Case Blurb: Asher Assocs LLC; Role of Intent in Assessing Sanctions

Common sense suggests that a failure to produce or preserve relevant evidence may involve conduct that falls “along a continuum of fault — ranging from innocence through the degrees of negligence to intentionality.”

In Aramburu v. Boeing Co., 112 F.3d 1398, 1407 (10th Cir. 1997), the Tenth Circuit held that “the bad faith destruction of a document relevant to proof of an issue at trial gives rise to an inference that production of the document would have been unfavorable to the party responsible for its destruction.” In the same decision, the Tenth Circuit further reasoned that no adverse inference should arise where the destruction of a document resulted from mere negligence, because only bad faith would support an “inference of consciousness of a weak case.” FN11.

FN11: “‘Bad faith’ is the antithesis of good faith and has been defined in the cases to be when a thing is done dishonestly and not merely negligently. It is also defined as that which imports a dishonest purpose and implies wrongdoing or some motive of self-interest.” Of course, in cases where an adverse inference instruction is neither requested nor appropriate, the Tenth Circuit has held that a finding of bad faith is not required to impose non-dispositive sanctions, such as excluding evidence.

Asher Assocs., LLC v. Baker Hughes Oilfield Operations, Inc., 2009 U.S. Dist. LEXIS 40136 at *27-28 (D. Colo. May 12, 2009)(internal citations removed).

Case Blurb: Asher Assocs LLC; Second Letter with an ‘Emphatic Tone’ Likely Triggered Duty to Preserve

Defendant cites my decision in Cache La Poudre Feeds, LLC v. Land O’Lakes, Inc., 244 F.R.D. 614, 623 (D. Colo. 2007), as support for its assertion that Plaintiff’s correspondence in September 2006 was too vague to trigger a duty to preserve evidence. To the contrary, the facts in Cache La Poudre are completely distinguishable. In that case, plaintiff’s counsel sent the putative defendant successive letters over a nearly two-year period in which she reiterated her client’s desire to explore a negotiated resolution of the parties’ dispute. I concluded that the less-than-adamant tone of counsel’s letters, coupled with the lengthy passage of time, belied the contention that Cache La Poudre’s correspondence had triggered a duty to preserve evidence.

Here, the facts compel a different conclusion. Plaintiff’s letter of September 8, 2006, came quickly on the heels of the Warranty Claim letter sent on September 1, 2008. While the earlier letter had not specifically threatened litigation, the September 8 correspondence adopted a decidedly different and emphatic tone. Plaintiff’s outside counsel characterized the earlier letter as a “failed” attempt to resolve the dispute “without litigation.” Where Plaintiff’s September 1st letter referred to “expenditures” incurred by [Plaintiffs] in connection with [certain] Contracts, outside counsel now indicated that his client had been “significantly damaged,” provided [Defendants] with an “interim damage calculation,” and claimed that “damages continue to accrue.” The September 8th letter demanded an “immediate payment” and imposed a five-day deadline for making that payment. Outside counsel went so far as to identify the specific claims for relief that [Plaintiffs] would assert if it initiated “such legal or other action to enforce its rights.” Given the tenor of the September 8th letter, [Defendants] should have understood that future litigation was reasonably foreseeable and substantially “more than a possibility.”

Asher Assocs., LLC v. Baker Hughes Oilfield Operations, Inc., 2009 U.S. Dist. LEXIS 40136 at *24-25 (D. Colo. May 12, 2009)(internal citations removed)(emphases added).

Case Blurb: Asher Assocs; Court Expounds upon Duty to Preserve

In most cases, the duty to preserve evidence is triggered by the filing of a lawsuit. However, the obligation to preserve evidence may arise even earlier if a party has notice that future litigation is likely.

Asher Assocs., LLC v. Baker Hughes Oilfield Operations, Inc., 2009 U.S. Dist. LEXIS 40136 at *23 (D. Colo. May 12, 2009).

Case Blurb: Asher Assocs LLC; Exercise of the Court’s ‘Inherent Powers’ to Sanction Party for Spoliation (10th Cir)

Plaintiffs correctly note that the court has inherent power to impose sanctions for the destruction or loss of evidence. []A spoliation sanction is proper where (1) a party has a duty to preserve evidence because it knew, or should have known, that litigation was imminent, and (2) the adverse party was prejudiced by the destruction of the evidence.[]

In exercising its discretion to fashion an appropriate sanction, the court must consider the culpability of the responsible party and whether the evidence was relevant to prove an issue at trial.

First, the court must determine whether the missing [evidence] would be relevant to an issue at trial. If that question is answered in the negative, the court’s analysis stops there. If the missing evidence would be relevant, the court must then decide whether [Producing Party] was under an obligation to preserve the [evidence]. Finally, if such a duty existed, the court must consider what sanction, if any, is appropriate given the non-moving party’s degree of culpability, the degree of any prejudice to the moving party, and the purposes to be served by exercising the court’s power to sanction.

