Kevin Keithley v. The Home Store.com, Inc.
From Attorney Ralph Losey [Google for his blog and as to disclosure, Losey is not involved in this case] . . .
"Kevin Keithley is a patent infringement case in San Francisco involving computer software and Internet websites. Defendants write code for and develop such well known websites as Realtor.com, Homebuilder.com, Homestore.com, and Move.com. Most of the key ESI custodians on the defendants’ side were software engineers and programmers of various types. Their disrespect of the law, lawyers, and the discovery process was obvious, so much so that the senior federal Magistrate Judge looking into their conduct, Elizabeth D. Laporte, said it was ”among the most egregious this Court has seen.” Judge Laporte begins her opinion with this observation:
While the Court does not impose sanctions of any type lightly, and would prefer to see the resources of the Court directed to addressing the substantive issues of the case on the merits, rather than the collateral issue of sanctions for discovery abuse, this is the unusual case in which Defendants’ conduct warrants stiff monetary, as well as evidentiary, sanctions. . See United Medical Supply Co. v. United States, 77 Fed. Cl. 257, 258-59 (Fed. Cl. 2007) (“Aside perhaps from perjury, no act serves to threaten the integrity of the judicial process more than the spoliation of evidence. Our adversarial process is designed to tolerate human failings – erring judges can be reversed, uncooperative counsel can be shepherded, and recalcitrant witnesses compelled to testify. But, when critical documents go missing, judges and litigants alike descend into a world of ad hocery and half measures-and our civil justice system suffers.”)
Judge Laporte then imposed sanctions of $320,000, plus a devastating adverse inference instruction. She considered entering judgment against the defendants outright as the plaintiffs requested, but recognized that the case involved miscommunications, disrespect, and negligence, not outright fraud. These are harsh sanctions nevertheless, and in my view, Judge Laporte correctly implemented the First Circuit quote she likes and avoided the “cardboard sword” to fight this ad hocery:
As aptly stated by the First Circuit, “the judge should take pains neither to use an elephant gun to slay a mouse nor to wield a cardboard sword if a dragon looms.” Anderson v. Beatrice Foods Co., 900 F.2d 388, 395 (1st Cir.), cert. denied, 498 U.S. 891 (1990).
When Did The Duty To Preserve Begin?
The first interesting legal issue in this case is when the duty to preserve was triggered. The lawsuit was filed on October 1, 2003, so it definitely started at least by then. But plaintiffs argued it actually started on July 14, 1998, when plaintiffs wrote defendants requesting they license their patent. Judge Laporte did not buy that because the letter did not threaten litigation or even mention infringement. But she did find the duty was triggered on August 3, 2001, over two years before the suit was filed. She found it was triggered by a letter from plaintiffs to defendants stating that “we assume that Homestore.com wishes to litigate this matter. Unless we hear otherwise by close of business Tuesday, August 7, 2001, we will advance this matter accordingly.”
As Judge Laporte notes, this is all just an academic issue “because Defendants did not satisfy their duty to preserve even after this lawsuit was filed and recklessly allowed the destruction of some relevant source code as late as 2004.” For that reason we probably should not tax our “little brains” about it, but still, its slightly more interesting than whether “there was chicken for lunch.”
Judge Laporte explains the triggering law by first citing to A. Farber & Partners, Inc. v. Garber, 234 F.R.D. 186, 193 (C.D. Cal.2006) which held that “There is no doubt that a litigant has a duty to preserve evidence it knows or should know is relevant to imminent litigation.” She then clarifies the “imminence” requirement by referring to a quote from the holding of In re Napster Inc. Copyright Litigation, 462 F. Supp. 2d 1060, 1070 (N.D. Cal. 2006):
The court in A. Farber thus held imminence to be sufficient, rather than necessary, to trigger the duty to preserve documents. Furthermore, the court in A. Farber did not reach the issue of when, exactly, the duty attached. The duty to preserve documents attaches “when a party should have known that the evidence may be relevant to future litigation.” Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 216(S.D.N.Y.2003). See also National Ass’n of Radiation Survivors, 115 F.R.D. at 556-57. The future litigation must be “probable,” which has been held to mean “more than a possibility.” Hynix Semiconductor Inc. v. Rambus, Inc., 2006 WL 565893 at *21 (N.D. Cal.2006) (Whyte, J.).
