[UPDATE] In Defense of Genger, Part II

UPDATE:

I hate to say I told you so, but...wait, no I don't.

Yesterday, the Delaware Supreme Court issued its opinion in this matter affirming the Court of Chancery's spoliation finding. The Court held the spoliation finding proper, because Genger took affirmative steps to overwrite unallocated space, saying:

We do not read the Court of Chancery’s Spoliation Opinion to hold that as a matter of routine document-retention procedures, a computer hard drive’s unallocated free space must always be preserved. The trial court rested its spoliation and contempt findings on more specific and narrow factual grounds—that Genger, despite knowing he had a duty to preserve documents, intentionally took affirmative actions to destroy several relevant documents on his work computer. These actions prevented the Trump Group from recovering those deleted documents for use in the Section 225…

Compare with my statements below that

The [Court of Chancery] opinion in this case does not require preservation of all unallocated space in every case. Genger was sanctioned because he took affirmative steps to overwrite unallocated space, in violation of the Court's order... [T]here is nothing in this opinion that creates any requirement to preserve unallocated space. Rather, the opinion only says you shouldn't go out of your way to destroy it.

I feel quite vindicated in my defense, considering there were some persons and organizations of import in the eDiscovery community lined up on the other side. Obviously, reasonable minds can disagree, especially in interpreting court decisions. Ultimately, I am thankful that the Supreme Court's decision should allay any fears created by certain interpretations of the Court of Chancery's spoliation decision.

ORIGINAL POST (2011-03-11 13:20:45):

I had almost given up on writing this post considering how long it has been since I posted In Defense of Genger, Part I and (more importantly) how long it has been since the publication of the posts I am taking issue with.  However, the ongoing confusion about this case has prompted me to action. 

If you have read Part I, you are familiar with the Court of Chancery's decision in TR Investors LLC v. Genger, C.A. 3994-VCS (December 9, 2009) and with the allegations made by Leonard Deutchman, General Counsel at LDiscovery LLC, in a two-part post hosted by Law.com. <!--You also understand why there's a picture of Austin Powers.--> For those who are not familiar, Mr. Deutchman asserts that the Court got the decision wrong because it (1) does not understand the technology involved (Part 1) and (2) does not understand the law of eDiscovery (Part 2).

It's sufficient to say that I respectfully disagree with Mr. Deutchman on both charges. Rebutting his posts was a fun, interesting exercise for me, but it didn't seem terribly important. I saw it as an esoteric debate between eDiscovery geeks. That has changed, because, today, a prominent media outlet has published a post that elevates the confusion about this opinion and will cause unnecessary fear among corporate counsel.

The latest case of hand-wringing and confusion over this decision comes to us from none other than Forbes by way of Daniel Fisher's post "Delaware Ruling Would Require Massive Data Backups."  Mr. Fisher opens his post stating that:

A little-noticed decision by a Delaware court has the potential to impose huge costs on companies unless it is reversed, computer-security experts say...[e]xperts say retaining such data would be prohibitively expensive since the unallocated space is essentially a trash bin that is altered each time a key is tapped.

<!--Scary, huh?-->

Despite the fact that Mr. Fisher twice refers to "experts" (plural) as the source for these hyper-ventilations, his lone identified source for the post is Daniel Garrie, a lawyer and managing director at Focused Solution Recourse Delivery Group LLC , a computer consulting firm in Seattle. <!--Garrie and Deutchman are both lawyers with eDiscovery vendors. Is there anything to that?--> Mr. Fisher's post continues:

“It’s almost impossible for large companies with massive amounts of equipment to comply,” said Garrie... “I don’t even know if it’s possible,” said Garrie. “I mean, anything’s possible with enough money,” but companies would have to take bit-level images of their hard drives on a regular basis and store them somewhere, to be retrieved each time they are sued. That means all the time for most large companies. The costs would be “exponentially larger,” than current electronic discovery measures. “Several large global companies,” clients he declined to name, “have expressed concern.”

