Winning the Battle But Losing the War

When confronted with a discovery request, it often is a lawyer's instinct to react that the request is too broad. "That's outrageous and must be reigned in! I can't ask my client to find all of that!" However, you must be careful not to limit the opponent's discovery so much that you end up failing to produce documents that your own side needs to prove its claims or defenses.

A recent case from the Eighth Circuit illustrates the importance of not taking discovery-limiting positions that hurt your own case. In Gander Mountain Co. v. Cabela's, Inc., 540 F.3d 827 (8th Cir. Aug. 27, 2008), the parties disputed the meaning of a trademark license agreement. The key disputed provision gave defendant the right to license certain of plaintiff's trademarks, provided the license was "evidenced by a separate written agreement in form and content customary to licenses of the type described above." When defendant presented plaintiff with the required payment and a license agreement, plaintiff balked and brought a declaratory judgment action to find that defendant was not entitled to the license.

During discovery, plaintiff served an interrogatory requesting defendant's explanation of what the contract meant by "customary form and content of licenses." Defendant responded that the license it had tendered (but which plaintiff rejected) was the only example that was needed. Plaintiff moved to compel a more informative answer but defendant prevailed. Plaintiff filed a second motion to compel a further response, but defendant countered with a motion for protective order, claiming the issue had been decided. The district court agreed with defendant.

Defendant succeeded in shutting down plaintiff's attempt to get defendant to explain what it thought the contract meant beyond merely saying that it believed its proposed license was satisfactory. So far so good. Defendant was saving itself the trouble of answering plaintiff's troublesome discovery requests, right?

Not so fast. Plaintiff moved for summary judgment, contending that the contract language did not provide definite enough terms. Because the single example of a license agreement that defendant offered could not be determinative of what constitutes customary form and content of licenses, plaintiff argued, there was no evidence in the record from which one could conclude that the tendered license satisfied the contract's requirements. The defendant must have been surprised when the district court agreed, and granted summary judgment. It appealed, requesting among other things that the matter be remanded with directions to re-open for additional fact and expert discovery.

The Eighth Circuit affirmed, finding that the district court had not committed error "by granting [plaintiff's] motion for summary judgment without allowing [defendant] an opportunity to conduct discovery that it had previously declined to conduct." The lesson here is that defendant was too good at shutting down plaintiff's discovery attempts. Without allowing information to find its way into the record that defendant needed to prove its own interpretation of the contract, defendant deprived itself of any defense to the summary judgment motion. As this was a situation of defendant's own creation, defendant apparently found little sympathy with the district court or appellate court.

It is interesting to note that on appeal defendant argued that the district court had somehow violated the law-of-the-case doctrine. Apparently, defendant claimed that the fact that the district court had refused to compel defendant to produce the evidence concerning trademark license agreements generally rendered any such evidence, if it had been produced in response to the summary judgment motion, inadmissible for purposes of establishing a genuine issue of material fact. The appellate court disagreed, finding that refusal to compel was in no way a ruling on admissibility.

I tend to see the law-of-the-case argument as better fitting the other side's argument because that doctrine, like other branches of judicial estoppel, is intended to force parties to live with the consequences of their litigation strategy choices. If a defendant argues that it shouldn't be put to producing something in discovery, it must accept that if the court accepts that argument defendant will be barred from producing it later should it turn out to be needed. So before you set out to win a discovery battle, be sure that you aren't setting yourself up to lose the war.


Recent Developments Making Privilege Waivers Less Likely

The past few weeks have seen some extraordinary developments in the area of waiver of attorney-client privilege and attorney work product protection.