Law Is Not A Science
So it looks like Judge Laporte considers “imminent” to mean “probable” which means something more than possible. A very vague standard indeed, exactly the kind of thing that drives computer engineers crazy. I predict the preservation trigger date issue will always be decided on a case-by-case basis and no bright lines will ever appear. That is why the practice of law is an art, not a science, and the human element can never be replaced by technology.
Unlike computer code, the rules of law are malleable and there are always exceptions. This in turn is one of the key reasons the two cultures of Law and IT have such a hard time understanding one another. It is also the reason a few inexperienced engineer types are delusionary and arrogant enough to think that e-discovery can be “fixed” with the right software algorithms. It cannot because law is not a science, it is far too complex and chaotic for that. Or if it is a science, it is more like Quantum Physics, where electrons are unpredictable and can be in two places at once, not the orderly world of Newtonian Science that most engineers live in.
Yes, there are many computer programs that can be used as effective tools in the pursuit of justice. We lawyers need to wake up to that fact. But so too do the technologists who think the right software alone will fix everything. The human element is key in Law which is one reason that training is so important.
Where Are The Reports?
Getting back to the case, the defendants’ Chief Information Officer and Chief Technology Officer (very impressive titles!) testified that he was “instructed not to destroy any materials that might be relevant” to potential litigation. Unfortunately, none of the attorneys involved put those instructions in writing, or at least if they did, they could not find the hold notices five years later when plaintiffs moved for sanctions. (Yes, Law is slow, which is another thing IT cannot understand.)
The failure to put hold notices in writing is a rookie mistake, especially when notifying engineers. Always put the litigation hold notices in writing, usually email, confirm the receipt, send reminders, and keep a good record of everything. Then followup, and ideally, collect what you need yourself, instead of just relying on self-collection. Also, a company should have written litigation hold policies that specify how documents are to be preserved for litigation. It is dangerous to implement this in complex litigation on an ad hoc basis. The lawyers here did not do that and so the door was left open for the IT personnel and other key custodians to completely ignore the requests from Legal. Here is Judge Laporte’s reaction:
The lack of a written document retention and litigation hold policy and procedures for its implementation, including timely reminders or even a single e-mail notice to relevant employees, exemplifies Defendants’ lackadaisical attitude with respect to discovery of these important documents. See, e.g., In re NTL Securities Litigation, 244 F.R.D. 179, 198-99 (S..D. N.Y. 2007) (finding that the failure to have an adequate litigation hold in place and the failure to issue reminders to employees regarding the duty to preserve evidence was at least grossly negligent). The harm caused by the lack of a preservation policy was compounded by an egregious failure to diligently search for responsive documents in alternate locations until well after the eleventh hour, in the wake of the initial hearing on the motion for sanctions for spoliation.
The plaintiffs motion to compel was based on many mistakes and failures to produce various categories of ESI requested. Judge Laporte’s lengthy opinion considers many of them. One that sheds light on our disrespect and miscommunication theme here concerns plaintiffs requests for production of “reports showing how the websites were used and the content of Defendants’ databases.” Defendants attorneys first took the position “that it would be impossible to retain all reports because of space limitations.” For that reason, Defendants said they could only produce report templates. Obviously defense counsel here was just repeating what IT told them.
The lawyers were told wrong. IT gave them this song and dance, I suppose, thinking that they could get away with it, that they could use a bit of double-talk about space limitations to avoid the time and trouble of actually searching for the reports. After all, lawyers are all computer illiterate. We can tell them anything and they will never know the difference. As a result of this all-too-common tactic by IT, the lawyers were made to look like liars when the plaintiffs’ attorneys did not take “no” for an answer. They kept pressing the issue, taking depositions, hiring IT experts of their own, filing motions to compel, all culminating in an evidentiary hearing on a motion for sanctions.
