New England Litigation

Recent Maine Decision Provides Guidance on What's Required When a Party Cannot Find Responsive Documents

Magistrate Judge Rich issued an interesting opinion late last year that provided guidance on the specificity that a third-party must provide to support its assertion that it has been unable to locate documents in response to a subpoena. 

In Campbell v. First Am. Title Ins. Co., Civil Action No. 08-311-P-S (D. Me. Nov. 18, 2009), the plaintiff served a subpoena on third-party T&M Mortgage Solutions, Inc. (“T&M”), seeking production of mortgage and loan files.  T&M failed to produce anything by the designated return date, and so the plaintiff moved for an order requiring T&M to show cause why it should not be held in contempt.  In response, T&M filed two affidavits from its employees that stated, among other things, that one of the employees personally searched through the company's closed files in a storage area and was unable to locate the processing file that would have contained the subpoenaed documents, that they were unable to locate the processing file pertaining to the mortgage in question, that they had no reason to believe that the file was destroyed, and that they were unaware of any reason why they were unable to locate the processing file.  In other words, the file should have existed, but they were unable to find it.

Quoting a California district court case, Judge Rich stated that “[o]rdinarily, a sworn statement that a party has no more documents in its possession, custody or control is sufficient to satisfy the party’s obligation to respond to a request for production of documents[,] ... [i]f the documents sought are known to have been in the party’s possession, custody, or control, it would not suffice for that party to simply disavow their existence without adequately explaining the disposition of the documents.”  Id. at 4.  The court agreed with the plaintiff that the "affidavits are insufficient to assure First American, or the court, that reasonable efforts have been made to comply with the subpoena, including by way of ... a thorough search throughout T&M’s premises for documents that T&M effectively concedes should have been maintained within its files."  Id. at 4-5.

The court directed T&M to undertake a new search and, if it still could not find the documents, to "submit verified declarations (i) detailing the time(s), date(s), and specific location(s) of its search for responsive documents; (ii) identifying the person(s) who conducted the search; and (iii) stating whether and when T&M has contacted the individual, known to T&M, who closed the plaintiffs’ October 2004 loan to request a copy of the documents."  Id. at 5.

The decision provides a useful reminder on the need for details to back up a claim that documents sought in discovery are unavailable.  Presumably the same degree of specificity would be required where it is a party that has been unable to find the responsive documents, as well.

When Does a Duty to Preserve Documents End? Not Necessarily When the Litigation Itself Ends.

So by now everyone is familiar with the concept of preservation orders or document holds.  Typically the focus is on when such a hold needs to be put in place and, when litigation later arises, whether the hold was implemented soon enough.

But the flip side of document preservation should not be ignored, either.  Just as important as when to start preserving documents is the question of when an entity can stop preserving them and revert to its ordinary document retention plan.

If you haven't seen it, the issue was addressed in In re Napster, Inc. Copyright Litig., 462 F. Supp. 2d 1060 (N.D. Cal. 2006).  In that case, one of the copyright infringement actions brought against Napster, Hummer Winblad Venture Partners ("Hummer") was an investor in Napster.  In July 2000, a lawsuit was filed against Hummer and other Napster investors related to the copyright infringement issues.  That lawsuit was dismissed in July 2001, but litigation against Napster itself continued.  The next month, in August 2001, counsel for the Napster plaintiffs sent Hummer another letter threatening litigation, and in fact a new lawsuit eventually was filed against Hummer in April 2003. 

At issue was whether Hummer was entitled to cease its document preservation policies once the first lawsuit against it ended in July 2001, and not re institute a document hold until the commencement of the new lawsuit against it in April 2003.  The plaintiffs argued that there should have been a hold in place since the inception of Hummer's investment in Napster in May 2000, and that that hold should have remained in place ever since.  See id. at 1067.

The court held that Hummer's preservation obligation arose in June 2000, shortly before the first suit was filed against it, when Hummer first became aware of the possibility of litigation against it.  See id. at 1069. 

