October 18, 2017

Discovering Discovery: Building Your Case, Deposition Tips, Expert Witnesses, and More

“Reduced to its essence, discovery is the process of identifying, collecting, producing and/or receiving relevant, nonprivileged materials in connection with pending or reasonably foreseeable litigation. With the advent of notice pleading, civil discovery provides access to the relevant information that litigants and their counsel require to make informed decisions about the merits of their case and the potential for settlement.” -Magistrate Judge Craig B. Shaffer

Discovery is a crucial component of every litigation case. In the last 10 years, civil litigation has changed significantly. The proliferation of electronic data and new rules on both the state and federal level create increasingly difficult challenges for preserving, managing, and producing electronically stored information. Conducting discovery outside Colorado has become mainstream as civil litigation has become more national—even global.

This Friday, CBA-CLE will debut the newest title in our litigation library, Discovery in Colorado, at a full-day program, “Discovering Discovery.” Discovery in Colorado is a practical guide to discovery that brings to life the application of the Colorado and Federal Rules of Civil Procedure governing the discovery process. Discovery in Colorado was written by a variety of different practitioners, overseen by Magistrate Judge Nina Y. Wang and Natalie Hanlon Leh, Esq. Attorneys and judges with backgrounds in private, in-house, and government practice authored individual chapters.

Learn different approaches to discovery and hear distinct perspectives from some of the most experienced trial attorneys and judges in Colorado. Each class attendee receives Discovery in Colorado, 1st Edition, as course materials. Explore the ever-changing state of discovery through this valuable course and companion book. Register using the links below, or call (303) 860-0608.

 

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CLE Program: Discovering Discovery

This CLE presentation will occur on Friday, July 28, 2017, at the CLE Large Classroom (1900 Grant St., 3rd Floor) from 8:30 a.m. to 4:45 p.m. Register for the live program here and the webcast here. You may also call (303) 860-0608 to register.

Can’t make the live program? Order the homestudy here — Video OnDemandMP3 Audio

Colorado Supreme Court: District Court Must Take Active Role in Managing Discovery Request of Non-Party in Dissolution Proceeding

The Colorado Supreme Court issued its opinion in In re Marriage of Gromicko on Monday, January 9, 2017.

In 2015, Lisa Dawn Gromicko (Wife) filed a petition for dissolution of marriage, naming Nickifor Nicholas Gromicko (Husband) as respondent. The petition requested equitable division of marital assets and debts. In order to evaluate Husband’s income, Wife requested records from Husband’s employer, InterNACHI, a nonprofit organized as a § 501(c)(6) trade association. Although Husband initially stated he would not object to the production of certain records, he did not provide them, and Wife requested a status conference. Husband’s counsel, who was also InterNACHI’s general counsel, filed a motion in response to Wife’s discovery request, arguing (1) the only InterNACHI relevant to the divorce proceeding were those reflecting Husband’s compensation and expense reimbursements; (2) the court could not consider InterNACHI a marital asset because Wife did not allege grounds in her dissolution petition to pierce the corporate veil; and (3) the court could authorize Wife to serve a subpoena duces tecum on InterNACHI to produce the relevant documents. The court held the status conference but did not rule on the discovery issues.

Wife then served a subpoena duces tecum on InterNACHI requesting (1) Husband’s employment and compensation; (2) the employment by InterNACHI of any person related to Husband; (3) InterNACHI’s bookkeeping, accounting, and tax return or Form 990 preparation; and (4) InterNACHI’s conflict-of-interest policy. InterNACHI moved to quash the subpoena, arguing that many of the requested documents were privileged, confidential, and irrelevant to the dissolution proceeding. InterNACHI also renewed its motion that Wife did not allege any grounds sufficient to claim that InterNACHI was Husband’s alter ego and pierce the corporate veil. The court denied InterNACHI’s motion to quash, and it filed a C.A.R. 21 interlocutory appeal.

On appeal, InterNACHI argued that the district court abused its discretion in refusing to quash or modify Wife’s subpoena because (1) Wife was required to, but did not, plead in her dissolution petition a claim for piercing InterNACHI’s corporate veil and (2) certain of Wife’s discovery requests were irrelevant to her veil-piercing claim and thus were outside the scope of discovery permitted by C.R.C.P. 26. The court first analyzed the discovery requirements in domestic relations cases, which are governed by C.R.C.P. 16.2, and found that Wife was not required to plead in her dissolution petition a claim seeking to pierce InterNACHI’s corporate veil. However, the supreme court concluded the district court did not use the correct standard in evaluating InterNACHI’s objection to the requested discovery.

The court compared C.R.C.P. 16.2 to the discovery requirements in civil cases, governed by C.R.C.P. 26. The court found the two rules analogous. The court found that its holding in DCP Midstream, LP v. Anadarko Petroleum Corp., 2013 CO 36, applied in this case and required the district court to take an active role in managing discovery. The supreme court found that the district court should initially have granted Wife only such discovery as would reasonably have been necessary to allow her to attempt to establish the existence of the alter ego relationship that she claimed. The supreme court noted that if, after receiving limited discovery, Wife could prove that InterNACHI was Husband’s alter ego, she may then be entitled to receive the information in her initial request, but the court must actively monitor discovery pursuant to DCP Midstream.

The supreme court made its rule to show cause absolute and returned the case to the district court for further proceedings.

Colorado Court of Appeals: Proof of Alleged Abuse Not Required Where Child Adjudicated Dependent Based on Lack of Parental Care

The Colorado Court of Appeals issued its opinion in People in Interest of L.K. on Thursday, July 14, 2016.

Dependency and Neglect—Sexual Abuse—Polygraph Examination—Treatment Plan—Testimony—Evidence—Attorney Fees—Discovery Violations—Sovereign Immunity.

L.K. alleged sexual abuse by her father, C.K. Although C.K. denied the allegations, he stipulated that L.K. was dependent and neglected because she lacked proper parental care. The court accepted his admission and adjudicated L.K. dependent and neglected. The Moffat County Department of Social Services (MCDSS) devised a treatment plan for C.K., which required, among other things, that C.K. take a polygraph examination as part of denier’s treatment. Moffat later moved to terminate C.K.’s parental rights. Among other things, the court found that C.K. had been referred for a polygraph examination but did not appear for it, and it granted the termination motion, citing C.K.’s failure to successfully complete treatment designed to address the allegations of sexual misbehavior with L.K. as sufficient evidence that he was unable or unwilling to provide nurturing and safe parenting to adequately address her needs.

