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Articles in Category: Commercial Litigation

Covid-19 Litigation: Replevin as a Recovery Device

By: Alec Schultz

Replevin, a little-known and rarely used claim under Florida law, may be a centerpiece of Covid-19 litigation seeking recovery of real property. Parties should be aware, however, that while replevin claims are a powerful tool, they are not without risks.

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State Prevails in Enforcement Action Against Big Tobacco

By: Alec Schultz

WEST PALM BEACH, Fla.– Dec. 27, 2017—Florida Attorney General Pam Bondi announced in a news release issued today that the Palm Beach County Circuit Court has ruled in favor of the State of Florida in its lawsuit – brought forth by attorneys from León Cosgrove LLP and the state – against Reynolds Tobacco and Imperial Tobacco Group. The ruling, by Judge Jeffrey Dana Gillen, means that the tobacco company will need to continue to pay the state of Florida tens of millions of dollars in annual payments, per the terms of the 1997 landmark agreement reached with RJR and other major tobacco companies to settle the state’s past and future legal claims for providing health care to Florida smokers. Law360 covered the ruling in this article, published on January 2, 2018.

New Rule 37(e) Provides Uniform Sanctions for Loss of ESI

By: Alec Schultz

Amendments to the Federal Rules of Civil Procedure relating to discovery and electronic discovery became effective on December 1, 2015. In addition to addressing proportionality, party cooperation, and judicial oversight in discovery, the amended Rules established a new uniform standard for sanctions related to the loss of electronically stored information (ESI). This piece will discuss the major overhaul of Rule 37(e), which was made necessary due to differing sanctions standards in the federal courts and the resulting tendency towards overspending and over-preservation of ESI.

Background

The amendment process dates to 2010, when the Advisory Committee on Civil Rules organized the Duke Conference to explore the current costs of civil litigation, particularly discovery, and to discuss possible solutions. One of the most pressing problems the Advisory Committee addressed was diversity in the federal circuits’ response to burgeoning discovery disputes related to the loss of ESI and the imposition of ESI-loss sanctions.

The old Rule 37(e) to which the Advisory Committee turned its attention was bare-bones and provided for a so-called safe harbor regarding the failure to provide ESI:

(e) Failure to Preserve Electronically Stored Information. Absent exceptional circumstances, a court may not impose sanction under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.

At the same time, as issues of loss of ESI became more prevalent, various federal circuits began to establish different standards for imposing sanctions for loss of ESI. There was no uniform standard.

For instance, in the Second Circuit, under the rule from Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99 (2d Cir. 2002), courts were authorized to give adverse-inference instructions for negligent or grossly negligent failure to preserve the ESI. Likewise, the Sixth and Ninth Circuits followed this same standard. See Beaven v. U.S. Dep’t of Justice, 622 F.3d 540, 554 (6th Cir. 2010); Glover v. BIC Corp., 6 F.3d 1318, 1329 (9th Cir. 1993); see also World Courier v. Barone, No. 06 Civ. 3072, 2007 WL 11196, at *2 (N.D. Cal. Apr. 16, 2007).

Meanwhile, the standard adhered to by the Third and Fourth Circuits required intentional or willful destruction in order for adverse inference instructions to be given. See Brewer v. Quaker State Oil Ref. Corp., 72 F.3d 326, 334 (3d Cir. 1995); Vodusek v. Bayliner Marine Corp., 71 F.3d 148, 156 (4th Cir. 1995). And in the Fifth, Seventh, Eighth, Tenth, and Eleventh Circuits, a finding of bad faith was required for the sanction of an adverse-inference instruction. See Condrey v. SunTrust Bank of Ga., 431 F.3d 191, 203 (5th Cir. 2005); Faas v. Sears, Roebuck & Co., 532 F.3d 633, 644 (7th Cir. 2008); Greyhound Lines, Inc. v. Wade, 485 F.3d 1032, 1035 (8th Cir. 2007); Turner v. Pub. Serv. Co. of Colo., 563 F.3d 1136, 1149 (10th Cir. 2009); Mann v. Taser Int’l, Inc., 588 F.3d 1291, 1310 (11th Cir. 2009).


The New Rule 37(e)

This lack of a uniform standard created uncertainty as to when serious sanctions would be imposed, leading to over-spending and over-preservation of ESI. Thus, when drafting its 2015 amendments, the Advisory Committee sought to establish a set of uniform standards for federal courts to apply:

New Rule 37(e):

http://uscode.house.gov/view.xhtml?path=/prelim@title28/title28a/node85/titleV&edition=prelim

New Rule 37(e):

(e) 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.

 

Four Threshold Requirements for Sanctions

The new Rule 37(e) has four threshold requirements before any kind of sanctions can be imposed for the loss of ESI.

First, the court must find a breach of the duty to preserve the ESI. The new Rule does not create a new duty to preserve. Rule 37(e) is based on the common-law duty to preserve relevant information when litigation is reasonably foreseeable. The Advisory Committee notes provide some guidelines:

  • “The rule does not apply when information is lost before a duty to preserve arises.”
  • When deciding whether and when a duty to preserve arose, “[c]ourts should consider the extent to which a party was on notice that litigation was likely and that the information was relevant.”
  • “[C]ourts may sometimes consider whether there was an independent requirement that the lost information be preserved.”
  • “The duty to preserve may in some instances be triggered or clarified by a court order in the case. Preservation orders may become more common.”

