Procaps S.A. v. Patheon Inc.
Procaps S.A. v. Patheon Inc.
2014 WL 11498061 (S.D. Fla. 2014)
December 30, 2014
Goodman, Jonathan, United States Magistrate Judge
Summary
The court denied Procaps' motion for a forensic analysis of Patheon's ESI, finding that the circumstances were different and that Procaps had not provided evidence of spoliation or any other legal standard for requiring a forensic analysis. The court also denied Procaps' implicit motion to compel discovery, as discovery was closed and the parties' agreement to hold discovery in abeyance was legally insufficient.
Additional Decisions
Procaps S.A., Plaintiff,
v.
Patheon Inc., Defendant
v.
Patheon Inc., Defendant
CASE NO. 12-24356-CIV-GOODMAN
Signed December 30, 2014
Counsel
Chris S. Coutroulis, Donald R. Schmidt, D. Matthew Allen, Carlton Fields Jorden Burt, P.A., Tampa, FL, Gary Michael Pappas, Charles Woodward Throckmorton, V, David Lanier Luck, Alan Rosenthal, Natalie Jessica Carlos, Carlton Fields Jorden Burt, P.A., Miami, FL, Karen L. Hagberg, Michael B. Miller, Morrison & Forester, New York, NY, Avi Robert Kaufman, Kopelowitz Ostrow Ferguson Weiselberg Gilbert, Coral Gables, FL, Robert Wayne Pass, Carlton Fields Jorden Burt, P.A., Tallahassee, FL, for Plaintiff.David A. Vogel, Douglas P. Lobel, Robert T. Cahill, Cooley, LLP, Reston, VA, Dee Bansal, Joshua M. Siegel, M. Howard Morse, Marc Schildkraut, Michael J. Klisch, Meredith M. Snyder, Cooley, LLP, Washington, DC, Mary Kathryn Kelley, Mazda K. Antia, Cooley, LLP, San Diego, CA, Robert Mark Brochin, Morgan, Lewis & Bockius LLP, Miami, FL, for Defendant.
Goodman, Jonathan, United States Magistrate Judge
ORDER ADOPTING SPECIAL MASTER'S REPORT AND RECOMMENDATION THAT PROCAPS MOTION FOR A FORENSIC EXAMINATION OF PATHEON'S ELECTRONICALLY STORED INFORMATION BE DENIED
*1 The Special Master, who both parties agreed to, filed an 85–page report [ECF No. 627] recommending denial of Plaintiff Procaps S.A.'s (“Procaps”) “Motion to Compel Forensic Analysis of Patheon and Banner's ESI” [ECF No. 559]. Procaps wanted the Court to compel a forensic examination of the electronically stored information (“ESI”) systems of Defendant Patheon, Inc. (“Patheon”) and affiliated companies, including Banner, which used to be a Procaps' competitor. This issue has been the subject of comprehensive briefing, both before and after the Special Master issued his report.
Procaps filed its motion [ECF No. 559], Patheon filed a response [ECF No. 568] and Procaps filed a reply memorandum [ECF No. 585]. Following a hearing with the Special Master, both Patheon and Procaps filed supplemental memoranda [ECF No. 604; 606]. After the Special Master issued his comprehensive Report and Recommendation, Procaps filed objections [ECF No. 629], Patheon filed a succinct [ECF No. 630] motion to adopt the Report and Recommendation, Procaps filed a short opposition [ECF No. 631] to the motion (for the reasons outlined in its objections) and Patheon filed an opposition [ECF No. 632] to Procaps' objections.
The Court's Order Appointing Neutral Special Master for ESI Issues [ECF No. 558] provides that objections to conclusions of law and findings of fact made or recommended by the Special Master would be subject to de novo review. It also provided that any report or order issued by the Special Master, unless it involved a finding of fact or conclusion of law, would be deemed a ruling on a procedural matter, to be set aside only where it is an abuse of discretion.
Procaps urges a de novo review.
