“Direct Access” to Computers in Departing Employee Litigation

“Direct Access” to Computers in Departing Employee Litigation

Imagine a criminal case where the government sends the defendant’s lawyer a request to produce emails between the alleged conspirators, bank records showing payments to the defendant’s offshore account, or a recording of a key meeting. You wouldn’t expect to get much, would you? That’s why we have search warrants.

Civil litigation is different. In a civil case, the system largely relies on the parties themselves to search for and produce documents that the requesting party can then use to prove its case. Generally, you don’t get to search the opposing party’s office for relevant documents.

The same general rule applies to computer files: you don’t get to search the other side’s computers or other devices. There are exceptions, but the Texas Supreme Court has set the bar high for obtaining an order authorizing “direct access” to an opposing party’s electronic files.

In In re Weekley Homes, 295 S.W.3d 309 (Tex. 2009), the court held that intrusive measures such as direct access to a computer or other electronic storage device require, at a minimum, that the benefits of the discovery outweigh the burden imposed. Permitting direct access “is particularly intrusive and should be generally discouraged,” the court said, “just as permitting open access to a party’s file cabinets for general perusal would be.” To obtain direct access, “the requesting party must show that the responding party has somehow defaulted in its obligation to search its records and produce the requested data.”

More recently, the Texas Supreme Court applied Weekley in In re Shipman, 540 S.W.3d 562 (Tex. 2018). The court held that the responding party’s late production of responsive documents and testimony that some files had been deleted years earlier was insufficient to justify direct access. The responding party testified by affidavit that he had searched both electronic and paper files and produced all responsive documents, and the requesting party made no showing that the responding party was incapable of searching his computer.

Weekley Homes and Shipman were not “departing employee” cases—the type of case I handle most often—but direct access is an important issue in departing employee litigation. Let’s look at the transcript of a hypothetical hearing to see how these cases might apply in a typical departing employee case.

Hearing Transcript

Judge Lansing: Alright, next case up is Cause Number 19-24601, Paula Payne Windows v. Dawn Davis. Mr. Livingston, who are you here for?

Livingston: Good morning, judge. I’m here with Phil Hamilton for the plaintiff on a motion to compel.

Reynolds: Maria Reynolds here for the defendants, Your Honor.

Judge: Good morning, Ms. Reynolds. Was there a response to the motion?

Reynolds: Yes, we filed a response yesterday.

Judge: Well if I can get this computer on, maybe I can pull it up. Can you . . .

Reynolds: I have a binder with the motion and response if that would make it easier.

Judge: Sure, I’ll take your binder. This looks like a lot of material. Have y’all talked about this already?

Reynolds: Not really. All I got was an email from Mr. Hamilton demanding we turn over Ms. Davis’s laptop. That’s part of the problem, we’ve been trying . . .

Hamilton: Your Honor, that’s not exactly right. We talked about these issues at Ms. Davis’s deposition. That’s when she said . . .

Judge: Ok, well, I’ll hear your arguments on the motion. But first back up a little and remind me what this case is about. Mr. Hamilton?

Hamilton: Yes, of course. This is a case about theft of trade secrets. Dawn Davis worked for my client, Paula Payne Windows, for five years. She was very well paid. She rose up their top sales position, and she had access to all of their confidential information and trade secrets. Then about six months ago she suddenly left and went to work for a competitor, and that’s the other Defendant, Real Cheap Windows.

Judge: Ok, I remember this case now. But what kind of trade secrets does a windows company have?

Hamilton: There are two things we’re most concerned with, Your Honor. First, Paula Payne has a Master Customer List spreadsheet that has detailed information about every one of their customers. Second, for each customer there is a Sales History spreadsheet that has every sale including price, quantity, date, margins—everything a competitor would need to try to undercut my client.

Judge: I see. So you want me to compel Ms. Davis to produce those documents?

Hamilton: Actually, you already did that. If you take a look at tab C, that’s your order requiring Defendants to produce “all documents Davis received from Paula Payne during her Employment Period, including all customer lists and sales records.” We’re asking you to order her to produce her laptop so our forensic expert can see if our Master Customer List and Sales History spreadsheets were on it.

Judge: Ok, hold that thought. I want to hear from Ms. Reynolds.

Reynolds: Thank you, judge. I’ve been biting my tongue. This is an outrageous demand for direct access to my client’s computer. It is no different than a request to rifle through her file cabinets.

