The Insider’s View On E-Discovery In North Carolina

© 2010 Smith Moore Leatherwood LLP. ALL RIGHTS RESERVED.

The Insider’s View On E-Discovery In North Carolina

Robert R. MarcusJon Berkelhammer

Smith Moore Leatherwood LLP


Overview

• Why Is E-Discovery Important to In-house and Outside Counsel

• What Are The Rules that Apply to Electronically Stored Information (“ESI”)

• What is Required of In-house and Outside Counsel in Practice

• Practical Strategies for Preserving, Locating, and Producing Relevant ESI


When E-Discovery Goes Wrong

• Qualcomm Inc. v. Broadcom Corp., 2008 WL 66932 (Jan. 7, 2008, S.D. Calif.)

– Arose out of a patent dispute involving two telecommunications patents

– Both parties represented by some of the largest law firms in the US

– Major issue in the litigation was when and to what extent Qualcomm participated in a certain industry conference known as the Joint Video Team (“JVT”)


Qualcomm v. Broadcom

– The date of Qualcomm’s participation determined whether it had waived its rights to enforce the two patents involved in the suit

– Broadcom’s discovery essentially sought all Qualcomm documents related to Qualcomm’s participation in, or communications with, the JVT

– Qualcomm’s response was fairly typical:

“Qualcomm will produce non-privileged relevant documents describing Qualcomm’s participation in the JVT, if any, which can be located after a reasonable search.”



• No documents before the key date were produced

• Qualcomm’s corporate witnesses also testified that Qualcomm did not participate in JVT meetings during the relevant time

• Throughout discovery and pretrial proceedings, Qualcomm represented that there was no evidence of its participation during the relevant time



• Lead trial counsel tells the jury Qualcomm did not participate in JVT:

“Later in May of ’03, the standard is approved and published. And then Qualcomm, in the fall of 2003, it begins to participate not in JVT because it’s done. . . . Qualcomm begins to participate in what are called professional extensions . . . .”



• The wheels begin to fall off:

– During preparations of one trial witness, an email from the JVT to the witness during the critical timeframe is discovered

– The employee’s computer is searched (for the first time after four years of litigation) and 21 other JVT emails are discovered

– They are deemed “irrelevant” by counsel and are not produced

– No search for other emails is undertaken



– This witness later testified at trial

• On direct examination she was asked whether she had “any knowledge of having read any emails from” the JVT

• On cross-examination, she was asked if she ever received any emails from the JVT, to which she responded she had

– The 21 emails were produced over the lunch recess



• Jury returned a verdict in favor of Broadcom, finding, among other things, that Qualcomm had participated in the JVT and that its patent rights had been waived

• The e-discovery issue, however, continued

– Broadcom made repeated post-trial requests that additional e-discovery searches be made, and Qualcomm refused

– After an exchange of several letters, Qualcomm counsel agreed to search current and archived emails using three search terms



• Search did not go well for Qualcomm

– 46,000 documents totaling over 300,000 pages

– Lead trial counsel and Qualcomm’s general counsel also wrote the trial judge forwarding some of the relevant information discovered and stated “that their review of these documents ‘revealed facts that appear to be inconsistent with certain arguments that [counsel] made on Qualcomm’s behalf at trial . . . .”



• Never got any better for Qualcomm or counsel:

“Qualcomm has not presented any evidence attempting to explain or justify it failure to produce the documents.”

“Qualcomm has not established that it searched the computers or email databases of the individuals who testified on Qualcomm’s behalf at trial or in depositions as Qualcomm’s most knowledgeable corporate witnesses; in fact it indicates that it did not.”



• The result of the failure to produce the documents:

– Qualcomm to pay Broadcom’s attorney’s fees for the entire litigation -- $8,568,633.24

– Six Qualcomm attorneys referred to the California State Bar for ethical violations for making false statements to a judge or jury and for suppressing evidence that the lawyer and client had an obligation to produce

– Counsel and the client were to participate in a Case Review and Enforcement of Discovery Obligations program supervised by the court and which Broadcom attorneys could attend


What are the Rules?


What are the Rules

• ESI discovery is governed by either the Federal Rules of Civil Procedure or the North Carolina Rules of Civil Procedure

• The Federal Rules provide:

– Rule 26 Scope of Discovery:

• “Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense”


What are the Rules

– Rule 26: Scope of Discovery (cont.)

• “A party need not provide discovery of electronically stored information from sources the party identifies as not reasonably accessible because of undue burden or cost.”

