July 23, 2014 Articles

Potential Liability Inherent in General Document Preservation Holds

By John Camp and L. Vanessa Lopez

Corporate document preservation, particularly for electronically stored information (ESI), is a frequently litigated topic. Courts have used different approaches to determine the extent to which a corporation has a duty to preserve relevant documents, or, more accurately, the lengths to which a company must go to preserve documents in litigation. Courts have wide discretion in making such determinations, which appear to be very fact-specific. A corporation's own preservation hold may cause a court to impose a duty of preservation where it may not have otherwise existed.

Earlier this year, courts overseeing separate products liability multidistrict litigation (MDL) matters sanctioned the defendants for spoliation of evidence due to the defendants' failure to comply with their own document preservation holds: In re Actos (Pioglitazone) Products Liability Litigation, No. 6:11-md-2299 (W.D. La. Jan. 30, 2014), and In re Ethicon, Inc. Pelvic Repair Systems Product Liability Litigation, No. 2327 (S.D.W.V. Feb. 4, 2014). In both instances, the courts stopped short of issuing the ultimate spoliation sanction—default judgment. The court in Actos sanctioned the defendant by allowing all evidence of bad faith spoliation to go to the jury but deferred its ruling on further sanctions until all the evidence was heard at trial. The court in Ethicon noted that adverse inference instructions should be determined on a case-by-case basis, but in the case before it granted the plaintiffs' request for monetary sanctions and reasonable costs associated with filing their motion for sanctions.

Both cases illustrate the unintended consequences preservation holds may carry if not narrowly tailored by counsel, and not expressly lifted at the close of litigation. This article discusses both cases, focusing on the potential pitfalls surrounding preservation holds. Considering the reasoning of both courts, this article recommends best practices for counsel when crafting preservation holds.

In re Actos (Pioglitazone) Products Liability Litigation
Actos concerned products liability claims against the manufacturer and marketer of Actos, Takeda Pharmaceutical Co. and many of its various subsidiaries (Takeda). Specifically, the plaintiffs alleged that the drug Actos caused bladder cancer.

During discovery in 2013, Takeda agreed to produce numerous custodial files, each of which included e-mails and personnel files. Takeda was unable to produce 46 custodial files and the ESI therein, and informed the plaintiffs that the documents "no longer existed or could not be found." Actos, No. 6:11-md-2299, slip op. at 4. In many instances, the custodial files pertained to former high-ranking Takeda employees whose e-mails and documents were deleted sometime after their departures from the company. The plaintiffs accused Takeda of intentionally destroying documents relating to the litigation in bad faith, prejudicing the plaintiffs.

The court emphasized that the destruction of documents by a party does not end the spoliation inquiry because such behavior is only sanctionable when the party "had a duty to preserve" the evidence. "[T]hat duty '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.'" Actos, No. 6:11-md-2299, slip op. at 28 (quoting Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 216 (S.D.N.Y. 2003)). Once the party is on notice, it must create a litigation hold. The court stated that "once a litigation hold is in place, a party and its counsel must make certain all sources of potentially relevant information are identified and placed 'on hold.'" Actos, No. 6:11-md-2299, slip op. at 29.

The plaintiffs argued that Takeda had a duty to preserve the destroyed documents because Takeda instituted a general Actos litigation hold in 2002. The plaintiffs moved for a default judgment, or, failing that, "a combination sanction of cost-shifting, a fine, an adverse inference jury instruction, restoration of the deleted files, and attorneys' fees and costs." Actos, No. 6:11-md-2299, slip op. at 1.

Takeda argued that although it instituted the general Actos litigation hold in 2002, it did not specifically anticipate bladder cancer litigation until July 2011. Takeda asserted that its destruction of the documents in question prior to July 2011 was, thus, reasonable and not a breach of any duty. Takeda gave conflicting dates about when it instituted a litigation hold pertaining to the current MDL. Takeda initially stated that the hold was instituted February 15, 2011, then later stated that the implementation date was September 2, 2011.

The 2002 general Actos litigation hold stated: "Until further notice, you are instructed to preserve any and all documents and electronic data which discuss, mention, or relate to Actos. . . . [D]o not destroy, delete, throw away or otherwise discard any such documents or electronic data. This includes correspondence, records, and data . . . including email . . . ." Actos, No. 6:11-md-2299, slip op. at 14 (emphasis omitted). The hold instructed employees to interpret it "in its broadest sense." This general Actos litigation hold was "refreshed" in 2003, 2006, 2007, 2008, and 2011.

