Legal Holds and Trigger Events

Court’s Broad Definition of “Control” Requires That Litigation Hold Include Independent Agents

The definition of “possession, custody, or control” under FRCP 34(a) will be construed broadly and a party is not required to have physical possession of the documents to be in control of them. Therefore, companies that use independent agencies should be conscious of the requirements and provisions they place in agency contracts because they can be inferred to give rise to discovery obligations.  To read ELLBlog's analysis of Haskins v. First American Title Insurance Co., Civil No. 10-5044 (D.N.J. 2012) click here.

Second Circuit Rejects Pension Committee’s Per Se Gross Negligence Standard for Failure to Issue Written Litigation Hold

For those responsible for issuing litigation holds at their organization the Zubulake and Pension Committee decisions are well known. The duty to issue a litigation hold continues to shape the preservation and spoliation landscape, including giving birth to a cottage industry of written litigation hold software, books, white papers and seminars. Remarkably, as the duty to issue a litigation hold continues to spread across the United States, few appellate courts have addressed the consequences of failing to issue a written litigation hold. Even more remarkable, the Second Circuit has not addressed the duty to issue a litigation hold – until now. (The Second Circuit Court of Appeals is the appellate court that hears appeals from the federal district court where the duty to issue litigation holds was born – the Southern District of New York).  

Much like the Zubulake series of decisions, no one was watching Chin v. The Port Authority, 10-1904 and 10-2031 (2nd Cir. July 10, 2012) as a much anticipated litigation hold or spoliation decision. Fittingly, Chin also involves an employment discrimination case – like Zubulake.  Yet, tucked at the end of its 55 page decision the Second Circuit addresses the question of whether the failure to issue a written litigation hold at the onset of litigation should result in sanctions.  The Second Circuit holds in Chin that the failure to issue a written litigation hold does not equal per se gross negligence.  It further held that the district court did not abuse its discretion by denying the motion for sanctions.  Has the Second Circuit handed spoliators a “get out of jail free” card?  No, but the decision will help the wary litigant that fails to issue a written litigation hold, yet preserves relevant evidence (whether by happenstance or through preservation efforts).

Eighth Circuit Passes On Opportunity To Require Litigation Holds

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...."

Quiet Amendment To Pension Committee

 
Judge Scheindlin issued a one page amendment to her Pension Committee decision, to clarify the scope of preservation.  In her original opinion she wrote that "failure to obtain records from all employees (some of whom may have had only a passing encounter with the issues in the litigation), as opposed to key players, likely constitutes negligence as opposed to a higher degree of culpability."  This was taken by some to mean, that failure to issue an organization wide litigation hold following a trigger event equaled negligence.  Negligence in preservation can lead to sanctions.  Some careful organizations began to implement such wide ranging litigation holds as a result of the opinion.  Did Judge Scheindlin really want organizations to implement organization wide litigation holds, even if a handful of employees were custodians of documents and electronic data related to a trigger event?

She was asked this very question at an e-discovery presentation shortly before she issued her May 28, 2010 amendment.  An audience member explained that the above quoted line was causing a real problem for companies issuing litigation holds.  The judge was then asked if she really meant all employees should be subject to a litigation hold?  In response, Judge Scheindlin stated that it was not her intent to require preservation beyond custodians possessing relevant information.  Her remarks indicated that litigation holds should include custodians of relevant information, even if they are not "key players" so long as they had some involvement with the issues raised in the case.  Amazingly, she issued an amended order shortly thereafter saying exactly that.

Judge Scheindlin has adjusted her previous opinion, so it now reads:

"By contrast, the failure to obtain records from all those employees who had any involvement with the issues raised in the litigation or anticipated litigation, as opposed to just the key players, could constitute negligence."

What does this subtle change mean?  First, it highlights an important point.  Spoliation is analyzed on a case by case basis.  So if all relevant information is in the hands of a few custodians, including the key players, then a wider litigation hold may not be necessary.  For example, if a few people were copied on an email for information purposes, but these people had nothing to do with the issues in the case, then a failure to include them in the litigation hold may be appropriate.  Second, failure to include anyone in the litigation hold that had some involvement in the issues raised in the case, may equal negligence, but it may not equal negligence. Whether or not an organization failed to provide notices to the right people will remain a fact specific analysis. This may not seem helpful, but to a very large organization, this offers some relief from organization wide litigation hold notices on all matters. Lastly, if you fall into the category of those that added "send notices to all employees" to your litigation hold procedures, you can stop (unless of course all employees had some involvement with the issues raised in the litigation.)

For a copy of the amended opinion, click here: Download Pension--Order-May-28-2010

Failure to Issue Written Litigation Hold: Costs, Attorneys’ Fees and $25,000 as Sanctions

Like an old vaudeville act, the court spends a meticulous amount of time setting up the punch lines in Merck Eprova AG v. Gnosis S.P.A. et al., 07 cv 5898 (S.D.N.Y. Apr. 20, 2010).  Like an old Italian film, the punch lines are subject to interpretation and may have meaning on many levels.  

This lawsuit against an Italian manufacturer alleges that defendants mislabeled the nutritional ingredient called methyltetrahydrofolate in violation of the Latham Act and New York state law.  The court ultimately holds that the failure to issue a written litigation hold is gross negligence requiring some form of sanction.  This is certainly a punch line (although not very funny) for foreign corporations landing in federal court.

The court relies heavily on the Pension Committee case to award costs, attorneys’ fees and a $25,000.00 fine to be apportioned between attorneys and clients.  The court leaves it up to defendants and their counsel to determine who pays the sanctions.  If they can not agree, the court will apportion it for them.  Forcing the lawyers and the clients to agree on who pays what part of the fine seems like another punch line (albeit a cruel one.)