On appeal, C.K. contended that the trial court committed reversible error by considering the denier’s treatment polygraph examination as evidence supporting its determination that he failed to successfully complete his treatment plan. He did not dispute either that his treatment plan required him to participate in denier’s treatment or that a polygraph examination was required in denier’s treatment. For these reasons, the court properly admitted evidence of efforts to schedule an appointment for a polygraph examination and evidence that C.K. did not keep the appointment, and the court did not err in considering this evidence in terminating C.K.’s parental rights.

Next, C.K. contended that MCDSS had the burden to prove by clear and convincing evidence that his parental rights should be terminated, but the trial court erred by unfairly shifting the burden of proof to him when he decided not to testify in the termination hearing. When C.K. failed to present evidence, the court did not improperly shift the burden of proof, infringe on his privilege against self-incrimination, or draw impermissible adverse inferences.

Finally, C.K. contended that MCDSS did not prove its case by clear and convincing evidence, asserting the absence of such evidence that he had sexually abused L.K., which was the basis for the petition in dependency and neglect. However, the factual basis for adjudicating L.K. dependent and neglected had already been established, and MCDSS’s burden was to prove the criteria for termination, including C.K.’s failure to comply with his treatment plan. The Court of Appeals rejected the contention that the evidence was insufficient to support the judgment.

On cross-appeal, MCDSS contended that the trial court erred in assessing attorney fees against it for discovery violations. Sovereign immunity precludes orders assessing attorney fees against a governmental entity for discovery violations.

The judgment was affirmed and the sanctions order was reversed.

Summary provided courtesy of The Colorado Lawyer.

Colorado Supreme Court: Criminal Defendants Have No Constitutional Right to Conduct Discovery

The Colorado Supreme Court issued its opinion in People in Interest of E.G. on Monday, April 18, 2016.

Criminal Procedure—Criminal Discovery—Constitutional Law.

The Supreme Court considered whether a trial court may order a third party to allow a criminal defendant discovery access to the third party’s home. The Court first discussed the historical underpinnings of criminal discovery, noting that there is no common law right to discovery in a criminal case. The Court then analyzed the possible sources of authority by which a trial court could grant a defendant’s discovery request for access to a private home. Finding no constitutional provision mandating such discovery, and failing to locate any authority to grant such a discovery request in Crim.P. 16 or 17, the Court concluded that the trial court lacked the authority to order the third party to allow access to her private home.

Summary provided courtesy of The Colorado Lawyer.

Colorado Supreme Court: Criminal Defendant Has No Constitutional Right to Examine Victim’s Home

The Colorado Supreme Court issued its opinion in In re People v. Chavez on Monday, April 18, 2016.

Criminal Procedure—Criminal Discovery—Constitutional Law.

In this original proceeding, the Supreme Court considered whether a trial court may order a third party to allow a criminal defendant discovery access to the third party’s home. Relying on People in the Interest of E.G., 2016 CO 19, __ P.3d __, the Court concluded that the trial court had no authority to order the alleged victim to allow defendant or his representatives into her home to investigate the scene of the alleged crime.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Late Filed Counterclaims Timely Because they Relate Back to Original Answer

The Colorado Court of Appeals issued its opinion in Makeen v. Hailey on Thursday, December 31, 2015.

Real Property—Compulsory Counterclaims—Timely—Discovery Violations—Sanctions—Trial Management—Attorney Fees.

Makeen and his father, Hailey, purchased real property in Denver (Utopia Property) as joint tenants. Makeen alleged that he had an oral agreement with his father pursuant to which he would manage the property while his father was alive, and upon his death Makeen would become the sole owner. According to Makeen, Hailey also promised to give him seven other properties upon Hailey’s death. Hailey, however, alleged that he never promised Makeen any property interests, and that Makeen fraudulently purchased the Utopia Property in both of their names, even though he had agreed to act as Hailey’s agent and to buy the property only in Hailey’s name. The court found in favor of Hailey on all claims and counterclaims.

On appeal, Makeen contended that the trial court erred in finding Hailey’s counterclaims for breach of fiduciary duty and fraud timely. Although it was more than a year since the original complaint was filed, the counterclaims were timely because Hailey’s amended answer and counterclaims related back to his initial answer, which was filed within the revival statute’s one-year limitations period.

Makeen also contended that the trial court erred in failing to sanction Hailey for repeated discovery violations. First, although PPR 3.7 requires mandatory sanctions for a failure to timely and completely disclose, it applies only to initial disclosures and not the discovery requests at issue here. Additionally, the trial court did not abuse its discretion in deciding not to impose discovery sanctions against Haley after finding that Haley had made substantially all of the required disclosures and, even if there had been intermittent noncompliance with some of the CAPP discovery rules, the noncompliance was substantially justified and harmless.

Makeen further argued that the trial court erred in prematurely cutting off discovery at the final discovery dispute hearing in October 2013. Makeen had nearly 11 months to conduct discovery, and the trial court acted well within its discretion in enforcing reasonable trial management deadlines in this matter. Further, Makeen failed to show that he was prejudiced by this ruling.

The judgment was affirmed. Because Makeen’s appeal of some of the issues was frivolous, the case was remanded to award Hailey attorney fees and costs related to the defense of those claims on appeal.

Summary and full case available here, courtesy of The Colorado Lawyer.

The 2015 Amendments to the Federal Rules of Civil Procedure (Part 3 of 3)

Editor’s Note: This is Part 3 of a three-part series discussing the 2015 changes to the Federal Rules of Civil Procedure. Part 1 discussed the changes to Rules 1, 4, and 16, and is available here. Part 2 discussed the changes to Rule 26, and is available here

Bill_GrohBy William C. Groh, III

Changes to Rules 30, 31, and 33

Rules 30 and 31, which govern depositions, have been amended to account for the changes to Rule 26. Both rules require that when the parties seek leave of court to conduct depositions, “the court must grant leave to the extent consistent with Rule 26(b)(1) and (2).” Rule 33, governing interrogatories, has also been amended to reflect the proportionality requirements of Rule 26(b).

Rule 34

Like Rules 30, 31, and 33, the amendments to Rule 34 (governing requests for production) incorporate the changes to Rule 26. They also require greater specificity in objecting to discovery requests. New Rule 34(b)(2)(B) requires the responding party to “state with specificity the grounds for objecting to the request, including the reasons.”

New Rule 34(b)(2)(C) further clarifies this requirement by requiring that “an objection must state whether any responsive materials are being withheld on the basis of that objection.” In practical terms, however, a party will not necessarily have detailed knowledge of withheld documents. This is especially so if a responding party has conducted a limited search for documents based on an objection: how can the party specify what has been “withheld” in these circumstances?