First came the news that the Department of Justice has reversed course after pursuing a policy for many years in which it has pressured corporations to waive privilege if they want to be credited with being cooperative in a DOJ investigation. That policy had been embodied in a memorandum by Deputy Attorney General Larry D. Thompson entitled "Principles of Federal Prosecution of Business Organizations," dated January 20, 2003. A short memorandum, entitled "Waiver of Corporate Attorney-Client and Work Product Protections," by Acting Deputy Attorney General Robert D. McCallum, Jr., was published on October 21, 2005, which recognized the need to develop some procedural controls that were absent from the Thompson Memorandum. The policies embodied in those memoranda were highly controversial because they represented a systematic assault on the confidentiality of the lawyer-client relationship that forms a central backbone of our adversarial judicial system. The DOJ in effect was saying that it could pressure corporations to waive confidentiality during an investigation, even though such a waiver could have disasterous consequences for individual corporate employees who also were targets of the same investigation and for the company and its employees in companion civil litigation brought by private parties.

The controversy led to a revised memorandum by Deputy Attorney General Paul J. McNulty entitled "Principles of Federal Prosecution of Business Organizations," dated December 13, 2006, but that memorandum brought little real change in policy. Although it imposed new internal approval procedures that prosecutors had to follow when requesting that a corporate target waive privilege, the fundamental issue remained: Prosecutors were empowered to make requesting waiver of privilege a part of their arsenal whenever they felt justified in doing so.

However, all of that changed on August 28, 2009 when newly-appointed Deputy Attorney General Mark R. Filip announced the promulgation of a new policy. Bowing to pressure from a wide range of sources, the DOJ adopted a formal policy generally directing prosecutors not to seek privilege waivers from companies as part of their cooperation efforts. Rather than continue the string of less formal internal memoranda, the new policy formally was incorporated into Chapter 9-28 of the U.S. Attorneys' Manual. This change likely will moot efforts in Congress to legislatively direct a change in DOJ policy regarding a waiver-based quid pro quo.

Second, and coincidentally on the same day, the Second Circuit published United States v. Stein, 541 F.3d 130 (2d Cir. Aug. 28, 2008). In addition to pressuring companies to waive privilege to the detriment of individual employees (often ex-employees), the DOJ also had a policy of pressuring corporations not to pay the legal fees of accused employees. Among other things, this represented a different kind of erosion of attorney-client privilege and work product protection, i.e. by preventing company employees from hiring lawyers so that attorney-based privileges never arose in the first place. In Stein, the Second Circuit held that it was improper for the DOJ to have pressured KPMG into refusal to pay defense costs for numerous individuals at KPMG who were accused of wrongdoing in connection with counseling clients regarding various tax shelters. The court found that the DOJ's actions deprived those individual defendants of their right to counsel under the Sixth Amendment, and affirmed the district court's dismissal of the indictment.

Finally, last week the U.S. Congress sent legislation to the President that would create a new Federal Rule of Evidence 502, which the Judicial Conference proposed to Congress on September 26, 2007. As stated in the original proposal, and in the Senate committee report on the legislation, the purpose of new Rule 502 is to provide protections against waiver of the attorney-client privilege and work product immunity, and to reduce the costs associated with discovery (and, it was noted, particularly electronic discovery). The rule accomplishes the following:
  1. Avoidance of broad subject-matter waiver implications. If a waiver is found, it only applies to the information disclosed, unless a broader waiver is made necesary by the holder's intentional and misleading use of protected information.
  2. Waiver does not occur through inadvertent disclosure. Inadvertent disclosure in federal proceedings does not cause a waiver if the holder took reasonable steps to avoid inadvertent disclosure and took reasonable steps to claw it back, e.g. following Fed. R. Civ. P. 26(b)(5)(B).
  3. Non-waiver provisions in protective orders enforceable. If a federal court orders that disclosure of protected information is not a waiver, that order is also binding against non-parties and in both state and federal proceedings. If the parties enter into a non-waiver agreement, they can make it binding on non-parties by having it entered as a court order.
  4. State courts covered. When a disclosure is made in a state proceeding and is not the subject of a state-court order concerning waiver, the disclosure does not operate as a waiver in a federal proceeding if the disclosure: (1) would not be a waiver under Rule 502 if it had been made in a federal proceeding; or (2) is not a waiver under the law of that state.