At bottom, Procaps wants the Court to order a forensic analysis in order to fix what it calls a “discovery imbalance” created by the Court's earlier Order requiring a forensic analysis of Procaps' ESI. [ECF No. 629, p. 2]. Procaps contends that the Court used a different, less–stringent standard when evaluating the request to forensically examine its ESI and argues that the Court's approach is fundamentally unfair. [Id.]. Alternatively, at a bare minimum, Procaps asks that the Court order a re–evaluation and re–search, by an independent forensic examiner, of the 3 million documents already in possession of Patheon's counsel, based on more–complete search terms. [Id. at p. 5].
Patheon contends that a de novo review is inappropriate because that standard applies only where the objecting party has sufficiently pinpointed precise objections to specific findings in a report and recommendation and then articulated legal grounds for each objection. [ECF No. 632, p. 2]. Patheon argues that Procaps' arguments are too vague and do not challenge any specific findings or identify any particular legal error. [Id.]. Instead, Patheon says, Procaps' objections should be summarily overruled as overly conclusory and general. [Id.]. According to Patheon, Procaps' objections effectively demand that the Court itself “comb through the extensive record itself and analyze de novo every single finding in an 85–page R & R in an effort to uncover possible errors.” [Id.].
*2 Patheon also challenges the merits of Procaps' arguments (even though Patheon brands them as general objections). [Id. at pp. 3–5].
For the reasons outlined below, the Court approves, adopts and ratifies the Special Master's 85–page Report and Recommendations and rejects Procaps' objections.
Standard of Review
Federal Rule of Civil Procedure 53(f)(3) and (4) provide that a court must “decide de novo” all objections to findings of fact and conclusions of law made or recommended by a master, unless the parties, with the court's approval, stipulate otherwise. Subsection (5) provides that the court may set aside a master's ruling on a procedural matter only for an abuse of discretion, unless the appointing order establishes a different standard of review. As outlined above, the Order appointing the special master adopted the standards established in subsections (3), (4) and (5).
A party objecting to a special master's rulings or recommendations must “state the specific objections to the Special Master's ruling or provide any factual or legal support for such objections.” Bray & Gillepsie Mgmt. LLC v. Lexington Ins. Co., No. 6:07–cv–222–Orl–35KRS, 2008 WL 5110541 (M.D. Fla. Dec. 1, 2008). When a party fails to follow this standard, then courts do not use the more–exacting standard of de novo review –– but, instead, use the clear error standard of review. Therefore, a party seeking de novo review of a magistrate judge's report and recommendation or a special master's ruling or report and recommendation must “specifically identify those findings objected to.” Leatherwood v. Anna's Linen Co., 384 Fed.Appx. 853, 857 (11th Cir. 2010).
Phrased differently, a court will not use a de novo review standard for “frivolous, conclusive or general objections.” Id. (district court did not err in using de novo review for only two of several objections and using clear error standard for the other objections because the two were the “only objections that identified specific findings set forth in the R & R and articulated a legal ground for objection”). Likewise, Federal Rule of Civil Procedure 72(b)(3) provides that a court must conduct a de novo review of any part of a magistrate judge's report and recommendation that has been “properly objected to.” (emphasis added). See also Marsden v. Moore, 847 F.2d 1536, 1548 (11th Cir. 1988) (holding that a habeas petitioner did not sufficiently object to a magistrate judge's recommendation because his objection was insufficiently clear and precise, and explaining that parties objecting to report must specifically identify those findings objected to). Cf. United States v. Schultz, 565 F.3d 1353, 1360–1361 (11th Cir. 2009) (holding that party wishing to preserve objection to report must clearly advise the district court and “pinpoint the specific findings that the party disagrees with,” and noting that “it is reasonable to place upon the parties the duty to pinpoint those portions of the magistrate's report that the district court must specially consider”).
Patheon argues that Procaps' Objection did not challenge any of the Report's specific findings or cite any legal authority and did not identify any legal factual or legal error which, if corrected, would justify the requested forensic analysis of Patheon's ESI. [ECF No. 632, p. 2]. Patheon brands the objections as “clearly ‘conclusive’ and ‘general.’ ” [Id. (internal citations omitted) ].
