In This Issue:

	Recent ESI Court Decisions
	Practice Points: International Data Transmission – Safe Harbor Provides Refuge in Stormy Seas
	News & Events

Recent ESI Court Decisions

Court Denies Non-Party's Attempt to "Claw Back" Privileged Documents
SEC v. Badian, 2009 WL 222783 (S.D.N.Y. Jan. 26, 2009). In this securities litigation, a non-party corporation, Rhino, moved to "claw back" approximately 260 privileged documents allegedly produced inadvertently in 2003. Rhino claimed that language accompanying the production, which certified that production of any document shall not be construed as waiver of any privilege, required the SEC to return the documents. To determine whether privilege was waived, the court analyzed the four factors set forth in Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., 104 F.R.D. 103, 105 (S.D.N.Y. 1985): (1) reasonableness of the precautions taken to prevent inadvertent disclosure; (2) time taken to rectify the error; (3) extent of the disclosure; and (4) overarching issues of fairness. Factor one weighed in favor of privilege waiver as Rhino presented no evidence of privilege review prior to the production. Factor two weighed in favor of waiver as Rhino waited five years before it sought to "claw back" some of the production. Factor three also weighed in favor of waiver as the court found 260 documents to be a significant number of documents. The last factor also weighed in favor of waiver as the court was unable to find a reason to disregard Rhino's carelessness. With all four factors weighing in favor of privilege waiver, the court concluded that Rhino waived any privilege it may have asserted on the production.

Court Advises Government Agencies to Be Prepared to Follow Same Discovery Rules as Private Parties
SEC v. Collins & Aikman Corp., 2009 WL 94311 (S.D.N.Y. Jan. 13, 2009). In this securities fraud litigation, the defendant objected to the SEC's production of 1.7 million documents maintained in thirty-six separate databases. The defendant asserted the SEC produced a "document dump" of unorganized documents and failed to perform adequate searches for e-mails. The SEC argued the production format was in accordance with how the documents were maintained in the usual course of business and that nearly all responsive e-mails would be privileged, protected or non-substantive. Rejecting the SEC's arguments, District Judge Shira A. Scheindlin found that Fed.R.Civ.P. 34's "usual course of business" requirement for production requires the documents to be organized and therefore ordered re-production with documents responding specifically to defendant's requests. Furthermore, as e-mails are inherently searchable, the court found the SEC's blanket refusal to produce any of them to be unacceptable. Accordingly, the court ordered the parties to meet to resolve the scope and design of a search with respect to e-mails. The court noted that a government agency which initiates civil litigation must generally follow the same discovery rules that govern private parties.

Court Denies Request for Production of Metadata as a Public Record
Lake v. City of Phoenix, 2009 WL 73256 (Ariz.Ct.App. Jan. 13, 2009). In this special action to compel the defendant City to produce public records, the plaintiff appealed a lower court decision denying his motion to compel the production of metadata. The plaintiff argued metadata was necessary to determine whether the produced notes were backdated and for authentication purposes. The defendant argued that metadata is not a public record. Agreeing with the defendant, the court affirmed the lower court's holding that metadata is not a public record and need not be produced.

Court Declares Patents in Suit Unenforceable Due to Intentional Destruction of Evidence
Micron Tech., Inc. v. Rambus, Inc., 2009 WL 54887 (D. Del. Jan. 9, 2009). In this patent infringement litigation, the plaintiff sought sanctions claiming the defendant spoliated relevant documents. In 1998, the defendant implemented a document retention policy whereby relevant documents were destroyed. Finding the defendant was an "aggressive competitor," the court determined that litigation was inevitable and reasonably foreseeable since December 1998. Therefore, the court determined that any document destruction following December 1998 was intentional and in bad faith. As the plaintiff established that the documents that were destroyed were discoverable and relevant to the instant litigation, the court concluded that the plaintiff was prejudiced by the defendant's conduct. The court therefore sanctioned the defendant by declaring the patents in suit unenforceable against the plaintiff.