• The party opposing production of ESI bears the burden of showing that the information is not reasonably accessible because of undue burden or cost

• Court can nevertheless compel production


What are the Rules


• Parties are to develop a discovery plan that addresses, among other things:

– Disclosure or discovery of ESI, including the form or forms in which it will be produced

– Issues concerning claims of privilege, including agreement on a procedure to assert claims of privilege on information once it has been produced


What are the Rules

– Rule 34: Producing Documents, ESI, and other tangible items

• A party may request any other party to produce and permit inspection and copying of “any electronically stored information . . . stored in any medium from which information can be obtained either directly or, if necessary, after translation by the responding party into a reasonably usable form”


What are the Rules

– Rule 34: Producing Documents, ESI, and other tangible items (cont.)

• Responding to a request for ESI:

– A responding party may object to the form of the ESI production

– If no form of production is requested, the responding party must state the form in which ESI is being produced

– ESI must be produced in the manner it is kept in the usual course of business


What are the Rules

• The North Carolina Rule provides:

– Rule 26(b)(1): Scope of Discovery

• “Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action . . . .”

• “It is not grounds for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.”


What are the Rules– Rule 26(b)(1): Scope of Discovery (cont.)

• The court can limit discovery if it determines that:

– The discovery sought is unreasonably cumulative or duplicative

– The discovery is obtainable from some other source that is more convenient, less burdensome, or less expensive

– The party seeking discovery has had ample opportunity in discovery to obtain the information sought


What are the Rules

– Rule 26(b)(1): Scope of Discovery (cont.)

– The discovery is unduly burdensome or expensive considering:

» The needs of the case

» The amount in controversy

» Limitations on the parties’ resources

» The importance of the issues at stake in the litigation


What are the Rules

– Rule 34: Production of Documents

• Does not expressly refer to ESI

• Rule 34(a) provides, in relevant part:

– “Any party may serve on any other party as request . . . to produce and . . . to inspect any designated documents (including . . . data compilations)

– Reference to data compilations includes ESI


What are the Rules

• Proposed new North Carolina Rules

– Scope of discovery under Rule 26

• Explicitly recognizes the discoverability of ESI

• Defines ESI to include reasonably accessible metadata that will enable the discovering party to access date sent, date received, author, and recipients


What are the Rules


• ESI, however, does not include other metadata, unless agreed to by the parties or ordered by the court

• Court can re-allocate discovery costs, i.e., cost-shifting

• If claiming privilege, party must expressly make the claim and describe the information being withheld.


What are the Rules


• If privileged information is inadvertently produced, receiving party must destroy, return or sequester the information and retrieve the information if disseminated

• Receiving party can also present the information to the court under seal for determination of privilege claim

• A party can seek a protective order, but has the burden of showing that the electronically stored information is not reasonably accessible


What are the Rules

– Rule 26: Scope of Discovery (cont.)• Any party can request a meeting to

discuss discovery, including the discovery of ESI

• The parties can agree to a discovery plan to be submitted to the court, including an agreement on the scope of discovery of ESI and the preservation and production of such information

• If the parties are unable to agree, any party can move the court for a discovery conference


What are the Rules

• Rule 34: Request to Produce Documents

– Explicitly recognizes the production of ESI

– A party can specify the form in which electronically stored information is to be produced

– A party can object on the basis that the information is not reasonably accessible or that the form in which it is requested is not reasonable


What are the Rules

– Rule 34: Request to Produce Documents (cont.)

• If not specified, electronically stored information should be produced in a reasonably usable form

• A party need not produce electronically stored information in more than one form


What are the Rules

– Rule 37: Failure to Make Discovery; Sanctions

• If a motion to compel is brought, the objecting party has the burden of establishing that the ESI is not reasonably accessible because of undue burden or cost

• A party should not be sanctioned for losing ESI if the loss resulted from a routine, good faith operation of an electronic information system


What are the Rules

– Rule 45: Subpoenas

• A party can use a subpoena to request ESI

• The responding party need not produce ESI that is not reasonably accessible because of undue burden or cost

• The responding party has the burden of proof on a motion to compel


What are the Rules

– Rule 45: Subpoenas (cont.)

• The court can nonetheless order discovery

• The court can specify conditions on the discovery, including requiring the requesting party to pay the cost of locating, preserving, collecting, and producing the requested ESI


What Is Required In Practice


Zubulake v. UBS Warburg

• Laura Zubulake sued her employer for wrongful discharge claiming, among other things, that she was treated unequally and that her discharge was in retaliation for filing an EEOC charge

• The EEOC did not bring a claim against UBS, instead issuing Ms. Zubulake a right to sue letter

• UBS took the position that Ms. Zubulake’s supervisor treated everyone poorly



• Plaintiff submitted the following request to produce:

“All documents concerning any communication by or between UBS employees concerning Plaintiff.”

