Tag: Litigation

Caution: Discussions between Counsel and Client during a Deposition May Not Be Privileged

Recently posted at the National Law Review by Sills Cummis & Gross –  conversations during a deposition break appear to be fair game for questioning and are not considered privileged according to a recent case in federal court in New Jersey.  

The morning session of the deposition could not have gone better. Defense counsel has not asked too many tough questions and both plaintiff and her counsel are pleased with her answers – except for one. During the lunch break, after discussing their respective plans for the upcoming holiday weekend, plaintiff asks her counsel about one of her answers. She is troubled that, upon reflection, her answer may not have been entirely accurate. Counsel’s immediate response is to assure plaintiff not to worry. His next instinct is to talk through the question and answer with his client to determine whether a clarification is necessary. But, should he? He sees no reason not to do so, as he firmly believes such discussion is within the attorney-client privilege. It is also necessary, not to coach the witness, but to ensure an accurate record. So, counsel and client discuss the answer in detail and determine that plaintiff’s response is, in fact, misleading. Following the lunch break, plaintiff’s counsel interrupts defense counsel’s first question and informs him that plaintiff wishes to amend one of her prior answers. Upon hearing the “new” answer, defense counsel asks plaintiff to describe, in detail, her discussions with her counsel during the lunch break. Plaintiff’s counsel jumps out of his seat, objects and directs his client not to answer on privilege grounds. Does plaintiff have to disclose the subject of her lunchtime conversation with her counsel or is it privileged? In the federal court in New Jersey, such conversations during a deposition break appear to be fair game for questioning and are not considered privileged.

This issue recently arose in Chassen v. Fidelity Nat’l Fin., Inc., Civ. Action No. 09-291 (D.N.J. July 21, 2010) (“Letter Order”). There, Magistrate Judge Salas determined that communications between client and counsel during a break in a deposition are not privileged and may be explored during the deposition, unless the discussion involves issues of privilege. According to Magistrate Judge Salas:

“Defendants have a right to explore whether the discussions counsel had with the Plaintiff during the recess may have influenced her testimony, thus interfering with the fact-finding goal of the deposition process.” Id. at 2. In a Memorandum and Order filed on January 13, 2011, Judge Sheridan agreed.

The Federal Rules of Civil Procedure do not directly address this issue. Fed. R. Civ. Pro. 30(c)(1) provides that deposition testimony should proceed as if it were trial testimony. Thus, the court in Hall v. Clifton Precision, 150 F.R.D. 525 (E.D. Pa. 1993), a case relied upon extensively by Magistrate Judge Salas, found that counsel may not consult with a client at any time after the start of the deposition. “‘During a civil trial, a witness and his … lawyer are not permitted to confer at their pleasure during the witness’s testimony … The same is true at deposition.’” Letter Order, at 1, quoting Hall, 150 F.R.D. at 528.

In Chassen, Deborah Hoffman, a proposed class representative, testified at deposition that she would not be available to attend the trial in the matter because of work. As a proposed class representative, Mrs. Hoffman’s availability to appear at the trial was relevant to her suitability to represent the class. A few moments later, the parties took a break so that the videographer could change tapes. When the deposition resumed, defense counsel asked Mrs. Hoffman, “[d]id you discuss your testimony you gave this morning with your lawyers during the break?” She responded, “Yes.” Defense counsel next asked Mrs. Hoffman to describe the discussion, which drew an objection from plaintiff’s counsel and a direction not to answer. During a brief colloquy, plaintiff’s counsel argued that, “[t]here was no question outstanding when we took the break, and counsel is allowed to consult with [a client] during a break in deposition,” under those circumstances. During another colloquy later in the deposition, plaintiff’s counsel admitted that, “I disclosed my mental impressions and opinions about her testimony” during the break. After defense counsel concluded his questioning, plaintiff’s counsel then asked several questions regarding Mrs. Hoffman’s availability to testify at trial. This time, under questioning by her counsel, Mrs. Hoffman testified that she could attend the trial as required.

Following the deposition, defense counsel filed an application with Magistrate Judge Salas seeking an order permitting defendants to question Mrs. Hoffman about her discussion with her counsel during the break in the deposition. Magistrate Judge Salas held that “counsel and witness are prohibited from engaging in private, off-the-record conferences during any breaks in a deposition, except for the purpose of deciding whether to assert a privilege.” Letter Order, at 1. If such conferences occur, the attorney taking the deposition is entitled to “inquire about the specific content of those communications to ascertain whether any witness-coaching has occurred.” Id. at 1-2; see also Hall, 150 F.R.D. at 532.

In plaintiff’s brief opposing defendants’ application, counsel argued that Hall is not controlling and, in fact, has been subject to much disagreement in other districts. Magistrate Judge Salas rejected plaintiff’s argument, finding that Hall was adopted by the District of New Jersey in Ngai v. Old Navy, Civil Action No. 07-5653, 2009 U.S. Dist. LEXIS 67117 (D.N.J. July 31, 2009). In Ngai, Magistrate Judge Shwartz, relying on Hall, found that text messages exchanged during a deposition between defense counsel and the deponent, who were in different locations, violated Fed. R. Civ. Pro. 30 and were not protected by the attorney-client privilege. Applying Hall, Magistrate Judge Salas held that “Defendants will be permitted to question Mrs. Hoffman about the communications between her and counsel during the break where Mrs. Hoffman admitted she spoke to counsel about her testimony.” Letter Order, at 2.

Plaintiff appealed the decision to Judge Sheridan who focused on two competing issues: (1) “whether the attorney impermissibly ‘coached’ Ms. Hoffman skewing the truthfulness of her testimony”; and (2) “whether such an attorney-client communication is privileged, and should remain confidential despite the coaching (if any).” Memorandum/Order at 1. In attempting to resolve these potentially conflicting positions, Judge Sheridan offered to hold an in camera hearing with plaintiff and her counsel to determine whether the discussions during the deposition were protected by the attorney-client privilege. After both parties rejected this suggestion, Judge Sheridan affirmed Magistrate Judge Salas’s decision and ordered Mrs. Hoffman to be deposed regarding her intra-deposition discussion with her counsel.

Unlike the Federal Rules of Civil Procedure, the New Jersey Court Rules directly address this issue, at least in part. The Court Rules expressly forbid a lawyer from consulting with a client “during the course of the deposition while testimony is being taken” except with regard to issues involving (a) privilege; (b) confidentiality; or (c) a limitation created by a previous order of the court. R. 4:14-3(f). There is some debate, however, as to the scope of the phrase “while testimony is being taken” and whether it is intended to extend the prohibition to breaks during the deposition. The comment to the Court Rule takes the position that the Rule applies only in the deposition room and “clearly does not address consultation during overnight, lunch, and other breaks.” Id., comment 6. However, in In re PSE&G Shareholder Lit., 320 N.J. Super. 112, 116-118 (Ch. Div. 1998), the court, after citing to the comment to the Rule, nevertheless imposed an order prohibiting consultation between lawyers and clients during deposition breaks.

In practice, an attorney defending a deposition needs to be aware that any discussions he/she has with a client during a break may not be privileged. Both the Chassen decision and R. 4:14-3(f) permit counsel to discuss with a client during a deposition issues pertaining to privilege (i.e., whether particular questions implicate privileged communications). However, a witness may be required to testify regarding any other substantive discussions with counsel during a break in the deposition. This is particularly true in cases pending in New Jersey federal court in light of the Chassen decision. Following Chassen, attorneys who discuss substantive matters with a client during a deposition break does so at their peril.

This Alert has been prepared by Sills Cummis & Gross P.C. for informational purposes only and does not constitute advertising or solicitation and should not be used or taken as legal advice. Those seeking legal advice should contact a member of the Firm or legal counsel licensed in their state. Transmission of this information is not intended to create, and receipt does not constitute, an attorney-client relationship. Confidential information should not be sent to Sills Cummis & Gross without first communicating directly with a member of the Firm about establishing an attorney-client relationship.

© Copyright 2011 Sills Cummis & Gross P.C.

 

Wisconsin Tort Reform 2011: Governor signed the Omnibus Tort Reform Act

As posted on the National Law Review by Joseph Louis Olson and Adam E. Witkov of Michael Best & Friedrich LLP – implications of the Wisconsin Omnibus Tort Reform Act signed into law today by Wisconsin Governor Scott Walker:  

Governor Scott Walker signed the OmnibusTort Reform Act (the “Act”) today, January 27, 2011.  The Act addresses several areas of interest for Wisconsin companies.

Specifically, the Act:

Limits Punitive Damages.

  • Punitive damages are capped at to $200,000 or double the amount of compensatory damages, whichever is higher. The cap does not apply to lawsuits related to operating a motor vehicle while intoxicated.

Raises the Standards for Expert Testimony.

  • This Act adopts the standard set forth in Federal Rule of Evidence 702, also known as the “Daubert standard.” The Daubert standard allows the admission of expert testimony only if it is based on sufficient factors or data and is the product of reliable principles and methods.

Limits the Application of the Risk Contribution Theory.

  • This provision is a response to the Wisconsin Supreme Court’s 2005 decision in Thomas v. Mallett, 2005 WI 129, 285 Wis. 2d 236, 701 N.W.2d 523, where the Court permitted a case to proceed against seven paint manufacturers despite the fact that the plaintiff could not prove who made the lead-based paints that he claimed poisoned him as a child. The Act limits the holding in Thomas. If the claimant can not identify the specific product that allegedly caused the injury, a manufacturer, distributor, seller, or promoter of a product may be held liable only if all of the following apply: (1) the claimant proves: (a) no other lawful process exists for the claimant to seek any redress from any other person for the injury or harm; (b) that the claimant has suffered an injury or harm that can be caused only by a manufactured product chemically and physically identical to the specific product that allegedly caused the claimant’s injury or harm; and (c) that the manufacturer, distributor, seller, or promoter of a product manufactured, distributed, sold, or promoted a complete integrated product, in the form used by the claimant or to which the claimant was exposed, and that meets all of the following criteria: (i) is chemically and physically identical to the specific product that allegedly caused the claimant’s injury or harm; (ii) was manufactured, distributed, sold, or promoted in the geographic market where the injury or harm is alleged to have occurred during the time period in which the specific product that allegedly caused the claimant’s injury or harm was manufactured, distributed, sold, or promoted; and (iii) was distributed or sold without labeling or any distinctive characteristic that identified the manufacturer, distributor, seller, or promoter; and (2) the action names, as defendants, those manufacturers of a product who collectively manufactured at least 80 percent of all products sold in this state during the relevant production period by all manufacturers of the product in existence during the relevant production period that are chemically identical to the specific product that allegedly caused the claimant’s injury or harm.