The Committee Notes address these questions, providing that in objecting to a request, “[t]he producing party does not need to provide a detailed description or log of all documents withheld, but does need to alert other parties to the fact that documents have been withheld and thereby facilitate an informed discussion of the objection.” [1]  The Committee Notes also address the issue of limited searches, providing that “an objection that states the limits that have controlled the search for responsive and relevant materials qualifies as a statement that the materials have been ‘withheld.’”[2]

Finally, Rule 34(b)(2)(B) has been amended to reflect the “common practice” of producing documents rather than permitting inspection.[3] The new rule provides that “[t]he responding party may state that it will produce copies of documents or of electronically stored information instead of permitting inspection. The production must then be completed no later than the time for inspection specified in the request or another reasonable time specified in the response.”[4]

Rule 37

The amendments to Rule 37(e) provide more guidance regarding the failure to preserve ESI. Prior Rule 37(e), adopted in 2006, provided that “[a]bsent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.” While the rule implied authority to impose sanctions on a finding of bad faith, it provided no other specific criteria.

New Rule 37(e) provides a more comprehensive framework for courts to issue sanctions in the event of loss of ESI where “a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery.” As a preliminary matter, while New Rule 37(e)(1) requires a finding of prejudice resulting from a negligent failure to preserve ESI, it does not place a burden of proving or disproving prejudice on one party or the other. The Committee Notes indicate that under certain circumstances, it would be unfair for the party that did not lose the information to demonstrate prejudice. Under other circumstances, however, the content of the lost information might be “fairly evident” and perhaps unimportant in light of other available information; the Committee Notes suggest that the party seeking relief should be required to demonstrate prejudice under those circumstances.[5] In light of these considerations, the rule leaves the court with discretion as to how best to assess prejudice.[6]

Once prejudice has been found, New Rule 37(e)(1) states that the court “may order measures no greater than necessary to cure the prejudice.” The court is afforded wide discretion in fashioning appropriate remedies, depending on the circumstances. The Committee Notes caution, however, that “authority to order measures no greater than necessary to cure prejudice does not require the court to adopt measures to cure every possible prejudicial effect.”[7]

No finding of prejudice is required, however, to impose sanctions when a party has acted “with the intent to deprive another party of the information’s use in the litigation.”[8] Sanctions for the willful destruction of ESI include (1) presumptions that the lost information was unfavorable to the party, (2) adverse jury instructions, or (3) dismissal of the action or default judgment.[9] The Committee Notes caution that these more punitive remedies should not be confused with the “curative” remedies available under Rule 26(e)(1), noting that courts should:

ensure that curative measures under subdivision (e)(1) do not have the effect of measures that are permitted under subdivision (e)(2) only on a finding of intent to deprive another party of the lost information’s use in the litigation. An example of an inappropriate (e)(1) measure might be an order striking pleadings related to, or precluding a party from offering any evidence in support of, the central or only claim or defense in the case. On the other hand, it may be appropriate to exclude a specific item of evidence to offset prejudice caused by failure to preserve other evidence that might contradict the excluded item of evidence.[10]

Lastly, and while not incorporated into Rule 37(e) itself, the Committee Notes provide considerable analysis as to how courts should determine whether a party has taken reasonable steps to preserve ESI. The Committee Notes describe factors to address in considering when a duty to preserve may have arisen, as well as proportionality factors in evaluating what preservation measures may have been reasonable.[11] They also emphasize that Rule 37(e) does not apply when a party loses information despite reasonable preservation efforts.[12] Finally, the Committee Notes explore the distinction between independent common law or statutory duties to preserve information and the obligations triggered under New Rule 37(e).[13] Litigants attempting to evaluate the sufficiency of preservation efforts should reference these notes in addition to the existing case law.

Rules 55 and 84

Rule 55, governing default judgments, has also been amended to clarify the difference between entry of default and entry of a final judgment. An entry of default that does not dispose of all issues in the case may be set aside for good cause under New Rule 55. If, on the other hand, an entry of default results in a final judgment under Rule 54, such a judgment can be set aside only under the standards of Rule 60. Finally, Rule 84 has been amended to abrogate the appendix of forms.

Conclusion

The 2015 Amendments to the Federal Rules may very well reinvigorate many preexisting standards for the conduct of discovery in federal courts. While many contend that the amendments to Rule 26 will spawn considerable motions practice, others argue that the amendments will ultimately help streamline the discovery process. Other developments, such as the new framework for sanctions under Rule 37(e), will provide the court with additional tools to deal appropriately with failure to preserve ESI.


[1] 2015 Committee Notes, supra note 4 at 34.

[2]. Id.

[3]. Id. at 38.

[4]. New Rule 34(b)(2)(B).

[5]. Id. at 43, 47.

[6]. Id.

[7]. Id. at 44.

[8]. New Rule 37(e)(2).

[9]. New Rule 37(e)(2)(A), (B), and (C).

[10]. 2015 Committee Notes, note 4 at 44.

[11]. Id. at 39-41.

[12]. Id. at 41.

[13]. Id. at 40 (“The fact that a party had an independent obligation to preserve information does not necessarily mean that it had such a duty with respect to the litigation, and the fact that the party failed to observe some other preservation obligation does not itself prove that its efforts to preserve were not reasonable with respect to a particular case.”).


Bill Groh is an experienced commercial litigator who has represented individuals and small businesses in a variety of fields since 2005. Mr. Groh frequently handles matters involving both intellectual property and commercial litigation issues, including trademark infringement, copyright infringement, trade secret infringement, civil disputes involving breach of contract, business partnerships, allegations of breach of fiduciary duty, conversion, civil theft, actions for dissolution of partnership interest, and other such disputes that are increasingly common in modern business.

The 2015 Amendments to the Federal Rules of Civil Procedure (Part 2 of 3)

Bill_Groh

Editor’s Note: This is Part 2 of a three-part series discussing the 2015 changes to the Federal Rules of Civil Procedure. Part 1 discussed the changes to Rules 1, 4, and 16, and is available here. Part 3 will discuss the changes to Rules 30, 31, 33, 34, 37, 55, and 84. 

