By Mike Hamilton, J.D.
All organizations have a duty imposed by common law to preserve all potentially relevant electronically stored information (ESI) when litigation is reasonably anticipated or foreseeable. This duty is not limited to just corporations; it applies to every organization, including LLCs, LLPs, small businesses, non profits and even the federal government. When addressing how to meet this duty to preserve ESI, larger organizations typically have more legal hold obstacles than their smaller counterparts based on the higher likelihood of increased litigation volumes.
For these larger organizations, the biggest legal hold obstacles are usually the most fundamental ones, like issuing timely legal holds, identifying all relevant custodians and tracking legal hold compliance. And with more employees and more cases comes more obstacles.
The federal government employs 2,854,251 people, making it the biggest employer in the U.S. Compare that to Fortune magazine’s number one ranked corporation by revenue, Exxon Mobile, who employs a comparatively meager 82,100 people. Most corporations, especially the Fortune 100, have identified the need for being proactive in addressing legal and e-discovery processes. Can the same be said for the government?
Let’s just say there may be some catching up to do. Case in point is United States ex rel. Baker v. Cmty. Health Sys., Inc. (D.N.M. Oct. 3, 2012). In this case, the district court overruled the plaintiff’s objections to the magistrate judge’s recommendation to award e-discovery spoliation sanctions against the plaintiff (the U.S. government) for…
“The failure to issue a timely legal hold, the failure to identify key witnesses, the failure to take measures to suspend routine deletion of ESI (electronically stored information), the failure to put in place an adequate legal hold, the failure to ensure that proper procedures were being followed, and the failure to monitor the litigation hold…” (summarized by the magistrate judge)
This is a qui tam case, (a case that allows people not associated with the government to file lawsuits against federal contractors claiming fraud against the government) in which an individual, Baker, alleged violations of the False Claims Act by the defendant, Cmty. Health Sys., Inc., for manipulating the Medicaid funding program which resulted in illegal receipt of federally funded Medicaid payments. The case was originally filed in 2005, and the government intervened in 2009 to take over as the plaintiff in the case. During discovery, the defendant motioned for spoliation sanctions deeming that the government’s legal holds were inadequate leading to prejudice against the defendant.
The defendant’s motion was based on three primary claims:
- (1) The government’s legal hold was untimely
- (2) The legal hold was inadequate, leading to the spoliation of relevant evidence
- (3) Because of the spoliation, the defendant was entitled to sanctions
Defendant Claim #1: The plaintiff’s legal hold was untimely
In 2005, the plaintiff served notice to the defendant to issue a legal hold for preserving evidence. Settlement discussions between the two sides failed in 2008, with the government waiting until that time before issuing any legal holds to its own custodians. The court seemed perplexed by the plaintiff’s failure to issue a legal hold sooner, since it had reminded the defendant to issue its own legal hold three years earlier, stating, “The government seems to have been sufficiently aware of the importance of preserving documents…but did not impose a similar obligation on itself.”
Defendant Claim #2: The plaintiff’s legal hold was inadequate
When the plaintiff did issue its legal hold, it failed to preserve or issue a legal hold to two key custodians, James Fizzera and Robert Cowan. The plaintiff claimed that both custodians were not “key players.” The court rejected this argument, stating that Fizzeria “was generally considered to be the most informed person about the donations and taxes that are the main elements of this case” and that Cowan prepared reports “which stated the root cause of the donation problem was the way the State, the counties and the hospitals understood the regulations.”
In each incident, the plaintiff failed to preserve each custodian’s ESI following each of their retirements. The attorney in charge knew of Fizzeria’s retirement but did not take any steps to preserve his ESI or alert anyone else to do so either. Evidence was also presented that Fizzeria’s ESI could have been preserved if the auto deletion procedures following an employee’s departure were halted. For Cowan, the plaintiff made “no effort” until four months after his retirement to preserve his ESI. It was found that Cowan’s ESI was initially preserved but was found later to be missing.
Based on these events, the Magistrate Judge suggested that the plaintiff took a “lackadaisical attitude” in its ongoing duty to monitor its legal hold. The magistrate judge went on to state that the people involved with the legal hold “took no steps to contact specific individuals to ensure that appropriate measure were in fact being taken, and instead assumed that the directive relating to a litigation hold would somehow ‘trickle down’ to the appropriate personnel.” The district court agreed with the magistrate judge’s findings.
Defendant Claim #3: Based on the spoliation, the defendant is entitled to sanctions
According to the court, the” two most important factors” in identifying appropriate spoliation include:
- Culpability: The court found that the plaintiff’s actions did not meet the threshold for bad faith, but their discovery efforts to preserve ESI were “woefully inadequate and go beyond mere negligence.”
- Prejudice: Even with the plaintiff’s assertions that the spoliated evidence was not relevant, the court ruled that the ESI was relevant and addressed critical factors related to the case causing undue prejudice to the defendant.
The defendant sought production of privileged emails from the key employees to mitigate the damage caused by the plaintiff’s spoliation. Based on the fairness doctrine, the court agreed, explaining “Defendants cannot obtain this information from any other sources and they have shown substantial need or this information.”
As a result, the district court upheld the magistrate judge’s order for production of certain documents (emails from key custodians) withheld because of privilege or work product reasons along with awarding the defendant’s attorney’s fees and costs.
THE E-DISCOVERY BEAT’S TAKE
Creating and maintaining a defensible e-discovery process is a difficult task for most, but for bigger organizations, like the federal government, this task can be mind numbing. In the case highlighted above, the federal government did not have the necessary tools or processes in place to demonstrate the transparency required when identifying all relevant custodians, preserving the potentially relevant ESI, and monitoring and tracking legal hold compliance across all necessary custodians.
As the court stated, it is not adequate “to notify all employees of a litigation hold and expect that the party will then retain and produce all relevant information. Counsel must take affirmative steps to monitor compliance so that all sources of discoverable information are identified and searched. Counsel is under a continuing duty to ensure preservation.” So remember the courts require far more from organizations, including the government, than just sending out a legal hold. Because telling someone to do something doesn’t ensure that they will actually do it
To learn more on how large organizations are leveraging Exterro’s automated legal hold software for managing their preservation process, click here.
Mike Hamilton, J.D. is a Sr. E-Discovery Analyst at Exterro, Inc., focusing on educating Exterro customers, prospects and industry experts on how to solve e-discovery issues proactively with technology. His e-discovery knowledge, legal acumen and practical experience give him a valuable perspective on bridging the gap between IT and legal teams. You can find him on Google+, Twitter and Linkedin.