Second, the court must find a failure to take reasonable steps to preserve the ESI. The new Rule does not require perfection. Similar to old Rule 37(e), absent a duty to preserve, the routine, good-faith operation of an electronic information system is a relevant factor. According to the Advisory Committee, courts should also be “sensitive to the party’s sophistication with regard to litigation in evaluating preservation efforts.” Proportionality is another factor to consider when evaluating the reasonableness of preservation efforts. “The court should be sensitive to party resources; aggressive preservation efforts can be extremely costly, and parties (including governmental parties) may have limited staff and resources to devote to those efforts.” The court should balance a party’s resources with the effectiveness of preservation.

Third, the court must find that the lost information cannot be replaced or restored through additional discovery. In considering whether the information can be replaced through additional discovery, courts can use Rule 26(b)(2)(B) to order discovery from sources that would usually be considered inaccessible. Courts can also use Rule 26(c)(1)(B) to allocate expenses for recovery of the information. However, the Advisory Committee “emphasize[s] that efforts to restore or replace lost information through discovery should be proportional to the apparent importance of the lost information to claims or defenses in the litigation.”

Fourth, the court must find that the loss of ESI caused prejudice to the other party. Rule 37(e) is intended to provide discretion to judges to determine how to best determine prejudice. However, it is necessary to consider the lost information’s importance in the litigation when assessing prejudice. The Advisory Committee also purposefully does not place the burden of proving or disproving prejudice on any one party. Rather, this may depend on how difficult it is to prove the content of the lost information. Further, if a court makes a finding of bad faith—that a party acted with the intent to deprive another party of the information—the court does not need to make a separate finding of prejudice. This is because the bad faith itself supports an inference that the opposing party was prejudiced by the loss.

 

Remedies Under Rule 37(e)

Rule 37(e)(1) and (e)(2) provide for the court to issue sanctions once threshold requirements are met. But it is important to distinguish between sanctions under Rule 37(e)(1) and (e)(2). While the court has broad discretion in authorizing a range of curative measures, it may only issue the sanctions of Rule 37(e)(2) “upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation.” Thus, a court must make a finding that a party acted in bad faith in order to issue the most serious sanctions of Rule 37(e)(2), which include the well-known and much-feared sanction of the adverse-inference. Rule 37(e)(2) covers any instruction that directs or permits the factfinder to infer that the lost information was unfavorable.

Rule 37(e) was written to provide a uniform standard in federal court for the issuance of severe adverse-inference sanctions (or sanctions having a similar effect as the adverse-inference instruction). It was also written to expressly overrule cases such as Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99 (2d Cir. 2002), which authorized an adverse-inference instruction on a finding of negligence or gross negligence.

No Adverse Inference Sanction for Negligence or Gross Negligence

Rule 37(e) rejects the adverse-inference sanction for loss of information due to negligence or gross negligence. The Committee reasoned that negligently lost information may have been favorable or unfavorable; unlike bad faith, negligence does not necessarily reveal the nature of the lost information. Moreover, the Committee recognized that as ESI continues to proliferate, so, too, will the loss of ESI from a variety of causes.

Because courts are still permitted to issue serious sanctions under Rule 37(e)(1) without a finding of bad faith, the Advisory Committee warns courts to exercise caution in utilizing the severe sanctions of Rule 37(e)(2). “The remedy should fit the wrong, and the severe measures authorized by this subdivision should not be used when the information lost was relatively unimportant or lesser measures such as those specified in subdivision (e)(1) would be sufficient to redress the loss.”

To make the remedy fit the wrong, courts may, instead, rely on (e)(1) remedies “such as forbidding the party that failed to preserve information from putting on certain evidence, permitting the parties to present evidence and argument to the jury regarding the loss of information, or giving the jury instructions to assist in its evaluation of such evidence or argument, other than instructions to which subdivision (e)(2) applies.” Care must be taken, however, to ensure that curative measures under subdivision (e)(1) do not have the effect of measures that are permitted under subdivision (e)(2) only on a finding of bad faith.

 

 

Ellen BelferEllen Ross Belfer, of counsel at León Cosgrove LLC, focuses her practice on complex commercial litigation in federal and state courts nationwide.

Party Cooperation in Discovery and the Amended Federal Rules of Civil Procedure

By: Alec Schultz

scalesAmendments to the Federal Rules of Civil Procedure relating to discovery and electronic discovery became effective on December 1, 2015. A number of lawyers and law firm websites have outlined and discussed the amended language regarding proportionality, party cooperation, and judicial oversight in discovery. This piece will discuss the Rule 1 and Rule 26 amendments on party cooperation; because the amendments do not actually require increased cooperation during the discovery process, there is little likelihood that such cooperation will be achieved.


BACKGROUND

The amendment process dates to 2010, when the Advisory Committee on Civil Rules organized the Duke Conference to explore the current costs of civil litigation, particularly discovery, and to discuss possible solutions. The Duke Conference looked at empirical data and heard from judges, practitioners, and academics on the state of the civil discovery system. Three concrete initiatives emerged to revise the existing rules: proportionality in discovery, increased cooperation among the parties, and early judicial case management. While the three are interconnected, I will focus the discussion here on party cooperation.

A major takeaway from the Duke Conference was the value of party cooperation to achieving proportionality in discovery. The empirical data gathered in preparation for the Duke Conference confirmed that parties are in the best position to set the course of discovery in a particular matter. Over 95% of practitioners responding to an ABA Survey believed that collaboration and professionalism by attorneys can reduce client costs in civil litigation; 58% acknowledged the usefulness of the Rule 26(f) conference to develop a discovery plan; and 60% believed that the duty to confer with opposing counsel before filing a discovery motion can affect the case in ways to avoid or narrow a discovery motion.

