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Category: Appellate

Is the Specter of New Rule 37(e) Influencing District Courts in Spoliation Rulings?

We have written multiple times on the EDVa Update Blog about the Court’s handling of spoliation claims. Recently we covered the 4th Circuit’s remand of a District Court ruling applying an adverse inference following a failure to preserve certain evidence.  We have also written on the workings of amended Fed. R. Civ. P. 37(e).  With sweeping changes ahead with the amendment to Rule 37(e) (effective date: December 1, 2015), the Court’s analysis of spoliation claims and associated sanctions will undergo major changes.

The Eastern District’s 61-page opinion in Integrated Direct Marketing, LLC v. May & Merkle, Inc., Case No. 1:14-cv-1183 (E.D. Va. Sept. 8, 2015), is likely one of the last pre-Rule 37(e) amendment spoliation rulings we will see. In this case, the ruling is consistent with the analysis that will soon apply, but the District Court in the case took a very different route to get to the same place. Even though the record included substantial evidence of ESI spoliation, the Court based its ruling on its finding of false statements in an affidavit, which allowed it to side-step the current legal swamp on spoliation.

IDM Case Posture: Summary Judgment and Spoliation Arguments

The IDM case presented an unfortunate but common fact pattern.   It is alleged in the pleadings that Drew May, an Executive Vice President at IDM, was pushed out of the company.   As he left, he allegedly downloaded a large number of IDM’s electronic documents to an external hard drive. May then signed on as new vice president at Merkle, a competitor to IDM.   While IDM was threatening suit, the former VP allegedly deleted (on the day before the filing of the Complaint) many of the IDM documents that he allegedly downloaded to his external hard drive. The deletion activity allegedly continued for the next couple weeks. Since the VP knew of the credibly threats of a lawsuit, there was a duty preserve relevant ESI and documents.

IDM sued in the Alexandria Division of the Eastern District on multiple counts. The lead claims were for trade secrets misappropriation, breach of fiduciary duty, beach of a confidentiality agreement, and conversion. The discovery quickly turned to the ESI on the VP’s external hard drive.

IDM retained Craig Ball, a nationally-known eDiscovery attorney and forensic investigator to examine the VP’s external hard drive.  Ball uncovered the VP’s conduct and identified more than 500 deleted IDM documents. Ball’s work also identified incriminating dates of the VP’s alleged deletions.

After a prolonged discovery war, both defendants moved for summary judgment arguing that there were no trade secrets involved and there had been no misappropriation. Defendant Merkle was apparently able to distance itself from the VP’s conduct; the Court granted Merkle’s motion on all counts.

The VP’s defense was complicated by the spoliation and false statement issues. The Court’s opinion notes that relevant evidence was not truly lost, and in fact, had been recovered. The Court was nonetheless troubled by the conduct, which included false statements in an affidavit submitted to the Court. IDM’s substantive case, however, was deteriorating. It faced an added hurdle that its designation of experts came late, and the Court had barred the damages experts from testifying—a huge problem in proving IDM’s $46 million claimed damages.

In its post-discovery pleadings, IDM emphasized the evidentiary spoliation and the VP’s false statements, and it targeted the most severe spoliation sanctions—striking of defenses and/or an adverse inference instruction to the jury.

The District Court‘s solution in its rulings was to veer away from spoliation and to focus on the false statements in the VP’s affidavit. Curiously, the Court concluded that since the forensic work led to the recovery of the deleted ESI, there was “insufficient evidence to support a finding of spoliation.” In its remedy, the Court avoided the draconian sanctions requested by IDM, but imposed stiff financial sanctions against the VP.

The VP’s motion for summary judgment was granted on all but the conversion counts, but the Court ordered him to pay a portion of IDM’s attorney’s fees plus the forensic expert’s bill.

Influence of Rule 37(e)’s Upcoming Arrival?

The District Court’s ruling comes under the current rules and case law. In 10 weeks, however, amended Rule 37(e) will be effective, and the requisite analysis will shift. The coming rule will limit the Court’s inherent authority to impose spoliation sanctions (instead, authority will come from the new amended Rule), will structure the factual and legal analysis, and will direct turning away in most situations from the draconian sanctions and towards remedies that are not outcome determinative. Hopefully, what is currently a legal swamp will disappear, and District Courts will then see have a clearer analytical path and predictable sanctions.

Notwithstanding the District Court’s conclusion that there was insufficient evidence to support a finding of spoliation (the findings suggest egregious spoliation but not real prejudice to IDM), it appears that IDM had a serious argument that the VP’s conduct supported striking his defenses or giving IDM an adverse inference instruction. Even under the upcoming new Rule 37(e) provisions, the VP’s spoliation arguably could support the imposition of the requested draconian sanctions. But the new Rule and the accompanying Committee Note state a preference for the alternative yet less-severe sanctions.