The next position the lawyers took on the requested reports, again obviously at the urging of IT techs behind the scenes, was that the program “does not generate many types of reports.” Then at the evidentiary hearing, where the engineers were obviously present and advising the lawyers on what to say, the poor defense counsel was questioned by an obviously frustrated Judge Laporte. Defense counsel does his best to respond to the judge, but is obviously in deep waters, way over his head. It does not turn out well. Here is Judge Laporte’s description of what happened:
Then, at the March 18, 2008 hearing on the motions for sanctions, in response to the Court’s questioning, Defendants’ counsel told the Court that Defendants do not store reports, but only permit users to make ephemeral queries and do not store the responses. In other words, Defendants did not keep any reports in the normal course of business, so nothing could have been lost or destroyed that should have been kept. Counsel concluded that:
Nothing’s been destroyed. Move doesn’t capture those reports that you are seeing; some other user does it. Just like you would, when you do a search on Google or Lexis. . . . We don’t get a copy of when a — when a Realtor runs a query such as those, a copy goes into some files at Move. It’s not been destroyed.
Mar. 18, 2008 Tr. at 26:10-20 (emphasis added). This representation to the Court was false.
Ethics 101 – Thou Shalt Not Lie
Ouch, that hurts. That is not the kind of thing you ever want to read as a lawyer about yourself, that you made a false representation to the judge. This is not just a minor bad form error. It is a significant ethical violation:
Model Rules of Professional Conduct, Advocate – Rule 3.3 – Candor Toward The Tribunal
(a) A lawyer shall not knowingly:
(1) make a false statement of fact or law to a tribunal or fail to correct a false statement of material fact or law previously made to the tribunal by the lawyer; . . .
(3) offer evidence that the lawyer knows to be false. . . .
If misrepresentations to the Court do not lead to outright BAR discipline, it will certainly ruin your reputation with the Bench. Once that is lost, if you are a litigator, you might as well pack your bags and go home. In trial work, reputation and credibility are everything.
Looks like the defense lawyer here was hung up and set out to dry by his IT clients. The judge found his whole story to be false, a tale obviously fabricated by the IT witnesses who were “helping the lawyers” behind the scenes. Judge Laporte may have suspected as much during the hearing, but she found out for sure a few weeks later.
At the end of the hearing Judge Laporte told defendants that sanctions would be imposed against them, possibly including a final judgment. Then, just two weeks after this hearing and representation as to no-reports, the defendants in fact produced over 480,000 reports! No wonder Judge Laporte took the rare step of publicly chastising defense counsel in a written opinion.
Where Is The Source Code?
In a software patent case like this, the most important evidence is usually the source code. Naturally, this is exactly what the engineers here did not bother to properly preserve and produce. Again, the lawyers took the fall for it. Judge Laporte said they should have done a better job of notifying and reminding the software coders of their duty to keep old versions of the code. I disagree. In my view, sending more notices would have been about as effective as a cardboard sword against a dragon. Still, here is the way Judge Laporte saw it:
Defendants had a duty to notify and periodically remind technical personnel of Defendants’ preservation obligation and ensure that they took adequate steps to safeguard the data. At a minimum, Defendants were reckless in their conduct regarding the Development Computer. Had Defendants imposed a proper litigation hold in this case, the evidence on the Development Computer, in particular, the log of changes to the websites’ source code, would have been preserved. Instead, evidence of prior versions of source code was destroyed.
The facts of source code spoliation came out at the sanctions hearing, the one which ended so poorly for defendants as previously noted. Then, after losing the hearing, when the whole case is on the line, another IT miracle happens. Old versions of the source code suddenly begin manifesting. Defendants started producing source code like crazy, thinking, I suppose, that this way they could avoid sanctions, or at least prevent an outright loss of the case. Here is how it all appeared to Judge Laporte:
It appears that only after the Court held a hearing on the motion for sanctions and indicated that sanctions may be appropriate, and fifteen months after the Court’s express order to produce all versions of source code, did Defendants make any real effort to fulfill their discovery obligations to search for and gather source code.
