Navigating State AG Subpoenas: A Map

Vol. 37 No. 4

By

Milton A. Marquis is a partner and Ann-Marie Luciano a counsel in the Washington, D.C., office of Dickstein Shapiro LLP. We would like to express special thanks to Andrew G. P. Abraham for his contributions to this article.

Receiving a subpoena from a state Attorney General (AG) is often a daunting prospect. Investigations can be lengthy and expensive, and AGs recently have been particularly successful in extracting substantial settlements with businesses. In November 2013, the Department of Justice, five state AGs, and other federal partners settled with JPMorgan for $13 billion to resolve federal and state civil claims arising out of the marketing and sale of residential mortgage-backed securities. This article maps the key areas every business should explore when navigating the AG subpoena and civil investigatory process to ensure effiency and limit exposure.

Receiving an AG Subpoena

As a general matter, AGs are granted specific investigatory powers by statute that allow the AG to use a variety of tools to obtain documents, information, and testimony as part of an investigation of potential wrongdoing. This article focuses on strategies for handling a civil investigatory subpoena, sometimes called a civil investigative demand (CID). The CID/subpoena is similar to a Fed. R. Civ. Proc. 45 subpoena and allows the AG to request documents and information to assess whether a law has been violated. When performing an investigation, it is not uncommon for an AG to issue multiple subpoenas to the potential target(s) of the investigation as well as witnesses or competitors. When receiving a subpoena, it is important to seek clarity from the AG’s office (“staff”) as to whether it is a friendly subpoena seeking information on the industry as a whole, or concerning other competitors or customers, or whether your business or your client is the target of the investigation.

Document Preservation and Legal Holds

Immediately on notice or receipt of a subpoena, all relevant paper and electronically stored information (ESI) must be preserved through a legal hold. It is well-settled that the “obligation to preserve evidence” starts “the moment that litigation is reasonably anticipated.” Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497, 521 (D. Md. 2010). Counsel must understand the company’s data architecture and backup systems and the accessibility of the ESI to prepare an effective hold. Document retention policies should be analyzed to identify and suspend any automatic deletion processes. If the subpoena calls for audio or video recordings of communications with consumers (an increasingly common practice by AGs), determine whether the recordings can be searched or must be preserved en masse, and whether the company (or the vendor that maintains the recordings) has the capacity to preserve them. Reach out to staff early on to alert them to any limitations in preserving vast amounts of data over the duration of the investigation.

Once a comprehensive review of the ESI systems is complete, draft a hold that clearly defines all categories of potentially responsive information and all ESI that must be preserved (e.g., thumb drives, mobile devices, shared drives). To prevent the alteration of metadata (the descriptive information part of each electronic file, such as the creation and last modified dates), the hold should instruct employees not to forward or otherwise self-collect documents. The hold should be issued to a broad but carefully identified group of employees that may have knowledge of the potentially responsive information. The attorney issuing the hold notice also should require employees to acknowledge in writing that they received the hold and will abide by its terms.

It is imperative to implement an adequate and timely litigation hold, as the failure to do so may result in severe sanctions. One district court recently imposed sanctions totaling $931,500 because of the failure to identify a relevant high-level custodian and the failure to implement a hold to key company sales representatives, including “specialized sales representatives.” In re Pradaxa (Dabigatran Etexilate) Prods. Liab. Litig., MDL No. 2385, 2013 WL 6486921 (S.D. Ill. Dec. 9, 2013), order rescinded in part on other grounds, 745 F.3d 216 (7th Cir. 2014). Courts have gone so far as to find that the failure to preserve evidence by not issuing a legal hold is the equivalent to the destruction of evidence. For example, in Berrios v. Jevic Transp., Inc., No. 04-2390, 2013 R.I. Super. LEXIS 18 (R.I. Super. Ct. Jan. 18, 2013), the court excluded testimony and evidence and issued an adverse inference instruction to the jury on finding that a party’s failure to institute a hold amounted to spoliation of evidence.

Because the scope of an AG investigation may be subject to change, counsel should revisit the hold on a regular basis. In Zubulake v. UBS Warburg LLC, 229 F.R.D. 422, 432 (S.D.N.Y. 2004), the district court stated that counsel must affirmatively monitor compliance with a litigation hold. HR departments also must ensure that a protocol is in place to save departing employees’ data and to inform new employees of any ongoing holds.

Negotiating Subpoena Modifications

After ensuring that potentially relevant ESI has been preserved, counsel should discuss the subpoena requests with staff to ascertain the focus of the AG’s investigation and the priorities for production. AG offices are usually eager to investigate the facts as efficiently as possible to determine whether to take action; therefore staff often will accommodate requests to provide exemplars or documents “sufficient to show,” while reserving their rights to later seek “all” documents if the productions prove insufficient.

If compliance with any of the requests would create an undue burden or if particular documents are inaccessible or no longer available, request a modification. If staff rejects the request, a decision must be made very early on as to whether to seek court relief, because some states limit the time for a party to petition the court for a protective order or move to quash the subpoena. For example, in Tennessee, a subpoena recipient must petition the court before the return date specified in the request, or within 10 days following notice of a request, whichever is shorter. Tenn. Code Ann. § 47-18-106(b). See also Or. Rev. Stat. § 646.618(2) (a party may petition to modify or set aside a civil investigative demand for good cause within 20 days after either the demand was served, or before the specified return date, whichever is shorter).

