Privacy Law Blog : Privacy Lawyers & Attorneys : Proskauer Rose Law Firm : CAN-SPAM, FCRA, FACTA

On April 26, 2010, as the U.S. Parent allegedly had not complied with the Order, Plaintiffs requested that the U.S. Parent be held in contempt, further asking for the imposition of compensatory sanctions, a daily coercive fine, and an award of incurred legal fees. See Certification of Facts for Contempt Proceeding (the “Certification”) at 2. On May 13, 2010, Magistrate Theodore Katz issued the Certification, recommending that “the District Court hold [the U.S. Parent] in civil contempt and impose daily coercive fine, in an amount to be set by the District Court, until [the U.S. Parent] complies with the Subpoena as directed in the Order.” Certification at 2-3.

In recommending coercive sanctions of “$5000 to $10000 per day appropriate to demand compliance,” the Court noted that it is:

[M]indful of the difficult situation in which [the U.S. Parent] finds itself. If [it] complies with the Order, it must neglect BAFIA; if [it] refuses disclosure because of BAFIA, it violates the Order. But it is this very conundrum that brought the parties before this Court nearly six months ago to resolve their discovery dispute. After hearing the arguments of the parties, this Court ordered disclosure. [The U.S. Parent], however, has yet to comply with the Order for the same reason it refused to comply with the Subpoena in November 2009 – a justification that this Court rejected in the Order [it] now finds itself facing contempt ‘due to its having chosen to do business in jurisdiction in which the laws are at odds with those of its home jurisdiction. In this situation the bank must either surrender to one sovereign or the other in return for the privileges it receives or alternatively . . . accept the consequences.’

Id. at 14-16, n.4 (citations omitted). While noting the U.S. Parent’s efforts to obtain permission for the ordered disclosure from the Malaysian Central Bank, the Magistrate found that “[w]hile disclosure with consent of the Central Bank would serve to alleviate [the U.S. Parent’s] concerns about its obligations under BAFIA, the Court must only consider [its] good faith efforts to comply with the Order, not Malaysian law.” Id. at 13. Neither did the Court credit the U.S. Parent’s compromise offer to not oppose Plaintiff if it filed a proceeding in Malaysian Courts - which could potentially result in a permissible disclosure of the sought-after records. Id. at 14.

In the U.S. Parent’s favor, as it had “attested to the preservation of the Malaysian banking records and the freezing of Defendants' accounts at [the Malaysian branch],” the Court declined to order the requested compensatory sanctions and attorney’s fees. Id. at 16-17.

It is interesting to note that the Certification makes no mention of the possibility of the U.S. Parent’s executives suffering criminal punishment as a result of the ordered production, even though this concern was raised again by counsel in a letter preceding the Certification. See Letter from Nicholas Donovan, Esq. to Hon. Theodore Katz, dated April 12, 2010. It is unclear whether this omission was unintentional, or whether it reflects a continuation of the Court's prior-stated view that such penalties were unlikely. See Gucci Amer., Inc. v. Curveal Fashion, 2010 WL 808639, at *7 (S.D.N.Y. March 8, 2010) (“[the bank’s New York branch] has provided no information that would assist the Court in determining the likelihood that it would be prosecuted for disclosing the requested information, let alone any indication that the maximum penalty would be imposed. While the penalties are not insignificant, the Court cannot conclude that the prospect of significant hardship is anything more than mere speculation.”).

In response to the certification, District Judge Richard Sullivan ordered the U.S. Parent to show cause in writing why “it should not be held in contempt as outlined in Judge Katz's recommendation.” May 14, 2010 Order. The U.S. Parent submitted its brief as ordered, and is scheduled to appear before Judge Sullivan on May 27, 2010. See id.

The U.S. Parent’s continued plight highlights the need for organizations to take seriously third-party subpoenas, including the retention of appropriate expertise, so that cross border issues can be identified early and managed.
 

The potential conflict between foreign blocking statutes and U.S. discovery laws is a well documented problem. See, e.g., Working Document 1/2009 on pre-trial discovery for cross border civil litigation (European Commission, Working Document No.WP 158, 2009). When considering whether to order production despite the applicability of foreign law, Courts in the U.S. apply the test set forth in the Restatement (Third) of Foreign Relations Law of the United States, which includes consideration of:

[T]he importance of the documents or information requested to the litigation; (2) the degree of specificity of the request; (3) whether the information originated in the United States; (4) the availability of alternative means of retrieving the information; and (5) the extent to which noncompliance with the request would undermine important interests of the United States, or compliance with the request would undermine the important interests of the state where the information is located.

Gucci, 2010 WL 808639, at *2.  Further, in the Second Circuit, two additional factors are considered, “the hardship of compliance on the party or witness from whom discovery is sought [and] the good faith of the party resisting discovery.” Id.

