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International E-Discovery: How The 11th Circuit’s Interpretation of Possession, Custody, or Control May Impact Multinational Corporations

January/February 2019 Effie D. Silva, Sonia Zeledon, and Justin M. L. Stern Trial Lawyers

In decoding the bounds of e-discovery under the Federal Rules of Civil Procedure, courts around the country have employed a variety of constructions; in particular, three central theories of interpretation have been applied to the “possession, custody, or control” language governing initial disclosure of electronically stored information. Depending on where you litigate, your discovery protocols may be subject to either the “legal right standard,” the “legal right plus notification standard,” and/or the “practical ability standard.” This article attempts to make sense of the distinctions between the three and, more importantly, sound the alarm on the potentially deleterious consequences of widespread adoption of the practical ability standard, which has established a firm footing here in the 11th Circuit.

Among the challenges inherent in the global marketplace is the cross-border disclosure and transfer of confidential, personal, privileged, or otherwise protected information sought for disclosure or discovery in U.S. litigation. Particularly in international hubs such as South Florida, which in many ways serves as the gateway between North and South America, the rapid proliferation of electronically stored information (ESI) and the increasing interdependence among multinational companies arising from a global marketplace presents novel and unique legal challenges that previously did not exist in the 11th Circuit.

The Federal Rules of Civil Procedure require the initial disclosure of “electronically stored information…that the disclosing party has in its possession, custody, or control[.]”1 A party may request, under Rule 34, within the permissive bounds of Rule 26(b), the production of electronically stored information “in the responding party’s possession, custody, or control[.]”2Rule 45 provides that in a subpoena, a serving party shall require the responding party to produce all of the “electronically stored information . . . in that person’s possession, custody, or control[.]”3

Importantly, “[p]ossession, custody, and control are not the same thing. A party may be in control of information that it does not own or physically possess.”4 Thus, a great deal of confusion involves the “control.” While physical possession or legal ownership can be established with relative ease (i.e., it can often be regarded as an on-off, black-white inquiry), whether or not an entity has “control” over certain documents within the meaning of the rules, involves further scrutiny. Although the rules provide examples of what constitutes electronically stored information — “including writings, drawings, graphs, charts, photographs, sound recordings, images, and other data or data compilations”5 — the rules are silent on the definition of “possession, custody, or control.” In other words, that four-word phrase with such potentially significant implications goes undefined in the rules by which it has been employed.

Thus, it has been left up to courts to interpret the reach of the rules, and their various interpretations of the imprecise “possession, custody, or control” have often been in conflict.6 The three general categories of interpretation with respect to what “possession, custody, or control” are the legal right standard, the legal right plus notification standard, and the practical ability standard.7 The Sedona Conference, a legal think tank that has emerged as a leader in the development of e-discovery policy, has pushed back against adoption of the practical ability standard in particular, arguing that the “common-law test has led to inequitable situations in which courts have held that a party has Rule 34 ‘control’ over documents and ESI even though the party did not have the actual ability to obtain the documents and ESI.”8

Attorneys advising and representing clients in the 11th Circuit — where federal courts have, at various times, applied both the legal right standard and the practical ability standard, though more often and more recently the latter — should be aware of how nuances in interpretation may determine their clients’ obligations and potential risks of noncompliance with shifting standards.

Back in 1984, the 11th Circuit applied the legal right standard in Searock v. Stripling, 736 F.2d 650, 653 (11th Cir. 1984), that, given that “control is the test with regard to the production of documents[,]” “[c]ontrol is defined not only as possession, but as the legal right to obtain the documents requested upon demand.”9 But in more recent years, and notably after the 2006 amendment to Rule 34 providing for reference to “electronically stored information,” the trend has seemingly been toward the adoption of the practical ability standard.