RULE 1 AND RULE 26 AMENDMENTS

The Advisory Committee cited cooperation among the parties as a primary initiative for the new amendments. However, the new rules fall short, including only the addition of a few words (underlined) to Rule 1: “[These rules] should be construed, and administered, and employed by the court and the parties to secure the just, speedy, and inexpensive determination of every action and proceeding.”  Even this miniscule change engendered controversy during drafting—a fear that litigants would seek sanctions for violations of the purported duty to cooperate. To appease these critics, the Advisory Committee included a Committee Note to assure litigants that the amendment “does not create a new or independent source of sanctions.”

New amendments to Rule 26(d) are intended to encourage early discussions among counsel regarding discovery. Rule 26(d)(2) now allows parties to “deliver” discovery requests before the initial Rule 26(f) conference. Delivery of these requests is not considered “service”; such requests will be considered served at the first Rule 26(f) conference. “This relaxation of the discovery moratorium (prior to the Rule 26(f) conference) is designed to facilitate focused discussion during the Rule 26(f) conference. Discussion at the conference may produce changes in the requests.” The Advisory Committee also counsels that Rule 26(f) conference discussions should center on the benefits of phased discovery. And new Rule 26(d)(3) clarifies that parties can make stipulations regarding the sequence of discovery in a particular case.

COOPERATION AMONG THE PARTIES MUST BE FORCED

The above changes to Rules 1 and 26 are plainly insufficient. The Advisory Committee itself recognized that its rule amendments will not result in cooperation. But it believed that the amendment to Rule 1 “will provide a meaningful step in that direction.” The changes lack teeth, evidenced by the fact that the Committee even went out of its way to reassure critics that there is no duty to cooperate under Rule 1 and therefore no basis for sanctions for failure to cooperate.

Unfortunately, attorneys’ fears that cooperation in discovery undermines our adversarial system will prevent real change. Some attorneys believe that advocacy requires tactics such as hiding information, burying the opposing party in discovery requests and objections, and forcing settlement through the threat of expensive litigation. But there is no inherent conflict between cooperative discovery and a true adversarial system: “However central the adversary system is to our way of formal dispute resolution, there is nothing inherent in it that precludes cooperation between the parties and their attorneys during the litigation process to achieve orderly and cost-effective discovery of the competing facts on which the system depends.”[1] Mutual knowledge of all the relevant facts gathered by both parties is essential to proper litigation,[2] and therefore the process of obtaining the relevant facts should be a cooperative one.[3]

In recent years, there has been more of a push to promote cooperation in discovery. Rule 26(f) was previously amended in 2006 to direct the parties to discuss discovery of ESI during their discovery-planning conference. Yet the 2006 amendments did not actually require the parties to compromise; rather, they merely emphasized making efforts to identify e-discovery issues early and to deal with these issues in discovery plans.

The Sedona Conference first issued its Cooperation Proclamation in 2008, and has been pushing for a “paradigm shift for the discovery process” from adversarial conduct to cooperation. “In addition to rising monetary costs, courts have seen escalating motion practice, overreaching, obstruction, and extensive, but unproductive discovery disputes – in some cases precluding adjudication on the merits altogether – when parties treat the discovery process in an adversarial manner.” And while many practitioners likely agree with Sedona that particularly in the face of escalating e-discovery, “[o]ver-contentious discovery is a cost that has outstripped any advantage,” these same practitioners cannot seem to resist adversarial conduct in discovery.

While we have not yet undergone the paradigm shift from adversarial to cooperative discovery, there are courts that have brought awareness, and many times also commitment, to cooperative discovery.[4] Many courts have specifically endorsed the Sedona Conference’s Cooperation Proclamation.[5] Some courts have ordered parties to confer and come to discovery agreements.[6] And some courts have enforced the agreements parties make.[7] However, most courts have merely “encouraged” cooperation,[8] which is unfortunately all that is expected under the Federal Rules of Civil Procedure and Sedona. Sedona and court pilot programs have made various resources available to judges and attorneys to initiate cooperative discovery.[9] And while the increased awareness of the benefits of cooperation are helpful, the necessary cultural shift will not happen by itself—it must be triggered by requirements for cooperation and by enforcement of those requirements. The 2015 rule amendments establish neither.


RULE 26(g) CAN BE USED TO ENFORCE COOPERATION

The rules should create an affirmative duty to cooperate in discovery. To the end of achieving proportional discovery, I suggest Rule 26(g), which was not amended in 2015, as a particularly appropriate place to include a duty to cooperate because it already requires parties to consider proportionality when proposing and responding to discovery. Rule 26(g) was amended in 1983 to parallel the amendments to Rule 11. It requires an attorney or unrepresented party to sign and certify that each discovery request, response, or objection—upon belief after reasonable inquiry—is:

(i) consistent with the rules and existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law, or for establishing new law;

(ii) not interposed for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation; and

(iii) neither unreasonable nor unduly burdensome or expensive, considering the needs of the case, prior discovery in the case, the amount in controversy, and the importance of the issues at stake in the action.