The IDM Court arrived at a solution that would be consistent with the coming rule. But the Court arrived at this result by a very different route.   The lengthy opinion side-stepped entirely the spoliation issue, and thereby avoided the current legal swamp. Instead, the Court grounded its ruling on the VP’s submission of a false affidavit.   This is an understandably safe route, but an unnecessary path after December 1, 2015 under the new Rule 37(e).

Is the Standard for Summary Judgment Evolving in EDVA?

Is the standard for summary judgment evolving, and has the Eastern District kept up with the evolution? 

In a July 6, 2016 decision in Guessous v. Fairview Property Investments, LLC, (Dkt. No. 15-1055), the Fourth Circuit reversed Judge Lee on all six counts in a fairly standard discrimination case.  The Court found repeatedly that the record was sufficient to permit a reasonable jury to find for the plaintiff, yet the District Court had credited the Defendant’s summary judgment evidence and granted summary judgment.  Stated differently, the appellate court reminds us that a district court’s weighing the evidence at summary judgment is impermissible.

The adjustment to the summary judgment standard traces to a May 2014 Supreme Court decision in what was a fairly routine § 1983 case.  In Tolan v. Cotton, 572 U.S. __ , 134 S.Ct. 1861 (2014), a Texas district court had granted summary judgment to a police officer deciding that his conduct in a police shooting was “objectively reasonable.”  There was evidence on both sides of the summary judgment issues; the district court weighed the evidence and came down in favor of the police officer.

The Fifth Circuit affirmed, albeit on different grounds, but three judges on that court voted in favor an en banc hearing. The case could easily have been passed over at the certiorari stage (Justice Alito, joined by Justice Scalia, wrote a concurring opinion complaining that the case was so routine that the Court should not have granted certiorari), but it seemed that several of the Supreme Court justices were looking for the opportunity to remind lower courts that a judge’s function at summary judgment is not to weigh the evidence but to determine whether there is a genuine issue for trial.”  This is the time-honored directive from Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986), but the Court’s Tolan decision suggests that justices believed that the standard needed some reinforcing.

The Fourth Circuit followed Tolan a few weeks later in McAirlaids, Inc. v. Kimberly-Clark Corp., 756 F.3d 307, 310 (4th Cir. 2014).  It then quoted from Tolan: “It is an ‘axiom that in ruling on a motion for summary judgment, [t]he evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor.’”   Not long afterwards, in March 2015, the Fourth Circuit provided “further elaboration” of the summary judgment standard in Jacobs v. N.C. Admin. Office of the Courts, 780 F.3d 562, 568 (4th Cir. 2015).  In an ominous introduction that highlighted a “clear misapprehension of summary judgment standards”, the panel of Judges Floyd, Keenan, and Harris cited Tolan:

Ordinarily we would begin our discussion with a brief restatement of the standard of review for a motion for summary judgment. When “the opinion below reflects a clear misapprehension of summary judgment standards,” however, further elaboration is warranted. Tolan v. Cotton (citations omitted) (per curiam).

Given this harsh treatment of the district court, it was no surprise that the Fourth Circuit reversed in part and remanded for trial.  The Court observed that in the Tolan case the district court had “fail[ed] to credit evidence that contradicted some of its key factual conclusions” and “improperly ‘weighed the evidence’ and resolved disputed issues in favor of the moving party.”

The Tolan and Jacobs decisions arguably provide a course correction in the summary judgment standards in cases where there is conflicting record evidence. The frequent Tolan quote is this:

Where there is conflicting evidence, the court must credit the evidence of both sides and acknowledge that there is a genuine issue of material fact that cannot be resolved by summary judgment. See Tolan v. Cotton (stating that summary judgment is inappropriate where each side has put forward competent evidence that raises a dispute about a material fact).

Westlaw identifies more than 870 case citations to Tolan.  Granted, many of the citations are for the § 1983 issues, but the case still stands tall because of the adjustments to the summary judgment standard.  Since Tolan, the above quote appears in multiple summary judgment rulings by Judge Cacheris, and in several ruling by Judge O’Grady.  Magistrate Judge Buchanan has also cited Tolan.  The Westlaw search shows, however, no other reliance either way on Tolan in the Alexandria Division of the Eastern District.

Sometimes district courts cite only the controlling circuit court decision without mentioning the Supreme Court case. The leading Fourth Circuit authority is the Jacobs decision.  Westlaw confirms that Jacobs has been cited in 136 cases, with most of these from within the circuit; there are more than 70 citations from the Maryland District Court, but only four from the Eastern District of Virginia, and just one of those four is from the Alexandria Division.