In 2010, a judge in the Middle District of Florida indicated the shift in interpretation when he declared in Soliday v. 7-Eleven, Inc., No. 2:09–cv–807–FtM–29SPC, 2010 WL 4788041, at *2 (M.D. Fla. Nov. 17, 2010), that “control” has been “defined as a ‘party’s legal right, authority, or practical ability to obtain the materials sought on demand.’”10 In 2011, the Southern District of Florida stated, in Costa v. Kernzer Int’l Resorts, Inc., 277 F.R.D. 468, 471 (S.D. Fla. 2011), that control of electronically stored information under Rule 34 “does not require that a party have legal ownership or actual physical possession of the documents at issue; indeed, documents have been considered to be under a party’s control (for discovery purposes) when that party has the ‘right, authority, or practical ability to obtain the materials sought on demand.’”11 That same year, the Southern District of Alabama, in Anz Advanced Techs. v. Bush Hog, LLC, No. 09–00228–KD–N, 2011 WL 814663, at *9 (S.D. Ala. Jan. 26, 2011), also affirmed the “practical ability” approach to the meaning of “control.”12 In the 2017 case of Bouton v. Ocean Props., Ltd., No. 16-cv-80502–BLOOM/Valle, 2017 WL 2720927, at *3 (S.D. Fla. June 23, 2017), the Southern District of Florida implied that it still adopts the practical ability standard.13

With the publication of Herrera v. JFK Med. Ctr. Ltd. P’ship, No. 8:14–cv–2327–T–30TBM, 2017 WL 397590, at *3 (M.D. Fla. Jan. 30, 2017), the Middle District of Florida in 2017 blended the legal right and practical ability standards. The Herrera court justified its statement that “control is generally defined as a party’s legal right to obtain documents requested upon demand” by — in addition to, expectedly, citing Searock — quoting Desoto Health & Rehab for the proposition that “control is defined as a ‘party’s legal right, authority, or practical ability to obtain the materials sought on demand.”14 In so doing, the court, thus, defined “control” with the legal right standard, which it interpreted by applying the practical ability standard; application of the transitive property of equality dictates, then, that “control” is or can be tested by the practical ability standard. Alternatively, if that was not intended, it seems, then, that definitional conflicts exist not simply within circuits or the individual districts therein, but also within individual opinions.

More recently, in late 2017, the Middle District of Florida, in Wooden v. Barringer, No. 3:16–cv–446–MCR–GRJ, 2017 WL 5140518, at *7 (M.D. Fla. Nov. 16, 2017), again commented on the breadth adopted practical ability standard: “Under the practical ability test, a party might control a non-party based on their relationship, such as where there is a contract empowering the party to obtain information from the non-party or where it is customary in the industry for the non-party to furnish the information to the party.”15 Despite the Wooden court’s description of an interpretation potentially broad in scope, the court ultimately found that the defendant did not have “control,” within the meaning described above, of the evidence at issue in that case.16

True, the opinions (unpublished or otherwise) of the district courts certainly do not bypass the weight of an opinion from the 11th Circuit itself. Yet, because discovery is handled at the district-court level, and the decisions made by those courts are reviewed by a lenient “abuse of discretion” standard,17 how the district courts apply the discovery rules is often more important, as a practical matter, than how the 11th Circuit sees the issue.

This is, therefore, more than simply an academic exercise. What these district courts say and do have real implications, particularly — and as will be discussed below — in terms of 1) parties’ obligations to preserve evidence in anticipation of litigation; and 2) risks to cross-border corporate defendants18 with affiliated, information-bearing entities located in foreign jurisdictions.

Liabilities Concerning Preservation of Evidence
“A party can only preserve evidence that is within its possession, custody, or control.”19 In Selectica, Inc. v. Novatus, Inc., No. 6:13-cv-1708-Orl-40TBS, 2015 WL 1125051, at *3 (M.D. Fla. Mar. 12, 2015), the Middle District of Florida addressed, among other things: 1) whether a party could be held liable for spoliation of electronic information not its own — “the intentional destruction, concealment, mutilation, or material alteration of evidence”; and 2) how “control” over ESI is to be defined in that context.20 In Selectica, the court agreed “with [using] the practical ability test to determine whether a party has control, and, therefore, a duty to preserve information.”21 Helpfully, the court provided a number of situations in which one party might have the practical ability to control the nonparty’s production of ESI, including the “attorney-client relationship[,]…the corporate parent-subsidiary relationship” and “if it is customary in the industry for the non-party to furnish the information to the party.”22 Further, the “employer-employee relationship is one that may result in an employer party having the necessary control [under the practical ability standard] over information in the possession of a non-party employee.”23 Importantly, drawing a line, the court cautioned that “if extraordinary, unethical, or illegal means are required, then there is no practical ability to obtain the information.”24

