Navigating eDiscovery Changes: Key Points for 2016

The Ever-Changing World of eDiscovery: What You Need to Know in 2016 by Brad Holm Phoenix City Attorney May 20, 2016

Overview • The 2015 amendments to the Federal Rules of Civil Procedure became effective December 1, 2015. • The amendments materially changed two longstanding eDiscovery principles and modified a third: • Rule 26(b)(1)—the scope of discovery (and hence, the scope of the duty to preserve); • Rule 37(e)—the spoliation doctrine; and • Rule 26(f)—inadvertent disclosure of privileged materials.

1. Rule 26(b)(1)–Scope of Discovery • In the eDiscovery context, the scope of discovery controls the scope of the duty to preserve. • The duty to preserve is not enshrined in the Federal or Arizona Rules of Civil Procedure. • It’s grounded in common law, and until the eDiscovery explosion, it was a quiet, unassuming—even sleepy—little duty that was not often awakened in civil litigation.

1. Rule 26(b)(1)–Scope of Discovery • Now, the duty to preserve is an issue in every case. And the scope of this duty is commensurate with the scope of discovery. • Before the 2015 Fed. R. Civ. P. amendments, the duty to preserve did not require a party “[to] preserve every shred of paper, every e-mail or electronic document, and every backup tape.”1 _______________________ 1Zubulake v. UBS Warburg LLC (“Zubulake IV”), 220 F.R.D. 212, 217 (S.D.N.Y. 2003)

1. Rule 26(b)(1)–Scope of Discovery • Generally, the duty to preserve as it existed before the 2015 amendments required each party to preserve all electronically stored information (ESI) that falls into one of four categories: • “While a litigant is under no duty to keep or retain every document in its possession . . . it is under a duty to preserve [1] what it knows, or reasonably should know, is relevant in the action, [2] is reasonably calculated to lead to the discovery of admissible evidence, [3] is reasonably likely to be requested during discovery, and/or [4] is the subject of a pending discovery request.”2 _______________________ 2Id. (emphasis added); Souza v. Fred Carries Contracts, Inc., 191 Ariz. 247, 250, 955 P.2d 3, 6 (App. 1997) (same).

1. Rule 26(b)(1)–Scope of Discovery • The 2015 amendment rewrote Rule 26(b)(1), and the amendment replaced the “reasonably calculated” standard with a proportionality balancing test that would make former Chief Justice Feldman proud: “Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering [1] the importance of the issues at stake in the action, [2] the amount in controversy, [3] the parties’ relative access to relevant information, [4] the parties’ resources, [5] the importance of the discovery in resolving the issues, and [6] whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable.”3 _______________________ 3 Emphasis added.

1. Rule 26(b)(1)–Scope of Discovery • At common law, the duty to preserve evidence is triggered (1) when a party has notice that the evidence is relevant to pending litigation, or (2) when the party should have known that the evidence may be relevant to future litigation.4 • At such an early point in time, how will the party know what evidence is “proportional to the needs of the case” and therefore what evidence must be preserved, even if inadmissible? _______________________ 4Zubulake IV, 220 F.R.D. at 217.

1. Rule 26(b)(1)–Scope of Discovery • To understand how the 2015 amendment to the scope of discovery in turn changes the scope of preservation, we begin by focusing on the proportionality concept. • First, the proportionality rule does not “place on the party seeking discovery the burden of addressing all proportionality concerns.”5Rather, after the 2015 amendment all the burdens in a discovery dispute remain unchanged. In such a dispute, each party provides to the court relevant proportionality information in its possession, and the court makes a “case-specific determination of the appropriate scope of discovery.”6 _______________________ 5Herrera v. Plantation Sweets, Inc., No. CV614-127, 2016 WL 183058, at n.1 (S.D. Ga. Jan. 14, 2016). 6 2015 Comm. Note.

1. Rule 26(b)(1)–Scope of Discovery • Second, the amendment’s effect is this: both parties will probably be required to make a proportionality showing.7 And a party may not refuse to respond to discovery simply by interjecting a boilerplate objection that the discovery is not proportional to the needs of the case.8 _______________________ 7Carr v. State Farm Mut. Auto. Ins. Co., 312 F.R.D. 459, 468-69 (N.D. Tex. 2015). 8 2015 Comm. Note.

