Legal Holds and Trigger Events

Notice of Claim to Regional Government Equals Trigger Event Despite High Volume

In Field Day v. Suffolk Co., 2010 U.S. Dist. LEXIS 28476 (EDNY Mar. 25, 2010), a concert promoter entered into a $150,000 agreement with the County of Suffolk to hold a two day music festival featuring rap, hip-hop and rock artists in 2003.  The agreement required Field Day to secure a "Mass Gatherings Permit".  The County denied the permit and even initiated an injunction proceeding to prevent the festival from taking place.  In response, Field Day filed a "Notice of Claim" In August of 2003.  Such a notice is a common prerequisite to suing a government entity.  The lawsuit was commenced on May 26, 2004.  In short, the court held that the Notice of Claim was the trigger event for the duty to preserve (even thought the County argued it receives thousands of notices of claim each year).  Following a detailed analsysis the court granted monetary sanctions, refusing to award an adverse inference jury instruction.  The court held that the litigation hold failures were merely negligent and plaintiffs were unable to demonstrate prejudice. 

Negligent Litigation Hold Does Not Result In Sanctions

In Scalera v. Electrograph Systems, Inc. et al, (EDNY Sept. 29, 2009) the Magistrate Judge denied plaintiff’s motion for an adverse inference instruction.  This is in contrast to Shukla v. Sharma (EDNY Aug. 21, 2009) (holding failure to implement a litigation hold constituted gross negligence leading to sanctions).

In Scalera, the court held that the haphazard litigation hold implemented by defendants’ counsel constituted negligence.   A formal written litigation hold was not issued.  Although, defendants' counsel did verbally tell some potential key players to preserve documents, counsel did not sufficiently communicate the need to preserve with defendants’ IT department.  Despite some other recent holdings in the EDNY, the court did not believe that the failure to implement a written legal hold was grossly negligent or “bad faith”.  In short, in the absence of gross negligence plaintiff needed to establish the necessary “relevancy” of the unpreserved ESI to obtain spoliation sanctions, including proving that the unpreserved ESI would have been favorable to plaintiff’s case.  Plaintiff provided no evidence in support of its motion on this issue, so plaintiff’s motion for sanctions was denied.

Court Orders Production of Litigation Hold Letters

The general rule in the United States is that litigation hold notices are not discoverable.  Litigation hold or legal hold notices are usually internal letters, memorandum or e-mails directing members of an organization to preserve evidence in support of a litigation hold implemented by the organization related to an event that has triggered the duty to preserve evidence.  Two reasons exist for protecting the production of litigation hold notices.  One, most notices are issued by an attorney or at the direction of an attorney and contain attorney-client privileged communications or constitute attorney-work product. Two, at least one court has held that disclosure of litigation hold notices “could dissuade other businesses from such instructions in the event of litigation.”  Gibson v. Ford Motor Co., 510 F.Supp.2d 1116, 1123 (N.D. Ga. 2007). 

In certain circumstances, however, litigation hold notices are discoverable.  As a result, it is wise to craft notices with the idea that some day they may be read by a judge or an opponent.  The case Major Tours v. Colorel, 2009 U.S. Dist. LEXIS 68128 (DNJ Aug. 4, 2009), is an example of the circumstances that will lead a court to order the production of litigation hold letters.  The case contains a good overview of existing law related to the disclosure of litigation hold letters.  The case also tells a cautionary tale of things to avoid when implementing litigation holds and conducting 30(b)(6) depositions in support of  litigation holds.

Court Orders Hearing to Determine Whether an Organization Has a Duty To Preserve Disaster Recovery Back Up Tapes Pursuant to The Zubulake Exception

Forest Laboratories, Inc. v. Caraco Pharmaceutical Laboratories, Ltd. et al., 2009 WL 998402 (ED Mich. 4/14/09) (failure to preserve backup tapes post trigger event causes court to hold a hearing to determine if sanctions should be issued) (sanction decision reserved pending results of hearing.)

This is a patent infringement lawsuit. The parties are engaged in a small handful of patent lawsuits in various jurisdictions. This case relates to Caraco’s alleged infringement of a patent for escitalopram oxalate drug.

This is a must read decision. The court’s decision specifically analyzes the duty to preserve back up tapes, trigger events, the scope of the duty to preserve, accessible v. inaccessible data, whether “disaster recovery” back up tapes should be preserved, and circumstances requiring the preservation of disaster recovery back up tapes. Also of interest, testimony was submitted from defendants’ “spoliation expert.” Ultimately the court ruled that a hearing will be held to determine specifically whether: “(1) ‘the information contained on [the back up] tapes’ is ‘otherwise available,’ (2) the alleged spoliator can ‘identify where particular employee documents are stored on [the] backup tapes,’ and (3) the tapes ‘stor[e] the documents of ‘key players' to the ... litigation.’” If the moving party is able to establish these three elements, then the court will continue the hearing in a second phase to determine culpability and relevance.

The court first held that spoliation sanctions are appropriate if the moving party can establish 1) a duty to preserve evidence existed, 2) that records were destroyed with a “culpable state of mind” and 3) that the destroyed evidence was relevant. It is important to point out that the court held that the negligent destruction of evidence may provide the requisite culpable state of mind to permit spoliation sanctions.

