How This Year's Experience With the New Rules Will Shape Next Year's eDiscovery

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Kroll Ontrack's Michele C.S. Lange examines four key areas of eDiscovery case law in 2016—proportionality, sanctions, predictive coding and costs—that were impacted by the 2015 amendments to the Federal Rules of Civil Procedure and makes some eDiscovery predictions for 2017.

Michele C.S. Lange

By Michele C.S. Lange

Michele C.S. Lange is the director of thought leadership and industry relations for Kroll Ontrack, an LDiscovery Company. Karissa Plachecki, Kroll Ontrack law clerk, assisted with this article. Kroll Ontrack's guide, Federal Rules of Civil Procedure: Practical Analysis for Organizations and Legal Teams (available at www.ediscovery.com), provides the text of the major rules amendments and the accompanying Committee Notes.

In December 2015, the Federal Rules of Civil Procedure were amended, impacting the legal discovery of electronically-stored information. At the heart of the amendments was a renewed effort to encourage cooperation, make eDiscovery practices more efficient and keep costs in check.

With 2016 coming to a close and 12 months of case law decided under the new FRCP, now is a good time to ask: what has been the impact of the new rules on discovery? How are practitioners addressing the changes?

A recent informal poll by Kroll Ontrack of more than 125 eDiscovery professionals revealed that the 2015 FRCP amendments are taking hold. Seventy-two percent indicated that the amendments have had a positive impact on eDiscovery. Eighty-five percent of respondents indicated that parties are making more of an effort to cooperate with each other as a result of the amendments, and 70 percent of respondents indicated they are updating their document retention policies in response to the new rules.

This article examines four key areas of eDiscovery case law in 2016—proportionality, sanctions, predictive coding and costs—and assesses the effect of amendments to Rule 26(b)(1) and Rule 37(e).

Rule 26(b)(1): Judges Recognize Proportionality
Scope of the New Rule

Amendments to Rule 26(b)(1) caused a stir when it was revealed that the long-standing “reasonably calculated” language was being removed.

Instead, the new Rule 26(b)(1) is focused on proportionality and its set of factors. These factors require parties to take into account “the amount in controversy,” “the parties' resources” and “the importance of the issues at stake in the action.”

At its core, proportionality is a balancing test, ensuring that parties receive the information they need to plead their claims and argue their defenses while curtailing expensive and time-consuming waste.

Despite the removal of the old language, in 2016 several courts persisted in using the phrase “reasonably calculated,” and the standard from Oppenheimer Fund v. Sanders, 437 U.S. 340 (U.S. 1978) for determining the scope of discovery. This outdated use has been so extensive that one court in In re Bard IVC Filters Prods. Liab. Litig.,2016 BL 306366 (D. Ariz. Sept. 16, 2016) stated that, “[o]ld habits die hard,” and that it is no longer enough for discovery to be relevant; discovery needs to be proportional as well.

Case Law in 2016

In 2016, both the courts and parties wrestled with applying the new standard to discovery practices. One case in particular has emphasized the idea behind the new Rule 26(b)(1).

Early in 2016, Magistrate Judge Paul Grewal, formerly of the Northern District of California, addressed the amendments to Rule 26(b)(1) in Gilead Sciences v. Merck & Co.,2016 BL 12304 (N.D. Cal. Jan. 13, 2016). While this opinion is short compared to other eDiscovery opinions, Judge Grewal is direct with the parties regarding the new standards. He states,

“No longer is it good enough to hope that the information sought might lead to the discovery of admissible evidence. In fact, the old language to that effect is gone. Instead a party seeking discovery of relevant, non-privileged information must show, before anything else, that the discovery sought is proportional to the needs of the case.”

Although Judge Grewal left the bench in 2016 leave to head in-house at Facebook, his advice in Gilead will forever carry on in a short simple proportionality analogy: “It would be like requiring GM to produce discovery on Buicks and Chevys in a patent case about Cadillacs simply because all three happen to be cars.” Legal teams need to keep this analogy in mind as they proffer discovery in 2016.

Another case showed that there are real consequences for attorneys that fail to utilize the 2015 amendments.

In Fulton v. Livingston Fin. LLC, 2016 BL 238466 (W.D. Wash. July 25, 2016), the defendant's attorney cited to the pre-2015 FRCP amendments, claiming that he acted in “good faith” because the new version of Rule 26 did not change the meaning of relevance.

The court called the continued use of the old amendments “badly out of date” and noted that the 2015 amendments “‘dramatically changed’ what information is discoverable.” Parties cannot purposely ignore or recklessly fail to address the new proportionality requirements of Rule 26(b)(1). Fulton proves that courts simply will not tolerate such outdated and out-of-touch legal advocacy.