Limits Strict Product Liability Claims.

  • Under the Act, Wisconsin is now in line with the majority of other states that have adopted the “reasonable alternative design” test instead of the broader “consumer expectation” test. Accordingly, a manufacturer will be liable for damages caused by the manufacturer’s product based on a claim of strict liability only if the injured claimant proves that the product was defective, the defective condition made the product unreasonably dangerous, the defective condition existed at the time the product left the control of the manufacturer, the product reached the user or consumer without substantial change, and the defective condition caused the claimant’s injuries. If the injured party’s percentage of total causal responsibility for the injury is greater than the percentage resulting from the defective condition of the product, the injured party may not, based on the defect in the product, recover damages from the manufacturer, distributor, seller, or any other person responsible for placing the product in the stream of commerce. If the injured party’s percentage of total causal responsibility for the injury is equal to or less than the percentage resulting from the defective condition of the product, the injured party may recover but the damages recovered by the injured party shall be diminished by the percentage attributed to that injured party.

Toughens State Rules Relating to Damages for Frivolous Claims.

  • In civil cases, a party or his or her attorney may be liable for costs and fees for actions that are done (1) in bad faith, solely for the purpose of harassing or maliciously injuring another; or (2) was without a reasonable basis in the law. If the offending party withdraws or corrects the improper conduct within 21 days of receiving the other party’s motion for fees, the court can decide whether to award actual costs taking into consideration the offending party’s mitigating conduct. If the offending party does not timely withdraw or correct the conduct, actual costs shall be awarded. If the decision is appealed and the appellate court affirms the award of fees, the offending party must also pay the attorney fees incurred in the appeal.  

In addition to the tort reform provisions outlined above, the Act includes several health care related provisions previously discussed in a client alert dated January 10, 2011, also available here.

© MICHAEL BEST & FRIEDRICH LLP

Create Your Own Arbitration Provision: Two Recent Supreme Court Decisions Emphasize That Parties Have the Freedom to Define the Nature and Scope of Their Agreement to Arbitrate

Posted recently on the National Law Review by Damian V. Santomauro and Jennifer Marino Thibodaux of Gibbon PC – great analysis of the US Supreme Court’s recent interpretation of arbitration agreements: 

Arbitration provisions are a common component of a wide array of contracts, including many commercial and consumer agreements.  Recently, the Supreme Court of the United States issued two opinions addressing the enforceability of arbitration clauses that require businesses incorporating such clauses into their consumer agreements to re-evaluate how they are drafted and for those businesses that do not utilize such clauses in their agreements to reconsider whether to do so.  First, in Stolt-Nielsen S.A. v. AnimalFeeds International Corp.(“Stolt-Nielsen”), 130 S. Ct. 1758 (2010), the Court held that consent to class arbitration cannot be assumed based upon the parties’ general agreement to arbitrate and that a court cannot compel class arbitration where the arbitration clause is silent as to class arbitration.  Second, in Rent-A-Center, West, Inc. v. Jackson (“Rent-A-Center”), 130 S.Ct. 1758 (2010), the Court held that a party’s challenge to the validity of an arbitration agreement must be resolved by an arbitrator, not the District Court, where the agreement contains a provision delegating such issues to an arbitrator.  Taken together, these opinions (in both of which Justices Alito, Kennedy, Roberts, Scalia, and Thomas were in the majority) demonstrate that the direction of the current Court is to respect the language the parties used in their arbitration clauses, with a corollary emphasis on the underlying principle of parties’ freedom to contract.

The Stolt-Nielsen Decision

In Stolt-Nielsen, the Court considered a relatively straight-forward dispute among commercial parties regarding the propriety of ordering class arbitration where the parties’ arbitration provision was silent on the issue.  Specifically, the plaintiff, a supplier of raw ingredients utilized in animal fees, filed a demand for class arbitration seeking to represent a class of customers that had purchased transportation services from the defendant shipping companies.  130 S.Ct. at 1764-65.  The parties agreed that their dispute was subject to arbitration, but disagreed as to whether it could be arbitrated on a class-wide basis.  Ultimately, the parties agreed that an arbitration panel would decide whether class arbitration was appropriate in light of their arbitration agreement, which the parties stipulated was “silent” regarding class arbitration.  Id. at 1765.  When the arbitration panel determined that class arbitration could proceed under the arbitration clause because the parties’ evidence did not show an intent to preclude class arbitration, the shipping companies filed an application to vacate the arbitrators’ award.  Id. at 1766.  The District Court for the Southern District of New York vacated the award on the grounds that federal maritime law (and its emphasis on custom and usage) should have governed the issue, but the Court of Appeals for the Second Circuit reversed.  Id. at 1766-67.

On appeal, the Supreme Court, in a five to three decision (with Justice Sotomayor abstaining), reversed and held that the decision of the arbitration panel must be vacated pursuant to Section 10(a)(4) of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1, et seq., because the panel exceeded its powers by imposing its own views with respect to the policy of class arbitration in lieu of what the parties actually agreed to.  Id. at 1767-68.  Specifically, the Court concluded that the panel had failed to identify any rule of decision from the FAA, maritime law, or New York law that addressed the question of class arbitration where the parties’ contract was silent on the issue and, instead, simply based its decision on its own policy choice.  Id. at 1770.

In ascertaining the appropriate law to apply to the dispute, the Court held that “a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.”  Id. at 1775 (emphasis in original).  The Court emphasized that, although interpretation of arbitration provisions is generally an issue of state law, the FAA imposes certain rules that must be considered, including that arbitration is principally an issue of consent.  Id. at 1773.  Noting that parties have the freedom to draft their arbitration provisions in accordance with their own preferences, including (1) the issues they want to arbitrate; (2) the rules under which an arbitration will occur; and (3) who will arbitrate the dispute, the Court said that in analyzing the nature and scope of an arbitration provision, courts and arbitrators must “give effect to the intent of the parties.”  Id. at 1774-75.

Although the Court could have remanded to the Court of Appeals for a rehearing in accordance with these principles, it elected to resolve the issue of class arbitration itself because, in light of the parties’ stipulation that the arbitration provision was silent, the Court determined that there was only one permissible outcome.  Id. Specifically, because the parties had stipulated that they had not reached an agreement on class arbitration, there was no basis to conclude that the parties had consented to arbitration on a class wide basis.  Id. at 1775.  Moreover, because of the significant differences between bilateral arbitration and class arbitration, the Court ruled that “[a]n implicit agreement to authorize class-action arbitration . . . is not a term that the arbitrator may infer solely from the fact of the parties’ agreement to arbitrate.”  Thus, the parties’ silence on the issue could not be presumed to confer consent to class arbitration.  Id. As a result, the Court held that because the parties had not expressly agreed on class arbitration, the parties could not be compelled to submit their dispute to class arbitration.

The Rent-A-Center Decision

The Rent-A-Centerdecision involved a dispute as to whether the court or the arbitrator decides the issue of whether the arbitration agreement is unconscionable.  In this case, the plaintiff employee sued his employer, Rent-A-Center, in the United States District Court for the District of Nevada, alleging employment discrimination.  130 S.Ct. at 2775.  The plaintiff had signed an arbitration agreement that expressly provided for arbitration of claims of discrimination and contained a provision that expressly delegated to the “[a]rbitrator, and not any federal, state, or local court or agency, [] the exclusive authority to resolve any dispute relating to the interpretation, applicability enforceability, or formation of the” arbitration agreement.  Based on the arbitration agreement, Rent-A-Center moved to dismiss or stay the proceedings under the FAA and to compel arbitration.  In opposition, the plaintiff employee argued that the arbitration agreement was unenforceable on the grounds of unconscionability.  Id.

The District Court granted Rent-A-Center’s motion to dismiss and to compel arbitration, finding that the “delegation clause” in the arbitration agreement, which provided that the arbitrator had the exclusive authority to resolve all disputes regarding the agreement, governed because the plaintiff was challenging the arbitration as a whole.  Id. at 2775-76.  On appeal, the Court of Appeals for the Ninth Circuit reversed on the question of whether the court or the arbitrator had the authority to determine whether the agreement was enforceable, concluding that where a party asserts that an arbitration agreement is unconscionable that threshold inquiry is for the court to decide regardless of what the agreement provides.  Id. at 2776.

On appeal, the Supreme Court, in a five to three decision (with the same five Justices in the majority as were in the majority in Stolt-Nielsen) reversed, holding that the question of the validity of the subject arbitration agreement was reserved for the arbitrator by the delegation clause.  Id. at 2779.  The Court’s opinion focused on the FAA’s recognition of “the fundamental principle that arbitration is a matter of contract” and noted that “the FAA [] places arbitration agreements on an equal footing with other contracts.”  Id. at 2776.  As a result, the Court stated that the delegation provision governed the dispute unless it was otherwise unenforceable pursuant to Section 2 of the FAA, which provides that arbitration provisions “shall be valid irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”  9 U.S.C. § 2.

In analyzing the enforceability of the delegation provision, the Court noted that there are two ways to challenge the validity of an arbitration provision under Section 2 of the FAA: (1) to challenge the validity of the specific arbitration provision at issue, or (2) to challenge the entire contract as a whole.  130 S.Ct. at 2778.  As the Court explained, only the former challenge implicates a court’s involvement because Section 2 of the FAA provides that a “written provision” to arbitrate is valid — without regard to the validity of the entire contract in which the provision is contained.  Thus, a party’s challenge to the entire contract does not preclude a court from enforcing a specific agreement to arbitrate, which is severable from the contract.  Id. In other words, only if a party challenges the validity of the specific arbitration provision, rather than the validity of the entire contract, is the inquiry one for the court.  Id.

Although the subject contract in this case was an arbitration agreement, the Court concluded, in the face of a strongly worded dissent, that was not a distinction with any significance, stating “[a]pplication of the severability rule does not depend on the substance of the remainder of the contract.”  Id. In this case, the plaintiffs unconscionability challenges (i.e. that the arbitration agreement was one-sided in that it only applied to claims of an employee and that the arbitration procedures called for by the arbitration agreement, including fee-splitting and limitations on discovery, were unconscionable) were all directed at the arbitration agreement as a whole.  Thus, because the plaintiff only challenged the validity of the contract as a whole (i.e. the arbitration agreement) and the not the specific arbitration provision at issue (i.e. the delegation provision in the arbitration agreement), the majority held that the delegation provision was enforceable under the FAA and the issue of the enforceability of the arbitration agreement was one that was within the exclusive authority of the arbitrator.  Id.