1. Rule 26(b)(1)–Scope of Discovery • Third, the proportionality test applies foremost to the production of relevant evidence: the new rule emphasizes “the need [for courts] to analyze proportionality before ordering production of relevant information.”9 • The 2015 amendment was designed to encourage judges to restrict overly broad discovery, primarily discovery of relevant information.10 • But Chief Justice Roberts has said that the 2015 amendment “crystallizes the concept of reasonable limits on [all] discovery through increased reliance on the common-sense concept of proportionality.”11 _______________________ 9 State Farm Mut. Auto. Ins. Co. v. Fayda, No. 14CIV9792WHPJCF, 2015 WL 7871037, at *2 (S.D.N.Y. Dec. 3, 2015) (emphasis added). 10Robertson v. People Magazine, No. 14 CIV. 6759 (PAC), 2015 WL 9077111, at *2 (S.D.N.Y. Dec. 16, 2015). 11See 2015 Year-End Report, quoted in Sprint Commc’ns Co. L.P. v. Crow Creek Sioux Tribal Court, No. 4:10-CV-04110-KES, 2016 WL 782247, at *4 (D.S.D. Feb. 26, 2016).

1. Rule 26(b)(1)–Scope of Discovery So, what’s the status of the common-law duty to preserve everything—even inadmissible or irrelevant evidence—if the evidence is “reasonably calculated to lead to the discovery of admissible evidence”? • Three recent cases rely on an old SCOTUS opinion interpreting another deleted phrase from old Rule 26. This view holds discoverability under the 2015 amendments still extends “‘broadly to encompass any matter that bears on, or that reasonably could lead to other matter that could bear on’ any party’s claim or defense.”12 _______________________ 12LightSquared, Inc. v. Deere & Co., No. 13CIV8157RMBJCF, 2015 WL 8675377, at *2 (S.D.N.Y. Dec. 10, 2015) (quoting Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978)).

1. Rule 26(b)(1)–Scope of Discovery Conclusions about the duty to preserve: • When the duty to preserve first arises, it’s too early to evaluate which evidence—particularly which inadmissible evidence—the court might order your client to produce. • The proportionality test offers no black-and-white rule to limit the scope of the duty to preserve. • The best working rule: preserve even inadmissible evidence if it could reasonably lead to anything that “could bear on” any party’s claim or defense. 4. Practice pointer: discuss preservation concerns at the Rule 26(f) meet-and-confer. See Rule 26(f)(2) (parties must discuss “any issues about preserving discoverable information” at Rule 26(f) conference).

Implementing the Duty to Preserve • The duty to preserve evidence is triggered (1) when a party has notice that the evidence is relevant to pending litigation, or (2) when the party should have known that the evidence may be relevant to future litigation.13 • The first order of business after the duty has arisen: convene a claims-and-defenses meeting with senior and knowledgeable city officials and lawyers (inside and outside counsel, if retained). _______________________ 13Zubulake IV, 220 F.R.D. at 216.

Implementing the Duty to Preserve The purposes of a claims-and-defenses meeting include: • The team should discuss and outline the merits of the parties’ claims and defenses to identify issues and in turn to identify categories of ESI relevant to the issues. • Once the issues and ESI categories are identified, the team should determine where related information resides. Typically this effort requires the team to identify which employees generate, receive, or access potentially relevant ESI. (These employees are called “key players” or “key custodians.”) • The team should solicit IT’s help to consult the City’s document-retention policy and to begin locating and securing relevant ESI. • The team should develop a preservation plan.

Implementing the Duty to Preserve The preservation plan should address these requirements: • A lawyer must prepare and communicate a litigation-hold to all key custodians and to IT. • A lawyer or paralegal must interview and explain the duty to preserve to all key custodians and to IT. • A qualified person (with IT training) must search key custodians’ sources of ESI. • A qualified person must collect, isolate, and protect the ESI. • A qualified vendor (or experienced IT person) must process and produce the ESI. • In some cases, a lawyer must monitor compliance with the litigation-hold.