Let me clear up the confusion: The opinion in this case does not require preservation of all unallocated space in every case. Genger was sanctioned because he took affirmative steps to overwrite unallocated space, in violation of the Court's order and without first telling anyone. The routine, passive overwriting of unallocated space was NOT the cause for any sanctions here, so there is nothing in this opinion that creates any requirement to preserve unallocated space. Rather, the opinion only says you shouldn't go out of your way to destroy it. Big, BIG difference. <!--If there are doubts about the Court of Chancery's understanding of eDiscovery, please see their recently released "Guidelines for Preservation of Electronically Stored Information" that clearly embraces the principles of cooperation, reasonableness, and proportionality.-->

To Mr. Garrie's credit, he is consistent—he is co-author of an article in the Northwestern Journal of Technology and Intellectual Property that makes the same mistaken arguments, and he filed a brief with the Delaware Supreme Court arguing for reversal of the Genger opinion. I obviously disagree with Mr. Garrie's opinions on this matter, but I am here to help, so I say:

Mr. Garrie, for the “[s]everal large global companies [that] have expressed concern,” please send them a link to this post and tell them not to worry.

I don't actually expect Mr. Garrie will do that, but perhaps some of his clients will stumble upon this post, in which case here is my advice to them:

If you act cooperatively and transparently, you will be fine. If you find yourself in a similar position to Mr. Genger's, share your concerns with opposing counsel and the court before you do anything. Don't take matters into your own hands and violate a court order by wiping a hard drive in the middle of the night—it's bad form and will only get you in trouble.

Stayed tuned for the decision of the Delaware Supreme Court—I may have a lot of words to eat...

<!--Thanks to flickr user cliff1066™ for the Austin Powers pic.-->

[UPDATE] eDiscovery is Optional in Delaware Court of Chancery

UPDATE:

Apparently I am the only one who seems to be concerned with the Court of Chancery's unqualified allowance for parties to agree to forgo discovery of ESI.  Here are the other blog posts I found that have reported on the new guidelines, not a single one raises any concern:

Delaware Court of Chancery Provides Good Advice on Preservation (Losey)

Court of Chancery Issues Guidelines for Preservation of Electronically Stored Information (Brady)

Delaware’s influential Chancery Court issues preservation guidelines likely to have wide impact

Delaware Court of Chancery Issues Guidelines for Preservation of Electronically Stored Information

Delaware Court of Chancery Recently Established Guidelines for Preservation of ESI

ORIGINAL POST:

Last week, the Delaware Court of Chancery—one of the nation's premier business Courts—unexpectedly issued a one and a half page "Guidelines for Preservation of Electronically Stored Information."  Surprisingly, the Guidelines seem to allow parties to opt-out of document discovery entirely (see the last item below).  In summary, the Guidelines are as follows:

  • There is a common law duty to preserve potentially relevant electronically stored information (ESI) within a party's possession, custody, or control once litigation is commenced or when litigation is "reasonably anticipated."
  • Parties must take reasonable steps in good faith to meet their duty to preserve ESI.
  • Parties and their counsel should confer early in the litigation regarding the preservation of ESI.
  • Parties and their counsel must develop, oversee, and document a preservation process in collaboration with the appropriate client information technology personnel.
  • Parties and their counsel should discuss the need to identify how custodians store their information, including document retention policies and procedures as well as the processes used to create, edit, send, receive, store, and destroy information for the custodians.
  • Counsel should take reasonable steps to verify information they receive about how ESI is created, modified, stored, or destroyed.
  • The preservation process should include a written litigation hold notice to individual custodians instructing them to take reasonable steps, act in good faith, and with a sense of urgency in preserving potentially relevant information.
  • Parties and their counsel may face "serious consequences" for failing to take reasonable steps to preserve ESI.
  • The reasonableness of a party's preservation process is judged on a case-by-case basis.
  • Counsel for all parties should confer about the scope and timing of discovery of ESI and may agree to limit or forgo the discovery of ESI.

I am very interested to hear comments on this development.

In Defense of Genger, Part I

I rise now to defend the Court of Chancery's decision in TR Investors LLC v. Genger, C.A. 3994-VCS (December 9, 2009) against the allegations made by Leonard Deutchman, General Counsel at LDiscovery LLC, in a two-part post hosted by Law.com.  I promised at the end of April that a defense would be forth coming but wanted to give everyone time to read the two posts to which I respond. 