Analysis

Arbitration can, under certain circumstances, be a less expensive and more efficient forum in which to resolve disputes than traditional litigation.  The Stolt-Nielsen and Rent-A-Center decisions provide parties with the ability to craft arbitration provisions with clearly defined parameters, and potentially allow parties to more readily ensure that their disputes are addressed in arbitration.

As an initial matter, the Rent-A-Center decision enables parties to exert greater control over the forum in which issues relating to their arbitration agreement are resolved.  Specifically, parties can draft arbitration agreements limiting a court’s involvement in any subsequent dispute regarding the arbitration agreement by including a delegation clause in the agreement that expressly requires that all disputes regarding the arbitration agreement, including those that challenge the enforceability of the arbitration agreement, will be decided by the arbitrator rather than a court (conversely, parties may draft a delegation provision that requires the court to resolve such disputes, although the use of such provisions is unlikely given that the parties have agreed to arbitrate the underlying dispute).  In such an agreement, only challenges specifically directed to the validity of the delegation clause could be heard by a court, while challenges to the arbitration agreement as a whole would be addressed by the arbitrator.  Thus, the practical effect of theRent-A-Center decision is that disputes between parties with arbitration agreements containing such delegation clauses are more likely to be arbitrated than in the past.  That is, because a delegation clause referring disputes regarding the arbitration agreement to arbitration is generally more difficult to invalidate in court than an arbitration agreement as a whole, 130 S.Ct. at 2778 andRent-A-Center provides that the court can only consider the former, arbitration should now be easier to successfully invoke in that (1) opposing parties will be less likely to resist referral to arbitration and/or (2) courts will be more likely to refer the dispute to arbitration because of the limitations imposed by Rent-A-Center on their authority to invalidate arbitration agreements.

While the Rent-A-Center decision related to a delegation provision in a stand-alone arbitration agreement, the Court’s holding should be equally applicable where the delegation clause is contained in an arbitration provision that is part of a larger contract.  Indeed, as the dissent noted in Rent-A-Center, “the written arbitration agreement [was] but one part of a broader employment agreement between the parties.”  Id. at 2782.  Until further clarification is provided by District Courts or Circuit Courts of Appeal, however, it may be prudent for businesses to utilize arbitration agreements (containing the appropriate delegation clause) that are separate from, but still applicable to, the underlying contract.

The Stolt-Nielsen decision enables parties to more readily control the forum in which class claims will be resolved.  That is, unless the parties specifically agree to arbitrate class claims, an agreement to arbitrate does not compel arbitration of class claims.  This decision, thus, provides significant protection for parties that want to arbitrate individual claims, but ensure that any class claims are litigated in the courts.  Although the decision in Stolt-Nielsen provides that silence on the issue of class arbitration does not equal consent, the preferred practice is for business to expressly include provisions in their arbitration agreements that the parties do not consent to class arbitration.

In addition, Stolt-Nielsen calls into question those decisions in which courts have held that class arbitration waivers are unconscionable and unenforceable, severed such waivers from the arbitration provision, and compelled arbitration of all claims, including class claims.  If silence cannot be construed as consent to class arbitration, then arbitration provision containing a class arbitration waiver, even if that waiver is determined to be unenforceable, should not be construed as consent to class arbitration.  Nevertheless, business can avoid any ambiguity on the issue by expressly stating that (1) the class arbitration waiver is not severable from the arbitration agreement and (2) if a court or other authority determines that the class action waiver is unenforceable, then the parties do not consent to arbitration of any class claims.

Finally, it is important to note that the Supreme Court’s grant of certiori in AT&T Mobility LLC v. Concepcion, 130 S.Ct. 3322 (May 24, 2010) has the potential to drastically alter the nature and scope of enforceable arbitration provisions and significantly increase the use of such provisions, particularly in consumer contracts.  In this case, the Court of Appeals for the Ninth Circuit held that the FAA did not expressly or impliedly preempt California state law regarding the unconscionability of class arbitration waivers in the arbitration agreements.  Laster v. AT&T Mobility LLC, 584 F.3d 849 (9th Cir. 2009).  That the Supreme Court granted certiori suggests, particularly in light of the Stolt-Nielsen and Rent-A-Center cases, the potential that the Court may conclude that the FAA — and not state law — governs the issue of the enforceability of class action waivers and that such waivers are enforceable.  If that were to occur, then such a decision could, depending upon the nature and scope of the Court’s decision, enable businesses to potentially insulate themselves from class actions in either the courts or arbitration proceedings through the utilization of arbitration agreements contain class arbitration waivers (i.e. an enforceable agreement that refers the parties to arbitration to resolve any dispute relating to the agreement, but expressly provides that such disputes may not be arbitrated on a class-wide basis).

Conclusion

The Supreme Court’s decisions in Stolt-Nielsen and Rent-A-Center evidence the significance of the FAA and signal that the Court, as currently constituted, is likely to enforce the terms of arbitration provisions in parties’ agreements as written.  Thus, even in circumstances that may be susceptible to concern as to whether the parties really had a “freedom to contract,” parties will more likely be bound by the terms of their written arbitration agreements, and there is a significant likelihood that these decisions will result in the federal courts referring more litigation to arbitration where the parties’ agreements so provide.  The Court’s pending decision in Concepcion promises to provide further direction from the Court regarding the scope of the FAA and, when the Court issues this decision, businesses and parties to contracts should further assess their use of arbitration provisions and the validity and enforceability of the language they include in such provisions.

© 2010 Gibbons P.C., All Rights Reserved.

Should Jurors Use the Internet?

The National Law Review would like to congratulate Gareth Lacy of the University of Washington School of Law as one of our Fall 2010 Law Student Legal Writing Contest Winners! 

During trials jurors are increasingly using cell phones and other devices capable of accessing the Internet. Courts are responding by amending court rules to explicitly ban these devices. This Article points out problems with these new court rules. This Article also reviews scientific literature on the effect of pre-trial publicity on jury decision-making to conclude some concerns about outside Internet research may be unwarranted. This Article exposes weaknesses in the arguments against allowing jurors to conduct outside Internet research.

Introduction

“Jurors are rarely brilliant and rarely stupid, but they are treated as both at once.” – Judge Warren K. Urbom[i]

“When lawyers speak about courtroom technology, they are typically debating the merits of making their presentations in Powerpoint.”[ii]

2010 is the year of mobile Internet. One quarter of all Americans get news via their cell phones.[iii] Amazon’s Kindle e-reader allows readers to carry thousands of novels and access the Internet with a single notepad-sized device. As jurors bring these devices into the courtroom, they are causing quite a commotion. Last year several courts ordered mistrials after discovering jurors had accessed Wikipedia or became Facebook friends with their fellow jurors during trial.[iv] Following a case in Florida that ended in mistrial, counsel told the New York Times that courts have been unprepared for this new technology in the courthouse: “It’s the first time modern tech­nology struck us in that fashion, and it hit us right over the head.”[v]Now that 22 million U.S. cell phone users access the mobile Internet on a daily basis, courts must respond quickly and effect-tively.[vi]

This article will first explain why the recent response to increasing use of outside information—“just say no”—will be inadequate. Second, it will ques­tion the underlying assumption that access to outside information is always harmful. Third, it will argue that denying useful tools and information is unwise in the face of increasingly complex trials.

I. Judicial Response: “Just Say No”

Courts and commentators fear that access to the Internet could introduce bias into trial proceedings.[vii] The court rules and jury instructions are apparently designed to ensure jurors only consider evidence admitted at the appropriate time.[viii] But the underlying rationale for these rules is not made clear to jurors. Jurors are therefore likely to feel—rightly so—information is being hidden from them.

Courts have recently responded by drafting new jury instructions and admonitions. New York’s criminal jury instruction, for example, explains that basing opinions on news reports, rather than trial testimony, would be unfair to both parties:

Finally, our law requires that you not read or listen to any news accounts of the case, and that you not attempt to research any fact, issue, or law related to the case. Your decision must be based solely on the testimony and other evidence presented in this courtroom. It would not be fair to the parties for you to base your decision on some reporter’s view or opinion, or upon information you acquire outside the courtroom.[ix]

This is a slightly persuasive effort to explain the reasoning behind the court’s rule. An instruction in Oregon goes a bit further by explaining the rule in the context of everyday experience:

In our daily lives we may be used to looking for information on-line and to “Google” something as a matter of routine. Also, in a trial it can be very tempting for jurors to do their own research to make sure they are making the correct decision. You must resist that temptation for our system of justice to work as it should. I specifically instruct that you must decide the case only on the evidence received here in court.[x]

Again this instruction is better than nothing, but it still fails to explain why the “system of justice” requires restricting access to outside information. Any-thing short of transparent explanations will likely continue to feed jury—and public—mistrust for the legal system.

In February 2010, the U.S. Judicial Conference suggested jury instruc­tions on the use of “electronic communication technologies.[xi] The instruc­tions ban a laundry list of devices and resources—“blogs, websites such as Facebook, MySpace, LinkedIn, YouTube or Twitter, to communicate to anyone any information about this case or to conduct any research”—but fail to explain why jurors should not, for example, look up the definition of “lividity.”[xii] Again, if courts want to convince jurors not to “google” on their cell phones, they must give concrete explanations for the court rules.

Failure to explain the reason for a ban can create mistrust for the judicial system. A recent New York Times article on jurors’ use of the Internet gathered 300 comments in one hour,[xiii] some of which expressed belief in a “systemic effort to keep jurors from learning the truth . . . [in which] jurors, therefore, needed to dig deeper to uncover the truth.”[xiv] What can ease this mistrust? Clear and convincing explanations of judicial policies will help. Furthermore, giving jurors the tools and information in court that they need to make informed decisions in court will make them less likely to look out of court for answers.

II. Does Outside Research Really Bias Jurors?

After commentators raise concerns about jurors turning to extrinsic information, their most common recommendation is for courts to issue stronger admonitions to juries.[xv] Other suggestions include more vigorous voir dire or banning cell phones in the courthouse.[xvi] The problem with these recommen-dations is that courts are already doing most of these things. Juries are already told not to conduct outside research. Voir dire is about as vigorous as it can get.[xvii] Cell phone bans might help for one-day trials, but they will have no effect—and maybe even adverse effects—on multiday litiga­tion. In short, commentators have offered few new suggestions for how to respond to juries using the Internet.

The reason these suggestions have been minimal is because they contain an underlying assumption that external information biases jurors. This assumption therefore restricts the judiciary’s options; if external information is always harmful, cell phone and Internet policies should not be liberalized. One California legislator who adopts this view introduced a bill imposing criminal penalties on jurors who access the Internet.[xviii] This assumption behind the restrictive policies—that external information is always harmful—should be questioned.

