WESTERN PENNSYLVANIA ELECTRICAL EMPLOYEES PENSION FUND, Individually and on behalf of All Others Similarly Situated, Plaintiffs, v. Dennis ALTER, et al., Defendants. William E. Underland, et al., on behalf of Themselves and All Others Similarly Situated, Plaintiffs, v. Dennis Alter, et al., Defendants Civil Action Nos. 2:09–cv–04730–CMR, 2:10–cv–03621–CMR United States District Court, E.D. Pennsylvania June 26, 2013 Counsel Ashley M. Price, Douglas R. Britton, James A. Caputo, Susannah R. Conn, Danielle S. Myers, Robbins Geller Rudman & Dowd LLP, San Diego, CA, Deborah R. Gross, Law Offices Bernard M. Gross, PC, Philadelphia, PA, Christopher L. Nelson, The Weiser Law Firm, P.C., Berwyn, PA, Robert B. Weiser, Brett David Stecker, Jeffrey J. Ciarlanto, The Weiser Law Firm PC, Wayne, PA, Deborah Clark-Weintraub, Whatley Drake & Kallas LLC, New York, NY, John T. Jasnoch, Anne L. Box, Scott & Scott LLP, San Diego, CA, Thomas Laughlin, Scott & Scott LLP, New York, NY, Geoffrey M. Johnson, Scott & Scott, Chagrin Falls, OH, for Plaintiffs. Alexander Bilus, David J. Stanoch, Stuart T. Steinberg, Michael L. Kichline, Steven B. Feirson, Sarah L. Wyatt, Dechert LLP, David W. Engstrom, Law Office of David W. Engstrom, Philadelphia, PA, John S. Edwards, Jr., Thomas R. Ajamie, Ajamie LLP, Houston, TX, Wallace A. Showman, Ajamie LLP, New York, NY, David L. Comerford, Jeffery A. Dailey, Paul T. McGurkin, Jr., Akin Gump Strauss Hauer & Feld LLP, Edward D. Rogers, Geoffrey A. Kahn, Anne Graber Blazek, Ruth S. Uselton, Ballard, Spahr, Andrews and Ingersoll, Philadelphia, PA, for Defendants. Rufe, Cynthia M., United States District Judge SPECIAL MASTER'S REPORT AND AMENDED RECOMMENDED ORDER # 5 I. Procedural History and Background *1 On March 1, 2013, the 1933 Act and 1934 Act plaintiffs raised concerns with the Special Discovery Master regarding the fact that they were only recently informed by counsel (“Dechert”) for defendant Alter that Dechert had learned of the existence of a hard drive (“Alter Hard Drive”) data containing an estimated 2.5 Terabytes of data from the Advanta network system, which had been collected for Alter prior to his departure from Advanta Corp. The essence of plaintiffs' grievance, as the Special Master understood it, was that for the preceding year or so defendants had told plaintiffs that virtually all or most of Advanta's documents were in the hands of third parties, not the defendants, and months of delay and huge expense trying to get documents from FTI and FDIC could have been avoided had this information been revealed earlier. In subsequent communications with both plaintiffs and the Special Master, Dechert, on behalf of Defendant Alter, represented that the Alter Hard Drive consisted of documents that were entirely duplicative of documents then being produced by FTI Consulting Inc., as Liquidating Trustee for Advanta Corp. In his Third Report and Recommendation, the Special Master thereafter recommended to the Court, over the objection of defendant Alter, that plaintiffs be granted permission to conduct a limited deposition of Mr. Alter on or before May 10, 2013 concerning the existence of, and circumstances relating to, the Hard Drive. On March 28, 2013, the Court ordered that the four hour deposition should be limited to “matters relating to the existence, circumstances surrounding and contents” of the Hard Drive and also directed Alter to produce to plaintiffs, on or before April 25, 2013, all responsive material contained on the Hard Drive. The Court also granted Alter permission to conduct a review for privilege, confidentiality and responsiveness prior to production to plaintiffs. On May 6, 2013, several days prior to defendant Alter's deposition, plaintiffs notified the Special Master of their continuing concerns regarding the content of the Alter Hard Drive, defendant Alter's document production pursuant to the Court's March 28, 2013 Order and Dechert's representations to the parties, Special Master and the Court regarding the existence, discovery and content of the Alter Hard Drive both before and after its discovery. (Britton letter to Marion, 5/6/13, attached hereto as Exhibit 1). On June 11, 2013, following submission by the parties of extensive letter briefs detailing their respective concerns and positions, the Special Master conducted at defendants' request an in person meeting/conference call at his office to allow for debate over the Alter Hard Drive and related discovery issues. The parties requested an opportunity to, and did thereafter, submit additional memoranda in support of their respective versions of what the Special Master's Recommendation to the Court should be. Because the discussion was extraordinarily heated, this report is more extensive than prior reports to the Court. II. Issues before the Special Master *2 The overarching issue is whether plaintiffs should be granted the opportunity to have the Alter Hard Drive examined by LDiscovery Inc., the electronic discovery vendor agreed