*3 In that regard, Patheon contends that Procaps' Objections do not target specific sections of the Special Master's Report as being legally or factually incorrect. Instead, Patheon argues, in effect, that Procaps' Objections assert only broad themes: (1) that the Special master's Report would lead to an imbalanced and fundamentally unfair discovery process; (2) that the Special Master used a stricter standard than the one the Undersigned used when granting Patheon's motion for a forensic analysis of Procaps' ESI; and (3) that portions of the Special Master's Report are premised on his view that the requested relief is beyond the scope of his appointment and authority.
Given this supposed lack of specificity, Patheon argues that the Court should summarily overrule the Objections. The Court is not going to follow that suggested approach. To be sure, the Objections are largely conclusory and general and challenge perceived results flowing from the Report, rather than focusing on alleged legal grounds for rejecting certain findings and conclusions. Thus, the Court would be conducting an adequate review if it used the clear error standard. Nevertheless, in an abundance of caution, the Undersigned will use a de novo standard of review to evaluate Procaps' three broad, non–specific categories of challenge to the R & R.
Standards for Obtaining a Forensic Examination of ESI
Courts may tailor discovery orders to remedy harm caused by a failure to implement litigation holds to preserve potentially relevant evidence. Conducting a forensic examination is a way to determine if relevant evidence currently exists or previously existed and was lost or destroyed. Nacco Materials Handling Group, Inc. v. Lilly Co., 278 F.R.D. 395 (W.D. Tenn. 2011). In order for a party to obtain a forensic analysis of its adversary's computer system, the Court must make a “factual finding of some non–compliance with discovery rules.” In re Ford Motor Co., 345 F.3d 1315, 1317 (11th Cir. 2003) (reversing order requiring forensic analysis).
Generally speaking, courts do not require a forensic analysis in the absence of consent unless there has been significant non–compliance with discovery obligations. Powers v. Thomas M. Cooley Law School, No. 5:05–CV–117, 2006 WL 2711512, at *5 (W.D. Mich. Sept. 21, 2006); Mirbeau of Geneva Lake LLC v. City of Lake Geneva, No. 08–CV–693, 2009 WL 3347101, at *1 (E.D. Wis. Oct. 15, 2009) (forensic analysis appropriate “[o]nly if the moving party can actually prove that the responding party has concealed information or lacks the expertise necessary to search and retrieve all relevant data”). Cf. Daimler Truck N. Am. LLC v. Younessi, No. 08–MC–5011RBL, 2008 WL 2519845, at *3 (W.D. Wash. June 20, 2008) (denying forensic analysis where there was no evidence that documents were destroyed and where the court predicted the responding party would produce the discovery); U & I Corp. v. Advanced Med. Design, Inc., 251 F.R.D. 667, 675–76 (M.D. Fla. 2008) (defendant satisfied In re Ford's non–compliance with discovery standard because plaintiff had committed several serious discovery violations).
Requiring a forensic analysis of ESI is an unusual and “drastic” remedy and is therefore the “exception and not the rule.” In re Ford, 345 F.3d at 1317. See also Downs v. Va. Health Sys., No. 5:13cv00083, 2014 WL 3604002, at *1 (W.D. Va. June 2, 2014).
Framed by these principles, courts compel a party to turn over its computers for a forensic ESI analysis only where there is a strong showing that the party (1) intentionally destroyed evidence, or (2) intentionally thwarted discovery. Powers, 2006 WL 2711512, at *5. The rule is similar in state courts in Florida. See Holland v. Barfield, 35 So. 3d 953 (Fla. 5th DCA 2010) (granting writ of certiorari and quashing order requiring defendant to produce her computer hard drive).
