January 08, 2016 Articles

California's New E-Competence Rule

Even carefully crafted legal hold and preservation letters to custodian employees are insufficient defenses where relevant evidence goes missing.

By Lisa Sherman, Benjamin Rose, and Jim Carden – January 8, 2016

A recent decision issued by the district court of the Southern District of California should serve as a wake-up call to companies, and their counsel, nationwide to become e-competent and immediately update their practices as soon as their clients are put on notice of possible litigation involving potentially relevant electronically stored information (ESI).

In NuVasive, Inc. v. Madsen Medical, Inc., 2015 WL 4479147 (S.D. Cal. July 22, 2015), the court issued an adverse inference instruction to a jury, in part, due to the plaintiff company’s failure to properly preserve text messages from its employees who were classified as key data custodians. Thus, the jury was allowed to infer that the evidence would have been adverse to the plaintiff and to adopt the defendants’ reasonable interpretation of what the text messages would have said.

Defendant Madsen Medical, Inc., alleged that plaintiff NuVasive, Inc., failed to preserve text messages from four employees who were key to its defense of the trade secret litigation. Madsen contended that the text messages may have contained evidence of secret dealings between NuVasive and former Madsen employees to “poach” Madsen’s employees. Madsen had notified NuVasive of its duty to preserve evidence, including text messages of the four employees, as early as August 2012. The court found NuVasive deficient in ensuring that its employees complied with the litigation hold.

The adverse inference instruction was issued against the NuVasive, despite the company’s notice and repeated reminders to employee custodians of their obligations and despite the fact that the defendants obtained most of the missing texts from other individuals.

The majority of state and federal courts, like the Southern District of California, hold that a duty to preserve potentially relevant evidence, including ESI, arises as soon as a party is put on notice of anticipated litigation, as was the case here. Although NuVasive promptly and properly notified its employees of their obligations initially and again in September 2013, the court held that prompt notification and even a reminder alone were simply not enough for NuVasive to meet its preservation obligations.

In this case, in January 2014, one custodian was instructed to bring his phone to an office for imaging and brought the wrong phone. The custodian later wiped the phone that was subject to the hold, before giving it to his son. Another custodian was told to turn over his phone, and a number of text messages were missing from the relevant times at issue in the litigation. Then another key employee custodian turned in his phone for an upgrade, not once, but twice, and the phone was likely wiped and recycled with a third-party vendor. It did not help NuVasive that the last key employee custodian did not even produce his phone for over a year, representing that relevant text messages may have been deleted.

Also significant is that the court glossed over Madsen’s failure to preserve these communications, merely stating that Madsen should have taken steps to preserve its former employees’ text messages when the custodians worked for Madsen. Nonetheless, the court did not relieve NuVasive of its duty to comply with the obligations arising under the litigation hold. Significantly, the court ordered the adverse inference instruction, even though Madsen had obtained most of the deleted or lost text messages through other individuals. Because NuVasive could not provide any meaningful assurances that Madsen captured all of the relevant text messages, the adverse inference instruction was ordered, and, obviously, it was detrimental to NuVasive’s case.

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