In Gallagher v. Magner, 2010 U.S. App. LEXIS 18245 (8th Cir. Sep. 1, 2010) a group of owners and former owners of rental properties sued the City of St. Paul, Minnesota challenging enforcement of the City's housing code. A special enforcement agency was created in 2002, targeting problem properties, including neighborhood "sweeps" looking for code violations. The agency's tactics were very aggressive by most standards. As a result of the City's housing code enforcement, plaintiffs suffered increased maintenance costs, fees, condemnations, and were forced to sell properties in some instances.
During the course of the action several matters, including plaintiffs’ initial motion for sanctions and renewed motion for sanctions were referred to a magistrate judge. Plaintiffs requested various sanctions, including an adverse inference instruction due to the City's failure to implement a litigation hold. The magistrate judge denied both motions, and the district court judge affirmed. The City ultimately moved for summary judgment, which was granted by the district court judge.
Plaintiffs appealed the summary judgment decision and the denial of their spoliation motions, including their request for an advere inference instruction.
On appeal, the Eighth Circuit reversed summary judgment on one claim regarding disparate impact on racial minorities, but affirmed dismissal of all other claims in the lawsuit. The court went on to analyze the spoliation claims, which is our focus.
In short, the district court (first the magistrate judge and as affirmed by the district court judge) held that spoliation sanctions for the failure to implement a litigation hold were not warranted. The Eighth Circuit affirmed using an abuse of discretion standard of review. In other words, did the lower court's opinion deviate from applicable law in an arbitrary or unreasonable way. The Eighth Circuit held that the record failed to establish prejudice to the plaintiffs or an intentional destruction of evidence or withholding of evidence in an attempt to suppress the truth. For anyone keeping score on litigation hold decisions, this is very helpful to an organization that accidentally loses or destroys electronically stored evidence - with or without a legal hold in place. But the court quickly reminds us that discretion can go both ways, holding that a district court can sanction a party that destroys specific evidence, "even absent an explicit bad faith finding...."
Also critical to our decision is the magistrate judge's conclusion that the City did not intentionally destroy or withhold evidence in an attempt to suppress the truth. See Greyhound Lines, 485 F.3d at 1035 ("The ultimate focus for imposing sanctions for spoliation of evidence is the intentional destruction of evidence indicating a desire to suppress the truth[.]"). To be sure, a district court does not abuse its discretion by imposing sanctions, even absent an explicit bad faith finding, where a party destroys specifically requested evidence after litigation has commenced. Stevenson, 354 F.3d at 749-50. However, where a court expressly finds, as here, that there is no evidence of intentional destruction of evidence to suppress the truth, then the district court also acts within its discretionary limits by denying sanctions for spoliation of evidence. See Morris v. Union Pac. R.R., 373 F.3d 896, 901 (8th Cir. 2004) ("The most important consideration in our analysis is the district court's own finding regarding Union Pacific's intent.").10
Footnote 10 is important because one of the unsettled issues of law in litigation hold cases is the degree to which a movant must demonstrate bad faith before spoliation sanctions, including an adverse inference instruction, can be awarded. Here the issue was not briefed properly, so the Eighth Circuit passed on addressing the issue:
10. [Plaintiffs] argue in their reply briefs that the magistrate judge improperly required them to demonstrate bad faith as a precondition for spoliation-of-evidence sanctions. However, [plaintiffs] failed to assert their legal argument in their opening briefs, thereby depriving the Court of full briefing on this issue. As such, we deem [plaintiffs'] argument waived. See Jenkins v. Winter, 540 F.3d 742, 751 (8th Cir. 2008).
As an interesting side note, even though the Eighth Circuit declined to address how bad faith arguments are to be presented to the trial court, Judge Rosenthal reported in her Rimkus opinion that the Eighth Circuit (along with the Seventh, Tenth and D.C. Circuits) "appear to require bad faith" to award an adverse inference instruction as a sanction, citing two Eighth Circuit cases in her footnote No. 11:
Greyhound Lines, Inc. v. Wade, 485 F.3d 1032, 1035 (8th Cir. 2007) ("A spoliation-of-evidence sanction requires 'a finding of intentional destruction indicating a desire to suppress the truth.'" (quoting Stevenson v. Union Pac. R.R. Co., 354 F.3d 739, 746 (8th Cir. 2004)).
