The Danger of Destroying Documents When the Possibility of Litigation Arises
By: Colin A. Walker and Michael R. McCurdy
Businesses commonly discard or delete documents in the ordinary course of business, often pursuant to document retention/destruction policies. This practice, however, can conflict with a litigant's duty to preserve documents that are relevant to litigation. The duty to preserve evidence can even arise prior to the filing of a lawsuit. In this age of electronic documents, corporate counsel and managers can easily overlook some types of documents before and after a complaint is served. Courts impose sanctions ranging from monetary penalties to default judgment for destruction of relevant documents. Even a well thought-out document retention policy, though helpful, will not necessarily save an inattentive business from such sanctions. Businesses must be vigilant and attentive to their duty to preserve relevant documents from the time that the possibility of litigation arises.
When Does the Duty to Preserve Evidence Arise?
“The obligation to preserve evidence arises when the party has notice that the evidence is relevant to litigation or when a party should have known that the evidence may be relevant to future litigation.” Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 216 (S.D.N.Y. 2003) (“Zubulake IV”); see also, Cache La Poudre Feeds, LLC v. Land O'Lakes, Inc., 244 F.R.D. 614, 621 (D. Colo. 2007); Leahy and Gilchrist, 126 Am. Jur. Proof of Facts 3d 1, Sanctions for Spoliation of Electronic Evidence § 12, p. 13 (2012)(citing numerous cases).
However, “[w]hile a party should not be permitted to destroy potential evidence after receiving unequivocal notice of impending litigation, the duty to preserve relevant documents should require more than a mere possibility of litigation.” Cache La Poudre, at 621. In Cache La Poudre, the District of Colorado held that a demand letter without a threat of litigation was insufficient to trigger the duty to preserve evidence. The court explained:
This court recognizes that under different circumstances, a demand letter alone may be sufficient to trigger an obligation to preserve evidence and support a subsequent motion for spoliation sanctions. However, such a letter must be more explicit and less equivocal than Cache La Poudre's….
Other courts have held that a letter threatening litigation was sufficient. See, e.g., Washington Alder LLC v. Weyerhaeuser Co., 2004 WL 4076674 (D.Or. 2004) (finding that a letter from plaintiff threatening to sue for antitrust violations put defendant on notice of possible litigation and triggered a duty to preserve documents). The Cache La Poudre court observed, “Given the dynamic nature of electronically stored information, prudent counsel would be wise to ensure that a demand letter sent to a putative party also addresses any contemporaneous preservation obligations.”
Courts have also found that the duty to preserve evidence is triggered prior to service of the complaint in situations such as: employee’s statements that she was going to file an employment discrimination case, see, Capellupo v. FMC Corporation, 126 F.R.D. 545 (D.Minn. 1989); reports from paid informants within the plaintiff's organization that that suit was going to be filed, see, Alliance to End Repression v. Rochford, 75 F.R.D. 438 (N.D.Ill. 1976); and other litigation on similar subjects, see, Shaffer v. RWP Group, Inc., 169 F.R.D. 19 (E.D.N.Y. 1996).
Courts have held it to be improper for a plaintiff to destroy documents before it files suit, but after the decision to sue has been made. See Struthers Patent Corporation v. Nestle Co., 558 F.Supp. 747, 758-59, 765 (D.N.J. 1981). It may seem obvious that if one is contemplating a lawsuit, one must preserve the relevant documents. However, the danger of inadvertently destroying documents in this situation may not be as obvious as it seems. If a corporate plaintiff has a well-established document retention and destruction policy, it would be easy to overlook the fact that documents are being destroyed in the course of daily operations. Managers need to review and if necessary interrupt a standard procedure of document destruction when they begin to contemplate filing a lawsuit. The decision cannot wait until the complaint is filed and certainly not until requests for production are received.
What Must be Preserved?
The question then arises, what must be preserved? Zubulake held:
While a litigant is under no duty to keep or retain every document in its possession... it is under a duty to preserve what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery and/or is the subject of a pending discovery request.