The court held that Takeda had a duty to maintain documents pertaining to Actos pursuant to Takeda's general Actos litigation hold. The court stated: "Takeda . . . chose to institute a litigation hold sweeping in its scope and breadth, and containing no such limitation to or identification of a particular malady, in 2002." Actos, No. 6:11-md-2299, slip op. at 33 (emphasis omitted). The court found that Takeda's broad litigation hold, and its multiple "refreshers," undercut Takeda's argument that "its first reasonable anticipation of bladder cancer litigation was in July 2011."

Takeda also argued that the plaintiffs in the litigation at issue should not benefit from a litigation hold that arose out of another case. This principle arises out of a line of cases that rejects a "shifting duty of preservation." The court found that this principal was inapplicable here because cases that have rejected a shifting duty of preservation "involve a claimant seeking the benefit of a previously-issued hold not issued for his or her benefit, [but] here the 2002 hold, by its own language, was prompted by the filing of a lawsuit alleging 'personal injury or wrongful death . . . resulting from the use of . . . Actos.'" Because the plaintiffs here also alleged personal injuries or wrongful death from using Actos, the court found that the general Actos litigation hold applied to them.

The court's language suggests that once a general litigation hold is in place, a party will be held liable for departing from that litigation hold, regardless of whether future litigation on a particular issue encompassed by the litigation hold is actually reasonably foreseeable. The court imputed reasonable foreseeability from the presence of a general litigation hold. For instance, the court stated that "the reality of an instituted hold undercuts Takeda's arguments as to when they should or should not have instituted a litigation hold; the fact is Takeda did institute a litigation hold by its own language of sweeping breadth."

Given the above, the court held that the 2002 general Actos litigation hold applied to the instant MDL, imposing a duty upon Takeda to preserve relevant evidence. The court found that Takeda breached that duty when it lost, destroyed, or rendered inaccessible various documents and electronic data after the general Actos litigation hold was put in place, and that it did so in bad faith. Consequently, the court ruled that it would allow all evidence of bad faith spoliation to go to the jury, and would subsequently craft a jury instruction regarding inferences that the jury could draw from that evidence. The court deferred its ruling on further sanctions until all the evidence was heard at trial, but stated that cost-shifting, attorneys' fees and costs, and restoration of deleted files when possible, "are well within the Court's consideration and authority."

In re Ethicon, Inc. Pelvic Repair Systems Product Liability Litigation
Ethicon concerned claims against the manufacturer of surgical mesh products sold by the defendant, Ethicon, to treat pelvic organ prolapse and stress urinary incontinence. The relevant product lines implicated in the litigation were TVT and Prolift. Most of the lawsuits involved in this MDL were filed in 2011. Prior to these cases, Ethicon faced other lawsuits regarding the products at issue in the MDL.

During discovery, the plaintiffs accused Ethicon of destroying documents that it had a duty to preserve. The plaintiffs identified 22 high-ranking Ethicon employees whose custodial files were incomplete. Some of these files were completely empty, while others contained few documents. Of these employees, most had left Ethicon before 2008; only two were still employees.

The plaintiffs argued that Ethicon's duty to preserve arose from Ethicon's document preservation notices, and began in 2003 for TVT, and in 2008 for Prolift. Ethicon, however, argued that its duty to preserve only arose in 2011, after it issued its "Consolidated Hold Notice for Pelvic Mesh/Gynecare Product Liability Litigation." The court ultimately held that the duty to preserve evidence for this MDL began in 2007 for TVT, and 2008 for Prolift.

Ethicon began facing litigation regarding TVT in 2003. In response to a TVT lawsuit filed in Oregon, Ethicon issued a "document preservation notice" telling employees to preserve documents—whether hard copies or electronic—relating to TVT, until the company notified them to the contrary. The document preservation notice was specific to the 2003 case, but was never expressly withdrawn. In 2006, Ethicon faced its second TVT lawsuit. In response, Ethicon created another document preservation notice, again specific to the case, covering documents relating to TVT. Ethicon never expressly withdrew this document preservation notice either. In 2007, Ethicon faced a third TVT lawsuit and issued a document preservation notice that was functionally equivalent to the 2003 and 2006 notices.

In 2008, Ethicon faced multiple lawsuits regarding Prolift. In response, Ethicon issued a document preservation notice for all documents pertaining to Prolift. Similar to the TVT document preservation notices, this notice was specific to the cases that motivated it. Between 2009 and 2010, Ethicon faced dozens of lawsuits regarding both TVT and Prolift. Consequently, in 2011, Ethicon issued a "Consolidated Hold Notice for Pelvic Mesh/Gynecare Product Liability Litigation," which instructed employees to preserve all documents pertaining to TVT and Prolift.