2. Rule 37(e)–Spoliation • Old Rule 37(e) (in a way) permitted document destruction. • A party could not be sanctioned under Fed. R. Civ. P. 37(e) for ESI “lost as a result of the routine, good-faith operation of an electronic information system”—“absent exceptional circumstances.” • Based on this language, old Rule 37(e) created a “safe harbor” for document retention policies that in turn call out a document destruction schedule.

2. Rule 37(e)–Spoliation • New Rule 37(e) abolishes the explicit safe-harbor rule and codifies spoliation rules for breaching the duty to preserve: Failure to Preserve Electronically Stored Information. If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court: (1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or (2) only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation may: (A) presume that the lost information was unfavorable to the party; (B) instruct the jury that it may or must presume the information was unfavorable to the party; or (C) dismiss the action or enter a default judgment.

2. Rule 37(e)–Spoliation • New Rule 37(e)(1) allows the court to fashion a remedy for a breach of the duty to preserve evidence under these conditions: • The duty to preserve has been triggered—specifically, litigation has become reasonably foreseeable or has actually been filed; • The party failed to take “reasonable steps to preserve” the specific ESI; • The ESI was lost; • The ESI cannot be restored or replaced through additional discovery; and • Another party has suffered prejudice.

2. Rule 37(e)–Spoliation • If these five conditions have been met, the court “may order measures no greater than necessary to cure the prejudice.” • The court acts remedially not punitively: the remedy chosen by the court must be narrowly tailored to remedy the loss, not to punish the party responsible for the loss. • To invoke this part of the rule, the injured party need not show that the responsible party acted with a culpable state of mind (i.e. negligently, grossly negligent, or in bad faith).

2. Rule 37(e)–Spoliation Under Rule 37(e)(1), the range of measures to cure the prejudice (if all five conditions have been met) include: • The court may forbid the party that failed to preserve information from introducing certain evidence. • The court may permit the parties to present evidence and argument to the jury regarding the lost information. • The court may instruct the jury about the lost information to assist the jury in its evaluation of evidence or argument about the loss(but an adverse-inference instruction is not permitted under Rule 37(e)(1)).14 _______________________ 142015 Comm. Note.

2. Rule 37(e)–Spoliation New Rule 37(e) does not use the word “relevant” to modify the ESI to be preserved. Instead, it addresses ESI “that shouldhave been preserved in the anticipation or conduct of litigation.”15 • This phrase may require a party to preserve discoverable evidence, which (in the past) included even inadmissible or irrelevant evidence. • The new discoverability test will always be fact- and case-specific: to be discoverable the evidence must be nonprivileged information that is “relevant to the claims and defenses” and “proportional to the needs of the case”—but the evidence “need not be admissible.”16 _______________________ 15Emphasis added. 16 Fayda, 2015 WL 7871037, at *2.

2. Rule 37(e)–Spoliation • Rule 37(e) does not apply if a party has undertaken “reasonable steps to preserve”—even though some relevant or discoverable ESI has been irretrievably lost. • This approach rejects the common-law rule (in some jurisdictions) that “any destruction of documents [after the duty to preserve has been triggered] is, at minimum, negligent”—justifying sanctions if the lost ESI was relevant (i.e., helpful to the movant).17 • The amended rule requires “reasonable steps,” notperfection.18 _______________________ 17Zubulake IV, 220 F.R.D. at 220. 18Marten Transp. Ltd. v. Platform Advert., Inc., No. 14-CV-02464-JWL-TJJ, 2016 WL 492743, at *10 (D. Kan. Feb. 8, 2016).

2. Rule 37(e)–Spoliation • The remedy to “cure the prejudice” for a Rule 37(e)(1) ESI loss does not include the sanctions specified in Rule 37(e)(2). Thus, an adverse-inference instruction is not permitted under Rule 37(e)(1). • The Rule 37(e)(2) sanctions are available “only upon [the court] finding that the party acted with the intent to deprive another party of the information’s use in the litigation.”19 This is specific intent, not general intent (such as general bad faith). _______________________ 19Emphasis added.

2. Rule 37(e)–Spoliation There are three alternative remedies (specified in Rule 37(e)(2)) that the court may order upon a finding that a party acted with the intent to deprive another party of the lost information’s use in the case: • The court may presume that the lost information was unfavorable to the party. • The court may instruct the jury that it may or must presume the information was unfavorable to the party (using one of three adverse-inference instructions that vary in harshness and effect). • The court may dismiss the action or enter a default judgment.