Asher Assocs., LLC v. Baker Hughes Oilfield Operations, Inc., 2009 U.S. Dist. LEXIS 40136 at *16-18 (D. Colo. May 12, 2009)(internal citations removed).

Case Blurb: Asher Assocs LLC; Reason for Existence of Duty to Preserve

To ensure that the discovery permitted by Rule 26(b)(1) does not become a futile exercise, putative litigants have a duty to preserve documents or materials that may be relevant to potential future litigation.

Asher Assocs., LLC v. Baker Hughes Oilfield Operations, Inc., 2009 U.S. Dist. LEXIS 40136 at *15-16 (D. Colo. May 12, 2009)(citing Zubulake v. UBS Warburg, LLC, 220 F.R.D. 212, 216 (S.D.N.Y. 2003)).

Case Summary: Phillip M. Adams & Assocs., On Spoliation and Info. Management

Phillip M. Adams & Assocs., L.L.C. v. Dell, Inc., 2009 U.S. Dist. LEXIS 26964 (D. Utah Mar. 27, 2009)

FACTS: Plaintiffs, and requesting party, Philip M. Adams & Associates, alleged infringement of their patents for technology that detected and resolved defects in the most widely used floppy disk controller, thus preventing data from being destroyed. The patents in question were purportedly assigned to plaintiffs by the original inventor. FDC-related defects gave rise to multiple lawsuits, culminating with the settlement of a class action suit against Toshiba in October of 1999.
Requesting party accused producing party of spoliation, as stated in the opinion:

…first, that ASUS has illegally used Adams’ patented software; and second, that ASUS has destroyed evidence of that use. The first assertion is identical to the liability issue in this case. The second assertion is premised on the first: Assuming ASUS used Adams’ software, ASUS’ failure to produce evidence of that use is sanctionable spoliation. Adams has no direct proof of destruction of evidence but is inferring destruction or withholding of evidence. Since Adams is convinced that ASUS infringed, Adams is also convinced that failure to produce evidence of infringement is sanctionable.

Issues we examine:

1. When did the producing party’s duty to preserve attach?
2. How does the Safe Harbor provision (FRCP 37(e)) factor into the determination of sanctions in this case?
3. What role does producing party’s information management system play in the sanctions calculus?
4. How does the producing party’s lack of produced data on certain subjects in the aggregate balanced against the absence of specific evidence of wrong-doing by requesting party?

Issue 1: Court’s reasoning:
Producing party acknowledges receiving a letter from requesting party’s counsel asserting infringement on February 23, 2005. It does not acknowledge receiving an earlier letter dated October 4, 2004. Thus, Producing Party dates the beginning of its duty to preserve from the date of the February letter, and states that it has complied with that duty from that time forward. Producing party takes the position that a delay in giving notice and bringing suit by requesting party is the reason for the lack of available data from the years 2000 and 2001.
The court noted that both parties agreed that “a litigant’s duty to preserve evidence arises when ‘he knows or should know [it] is relevant to imminent or ongoing litigation.’” The court acknowledged the producing party’s stance that this trigger occurred upon receiving counsel’s letter, but stated that this was “not the inviolable benchmark.” The court cited 103 Investors I, L.P. v. Square D Co., 470 F.3d 985 (10th Cir. 2006) to buttress its argument.
In 103 Investors, the defendant disposed of 50 to 60 feet of “busway” material after a fire had occurred, destroying all but four feet of the busway, and eliminating any of the busway that should have contained a warning label. The court concluded that in that instance, the defendant should have known that litigation was imminent, although the material had been disposed of long before the complaint was filed.
The court described the history of this defect. In 1999 Toshiba paid a large sum to settle a class action related to the floppy drive error in play in the instant matter. That same year, a class action suit was filed against HP for the same defect. In 2000, producing party was working on correcting the issue. Sony became embroiled in a class action in 2000. The court stated that the industry had (or should have become) “sensitized” to the possibility of litigation on this issue.

It appears that this extends the duty to preserve, which is already among the more difficult and costly issues in e-discovery today. By extending the duty’s trigger to occur prior to any direct or specific action against defendants, the court is asking too much of any IT department. It may be that the lack of documents produced by the defendants (this is discussed below) puts the court in the position of trying to fashion a rationale for punishment. But taken literally, the effects of the opinion could set a difficult, perhaps impossible, standards for compliance with the duty.

Issue 2: Safe Harbor?

The court, to the dismay of many commentators, dismisses the effects of the safe harbor provision in FRCP 37(e). Ralph Losey claims the court “mines” the rule into oblivion. I think what is in play here is that the court feels that the producing party would use Safe Harbor as a rationale for not producing data that it should have. Nevertheless, Safe Harbor’s reach, already attenuated, appears to weaken further in this opinion.