Judge Rosenthal Issues Sanction's For Failure To Preserve E-Mail

Judge Lee H. Rosenthal, current Chair of the Federal Rules Advisory Committee's Committee on Rules of Practice and Procedure has just issued a sanctions opinion that provides an important counterpoint to Judge Scheidilin's Pension Committee opinion.  Judge Rosenthal was at the helm of the Federal Rules Advisory Committee when the e-discovery amendments were developed and enacted in 2006.  Her words on legal hold and e-discovery duties, therefore, carry weight.  Because she certainly knows a thing or two about e-discovery, her opinion in Rimkus v. Cammarata, 07-cv-00405 (SDTX Feb. 19, 2010) is as important as Judge Scheindlin's Pension Committee opinon, although not as heavily footnooted.  To download a copy of the opinion click here: Download Rimkus v Cammarata SDTX Feb 19 2010.

Judge Scheindlin of Zubulake Issues "Amended" Comprehensive Legal Hold Opinion

 
The Judge that brought us the now famous Zubulake series of legal hold decisions has weighed in on the state of litigation holds in the United States.  Her latest decision considers facts over a period of time from pre-Zubulake through the present.  In a lengthy and well researched opinion (including 251 footnotes) the Judge carefully analyzes the state of legal hold law in the United States (a footnote suggests the Judge and two law clerks spent over 300 hours researching and writing the opinion).

Spoliation: How to Get Your Case Dismissed

Sharon Nelson and her Ride the Lightening blog reports on a recent blog post discussing Gillett v. Michigan Farm Bureau, Michigan Ct. App., No. 286076 (Dec. 22, 2009).  The case was initially discovered by Sharon at Jason Shinn's "Defending the Digital Workplace" blog.  The case and the original blog post are available by clicking on the links above.

The short answer here is a reminder that plaintiffs have the same obligation to implement a legal hold and preserve evidence as defendants.  We keep a list of such cases and they all follow the same pattern.  Plaintiff resists production of ESI.  Court orders production.  Plaintiff destroys laptop, hard drive or simply turns over his computer with many files conspicuously absent.  Computer forensics are run on plaintiff's computer and viola, system metadata reveals the use of evidence wiping software, a defrag or two and usually some evidence that hundreds if not thousands of files were deleted on or about the time that the court issues an order permitting the inspection of plaintiff's computer.  The excuses vary for the loss of data, but generally amount to feigned ignorance over some computer problem.  There is nothing fake, however, about the ability of computer forensics to trace what was done to the hard drive.  The intentional deletion of data is brought to the court's attention and often plaintiff's case is dismissed.

To read Sharon's take on the dismissal of this plaintiff's case for spoliation, click here.

Lack of Evidence Draws Suspicion, Backup Tape Preservation Question and Third Party Expert's Involvement

Maggette v. BL Development Corp., 2:07-cv-182, 2009 U.S. Dist. LEXIS 116789 (ND Miss. Nov. 24, 2009) is a straightforward caution to corporations to make sure that litigation hold procedures are transparent and communicated to the court as early as possible.  Here, a U.S. Magistrate Judge for the Northern District of Mississippi, openly suspicious of defendants' lack of evidence, orders defendant to pay for the services of a third-party e-discovery expert to answer some very basic questions posed by the court.    Procedurally, the court was entertaining plaintiffs' motions to strike and for sanctions.  The court declined to order sanctions, but nevertheless takes defendant to task for failing to come forward with what exactly was done to preserve ESI and search ESI in response to plaintiffs' discovery demands. The lack of specificity before the court on the exact efforts used to search ESI lead the court to write:

In this case, the defendants have produced information and affidavits and have stated at the hearing on these motions that they have searched for documents and information responsive to the plaintiffs' discovery requests and produced all information responsive to those requests. Nevertheless, despite the court's direct order that "all defendants . . . search any available databases for responsive information and produce it to the plaintiffs. . . , " the defendants are un-able to describe the databases searched, the search terms, methods or parameters used to search the databases or provide any expert information confirming that there are no documents, electronically stored information or other information responsive to plaintiffs' discovery requests. Docket 177, p. 13. Further, the defendants have not provided any concrete reason or rationale for the numerous discrepancies within their discovery responses and the deposition testimony of their own employees. Nor has defendant articulated a satisfactory response to the court's doubts expressed at the hearing that corporations as large and sophisticated as the defendants, which operate numerous gaming facilities across the country with various operations centers, do not have either paper files, electronic files or information or -- even in light of Hurricane Katrina -- backup measures and files for at least some of the information requested by plaintiffs.

This begins defendants slide down a slippery slope. 

New York Trial Court Issues Sanctions For Litigation Hold Failure

 
A Manhattan real estate company was sanctioned an estimated $100,000.00 for its failure to implement a litigation hold and misrepresentations to the court about missing e-mails. The case of Einstein v. 357 LLC, N.Y. Sup. Ct. Manhattan Co., No. 604199/07, 11/4/09 is significant because it is the first time that a New York State court has weighed in on the need to implement a litigation hold.  Citing a host of well known cases from the Southern District of New York, the judge took defendants' to task for defendant's failure to take any steps to preserve e-mail following the initiation of litigation.

The court held that:

"[T]he failure to implement any litigation hold, not only after the commencement of litigation, but also after this court's repeated warnings that counsel should 'read [their] client the riot act', was grossly negligent and rises to the level of 'culpable conduct' required for a finding of spoliation."