March 11, 2015 Articles

How to Avoid Spoliation Sanctions

Failure to preserve ESI could very well be the catalyst in the outcome of your client's next dispute.

By Shelby Angel

Federal and state case law place a duty on parties to preserve relevant evidence once litigation is reasonably anticipated. This duty to preserve applies to all types of evidence, whether in electronic or hard copy form. As electronically stored information (ESI) continues to emerge as a primary vessel of evidence, parties are faced with increasingly difficult decisions about the extent to which ESI must be preserved, how to go about preserving ESI, and at what cost.

Law Governing the Duty to Preserve Evidence Case law among jurisdictions, and even within jurisdictions, regarding preservation of evidence and spoliation sanctions is far from consistent and in some instances, outright contradictory. A chart included in U.S. Magistrate Judge Paul W. Grimm’s opinion in Victor Stanley, Inc. v. Creative Pipe, Inc., et al., 269 F.R.D. 297(D.Md. 2010) highlights the myriad standards among circuits.

The U.S. Judicial Conference recently approved proposed amendments to Federal Rule of Civil Procedure 37(e), which would provide a uniform process and standards governing when a party is required to preserve ESI and sanctions available when ESI is not preserved. If approved by the Supreme Court and Congress, the amendments will become effective December 1, 2015. The proposed amendments aim to clarify preservation obligations and limit the burdens that discovery costs and duties can impose on parties. Additionally, the amendments attempt to provide uniformity among circuits and remedy the split with respect to spoliation sanctions when ESI is not preserved. 

While the proposed amendments to the Federal Rules of Civil Procedure aim to clarify preservation obligations; protect parties from undue burden, expense, and unnecessarily strict sanctions; and alleviate consequences of unintentional spoliation, clients are unlikely to find solace in any rule changes until the case law consistently follows suit. Rather than relying on rule changes, most clients will continue to over-preserve out of abundance of caution.

Consequences of Spoliation Failing to preserve evidence can have significant, case-altering consequences. Sanctions for spoliation range from monetary fines and exclusion of evidence to—in more extreme cases—adverse inference instructions and “death penalty” sanctions.

Federal and state courts differ on the level of culpability required to find spoliation, as well as what warrants the various types of sanctions available. Some jurisdictions require intentional spoliation of evidence before issuing sanctions, while others find negligent or reckless conduct is enough. The Third Circuit, for instance, requires bad faith for a spoliation finding, while the Second Circuit has issued sanctions such as adverse inference instructions and monetary fines on the basis of mere negligence or gross negligence. See, e.g., Bull v. United Parcel Serv., 665 F.3d 68 (3d Cir. 2012); Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 107 (2d Cir. 2002).

The trend appears to be that the most severe sanctions, such as adverse inference instructions and death penalty sanctions, should be applied only where conduct is particularly egregious. See, e.g., United States v. Kaye, 243 F. App’x 763, 767 (4th Cir. 2007) (requiring bad faith on behalf of spoliator to warrant dismissal) (log-in required); Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497, 532 (D. Md. 2010). However, this is far from the general rule, as courts continue to disagree on this issue. See Osberg v. Foot Locker, Inc., No. 07-CV-1358 (KBF), 2014 WL 3427321 (S.D.N.Y. July 14, 2014) (granting an adverse inference instruction despite lack of bad faith destruction) (log-in required); Chapman v. BOK Fin. Corp., No. 12-CV-613-GKF-PJC, 2014 WL 3548844 (N.D. Okla. July 17, 2014) (holding that bad faith is required to warrant an adverse inference instruction) (log-in required); Brookshire Bros., Ltd. v. Aldridge, No. 10-0846, 2014 WL 2994435, at *2 (Tex.July 3, 2014) (holding that spoliation instructions are warranted only where there is intent to conceal discoverable evidence) (log-in required).

Courts also disagree on whether prejudice to the innocent party is required and, if it is, which party bears the burden to prove prejudice as a result of the missing evidence. See, e.g.Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497 (D. Md. 2010) (prejudice required); Sekisui v. Hart, 945 F.Supp.2d 494 (S.D.N.Y 2013) (prejudice presumed where evidence is destroyed willfully, but where spoliation is merely negligent, placing the burden on the innocent party to prove prejudice); Herrmann v. Rain LinkInc., 2012 WL 1207232 (D.C. Kan. Apr. 11, 2012) (placing the burden on innocent party to provide prejudice); T&E Invest. Grp., LLC v. Faulkner, 2014 WL 550596, Nos. 11-CV-0724-P, 3:11-CV-1558-P (N.D. Tex. Feb. 12, 2014) (irreparable prejudice not required).

