the loss of information? Motion for sanctions filed? Court issues sanction? or Claim is brought against attorney is sued due to spoliation? Long Term Client/Outside General Counsel
Closing Thoughts Act Fast Issue & Monitor Litigation Holds Avoid Sanctions
Questions?