Search results for: litigation hold

In New York, it is widely recognized that the duty to preserve documents arises once a party “reasonably anticipates litigation” (see Voom HD Holdings LLC v EchoStar Satellite, 93 AD3d 33, 41-42 [1st Dept 2012]).  And so, issuing timely a litigation hold notice is critical for preserving information relevant or potentially relevant to an actual or threatened litigation.

But, what happens to that litigation hold notice during discovery?  Is it a document that one produces?  Is it privileged?  Ordinarily, hold notices are protected from disclosure by the attorney-client privilege and the attorney work product doctrine.  However, a recent New York case illustrates that when there are allegations of spoliation, the privilege a litigation hold normally enjoys may be undermined.

In Radiation Oncology Services of Central New York, P.C., v Our Lady of Lourdes Memorial Hospital, Inc., 2020 WL 3246747 (Sup Ct, Cortland County 2020), involving a contentious contract dispute, the parties engaged in nearly five years of discovery, including countless discovery disputes.  In one instance, Plaintiffs identified two emails that Defendants produced in hardcopy but failed to produce electronically. These emails were sent after Plaintiffs informed Defendants that it intended to pursue litigation; and thus, after a litigation hold should have been issued.  Believing Defendants spoliated evidence, Plaintiffs filed a motion to compel the production of Defendants’ litigation hold, including all related electronically stored information (“ESI”).  In response, Defendants contended there was no spoliation of evidence in either instance because they were able to produce the hard copies of the emails.

The Court was not persuaded by Defendants’ paper production of the emails.  Rather, the Court found that “printing paper copies of the emails and permanently deleting the associated ESI potentially deprived the emails of significant evidentiary value.”  Moreover, the Court held that Defendants failed to prove, as a matter of law, that its litigation hold should be protected from disclosure.  Specifically, (i) Defendants did not dispute its duty to preserve the emails at the time they were destroyed; (ii) Defendants failed to show there was no culpable conduct involved in the deletion of the emails; and (iii) the emails were potentially related to claims in the matter.  And so, the Court granted Plaintiffs’ motion to compel.*

This decision reminds us of a few lessons.  First, preserving paper copies of ESI that has been deleted will not necessarily defeat a claim of spoliation.  Second, within one’s hold notice it is advisable to include a provision outlining the consequences of failing to preserve documents related to the matter and, language that the obligation to preserve includes documents in existence and yet to be created.

*The Court permitted further submissions on the issue of whether Defendants’ conduct warranted sanctions.

**Thank you to first year associate, James Maguire in the Firm’s Uniondale office, for his research assistance related to today’s blog.

***See previous blog posts discussing legal holds below:

Failure to Implement a Proper and Timely Legal Hold Notice Results in Plaintiff Being Sanctioned

Practical Tips for an Effective Litigation Hold Notice 

Your Litigation Hold Must be Generally Broad and Specifically Tailored

E-Discovery Best Practices to Avoid Discovery Sanctions

Sanctions in Two New York Courts for Party’s Failures to Preserve

In past blogs, I have discussed the importance of issuing a litigation hold notice (“Hold”), as soon as a litigation is reasonably anticipated. I have also written about various best practices when drafting one’s Hold. [See Practical Tips For an Effective Litigation Hold Notice and Your Litigation Hold Must be Generally Broad And Specifically Tailored]. In an effort to avoid reiterating those blog posts in full, suffice it to say it is critically important to:

  1. provide custodians with detailed instructions on what they are expected to do upon receipt of the Hold; and
  2. ensure that the Hold sets forth the specifics of what information must be preserved, thus limiting any discretion vested in the recipients of the Hold.

A recent decision out of the District of New Mexico reminds us of these best practices.

In N.M. Oncology & Hematology Consultants v. Presbyterian Healthcare Servs., 2017 U.S. Dist. LEXIS 130959 (D.N.M. Aug. 16, 2017), the plaintiff moved the District Court for adverse inference sanctions against the defendants alleging defendants failed to implement a proper litigation hold (“Notice”) because, among other things, the Notice impermissibly gave discretion to employees to determine what information might be relevant to the lawsuit and thus subject to the Notice. Plaintiff contended that permitting such discretion was per se inadequate.

The Court, however, concluded that the discretion the employees were cloaked with in this specific instance was limited and, therefore, the Notice was not inadequate.  Specifically, the employees were directed to retain documents and data “that mention or discuss or relate to any of” an exhaustive list of subjects. The recipient-employees were also directed that if “you are unsure about the relevance of a document, be cautious and preserve it.”

In reaching its conclusion, the Court observed that defendant’s employees were not given a generic retain relevant documents instruction but rather one with sufficient specificity that the employees had little, if any, discretion, and were further instructed to err on the side of preservation.

