Commercial Litigation and Arbitration

Electronic Discovery & Spoliation — Pre-Litigation Letters / Litigation Hold / Counsel’s Oversight Duties / Multiple Issues

When must a litigation hold be implemented? How explicit must a pre-litigation warning be? The only way to insure that the duty to preserve evidence has been triggered is to demand it. Consider Cache Poudre Feeds, LLC v. Land O’Lakes Inc., 2007 U.S. Dist. LEXIS 15277 (D. Colo. March 2, 2007). In April and June of 2002, plaintiff’s counsel telephoned and wrote the defendant’s general counsel that the plaintiff had been using the PROFILE mark for animal feeds for more than a decade (the defendant had recently begun to do so) and to express concern over the possibility of customer confusion. In her June 2002 letter, plaintiff’s counsel (i) warned that the defendant’s use of the mark ‛may become a very serious problem,“ (ii) explicitly ‛put [defendant] on notice of our client’s trademark rights“ and defendant’s ‛exposure,“ and (iii) sought ‛to determine whether this situation can be resolved without litigation.“ She did not demand that evidence be preserved. A year later, in June 2003, more correspondence, and the parties again considered a negotiated resolution. Discussions faltered and litigation was commenced on February 24, 2004. Throughout the pre-filing period, defendant did not institute a litigation hold, and only did so shortly after the litigation was commenced. Held, OK under the circumstances. In the Court’s words:

“Rather than threatening impending litigation, [plaintiff’s counsel’s June 2002] letter implied that her client preferred and was willing to explore a negotiated resolution…. [Her] correspondence in 2003 also did not include a demand for preservation of evidence. Given the dynamic nature of electronically stored information, prudent counsel would be wise to ensure that a demand letter sent to a putative party also addresses any contemporaneous preservation obligations….

‛[A] party’s duty to preserve evidence in advance of litigation must be predicated on something more than an equivocal statement of discontent, particularly when that discontent does not crystallize into litigation for nearly two years. Any other conclusion would confront a putative litigant with an intractable dilemma: either preserve voluminous records for a[n] indefinite period at potentially great expense, or continue routine document management practices and risk a spoliation claim at some pointing the future.“

The Court’s analysis of several other issues of interest:

1. A party may have a duty to contact former employees to see if they possess relevant documents, as where the employee is still receiving compensation from the party, but if the former employer disclaims any financial or other relationship of control over the former employee’s documents, the burden is on the proponent of discovery to establish that its adversary has does have such control.

2. A number of alleged defalcations were forgiven because of the overbreadth of the pertinent discovery requests (the defendants objected on overbreadth grounds).

3. It was improper for the defendant to continue its practice of expunging the hard drives of relevant employees as they left the company following the filing of the litigation where there was no other storage of, or means to retrieve, the information contained on those hard drives.

4. It is insufficient simply to send out a litigation hold notification and to receive documents forwarded from relevant individuals without taking any ‛independent action to verify the completeness of the employees’ document production.“

5. The Tenth Circuit requires a showing of bad faith before an adverse inference for spoliation is appropriate, unlike the Second Circuit (in which mere negligence may suffice, if the relevance of the destroyed information is sufficiently high).<

Held, $5,000 in sanctions plus certain court reporter costs imposed on defendant.

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