Welcome to Module 3-R.

Two Cases on Rule 45 Subpoenas.

Sherlock Holmes using Computer Forensics

This class goes into Rule 45 and issues of forensic examinations and search. Two cases are discussed. Hoover v. Florida Hydro, Inc., 2008 WL 4467661 (E.D. La. Oct. 1, 2008), where the plaintiff’s mother was ordered to produce her laptop for an exam; and, In re Fannie Mae Securities Litigation 552 F.3d 814, 2009 WL 215282009, U.S. App. LEXIS 9 (D.C. App. Jan. 6, 2009). The Fannie Mae opinion is one of my all time favorites. It shows that even Justice Department lawyers can make terrible mistakes in e-discovery. The naive justice department lawyers agreed to 400 search terms without checking them out, and ended up having to produce 80% of all of the agencies email at at cost of $6,000,000. Fannie Mae carries a lesson that all attorneys should take to heart and learn well. This is also a class where you get to vote on two questions and see how other students answered.

Plaintiff’s Mom Ordered to Produce Her Laptop and Flash Drives for Forensic Examination

The plaintiff’s mother in a case in New Orleans, Mary Catherine Hoover, was ordered to produce her laptop, flash drives, and other ESI storage devices to the defendant for forensic inspection. Hoover v. Florida Hydro, Inc., 2008 WL 4467661 (E.D. La. Oct. 1, 2008). The third-party subpoena was enforced even though she was not a party to the suit and had done no wrong. The plaintiff’s best friend from college days was subject to a similar subpoena and order. The decision was rendered by an experienced and highly regarded Magistrate Judge Karen Wells Roby. How could such a thing happen you may well ask? This module will attempt to fathom the answer and see what lessons can be learned from the decision.

Factual Background

whistler.motherThe plaintiff, Mike Hoover, is a graduate of Tulane University Law School and Tulane University Business School. After law school, Mr. Hoover became an expert in new types of hydro-electric power and served as Florida Hydro’s general counsel and environmental director. After several years of employment, Mr. Hoover resigned and sued his former employer for breach of oral agreement and fraud in the inducement. He claimed that the owner of Florida Hydro, a family friend named Herbert L. Williams, had promised him a one-half ownership in the company, which, now that the company was finally successful, he refused to deliver.

As part of Florida Hydro’s defense they subpoenaed Mike’s mother for deposition and:

commanded her to produce and to permit inspection of her laptop computer, flash drive, hard drive, PC or other electronic data storage for documents copied, sent to, or received by her son, Michael Hoover, relating to Florida Hydro, Gulf Stream Energy, Inc., Open Hydro Group, Ltd, OpenHydro, Inc, or Oceana Energy Co .

Not only that, they subpoenaed Mike’s college roommate from Tulane, Shaun Sanghani. Sanghani, like plaintiff’s mom, had no connection to the defendant, and yet he too was served with a third-party subpoena that:

commanded his testimony and the production and inspection of his laptop computer, flash drive, hard drive, PC, or other electronic data storage that has any responsive documents. The subpoena also requested documents, whether in paper form or electronically submitted, between Sanghani and Michael Hoover, and referring to Herbert Williams, Elizabeth “Lisbeth” Olga Deckert, Oceana Engery, and Gulf Stream Energy, Inc.

The plaintiff responded to these unwelcome discovery efforts by filing a motion to quash both subpoenas on the grounds that they were “unwarranted, unduly burdensome” and filed for improper harassment purposes. In other words, Mike Hoover accused the defense of engaging in extremely egregious, over-adversarial discovery tactics. This is just the kind of thing the Sedona Cooperation Proclamation abhors and, as Judge Grimm has shown in Mancia v. Mayflower Textile Services Co., Civ. No. 1:08-CV-00273-CCB (D. Md. October 15, 2008), is prohibited by rule, case law and ethics.

Plaintiff insisted that his mother and former college roommate had already produced any responsive material in “hard-copy format” and that Florida Hydro was merely “seeking to engage in a ‘fishing expedition,’ infringing upon the privacy and proprietary interests of his friend, his mother, and himself.” Plaintiff also complained that Florida Hydro had failed to narrow the scope of its subpoenas and:

that the subpoena issued to his mother seeks information which is protected by attorney-client privilege, because he has used and continues to use his mother’s computer to conduct personal business and to correspond with his attorneys. He argues that this risk is too great to mitigate. Hoover also challenges the method that Florida Hydro chose when it issued the subject subpoena and suggests that it should have employed a motion to compel rather than a subpoena duces tecum as its tool to obtain the information sought.

