Litigation Hold, Adverse Inference and Additional eDiscovery Costs

In Melendres v. Arpaio, CV-07-2513-PHX (D. Ariz. February 11, 2010) (UNPUBLISHED),  U.S. District Court Judge G. Murray Snow granted plaintiffs’ motion for sanctions and ruled that the Maricopa County Sheriff’s Office (“MCSO”) failed to issue a timely litigation hold resulting in the destruction of relevant documents, including e-mails.

In discovery, plaintiffs learned the MCSO shredded relevant documents (i.e., stat sheets) and deleted e-mails.  In addition, not a single deponent was aware of their obligation to preserve evidence.

The court found the MCSO was at least negligent in failing to preserve the stat sheets and permitted plaintiffs to file suggested possible adverse inferences concerning the destroyed stat sheets.  With respect to e-mails, the defendants admitted that they had purged all email communications related to the immigration sweeps.

However, certain e-mails that were separately saved by a user may still be recoverable.  The court deferred the issue of sanctions until defendants provided to plaintiffs:  (1) a description of the steps taken to recover all responsive e-mails from active and back-up systems; (2) a complete list of the new documents that have been recovered and the dates of recovery; (3) the sources from which the additional documents were recovered; (4) the inherent limitations on defendants search for documents that were imposed by defendants’ document retention systems; and (5) the components of that system.

The above content is taken from the Ryley Carlock & Applewhite website and can be read in its entirerty here.

This case highlights the need for a timely litigation hold notice for all potentially responsive ESI including email. It also points out the additional costs which can be incurred if the litigation hold requirement is not followed. Point one in the paragraph above calls out the additional requirement for MCSO to now check all backup systems for potentially responsive emails that were deleted. This process can be extremely expensive and time consuming.

Ideally, a properly administered litigation hold process would negate the need to restore backup tapes which can run between $2900 to $4500 per tape restored.

Anatomy of an Adverse Inference

In the investor related action, Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Secs, No. CIV. 05-9016, 2010 U.S. Dist. LEXIS 1839 (S.D.N.Y. Jan. 11, 2010) the defendants, who were connected to a hedge fund that lost money, sought sanctions against the plaintiffs for failing to preserve and produce documents, including ESI, and for submitting false declarations regarding their collection and production efforts. The Judge in this case was the Honorable Shira A. Scheindlin.

This case came down to two questions about litigation holds: when should a litigation hold be initiated, and what actions are required in the placement and tracking of the litigation hold.

In addressing the charges of spoliation, the court’s opinion included:

“[i]t is well established that the duty to preserve evidence arises when a party reasonably anticipates litigation. “‘[O]nce a party reasonably anticipates litigation; it must suspend its routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents.’” A plaintiff’s duty is more often triggered before litigation commences, in large part because plaintiffs control the timing of litigation.

When the spoliating party’s conduct is sufficiently egregious to justify a court’s imposition of a presumption of relevance and prejudice, or when the spoliating party’s conduct warrants permitting the jury to make such a presumption, the burden then shifts to the spoliating party to rebut that presumption.

“[i]n short, the innocent party must prove the following three elements: that the spoliating party (1) had control over the evidence and an obligation to preserve it at the time of destruction or loss; (2) acted with a culpable state of mind upon destroying or losing the evidence; and that (3) the missing evidence is relevant to the innocent party’s claim or defense.”

The Court issued the following adverse inference instruction to the jury:

The Citco Defendants have demonstrated that most plaintiffs conducted discovery in an ignorant and indifferent fashion. With respect to the grossly negligent plaintiffs – 2M, Hunnicutt, Coronation, the Chagnon Plaintiffs, Bombardier Trusts, and the Bombardier Foundation – I will give the following jury charge:

The Citco Defendants have argued that 2M, Hunnicutt, Coronation, the Chagnon Plaintiffs, Bombardier Trusts, and the Bombardier Foundation destroyed relevant evidence, or failed to prevent the destruction of relevant evidence. This is known as the “spoliation of evidence.”