Mr. Deutchman asserts that the Court got the decision wrong because it (1) doesn't understand the technology involved (Part 1) and (2) doesn't understand the law of eDiscovery (Part 2).  I have decided to respond in two parts to keep each of my posts digestible.

In Part 1, Mr. Deutchman aims to discredit the Court's technical competence, and his first criticism makes unsupported assertions about the Court's findings.

The court ruled that by wiping the unallocated space of the two drives, the defendant violated the standstill agreement and was thus in contempt of court. To reach its holding, the court had to make factual leaps and draw legal conclusions that are in my view questionable.

The court's first factual leap was that because temporary files could have resided intact in unallocated space, they were, in fact, intact prior to the wiping. More specifically, the longer leap is that because temporary files could have resided intact in unallocated space, temporary files important to plaintiffs were destroyed by the wiping.

In my reading, the Court did not assume or conclude that any particular files resided in unallocated space.  Read as a whole, the opinion finds that files existed in unallocated space, some of which may have been relevant, but no one will ever know because Genger destroyed them. The Court fines Genger for willful destruction of data in direct and clear violation of a Court order.

Mr. Deutchman's second criticism was that "that the files [the Court] believed continued to reside in unallocated space if the defendant had not wiped them would have been important to the matter." Here Mr. Deutchman's merely reiterates Genger's "No harm, no foul" defense—or, as Ralph Losey refers to it, the "pig-in-a-poke" defense—to which the Court replied:

For a party to intentionally violate an order not to destroy or tamper with information and then to claim that he did little harm because no one can prove how much information he eradicated takes immense chutzpah. For a court to accept such a defense would render the court unable to govern situations like this in the future, as parties would know that they could argue extenuation using the very uncertainty their own misconduct had created.

Finally, Mr. Deutchman's concludes his first post by suggesting the Court is technically incompetent by claiming the Court thinks of unallocated space as a back up system.

It is important to note that nowhere in typical computer usage or professional information technology practice is the unallocated space on a hard drive regarded as "back up" in the way that the court does here.

No IT professional or typical user would consider unallocated space to be a "backup" space, akin to an external drive or backup tape used to affirmatively back up files, simply because forensic searching could possibly locate therein lost files in their deleted or temporary states.

While the Court of Chancery is likely not full of techno geeks, they seem to more than adequately understand the technology involved. In any case, the Court does not liken unallocated space to a backup system. On this point, the Court said "the information on the unallocated space of the TRI system therefore acted somewhat as a back-stop reservoir of documents that had been deleted from the active files of TRI users," and that the unallocated space was "a data source that would have acted as a back-stop in case relevant evidence had been deleted in the months when the motivation to delete would have been at a zenith." (Emphasis added.) Frankly, Mr. Deutchman's attempt to impugn the Court with this allegation is bizarre considering the plain and clear language quoted above.

I will address Mr. Deutchman's second assault on the Genger decision shortly.

UPDATE: Thanks to LexBlog CEO Kevin O'Keefe for recognizing this as a Best in Law Blogs post, the second time this blog has received that honor.

Vice Chancellor Strine Doles out the eDiscovery Pain

Some are calling the Court of Chancery’s decision in TR Investors LLC v. Genger, C.A. 3994-VCS, “the most important recent decision on the Court's handling of discovery of emails and other e-documents.” <!—yes, that was a shameless plug --> The Court of Chancery lays clear its comprehension of some of the subtleties of electronic data and the hardware that maintains it. In this well-reasoned and nuanced decision, Vice Chancellor Strine joins fellow Vice Chancellors Parsons and Noble in continuing to define the rules of eDiscovery in this most important Delaware Court.