Without reading any further, how would you rule? Would you quash these subpoenas and protect plaintiff’s mom and best friend? Or would you order them to produce all of their computers and ESI storage devices so that the defendant could look around for something relevant?

Defendant’s Argument for Production

There is, of course, always two sides to every story, which is one reason a judge’s job is so challenging. In this case, the other side argued several points, many of them hyper-technical and, in my opinion, not too persuasive. But a few of their arguments obviously had merit, as Judge Roby did enforce the subpoenas, and I will summarize the arguments here. Although Judge Roby ruled in favor of defendant, it was obviously a close question for her too because she took over three months after hearing oral argument to make a decision. Once you hear the arguments you will be presented with another poll to let us know if you change your mind and now agree with Judge Roby’s ruling.

Here is Judge Roby’s summary of the defendant’s best arguments:

Florida Hydro makes three additional contentions: (1) the subpoena requests are not overly broad, harassing, or unduly burdensome, because neither Sanghani nor Mary Catherine objected on the basis of undue burden or hardship; (2) the subpoena is reasonably related to the claims made and temporally limited to the relevant years; and (3) it has tried to make the production easy by arranging to pick up the documents, agreeing to reimburse for expenses incurred, giving multiple extensions, and delaying the depositions.

Persuaded yet? Me neither. But let’s dig deeper into the facts and law as Judge Roby did.

More Facts, Law, and Holding

First as to the law, Judge Roby correctly notes the following black letter rules on third party subpoenas:

*3 Rule 45 governs the issuance of subpoenas, and provides that on timely motion, the issuing court must quash or modify a subpoena if it requires disclosure of privileged or other protected matter, or otherwise subjects the subpoenaed person to undue burden. FED.R.CIV.P. 45(c)(3). Under Rule 45(c)(1), “[a] party or attorney responsible for issuing and serving a subpoena must take reasonable steps to avoid imposing undue burden or expense on a person subject to the subpoena.” FED.R.CIV.P. 45(c)(1). Furthermore, Rule 45(c)(3) further provides that “[o]n timely motion, the issuing court must quash or modify a subpoena that … fails to allow a reasonable time to comply.” FED.R.CIV.P. 45(c)(3).

Now as to the facts, it turns out that although the mother and best friend are not parties to the case, the plaintiff intends to use them both as “favorable witnesses whom he intends to call at trial.” Since that is the case, the defense has every right to take their deposition and find out why they are witnesses. But that still does not explain the computers and why they should be produced?

It turns out that Hoover, although a lawyer, alternative energy expert, and business executive, still uses his mother’s computer from time to time to do such things as to “access his email accounts as well as to transact business, including reading correspondence from his attorneys and reviewing their work product.” Hmm. No explanation is provided as to why he does that, but the opinion also notes that the mom, Mary Cathrine Hoover, filed an affidavit in support of the motion to quash “indicating that, from 1999 to 2003, she received multiple phone calls, emails, faxes, and packages of mailed information in Louisiana from Florida Hydro. She further declared that she sent non-disclosure agreements, business plans, pictures, and other information to potential investors.” Not too surprisingly then, Judge Roby concluded from these facts “that Mary Catherine clearly has information relevant to the subject action on her laptop.”

Still, the son argues that his mother has already produced any relevant information she may have had in a paper production of documents previously made to defendant. He argues that the paper production is of the same documents contained in electronic form on her computer. The defendant however does not accept this representation of complete redundancy and further points out that the mother and friend have not personally objected to this production and inspection request. In Judge Roby’s words:

Hoover contends that, in light of the prior compliance with an earlier subpoena which sought the information in paper form, the subpoena requesting access to their personal computers is duplicative and unwarranted, unless Florida Hydro makes a definitive showing that Sanghani and Mary Catherine deliberately failed to fulfill their duties in responding.

Florida Hydro contends that the subpoena is not unduly burdensome, because the third parties have not made such a suggestion. It maintains that it has not violated any rule simply by requesting that these third parties produce electronically stored information.

