Journal of Law & Practice

By Roger S. Haydock ^[Y]

6 Wm. Mitchell J.L. & Prac. 2.

This article will appear in Fundamentals of Pretrial Litigation, 9th Ed. by Roger Haydock, David Herr, and Jeffrey Stempel (West 2013).

The Launch[1]

Who knew way back in 1844 that Morse Code and telegrams would someday be replaced by computers and digital messages? Who anticipated even ten years ago that electronically stored information (ESI) would come to dominate much of civil discovery? And who, pray tell, understands all of its ramifications and possibilities?

This article attempts to be an introductory primer into the world of ESI discovery.  Electronically stored information comprises the myriad types of documents created by computers, smart phones, tablets, recorders, and similar devices. ESI is the moniker that federal and state rules and case law designate for the information created, communicated, or stored in digital form that requires the use of computer hardware and software. Basically, ESI is defined as the content directly or indirectly generated as a series of binary bits on an electronic medium. But you knew that already, even if Samuel Morse could not possibly foresee that happening.

What is less well known, perhaps, is the enormous impact ESI is having on discovery and litigation. Due to the abundance of electronically stored information and its illusive nature, electronic discovery introduces different variables into the traditional discovery process. The geometric increase of ESI in the business world and in ordinary life experiences is spawning new legal precedent and developing technological innovations. The discovery of ESI often requires specialized knowledge and tools to preserve it from destruction and to convert it into a readable, reviewable format.

Information created and stored on computer systems, laptops, smart phones, and similar devices is readily discoverable as long as it is relevant. E-mails, social network communications, video and audio recordings, blog postings, and website searches are an especially fertile ground for discovery. Litigators need to be well prepared to seek electronic data in all cases, from the simplest of actions to complex multi-district litigation.

There are limits to the discoverability of ESI beyond relevance. It also has to be readily accessible and affordable. Courts usually draw a distinction between producing electronically stored information that is available and designing new computer programs to extract data: they will require the former and deny the latter unless there is no other way to obtain the information and the costs are affordable or borne by the requesting party. Parties can negotiate to share costs, and a party can seek judicial protection from excessive expenses.

The overall goals of e-discovery are the same as physical discovery. As with paper and printed documents, you will need to understand how to best preserve, disclose, request, and respond to ESI document production procedures. While a degree in computer science would help, you can learn to understand the existence and availability of ESI and how to direct and monitor ESI discovery. You can also learn to appreciate when it is necessary to consult with and retain an expert in intellectual technology or computer forensics. To be a proficient and professional litigator, you or your law firm will need to have available a litigation support person (or team) or access to a consultant for assistance.

The ESI Policies

Before embarking on the law relevant and peculiar to ESI discovery, understanding how ESI discovery is the same as paper, printed, and physical discovery (summarized for our purposes as paper) places this section in perspective. Often, the discovery rules that apply to both paper documents and ESI apply with equal force and effect to both types of mediums. Originally, the rule provisions were adopted only for paper documents as they were created at a time before the advent, or even conception, of ESI.

Overall, the policies underlying the discovery rules, case law, and relevant statutes are the same regardless of whether paper or ESI documents are involved. The discovery procedures to be used should be the ones that are (1) the most convenient, (2) the least burdensome, and (3) the least expensive. These three general guidelines help in interpreting and applying the law to ESI discovery.

Civil procedure rules have recently been amended to reflect differences. A number of federal and state rules now contain specific references to electronically stored information. These specialized ESI rules augment the traditional rules applicable to paper discovery. These rules will continue to be modified as ESI discovery issues evolve and as ESI technology changes.

Another overall policy relates to privacy and its scope and preservation. Modern technology and electronic devices make it relatively easy to convert traditional private and confidential information into public and easily accessible information. Further, the notion that “private” conversations, actions, and events will remain secret and unknown to other hearers and viewers is undone by the availability of ubiquitous video devices and social networks. These shifts significantly affect privacy expectations. What a person or business may have reasonably expected to be private information is now often made public. Privacy expectations have changed and so has the law regarding it.^[2] Parties are no longer ensured of having their private information protected from discovery because it has likely entered the public domain.^[3] And parties can no longer rely on the law to enforce their expectations of privacy because the expectations are no longer reasonable.^[4]

In discovery, a protective agreement and order can still be used to retain confidential information, and the law can protect and preserve this information. But, it may well be that sources not governed by the discovery rules can and will disclose the private information to the public. Clients, lawyers, parties, and litigators should anticipate that seemingly private information and conduct will be made public or will be discoverable.^[5] The more informed rubric is as follows: if you compose, say, or do it, expect it to be revealed and deal with the consequences.

The Sources of ESI Law

There are several legal sources controlling the discovery of ESI. Before beginning a review of the technological aspects of ESI and a summary of the law, an overview of these sources provides an introductory perspective.^[6]

Rules of Civil Procedure: Federal Rules 26 (scope), 34 (document production), 37 (sanctions), and 16 (pretrial orders), as well as similar state court rules, have been amended to provide procedures that apply exclusively to ESI discovery. These rules add to or modify the existing procedures that govern all types of discoverable information.

Court Rules: Additional procedural rules appear in local court rules and in standing orders issued by judges.^[7] These provisions apply to cases venued in these jurisdictions and before these judges.

Case Law: Numerous federal and state court decisions govern the application of the discovery rules. Every federal circuit and all state appellate courts have issued some or many opinions determining what and how ESI is discoverable. These cases fall into at least six ESI categories: (1) preservation, (2) cooperation, (3) accessibility, (4) proportionality, (5) cost shifting, and (6) spoliation sanctions. The footnotes in this article contain the seminal cases.

Professional Responsibility Rules: The ABA Model Rules of Professional Conduct and updated state rules list acceptable and unprofessional conduct regarding ESI discovery and evidence. Model Rule 3.4(a) states that a lawyer shall not “unlawfully obstruct” access to evidence or “unlawfully alter, destroy or conceal a document or other material having potential evidentiary value” or “counsel or assist another person” to do so.^[8] While this rule applies to all types of discoverable evidence, it has become especially applicable to ESI cases.

Statutes: Federal and state statutes also govern the obligations of lawyers and parties regarding ESI. An example of such legislative regulation is the federal Sarbanes-Oxley Act, which prohibits the destruction, alteration, or fabrication of any evidence that is involved in a federal investigation.^[9] Regulatory rules promulgated by the Securities and Exchange Commission further require that any documents sent, created, or received in connection with an audit or a review of financial information must be retained for a period of seven years.^[10] And, again, while these provisions apply to all categories of documents, they were created with ESI in mind.

Sedona Principles: The need for guidance on handling the added responsibilities of federal and state rule amendments regarding ESI and instructions on how to handle resultant litigation activities gave rise to a group of interested individuals known as The Sedona Conference.^[11] Sedona is a nonprofit legal policy research and education organization that has a working group comprised of judges, attorneys, and electronic discovery experts dedicated to resolving ESI issues. Sedona has published a number of documents concerning ESI, including the Sedona Principles.^[12] Courts have found the Sedona Principles instructive with respect to electronic discovery issues.

