Imagine this scenario: You have scrupulously followed your obligations to preserve and produce your company’s documents despite the business unit’s grousing. Plaintiff’s counsel now insists that you had an obligation to preserve — and have an obligation to produce — the documents created and maintained by the company’s marketing consultant. You confidently instruct outside counsel to refuse (thinking that this firm may not be aggressive enough to represent you). After all, this is a third party, and you will never be ordered to gather and produce their documents.
As outside counsel warned, plaintiff moves to compel and seeks sanctions for spoliation. In this hypothetical world, your judge is an e-discovery maven. She believes that the American justice system is founded on broad-ranging disclosure, and the failure to issue a proper litigation hold notice to all key players is gross negligence per se.
Much to your surprise, not only do you lose the motion, but the judge sanctions the company because the marketing consultant did not preserve its documents. It failed to do so although it knew there were widespread complaints about the product in question (part of the marketing company’s mandate was to deal with these complaints), and the lawsuit against your company was widely publicized.
Is this wild fiction in a perverse alternative universe? Not necessarily. As we will discuss in this six-part series, a company’s obligation to notify a third party to preserve and even to produce documents will depend on two things: the jurisdiction in which the litigation takes place and whether the company “controls” the third party’s documents. This first segment will discuss the source of the obligation, and the ensuing segments will explain how and why courts are concluding that companies may be on the hook for third party discovery.
The duty to preserve and produce documents
The obligation to produce documents is found in Federal Rule of Civil Procedure 34(a), which provides:
“A party may serve on any other party a request … to produce … items in the responding party’s possession, custody, or control.”
A company’s duty to preserve documents is generally broader than the obligation to produce. Per the Sedona Conference, document preservation “involves reasonable and good faith efforts, taken as soon as is practicable and applied proportionately, to identify and, as necessary, notify persons likely to have relevant information to preserve the information.”
With the advent of e-discovery, the obligation to preserve documents can impose burdensome costs on a party that creates massive volumes of documents: The company must identify those custodians who are likely to have relevant information to ensure that their hard copy and electronic files are preserved. The company, along with the IT department, must also ensure that any automatic deletion or destruction policies affecting potentially relevant custodians, databases or files are suspended.
Large companies are all too familiar with the duty to preserve documents maintained by employees in the locations in which the company operates. As the use of “bring your own device” policies proliferate and employees spend more time on social media, businesses are also beginning to think about the need to preserve information that may be located on employees’ handheld devices. Companies are typically less attuned, however, to the need to preserve — and potentially produce — items in the hands of third party consultants, contractors or vendors. Recently, a number of courts have held that the duty to preserve is coterminous with the duty to produce, and imposes an obligation to ensure that information in a company’s custody or control is preserved, even if that information is currently in the possession of a third party. This was the case in Pine Top Receivables of Ill., LLC v. Banco De Seguros Del Estado (ordering plaintiff to ensure preservation of relevant records in the hands of third party where agreement gave plaintiff the right to access those records); Haskins v. First Am. Title Ins. Co. (“Because First American’s contractual language establishes that it has possession, custody, or control over relevant documents in the physical possession of its independent title agents, First American’s litigation hold must include these documents.”); andGenOn Mid-Atlantic LLC v. Stone & Webster, Inc. (finding that GenOn was negligent because it “did not cause [its litigation consultant] to issue a litigation hold letter to its personnel.”)
Whether a company will be obligated to preserve and/or produce its consultants’ documents will depend on how the jurisdiction in which the litigation is taking place defines the word “control.” As we will discuss in the next installment, to the extent that the jurisdiction defines “control” broadly, the company is at risk if it does not take steps to preserve relevant third party documents.