The court also rejected Hummer's argument that its preservation obligations ended once the first lawsuit was dismissed in July 2001.  As the court explained:

Hummer should have remained on notice that litigation against them was probable even after the [first] suit was dismissed.  Hummer had already been sued once, and there were several indicators that they would be sued again.  Even after Napster sought bankruptcy protection and ceased being a party to any lawsuit, the litigation continued, with plaintiffs seeking recovery from the still solvent entities that invested in Napster before it probability of litigation against Hummer during the time period following the dismissal of the [first] lawsuit, and that John Hummer was aware of this probability.  Hummer should have remained on notice that litigation against them was probable even after the [first] suit was dismissed. Hummer had already been sued once, and there were several indicators that they would be sued again.  Even after Napster sought bankruptcy protection and ceased being a party to any lawsuit, the litigation continued, with plaintiffs seeking recovery from the still solvent entities that invested in Napster before it ceased operations.  As a multimillion dollar investor in Napster, Hummer should have anticipated that it would be targeted.

Id. at 1070.  Accordingly, the court held that "Hummer had a continuing duty to preserve documents after the [first] lawsuit was dismissed in July 2001."  Id.

After concluding that it was difficult to determine whether Hummer's action "resulted from willful deception or simple incompetence," id.at 1071, the court declined to enter default against Hummer, but did award fees, grant a request for an adverse inference instruction and agreed to preclude Hummer from contesting certain issues at summary judgment or trial.  See id. at 1078.

Like the trigger for starting to preserve documents, an entity's duty to continue preservation efforts may continue even after active litigation ends.

Should Lawyers Have Their Heads in the Clouds?

So there's been a lot of talk recently about "cloud computing."  What is "cloud computing?"  Essentially it refers to the increased practice of some companies to outsource the provision of hardware, software and human resources to deliver, store and manage digital data offsite.  The idea is that outside service providers can achieve economies of scale, thereby lowering the cost for providing these types of services to their customers.

Not surprisingly, "cloud computing" raises a whole host of challenging electronic discovery issues.  With "cloud computing," a company may be accessing data storage on computers owned and operated by other entities located anywhere in the world.  Although the company likely continues to "own" its own data stored on those computers, there may be issues regarding the company's ability to access information about that data, like information about when the data has been accessed and by whom.  That sort of information can be a critical component of e-discovery.

Also, what about preservation?  I've written before about the importance of litigation holds and effective document retention plans.  But a company's ability effectively to preserve data hosted on computers owned by another entity halfway around the globe may be difficult to coordinate.  Even production of data on those offsite computers likely will add numerous challenges. 

In-house counsel at large companies who either already are outsourcing some of these data functions, or who anticipate doing so in the future, would be well advised to start thinking about some of these logistical issues now.  Ideally they would be addressed in the service agreements between the company and the "cloud computing" entity.

If you are interested in reading more about some of these challenges, here are a couple of links to recent articles on law.com and infoworld.com.

The All Important Litigation Hold

Another court issued a reminder recently on the importance of implementing a litigation hold at the onset of a case.

In Acorn  v. County of Nassau, 2009 WL 605859 (E.D.N.Y. Mar. 9, 2009) (click here), the plaintiff sued Nassau County.  During discovery, did not instruct any of the departments named in the complaint to preserve documents until roughly 15 months after it was served with the complaint.  The County further informed the plaintiff in response to other electronic discovery requests that it “does not possess either the resources or the technology to locate and access non-e-mail electronic documents created by such programs as Word, Excel or PowerPoint.”  Id. at *1.  The plaintiff then sought sanctions, arguing that electronic documents and evidence had not been preserved, so the plaintiff was entitled to sanctions including an adverse inference instruction.