Special Masters: To oversee and assist lawyers and their clients with ESI discovery issues, judges appoint masters with technological know-how and litigation experience.^[13] Litigators may request the judge to do so or the court, on its own, may designate a special master. These experts can help the litigators reach agreements on ESI protocols, monitor ESI discovery, and provide recommendations regarding ESI procedures. They can save the parties, lawyers, and court substantial savings in costs and time.

The Lexicon of ESI

The following terms are used frequently in e-discovery and will be encountered in resolving ESI issues:

Source Media: The electronic device on which the ESI is stored. Source media includes computers, cell phones, portable hard drives, flash drives, websites, social mediums, tablets, and cloud storage. Individuals use these devices and sources to create billions of informational electronic documents, just as you are reading this section. Some of what is being created is likely relevant to potential and actual litigation.

ESI Production Protocol: An ESI production protocol is an agreed upon format for the delivery of responsive files between parties. It is necessary to ensure compatibility of these deliverables with each party’s review methodology. A workable ESI protocol is crafted by lawyers and technological experts involved in the legal dispute. It is the way the parties agree to produce requested ESI and can be modified during the litigation to resolve ESI disclosure problems.

Native Format: Native format refers to the source or original state of an electronically stored file. Throughout the discovery process, files may be converted into a variety of formats compatible with each party’s review platform, with TIFF or PDF being the most common. In general, retaining documents in their native format and files is highly recommended because this is the format ordinarily used to produce documents to opposing parties.^[14]

Tagged Image File Format (TIFF Image; .TIF): The TIFF file is an image format that is widely supported by image viewing applications. It is a commonly used production format for ESI because it is compatible with most major review software. TIFF image files are more difficult to alter than a native file. However, they cannot always capture the full content of a native file (e.g., the markup layers on some electronic files).

Portable Document Format (PDF): PDF is a file type allowing documents to be viewed through Adobe Acrobat Reader on any computer without the need for additional software or hardware. It is often used as a native file format and is difficult to alter. And, it is a commonly requested ESI production format. The PDF format is generally able to preserve more of an electronic document’s native characteristics than a TIFF image, but is usually larger in file size.

Metadata: For each action initiated on a computer, smart phone, tablet, or other device, a significant amount of information is captured and stored, including the user initiating the action, when it was performed, geographic location, and duration of use, among others. This information is called metadata, because it is “data about data.”^[15] There are several types of metadata, including (1) system metadata (author, date, time information), (2) embedded metadata (hidden or internally linked data), (3) substantive metadata (also known as application metadata), and (4) ephemeral metadata (data overridden by new data, such as web searches). The amount and type of metadata stored varies with the type of device used, but it can be humongous. Computer forensic tools can often recover lost metadata.

Forensic Imaging: To prevent the destruction of electronic data during the collection of files from a source device, a forensic expert can create an exact duplicate of all files, including deleted files and metadata. This copy is called the forensic image and is the source of documents for further analysis, review, and production.

Optical Character Recognition (OCR): There are several electronic file types that store potentially relevant information but cannot be readily searched. OCR is a technology that effectively “reads” documents that do not contain easily searchable text and writes the text to a searchable format. For example, a non-searchable PDF attached to an email may contain communication critical to a case, but, without OCR, that information would not appear discoverable in an ordinary full-text search result.

Load File: This is the single file or directory of files containing all of the data necessary to ingest the collection into a desired review platform, including native files, TIFF images, metadata, OCR, and other extracted text. A load file format is specified by the agreed upon ESI production protocol to ensure compatibility with each party’s review platform. It contains the ESI that is disclosed and produced.

An ESI Scenario

A scenario will help bring these definitions to life:

An employee creates a document containing a list of all her clients on a company computer in a PDF format, which she names as Steal-Me.pdf. This electronic information appears on the hard drive of her computer and on the company server that serves as a backup source. She has just generated ESI and corresponding metadata, which captured the time the file was created, where it is stored, and when it was last accessed, among other data. She then transfers the PDF file to a flash drive, prints the PDF to paper, deletes the PDF, and quits her job. The flash drive is now the source media. The next day, all of her clients stop sending work to her former employer, who becomes suspicious and hires a forensic team to investigate ESI documents she has authored. The forensic team creates a forensic image of her hard drive and analyzes recently created or deleted files. They locate Steal-Me.pdf, among other responsive files, and notify the employer, who contacts legal counsel to initiate suit against the former employee.

Because the files have not been converted into another format, they are considered native files. The law firm then relies on its IT staff with expertise in computer forensics to prepare the discovery for review. The IT experts convert the native PDF file to a TIFF image and then perform OCR on the image to ensure all litigators are able to search and review the potential evidence in a format compatible with their review software, according to the agreed upon ESI production protocol drafted by the lawyers and technical advisers from both parties. The TIFF and OCR are then exported to an electronic load file, which is provided from the employer party to her lawyer. This process provides both litigating parties with ESI and allows them to search and produce relevant disclosable and discoverable information.

The Life Cycle of ESI

ESI discovery has a life cycle. There are ten key phases to a typical time chart that aid in understanding the entire process and identify variables unique to the e-discovery process:

1.  Legal Hold

This preservation request or demand is triggered by actual litigation, the reasonable expectation of litigation, government inquiries, or other types of disputes. The hold correspondence entails a prompt notification to custodians of potentially relevant documents, including ESI, and advises them not to tamper with or delete such data. The custodians need to understand that nothing can be deleted and everything needs to be preserved. These files and the accompanying data can be placed by each custodian in a separate electronic file to be provided to the lawyer issuing the legal hold and, if discoverable, to opposing parties. The legal hold usually overrides an existing document retention/destruction policy.

2.  Identification

Litigators, on their own or pursuant to Federal Rule of Civil Procedure 26(f) and similar state rules, will discuss and identify the types, locations, and sources of potential discovery. Parties typically agree to terms limiting the scope of the ESI collection to a reasonable breadth proportional to the damages sought in the suit. This is known as the doctrine of proportionality. As with paper documents, the scope of discoverable ESI also needs to comply with the governing legal relevancy standards.

3.  Preservation and Recovery

Data preservation is obviously critical to its collection. At this point, responsive custodians and devices have been identified, but the data has not yet been sequestered from its native location. Like non-electronic information, preserving the original attributes of a piece of evidence is essential. Unlike paper information, ESI is highly volatile and requires specific technological processes to maintain its integrity. Spoliation may occur in the form of the deliberate or accidental deletion of potentially incriminating emails or files by a custodian or an automated computer system. Reasonable measures need to be taken to prevent these erasures and to maintain existing discoverable information.

A primary issue regarding data recovery is whether the deleted data can be recovered. The initial answer is that it depends. It depends on the type of data, how it was deleted or overridden, the resources and money available to attempt to recover it, and the ability of the computer forensic recovery tools. So, some data can easily be recovered, much can be recovered through reasonable efforts, and some will not be recoverable.

4.  Collection

After potential evidence has been identified, it must be collected from its source media or device for review. The goal of forensic collection is to extract potentially relevant ESI from the identified source media and, without affecting its content or metadata, create a duplicative forensic image. Proper forensic collection can involve cracking passwords, decrypting files, and recovering deleted or tampered files. Just like in the movies.