Plaintiffs filed motions for contempt and spoliation, seeking sanctions against defendant for causing computer-wiping software to be used to destroy information contained on defendant’s computer and a company server.  The Court finds that defendant, Genger, ordered the wipe and knew what effect that would have on potentially relevant data, saying such conduct was reckless if not intentional. Because Genger's destructive conduct prevented plaintiffs’ access to the full array of information that should have been available, the Court (1) raises Genger’s burden of proof by one level, e.g. from preponderance to clear and convincing, (2) declares that, “because his secretive conduct has left… serious doubts about his credibility and because that conduct rendered the documentary record incomplete,” Genger’s uncorroborated testimony alone would not meet his burden of persuasion, (3) orders Genger to turn over documents he claimed as privileged, and (4) awards reasonable attorneys’ fees and expenses related to the motions for contempt and spoliation. On this last sanction, the Court suggests the parties agree to a figure of $750,000, otherwise

If the parties decide to haggle over that amount, the parties shall exchange information about their respective attorneys’ fees and costs in connection with the contempt and spoliation motions and attempt to reach accord in good faith. If no accord is reached, I shall appoint a special master who will address the fee dispute, with the costs of the master being charged in full against the party whose position as to the amount deviates the most from the final amount awarded by the court.

In considering the issues, the Court looks to Vice Chancellor Parsons’ decision in Triton v. Eastern Shore Electrical Services, Inc., 2009 WL 1387115 (Del. Ch. May 18, 2009) for the proposition that “no harm, no foul” is not a valid defense for spoliation in direct violation of a Court order.  One of Genger’s defenses was that, without affirmative proof that relevant documents were destroyed, he should not be found to have despoiled evidence, to which the Court replied

For a party to intentionally violate an order not to destroy or tamper with information and then to claim that he did little harm because no one can prove how much information he eradicated takes immense chutzpah. For a court to accept such a defense would render the court unable to govern situations like this in the future, as parties would know that they could argue extenuation using the very uncertainty their own misconduct had created.

In Genger’s defense, it seems that his drive wiping was not just the act of a guilty man trying to destroy damaging evidence. Rather, it seems, as Vice Chancellor Strine put it, that Genger is something of an “international man of mystery.”[FN1] Genger apparently “has high level contacts within the Israeli government for whom he performed sensitive tasks relating to Israel’s national security… Genger used TRI’s computer system to create and receive documents implicating Israel’s national security.” Even more intriguing is that, although he did this sensitive work within the United States, there was nothing in the record showing that the United States government was aware of his activities, and he had no diplomatic or other official credentials.

[FN1]Is it just me, or does Vice Chancellor Strine’s comparison of Genger to Austin Powers hint at a secret inner-geek? It could be, especially considering his lucid explanation of the principle that merely deleting an electronic document doesn’t destroy it. That explanation and other discussions often refer to email chains, allocated versus unallocated drive space, file encryption, and remote servers. Good stuff.

The Court also looks to Vice Chancellor Parsons’ decision this past May in Beard Research v. Kates, 981 A.2d 1175 (Del. Ch. May 29, 2009) to determine when a duty to preserve attached and the appropriate use of dispositive sanctions when that duty has been violated. The Court considered the fact that Genger’s conduct was at least partially motivated by a desire to protect non-relevant, personal information and the fact that he apparently only wiped unallocated space and not active files. Those mitigating factors persuaded the Court that default judgment or adverse inference was not warranted here. Another case of a spoliator “getting off easy” with a large fine.

We also have elements in this case of eDiscovery ineptitude by lawyers and vendors. Apparently, no one on plaintiffs’ side bothered to ask how the TRI email system was configured. It seems there was an off-site email server that was not collected. The Court points out that Genger and his accomplice did not offer the information, as they should have, but what about those charged with doing the collection? Did the lawyers and vendors forget about email or did they just assume they were collecting it in the pile of data somehow?

Friedman Kaplan hired legal technology consultants Kraft & Kennedy, Inc. to do the data collection, but just because an outfit does “legal technology” doesn’t make it qualified to do eDiscovery. The Court observed that Kraft & Kennedy "did not have a deep understanding of how TRI maintained its computer records." Preserving and collecting data are far different endeavors than helping law firms deploy technology solutions internally.