In that case, Selectica moved for spoliation sanctions against Novatus in connection with a Novatus employee’s deletion of large quantities of Selectica information he had obtained when previously employed by Selectica.25 Part of the court’s inquiry concerned that which is mentioned above — whether the employer had a duty and ability to maintain and preserve the information.26 The court, applying the practical ability standard, found that because Novatus, the employee’s employer 1) knew that the employee possessed the files; and 2) knew that the employee “was a key figure in th[e] dispute” over possession of the information, the company “had access to, and the ability to produce[,] the files” in the employee’s online file storage account.27 Consequently, but for the fact that the deleted files had been replicated elsewhere and that the court did not find bad faith on the part of Novatus, the company would likely have been exposed to court sanctions.28 Under a slightly different set of circumstances, though, it seems to reason that the company could have faced sanctions — had the files not been copied elsewhere, and had the court in its subjective view found bad faith, penalties might well have been applied.

So, what should corporate parties with electronically stored information (in all likelihood all of them) do? Just as importantly, what should their legal advisors do to prepare them? With caselaw demonstrating a shift toward adoption of the expansive and subjective practical ability standard within the 11th Circuit, attorneys should advise their clients that the reach of permissive discovery may require production of documents or other things that they do not actually possess or over which they do not have custody. And because of that, inexplicably, companies are faced with the dilemma of taking steps to equip themselves to preserve documents over which they do not, and potentially cannot, exercise actual control.

Risks to Cross-Border Corporations
This lack of clarity for corporate defendants is particularly problematic for cross-border corporations that litigate in Florida district courts. Consider one of the dynamics offered by the Selectica court as an example of where the practical ability standard may compel production of documents not one’s own: the corporate parent-subsidiary context. In this sort of framework, or a similar affiliate set-up involving foreign sister companies, the ways in which discovery rules are interpreted can seemingly override corporate formalities, which intentionally separate legal entities for business purposes, and which separations are respected elsewhere.29

The result of the practical ability standard’s adoption by district courts in the 11th Circuit, particularly Florida district courts, may prove ominous for multinational corporations with cross-border entities, affiliates, subsidiaries, etc. A corporation litigating a matter in district court in Florida might find itself having to locate, search, and hand over ESI belonging to its affiliate in the Caribbean or in South America. How to structure a corporation is a strategic business decision, and deciding what information is stored and where is a similarly tactical undertaking. That an interpretive approach’s overbroad scope could disregard the legal entities in only some jurisdictions is troubling.

For comparative purposes, consider the approach taken by the court for the District of Delaware, located in the Third Circuit, which embraces a strict legal right standard.30 As recently as 2016, the District of Delaware — in Princeton Dig. Image Corp. v. Konami Dig. Entm’t Inc, 316 F.R.D. 89, 90 (D. Del. 2016)— confirmed “that documents are in the ‘control’ of a litigating party if that party has the legal right to obtain the documents required on demand from the non-party corporation”31 and “[t]he party seeking production of documents bears the burden of establishing the opposing party’s control over those documents.”32As a practical matter, the Third Circuit has found two scenarios in which the required “control” might be established: either 1) “the sister corporation was found to be the alter ego of the litigating entity[;]” or 2) “the litigating corporation had acted with its sister in effecting the transaction giving rise to suit and is litigating on its behalf[.]”33 In federal litigation in Delaware, a defendant may be relatively confident that unless it has the right to obtain the ESI from a nonparty corporation (i.e., unless there is an alter-ego relationship or there was cooperation in the underlying activities), even though the nonparty may be an affiliate of the party, the defendant will not be obligated to turn over the purposefully separated information under the control of the affiliate.