Due to the sensitivity of forensic data and the finality of a mistake, it is critical that collection is performed quite carefully and precisely. The product of the collection is usually a hard drive containing an exact duplication of the potentially relevant information on the source media. This mirror image of the data preserves the information in a protected medium and prevents the inadvertent destruction while the materials are being collected. The forensic image can subsequently be filtered to further identify relevant information for analysis.

5.  Analysis

After a collection has been performed, the producing party usually performs an analysis of the files before providing them to opposing counsel. Irrelevant or privileged information and other non-discoverable data will need to be identified and withheld. The litigators can mutually agree on criteria to cull non-responsive documents from the responsive information. This process can involve keyword search hits (e.g., e-mails between a custodian and their counsel), irrelevant date ranges, and non-responsive system files. Effectively filtering a collection by such criteria requires collaboration by both sides of the case and an expert in data analytics to operate the filtration technology.

6.  Processing

While the potentially relevant ESI has now been collected from the source media, each file is still vulnerable to spoliation. Simply accessing a file in its current state would modify its metadata to reflect the current user, date, and location, overwriting the original evidence. The first step in the processing phase is to extract each file’s metadata and searchable text and store it in a static database linked to the corresponding source file. The second step of processing is to convert each file into a reviewable format as set forth by the production protocol agreed upon by the litigators. Common formatting protocols include:

Numbering: Assigning each document a unique identifying number by electronic stamp (known as bates stamp) or filename.

OCR: For documents that do not contain text (e.g., PDFs), OCR is necessary to make them searchable.

TIFF Conversion: If requested in the production protocol, native files are converted to TIFF images.

This work effectively “freezes” all electronic content and converts it into a format useful for review. After data is processed, it is exported to a load file and is then delivered to all responsive parties. The majority of the processing phase will be performed by a litigation support person or team or a retained vendor.

7.  Review

After a load file is created for internal review or is received from the other side, it needs to be imported into a document review platform. At minimum, a review platform is software that allows litigators to view electronic documents and store pertinent information. Typically, the interface consists of a document viewer pane, a list of the documents’ original metadata, and a coding pane consisting of fields and designations used to record relevant information about each document. A pane is a region of the software’s interface with a dedicated purpose. Most major review platforms may be accessed through highly secure websites, allowing multiple litigators to review a document set from any location with Internet access.

Review workflows vary for each case but usually involve an administrator assigning batches of documents to reviewers, who analyze documents and records information relevant to the case. A reviewing litigator may also be looking for privileged documents to exclude from the review or to redact privileged content from relevant documents. The review phase is typically a linear process and may take a few weeks to many months—yes, you read that correctly—depending on the volume of discovery.

8.  TAR or Manual Review

Technologically assisted reviews (TAR) may be an efficient and effective way to identify relevant discoverable information in very large document sets. Properly designed search terms and a responsive computerized system may be the best or only way to review the reams of available ESI information. Using such a system, attorneys initially review a sample of the document universe, assigning designations for relevance and other key attributes. Based on these decisions, the computer performs an algorithmic analysis of the entire document universe and assigns each document a designation (e.g., hot, background, junk). After the computer codes the documents, a sample is generated to verify its accuracy. The system can then be “trained” to produce a desirable accuracy level and error threshold. At that point, the lawyers can then prioritize the document review or accept the produced results as final.

Manual review—individuals looking on their own for relevant information—is a common option, but the enormity of the task often requires some technological assistance. There may not be a need for a sophisticated TAR system, but some computerized based process which augments manual reviews may be needed. Another option is sampling, with a TAR-like system reviewing selective ESI. If that review produces relevant information, then expanded sampling or more extensive reviews would be warranted.

9.  Production

After the review phase is complete, documents deemed responsive to the dispute are assigned unique identifying production numbers, transferred or exported from the review platform to a separate new file, and delivered to opposing counsel and the court according to the predefined ESI production protocol. Based on the type of data being produced and each party’s review methodology, the protocol may include production of native files, TIFF images, PDFs, and load files.

A well-designed ESI production protocol can make this process relatively easy and affordable. Often, a production protocol may require unnecessary steps that can be burdensome and costly to both sides. For example, a protocol requiring only bates- stamped TIFF images may seem to simplify the process at the time of the agreement, but it could add a significant amount of unnecessary time and cost to the production. On the other hand, if redactions were made in the review platform, TIFF images or PDFs must be produced to prevent privilege exposure. The best way to minimize costs and risk to both sides is to identify variables preemptively and tailor the protocol to your case.

10.  Presentation

There are several commercial software platforms designed for the presentation of electronic evidence. After the evidentiary set has been identified, a litigation support specialist can provide the technical support necessary to prepare the evidence for the court or deposition. Litigators need to work closely with their technical support staff to ensure that the presentation follows their arguments and meets their standards for presentability.

And now you know, almost for sure, that you will need a technology adviser to help you through all this to get it right, unless you are one yourself.

The Discoverability of ESI

The scope of ESI discovery is the same as other information under the federal or applicable state rules. Federal and state courts have interpreted and applied these rules and developed various approaches to ESI discovery.^[16]

Procedural ESI Rules

Federal Rule 26(a)(1) specifically makes electronically stored information subject to the same initial disclosure requirements for paper documents.^[17] Federal Rule 26(b)(2)(B) explicitly extends discovery to electronically stored information.^[18] This rule specifies: “A party need not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden or cost,” unless there exists good cause for such production.^[19]

This latter rule introduces two specific factors when considering ESI discovery: its reasonable “accessibility” and any “undue burden or cost” incurred in its production.^[20] Types of ESI that may not be discoverable include data from obsolete computer devices (have you heard of Wang?), deleted information (not spoliation), and other data that is not electronically searchable (where’s Hal?). Good cause may be established in an effort to recover this data because the benefit of the disclosed information outweighs the burden and expense of producing it or because the relevant data is not available from any other source.^[21]  Federal Rule 34(a)(1)(A) provides that ESI must be produced as “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.”^[22] And, Rule 34(b)(2)(E) states that “a party must produce [ESI] in a [format] in which it is ordinarily maintained or in a reasonably usable [format]”^[23] and only in one format.^[24]

Further, Rule 34(b)(1)(C) allows the requesting party to specify the form in which ESI is to be produced.^[25] Rule 34(b)(2)(D) permits the responding party to object to the proposed format.^[26] If no format is specified or if there is an objection, the responding party must identify the intended format to be used for disclosure.^[27]

Additional rules govern privilege and work product data that may have been inadvertently or mistakenly produced. ESI may well contain privileged or confidential information that is obvious or is encrypted and that is mingled with or attached to discoverable information and documents. Federal Rule 26(b)(5)(B) details the procedure for asserting claims of privilege and other work product and the requirements on the receiving party to return, sequester, or destroy the non-discoverable or protected information.^[28] Issues relating to the waiver of privilege and work product claims may be resolved by the parties or by a court.