• Although objecting, UBS produced 100 emails and 260 other documents

• After what the court termed “an exchange of angry letters,” the parties agreed as follows:



“Defendants will [ ] ask UBS how to retrieve e-mails that are saved in the firm’s computer system and will produce responsive emails if retrieval is possible and Plaintiff names a few individuals” to search

• UBS conducted what it believed to be the reasonable search, and no further emails were disclosed

• Because Ms. Zubulake had produced 450 emails, she moved to compel production of UBS back-up tapes



• In addressing the motion, the court noted the following principles that govern e-discovery:

– Whether production of ESI is unduly burdensome depends on whether the information is accessible or inaccessible

– Whether ESI is accessible or inaccessible depends on the media on which it is stored



– Information is accessible if it is stored in a readily usable format

– Accessible data must be produced

– The party responding to discovery bears the cost of producing accessible ESI

• These guidelines now are probably universal



– Inaccessible data is not readily usable and must be restored

– The production of inaccessible data depends on a cost-shifting analysis

– Zubulake weighed seven factors to determine cost-shifting

• Whether the information has been specifically requested

• Availability of the information from other sources



• The total cost of production compared to the amount in controversy

• The total cost of production (exclusive of attorneys’ fees to review the documents) compared to the resources of each party

• Relative ability of each side to control the cost and the incentive to do so

• Public importance of the issues at stake

• Relative benefits to the parties of obtaining the information



– The first two factors are the most important

– The next three factors address the cost or burden of production

– Last two factors are minor and independent


North Carolina Factors

• Analog Devices v. Michalski, No. 01 CvS 10614, 2006 N.C.B.C. 14 (Nov. 1, 2006) (Tennille, J.) and Bank of America Corp. v. SR International Bus. Ins. Co., No. 05 CvS 5564, 2006 N.C.B.C. 15 (Nov. 1, 2006) (Tennille, J.)

• Mirror images of the e-discovery issue

– Analog Devices addressed the discovery of inaccessible data from a party

– SR International addressed the discovery of inaccessible data from a non-party


North Carolina Factors

• The Business Court, reviewing a variety of sources, including Zubulake, adopted a case specific approach that reviewed the following factors:

– The burden and expense of production

– The needs of the case

– The amount in controversy

– Any limitations on the parties’ resources

– The importance of the issues at stake


What is Required in Practice



• Issue a Litigation Hold

– Once litigation is “reasonably anticipated,” a litigation hold must be issued

– All relevant information, including ESI, must be preserved

– The obligation of instituting and complying with a litigation hold rests on the attorney as well as the client

– Must reissue the litigation hold at regular intervals to apprise new hires of the preservation obligation



• In-house and outside counsel must:– Familiarize themselves with all potential sources of ESI

– Determine what information exists and how it is stored

– Inquire about the use and existence of:

» E-mail» Servers» Back-up tapes» DVDs, CDs, laptops, and hard drives» PDAs, Blackberries, Treos



• Identify and interview key players

– Image the laptops of key players

– Request their documents

• Enter a “Claw-Back” Agreement

– Allows parties to enter into an agreement where either party can request the return of a privileged or protected document

– Absent a “claw-back” agreement, any protection or privileged may be waived if a document is inadvertently produced


What Is Counsel To Do?


What is Counsel to Do

• Back to Zubulake

– On day of EEOC charge, an oral directive was issued to retain all relevant documents

• This directive did not include back-up tapes

– Outside counsel met with a number of key players and orally reiterated the previous preservation requirement

– In-house counsel sent preservation emails on two different occasions

– Upon issuance of the first document request, outside counsel orally instructed UBS’s IT personnel to stop recycling back-up tapes



• Notwithstanding these efforts:

– Seven back-up tapes were lost

– E-mails from personal computers were deleted, though some were captured on the back-up tapes

– Accessible emails from at least two employees were not located or requested until after their depositions, two years into discovery



• Plaintiff’s motion for sanctions was allowed:

– Both counsel for UBS and UBS personnel were held to be at fault

– The destruction of active emails despite the issuance of litigation holds was deemed willful

– A spoliation instruction was given providing, among other things, that:



“If you find that UBS could have produced this evidence, and that the evidence was within its control, and that the evidence would have been material in deciding facts in dispute in this case, you are permitted, but not required, to infer that the evidence would have been unfavorable to UBS.”

• Court also allowed Plaintiff to redepose certain witnesses at UBS’s expense


Postscript

• During trial, counsel for Ms. Zubulake argued that UBS employees lied under oath, fabricated employment files, and destroyed evidence

• The jury returned a verdict for Ms. Zubulake in the amount of $9.1 million in compensatory damages and $20.2 million in punitive damages

P.S.:


Thank you

The Insider’s View On E-Discovery In North Carolina

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