By William C. Groh, III

Rule 26

The changes to Rule 26(b)(1), which governs the scope of discovery, have generated considerable controversy and debate. The amended rule introduces two main changes. First, it does away with the “reasonably calculated to lead to the discovery of admissible evidence” language while clarifying the definition of “relevant information” in relation to the proper scope of discovery.[1] Second, the amended rule emphasizes that discovery must be “proportional to the needs of the case,” introducing a six-factor test by which the courts must determine proportionality.[2]

Redefining “Relevance”

The “relevance” standard under New Rule 26(b)(1) is narrower and more streamlined than in the prior rule. While Prior Rule 26(b)(1) allowed for discovery relevant to any claim or defense,[3] it also allowed for discovery of “any matter relevant to the subject matter involved in the action” upon a showing of good cause. It provided that “relevant” information need not be admissible “if the discovery appears reasonably calculated to lead to the discovery of admissible evidence.”[4] New Rule 26(b)(1) is more restrictive. It does away with the “relevant to the subject matter” and “reasonably calculated” standards. The new rule requires that discovery be “relevant to any party’s claim or defense.” Discovery fitting this relevance criterion “need not be admissible in evidence to be discoverable.”[5]

The elimination of the “reasonably calculated to lead to the discovery of admissible evidence” language is technically less substantive than it may seem. The Committee Notes point out that the wording of Prior Rule 26(b)(1) has caused practitioners to cite the “reasonably calculated” language as the general standard for the scope of discovery instead of the true “relevance” standard.[6] The Committee Notes emphasize that the appropriate scope is “relevance” to claims and defenses, and New Rule 26(b)(1) removes the “reasonably calculated” language to prevent further confusion.[7]

New Rule 26(b)(1) also no longer permits discovery that is merely “relevant to the subject matter involved in the action,” even on a showing of good cause.[8] Discovery under the new rule must be “relevant to any party’s claims or defense,” but what does that mean in practice? The Committee Notes cite illustrative examples including “other incidents of the same type, or involving the same product”; “information about organizational arrangements or filing systems”; and “information that could be used to impeach a likely witness.”[9] The Federal Rules Advisory Committee first introduced these examples in the Committee Notes to the 2000 amendments to Rule 26. The Committee Notes to the 2000 amendment acknowledge that a bright-line rule distinguishing “relevance to claims and defenses” from “relevance to subject matter” is not practical, given the case-specific nature of the criteria.[10]

New Rule 26(b)(1) also no longer expressly describes the scope of discovery as including “the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter.”[11] This change is cosmetic. As the Advisory Committee explains, “[d]iscovery of such matters is so deeply entrenched in practice that it is no longer necessary to clutter the long text of Rule 26 with these examples.”[12]

The above changes refocus the scope of discovery on relevance to claims and defenses. These changes make it more likely that courts will sustain objections to discovery of subject matter that is not in itself “relevant” to the parties’ claims and defenses as expressed in the pleadings.

The Six-Factor “Proportionality” Test

Possibly the flagship feature of the 2015 amendments to Rule 26, New Rule 26(b)(1) requires that, in addition to being relevant, discovery be “proportional to the needs of the case.” The New Rule also sets out six factors that guide the determination of “proportionality”:

Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.

Many public commentators have expressed both optimism and concern about the “new” requirements that the proportionality test would impose on litigants and the courts. Opponents argued that a formal proportionality test would make discovery more difficult by imposing a new layer of motions practice over “proportionality” in every case. As one commentator wrote:

I strongly oppose the amendment to Rule 26(b) injecting a proportionality test into the Rules. Under the current Rules, many of my adversaries routinely include boilerplate objections in to their responses to virtually every discovery request that I send. If this proposed change is adopted, I am confident that those boilerplate objections will be joined by an objection that the discovery requests are not proportional to the needs of the case. This, in turn, will generate unnecessary litigation over proportionality every time that a new discovery request is served.[13]

Other commentators expressed optimism about the changes. As one supporter wrote:

This change would provide a significant improvement compared to the overbroad scope of discovery defined by current Rule 26(b)(1) by reducing the costs and burdens in discovery practice. In addition, I support moving the proportionality language presently found in Rule 26(b)(2)(C)(iii) to 26(b)(1). This modification would remind parties that the principle of proportionality applies to all discovery and would encourage parties and judges to focus on what discovery should mean to each individual case.[14]

In addressing these and other comments, the Advisory Committee emphasized that Rule 26 already includes most of the above “proportionality” requirements.[15] Indeed, the only new factor is “the parties’ relative access to relevant information.” Other proportionality factors found in the old version of 26(b)(2)(C) include (1) analysis of the burden imposed by the discovery versus its likely benefit, (2) the importance of the issues at stake, (3) the amount in controversy, (4) the resources of the parties, and (5) the importance of the discovery in resolving the issues. In other words, the “proportionality” test does not introduce an altogether “new” standard so much as it re-emphasizes and re-prioritizes existing standards. The amended criteria are designed to refocus norms of discovery practice by giving existing proportionality requirements more conspicuous treatment in the rules.

The proportionality test found in New Rule 26(b)(1) borrows much of its language from Prior Rule 26(b)(2)(C), which allowed the courts to limit discovery upon a determination that “the burden or expense of the proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the parties’ resources, the importance of the issues at stake in the action, and the importance of the discovery in resolving the issues.” Prior Rule 26(b)(1) subjected the scope of discovery to the “limitations imposed by 26(b)(2)(C)” but only incorporated the limiting language by reference. The new rule expressly imports this language from Prior Rule 26(b)(2)(C) and places it “front and center” in Rule 26(b)(1).

The Committee Notes describe the above changes as a re-emphasis of current standards, stating:

The present amendment restores the proportionality factors to their original place in defining the scope of discovery. This change reinforces the Rule 26(g) obligation of the parties to consider these factors in making discovery requests, responses, or objections. Restoring the proportionality calculation to Rule 26(b)(1) does not change the existing responsibilities of the court and the parties to consider proportionality, and the change does not place on the party seeking discovery the burden of addressing all proportionality considerations.[16]

Something old, something new. For better or for worse, commentators generally agree that, by putting the question of proportionality front and center, disputes over proportionality will likely increase motions practice as the new rule takes effect. The Tenth Circuit did not require courts to make formal findings applying the proportionality factors as they existed under the old rules.[17] Courts and litigants generally did not systematically apply these factors in discovery or related motions practice. As the District of Maryland observed:

Despite the obvious utility of the [Prior] Rule 26(b)(2) factors in tailoring discovery to accommodate fair disclosure without imposing undue burden or expense, they have tended largely to be ignored by litigants, and, less frequently than desirable, used by the courts, sua sponte, to manage discovery. Instead, particularly with respect to disputes involving Rule 33 and Rule 34 discovery, the focus of the litigants tends to be the party seeking discovery’s perceived “right” to all information relating to the broad “subject matter” of the litigation, without any reflection as to the real usefulness of the information sought, or the burden or expense required to produce it, countered by the party resisting the discovery’s unparticularized claims of burden, expense, irrelevance, and privilege.[18]

It is therefore important to consider how courts might formally apply the six criteria as a group in the context of determining whether challenged discovery meets the proportionality requirements of the new rule.