These rules require the responding party to furnish ESI in a manner understandable to the requesting party and to bear the cost and expense of compiling the data and translating them into a readable printout or some other machine-readable format.^[29] The rules also allow the responding party to refuse to provide ESI if it is not readily accessible either because it is too burdensome to produce or because it costs too much to produce. The parties may confer and mutually agree on a limited scope of ESI discovery or split the costs of production. If unable to agree, the court may decide the issues based on a Rule 37 motion for production enforcement^[30] or a Rule 26(c) protective order.^[31]

Federal Rule 26(f) encourages parties to discuss and resolve these ESI matters at the early stages of the case during discovery planning discussions as well as during ongoing litigation.^[32] Rule 16(b)(3)(B) references electronically stored information as part of the overall disclosure and discovery process.^[33] Similar state court rules provide parties with the same or similar duties, rights, and procedures.

Judicially Imposed ESI Factors

Courts have crafted factors especially applicable to electronically stored information which augment the above civil procedure rules. Judges take into consideration these factors in determining whether ESI needs to be disclosed or discovered. The following list synthesizes and summarizes these numerous factors. Courts vary in relying on or ranking these inclusive factors.^[34] The applicable precedent and the facts and circumstances of each case determines which of these factors apply and control the outcome:

• The breadth of the request and the extent to which the request is specifically tailored to discover helpful information.
• The availability of the information from other available sources.
• The cost of production in total expenses and as compared to the amount in controversy.
• The resources of each party as compared to the total cost of discovery.^[35]
• The relative ability of each party to control costs and incentives to do so.
• The materiality of the data and the benefits to the party seeking the information.
• The importance of the issues.
• The complexity of the case.
• The need to protect privileged information, work product, trade secrets, or other confidential information.
• The ease of accessing the data.^[36]
• The extent to which the production would disrupt normal operations of the responding party.
• Whether the ESI is in a readily accessible format or needs to be translated into another format.
• Whether the information or software needed to produce the data is proprietary or invades confidential business information.
• Whether the translation, if necessary, is too burdensome or costly.
• Whether the requesting party has offered to pay some or all of the production costs.^[37]
• Whether the data is stored in a way that is not reasonably warranted by legitimate personal, business, or non-litigation reasons.
• Whether the data was stored in a manner designed to defeat discovery.
• Whether the responding party was properly aware of potential or actual litigation in storing or discarding data.^[38]
• Whether the responding party has violated any protocols or rules regarding preservation or spoliation.^[39]

Preserving ESI

Parties to potential or pending lawsuits, official government proceedings, and reasonably foreseeable litigation have an obligation to preserve documents, paper, and electronically stored information.^[40] This obligation usually extends to arbitration and administrative procedures as well. Representative lawyers will issue litigation holds to their clients advising them in no uncertain terms to retain and not destroy or delete information. This obligation extends to all parties and their employees and agents and to lawyers as well, in house or retained. Generally, the litigation hold applies to backup mediums that are accessible, but not to systems that are inaccessible, which includes backups maintained solely for the purpose of disaster recovery. These preservation obligations override document retention/destruction policies that become suspended.

Because of the nature of ESI, these obligations are especially vital to preserving relevant and potentially discoverable information. Courts are imposing severe sanctions for failures to comply with these responsibilities. Because of these developments, the wisest practice is to err on the side of preserving and not deleting or destroying documents, even if there is a reasonable document destruction policy in place.^[41] Even if not required by law to be preserved, fact finders and decision makers are likely to conclude that the deleted or destroyed data must have contained information harmful to the discarding party. These adverse inferences may be imposed by law or by common sense.

A party may be able to have a third person or business, not a party to the case, retain and not discard ESI.^[42] Federal Rule 45 and similar state rules allow a party to subpoena documents, including electronically stored information, from a non-party.^[43] A lawyer for a party can send a preservation request to a non-party asking that certain documents be preserved before the subpoena is issued and served. The non-party may or may not have a duty to do so or the adverse consequences for not complying may be insignificant. But, often the non-parties will comply to be fair and to avoid becoming embroiled in litigation efforts to retrieve that data from them.

The ESI Doctrines

There are four primary doctrines that govern or assist in controlling the scope and cost of ESI discovery: cooperation, accessibility, affordability, and proportionality.^[44]

Cooperation: Discovery rules, judicial opinions, and best practices have developed protocols for lawyers and their clients to seek mutual cooperation and reach reasonable agreements regarding the production of ESI. Meet and confer rules, pretrial orders, discovery plans developed by lawyers, and special master appointments are effective ways to reach cooperative solutions to the myriad of problems inherent in ESI discovery. Participants include experts in technology and computer forensics to develop ways and means of producing accessible and affordable ESI.^[45]

Accessibility: As explained previously, the key to usable ESI discovery is its accessibility. A responding party has an obligation to provide ESI in a readily accessible format. This may be the native format of the ESI or another format that is cost effective. Because of the various formats that compose ESI, the specific disclosure format is based on what the requesting party has reasonably suggested, any objections by the responding party, what format the data is in, what format may be able to translate the data, and the costs associated with these processes.

Affordability: Also, as discussed previously, the expense involved with ESI discovery is often a factor in its discoverability. Ordinary document production can be quite a costly endeavor, and ESI discovery can easily add extensive or mind-boggling costs to this process. The federal and state rules that provide parties with protections against unduly expensive procedures can be used to control these costs. If the parties and their lawyers cannot mutually agree on ways to reduce expenses, a court can intervene to determine what is fair, affordable, and appropriate given the issues at stake.

Proportionality: This concept has always been a factor in document production, including paper documents. The scope of discoverable information ought to be based on the significance of the information sought and the costs involved in producing it relative to merits of the claims and defenses. If the process and expense outweigh the benefits of the sought-after information, the doctrine of proportionality provides that such information, which may be relevant, is not discoverable. Factors courts rely on in determining proportionality include:

• The total cost of production compared to the amount in controversy or the significance of the legal issues.
• The total cost of production compared to the resources available to each party.
• The financial ability of a party to afford the expenses compared to the value of the information to the other party.^[46]

The outcome of these balancing tests rests on the specific needs and interests of each case.^[47]

ESI Cost Shifting

One way to alleviate affordability and proportionality issues is to share expenses depending upon the financial wherewithal of the parties or shift production costs to the requesting party. Federal and state rules explicitly empower the parties, their lawyers, and the court to determine what is the fairest way of distributing costs.^[48] Factors that have been developed to provide a fair and balanced approach include:

• How much can a party afford to pay for discovery?
• Is it fair to impose extensive ESI discovery costs on the responding party or the requesting party?
• Which party, if any, is more responsible for the problems involved with ESI production?
• What is the fairest way to share, split, or impose discovery expenses?

ESI Spoliation

Parties and their lawyers have always been under a duty to preserve and not destroy relevant documents. It is possible, but more difficult, to get rid of paper evidence; usually it requires shredding, burning, and other forms of physical destruction. These processes are more difficult to do privately or without the assistance of others. Electronically stored information can much more easily be deleted in private and through seemingly non-discoverable ways. The temptation to do so may be too tempting, resulting in the spoliation of otherwise discoverable information.