In Gucci, the Plaintiff sought certain documents and information regarding Defendants’ Malaysian bank accounts by serving a subpoena on the U.S. Parent’s New York Agency in midtown Manhattan. Id. at *1. The U.S. Parent took the position that complying with the subpoena would violate banking secrecy laws in Malaysia. Id. After consideration of the Restatement and Second Circuit factors, the court ordered the production of the sought after records because:

[T]he documents are vital to the litigation, the requests are direct and specific, the documents are not easily obtained through alternative means, the interest of the United States outweighs that of Malaysia under the circumstances, and the likelihood that [the New York branch] would face civil or criminal penalties is speculative. Although [it] has acted in good faith, and the documents are located abroad, this is insufficient to overcome those factors weighing in favor of disclosure.

Id. at *8.

Putting aside the question of whether the court’s analysis was correct, there are two wrinkles to this case that are worthy of note.

First, the U.S. Parent was a third party, and courts are generally less willing to impose burden on third parties during discovery than they are parties. The Gucci court considered the U.S. Parent’s third-party status during its analysis of the “hardship factor,” but determined that this factor did not outweigh the Restatement factors favoring of production. Id. at *7.

Finally, with regard to the importance of the documents sought, it is worth noting that the requested documents were not relevant to a claim or defense, but were instead directed toward the enforcement of a judgment. The court noted that in the absence of the requested discovery, “Plaintiffs are left without a remedy and it cannot be said that the matter has been ‘fully and fairly adjudicated.’” Id. at *5.

This opinion illustrates the no-win situation that foreign corporations continue to be placed in by the tension between U.S. courts and foreign law, and underscores the importance of raising foreign-law based discovery objections as early and in as detailed a manner as possible in order to maximize the chances of successfully navigating this conflict.

While Judge Chooljian’s ruling raises potentially endless legal and metaphysical questions by opening the door to discovery of data in RAM, she attempted to limit her ruling to the facts in the case before her:

The court emphasizes that its ruling should not be read to require litigants in all cases to preserve and produce electronically stored information that is temporarily stored only in RAM. The court’s decision in this case to require the retention and production of data which otherwise would be temporarily stored only in RAM, [sic] is based in significant part on the nature of this case, the key and potentially dispositive nature of the Server Log Data which would otherwise be unavailable, and defendants’ failure to provide what this court views as credible evidence of undue burden and cost.

However, this provides little comfort to defendants who may possess in RAM files “key and dispositive” information that is potentially relevant in anticipated or pending litigation. If upheld, and if interpreted by other courts to apply beyond the circumstances of this case, the holding could impose an enormous burden on defendants already subject to expensive discovery requirements, and could mean a significant intrusion into the privacy rights both of defendants and of third parties.     

Background

On May 29, 2007, after extensive hearings, Judge Chooljian filed a discovery order in Columbia Pictures Industries, et al. v. Justin Bunnell et al., No. CV 06-1093 FMC(JCx). The entertainment industry plaintiffs accuse defendant TorrentSpy and its principals of copyright infringement based on theories of contributory infringement, secondary infringement and inducement. On March 12, 2007, plaintiffs filed a motion (the “Discovery Motion”) seeking an order requiring defendants to preserve TorrentSpy’s data logs containing information about user requests for “dot-torrent files.” Dot-torrent files essentially are alias files which, when opened, utilize peer-to-peer software to download content, such as movies, from numerous sources at once. 

In their Discovery Motion, plaintiffs argued that the data logs were relevant and necessary to proving their claims. More significantly, they asserted that server log data constitutes “electronically stored information” based on the fact that it is copied to the RAM of TorrentSpy’s servers. Defendants argued that the logs were not “electronically stored information” because any such copying was too fleeting to constitute “electronically stored information.” Neither side cited cases in support of their positions.

RAM as electronically stored information

À propos the subject matter of the case, Judge Chooljian drew upon principles of copyright law in concluding that RAM constitutes “electronically stored information” for purposes of Rule 34. She cited MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511, 51819 (9th Cir. 1993), in which the Ninth Circuit Court of Appeals held that under the Copyright Act, software copied into RAM was “fixed” in a tangible medium and was sufficiently permanent such that it could be viewed or communicated for a period of more than transitory duration. Judge Chooljian then ruled:

In light of the Ninth Circuit’s decision in MAI, and the similarity between the definitions of electronically stored information in the Advisory Committee Notes to Rule 34 and the Copyright Act, the latter of which was at issue in MAI, this court concludes that data in RAM constitutes electronically stored information under Rule 34. Based on the evidence in the record, the court finds that the Server Log Data in this case is transmitted through and temporarily stored in RAM while the requests of defendants’ website users for dot-torrent files are processed. Consequently, such data is electronically stored information under Rule 34.

Privacy implications

The ruling also has potentially significant privacy implications. First, the enormous volume of information passing through RAM could render the task of reviewing for privileged and/or private information prohibitively expensive. 