Courts and commentators have generally not given balanced appraisals of the scientific research on the effect of outside information on jury decision-making.[xix]For example, a recent article on jury Internet usage states confi­dently: “[j]urors may feel their searching is harmless and will not bias them, something that research has demonstrated is untrue.”[xx] But has scientific research really demonstrated outside research is always harmful? Indeed some research suggests jurors are influenced by pretrial publicity or negative information.[xxi] But the majority of these studies were laboratory simulations, not field studies of actual jury behavior.[xxii]Moreover, a close examination of the scientific evidence reveals more nuanced data than most courts and commentators have acknowledged.[xxiii]

Researchers have found, for example, that in federal criminal cases “it does not appear that highly publicized defendants are treated much differently in terms of ultimate conviction rates than defendants who receive no publicity at all.”[xxiv]Moreover, it was low levels of publicity that resulted in greater probability of conviction.[xxv] Other research found evidence that pretrial publicity did not influence trials outcomes.[xxvi] These results suggest that courts ought to focus on the content and quantity of the information jurors receive, rather than on outright bans.

Researchers have also found that when juries learn substantial and contrary information from evidence and judicial instructions during trial, they are capable of displacing information received before trial.[xxvii] In other words, prior beliefs are diluted by new, relevant information.[xxviii] When trial evidence is strong, this can reduce the effect of bias and external information: “the effect of irrelevant, inadmissible, or biasing information is reduced in its effect to the degree that relevant, probative evidence is available for the jurors’ considera-tion.”[xxix] Again, this suggests that courts should manage the flow of information rather than make unrealistic efforts to weed out all juror expo­sure to the Internet.

III. Giving The Internet A Second Chance

“A major question is whether the protective cocoon we want to preserve of the courtroom trial, where jurors calmly and dispassionately receive only relevant and reliable information based on evidentiary rules . . . can viably be maintained in the face of the informational tsunami pressing against it.”[xxx]

For decades, various groups of judges and scholars have called for better tools in the courtroom. They have argued for engaging jurors in the legal process by providing trial notebooks summarizing key information, allowing jurors to take notes, granting access to dictionaries, and allowing jurors to ask questions.[xxxi]These calls for juror engagement have met with vocal approval but have led to few concrete changes.[xxxii]

Jurors are not going to stop looking at outside information. The best way to keep jurors away from Wikipedia would be to sequester them. But seques­tration is rarely practical on a large scale because it is prohibitively expensive and tends to promote mistrust for the jury system.[xxxiii] A more realistic response would be for attorneys and courts to conduct advance Internet research to identify what information about their case is available online, analyze that information, and then deal with it during trial. Another realistic response would be to give jurors the tools they need to make informed decisions in court so they do not need to conduct outside research.

Jurors want to know everything they can about a case so they can make informed decisions. But rather than promote the jury’s interest in Truth and Justice, courts tend to discourage curiosity and obscure information. For example, some courts still debate the “fairly recent innovation” of “allowing jurors to take notes during trial.”[xxxiv] Note-taking! And while some evidence shows judicial resistance to note-taking may be waning, individual judges still have the final say.

Juries were not always this sheltered. For four-hundred years after William the Conqueror’s reign, jurors were expected to investigate facts and “declare the truth” on the basis of personal knowledge.[xxxv] Even after sworn testimony became common in the sixteenth century, jurors were still permitted to ask questions. It was only when lawyers began to assert the func­tion of law-making and law-finding that “[t]struggle for control over the jury came to a head.”[xxxvi] Rules of evidence then emerged to limit the information available to juries and to control how the information was received.[xxxvii] Jury power was ultimately curbed by strong demands from bankers, merchants, and industrialists for a more predictable—and sympathetic—legal system.[xxxviii] As for the prohibition against note-taking? That arose at a time when most jurors were illiterate.[xxxix]

Today the legal profession may be justified in exercising caution in some circumstances, but it is absurd to continue many of these traditional prac­tices. Trials can involve hundreds of witnesses and thousands of exhibits. No juror can store all that information in his or her head. Even in shorter trials, jurors would be well-served by note-taking. Psychologists (and law students) have known for some time that the dual process of hearing and writing enhances retention.[xl] And lest there be any concern about the law: Trial judges are well within their authority to allow note-taking during trials.[xli]

In the early 1990s, one-hundred law professors, attorneys, judges, researchers, and representatives of business, insurance, and various interest groups met in North Carolina to consider the workings of the jury system and to recommend improvements. The participants did not agree about everything, but the overwhelming proportion strongly supported making jurors more active during trials:

Jurors need not and should not be merely passive listeners in trials, but instead should be given the tools to become more active participants in the search for just results. To that end, trial procedures and evidentiary rules should take greater advantage of modern methods of communica­tion and recognize modern understanding of how people learn and make decisions.[xlii]

Jurors want answers to their questions. Some judges have begun to allow jurors to submit questions to the court and to allow attorneys to provide answers. This is a good start. But courts are competing with pocket-sized encyclopedias inside every cell phone, so they will need to explain to juries exactly why the court rules exist. And of course lawyers must be permitted to deliver useful information to reduce the desire to turn to outside sources.

Conclusion

“Once a new technology rolls over you, if you’re not a part of the steam­roller, you’re part of the road.” – Stewart Brand

It is still quite fashionable to attack the jury system as moribund. Indeed jury participation is at an all-time low. Jurors report feeling unengaged. But it is not correct to blame the jury for the judicial system’s failures. Alexis de Tocqueville found a key purpose of the American jury was to be a “gratuitous public school” that empowers citizens with information about how to take charge of social affairs.[xliii] It is simply time to add some technology to this civics classroom. It is time to give jurors the tools they need to do their job.

 

[i]Warren K. Urbom, Toward Better Treatment of Jurors by Judges, 61 Neb. L. Rev. 409, 425 (1982).

[ii]Nancy S. Marder, Juries and Technology: Equipping Jurors for the Twenty-First Century, 66 Brook. L. Rev. 1257, 1273. (2001).

[iii] Kristen Purcell, et al., Understanding the Participatory News Consumer, Pew Research  Center 5 (Mar. 1, 2010), available at http://www.pewinternet.org/~/media//Files/Reports/ 2010/PIP_Understanding_the_Participatory_News_Consumer.pdf.

[iv]John Schwartz, As Jurors Turn to Web, Mistrials Are Popping Up, N.Y. Times, Mar. 18, 2009, available at http://www.floridasupremecourt.org/decisions/probin/sc10-51_AppendixD.pdf.

[v] Id.

[vi]Enid Burns, Mobile Internet Usage Becomes the Norm for Many in U.S., Search Engine Watch, Mar 17, 2009, http://searchenginewatch.com/3633213.

[vii]Hillary Hylton, Tweeting in the Jury Box: A Danger to Fair Trials?, Time, Dec. 29, 2009, http://www.time.com/time/nation/article/0,8599,1948971,00.html.

[viii]Evan Brown, Some thoughts on jurors doing internet research – keep the process clamped down,  Internet Cases, Jan. 2, 2010, http://blog.internetcases.com/2010/01/02/some-thoughts-on-jurors-doing-internet-research-keep-the-process-clamped-down/.

[ix] Jury Admonitions In Preliminary Instructions, May 5, 2009, www.nycourts.gov/cji/1-General/CJI2d.Jury_Admonitions.pdf.

[x]Gregory S. Hurley, Cell Phone Policies/Instructions for Jurors, Jur-E Bulletin, May 1, 2009, http://view.exacttarget.com/?j=fe4f1579726d04747313&m=ff3417737561&ls=fe03 13707667047d74147970&l=feee117976630d&s=fdf015757d6006757d127377&jb=ffcf14& ju=fe2116727c6d0778771377.

[xi]Proposed Model Jury Instructions The Use of Electronic Technology to Conduct Research on or Communicate about a Case (Jan. 28, 2010), http://www.wired.com/images_ blogs/threatlevel/2010/02/juryinstructions.pdf.

[xii]A Maryland appeals court threw out a first degree murder conviction after a juror, confused by the word “lividity” during a murder trial, looked up the term on Wikipedia. Del Quentin Wilber, Social networking among jurors is trying judges’ patience, Wash. Post, Jan. 9, 2010 at C01.

[xiii]John Schwartz, As Jurors Turn to Web, Mistrials Are Popping Up, N.Y. Times, Mar. 18, 2009, available at www.nytimes.com/2009/03/18/us/18juries.html.

[xiv]Douglas L. Keene & Rita R. Handrich, Online and Wired for Justice: Why Jurors Turn to the Internet, The Jury Expert 14 (Nov. 2009) http://www.astcweb.org/public/publication /article.cfm/1/21/6/Why-Jurors-Turn-to-the-Internet.

[xv]See,e.g., Ellen Brickman, et al., How Juror Internet Use Has Changed the American Jury Trial, 1 J. Ct. Innovation 297 (2008).

[xvi] See e.g., Anita Ramasastry, Why Courts Need to Ban Jurors’ Electronic Communications  Devices, Findlaw, Aug. 11, 2009, http://writ.news.findlaw.com/ramasastry/20090811.html.

[xvii]Ironically some commentators have recommended doing background checks on jurors by using the very resources, for example Facebook, they seek to ban.

[xviii]Paul Elias, Courts finally catching up to texting jurors, Associated Press, Mar. 6, 2010, http://abcnews.go.com/US/wireStory?id=10028507.

[xix]Ellen Brickman, et al., How Juror Internet Use Has Changed the American Jury Trial, 1 J. Ct. Innovation 287 (2008).

[xx]Id. (emphasis added).

[xxi]See Brickman, et al., supra, note 19, at 290 nn. 2-8 (citing Amy L. Otto et al., The Biasing Impact of Pretrial Publicity on Juror Judgments, 18 Law & Hum. Behav. 453 (1994)); Christina A. Studebaker & Steven D. Penrod, Pretrial Publicity: The Media, the Law, and Common Sense,
3 Pscyhol. Pub. Pol’y & L. 428 (1997); Studebaker, et al., Assessing pretrial publicity effects: Integrating content analytic results, 24 Law & Hum. Behav. 317 (2000); Neil Vidmar, Case Studies of Pre- and Midtrial Prejudice in Criminal and Civil Litigation,26 Law & Hum. Behav. 73 (2002). None of these studies offer full support for Brickman et al.’s assertion that research on pretrial publicity is definitive. Otto et al., found negative information about a defendant’s character can influence initial judgments about the defendant’s guilt, but this bias is weakened by trial evidence. Otto et al., supra, at 453. Studebaker and Penrod assessed pretrial publicity effects reported in previous studies, but did not offer new evidence; they merely “propose[] a multimethod research approach by which meditational mechanisms can be assessed.” Studebaker & Penrod, supra, at 428. Studebaker et al., did not study juries per se, but instead conducted a content analysis of media coverage of the Oklahoma City bombing. Studebaker et al.,supra, at 317. Vidmar points out deficiencies in research on prejudicial publicity and explains how courts have rejected research based on laboratory simulations rather than actual case studies. Vidmar, supra, at 73.