Factor 1: importance of the issues at stake. The Rules Committee deliberately chose “the importance of the issues” as the first of the six factors, placing it before even “the amount in controversy.” The Committee made this decision to emphasize that the amount in controversy does not trump issues of substantive justice.[19] What constitutes an “important issue,” however, remains open to question. The Advisory Committee cites the earlier 1983 Committee Note, which discussed this concept in terms of “vitally important personal or public values,” stating:

The 1983 Committee Note recognized “the significance of the substantive issues, as measured in philosophic, social, or institutional terms. Thus the rule recognizes that many cases in public policy spheres, such as employment practices, free speech, and other matters, may have importance far beyond the monetary amount involved.” Many other substantive areas also may involve litigation that seeks relatively small amounts of money, or no money at all, but that seeks to vindicate vitally important personal or public values.[20]

The placement of “importance of the issues” before “amount in controversy” was also in response to comments strongly objecting to a prior version of the amendment that placed “amount in controversy” first. As one attorney warned, “[f]ew of our cases are likely to garner in excess of six figures, so putting ‘the amount in controversy,’ before ‘the importance of the issues at stake,’ spells the death knell for employment litigation.”[21]

Other comments questioned the wisdom of requiring judges to evaluate the “importance” of some cases over others. As one commentator noted:

One judge will assess the “importance of the issues at stake” vastly differently from another or perhaps even differently than the judge himself might on another day (for reasons initially described in Judge Jerome Frank’s “Courts on Trial,” but that are becoming more well-documented through studies of decision-making based on “implicit biases” or “blind spots”). Judges—like all humans—are likely to value issues with which they have experience over issues with which they have little or no experience. Justice Thurgood Marshall presumably would place greater value on civil rights issues based on his legal background; Justice Tom Clark, who he replaced, presumably would place greater value on national security issues and corporate fraud or antitrust issues based on his experiences. . . .[22]

Nonetheless, New Rule 26(b)(1) provides potential ammunition for those seeking discovery in cases implicating important policy questions, even if the amount in controversy is relatively small. On the other hand, the “importance of the issues” criterion could pose an obstacle in cases involving small amounts in controversy, high discovery costs, and garden-variety legal issues.

Factor 2: the amount in controversy. This criterion is relatively straightforward, though not uncontroversial. Cases involving low amounts in controversy implicitly mandate a more streamlined approach to discovery, lest the parties spend more than the case’s monetary value on costly discovery issues.

Consideration of the amount in controversy invites analysis of the costs of the proposed discovery. An amount in controversy of $20,000 would theoretically weigh against allowing a discovery request that would cost $20,000 to comply with. On the other hand, what if the discovery costs are high because the responding party’s records are disorganized or difficult to search?

One may expect courts to tackle this problem by assessing whether the responding party’s asserted costs are reasonable under the circumstances. However, with information storage and retrieval technology rapidly changing even from year to year, it would be difficult for the courts to develop objective metrics that would keep pace with changing technology.

Factor 3: parties’ relative access to relevant information. As the “new factor” in the equation, the Advisory Committee Notes describe “Relative Access” as an attempt to address the problem of “information asymmetry.” As the Committee Notes point out:

One party—often an individual plaintiff—may have very little discoverable information. The other party may have vast amounts of information, including information that can be readily retrieved and information that is more difficult to retrieve. In practice these circumstances often mean that the burden of responding to discovery lies heavier on the party who has more information, and properly so.[23]

This factor therefore deals with whether the party seeking discovery has reasonable access to the information requested by other means. Even if the requesting party technically has other means of access, this factor may still favor discovery if the producing party can produce the requested information quickly and easily.

Factor 4: the parties’ resources. While New Rule 26(b)(1) requires consideration of the parties’ resources, the Advisory Committee has cautioned against an overuse of this factor in limiting or allowing discovery. Citing prior Committee Notes on the subject, the Committee Notes state:

[C]onsideration of the parties’ resources does not foreclose discovery requests addressed to an impecunious party, nor justify unlimited discovery requests addressed to a wealthy party. The 1983 Committee Note cautioned that “[t]he court must apply the standards in an even-handed manner that will prevent use of discovery to wage a war of attrition or as a device to coerce a party, whether financially weak or affluent.”[24]

Where the parties’ resources are a factor, a protective order under New Rule 26(c)(1)(B), which explicitly provides for the allocation of expenses, can also shift the costs of producing the discovery in appropriate cases.

Factor 5: the importance of the discovery in resolving the issues. The “importance” factor requires assessment of the degree to which the discovery is necessary to prove a claim or defense. Courts analyzing this factor may consider the discovery’s relevance to a claim or defense as well as whether the issues implicated are central to the case.[25]

Factor 6: whether the burden or expense of the proposed discovery outweighs its likely benefit. While much case law currently addresses the cost-benefit analysis of discovery, the Committee Notes also point out that this analysis should consider the ever-evolving capability of electronic search methods, stating:

The burden or expense of proposed discovery should be determined in a realistic way. This includes the burden or expense of producing electronically stored information. Computer-based methods of searching such information continue to develop, particularly for cases involving large volumes of electronically stored information. Courts and parties should be willing to consider the opportunities for reducing the burden or expense of discovery as reliable means of searching electronically stored information become available.[26]

These comments make clear that the relevance of today’s arguments about burden and expense may change significantly as new means of search and retrieval of ESI become commonplace.

This factor is also controversial. While it may limit unnecessarily burdensome discovery, commentators have expressed concern that “burdensomeness” arguments provide opportunities for gamesmanship. Comments submitted by the American Association for Justice cautioned that “this factor upends the incentives for defendants to preserve documents in an easily accessible format and encourages them to ensure that discovery will be too expensive or difficult to retrieve.”[27] On the other hand, the courts have been and remain equipped to compel important discovery if it finds a party’s alleged “burden” in producing the discovery appears to be self-inflicted.[28]

Other considerations regarding the proportionality test. Some public commentators have expressed concern that the “proportionality” test will burden the party seeking discovery with demonstrating proportionality.[29]

The Committee Notes imply a shared burden to demonstrate (or refute) proportionality, pointing out that the proportionality test “does not place on the party seeking discovery the burden of addressing all proportionality considerations,” and is not intended to “permit the opposing party to refuse discovery simply by making a boilerplate objection that it is not proportional. The parties and the court have a collective responsibility to consider the proportionality of all discovery and consider it in resolving discovery disputes.” [30]

While courts have not yet interpreted the “shared” burden to demonstrate proportionality, existing case law suggests that each party will be required to present facts within their possession in objecting to or compelling discovery.