Court Affirms Sanction Order Finding Non-Compliance with Discovery Deadlines
In re Fannie Mae Sec. Litig., 2009 WL 21528 (C.A.D.C. Jan. 6, 2009). In this litigation, the Office of Federal Housing Enterprise Oversight (OFHEO), a non-party, appealed the district court's order finding it in contempt for failing to comply with a discovery deadline in a stipulated scheduling order. OFHEO argued that the defendant's decision to supply four hundred keyword terms was outside the scope of "appropriate search terms," thereby extending the time needed to comply with its production requirements. However, aware of the deadlines, OFHEO sought several discovery extensions, hired 50 contract attorneys and spent over $6 million � 9% of the agency's entire annual budget � to comply with the defendants' discovery requests. Finding OFHEO's efforts legally insufficient, the court compared its treatment of the discovery deadlines as "movable goal posts" and directed OFHEO to supply documents withheld for privilege that were not logged by the deadline as a sanction for their discovery misconduct. However, the court ruled that any privileged documents that are produced and identified as such will be promptly returned to OFHEO.

Court Imposes Adverse Inference and Strikes Expert Testimony as Spoliation Sanction
Arista Records LLC v. Usenet.com, Inc., 2009 WL 185992 (S.D.N.Y. Jan. 26, 2009). In this copyright infringement litigation, the plaintiffs moved for sanctions for spoliation. The plaintiffs alleged the defendants deliberately destroyed and failed to preserve highly relevant materials that would have provided evidence of the "wide-scale infringement." The defendants argued that the evidence sought was not relevant to the plaintiffs' claim, the data was transient in nature and their systems did not have the capacity to preserve the data. Regarding the duty to preserve, the court found that the defendants had an obligation to preserve the requested data and defendants' failure to preserve was in bad faith. Therefore, the court imposed an adverse inference against the defendants and awarded attorneys' fees and costs.

Court Reduces Attorneys' Fees Citing Inefficient Document Review and Production
Corinthian Mortgage Corp. v. Choicepoint Precision Mktg., LLC, 2009 WL 36606 (E.D.Va. Jan. 5, 2009). In this contract dispute, the prevailing defendant moved for attorneys' fees, including fees for document review and production. The defendant argued its time spent on discovery was reasonable because: (1) more than 2.6 million document pages were reviewed in order to produce 1.2 million pages; (2) it took extra care to avoid spoliation; and (3) its review of the plaintiff's documents was hindered by the plaintiff's disorganized production. The plaintiff argued the claimed attorneys' fees were excessive and that it produced documents electronically as they were maintained in the course of business. Finding the time spent on discovery "excessively high," the court reduced the total fee awarded. The court noted that the plaintiff should not be charged for the defendant's inefficiencies in document review and production.

Court Declines to Find Privilege Waiver for Privileged Documents Produced Under Expedited Discovery Order
Bray & Gillespie Mgmt. LLC v. Lexington Ins. Co., 2009 WL 71678 (M.D.Fla. Jan. 8, 2009). In this insurance litigation, the defendants objected to the special master's recommendation that the court deny a "blanket" finding of privilege or waiver and that any privileged documents produced in response to a court order for expedited production would not constitute a waiver. The special master determined the plaintiffs clearly established intent to protect privileged documents by taking appropriate measures prior to the production. Additionally, the special master concluded the opposition's "first look" at potentially privileged documents was punishment enough for any transgressions in the plaintiffs' document management. Describing the order as a "narrow ruling," the court denied the defendants' objection. The court reserved the right to consider the question of waiver, if necessary, in response to an appropriate motion after the court determines if the plaintiffs have established privilege.

Court Orders Third-Party Compliance With Subpoena Despite Allegations of Undue Burden
Viacom Int'l, Inc. v. YouTube, Inc., 22009 WL 102808 (N.D.Cal. Jan. 14, 2009). In this ongoing copyright infringement litigation, the defendants sought documents from a third party via a subpoena duces tecum. (The third party was hired by the plaintiffs to monitor the defendant's website for infringing materials.) The subpoena contained thirteen document requests for documents relating to the third party's relationship with the plaintiffs and its actions with regard to monitoring and identifying infringing materials. The third party objected to the subpoena, arguing it was overly broad and imposed an undue burden. Finding the information sought to be relevant and the economic burden to be lessened due to the plaintiffs' reimbursement of legal expenses, the court overruled the third party's objections and ordered compliance with the subpoena. Additionally, the court ordered the third party to provide privilege logs and an affidavit outlining the response methodology used.

Court Finds Inadvertent Disclosure Waived Privilege
Richards v. Legislature of the Virgin Islands, 2009 WL 174959 (D.Virgin Islands Jan. 9, 2009). In this tort and civil rights litigation, the defendants sought the return of privileged information inadvertently produced. The plaintiffs argued the attorney-client privilege was waived when the documents were produced. Agreeing with the plaintiff, the court denied the motion as the defendants did not review the documents prior to production.