In response, the County claimed that the county attorney immediately provided a copy of the complaint to the county executive and imposed a "verbal hold" on two county departments.  There was no evidence that the county attorney, or anyone else, or anyone else in her office, conducted any follow-up to ensure that the "verbal hold" instructions were being followed.  A formal litigation hold was not implemented until 15 months after the complaint was served on the County.

The County sought to explain its failure to implement a formal hold for 15 months by pointing to the motion to dismiss that it had filed, and its position that it was not until the motion to dismiss was denied and discovery commenced that it was able to identify the key players.

The court found the County's argument unpersuasive.  "The court cannot credit the County's argument that it was unable to glean from the complaint which particular agencies would likely possess discoverable information. If, as the County alleges, Ms. Miller was able to perform such an analysis leading to her “verbal hold” on several departments, then there is no apparent reason why the same analysis could not have been used to prevent the routine destruction of documents in those departments."  Id.at *3.  As the court concluded, "No matter how it is dressed up or characterized-as confusion or inconvenience or indifference or incompetence-the County's position is that it had no obligation to preserve discoverable materials until after the motionto dismiss was decided. This position is indefensible and is in direct contradiction with clearly established law."  Id. at *3.

The court further concluded that the County's failure to implement a legal hold at the outset of litigation amounted to gross negligence, sufficient to establish the culpability prong of the adverse inference test.

Luckily for the County, the court concluded that the plaintiff failed to establish sufficient relevance of the destroyed documents to meet the third step of the adverse inference inquiry, essentially concluding that there was no way to know whether there was anything of value in what was destroyed, and based on the limited value of the electronic documents that were produced, the likelihood of destruction of relevant materials was minimal.

"While it is certainly theoretically possible that some electronic data may have been deleted, there is no reason to believe that those materials would have provided any additional support for plaintiffs' claims. The court finds that the plaintiffs have not sufficiently demonstrated that any destroyed or lost mate-rials would have been favorable to them, and thus, to the extent plaintiffs' motion seeks an adverse inference instruction, it is denied."  Id. at *6.

Accordingly, the court awarded the plaintiff costs, but not an adverse inference instruction.

Regarding the County's prior statement that it lacked the resources to search for electronic documents beyond email, the County clarified its position to note that it actually did have the key players manually search their hard drives for responsive information.  The court disagreed with the plaintiff that those steps were insufficient.  "Plaintiffs have not provided any case law suggesting that a “manual” search of electronic files does not satisfy a party's discovery obligations."  Id. at *7.

Another Lesson on Document Retention Plans

Timing is everything.  Although it is important and useful for companies to have document retention plans in place, those plans can’t be adopted and implemented in the face of litigation as a means to destroy materials under the guise of the retention plans themselves.

That’s essentially what happened in the recent case of Micron Tech., Inc. v. Rambus, Inc., 2009 WL 54887 (D. Del. Jan. 9, 2009) (click here).  In that patent infringement case, the defendant and counter-claim plaintiff orchestrated a litigation strategy over the validity of various patents.  In anticipation of that litigation, the company adopted for the first time a document retention plan under which documents of various categories and ages would be purged from the company’s files.  Many of those categories of documents including materials that likely would have been deemed relevant in the anticipated litigation that the company itself was orchestrating, including any documents that questioned the patentability of Rambus’ inventions.  The company held several “shred days” in which hundreds of boxes of documents were destroyed.  It was not until much later, once litigation essentially commenced, that a litigation hold was put in place supposedly stopping the ongoing destruction of records.  But by then, countless records already had been destroyed.

The court had little trouble finding that Rambus’ implementation of its document retention plan, in the face of anticipated litigation that Rambus itself was orchestrating, was done in bad faith.  The court found that the plaintiff suffered substantial prejudice by the destruction of relevant documents, and that the spoliation was both extensive and intentional.  As a result, the court determined that lesser sanctions would be ineffective in the context of this case, and held that the only appropriate sanction was to declare the patents in question unenforceable against the plaintiff.