As the District of Colorado has observed:

When the discovery sought appears relevant, the party resisting the discovery has the burden to establish the lack of relevancy by demonstrating that the requested discovery (1) does not come within the scope of relevance as defined under Fed.R.Civ.P. 26(b)(1), or (2) is of such marginal relevance that the potential harm occasioned by discovery would outweigh the ordinary presumption in favor of broad disclosure. . . . However, when a request for discovery is overly broad on its face or when relevancy is not readily apparent, the party seeking the discovery has the burden to show the relevancy of the request.[31]

Shifting the cost of discovery. Rule 26(c)(1)(B) has also been amended to recognize expressly the court’s authority to allocate discovery costs as part of a protective order. Such orders may be especially useful in cases in which the parties cannot agree on proportionality. Depending on the circumstances, a party may seek a cost-shifting protective order as a way to resolve controversies over the burdensomeness of particular requests.

Early discovery requests and discovery sequencing. New Rule 26(d)(2) allows parties to deliver Rule 34 production requests ahead of the Rule 26(f) conference. Under the new rule, responses are not considered served until the conference occurs. Responses are due within 30 days (not 33)[32] after the conference. The new rule allows the parties to stipulate or move the court for longer deadlines. Finally, New Rule 26(d)(2) allows the parties to stipulate as to the sequence of discovery without requiring a motion or court order.


 

[1]. See New Rule 26(b)(1).

[2]. Id.

[3]. Prior Rule 26(b)(1).

[4]. See id.

[5]. See New Rule 26(b)(1).

[6]. 2015 Committee Notes, supra note 4 at 24.

[7]. Id.

[8]. See New Rule 26(b)(1).

[9]. 2015 Committee Notes, supra note 4 at 23.

[10]. Fed.R.Civ.P. 26 at Committee Notes to 2000 Amendment. The 2000 Committee Notes emphasize that “[t]he dividing line between information relevant to the claims and defenses and that relevant only to the subject matter of the action cannot be defined with precision,” and caution that the relevance of particular information to the case “depends on the circumstances of the pending action.”

[11]. New Rule 26(b)(1).

[12]. 2015 Committee Notes, supra note 4 at 23.

[13]. Comment from Allan Karlin, www.regulations.gov/#!documentDetail;D=USC-RULES-CV-2013-0002-2171.

[14]. Comment from Gregory Grisham, www.regulations.gov/#!documentDetail;D=USC-RULES-CV-2013-0002-2218.

[15]. See 2015 Committee Notes,  supra note 4 at 19.

[16]. Id.

[17]. In re Cooper Tire & Rubber Co., 568 F.3d 1180, 1194 (10th Cir. 2009) (finding that Fed.R.Civ.P. 26(b)(2)(C)(iii) does not require a formalistic and detailed balancing of the factors listed therein.).

[18]. Thompson v. Department of Housing and Urban Development, 199 F.R.D. 168, 171 (D.Md. 2001).

[19]. 2015 Committee Notes, supra note 4 at 17.

[20]. Fed.R.Civ.P. 26 at 1983 Amendment Committee Notes.

[21]. Comment from Suzanne Tongring, www.regulations.gov/#!documentDetail;D=USC-RULES-CV-2013-0002-1908.

[22]. Comment from J. Byran Wood, www.regulations.gov/#!documentDetail;D=USC-RULES-CV-2013-0002-2112.

[23]. 2015 Committee Notes, supra note 4 at 20-21.

[24]. 2015 Committee Notes, supra note 4 at 22.

[25]. See, e.g., In re Cathode Ray Tube (CRT) Antitrust Litigation, 301 F.R.D. 449, 455 (N.D.Cal., 2014.)

[26]. 2015 Committee Notes, supra note 4 at 22.

[27]. Comment from American Association for Justice President J. Burton LeBlanc (submitter Richard Williger), www.regulations.gov/#!documentDetail;D=USC-RULES-CV-2013-0002-2046.

[28]. See, e.g., Foster v. Logan’s Roadhouse, Inc., 2013 WL 1498958, at *4 (N.D.Ala. 2013) (“Even so, plaintiff should not be prevented from obtaining necessary discovery simply because defendant has chosen to maintain its records in a manner that makes searches difficult and time-consuming. Overall, the importance of the discovery to plaintiff outweighs defendant’s burden in producing it.”).

[29]. See, e.g., Comment from John Vail, Center for Constitutional Litigation, www.regulations.gov/#!documentDetail;D=USC-RULES-CV-2013-0002-0199 (“Instead of a requesting party being entitled to information unless the opposing party shows disproportionality, a requesting party now would be entitled to information only upon affirmatively demonstrating proportionality.”).

[30]. 2015 Committee Notes, supra note 4 at 43.

[31]. Bonanno v. Quizno’s Franchise Co., LLC, 255 F.R.D. 550, 552 (D.Colo. 2009).

[32]. Because New Rule 16 deems the Rule 26(f) conference to constitute “service” of a previously delivered Rule 34 request, the “service” was not accomplished by the prior delivery of the requests. As such, delivery of a Rule 34 Discovery Request by electronic means prior to the Rule 26(f) conference should not trigger the time extending provisions of Fed.R.Civ.P. 6(d) that would apply if the requests were electronically served after the Rule 26(f) conference.


Bill Groh is an experienced commercial litigator who has represented individuals and small businesses in a variety of fields since 2005. Mr. Groh frequently handles matters involving both intellectual property and commercial litigation issues, including trademark infringement, copyright infringement, trade secret infringement, civil disputes involving breach of contract, business partnerships, allegations of breach of fiduciary duty, conversion, civil theft, actions for dissolution of partnership interest, and other such disputes that are increasingly common in modern business.

The 2015 Amendments to the Federal Rules of Civil Procedure (Part 1 of 3)

Bill_Groh

Editor’s Note: This is Part 1 of a three-part series discussing the 2015 changes to the Federal Rules of Civil Procedure. Part 2 will discuss the changes to Rule 26 and Part 3 will discuss the changes to Rules 30, 31, 33, 34, 37, 55, and 84. 

By William C. Groh, III

New and important changes to the Federal Rules of Civil Procedure (Federal Rules) took effect on December 1, 2015 and apply to all newly filed cases as well as currently pending cases “insofar as just and practicable.”[1] The changes affect Rules 1, 4, 16, 26, 30, 31, 33, 34, 37, 55, and 84. They deal primarily with the scope of discovery, case management, and preservation of electronically stored information (ESI). The amendments generally reflect an effort to refocus litigants’ ongoing obligation to conduct discovery efficiently and in appropriate proportion to the needs of the case at issue. The redline version of the 2015 amendments, with committee notes, is available for download at www.uscourts.gov/file/18481/download.