While under the language of Rule 26(g), counsel and parties do have a duty under to consider proportionality when conducting discovery, unfortunately, Rule 26(g) is currently “[o]ne of the most important, but apparently least understood or followed, of the discovery rules.”[10]

“[T]he rule is intended to impose an affirmative duty on counsel to behave responsibly during discovery, and to ensure that it is conducted in a way that is consistent with the spirit and purposes of the discovery rules, which are contained in Rules 26 through 37.”[11] Rule 26(g) was written to explicitly direct the imposition of sanctions to deter excessive discovery and the evasion of discovery. Counsel must work together to balance the discovery each party desires with the proportionality factors to be considered in each case.[12] “Counsel cannot behave responsibly during discovery unless they do both, which requires cooperation rather than contrariety, communication rather than confrontation.”[13]


CONCLUSION

The 2015 amendments will not create the necessary paradigm shift to a culture of cooperation in discovery. The Sedona Cooperation Proclamation and many courts have embraced the ideal of cooperative discovery. But to actually achieve a cultural shift, counsel and the parties must be forced to cooperate. One method would be better enforcement of Rule 26(g) duties. Rule 26(g) already requires parties and counsel to consider proportionality when conducting discovery. The rule could be amended to be more explicit about the cooperation that is expected of the parties to achieve proportional discovery. Sedona and the courts should continue to provide resources to support cooperation among counsel. But ultimately, the duties of cooperation and proportionality must be enforced through sanctions. This is the only way to create the sought-after paradigm shift.

 

Ellen BelferEllen Ross Belfer, of counsel at León Cosgrove LLC, focuses her practice on complex commercial litigation in federal and state courts nationwide.

 

 

 

 

 

[1] Mancia v. Mayflower Textile Servs. Co., 253 F.R.D. 354, 361 (D. Md. 2008) (Grimm, J.); see also Home Design Servs., Inc. v. Trumble, No. 09-CV-00964WYDCBS, 2010 WL 1435382, at *5 (D. Colo. Apr. 9, 2010) (“Counsel’s case management responsibilities should not been seen as antithetical to their role as advocate. The reality is that a well-managed case progresses through the discovery process more efficiently and cost-effectively.”).

[2] Hickman v. Taylor, 329 U.S. 495, 507 (1946).

[3] See Mancia v. Mayflower Textile Servs. Co., 253 F.R.D. 354, 361 (D. Md. 2008)

[4] See, e.g., Bd. of Regents of Univ. of Nebraska v. BASF Corp., No. 4:04CV3356, 2007 WL 3342423, at *5 (D. Neb. Nov. 5, 2007) (“The overriding theme of recent amendments to the discovery rules has been open and forthright sharing of information by all parties to a case with the aim of expediting case progress, minimizing burden and expense, and removing contentiousness as much as practicable.”); Flanagan v. Benicia Unified Sch. Dist., No. CIV S-07-0333 LKK GGH2008 WL 2073952, at *10 (E.D. Cal. May 14, 2008) (finding that the plaintiff’s discovery responses indicated a lack of cooperative spirit ant that her “lack of communication and cooperation with defense counsel in regard to all discovery, undermine[d] the judicial process plaintiff herself has invoked.”); W. Convenience Stores, Inc. v. Suncor Energy (U.S.A.) Inc., No. 11-CV-01611-MSK-CBS, 2014 WL 1257762, at *8 (D. Colo. Mar. 27, 2014) (noting that the time and expense incurred by parties during months of discovery disputes could have been avoided if they followed principles of Cooperation Proclamation); U.S. Bank Nat. Ass’n v. PHL Variable Ins. Co., No. 12 CIV. 6811 CM JCF, 2013 WL 1728933, at *7 (S.D.N.Y. Apr. 22, 2013) (urging litigants to take seriously their obligation to cooperate in discovery and avoid burdening the court with repeated disputes); In re Spoonemore, 370 B.R. 833, 844 (Bkrtcy. D. Kan. 2007) (“Discovery should not be a sporting contest or a test of wills, particularly in a bankruptcy case where the parties’ resources are limited and the dollar value of the stakes is often low. When a party and its counsel are as intransigent and uncooperative in discovery as [the parties] have been in this matter, the Court has no choice but to impose sanctions that, hopefully, emphasize that the conduct sanctioned is both unprofessional and unacceptable.”).

[5] See, e.g., W. Convenience Stores, Inc. v. Suncor Energy (U.S.A.) Inc., No. 11-CV-01611-MSK-CBS, 2014 WL 1257762, at *8 (D. Colo. Mar. 27, 2014); Black & Veatch Corp. v. Aspen Ins. (UK) Ltd., No. 12-2350-SAC, 2014 WL 806122, at *2 (D. Kan. Feb. 28, 2014); Kleen Products LLC v. Packaging Corp. of Am., No. 10 C 5711, 2012 WL 4498465, at *19 (N.D. Ill. Sept. 28, 2012) (noting that more than 100 judges have endorsed the Cooperation Proclamation to date) objections overruled, No. 10 C 5711, 2013 WL 120240 (N.D. Ill. Jan. 9, 2013); Tadayon v. Greyhound Lines, Inc., No. CIV. 10-1326 ABJ/JMF, 2012 WL 2048257, at *6 (D.D.C. June 6, 2012); Moore v. Publicis Groupe, 287 F.R.D. 182, 192 (S.D.N.Y. 2012) adopted sub nom. Moore v. Publicis Groupe SA, No. 11 CIV. 1279 ALC AJP, 2012 WL 1446534 (S.D.N.Y. Apr. 26, 2012); Am. Fed’n of State Cnty. & Mun. Employees, Dist. Council 47 Health & Welfare Fund v. Ortho-McNeil-Janssen Pharm., Inc., No. 08-CV-5904, 2010 WL 5186088, at *5 (E.D. Pa. Dec. 21, 2010); Tamburo v. Dworkin, No. 04 C 3317, 2010 WL 4867346, at *3 (N.D. Ill. Nov. 17, 2010); Bldg. Erection Servs. Co., L.C. v. Am. Bldgs. Co., No. CIV.A. 09-2104-CM-DJ, 2010 WL 135213, at *1 (D. Kan. Jan. 13, 2010); Cartel Asset Mgmt. v. Ocwen Fin. Corp., 2010 WL 502721, at *13–14 (D. Colo.2010)

