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e-Discovery and Inadvertent Disclosures, Subpoenas, and Rule 37(e)

Records Retention and Electronic Discovery Law Update

Greetings from the Illinois e-Discovery Group. The following is our second update of recent e-Discovery developments in Illinois. As with all of our updates, we will provide you with short case summaries that highlight the relevant e-Discovery issues as well as a link to the full opinion.

This update will focus on three recent cases: Kmart Corp. v. Foodstar, Inc., 2010 WL 4512337 (N.D. Ill. Nov. 2, 2010); DeGeer v. Gillis, 2010 U.S. Dist. Lexis 129745 (N.D. Ill. December 8, 2010); and Viramontes v. U.S. Bancorp et al., 2011 U.S. Dist. Lexis 7850 (N.D.Ill. January 27, 2011). Kmart involves a defendant who waived privilege by taking insufficient steps to prevent an inadvertent disclosure and failing to seek its return in a timely manner. DeGeer is an electronic discovery dispute between a subpoenaed third party and the defendants. Viramontes deals with the safe haven under
Rule 37(e) of the Federal Rules of Civil Procedure.

Kmart Corp. v. Foodstar, Inc., 2010 WL 4512337 (N.D. Ill. Nov. 2, 2010)

Facts: Kmart Corporation ("Kmart") sought indemnification from Foodstar, Inc. ("Foodstar") and its insurer, Liberty Mutual Fire Insurance Company ("Liberty Mutual") for an underlying personal injury lawsuit. Liberty Mutual inadvertently produced five privileged documents totaling 130 pages out of its 4500-page production.

e-Discovery Issue: If privileged documents are inadvertently produced during an electronic document production, what is the governing law? Could you be unable to "claw back" the documents?

Law: Inadvertent disclosures are controlled by Rule 502 of the Federal Rule of Evidence. Inadvertent disclosures will not result in waiver so long as: 1) the disclosure was inadvertent; 2) the disclosing party took reasonable steps to protect the privilege and prevent disclosure; and 3) the disclosing party took reasonable steps to rectify the error.

Holding: Liberty Mutual could not "claw back" the documents under Rule 502. It provided the court with no facts to show it took reasonable steps to prevent the disclosure. For example, Liberty Mutual could have discussed a "software used to prevent disclosure," a "records management system," or any other facts to prove a "screening process" was in place. It did not do so. Furthermore, Liberty Mutual did not take prompt reasonable steps to rectify the error. It waited 12 days to file its motion for a protective order and did not even send a letter to opposing counsel prior to the motion.

Takeaway Points: Make sure you have a screening process in place and take advantage of software and record management systems to prevent inadvertent disclosures. If privileged information is disclosed despite the screening mechanisms, take prompt action as soon as you have notice by sending out a letter immediately and filing a motion for a protective order within a few days - or as soon as possible. Make certain to include the screening mechanisms in your motion for a protective order because it is part of the moving party's burden under Rule 502.

See also Mt. Hawley Ins. Co. v. Felman Production, Inc., 2010 WL 1990555 (S.D.W.Va. May 18, 2010) (Plaintiff that inadvertently produced 980 privileged communications in a large-scale production was unable to "claw back" smoking gun privileged document despite numerous screening mechanisms in place, an agreement and stipulation for returning inadvertently produced documents, and prompt notice of recall).

Additional Point: Inadvertent disclosure will not result in a subject matter waiver under FRE 502. Subject matter waivers are limited to those rare instances when a party partially discloses privileged information intentionally to obtain an unfair tactical advantage. Fed. R. Evid 502 advisory committee's note (a).

Access the full Kmart opinion here.

Access the full Mt. Hawley opinion here.

DeGeer v. Gillis, 2010 WL 5096563 (N.D. Ill. December 8, 2010)

Facts: DeGeer involved a compensation dispute between partners for failure to abide by the terms of a partnership agreement. Huron, a third party, produced 40,000 documents of electronically stored information pursuant to subpoena at a cost of over $130,000. Defendants maintained that there were additional documents responsive to the subpoena request. Huron contended that the defendants should pay for any additional expense incurred in responding to the subpoena.

e-Discovery Issue: When will the court shift costs in a third-party electronic discovery dispute?

Law: The court applied a three-factor test to weigh the equities and also looked to the Sedona Principles for guidance. The court asked: 1) whether the non-party has an interest in the outcome of the case; 2) whether the non-party can more readily bear its costs than the requesting party; and 3) whether the litigation is of public importance. Also, the Sedona Commentary provided the following factors: (1) the scope of the request; (2) the invasiveness of the request; (3) the need to separate privileged materials; (4) the non-party's interest in the litigation; (5) the relative resources of the party versus non-party; (6) the reasonableness of the costs sought; and (7) the public importance of the litigation.

Holding: The court found that some cost shifting was appropriate, citing the parties' lack of cooperation as a controlling factor. The parties did not approach the dispute with "a spirit of cooperation or efficiency" and never engaged in a meaningful discussion early in the case about search terms or data custodians. It ordered the parties to share the costs, with one exception - Huron's former CEO. The former CEO had a practice of immediately deleting emails to avoid future discovery. Huron had to bear the cost of this search itself.

Takeaway Points: Parties should engage in a meaningful discussion of specific search terms and data custodians early in the case, and engage in an open and transparent discovery process. The party holding the information is in the best position to propose data custodians and specific search terms, and should take the lead. It should be upfront about its proposals and receptive to the opposing party's input. Employees should be counseled not to delete emails to avoid discovery as it does not permanently delete the email and will likely just increase the client's burden in discovery should litigation arise.

Access the full opinion here.

Viramontes v. U.S. Bancorp et al., 2011 U.S. Dist. Lexis 7850 (N.D.Ill. January 27, 2011)

Facts: Plaintiff Geraldine Viramontes brought an employment discrimination suit against U.S. Bank/U.S. Bancorp ("U.S. Bank"). Plaintiff Viramontes sent a January 22, 2009 letter to HR complaining about her boss. She did not file suit until December 4, 2009. U.S. Bank did not preserve relevant emails from January 22, 2009 to July 1, 2009. Plaintiff moved for sanctions and sought an adverse inference instruction. U.S. Bank's policy was to retain email for 90 days after which time it irretrievably destroyed the email. U.S. Bank also had a record retention policy in place whereby it preserved potentially relevant information after either: 1) it received notice of a legal or regulatory proceeding; or 2) a legal or regulatory proceeding was reasonably foreseeable.

e-Discovery Issue: 1) Did the January 22 letter give rise to a duty to preserve?; and 2) Did Rule 37(e)'s safe haven apply?

Law: 1) A duty to preserve may arise before a suit is filed if litigation is imminent or reasonably foreseeable. 2) Rule 37(e) provides that a court may not impose sanctions if electronically stored information is lost as a result of routine, good faith operation of an electronic information system.

Holding: 1) The January 22 letter did not give rise to a duty to preserve. Viramontes did not assert any possible claims in the January 22 letter; in fact, she testified that she had no intention to sue U.S. Bank at that time. Further, she offered a non-litigious resolution in the letter - the transfer of her boss. 2) Rule 37(e) also applied. U.S. Bank destroyed emails pursuant to a neutral policy and complied with a record retention policy.

Takeaway Points: A letter of complaint to HR that does not assert claims and offers a non-litigious resolution will not trigger the duty to preserve. Furthermore, a 90-day email policy coupled with a record retention policy in case of litigation is a reasonable business practice for a large corporation and is eligible for protection under Rule 37(e).

Access the full opinion here.

If you have any questions, please contact your Quarles & Brady attorney.