Judge Roby then goes on to cite the law and make a ruling on the mother’s subpoena:

*5 Rule 34 provides that “[a] person not a party to the action may be compelled to produce documents and things or to submit to an inspection as provided in Rule 45.” FED.R.CIV.P. 34(c). Upon proper objection by a third party to the inspection ordered by a subpoena, the Court must determine whether the plaintiff’s need for the inspection is sufficient to outweigh the burden imposed by the inspection on the third party. Premium Service Corporation v. Sperry & Hutchinson Company, 511 F.2d 225, 229 (9th Cir.1975).

The Court notes that this objection is being made by the plaintiff, Michael Hoover, rather than by the third parties, Sanghani and Mary Catherine. . . .

The Court therefore finds that it is not unduly burdensome for Mary Catherine to comply with the subpoena. The parties may, however, agree upon a search protocol that would prevent personal, family, non-business related communications from being retrieved during the forensic computer inspection of her laptop and/or personal computer. Accordingly, the motion to quash the June 2, 2008 subpoena issued for the production of Mary Catherine Hoover’s computer is denied.

The court does not expressly provide or show what good cause exists for a forensic exam, which is typically required. Hedenburg v. Aramark American Food Services, 2007 U.S. Dist. LEXIS 3443 (W.D. Wash. Jan. 17, 2007); In Re Honza,2007 WL 4591917 (Tex. App. Dec. 28, 2007). Instead, the court implies that there is a need for this inspection because the mother’s affidavit about all of the things she did to assist in her son’s business strongly suggests that there must be more responsive information on her computer than she has produced in paper form. Further, and this must be the telling point here, the mother herself had not objected, only the son, and it is not his computer. Finally, the defendant here agreed to pay for all of the third party’s expenses and so the only direct burden upon the mother was a very temporary loss of some, but not all, of her computer equipment. (Forensic copies can be made in a few hours.) I say some, but not all of the mother’s computers must be produced, because in a later section of the order the court clarifies that the motion to quash was granted as to the mother’s personal computer, but denied it as to her laptop computer and peripherals. There was no explanation, but I suspect this was because the facts showed the son had only used her laptop computer and not her PC.

The court took pains to protect the mother’s privacy interests and so prevent burden to her from such intrusion. Judge Roby held that the parties must agree upon an appropriate inspection protocol to protect the mother’s interests, and that failing such agreement, she would rule on any issues before the inspection commenced.

The son had also objected to the production of his mother’s computers because it might reveal attorney-client protected communications that he had had with his lawyers while using her laptop. The Court accepted his right to preserve these privileged communications, but did not sustain the objection to production on this basis. The court instead required the parties to develop a search and review protocol that would protect disclosure of these communications to the defendant.

The Court is not persuaded that the electronic search could not be configured so as to exclude these communications or Michael Hoover’s non-business communications between he and his mother.

The court expects the parties to agree on a Playboy Enterprises type protocol to protect the mother’s and plaintiff’s privacy and privilege rights. Playboy Enterprises, Inc. v. Welles, 60 F.Supp.2d 1050, 1054-55 (S.D. Cal.1999). The court only expects the relatively narrow band of non-privileged ESI to be produced, namely “documents copied, sent to, or received by her son, Michael Hoover, relating to Florida Hydro, Gulf Stream Energy, Inc., Open Hydro Group, Ltd., Open Hydro, Inc., or Oceana Energy Co.” If Hoover was correct in his representations, this should be a very small set of ESI documents that the defendant will already have received in paper form.

You may well wonder what happened to the motion to quash the friend’s subpoena? The judge near the end of the opinion points out for the first time that the friend’s subpoena had already been challenged in another district court where he resided, and so, since “the Court is not aware of any defect in his responses which require further compliance with the order from our sister court. In the absence of such a showing, the motion to quash the May 30, 2008 subpoena issued for the production of Shaun Sanghani’s computer is granted.”

How Would You Rule Now?

Time for another poll. Have you changed your mind now that you have heard the whole story and you know about: (1) the son’s extensive use of his mother’s laptop computer; (2) the mother’s involvement in his business; (3) the fact that the plaintiff has designated his mother as a witness he intends to call at trial; (4) the mother has not objected to the inspection; (5) the mother will not have to pay any costs; and, (6) a search and review protocol will be used that protects the mother and plaintiff’s privacy rights and limit the production to the narrow scope of non-privileged documents requested?

If you were the District Court Judge hearing an appeal of the Magistrate’s order, how would you rule?

