While the proliferation of electronically stored information (“ESI”) may be recent, the common-law duty to preserve evidence in anticipation of potential litigation is a familiar challenge to litigants and potential litigants. ESI, in all its various forms, has simply compounded the pitfalls and created a new set of hurdles to surmount in the preservation of relevant evidence for litigation discovery. This article will first address the duty parties and potential parties have to preserve ESI. It will then survey relevant, precautionary examples from case law, drawing forth suggested procedures that can be implemented in order to avoid making mistakes and possibly incurring sanctions.
The Duty to Preserve
A party is under the duty to preserve evidence upon the “reasonable anticipation of litigation.” For example, the duty to preserve may be triggered upon the filing of a complaint, the receipt of a “Cease & Desist” letter, a discovery request, or a production order, or if a party is under a contract or a special relationship. At that point, a party “must suspend its routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents.” Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003).
If a party fails to preserve relevant discovery, it may be liable for spoliation of evidence. “Spoliation is the destruction or significant alteration of evidence, or the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation.” West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir. 1999). It is within the district court’s discretion to grant sanctions for spoliation. Those sanctions may range from costs and attorney’s fees, to restrictions on the use of evidence or testimony at trial, to charging the jury with an adverse inference instruction, to the dismissal of a plaintiff’s complaint or the award of a default judgment against a defendant. Courts have “broad discretion in crafting a proper sanction for spoliation.” Adkins v. Wolever, 554 F.3d 650, 652 (6th Cir. 2009). Accordingly, some courts have been creative in crafting sanctions suited to the particular case. For example, a judge in the District of Delaware recently declared a patent unenforceable as a result of document spoliation. See Micron Tech., Inc. v. Rambus Inc., 255 F.R.D. 135 (D. Del. Jan. 9, 2009). Whatever the sanction imposed, the Second Circuit Court of Appeals has cautioned that it “should be molded to serve the prophylactic, punitive, and remedial rationales underlying the spoliation doctrine.” West, 167 F.3d at 779. Specifically, the court instructed that any sanction imposed should (1) deter spoliation; (2) place the risk of an erroneous judgment on the party who wrongfully created the risk; and (3) restore the prejudiced party to the same position he would have been in absent the wrongful destruction of evidence by the opposing party. See id.
The Safe Harbor Rule
Not all allegations of spoliation will result in sanctions. A party who, in good faith, did not anticipate the litigation and failed to preserve relevant evidence is protected by the “safe harbor” of Federal Rule of Civil Procedure 37(e). This rule states that a court “may not impose sanctions . . . on a party for failing to provide [ESI] lost as a result of the routine, good-faith operation of an electronic information system.” Fed. R. Civ. P. 37(e) (emphasis supplied).
A case arising out of the district court in Kansas provides a good example of the application of the safe harbor rule. In Oxford House, Inc. v. City of Topeka, 2007 WL 1246200 (D. Kan. Apr. 27, 2007), the court ruled that spoliation sanctions were not appropriate where the defendant destroyed ESI as a matter of routine practice before receiving notice of possible litigation. In response to the plaintiff’s motion to compel, the defendant submitted evidence that the ESI plaintiff sought had been erased and overwritten automatically by the defendant’s archiving system. The court credited the defendant’s testimony that the ESI sought no longer existed and was destroyed prior to notice of the litigation as part of the routine rotation of backup tapes. Consequently, the court found that at the time the data was destroyed, the defendant did not have a duty to preserve. Specifically, because the relevant backup tapes were used for disaster recovery, the defendant did not have a duty to retain or recover their contents prior to receipt of the plaintiffs’ demand letter, which served as notice of the pending litigation. Id. at **3-4. “When parties put a litigation hold policy on destruction of documents in response to pending litigation, that litigation hold does not apply to inaccessible backup 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.” Id. at *4 (internal citation and quotation marks omitted).