to by the parties, for the purpose of determining whether the content of the Alter Hard Drive is in fact duplicative of data previously collected, processed, searched and produced by FTI Consulting Inc. in response to other discovery requests by the parties. Defendant Alter argues that such an examination is unnecessary and wasteful of time and expense because, as Dechert has steadfastly insisted since its disclosure of the existence of the Hard Drive, whatever is on the Alter Hard Drive is merely duplicative of the data reviewed and produced by FTI. Plaintiffs challenge that conclusion as an unsubstantiated and self-serving assumption that may mask conduct that was possibly sanctionable. Plaintiffs also seek: (1) an Order requiring defendant Alter to be responsible for all costs incurred in connection with the requested comparison of the Alter Hard Drive to the FTI database; (2) production of all communications and emails contained on the Alter Hard Drive that defendant Alter sent or received relating to the business of Advanta Corp. and/or Advanta Bank Corp. as well as communications that were sent to or received by defendant Alter's assistants on his behalf; (3) production of defendant Alter's privilege log with sufficient specificity for assertion of privilege. (Britton letter to Marion, 5/30/13, attached hereto as Exhibit 2). III. Discussion While plaintiffs dispute many of Dechert's representations on behalf of their client as unsubstantiated, for present purposes, I am accepting certain statements of counsel on both sides until such time as additional facts are presented disproving them. Alter states that in February 2011, prior to leaving Advanta, “someone approached [him] about copying his emails and electronic files.” (Declaration of Dennis Alter, para. 2, attached hereto as Exhibit 3). In February 2011, Evan Soloman, defendant Alter's personal IT professional, copied data from the following sources to a hard drive, with a maximum storage capacity of 2.35 TB: • the hard drive on Alter's work computer • the hard drive on the work computer of Linda Lippo, Alter's executive assistant • Alter's Advanta email account • Lippo's Advanta email account • Alter's Blackberry phone • Alter's personal calendar program • the network drive on Advanta's system that Alter and Lippo shared (Kichline letter to Marion, 6/5/13, p. 3, attached hereto as Exhibit 4; Declaration of Brian Morrison, para. 6, attached hereto as Exhibit 5). Later that same month, Soloman copied the data from the hard drive onto Alter's home computer. In November 2011, Alter's defense counsel “collected the responsive, Advanta-related material from [Alter's] home computer system.” (Kichline letter to Marion, 6/5/13, p. 5, n. 1). *3 Thirteen months later, on January 17, 2013, Dechert asserts that it first learned of the existence of the Alter Hard Drive. During a conference call with Alter's new executive assistant, Peggy Castaneda, who replaced Lippo, and Soloman, who joined the call at the request of Castenada, Soloman explained that he had copied Alter's data in February 2011 and had subsequently copied that data from the hard drive to Alter's home computer. An electronic discovery vendor, Document Technologies, Inc., (“DTI”) retained by defense counsel, retrieved the hard drive from Alter's home on January 30, 2013. But Alter claims that he did not know of the existence of the hard drive until January 2013. (Kichline letter to Marion, 6/5/13, pp. 4–6, 8). Alter testified during the May 10, 2013 deposition that he had no prior knowledge concerning the existence of the hard drive created by his personal IT specialist, and that he was not directly involved in any collection of data or materials from his home. Initially, defense counsel represented to the parties, and later to the Special Master, that the Alter Hard Drive contained approximately 2.5 TB of raw data. This estimate was based on DTI's preliminary examination of the hard drive. Defense counsel has now explained that the Alter Hard Drive did not ever in fact contain 2.5 TB of retrievable data, but instead holds a significant percentage of “unallocated gigabytes” or blank space: 530 GB (0.518 TB) of actual or readable data and 1,873 GB of unallocated or blank space. (Kichline letter to Marion, 6/5/13, pp. 2, 6–7). Counsel continues to insist, however, that any and all retrievable data on the hard drive is duplicative of the Advanta data in FTI's possession. Dechert has further concluded that of the 530 GB of retrievable data, filtered in six stages., including removal of certain file types not requested by plaintiffs, date ranges and search terms purportedly agreed to by the parties (as well as non-party FDIC), DTI identified only 6.67 GB of data that was relevant to Dechert's review for privilege and responsiveness. (Kichline letter to Marion, 6/5/13, pp. 7–8). After such review on April 25, 2013, defendant Alter produced 1,179 responsive, non-privileged documents (approximately 0.465 GB) to the 