Western District of Kentucky Grants Motion to Compel Cross Border Discovery from Russia

Yesterday a decision was issued, Phoenix Process Equip. Co. v. Capital Equip. & Trading Corp, 3:16CV-00024-RGJ-RSE, 2019 U.S. Dist. LEXIS 44390 (W.D. Ky. Mar. 19, 2019) granting in part and denying in part the Plaintiff's motion to compel discovery. The case concerns a dispute over a distribution agreement between the parties for Phoenix's products in Russia, Ukraine and Eastern Europe. The Plaintiffs allege that CETCO reverse engineered its products and disclosed confidential design information. Phoenix's motion contended that the Defendants improperly subdivided their interrogatories into subcatgeories in order to increase the number agreed upon, and failed to produce documents related to the suit.

The Court noted that the question of whether or not the interrogatories contain discrete subparts could be analyzed in different ways. The line of inquiry approach asks whether or not there is a separate and distinct question. The related question approach asks whether or not subparts are logically subsumed to the primary question - can the first question be answered completely without answering the second question? The common theme approach allows for subparts addressing a common theme to be considered as a single interrogatory. Regardless of which test is used, the Court must review if allowing an inquiry undermines Rule 33's limit on the number of interrogatories from a practical standpoint. The Third Circuit has not expressed a preference for one of these approaches. The Court in this case chose to use the related question approach and analyzed each of the interrogatories in turn.

The Defendants rejected Phoenix's motion to compel records because producing certain information would violate Russian law. The Defendants noted that Russia does not comply with the Hague Evidence Convention of 1972, which generally governs discovery from foreign entities in U.S. courts. The Court chose to follow the two step test of In re Vitamins Antitrust Litigation, 120 F. Supp. 2d 45 (D.D.C. 2000), which considers if there is a conflict between the laws of the Unites States and a foreign country; and if such a conflict exists whether or not the principles of comity require deference to the foreign country's law.

The Court found that, "[s]electively citing to Russian laws that may or may not impact the production of the requested documents is insufficient to establish a forthcoming violation of Russian law.", and did not find any conflict with the laws of the United States. 2019 U.S. Dist. LEXIS 44390, at *37. Despite this, the opinion still discusses what its decision would be if a comity analysis were required. The comity analysis uses a seven factor test stated in Societe Nationale Industrielle Aerospatiale v. United States Dist. Ct. for the So. Dist.of Iowa, 482 U.S. 522 (1987).

1. Importance of the requested documents.

2. Specificity of the request

3. Foreign origin of the information

4. Availability through alternate means

5. If noncompliance would undermine the interests of the United States

6. Hardship on the producing party

7. Good faith of the party objecting to discovery

The Court found that the first two factors favor Phoenix because the requested documents could form the basis of breach of contract claims. The third factor supports the Defendants' position because the records are in Russia. The fourth factor favored Phoenix because the Court could make requests using letters rogatory through diplomatic channels. The Court considered the fifth factor to be the most important one. In part because the parties' confidentiality agreement would prevent information from being disclosed to the public, the interests of the Untied States were found to outweigh those of Russia. The sixth factor was weighed in favor of Phoenix because no evidence was submitted of any instances in which an enforcement action was brought in Russia for violation of its commercial secrets and data protection laws for responding to a discovery demand from an American court. With the respect to the seventh factor, the Court could not find any bad faith on the part of the Defendants.

Since 5 of 7 factors favored Phoenix, the Court chose to declined to issue letters rogatory and instead compelled production under the Federal Rules of Civil Procedure.

District of Utah Issues TRO for FTC to Take Expedited Discovery

Last month, Judge Robert J. Shelby issued a decision, FTC v. Elite IT Partners, Inc., 2:19-cv-125, 2019 U.S. Dist. LEXIS 34561 (D. Utah Feb. 27, 2019), granting the Federal Trade Commission's motion for a temporary restraining order. The Court found that the Defendants falsely represented to individuals that their computers were infected with viruses and tricked them into paying for its antivirus services. The decision is a good example of how a court will act in a federal investigation into computer fraud to facilitate electronic discovery.

