Magistrate judge limits scope of the duty to preserve in denying spoliation sanctions

Could put a stop to the The e-discovery “gotcha” game

The e-discovery “gotcha” game frequently attempted by plaintiffs failed in one federal court in July when Magistrate Judge Paul Grewal denied a motion for sanctions in AMC Technology, LLC v. Cisco Systems, Inc. The plaintiffs sought adverse inference sanctions against defendant Cisco for reformatting and destroying data on the computer of former employee Terry McKeon. The July 15 opinion in the Federal District Court for the Northern District of California outlines the current state of law on the duty to preserve data and triggering events in e-discovery cases.

The duty to preserve electronically stored information (ESI) in a process known as a litigation hold is triggered when a legal proceeding is reasonably anticipated. Notices are distributed to employees believed to have information pertinent to the suit, called key custodians, advising them not to destroy the data. The duty to preserve, once triggered, applies broadly to documents and all sorts of electronic data including emails, voicemails, video files and computer backup tapes.

Grewal noted that the scope of this duty is not limitless, however. A litigant has an obligation to preserve only evidence which it knows or reasonably should know is relevant to the action, he said, and Cisco could not have reasonably known McKeon’s data would be relevant. “Requiring a litigant to preserve all documents, regardless of their relevance, would cripple parties who are often involved in litigation or are under the threat of litigation,” he wrote.

Some plaintiffs use the threat of sanctions for failing to preserve data as a bludgeon in obtaining settlements, which some corporate attorneys believe are often inflated. Grewal was well aware of the potential impact of awarding such sanctions. “Sanctions of the kind urged by AMC have similar effect to default judgment and should only be awarded with very great restraint,” he wrote.

Grewal found that sanctions were not warranted because AMC did not ask for McKeon’s data until a year after the case was filed and his data was destroyed. McKeon was not a “key player” whose ESI should have been automatically preserved, the magistrate judge ruled.

Delayed Demand

The case arose from a dispute over a 2007 software development and licensing agreement between Cisco and AMC. AMC filed the suit against Cisco in July 2011. In November of that year, the parties began exchanging custodial information and notices to preserve data. Neither party listed McKeon in its initial notifications of persons who might have relevant data, and McKeon was not included in Cisco’s legal hold instructions. It was not until July 2012 that AMC requested McKeon’s data. At that point, one year after the litigation started, Cisco could not comply with the request. McKeon had retired in July 2011, and Cisco’s IT department had reformatted McKeon’s laptop and deleted his email archives 30 days after his retirement, pursuant to company policy.

Grewal acknowledged Cisco had a general duty to preserve evidence when it destroyed McKeon’s data because it knew of the suit by AMC. He stated there was “no question” that McKeon’s ESI had to be preserved once the plaintiff requested it. But by the time AMC got around to the request, that production was not possible because the ESI had been destroyed.

“That [delay in seeking McKeon’s ESI] was the determining fact, in my judgment,” says John Tredennick, co-founder of e-discovery service provider Catalyst Repository Systems. “Had AMC listed McKeon as a key witness [from the outset of the case], the decision would have gone the other way.”

In denying the request for sanctions, the court also concluded the destroyed data was not critical to the case because Cisco produced internal financial spreadsheets likely created by McKeon pertaining to the sales of the subject devices.

 “Cisco’s preservation steps were not perfect, but they were reasonable when they were implemented and that is what the law requires,” says Miller Canfield Partner Jay Yelton. 

‘Pearl Harbor’ File

The decision has lessons for plaintiffs and defendants alike.

“In many litigation hold cases, one party seeks to have the opposing party drawn and quartered for missing a tangential custodian,” Joshua Gilliland, president of Majority Opinion, a legal technology application developer, says. “While courts are supposed to get to the truth of a matter, they are not supposed to be a medieval battleground whenever a custodian is missed, but the relevant data still appears to have been produced. This is not the time to release the dragon to rain fire.”

For in-house counsel, it emphasizes the need to be prepared for e-discovery requests.

Companies should be certain to maintain thorough “Pearl Harbor” files, those kept to show one’s innocence after an anticipated disaster takes place, Gilliland says.

“Have a litigation hold readiness plan that includes questions for custodians on who they communicated with on the subject matter of the case. Use technology to know the data and custodians in your case,” Gilliland says.

Once litigation is filed, the two parties should immediately discuss and agree to the scope of data preservation, Yelton adds.

“This case reflects that with auto-deletes and increased employee mobility to different jobs or to different companies or retirements, parties need to address data preservation very quickly,” Yelton says.


Michael Kozubek

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