Rule 1

Rule 1 previously was a rule of construction that required the courts to administer the Federal Rules to ensure “the just, speedy, and inexpensive determination” of civil actions.[2] The wording placed responsibility on the courts. New Rule 1 expressly requires the courts and the parties to construe, administer and employ the Federal Rules to achieve these goals.[3]

Rule 4

Rule 4 has changed to provide a mandatory form to be used for requesting waiver of service. Prior Rule 4 contained an example waiver form but permitted other formats as long as they followed the rule’s substantive requirements. The waiver of service form provided with New Rule 4 is now mandatory. The Rule 4 form can be downloaded at www.cod.uscourts.gov/Portals/0/Documents/Forms/CivilForms/notice-n-waiver-of-serv-summons.pdf.

Rule 16

The amendments to Rule 16 are designed to encourage speedier scheduling and greater court involvement in ensuring the preservation of ESI. New Rule 16(b)(1)(B) does away with the provision allowing communication by “telephone, mail, or other means” to substitute for a Rule 16(b) scheduling conference. The parties and the court must engage in direct simultaneous communication, either in person, by telephone, or by other means.[4]

New Rule 16 shortens the deadline for the court to issue its scheduling order. While the deadline was 120 days under Prior Rule 16, New Rule 16 requires the court to issue the court scheduling order within 90 days after service of the complaint or 60 days after the appearance of any defendant. The court may extend this deadline upon a finding of good cause.

Prior Rule 16(b)(3)(B) included a list of items for consideration in entering the court scheduling order. New Rule 16(b)(3)(B) adds to this list, providing that the court may also include protocols for preservation of ESI. This change is apropos considering the changes to Rule 37 governing sanctions for failure to preserve ESI, discussed below. The new rule also permits the court to add agreed protocols for dealing with the disclosure of privileged information under FRE 502, and to require the parties to request a conference before the court before filing discovery motions. In light of these new items, Rule 26(f)(3) has also been changed to require the parties to address these issues at their Rule 26(f) conference.

 


[1]. See J. Roberts order adopting amendments subject to congressional approval at 15 (April 29, 2015), www.uscourts.gov/file/document/congress-materials,  P. 15 (“the foregoing amendments to the Federal Rules of Civil Procedure shall take effect on December 1, 2015, and shall govern in all proceedings in civil cases thereafter commenced and, insofar as just and practicable, all proceedings then pending.”).

[2]. See Prior Rule 1. The prior rule required that the federal rules “should be construed and administered to secure the just, speedy, and inexpensive determination of every action and proceeding.”

[3]. New Rule 1.

[4]. Proposed Amendments to the Federal Rules of Civil Procedure (with Committee Notes) at 7, www.uscourts.gov/file/18481/download (2015 Committee Notes).


 

Bill Groh is an experienced commercial litigator who has represented individuals and small businesses in a variety of fields since 2005. Mr. Groh frequently handles matters involving both intellectual property and commercial litigation issues, including trademark infringement, copyright infringement, trade secret infringement, civil disputes involving breach of contract, business partnerships, allegations of breach of fiduciary duty, conversion, civil theft, actions for dissolution of partnership interest, and other such disputes that are increasingly common in modern business.

Tenth Circuit: Sanctions Against Attorney Affirmed Where He Negligently Disregarded Discovery Obligations

The Tenth Circuit Court of Appeals issued its opinion in Sun River Energy, Inc. v. Nelson on Wednesday, September 2, 2015.

Attorneys James E. Pennington and Stephen E. Csajaghy were sanctioned for their refusal to disclose insurance coverage during securities litigation involving Sun River. Pennington was in-house counsel for Sun River and Csajaghy was retained to represent the company in the underlying litigation. During the underlying litigation, a magistrate judge set a discovery deadline of April 6, 2011, by which time Sun River was obligated to disclose any insurance coverage. However, no disclosure was made until nearly 18 months later, after repeated requests from opposing counsel, and by the time the policy was disclosed the coverage period had expired. Opposing counsel moved for sanctions against Sun River under Rule 37(b)(2)(A), requesting that Sun River’s claims against defendants be dismissed and entering default judgment for defendants on their counterclaims.

The magistrate judge held an evidentiary hearing, and ultimately recommended that default judgment be entered against Sun River but not approving dismissal. The magistrate judge noted that there was not intentional misrepresentation by Sun River’s attorneys, but neither attorney actually looked at the policy to see if it provided coverage, instead relying on their mistaken beliefs that the policy would not be relevant. Sun River objected to the magistrate judge’s recommendations, and a district judge addressed the contentions at a pretrial hearing. By that time, Csajaghy had withdrawn from the representation and Pennington appeared as counsel of record. The district court decided counsel were culpable for the misrepresentation and should be held personally responsible. The district court ultimately imposed the sanction of opposing counsel’s attorney fees against Pennington and Csajaghy in the amount of $20,435.

Pennington and Csajaghy moved for reconsideration, arguing Rule 37(c) does not allow imposition of sanctions on counsel, counsel acted with substantial justification, any sanction should have been imposed on Sun River, and due process precluded imposition of a sanction against Csajaghy, who had withdrawn before the sanctions were imposed. In response, defendants argued the sanction was not only justified under Rule 37 but under Rule 26(g)(3) and the district court’s inherent power as well, also noting that counsel’s deliberate indifference demonstrated a lack of substantial justification, sanctioning counsel was appropriate, and that both attorneys had been afforded substantial due process in the matter. The district court issued a thorough written decision, granting in part and denying in part the motion for reconsideration. The district court noted that Rule 37(b)(2)(C) authorizes a monetary sanction for failure to obey a discovery order and expressly allowed the attorney advising the party to be sanctioned, finding that since Csajaghy was Sun River’s attorney of record at the time of the discovery violation the sanction against him was appropriate. As to Pennington, since he was not the attorney of record at the time of the discovery violation, the district court held he was not subject to Rule 37(b)(2)(C) sanctions, but became responsible for timely updating discovery responses under Rule 26 when he became attorney of record, and therefore the sanction was justified under Rule 37(c)(1)(A). The attorneys appealed.