Here is the story the defendants came up with to explain the sudden, unexpected production of millions of lines of source code. A few days after the hearing one of the senior engineers:
[H]ad a resurgence of memory “some weeks ago” when he recalled that his work computer’s hard drive, which likely contained copies of pre-pour-over source code, had crashed at some unspecified time and that he had stored the crashed hard drive at his home. See Declaration of Philip Dawley in Support of Defs.’ Supp. Memo. re: Spoliation Remedy at ¶ 18-20. Engineers were able to reconstruct source code files from that hard drive.
Still more source code was found by simply asking one of the engineers in charge of the code project. What a brilliant idea! Funny they had never thought of that before. When the lawyers finally did talk to the engineer in charge of a key code-migration project, and she understood the company might be shut down for a patent violation, she remembered that she had made an archive copy on her own. She kept it on a DVD in a drawer in her cubicle at work. That is exactly the kind of thing techs do all the time (so do I), which is why these reclusive coders must be located and personally questioned when their ESI is first requested, not years later when a judge is ready to dismiss your case.
The court reacted to this by saying it was “frankly shocked” that the engineer had not been questioned earlier and the code produced long ago. There were even more productions and source code findings after that, but the story grows redundant at this point, and I yearn for a good lunch menu to read.
The “Better Late Than Never” Defense
Defendants responded somewhat apologetically, but basically said “no harm, no foul,” we have now produced the code, so there is no need for sanctions. The “better late than never” defense did keep the case from the ultimate sanction of a default judgment, but they did not escape the adverse inference and the monetary sanctions. Here is Judge Laporte’s response:
The fact that Defendants have flagrantly disregarded their discovery obligations with respect to reports and source code calls out for sanctions. … Defendants engaged in reckless and egregious discovery misconduct as described above. …
The facts — specifically that Defendants have no written document retention policy nor was there a specific litigation hold put in place, that at least some evidence was destroyed when the Development Computer failed, that Defendants made material misrepresentations to the Court and Plaintiffs regarding the existence of reports, and that Defendants have produced an avalanche of responsive documents and electronically stored information only after the Court informed the parties that sanctions were appropriate — show a level of reckless disregard for their discovery obligation and for candor and accuracy before the Court sufficient to warrant severe monetary and evidentiary sanctions.
Defendants’ reckless conduct not only warrants sanctions under Rule 37, which does not have a bad faith requirement, but also warrants sanctions under the Court’s inherent power. Specifically, Defendants’ pattern of deceptive conduct and malfeasance in connection with discovery and production of documents under this Court’s order and reckless and frivolous misrepresentations to the Court amounts to bad faith for purposes of sanctions under the Court’s inherent power. Defendants’ conduct was not inadvertent or beyond their control or merely negligent; to the contrary, Defendants did not even come close to making reasonable efforts to carry out their preservation and other discovery obligations and to determine that their representations to the Court and to opposing counsel were accurate. As a whole, Defendants’ discovery misconduct in this case was both reckless and frivolous. See, e.g., Fink, 239 F.3d at 994. …
However, because there is no evidence that Defendants engaged in deliberate spoliation, and dismissal is the most extreme sanction and would go beyond what is necessary to cure the prejudice to Plaintiffs, the Court does not recommend terminating sanctions."
And Now A Word From The Sponsor Of This Blog . . .
What One Can Learn From This Case:
1. Destroying evidence and lying to Federal Judges happens all the time and lawyers cover their butts for each other while the clients pay the lawyers for this outrageous conduct. I called these people out for their actions and then witnessed the integrity of Judge Elizabeth Laporte and Judge Susan Illston. Their actions are permanently on the record and their integrity is indentical to the National Association of Realtors [NAR] and the National Association of Home Builders [NAHB] and Move.com (formerly known as Homestore - just "Google" for the details - they had to change their name their reputation was so bad. Move has 10 of their former executives in Federal Prison System and Stuart Wolff is being re-tried (at Taxpayer expense since the Federal Judge in that case didn't recuse himself when he owned stock in Homestore) for his crimes. That's 10 people in jail out of 11 years of their existence. Wolff makes it to jail this year, they're batting 1000. There's an old saying, "How you do anything is how you do everything."
The Moral Of The Story:
If you're going to fight "City Hall", just construct your own while others put pacemakers in dinosaurs.
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