1934 Act Plaintiffs and 1,593 responsive, non-privileged documents (approximately 0.465 GB) to the 1933 Act Plaintiffs. Id. Dechert steadfastly objects to production of the Alter Hard Drive for purposes of comparison with the data that was collected by FTI Consulting because the Alter Hard Drive merely consists of data copied from Advanta's records. Therefore, Dechert contends, all material on the Alter Hard Drive must be a subset of the FTI data and duplicative of responsive materials provided in their document production. Accordingly, as noted above, Dechert insists that any additional document production, or even a technical examination or comparison of the hard drive and FTI database without actual review of documents, is completely unnecessary and wasteful of time and expense. *4 Dechert offers no definitive proof, however, that the documents found on the Alter Hard Drive are, in fact, a subset of the data collected and produced by FTI. Counsel simply posits that their conclusion must be sound and correct: • “Defense counsel made a logical assumption that because the Alter data was simply copied from data sources now in possession of FTI, the data would be duplicative. Nothing even remotely suggests that this assumption was incorrect.” (Kichline letter to Marion, 6/5/13, p. 2). • “On February 7, 2013, Mr. Bilus and David Stanoch of Dechert LLP spoke with counsel for the 1934 Act Plaintiff about the data on the Alter Hard Drive, and the likelihood that the data was a duplicative subset of the Advanta data in the possession of FTI because of how it was copied from Advanta sources.” (Kichline letter to Marion, 6/5/13, p. 6). • “Defense counsel made those representations based on the logical assumption that, because Mr. Solomon had copied the data directly from certain sources that remain in the possession of FTI, the data on the hard drive was a duplicative subset of FTI's data. Nothing suggests that defense counsel's assumption was incorrect.” (Kichline letter to Marion, 6/5/13, p. 9). Civil litigants are not required to rely upon the assumptions of witnesses, much less opposing parties or their counsel. The fundamental purpose of discovery is to afford parties a reasonable opportunity to gather facts relevant to the issues in dispute. Alter is the central figure in these class actions, and facts known, or not known to him as the former Chairman and CEO of Advanta Corp., are central to this litigation. There are limits, however, as to how much parties can demand of each other during discovery before the process becomes overly burdensome to the litigants. FRCP 26(b)(2)(C) and 34(a) provide important guidance: Fed. R. Civ. Prod. 26(b) Discovery Scope and Limits.— (2) Limitations on Frequency and Extent. (C) When Required. On motion or on its own, the court must limit the frequency or extent of discovery otherwise allowed by these rules or by local rule if it determines that: (i) the discovery sought is unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive; (ii) the party seeking discovery has had ample opportunity to obtain the information by discovery in the action ... Fed. R. Civ. Prod. 34 Producing Documents, Electronically Stored Information, and Tangible Things, ... for Inspection and Other Purposes— (a) In General. A party may serve on any other party a request within the scope of Rule 26(b): (1) to produce and permit the requesting party or its representative to inspect, copy, test, or sample the following items in the responding party's possession, custody or control: (A) any designated documents or electronically stored informationincluding writings, drawings, graphs, charts, photographs, sound recordings, images, and other data or data compilations-stored in any medium from which information can be obtained either directly or, if necessary, after translation by the responding party into a reasonably usable form ... *5 FRCP 34(a)(1)(A) clearly grants plaintiffs the right to demand inspection of the Alter Hard Drive. It is also clear that the Hard Drive was in Alter's home for more than a year after his counsel initially denied—innocently I am assuming—knowledge of its existence. The issue is whether or not plaintiffs' request, given these particular circumstances, is duplicative or burdensome within the meaning of FRCP 26(b)(2)(C) and, thus, beyond what would be deemed reasonable discovery; and, if so, the extent to which cost shifting might be appropriate and necessary in order to permit the requested discovery without overburdening the responding party. At this time, there is absolutely no proven fact which establishes with certainty that the content of the Alter Hard Drive is duplicative of the data collected and produced by FTI to the parties in either the 1933 Act or 1934 Act cases. Dechert has repeatedly contended that the data on the Alter Hard Drive is duplicative, but that contention is based entirely on supposition or “logical assumption” as shown above. While the parties agree that FTI commenced