E-Disc Law Blog

In Superior Production Partnership v. Gordon Auto Body Parts Co. (S.D. Ohio 2009) the Court ruled that sanctions were not appropriate absent evidence that any relevant information had been destroyed.  The case involved predatory pricing and Superior Production d/b/a PBSI brought a motion for sanctions based upon the defendants failure to institute a legal hold and failure to conduct a thorough search for relevant information.

The Defendants had not instituted a formal legal hold and their search for responsive documents was limited to one database.  The intial search did not include any emails or employee hard drives.  Despite requests from PBSI, the Defendant had not instructed any employees to preserve relevant information while the litigation was pending.   When this search resulted in a suspiciously small number of relevant documents, the Plaintiffs brought the motion for sanctions seeking the prodcution of employee hard-drives and to shift the costs of foresenically examining them to determine whether any relevant information was deleted.  In the alternative, PBSI sought an adverse inference instruction based upon the intentional or negligent destruction of relevant information.

The Defendant argued that its standard document retention policy was sufficient to preserve relevant documents. The Defendant also pointed out that after the initial production, and after one of its key employees was deposed because of the limited number of documents produced, the Defendant issued a formal litigation hold notice to all employees.  After a further search of email files and employee hard drives, some additional relevant documents were found and produced. 

The Court began by noting that the Defendant's duty to preserve and produce relevant evidence was triggered by the filing of the lawsuit.  Failure to meet that duty could result in sanctionable conduct.  However, the Plaintiff failed to produce any evidence that relevant information had actually been destroyed by the Defendant's actions or its failure to act.  Because of that lack of evidence, the Court declined to award either sanction the Plaintiff sought. 

However, the important lesson is that the Court noted direct evidence that relevant evidence has been destroyed is often not present in sanctionable cases and discussed two alternative methods a party seeking sanctions can meet its burden.  FIrst, "a certain group of relevant documents may exist only back to a particular point in time, and not beyond, creating an inference that the same documents did exist for earlier time periods but have simply been deleted."  And second, "a party suspecting document destruction may show that it is the routine practice either of the defendant or other companies engaged in a similar business to maintain certain types of documents, but that no such documents have been produced by this defendant."

Regardless of the outcome, the Defendant's actions in this case were questionable at best.  The Defendant clearly played with fire here by not instituting a legal hold.  The Court left the Plaintiff the option of bringing the motion again in the future should it find any direct evidence of spoliation.  The limited extent of the search also could have led to sanctions however this error was rectified by the subsequent steps to conduct a proper search of all potential sources of ESI. 

Another important point is the Defendant's standard document retention policy.  While the Defendant argued its document retention policy would prevent the destruction of relevant information, the opposite is more likely.  The duty to preserve is often breached through the routine destruction of relevant documents when a party fails to suspend its document retention programs.

As I noted in a previous post, some courts have applied factors from existing case law in deciding whether or not the production of privileged material results in waiver under FRE 502.  The notes to Rule 502 specifically mention prior case law and the factors used in deciding whether or not a waiver of privilege occurred:

"Cases such as Lois Sportswear, U.S.A., Inc. v. Levi Strauss &
Co., 104 F.R.D. 103, 105 (S.D.N.Y. 1985) and Hartford Fire Ins. Co.
v. Garvey, 109 F.R.D. 323, 332 (N.D.Cal. 1985), set out a multifactor
test for determining whether inadvertent disclosure is a waiver.The stated factors (none of which is dispositive) are the
reasonableness of precautions taken, the time taken to rectify the
error, the scope of discovery, the extent of disclosure and the
overriding issue of fairness. The rule does not explicitly codify that
test, because it is really a set of non-determinative guidelines that
vary from case to case. The rule is flexible enough to accommodate
any of those listed factors. Other considerations bearing on the
reasonableness of a producing party’s efforts include the number of
documents to be reviewed and the time constraints for production."

An interesting example of a court applying these factors in the context of a Rule 502 decision is Rhoads Industries v. Building Materials Corp. of America (E.D. Penn. 2008).  This discovery dispute centered around the production of over 800 privileged emails out of a total production of 78,000 relevant documents.  Initially the Court looked to Rule 502 on its face and noted that there was no dispute over whether the production of the privileged emails was inadvertent.  

However, rather than applying the facts directly to the remaining two elements of Rule 502 the Court made the following decision,
"Consistent with the Committee Note to Rule 502, I conclude that once the producing party has shown at least minimal compliance with
the three factors in Rule 502, but "reasonableness" is in dispute, the
court should proceed to the traditional five-factor test."

