The Merger: Litigation Holds & Search Terms

In an action to rescind a merger agreement, the Plaintiff brought a motion for the Defendant to restore back-up tapes; conduct keyword searches; document results from the keyword searches; and conduct additional searches after conferring on the first keyword search.  Escue v. Sequent, Inc., 2010 U.S. Dist. LEXIS

The Plaintiff argued the Defendant did not issue a litigation hold over a Department of Labor investigation. Additionally, the Defendant CEO deleted email on a daily basis and the CFO deleted email monthly.  Escue, at *2. This naturally led to the argument the Defendants committed gross negligence.  Escue, at *2.

The Plaintiff also argued the Defendant stopped creating monthly back-up tapes after the filing of the lawsuit.  Escue, at *2.

The Plaintiff also took issue with the Defendants limiting their keyword searches before the date of the merger and their refusal to pay for restoring back-up tapes from the Department of Labor action or the civil lawsuit.  Escue, at *3.

Defendants’ Counter Arguments

The Defendants argued for the denial of the Plaintiff’s motion, because the Plaintiff did not specify any information that he believed existed that had not been produced.  Escue, at *6. 

The Defendants produced 250,000 pages of documents and that the sufficiency of those responses had not been challenged by the Plaintiff.  Escue, at *4. 

Moreover, the Plaintiff did not challenge of any of the Defendants’ objections to the discovery requests.  Id.

The Defendants’ summarized the Plaintiff’s arguments as “asserting” responsive information existed on the disaster recovery back-up tapes and that the Defendant should pay for restoring them.  Escue, at *4-5. 

The Defendant also described the Plaintiff’s motion as requiring them to “embark on an open-ended collaborative process involving multiple key word searches in the hope that there may be documents responsive to unspecified requests.”  Escue, at *5. 

The Defendants further argued a litigation hold had been in effect since February 2006. Escue, at *5.  The Defendants further explained that the CEO deleted “junk email” and that the other email was archived and available.   Escue, at *5. 

Moreover, the Defendant CEO also searched his email inbox, archived email, personal computer and hard copy documents in response to the Plaintiff’s discovery requests.  Escue, at *5.  Additionally, the CFO was not with the company at the time of the merger and thus did not have any ESI or documents to produce.  Escue, at *5. 

The Defendants argued that the cost of restoring and conducting unspecified searches on 45 back-up tapes outweighed any “speculative benefit” of possible responsive ESI that might be found.  Escue, at *5.  The estimated cost of restoring the back-up tapes was $82,860.30. Escue, at *8. 

Additionally, if any responsive ESI was found, it would be duplicative discovery and delay the case 19 weeks.  Escue, at *6-7. 

The Defendants also argued that 32 of the 46 were not relevant to the lawsuit, because they were created after the merger.  Escue, at *7.  If there had been any documents that misled the Plaintiff in the merger agreement, they would have been created before the actual merger.  Escue, at *7. 

Court Finding

The Court found the following:

Plaintiff has failed to demonstrate that Defendant intentionally deleted or archived email that should have been subject to a litigation hold. Escue, at *8. 

The Defendant explained why the CFO did not have responsive ESI. Escue, at *9. 

The search terms were a different matter.  The Court noted the Defendant did not keep a record of his searches.  However, the Plaintiff attorney was, in the words of the Court, “slow” in conferring with the Defense attorney on search terms.  Escue, at *9.  As such, the Court ordered allowed the Plaintiff to request the Defendant search the CEO’s email using the prior agreed upon keywords.  Escue, at *9.

Bow Tie Thoughts

Documenting search terms is extremely important in litigation.  What software was used?  What words did a party use?  What connectors were used with the search terms?  Was their methodology defensible?  Were “false positives” included in the results? 

2011 will see the end of the hue and cry practice of yelling “litigation hold” in the hopes of sanctions being issued.  Before a party challenges the effectiveness of a litigation hold, they must be able to argue how a hold was not effective, what ESI is missing and have some evidence to show the opposing party failed in their duty to preserve.