Conclusion

One clear lesson to learn from this decision is to have your third-party witness file their own timely objection upon being served with a subpoena. That was a significant factor here. By all appearances the mother did not really care if her laptop was inspected or not. Only the son seemed to care and it was not his laptop. If the mother and son really did not want to have the laptop and other ESI storage devices subject to forensic inspection, they should have both objected loud and clear from the start. They should have stated in substantial detail the many reasons they had for the highly intrusive inspection. They should also have advised the judge on the case law requiring a showing of good cause before such inspection is allowed. The rules only intend for parties, or third-parties, to make production of the ESI stored on electronic devices, not the devices themselves. The actual devices should only be subject to inspection in unusual cases where you can prove that the parties search and production has not been reasonably or honestly performed or other even more rare circumstances.

Here is a good legal resource for you on this type of case. See: Peskoff v. Faber, 2008 WL 2649506 (D.D.C. July 7, 2008); Bro-Tech Corp. v. Thermax, Inc., 2008 WL 724627 (E.D. Pa. March 17, 2008); Sterle v. Elizabeth Arden, Inc., 2008 WL 961216 (D. Conn. Apr. 9, 2008); Xpel Technologies Corp. v. Am. Filter Film Distribs; 2008 WL 744837 (W.D. Tex. Mar. 17, 2008); Henry v. Quicken Loans, Inc.,2008 WL 474127 (E.D. Mich. Feb. 15, 2008);In Re Honza,2007 WL 4591917 (Tex. App. Dec. 28, 2007); Coburn v. PN II, Inc., 2008 WL 879746 (D. Nev. Mar. 28, 2008); Ferron v. Search Cactus, LLC, 2008 WL 1902499 (S.D. Ohio Apr. 28, 2008); Johnson v. Wells Fargo Home Mortgage, Inc., 2008 WL 2142219 (D. Nev. May 16, 2008); Anadarko Petroleum Corp. v. Davis, 2006 WL 3837518 (S.D. Tex., Dec. 28, 2006); Hedenburg v. Aramark American Food Services, 2007 U.S. Dist. LEXIS 3443 (W.D. Wash. Jan. 17, 2007); In re Ford Motor Co., 345 F.3d 1315, 1316 (11th Cir. 2003); Ameriwood v. Liberman, 2006 WL 3825291, 2006 U.S. Dist. LEXIS 93380 (E.D. Mo., Dec. 27, 2006); Menke v. Broward County School Board, 916 S.2d 8 (Fl. 4th DCA, 2005). 

If there was a motion to compel production after the objections, or perhaps even earlier to further support the objections, the subpoenaed person, and/or the party, could submit affidavits confirming that a diligent, good faith search had already been made of these devices. They could describe in detail everything they did to try to locate and produce the ESI requested. They could then have confirmed under oath that all requested information had already been produced. If necessary, they could have further substantiated this reasonable search and prior production with an affidavit or testimony of a third party expert. If any of this had been done, I think we would have had a different result here.

Of course, another lesson to be learned here is not to subject your friends and relatives to possible later subpoena and deposition by using their computers, instead of your own, to conduct important business. Don’t borrow your mother’s laptop, bring your own, and by all means, don’t call her as a witness at trial unless you absolutely have to. I don’t know about you, but if I were this guy’s parent, I’d be pissed!

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D.C. Appeals Court Affirms Order Requiring a Non-Party to Spend $6 Million, 9% of its Total Annual Budget, to Comply with an e-Discovery Subpoena

Appellate courts do not often weigh in on e-discovery issues, but when they do, it is a big deal. The United States Court of Appeals for the District of Columbia did so on January 6, 2009, when it issued an opinion on e-discovery and sanctions. In re Fannie Mae Securities Litigation 552 F.3d 814, 2009 WL 215282009, U.S. App. LEXIS 9 (D.C. App. Jan. 6, 2009). Typically, I would be glad to have a Circuit Court opinion on e-discovery. Not so here.

Unfortunately, In re: Fannie Mae Securities Litigation sets a troubling precedent in favor of enforcing exorbitant e-discovery costs. In this case, the Office of Federal Housing Enterprise Oversight (“OFHEO”), was required to spend six million dollars, representing nine percent of its total annual budget, just to comply with a subpoena for electronic documents. Although OFHEO clearly had relevant information to the multidistrict litigation against the Federal National Mortgage Assn. (“Fannie Mae”) and the Federal Home Loan Mortgage Corp. (“Freddie Mac”), they were not a party to the litigation. This fact, coupled with the high expense involved in an over-broad e-discovery request, did not seem to concern the court, which is why this decision is troubling.