Tips for Avoiding Spoliation Sanctions Considering the historical incongruity in court opinions, and until such time as there is some clear guidance on what is considered reasonable and sufficient with respect to preservation obligations, consider the following tips to safeguard against spoliation sanctions:

Advise clients of the duty to preserve relevant evidence (and the consequences for failure to do so). Educate clients about their legal obligations to preserve evidence, including the timing of when the duty arises. Emphasize the consequences for failing to properly preserve relevant evidence.

Train employees about document-hold obligations. Courts have increasingly found that ignorance surrounding duties, policies and procedures, or procedures to preserve evidence is an insufficient justification for failure to preserve relevant evidence. In other words, parties have a duty to ensure that those in charge of preserving evidence (whether IT personnel or individuals) are provided with the instructions and tools sufficient to enable them to do so. Work with clients and consider offering in-house training to technical staff and key witnesses to ensure that such personnel know how to preserve evidence at particular risk of destruction, such as emails and digital files.

Advise clients to issue document holds as a matter of course. Clear and understandable policies and procedures regarding the issuance of a legal hold should be put in place once litigation is reasonably anticipated. Remember, the duty to preserve often arises before suit, whether it is because of a demand letter or because you are the plaintiff and therefore in a position to know that documents should be preserved. Document holds should clearly instruct personnel to preserve both paper and electronic documents.

Advise clients to image and preserve hard drives that contain relevant data.Working with in-house technical personnel and others in charge of document retention is crucial. Do not assume that end users understand the specifics of what is required to preserve electronic data. Such data can be permanently destroyed with the push of a button (intentionally or not) or by auto-deletion programs. Image hard drives and email accounts that may contain relevant data so that you can fend off later allegations that data was altered or removed.

Avoid destructive testing without an agreement on protocol. Notify adverse parties in writing regarding proposed protocol for destructive testing, allow them an opportunity to be present for testing, and provide them with a deadline to agree or object to the proposed protocol and testing. Until such agreements are reached, be sure to store the evidence in a location with sufficient protections against tampering or destruction of the evidence.

Know the standard for document preservation in the jurisdiction in which the matter is pending. As noted above, jurisdictions vary greatly in specific obligations for preservation and the level of culpability required before failure-to-preserve sanctions are imposed. Know the jurisdiction you are operating in. If there is a question about the specific scope of what is required, the strictest approach is the safest (though not usually the most economical).

Confer with opposing counsel and seek court guidance when needed. This is one of the most overlooked and underutilized tools available to prevent spoliation allegations. Conferring with opposing counsel enables parties to gain some control over the preservation process and set specific guidelines governing preservation. Yes, it will require cooperating with the other side and up-front work to assess where documents (paper and electronic) are stored and what is and is not “reasonably accessible.” But parties are tasked with performing this investigation anyway. Conferring early will bring to light areas of dispute in order to reach an agreement with the other side, or seek court guidance prior to incurring the burden and expense of preserving evidence that is arguably irrelevant or not reasonably available due to undue burden and/or cost.

Monitor preservation efforts. Gone are the days when a party could issue a document-hold notice at the beginning of a dispute and then wash its hands of further obligations. Courts are increasingly blaming parties (and counsel) for failing to take affirmativesteps to monitor outstanding document holds, including issuing periodic reminder notices and conducting follow-up meetings with key personnel to ensure that they not only understand their preservation duties but also that they are actually complying with them.

Conclusion The world of preservation and spoliation is dynamic and evolving, especially with the increasing volume of business records maintained electronically. As this area of law continues to develop and until courts provide more consistency and predictability, the tips outlined in this article will help guide clients in taking appropriate steps to protect against the risk of spoliation sanctions. As counsel, you have a duty to instruct your clients regarding their obligation to take affirmative steps to preserve relevant evidence, and to verify that preservation efforts are being taken. Failure to do so could very well be the catalyst in the outcome of your client’s next dispute.

Keywords:business torts litigation, unfair competition, discovery, preservation, spoliation, prejudice, sanctions

Shelby Angel – March 11, 2015