Courts have been made aware of these realities and have responded with sanctions imposed against such improper conduct.^[49] The sanctions are authorized by the inherent power of the court and pursuant to Federal Rule 37 and similar state rules.^[50] Usually, spoliation sanctions will be considered if there was a clear duty to preserve, if there exists a culpable failure to do so, and if there is a reasonable probability that the loss of evidence will materially prejudice the adverse party. Courts typically design a sanction to deter parties from engaging in spoliation, place the risk of losing on the party who wrongfully created the risk, and restore the prejudiced party to the position the party would have been in but for the wrongful destruction.

These sanctions, in some jurisdictions, have been severe and imposed not only on parties but also on their lawyers. There are a variety of sanctions at the court’s disposal, and the various federal circuit courts and state appellate courts continue to develop their own applicable precedents.^[51]

The applicable rules and case law may exonerate a party if ESI has been deleted or discarded. Federal Rule 37(e) states that a court may not impose sanctions if the electronically stored information was destroyed or lost because of the “routine, good faith operation of an electronic information system.”^[52] It is proper to periodically modify, overwrite, or delete ESI in the normal course of events. Businesses and individuals may do so in the ordinary course of their work or life. The rules do not intend to punish them for routine, good faith practices.^[53] A litigation hold or preservation request can override these practices and place a potential party on notice that litigation is foreseeable. It may come down to two questions: what do they know and when did they know it?

Who knew, indeed.

6 Wm. Mitchell J.L. & Prac. 1

By Eric M. Carpenter^[Y]

I.  Introduction

Indemnification is defined as the “action of compensating for loss or damage sustained.”^[1]  Therefore, indemnity is the “right of an injured party to claim reimbursement for its loss, damage, or liability from a person who has such a duty.”^[2]  “The right of indemnity can be contractual or it can arise under common law or statute.”^[3]

At common law, a neutral approach to enforcing indemnification agreements was favored.^[4]  A contract requiring one party to indemnify the other for the other’s own negligence would be upheld provided the “contract language, fairly construed, evidenced such an intent.”^[5]  The court would then require indemnification, even if the indemnitee was 100% at fault.^[6]

Minnesota followed the neutral approach until the 1970s.  In 1979, the Minnesota Supreme Court adopted the “strict construction” approach.^[7]  In Farmington Plumbing & Heating, the supreme court held that “[i]ndemnity agreements are to be strictly construed when the indemnitee . . . seeks to be indemnified for its own negligence.”^[8]  The court qualified that holding by stating that “[t]here must be an express provision in the contract to indemnify the indemnitee for liability occasioned by its own negligence; such an obligation will not be found by implication.”^[9]

In Minnesota, strict construction controlled indemnity agreements for only five years.  In 1984, the Minnesota Legislature adopted an anti-indemnity statute specific to building and construction contracts.^[10]  Minnesota Statutes section 337.02 states that an “indemnification agreement contained in . . . a building and construction contract is unenforceable . . . [if the] damage is attributable to the negligent or otherwise wrongful act or omission [of the indemnitee].”^[11]  The purpose of the statute is to ensure that each party remains responsible for its own negligent acts or omissions.^[12]  However, the legislature also provided a narrow exception to this anti-indemnity statute.  Minnesota Statutes section 337.05 makes it acceptable for a subcontractor to purchase insurance for the benefit of others without regard to fault.^[13]  Section 337.05 allows the subcontractor to indemnify and insure the general contractor against any damage resulting from work performed under the subcontract even if the general contractor is at fault.  Therefore, the insurance contract exempts the otherwise invalid indemnity agreement.

This article first outlines the facts of Engineering & Construction Innovations, Inc. v. L.H. Bolduc Co., which addressed the indemnity issues considered above.^[14]  Second, the article states the issues presented in Engineering & Construction Innovations.^[15]  Third, the article details the parties’ claims, the Ramsey County District Court’s decision, and the Minnesota Court of Appeals’s decision.^[16]  Fourth, the article provides an analysis of the Minnesota Court of Appeals’s decision.^[17]  Finally, the article concludes that, on review, the Minnesota Supreme Court should affirm the court of appeals’s decision.^[18]

II.  The ECI v. Bolduc Facts

The Metropolitan Council Environmental Services (“MCES”) hired Frontier Pipeline, LLC (“Frontier”) as the prime contractor of an underground sewer system in White Bear Lake, White Bear Township, and Hugo, Minnesota.^[19]  Frontier installed several runs of twenty-eight-inch sewer pipe.^[20] Frontier subcontracted with Engineering and Construction Innovations, Inc. (“ECI”) to install a lift station and several Forcemain Access Structures (“FAS”) along the pipeline route.^[21]  ECI was required to install each FAS at a depth of approximately thirty feet in order to connect the sewer pipes Frontier installed at a depth of approximately twenty-five feet.^[22]  ECI decided that “sheeted pits” would be the safest way to excavate the deep pits without danger of the walls collapsing.^[23]  ECI hired L.H. Bolduc Co. (“Bolduc”) to furnish, drive, and remove the sheeting cofferdams, which acted as walls for the sheeted pits during excavation and construction.^[24]

ECI required Bolduc to purchase and maintain various types of insurance policies during the project.^[25]  ECI also required Bolduc to name ECI as an additional insured on the commercial general liability (“CGL”) policy.^[26]  The Travelers Indemnity Company of Connecticut (“Travelers”) was the insurer on the CGL policy.^[27]  Travelers issued an endorsement to the policy covering ECI as an additional insured.^[28]

In August 2007, Bolduc drove the sheet piling according to the pipeline locations provided to it by Frontier’s surveyor.^[29]  Unfortunately, Bolduc drove a piece of sheet piling for Forcemain Access Structure Number 1 (“FAS-1”) into the pipeline, which Frontier had previously installed.^[30]  In December 2007, ECI discovered the damage after Bolduc completed its work at FAS-1.^[31]  ECI provided Bolduc and Travelers with written notice of the damage.^[32]  At the insistence of MCES and Frontier, ECI immediately repaired the damage to the pipeline to avoid a $5,000 per day assessment of liquidated damages.^[33]  Bolduc and Travelers inspected the damage before ECI repaired the pipeline.^[34]  The cost of repairs was $235,339.89.^[35]

ECI sought reimbursement from Bolduc, but Bolduc refused to pay.^[36]  ECI submitted a claim to Travelers, but Travelers refused to reimburse ECI for the repair costs.^[37]  ECI submitted a claim to its own insurer, Western National, which also denied the claim.^[38]  Subsequently, ECI notified Bolduc that ECI would not pay the $32,513.29 contract amount for the sheet piling and that Bolduc owed ECI an additional $202,826.60.^[39]

In August 2008, ECI brought suit against Bolduc and Travelers.^[40]

III.  The ECI v. Bolduc Issues

The dispute between ECI and Bolduc presented two issues.  First, was Bolduc required to indemnify and insure ECI for any damages resulting from work under Bolduc’s subcontract?  ECI argued that Bolduc was responsible for damages it caused regardless of fault.^[41]  In contrast, Bolduc argued that it was obligated to indemnify and insure ECI only for damages resulting from Bolduc’s own negligence.^[42]