Why Fannie Mae Is Dangerous Precedent

The Appellate Court in the opinion written by Circuit Judge David S. Tatel rejected with little discussion the argument that the respondent should not have been compelled to comply with the subpoenas without considering the costs of compliance, cost shifting, narrowing the scope of production, or showing good cause to retrieve inaccessible data. Id. at *7. The Circuit Court did not even address the merits of these arguments, but, instead, basically said it was too late, you “agreed” to it, so now you are stuck with it regardless of the costs and consequences. For this reason, Fannie Mae should be strictly limited to situations where the parties have knowingly consented to an order they later fail to follow. Here is the language of the Court:

Federal Rule of Civil Procedure 45 requires courts to safeguard non-party subpoena recipients from significant expense resulting from compliance. See Watts v. SEC, 482 F.3d 501, 509 (D.C. Cir. 2007). According to OFHEO, the district court violated Rule 45 by compelling compliance without considering cost-shifting, narrowing the scope of the requests, or “find[ing] that defendants demonstrated good cause for forcing OFHEO to retrieve its inaccessible data.” Appellant’s Opening Br. 31-32

Whatever the merits of these claims, OFHEO abandoned them by entering into the stipulated order. Indeed, OFHEO’s trial counsel agreed to the stipulation in the middle of a hearing scheduled for the very purpose of considering OFHEO’s objections to the subpoenas. Had OFHEO wanted review of the district court’s initial order to compel compliance with the subpoenas, it could have completed the hearing and attempted to convince the court to re-consider. Failing that, it could have defied the adverse ruling and appealed any ensuing contempt finding. See U.S. Catholic Conference, 487 U.S. at 76. Instead, it chose to sign the stipulated order, which ended the hearing and unquestionably settled the discovery dispute. Having stipulated to a schedule for complying with the subpoenas, OFHEO can hardly complain now about being held to its agreement.

The opinion should be limited to the “unusual” facts of the case. But, since the decision itself did not take pains to do so, the door is open for Fannie Mae to be exploited and cited to try to require parties and non-parties alike to incur excessive e-discovery expenses. I do not think that is what the appeals court had in mind, they were obviously just trying to uphold the lower court’s discretion, but that is the net result. As a consequence, other courts will have to deal with this precedent for years. I expect they will do so by carefully distinguishing and limiting the holding to the facts of the case.

Electronic discovery costs are a runaway train that must be stopped. This opinion sets dangerous precedent making that task even more difficult than it was before. Certainly courts will distinguish and limit the case, but it is still a problem because many parties requesting e-discovery may try to inflate its importance to support outrageous demands.

Fannie Mae Shows Zero Tolerance For Common “Rookie” e-Discovery Errors

Even when limited to its facts, Fannie Mae is still dangerous because, like it or not, the facts presented are not all that unusual. When it comes to e-discovery, most lawyers are still struggling beyond their depth. It is not that uncommon for trial counsel to enter into agreements for search and production of electronic documents without first understanding its possible costs and burden. They also rarely understand how long it takes to review and produce gigabytes of data, nor do they know much if anything about modern search technologies. It is also not uncommon for generalist litigators to later make things worse with an “old-school” type fight-everything attitude and a series of too little, too late, productions.

This is just what happened here. In the midst of a hearing, trial counsel agreed to restore backup tapes, search them using plaintiffs’ terms, and then produce all email and attachments that were not privileged. Obviously the attorney did not intend by this agreement to assume a $6 Million Dollar burden, nor did the client authorize their attorney to do so. How can you have a six million dollar agreement without a “meeting of the minds?” Yet, the district court keeps coming back to that agreement, made in the midst of a hearing, as the justification for requiring a non-party to spend 9% of their total annual budget to comply with a subpoena. The Circuit Court then upheld the decision as within the very broad discretion allowed to a district court to manage discovery. They did so without any comment or reaction as to the injustice of imposing this kind of e-discovery cost and burden.