Following the elements of spoliation the court first analyzed the duty to preserve. A party can not be sanctioned for spoliation if no duty to preserve exists at the time of destruction. The court held, therefore, that the “first step in the analysis is to determine the ‘trigger date’ or the ‘the date a party is put on notice that it has a duty to preserve evidence. Any destruction of potentially relevant evidence that occurs before the trigger date would be harmless, since the party was unaware of a need to safeguard evidence. The destruction of documents and evidence after the trigger date, however, is not allowed.” (Citations omitted).

Defendants argued that plaintiff in this case should have known that litigation was inevitable in the early 1990s. Defendants, however, failed to submit evidence showing that plaintiff knew or should have known that litigation was anticipated. Plaintiff acknowledged that the latest date triggering the duty to preserve was in September of 2003. Defendants also argued that the latest date triggering the duty to preserve was in September of 2003. 

Despite this apparent agreement on the latest date of the trigger event, the court held that the duty to preserve evidence was triggered in August of 2003, when a competing patent application was filed. “It was at this time that plaintiffs had a duty to preserve all relevant evidence concerning the patent for use in imminent litigation with a competitor and in any ‘anticipated litigation’ such as the present patent infringement case. As a result, the court held that any pre-August of 2003 destruction of relevant evidence was harmless and not subject to sanctions. Post-August of 2003 destruction, however, is potentially sanctionable. In an important footnote (no. 2) the court said that a rule requiring large corporations to preserve evidence when litigation was merely possible would be crippling.

Plaintiffs admitted that they did not halt all recycling of back up tapes until May 2005 (nearly two years after the trigger event). Because of the failure to preserve back up tapes the court continued its analysis.

Without describing its reasoning the court held that potentially relevant evidence was destroyed. The court next relied on the now famous Zubulake v. UBS Warburg decision to analyze whether allegedly inaccessible back up tapes are of a class of evidence that must be preserved pursuant to a litigation hold. In Zubulake, the court held that “[a]s a general rule [a] litigation hold does not apply to inaccessible back up tapes (e.g., those typically maintained solely for the purpose of disaster recovery), which may continue to be recycled on the schedule set forth in the company’s policy. On the other hand, if back up tapes are accessible (i.e. actively used for information retrieval), then such tapes would likely be subject to a litigation hold.”

Plaintiff argued that the back up tapes were, in fact, used solely by the corporation for disaster recovery, citing to testimony from its vice president of information technology. Plaintiff’s also argued that defendants’ “spoliation expert” testified to a definition of disaster recovery back up tapes consistent with plaintiff’s definition. In response defendants failed to offer any evidence that plaintiff was accessing its back up tapes. As a result the court held that the back up tapes that were destroyed were inaccessible. 

The court’s finding that the back up tapes were inaccessible did not end its analysis. The court went on to describe the “Zubulake exception.” The court held that the Zubulake exception requires preservation of all back up tapes storing documents of “key players" to the litigation or anticipated litigation, if a company can identify where particular employee documents are stored on back up tapes and the information on the back up tapes is not otherwise available.

The court fashioned a three part test for the Zubulake exception: “First, the alleged spoliator must be able to ‘identify where particular employee documents are stored on [the] backup tapes.’ Second, the tapes must ‘stor[e] the documents of ‘key players' to the ... litigation.’ Third, ‘the information contained on [the] tapes’ must not be ‘otherwise available.’  The court concluded that this test was not sufficiently addressed by the parties and therefore ordered a hearing where both sides are to present evidence on the Zubulake exception.

Next the court tackled the second spoliation element: “culpable state of mind.” The court held that a spoliator can be sanctioned for merely failing to preserve evidence, because once the duty to preserve attaches any destruction of evidence is, at a minimum, negligence. Spoliation sanctions are appropriate for negligent destruction if the moving party can demonstrate that the evidence destroyed was relevant to the litigation. The court also held that the moving party need not prove relevance, if the destruction involved bad faith (i.e. intentional destruction) or gross negligence. The court held that it will hear evidence of culpable state of mind only if the three elements of the Zubulake exception are demonstrated at the hearing.

Rounding out its analysis, the court addressed relevance. The court held that “some evidence” of negligence must be introduced by defendants.  Defendants must show that the evidence destroyed was of the type that would have naturally been introduced into evidence. The court noted that defendants should not be held to too strict a standard, “because doing so would subvert the... purposes of the adverse inference, and would allow parties who have... destroyed evidence to profit from that destruction.

We will keep an eye out for the results of the hearing.  To download a copy of the decision click here: Download Forest Laboratories v. Caraco Pharmaceutical laboratories 4-14-09

Pre-Litigation EEOC Filing Deemed Trigger Event - Adverse Inference Jury Instruction Request Denied Despite Destruction

Jade Society v. Port Auth. of NY & NJ, 2009 WL 577665, (SDNY 3/5/09) (pre-litigation duty to preserve triggered on date "EEOC charge was served upon the Port Authority.")

 

In this mater, the court held that the Port Authority had a duty to preserve evidence triggered by the filing of EEOC complaints by the various plaintiffs.  Plaintiffs argued that the Port Authority should be sanctioned for failing to implement a legal hold and failing to preserve performance evaluations that were destroyed.  The Port Authority offered a number of inconsistent excuses including that files were destroyed in the 9-11 attack on the World Trade Center.  The court held that the destruction was merely negligence, and did not warrant an adverse inference charge.  No other sanctions were discussed and the plaintiffs' motion was denied.  For a copy of the opinion click here: http://legalholds.typepad.com/files/trigger-event---jade-soc-v-port-authority-3-5-09-1.pdf.