Predictions for 2017

While Rule 26(b)(1) looks simple on paper, case law in 2016 is proving it can be complicated to apply. The fact is, proportionality under Rule 26(b)(1) requires a case-by-case analysis.

Here are a few things to keep in mind regarding scope of discovery in 2017:

  • Proportionality is here to stay. Over the next year, rulings on proportionality will increase as more judges and parties gain familiarity with the new provisions. In 2016, we still saw a material number of opinions citing old law; the system needs a bit more time to adjust to the new proportionality standards for scope of discovery.
  • The court is now the last resort for a discovery dispute; not the first. Early 2016 saw many cases in which the court would take each contested discovery item and apply the proportionality factors. As 2016 drew to a close, more courts have refrained from doing this and are instead sending cases back to the parties to attempt settlement.
  • Don't tell the court what won't work for eDiscovery; tell the court what will work. Proportionality requires cooperation and courts are expecting to see counsel doing their part to ensure each party receives adequate discovery.
  • Think of proportionality as a tool, not a constraint. While it seems that proportionality merely limits discovery, it actually can be a useful mechanism for parties that can utilize it correctly. Proportionality can help a litigation team keep their costs in check and ensure that they are focusing their efforts only on the evidence that is worth their time.

Rule 37(e): Reasonable Steps, Intent to Deprive and Inherent Power
Scope of the New Rule

2015 amendments to Rule 37(e) changed the standard by which ESI spoliation is measured.

The rule clarified that sanctions are not to be imposed for lost ESI, as long as a party takes “reasonable steps” to preserve the evidence.

Furthermore, to constitute spoliation, a party must have acted with the intent to deprive the other party of information which cannot be replaced by any other means.

The amendment of this rule, as noted by Sec. Alarm Fin. Enters., L.P. v. Alarm Prot. Tech. LLC, 2016 BL 405515 (D. Alaska Dec. 6, 2016), does not change a party's duty to preserve. Rather, it “merely limits the Court's discretion to impose particular sanctions.”

Before the 2015 amendments, Rule 37(e) was the area of eDiscovery law with the greatest division across circuits and the subject area with which the Advisory Committee grappled the most. What is considered “proper preservation” is a blurry line, often dependent upon a myriad of case-specific facts, which makes it ripe for courts to intervene and clarify when disputes arise.

Case Law in 2016

In 2016, many cases delved into whether a party's conduct was sufficient under Rule 37(e) to warrant sanctions. One case that highlights the new standard is Living Color Enters. v. New Era Aquaculture Ltd.,2016 BL 92475 (S.D. Fla. Mar. 22, 2016).

In Living Color, a party faced sanctions for failing to turn off auto-delete features on a cell phone and, as a consequence, text messages were lost.

While the court said that the conduct at hand didn't satisfy the requirement of “reasonable steps,” more is needed for sanctions. As the court said,

“[T]he Court does not find any direct evidence of either ‘intent to deprive’ or bad faith. …There is nothing nefarious about such a routine practice under the facts presented here.”

From this case, we see one of the main ideas of Rule 37(e): when ESI is lost, intent matters for imposing sanctions.

Another main theme of 2016 eDiscovery sanctions cases was determining if a party's actions constituted “reasonable steps.” One case that highlights this is Marten Transp., Ltd. v. Plattform Adver., Inc., 2016 BL 34879 (D. Kan. Feb. 8, 2016), in which an employee's internet search history was lost due to routine business practices.

The court found that the party took reasonable steps to preserve evidence in this case, in part because most businesses do not preserve internet search history. In this decision, the court summed up the purpose behind Rule 37(e), saying the new rule requires “reasonable steps” and not perfection.

Lastly, the 2016 cases where the court used its inherent power to move beyond Rule 37(e) to impose sanctions for ESI spoliation have elicited much debate. While rare, these cases show that a court will not necessarily confine themselves to Rule 37(e) if the conduct is sufficiently egregious.

The first of these cases was Cat3, LLC v. Black Lineage, Inc., 164 F. Supp. 3d 488 (S.D.N.Y. 2016), in which Magistrate Judge James Francis of the Southern District of New York, explained,

“Where exercise of inherent power is necessary to remedy abuse of the judicial process, it matters not whether there might be another source of authority that could address the same issue.”

Later, in GN Netcom, Inc. v. Plantronics, Inc., 2016 BL 230622 (D. Del. July 12, 2016), another court levied $3,000,000 in punitive damages when a defendant acted willfully to deprive the plaintiff of evidence. While Rule 37(e) is available to sanction conduct for the loss of ESI, some courts will move beyond this when they deem that the conduct merits it.