Spoliation is the destruction of evidence or the failure to preserve property [*104] for another’s use as evidence in pending or reasonably foreseeable litigation. To demonstrate that spoliation occurred, the Citco Defendants bear the burden of proving the following two elements by a preponderance of the evidence:

First, that relevant evidence was destroyed after the duty to preserve arose. Evidence is relevant if it would have clarified a fact at issue in the trial and otherwise would naturally have been introduced into evidence; and

Second, that 2M, Hunnicutt, Coronation, the Chagnon Plaintiffs, Bombardier Trusts, and the Bombardier Foundation were grossly negligent in their failure to preserve the evidence.

I instruct you, as a matter of law, that each of these plaintiffs failed to preserve evidence after its duty to preserve arose. 250 As a result, you may presume, if you so choose, that such lost evidence was relevant, and that it would have been favorable to the Citco Defendants. In deciding whether to adopt this presumption, you may take into account the egregiousness of the plaintiffs’ conduct in failing to preserve the evidence.

However, each of these plaintiffs has offered evidence that (1) no evidence was lost; (2) if evidence was lost, it was not relevant; and (3) if evidence was lost and it was relevant, it would not have been favorable to the Citco Defendants.

If you decline to presume that the lost evidence was relevant or would have been favorable to the Citco Defendants, then your consideration of the lost evidence is at an end, and you will not draw any inference arising from the lost evidence.

However, if you decide to presume that the lost evidence was relevant and would have been unfavorable to the Citco Defendants, you must next decide whether any of the following plaintiffs have rebutted that presumption: 2M, Hunnicutt, Coronation, the Chagnon Plaintiffs, Bombardier Trusts, or the Bombardier Foundation. If you determine that a plaintiff has rebutted the presumption that the lost evidence was either relevant or favorable to the Citco Defendants, you will not draw any inference arising from the lost evidence against that plaintiff. If, on the other hand, you determine that a plaintiff has not rebutted the presumption that the lost evidence was both relevant and favorable to the Citco Defendants, you may draw an inference against that plaintiff and in favor of the Citco Defendants – namely that the lost evidence would have been  favorable to the Citco Defendants.

Each plaintiff is entitled to your separate consideration. The question as to whether the Citco Defendants have proven spoliation is personal to each plaintiff and must be decided by you as to each plaintiff individually.

The Court also noted, “[w]hile litigants are not required to execute document productions with absolute precision, at a minimum they must act diligently and search thoroughly at the time they reasonably anticipate litigation. All of the plaintiffs in this motion failed to do so and have been sanctioned accordingly.”

The courts are moving towards being much less lenient in the question of when should ESI be protected from deletion due to potential civil litigation and also whats expected of the attorneys in protecting potentially responsive ESI.   Corporate Attorneys should always be conservative in their handling of the litigation hold question.

Place holds quickly, communicate the holds to custodians quickly, even those at the periphery of the case, track the custodians actions around the hold communication, and lastly, document everything.

Taking litigation holds seriously will lower your overall litigation cost and risk.

Another Example of the Litigation Hold Being Ignored

Court Finds Failure to Implement Litigation Hold Gross Negligence but Declines to Order Adverse Inference where Plaintiffs Failed to Establish Relevance of the Information Destroyed

ACORN v. County of Nassau, 2009 WL 605859 (E.D.N.Y. Mar. 9, 2009)

In this case, plaintiffs moved for an adverse inference instruction alleging that Nassau County failed to timely implement a litigation hold which resulted in the destruction of potentially relevant documents and that it failed to adequately search for potentially responsive electronically stored information (“ESI”). Finding that plaintiffs did not sufficiently demonstrate that any lost materials would have been favorable to them, the court denied the motion. However, upon the court’s finding that the County’s failure to implement a timely litigation hold amounted to gross negligence, the court awarded plaintiffs their costs and attorney’s fees. Regarding the County’s failure to search for relevant ESI, the court declined to award sanctions in light of the County’s assertions that manual searches were undertaken, but ordered the County to confirm that their responses were complete.