This case sends a very strong message to the Trial Bar to be very careful about what they agree to in a midst of a hearing. It shows that they should never agree to anything concerning e-discovery without first consulting with an e-discovery specialist, preferably one who is part of a larger tech/law e-discovery team. In fact, this case clearly demonstrates that an e-discovery lawyer (if you can find one) should attend every discovery hearing.

Trial lawyers, no matter how smart and skilled they may be, are not qualified to swim in these waters alone. Fannie Mae shows just how dangerous these waters can be. You may think something can be done fairly easily and inexpensively, and later be shocked to learn that it will cost millions, and take months, or even years to do. Apparently the trial judge did not understand how common a mistake this is. I am confident that if the government lawyers for OFHEO had had an experienced e-discovery lawyer with them at the first hearing, they would not have stipulated to the order they did, and all of the disasters that followed could have been avoided. But they did not, and as a result, they were bushwhacked.

The requesting parties here were allowed to specify 400 keywords, which, not too surprisingly (to us anyway), returned over 660,000 emails and attachments. By the way, does anyone seriously think that the plaintiffs suing Fannie Mae and Freddie Mac will now actually review all of these emails? No way! They will cull it down and only review a small percentage, which is exactly what the government should have done. I am willing to bet that most of the 660,000 emails produced will have little or no probative value. Like most cases, it will probably come down to a few hundred key documents, and maybe a few thousand more of some interest (to the attorneys). At the end of the trial, the jury will only remember four or five. This kind of forced production of 660,000 emails is irresponsible over-kill on a vast scale. It is infuriating because we, the American taxpayers, are forced to underwrite this fiasco.

It gets worse. The obviously over-broad search terms retrieved approximately 80% of all of the agencies email. Yet, this did not seem to trouble the district court, nor the appeals court, who actually stated that the 80% return “figure may simply indicate that most of the emails actually bear some relevance, or at least include language captured by reasonable search terms.” Id. at *6. Do they really think that 80% of the agency’s total email is relevant to the case? Obviously they have never read a large email collection before. The statement is incredible. As to the later explanation – “or at least include language captured by reasonable search terms” – the logic is meaningless and circular. Of course all of the emails retrieved contained one or more of the 400 search terms. That is why they were retrieved! How does that make them “reasonable” search terms?

In re: Fannie Mae Securities Litigation arguably stands for the proposition that if you agree to an e-discovery production, you may well be bound to your agreement, even if the agreement later proves to make no sense and the client has to go broke in the process. This is dangerous precedent. No one should be required to spend outrageous sums of money to comply with a subpoena, no matter what their lawyer may have said or done. Six Million Dollars, representing 9% of a governmental agency’s budget, is too high a burden to place on a party to litigation, much less a non-party. The principles of proportionality and Rule 26(b)(2)(C) should trump and prevail over any agreements inadvertently made by legal counsel. No wonder the government is going broke, just like many of the homeowners that Fannie Mae and OFHEO were supposed to protect.

Six Million Dollars

The district court later interpreted the stipulation that OFHEO’s attorney had made in the middle of a hearing to allow the requesting parties to specify any search terms they wanted; so they did. They specified 400 keyword terms which returned over 660,000 documents. Even though the government lawyers clearly did not understand what they had agreed to, they went ahead with the search and spent $6,000,000 in the process. Another big mistake. They should have tried to get relief first before spending the money. If that was refused, they still should have refused to spend $6,000,000. Instead, as the appellate court later recommended, they should have “defied the adverse ruling and appealed any ensuing contempt finding.” The bottom line is, once you spend the money on e-discovery, it is very hard to get it back. Unless you have specifically reserved the right for cost shifting, and sometimes even when you do, there is no money back guarantee.

You may well wonder how they managed to spend $6,000,000 to comply with a subpoena. As is typical, the main costs were for privilege review. Here is the language of the appellate court:

OFHEO undertook extensive efforts to comply with the stipulated order, hiring 50 contract attorneys solely for that purpose. The total amount OFHEO spent on the individual defendants’ discovery requests eventually reached over $6 million, more than 9 percent of the agency’s entire annual budget.

One would think at that point the courts would give the agency a break. But no, the government lawyers had made a series of promises to the court that they did not keep, mainly as to when the review would be completed and the emails produced. There are consequences for such failures. Unless you have done big projects like this before, it is unbelievable how long review can take and how many things can, and do, go wrong. Delays are inevitable and should be anticipated. They should enter into the calculus as to when a project can be completed and production made.