Second, did Travelers’s additional insured endorsement limit coverage to damage caused by Bolduc’s negligence?  ECI argued that the policy contained no express limitation for only Bolduc’s negligence.^[43]  Travelers argued that the policy limited coverage to damages caused by Bolduc’s negligence.^[44]

IV.  The ECI v. Bolduc Legal Framework

A.  Claims

ECI alleged breach of contract and negligence against Bolduc.^[45]  ECI also alleged breach of contract and brought a declaratory judgment action against Travelers.^[46]  Bolduc filed a counterclaim alleging breach of contract.^[47]  Travelers filed a counterclaim for declaratory judgment.^[48]

B.  District Court

In November 2009, the Ramsey County District Court bifurcated ECI’s negligence claim against Bolduc from the remaining claims.^[49]  The parties fully preserved the breach of contract claims and the declaratory judgment actions for determination at a later date.^[50]  In March 2010, the parties stipulated that they would present only three issues to the jury.^[51]  First, whether Bolduc’s negligence caused the damage to the pipeline at FAS-1.^[52]  Second, whether ECI’s negligence caused the damage to the pipeline at FAS-1.^[53]  Third, how much Bolduc owed ECI in damages, if anything.^[54]  The jury returned a special verdict form finding that Bolduc was not negligent and ECI was not entitled to any money from Bolduc.^[55]  The special verdict form only required the jury to determine ECI’s negligence if Bolduc was found negligent.^[56]  Therefore, the jury did not answer the question regarding ECI’s negligence.^[57]

After the jury returned its verdict, ECI and Bolduc brought cross-motions for summary judgment on their breach of contract claims.^[58]  Additionally, ECI and Travelers brought cross-motions for summary judgment on their breach of contract claims and their declaratory judgment actions.^[59]  The district court concluded that Bolduc had not breached its contract with ECI.^[60]  The district court reasoned that the contract only required Bolduc to indemnify and insure ECI from damages caused by Bolduc’s negligence.^[61]  Subsequently, the district court concluded that section 337.05 was not at issue “because [the contract between Bolduc and ECI] does not require Bolduc to obtain insurance coverage extending to ECI’s own negligence.”^[62]  Therefore, Bolduc did not breach the contract because the jury determined that Bolduc was not negligent.^[63]  The district court used the same reasoning to determine that Travelers was not required to indemnify and insure ECI for the damage to the pipeline.^[64]  The district court granted Bolduc’s and Travelers’s motions for summary judgment, denied ECI’s motion for summary judgment, and awarded Bolduc $45,965.53 plus prejudgment interest on its breach of contract claim.^[65]

C.  Court of Appeals

1.  Majority

ECI appealed the district court’s decision to the Minnesota Court of Appeals.  The court of appeals reversed and remanded the case in a 2-1 decision.

The court of appeals began its analysis with the indemnity language in the contract.  The contract provided as follows:

[Bolduc] agrees to protect, indemnify, defend, and hold harmless ECI . . . to the fullest extent permitted by law and to the extent of the insurance requirements below, from and against (a) all claims, causes of action, liabilities, obligations, demands, costs, and expenses arising out of injury to any persons or damages to property caused or alleged to have been caused by any act or omission of [Bolduc], its agents, employees or invitees, and (b) all damage, judgments, expenses, and attorney’s fees caused by any act or omission of [Bolduc] or anyone who performs work or services in the prosecution of the Subcontract.^[66]

The court of appeals noted that the Minnesota Legislature provided that a construction contract containing an indemnification agreement is “unenforceable except to the extent that ‘the underlying injury or damage is attributable to the negligent or otherwise wrongful act or omission, including breach of a specific contractual duty, of the promisor or the promisor’s independent contractors, agents, employees, or delegates.’”^[67]  The court of appeals qualified that statutory language by stating that “section 337.02 does ‘not affect the validity of agreements whereby a promisor agrees to provide specific insurance coverage for the benefit of others.’”^[68]  Therefore, the court of appeals concluded that the indemnification and insurance agreements were enforceable.^[69]

Having concluded that the indemnification and insurance agreements were enforceable, the court of appeals next addressed Bolduc’s argument that it was required to indemnify and insure ECI for actions arising only out of Bolduc’s own negligence.^[70]  Under the contract language, Bolduc was required to indemnify ECI “from and against ‘all claims, causes of action, liabilities, obligations, demands, costs, and expenses arising out of . . . damages to property caused or alleged to have been caused by any act or omission of [Bolduc], its agents, employees or invitees’ and carry insurance to cover such an obligation.”^[71]  Bolduc’s argument would have required the court of appeals to read the word “negligence” into the insurance and indemnification language of the contract.  The court of appeals declined to do that.  Because the contract required Bolduc to indemnify and insure ECI without regard to fault, the court of appeals reversed the district court’s award of summary judgment in favor of Bolduc and remanded the matter to the district court.^[72]

Next, the court of appeals addressed the district court’s award of summary judgment in favor of Travelers.  “Bolduc’s ECI policy provided that Travelers would pay ‘those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.’”^[73]  The policy included an additional insured endorsement that named ECI as an insured.^[74]  Travelers argued that the endorsement limited coverage to situations where Bolduc was negligent.^[75]  However, the court of appeals declined to incorporate the word “negligent” into the policy.^[76]  Therefore, the court of appeals reversed the district court’s award of summary judgment in favor of Travelers and remanded the matter to the district court.^[77]

Finally, the court of appeals addressed ECI’s argument that reversal of the district court’s award of summary judgment in favor of Bolduc required reversal of the $45,965.53 breach of contract award.^[78]  However, the court of appeals declined to address that issue because ECI did not raise it in its principal brief.^[79]

2.  Dissent

The dissent focused much of its attention on section 337.02, which “does not permit a party to a construction contract to be indemnified for its own negligence.”^[80]  The dissent reasoned that if “Bolduc was found not negligent by the jury,” then “ECI [was] the only other party that could [have been] negligent under the facts of the case.”^[81]  In addition, the dissent did not believe that section 337.05 applied.  The dissent stated that “[a]greements seeking to indemnify the indemnitee for losses occasioned by its own negligence . . . are not favored by the law and are not construed in favor of indemnification unless such intention is expressed in clear and unequivocal terms, or unless no other meaning can be ascribed to it.”^[82]  The dissent did not find “such specific, clear, and unequivocal term[s]” in the contract that would have indemnified ECI for its own negligent acts.^[83]  The dissent stated that the entire purpose of section 337.02 would be defeated if “ECI could immunize itself from the risk of ever having to accept responsibility for its own negligent acts.”^[84]  Therefore, the dissent would have affirmed the district court’s grant of summary judgment in favor of Bolduc and Travelers.^[85]

V.  Analysis of the ECI v. Bolduc Decision

A.  Important Language

Indemnification and insurance cases require the courts to interpret contractual language, interpret statutory language, and apply case law.  Before introducing some of the relevant case law, it is important to have a firm grasp of the contractual and statutory language that is important to this case.