Judge: Well hold on, let’s take this one step at a time. Did your client comply with my previous order?

Reynolds: Absolutely. Ms. Davis searched her home office and produced a banker’s box full of documents. But she didn’t find any customer list or sales history documents. Now they’re asking for native Excel files, but they never specifically requested those. If I could approach, here is a copy of Rule 196.4:

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Judge: What the hell is “magnetic” data?

Reynolds: Honestly, judge, I think that was a little before my time, but the issue here is electronic data. Paula Payne wants to search my client’s computer for electronic files, like Excel spreadsheets, but they never specifically asked for electronic files.

Hamilton: Actually, we did. This is from our First Request for Production:

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Judge: That’s pretty general. Wouldn’t it be better practice to include the electronic files you want in the specific request for production? You could have said “including native Excel spreadsheets and other electronic files” in your request, right?

Hamilton: We could have, Your Honor, but the two leading cases on this, Weekley Homes and Shipman, both say it’s sufficient if we clarify in our motion to compel that we’re asking for electronic files. Here is an excerpt from Shipman, citing to Weekley:

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Hamilton: The situation here is the same. Our definition of “documents” included electronic files, and our motion makes it abundantly clear what we’re asking for.

Judge: Ok, I think you’ve sufficiently asked for computer files, so let’s talk about direct access. What’s your basis for that?

Hamilton: We are allowed to obtain direct access to an electronic device if we “show that the responding party has somehow defaulted in its obligation to search its records and produce the requested data.” That’s straight out of Shipman, quoting from Weekley. And that’s exactly what we have here. After Ms. Reynolds produced the box of hard copy documents, we sent her a letter pointing out that her production did not include any electronic files, and we specifically asked if Ms. Davis had searched her laptop. She responded in an email and said “my client has conducted a reasonably diligent search and has produced all responsive non-privileged documents.”

Judge: So she doesn’t have the documents. What’s the problem?

Hamilton: Later we took Dawn Davis’s deposition, and here’s what she said:

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Hamilton: It’s obvious from her evasive answers that she did not conduct a diligent search of her laptop for the documents we requested, even after we specifically inquired about electronic files. That’s a default in her obligation to search her records and produce the requested records.

Judge: Alright, let me hear from Ms. Reynolds on this.

Reynolds: Your Honor, there is no default. This case is just like Weekley and Shipman, where the Texas Supreme Court ruled against direct access. In Weekley the court said you cannot rely on “mere skepticism or bare allegations that the responding party has failed to comply with its discovery duties.” That is all we have here, just mere skepticism and speculation. There is no proof that Ms. Davis failed to search her laptop.

Judge: Mr. Hamilton, how is this case any different from those cases?

Hamilton: It’s totally different. Weekley was about whether deleted emails were specifically requested; that’s not our issue. Shipman was a case about late production. Here is an excerpt from Shipman with its key facts:

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Screen Shot 2019-05-11 at 8.48.09 PM.pngHamilton: So there are two key differences. First, Shipman searched his computer and produced documents he found. Second, Shipman signed an affidavit specifically stating that he searched his computer files and produced all responsive documents. We don’t have either one here.

Judge: Ms. Reynolds, do you have an affidavit from your client saying she searched her computer?

Reynolds: No, Your Honor. But that’s not my burden. If you look closely at Shipman, the court made it clear that the requesting party has the burden to prove that the responding party has defaulted on its discovery obligations. “Mere skepticism” doesn’t meet their burden:

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Reynolds: It’s the same thing here. Paula Payne hasn’t offered any evidence that my client is incapable of searching her computer or that she hasn’t conducted a diligent search. You have to say no to this.

Judge: What about her deposition testimony? Isn’t that evidence she didn’t do a diligent search.

Reynolds: She said she wasn’t sure if she transferred the customer list or sales histories to her laptop. That’s just like Shipman. The court said that Shipman’s “equivocation about the existence of discrete documents at his deposition” did not “transform general skepticism into discovery default.” Shipman was asked about “discrete, individual documents” from more than five years before the deposition and stated he was “unsure if they existed.” My client’s testimony was similar.

Judge: I understand, but did she search her computer? The defendant in Shipman signed an affidavit that specifically said he searched both electronic and hard copy records.

Reynolds: I don’t know all the details of her search. She has stated that she conducted a diligent search and produced all the responsive documents she found. If Paula Payne wants to ask her about all the little details, they can do that in a deposition.

Hamilton: Your Honor, we tried! We asked . . .