While the Court further noted that allowing individual employees to exercise discretion as to whether to retain data is not, alone, indicative of bad faith nor does it render a Hold per se inadequate, the decision reminds us that generic “preserve all relevant data” instructions should never be the basis of one’s Hold. The decision also serves as an important reminder that one’s Hold should be drafted in a way that it effectively becomes a checklist for the specific records you seek to preserve.  It is important that you include not only a broad description of the types of documents you seek, but also identify documents or locations with specificity to the greatest extent possible, thus eliminating discretionary decisions to the greatest extent possible.

I recently wrote about the importance of styling one’s litigation hold in a broad, but sufficiently specific way (See, “Your Litigation Hold Must be Generally Broad and Specifically Tailored”).  Some of you may be thinking, well, that’s all fine and good but what is a litigation hold? Why and when do I need one? And what should a litigation hold say?  If you have any of those questions, then continue reading.

Imagine your client was served with a complaint (or your client received a cease and desist letter or you learn it is reasonably foreseeable your client will be sued).*  What now?

Immediately, alarm bells should sound in your mind signaling you to take steps to preserve information relevant or potentially relevant to the lawsuit (or threatened lawsuit).    To this end, you want to draft and issue a written litigation hold notice (“Hold”).   While an oral directive may convey all the necessary information to the proper people, it is far better practice to paper your instructions.  Not only will a written document allow you to recall (perhaps years later) what information was subject to the Hold and who received the Hold, but it can also serve as a protective mechanism should information identified in the Hold as relevant slip through the cracks and be inadvertently deleted.** Thus, a critical function of the Hold is to serve as the means for proper compliance with one’s document preservation requirements and as the tool to avoid inadvertent destruction of evidence and potential sanctions.

It is helpful to envision the Hold as the catalyst that begins the process by which the client formally notifies key individuals that they must preserve relevant information.  Identifying who should receive the Hold can be a task in and of itself.  If, for example, your client is an individual sued in his/her individual capacity, the task is straightforward.  If, however, your client is a major financial institution with offices throughout the nation, the task of identifying the relevant custodians*** can be daunting.

Once you’ve identified the proper custodians (and who the custodians are for this purpose should be revisited throughout the litigation and supplemented as information is learned) and the sources of information they each may have, you must draft your Hold.   A well-drafted Hold need not be lengthy nor should it be replete with legal-ese.  In fact, the shorter, and more simple the better.  You do not want your audience bogged down in trying to figure out what exactly is being asked of them.  Likewise, you do not want to send a multi-page document if you can streamline the message into two pages or less.  That said, every Hold should contain at least the following information:

  1. Introduction: Explain why a Hold is being implemented so that the recipients understand the importance of compliance.  Explaining the general purpose of the Hold may also help the recipients identify relevant information.  The introduction does not have to detail the lawsuit /investigation /subpoena with granularity.  Rather, a general description is all that is necessary.  For example:

[CLIENT] recently received a subpoena requesting documents relevant to an ongoing investigation by the United States Attorney’s Office for the District of Columbia (hereinafter the “Investigation”). We intend to respond to the subpoena in due course, and we are asking for your help.  Due to this Investigation, [CLIENT] must take all reasonable steps to preserve records related to the 8 topics below.  We are in the process of identifying all paper and electronic documents that may be relevant to the matter . . . You have been identified as a person who has had involvement with the [deal], or may possess relevant documents or communications.  We request your attention and assistance in preserving this relevant information for our attorney’s use as appropriate. The records must be preserved in accordance with this Notice, and must be preserved until released by a subsequent written Release Notice.

  1. What is to be Preserved: The Hold becomes a checklist for the specific records you seek to preserve.  It is important that you include not only a broad description of the types of documents you seek, but also identify documents or locations with specificity to the greatest extent possible.  As mentioned in my August 16th post, if you seek to preserve web browsing/search histories you must specify that in your hold. It is likely not sufficient to simply say preserve all ESI. You should also include a temporal limitation for the information you seek to preserve and a description of the relevant categories of information.  In addition to delivering the Hold to key employees who have an involvement in or awareness about the issues in the lawsuit (or threatened suit), it is advisable to send the Hold to relevant personnel in IT and paper records departments who control the ability to suspend normal deletion policies.

Effective immediately, it is critical that none of our employees delete, over-write, or otherwise alter or destroy any documents (print or electronic), records, and data, including without limitation,  [INSERT SPECIFIC DOCUMENTS] . . ., including any drafts of such documents, records, and data, from any device.  Devices that may contain information subject to this preservation include laptops, PCs, handheld devices (such as a BlackBerry or iPhone), and other hardware provided to employees of [CLIENT], including USB drives, shared drives, home computers and/or personal email accounts (if used to store work-related documents), departmental, regional, or local email services, or any other local or centralized storage media which may be accessed by members of your department dated from [INSERT DATE RANGE], and relating in any way to:

  1. Mandatory Preservation: Emphasize that preservation is mandatory, and that failure to comply may compromise the company’s ability to prosecute its claims or defend itself in the lawsuit.