Likewise, email deleted in good faith in the normal course of business may come within the protection of Rule 37(e). In Christian v. Central Record Serv., 2007 WL 2684837 (W.D. Ark. Sept. 11, 2007), the court credited defendant’s claim that it did not have any of the specific emails plaintiff sought because defendant had deleted them in the normal course of business. The court also accepted the defendant’s assertion that, subsequent to plaintiff’s discovery request, it had “made an effort to retrieve . . . the Plaintiff’s requested emails.” Id. at *1. Ordinarily, a party not facing, or not having reason to believe it will face, litigation is presumed to act in good faith when it fails to preserve ESI. As one New York court has observed, “[i]n the absence of pending litigation or notice of a specific claim, a defendant should not be sanctioned for discarding items in good faith and pursuant to its normal business practices.” Brown v. Parfums Jacques Bogart S.A., 824 N.Y.S.2d 761, 2006 WL 2085478, at *4 (Sup. Ct. N.Y. Cty. May 31, 2006).
Reasonable Anticipation of Litigation
Determining whether one should reasonably anticipate litigation is essential, as important retention decisions must be timely made due to the fact that IT systems are often set to release ESI at set intervals, after which data may be unrecoverable. In fact, the 2006 Advisory Committee Note to Fed. R. Civ. P. 37(e), originally codified as Fed. R. Civ. P. 37(f), cautioned that “[g]ood faith in the routine operation of an information system may involve a party’s intervention to modify or suspend certain features of that routine operation to prevent the loss of information, if that information is subject to a preservation obligation.” Moreover, the Advisory Committee cautioned that deletion via routine operations cannot be asserted as an excuse for the failure to preserve relevant evidence after notice of pending litigation is received. “The good faith requirement of Rule 37([e]) means that a party is not permitted to exploit the routine operation of an information system to thwart discovery obligations by allowing that operation to continue in order to destroy specific stored information that it is required to preserve.” Id.
Recent Case Law
If a party fails to preserve or actively destroys relevant ESI after receiving notice of the litigation, pending or otherwise, the party may face sanctions for spoliation. The following is a brief survey of relevant case law, intended to provide guidance on the measures that should be taken — and the actions to be avoided — in order to ensure that proper ESI preservation occurs and to protect against spoliation sanctions.
In Padgett v. City of Monte Sereno, 2007 WL 878575, at *1 (N.D.Cal. Mar. 20, 2007), a court issued monetary sanctions against a defendant for the destruction of a laptop’s hard drive, on which relevant ESI existed. Plaintiff had sought to inspect defendant-city’s “computers, printers, and backup tapes,” a request that had been denied because the burden it imposed outweighed the potential benefit. Id. However, the court ordered the defendant to “continue to preserve everything.” The City requested that the computers remain in use, representing that “nothing [would be] deleted.” Some time later, one of the laptops, on which relevant ESI was contained, “crashed” and the hard drive was replaced and discarded. Id. at *2. Although the hard drive was later “found,” the court held that defendant had caused delay and expense by discarding the laptop when defendant had notice of the laptop’s potential relevance. Id. at *4. The court reserved judgment as to whether it would issue terminating sanctions, but ordered monetary sanctions to cover (i) plaintiff’s attorney fees and traveling expenses relating to the sanctions motion; (ii) fees for plaintiff’s expert; and (iii) fees for the court-appointed special master managing the discovery.
An example of the consequences that may result from a party’s failure to issue and follow up on a document-hold memorandum at the inception of litigation can be found in United Medical Supply v. United States, 77 Fed. Cl. 257 (Fed Cl. 2007). In that case, upon notice of an adversarial proceeding in bankruptcy court, the government’s general counsel emailed what in essence was a document-hold memorandum to various facilities that might be in possession of evidence relating to the proceeding. Id. at 259-60. The email read as follows:
Because of current litigation proceedings, I have been asked to contact all customers and request that all records and correspondence . . . be saved with respect to [plaintiff]. I will, at some point, make arrangements to have these documents sent out to be copied. Some of you may be asked to talk to the Department of Justice attorney concerning [plaintiff]. Your cooperation is greatly appreciated.