Clearly the government lawyers were once again making promises and representations to the court without the assistance of an experienced e-discovery lawyer. They made promises they could not keep and did not give adequate explanations for the delays. They also failed to cooperate and make rolling productions. Instead, they produced nothing at all while the contract lawyer review expenses kept going through the roof. To the district court judge, who almost certainly was never involved in a large e-discovery project before appointment to the bench, it looks like a series of broken promises and downright contempt. I do not know what happened here, but it was probably a series of mistakes and miscalculations, not intentional defiance of the court.

Regardless of the true cause, some of the the courts in Washington have obviously grown tired of lawyers making promises and commitments that they do not keep. They wanted to send a message that their actions would not be tolerated, and that is exactly what they did. Here is the language of the district court explaining the situation at *3:

*3 On November 29, 2007, the day before an interim deadline for production of several categories of material, OFHEO informed the district court that it would be unable to meet that deadline and moved for an extension until December 21, assuring the court that it could meet that extended deadline. The court granted the motion, but two days before the extended deadline, OFHEO informed the court not only that its previous assurances had been based on insufficient data, but also that it had only recently hired the necessary number of contract attorneys. OFHEO told the court that it would be unable to comply with the extended interim deadline, and that although it could produce all non-privileged documents by the ultimate January 4, 2008 deadline, it would be unable to produce all the required privilege logs until February 29.

The individual defendants renewed their motions to hold OFHEO in contempt. On January 22, the district court granted the motions. The court recognized OFHEO’s efforts at compliance, but deemed them “not only legally insufficient, but too little too late,” stating:

[T]he Court is cognizant of the large number of attorneys, contract attorneys, and OFHEO personnel working to comply with the subpoenas and the resulting costs of this compliance. Nevertheless, OFHEO has treated its Court-ordered deadlines as movable goal posts and has repeatedly miscalculated the efforts required for compliance and sought thereafter to move them.

OFHEO was held in contempt of court, as punishment they would not only have to pay for everything, with no hope of cost-shifting, but they would be required to produce some 20,000 emails without advance privilege review. The production was to be made on an “attorneys-eyes-only” basis, and a chance to later assert the unique kind of government privilege at issue here, the “deliberative process” privilege, but still, opposing counsel will be allowed to see all.

Here is the appellate court’s explanation:

[T]he district court directed the office to provide the actual documents withheld on the basis of the deliberative process privilege and not logged by the deadline. The district court described the sanction as “designed to move the [d]iscovery process forward and to allow for [a] more targeted, and therefore more truncated, privilege litigation process.”Hr’g Tr. at 26 (Jan. 22, 2008). The district court therefore specified that the compulsory disclosure would not waive the privilege with respect to further disclosure; directed that the documents be provided only to individual defendants’ counsel; and created a mechanism for OFHEO to recover documents found to be privileged.

I am not troubled by the privilege sanction. It stops short of a waiver and it appears that OFHEO deserved this counter-measure to make up for its many prior delays.

The part of this decision that astounds and disturbs me is the affirmance of the propriety of requiring a non-party to spend 9% of its total budget to comply with a subpoena, simply because their attorneys blindly agreed to comply without considering the cost of compliance. Here is how the Appeals Court explains its holding at *8:

*8 District judges must have authority to manage their dockets, especially during massive litigation such as this, and we owe deference to their decisions whether and how to enforce the deadlines they impose. See Berry v. District of Columbia, 833 F .2d 1031, 1037 n. 24 (D.C.Cir.1987). Though we recognize OFHEO’s strenuous efforts to comply, the district court found them to be “too little too late,” Hr’g Tr. at 19 (Jan. 22, 2008), and determined that the office’s compliance was inadequate, id. at 21. In making this assessment, the court placed great weight on the long history of the discovery dispute and on OFHEO’s repeated requests for extensions, ultimately concluding that OFHEO had requested one extension too many and that strict enforcement of its deadline was warranted. Given the district court’s intimate familiarity with the details of the discovery dispute, the scale of the production requested, and the progress of the multidistrict litigation as a whole, we are ill-positioned to second-guess that assessment. Were we on this record to overturn the district court’s fact-bound conclusion that OFHEO dragged its feet until the eleventh hour, we would risk undermining the authority of district courts to enforce the deadlines they impose.