These are the very same two cases relied on by the Eighth Circuit in Gallagher v. Magner.
Also worth noting is the complete lack of discussion of whether a litigation hold is required in the Eighth Circuit. This is another point many followers of litigation hold case law would have liked to see addressed. As of this writing we are not aware of an appellate level case addressing whether a litigation hold is required in federal court. A growing number of district courts, however, clearly require a litigation hold in federal court, including requiring a written litigation hold, as is the requirement in the Southern District of New York by opinions like The Pension Committee. The Eight Circuit could have addressed whether the failure to implement a litigation hold had any impact on its analysis. It chose not to address it. Although there is a lack of direct discussion on whether a litigation hold is required in federal court, perhaps the lack of discussion has some meaning.
Apparently, despite the lack of a litigation hold, over one-million emails were produced at the tail end of discovery through the help of computer forensics, resulting in an extension of pretrial deadlines and the postponement of the summary judgment hearing:
It appears that, with the assistance of a data-recovery firm, the City provided [plaintiffs] over one million email files following the magistrate judge's first order. With regard to the email files produced, the district court acted within its discretion by refusing sanctions. See Greyhound Lines, 485 F.3d at 1035 ("Because Archway received responsive answers months before trial, the district court properly refused discovery sanctions."). To the extent [plaintiffs] complain about the delay in production of those email files, such prejudice was remedied at the district-court level by the postponement of the summary judgment hearing and the extension of pretrial deadlines. Indeed, [plaintiffs] had access to the email files three months before they filed their brief opposing the City's motion for summary judgment.
This is good news for data-recovery efforts foiling a litigation hold motion. The key point, however, is the failure to implement a litigation hold surely cost the City hundreds of thousands of dollars to recovery a huge volume of information and process it for disclosure. Another key point is that plaintiffs likely had a good reason for failing to support their prejudice argument. We will leave it to the e-discovery blogs to comment, but sifting through one million emails in a few months to find relevant data is no small feat.
The lack of discussion on whether a litigation hold is required in federal court may be construed as the discussion. Although it was not said directly, the fact of the matter is that the lack of a litigaton hold, followed by production of a significant volume of evidence (albeit forensically recovered emails) resulted in no sanctions. On the other hand, maybe we can't read too much into the lack of discussion, because ultimately, the court pointed to plaintiffs' failure to identify any missing relevant evidence.
If you skip the summary judgment arguments, the spoliation discussion is brief and to the point, but if you would like to skip the opinion altogether, here is the discovery history applicable to the above discussion:
A brief history of the discovery disputes in this case is appropriate. [Plaintiffs] filed their complaints in these actions in May 2004, March 2005, and July 2005. Initial discovery requests were served as early as November 2004. In 2007, [plaintiffs] learned that, pursuant to routine document-retention policies, the City destroyed emails sent or received prior to December 2005 and Truth-in-Sale-of-Housing ("TISH") reports from 2001 to 2003. [plaintiffs] moved for sanctions against the City based on the City's failure to produce several documents not relevant to this appeal and failure to place a litigation hold on destruction of TISH reports and emails/e-data. The magistrate judge denied the motion for sanctions, explaining that [plaintiffs] failed to demonstrate prejudice, i.e., that the material would have contained pertinent evidence. The magistrate judge noted that [plaintiffs] could renew their motion for sanctions if and when they could demonstrate prejudice. The district court affirmed the magistrate judge's denial of sanctions.
In February 2008, [plaintiffs] renewed their motion for sanctions. The magistrate judge noted the "extensive discovery" that had occurred since the court's first order. She then denied the renewed motion for sanctions because [plaintiffs] still failed to demonstrate prejudice. The magistrate also concluded that [plaintiffs] did not demonstrate that the City intentionally destroyed or withheld evidence to suppress the truth. The district court affirmed.
To download the opinion click here: Download Gallagher v Magner - 8th Cir 9-1-10