The indemnity language in the contract between ECI and Bolduc provided as follows:

[Bolduc] agrees to protect, indemnify, defend, and hold harmless ECI . . . to the fullest extent permitted by law and to the extent of the insurance requirements below, from and against (a) all claims, causes of action, liabilities, obligations, demands, costs, and expenses arising out of injury to any persons or damages to property caused or alleged to have been caused by any act or omission of [Bolduc], its agents, employees or invitees, and (b) all damage, judgments, expenses, and attorney’s fees caused by any act or omission of [Bolduc] or anyone who performs work or services in the prosecution of the Subcontract.  [Bolduc] shall defend any and all suits brought against ECI . . . on account of any such liability or claims of liability.  [Bolduc] agrees to procure and carry until the completion of the Subcontract, workers compensation and such other insurance that specifically covers the indemnity obligations under this paragraph, from an insurance carrier which ECI finds financially sound and acceptable, and to name ECI as an additional insured on said policies.^[86]

In addition, Bolduc’s insurance policy provided that Travelers would pay “those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.”^[87]  The insurance policy included an additional insured endorsement that named ECI as an insured.^[88]  That endorsement limited coverage to situations where “the injury or damage is caused by acts or omissions of [Bolduc] or [its] subcontractor in the performance of [its] work to which the written contract requiring insurance applies.”^[89]

The relevant statutory language is found in Minnesota Statutes sections 337.02 and 337.05.  Chapter 337 applies specifically to building and construction contracts.^[90]  Section 337.02 provides the following:

An indemnification agreement contained in, or executed in connection with, a building and construction contract is unenforceable except to the extent that: (1) the underlying injury or damage is attributable to the negligent or otherwise wrongful act or omission, including breach of a specific contractual duty, of the promisor or the promisor’s independent contractors, agents, employees, or delegatees; or (2) an owner, a responsible party, or a governmental entity agrees to indemnify a contractor directly or through another contractor with respect to strict liability under environmental laws.^[91]

Section 337.02 ensures that all parties remain responsible for their own negligent acts or omissions.  Section 337.05, subdivision 1, states that “[s]ections 337.01 to 337.05 do not affect the validity of agreements whereby a promisor agrees to provide specific insurance coverage for the benefit of others.”^[92]  For practical purposes, section 337.05, subdivision 1, operates as an exception from the general prohibition under section 337.02.

B.  Bolduc Argued That Section 337.05 Does Not Apply

Bolduc argued on appeal that “[t]he district court properly construed Minnesota law with regard to interpretation of contracts when it found that the ECI contract did not require Bolduc to indemnify ECI when Bolduc was found to be not negligent and ECI’s damages were zero.”^[93]  Bolduc recognized ECI’s argument that section “337.05 permits the enforcement of agreements by which one party agrees to insure another for its own negligence” as nothing more than a “confusing alternative argument.”^[94]  Bolduc defended the district court’s conclusion “that section 337.05 was not at issue in the present case ‘because [the contract between Bolduc and ECI] does not require Bolduc to obtain insurance coverage extending to ECI’s own negligence.’”^[95]  Bolduc stated that allowing one party to insure another for its own negligence was “clearly forbidden by Minnesota law.”^[96]  Bolduc’s argument relied on the “strict construction” approach, which the Minnesota Supreme Court used in Farmington Plumbing & Heating five years prior to the Minnesota Legislature’s adoption of Minnesota Statutes sections 337.02 and 337.05.^[97]  However, the adoption of section 337.05 in 1984 created a narrow exception in construction contracts.  Section 337.05, subdivision 1, makes it acceptable for a subcontractor to purchase insurance to cover negligent acts of the general contractor.^[98]  Consequently, the insurance contract exempts the otherwise invalid indemnity agreement.

In 1992, the Minnesota Supreme Court agreed with this interpretation of section 337.05 in Holmes v. Watson-Forsberg Co.^[99]  The supreme court stated that “the legislature both anticipated and approved a long-standing practice in the construction industry by which the parties to a subcontract could agree that one party would purchase insurance that would protect ‘others’ involved in the performance of the construction project.”^[100]

It is important to note that Bolduc did not cite Holmes in its appellate brief.^[101]  Also noteworthy is the fact that the court of appeals opined that Bolduc’s argument against incorporating section 337.05 relied on its own opinion in Holmes.^[102]  In Holmes, the court of appeals concluded that “[b]ecause the indemnification agreement is not enforceable, there is nothing to insure.”^[103]  However, the supreme court reversed the court of appeals’s decision in Holmes.^[104]  The supreme court concluded that “the parties are free to place the risk of loss upon an insurer by requiring one of the parties to insure against that risk.”^[105]

Applied together, sections 337.02 and 337.05 allow a party to indemnify for another’s negligence and to insure that risk.  This “narrow exception to the general prohibition of indemnification from the indemnitee’s own negligence” has become “common practice in the construction industry.”^[106]  General contractors commonly require subcontractors to insure the general contractors’ indemnification obligations.^[107]

C.  Bolduc Also Argued Apportionment of Fault

Bolduc argued that “because the jury found that Bolduc was not negligent, there can be no obligation to insure or indemnify ECI for the damage caused to the pipeline.”^[108]  The dissent agreed with that argument: “Bolduc was found not negligent by the jury, and ECI was awarded no damages.  Consequently, ECI is the only other party that could be negligent under the facts of the case.  Therefore, Bolduc is being asked to indemnify ECI for its own negligence.”^[109]  However, that argument ignores the existence of section 337.05, which is crucial to the analysis.  The majority found that “[w]hile an apportionment of fault would be relevant to the analysis under section 337.02 of the permissible extent of an indemnification obligation without a coextensive agreement to insure, because the indemnification and insurance obligations coincide, section 337.05 exempts the contract from the application of section 337.02.^[110]  Therefore, while the jury’s finding that Bolduc was not negligent would be fatal for ECI in a section 337.02 apportionment-of-fault analysis, it is irrelevant because of the section 337.05 exception.  Section 337.05 permitted the contract to require Bolduc to insure and indemnify ECI without regard to fault.

D.  The Contract Language Matters

The Minnesota Supreme Court has recognized that the “specific statutory language employed will determine whether there is an enforceable agreement to indemnify and insure against another’s negligence.”^[111]  In Holmes, the supreme court found that the following language required the subcontractor to indemnify and insure the general contractor: “[F]or which the Contractor may be or may be claimed to be, liable.”^[112]  The language in Holmes stated that the subcontractor was required to indemnify and insure the general contractor without regard to fault.^[113]  Similarly, in McCarthy, the agreement provided for indemnification “regardless of whether or not such claims, losses, damages and expenses are caused in whole or in part by [the indemnified party].”^[114]  Once again, the indemnitor was required to indemnify and insure the indemnitee without regard to fault.  The supreme court has also recognized language that provided the opposite result.  In Hurlburt, the contractual language stated that indemnification and insurance “shall apply only to the extent that the underlying injury or damage is attributable to the negligence or otherwise wrongful act or omission . . . of Subcontractor or [its sub-subcontractors].”^[115]  The language in Hurlburt stated that the subcontractor was required to indemnify and insure the general contractor only if the subcontractor was at fault.  Unlike Holmes and McCarthy, the Hurlburt language did not require an indemnitor to indemnify a negligent—or at fault—indemnitee.

