eDiscovery and Counsel-Client Relationships: A Discussion of Sanctions and Conduct

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By Tera E. Brostoff  


Sources of sanctions and the ways in which the use of technology and production of electronically stored information (ESI) affect counsel-client relationships were among the topics discussed at the May 23 Sanctioning Inside Counsel, Retained Counsel and Parties: What? Why? webinar, moderated by Bloomberg BNA's Digital Discovery & e-Evidence Report Advisory Board Chair Ronald J. Hedges, of Ronald J. Hedges LLC.

The lecturers included the Honorable Craig B. Shaffer, United States Magistrate Judge of the U.S. District Court for the District of Colorado, Advisory Board member Jeane A.Thomas, of Crowell & Moring LLP, and Amar D. Sarwal, of Association of Corporate Counsel.

Because ESI is pervasive throughout corporate and governmental entities and is increasingly commonly sought in discovery, Hedges said, the handling of ESI is often the focus of sanctions. The prevalence of ESI in discovery forces attorneys and clients to consider what “competency” means in a digital age, he observed in his opening remarks.

Sanction Sources: Federal Rules and Inherent Power

Before discussing the relevant Federal Rules of Civil Procedure and sources of issuing authority, Judge Shaffer explained the connotation of sanctions in the legal context.

“When we use the word 'sanction', it tends to mean different things to different people,” Shaffer said. “A sanction is generally defined as a detrimental action taken or imposed as a means of enforcing the law, but in the legal context, the word sanction has a broader connotation.”

Shaffer said legal sanctions can also have a remedial effect, citing the example of adverse inference sanctions, or a deterring effect, which is meant to educate lawyers generally about what is and is not acceptable behavior.

The judge explained that the court's power to impose sanctions derives from the Federal Rules and statutes, as well as the long-recognized notion that courts have inherent authority to impose sanctions.

“In short, the court has considerable power and even greater discretion as to deciding when and how a party should be sanctioned,” Shaffer said.

Shaffer discussed Rule 11 first, explaining that the rule is not applicable in the discovery context, but does provide standards to which the discovery-related Rules adhere. Fed. R. Civ. P. 11 is governed by an objective standard, in that a party cannot avoid sanctions simply by saying or arguing that he subjectively believed his actions were appropriate or consistent with the Rules.

According to the judge, Rule 11 is significant because the case law suggests that, in deciding whether to impose sanctions under Rule 11, the court should consider various factors such as: whether the violation was willful or negligent, whether it was an isolated event or part of a pattern, and whether the violation was intended to do injury or injury was inadvertent. These inquiries and standards are found in discovery-related Rules as well, Shaffer said.

“In addition, nothing in Fed. R. Civ. P. 11 absolutely requires the imposition of sanctions; the rule recognizes the court has considerable discretion,” Shaffer explained. “We find those same elements in other rules that apply more directly, such as Rule 26(g).”

According to Shaffer, Rule 26(g)'s advisory committee notes speak of the rule as a 'stop and think rule.' The rule contemplates that a party or an attorney will certify to the best of his knowledge, information, and belief, formed after reasonable inquiry, that either initial disclosures, or discover requests, responses, or objections, are consistent with the Rules, not imposed for improper purpose, and are neither unreasonable or unduly burdensome given the circumstances of the particular case.

“The Rule does not require a certifying attorney to attest to the truthfulness of the client's factual responses, just that the lawyer will make a reasonable effort to ensure the client has provided all the information available to the client that is responsive to the discovery demand,” Shaffer explained. “An important distinction here is that you are not attesting that the information is correct, but you are suggesting that reasonable efforts have been undertaken to provide all responsive information.”

26(g) places obligations on both counsel and client. Thomas explained that determining what constitutes a reasonable inquiry on the part of the attorney who is signing the discovery response can be a difficult question to answer. The issue is further complicated when the attorney signing the pleadings is misled by a client, despite counsel's efforts in making reasonable inquiries.

Shaffer also spoke briefly about Rule 37(c), which allows the court to impose sanctions if a party fails to properly disclose or supplement disclosures under 26(a) or 26(d). The rule says the court can preclude the use of information or evidence for any purpose in the event of a violation.

“The rules suggests that the sanction must be imposed, but the case law is pretty clear that 37(c) still gives the court discretion to arrive at an appropriate sanction,” Shaffer said. “The sanction can be as benign as affording costs.”

The panel also briefly discussed Rule 45(c), which imposes an obligation on a lawyer subpoenaing a non-party to minimize the burdens associated with compliance, and Rule 37(f), which allows for sanctions in the event a party fails to participate in good faith in the preparation of a discovery plan.

Shaffer next addressed 28 U.S.C. § 1927, which allows the court to impose sanctions directly on counsel. The statute is unique because it does not allow sanctions to be imposed on a party, and is designed to curb dilatory practices and sanction attorneys who abuse core processes.

“Sanctions under section 1927 can only be imposed if the conduct at issue is unreasonable and vexatious,” Shaffer explained. “This means the court has to find bad faith.”