Preservation is mandatory.  Electronically stored information is an important and potentially irreplaceable source of discovery in this matter.  Failure to retain these documents or communications, whether intentionally or accidentally or to ignore this Notice may result in the Company’s inability to prosecute its claims or defend itself in this matter.  Failure to do so could also result in financial and legal penalties against the Company that could negatively affect the outcome of this legal matter. You must take every reasonable step to preserve this information until further written notice.  

I also tend to include the following language in the introduction to ensure we capture the recipient’s attention:

Failure to read and comply fully with this Notice could subject you and [CLIENT] to civil and criminal penalties and could result in disciplinary action

  1. Confidentiality: Stress the confidential nature of the lawsuit and the company’s expectation that employees not discuss the matter with one another or others (i.e., spouses, friends) unless doing so is approved by counsel.  The purpose of limiting one’s ability to discuss the matter is to minimize discoverable communications that could impact the outcome of the lawsuit.
  2. Further Distribution: The Hold should request the names of any additional individuals that the recipients believe may have relevant information and advise recipient(s) not distribute further on their own.

Further Distribution of This Notice:  DO NOT DISTRIBUTE THIS NOTICE DIRECTLY. A distribution list is attached to this Notice.  Please notify [NAME] if you believe the Hold should be distributed further.  In addition, please contact [NAME] if you are aware of any relevant records that may be in the possession of someone who previously held your position.

  1. Duration of the Litigation Hold: The Hold should advise that individuals are required to preserve materials until they are notified in writing that the Hold has been released.
  2. Prompt for Questions: The Hold should provide the name and contact information for company counsel or another person designated to provide guidance and answer questions.
  3. Receipt and Acknowledgment: It is advisable to require recipients to respond in writing that they have read the Hold and will comply with its requirements.  I tend to embed both a read receipt in the Hold and an affirmative obligation to respond to me (or in-house counsel) in writing.  Responses can be sent by individual emails, or by embedding a voting button.  It is also wise to track each response and follow up as necessary with non-responsive recipients. 

In sum, a Hold should include at least the above essential information and should be drafted in a clear and comprehensive fashion such that recipients understand what is being asked of them.   The Hold will serve as the means for proper compliance with the client’s document preservation requirements.

* Different jurisdictions have different rules as to when one’s obligation to preserve information arises.  The most common standard however, and the one embraced in New York state and federal courts alike, is “Once a party reasonably anticipates litigation…”

** Because the inadvertent destruction of relevant evidence can (depending on the circumstances) lead to judicial sanctions or a judgment against the client, a Hold committed to writing will empower you to defend yourself and the client should inadvertent destruction occur.   

*** For purposes of this blog, “Custodians” is used to refer to the individuals / sources (i.e., shared drives, file cabinets) most likely to have potentially relevant information (i.e., related to the claims or defense in the lawsuit).

In Eshelman v. Puma Biotechnology, Inc., No. 7:16-CV-18-D (E.D.N.C. June 7, 2017), Magistrate Judge Robert B. Jones, Jr., denied Plaintiff Eshelman’s motion seeking a jury instruction in response to Puma Biotechnology Inc.’s (“Puma”) failure to preserve (or identify in its litigation hold notice the need to preserve) internet web browser and search histories.  In denying Eshelman’s request, Judge Jones concluded that Eshelman was “not entitled to [either] a sanction pursuant to Rule 37(e)(1)” or “an adverse jury instruction as a sanction pursuant to Rule 37(e)(2).”

Case Background & Holding

This lawsuit involved alleged defamatory statements made by Puma in an investment presentation.  Eshelman brought a lawsuit and soon thereafter Puma issued a Litigation Hold Notice (“Notice”).  That Notice defined “documents” broadly to include electronically-stored information (“ESI”) but failed to reference specifically internet browser / search/or viewing histories.   The Notice did, however, advise Puma employees to err on the side of preservation if uncertain as to whether they were in possession of potentially responsive documents.   In May 2016, a few months after the allegedly defamatory investor presentation, Eshelman’s counsel sent a letter to Puma’s counsel requesting that Puma preserve, as relevant to this dispute, “web browser histories” of individuals involved in the drafting of the January 7, 2016 presentation.  Eshelman renewed this same request a few weeks later in his first demand for documents.