its duties as Liquidating Trustee shortly before February 2011, when the transfer of data to the Alter Hard Drive is said to have occurred, we do not know with certainty from what sources or when the FTI data was collected. Dechert suggests that, because FTI was in Advanta's shoes at that point and had access to everything, it surely must be the same data. Again, this is mere supposition and does not establish whether, in fact, FTI collected every bit of data that Alter's personal IT specialist also collected, especially since we do not know exactly how, when or from which parts of Advanta's vast network FTI retrieved its data. FTI may have collected from any of Advanta's active or archived systems, the main server or backup tapes versus desktops.[1] We do not know if FTI had access to defendant Alter's blackberry phone or desk computer or, if they did, was it before, simultaneous with, or after defendant Alter's personal IT professional collected data on his behalf. We do not know if there were any deletions of data prior to the data retrievals at issue. Moreover, during the June 11 conference with the Special Master, Dechert offered no clarification as to where the Alter Hard Drive was stored or who had possession of it from February 2011, when it was copied to Alter's home computer, until January 30, 2013 when it was retrieved by DTI from Alter's home at Dechert's request. DTI went to defendant Alter's home to obtain the hard drive, but Dechert has offered no explanation as to how or where DTI found it and Alter testified that he did not even know the hard drive existed prior to January 2013. Although Dechert insists that plaintiffs have no reason to question their motives or account as to when and how they first learned of the Alter Hard Drive, or the sufficiency of their efforts to locate and produce all responsive materials, including but not limited to the contents of the Alter Hard Drive, the foregoing gaps in our knowledge mean that plaintiffs are being asked to trust mere assumptions and conclusions on the part of their adversaries in hotly contested litigation. *6 With regard to possible cost shifting and defendant Alter's assertion that he will be unduly burdened by the cost of plaintiffs' requested examination of the Alter Hard Drive by LDiscovery, it should again be noted that as early as November 2011, Dechert was in the process of collecting and reviewing electronic data retrieved from defendant Alter's home computer system. It is now clear that defendant Alter's home computer system contained Advanta data taken from the Advanta network prior to his departure from the company. While defendant Alter insists that he did not know about the existence or creation of the Hard Drive, he clearly knew that Advanta data had been transferred to his home computer and was stored on it. This transfer was performed by his personal IT professional nine months prior to Dechert's collection. Nevertheless, until January 2013, his attorneys repeatedly represented to the parties, the Special Master and the Court that defendant Alter had virtually no substantive Advanta documents or materials responsive to plaintiffs' requests and, moreover, had no access to any of Advanta's electronic data; and that third parties held and controlled Advanta's discoverable material, creating unusual difficulties for an expeditious discovery process. We now know, to the contrary, that Advanta data had been collected from various key data sources specific to defendant Alter and prior to his departure from Advanta. This was done with Mr. Alter's consent and knowledge. I am not prepared to assume, as plaintiffs at least imply, that what has arguably occurred vis-a-vis the Alter Hard Drive was deliberate obfuscation on the part of defense counsel. However, there may have been inadequate or incomplete attention to fully identifying, locating and securing all potentially responsive and relevant materials by defendant Alter and/or his counsel. It is also difficult, based on the above facts, to require that plaintiffs accept as fact that Mr. Alter simply forgot that Advanta data had been transferred to his home computer as the company was being taken over. Dechert seems to suggest that because the defense has now examined the Alter Hard Drive and separately produced a combined total of 2,772 responsive documents, plaintiffs should just move on and ignore the fact that a very serious omission has occurred in a key defendant's required compliance with his discovery obligations. This omission, even if innocent, has sparked an unnecessary and protracted controversy over the existence and content of the Alter Hard Drive, and may have occasioned considerable delay and expense that might have otherwise been avoided. IV. Recommendation and Amended Order 1. Plaintiffs seek an opportunity to confirm-by inspection by a neutral E-discovery vendor already retained by agreement of the parties-Dechert's representations as to the content of the Alter Hard Drive. The discovery rules permit such an inspection. 