[xxii]See Studebaker, et al., supra note 21, at 317.

[xxiii]SeeJon Bruschke & William E. Loges, Free Press vs. Fair Trials: Examining Publicity’s Roles in Trial Outcomes(2004).

[xxiv] Jon Bruschke & William E. Loges, Relationship Between Pretrial Publicity and Trial Outcomes, 49 J. of Comm. 104, 115 (1999).

[xxv]Id. at 114.

[xxvi]See e.g., J. L. Freedman & T. M. Burke, The Effect of Pretrial Publicity: The Bernardo Case, 38 Can. J. Criminology 253 (1996); John S. Carroll, et al., Free Press and Fair Trial: The Role of Behavioral Research, 10 Law & Hum. Behav. 187 (1986); D. R. Pember, Does Pretrial Publicity Really Hurt? 23(3) Colum. Journalism Rev. 16 (1984); H. E. Rollings & J. Blascovich, The Case of Patricia Hearst: Pretrial Publicity and Opinion, 27 J. of Comm. 58 (1977).

[xxvii]Rita J. Simon, Does the Court’s decision in Nebraska Press Association fit the research evidence on the impact on jurors of news coverage?, 29 Stan. L. Rev. 515 (1977); accord Martin F. Kaplan, Cognitive Processes in the Individual Juror, in The Psychology of the Courtroom 197 (1982); but see Geoffrey P. Kramer et al., Pretrial Publicity, Judicial Remedies, and Jury Bias, 14 Law & Hum. Behav. 409 (1990) (finding judicial admonition had no effect and deliberations exacerbated negative effects of factual or emotional information).

[xxviii]Martin F. Kaplan & Lynn E. Miller, Reducing the Effects of Juror Bias, 36 J. Personality & Soc. Pscyhol. 1443 (1978).

[xxix]Michael J. Saks, What Do Jury Experiments Tell Us About How Juries (Should) Make Decisions?, 6 S. Cal. Interdisc. L.J. 1, 28 (1997).

[xxx]Michael Hoenig, Juror misconduct on the Internet, N.Y. L.J., Oct. 8, 2009.

[xxxi]Interview by Donald C. Dilworth with Judge B. Michael Dann, Arizona Superior Court, Waking up Jurors, Shaking Up Courts, Trial, July 1, 1997, at 20, available athttp://www. thefreelibrary.com/_/print/PrintArticle.aspx?id=19634468; The Honorable B. Michael Dann, “Learning Lessons” and “Speaking Rights”: Creating Educated and Democratic Juries, 68 Ind. L.J. 1229, 1241 (1993); William W. Schwarzer, Reforming Jury Trials, 1990 U. Chi. Legal F. 199, 137 (1990); Warren K. Urbom, Toward Better Treatment of Jurors by Judges, 61 Neb. L. Rev. 409, 425 (1982).

[xxxii]ABA/Brookings Symposium, Charting a Future for the Civil Jury System 16 (1992).

[xxxiii]James P. Levine, The impact of sequestration on juries, 79 Judicature 266 (1995).

[xxxiv]Nancy S. Marder, Juries and Technology: Equipping Jurors for the Twenty-First Century, 66 Brook. L. Rev. 1257, 1276. (2001). Believe it or not, the merits of note-taking is still subject to some scholarly debate. See e.g., Victor E. Flango,Would Jurors Do a Better Job if They Could Take Notes?, 63 Judicature 436 (1979-1980); Steven D. Penrod & Larry Heuer, Tweaking Commonsense: Assessing Aids to Jury Decision Making, 3 Psychol., Pub. Pol’y & L. 259, 271 (1997); Irwin A. Horowitz & Lynee ForsterLee, The Effects of Note-Taking and Trial Transcript Access on Mock Jury Decisions in Complex Civil Trial, 25 Law & Hum. Behav. 373 (Aug. 2001).

[xxxv]Blackstone’s Commentaries on the Law 673-77 (Bernard C. Gavit ed., 1941).

[xxxvi]Morris S. Arnold, Law and Fact in the Medieval Jury Trial: Out of Sight, Out of Mind, 18 Am. J. Legal Hist. 267, 279 (1974).

[xxxvii]Lawrence M. Friedman, A History of American Law 101 (3rd ed. 2005).

[xxxviii]Morton J. Horwitz, The Transformation of American Law 1780-1860 140-41 (1977).

[xxxix]Nancy S. Marder, Juries and Technology: Equipping Jurors for the Twenty-First Century, 66 Brook. L. Rev. 1257 (2001).

[xl]Elizabeth F. Loftus, Memory 19-20 (1980).

[xli]See e.g., Johnson v. State 887 S.W. 2d 957 (Tex Crim. 1994); Sonja Larsen,Taking and use of trial notes by jury, 36 A.L.R. 5th 255 (1996).

[xlii]ABA/Brookings Symposium, supra note32, at16.

[xliii]Alexis De Tocqueville, 1 Democracy in America 266 (Henry Reeve trans., George Adlard 2d ed. 1838) (1830).

Copyright © 2010 Gareth Lacy

 

eDiscovery & Social Media

The National Law Review’s featured guest blogger last week was Meredith L. Williams of  Baker Donelson provides some great insight on discovery issues related to social media sites: 

Social media is not going anywhere, so we must learn to live with it and use it to our advantage and within the confines of the newly articulated and always changing rules.  If ever a doubt, one can look to the Nielson Report (“What Americans Do Online: Social Media and Games Dominate Activity,” Aug. 2, 2010) that states two-thirds of the internet population utilize social media sites.  Internet users now spend more than 10% of their online time on social media sites, and usage is constantly increasing.  With this rise in social media usage, the issues surrounding ediscovery in the realm of social media data is an important consideration of litigation.

The definition of legal discovery is locating all documents that are relevant to support the litigation.  But how does ediscovery work when the content is not owned or controlled by the business? How does a business preserve data that is outside of its firewall? Finally, how does one seek relevant information held on social media sites?

Social media sites are not like email or word processing documents when it comes to preservation. These sites are operated outside of a business’s firewall by a third party. Data is normally scattered on many sites and connected by many people or custodians.  Finally, the retention policy or schedule of a business does not affect data located on social media sites.   When a business maintains social media pages, it has a duty to preserve the data that may be relevant in anticipated or actual litigation.

Seeking information from social media sites can be difficult at best.  Many times discovery of this data must be gained through consent or authorization of a third party, which only causes an extra, and often expensive, burden.  Each third party is different in how it maintains the data, and each has the right to delete any content for violation of its terms of use policy, at any time. That deleted information could be relevant to litigation.

Unfortunately for businesses, the courts are only beginning to outline the duty of preservation and the right to discover the information from social media sites.  The best line of defense for many businesses is to develop internal policies and training programs to educate all employees of the risks of using social media.  In addition, new software now exists that can aid in preserving data.

Duty to Preserve

The 2006 Federal Rules of Civil Procedure amendments changed the discovery rules to allow a party to request “electronically stored information” within the “possession, custody, or control” of the responding party.  A duty to preserve potentially relevant evidence exists when litigation is “reasonably anticipated.”  In addition, parties who fail to preserve electronically stored information (ESI) are subject to penalties. Social media data fits the definition of ESI; thus, businesses must deal with the issue of preserving and possibly producing social media data that falls under their data retention policy.

Due to the fact that social media sites are owned and controlled by third parties, vendors are beginning to develop technology to capture dynamic web pages for preservation.  The first few companies in this market include Iterasi, Smarsh, Arkovi and LiveOffice.  Additionally, Adobe may be used to capture web images in static format.  These are but a few examples of new technologies that businesses are considering to meet their duty to preserve and produce ESI.

Recent Case Law

Additional issues remain – whether the information on social media sites is considered private, whether it is discoverable and whether it is admissible as evidence.  Recent case law has addressed these as yet unanswered issues.

In Guest v. Leis, 255 F.3d 325 (6th Cir. 2001), the court held that there is a lack of expectation of privacy regarding public postings on social media sites.  The user has the right to select privacy preferences on his social media sites.  Certain settings allow the public to see limited information and authorized, connected individuals to have greater access. In addition, many social media site privacy policies specifically state that certain postings are subject to a weakened privacy expectation.  Courts have generally held that when a user makes information available publically via their privacy settings, there is a lower expectation of privacy and, therefore, the information is discoverable.

Jumping ahead to the current year, we find EEOC v. Simply Storage Mgmt., LLC, No. 1:09-cv-1223-WTL-DML (S.D. Ind. May 11, 2010).  In this case, the court compelled production of relevant content from social media sites.  The court discussed discovery of social media site data as simply “requir[ing] the application of basic discovery principles in a novel context.”  The facts of Simply Storage Mgmt, involved the defendant seeking production of social media site profiles and communications from Facebook and MySpace.  The court ordered the plaintiff to produce the content that was relevant to the case.  The plaintiff argued that requiring such production would infringe on his privacy.  However, the court held that the expectation of privacy is not a basis for shielding discovery.  In addition, the court found that any privacy concern therein was lessened due to the fact the information had already been shared.

Earlier this year, Crispin v. Audigier (C.D. Cal.) (May 26, 2010), brought us a new ruling regarding social media and the Stored Communications Act (SCA).  In this case, the court was reluctant to allow discovery of private social media email communications.   The case involved a copyright infringement claim.  Audigier subpoenas the private social media messages of Crispin.  A magistrate judge disagreed with Crispin’s arguments that these communications fell under the SCA, preventing the provider of the messaging service from releasing private communications, because the social media sites messaging services are used solely for public display.  However, the district court reversed the ruling, holding that Facebook and MySpace allow private message or e-mail services which are separate from the general public posting.  This case held that the SCA protects Facebook and MySpace messages that aren’t publicly available.  Therefore, these messages cannot be subpoenaed in civil litigation.  In addition, the court left the door open for further clarification, noting that “Facebook wall postings and the MySpace comments are not strictly ‘public,’ but are accessible only to those users plaintiff selects.”