Issue 3: What role does producing party’s information management system play in the sanctions calculus?
The court comes down hard on the IG practices of the producing party. It stated that the system’s architecture, possessed of questionable reliability, should not be excused, though it evolved, rather than was deliberately designed to operate as it does. The result is that it operated to deprive the requesting party of access to evidence.
Traits of this system are described thusly:
[Producing Party] extensively describes its email management and storage practices, to explain the nearly complete absence of emails related to the subject of this litigation.

First, [Producing Party] says its email servers are not designed for archival purposes, and employees are instructed to locally preserve any emails of long term value.

[Producing Party] employees send and receive email via company email servers.

Storage on [Producing Party's] email servers is limited, and the company directs employees to download those emails they deem important or necessary to perform their job function from the company email server to their individual company issued computer.

[Producing Party] informs its employees that any email not downloaded to an employee’s computer are automatically overwritten to make room for additional email storage on ASUSTeK ’s servers.

It is [Producing Party's] routine practice that its employees download to their individual computer those emails the employee deems important or necessary to perform his or her job function or comply with legal or statutory obligations.

Second, ASUS employee computers are periodically replaced, at which time ASUS places all archiving responsibility for email and other documents on its employees. During the course of their employment, ASUSTeK employees return their individual company issued computers in exchange for newer replacement computers.

40. The hard drives of all computers returned to or exchanged with the company are formatted to erase all electronic information stored on these computers before they are recycled, reused or given to charity.

41. During a computer exchange, it is [Producing Party's] practice to direct its employees to download those emails and electronic documents from the employee’s individual computer to the employee’s newly issued computer that the employee deems important or necessary to perform his or her job function or comply with legal or statutory obligations.

The court stated that descriptions these data management practices may explain why relevant e-mails were not produced, but it did not establish the Producing Party’s good faith in managing its data. It calls the information management practices of the producing party “questionable” and that although an organization may design its systems to suit its business purposes, the information management practices are still accountable to such third parties as adversaries in litigation. The court opines that: “[a] court – and more importantly, a litigant – is not required to simply accept whatever information management practices a party may have. A practice may be unreasonable, given responsibilities to third parties.

Furthermore, while the court accepts that the Producing Party’s system “evolved” rather than was purposefully designed with the goal of hiding data needed for litigation, it nevertheless quoted the Sedona Conference: “An organization should have reasonable policies and procedures for managing its information and records.”

Finally, the court took aim at the practice of allowing individual users to drive retention practices, when it stated: “[Producing Party's]‘ practices invite the abuse of rights of others, because the practices tend toward loss of data. The practices place operations-level employees in the position of deciding what information is relevant to the enterprise and its data retention needs.”

Issue 4: How does the producing party’s lack of produced data on certain subjects in the aggregate balanced against the absence of specific evidence of wrong-doing by requesting party?

Producing Party turned over executable files of their own invention, but failed to surrender the source code for those executables. They also failed to produce other relevant executables and related source code, or “a single document” relating to the development of the applications under scrutiny. The court expressed concern over the absence of certain types of documents from the production:

[Producing Party's] only response is that it has produced a large volume of documents. That may be the case; but, it has not produced the most critical documents – those that relate to its misappropriation, its copying, and its willful behavior. The only conclusion after all this time is that [Producing Party] has destroyed critical evidence that it simply cannot show did not exist.

By this expression, the court adopted Requesting Party’s argument that Producing Party had “’spoliated the most critical evidence in this case, e.g., test programs and related source code’ “[S]ince [Producing Party] has not produced it, the only conclusion is that [they have destroyed it."

The court also noted, in its analysis of Producing Party's objection to the admissibility of data produced by third parties on grounds of authentication, that the Producing Party, while claiming "a near total absence of evidence...[sought] to eliminate the only evidence available. The court concluded that such tactics should not prevail to “prevent consideration of the best evidence available.”

Requesting Party listed types of documentation that they would expect Producing Party to possess, but never received during production. Communications and documentation from outside sources contributed to a suspicion that such documentation once existed. Indeed, as the court examines the Producing Party’s duty to preserve, it leads off by stating: “[t]he universe of materials we are missing is very large. Indisputably, we have very little evidence compared to what would be expected.”

In dismissing arguments that destruction of the data in question was covered by the “Safe Harbor” provision under FRCP 37(e), the court stated: “[o]ther than the patent application and the executable file, it does not appear [Producing Party] has produced any significant tangible discovery on the topics where information is conspicuously lacking.”

Ultimately the court found that Producing Party had breached its duty to preserve relevant data. It appears from the information above that the dearth of critical documentation from the Defendant’s productions was a significant contributor to the ruling, but the court does not explain the weight to which it assigned this as an element in its ruling.