Returning to the 11th Circuit, and Florida in particular, because of the risks unwillingly assumed by multinationals in the context of ESI discovery, such as in the context of the Selectica litigation and others described above, practical ability standard circuits (or those which seemingly have adopted the standard) may be viewed as an invitation to plaintiffs’ lawyers or foreign attorneys seeking U.S. discovery for their foreign action.34 For example, “forum shopping,” the process by which a party attempts to have his or her case litigated in the particular jurisdiction where he or she feels the case will fare best, is nothing new. The phenomenon has carried with it a perhaps-not-entirely deserved subtext of unscrupulousness.35 Whether you believe the practice should be welcomed or condemned, there is little doubt that the 11th Circuit’s apparent embrace of the practical ability standard36 may have an impact on litigants who have a choice of venue purposefully bringing actions in district courts subject to 11th Circuit jurisdiction to obtain broader ESI discovery from multinationals, including discovery of ESI outside the U.S.

In conclusion, it is apparent that the threat of potentially invasive, far-reaching discovery across borders — with its inherent risks of over-exposure and obligations as to the preservation of evidence — could be used, and perhaps already is being used, by litigators to effect significant leverage over multinational defendants and third parties in the 11th Circuit — like the other federal circuits, which embrace the practical ability standard.37

 

1 Fed. R. Civ. P. 26(a)(1)(A)(ii) (emphasis added).

2 Fed. R. Civ. P. 34(a)(1)(A) (emphasis added).

3 Fed. R. Civ. P. 45(a)(1)(A)(iii) (emphasis added).

4 Selectica, Inc. v. Novatus, Inc., 6:13-CV-1708-Orl-40TBS, 2015 WL 1125051, at *4 (M.D. Fla. Mar. 12, 2015).

5 Fed. R. Civ. P. 34(a)(1)(A).

6 See The Sedona Conference, The Sedona Conference Commentary on Rule 34 and Rule 45 “Possession, Custody, or Control,” 17 Sedona Conf. J. 467, 475 (2016) (“Unfortunately, the case law across circuits (and often within circuits themselves) is unclear and, at times, inconsistent as to what is meant by ‘possession, custody, or control,’ resulting in a lack of reliable legal — and practical — guidance.”).

7 Id. at 483.

8 Id. at 476.

9 The legal right standard, as defined by The Sedona Conference, “requires a party to preserve, collect, search, and produce [d]ocuments and ESI which the party has a legal right to obtain.” See The Sedona Conference, The Sedona Conference Commentary on Rule 34 and Rule 45 “Possession, Custody, or Control” at 484.

10 Citing In re Wright, No. 04–94519–WHD, 2005 WL 6488101, at *3 (N.D. Ga. 2005).

11 Quoting Desoto Health & Rehab, LLC v. Phila. Indem. Ins. Co., No. 2:09–cv–599–FtM–99SPC, 2010 WL 4853891, at *3 (M.D. Fla. Nov. 22, 2010).

12 Stating further that “a corporate party may be required to produce documents within the possession, custody, or control of a sister corporation or other corporate affiliate” and that control over the documents of a corporate affiliate is not the same as piercing the corporate veil.

13 “[T]he [c]ourt already found that a management relationship, standing alone, does not demonstrate that Peninsular had the practical ability to produce or control the documents of the five hotels it manages.”

14 Herrera, 2017 WL 397590 at *3 (quoting Desoto Health & Rehab, 2010 WL 4853891, at *3 (internal quotation marks omitted and emphasis added)).

15 Citing Selectica for the basis of the practical ability standard interpretation and noting, as an example, that “an employer may possess power over an employee to obtain data from the employee.”

16 See id. at **7-8.

17 Josendis v. Wall to Wall Residence Repairs, Inc., 662 F.3d 1292, 1313 (11th Cir. 2011).

18 True, the climate created by a lack of clarity may likewise affect corporate plaintiffs as well, but the impact on plaintiffs is likely less severe, as it will be far more easily anticipated — a plaintiff, of course, initiates litigation in a forum of its choosing, a luxury the defendant lacks.

