John K. Rabiej on the Consequences of Failing to Impose a Timely Litigation Hold

John K. Rabiej on the Consequences of Failing to Impose a Timely Litigation Hold

In Field Day v. County of Suffolk, 2010 U.S. Dist. LEXIS 28476 (E.D.N.Y. Mar. 25, 2010), the plaintiff alleged that a substantial volume of ESI was destroyed because the defendant had taken no steps to preserve ESI when it became aware of the litigation. The plaintiff filed a motion for sanctions seeking an adverse inference against the defendant for failing to implement a litigation hold to prevent the destruction of ESI in its control. The plaintiff relied on Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, 2010 U.S. Dist. LEXIS 4546 (S.D.N.Y. Jan. 15, 2010), a recent opinion by Judge Scheindlin, author of the Zubulake ESI opinions, which held that the failure to issue a written litigation hold notice and implement a litigation hold constitute “gross negligence.” The consequence of this latter finding becomes critical in a case seeking severe sanctions because it has the effect of switching the burden of proof from the requesting party to the producing party to prove that any destroyed or missing ESI evidence is not relevant and would not prejudice the requesting party’s interests. Because it is often extremely difficult to prove the prior existence of deleted ESI, let alone its relevancy or prejudicial effect, the burden shift can be significant.

Elements for Imposing Sanctions for Violating Preservation Duty: Ordinarily, a requesting party who seeks sanctions for destruction of ESI must prove three elements, including: (1) the producing party had control over the ESI and a duty to preserve it at the time that it was lost or destroyed; (2) the producing party acted with a culpable state of mind in destroying or losing the ESI; and (3) the destroyed or missing ESI was relevant and its loss prejudicial to the requesting party’s claims or defenses. In many cases, the requesting party can demonstrate that the opposing party had control over and a duty to preserve the ESI that was destroyed or lost. It can also show that the opposing party was culpable in allowing the destruction or loss of ESI. But it is the third element that usually poses the greatest procedural hurdle. The requesting party frequently fails to prove by extrinsic evidence that the ESI was relevant or that the loss of ESI was prejudicial to its claims or defenses, which precludes the imposition of the severest sanctions. The showing is difficult to make because the requesting party typically has little or no knowledge of what ESI in the producing party’s control actually existed before its destruction.

To be sure, case law recognizes certain types of circumstantial evidence that can help substantiate a finding that ESI was lost or destroyed and that it was relevant. If selected groups of documents were retained from a certain point in time and not beyond, the inference can be drawn that the same documents existed during an earlier time but were deleted. Inferences can also be drawn from missing e-mails from e-mail chains. See John K. Rabiej on the Requesting Party’s Options When Little or No ESI is Produced in Discovery, 2009 Emerging Issues 3808. Though such circumstantial evidence can be helpful, it is not always available. In many cases, the requesting party simply has no clue what information was contained in the destroyed or lost ESI. The requesting party only knows that “some” ESI was destroyed either intentionally or through automatic purging programs and suspects that it was relevant and its loss prejudicial to its interests. Under these circumstances, meeting its burden to prove the relevance of lost or destroyed ESI in support of a sanctions motion is often impracticable. Judge Scheindlin describes the difficulty in the following words:

The third preliminary matter that must be analyzed is what can be done when documents are no longer available. This is not an easy question. It is often impossible to know what lost documents would have contained. At best, their content can be inferred from existing documents or recalled during depositions. But this is not always possible. Who then should bear the burden of establishing the relevance of evidence that can no longer be found? And, an even more difficult question is who should be required to prove that the absence of the missing materials has caused prejudice to the innocent party. Id. at *16.

Burden of Proof Shifts: Pension Comm. of Univ. of Montreal Pension Plan addresses the burden of proof issue head-on. Most courts limit a finding of gross negligence to relatively extreme conduct, typically involving the wilful and deliberate destruction of ESI, e.g., wiping clean a hard drive. But Judge Scheindlin’s holding goes farther and finds that the failure to issue a written litigation notice and implement a litigation hold in accordance with well-established ESI standards constitute “gross negligence.” When a court makes this finding, the burden of proof shifts from the requesting to the producing party, at least in cases seeking severe discovery sanctions. Instead of the requesting party proving the relevance of lost or destroyed ESI and consequent prejudice to its claims or defenses, the producing party has the burden to rebut the presumption against it and prove that the lost or destroyed ESI is not relevant and would not have prejudiced the requesting party. Though the producing party typically is in a better position than the requesting party to prove the non-relevancy and non-prejudicial effects of missing or destroyed ESI, in many cases that task remains formidable.