Case Blurb: Nursing Home Pension Fund; Standards for the imposition of ‘lesser sanctions’

The parties debate whether plaintiffs must demonstrate prejudice before the Court can impose lesser sanctions. The Ninth Circuit has recognized that it has sent conflicting signals regarding whether prejudice must be shown in order for the sanction of dismissal to be appropriate. A court in this district recently clarified that the Ninth Circuit has required a showing of prejudice only when courts are acting under Federal Rule of Civil Procedure 37, which applies when a party disobeys a court order regarding discovery. When acting under its inherent authority, however, a district court need not consider prejudice to the party moving for sanctions…and prejudice has not been required when a party moves for lesser sanctions. Here, the Court is considering lesser sanctions in the form of an adverse inference, and even assuming prejudice is required, the Court notes that it would be quite difficult for plaintiffs to demonstrate how they were harmed by evidence to which they do not have access.

Nursing Home Pension Fund v. Oracle Corp., 2008 WL 4093497 at *5 (N.D.Cal. Sept. 2, 2008) (internal citations removed).

Case Blurb: Nursing Home Pension Fund; Court discusses ‘legal control’ of evidence

[Requesting Party] additionally allege[s] that defendants failed to preserve or destroyed documents created in preparation for a book entitled Softwar: An Intimate Portrait of Larry Ellison and Oracle (“Softwar” ). The book was written by Matthew Symonds, an author and editor with The Economist, who conducted at least 135 hours of recorded interviews between March 2001 and August 2002 with defendant Ellison. In October 2006, plaintiffs moved to compel defendants to produce the transcripts and audio files of these Softwar interviews. Defendants argued that the materials were not in their custody or control, and Symonds also asserted that the materials were his sole property. On January 2, 2007, Special Master Infante determined that although such materials were in the physical possession of Symonds, Ellison had legal control of them pursuant to a contract between Symonds and Ellison. Winkler Decl. ex. 194. As a result, Special Master Infante ordered defendants to produce copies of “any interview notes, transcripts or tape recordings relating to the book.” Id. at 4. Shortly thereafter, it was revealed that Symonds no longer had the materials in question, and it appears that Symonds may have discarded the laptop computer containing the transcripts and audio files after he learned of plaintiffs’ motion to compel.

Nursing Home Pension Fund v. Oracle Corp., 2008 WL 4093497 at *2 (N.D.Cal. Sept. 2, 2008).

Case Blurb: In re 11th Liab. Ins. Coverage; Attorneys’ obligations in Discovery

Discovery is run largely by attorneys, and the court and the judicial process depend upon honesty and fair dealing among attorneys. Thus the court may impose appropriate sanctions on a party that, without substantial justification, fails to disclose information required by Rule 26(a) or 26(e)(2). A failure to disclose under Rule 37 encompasses both the destruction of evidence, or spoliation, and untimely production of documents and information required to be produced.

In re September 11th Liab. Ins. Coverage Cases, 243 F.R.D. 114, 31-32 (S.D.N.Y. 2007).

Blogging LegalTech West 2008: Litigation Holds

The second, and for me last, presentation of the day was “Ready…Set…Preserve: Navigating the Legal Hold Process and Technology. The panel consisted of Patrick Oot of Verizon, Kraft’s Chief Counsel Theodore Banks, and American Electric Power’s Kamal Kamara.

The rule of thumb that triggers a legal hold is (say it with me class), the date when litigation may be reasonably anticipated. The very last date that can be justified for the issuance of a legal hold is the date the complaint is actually filed. The first step to implementing a legal hold is to determine the identity of the key players. However, before the hold is even necessary, some preemptive actions should have been addressed. Litigation readiness best practices suggest that record management training for all employees is important. These rules apply:

1. The guidelines employees study must be related to their jobs.
2. Information on how to comply with relevant policies should be easy to find. They should have access to manuals, or intranet web sites with the necessary guidelines.
3. Training should be consistent, and reinforced periodically.

The purpose of the legal hold is to stop destruction of potentially responsive information, identify that data, and save it. Employees should understand the consequences of failing to comply, and where to get help when they have questions.

Mr. Banks explained that for Kraft, the legal hold was triggered later than would be appropriate for some others, because of the nature of the complaints his company confronted, and the design of its information system. Much of the data needed was historical information that was preserved anyway, often for reasons of compliance with federal retention laws.

Mr. Kamara described his company’s home-built lit hold solution as being similar to e-vite. All three companies used custom built solutions rather than “off the shelf” products.

Some important points: acknowledgment by recipients is an essential component to a lit hold system; audit trails and the availability of reports is important.

I enjoyed this presentation more than the previous session. The panelists were good, but I also got to see screenshots of various systems, which I found interesting. The next step now is to see how technology can be used not only to issue notice of a hold, but to also take action to prevent actual destruction of information.