Puma’s counsel responded to the discovery demand that due to the internet browser the Company uses (i.e., Google Chrome®)  web browser history is automatically deleted after 90 days.  And so, the web browser history sought in the document demand was no longer available, nor did it exist at the time of the May preservation letter issued by Eshelman’s counsel.  Upon receipt of this response, Eshelman moved for “a jury instruction to mitigate the harm caused by the defendant’s failure to preserve electronically stored information.”

Judge Jones denied Eshelman’s motion concluding that “the plaintiff has not established one of the threshold elements of Rule 37(e)—namely, that the lost ESI ‘cannot be restored or replaced through additional discovery. . . .’”

Because Judge Jones believed “other avenues of discovery are likely to reveal information about the searches performed in advance of the investor presentation” the Judge concluded Eshelman was “not entitled to a sanction pursuant to Rule 37(e)(1).” Specifically, the Judge opined that Eshelman could seek information about the internet searches performed by the individuals who prepared the investor presentation through deposition testimony.

Moreover, Judge Jones further determined that a sanction was not warranted under 37(e)(1) or (2) because: (1) “the plaintiff has failed to make a sufficient showing of prejudice to support relief under Rule 37(e)(1)” and (2) Eshelman “failed to show that the defendant acted with the requisite intent to deprive him of the ESI in order to support the imposition of an adverse jury instruction under Rule 37(e)(2),” noting that “[a]t most, the circumstances indicate the ESI was lost due to the defendant’s negligence, but do not suggest the presence of intentional conduct. Negligence, however, will not support an award of sanctions under Rule 37(e)(2).”

Conclusion

This case serves as an important reminder that one’s legal hold notice must be drafted in a robust way (i.e., calling for all documents) that is also sufficiently granular such that it specifies exactly the types/categories of documents sought to be preserved.  Drafting an effective hold notice is an art that requires great thought.  Form/template notices –while a good starting point – should not be relied upon blindly.  Stay tuned for a coming blog on drafting effective hold notices.

As most of those reading this are aware, companies/entities/agencies doing business in the US generally are not required to indefinitely preserve business records and information.  However, those companies/entities/agencies must preserve relevant information when a lawsuit or an investigation is reasonably anticipated. This duty stems from both the common law duty to prevent spoliation of evidence and certain state and federal statutes and regulations. *

A “litigation hold” or “hold notice” is an instruction within a business organization directing employees to preserve (i.e., refrain from destroying or modifying) certain paper and electronic information that may be relevant to the pending or anticipated lawsuit or investigation.

The importance of complying with one’s obligation to issue and abide by a litigation hold was recently the subject of a decision in the Southern District of New York.  In early December, Judge Sweet denied New York City’s request to unseal 850,000 criminal court records for putative class members in a civil rights class action against the City of New York (“City”).  The complaint, originally filed in 2010, alleged that the City and the NYPD had engaged in a pattern of stopping, seizing, and issuing summonses to individuals without probable cause – thus violating the class members’ civil rights by requiring officers to meet quotas of summonses issued irrespective of whether a crime had occurred or probable cause existed.  The records were sealed pursuant to a privilege codified in New York’s Penal Law.  The City argued that the records should be unsealed so that defendants could identify potential class members and then seek discovery from them in order to challenge class membership.  Judge Sweet found that the privacy interests for the absent class members far outweighed the City’s request on the eve of the close of discovery.

Barely a month later, in early January, Judge Sweet granted in part a motion for sanctions against the City and the NYPD for spoliation of evidence.  Calling upon Second Circuit case law, Judge Sweet noted that spoliation is defined as “the destruction or significant alternation of evidence, or the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation.”  Judge Sweet found that the City failed to implement timely a litigation hold (FN) which, when combined with the NYPD’s existing document destruction policies, resulted in the destruction of critical information and evidence.  Specifically, the lack of preservation resulted in few, if any documents being produced for key custodians.

Notably, Judge Sweet did not find that the City and the NYPD had acted in bad faith, but instead concluded that both the City and NYPD acted with gross negligence in failing to implement a litigation hold:

The failure to circulate a litigation hold, and to ensure that it was properly implemented, was particularly damaging in the context of the NYPD’s standing document retention policies, which ensured that inaction on the part of the City would result in the destruction of evidence . . . . The NYPD cannot credibly argue that, despite setting guidelines for document destruction and providing an industrial shredding truck for that purpose, it did not know or intend that documents would be destroyed.

Judge Sweet noted that he is vested with “broad discretion” in crafting a proper sanction for spoliation but should focus on three priorities when fashioning a sanction: (1) deterring parties from engaging in spoliation; (2) placing the risk of an erroneous judgment on the party who wrongfully created the risk; and (3) restoring the prejudiced party to the same position s/he would have been absent the wrongful destruction of evidence.  Against this backdrop, Judge Sweet granted a permissive inference in response to his findings, and indicated that he will instruct the jury that the absence of documentary and email evidence does not establish in this case the absence of a summons quota policy at the NYPD.