This is not necessarily a swipe at either Friedman Kaplan or Kraft & Kennedy, rather is illustrative of the ongoing lack of comprehension of the issues raised when handling data in the context of litigation. That this comprehension deficit is still so large bewilders me considering the eDiscovery boogeyman seems to be widely feared. Perhaps, with respect to plaintiffs’ errors, this is a case of not knowing what you don’t know.

I can easily envision Friedman Kaplan calling up a legal technology vendor (Kraft & Kennedy) they are familiar with, not knowing the limits of their expertise. (It’s all computers, right?) Then Kraft & Kennedy, not understanding the legal implications of the technical work, agree to do something they certainly know how to do—collect and encrypt electronic data.

And there we have the proverbial gap between legal and IT. Those of us working to bridge this gap tend to make the faulty assumption that it is a singularity. It isn’t. It’s a multiplicity. These gaps exist in almost every law firm and every Court house. We can’t be working to build one large bridge to span the gap. We need to develop many, many bridges and deploy them to every corner of the field. I’ll start printing the signs: BRIDGES WANTED.

 

The State of eDiscovery in Delaware: The Final Chapter

As I suppose we could have expected, 2009 has delivered the most important eDiscovery cases to date, and we’re only half way through the year (or we were when I started writing this series). The District Court started us off before the last of the New Year’s confetti had been swept up by issuing its decision in Micron Technology, Inc. v. Rambus, Inc., C.A. No. 00-792-SLR on January 9, 2009, declaring certain patents unenforceable as a sanction for spoliation. In a suit for patent infringement, Micron claimed Rambus employed a document retention policy that destroyed documents while they had a duty to preserve. The Court said that Rambus was an “aggressive competitor” so should have foreseen litigation as far back as December 1998. All relevant documents destroyed by Rambus after that time was spoliation. As a sanction, the Court decided the patents at issue were not enforceable against Micron.

Not to be out done, and what has really made 2009 interesting, the Court of Chancery has recently issued three opinions with significant eDiscovery implications. On May 18, the Court issued its decision in Triton Constr. Co. v. Eastern Shore Elec. Servs., Inc., 2009 WL 1387115, granting an adverse inference as a sanction for spoliation. In a suit for breach of fiduciary duty, Triton alleged that defendant Kirk had intentionally destroyed evidence on his office computer with a wiping program. Triton’s forensic expert found evidence that Kirk had used the program to annihilate files and emails. Kirk had also been required to produce his personal laptop and thumb drive, which he failed to produce claiming he no longer owned them. The Court didn’t buy it, and issued an adverse inference.

Just days later, on May 29, the Court issued two—yes, two—significant decisions: Omnicare, Inc. v. Mariner Health Care Mgmt. Co., 2009 WL 1515609; and Beard Research, Inc. v. Kates, 2009 WL 1515625. (Oh, what a glorious time it was for eDiscovery nerds everywhere!) In Omnicare, the Court ruled that just because data is on a backup tape doesn’t automatically make it ‘not reasonably accessible.’ Omnicare sued Mariner for breach of contract and moved to compel Mariner to restore backup tapes to retrieve old emails deleted pursuant to their data retention policy. Mariner asked the Court to force Omnicare to pay for the restoration or to allow it hold off on restoration and produce emails from its active files so the parties could assess whether the restoration could reasonably be anticipated to lead to relevant information. The Court looked to Zubulake to analyze the cost-shifting argument, and decided that cost-shifting was not warranted in this case, noting that just because “ESI is now contained on Backup Tapes instead of in active stores does not necessarily render it not reasonably accessible.” Nonetheless, the Court opted not to order the restoration, opting instead for the active file sampling Mariner proposed.

In Beard Research, the Court brought the hammer down on Kates for blatant, repeated, audacious spoliation. Beard sued Kates for tortuous interference and asked the Court to impose sanctions on Kates for spoliation. Kates repeatedly reformatted his laptop’s hard drive, then replaced the drive (but kept it), then wiped the new drive on the eve of the hearing in which he was explicitly told he would be required to turn the laptop over. The Court awarded attorneys’ fees and imposed an adverse inference, and Kates should thank his lucky stars the Court decided to go easy on him.

