April 6, 2017

Lit Alerts—April 2017

A Publication of the Litigation Practice Group

In This Issue:



Cloud Computing: Magistrate Judge Rules Unprotected Upload to Cloud Storage Site Waived Attorney-Client Privilege and Work Product Protection

In a motion to disqualify defense counsel in Harleysville Insurance Company v. Holding Funeral Home, an insurance coverage dispute, a Magistrate Judge in the Western District of Virginia held that the plaintiff's insurance investigators' upload (without password protection) of the insured's entire Claims File to Box, a popular cloud storage provider, waived any attorney-client privilege or work-product protection that might have attached to the information.

When an email containing the unique link to the information on the Box site was produced in discovery, defense counsel gained access to the site, reviewed the files, and distributed them to their clients and law-enforcement officials. (Plaintiff's counsel had discovered the gaffe when a later document production by defendants included the Claims File.) Because the link was unique and only shared with insurance investigators, counsel for the insurance company argued that the disclosure was involuntary and, even if found to be "inadvertent," did not work a waiver of attorney-client privilege (governed by Virginia state law in this diversity case) or work-product protection (under Federal Rule of Evidence 502).

The Magistrate Judge disagreed, finding that the total lack of precautions taken with the upload, the breadth of the disclosure, and the lengthy delay in rectifying the error waived any claim of attorney-client privilege that might have attached. She further found that her ruling "fosters the better public policy" to ensure that companies understand the risks of cloud storage and take adequate precautions to maintain confidentiality. She also concluded that work-product protection was waived because the disclosure was not "inadvertent" within the meaning of FRE 502(b)(1)—the acts taken to upload the material were not accidental or careless (under the different definition of "inadverten[ce]" under the Federal Rules of Evidence).

Citing "practical considerations"—and noting that even if defense counsel were disqualified on the basis of their access and use of the information, substitute counsel would be able to access and use it given her finding of waiver—the court refused to disqualify defense counsel. She did grant the plaintiff attorneys' fees associated with bringing the motion, finding that defense counsel's underlying conduct merited some sanction, to wit: they did not notify plaintiff's counsel that they had accessed the material (which they should have known might be privileged), sent it to their clients, or shared it with law-enforcement officials; did not seek the court's assistance in determining their ability to use the information; and the only affirmative semi-remedial step they could point to was having called the Virginia State Bar Ethics Hotline. The Magistrate Judge observed that "[t]his court should demand better . . . ."

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Employment: Ninth Circuit Rules Dodd-Frank Applies to Whistleblowers Who Have Not Reported to the SEC

Last month, the Ninth Circuit ruled that Dodd-Frank protects whistleblowers who report wrongdoing internally rather than to the Securities and Exchange Commission.

The case involved a former employee of Digital Realty Trust, Inc. who alleged that he was fired after internally reporting on possible violations of US securities laws. Digital Realty argued that the plaintiff could not rely on Dodd-Frank's whistleblower protections because he did not report the alleged securities laws violations to the SEC. The Ninth Circuit disagreed, ruling that Congress intended the whistleblower protections provided by the Dodd-Frank Act to cover employees who had only reported possible violations to their supervisors but not to the SEC. The Ninth Circuit reasoned that because almost all retaliation would occur during the time between an employee reporting a possible violation to his supervisor and deciding to report the violations to the SEC once his employer did nothing to remedy the situation, narrowing the definition to whistleblowers who reported to the SEC first would leave many potential informers unprotected.

This holding widens the circuit split between the Second and Fifth Circuits—the Second Circuit holds that, because the provision is vague, courts should defer to the SEC's interpretation of the whistleblower protections as extending to employees who only report possible securities violations to their supervisors, while the Fifth Circuit holds that whistleblowers are only protected if they report to the SEC.

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Statutory Interpretation: The "Clarifying Virtues" of the Oxford Comma in the First Circuit

"For want of a comma, we have this case." So begins the First Circuit's recent opinion in O'Connor, et. al., v. Oakhurst Dairy, in which the court issued a victory to lovers of the Oxford comma.

Plaintiffs, delivery drivers for the defendant Maine dairy company, alleged they were entitled to, and wrongfully denied, overtime pay under Maine's overtime statute, 26 M.R.S.A. § 664(3). In response, the dairy company argued that the drivers were not covered by the overtime statute. Exemption F to the overtime statute states that overtime pay is not required for "the canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of…perishable foods." (26 M.R.S.A. § 664(3)(F)). The last phrase, "packing for shipment or distribution," and its conspicuous lack of an Oxford comma, determined the outcome of the case.

The dairy company read this phrase to describe two separate activities: (1) packing (of perishable foods) for shipment, and (2) distribution (of perishable foods). According to the dairy company, its drivers were distributing dairy products, and thus were not protected by the overtime statute. The drivers read the phrase to describe one activity—packing (perishable foods), either for shipment or distribution, which they did not do. Under the drivers' interpretation, Exception F would not apply, and they would be entitled to the protections and compensation afforded by the overtime statute.

On appeal, the First Circuit sided with the drivers. After lengthy discussion of conjunctions and other grammatical devices, the Court found Exemption F to be ambiguous, "largely due to the fact that no comma precedes the words 'or distribution.'" While the presence of such a comma would have practically assured victory for the dairy farmers "beyond dispute," the comma's absence was equally fatal. Left with an ambiguous provision, the Court adopted the drivers' interpretation, which furthered the "broad remedial purpose of the overtime law." In so doing, the Court highlighted the "clarifying virtues" of the Oxford comma, validated its proponents, and reinvigorated a favorite debate of grammar aficionados everywhere.

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Discovery: S.D.N.Y. Issues "Wake-up Call" Regarding Compliance with the Federal Rules of Civil Procedure as Most Recently Amended

In a recent order, S.D.N.Y. Magistrate Judge Andrew J. Peck provided a simple yet blunt discovery reminder to all litigators: "the December 1, 2015 amendments to the Federal Rules of Civil Procedure are now 15 months old, [and] [i]t is time for all counsel to learn the now-current Rules and update their ‘form’ files." Despite the clarity of the "no-longer-new" 2015 Amendments, Judge Peck noted that the Court still sees too many non-compliant Rule 34 responses.

In this decision, the Court discussed four examples of non-compliant discovery responses served by the defendants in Fischer v. Forrest, No. 1:14-cv-01307-PAE-AJP (S.D.N.Y. Feb. 28, 2017), a case asserting claims for, among other things, copyright and trademark violations. The Court highlighted Rule 34(b)(2)(B)'s specificity requirement, reminding litigators that general objections should rarely be used after December 1, 2015, unless each objection applies to each document request. The Court then noted that the December 1, 2015 amendment to Rule 26(b)(1) limiting discovery to material "relevant to any party's claim or defense" rendered objections on the basis of non-relevance to the "subject matter of the litigation" impermissible. The Court also noted that objecting to requests as "overly broad and unduly burdensome" is meaningless boilerplate language that "tells the Court nothing." Finally, the Court stated that the discovery responses did not comply with the rules because they did not indicate when documents and ESI that the defendants were agreeing to produce would actually be produced.

Here, the Court required the defendants to revise their responses to comply with the rules. Judge Peck warned that moving forward, any discovery response that does not comply with Rule 34's current requirement to state objections with specificity and to clearly indicate whether responsive material is being withheld, will be deemed a waiver of all objections, except as to privilege.

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