The result is not very surprising, given the egregious description of the company’s practices contained in the court’s opinion.

The Sometimes Impossible Task of Meeting Document Preservation Obligations

Sometimes the duty to preserve electronic data can extend to data that a party doesn't even know exists.

That was the holding in Ferron v. Search Cactus, L.L.C., 2008 WL 1902499 (S.D. Ohio Apr. 28, 2008) (click here).  In that case, the plaintiff (who was a lawyer) sued a company and some of its officers, alleging violations of an Ohio law that restricts unsolicited emails.  During discovery, the  defendants sought access to the plaintiff’s personal computer and a mirror image of plaintiff’s hard drives, in order to determine whether there was any electronic evidence suggesting that the plaintiff had solicited the emails by accessing various websites.

The plaintiff argued that he had “saved and preserved all of his commercial email since January 1, 2006,” which already had been produced, and that “no Defendant in this case has ever requested that he place a litigation hold on any other type of electronically stored information resident on his computers” until February 2008.  In spite of that, the court concluded, with little analysis, that the plaintiff’s preservation obligations extended well beyond both what he had done and what the defendants previously had requested.

The court found that the plaintiff’s document preservation efforts “do not sufficiently fulfill his duty to preserve evidence.”  Although the decision does not explain what exactly it was that the plaintiff failed to do, it appears that the court was concerned with the fact that the plaintiff had not taken steps to stop his computers from automatically overwriting data files that record details about Internet surfing.  Probably few non-IT computer users even know where such data files exist on their hard drives, how to preserve or image those files, or the effects of tampering with arcane aspects of their home computers’ operations.  So it's surprising that the court ruled that the plaintiff had breached his duty to preserve data, and that the defendants were them permitted to examine the plaintiff’s computers as a remedy for that apparent breach.

To lessen the likelihood of revealing confidential or privileged information to the defendants (remember, the plaintiff is a lawyer who used his computer for both personal and client-related business), the court set up a protocol in which the plaintiff’s forensic expert would first image the hard drives, then plaintiff would remove certain documents he believed included personal confidential information (like his bank account data), then the defendant’s forensic expert would access the hard drives and work with the plaintiff to identify and cull out data that the plaintiff contends is privileged.  According to the court, despite the fact that the defendant’s expert would be in a position to view that privileged data, he would be precluded from disclosing anything about it to the defendant – who is paying for the forensic work. 

In an attempt to minimize waiver of privilege concerns, the court sua sponte designated both sides’ experts as “officers of the court.”  The court did not explain exactly what that means, or how that designation would impact each sides’ experts going forward.  Although having the experts work together as officers of the court could be helpful in assuring that none of the data was improperly handled, it certainly would be more costly than having a neutral examiner appointed by the court (whose fees could be shared by the parties, rather than each side paying its own expert’s fees entirely for potentially duplicative work). 

Moreover, the court’s solution places at least the defendants’ expert in the awkward position of having knowledge of information that he can neither share with the party that retained him or use in any manner in forming his opinions in the case going forward, to the extent there is additional work in the case.  The court's resolution of the dispute probably raised more concerns than it answered.

Company's Policy of Deleting Sensitive Documents Does Not Result in Sanctions

In an interesting decision, a court declined to sanction a party, even though the party had a policy in place to intentionally delete sensitive emails so that they wouldn’t be discovered in any litigation.

In Oldenkamp v. United American Ins. Co., 2008 WL 4682226 (N.D. Okla. Oct. 21, 2008) (click here), the plaintiffs sued their health insurance company for denial of benefits.  The plaintiffs alleged that the defendant had failed to preserve records of telephone calls and emails.  The basis for the plaintiff’s motion was the defendant’s document preservation policy, which stated in part that

e-mail and other forms of electronic communications are potentially discoverable.... Sensitive messages should be deleted from your Inbox as soon as possible. Also, any sensitive messages you send will remain in your Sent Items folder unless deleted. After deleting messages from either of these folders, they should be purged from your Deleted Items folder as soon as possible…

The plaintiffs essentially assumed that, because that policy existed, there must have been relevant emails that were destroyed. 