[6] See, e.g., Romero v. Allstate Ins. Co., 271 F.R.D. 96, 109 (E.D. Pa. 2010) (compelling parties to confer and come to some agreement on e-discovery issues such as custodians and search terms); Am. Fed’n of State Cnty. & Mun. Employees, Dist. Council 47 Health & Welfare Fund v. Ortho-McNeil-Janssen Pharm., Inc., No. 08-CV-5904, 2010 WL 5186088, at *5 (E.D. Pa. Dec. 21, 2010) (refusing to resolve parties’ differences and ordering parties to meet and confer cooperatively and in good faith, with unresolved matters to go to a special master paid for by the parties); Tamburo v. Dworkin, No. 04 C 3317, 2010 WL 4867346, at *3 (N.D. Ill. Nov. 17, 2010) (ordering the parties to actively engage in cooperative discussions to facilitate a logical discovery flow); Dunkin’ Donuts Franchised Restaurants LLC v. Grand Cen. Donuts, Inc., No. CV20074027(ENV)(MDG), 2009 WL 1750348, at *4 (E.D.N.Y. June 19, 2009)(directing the parties to meet and confer on developing a workable search protocol for ESI); Marion v. State Farm Fire & Cas. Co., No. 1:06CV969-LTSRHW, 2008 WL 723976, at *4 (S.D. Miss. Mar. 17, 2008) (demanding the mutual cooperation of the parties and threatening to impose sanctions on parties or counsel who engages in conduct that causes unnecessary delay or increased costs).

[7] See, e.g., Kay Beer Distrib., Inc. v. Energy Brands, Inc., No. 07-C-1068, 2009 WL 1649592, at *6 (E.D. Wis. June 10, 2009) (noting that the parties had agreed at their Rule 26 conference that either a hard copy or electronic copy would be produced depending on what was most cost-effective); Hassaine v. Home Depot, U.S.A., Inc., No. 09CV2215-MMA BGS, 2011 WL 1213094, at *4 (S.D. Cal. Mar. 30, 2011) objections overruled, (S.D. Cal. Aug. 19, 2011) (noting that the parties agreed in their joint scheduling report that electronic information may be produced in written format); White v. Honda of Am. Mfg., Inc., No. 2:07-CV-216, 2008 WL 5431160, at *5 (S.D. Ohio Dec. 31, 2008) (enforcing parties’ agreement in Rule 26 report to produce all documents on paper).

[8] See, e.g., W. Convenience Stores, Inc. v. Suncor Energy (U.S.A.) Inc., No. 11-CV-01611-MSK-CBS, 2014 WL 1257762, at *8 (D. Colo. Mar. 27, 2014) (noting that the time and expense incurred by parties during months of discovery disputes could have been avoided if they followed principles of Cooperation Proclamation); U.S. Bank Nat. Ass’n v. PHL Variable Ins. Co., No. 12 CIV. 6811 CM JCF, 2013 WL 1728933, at *7 (S.D.N.Y. Apr. 22, 2013) (urging litigants to take seriously their obligation to cooperate in discovery and avoid burdening the court with repeated disputes); Sentis Grp., Inc., Coral Grp., Inc. v. Shell Oil Co, 559 F.3d 888, 891 (8th Cir. 2009) (noting that “neither party behaved in a manner consistent with the spirit of cooperation, openness, and candor owed to fellow litigants and the court and called for in modern discovery).

[9] The Sedona Conference, The Sedona Conference Cooperation Proclamation: Resources for the Judiciary (2011), available at http:// www.thesedonaconference.org; The Sedona Conference, The Sedona Conference Cooperation Guidance for Litigators & In–House Counsel (2011), available at http://www.thesedonaconference.org; Seventh Circuit Electronic Discovery Pilot Program, Model Standing Order, available at http://www.discoverypilot.com; Southern District of New York Pilot Program, available at http:// www.nysd.uscourts.gov; District of Delaware, Default Standard for Discovery, Including Discovery of Electronically Stored Information (“ESI”), available at http://www.ded.uscourts.gov; Kleen Products LLC v. Packaging Corp. of Am., No. 10 C 5711, 2012 WL 4498465, at *19 (N.D. Ill. Sept. 28, 2012) objections overruled, No. 10 C 5711, 2013 WL 120240 (N.D. Ill. Jan. 9, 2013).

[10] Mancia v. Mayflower Textile Servs. Co., 253 F.R.D. 354, 357 (D. Md. 2008).

[11] Id. (internal quotations omitted).

[12] Id. at 357-58.

[13] Id. at 358 (internal quotations omitted).

Before the Panama Papers: Pursuing Complex, High-Value Fraud Recovery for the French Government

By: Alec Schultz

_89063523_panama_index_draft2In 2011, CDR Creances, an instrumentality of the French government, obtained judgment in a fraud case awarding it six South Florida properties valued in excess of $120 million. That judgment derived from a 1990 $90 million mortgage fraud against a French bank by convicted fraudsters Maurice and Leon Cohen, who are currently serving time in a South Florida federal prison for tax evasion on their ill-gotten gains.