19 Selectica, Inc. v. Novatus, Inc., No. 6:13-cv-1708-Orl-40TBS, 2015 WL 1125051, at *4 (M.D. Fla. Mar. 12, 2015) (citing Paisley v. Eckerd Corp., 433 F. Supp. 2d 1287, 1315 (S.D. Fla. 2006)). The extrapolated logic indicates, then, that entities can only produce information under the same circumstances.

20 See Selectica, 2015 WL 1125051.

21 Id. at *4.

22 Id. at **4-5.

23 Id. at *5.

24 Id. at *4.

25 See generally id.

26 See id. at *4.

27 Id. at *5.

28 See id. at *6 (finding that the deleted files were “not crucial to [the plaintiff] proving its case because they were all copies of documents that still exist” and that there was “no evidence that [the employee, in deleting the files acted on instructions from Novatus, or with its knowledge or approval. Novatus’ culpability lies in the fact that it failed until after it was too late[] to instruct [the employee] to preserve all of the relevant information he had”).

29 The Sedona Conference has offered this problem as a critique of the practical ability standard as well. See The Sedona Conference, The Sedona Conference Commentary on Rule 34 and Rule 45 “Possession, Custody, or Control” at 542.

30 See Mercy Catholic Med. Ctr. v. Thompson, 380 F.3d 142, 160 (“In the Rule 34 context, control is defined as the legal right to obtain required documents on demand.”).

31 Quoting Inline Connection Corp. v. AOL Time Warner Inc., No. C A 02–272–MPT, C A 02–477–MPT, 2006 WL 2864586, at *1 (D. Del. Oct. 5, 2006) (quoting Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 233 F.R.D. 143, 145 (D. Del. 2005) (internal quotation marks omitted)).

32 Princeton Digital, 316 F.R.D. at 90.

33 Gerling Int’l Ins. Co. v. Comm’r of Internal Revenue, 839 F.2d 131 (3d Cir. 1988); see also Princeton Digital, 316 F.R.D. at 91 (finding that the plaintiff did not meet its burden in asserting that a U.S. entity had “control over core technical documents in the possession of [its counterpart in] Japan, and should, thus, be required to obtain and produce them”).

34 The U.S. statutory procedure known as “Section 1782” can allow a litigant in non-U.S. proceedings to obtain what is tantamount to full U.S.-style discovery from a U.S.-based entity, for use in the foreign proceedings. This can be particularly valuable to litigants in foreign civil law jurisdictions that have limited procedures for disclosure of evidence.

35 See Note, Forum Shopping Reconsidered, 103 Harv. L. Rev. 1677, 1678 (1990); but see also id. at 1688, n. 89 (“Even if forum shopping is manipulative, it does not necessarily lead to more erroneous outcomes, but merely to different ones. The policy against forum shopping reflects an aversion to proclaiming that the legal system admits of multiple ‘correct’ outcomes.”).

36 As explored above, courts in the 11th Circuit have embraced both the legal right standard and the practical ability standard, yet district courts most recently speaking on the issues have either conflated the two or opted for selection of the latter.

37 The Sedona Conference, The Sedona Conference Commentary on Rule 34 and Rule 45 “Possession, Custody, or Control” at 488-89 (“The [p]ractical [a]bility [s]tandard is followed by some federal courts in the Second, Fourth, Eighth, [10th], [11th], and District of Columbia [c]ircuits”).

 

EFFIE D. SILVA is a vice president and associate general counsel with Tyson Foods, Inc., the largest food company in the United States, where she oversees and manages advice to the Prepared Foods Business Unit Legal Team on marketing and innovation activities, distributor arrangements, commercial transactions, regulatory compliance, business development transactions, mergers and acquisitions, disputes, and international matters.

 

SONIA ZELEDON is currently regional counsel-Americas, Business Integrity Group, at Nokia Corporation. She advises the global company on complex transactional and litigation issues of the highest risk and conducts multijurisdiction internal investigations.

 

 

JUSTIN M. L. STERN is a 2018 graduate of the University of Miami School of Law and an associate in the Miami office of Duane Morris LLP.

This column is submitted on behalf of the Trial Lawyers Section, Mindy McLaughlin, chair, and Kimberly Ashby, editor.