The court rejected that approach, noting that there “must be some proof that relevant e-mails existed and that [defendant] destroyed them intentionally.”  Id. at *3.  “Plaintiffs must offer some evidence that relevant documents have been destroyed.”  Id.  In response, the defendant asserted that it had produced all responsive documents, and that there was no indication that any responsive emails actually had been destroyed.

Without some indication that documents actually had been destroyed, the court was unwilling to assume the worst.

Another Reminder of the Need for Adequate Document Preservation Procedures

In case anyone needs a reminder that the duty to preserve potentially relevant evidence can arise even before a lawsuit is filed, a recent decision by a magistrate judge in Keithley v. The home Store.com, Inc., Civil Action No. C-03-04447 SI (EDL) (N.D. Cal. Aug. 15, 2008) (click here), is instructive.

That case involved a patent infringement dispute concerning real estate databases.  The court found that the defendant engaged in a wide variety of forms of spoliation.  In particular, source code data for the defendants’ allegedly infringing websites was destroyed not only prior to the filing of the lawsuit, but for a period of time thereafter, as well.  The defendant also informed plaintiff and the court on several occasions that other types of documents did not exist, and never existed, when in fact roughly 480,000 such documents did exist.  The court found that the obligation to preserve data and documents arose “when a party should have known that the evidence may be relevant to future litigation,” where the future litigation is “probable, which has been held to mean more than a possibility.”  Id. at 7 (internal quotations omitted).

The court seemed particularly troubled by the lack of any formal litigation hold procedure in place.  As the court observed, the “lack of a written document retention and litigation hold policy and procedures for its implementation, including timely reminders or even a single e-mail notice to relevant employees, exemplifies Defendants’ lackadaisical attitude with respect to discovery of these important documents.”  Id. at 8-9.  As a result of the lack of any formal litigation hold, additional versions of the defendant’s source code data were lost after a catastrophic computer failure about a year after the lawsuit was filed.  The technical personnel involved did not take appropriate steps in the aftermath to minimize the loss, because they were unaware of the need to preserve the data.  “The ignorance of the technical personnel of the importance of the old source code to Defendants’ preservation obligation is not, of course, a legitimate excuse. Defendants had a duty to notify and periodically remind technical personnel of Defendants’ preservation obligation and ensure that they took adequate steps to safeguard the data. At a minimum, Defendants were reckless in their conduct…”  Id. at 15. 

Apparently one of the defendant’s employees later found a disc with some of the missing source code data on it in a drawer in her cubicle, years later.  As the court summed things up, “Apparently, neither normal discovery obligations that apply even in the absence of a court order, nor even a court order, nor a pending motion for sanctions for spoliation, were sufficient to get Defendants’ attention. Instead, only the very slowly dawning realization that serious sanctions would be imposed finally resulted in a key IT employee searching a readily accessible office drawer for the archive CD containing source code.”  Id. at 19.

The court awarded plaintiff fees and costs of about $300,000, subject to possible additional amounts, and determined that plaintiff was entitled to an adverse inference instruction based on the spoliation.

Court Rules it's Up to the Jury to Figure Out if Defendant Took Appropriate Steps to Preserve Documents

In Ed Schmidt Pontiac-GMC Truck, Inc. v. Chrysler Motors Co., LLC, 2008 WL 2704859 (N.D. Ohio July 7, 2008) (click here), the plaintiff asserted in his complaint a separate claim for spoliation of evidence under Ohio law, “based on Chrysler’s alleged failure to institute a litigation hold, keep and retain evidence pertinent to the breach of contract claim, preserve hard drive data intact on five computers prior to an agreed on and court-approved mirror imaging and destruction of the system registry on another computer.”  Id. at *1.  The plaintiff sought summary judgment on its spoliation claim.

