Legal Holds and Trigger Events

Corporations Burdened by Preservation Seek Change in Civil Rules

 
LCJ Submits Formal Comment on Preservation
Nov 12, 2010

LCJ submitted a formal comment to the Advisory Committee on Civil Rules regarding problems related to preservation of information in litigation.

LCJ submitted a formal comment to the Advisory Committee on Civil Rules regarding problems related to preservation of information in litigation. The current ad hoc patchwork of preservation obligations created by individual courts is creating burdens on litigants far beyond what anyone would consider reasonable. As detailed in the Comment, the current paradigm involving preservation and spoliation of ESI is undermining the “just, speedy and inexpensive” determination of actions. It has forced litigants to spend millions of dollars to address an unquantifiable risk in computing systems that were not designed for litigation holds. Meaningful rule amendments would supply the guidance necessary to help solve these increasingly serious and costly problems that our members see in everyday litigation. This impressive product was based on an excellent draft from LCJ member John Jablonski with input from a significant number of other corporate and defense counsel who participated on the LCJ Preservation Working Group.

Grasping Legal Holds: What Organizations Need to Know

The cover story of the September/October 2010 issue of the Information Management Journal offers important insights and tips for implementing legal holds. 

Several high-profile decisions make it clear that courts expect organizations to manage legal holds competently and will issue sanctions against those that do not. Taking the steps outlined in this article will ensure your organization is well-prepared.

Dangerous Holds - Short Video on Pension Committee Opinion

With recent litigation hold decisions like Rimkus, D'Onofrio and Victor Stanley II, this short video discusses the case that started it all this year, Pension Committee.  Click on the LTN banner below to view Monica Bay (editor of Law Technology News) interview John Jablonski (principle author of this blog, contributor to LTN, the Information Management Journal, EDD Update and co-author of 7 Steps for Legal Holds of ESI and Other Documents) about "Dangerous Holds" videotaped during LegalTech earlier this year:

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

Preservation Extends To ESI In Your Possession, Custody or Control

"Do I need to preserve records stored with a third party?"  This question is one of the most common legal hold questions.  It is really about the scope of the hold and how far a party's duty to preserve extends.  The short answer is that the duty to preserve extends to ESI and other documents in a party's "possession, custody or control."  In other words, if you were forced to produce the records or face severe sanctions, could you get them?  The legal analysis is a little more detailed, but comes down to a case-by-case examination of whether the preserving party had control.  Absent control, there is no duty to preserve.  But what exactly is control?  We came across a good artlcle at InsideCounsel Magazine, that discusses this very issue.  It appeared June 22, 2009 and is titled "Third Party Thinking The Duty to Preserve, Collect, and Procuce Electronically Stored Information Held by Third Parties ."

All Lawyers Must Be Able to Fashion a Defensible Legal Hold

 
In the May issue of Law Technology News e-discovery expert, Craig Ball, warns lawyers against using boiler plate legal hold forms.  He advocates that fashioning timely, case specific legal holds is an essential skill that all lawyers need to master.  To read Craig's sage advice, click here.

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.)

Copier Hard Drives Pose Preservation Problem

A recent series of news articles highlight privacy issues associated with today's modern multifunction copier devices.  Most businesses have them.  The devices are all in one digital copiers, scanners, printers and fax machines.  As pointed out by the Buffalo News, these devices have hard drives that are often forgotten repositories of all sorts of images.  The devices are usually connected to an IT network.  Often dedicated network locations store scanned images or faxes, until they are retrieved by a user.  While we were not able to find a reported case dealing with preservation or spoliation issues, should these locations be added to a checklist of ESI locations for preservation purposes?  The short answer is maybe.  Some background first.

Technology Counsel, Mary Mack of FIOS, Cuts to the Chase on Pension Committee and Rimkus

 
Dueling Opinions: Scheindlin’s Pension Committee vs. Rosenthal’s Rimkus

Originally posted by Mary Mack on March 18th, 2010: 

The new decade has begun with conflicting and complementary opinions from Judge Rosenthal of Texas and Judge Scheindlin of New York. These opinions, penned by United States District Court judges, will frame the behavior and motion practice around federal e-discovery sanctions into the near future.

Before the ink was dry on Judge Scheindlin’s groundbreaking “no written legal hold = gross negligence” opinion in The Pension Committee of the University of Montreal Pension Plan, et al. v. Banc of America Securities, et al., 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010) (Amended Order), subtitled “Zubulake Revisited: Six Years Later,” Judge Rosenthal, in Rimkus v. Cammarata, 07-cv-00405 (S.D. Tex. Feb. 19, 2010) drew careful lines around the court’s inherent power to sanction, even in the face of bad faith, and introduced the concept of preservation proportionality. Both opinions are available at the end of this article.