The Court then looked at five factors from prior case law to determine whether or not a waiver of privilege occurred: (1) The reasonableness of the precautions taken to prevent inadvertent disclosure in view of the extent of the document production; (2) The number of inadvertent disclosures; (3) The extent of the disclosure; (4) Any delay and measures taken to rectify the disclosure; and (5) Whether the overriding interests of justice would or would not be served by relieving the party of its errors.  

In my opinion, the first factor should have been key.  Indeed this factor closely follows the wording of the second element of Rule 502 and focuses on the reasonableness of the precautions taken to avoid the inadvertent production. Rhoads retained an IT consultant and he acquired specific software to conduct the privilege search.  An attorney was assigned to work with the IT consultant to conduct the privilege review.  But Rhoads only used four words to conduct a keyword search and that search was limited to email address lines. These search terms did not include all of the company's attorneys.  Rhoads conducted a "quality control test" that consisted of simply running a second search on those same terms.  The attorney running the search had no prior experience conducting a privilege review.

The Court went on to discuss the number of disclosures(over 800), the extent of disclosure, and the steps taken to rectify the disclosures before acknowledging that the first four factors overwhelmingly favored the waiver of privilege.  Note that two of those factors capture the essence of the second and third elements of Rule 502, the reasonableness of the precautions taken and the reasonableness of the steps taken to rectify any error.

However, the court found that the final factor, the interests of justice, weighed heavily in favor against waiver.   Based on that single factor from prior case law, the Court decided that there was no waiver in this case.

Clearly, the Rule allows for the application of factors developed in
prior case law when determining whether or not a waiver of privilege
has occurred.  But does the application of these factors that are recognized in the committee notes overcome the wording of the Rule itself?  Alternatively, does the use of prior case law allow a Court the flexibility to achieve the objective of the Rule in reducing the burden of privilege review? 

Remember, had the Court applied FRE 502 on its face in this case, then it seems fairly certain that it would find that privilege was waived. 

Courts that apply FRE 502 on its face simply look to the three elements defined by Rule 502(b): (1) the disclosure was inadvertent; (2) the holder of the privileged took reasonable steps to prevent disclosure; and (3) the holder promptly took reasonable steps to rectify the error, including(if applicable) following Fed. R. Civ. P. 26(b)(5)(B).

Laethem Equipment Company v. Deere and Company (E.D. Mich. 2008)

In Laethem, the Court strictly applied the factors outlined in FRE 502 to conclude that there was no waiver of privilege.  First, the Court noted that the defendants made no argument that the disclosure was anything other than inadvertent and quickly decided this element. 

Second, the Court found that the plaintiffs took reasonable efforts to protect the privileged matter.  The Court noted that the records at issue were the only privileged material produced and more importantly, that the material was produced in a hurry and outside of the “inspect and copy” procedure that the parties had agreed to prior to the production of any material.  This prevented the plaintiffs from the opportunity to review the material for privilege but demonstrated that reasonable precautions were in place.

Third, the Court found that the plaintiffs took prompt action to secure the return of the privileged material.  The plaintiffs were first aware of the inadvertent production during a deposition.  Plaintiff’s counsel immediately objected during the deposition, then sent a letter to defense counsel demanding return of the material on the same day, and continued to object each time the privileged material was introduced at subsequent depositions.  Within 3 weeks of the initial deposition, the plaintiffs had sought and acquired a court order for the return of the privileged material.

Samson “SAM” Costales v. Ray Schultz and Albuquerque Police Department (D. NM 2008)

In Samson, the Court strictly applied the three elements of FRE 502 to conclude that there was no waiver of privilege.  First, the Court quickly dismissed the “inadvertent” element by noting that the plaintiff did not even argue that the disclosure was intentional. 

The Court did not directly address the second element. However, the Court cited as a significant supporting fact that the actual emails disclosed were accompanied by a cover letter identifying the material as a privilege log covering the privileged emails.  This apparently sufficed to establish that the defendants took reasonable steps to protect the privilege.

Third, the Court noted that the defendants did not immediately rectify the error upon production.  However, as soon as the inadvertent disclosure was brought to their attention defense counsel wrote a letter explaining that the emails were mistakenly produced. 

Reckley v. City of Springfield (S.D. Ohio 2008)

This Court applied FRE 502 strictly, but with minimal analysis, to conclude that there was no waiver of privilege.  First, the Court did not analyze whether the disclosure was inadvertent.  The Court just noted that the Defendants argued the production was inadvertent. 

Second, the Court noted that the produced emails were stamped “ATTORNEY-CLIENT PRIVILEGED” and took that as evidence of reasonable precautions.  Finally, the Court simply stated that the defense counsel took prompt steps to claim the privilege and seek return of the disclosed emails.

Not necessarily the best example of applying the facts to a rule, but clearly an example of a court applying FRE 502 on its face.