If signed by the President as expected, Rule 502 will not change the substantive law of privilege at all, only the law of waiver. As one member of the House of Representatives remarked, "The
legislation improves the efficiency and the discovery process, while it still promotes accountability. It alters neither Federal nor State law on whether the attorney-client privilege or the work product doctrine protects specific information. The bill only modifies the consequences of an inadvertent disclosure once a privilege exists." (Cong. Rec. Sept. 8, 2008 at p. H7819.)

Hopefully this new rule will give parties confidence in the non-waiver agreement as a cost-reducing technique in appropriate cases, lessen the consequences of inadvertent production, and reduce litigation over waiver issues.


Illinois Pitfalls In Preserving Dying Party’s Testimony

A recent case from the Fifth District of Illinois' intermediate appellate court illustrates how very different the Illinois state rules are from the Federal Rules of Civil Procedure concerning deposition discovery. Berry v. American Standard, Inc., 382 Ill. App. 3d 895, 888 N.E.2d 740 (Ill. App. (5th Dist.) May 19, 2008), also discusses an important pitfall when attempting to preserve the testimony of a dying party.

In Berry, plaintiff sued multiple defendants for asbestos-related injuries after learning that he had contracted terminal mesothelioma and had a life expectancy of less than 18 months. Plaintiff quickly served defendants with a notice that his deposition would take place on February 25, 2004. The notice stated that the deposition would be an "evidence deposition."

Under Illinois procedure, a deposition may either be a "discovery deposition" or an "evidence deposition." Except under limited circumstances, the only deposition that may be used in court in lieu of in-person testimony is an evidence deposition. The court in Berry explained the distinction as follows (citations omitted):

Illinois has long recognized a sharp distinction between depositions taken for the purpose of discovery and those taken for use as evidence at a trial. The purpose of a discovery deposition is to explore the facts of the case, and for this reason wide latitude is given in the scope and manner of questioning. Discovery depositions are used to obtain information, to commit witnesses to particular stories, and to obtain admissions from opposing parties. Their admissibility in evidence is limited. Knowing in advance that a deposition is for discovery only and hence of limited availability, counsel ordinarily do not urge technical objections, and the taking of the deposition proceeds informally and expeditiously. Discovery depositions are not permitted to be used at a trial even if the deponent is unavailable, because that use would inhibit free discovery by requiring time-consuming evidentiary objections at every discovery deposition. In contrast, an evidence deposition is generally used for the purpose of preserving testimony for trial, and questioning is therefore limited by the rules of evidence.

Plaintiff knew that it was important to preserve his testimony through an evidence deposition, not merely a discovery deposition, because he was not going to live long enough to testify in person. That is why he noticed his own evidence deposition.

Because an evidence deposition serves as the equivalent of trial testimony, opposing parties typically first take a discovery deposition of the witness – no one wants to examine a witness for the first time at trial, after all. The Berry defendants exercised their right to object to being forced to take an evidence deposition without the benefit of a prior discovery deposition. Ultimately, the trial court agreed and plaintiff's deposition proceeded as a discovery deposition instead, with the parties agreeing to take the evidence deposition once the discovery deposition was completed.

Unfortunately, the discovery deposition became a long, drawn-out affair due to the large number of defendants seeking to examine plaintiff and extensive related motion practice. Plaintiff passed away before his evidence deposition could be taken, and plaintiff's wife was substituted as executrix.