*4 Concerning the first of the two prongs, a party is found to have intentionally destroyed evidence when it purposefully destroys evidence it has a duty to produce. Koosharem Corp. v. Spec Pers, LLC, No. 6:08–583–HFF, 2008 WL 4458864, at *1 (D.S.C. Sept. 29, 2008) (forensic evaluation ordered after every email defendant produced was inauthentic and court noted that defendant revised and forged email content); Playboy Enters. v. Welles, 60 F. Supp. 2d 1050, 1051 (S.D. Cal. 1999) (authorizing forensic ESI evaluation after methodical deletion of relevant emails once litigation began).
For the second prong, a party intentionally thwarts discovery by violating court orders to produce, purposefully hides responsive documents and fails to initiate a reasonable process to search for, collect and produce responsive ESI. U and I, 251 F.R.D. at 675–76. Conversely, a party does not intentionally thwart discovery where it undertakes a reasonable, good faith process to locate and produce documents. Henderson v. U.S. Bank, N.A., No. 08C0839, 2009 WL 1152019, at *2 (E.D. Wis. Apr. 29, 2009) (concluding that bank's demand for direct access to its former employees' electronic materials was premature).
In addition, a party's “mere desire to check” on another party's production is usually not a “good enough reason” to allow a forensic inspection. Memry Corp. v. Kentucky Oil Tech, N.V., No. C04–03843 RMW, 2007 WL 832937, at *4 (N.D. Cal. March 19, 2007) (denying requested forensic inspection and noting that the requesting party had not demonstrated sufficient flaws in production and noting that less–than–perfect document production does not “necessarily rise to the level of necessitating production of hard drives”).
Downs v. Health Systems provides a helpful summary of the applicable law:
[F]ederal courts “have been cautious in requiring the mirror imaging of computers where the request is extremely broad in nature and the connection between the computers and the claims in the lawsuit are unduly vague or unsubstantiated in nature.” John B. v Goetz, 531 F.3d 448, 459–60 (6th Cir. 2008) (quoting Balboa Threadworks, Inc. v. Stucky, 2006 U.S. Dist. LEXIS 29265, *9 (D. Kan. Mar. 24, 2006) (citations omitted)). Likewise, it is not surprising that “mere skepticism that an opposing party has not produced all relevant information is not sufficient to warrant drastic electronic discovery measures.” John B., 531 F.3d at 460 (citing McCurdy Group, LLC v. Am. Biomedical Group, Inc., 9 Fed. Appx. 822, 831 (10th Cir. 2001)). “ ‘[A] mere desire to check that the opposition has been forthright in its discovery responses is not a good enough reason’ for a court order compelling an exhaustive computer forensic examination.” Nola Spice Designs, LLC v. Haydel Enters., 2013 U.S. Dist. LEXIS 108872, *7 (E.D. La. Aug. 2, 2013) (quoting Memry Corp. v. Kentucky Oil Technology, N.V., 2007 U.S. Dist. LEXIS 22488 (N.D. Cal. Mar, 19, 2007)). On the other hand, restrained and orderly computer forensic examinations have been permitted, where the moving party has demonstrated that the opposing party has defaulted in its discovery obligations by unwillingness or failure to produce relevant information by more conventional means. White v. Graceland College Center etc., 2009 U.S. Dist. LEXIS 22068, *22, 24–25 n. 17 (D. Kan. Mar. 18, 2009).
Denying Procaps' Motion Does Not Generate an Unfairly “Imbalanced” Discovery Process
*5 Procaps argues that the Special Master's Report, recommending denial of its motion for a forensic analysis of Patheon's ESI, is inherently unfair because it will create an imbalanced discovery process. [ECF No. 629, p. 2].
Before addressing this argument, the Undersigned finds it worthwhile to place this argument in the appropriate procedural context. At bottom, it is difficult, if not impossible, to compare the circumstances leading to the prior Order for a forensic assessment of Procaps' ESI to Procaps' still–pending motion to obtain the same relief against Patheon.