Conclusion

I understand the importance of district court discretion, enforcing deadlines, and not second-guessing discovery calls. I am in favor of that. Also, I have often called for judges to get tough and stop allowing all of the “hide the ball” games. On the whole, I think judges have been far too tolerant of attorney misconduct. But, this case goes too far and punishes the wrong people. A government agency has been unfairly punished for conduct of their legal counsel. In the process, the second of the fourteen Sedona Principles has clearly been breached:

2. When balancing the cost, burden, and need for electronically stored information, courts and parties should apply the proportionality standard embodied in Fed. R. Civ. P. 26(b)(2)(C) and its state equivalents, which require consideration of the technological feasibility and realistic costs of preserving, retrieving, reviewing, and producing electronically stored information, as well as the nature of the litigation and the amount in controversy.

A non-party should never be required to spend $6 Million to comply with a subpoena. Moreover, by requiring OFHEO to restore and search its disaster recovery backup tapes, the requesting plaintiffs and the courts also violated the eighth Sedona Principle:

8. The primary source of electronically stored information for production should be active data and information. Resort to disaster recovery backup tapes and other sources of electronically stored information that are not reasonably accessible requires the requesting party to demonstrate need and relevance that outweigh the costs and burdens of retrieving and processing the electronically stored information from such sources, including the disruption of business and information management activities.

This case demonstrates what can happen when these fundamental precepts are not followed. It cannot be fair and just to allow a lawyer’s actions to drain 9% of an agency’s total annual budget, a budget paid for by taxpayer funds. Congress did not approve OFHEO’s budget last year thinking that 9% of it would go to help a group of plaintiffs sue Fannie Mae. The appellate court, and the district court before it, should have made an economic analysis of the situation in reaching its decision and considered the gross inefficiencies of its ruling.

I understand the need to affirm trial court discretion, but the appeals court could have upheld the authority of the lower court and still mitigated the economic impact of this ruling in some way. For instance, it could have allowed for possible cost-shifting. At the very least, the appeals court should have carefully limited its holding and expressed some abhorrence of the burden imposed. It should have considered the possible impact of this ruling on the future jurisprudence of e-discovery. It did not. It went too far, just as the pendulum was beginning to swing the other way. The economy and fair minded judges everywhere will no longer tolerate this kind of excess. For this reason, I predict that Fannie Mae will come to be seen as the high-point of out-of-control e-discovery spending. It will be all downhill from here, especially if we can muster up the competence and cooperation needed to make it happen.

_________________

SUPPLEMENTAL READING: Review some of the many cases cited here, especially Fannie Mae.

EXERCISE: What is your best guess as to why the government lawyers were so concerned about protecting the deliberative process privilege in Fannie Mae? Think skeptically. What do you think the government lawyers should have done in this case that they did not? What is your guess as to why they did not do so? Any idea what the review project might have costs the government if they had not used contract lawyers?

Students are invited to leave a public comment below. Insights that might help other students are especially welcome. Let’s collaborate!

Copyright Ralph Losey 2015

 

Ralph Losey is a practicing attorney who specializes in electronic discovery law. He is a principal in a U.S. law firm with over 50 offices & 800 lawyers where he supervises electronic discovery work and litigation support. Ralph has written over two million words on law and technology, including six books on electronic discovery. His latest books are "E-Discovery for Everyone" (ABA 2017) and "Perspectives on Predictive Coding" (ABA 2017) (ed. & contributor). His blog is widely read in the industry: "e-DiscoveryTeam.com." Ralph is the founder and principal author of "Electronic Discovery Best Practices" and "e-Discovery Team Training," a free online course covering all aspects of e-discovery. Ralph's sub-speciality is the search and review of electronic evidence using multimodal methods, including artificial intelligence. He also has a free online training program to teach these advanced methods - the "TAR Course." Ralph has devoted a month of his time each year since 2013 to research and test various AI-enhanced document review methods. In 2015 and 2016 Ralph and his Team participated in the TREC Total Recall Track experiments sponsored by the National Institute of Standards and Technology. Ralph has been involved with computers and the law since 1978. His full biography is found at RalphLosey.com. Ralph is the proud father of two children, Eva M. Losey and Adam Colby Losey, a high-tech lawyer married to another e-discovery lawyer, Cat Jackson Losey, and, best of all, Ralph has been married since 1973 to Molly Friedman Losey, a mental health counselor and life-long friend.

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