The E-Discovery Field Guide

Tesla Puts Up a Stop Sign to Preserve Data with Rule 26(d)

Discovery in federal court usually doesn’t begin until after a Rule 26(f) conference. Yet, as with many rules, there are exceptions. Such it is with Federal Rule of Civil Procedure 26(d), which allows parties to seek an order to permit early discovery. Because data can be easily taken, distributed, and deleted, Rule 26(d) can be a crucial tool to preserve the digital status quo before it is too late.

The Case 

In Tesla, Inc. v. Tripp, No. 18-cv-296 (D. Nev.), Tesla brought suit against its former employee, Tripp, who allegedly stole secret information from Tesla’s manufacturing system; uploaded it to his personal e-mail and cloud-storage accounts; and transferred the information to third parties. Telsa sent document preservation notices to Tripp’s e-mail and storage providers, Apple, Microsoft, and Google, asking them to preserve information in Tripp’s accounts. Telsa got nowhere: Apple said it would not preserve data without a subpoena, and Microsoft did not respond at all. Tesla filed an emergency motion for authorization to issue a preservation subpoena to the providers.

Telsa argued that it met the good-cause standard for early discovery: the need for the discovery outweighed the prejudice to the providers. Tripp had admitted to deleting data from his accounts in an effort to “cover his tracks,” and the court found that absent a Rule 26(d) order, the providers were likely to destroy the information shortly after Tripp had deleted it. The court also found that the providers were under no undue burden from complying with an order that only required preservation, not more burdensome tasks like actually collecting or producing the data. For these reasons, the magistrate judge allowed the subpoenas to preserve Tripp’s accounts.

Implications

With so much data stored with third parties, relevant information to a dispute often will be in the hands of someone else. If a party can establish that relevant information might disappear (or already has disappeared), Rule 26(d) empowers it to take action to constrict third parties’ abilities to delete that information. The burden of preservation on the third-party host usually is low, and if key information might disappear before a party can ask for it in discovery, litigants should consider using Rule 26(d) as a stopgap measure.

Two Recent Cases Highlight Increased Focus by Courts on Privacy Interests when Considering Proportionality under Rule 26(b)(1)

By: Lauren Pritchard*

Federal Rule of Civil Procedure 26(b)(1) affords litigants access to non-privileged information that is relevant to a party’s claim or defense and proportional to the needs of the case. Although courts retain broad discretion in setting the scope of discovery, decisions typically focus on the expense and burden from responding to discovery requests compared to the value and needs of the case. In the digital age, however, where privacy interests are increasingly infringed upon through the mass creation of personal and private electronic information, courts are increasingly including privacy interests in their proportionality balancing. Two recent decisions highlight this development.

The Cases 

In a May 2018 decision, the court in Delgado v. Tarabochia, No. C17-1822RSL, 2018 WL 2088207 (W.D. Wash. 2018), considered the defendants’ request for the plaintiff’s phone and bank records. The phone records request included all account information, call and text message logs, and roaming data. The bank records request sought detailed summaries of debit and credit card transactions. The court weighed the plaintiff’s privacy interests (rather than just burden) against the defendant’s need to access relevant information in the case. The court ultimately limited the scope of discovery only to pre-incident phone records by finding that producing post-incident phone and bank records would unduly intrude on the plaintiff’s strong privacy interests, particularly when those records had limited probative value in the case.

Similarly, in Biggio v. H20 Hair Inc., No. 15-6034, 2016 WL 7116025 (E.D. La. 2016), the court considered the privacy interests in employment histories of certain of defendants’ employees who were not parties to the lawsuit, against the plaintiff’s interest in pursuing his employment claim. The court ultimately favored protecting the privacy interests of the non-parties and prohibited deposition questioning on their employment histories.

Implications

Courts retain broad discretion in their proportionality analysis to consider a wide variety of factors, and the need to consider privacy interests will only increase in modern litigation. Attorneys and parties should consider the role of privacy interests and the potentially intrusive nature of discovery requests as part of their strategy when arguing for or against proportionality.

* Lauren Pritchard is a summer associate at Bernstein Shur and a current student at the University of New Hampshire School of Law.

$2.7 Million Discovery Sanction Highlights Costly Penalties for Failure to Meet Discovery Obligations, Regardless of Case Size

Federal Rule of Civil Procedure 37(e) was intended to standardize the sanctions analysis used by courts when a party fails to preserve electronically stored information. But even with Rule 37(e) in place, courts continue to rely on their own inherent power to manage discovery as grounds for ordering and calculating sanctions. In such circumstances, even meeting the letter of Rule 37(e) may not be enough to protect a party, particularly where repeated violations of discovery rules and court orders are involved. The Second Circuit’s recent decision in Klipsch Grp., Inc. v. ePRO E-Commerce Ltd., 880 F.3d 620 (2d Cir. 2018), provides one such example of courts’ broad discretion in crafting discovery remedies.

The Case 

In Klipsh, which involved claims for selling counterfeit headphones, the district court found that the defendant engaged in persistent discovery misconduct, including failing to timely disclose responsive documents, restricting a discovery vendor’s access to electronic data, and failing to impose an adequate litigation hold even after a court order, which resulted in the loss of significant data. The district court found that the defendant had willfully engaged in spoliation, and the court ordered discovery sanctions in the amount of $2.7 million (with an additional $2.3 million bond to cover the plaintiff’s possible damages and fees later).

The defendant appealed, and the Second Circuit affirmed. The circuit court rejected the defendant’s challenge that the sanctions violated Rule 37(e) by affirming the district court’s ability to rely on its “inherent power to manage its own affairs,” rather than Rule 37 alone. The court also found that the sanction was proper because it compensated the plaintiff for its reasonable costs incurred as a direct result of the defendant’s discovery misconduct, and for that reason the amount was not punitive, but rather compensatory. Finally, and perhaps most critically for the future, the court found that the proportionality comparison that mattered for reviewing sanctions was between the sanctions amount and the cost to the non-offending party of remedying the misconduct; the actual amount at issue in the case on the merits was not relevant.

Implications

The Second Circuit concluded its opinion by remarking that:

“[i]f it turns out . . . that the amount of actual damages in this case is modest in relation to the costs spent on the litigation, that would be a highly regrettable outcome.”

As the court’s commentary indicates, balancing the stakes of a case with the costs required for zealous litigation is a constant challenge, particularly in the types of disputes that are common in ME. Klipsh is a reminder, however, that in cases of all shapes and sizes, parties must fulfill their discovery obligations to each other and the court, and courts can and will sanction repeated and willful discovery violators when necessary—even when the amount of sanctions vastly exceeds the dollar value of the case itself.