The court stated that, while a company need not preserve everything, "[t]he duty to preserve evidence . . . extends to that period before the litigation when a party reasonably should know that the evidence may be relevant to anticipated litigation." Further, "[o]nce the duty is triggered, the party should identify, locate, and maintain information that is relevant to specific, predictable, and identifiable litigation." Ethicon, No. 2327, slip op. at 10 (internal quotation marks omitted).

The court stated that, at a minimum, a party reasonably anticipates litigation once it receives a demand letter, a request for evidence preservation, a threat of litigation, or a decision to pursue a claim. The court added that there is less agreement on what other actions would reasonably put a party on notice to preserve evidence in anticipation of future litigation.

The plaintiffs argued that Ethicon's 2003 document preservation notice remained in effect because it was never withdrawn, "trigger[ing] an ongoing duty on Ethicon's part to preserve documents, including all documents relevant to the claims in this MDL" pertaining to TVT. Ethicon, No. 2327, slip op. at 13. On the other hand, Ethicon argued that "a single case involving one product simply does not create a reasonable anticipation of future litigation." Ethicon posited that the 2003 document preservation notice required it only to preserve evidence for the case that triggered it, and that its duty to preserve did not extend to the current MDL.

The court acknowledged the wide array of case law regarding what triggers a duty to preserve, and to whom that duty extends. The court disagreed with the plaintiffs, holding that the 2003 document preservation notice did not create a duty for Ethicon to preserve documents for the instant MDL. The court emphasized that the 2003 preservation notice was tied to a specific case, which was ultimately dismissed. The court reasoned that even though the notice was never expressly withdrawn, people within Ethicon would have been aware that the case was resolved—which would have eliminated the duty to preserve. Additionally, the court explained that "an isolated lawsuit, or even two, would not reasonably lead Ethicon to believe that large scale . . . litigation was down the road."

The court also disagreed with Ethicon's assertion that its duty to preserve did not begin until 2011. The court ultimately found that Ethicon could reasonably anticipate litigation regarding TVT in April 2007—when Ethicon issued a document retention notice in response to its third TVT lawsuit. The court also found that Ethicon could reasonably anticipate litigation regarding Prolift as early as April 2008—when Ethicon issued its document retention notice in response to the multiple Prolift lawsuits it faced.

Crucial to the court's analysis was the fact that these dates were specifically mentioned by Ethicon in its 2011 "Consolidated Hold Notice for Pelvic Mesh/Gynecare Product Liability Litigation." In its 2011 notice, Ethicon stated that the litigation it was facing was "ongoing" and reminded its employees of the 2007 and 2008 document preservation notices. The court reasoned that Ethicon "believed that documents relating to TVT and Prolift were already being preserved company-wide for the purpose of large-scale litigation" and that the 2011 notice was merely "intended to 'refresh' the 2007 and 2008 document preservation notices."

The court sanctioned Ethicon for destroying files after the duty to preserve attached, where it was likely that those files would have relevant information. Because the court found that Ethicon was only negligent, and because the plaintiffs were not severely prejudiced by Ethicon's document destruction, the court denied the plaintiffs' motion for default judgment, the striking of defenses, and an adverse inference instruction in all cases. However, the court stated that the plaintiffs should have "the opportunity to introduce evidence regarding Ethicon's loss of relevant documents on a case-by-case basis, and, when appropriate," the court should "tender an adverse inference instruction." Additionally, the court granted the plaintiffs' request for monetary sanctions and reasonable costs incurred in bringing the motion.

Best Practices for Document Preservation Holds
As illustrated by the two cases above, a general document preservation hold can impose a duty upon a corporation to preserve documents for future, unanticipated litigation. As a general matter, counsel should avoid general document preservation holds where possible. The tips below are specific ways to narrowly tailor a document preservation hold and, thus, limit potential liability to future litigants, unforeseen at the time the general document preservation hold was adopted.

  • Tie document preservation holds to a specific case or series of cases.
  • Specify an injury, malady, or alleged defect to which the hold applies.
  • Expressly lift the hold when the case has concluded and return to standard document retention policies.
  • Avoid giving the impression that the company is faced with ongoing litigation.
  • Where possible, limit the scope of the hold—employees and types of documents subject to the hold.

Keywords: litigation, products liability, discovery, spoliation, sanctions, ESI, document preservation holds, litigation holds, duty to preserve


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