The Tenth Circuit began its analysis by examining the sanction against attorney Pennington. The Tenth Circuit noted that the only case law on the subject held that the sanctions were enforceable against parties only, not attorneys. The district court rejected the holding as unpersuasive, but the Tenth Circuit disagreed with the district court’s analysis as overbroad. The Tenth Circuit noted that there was no express textual reference extending the sanction against attorneys, and found that consideration of the relevant text cut against the district court’s analysis. Under the circumstances of this case, the Tenth Circuit found the sanctions against Pennington unwarranted by Rule 37. Turning to defendants’ argument that the sanctions were allowed by the district court’s inherent power, the Tenth Circuit again disagreed, finding that although his failure to disclose was not substantially justified, it was not vexatious, wanton, oppressive, or done in bad faith. The Tenth Circuit reversed the sanction against Pennington.

Turning to attorney Csajaghy, the Tenth Circuit found there was no question that the district court had authority to impose a personal sanction. Csajaghy objected to the sanction, arguing the sanction was not warranted on the facts, sanctioning counsel was inconsistent with the decision not to sanction Sun River, and the procedure through which he was sanctioned violated due process. The Tenth Circuit found no merit to any of his arguments. The Tenth Circuit admonished that, as counsel of record in the litigation, it was irresponsible for Csajaghy to assume that the in-house counsel, Pennington, had reviewed the policy. Even if had known Pennington reviewed the policy, Csajaghy should have conducted an independent review to satisfy his professional obligations. The Tenth Circuit further chastised Csajaghy for assuming the policy would not provide coverage in lieu of exercising critical judgment. The Tenth Circuit also approved of the district court’s decision to sanction Csajaghy while not sanctioning Sun River, because the company reasonably relied on its counsel to provide relevant disclosures and counsel failed to do so. Finally, the Tenth Circuit addressed Csajaghy’s due process arguments, and although it agreed with the district court that the initial order imposing the sanction was procedurally defective, any defect was cured by the subsequent proceedings on the motion for reconsideration.

The Tenth Circuit reversed the sanction against attorney Pennington and affirmed the sanction against attorney Csajaghy.

Changes to 10th Circuit Local Rules and Federal Rules of Appellate Procedure Posted

The Tenth Circuit Court of Appeals has posted changes to its local rules and the Federal Rules of Appellate Procedure, which will take effect January 1, 2016. The changes to the Tenth Circuit Local Rules are outlined in a memo, which is available here. A redline of the changes to the Federal Rules of Appellate Procedure, including the corresponding Tenth Circuit Local Rules, is available here.

The Federal Rules of Civil Procedure are also changing, effective December 1, 2015. The most significant change in the new Rules is that the scope of discovery is changing, as outlined below:

Rule 26.   Duty to Disclose; General Provisions Governing Discovery

(b)    Discovery Scope and Limits.

(1)    Scope in General.  Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.  Information within this scope of discovery need not be admissible in evidence to be discoverable.— including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence. All discovery is subject to the limitations imposed by Rule 26(b)(2)(C).

A redline of the proposed changes to the Federal Rules of Civil Procedure is available here.

Tenth Circuit: Concealment of Arbitration Agreements Until Late Stage of Litigation Constituted Waiver of Right to Arbitrate

The Tenth Circuit Court of Appeals issued its opinion in In re Cox Enterprises, Inc.: Healy v. Cox Communications, Inc. on Wednesday, June 24, 2015.

Cox is a cable provider involved in class-action litigation brought by subscribers to its cable service. In 2009, subscribers in several jurisdictions filed suits against Cox, alleging the company illegally tied provision of its cable service to rental of a set-top box. The actions were consolidated in a multi-district litigation and transferred to the U.S. District Court for the Western District of Oklahoma. Cox moved to dismiss, and during the pendency of its motion began inserting mandatory arbitration clauses into contracts with many of its customers, including class members. Cox does not appear to have notified the District Court about its insertion of the clauses. Plaintiffs’ efforts to certify a nationwide class failed, and instead they sought to certify several classes for geographic regions. These actions were again consolidated and transferred to the Western District of Oklahoma.

The instant case was originally brought in April 2012, and Cox unsuccessfully moved to dismiss in September 2012. The parties then engaged in substantial discovery, and named plaintiff Healy moved to certify a class in September 2013. Cox at no time mentioned the arbitration clauses. The court granted class certification in January 2014 as the parties continued to engage in discovery. Cox appealed to the Tenth Circuit in March 2014, again failing to mention the arbitration clauses, but its petition was denied. In April 2014, Cox moved for summary judgment, and that same day it moved to compel arbitration against both the absent class and named plaintiff Healy, citing the arbitration clauses for the first time. It later clarified that it was not compelling arbitration against Healy. The district court denied the motion to compel on the basis that Cox’s prior conduct in the litigation constituted waiver. Cox appealed.

The Tenth Circuit used its six-factor Peterson test to evaluate whether the right to arbitration had been waived. The six factors are (1) whether the party’s actions are inconsistent with the right to arbitrate, (2) whether the parties were well into the preparation of a lawsuit before a party notified the opposing party of an intent to arbitrate, (3) whether a party requested arbitration enforcement close to a trial date or delayed for a long period before seeking a stay, (4) whether a defendant seeking arbitration filed a counterclaim without requesting a stay, (5) whether important intervening steps like discovery had taken place, and (6) whether the delay affected, misled, or prejudiced the opposing party.

The district court determined Cox’s failure to inform it of the presence of arbitration agreements until after class certification was inconsistent with an intent to arbitrate and suggested an attempt to manipulate the process, as it would affect the numerosity of the class. The Tenth Circuit agreed, also finding that because Cox did not request for its motion for summary judgment to be stayed pending arbitration implied an attempt to “play heads I win, tails you lose” by manipulating the litigation machinery. The district court found, and the Tenth Circuit agreed, that the second, third, and fifth Peterson factors also cut strongly against Cox. Cox did not invoke the arbitration agreements until two years after the lawsuit was commenced, and substantial discovery had occurred before the invocation. Further, Cox failed to mention a factor that would have significantly affected the district court’s Rule 23 analysis, and Healy would be significantly prejudiced if arbitration were allowed. The Tenth Circuit opined that perhaps the greatest prejudice would be to the integrity of the judicial process, since both the district court and Tenth Circuit had invested significant time and energy in analyzing literally thousands of pages of documents.

Cox argued the Peterson factors were inapplicable because a party does not invariably waive its right to impose arbitration by filing its motion to compel after class certification. The district court rejected this argument as an improper attempt to artificially narrow the scope of the waiver, and the Tenth Circuit agreed. Cox could have asserted its right to arbitration at many earlier litigation stages but chose to conceal the arbitration provisions. Further, the district court’s denial of the motion to compel was based not on Cox’s failure to compel arbitration earlier but rather its specific conduct evincing an attempt to “take multiple bites of the apple.”

The Tenth Circuit affirmed the district court.