*   Although see blog posts of Aaron Zerykier on January 6, 2016 and January 21, 2016 discussing relevant standard in NY and federal courts triggering preservation.

** The City did not issue any litigation hold until August 2013 – more than three years after the filing of the Complaint in this case.  Moreover, the evidence indicated that the litigation hold was not effectively communicated and that none of the officers named in the City’s initial disclosure ever acknowledged receiving the hold.

 Stinson v. City of New York et al – 10-Civ.-04228-Spoliation

The duty to preserve potentially relevant evidence – documentary or electronic – arises when a lawsuit is reasonably anticipated.  Although this is a subjective standard,  Parlux Fragrances, LLC et al v. S. Carter Enterprises, LLC et al.  illustrates a recent decision where a court imposed  sanctions and an adverse inference because the defendants failed to preserve information after receipt of a letter warning of a potential litigation.

Factual Background:

On or about April 18, 2012, defendants S. Carter Enterprises (“Carter Enterprises”) and Shawn Carter (“Jay-Z”) (collectively, the “Defendants”) entered a license agreement (“License Agreement”) with Artistic Brands Development, LLC (“ABD”), granting ABD the exclusive right to license and trademark the likeness of Jay-Z for a fragrance line.  The parties also entered a sub-license agreement (“Sub-License Agreement”) with Parlux Fragrances, LLC (“Parlux”) and Perfumania Holdings, Inc. (“Perfumania”) (collectively, the “Plaintiffs”), allowing Parlux and Perfumania the exclusive right to promote and distribute Jay-Z branded fragrances, including the Gold Jay-Z fragrance.

From October 2013 to July 2015, Parlux contended that Carter Enterprises and Jay-Z continuously failed to meet their obligations pursuant to the Sub-License Agreement by: (i) refusing to make personal and/or public appearances in support of the Gold Jay-Z fragrance; and (ii) failing to assist in the development of additional fragrances for the Gold Jay-Z brand.  As a result, on July 31, 2015, Plaintiffs sent Defendants a letter (the “Breach Letter”) detailing Defendants’ breaches under the various agreements, urging Defendants’ compliance with their obligations and advising Defendants should be guided accordingly or Plaintiffs would take all necessary action, including legal action.  Defendants effectively ignored the Breach Letter.  Approximately 6 months later, on January 25, 2016, Plaintiffs commenced a lawsuit against Carter Enterprises and Jay-Z alleging various breaches.

As is relevant here, Plaintiffs had to file a motion for sanctions predicated upon Defendants destruction of Jay-Z’s emails months after receipt of the Breach Letter.  Specifically, Plaintiffs claimed Defendants were on notice of a potential litigation on July 31, 2015, when Plaintiffs sent the Breach Letter.  In response, Defendants claimed the emails were deleted pursuant to a documented deletion policy governing Jay-Z’s emails.  Defendants also argued the emails deleted were not relevant and no deletions occurred after the action was commenced on January 25, 2016.

Analysis:

To prevail on a motion for sanctions for failure to preserve evidence, the Court noted the moving party must establish that: (1) the party having control over the evidence possessed an obligation to preserve it at the time of its destruction, (2) the evidence was destroyed with a “culpable state of mind,” and (3) “the destroyed evidence was relevant to the party’s claim or defense such that the trier of fact could find that the evidence would support that claim or defense” (Pegasus Aviation I, Inc. v Varig Logistica S.A., 26 NY3d 543, 547 [2015], quoting VOOM HD Holdings LLC v EchoStar Satellite L.L.C., 93 AD3d 33, 45 [1st Dept 2012]).  The Court further observed that one’s duty to preserve potentially relevant information occurs “once a party reasonably anticipates litigation, [at which time] it must suspend its routine document retention/destruction policy and put in place a litigation hold” (VOOM, 93 AD3d at 41; quoting Zubulake v UBS Warburg LLC, 220 FRD 212 [SD NY 2003]).

Here, the Court concluded Defendants should have “reasonably anticipated litigation” when it received around July 31, 2015, the Breach Letter, which advised “Parlux intends to take whatever action it deems necessary and appropriate to recover all of the losses it has sustained as a consequence of [Carter Enterprises] and [Jay-Z’s] failure to comply with the terms of the License Agreement.”  According to the Court, Defendants’ failure to implement a litigation hold and the deletion of emails in January 2016 (days before the litigation was filed) “after they reasonably anticipated litigation and had an obligation to preserve evidence” was, at a minimum, grossly negligent.  And so, because Defendants failed to preserve relevant evidence when a litigation was reasonably anticipated, Plaintiffs’ motion for sanctions and to impose an adverse inference against the Defendants at trial was granted.