Second, the ruling requires TorrentSpy to create, store and produce documents containing logs of user requests for dot-torrent files. These logs document all user requests and include identifying information such as IP addresses. TorrentSpy previously had not utilized the logging features of its server software to keep track of user requests; instead, such requests passed unrecorded through server RAM. Rejecting TorrentSpy’s arguments, Judge Chooljian held that requiring the creation of the logs does not mandate the creation of documents not already in existence. See Alexander v. FBI, 194 F.R.D. 305, 310 (D.C.C. 2000); see also Paramount Pictures Corp. v. Replay, 2002 WL 32151632, *2 (C.D. Cal. 2002) (“[A] party cannot be compelled to create, or caused to be created, new documents solely for their production.”). In reaching this decision, Judge Chooljian relied on her view that, because log data is “temporarily stored” in RAM, the creation of a log reflecting that data is not the creation of a new document.

Judge Chooljian’s decision, one of the first significant discovery rulings to emerge since the amendment of the Federal Rules of Civil Procedure in late 2006 meant to address long-existing e-discovery quandaries, already has sparked debate in legal, security, and information technology circles.

Real parties in interest Sebastian Rodriguez and Jose Luis Mosqueda filed a putative wage and hour class action against their former employer, Belaire-West Landscaping. During precertification discovery, the trial court compelled Belaire-West to provide the names and contact information of all current and former employees and adopted the plaintiffs’ proposed notice to those individuals that required them to opt-out in writing to prevent their information from being disclosed. The court reviewed in detail the analysis applied in Pioneer, and determined that the opt-out notice adequately protected the privacy rights of the current and former employees.

The opt-out notice adopted by the trial court advised current and former employees “of the lawsuit and its core allegations, and explained who may be a member of the proposed class. It described the investigation plaintiffs’ attorneys were performing, and stated that ‘[t]o assist in the investigation, the attorneys for the Plaintiffs wish to gather information regarding the nature of the work you do (or used to do), while employed by Belaire-West, including the amount of any overtime you may have worked. They have sought to obtain your names, addresses and telephone numbers, so that they can communicate with you about the allegations made in the lawsuit.’” The notice further stated as follows:

By order of the Los Angeles Superior Court, Plaintiffs’ counsel has already been provided your names. The Court has ordered that a letter be sent to you to determine if you would object to Plaintiffs’ counsel receiving your address and telephone number. You may elect not to provide your address and/or telephone number to Plaintiffs’ counsel on the grounds of privacy. [] Plaintiffs’ counsel would like to have your address and telephone number to help in their investigation. The Plaintiffs’ lawyers would like to contact you to obtain your input as to whether the Plaintiffs’ allegations in their lawsuit are accurate. [] THEREFORE, IF YOU DO NOT WANT YOUR ADDRESS AND TELEPHONE NUMBER TO BE PROVIDED TO THE PLAINTIFFS’ ATTORNEYS, YOU MUST complete and return THE ENCLOSED POST CARD to the address listed on the postcard.

The notice included the names, addresses, and telephone numbers of plaintiffs’ counsel, with the information that recipients had the right to contact plaintiffs’ counsel and that they speak Spanish. Finally, the notice advised current and former employees that they were “under no obligation to provide information to or discuss this matter with the Plaintiffs’ attorneys or any person representing the former employees,” were “also under no obligation to provide information to or discuss this matter with Belaire-West or any of its agents or attorneys,” and that their “employer[s] may not retaliate against [them] in any way for providing or refusing to provide any information.”

As explained in a previous post, the Court in Pioneer held that, under the privacy provision of the California Constitution, a representative plaintiff in a class action may obtain from defendant company the personal identifying information of other complaining consumers, even when those consumers do not affirmatively grant permission for their personal identifying information to be used.

The Belaire-West court concluded that the opt-out notices in the instant matter sufficed under Pioneer. The court acknowledged that the privacy concerns in the Belaire-West case were more significant than those in Pioneer because the information was provided to Belaire-West as a condition of employment (as opposed to the voluntary disclosures of consumers in Pioneer), and that employees reasonably expected that their employer would not divulge the information except as required to governmental agencies or benefits providers, in light of employers’ usual confidentiality customs and practices. Nonetheless, the court found that this did not mean that current and former employees would wish their contract information to be withheld from a class action plaintiff seeking relief for violations of employment laws.

The court found reasonable the trial court’s implicit finding that “no serious invasion of privacy would result from the release of the [information] to the named plaintiffs in a putative class action filed against their employer following a written notice to each employee giving them the opportunity to object to the disclosure of that information.” As in Pioneer,

the information, while personal, was not particularly sensitive, as it was contact information, not medical or financial details. Disclosure of the contact information with an opt-out notice would not appear to unduly compromise either informational privacy or autonomy privacy in light of the opportunity to object to the disclosure, as the court specifically found that there was no evidence of any actual or threatened misuse of the information.