The Importance of Legal Hold Policies Gregory Leighton - Neal, Gerber & Eisenberg LLP Joan Ryken - The Hartford Alan Klein - Duane Morris LLP Kathleen Harrell-Latham - Cadre Yvonne Kirila - UPS Melinda Levitt - Foley & Lardner LLP September 26, 2016

Amended Rule 37(e) (e) Failure to Preserve Electronically Stored Information. If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court: (1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or (2) only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation may: (A) presume that the lost information was unfavorable to the party; (B) instruct the jury that it may or must presume the information was unfavorable to the party; or (C) dismiss the action or enter a default judgment.

The New Rule 37(e) in Action CAT3, LLC v. Black Lineage, Inc., (S.D.N.Y. 1/12/16) Ptfs, in an effort to show Defs had notice of Ptfs’ trademark use, intentionally altered email domains in email messages before producing them. As a result, were different versions of the same emails that contained inconsistent email addresses. Court: is conduct sanctionable? Ptfs argued there was no missing or destroyed evidence, only “an evidentiary dispute as to which email address versions are more accurate.” Court: Even if Rule 37(e) inapplicable because information was not lost or destroyed, court could “exercise inherent authority to remedy spoliation under the circumstances presented.” Ordered Ptfs (1) be precluded from relying on their version of the emails at issue to show notice to Defs. of use of the mark; and (2) bear costs and reasonable attorneys’ fees incurred by Defs in establishing Ptfs’ misconduct.

The New Rule 37(e) in Action (cont.) NuVasive, Inc. v. Madsen Medical, Inc. (S.D. Cal. 1/26/16) Ptf neglected to enforce compliance with a litigation hold resulting in spoliation of text messages. Prior to the Rule amendments, court granted in part Defs’ motion for sanctions. After the new Rule 37(e) took effect, Ptf moved to vacate before trial. In granting Ptf’s motion and vacating its prior order, court ruled that, because there was no finding that Ptf intentionally failed to preserve the text messages at issue, would be improper to give an adverse instruction under new Rule 37(e)(2), since that relief could be employed only “upon a finding of intent to deprive another party of use of the information in the litigation.” Instead, court allowed the parties to “present evidence to the to the jury regarding the loss of ESI and . . .[would] instruct the jury that the jury may consider such evidence along with all other evidence in the case in making its decision,” a remedy described in the Advisory Committee notes.

The New Rule 37(e) in Action (cont.) Ericksen v. Kaplan Higher Education (D. Md. 2/22/16) Third-party forensic exam. of Ptf’s computer revealed she had run several data destruction programs that had destroyed some data. Defs moved for dismissal of Ptf’s employment discrimination case. Defs claimed they could not determine authenticity of a letter purporting to show that Ptf was entitled to a raise, and an email indicating that Ptf was terminated as retaliation. Court held that appropriate sanctions should be: (1) precluding Ptf from introducing the letter and email into evidence; (2) permitting Defs to present evidence related to the loss of evidence at trial; and (3) awarding Defs reasonable attorneys’ fees incurred from the discovery dispute. Court, however, observed that even though Ptf willfully destroyed data, dismissal would be too harsh a sanction under the “high standard” of new Rule 37(e), which directs that the court impose “measures no greater than necessary to cure the prejudice.”

The New Rule 37(e) in Action (cont.) Living Color Enterprises, Inc. v. New Era Aquaculture, Ltd., (S.D. Fla. Mar. 22, 2016) A trademark infringement/unfair competition case, Ptf filed a motion for severe sanctions, alleging that one of the Defts deleted text messages between himself and other parties. Court analyzed the elements of Rule 37(e) in detail and found that there was evidence that some text messages were lost and could not be replaced or restored. But the court found no prejudice, because Ptf had “not explained any direct nexus between the missing text messages and the allegations in its Complaint” and the missing messages appeared “to be unimportant.” Court also found no “intent to deprive,” as the Deft routinely deleted text messages and there was no evidence that he intentionally deleted the ones at issue in order to deprive the plaintiff of the information’s use in litigation. Compare DVComm, LLC v. Hotwire Commc’ns, LLC, No. 14-5543, 2016 U.S. Dist. LEXIS 19175 (E.D. Pa. Feb. 16, 2016) (finding that plaintiff had intentionally deleted relevant emails and ordering an adverse inference instruction pursuant to Rule 37(e)).

The New Rule 37(e) in Action (cont.) GN Netcom, Inc. v. Plantronics, Inc., 2016 WL 3792833 (D. Del. July 12, 2016) A senior executive intentionally deleted thousands of emails for the purpose of making them undiscoverable in the litigation, and he ordered others to do so as well.  Although the company had taken a number of steps to preserve documents--including distributing quarterly legal hold notices and conducting training sessions to ensure compliance--the court held that, because of the executive's intentional spoliation, it could not be deemed to have acted "reasonably" in preserving documents, which would have resulted in no relief pursuant to the terms of amended Rule 37(e). The court agreed with the plaintiff that the defendant company's "reliance on these actions to excuse the intentional, destructive behavior of Mr. Houston requires a 'perverse interpretation' of Rule 37(e), one which would set a dangerous precedent for future spoliators."  The court ordered an array of sanctions against the defendant company under Rule 37(e)(2), including an adverse inference jury instruction, monetary sanctions in the form of reasonable fees and costs to the plaintiff, a "punitive" sanction of $3 million, and possible evidentiary sanctions to be determined before trial.

Ramifications/Takeaways The CAT3 decision demonstrates that in the world of ESI spoliation, Rule 37 may not always hold the last word in defining the range of sanctions available to a court. Parties facing or bringing potential spoliation motions must be mindful that where the alleged wrongful conduct does not fall within the scope of Rule 37(e), sanctions may still be a threat. The decisions illustrate that pending cases can change, perhaps dramatically, because of the Rule amendments. Spoliation and related evidence issues may be increasingly left in the hands of the jury under the new Rule without the sanction of an adverse instruction. The cases to date make clear that intentional spoliation under the new Rule 37(e) may not necessarily lead to dismissal of a case, a default judgment, or even an adverse jury instruction. Preliminary experience indicates that courts appear to be adhering closely to the new Rule’s mandate that the court impose “measures no greater than necessary to cure the prejudice.”

Practical Implications Remain Aware of Your Duty to Preserve No Need to Over-Preserve ESI Always Employ “Reasonable Efforts” When Preserving ESI – Perfection is not required! Although It Cannot Lead to a Default Judgment, Negligent Spoliation Is Still Risky New Focus on Proportionality May Lead to Lower Discovery Costs 6. Tangible Evidence Excluded from Scope of Rule

Legal Hold Pitfalls Failure to Flip the “Off-Swtich” The Spreadsheet Switcheroo The Never Ending Hold The Fire and Forget Texts and Multi-Media Vendor/Contingent Workforce Managment

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