A recent federal court decision provides a roadmap on the steps in-house counsel must take in order to avoid the risk of sanctions for spoliation of electronic documents.

In Day v. LSI Corp., 2012 U.S. Dist. LEXIS 180319 (D. Ariz. December 20, 2012), the court ruled that a company lawyer acted with a “culpable mind” by failing to properly oversee the company’s efforts to preserve and collect electronic documents. The court ultimately sanctioned the company by awarding partial summary judgment to the plaintiff and by imposing certain adverse inferences and monetary sanctions against the defendant.

The underlying lawsuit was brought against the company (“LSI”) by a former executive (“Day”). Day alleged that prior to leaving IBM to work for LSI in 2008, LSI made certain promises regarding his title, compensation and stock options. Day complained that after joining LSI, the company failed to give him the stock options and promotion that he was promised. According to Day, he was harassed and humiliated for months at LSI, and he was ultimately constructively terminated in October 2010 following racial slurs being made by his new supervisor.

Day’s lawyer sent a demand letter to LSI in January 2011, putting LSI on notice of Day’s legal claims. Upon receipt of the letter, in-house counsel for LSI (“Bento”) issued litigation hold notices to three LSI employees. Several days later, after reviewing Day’s personnel file, Bento issued litigation hold notices to two additional LSI employees.

After issuing the litigation hold notices, Bento instructed the company’s IT staff to preserve and collect electronically stored-information (“ESI”) on the company’s computer systems. During his deposition, Bento testified that he orally instructed LSI’s IT staff to search and collect relevant ESI anywhere that it could be stored within the company. However, in conflict with Bento’s testimony, LSI’s IT representative testified at his deposition that he was instructed to look for ESI only in limited places.

Furthermore, while the litigation hold notice did go to Day’s last supervisor, Bento did not send a litigation hold notice to Day’s initial supervisor (“Skelton”). Bento testified that Day’s legal claims arose after the time-period in which Skelton was in charge of Day. According to Bento, he was unaware that Skelton had potentially relevant documents and information until Skelton was named by Day as a witness as part of Day’s initial disclosures in July 2011.

After he learned that Skelton was a potential custodian of documents in July, Bento attempted to locate and collect ESI from Skelton. However, Skelton’s business unit had been sold off two months prior, and Skelton’s ESI had been purged from LSI. Accordingly, LSI was unable to produce the Skelton documents sought by Day in discovery. In December 2011, Day filed a Motion for Sanctions against LSI in light of the company’s failure to produce the Skelton documents.

Unlike in other spoliation of evidence cases, in this case, Bento did timely issue litigation hold notices to five custodians, and he did confer with the IT department to preserve relevant ESI. Nevertheless, the court granted Day’s Motion for Sanctions against LSI. The court determined that Bento had a “culpable mind” because:

  1. He should have known from his review of Day’s personnel file that Skelton was a witness with potentially relevant information (and thus Skelton should have received a litigation hold in January 2011);
  2. LSI’s purging of the Skelton documents did not comply with LSI’s own document retention policy; and
  3. Bento could not plausibly disclaim knowledge of Skelton as a potential custodian because LSI relied upon an affidavit from Skelton to oppose Day’s Motion for Summary Judgment against LSI.

Accordingly, this case offers several lessons for in-house counsel in the position of overseeing the preservation and collection of ESI during a lawsuit:

  1. When issuing a litigation hold notice, in-house counsel must carefully consider which custodians to include and which custodians to exclude. Counsel will be judged on a “reasonableness” standard. Nobody is expected to be omniscient about which custodians have, and which custodians do not have, relevant information. However, at the very least, counsel should interview key custodians to learn the names of other potential witnesses who should be added to the litigation hold list.
  2. The duty to preserve evidence is much broader than the duty to produce relevant documents. Issuing a litigation hold is not a one-time event. It is an ongoing exercise that must be periodically revisited to determine if the custodians on litigation hold should remain on hold and if new custodians should be added.
  3. Entities attempting to self-collect their own ESI must exercise caution. Oftentimes, in-house lawyers prefer to have the company’s IT department preserve and collect ESI rather than incur the expense of retaining an outside e-discovery vendor. While this may be appropriate in some cases, companies must be aware of the potential risks of this approach.
    1. One potential risk is that the company will fail to properly document the steps that it took to preserve and collect ESI. Had Bento prepared written instructions to the IT staff, he could have avoided the conflict in the deposition testimony about the scope of what was supposed to be preserved and collected.
    2. A  related risk is that in-house counsel may not have a thorough understanding of all of the locations of ESI at the company. Potentially relevant ESI may be located on company servers, shared drives, desktop hard drives, smartphones, cloud servers, text messages, thumb drives, personal email accounts, and on social media. In-house counsel must be careful to make reasonable inquiries into where potentially relevant ESI may be located.
    3. Another risk is that the company’s IT staff may have an incomplete understanding of the company’s legal obligations, and they may inadvertently take shortcuts or fail to preserve evidence in a forensically sound manner.

Accordingly, while it is understandable that in-house counsel often prefer to avoid the expenses associated with retaining an experienced e-discovery vendor, if the company intends to self-collect and preserve ESI, it must take reasonable steps to do it correctly and to record its preservation and collection efforts in writing.