First, Procaps conceded that its document and ESI search was inadequate; Patheon makes no such concession. Second, Procaps agreed to a forensic audit of its ESI (it merely had not resolved the implementing details with Patheon); Patheon vigorously challenges the motion for a forensic analysis of its ESI. Not only did Procaps agree to the forensic audit, but it participated in the selection of the outside ediscovery vendors who would perform it. Third, because Procaps stipulated to a forensic analysis, the Order (which granted the motion, reviewed the deficiencies which led to Procaps' concession and established the procedures) did not discuss the legal standards for requiring a forensic analysis. There was no need, as Procaps acknowledged its own discovery shortfalls when it agreed to the forensic analysis.
The mere fact that this Court previously entered an Order for a forensic analysis of Procaps' ESI does not mean there would be an unfair discovery imbalance if a reciprocal Order were not imposed against Patheon. Under that standard, every order compelling a forensic analysis of one party's ESI would necessarily require a mirror image order compelling a similar analysis of the opposing party's ESI –– because a failure to do so would generate “imbalance.”
While it is certainly true that there would be “imbalance” if the Court did not vacate the Special Master's Report and did not order a forensic inspection of Patheon's ESI, the imbalance is not “unfair” because the scenarios surrounding the two requests are substantially different. The Court has already highlighted several significant factors which distinguish Procaps' current request from Patheon's prior request.
But there are additional reasons why an imbalance is not unfair and would not compel a forensic analysis:
Procaps contends that it did not learn when each Patheon litigation hold recipient received a hold notice until the hearing before the Special Master. [ECF No. 629, pp. 3–4]. But, as this Court previously ruled, Procaps never asked for this information in discovery.
Moreover, Procaps now concedes that it does not have any evidence of spoliation [ECF No. 627, pp. 23, 57–58]. The Special Master noted this fact in his Report and Procaps has not in any way challenged its accuracy.[2]Moreover, the Special Master also noted that Patheon does not have an automatic deletion policy applicable to emails and has preserved its email and file server backup tapes for the relevant time period. [Id. at p. 73]. Procaps did not object to this finding.
*6 Using a de novo standard of review, the Court rejects this first of three objections to the Special Master's Report.
The Special Master Did Not Use a Stricter Standard, But, If He Did, Procaps Cannot Successfully Complain
As outlined above, the prior Order requiring a forensic exam of Procaps' ESI –– a remedy which Procaps agreed to –– did not cite the legal standards for obtaining an order compelling a forensic analysis because Procaps agreed to the fundamental concept. Nevertheless, comparing the facts and circumstances in the Order for a forensic exam with those at issue in Patheon's request reveals substantial differences. Thus, the different results are not the byproduct of this court's use of different legal standards to evaluate similar motions. Instead, they were caused by the simple reality that the facts are different. In fact, Patheon outlined those critical factual differences in a chart embedded in its memorandum [ECF No. 568, pp. 8–9] opposing Procaps' motion.
In its Objections to the Special Master's Report, Procaps does not specify any errors with his findings about the different factual circumstances surrounding the alleged discovery deficiencies of Procaps, as opposed to Patheon's alleged shortcomings. The Report discusses these differences for almost 20 pages [ECF No 627, pp. 8– 27], but the Undersigned does not think it necessary to list each and every factor here. Rather, the Undersigned believes that the following differences are worth noting because they are more than sufficient to demonstrate why Procaps' “different standard” objection is incorrect.
Here are several critical differences between the two requests:
1. Procaps failed to implement a litigation hold until February 26, 2014, in response to a Court order requiring it. In contrast, Patheon distributed a litigation hold in December 2012 to key employees (14 months earlier) and then expanded and recirculated additional notices in April and May 2013.
2. Procaps did not automatically back up or preserve its email or file servers; Patheon did.
3. Procaps did not meet with its IT employees to discuss how and where ESI was stored or could be located; Patheon's counsel interviewed senior members of Patheon's IT Department.
4. Procaps' counsel did not meet with or contact any Procaps employee to discuss a litigation hold; Patheon's counsel did so and confirmed compliance.