Confidentiality Agreements

Given the short time frame in some states to petition the court for relief, it is also imperative that counsel discuss with staff early on whether the office will agree to enter into a confidentiality agreement to protect confidential documents and trade secrets from disclosure to third-parties. State open records laws vary greatly, and therefore subpoena recipients must determine whether there are any applicable exemptions. For example, some state open record laws exempt trade secrets from disclosure, see, e.g., Fla. Stat. § 815.045, or exclude investigatory documents from production to a state government agency, see, e.g., Colo. Rev. Stat. § 24-72-204(2)(a). In addition some state statutes afford confidentiality protection to documents produced to the AG. See Mass. Gen. Laws ch. 93A, § 6.

Depending on the protections afforded by state law, counsel should consider addressing the following issues with staff when negotiating a confidentiality agreement:

  • whether produced documents may be shared with other state AGs or government authorities, and whether notice should be provided before such disclosure;
  • if documents may be disclosed under a state open records act request, ensure sufficient notice to seek relief from the court to prevent such disclosure; and
  • a clawback clause allowing the target to request the return or destruction of inadvertently produced privileged documents or undesignated confidential documents. Although some state ethics rules require notification of and/or return of inadvertently produced documents, see, e.g., Or. Rule Prof. Cond. 4.4(b), given the high risk of inadvertent production when producing large volumes of ESI, the best practice is to negotiate a clawback agreement upfront.

If either the AG’s office will not agree to sufficient protections or the state law does not protect documents produced to the AG’s office, a protective order may be necessary.

Document Collection

Throughout the document collection phase, counsel must work actively with the company and discovery vendors to ensure that the collection process is properly implemented. Courts have found that counsel have an affirmative duty to supervise the collection and review of information and that merely providing instruction to the client is insufficient. Quality-checking a client’s search for responsive material is crucial. In Logtale, Ltd. v. IKOR, Inc., No. C-11-05452, 2013 WL 3967750, at *2 (N.D. Cal. July 31, 2013), the district court explained that “it is not enough for counsel to simply give instructions to his clients and count on them to fulfill their discovery obligations. The Federal Rules of Civil Procedure place an affirmative obligation on an attorney to ensure that a client’s search for responsive documents and information is complete.”

Relying on the client to determine what is relevant is fraught with peril. As the court stated in VOOM HD Holdings LLC v EchoStar Satellite L.L.C., 939 N.Y.S.2d 321, 328 (N.Y. App. Div. 2012), “where a party is a large company, it is insufficient . . . to vest total discretion in the employee to search and select what the employee deems relevant without the guidance and supervision of counsel.”

The best practice is to implement a methodical process that preserves metadata and objectively selects files for collection by a knowledgeable person or vendor at the direction of counsel. Although businesses often prefer to perform collection in-house to save costs, courts do not look favorably on self-collection. For example, in Branhaven LLC v. Beeftek, Inc., 288 F.R.D. 386, 392 (D. Md. 2013), the court ordered $50,000 in sanctions for counsel’s “reckless attitude” and failure to reasonably inquire into the client’s ESI by relying on the client to search for and produce responsive materials.

In investigations in which the AG’s office is not seeking e-mail documents at the outset (often if the business is a witness rather than the subject of the investigation), the most efficient strategy for the collection of non-e-mail documents may be to send remote collection kits to the custodians to create a forensic copy of the relevant documents, or to permit remote access to the computers to allow the documents to be downloaded. Using these collection methods in lieu of an in-person forensic collection should be attempted only with the supervision of a skilled IT or e-discovery professional.

Document Review Strategy

Although the traditional method to identify the universe of documents for review is through the use of search terms, counsel is best advised to test potential search terms to evaluate whether the terms accurately identify responsive documents before agreeing to any terms. If staff proposes search terms that are overly inclusive, counsel’s test results can be used to negotiate a narrower set of terms. See William A. Gross Constr. Assocs. v. Am. Mfrs. Mutual Ins. Co., 256 F.R.D. 134 (S.D.N.Y. 2009).

Because keyword searching has been shown to be imprecise, counsel should consider alternatives such as Technology Assisted Review (TAR). One court has complained that “the way lawyers choose keywords is the equivalent of the child’s game of ‘Go Fish.’ ” Moore v. Publicis Groupe, 287 F.R.D. 182, 191 (S.D.N.Y. 2012). To avoid playing the “go fish” game, TAR is a promising option. TAR software is a process of reviewing sample sets of documents for responsiveness, and then using that “seed” set, along with other keywords or concepts, to teach the software to attribute coding decisions to a larger set of documents. This process greatly reduces review time and increases coding accuracy, and courts and government agencies are increasingly receptive to this technology. See In re Gabriel Technologies Corp. v. Qualcomm Inc., No. 08-cv-1992, 2013 WL 410103 (S.D. Cal. Feb. 1, 2013); In re Biomet M2a Magnum Hip Implant Prods. Liab. Litig., No. 3:12-MD-2391, slip op. (N.D. Ind. Apr. 18, 2013) (court found use of TAR and key word searches defensible due to costs). Although TAR is an effective tool for large-scale ESI matters, it may not be appropriate in every case.

Document Production

Most AG subpoenas include instructions specifying the required format for the document production, i.e., whether the documents should be produced as images with load files and specified metadata or in native or near-native form. Counsel must ensure that they, or the vendor performing the production, have the ability to process the documents in the desired format. Generally, the standard format is to produce documents as TIFF images with an accompanying load file, except for spreadsheets, databases, and certain presentations. If there is no specified production format, raise the topic with staff before the first production to ensure that the office has the technology to review the production in the company’s desired format. When producing proprietary documents or documents containing personally identifiable consumer data, it is a best practice to encrypt the production.

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By employing these strategies to ensure a thorough yet efficient response to an AG subpoena, businesses are more likely to earn the goodwill necessary to foster a productive resolution of the AG’s investigation.

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