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E-discovery: GCs must consider the obligation to preserve electronic documents maintained by third parties
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E-discovery: GCs must consider the obligation to preserve electronic documents maintained by third parties

Recent case in New York underscores the importance of this issue

Most larger companies are increasingly aware of the many problems that can be associated with the production of e-discovery in litigation. Among other things is the potential of spoliation sanctions against a company if electronic documents have been destroyed when the circumstances dictated that they should have been properly preserved due to anticipated litigation. Further still, general counsel may not consider their obligation to ensure the preservation of electronic documents maintained by third parties beyond their direct control.

A fairly recent decision by the U.S. District Court for the Southern District of New York should make in-house counsel rethink this issue. In GenOn Mid-Atlantic, LLC v. Stone & Webster, Inc., the court was faced with the question of whether the spoliation of electronic documents by a plaintiff’s third-party consultant could form the basis for sanctions against the plaintiff. The requested sanctions included the dismissal of the plaintiff’s complaint.

The court initially agreed with the defendant that the plaintiff had practical control over the third-party consultant’s documents, and therefore should have directed the third party to take steps to preserve the information. In its determination the court primarily considered the ongoing relationship between the plaintiff and the third-party consultant, which included providing consulting services in connection with the litigation itself.

The court next found that the plaintiff had a culpable state of mind sufficient to enter sanctions because the plaintiff knew early on that litigation was likely, or at least anticipated. The court determined that this knowledge triggered a duty to preserve documents. However, despite the duty being triggered, the plaintiff did not advise the third-party consultant to issue a litigation hold letter to its employees. The court held that the failure to do so was sufficient to establish the plaintiff’s culpable state of mind.

Nonetheless, upon a thorough analysis of the electronic documents that had been produced by the third-party consultant the court determined that the defendant had not established that the missing documents were relevant to the issues in the litigation. The court thus found that the defendant had not demonstrated that it was prejudiced by the third-party consultant’s spoliation of other electronic documents.

Therefore, in the end, the plaintiff avoided any sanctions. Of course, this does not mean that the plaintiff was completely unscathed by the issue. There is no doubt that the plaintiff incurred significant fees and expenses in fighting potential sanctions. In addition, the time spent arguing against the sanctions motion could have been better spent on litigating the merits of the plaintiff’s claims. While the plaintiff “won” the spoliation motion, it “lost” merely because it was involved in the fight in the first place.

In light of this case’s outcome, it is critical that companies consider issues of preservation beyond merely the documents in the company’s own possession. Companies and their attorneys must also consider whether there are third-party consultants that might have potentially relevant documents. If such a third party is identified, the company must instruct the third party to establish a process to preserve all forms of relevant information whenever litigation is anticipated, such as issuing a litigation hold letter. Although the company may not be able to force the third party to issue a litigation hold, the fact that the company requested it can be used to show that the company did not have the requisite degree of culpability needed for the imposition of sanctions. Accordingly, taking the extra step to request that a third party issue an internal litigation hold where there is anticipation of possible litigation is always the prudent course.  

Contributing Author

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Martin O'Hara

Martin J. O’Hara is principal and vice chair in the Litigation & Dispute Resolution group at Chicago-based Much Shelist, and represents clients on commercial...

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