I generally do not like motions for sanctions against a defendant when they are based on alleged destruction of ESI before suit is filed. All too often these motions are not part of a legitimate pursuit of truth. Instead, they are litigation tactics, just chess moves in litigation as a game. As Bobby Fischer said: “Chess is life.” The players here exploit the frequent inability of a defendant to know when and if a potential plaintiff will sue and exactly claims they will bring if they do sue. The plaintiff causes this vagary to begin with, and then exploits it. This is an unfair strategy and I wish more judges would wise up to this trick.
When to Pull the Trigger?
The timing of the trigger of a pre-litigation hold is often just guesswork. A litigation hold in a large organization, especially when there is just a vague dispute of unknown parameters (again, this vagary is typically controlled by the plaintiff), can be very expensive and burdensome to implement. That burden is a good reason not to trigger a hold prematurely. The expense and disruption may prove to be totally unnecessary. Yet, if you guess wrong, you are susceptible to this kind of tactical attack.
This question of timing of a hold is a huge issue for all large organizations, corporations and government agencies alike. I recall talking to David Shonka, the Assistant General Counsel for Litigation for the Federal Trade Commission, about this issue. The FTC sometimes get sued just like everybody else. He told me that timing of a pre-litigation trigger is a very troubling problem. He found that it is often impossible for him, or anyone else, to know when to impose a litigation hold. Yet, the penalties for guessing wrong can be draconian. See my prior article, e-Discovery at the Harvard Club in New York City, for more on David Shonka’s views on e-discovery.
Some counsel know very well how to take advantage of this grey area. No matter when you decide to pull the trigger and implement a hold, they will argue that it was too late. You should have done it earlier. Again, this is just a chess tactic, not the good faith pursuit of justice. Plaintiffs make the argument to the court with nothing to lose, and everything to gain. All too often judges are persuaded by these Monday morning quarterbacking type arguments. Since a suit is in place, it is easy to argue that the defendant should have seen it coming. After all, it did come. What judges often do not know is the many false alarms of litigation that a big company is faced with every day. Nor do most fully appreciate the tremendous expense and burden of a hold.
Just think how foolish an assistant general counsel looks to management for pulling the trigger, doing the full drill, imposing an expensive hold, and then nothing happens. Worse, the company is forced to keep it in place and just wait to see if a suit is filed. The company could be left guessing for years whether or not the danger is gone. In the meantime, the very real expenses and harassment of the hold continues. Then in situations where counsel guessed wrong and a suit is never filed, the attorneys are left with egg on their face. Statutes of limitation give plaintiffs way too much leeway to delay suit for years.
The bar is sometimes encouraged in this misbehavior by incredible opinions like Phillip M. Adams & Associates, L.L.C., v. Dell, Inc., 2009 WL 910801 (D.Utah March 30, 2009). In Adams a magistrate actually held that a defendant should have imposed a hold eight years before the suit was filed. I found this decision so egregious that I wrote a long, two-part blog about it: Utah Court Mines Safe Harbor Rule 37(e) Into Oblivion – Part One and Part Two: Eight Years of Imminence. I was surprised that some experts, including my friend Craig Ball, argued to the contrary that I was wrong and the Adams was correctly decided. I stand by my opinion and encourage you to read the Adams case and see what you think. As Bobby Fischer said: “My opponents make good moves too. Sometimes I don’t take these things into consideration.”
Although Craig and I agreed to disagree on that one, a a new case has come along where I can easily agree with Craig and side with the plaintiff. KCH Services, Inc. v. Vanaire, Inc. 2009 WL 2216601 (W.D.Ky. July 22, 2009). Here the plaintiff was correct to move for sanctions against the defendant for pre-suit spoliation. KCH Services shows that the imposition a pre-suit duty to preserve is good law in the right circumstances. I just wish the application of the rule was restricted to the kind of factual scenario you see in KCH Services and not applied to every case in town by a trigger happy plaintiffs Bar.
KCH Services, Inc. v. Vanaire, Inc.
This is a case by one air scrubber company against another suing for unfair competition. The primary complaint appears to be an allegation that the defendant misappropriated and illegally used the plaintiff’s custom software. The dispute started when the president of the plaintiff corporation called the president of the defendant corporation in October 2005. The plaintiff alleges that he told defendant that he knew he had taken his software and he was going to sue him, or words to that effect. No doubt the defendant had a different recollection of the phone call, but everyone seems to agree about what happened next. The president of the defendant company ordered his employees to delete all copies of plaintiff’s software from his computer systems and any other software on his company’s computers “that he did not purchase or did not own.” Id. at * 1. The defendant’s employees apparently admitted as much, and even admitted they received the instructions right after he got off the phone with the plaintiff. It is hard to imagine a more obvious case of intentional destruction of evidence.
This plaintiff did not then wait eight years to sue, he filed suit the next month, November 2005. The next month he followed up with a preservation demand letter. Of course, the software at issue in the case had already been deleted, but the defendant had not yet deleted all of his responsive email and other ESI. The court found that he went ahead and continued to delete relevant ESI even after the complaint and preservation demand letter had been served. According to the findings made in this opinion, the defendant was obviously a hard core spoliator. The motion for sanctions was based on deletion of ESI both before and after the suit was filed.