In October 2004, immediately after filing the lawsuit, plaintiff’s counsel faxed a courtesy copy of the complaint to a Chrysler attorney, and asked Chrysler to “institute a litigation hold as to communications and documents relating to Schmidt's relationship and dispute with Chrysler.”  Id.  The parties agreed that Chrysler actually had been aware since September 2003, a year earlier, of the possibility of litigation.

It was unclear precisely what steps were taken to implement a litigation hold; some key employees said they did not recall receiving a formal hold notice.  However, the employees also testified that they saved more documents and e-mails than they normally would have done in the ordinary course of business.  Other employees testified about searches performed on their hard drives and e-mail accounts to locate other relevant documents.  In essence, the plaintiff’s claim was that Chrysler did not do enough to preserve documents in a formal manner, particular between September 2003 and October 2004, when the complaint was actually filed.

What distinguishes this case from others I have reported about is the lack of any evidence that the defendant intentionally destroyed documents, or intentionally failed to take steps to ensure that important documents were preserved.  At most, the plaintiff’s allegations amounted to a claim that the defendant should have done more – without pointing to anything in particular that had been lost or destroyed, or any evidence of intent to get rid of important data.

Against that backdrop, the court was unwilling to grant summary judgment on the spoliation claim in favor of the plaintiff.  In the court’s view, disputed issues of fact remained for the jury to resolve regarding the defendant’s intent and the effectiveness of the defendant’s document hold procedures.

So at least for the moment, the defendant prevailed.  But does any company really want to leave it up to a jury to sort out complicated electronic data preservation issues and to determine which measures are reasonable and appropriate?

Court Shuts Down Discovery of Email Retention Despite Allegations of Missing Email

In Cunningham v. Standard Fire Insurance Co., 2008 WL 2668301 (D. Colo. July 1, 2008) (click here), the plaintiff filed suit over a dispute concerning coverage under a homeowner’s insurance policy.  The plaintiff served a Rule 30(b)(6) deposition notice on defendants, listing a variety of topics for the deposition.  Among those topics, plaintiff included the following:

Knowledge concerning the storage, preservation and backup of emails relating to claims authored or received by Susan Yeckley, Gilbert Friedmann and Alice Barron as well as any other adjusters who handled Plaintiff's claims.

Id. at *5.  In response, the defendant moved for a protective order, arguing that “the information sought in this topic is irrelevant to whether Defendants breached Plaintiff's insurance policy or acted in bad faith while adjusting his claim.”  Id.

Plaintiff contended that “he has requested all emails relating to his claim, and that the resulting number of documents he has received is small.”  Id.  Plaintiff apparently believed that the defendant had deleted (whether intentionally or as part of a routine document retention plan is not clear) emails from the plaintiff himself, dating back to the onset of his claim for coverage.  The court did not credit the plaintiff’s general allegations, however, and noted that the plaintiff “cannot reference, and has not referenced, any specific email that he believes is missing,” and that the defendants “have stated that, to their knowledge, all emails between Plaintiff and [Defendants] have been disclosed.”  Id.

In the face of the plaintiff’s inability to point to any specific emails he thought had been lost (a potentially impossible task, if the plaintiff had not saved copies of his own emails), the court granted the protective order.  The court held that “the ‘storage, preservation and backup of emails’ is not relevant to whether Defendants breached Plaintiff's insurance policy or acted in bad faith in adjusting his claim.”  Id.  “Plaintiff has not met his burden of establishing the relevancy of this information, or that this request is not redundant.”  Id. 

The court’s absolute ruling that discovery into whether emails about this particular claim had been destroyed was completely irrelevant to plaintiff’s allegations of bad faith in the handling of his specific claim is somewhat surprising.  It seems likely that the court was persuaded to shut down discovery largely based on its understandable refusal to accept the plaintiff’s generic allegations of lost email.