Predictions for 2017

The opinions in 2016 have revealed that there is still some fine-tuning needed before clarity is achieved with Rule 37(e). Here are some things that can be expected in 2017:

  • Understand what Rule 37(e) requires. The rule not only requires a loss of ESI, but courts also are looking for intent in addition to evidence that the other party sustained prejudice as a result.
  • Rule 37(e) cases will be prominent. There will be a steady stream of cases addressing reasonable steps to preserve, intent to deprive another party of relevant ESI and the inherent power of the court to administer sanctions when ESI is lost.
  • Rule 37(e) cases are avoidable. When it comes to Rule 37(e), nothing is more valuable than having efficient document retention policies and litigation hold practices. Such policies provide parties with a great defense against sanctions should the other party file a sanctions motion if ESI is lost.

The New Rules and Predictive Coding

Each year since 2012 when Da Silva Moore v. Publicis Groupe, 287 F.R.D. 182 (S.D.N.Y. 2012) was issued, we have seen a handful of opinions discussing technology-assisted review, also known as predictive coding.

These opinions usually include a noteworthy decision from Magistrate Judge Andrew Peck from the Southern District of New York. For example, 2015 opinions considered the parties' TAR protocols and the desirable levels of transparency and cooperation required when using predictive coding.

In 2016, two key opinions, Hyles v. New York City,2016 BL 248010 (S.D.N.Y. Aug. 1, 2016), and In re Viagra (Sildenafil Citrate) Prods. Liab. Litig.,2016 BL 347130 (N.D. Cal. Oct. 14, 2016), noted the efficiencies associated with predictive coding, but refused to compel or force a party to leverage the cutting edge technology.

Instead, the opinions reiterated that a responding party is best situated to decide how to search for and produce ESI responsive to a document request.

Predictive coding is taking off internationally as well. In March 2015, Ireland approved the use of predictive coding in the discovery process in Irish Bank Resolution Corporation Ltd. & Ors v. Quinn & Ors, [2015] IEHC 175 (H. Ct.) (Ir.).

In February 2016, Master Matthews issued the first British opinion, known as Pyrrho Investments Ltd. v. MWB Property Ltd., [2016] EWHC (Ch) 256 (Eng.), which approved the use of predictive coding in High Court proceedings, partly relying on Magistrate Judge Peck's opinion in Da Silva Moore.

Even more recently in May 2016, Britain had its first contested case regarding predictive coding, David Brown v. BCA Trading, [2016] EWHC (Ch) 1464 (Eng.).

As 2016 came to a close, Australia has had its first TAR case with McConnell Dowell Constructors (Aust) Pty Ltd v. Santam Ltd & Ors (No 1), [2016] VSC 734 (Dec. 2, 2016).

In McConnell, the Australian court noted that the massive amount of documents that needed to be reviewed created a cost that could not justify manual review. Using TAR case law from Britain, Ireland and the United States, the Australian court approved its use. These opinions are just the start of what we will see on the issue of predictive coding in years to come.

Predictions for 2017

  • New technologies will become more accepted. Though its implementation has been slow, courts in the United States and around the world are becoming more accepting of predictive coding, recognizing its value.
  • TAR will be used more as proportionality cements its place. A key driver behind TAR is the cost associated with discovery. This idea plays into the proportionality requirement of Rule 26(b)(1). Litigators need to be aware of the interplay that new technologies have with the FRCP.
  • Manual review is no longer the gold standard. The idea that manual review is the best method of conducting discovery is now considered a myth. Attorneys need to be prepared that insisting on manual review may one day soon be considered unreasonable. As noted by Judge Peck in Hyles, someday, it may be unreasonable for a party to refuse to use TAR, but we are not there yet. Who knows, perhaps this will be accomplished through 2017 case law?

Paying for Discovery

A discussion of 2016 case law would not be complete without considering how eDiscovery costs are faring under the new FRCP.

While in the United States, discovery is typically paid for by the party responding to a request, the new FRCP has created situations changing this expectation. Although relatively rare, a few cases have come out in 2016 that show a court shifting costs to the party requesting discovery.

In Elkharwily v. Franciscan Health Sys.,2016 BL 246591 (W.D. Wash. July 29, 2016), the court denied a motion to compel, because the burden of obtaining the e-mails was outweighed by its cost. However, since the court determined that the e-mails were discoverable, the plaintiff could obtain the discovery, provided they were willing to pay for it.

Predictions for 2017

  • Keep costs in mind. Proportionality also applies to costs and thanks to the new FRCP, courts are especially keen to ensure that the information provided does not outweigh the burden to the other party.
  •  If potentially burdensome discovery is desired, counsel need to be prepared to show either how their interest outweighs this burden or be prepared to front the cost themselves.

Conclusion

In 2016, courts and litigation parties were finding their footing with applying the new FRCP amendments to eDiscovery. The new FRCP amendments will be a major factor in 2017; counsel need to consider if they will be ready.

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