Based on these circumstances, District Court Judge Jennifer B. Coffman granted plaintiff’s motion for sanctions and imposed an adverse-inference instruction to the jury at trial. Judge Coffman made the following rulings to explain her application of the law in this case:
The federal law of spoliation governs in this case. See Adkins v. Wolever, 554 F.3d 650, 652 (6th Cir.2009). “As a general matter, it is beyond question that a party to civil litigation has a duty to preserve relevant information, including ESI, when that party ‘has notice that the evidence is relevant to litigation or … should have known that the evidence may be relevant to future litigation. ’ ” John B. v. Goetz, 531 F.3d 448, 459 (6th Cir.2008) (quoting Fujitsu Ltd. v. Fed. Express Corp., 247 F.3d 423, 436 (2d Cir.2001)). FN1. The Sixth Circuit also cites Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 216-18 (S.D.N.Y.2003), an employment discrimination case, in which the duty to preserve arose as soon as the plaintiff’s superiors became reasonably aware of the of the possibility of litigation, rather than when an EEOC complaint was filed months later. See Goetz, 531 F.3d at 459 (6th Cir.2008). See generally The Sedona Principles: Best Practices Recommendations & Principles for Addressing Electronic Document Production, Second Edition 11, 28 (The Sedona Conference Working Group Series, 2007), available at http://www.thes edonaconference.org/content/miscFiles/TSC_ PRINCP_2nd_ed_607.pdf.
Hankinson’s telephone call to Vanegas, Sr. in October 2005 should have put the defendants on notice that issues of software may be relevant to future litigation. For the duty to preserve to have attached, it is not required that Vanegas, Sr. actually knew that litigation was on the horizon, or that the software would be relevant, but only that he “should have known” the software “may be” relevant to future litigation. Id. In October 2005, the defendants were familiar with their competitor’s willingness and ability to file suit; Vanegas, Sr. had been personally involved with Vanaire during the 1995 litigation with KCH. See KCH Services, Inc. v. Brooks, et. al., No. 3:95-cv-672-S, Dep. (R. 19), Dec 4., 1995. Even with such experience, Vanegas, Sr. ordered the software deleted immediately after the telephone call, before KCH had an opportunity to inspect. FN2. Vanegas Sr.’s conversations with Vanaire employees and other correspondence among Vanaire employees immediately after Hankinson’s telephone call show clearly that the defendants were, in fact, alerted to the problem and saw it as such. FN3.
FN2. Cf. Fujitsu, 247 F.3d at 435-36 (2d Cir.2001) (Trial court denied sanctions where the defendant destroyed evidence but not before the plaintiff had an opportunity to inspect.).
FN3. See, e.g., e-mail from Scott Freeman to Guillermo Vanegas, Ray Steele, Gary Vanegas, and Michael Vanegas (Oct. 17, 2005, 11:45 a.m.) (“I am currently working with Keith to insure [sic] there is nothing left on the computers….”).
After the plaintiff filed the complaint on November 23, 2005, the defendants not only “should have known” that e-mail and other electronic evidence concerning the plaintiff’s claims “may be” relevant to litigation, but had notice that they were relevant to litigation. See Goetz, 531 F.3d at 459. However, the defendant Vanaire, Inc. failed to preserve them by continuing to delete and overwrite, even after receipt of a preservation letter. See Vanegas, Jr. 30(b)(6) Dep. 211:10-18. The defendants’ conduct in regard to electronically stored evidence falls beyond the scope of “routine, good faith operation of an electronic information system.” See Fed.R.Civ.P. 37(e). Vanegas Sr.’s order to delete the software and the defendants’ continued unwillingness to place a meaningful litigation hold on relevant electronic information after being placed on notice resulted in a loss of evidence relevant to the plaintiff’s case. Whether the evidence was lost in good faith or was “an intentional attempt to destroy evidence,” Fujitsu, 247 F.3d at 436, the plaintiff is bereft of the very subject of the litigation as well as any e-mail correspondence contemporaneous to the software’s installation and use. FN4.
FN4. For example, the evidence of software on Vanaire’s computers may have been important for the plaintiff to show that it is the same software that originated at KCH and that it was used by Vanaire in “layout,” resulting in enhanced profits vis-à-vis KCH, Vanaire’s competitor in the industry. The deleted e-mails may have been relevant to the plaintiff’s other claims, such as unfair competition.
Id.
Conclusion
It makes sense to impose a duty not to destroy ESI after you “become reasonably aware of the of the possibility of litigation,” but this trigger date should be strictly construed in favor of the allegedly burdened party. This rule is designed to protect our system of justice from the intentional spoliator, not to serve as a gotcha ploy for win-at-all-costs chess playing lawyers. As Bobby Fischer said: “Chess is war over the board. The object is to crush the opponents mind.” But litigation is not a game; it is not chess; it is not war like some mistakenly believe. It is far more than that. As George Bernard Shaw said: “Chess is a foolish expedient for making idle people believe they are doing something very clever when they are only wasting their time.” Litigation is no place for games. The pursuit of justice is more important than that. As Justice Felix Frankfurter said: “Litigation is the pursuit of practical ends, not a game of chess.”
The courts should only impose sanctions for pre-litigation spoliation in cases like KCH Services where there is strong evidence of intentional destruction of evidence. They should otherwise exercise great restraint and caution in deciding that a defendant “should have known” that certain ESI “may be” relevant to future litigation. The present always seems obvious and inevitable, yet few are able to predict the future. We must look carefully at yesterday to seek how murky today then looked. As Justice Frankfurter said: “Judicial judgment must take deep account of the day before yesterday in order that yesterday may not paralyze today.”
Posted by Ralph Losey 