Conclusion:

This case is an important reminder that preserving evidence as soon as litigation is reasonably anticipated is critical. While the standard is a subjective one, a letter threatening legal action, as here, is sufficiently objective that litigation should have been anticipated, and one’s duty to preserve triggered.  Thus, litigants and potential litigants should consult with an attorney prior to destroying or disposing of any potential evidence.

*Thank you to first year associate, James Maguire in the Firm’s Uniondale office, for his research assistance related to today’s blog.

 

It is the beginning of a new year and I thought it the ideal time to list out those steps that are absolutely critical when an attorney is confronting his/her obligation to produce e-discovery in connection with a litigation.  Bear in mind, the below list is not exhaustive and each step is replete with technical and tactical sub-steps and decisions.  However, the nine steps below are a useful road map to get started.

  • Assess whether your case involves e-discovery. In today’s technology-laden world where emails are ubiquitous and many of us interface daily with the internet of things, chances are your case will involve e-discovery.
  • Implement (or cause to be implemented) a comprehensive and appropriate ESI preservation protocol.  Remember, it is wise to cast a large net when it comes to preserving data.  That strategy likely changes when it comes time to collect/process data.  Make sure to familiarize yourself with the client’s deletion policies, backup tapes, and shredding procedures.  See next step.  The scope of your hold notice is necessarily informed by your client’s data including its location.
  • Understand the client’s ESI systems and storage.  Remember, data maps can be helpful but are often out of date.
  • Understand (and educate your client about) the various options available for collecting ESI (i.e., self-collection vs retaining a vendor; targeted collection vs robust collection).
  • Identify the various custodians (and meet with/conduct collection interviews of live custodians) who may have potentially relevant ESI and understand the various media on which that ESI resides.
  • Meet and confer with opposing counsel to develop a mutually agreeable discovery plan that addresses common ESI issues including production costs and deduplication methods.
  • Collect ESI (ideally using a vendor especially when the custodians include complex or dynamic databases or servers) in a manner that is defensible and preserves the integrity of the data (for example, do not forensically image the hard drive of a Mac using a tool designed for Windows or run the risk of overwriting the hard drive’s boot sector).
  • Explore ways to minimize the review costs associated with reviewing for production the collected documents.
  • Finally, produce responsive non-privileged ESI in a recognized and appropriate manner.

As discussed in past blog posts, it is critically important for counsel to be involved in each step of the process as the recent case law makes plain that Courts expect counsel to be actively involved in collection/review and production.  Indeed, we have seen a spate of case law from 2016 where the Court imputes a client’s failures on counsel and sanctions both!  Finally, if you feel incapable of handling any of the above steps, get help!  Various ethics opinions (not yet adopted in New York) suggest an attorneys’ duty of competence owed to one’s client includes being competent in matters of ESI.

Ephemeral messaging applications are considered solutions for data protection and privacy concerns (Blink, And I’m Gone: E-Discovery Challenges and Considerations With Ephemeral Messaging).  However, courts are wary of ephemeral messaging applications given they can empower a litigant to avoid discovery obligations.  A recent decision from the District Court for the District of Arizona, details the consequences of using improperly ephemeral messaging applications (Fed. Trade Comm’n v Noland, 2021 WL 3857413 [D. Ariz. Aug. 30, 2021]).

Background

The Federal Trade Commission (the “FTC”) was conducting an investigation into the operations of Success By Health (“SBH”) and its principals James Noland (“Noland”), Thomas Sacca (“Sacca”), and Scott Harris (“Harris”).  On May 16, 2019, Noland learned, through the inadvertent disclosure of a bank subpoena, of the FTC’s investigation.  Soon thereafter, Noland, Sacca, Harris and SBH’s employees began using – at Noland’s direction – two messaging applications for the purpose of discussing important SBH business.  The first application, Signal, is a mobile messaging application with automated deletion functionality; and the second application, ProtonMail, is an encrypted email service provider.

On May 29, 2019, after learning that its investigation had been disclosed, the FTC instructed SBH, Noland, Sacca and Harris to “suspend any ordinary destruction of documents, communications and records.”  At the conclusion of the investigation, on January 8, 2020, the FTC filed a lawsuit against SBH, Noland, Sacca and Harris (collectively “Defendants”), alleging Defendants operated an illegal pyramid scheme and made false statements to consumers.  Soon thereafter, the FTC obtained a temporary restraining order (“TRO”) and the appointment of a receiver to operate SBH.  Pursuant to the TRO, Defendants were required to transfer to the receiver control of all methods for handling communications.  Defendants, however, failed to disclose the existence of Signal or ProtonMail. It was not until October 2020 that the FTC learned Defendants had used Signal and ProtonMail as means to communicate.