Judge: You can sit down, Mr. Hamilton. I’ve heard enough. I’m going to grant the motion to compel and order Ms. Davis to turn over her laptop to Paula Payne’s expert. Counsel are to confer on the details of a forensic protocol and put it in a proposed order. If y’all can’t work that out, come back and see me.

Reynolds: Your Honor, I really think it would be error to do this. The Texas Supreme Court has been clear.

Judge: Well that’s my ruling. And if y’all have to take it up to the Court of Appeals on mandamus, I won’t be offended. Good to see all of you. Even you, Mr. Livingston [laughter in courtroom]. So did you catch any bass last weekend?

Livingston: I’m afraid not. Nothing biting last weekend except the mosquitoes.

Judge: Well that’s too bad. Anyway, give Connie my best.

Livingston: Thank you, judge, I’ll do that.

Judge: Alright, everyone can be excused.

What Did We Learn Today?

As this hypothetical illustrates, Weekley and Shipman are pretty simple in principle: you have to show the other party defaulted on its discovery obligations before you get direct access. But in practice this can be a difficult principle to apply.

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IMG_4571Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

 

You Must Tackle This Issue First When Key Employees Leave to Compete

You Must Tackle This Issue First When Key Employees Leave to Compete

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Defense May Win Championships, But What Wins Litigation?

I love Christmas, and I love football, so with Christmas lights up and football season heating up, I’m feeling good. I also love football clichés, like “defense wins championships.” Another one is that the team that wins the turnover battle will usually win the game. More about that later.

The question I’m posing for my Fivers[1] this week is this: when a key employee or executive leaves a company to compete against the company, what is the very first issue the company and its lawyer should address? (I mean other than the lawyer’s hourly rate and the amount of the retainer.)

Regular readers of this blog can probably think of some obvious candidates:

These are important issues, but there is something else you should think of first. When a key employee or executive leaves a company to compete, the most immediate issue for the company and its lawyer is preservation of evidence. Specifically, preservation of electronically stored information (ESI).

There are three reasons why preserving potentially relevant ESI is the first issue to address.

1. Preservation of ESI is a time-sensitive issue

First, preservation of ESI is the most pressing issue because it is the most time-sensitive. Preservation of paper evidence—does that even exist anymore?—is not as pressing. Absent a flood or fire, paper evidence will probably still be there unchanged in a month, or even a year. Kind of like a box of Twinkies. But evidence in electronic form can easily be lost, altered, or damaged in the short term, even without any deliberate effort to delete it.

raspberry-preserves
Preservation. It’s not just for jelly.

The most obvious way that relevant ESI can be lost is for the departing employee to take it or destroy it. I had a case where my client got wind that an employee was about to leave and violate his non-compete. The first thing I told my client to do was “get his laptop—now.” As a result, my client was able to recover evidence from the employee’s laptop that was highly damaging to the employee in the ensuing litigation. Had we waited, that evidence might have been lost forever. (It was a company-issued laptop; obviously, the issue is more complicated if the employee is using his own computer.)

So, if a key employee leaves and the company expects there may be a lawsuit, typically the first thing the company needs to do is get its hands on the employee’s company-issued computer and smartphone (if any). Make a simple “chain of custody” form to keep track of who has physical possession of the devices. Follow up with a litigation hold notice to key players at the company, etc. There is of course a wealth of literature from experts like Craig Ball on how to do this. But the key thing is to act quickly before relevant ESI is lost or destroyed.

2. Preserving relevant ESI cuts across all the issues in a lawsuit.

The second reason that preserving relevant ESI is so important is that it potentially affects all other issues in a case:

  • Is the employee’s non-compete enforceable? As I explained here, that may depend on whether the company actually provided the employee confidential information, which may have been done by email. It could depend on the sales territory the employee actually worked, which could be revealed by the employee’s text messages to customers.
  • Did the employee plug a USB drive into his company computer a week before leaving and download the company’s confidential information and trade secrets? Forensic experts can probably find out, if the computer has been properly preserved.
  • Did an employee breach his Fiduciary Duty Lite™ by crossing the line from preparing to compete to actually competing?[2] You might need an expert to recover deleted emails from six months earlier to find out.
laptop-and-cappucino
Get the laptop and smartphone. Leave the cappuccino.

In short, it doesn’t matter how well you understand the typical legal issues that come up when a key employee leaves to compete. If you lose critical evidence necessary to prove your client’s claim—or to defend your client against the other party’s claim—then you are dropping the ball.