Court Imposes Over $200,000 in Sanctions for Late Production
Keithley v. Homestore.com, Inc., 2009 WL 55953 (N.D.Cal. Jan. 7, 2009). In this ongoing patent infringement litigation, the defendants sought $391,903.51 in additional sanctions. The sanctions sought were based on two categories: costs the defendants incurred in securing production and costs relating to the use of materials produced late. After considering each specific monetary request, the court awarded a total of $205,507.53 to the defendants: $72,281.71 attributable to depositions costs; $11,606.00 for the costs incurred in preparing the documents for deposition; and $428.83 for subpoena costs. The court also ordered the plaintiffs to pay the lodging expenses incurred during the re-depositions.

To view additional case summaries visit www.krollontrack.com/case-summaries/.

Practice Points: International Data Transmission – Safe Harbor Provides Refuge in Stormy Seas

Turbulent seas can result when liberal United States (U.S.) discovery laws require production of data stored in a nation with strict data privacy laws. Attorneys and corporations who engage in international business transactions or litigation must be familiar with the privacy issues that result from the collision of these seemingly incompatible laws.

Legal privacy issues surrounding international data transmission are far from new. Countries in the European Union (EU) and Asia have had strict data privacy laws that protect individuals' information for many years. Some of these laws even require registration of databases with government data protection agencies and prior approval before processing personal data. In contrast, the U.S. has a long tradition of compelling discovery of any non-privileged, relevant information even when that information may be protected by other nations' laws, as recognized by the U.S. Supreme Court in Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Court for Southern Dist. of Iowa, 482 U.S. 522 (1987). In practice, these varying privacy laws may collide like a warm and cold front, resulting in a possible tornado of sanctions, stiff fines and/or criminal penalties.

These issues have come into even sharper focus in recent years as the global business community becomes more intertwined. The problem was further crystallized in October 1995 when the European Union's Directive 95/46/EC on Data Protection went into effect. The Directive prohibits the transfer of personal data to non-European Union nations that do not meet certain adequacy standards for privacy protection.

The U.S. and EU developed a safe harbor that allows organizations to certify to the U.S. Department of Commerce that they will provide privacy protections when transferring personal data outside of the EU, which meet the Directive's adequacy standards. The safe harbor only protects U.S. organizations that comply with the safe harbor's requirements and become safe harbor certified by annually self-certifying compliance to the U.S. Department of Commerce.

Safe harbor certification, as further elucidated on the U.S. Department of Commerce's web site, requires that U.S. organizations meet the following "principles" or adequacy standards:

• Notice: Certified organizations must notify and provide certain information to individuals about the purposes for which they collect and use information about them.
• Choice: Certified organizations must give individuals the chance to "opt out" or "opt in" to certain uses of the disclosed information, depending on the circumstances.
• Onward Transfer to Third Parties: Certified organizations must apply the notice and choice principles to disclose information to a third party, and may do so only if certain conditions are met that ensure the third party will provide adequate privacy protections.
• Access: Certified organizations must provide individuals access to information about themselves and the ability to redress inaccurate information in certain circumstances.
• Security: Certified organizations must take reasonable precautions to protect personal information from alteration, destruction or unintended use.
• Data Integrity: Certified organizations must take reasonable steps to ensure the data is relevant for the purpose which it is to be used.
• Enforcement: Certified organizations must meet certain requirements that allow for verification that the previous six requirements have been satisfied.

The bottom line is that any attorney that may be involved with international data transmission must be aware of not only U.S. laws governing discovery but also of international laws. Moreover, counsel should verify that any vendors they utilize for data transmission between the EU and U.S. are safe harbor certified (such as Kroll Ontrack). In situations where the data transfer involves a non-EU country, counsel are well advised to look at the specific facts, circumstances and precedent involving transfers of a specific type with a specific nation for guidance; determine whether Hague Convention procedures should be followed in the circumstances; and consider partnering with someone familiar with the specific issues faced. In the end, many concerns about international data transmission can be met through appropriate due diligence.

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News & Events

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This newsletter was written by Regina Jytyla and Joni Shogren, Kroll Ontrack staff attorneys, with assistance from Kelly Kubacki and Meridith Socha, Kroll Ontrack law clerks. Ms. Shogren can be contacted by writing to jshogren@krollontrack.com.

For more information about electronic discovery and computer forensics services, contact Kroll Ontrack at 800 347 6105 or visit www.krollontrack.com.