Id. at 217. The duty to preserve continues through the litigation. “A party must ensure that relevant information is retained on a continuing basis once the preservation obligation arises.” Cache La Poudre, at 629. “While instituting a “litigation hold” may be an important first step in the discovery process, the obligation to conduct a reasonable search for responsive documents continues throughout the litigation.” Id., at 630.
All relevant aspects of the document should be preserved. In some cases, metadata must be preserved. See Aguilar v. Immigration and Customs Enforcement Div. of U.S. Dept. of Homeland Sec., 255 F.R.D. 350, 355 (S.D.N.Y. 2008) (holding, “Metadata thus is discoverable if it is relevant to the claim or defense of any party and is not privileged”); Williams v. Sprint/United Management Co., 230 F.R.D. 640, 652 (D.Kan. 2005) (quoting Sedona Principles for Electronic Document Production) (holding, “all metadata ordinarily visible to the user of the Excel spreadsheet application should presumptively be treated as part of the “document” and should thus be discoverable”); Chevron Corp. v. Stratus Consulting, Inc., 2010 WL 3489922, 4 (D.Colo. 2010) (requiring production of metadata, but at the cost of the requesting party).
The Federal Rules of Civil Procedure now contain specific provisions addressing discovery regarding electronically stored information (“EIS”). Federal Rule of Civil Procedure 26(f)(3)(C) requires parties to include a plan for electronically stored information in their discovery plan, including the form in which is should be produced. Rule 34(b)(1)(C) provides that a party may specify the form in which electronic documents are to be produced. However, Rule 26(b)(2)(B) provides that parties need not provide discovery of electronically stored information if it is “not reasonably accessible due to undue burden or cost.” However, if a motion to compel is filed, the party must prove that the information is not reasonably accessible due to cost.
Under some circumstances, a party will have a duty to preserve evidence in the possession of a third party. In Shamis v. Ambassador Factors Corporation, 34 F.Supp.2d 879 (S.D.N.Y. 1999), the court imposed sanctions where the defendant's official receiver in Hong Kong destroyed relevant documents with the defendant's knowledge. Prior to the destruction, the receiver notified the defendant that the destruction was planned and gave it an opportunity to review and copy the documents. Id. at 888. The defendant, in fact, copied some documents for its own use. Id. However, it failed to notify the plaintiff or the court of the situation. Id. Though finding that the defendant was not "as fully accountable as if he destroyed the documents himself," the court held that "[the defendant] is not without accountability here." Id. at 889. By failing to notify the plaintiff and court that the destruction would occur, thus providing the plaintiff with the same opportunity the defendant had to review and copy the documents, the defendant violated its duty to preserve.
Some courts have suggested that litigants may have a duty to contact former employees to determine if they have relevant information. See, e.g., Cach La Poudre, at 627.
There is a limit. For example, Hansen v. Dean Witter Reynolds, Inc., 887 F.Supp. 669 (S.D.N.Y. 1995), refused to impose sanctions because, even though the duty to preserve documents had attached, it was not clear that the specific documents destroyed had sufficient relevance to give the defendant notice that they needed to be preserved. Id. at 676.
Negligent or Intentional Destruction
In general, courts may impose non-dispositive sanctions without a showing of bad faith or willful conduct. See 103 Investors I, L.P. v. Square D Co., 470 F.3d 985, 988 (10th Cir. 2006) (imposing sanction of exclusion of evidence). However, for more serious sanctions, such as an evidentiary inference that the evidence would have been harmful, some courts have held that a showing of bad faith is required. See, e.g., Aramburu v. Boeing Co., 112 F.3d 1398, 1407 (10th Cir.1997) (holding 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”). Other courts have held that negligence is enough. Pace v. National R.R. Passenger Corp., 291 F.Supp.2d 93, 98 (D.Conn. 2003), imposed sanction of an adverse inference where documents were destroyed negligently pre-litigation pursuant to a document retention policy, holding “the sanction of an adverse inference may be appropriate in some cases involving the negligent destruction of evidence because each party should bear the risk of its own negligence.” Id. at 99 (quoting Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99, 108 (2nd Cir. 2002)).