The Fourth Circuit’s Guessous decision relies on both Tolan and Jacobs.  The Court writes:

The court must “view the evidence in the light most favorable to the [nonmoving] party.”  Tolan v. Cotton, 134 S. Ct. 1861, 1866 (2014) (internal quotation omitted).   “The court . . . cannot weigh the evidence or make credibility determinations.” Jacobs v. N.C. Admin. Office of the Courts, 780 F.3d 562, 568-69 (4th Cir. 2015).  In general, if “an issue as to a material fact cannot be resolved without observation of the demeanor of witnesses in order to evaluate their credibility, summary judgment is not appropriate.” Fed. R. Civ. P. 56 advisory committee’s note to 1963 amendment.

Guessous at 16-17.  It is after these pointed citations that the Court launches into its “reasonable jury” analysis.   “A reasonable jury could easily conclude, however . . .”       Id. at 22. “This alone would be enough to allow a reasonable jury to conclude. . .”   Id. at 23.  “[T]he record is sufficient to permit a reasonable jury to conclude . . .” Id. at 28.  “[A] reasonable jury would certainly be entitled to reach a different conclusion . . .”   Id. at 30.  The Court’s unanimous decision reversed and remanded on all six counts.

Because so much of the Eastern District’s civil docket encounters summary judgment, Tolan and Jacobs are important precedents.  Other districts within the circuit, mostly notably the District of Maryland, seem to have recognized the course adjustment.  The Guessous decision perhaps is a wake-up call to the rest of the circuit, including the Eastern District of Virginia, to recognize the appellate direction for a tighter summary judgment standard.

President Trump’s Immigration Executive Order Heads to the Fourth Circuit

The Trump Administration issued its replacement Immigration Executive Order on March 6, 2017 (Order No. 13,780).  This Executive Order arrived three weeks after several federal courts, including the EDVa and the Ninth Circuit, enjoined enforcement of core terms of the earlier Immigration Executive Order (Order No. 13,769).

In this Blog Post, we report on two federal court rulings blocking enforcement of the replacement Immigration Executive Order. EDVa has not yet been drawn into this legal battle.  But it is emerging that Judge Brinkema’s analysis in her widely-reported February 13, 2017 decision in Aziz v. Trump provides the template for judicial review of the new Executive Order.  This Post revisits Judge Brinkema’s decision and shows how the decisions this week from federal courts in Hawaii and in Maryland have tracked her analysis.  This analysis will soon be scrutinized in the Fourth Circuit, as, the Government noticed its appeal late on Friday night (March 17).

We previously reported on Judge Brinkema’s ruling in Aziz v. Trump granting the Commonwealth of Virginia’s Motion for a Preliminary Injunction.  Judge Brinkema ruled that Virginia would likely prevail on its Establishment Clause claim and issued a narrowly-drafted Preliminary Injunction Order.  No appeal was taken by the Government.

The Aziz v. Trump decision is significant not so much for developments in Immigration Law (although it has significance consequences), but for the three-step analysis applied by Judge Brinkema: (1) It was first decided that Virginia had standing to challenge the Executive Order as a party whose own interests were at stake (the Court did not reach a decision on Virginia’s parens patriae standing theory); (2) her opinion then confirms that federal courts unquestionably have the authority to review the constitutionality of actions by the Executive Branch, including actions of the President; (3) and lastly, perhaps most importantly, a federal court does not have to accept the facial justifications offered for Executive Branch action, but may consider evidence of contrary, unconstitutional motives.

The Replacement Immigration Executive Order

The Administration’s replacement Immigration Executive Order is identically entitled “Protecting the Nation from Foreign Terrorist Injury into the United States.”  The Order seeks to restrict the entry of foreign nationals from specified countries and suspends entrance from the United States refugee program for a set time period.   The new Order seeks to address the Ninth Circuit’s February 9, 2017 decision in Washington v. Trump, and to some degree to answer concerns from Judge Brinkema’s February 13, 2107 Aziz v. Trump decision.

Some of the more obvious flaws and procedural frailties from the earlier Immigration Executive Order are either omitted or repaired, but the core of the order remains essentially unchanged.  That is, the so-called “travel ban” provisions remain in the Order.

The Hawaii Court’s Ruling and “Pretextual Justification”

The legal arguments have shifted slightly in the challenges to the new Immigration Executive Order. In the February challenges to the first Order, the Government argued that the President’s actions in the realm of national security could not be reviewed by a federal court. When Judge Brinkema and the Ninth Circuit forcefully batted down this argument, the Government was left without any factual defense.  Recall that Judge Brinkema’s opinion cited Virginia’s factual allegations showing evidence that the Order’s true purpose was to block Muslim entry into the United States.  The evidence included multiple quotes from Donald Trump on the campaign trail, and added quotations from Rudy Giuliani alleging that the purpose of Order was to make good on the so-called “Muslim Ban” campaign promises.