On the other side of the country, we find a slightly different ruling with Romano v. Steelcase Inc., 2010 WL 3703242 (N.Y. Sup. Ct. Sept. 21, 2010).  TheRomanocourt allowed discovery of an entire social media site with all current and deleted postings.  The court ordered the plaintiff to provide the defendant with access to private postings from two social media sites. The court reasoned that information contradicting the plaintiff’s claims was included on the public sections of the plaintiff’s social media site and, therefore, it was reasonable to believe that the private sections might contain additional relevant information. The court even cited Facebook and MySpace policies, which warn users they should have “no expectation of privacy.”

Even if one is able to surmount the difficult hurtle of obtaining data from a social media site, an equally daunting challenge remains – getting the data admitted.  The main issue with admissibility is authenticity; spam, viruses, hackers and the like make social media sites susceptible to manipulation or fraud.   For this reason, courts have consistently been cautious when admitting social media data. In some cases, judges have become online “friends” with a party in order to authenticate postings, photos, captions and comments. (Barnes v. CUS Nashville, LLC).  Other courts have allowed printed copies with time date stamps to corroborate facts. (Treat v. Tom Kelley Buick Pontiac GMC, Inc.). Finally, some courts have used circumstantial evidence associated with the creation of the data (i.e. metadata and hash tags) to authenticate social media content.  (Lorraine v. Markel Am. Insur. Co.).  Admissability remains  an area of concern as the use of social media data in discovery becomes the norm.

Discovery of Social Media Data

A lawyer must decide early on whether relevant information exists on social media sites.  Within that evaluation, the costs to preserve, collect, review and produce the social media information should be considered.

Start discovery of social media by conducting large sweeping web searches for public social media sites of adverse parties or adverse witnesses.  Many individuals do not lock profiles or use privacy settings; therefore,  all postings, messages, comments, etc. are open to the public.  Preserve the sites with date stamps.

If an individual’s social media sites are set to private, and, therefore, not open to the public, what can a lawyer do?  Many boards of ethics do not allow lawyers to “friend” anyone to gain access to private profiles of information (NY State Bar Association Ethics Opinion 843 (Sept. 10, 2010)). So, instead of friending an individual, use discovery requests.  Start with a document request asking for all postings and messages that are related to and relevant in the litigation.  One can also consider requesting an access wavier to social media sites that allow for complete access to the site.  LinkedIn has a standard wavier located on its site. Finally, ask for all social media identifications used by the adverse party in an interrogatory.  Regardless of what direction taken, social media should be a part of the ediscovery process.

Conclusion

In conclusion, a business should take inventory of what social media sites are being used within the organization.  Then, set policies to help educate all employees of the risks regarding social media usage.  Finally, decide if backup software is needed to help with preservation and production of the business’s own social media data.  Regardless of retention schedule taken with social media, plan to always show the court that you’ve done your best, which is all that is expected.

For lawyers, be prepared to incorporate social media into an edisovery plan.  Start early within the litigation.  Draft standard document requests, waiver forms or interogatories around social media production.  Finally, be aware of the changing legal landscape on privacy, discoverability and admissibility, as these areas will continue to change, more and more rapidly in the future.

©2010 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC. All Rights Reserved.

Picking the Perfect Jury:What Should Be Done About the Problem of Race-Based Exemptions ABA Teleconference & Live Audio Webcast – October 21st

The National Law Review would like to make you aware of an upcoming ABA Teleconference and Live Webcast which has been approved for Elimination of Bias Credits in applicable jurisdications as well as CLE credit — Picking the Perfect Jury:What Should Be Done About the Problem of Race-Based Exemptions: 

Program Description

As recently reported in the New York Times, “Today, the practice of excluding blacks and other minorities from Southern juries remains widespread” and, according to the Equal Justice Initiative and defense lawyers, is “largely unchecked.” There is a continuing indifference to prosecutors’ race-based exclusions of prospective jurors.  Prosecutors have learned how to claim that their exclusions are race-neutral, even where they do not exclude white jurors whose answers during jury selection are indistinguishable from those of jurors of color whom the same prosecutors do exclude.

At this program, the renowned Executive Director of the Equal Justice Initiative, Bryan Stevenson, will discuss his organization’s June 2010 report on this subject (a report which was the basis for the Times story and other media reports) and will join with other expert panelists and discussing the report’s implications and what those who attend this program can do to rectify this situation.  There will be special focus on Tennessee, Alabama, Arkansas, and Mississippi.

CLE Credit

1.0 hours of CLE credit in 60-minute states/1.2 hours of CLE credit in 50-minute states have been requested in states accrediting ABA teleconferences and live audio webcasts.*

NY-licensed attorneys: This non-transitional CLE program has been approved for experienced NY-licensed attorneys in accordance with the requirements of the New York State CLE Board for 1.0 total NY CLE credits.

Elimination of bias credit has been requested in states with elimination of bias requirements.

The following states accept ABA teleconferences for CLE credit:
AL, AK, AR, AZ, CA, CO, FL, GA, IA, ID, IL, KY, LA, ME, MN, MO, MS, MT, NC, ND, NH, NM, NV, NY, OK, OR, RI, SC, TN, TX, UT, VA, VI, VT, WA, WI, WV, WY.

*States currently not accrediting ABA teleconferences: DE, IN, PA, KS, OH

Teleconference / Live Audio Cast Hours: 

4:30 PM-5:30 PM Eastern

3:30 PM-4:30 PM Central

2:30 PM-3:30 PM Mountain

1:30 PM-2:30 PM Pacific

To Register or for More Information: 

Register by Phone:  800.285.2221 / Monday – Friday 
8:30 AM – 6:00 PM Eastern Event Code: cet0rbe   http://bit.ly/dkP9EQ

Class Action Defense Cases–American Honda v. Allen: Seventh Circuit Court Reverses Class Action Certification Order Holding District Court’s Daubert Analysis Inadequate And Expert Testimony Inadmissible

National Law Review’s featured blogger Michael J. Hassen of Jeffer, Mangels, Butler & Mitchell LLP provides some insight on a recent 7th Circuit class action case which addresses expert testimony:

District Court Erred in Granting Class Action Certification because Expert Testimony Establishing Rule 23(b)(3)’s Predominance Prong was Unreliable and District Court’s Daubert Analysis Inadequate Seventh Circuit Holds

Plaintiffs filed a putative class action against American Honda and Honda of America (collectively “Honda”) alleging product defect liability concerning Honda’s Gold Wing GL1800 motorcycle; specifically, the class action complaint alleged that a design defect in the steering assembly causes the motorcycle to “wobble.” American Honda Motor Co., Inc. v. Allen, 600 F.3d 813, 814 (7th Cir. 2010). Plaintiffs moved the district court to certify the litigation as a class action under Rule 23(b)(3), relying heavily on an expert’s opinion that common issues predominate; Honda opposed class action treatment and challenged the expert opinion relied upon by plaintiffs in their motion. Id. Defense attorneys moved under Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993), to strike plaintiffs’ expert report on the grounds that the expert’s “wobble decay standard was unreliable because it was not supported by empirical testing, was not developed through a recognized standard-setting procedure, was not generally accepted in the relevant scientific, technical, or professional community, and was not the product of independent research.” Id. The district court agreed to rule on the admissibility of the report prior to ruling on class certification because the report was central to the motion, id. But while the court announced “definite reservations about the reliability of [the expert’s] wobble decay standard,” it refused to exclude the report entirely “at this early stage of the proceedings.” Id., at 814-15. The district court granted class action certification, id., at 815, and Honda sought leave to appeal, id., at 814. The Seventh Circuit granted Honda’s request and reversed.

The Circuit Court explained that the issue before it was “whether the district court must conclusively rule on the admissibility of an expert opinion prior to class certification in this case because that opinion is essential to the certification decision.” American Honda, at 814. The Court summarized the expert’s “wobble decay” opinion, which was based on a standard the expert himself had devised and that he himself characterized as “reasonable.” Id. The expert opinion was important because “most of Plaintiffs’ predominance arguments rest upon the theories advanced by [their expert].” Id. (quoting Allen v. Am. Honda Motor Co., 264 F.R.D. 412, 425 (N.D. Ill. 2009)). In response to Honda’s objections and following the Daubert hearing, the district court “noted that it was concerned that, among other things, [the expert’s] wobble decay standard may not be supported by empirical evidence, the standard has not been generally accepted by the engineering community, and [his] test sample of one may be inadequate to conclude that the entire fleet of GL1800s is defective.” Id., at 814-15. Nevertheless, the lower court believed it was too early in the litigation to dismiss the expert’s opinion in its entirety, and so it granted class action treatment without prejudice to Honda moving to exclude the expert’s opinion. Id., at 815.

As a matter of first impression in the Seventh Circuit, the Court “specifically addressed whether a district court must resolve a Daubert challenge prior to ruling on class certification if the testimony challenged is integral to the plaintiffs’ satisfaction of Rule 23’s requirements.” American Honda, at 815. The Circuit Court held “that when an expert’s report or testimony is critical to class certification, as it is here…, a district court must conclusively rule on any challenge to the expert’s qualifications or submissions prior to ruling on a class certification motion.” Id., at 815-16. Thus, in the Seventh Circuit’s view, “the district court must perform a full Daubert analysis before certifying the class if the situation warrants.” Id., at 816. This includes not only the expert’s qualifications, but “any challenge to the reliability of information provided by an expert if that information is relevant to establishing any of the Rule 23 requirements for class certification.” Id.

In this case, the district court “started off on the right foot by beginning to undertake what might have become a fairly extensive Daubert analysis,” and both acknowledged “and largely agreed with” Honda’s concerns about the reliability of the testimony of plaintiff’s expert, “[y]et the district court ultimately declined, without further explanation, ‘to exclude the report in its entirety at this early stage of the proceedings.’” American Honda, at 816. The Circuit Court explained at page 816 that the district court’s analysis (or lack thereof) constituted an abuse of discretion: “The court’s effective statement of admissibility here is not even conclusory; it leaves open the questions of what portions of [the expert’s] testimony it may have decided (or will decide) to exclude, whether [the expert] reliably applied the standard to the facts of the case, and, ultimately, whether Plaintiffs have satisfied Rule 23(b)(3)’s predominance requirement. As a result, the district court never actually reached a conclusion about whether [the] expert report was reliable enough to support Plaintiffs’ class certification request. Instead it denied Honda’s motion to exclude without prejudice and noted that the case was in an ‘early stage of the proceedings.’”