Recent revelations by the Miami Herald from the so-called “Panama Papers” have confirmed the Cohens’ use of offshore shell companies created by the Panamanian law firm Mossack Fonseca to defraud CDR. In an April 4, 2016 article, I told the Miami Herald: “The Cohens were clients of Mossack Fonseca and abused the anonymity provided by these offshore corporations for years. Money designated to pay CDR was diverted to Swiss Bank accounts owned by these secretive entities. It made our efforts to recover the misdirected proceeds incredibly difficult, and having access to these papers would have certainly smoothed the road to recovery. To the extent others have used Mossack Fonseca to create corporations for improper purposes, they have reason to be deeply concerned.”


Recovery of Property Used to Launder Stolen Funds

Nevertheless, and despite the lack of a roadmap like the Panama papers, CDR’s legal and forensics teams have been able to reconstruct the Cohen’s complex web of money-laundering shell companies, bank accounts, money transfers, and property purchases. And since 2011, because of those efforts, CDR has recovered about $100 million of $186 million in fraud judgments against the Cohens.*

According to a front-page article in the Miami Daily Business Review Feb. 22, 2016, “CDR (also hopes) to gain control of two final pieces of South Florida real estate to recover about $20 million in additional funds, but those properties remain in dispute” due to several purported mortgage liens.


Progress Liquidating the Whitehall Property

In October 2015, the Review also reported on a deal our team at León Cosgrove reached with Regions Bank to allow CDR “to sell one of the two final former Cohen properties: the storied 2-acre Miami Beach Whitehall estate where President John F. Kennedy reportedly had trysts with actress Marilyn Monroe.” That agreement allowed Whitehall immediately to be put on the market with litigation to continue over the proceeds of the sale.

Then in a three-day bench trial before Miami-Dade Circuit Judge Robert Luck, we again represented CDR in its effort to free the last of the six former Cohen properties awarded to CDR, a Fisher Island luxury condo, from two purported liens against it. In that trial, we argued a complex series of claims against purported lien-holder Regions Bank for fraud in extending the loan behind its lien on the disputed Fisher Island property.


Setback in Liquidating Fisher Island Property

Complicating our recovery of CDR funds the Cohen’s used to purchase the Fisher Island condo, a third party, Miami tech millionaire Manny Medina had been sold Regions’ purported mortgage lien interest in that luxury condo through his company, Fisher Island, LLC in 2012. Thus, Mr. Medina became another purported lien-holder preventing CDR from being able to liquidate the property purchased, then mortgaged by the Cohens as part of their elaborate scheme to launder CDR’s stolen funds.

Unfortunately, as a result of the October 2015 bench trial, on February 22, 2016, Judge Luck found in favor of Mr. Medina’s lien… While Judge Luck acknowledged in his ruling that we proved the loan file contained a forged HSBC Bank letter falsely documenting approximately $15 million in a Cohen-controlled account, he concluded that the evidence did not show who falsified the letter. The Miami Daily Business Review quoted me as saying, “We’re respectful of the decision but certainly disappointed with it. At this point the ink is still getting dry on the ruling, and we are considering what our next steps will be. My sense is we will take an appeal.” As the Review also reported, “CDR has taken its Cohen money chase to the Third District Court of Appeal in other cases.” CDR has since filed its notice of appeal, and remains confident that the Third District will find in CDR’s favor.

*Click here to read about CDR’s 2014 Third District Court of Appeals win on behalf of its right to collect in Florida on its New York judgments against the Cohens.


ScottCosgrove_BW_HRScott B. Cosgrove
is a founding partner of León Cosgrove, LLC and a seasoned trial lawyer focusing on complex commercial litigation. His representations involve all manner of commercial disputes, including financial services litigation, fiduciary duty, fraud, partnership, intellectual property, and deceptive/unfair trade practice claims.

 

Judicial Oversight of Discovery in the Amended Federal Rules of Civil Procedure

By: Alec Schultz

Judge's Bench and gavelAmendments to the Federal Rules of Civil Procedure relating to discovery and electronic discovery became effective on December 1, 2015. A number of lawyers and law firm websites have outlined and discussed the amended language regarding proportionality, party cooperation, and judicial oversight in discovery. This piece will discuss the Rule 16 amendments on judicial oversight and their likelihood of success, given that the amendments do not actually require increased judicial oversight of the discovery process.


BACKGROUND

The amendment process dates to 2010, when the Advisory Committee organized the Duke Conference to explore the current costs of civil litigation, particularly discovery, and to discuss possible solutions. The Duke Conference looked at empirical data and heard from judges, practitioners, and academics on the state of the civil discovery system. Three concrete initiatives emerged to revise the existing rules: proportionality in discovery, more cooperation among the parties, and early judicial case management. While the three are interconnected, I will focus the discussion here on judicial case management.

Widespread agreement came out of the Duke Conference that early and active judicial management resolves cases faster, fairer, and cheaper. In its Committee Notes, the Advisory Committee counsels that district and magistrate judges “must be considerably more involved in managing each case from the outset, to tailor the motions practice and shape the discovery to the reasonable needs of the case.

The empirical data gathered in preparation for the Duke Conference supports this sentiment: 72% of practitioners responding to an ABA Survey believed that early intervention by judges helps limit discovery and 73% believed that when the court gets involved early and stays involved, clients are more satisfied with the results. Yet, 60% of respondents also believed that judges do not enforce mechanisms to limit discovery.


