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March 30, 2018 Practice Points

Spoliation: Dismissal Might Not End Duty to Preserve Evidence

Defendants and their counsel are cautioned against immediately withdrawing a litigation hold after settlement or trial.

By Joseph V. Schaeffer

Unlike diamonds, litigation holds shouldn't be forever. Defendants should think twice, though, before pulling litigation holds immediately after settlement, dismissal, or final unappealable judgment. As Hearst Communications learned in a recent case in the Southern District of New York, doing so can spawn spoliation claims in subsequent lawsuits. Edwards v. Hearst Comm'ns, 15-CV-9279, 2017 WL 6458612 (S.D.N.Y. Dec. 18, 2017).

In Edwards, the court consolidated two separate class-action complaints filed against Hearst in May and November 2015 by Suzanne Boelter and Josephine James Edwards, respectively. Boelter and Edwards allege that Hearst unlawfully disclosed class members' magazine subscription and reading data in violation of Michigan's Video Rental Privacy Act. Boelter and Edwards, however, were not the first to file class-action complaints against Hearst under the act. That distinction belonged to David Grenke, who had filed his action in September 2012. Grenke's proposed class was never certified, though, and, after it came out that he never subscribed to the Hearst magazine forming the basis of the complaint, the action was dismissed by stipulation in February 2015.

Boelter and Edwards argued that Hearst's duty to preserve evidence relevant to their complaints arose with the filing of Grenke's complaint in September 2012. Thus the court had to decide whether Hearst had reasonable notice of future litigation when Grenke's action was dismissed. If so, Hearst's duty to preserve continued past the stipulated dismissal of Grenke's complaint and would relate back to its filing in September 2012. If not, Hearst's duty to preserve arose when it first learned of Boelter and Edwards' claims.

Ultimately, the court held that Hearst's duty to preserve arose with the filing of Boelter's complaint in May 2015. In reaching its conclusion, the court considered several factors. First, Grenke's action had been dismissed with prejudice, which generally provides a defendant with a reasonable sense of finality. Second, until Grenke's complaint was filed, the act had been a dead-letter statute with no claims brought to that point during its 24-year history. Third, Hearst had not received any pre-suit notice of other claims, and Grenke's law firm represented that it did not intend to pursue other claims. Fourth, no other subscribers came forward while Grenke's motion for class certification was pending. And, fifth and finally, Grenke's claims under the act were based on privacy violations likely to go undiscovered and, hence, unlitigated by other potential plaintiffs.

Although the court does not say so in its opinion, it's likely the court was most influenced by the fact that the act had previously been a dead-letter statute. Indeed, despite ruling in Hearst's favor, the court noted that "threats of litigation or prior litigation may put a party on notice of future litigation, and thus give rise to a duty to preserve." Defendants and their counsel are therefore cautioned against immediately withdrawing a litigation hold after settlement or trial. Where spoliation claims are becoming increasingly more common and expensive to litigate, it is in the client’s interest to assess the possibility of future litigation to avoid substantial headaches down the road.

Joseph V. Schaeffer is with Spilman Thomas & Battle, PLLC in Pittsburgh, Pennsylvania.

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