Reviewing the expert’s report on the merits, the Seventh Circuit held that “our examination of the record reveals that exclusion is the inescapable result when the Daubert analysis is carried to its conclusion.” American Honda, at 817. The issue here was one of reliability rather than qualifications, but the Circuit Court noted that “even the most ‘supremely qualified expert cannot waltz into the courtroom and render opinions unless those opinions are based upon some recognized scientific method and are reliable and relevant under the test set forth by the Supreme Court in Daubert.’” Id. (citing Clark v. Takata Corp., 192 F.3d 750, 759 n.5 (7th Cir.1999)). Based on the Court’s analysis, the expert’s testimony was unreliable, see id., at 817-18, and “expert testimony that is not scientifically reliable should not be admitted, even ‘at this early stage of the proceedings,’” id., at 819 (citation omitted). Because the expert’s testimony formed the foundation for Rule 23(b)(3)’s predominance test, class action certification could not stand. Id. Accordingly, the Seventh Circuit granted Honda’s petition for leave to appeal and vacated the denial of Honda’s motion to strike and the district court’s order grant of class action treatment. Id.

NOTE: In response to plaintiffs’ request that the Circuit Court deny leave to appeal, the Seventh Circuit explained, “Given the uncertainty surrounding the propriety of conducting a Daubert analysis at the class certification stage, and the frequency with which this issue arises, we find the question to be one appropriate for resolution under Rule 23(f).” American Honda, at 815 (citation omitted).

© 2010 Jeffer Mangels Butler & Mitchell LLP. All rights reserved.

About the Author:

Michael J. Hassen is a Litigation Partner at Jeffer Mangels Butler & Mitchell LLP with more than 23 years experience in general business and commercial litigation, including class action defense and matters involving intellectual property, securities and unfair competition.  415-984-9666 / www.jmbm.com

Cy Pres Class Action Defense Cases–In re American Tower: Massachusetts Federal Court Rejects Request To Distribute Class Action Settlement Cy Pres Funds To Non-Profit Organization

First of a series of daily guest blog spots from the National Law Review’s featured blogger Michael J. Hassen of  Jeffer, Mangels, Butler & Mitchell LLP.  Michael Hassan authors  JMBM’s Class Action Defense Blog.

Distribution of Unclaimed Class Action Settlement Funds to Non-Profit Organization Unconnected to Harm Suffered by Class Members Inappropriate Massachusetts Federal Court Holds

Plaintiff filed a putative class action against American Tower Corp. alleging violations of federal securities laws and purported to be brought on behalf of “members of the public who were harmed by the securities fraud.” In re American Tower Corp. Securities Litig., 648 F.Supp.2d 223, 224-25 (D.Mass. 2010). Eventually, the parties negotiated a settlement of the class action which provided for the distribution of unclaimed funds through a cy pres fund. Id., at 224. Lead Plaintiff moved the district court for authorization to distribute the cy pres funds “to The Peggy Browning Fund, a private, nonsectarian, not-for-profit organization with 501(c)(3) tax-deductible status.” Id. The federal court denied the motion because plaintiff sought “to disburse settlement funds to a non-profit organization with little connection to the harms class members suffered,” id. Because the author has received numerous inquiries from defense and plaintiff counsel concerning the proper scope of a cy pres fund, we include this article on the district court’s ruling.

The district court noted that the proper inquiry was to “determine whether the Peggy Browning Fund is an appropriate recipient of any residual settlement funds” of the class action settlement. In re American Tower Corp., at 224. The court explained that the purpose of the use of a cy pres fund is effect a distribution of class action settlement funds “to a ‘next-best’ recipient” when it is impractical to distribute the settlement funds to the class members. Id., at 224-25 (citing In re Airline Ticket Commission Antitrust Litig., 268 F.3d 619, 626 (8th Cir.2001)). “‘In such cases, the court, guided by the parties’ original purpose, directs that the unclaimed funds be distributed for the prospective benefit of the class.’” Id. (citation omitted). The federal court easily concluded, then, that the Peggy Browning Fund was “an inappropriate recipient of any unclaimed class funds.” Id. “Disbursement of unclaimed funds must have some relationship to the harm suffered by class members…. However, the Peggy Browning Fund focuses on labor issues…. Therefore, it does not appear that funds donated to the Peggy Browning Fund would benefit the class or address the harms suffered by class members.” Id. (italics added). The district court therefore denied the motion, without prejudice to Lead Plaintiff renewing the request and noting that Lead Plaintiff “should, if possible, propose a national organization whose work relates to the harm suffered by class members in this case.” Id.

NOTE: The author notes that trial courts are far too willing to authorize the distribution of cy pres funds to practically any organization. In such cases, the courts appear to be more interested in punishing the defendant than in effecting a distribution of funds to the “next-best” recipient.

© 2010 Jeffer Mangels Butler & Mitchell LLP. All rights reserved.

About the Author:

Michael J. Hassen is a Litigation Partner at Jeffer Mangels Butler & Mitchell LLP with more than 23 years experience in general business and commercial litigation, including class action defense and matters involving intellectual property, securities and unfair competition.  415-984-9666 /www.jmbm.com

Protecting Tax Documents after United States v. Deloitte

This week’s National Law Review featured blogger is Matthew D. Lerner of Steptoe & Johnson LLP who provides some great tips on how to manage tax documents to best prepare for legal action. 

A recent appeals court decision provides the latest development in the ongoing battle between taxpayers and the IRS regarding the disclosure of tax workpapers.  It also provides hope that work product protections may still be available for litigation analyses that a company’s attest auditors review in preparing financial statements.[i] Typically, taxpayers claim that certain workpapers are protected by the work product doctrine because they contain analysis of potential tax issues raised by transactions in anticipation of future litigation with the IRS over those issues.  The IRS asserts that these workpapers are used to prepare financial statements and should not be subject to protection either because they are not prepared in anticipation of litigation or because they are disclosed to third party auditors, thus waiving any protection.

On June 29, 2010, the D.C. Circuit became the latest court to address this controversy in a matter that involved documents prepared by, or in the possession of, the accounting firm Deloitte LLP (then known as Deloitte & Touche LLP) (“Deloitte”).  In this case, the United States sought to compel Deloitte to produce two categories of documents related to a civil tax refund case brought by partnerships formed by subsidiaries of the Dow Chemical Company (“Dow”) (the partnerships are referred to as the Chemtech partnerships or “Chemtech”).   The first category included three documents Deloitte withheld on the basis of privileges asserted by Dow, including (i) a June 2005 tax opinion related to Chemtech; (ii) a September 1998 legal and tax analysis provided to Deloitte by an in-house attorney at Dow; and (iii) a July 1993 internal Deloitte memorandum recording thoughts and impressions of Dow’s attorneys concerning tax issues related to Chemtech.  The second category of documents included all responsive documents maintained at Deloitte’s affiliate in Zurich, Switzerland ( “Deloitte Switzerland”).

At the trial court level, the District Court for the District of Columbia held that the three documents in the first category were protected from disclosure by the work product doctrine because they were prepared in anticipation of future litigation over the tax treatment of Chemtech.[2]  The court held that the protection was not waived by disclosure to Deloitte because Deloitte, as Dow’s independent auditor, was not a potential adversary, and no evidence suggested that it was unreasonable for Dow to expect Deloitte to maintain confidentiality.

The trial court also denied the motion to compel with respect to the second category of documents.  The court held that Deloitte did not have sufficient control over the documents maintained at Deloitte Switzerland to enable their production.  The court stated that the government failed to establish that Deloitte had the “legal right, authority or ability to obtain documents upon demand” from Deloitte Switzerland.  The court determined, “Close cooperation on a specific project does not per se, establish an ability, let alone a legal right or authority, on [Deloitte’s] part to acquire documents maintained solely by a legally distinct entity.”

The United States appealed the District Court’s decision with respect to the three documents in the first category withheld by Deloitte: (i) the June 2005 tax opinion related to Chemtech; (ii) the September 1998 legal and tax analysis provided by an in-house attorney at Dow; and (iii) the July 1993 internal Deloitte memorandum recording thoughts and impressions of Dow’s attorneys concerning tax issues related to Chemtech.[3]

The government argued that the 1993 internal Deloitte memorandum was not work product because (i) it was prepared by Deloitte, not Dow or Dow’s counsel; and (ii) it was generated as part of the audit process, not in anticipation of litigation.  The D.C. Circuit rejected the government’s categorical arguments with respect to the first document prepared by Deloitte.  The court stated that Deloitte’s preparation of the document does not exclude the possibility that it contains Dow’s work product.  The court also stated that a document can contain protected work product material even though it serves multiple purposes, so long as the protected material was prepared because of the prospect of litigation.  However, the court determined that the District Court did not have a sufficient evidentiary foundation for its holding that the Deloitte memorandum was purely work product.  The court therefore remanded so that the District Court could conduct an in camera review of the document and determine whether it was entirely work product, or whether a partial or redacted version of the document could be disclosed.

The government also argued that the other two documents were not protected from disclosure because Dow waived work product protection by disclosing the documents to Deloitte. The D.C. Circuit rejected this argument and concluded that (i) Deloitte was not a potential adversary with respect to the litigation that the documents address and (ii) Deloitte was not a conduit to potential adversaries because Dow had a reasonable expectation of privacy as a result of Deloitte’s obligation to refrain from disclosing confidential information.

The Appeals court decision makes clear that some documents that become part of the tax audit workpapers do retain work product protection, even if disclosed to financial auditors to assist in the preparation of financial statements.  However, it is also evident from this decision that such work product claims will likely continue to be challenged by the IRS and heavily scrutinized by the courts.  Accordingly, it is imperative that taxpayers take as many precautions as possible to preserve work product protection, as well as attorney-client privilege, with respect to sensitive analysis contained in tax workpapers. 

Taxpayers must understand that proving work product generally involves common sense.  One trying to prove that a document was prepared in anticipation of litigation should ask herself what steps would indicate to a court that litigation truly was expected and this document was prepared for that purpose.  What follows is a series of suggestions to help preserve such protection to the extent possible. 

1.  Get Counsel Involved.

To preserve privilege, be certain to include counsel meaningfully in communications regarding legal issues, and document counsel’s substantive role in these communications.  While an attorney’s involvement is not legally required to make something work product in most jurisdictions, as an evidentiary matter, it helps to establish an anticipation of litigation and indicates that an issue is being treated as more than just an item for audit.  Coordinate with the company’s General Counsel with respect to sensitive tax documents to avoid waiver of work product with respect to those documents through disclosure in other litigation.   At the same time, be careful to avoid asserting inappropriate claims of protection on documents.  An inappropriate claim of privilege risks waiver of privilege with respect to documents that otherwise would be privileged with respect to the same issue.  Inappropriate privilege claims can also damage your credibility and result in higher tensions and increased controversy over what should be “routine” privilege claims.

