Attorneys’ ‘absent’ supervision results in client forfeiture of 1,700 sensitive documents

December 13, 2012

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It is a familiar story. A client discloses thousands of privileged documents from an electronic universe of many millions due to alleged failures to supervise a computer consultant. The mistaken production results in a heated clawback motion, in which a judge finds that the attorneys did not take the “reasonable steps” required by law to prevent the disclosure.
 
Those are the facts arising from Blythe v. Bell, a little-reported lawsuit over the control of a sportswear manufacturer in Hickory, North Carolina. The case, in a state business court in Catawba County, bears uncanny resemblance to the high profile J-M Manufacturing skirmish and countless more suits that are either unreported or have yet to happen.
 
In a 22-page order of July 26, superior court Judge James Gale said the defendants in the case must waive attorney-client privilege to 1,700 sensitive documents. He found that their lawyers produced hard drives to plaintiffs “without any review or sampling or other quality assurance.”
 
The defendants in the case are Hickory Brands, Inc. and some of its current and former executives. They filed a motion to “claw back” the privileged documents on April 24, more than four months after producing 3.8 million unprocessed files.
 
Hickory Brands hired a service provider called Computer Ants, whose owner and operator, Thomas Scott, testified to never having performed forensic services in the context of a lawsuit.
Scott, who the defendants tasked with producing documents responsive to search terms from a total of 308 million potentially relevant files on 35 computers and six servers, had previously worked as a truck driver and a security manager for Bass Pro Shop.
 
In a letter to the plaintiffs dated April 4, defense counsel at Young, Morphis, Bach & Taylor, in Hickory, characterized the efforts of Computer Ants as “not very sophisticated” and having included no efforts to filter the data for privileged materials.
 
State court trial practice inexperienced in e-discovery, attorneys say
The case underscores the e-discovery plight of small state courts, where federal e-discovery case law offers little roadmap and lawsuits with vast electronic evidence are not yet the norm. The North Carolina General Assembly adopted comprehensive, technical procedural rules to address e-discovery in October 2011. Still, Judge Gale acknowledges, “Case law addressing problems inherent in electronic discovery… is not well developed.”
 
In asking the court to grant the clawback motion, attorneys for the defendants cited the inexperience of state courts and practitioners in dealing e-discovery issues. The judge dismissed that excuse.
 
Judge Gale also acknowledged the “extraordinary expense” associated with reviewing voluminous document productions for privilege, and suggested the defendants tried to cut costs by producing what plaintiffs termed a “document dump.”
 
“While such [discovery] choices may be informed and reasonable ones, [they] must at the same time absorb the risk of a privilege waiver,” he wrote.
 
Attorneys for the defendants at Young Morphis did not respond to multiple requests for comment, nor did Thomas Scott, of Computer Ants.
 
Defendant Hickory Brands, through attorney Scott Meyers, of Ellis Winters in Greensboro, declined comment. Attorneys for the plaintiffs at Moore & Van Allen in Charlotte did not respond to requests for comment.
 
Case raises questions over e-discovery due diligence, attorney-client roles
The case puts into sharp focus the risks inherent to the attorney, to the client, and to the service provider when parties, knowingly or not, spurn e-discovery duties. Carelessness or negligence may result in the waiver of privileges, sanctions and other court-ordered penalties. It may also inflict reputational damage that lasts long after the case has been decided and the fines paid.
 
The defendants are said to have delegated crucial tasks to the inexperienced service provider, and produced its work “without so much as a cursory review.” The defendants produced a subsequent set of documents that omitted the privileged material, but the privilege had already been waived, the judge ruled.
 
Testimony suggests outside lawyers acted on instructions from the client. In his order, Judge Gale recounted the following exchange between plaintiffs’ lawyer Mark Nebrig and Hickory Brands president Joshua Higgins, during the deposition of the latter:
 
Nebrig: Is [Hickory Brands] aware of anyone reviewing the material… before it was produced to plaintiffs counsel?
 
Higgins: No.
 
Nebrig: Did the company instruct anyone to review what was on the hard drive before it was produced to plaintiffs’ counsel?
 
Higgins: No.
….
Higgins: It would not make sense for the company to spend time going through the emails…. It’s more of an open book. I mean, you asked for something and we’re giving you the information you asked for.
 
Nebrig: The company made the decision not to review that material… that was produced to plaintiffs’ counsel for privileged information; is that your testimony?
….
Higgins: It was the company’s decision not to review it period.
 
The exchange speaks to a thorny area of e-discovery in which professional duties may conflict with instructions from a client.
 
“It’s the client’s privilege to assert and the lawyers’ job to follow instructions,” attorney Victor Gold, a leading evidence expert and professor at the Loyola Marymount School of Law, in Los Angeles, tells ACEDS.
 
Attorney oversight of vendor ‘absent,’ judge says
Following federal precedent, Judge Gale implemented a five-factor analysis to determine whether the defendants had waived privileged. He considered:
 
1. The reasonableness of the precautions taken to prevent the disclosure,
2. The number of inadvertent disclosures,
3. The extent of the disclosures,
4. Any delay in measures taken to rectify the disclosures,
5. And the overriding interests of justice.
 
Addressing the first factor, Judge Gale wrote, “Defendants admit… they relied exclusively on ‘this contractor (Computer Ants) and this procedure (instructing it to remove all emails containing “hickorylaw.com,” signifying defense attorneys’ law firm) to filter out documents….”
 
“[T]he court also concludes that efforts by a consultant demand a degree of oversight that is absent here,” Judge Gale continued.
 
The order also stresses the risks of delegating crucial document review tasks to service providers without the requisite attorney supervision. Recent advisory opinions issued by the Washington DC Bar and the DC Court of Appeals have warned attorneys they could run afoul of ethical duties by outsourcing legal work to non-lawyers.
 
Patrick Montoya, a partner at Colson Hicks Eidson, in Miami, says lawyers should “cross-examine” themselves to assure they’re meeting professional and ethical duties when performing e-discovery.
 
“If I’m the lawyer and I had to be put on the stand about my due diligence, what would I be asked? Did I meet with the client? Did I sit down with them? Did I go out to the [document review] site? You need to be sure you’re doing all these things so you’re clean if you’re ever cross examined,” he says.
 
“It’s a standard of care thing.”