In Engineering & Construction Innovations, the dissent stated that the ECI contract language was “very different” from the language in Holmes.^[116]  “In Holmes, the subcontractor promised to indemnify the contractor ‘for all damages or injury to all persons, whether employees or otherwise, and to all property, arising out of it, resulting from or in any manner connected with, the execution of the work provided for in this [contract].’”^[117]  The dissent opined that the “obligation to indemnify was tied to the broader nature of the work being performed under the subcontract and not to damages caused by the acts or omissions or alleged acts or omissions of a subcontractor.”^[118]  Unfortunately, the dissent did not explain how the Holmes language was different from the ECI contract language, which stated: “[Bolduc] agrees to protect, indemnify, defend, and hold harmless ECI . . . against . . . (b) all damage . . . caused by any act or omission of [Bolduc] or anyone who performs work or services in the prosecution of the Subcontract.”^[119]  The ECI contract language and the Holmes language are both tied to the broader nature of the work being performed under the subcontract.  Bolduc’s argument that it was not negligent is irrelevant.  Bolduc caused the damage when it drove the sheet piling into the pipeline.^[120]  Bolduc performed that work under its subcontract.^[121]  Therefore, fault is irrelevant because Bolduc performed the work under its subcontract.  Under this reasoning, the majority found that the ECI contract “employ[ed] language that [was] similar to that approved by the supreme court in Holmes.”^[122]

E.  Travelers Insurance Policy

Travelers argued that the insurance policy excluded “coverage for damages caused by the fault of another unless the parties have entered into an ‘insured contract’ where the insured has agreed to indemnify the other party for damages caused by the other party’s own ‘tort liability.’”^[123]  Travelers cited Farmington Plumbing & Heating as authority that Minnesota courts apply a strict construction standard when a contract calls for one party to indemnify and insure another for its own negligence.^[124]  However, the Minnesota Legislature replaced the strict construction approach used in Farmington Plumbing & Heating five years after that decision.  In 1984, the Minnesota Legislature adopted Minnesota Statutes sections 337.02 and 337.05, which control indemnification and insurance agreements in building and construction contracts.^[125]

In its analysis of the insurance policy, the court of appeals found a 1995 decision by the Appellate Court of Illinois “particularly instructive.”^[126]  “In J.A. Jones, the Illinois Appellate Court held that when an additional insured endorsement does not expressly limit coverage to a subcontractor’s negligence, coverage for the general contractor under an additional insured endorsement similarly was not limited to such negligence.”^[127]

In Engineering & Construction Innovations, the insurance policy listed ECI as an additional insured.  “The endorsement limit[ed the] coverage to situations where the injury or damage is caused by acts or omissions of you or your subcontractor in the performance of your work to which the written contract requiring insurance applies.”^[128]  The endorsement did not limit coverage to damages caused by Bolduc’s negligent acts.  Therefore, because the additional insured endorsement did not expressly limit coverage to Bolduc’s negligence, ECI’s coverage under the additional insured endorsement similarly was not limited to Bolduc’s negligence.  As such, Travelers was required to insure ECI as an additional insured against any damages caused by Bolduc without regard to fault.

VI.  The Minnesota Supreme Court Granted Review

On November 22, 2011, the Minnesota Supreme Court granted review.  The supreme court should affirm the court of appeals’s decision.  The Minnesota Legislature adopted clear and unambiguous statutes regarding indemnification and insurance agreements in building and construction contracts.  Section 337.02 forbids a party from requiring another party to indemnify it against its own negligent acts.  However, the contract between ECI and Bolduc was exempt from that general prohibition because the parties agreed that Bolduc would purchase insurance and name ECI as an additional insured.  “[T]he legislature both anticipated and approved [this] long-standing practice in the construction industry” when it adopted section 337.05.^[129]

The indemnification and insurance agreements provided protection for ECI from damage caused by any act or omission of Bolduc under its subcontract.^[130]  The facts clearly state that Bolduc damaged the pipeline when it drove its sheet piling into the pipeline.^[131]  It is irrelevant whether Bolduc was negligent or not.  The fact remains that the pipeline was damaged as a result of work performed under Bolduc’s subcontract.  In addition, Bolduc agreed to indemnify and insure ECI against any damage caused as a result of work performed under its subcontract.^[132]  Therefore, the Minnesota Supreme Court should affirm the court of appeals’s decision to reverse and remand the matter to the district court for further proceedings not inconsistent with its opinion.

VII.  Conclusion

The majority and the dissent arrived at very different conclusions when asked to interpret the indemnification and insurance language used in the subcontract between ECI and Bolduc.  The majority and dissent agreed that section 337.02 prohibits a party from requiring another party to indemnify it from its own negligent actions.  However, the two opinions diverged in their application of section 337.05.  The majority stated that the legislature intended for section 337.05 to operate as an exception from the general prohibitions of section 337.02.  Therefore, Bolduc was required to indemnify and insure ECI against damage caused under its subcontract without regard to fault.  In contrast, the dissent stated that section 337.05 did not apply because the contractual language was not identical to the language approved by the supreme court in Holmes.

5 Wm. Mitchell J.L. & Prac. 2

By Lindsay W. Davis^[Y]

The Minnesota Supreme Court last considered the issue of the inherent authority expungement, in particular, a district court’s ability to seal records held outside the judicial branch, over two years ago in State v. S.L.H.^[1] Since then, individuals continue to seek relief from the effects of their criminal records, and the number of expungement petitions has remained steady.^[2] The Minnesota Court of Appeals has analyzed inherent authority criminal expungements in several cases since S.L.H., producing two published decisions.^[3] This article will explain how the appellate courts have applied and refined S.L.H., and which circumstances may still warrant relief to seal executive-branch records under the court’s inherent authority. Read the rest of this entry »

5 Wm. Mitchell J.L. & Prac. 1

By: Eric Wolf^[Y]

1.         Introduction

Surprising, perhaps, to some, but apparently true: economic inequality itself, as distinguished from absolute poverty, tends to increase the rates of crime and social unrest. James Madison asserted as much in Federalist 10, writing that “the various and unequal distribution of property” is “the most common and durable source” of conflict,^[1] and modern social science supports the idea. Inequality is correlated most strongly with homicide, but also with rape, child abuse, robbery, and various other crimes and social ills.^[2] Read the rest of this entry »

4 Wm. Mitchell J. L. & P. 6

By: Chad Snyder^[Y]

Why.

That, I learned in one of the more productive hours of my law school experience, is the answer any lawyer should be ready to give in support of any legal argument.^[1] And, as one of my fellow students learned the hard way in one of those hard-to-watch Socratic moments, “because another case says so” is not always or even often a good enough  “why.” Common law, by its nature, evolves. So it is not enough to rest on the argument that a court should apply your proposed rule because it happens to be the rule that has been applied before. A lawyer making an argument or, though my professor did not say so, a judge issuing a decision, should be able to articulate a reason the legal rule she advocates should be adopted or maintained, and why it functions better than the alternative or alternatives. Read the rest of this entry »