2.  Formalize a Tax Litigation Group.

Creating a formal tax litigation group within the company can help to identify tax controversy matters more clearly and separate issues that are anticipated to result in litigation.  Such a group should advise the company on the conduct of tax controversies and litigation.  In this primary role, the group should give advice to the company regarding whether and how to proceed in litigation, whether to settle, and what settlement terms to propose or accept.   Secondarily, the company may use the group’s hazards-of-litigation advice in establishing financial statement tax reserves.

It is preferable that the group’s leader be an attorney responsible for managing tax litigation and have at least a dotted line reporting relationship to the law department (to enjoy a presumption that the attorney-client privilege applies as well).  The group should exclude the persons whose responsibilities are solely the preparation of financial statements.

This does not require hiring new personnel or re-assigning people to a new tax controversy position.  The group may be composed of people with other job responsibilities.  It is really a “part-time” committee of people with related roles.  The key is that decisions about which matters litigation may be expected for come in the setting of this separate group’s meetings or consideration, that the group members separately perform this function, and that they document their conclusions and clearly identify issues for which more than a mere audit is expected.  In the group’s analyses, it must be careful not to suggest that the company believes its position is wrong and that is why litigation is expected.  Document only that the IRS, given its policies and positions, is expected to challenge the company on the issue and the company intends to fight.[4]

 3.  Control Who Creates Documents.

If the company has a tax litigation group, sensitive analysis of tax issues should be confined to documents created at the direction of, and under the control and supervision of, the group’s leader.  If not, they should be prepared by someone with a key role and responsibilities regarding tax controversy decisions.  Such documents should indicate that they are prepared by attorneys or tax practitioners and that they are prepared at the request of the group leader for litigation purposes.  Take care not to attach these labels to other documents or that label will cease to have meaning and potentially be used to argue that a waiver of privilege or work product protection has occurred with respect to other documents.  Do not combine these work product analyses with non-work product discussions.

4.  Create Only Defined Types of Documents.

Categorizing your documents and establishing guidelines for what types of analysis should be included in each category can help confine sensitive legal analysis to litigation-oriented documents that are most entitled to privilege and work product protection.  When creating documents, separate legal analysis from non-privileged information, including: (i) business advice; (ii) tax reserve numbers and calculations; and (iii) other advice not intended to remain confidential.   Create specific documents for disclosure outside the group that are limited to only hazards-of-litigation percentages and only aggregate reserve information.[5] 

5.  Control How Documents Are Labeled

Documents should be labeled, as appropriate, to state that they contain confidential legal advice, subject to privilege and protected by the work product doctrine.  While not legally required, attaching a work product label to a document intended as such provides evidence of the company’s intent with respect to that document.  Likewise, be careful not to label business advice, tax return advice, or other advice not intended to be confidential, as privileged or protected.  If one overuses labels, the labels lose credibility even when properly attached, and may be ignored by a court in its analysis.  At the same time, also take care not to label documents containing legal analysis and advice as documents that relate to tax reserve analysis or tax contingency analysis.

6.  Control Access to Documents Inside the Company

The wider the distribution of a document, the more likely it is that a court will find there has been a waiver with respect to attorney-client privilege or work product protection.  Because one of the indicia of privilege or work product is the care with which a document is handled, common sense dictates that a court will look askance at claims for protection of documents that were made widely available within the company to people whose jobs did not require their access to those materials.  Accordingly, only disclose legal documents with respect to an issue to other employees/officers on a need-to-know basis.  Also, to the extent possible, try to avoid “broadcast” emails and limit email “chains” related to documents.  Each e-mail and response to an e-mail generates a copy of the document and increases the risk of waiver.  When storing documents, separate and clearly mark legal documents.  This not only protects against waiver, but can demonstrate intent to keep the information confidential.  Keep in mind that no protections attach to business advice documents, so store business documents in a separate location from the legal documents.

 7.  Enact and Follow Policies to Identify Anticipated Litigation

It is critical to prove that litigation was anticipated with respect to an issue in order to establish work product protection for documents that contain analysis of that issue.  General litigation policies can be used effectively as “designation” tools to identify issues for which litigation is anticipated clearly.  For example, make use of document hold requests to communicate that litigation is anticipated.  Consider formal guidelines that certain counsel must be involved in issues expected to result in litigation, and then include such counsel only when litigation is expected.  When enacting such general policies, be cognizant of the fact that the presence of a general policy and the absence of its application in a specific case can create a negative inference.  Thus, if a company has a general policy that documents related to issues for which litigation is anticipated are made subject to a litigation hold, then the absence of a litigation hold with respect to documents related to another issue may be used to demonstrate that litigation was not anticipated with respect to that issue.[6]  As a result, the tax department must apply a litigation hold to those documents relating to any issue for which the company is claiming to anticipate litigation Likewise, if company policy dictates that the General Counsel must approve litigation-related decisions (e.g. budget, choice of counsel), be sure those policies are followed for potential tax litigation.

8.  Work With Your Auditors and Other Third Parties to Protect Work Product

Interactions with auditors and other third parties create significant risks that material that would otherwise be subject to privilege or work product protection will lose that protection as a result of waiver.  Accordingly, take steps to work with your auditors and other third parties to develop a good relationship and preserve protection where possible. 

For example, many times accountants are hired not as auditors but to provide specific support in connection with a tax issue.  In those instances, enter into written agreements through counsel with third-party consultants to whom you wish to disclose privileged information (e.g., so-called Kovel arrangements), so that their work is performed under the direction and control of counsel.  Such a step makes the assertion of attorney-client privilege possible for communications with the consultant, and provides strong evidence of the anticipation of litigation.  Be aware of the potential limitations of the accountant-client privilege, particularly when considering whether to disclose sensitive documents in the context of the preparation of an opinion letter.  Request that your attest auditors’ engagement letter include a specific confirmation that those accountants must and will maintain confidentiality of your documents to the fullest extent allowed by law.  It may also be helpful to have the engagement letter acknowledge that the relationship between company and auditor is non-adversarial and the two expect to work together cooperatively. Where possible, have auditors review key documents but not take copies.  While that has no direct, legal effect on whether a protection is actually waived, it can bolster a claim that you took all possible steps to avoid wider dissemination by keeping control of the actual document, which is a key element of proving work product protection should apply.  Ask that your auditors specifically note when a conclusion in their workpapers was derived from documents prepared by the company as litigation analyses.  Finally, do not prepare separate documents directly for the auditors that discuss litigation analysis.  While a decision regarding work product should be based on the purpose for which the underlying analysis was prepared, not the specific documents, the recent decisions suggest that it is easier to preserve work product protection when the document itself was prepared for the purpose of litigation.

9.  Negotiate Disclosures with the IRS

After taking some or all of the above steps above to preserve protection of documents, take steps to prevent inadvertent disclosure to the IRS of protected documents.  Require approval of the group’s leader before documents are disclosed to the Service or establish some other formal screening process to prevent disclosures that could result in a waiver of privilege.  When withholding documents subject to protection, prepare a detailed privilege log, stating the specific grounds that support the claim for privilege and protection of each document withheld.

It is inevitable that there will be disagreements about the scope of protection afforded specific documents.  Try to manage the disclosure process to minimize the scope and intensity of these disagreements.  Be candid with the IRS about your concerns, try to get overbroad demands for protected materials scaled back, work quickly to provide responsive, non-protected materials, and be reasonable about the scope of your privilege claims.  Doing this can help establish a cooperative relationship with the IRS and focus the controversy, if any, on the most protected documents. Likewise, consider disclosing the least confidential documents to the Service.  For example, disclose to the Service those documents that contain no legal analysis or advice.  Where there is protected material the IRS really wants that the company is willing to disclose, attempt to negotiate a written agreement that the disclosure of that document will not waive privilege or work product protection more broadly.  If, after all this, controversy about a protection still arises, the fact of your cooperation and efforts to comply as much as possible may influence either the IRS’s decision to seek the documents through judicial proceedings, or the judge’s view of the matter.  Force the IRS to determine whether it wishes to press the issue against a taxpayer that has cooperated, but that has taken careful steps to create and maintain confidential documents.

The confines of the work product doctrine in the tax context are still being defined.  These suggested steps will help you best position your company to obtain the maximum protection.  As you consider the creation of materials, ask yourself “does this step help show that we really did anticipate litigation and that this document was created for that purpose.”   That is what a court may be called on to determine, and you want the record to demonstrate that the answer is yes.

[1] This is important because the review of such documents by third party auditors waives attorney-client privilege, the other common protection for sensitive materials.

[2] United States v. Deloitte, Case No. 08-411 (D. D.C. June 8, 2009).

[3] United States v. Deloitte, No. 09-5171, (D.C. Cir. June 29, 2010)

[4] Although not free from doubt, it is generally believed that the expectation of having an issue be unagreed and go to IRS Appeals is sufficient to show “an expectation of litigation.”

[5] Understand that there is a tension between protecting the attorney-client privilege and the work product protection.  Providing your accountant with a privileged document prepared in anticipation of litigation may result in a broad attorney-client privilege waiver, but it is more likely the document will be viewed as work product than a document drafted especially for the auditor.  Given the broad scope of auditors’ need for information and the fact that the document prepared for an auditor likely reveals privileged communications anyway and thus waives attorney-client privilege, many companies are placing more of their eggs in the work product basket.   

[6] A litigation hold consists of formal notification of the likelihood of litigation to personnel whose files may contain relevant information, and the implementation of document preservation steps to make certain those materials are not discarded.

© 2010 STEPTOE & JOHNSON LLP, ALL RIGHTS RESERVED

About the Author:

Matthew D. Lerner is a partner in the Washington-based law firm of Steptoe & Johnson LLP, where he is a member of the Litigation and Business Solutions Departments. He represents both corporations and high net worth individuals involved in tax controversies, from pre-audit advice about transaction documentation, file organization and privilege protection, to representation during IRS audits and appeals, through litigation in the Federal Courts. His experience is broad and includes cases involving repair and rehabilitation expenses, asset classification for depreciation purposes, losses from trading in securities and derivatives, corporate restructuring, domestic production activities, international intercorporate transactions, foreign tax credits, tax accounting method questions, and valuation issues. Matt also advises clients facing legal and public relations crises, coordinating responses to congressional inquiries, criminal investigations, civil litigation, public relations scrutiny, and agency review. 

Matt received his J.D. from Harvard Law School, magna cum laude, and was editor of Harvard Law Review. He received his A.B. from Amherst College, Phi Beta Kappa. 202-429-8024 /  www.Steptoe.com