Defendants subsequently moved to bar plaintiff from using any of the discovery deposition as testimony at trial, citing Illinois Supreme Court Rule 212(a)(5). The trial court agreed and the appellate court affirmed. When it comes to using discovery depositions as evidence, the Illinois rules are even more strict if the testimony at issue is of a party. The few situations listed in Rule 212(a)(5) permitting discovery depositions to be used at trial do not apply if the witness is a party or a controlled expert witness:

(a) *** Discovery depositions taken under the provisions of this rule may be used only: *** (5) upon reasonable notice to all parties, as evidence at trial or hearing against a party who appeared at the deposition or was given proper notice thereof, if the court finds that the deponent is neither a controlled expert witness nor a party, the deponent's evidence deposition has not been taken, and the deponent is unable to attend or testify because of death or infirmity, and if the court, based on its sound discretion, further finds such evidence at trial or hearing will do substantial justice between or among the parties.

Plaintiff advanced numerous arguments why his discovery deposition should be permitted at trial, but the court refused to bend the rules. Most significant was the argument that because of his death he was no longer a "party" for purposes of the rule, which was a matter of first impression in Illinois. The court rejected that argument, holding that his wife's substitution kept him in the case as a party for all purposes. (After all, if that were not true the case would have to be dismissed for lack of a plaintiff.)

This harsh result stands in sharp contrast to federal civil procedure. First of all, there is no distinction between "discovery" and "evidence" depositions. Second, the rules are more relaxed when it comes to using a deposition as trial testimony. If this case had been brought in federal court, Mr. Berry could have testified by deposition under Fed. R. Civ. P. 32(a)(4): "A party may use for any purpose the deposition of a witness, whether or not a party, if the court finds: (A) that the witness is dead." It's that simple.

So what should you do when you need to preserve a dying party's testimony for use at trial in Illinois? It is critical that you take that party's evidence deposition; the courts will accept no substitutes. If time is short, make your notice of deposition a notice of both a discovery and an evidence deposition. In some of the cases that the Fifth District distinguished, the deposition had been noticed that way, and the courts allowed use of the transcript where the other side had not objected at the deposition to its being an evidence deposition. If the other side does object, try to conduct any motion practice as expeditiously as possible, perhaps on an emergency basis.


While House Embroiled In E-Discovery Controversy

While lawyers may be getting used to the occasional e-discovery dispute boiling over into the trade press or advance sheets, we still don't expect to see it make front-page news in traditional media. But there, on the front of today's Chicago Tribune, Wall Street Journal, and many others, are dreaded phrases like "deleted e-mails," "backup tapes," and "preservation."

The White House has been under fire since last year based on an investigation that found numerous e-mails had not been preserved as they should have been. White House Press Secretary Dana Perino acknowledged this in April 2007, saying there could be as much as 5 million missing e-mails. In response to that report, a public watchdog group called Citizens for Responsibility and Ethics in Washington, brought a lawsuit asserting that the White House and certain agencies were in violation of the Federal Records Act and other statutes. Citizens for Responsibility and Ethics in Washington v. Executive Office of the President, Civ. No. 1:07 cv 1707 (HHK) (D.D.C.).

The complaint asserted that the only place the missing e-mails might still exist is on backup tapes the White House made for disaster recovery purposes. Plaintiff moved for expedited discovery on that subject. In response, on January 8, 2008 the court ordered the government to provide an affidavit answering four specific questions designed to cut through the dispute and determine whether the backup tapes did or did not have the e-mails that were the subject of the case.

Yesterday, the White House filed the affidavit. It essentially admitted that the White House "recycled" its backup tapes for several years. In other words, many of the e-mails are not going to be found on those tapes because tapes regularly were overwritten with newer data. If this sounds like the kind of thing that gets litigants into trouble these days, you're right. In its briefs, the White House seems to take the position that because the recycling did not happen once the complaint was filed, but that misses the point. The lawsuit maintains that the government has a statutory duty not to destroy the e-mails wholly apart from whatever obligations exist under the Federal Rules of Civil Procedure. Even without that duty, the duty to preserve would have kicked in much earlier because of plaintiff's pre-litigation demands.

This has the potential to become the best-known e-discovery spoliation case to date. Watch the plaintiff's web site as the story develops.