The FTC promptly filed a motion for sanctions pursuant to FRCP 37(e)(2), arguing Defendants intentionally spoliated documents when they migrated SBH’s communication platform to Signal and ProtonMail, and did so only after the duty to preserve arose.  In opposition, Defendants argued the decision was caused by security concerns presented by a former employee and his fellow saboteurs.

Analysis

As highlighted by the Court, FRCP 37(e) was “completely rewritten in 2015 to provide[] a nationally uniform standard for when courts can give an adverse inference instruction… to remedy the loss of ESI.”  Specifically, a party seeking sanctions under FRCP 37(e)(2) must first show “(1) the ESI should have been preserved in the anticipation or conduct of litigation; (2) the ESI is lost because a party failed to take reasonable steps to preserve it; and (3) the ESI cannot be restored or replaced through additional discovery” (Noland, 2021 WL 3857413, at *6).  If each of these elements are satisfied, courts then determine whether the nonmovant “acted with the intent to deprive another party of the information’s use in the litigation” (id.).

Here, the Court concluded that the FTC easily carried its burden in showing that “Defendants acted with the intent to deprive the FTC of the information contained in the Signal and ProtonMail messages.”  According to the Court, “the most decisive factor” in reaching this conclusion was the timing of Defendants’ migration to Signal and ProtonMail.  Further, the Court rejected Defendants’ argument that the use of these applications was in response to security concerns, as Defendants failed to provide any evidence that SBH was being hacked, or threatened.  As a result of Defendants’ systematic efforts to destroy relevant communications through Signal and ProtonMail, the Court granted the FTC’s motion for sanctions and granted the FTC an adverse inference instruction that the deleted Signal and ProtonMail communications were relevant to the litigation and supportive of the FTC’s position.

Conclusion

While ephemeral messaging technologies may be ideal security solutions, companies must avoid implementing such technologies, if a duty to preserve has been triggered or is ongoing.  Therefore, when advising a client about messaging applications, it is critical to be conversant with the client’s data retention policies and active litigation holds, if any.

Thank you to second year associate, James Maguire in the Firm’s Uniondale office, for his research assistance related to today’s blog.

It is estimated that more than 100 million people are wearing an Apple Watch* and another approximately 31 million people are using the Fitbit.** It is further predicted that sales and use of these devices will continue to grow. And so, as people increasingly look for wearables that both “make technology more personal” and include a “cool factor”*** we are reminded that wearables are a repository of information (The Document Demand That Seeks Electronically Stored Information) that could be discoverable in a litigation depending on the relevance of the data.  The Bartis case, pending in the Eastern District of Missouri, is an interesting decision on point. (Bartis v. Biomet, Inc., 2021 WL 2092785 [E.D. Mo. May 24, 2021]).

In Bartis, multiple plaintiffs alleged they sustained personal injuries, including permanent mobility issues, as a result of the implantation of an artificial hip manufactured by Biomet, Inc. (“Biomet”).  During discovery, plaintiff Guan Hollins (“Hollins”) advised, in response to an interrogatory, that he wore continuously a Fitbit to track his number of steps, heart rate, and sleep.  As a result, defendants demanded Hollins produce “all data from the Fitbit and any other wearable device or other fitness tracker.”  Hollins objected claiming such data was “unreliable” because he began wearing the Fitbit after revision surgery removing the Biomet artificial hip.

Defendants filed a motion to compel the production of Hollins’ Fitbit data, arguing the data was relevant to Hollins’ alleged permanent, physical injuries resulting from implantation of Biomet’s defective artificial hip.  In opposition, Hollins claimed the request was a “fishing expedition” and reiterated his objection that the data was unreliable.

The Court ordered Hollins to produce the demanded data.  Noting, specifically, that Hollins had provided inconsistent responses as to whether he experienced difficulty or pain walking/ jogging due to the alleged defective hip implant, the Court found Biomet’s demand for Fitbit data was hardly a fishing expedition where, as here, the data was relevant and could reveal whether Hollins was walking or jogging substantial distances.  Further, the Court rejected Hollins argument that the Fitbit data was unreliable, stating that this argument went to the admissibility and weight of the data.

Although Judge Ross aptly observed there was “surprisingly little precedent” involving wearable devices, there can be no doubt that these wearable devices – and the data they store – are here to stay.  Therefore, the next time you issue a litigation hold or craft a document demand, you should consider the various wearable devices that may be repositories for potentially relevant information.