Id. Because counsel failed to follow up with the facilities, he did not learn that he had used an erroneous distribution list and that his email had not reached a number of the facilities. Id. at 260. Counsel sent out two more emails of a similar nature, to which he received no response and did not follow up to ensure receipt. Id. Due to counsel’s lack of diligence, a number of boxes of evidence were destroyed, either by facilities that had not received the hold email or by facilities that did not understand the nature of the email and its instructions. Id. at 261. Finding that defendant had spoliated potentially relevant evidence, the Court of Federal Claims imposed two forms of sanction on the government for its failure to comply with discovery requirements: (1) the government would not be permitted to cross-examine plaintiff’s expert, who would testify about gaps in the record, and (2) the government was required to reimburse the plaintiff for discovery costs and attorney fees. Id. at 275-76. The court found these sanctions were appropriate in light of the government’s failure, for several years, to maintain relevant records after being on notice of plaintiff’s claim, and for its misleading the court about its efforts to locate responsive documents. By preventing the government from cross-examining plaintiff’s expert, the court stated its intent to prevent the government-defendant from “benefiting from the destruction of the records and from using its experts to wield the superior factual knowledge of the contents of the destroyed records likely possessed by its employees.” Id. at 275.
The failure to preserve relevant ESI after notice of the pending litigation also can result in an adverse inference instruction at trial. Recently, in Connor v. Sun Trust, 546 F. Supp. 2d 1360 (N.D. Ga. 2008), a Georgia federal district court imposed the sanction of an adverse inference instruction against the defendant when it failed to preserve and produce email messages relating to the elimination of plaintiff’s employment following her adoption leave under the Family Medical Leave Act. Plaintiff learned of relevant emails through other means and brought a motion for spoliation sanctions against the defendant, which had not preserved or produced emails directly relevant to the litigation despite notice of plaintiff’s FLMA claim. Id. at 1366. Although an email instructing on the preservation of relevant ESI was distributed on February 22, 2007, email directly related to the litigation, circulated ten days earlier on February 12, was not preserved or produced. Id. at 1367. Full compliance with the document-hold email required a change in the email system, as the server automatically deleted emails that were more than thirty days old and backup tapes were retained for only seven to ten days and then overwritten. Id. Even without that change, the court found that the defendant could have retrieved and preserved the email under the present email system in response to the litigation-hold email due to the close proximity between the preservation email and the distribution of the February 12 email. Consequently, the court held that the defendant was “at least minimally culpable for the failure to disclose the February 12 email,” and that “spoliation of evidence [had] occurred and . . . sanctions [were] warranted. Id. at 1377.
Finally, the court may punish spoliation by precluding a party from asserting or challenging a claim or defense, where the spoliated evidence might have aided the other side. For example, in a recent Southern District opinion, Arista Records LLC v. Usenet.com, Inc., 2009 WL 185992 (S.D.N.Y. Jan. 26, 2009), Magistrate Judge Katz held that the defendants’ failure to preserve transient information after notice of litigation was spoliation and subject to sanctions. In Judge Katz’s opinion, “transient information” was defined as data that flowed through [defendants’] server at any given moment, “pushing out” old articles to make way for new. See id. at *5. Because the spoliated evidence was necessary for plaintiffs to establish the volume of defendants’ infringement of plaintiffs’ copyrighted material, the court held that defendants were precluded “from challenging any statistical evidence of infringement via [defendants’] service presented by plaintiffs on the grounds that it [did] not fairly and accurately reflect pre-spoliation usage of defendants’ service.” Id. at *26 (internal citation and quotation marks omitted). Thus, even transient information, if not properly preserved, may subject a party to sanctions of varying application.
As demonstrated above, courts vary in the sanctions they impose for the failure to preserve documents. The severity of the sanction is often based on the level of egregiousness a party demonstrated in failing to implement or enforce a preservation policy and the nature, scope, and quantity of ESI lost in the ineffective or unimplemented retention system.