Bad faith can be found in cases where the conduct multiplies the proceeding, though simply filing a law suit is not considered vexatious for the purposes of the statute. Shaffer said he has imposed sanctions on counsel under the statute in the past, but that doing so often produces more motions and delay.

Finally, Shaffer addressed the inherent powers of the court. He said the U.S. Supreme Court has long recognized trial courts have inherent authority to impose sanctions, but that the case law appears to suggest that while the court can always invoke its inherent authority, it is generally preferred that the court use applicable Rules or statutes to do so.

Ethical Obligations of Counsel

Sarwal and Thomas spoke about the ethical obligations of counsel in the context of the Model Rules of Professional Conduct. Sarwal explained that Rule 1.1., which requires attorneys be competent, discusses counsel's obligation to be through and prepared. According to 1.1's comments, attorneys are expected to keep abreast of the technological changes that could affect the rule, Sarwal said.

In addition, Rules 3.3 and 3.4 require attorneys to make reasonably diligent inquiries, and Rules 5.1 and 5.3 explain that attorneys in law firms cannot escape liability because they have retained a third party to help them.

“The Model Rules are interesting because they do not by their very terms impose sanctions, but they are standards that the judge can look to gauge counsel's conduct,” Shaffer said.

Thomas explained how the Model Rules impact interactions between counsel and client . “You rarely get sideways with your client on these issues, but it does sometime happen,” Thomas said. “Sometimes you can have a scorched-earth client who cares little for the outcome, but is interested in imposing great costs and burden on a party … As counsel you have to determine how to manage that.”

Sarwal added that the interplay is made more complicated by the advent of the ESI vendor. The addition of a vendor can create a particular friction in the litigation, leading to questions of whether outside or in-house counsel has the ethical responsibility to ensure the litigation proceeds expeditiously, Sarwal explained.

Sanction Case Studies

Hedges also introduced several cases that explore the imposition of sanctions and how and why they are used. The webinar focused on:

In re Niles C. Taylor, 655 F.3d 274 (3d Cir. 2011), in which counsel was sanctioned for failure to do due diligence to ensure information in pleadings were correct;

S2 Automation LLC v. Micron Technology Inc., No. 11-0884 (D.N.M. Aug. 9, 2012), in which the defendant was allowed information regarding the plaintiff's search strategy because the court could not determine if a reasonable inquiry had been made based on plaintiff's counsel's lack of knowledge regarding search terms and protocol;

In re Consolidated Meridian Funds, No. 10-17952-KAO (Bankr. W.D. Wash. Apr. 5, 2013), in which Rule 45(c)(1) sanctions were invoked because a paralegal was assigned to respond to a subpoena and the response was insufficient;

Day v. LSI Corp., No. CIV 11-186-TUC-CKJ (D. Ariz. Dec. 19, 2012): in-house counsel failed to do due diligence to determine that documents and custodians were identified in production;

Coquina Investments v. Rothstein, No. 10-60786 (S.D. Fla. Aug. 3, 2012): sanctions were imposed on the company; and,

United Central Bank v. Kanan Fashions Inc., No. 10 C 311 (N.D. Ill. Sept. 21, 2011): oth counsel and the corporate client absorbed sanctions at the magistrate court level.

The cases were highlighted for their relevancy to the role sanctions play in the digital age. According to Sarwal, Niles C. Taylor is significant because the decision was sensitive to the role of technology. In that case, counsel interacted with a third-party electronic system rather than the client, a bank.

While technology is changing and adapting with the world of litigation, attorneys are not relieved of their professional obligations, Sarwal said.

As for Day, Thomas explained the holding is a lesson in proper preservation anticipation and behavior. “When you are in-house or outside counsel, the first thing you do when you reasonably anticipate litigation is nail down as quickly as possible what are the relevant sources of information, whether it's data systems or people,” Thomas said. “That could be a process that takes days, if not weeks, depending on the nature of the claims.”

Sarwal also discussed the holding in Coquina, and his concern that the judge in the case did not engage in a fact intensive inquiry before imposing sanctions.

“The judge relied on a one-size-fits-all approach as to how legal departments operate,” Sarwal lamented. “The problem is that departments have changed so much in the last 10 years in how they approach dealing with eDiscovery.”

Consequences in a Digital Era

Hedges wrapped up the discussion by asking the lecturers to consider if attorneys now live in a world in which they tell clients to over-preserve information.

“We are certainly seeing it, though we don't counsel for over-preservation,” Thomas said. “If you have a “bet-the-company” case, you are likely going to err on the side of over-preservation.”

Thomas explained that decisions about preservation are done at the beginning, often before receiving the complaint. The scope of duty is not always clear right away, and issues will come to the fore or drop out, making assessment of sanction risks difficult.

Shaffer discussed the need for standardization or uniformity of sanctioning rules across jurisdictions. Uniformity becomes even more of a concern when a client is involved in multiple litigations in different circuits, making counsel's job of advising a client how to deal with litigation holds and preservation duties difficult.


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