The court agreed with the plaintiff in Field Day that the defendant failed to issue a written litigation hold notice and to implement a litigation hold. Despite recognizing the merits of the holding in Pension Comm. of Univ. of Montreal Pension Plan, the court in Field Day declined to find that the defendant acted with gross negligence. It held that the defendant acted only with negligence. The court reasoned that the destruction of ESI in the case occurred prior to the 2006 amendments to the Civil Rules when the applicable case law on litigation hold notices and litigation holds was unsettled. As such, the defendant did not act willfully or in bad faith. Finding that the defendant “only” acted negligently, the burden to prove the relevancy and prejudicial effects of the lost or destroyed ESI remained with the plaintiff, who failed to meet its burden. As a result, the court declined to impose the requested severe sanction, an adverse inference, against the defendant. But the finding of negligence was sufficient to impose a monetary sanction of reasonable attorney fees and costs incurred in connection with the motion.

Litigation Hold Notices and Litigation Holds: Pension Comm. of Univ. of Montreal Pension Plan underscores the critical importance of imposing a litigation hold in every ESI case. At a minimum, failure to issue a written litigation notice or to implement a litigation hold in such cases constitutes negligence. If adopted by other jurisdictions, Judge Scheindlin’s shifting of the burden of proof when a litigation hold is not implemented could have profound consequences, especially because a large percentage of lawyers continue to fail to issue a written litigation hold notice and implement a litigation hold to prevent the destruction of ESI in the hands of their clients. See Rabiej, Litigation Costs and Delay Surveys Shed Light on E-Discovery Practices, 2009 Emerging Issues 4673. The defendant’s failure to implement a litigation hold in Field Day did not shift the burden of proof. But the defendant’s excuse for failing to implement a litigation hold will have no force for a party involved in more recent litigation. Consequently, the need to understand what a litigation hold notice should contain and how to implement an effective litigation hold has become more urgent because a failure to do so may lead to severe sanctions.

Lessons: Litigation holds should routinely be implemented in an ESI case. When litigation is imminent, a client should be advised to take steps to preserve evidence and to suspend any operation that automatically deletes potential evidence, like routine purging of e-mails. The litigation notice should be in writing and, depending on the context of the litigation, should:

• describe in plain English the nature of the issues in the lawsuit and the relevant time period, as derived from all the pertinent pleadings, so that everyone in the organization can understand it;
• define clearly in comprehensible terms the scope of the preservation obligation, including the criteria for identifying potentially relevant ESI;
• clearly instruct employees not to delete, modify or alter any ESI subject to the litigation hold;
• identify the likely witnesses and “key” persons with knowledge of the relevant events;
• identify the specific types of ESI that must be preserved, including e-mail and attachments, word processing documents, spreadsheets, images, databases, instant messages, etc.;
• identify the sources and storage media for relevant evidence that must be preserved;
• address whether metadata, deleted or fragmented data must be preserved;
• inform the employees whether the ESI should be preserved in place or transmitted to a central repository using forensically sound methods.

The scope of the litigation hold will vary depending on the circumstances because it may be unreasonable to apply the same preservation requirements to all employees, especially in large organizations. Under the particular facts in a case, it may be more reasonable to apply strict preservation requirements only to “key players” involved in the litigation, while applying looser requirements to other employees who likely will not be participants in the litigation or possess relevant ESI. More aggressive measures should be taken to identify and preserve all ESI controlled by key custodians in various storage devices, including personal digital assistants and laptop computers. A reasonable balancing approach should be adopted.

To promote compliance with the litigation hold, the notice should contain a statement of the company’s commitment to preserve evidence and to cooperate with judicial requests for information. The notice should also refer to the pertinent provision of the company’s record retention policy, reminding employees of their specific preservation obligations.

The measures taken in the litigation-hold process to preserve evidence should be documented as evidence of the party’s good faith and reasonableness in meeting its preservation obligations. The documentation will be useful in defending against any spoliation charges and any allegations of gross negligence.

About the author:

John K. Rabiej is the chief of the Rules Committee Support Office of the Administrative Office of the United States Courts. His office staffs the Advisory Committees of Appellate, Bankruptcy, Civil, Criminal and Evidence Rules, and the Committee on Rules of Practice and Procedure of the Judicial Conference of the United States. He has served as chief since 1992. As chief of the office he works directly with the rules committees’ chairs and reporters on drafts of proposed rule amendments and prepares reports to the Judicial Conference and Congress on the amendments. He is a graduate of the University of Illinois College of Law. He was inducted into the American Law Institute in May 2004. The views expressed in the commentary represent Mr. Rabiej’s opinions and do not necessarily reflect the views of the rules committees.