5. Procaps' counsel did not supervise the ESI search, collection and preservation process; Patheon's counsel did so.
6. Certain Procaps' executives searched for responsive documents on their own, using limited search terms they came up with on their own; Patheon did not allow its executives and employees to develop their own search terms.
7. Procaps' counsel did not use or develop any ESI search terms; Patheon's counsel developed search terms after obtaining input from records custodians.
Using the legal standards explained above for requiring a forensic ESI analysis, the Undersigned would have required Procaps to undergo forensic inspection if it had not voluntarily conceded that one was appropriate (and therefore agreed to it).
*7 Nevertheless, Procaps cannot complain that the results are different (i.e., Procaps' ESI is being subjected to a forensic inspection but Patheon's is not) because it agreed to the inspection. It is a fundamental principle of appellate law that a party cannot challenge on appeal a ruling to which it agreed. See Pacific R.R. v. Ketchum, 101 U.S. 289 (1879) (“If ... it appears that the decree appealed from was assented to by the appellant, [the Court] cannot consider any errors that may be assigned which were in law waived by the consent”); U.S. v. Babbitt, 104 U.S. 767 (1881) (“In Pacific Railroad v. Ketchum[,] we decided that when a decree was rendered by consent, no errors would be considered here on an appeal which were in law waived by such a consent”); Shores v. Sklar, 885 F.2d 760 (11th Cir. 1989) (en banc), cert. denied, 493 U.S. 1045 (1990) (appellant's consent to an entry of judgment, without reservation of a right to appeal, bars a subsequent appeal of the order). Therefore, Procaps' argument is fundamentally flawed and is problematic because it seemingly runs afoul of this well–established principle.
The Special Master's Reticence About Authorizing Additional Discovery Does Not Justify a Forensic Analysis of Patheon's ESI
This third objection is not a well–developed one, as it consists entirely of two sentences. Basically, Procaps notes that the Special Master was handling a specific motion –– to compel a forensic examination –– not basic discovery disputes, such as whether a forensic examiner is needed to run expanded search terms on the documents Patheon is holding. The Special Master also flagged other limits to his authority: he explained that a Procaps' gripe over Patheon's alleged failure to produce relevant ESI from Banner employees would lead to a motion to compel, not a motion to compel a forensic examination [ECF No. 627, pp. 66–67] –– and motions to compel, especially those not yet filed, have not been referred to the Special Master.
Therefore, Procaps argues in its two–sentence objection, a de novo review of these issues is necessary because “unlike the Special Master, the Court is not so constrained.” [ECF No. 629, p. 2].
Patheon is correct that I do not need to refer issues to myself but do need to follow that referral procedure with the Special Master. But that hardly means that I should vacate or reject those portions of the Report where the Special Master noted he had not received a referral to evaluate discovery disputes other than those pinpointed in the Order appointing him and then affirmatively reach out and permit Procaps to take discovery after the discovery deadline has expired.
The Court has already denied motions to compel discovery filed by both sides because discovery is closed and because the parties' private agreement (done without Court approval or even seeking approval or even advising the Court of the agreement) to hold discovery in abeyance and then permit it to somehow come alive again after the discovery deadline expired is legally insufficient. [ECF No. 603].
Using the de novo standard urged by Procaps, the Court concludes that the Special Master correctly declined to rule on discovery disputes not referred to him and further concludes that Procaps' implicit motion to compel discovery is once again denied.
Conclusion
The Court approves, adopts and ratifies the Special Master's Report [ECF No. 627], rejects and overrules Procaps' Objections [ECF No. 629], and grants Patheon's motion to adopt the Report [ECF No. 630].
DONE AND ORDERED in Chambers, in Miami, Florida, December 30, 2014.
Footnotes
The Special Master included this quote in his Report. [ECF No. 627, p. 54].
In the Report, the Special Master notes that “Procaps also has not identified any testimony from a custodian to suggest that relevant files were intentionally or accidentally overlooked by a custodian during the interview process. Procaps did not identify any categories of missing documents.” [ECF No. 627, p. 58].