RULE 16 AMENDMENTS

The Advisory Committee hoped that its changes to Rule 16 will get judges to manage cases early and actively. However, the rule changes do not actually require that the court confer with the parties at the outset of the case. Rather, if the court does choose to hold a case management conference, the Advisory Committee amended Rule 16 so that such conference is a “direct simultaneous communication” between the parties and the court. The rule change deleted previous language allowing a conference to be held “by telephone, mail, or other means.” The Committee Notes direct that “[t]he conference may be held in person, by telephone, or by more sophisticated electronic means.” Moreover, to encourage judges to manage a case early on in the litigation, Rule 16 was also amended to move up the time for holding a scheduling conference by thirty days.**

The Rule 16 amendments also add three issues that may be addressed in a case management order: (1) the preservation of ESI, (2) Federal Rule of Evidence 502 agreements, and (3) whether to require a pre-motion conference with the court before the filing of discovery motions. Because issues involving the preservation of ESI and the Federal Rule of Evidence 502 are becoming more important in today’s litigation environment, the Committee wanted to encourage the courts and parties to address them early. The Advisory Committee likewise wanted to encourage pre-motion conferences because many judges have found these conferences to be an effective tool in resolving discovery disputes quickly and inexpensively.


THE NEW 2015 AMENDMENTS DO NOT DO ENOUGH TO PROMOTE JUDICIAL OVERSIGHT

The major failure of the new amendments is that they do not actually require judges to be any more involved in cases than they already are. The amendments merely lay out options to judges, and this is simply not enough.

The permissive nature of Rule 16 has prevented it from being used to adequately manage discovery. So, instead of simply adding to the list of judicial tools in the Rule 16 arsenal, the new 2015 amendments should have focused on giving Rule 16 some teeth. An initial judicial case management conference with the lawyers, face-to-face, should be required in every case. This initial conference should address all the issues that were or should have been addressed in the parties’ Rule 26(f) conference, particularly those relating to discovery. And a thorough discovery plan (that includes the role of ESI) should be addressed in every case management order.

Some of these same recommendations were made by the American College of Trial Lawyers (ACTL) Task Force on Discovery and the Institute for the Advancement of the American Legal System (IAALS) in its report to the Duke Conference. Indeed, 67% of respondents to the ACTL/IIALS Survey agreed that case management conferences inform the court about the issues in the case and 53% thought that such conferences identified and narrowed the issues. Yet, more than 20% of the respondents reported that such conferences are not regularly held.


OBJECTIONS TO REQUIRING MORE JUDICIAL OVERSIGHT

Regular case management conferences, beyond the initial conference, would help the court stay on top of factual issues in discovery and achieve proportionality. Some criticize the use of proportionality as a basis for the scope of discovery because implementing proportionality requires significant familiarity with each case. But requiring involvement by the judge in discovery issues at the outset will give the judge the factual foundation necessary to make proportionality-enhancing rulings on fact-intensive discovery issues.

Some also argue that the permissive nature of Rule 16 reflects the need for flexibility in case management by judges with differing styles and in cases with differing needs. But virtually every civil case involves discovery to some extent, and requiring that the court address the pertinent discovery issues and implement a plan to deal with those issues does not undermine the need for flexibility. Moreover, continuing conferences throughout the life of a case, with all parties before the court, will ensure that a discovery plan stays tailored to the specific needs of the case.


CAN EDUCATING THE JUDICIARY INCREASE JUDICIAL OVERSIGHT?

Maybe simply educating the judiciary on the benefits of hands-on case management will bring about the needed change. The Federal Judicial Center recently published a new Benchbook for federal district court judges and magistrates that includes a new comprehensive chapter on judicial case management. [Federal Judicial Center at 189-204.] The Benchbook makes recommendations similar to those outlined above, but they are still only recommendations.

For instance, the Benchbook advises that a face-to-face case management conference with the lawyers is more valuable than only reviewing the parties’ Rule 26(f) report. A written report cannot substitute for “a live dialogue in which a judge asks questions, probes behind the parties’ representations, and fills in gaps.” This is true even if the parties have no pending disputes because “the conference often reveals information and issues not apparent to the parties or the judge in the submissions.”

The Benchbook also gives specific suggestions for addressing discovery issues through the use of case management conferences. For instance, it discusses proportionality, electronic discovery, preservation of discoverable information, and resolving discovery disputes. Proportionality in discovery may be managed by: (a) limiting the number of depositions (or their length), interrogatories, requests for production, and/or requests for admission; (b) focusing first on particular issues that are most important to resolving the case; (c) phasing discovery to initially focus on sources most readily available and/or most likely to yield key information; (d) limiting the number of custodians and sources of information to be searched; (e) delaying contention interrogatories until the end of the case, after discovery is substantially completed; and (f) otherwise modifying the type, amount, or timing of discovery.


JUDICIAL SUPERVISION SHOULD BE REQUIRED

For those judges who can see the benefits of diving into the trenches of discovery and getting their hands dirty, the Benchbook is a great resource. But the many judges whose preferred approach to case management is still party-managed discovery can easily ignore these suggestions. Indeed, 76% of respondents to the ABA Survey did not believe judges invoke discovery limitations on their own (and 60% did not believe judges enforce any limitations).

To these “hold-out” judges, discovery is a contest between lawyers with judges getting involved only if absolutely necessary. But by the time the court involves itself, the damage has already been done. At this point, all cooperation has broken down and the parties come to court loaded with motions to compel. This is the path to continually increasing discovery costs and burdens. And, unfortunately, the new 2015 rule amendments do nothing to require hold-out judges to become involved earlier or more consistently. Based on everything we have seen so far, there is no reason to expect that the desired judicial behavior will come about until the Federal Rules of Civil Procedure are amended to require it.

** A judge must issue a scheduling order within the earlier of 90 days after any defendant has been served with the complaint (reduced from the current 120 days) or 60 days after any defendant has appeared (reduced from the current 90 days). Another rule amendment that is intended to get cases moving more quickly is Rule 4(m), which shortens the time to serve a summons and complaint from 120 days to 90 days.