In wading into the Pretextual Justification issue, Judge Derrick K. Watson, from the Hawaii District Court, begins with an acknowledgment that “It is undisputed that the [new] Executive Order does not facially discriminate for or against any particular religion, or for or against religion versus non-religion.”  The Government argued that the core language was “religiously neutral,” and that the new Immigration Executive Order could not have been religiously motivated because “the six countries represent only a small fraction of the world’s 50 Muslim-majority nations, and are home to less than 9% of the global Muslim population . . . .”  The Government continued that “[C]ourts may not ‘look behind the exercise of [Executive] discretion’ taken ‘on the basis of a facially legitimate and bona fide reason.’”  In the Government’s analysis, this should have ended the case and defeated Hawaii’s arguments.

But the Hawaii federal judge did not stop with the Government’s argument.  He cited the Ninth Circuit’s February 9, 2017 decision regarding the earlier Immigration Executive Order in Washington v. Trump:  “It is well-established that evidence of purpose beyond the face of the challenged law may be considered in evaluating Establishment and Equal Protection Clause claims.”  This is the entry of the “Pretextual Justification” issue: Were the Trump Administration’s facially-neutral legal justifications intended to obscure a purpose of barring Muslim immigrants?

The allegations of anti-Muslim animus—taken in substantial part from the record in Aziz v. Trump—was obviously not going away.  Judge Watkins continued, “Any reasonable, objective observer would conclude, as does the Court for purposes of the instant motion for TRO, that the stated secular purpose of the Executive Order is, at the very least, ‘secondary to a religious objective’ of temporarily suspending the entry of Muslims.”

The evidentiary record before Judge Watson included more than the Trump campaign statements and promises, and more than the Giuliani commentary on a “Muslim ban.”  The judge had before him the earlier Declaration National Security Officers that criticized the Trump Administration’s arguments.   In the view of Judge Watson, the Administration’s case was further damaged a by February 21, 2017 statement by Stephen Miller, the President’s Senior Advisor.  Miller stated, “fundamentally, [despite ‘technical’ revisions meant to address the Ninth Circuit’s concerns in Washington v. Trump,] you are still going to have the same basic policy outcome [as the first].”

The Hawaii District Court found that the plaintiffs would likely prevail on their Establishment Clause claim.   Late on March 15, 2017, Judge Watson entered a nationwide TRO enjoining enforcement of Sections 2 and 6 of the new Immigration Executive Order.  Section 2(c) is the “travel ban” part of the Order, and Section 6 suspends the refugee program.

Maryland Federal Court Frames Issue as “Pretextual Justification”

Meanwhile, in the Maryland District Court, Judge Theodore D. Chuang authored a 43-page opinion in International Refugee Assistance Project v. Trump.  Judge Chuang released his decision on March 16, 2017, along with a nationwide preliminary injunction enjoining enforcement of Section 2(c) of the new Executive Order. Unlike the earlier cases involving the first Immigration Executive Order where the lead plaintiffs were the states, the plaintiffs in the Maryland action are nonprofit entities and several individuals. The Maryland District Court, however, had no difficulty finding that these plaintiffs have standing.

As in the Hawaii ruling, the Maryland plaintiffs prevailed on the Establishment Clause claim, the greatest vulnerability for the Immigration Executive Order.  The Court considered in some detail claims based on the Immigration and Nationality Act, but rejected those claims.  The Court also weighed and credited a number of the Government’s arguments. For example, the President’s assertions that the Order is driven by national security and foreign policy judgments is in the opinion recognized as a valid secular purpose.

Judge Chuang, citing Supreme Court precedent, framed the critical issue this way: “The question, however, is not simply whether the Government has identified a secular purpose for the travel band.  If the stated secular purpose is secondary to the religious purpose, the Establishment Clause would be violated.”  Here the Government’s argument that the case is only about a “facially legitimate and bona fide reason” for the Executive Branch action is rejected   The judge concludes that “in this highly unique case, the record provides strong indication that the national security purpose is not the primary purpose for the travel ban.”

Where Do We Go From Here?  To the Fourth Circuit.

The Government has now picked its battleground.   Late on Friday, March 17, 2017, the Government noticed its appeal of the Maryland District Court ruling to the Fourth Circuit.  While Judge Brinkema’s ruling will not formally reach the Fourth Circuit, her reasoning will be examined on appeal when the Circuit Court reviews Judge Chuang’s decision.

Under the current Briefing Order, the Government’s Opening Brief will be due on April 26, 2017 in the Fourth Circuit.  Unlike in last month’s Ninth Circuit consideration in the Washington case where the Government sought emergency review of the TRO, the Government is not seeking an emergency review of the Maryland District Court’s preliminary injunction ruling.  After the Government’s rough experience in the Ninth Circuit, it was probably an easy decision to go to Richmond rather than San Francisco.