3. The failure to preserve relevant ESI can mean sanctions for spoliation

The third reason for moving quickly to preserve evidence is that the failure to preserve relevant ESI can result in spoliation sanctions. When a company expects there is going to be litigation with a key employee who left to work for a competitor, preserving potentially relevant ESI isn’t just smart litigation tactics. It’s the law.

As the Texas Supreme Court reaffirmed in Brookshire Brothers, a legal duty to preserve relevant evidence arises when a party “knows or reasonably should know” that there is a “substantial chance” that a claim will be filed.[3] In other words, a party must preserve relevant evidence when it reasonably anticipates litigation. The failure to preserve relevant evidence when there is a duty to preserve is spoliation of evidence.

“Spoliation” comes from the Latin word spoliare. Roughly translated, it means, “oh, crap, the judge is going to hammer us.”

The last thing a company wants is to be sanctioned by the judge for spoliation of evidence. The worst kind of sanction—other than outright dismissal of your claim or defense—is the “adverse inference” instruction to the jury. It goes something like this: “Ladies and gentleman of the jury, you are instructed that Plaintiff HMC (Huge Multinational Corporation) failed to comply with its duty to preserve relevant evidence, and you may presume that the lost evidence would have been favorable to Defendant Bob Bluecollar.”

Good luck winning over that jury, HMC’s counsel. It’s kind of like trying to get to the Super Bowl with your backup quarterback. Hmm. Strike that. It’s actually much worse.

The good news for companies that screw up preservation is that Brookshire Brothers sets the bar for obtaining spoliation sanctions fairly high. The general rule in Texas is that a finding of intentional spoliation is required to obtain a spoliation instruction to the jury. The standard in federal court is similar. Courts in the Fifth Circuit have required the party asking for an adverse inference instruction to prove the spoliation was in bad faith,[4] and Federal Rule of Civil Procedure 37(e) now requires a finding that the party acted with “intent to deprive another party of the information’s use in the litigation.”

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Brookshire Brothers. It’s not just a grocery store in Giddings.

But do you really want to rely on the defense that your client lost relevant evidence in good faith? Instead, have an expert make a forensic image of the departing employee’s computer and smartphone, which is now fairly routine and cheap. It’s like an insurance policy against a spoliation claim. It will certainly cost less than the hours of attorney time it will take to litigate whether the company’s spoliation of evidence was intentional or not.

And remember, it’s pronounced “spoh-liation,” not “spoil-ation.” I mean, you can be a stubborn Texan and say “spoil-ation” if you want, and hey, I kind of respect that, but it’s kind of like saying “nuke-yuh-ler” weapons.

Back to Football

So what does all this have to do with football? Well, as I said, it has become a football cliché that winning the turnover battle is the key to winning the game. Winning the turnover battle means having more “takeaways” than “giveaways.” If your team fumbles the ball away once but intercepts the ball three times, your turnover ratio is +2, and you’ve won the turnover battle. A high turnover ratio in your team’s favor is no guarantee of winning, but it’s pretty darn close.

Preservation of evidence is like winning the turnover battle. It’s not necessarily the most exciting part of the game. But if you fail to preserve relevant evidence and open yourself up to spoliation sanctions, it’s like fumbling the ball away to the other team. (For my white collar readers at big law firms, it’s like an unforced error in tennis.) If the spoliation is bad enough that the judge gives the jury the dreaded adverse inference instruction, it’s like throwing an interception that the defense returns for a touchdown. In the fourth quarter. With the game on the line.

Preserving evidence, on the other hand, is like a takeaway in football. If you act quickly to preserve ESI and discover a “smoking gun” document that proves your case, it’s as good as taking the ball away from the other team.

So think of preserving evidence as your best defense. And defense wins championships.

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Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. In high school he starred on the football field every Friday night—in the marching band.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

[1] fiver [fiy-ver] noun. 1. A regular reader or fan of the blog Five Minute Law. 2. A celebrity who hosts Saturday Night Live for the fifth time.

[2] Could I successfully register FIDUCIARY DUTY LITE as a trademark with the USPTO?

[3] Brookshire Bros., Ltd. v. Aldridge, 438 S.W.3d 9 (Tex. 2014).

[4] See Rimkus Consulting Group, Inc. v. Cammarata, 688 F.Supp.2d 598, 614 (S.D. Tex. 2010).