*There are more than 100 million people wearing an Apple Watch, says analyst

**Fitbit Revenue and Usage Statistics (2021)

***There are more than 100 million people wearing an Apple Watch, says analyst

Generally, a litigation hold letter* will issue to preserve documents and information potentially relevant to a reasonably anticipated lawsuit. However, when does one’s duty to preserve potentially relevant documents end?  Unfortunately, the answer is not necessarily when the litigation ends.  Indeed, a recent decision out of California reminds us there may be instances when one’s preservation obligations are ongoing, even after a litigation is dismissed (Thomas v. Cricket Wireless, LLC, 2021 WL 1017114 [N.D. Cal. Mar 16, 2021]).

Factual Background:

In 2015, a false-advertising lawsuit was filed against Cricket Wireless LLC (“Defendant”) alleged Defendant marketed unlimited 4G/LTE services, but did not have the capability to provide these services (see Barraza v. Cricket Wireless LLC, 2015 WL 6689396 [N.D. Cal. Nov. 3, 2015]).  Defendant moved to compel arbitration, which was denied.  Ultimately, Defendant made a Rule 68 offer of judgment, which plaintiff accepted.

At a hearing before dismissal of the case, the Court inquired “if there was any scenario under which the merits of the case could come back to life?”  Plaintiffs’ counsel responded there was not.**  Critically, however, at the time Barraza was voluntarily dismissed with prejudice, “the statute of limitations had not run on the hundreds of thousands of other putative class members’ claims against [the Defendant].”  And so, there was very much a chance that the merits of the case could “come back to life,” albeit with different plaintiffs.

And, come back to life it did.  Approximately one year later, a second lawsuit was filed against Defendant in Missouri, based on the same allegations as those in Barraza (see Thomas v. Cricket Wireless, LLC, No. 16-cv-1065 (W.D. Mo. Apr. 7, 2017) (“Thomas I”).  Defendant again moved to compel arbitration, but the parties stipulated to a dismissal before a decision on the motion.  The voluntary dismissal, which was without prejudice, was subject to a tolling agreement that expired on November 4, 2019.

And, like a cat with nine lives, the merits of the case came back to life a third time.  In fact, after the tolling agreement expired, a putative class action lawsuit was filed (“Thomas II ”), in which the class (the “Plaintiffs”) alleged that Defendant engaged in a fraudulent marketing scheme surrounding the 4G/LTE devices.

These various iterations of the merits are worth mention because during discovery in Thomas II, Plaintiffs learned Defendant had discarded after Barraza several key documents and accounts.  Specifically, Defendant (i) deleted the custodial accounts of key decision makers; (ii) failed to preserve any custodial accounts from the Sales & Operations Planning Committee; (iii) failed to preserve critical sales data related to 4G phone sales; and (iv) failed to preserve any 4G advertisements from the relevant time.  Defendant was unapologetic because “it was entitled to stop preserving documents after Barraza” and had “been transparent about what documents were not retained.”

And so, Plaintiffs noticed a deposition regarding Defendant’s document retention.  Just prior to that deposition, Plaintiffs moved to compel production of Defendant’s litigation hold letters from related lawsuits, including Barraza, arguing any presumptive privilege had been overcome by Plaintiff’s preliminary showing of spoliation.  Defendant responded that compelled production prior to the depositions was premature.  The Court denied Plaintiffs’ motion without prejudice to renew “if warranted after [the] completion of the upcoming deposition[s] … on document retention.”

The depositions were unhelpful substantively.  Indeed, they demonstrated that Defendant’s witnesses either did not know or were counseled not to answer questions regarding the content of the litigation hold letters.  And so, according to Plaintiffs, the only remaining mechanism to obtain the necessary information was to renew their motions to compel, which Defendant opposed on the ground “it had every right to dispose of the disputed documents and databases” and therefore no basis to compel the production of privileged hold letters.

The Court granted Plaintiffs’ motion to compel the production of Defendant’s litigation hold letters in Barraza and Thomas II, finding Defendant’s admissions about what it had destroyed or failed to preserve raised enough questions about its document retention and preservation efforts to allow Plaintiffs to take the initial step of discovering the content of Defendant’s litigation hold notices as necessary to investigate spoliation.  In reaching its decision, the Court acknowledged several instances during the two depositions where the witnesses either “could not or would not answer questions specifically seeking information about basic details” surrounding the litigation hold letters.

Conclusion:

The Thomas II decision reminds us that the duty to preserve relevant documents may continue following the dismissal, settlement, and/or final judgment of a case depending on the facts and circumstances at issue.  Where, as here, for example, it could be reasonably anticipated that additional plaintiffs would file suit, one’s obligation to preserve documents may be continuing. In addition, while a litigation hold letter is considered generally a privileged document, it is not immune from discovery, even in a subsequent lawsuit.

*See prior litigation hold blogs

**A statement that the Thomas II court later deemed specific to the two plaintiffs in the Barraza case – not the hundreds of prospective other class members.

Thank you to second year associate, James Maguire in the Firm’s Uniondale office, for his research assistance related to today’s blog.