Retention policies may be helpful, if reasonable, in avoiding sanctions for document destruction. However, they will not necessarily eliminate exposure and may even increase the risk of sanctions. Courts have imposed sanctions even while admitting that the document retention policy was legitimate under normal circumstances. It is the litigant’s responsibility to interrupt the retention policy if it would result in destruction of relevant documents. As Zubulake explained:
Once 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. As a general rule, that litigation hold does not apply to inaccessible backup tapes (e.g., those typically maintained solely for the purpose of disaster recovery), which may continue to be recycled on the schedule set forth in the company’s policy. On the other hand, if backup tapes are accessible (i.e., actively used for information retrieval), then such tapes would likely be subject to the litigation hold.
Zubulake IV, at 218. However, the court noted an exception to this: “If a company can identify where particular employee documents are stored on backup tapes, then the tapes storing the documents of ‘key players’ to the existing or threatened litigation should be preserved if the information contained on those tapes is not otherwise available.” Id.
Stevenson v. Union Pacific R. Co., 354 F.3d 739, 746 (8th Cir. 2004), held that the following factors should be considered in determining whether to impose sanctions where documents are destroyed pursuant to a document retention policy: “(1) whether the record retention policy is reasonable considering the facts and circumstances surrounding those documents, (2) whether lawsuits or complaints have been filed frequently concerning the type of records at issue, and (3) whether the document retention policy was instituted in bad faith.”
Many retention policies mirror the mandatory retention periods imposed by government regulations. See, Turner v. Hudson Transit Lines, Inc., 142 F.R.D. 68, 73 (S.D.N.Y. 1991); Hansen v. Dean Witter Reynolds, Inc., 887 F.Supp. 669, 675 (S.D.N.Y. 1995). The fact that regulations allow records to be destroyed after a certain amount of time, however, does not mean that the party is free to destroy them where they are relevant to litigation. Again, if the party knew or should have known that the documents would be reasonably calculated to lead to evidence relevant to litigation, the court may impose sanctions. Id.
Motions for Sanctions
The party seeking sanctions has the burden of proving that the other party violated its duty to preserve evidence. Smith v. Slifer Smith & Frampton / Vail Associates Real Estate, LLC, 2009 WL 482603, *3 (D. Colo. 2009). However, “Courts must take care not to hold the prejudiced party to too strict a standard of proof regarding the likely contents of the destroyed or unavailable evidence, because doing so would ... allow parties who have destroyed evidence to profit from that destruction.” Id. at *12.
“In determining whether sanctions are appropriate, the court must first determine whether the missing documents or materials would be relevant to an issue at trial. If not, then the court's analysis stops there. If the missing documents would be relevant, the court must then decide whether [the party] was under an obligation to preserve the records at issue. 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.” Cache La Poudre, at 621.
The sanctions should “(1) deter parties from engaging in spoliation; (2) place the risk of an erroneous judgment on the party who wrongfully created the risk; and (3) restore the prejudiced party to the same position he would have been in absent the wrongful destruction of evidence by the opposing party.” West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir.1999).
Types of Sanctions
Courts have imposed a wide range of sanctions for improper destruction of documents. Sanctions are likely to be less severe where the duty is less clear. Barsoum v. NYC Housing Authority, 202 F.R.D. 396, 400 (S.D.N.Y. 2001)(holding "[t]he level of intentionality goes directly to the degree of severity of any sanction that may be awarded"). Default is usually reserved for intentional conduct. See, e.g., Computer Associates International, Inc. v. American Fundware, Inc., 133 F.R.D. 166 (D.Colo. 1990). Criminal laws also apply to the willful destruction of evidence. See, e.g., 18 U.S.C. § 1503. Another well-established sanction is an evidentiary inference that the destroyed documents would have been favorable to the other party. See, e.g., Surowiec v. Capital Title Agency, Inc., 790 F. Supp. 2d 997 (D. Ariz. 2011). The offending party may also be precluded from introducing testimony based on the destroyed evidence. Thompson v. U.S. Dept. of Housing and Urban Development, 219 F.R.D. 93, 104 (D. Md. 2003). For the least serious cases, courts tend to impose monetary sanctions, such as ordering the offending party to pay the other's costs and attorneys' fees. See, e.g., U.S. v. Philip Morris USA, Inc., 327 F. Supp. 2d 21 (D.D.C. 2004). A number of states have also recognized a civil cause of action for intentional destruction of evidence and even negligent destruction of evidence. See, e.g., Hirsch v. General Motors Corporation, 628 A.2d 1108 (N.J.Super. 1993)(citing cases).
