Like all litigants, financial institutions face important discovery duties in every significant lawsuit. The sanctions recently levied against Samsung in its patent infringement dispute with Apple serve as a potent reminder that understanding data and document preservation requirements is imperative. 

A party has a duty to preserve all evidence, including electronic documents and data that it knows or should know is relevant to any present or future litigation.  See John B. v. Goetz, 531 F.3d 448, 459 (6th Cir. 2008).  The filing of a complaint clearly triggers the duty to preserve, although a demand letter or other pre-litigation letter can provide sufficient notice.  See Nacco Materials Handling Group, Inc. v.  Lilly Co., 278 F.R.D. 395, 402-03 (W.D. Tenn. 2011).  Although a preservation letter or court order certainly may clarify the scope of obligations, neither is required for a finding that a party was on notice of pending litigation.

Once a party has notice that litigation is reasonably anticipated, a written litigation hold notice should be issued.  See, e.g., Huntsville Golf Development, Inc. v. Brindley Construction Co., Inc., No. 1:08-00006, 2011 WL 3420602, *19-20 (M.D. Tenn. Aug. 4, 2011).  The litigation hold should be sent to all personnel who might potentially have relevant records, in addition to IT personnel who will be assisting with data preservation and collection.  The notice should (i) explicitly instruct employees that all relevant documents and communications in any form are to be preserved, (ii) provide guidance as to the nature of the potential litigation, including the relevant date range, and (iii) provide contact information for a person who can answer questions concerning the hold.  Once the hold notice has been distributed, counsel must diligently follow-up to make sure that all personnel are implementing the hold, including by requiring email receipts and sending additional notices.  

Courts have been increasingly willing to issue sanctions of escalating severity for failing to fully ensure that documents and data are preserved.  The extent of sanctions is dependent on the degree of culpable conduct, lying along a continuum from mere negligence to conduct that is willful, wanton and reckless.  See Adkins v. Wolever, 544 F.3d 650 (6th Cir. 2009).  Courts have wide leeway to impose penalties ranging from the costs of forensic examination necessary to determine the extent of spoliation and attorneys fees, all the way up to the issuance of a jury instruction to draw an adverse inference or the dismissal of claims.    

The July 25, 2012, opinion issued by Judge Grewel in Apple v. Samsung is only the most recent example of costly sanctions being issued for failure take adequate steps to avoid spoliation.  See Apple Inc. v. Samsung Electronics Co., Ltd., No. C 11-1846, 2012 WL 3042943 (N.D. Cal. July 25, 2012).  At issue was whether Samsung had properly instituted a litigation hold with respect to its proprietary “mySingle” email system.  Guidelines put in place when the mySingle system became operational in 2001 required that all emails be automatically deleted after two weeks, without exception.  Apple contended that Samsung had failed adequately to oversee email preservation, with the result being that relevant documents and emails were erased pursuant to mySingle’s two week deletion protocol even after Samsung became aware of Apple’s potential claims.   As an initial matter, the court accepted Apple’s argument that litigation was reasonably foreseeable well before Apple filed its complaint in April 2011.  In so finding, the court noted that Apple’s general counsel made a presentation to Samsung personnel on August 4, 2010, concerning Samsung’s alleged infringement of Apple patents.  Following this presentation, Samsung emailed litigation hold notices only to a handful of its employees on August 23, 2010, and failed make any other efforts to preserve documents until after Apple’s complaint was filed.  As a result, by the time discovery commenced, many key custodians had only a handful of emails that had not been automatically erased.  The court held that Samsung’s August 23 litigation hold letter was an admission that litigation was reasonably foreseeable as of that date, thus triggering Samsung’s general preservation responsibilities.  In addition, the court found that Samsung’s failure to make any effort to ensure compliance with the hold, including its failure to counteract the automatic deletion feature of mySingle, amounted to conscious disregard of its document preservation obligations.   As a consequence, the court ordered that the jury be instructed that it could presume both that relevant evidence was destroyed after the duty to preserve arose and that the lost evidence was favorable to Apple.    

Given the severe sanctions that courts have proven willing to issue for electronic discovery spoliation, having a well thought out plan for preservation of documents and data before litigation is actually looming on the horizon is essential.