Reading, reviewing and analyzing e-discovery trends and best practices on a daily basis can make one forget that e-discovery is still a relatively niche field. While everyone, yes I mean everyone from corporate legal teams to private law firms to small businesses, will need to address how to manage and formulate a defensible e-discovery process, sometimes people within the e-discovery field need to step back outside the “e-discovery bubble." Even though e-discovery technology is moving ahead at a blistering pace (i.e. predictive technologies' ability to proactively cull document sets before attorney review), the case law surrounding e-discovery has primarily addressed the same, common issues surrounding when and how to preserve potentially relevant evidence. Scentsy Inc. v. B.R. Chase LLC (D. Idaho Oct. 2, 2012) is a principal illustration of this.
In this intellectual property case, the court ruled that the plaintiff's, Scentsy, document retention and litigation hold policies were “clearly unacceptable." In spite of finding that relevant documents were unlikely to have been destroyed, the court ordered additional depositions of the plaintiff's employees at the plaintiff's expense to determine if any spoliation actually occurred. If any evidence of spoliation was found, the court would consider further sanctions, including an adverse instruction or dismissing some or all of the plaintiff's claims.
During discovery, the defendant, B.R. Chase, claimed that the plaintiff failed to produce and spoliated key documents due to its ineffective litigation hold policy. Subsequently, the defendant filed a motion to compel the plaintiff to “conduct a forensic exam of its own computer systems at its own expense to retrieve any deleted discoverable data." To understand why the court called the plaintiff's legal hold and document retention policies “clearly unacceptable" (see The Court's Analysis below).
Applicable Rules of Law to the CaseWhat is spoliation?
In pending or reasonable foreseeable litigation, it's the destruction or significant alteration of evidence or the failure to preserve evidence for another party
*Note – Most courts hold that pre-litigation destruction of evidence only constitutes spoliation “when litigation is reasonably foreseeable but not where it was merely possible."When does spoliation occur?
For spoliation to occur, the moving party must prove all three elements below:
- The offending party had control or notice of the spoliated documents before they were destroyed/altered
- Spoliated documents were relevant to the litigation
- The offending party destroyed/altered evidence with a culpable state of mind (i.e. negligence to willful or intentional)
The court receives the power to sanction parties for spoliation from two sources:
- The court's inherent discretionary power: Federal courts can sanction parties for spoliation under their power to make “appropriate evidentiary rulings." When spoliation occurs, pre-litigation sanctions governed by the court's discretionary power.
- Federal Rule of Civil Procedure 37: Sanctions can be warranted when a party “fails to obey an order to provide or permit discovery." When spoliation occurs after a case is filed sanctions are governed by Rule 37.
The Case Facts
- Legal hold employed after litigation was reasonably foreseeable: The court determined that the litigation was reasonably foreseeable two months before the complaint was filed. The plaintiff did not issue a legal hold at this time, rather it waited to issue one until around the time when the complaint was filed.
- Oral legal hold notice: In some courts (i.e. New York District Court), it has been held that giving an oral legal hold notice is inadequate on its face and is per se negligent. The plaintiff in this case gave oral notice not to delete relevant evidence to employees.
- Insufficient document retention policy: Aside from emails, which were on a six-month retention policy, the plaintiff did not have or enforce a document retention policy for any other type of data. Employees had sole discretion to decide if and when they wanted to delete data.
The Court's Analysis
Throughout the court's opinion, the judge felt very uneasy about the plaintiff's e-discovery process, stating that he had “serious concerns" with the plaintiff's document retention policy and legal hold procedures. The court equated that the plaintiff's actions of issuing an oral legal hold and not enforcing a general document retention policy beyond emails were “completely inadequate," bordering on “recklessness." But to the defendant's dismay, the court found it highly unlikely that relevant documents were deleted within the two month gap between when litigation was reasonably foreseeable and the implementation of a legal hold. Even with only this slight chance of finding evidence of spoliation, the court concluded that the defendant deserved a remedy to further investigate if there were any relevant documents, which had been had been deleted by the plaintiff within this two-month period. The court rejected the defendant's proposed remedy to hire a forensic examination due to the costs causing an undue burden, but allowed the defendant to conduct additional dispositions at the plaintiff's expense to determine if anyone of the plaintiff's employees destroyed relevant evidence.
THE E-DISCOVERY BEAT'S TAKE
Scentsy highlights a couple noteworthy points as follows:
- Plaintiffs can spoliate evidence too: In a majority of cases the spoliating party is usually the defendant because the plaintiff is the one who is negotiating for and requesting larger discovery parameters. Scentsy should remind legal teams that the duty to institute a legal hold when litigation is reasonably foreseeable extends to both parties.
- Alternative remedies can be proposed by the court: As evidence from the court's analysis, the judge in Scentsy was happy to accommodate and even dismiss the plaintiff's case if there was evidence of spoliation. In spite of the undue burden a forensic examination would cause the plaintiff, the court identified an outside-the- box remedy (additional depositions) to help identify if evidence was in fact spoliated.
- Proactive preparation is essential: In either scenario, whether be it the plaintiff or defendant, it's imperative to have at least foundational e-discovery requirements met and in place. This means having at a minimum: (1) An established document retention policy that is actually adhered to and enforced. It's not enough just to have one in a binder sitting in a closet somewhere. (2) A formalized, written legal hold process, which is more than just telling employees not to delete stuff. A legal hold process needs to be easily communicated and detailed with specific instructions so custodians know what to keep, for how long and why.
While taking into account the points mentioned above, the primary takeaway is this: Legal teams must proactively address basic e-discovery requirements or else costly alternatives will most likely await. The court in Scentsy summed it up best.
“Spoliation is a serious matter, and Scentsy's document retention and litigation hold policies are clearly unacceptable. The Court assumes that Scentsy will improve those policies in any future litigation. The failure to do so may result in this or some other court finding that Scentsy's failure to act, in the face of the warnings given in this decision, constitutes the kind of willfulness or recklessness which may result in serious repercussions."
To learn more about e-discovery case law and tips to address future e-discovery issues, attend Exterro's upcoming webcast, 2012 E-Discovery Case Law Review: The 3 Ps for 2013..
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, Twitter and Linkedin.