2. Defendant Alter objects on the grounds that: (1) such an examination will be unduly burdensome; (2) requiring production of the documents requested will be duplicative and unreasonable; and (3) delivery of the Alter Hard Drive would violate defendant Alter's rights to privacy and to assert privilege. *7 3. Without performing the requested examination of the Alter Hard Drive, there is no way to know if, in fact, the contents of the hard drive are duplicative of data heretofore collected, reviewed and produced by FTI to the parties. Plaintiffs' request is not unreasonable given: (1) the centrality of Mr. Alter in the Advanta saga that gives rise to these actions; (2) the unsubstantiated nature of defendant Alter's claim that the data is duplicative; (3) that defendant Alter has, thus far, provided only limited discovery to plaintiffs; (4) that defendant Alter, through his attorneys, previously denied possession of any Advanta electronic data when, since his departure from Advanta, the Alter Hard Drive has been in his home and Advanta documents have been on his personal computer; (5) much time and money has been expended in the effort to obtain Advanta documents from FTI and FDIC; and (6) plaintiffs should not be expected to accept without question the claim that Alter simply forgot that he had received Advanta documents prior to his departure. 4. Therefore, defendant Alter is directed to provide to LDiscovery the original Alter Hard Drive no later than July 8, 2013, for mirror imaging, inspection and forensic examination for the limited purpose of ascertaining the extent to which the data on the Alter Hard Drive is or is not duplicative or identical to data collected, searched and produced by FTI Consulting to the parties, with instructions to provide a report to the parties as set forth in Paragraph 6. 5. Defendant Alter suggests that delivery of the hard drive to LDiscovery will violate his right to protect privileged material insofar as “LDiscovery is a third party” and “Plaintiffs' e-discovery vendor.” (Kichline letter to Marion, 6/17/13, pp. 1, 4, attached hereto as Exhibit 6). However, it is my understanding that LDiscovery is the neutral third party vendor selected by agreement of both plaintiffs and defendants for purposes of processing and producing FTI's Advanta data. All parties participated in the contract negotiations with LDiscovery and LDiscovery has searched and produced a large volume of documents to both plaintiffs and defendants while also providing both FTI and the FDIC sufficient opportunity to review all potentially privileged material and assert privilege as deemed appropriate. Should an additional document search and production become necessary as a result of LDiscovery's forensic examination, defendant Alter will be afforded the same opportunity to review any responsive data for relevance and privilege prior to production. A forensic comparison of the Alter Hard Drive to the FTI database should not infringe upon defendant Alter's right to protect privileged communications. The Court's Protective Order, negotiated by the parties, further protects defendant from waiver of privilege in the event of an inadvertent disclosure of privileged communications during LDiscovery's inspection and analysis. *8 6. LDiscovery shall furnish a written report to the parties regarding its examination of the Alter Hard Drive and forensic analysis of the contents of the hard drive in comparison with the FTI database and document production. The parties are directed to inform the Special Master by letter, within 10 days of receipt of LDiscovery's written report, stating with specificity whether any further concerns or disputes remain among the parties pertaining to the content of the Alter Hard Drive. If plaintiff's intend to seek additional document searches and discovery based on the LDiscovery report, they should identify the searches requested and include the basis for their request in the letter to the Special Master. Defendant Alter will have five days to respond or object in writing to plaintiffs' requests. 7. All costs incurred in connection with LDiscovery's forensic analysis of the Alter Hard Drive shall preliminarily be borne equally by plaintiffs and defendant Alter.[2] Within ten days of receipt of LDiscovery's written report, any party may apply for a re-distribution of those costs for whatever reasons may heretofore have been or may then be pertinent. 8. All parties shall produce all required privilege logs concerning any prior document productions within 10 days of the Court's Order. DAVID H. MARION Dated: June 26, 2013 * * * ORDER It is so ORDERED. Footnotes [1] Counsel for FTI Consulting, in a previous conference call with the Special Master and parties concerning document production, stated that they were previously unaware of the existence of the Alter Hard Drive. [2] Recommended Order amended to require cost sharing between plaintiffs and defendant Alter only.