During discovery, plaintiffs raised concerns regarding the sufficiency of the County’s responses. Specifically, plaintiffs noted that the County’s response to interrogatories indicated that “it did not instruct any of the departments named in the complaint to preserve documents until September 12, 2006” – almost a year and a half after the complaint was filed. Moreover, no action was taken regarding the location, protection, or restoration of ESI until December 22, 2006. Accordingly, plaintiffs filed a motion for sanctions, specifically an adverse inference instruction.

A party seeking an adverse inference instruction must establish three elements: “1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed, 2) that the records were destroyed with a ‘culpable state of mind’ and 3) that the destroyed evidence was ‘relevant’ to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.”

Addressing the duty to preserve, the court indicated that once the duty arises, “a litigant is expected, at the very least, to ‘suspend its routine document and retention/destruction and to put in place a litigation hold’” and to take affirmative action to prevent its systems from destroying routine information. (Citation omitted.) In this case, the duty to preserve arose when the complaint was filed in June 2005.

Despite the County’s numerous defenses, including that it was initially difficult to identify relevant individuals to place under hold and that quick action was taken upon denial of the its motion to dismiss, the court found that the County breached its duty to preserve. Addressing the County’s assertion that a verbal hold was placed initially, the court questioned why the analysis leading to the placement of that hold could not also have been used to prevent the destruction of documents in those departments. The court also observed that no evidence of follow up regarding the verbal hold was submitted.

Turning to the County’s state of mind, the court indicated that “in this circuit, this prong of spoliation can be ‘satisfied by a showing that evidence was knowingly…or recklessly destroyed.’” The court determined that “[p]laintiffs’ position is well-supported by case law holding that failure to implement a litigation hold at the outset of litigation amounts to gross negligence.” The court further noted counsel’s obligation to oversee compliance with such a hold once it is placed. Accordingly, the court found that the County’s failure to implement a litigation hold amounted to gross negligence.

Specifically addressing the failure to suspend the routine destruction of ESI, the court noted that despite the County’s failure to explicitly suspend the destruction, it did maintain an automatic back up system. The system, however, had “at least one gap” resulting in the loss of potentially relevant ESI. Finding no indication that the gap was in any way intentional, however, the court found that the County’s failure to preserve email was, at most, negligent.

Finally turning to relevance, the court indicated that when requesting an adverse instruction, there are two avenues to showing the relevance of allegedly spoliated information: “First it may be inferred if the spoliator is shown to have a sufficiently culpable state of mind” and “[t]he second way is for the moving party to submit ‘extrinsic evidence tending to demonstrate that the missing evidence would have been favorable to it.’” In this case, plaintiffs’ arguments regarding relevance were limited to a statement in a footnote and the submission of five emails purported to establish that other contemporaneous documents were likely destroyed. The court’s analysis of the emails, however, did not support the same conclusion and plaintiffs’ motion for an adverse inference was denied.

In light of its finding of gross negligence arising from the County’s failure to timely implement a litigation hold, though, the court ordered the County to pay plaintiffs’ costs for making the motion, including reasonable attorney’s fees.

The court then turned its discussion specifically to the County’s failure to timely search for potentially responsive ESI. The County admitted that it did not possess the resources to locate and access non-email ESI. Accordingly, plaintiffs argued that it was clear that the County never conducted a search for relevant ESI. However, the County asserted it had instructed “the primary custodians and about 15 other individuals” to search their electronic documents and produce what was responsive.

In determining sanctions, the court noted that “Plaintiffs had not provided any case law suggesting that a ‘manual’ search of electronic files does not satisfy a party’s discovery obligations.” The court also noted, however, that the County had provided differing information regarding the number of persons told to conduct a manual search. Thus, defendants were directed to review and supplement their prior discovery responses and, if they were determined complete, to provide plaintiffs a letter to that effect. No monetary or other sanctions were awarded.

The main questions this case reminds me of is:

  1. Do you have a tested litigation hold policy and procedure in place?
  2. Who in your organization is responsible for implementing it?

This case write up and the full brief can be found at