The FTC demonstrated that there was good cause to believe that the Defendants violated the FTC Act, the Telemarketing Sales Rule, and the Restore Online Shoppers' Confidence Act, and that immediate and irreparable harm would result from their violations of these laws. There was also good cause to believe that the Court would not be able to grant relief to consumers unless the Defendants were restrained by an order from transferring or destroying its records. The Court ordered the appointment of a temporary receiver with access to the Defendants' premises and allowed it and the FTC to take expedited discovery. The Defendants' assets were also frozen.

The order restricted the Defendants' business and marketing activities, and barred it from releasing consumer information and charging for their technical support services. Each defendant was ordered to make financial disclosures, and the FTC was authorized to obtain credit reports for each of the Defendants.

Section XI of the order addresses the preservation of records. The Defendants are enjoined from "[d]estroying, erasing, falsifying, writing over,mutilating, concealing, altering, transferring, or otherwise disposing of, in any manner, directly or indirectly,", documents relating to their business practices. Id. at *20.

This order gives the receiver wide ranging authority to meet his duties. His powers include some for the preservation and collection of ESI. The receiver was authorized to both "divert mail" and preserve online documentation by updating login information and taking possession of electronic documents with the assistance of the FTC's Digital Forensic Unit. Id. at *23. Pursuant to securing the Defendants' premises the receiver is given the right to disconnect internet connections and other computer network access. Parties with possession, custody, or control of the Defendants' data are required to provide the key codes and passwords necessary to get access to computer systems, cloud accounts, electronic data hosts, mobile devices or "electronic file(s) in any medium". Id. *32.

In order to facilitate the receiver's immediate access to the Defendants' data, "computers or electronic storage devices shall be powered down in the normal course of the operating system used on such devices and shall not be powered up or used until produced for copying and inspection". Id. at *39.

Section XXV of the order concerns expedited discovery. Depositions are to be taken with 48 hours notice, and these depositions do not count to the limit of 10 under the Federal Rules of Civil Procedure. (The expedited depositions can be taken over the phone or through electronic means.) Requests for productions of hard copy documents are to be responded to in five days, and those for electronic documents in three days. Interrogatories and non-party subpoenas are also to be responded to in five days. The order states that a meet and confer is not necessary for the purposes of the expedited discovery, and the parties do not have to make initial disclosures under Fed. R. Civ. P. 26(a).

W.D. Wash. Reduces Fees for Block Billing and Redactions to Billing Descriptions

Last Thursday, Judge Thomas S. Zilly, issued a decision, Seattle Times Co. v. LeatherCare, Inc., No. C15-1901 TSZ, 2019 U.S. Dist. LEXIS 33177 (W.D. Wash. Feb. 28, 2019), on a motion for attorneys' fees brought by Touchstone. Touchstone prevailed in its claim under the Washington Model Toxics Control Act and for breach of contract. The Act and the contract at issue included provisions allowing a prevailing party in a dispute to recover attorneys' fees and costs.

LeatherCare contended that Touchstone's motion was defective because in addition to failing to submit a proposed order and using a undisclosed expert, it relied on Excel spreadsheets rather than finalized invoices, and redacted the descriptions used in the invoices. Judge Zilly rejected the failure to submit actual invoices as a basis to deny the motion, but agreed , "that Touchstone's 'narrative' redactions impeded the opposing parties' abilities to understand what services had been provided and determine whether objections could be asserted as to the related requests for attorneys' fees." Id. at *4. He chose to disregard the amounts listed for entries with redactions. Fees listed for individuals' whose role at law firms were left unspecified were also denied.

The Court also reduced fees by 10% for block billing that prevented a determination of how much time was spent on particular activities. The fees for the services of one paralegal were reduced by only 10% in response to Touchstone's contention that they were clerical services that should not be recovered as attorney fees.