2. Rule 37(e)–Spoliation Conclusions about sanctions: the 2015 amendments to rule 37(e) modify the existing common law of sanctions in at least two important ways. • The court may no longer give an adverse-inference jury instruction based on the responsible party’s negligence or gross negligence in losing ESI. The injured party must show intent to deprive—not “reckless,” “willful,” or “bad-faith” conduct. • Arguably, the sanctions criteria in Rule 37(e) are exclusive, and they prevent courts from invoking their “inherent power” to order other sanctions under the same circumstances.

3. Rule 26(f)–Inadvertent Disclosure of Privileged Materials Current law of privilege waiver: • Congress enacted Fed. R. Evid. 502, which applies in federal and state courts and which governs waiver of attorney-client privilege and work product. • Under Rule 502(a), there is no more inadvertent subject-matter waiver. • Under Rule 502(b), an inadvertent disclosure does not operate as a waiver of the specific communication or document if the privilege holder took reasonable steps to prevent disclosure and promptly took reasonable steps to rectify the error.

3. Rule 26(f)–Inadvertent Disclosure of Privileged Materials Current law of privilege waiver (cont.): • Under Rule 502(d), a federal court may order that the privilege or protection is not waived by a disclosure connected with the pending case, and any disclosure is not a waiver in any other federal or state proceeding. • Under Rule 502(e), a clawback agreement in a federal proceeding binds only the parties to the agreement, unless incorporated into a court order.

3. Rule 26(f)–Inadvertent Disclosure of Privileged Materials Clawback agreements can comprehensively address and go farther than Rule 502 and Fed. R. Civ. P. 26(b)(5)(B) by providing more extensive protections. Different protections for inadvertent waiver: • Notice protection (ER 4.4(b)). • Return/sequester/destroy protection (Rule 26(b)(5)(B)). • Retrieval protection (Rule 26(b)(5)(B)). • Subject-matter protection (Rule 502(a)). • Specific-document protection (Rule 502(b)). • Post-production-review protection (Rule 502(b)(3)). • Read protection (clawback agreement).

3. Rule 26(f)–Inadvertent Disclosure of Privileged Materials • The 2015 amendment to Rule 26(f)(3)(D) makes explicit that the parties must meet and confer about a potential clawback agreement and “whether to ask the court to include their agreement in an order under Federal Rule of Evidence 502.”19 • The 2015 amendment to Rule 16(b)(3)(B)(iv) authorizes the court to “include any agreements the parties reach for asserting claims of privilege or of protection as trial-preparation material after information is produced, including agreements reached under Federal Rule of Evidence 502.20 _______________________ 19Emphasis added. 20Emphasis added.

3. Rule 26(f)–Inadvertent Disclosure of Privileged Materials Inadvertent waiver of privileged public records (in litigation): • Rule 502 applies to “[a] disclosure . . . made in a federal [or state] proceeding.” • The rule contemplates a disclosure under Fed. R. Civ. P. 26(a)(1)(A)(ii) (initial disclosure statements) and Fed. R. Civ. P. 34 (production of documents). • But there’s a reasonable argument that a public-records disclosure made to an opposing litigant (in pending litigation to which a city is a party) constitutes a disclosure covered by Fed. R. Evid. 502—but no cases on point.

3. Rule 26(f)–Inadvertent Disclosure of Privileged Materials Inadvertent disclosure of privileged public records (outside litigation): • No Arizona statute governs the inadvertent disclosure of privileged public records. • California’s Public Records Act includes a statute providing that any “disclosure” of a public record waives all privileges. • The California Supreme Court recently held that the statute does not convert an inadvertent disclosure to a privilege waiver: to constitute a waiver the disclosure must be “a voluntary and knowing disclosure,” not an “accidental,” “slip-up,” “mistaken,” or “inadvertent” disclosure.21 ______________________ 21Ardon v. City of Los Angeles, 62 Cal. 4th 1176, 1184-88, 366 P.3d 996, 999-1003 (2016)

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Navigating eDiscovery Changes: Key Points for 2016