Ralph Losey posted an outstanding analysis of the issues involved in Beard Research.  Francis Pileggi also had Beard Research well covered along with Omnicare and Triton.

There we have it—the State of eDiscovery in Delaware. I’m off to the beach for a week.

The State of eDiscovery in Delaware, Pt. V

In Part IV, we saw the District Court decide issues with production of unsearchable data, the Court of Chancery comment on the efficacy of printing out electronic documents en mass, and the Superior Court award fees as a sanction for a party’s efforts to frustrate discovery. Let's finish up 2006 then look at 2007.

In late October 2006, the District Court decided Wyeth v. Impax Laboratories, Inc., 248 F.R.D. 169 (Oct. 26, 2006), declining to order a native production. Wyeth had made production in TIFF format. Impax filed a motion to compel production in native format. Because the parties did not agree on a native production at the pre-discovery meeting, and defendant could not demonstrate a need for native files, the Court did not think plaintiff should be made to make an additional production. Relying on its Default Standard for Discovery of Electronic Documents (“E-Discovery”)—adopted after The Sedona Principles were published in 2004 but prior to the 2006 FRCP amendments—the Court declared that, in the absence of prior agreement of the parties, imaged files would be the default format.  Contrast with Sedona Principle 12, revised in 2006, which states that, absent agreement of the parties, "production should be made in the form or forms in which the information is ordinarily maintained or in a reasonably usable form."

The next day, in In re Quintus Corp., 2006 WL 3072982 (Oct. 27, 2006), the Delaware Bankruptcy Court issued a default judgment as a sanction for deleted ledgers. The Trustee alleged that the purchasers of debtor’s assets, Avaya, intentionally destroyed some of the debtor’s ledgers that would have shown what liabilities were assumed by Avaya and, of those, which remained unpaid. Avaya argued that the destruction came well before it could have reasonably anticipated litigation. The Court found that Avaya should have reasonably anticipated litigation because Avaya had not paid all the liabilities it assumed as of the time of the hearing. Concluding that Avaya’s willful destruction was overwhelmingly prejudicial to the Trustee, the Court granted summary judgment in favor of the Trustee.

Shortly after these decisions, on December 1, 2006, the FRCP eDiscovery amendments became effective. The changes were covered quite succinctly by K&L Gates on their Electronic Discovery Law blog.

In the winter of 2007, in Empire Financial Services, Inc. v. The Bank of New York, 2007 WL 625899 (Feb. 20, 2007), the Superior Court ruled that a spoliation claim requires showing of intent to suppress truth, not mere negligence. Empire sought and the Court ordered production of certain accounts in 2001, but Empire did not follow up on production of the remaining accounts. In 2005, Empire sought production of the remaining accounts, but the Bank had, by that time, archived them, making retrieval onerous. Empire alleged spoliation, but the Court found that it was reasonable for the Bank to assume Empire had abandoned its desire for the account data so lacked any intent to make the data inaccessible.

Almost a year later, in the fall of 2007, in RLI Ins. Co. v. Indian River Sch. Dist., 2007 WL 3112417 (D.Del. Oct. 23, 2007), the District Court decline to require adherence with its Default Standard for E-Discovery (“Default Standard”). RLI complained that it did not receive enough ESI(!) from defendants, so, seven months after document discovery had ended, filed a motion to compel defendants to comply with the Default Standard. The Court found, inter alia, that RLI had "depicted no specific instances where any of the defendants actually failed to produce relevant, discoverable email communications” and denied the motion.

About a month later, in Ryan v. Gifford, 2007 WL 4259557 (Nov. 30, 2007), the Court of Chancery, in line with the District Court’s ruling a year earlier in Wyeth, declares that native or OCR production is not required “without a particularized showing of need.” As with everything in eDiscovery, the standard is reasonableness. If you can’t articulate a reason for a discovery demand, you should reconsider. Don’t ask for backup tapes, metadata, or certain forms of production if you can say why you want them.

In the Part VI, we’ll cover seven cases from 2008. In the meantime, if you know of significant Delaware eDiscovery cases from 2007 that you think I should have included, please post a comment to let us know.