In Computer Associates International, Inc. v. American Fundware, Inc., 133 F.R.D. 166 (D.Colo. 1990), the court imposed the most sever sanction of default. There, the plaintiff claimed that the defendant had improperly copied its computer code. Id. at 168. The plaintiff voiced these concerns to the defendant first in October of 1986, then in a meeting on December 4, 1986. Id. The complaint was served on December 23, 1986. Id. The defendant had a practice of saving only the current version of its computer code; previous versions were deleted, a practice that the Court found to be legitimate under normal circumstances. Id. The court held, however, that once the defendant was on notice of the dispute, it had a duty to stop the process of erasing previous codes. Id. The court found it "inconceivable that after the October 1986 meeting, [the defendant] did not realize that the software in its possession would be sought through discovery." Id. at 169. The court granted default judgment in favor of the plaintiff. It should be noted, however, that the defendant continued its practice of deleting prior versions of the code, even after service of the complaint, discovery requests, and filing of a motion to compel. Id. Had the destruction occurred only prior to service of the complaint, the court may have imposed lesser sanctions. See also Southern New England Telephone Co. v. Global NAPs, Inc., 251 F.R.D. 82 (D. Conn. 2008), aff'd, 624 F.3d 123 (2d Cir. 2010).
Ehrenhaus v. Reynolds, 965 F.2d 916, 921 (10th Cir.1992), held “Before choosing dismissal as a just sanction, a court should ordinarily consider a number of factors, including (1) the degree of actual prejudice to the defendant; (2) the amount of interference with the judicial process; ... (3) the culpability of the litigant, ... (4) whether the court warned the party in advance that dismissal of the action would be a likely sanction for noncompliance, ... and (5) the efficacy of lesser sanctions.”
Another issue that has become important in the age of technology are programs designed to permanently delete information, commonly known as “scrubbing” or “wiping” programs. Like retention policies, wiping programs have legitimate purposes, such as erasing confidential information from an employee’s computer after his/her employment ends. However, when it is used to delete information in violation of a litigant’s duty to preserve evidence, it can result in serious sanctions. For example, in Smith v. Slifer Smith & Frampton / Vail Associates Real Estate, LLC, 2009 WL 482603 (D. Colo. Feb. 25 2009), a litigant used wiping software called “Anti-Tracks,” to delete information from several key computers after a complaint had been filed. Finding that the moving party had met its burden of “adducing sufficient evidence to support an inference that some of the missing data was harmful to their case,” the court imposed an adverse inference sanction. Declining to impose the sanction of default, the court held, “while the court finds that the destruction of evidence here was the result of willfulness and bad faith, upon consideration of the circumstances presented in the instant motion and the so-called “Ehrenhaus factors,” the extreme, severe sanction of a dispositive sanction, namely, entry of default judgment (albeit tempting under the circumstances presented here) is not recommended.” Id. at *13.
While the defendants in Smith v. Slifer avoided default, their use of a wiping program subjected them to serious sanctions, including an evidentiary inference and they came perilously close to the ultimate sanction of default. A different court under slightly different circumstances might well be more than “tempted” to grant default for the bad faith use of a wiping program.
Businesses must pay close attention to the duty to preserve evidence when the possibility of litigation arises. Legitimate document retention polices and other bona fide business reasons for purging documents will not excuse improper destruction of documents. The potential consequences for such a failure can be serious. Awareness and well-developed procedures will help to minimize exposure to sanctions.
This Article is published for general information, not to provide specific legal advice. The application of any matter discussed in this article to anyone's particular situation requires knowledge and analysis of the specific facts involved.
Copyright © 2012 Fairfield and Woods, P.C., ALL RIGHTS RESERVED.
Comments or inquiries may be directed to:
Colin A. Walker