 

Ellen BelferEllen Ross Belfer, of counsel at León Cosgrove LLC, focuses her practice on complex commercial litigation in federal and state courts nationwide.

Origins and Implications of the New Rules on Proportionality in Discovery

By: Alec Schultz

Amendments to the Federal Rules of Civil Procedure relating to discovery and electronic discovery became effective on December 1, 2015. A number of lawyers and law firm websites have outlined and discussed the amended language regarding party cooperation, judicial oversight, and proportionality in discovery.

The idea of proportionality in discovery is not new. However, despite a long history of changes to the rules aimed at encouraging proportionality, courts have remained reluctant to implement it. And it is precisely this lack of implementation that the Advisory Committee on the Federal Rules of Civil Procedure gave as a reason for again amending Rule 26(b) and changing the location of the Rule’s proportionality language.


Background

The amendment process dates to 2010, when the Advisory Committee organized the Duke Conference to explore the current costs of civil litigation, particularly discovery, and to discuss possible solutions. The Duke Conference looked at empirical data and heard from judges, practitioners, and academics on the state of the civil discovery system. One prevalent theme was the need to change the default of discovery from “everything is discoverable” to “‘you only get what you need.’” Three concrete initiatives emerged to revise the existing rules: proportionality in discovery, more cooperation among the parties, and early judicial case management. While the three are interconnected, I will focus the discussion here on proportionality.


Limiting the Scope of Discovery

The heart of the proportionality amendments are changes to the scope of discovery under Rule 26(b). New Rule 26(b)(1) now specifically includes the term “proportional” in the definition of the permitted scope of discovery. But the amendment’s drafters recognized that the term “proportional,” by itself, was too open-ended and nonspecific. So, they moved the already existing proportionality factors within Rule 26(b)(2)(C)(iii) to Rule 26(b)(1). They also included an additional factor within Rule 26(b)(1): the parties’ relative access to the relevant information. The new rule reads as follows:

Parties may obtain discovery regarding any non-privileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the litigation, the amount in controversy, the parties’ relative access to the relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.

With these amendments, discovery must be relevant to a party’s claims or defenses and proportional. As a result of the new language, some litigants may be surprised to learn that they can no longer seek discovery of any matter relevant to the subject matter involved in the action—even for good cause.

In the Committee Notes, the Advisory Committee emphasized that most of the proportionality factors have been included within Rule 26 since 1983, and that they were also initially included in Rule 26(b)(1)’s definition of the scope of discovery. It has been widely recognized that federal judges, as a whole, have never fully embraced the Rule’s proportionality factors. So, according to the Advisory Committee, “[t]he present amendment restores the proportionality factors to their original place in defining the scope of discovery.”


Proportionality in Discovery Disputes

Nevertheless, the Committee also stressed that the movement of proportionality factors to the Rule 26(b)(1) definition of discovery will not change existing responsibilities of the court and the parties to consider proportionality in discovery disputes. In fact, “[t]he parties and the court have a collective responsibility to consider [] proportionality.”

The requesting party will not have the burden of addressing all proportionality considerations. Rather, under Rule 26(g), the parties have an obligation to consider the proportionality factors when making discovery requests, responses, or objections.

Likewise, amendments to Rule 34 will help enforce the Committee’s intent that the responding party not be permitted to refuse discovery with boilerplate proportionality objections. Amended Rule 34(b)(2)(B) requires that a responding party “state with specificity the grounds for objecting.” While this may be a new requirement in many districts in the U.S., the Southern District of Florida has required that a responding party object to a discovery request with specificity since 2003.


Enough for Real Change?

It remains to be seen whether the changes to the Rules regarding proportionality will bring about real change. This same proportionality language has been moved around within Rule 26 for thirty years—each time with the same goal—for parties and courts to apply these factors to discovery. For its part, the Advisory Committee has not clearly articulated how the newest change to the location of the proportionality language will fix the essential problem.

In my opinion, the new amendments over-emphasize the significance of the proportionality factors in the scope of discovery; this language means nothing without party cooperation and judicial case management to limit the scope of discovery. Unfortunately, the 2015 amendments on party cooperation and judicial case management do little to mandate either, and thus are simply not significant enough to drive the change in practice that the new proportionality language cannot effect on its own.

Some, like the influential U.S. Magistrate Judge Paul W. Grimm, argue that a major cultural shift in the conduct of civil litigation is necessary to achieve real change:

[T]he real change that is needed is a change in existing, inappropriate attitudes and behaviors; disproportionality in discovery is not expressive of a failure in the Rules themselves, but rather, must be viewed as an indictment of the parties, lawyers, and judges for allowing this to occur in the face of constraints that the Rules already provide. The problem is an absence of will.*

But it is not clear when or how this cultural shift will take place. It may eventually be the increasingly widespread burdens of electronic discovery that will propel a change in attitude. The mounting volume of ESI in all areas of our individual and corporate lives will necessitate real changes to the system—changes that may finally achieve the proportionality in discovery that has so long been sought.

*Hon. Paul W. Grimm, The State of Discovery Practice in Civil Cases: Must the Rules Be Changed to Reduce Costs and Burden, or Can Significant Improvements Be Achieved Within the Existing Rules?, 12 Sedona Conf. J. 47, 50, 53 (2011)

 

Ellen BelferEllen Ross Belfer, of counsel at León Cosgrove LLC, focuses her practice on complex commercial litigation in federal and state courts nationwide. ebelfer@leoncosgrove.com