Understanding the Scope of the Duty to Preserve

The important litigation hold cases are not the ones that issue monstrous sanction awards; The important cases are the ones that demonstrate the analytical framework to understand how the law works. These are the opinions that help us represent our clients in knowing what to do when litigation is reasonably anticipated.

Magistrate Judge Paul Grewal’s opinion in AMC Tech., LLC v. Cisco Sys., is such a case that breaks down the duty to preserve, triggering events and the timeline of facts. I think it is extremely helpful in understanding the scope of the duty to preserve.

Judge Grewal opened his opinion with the following:

Ten years after Judge Scheindlin woke up the legal world from its electronic discovery slumber in the Zubulake series, plenty of other courts now have weighed in on when the duty to preserve electronic evidence attaches. With varying degrees of sophistication, most parties have gotten the basic message: the duty begins at least no later than the day they are sued and told about it. Less understood is exactly what a party must then do and by when. For example, while a suit against a particular CEO for sexual harassment would pretty clearly require that his relevant data be locked down at least by the time the company gets wind of the complaint, what must counsel do about less obvious players in a more abstract dispute? The motion before the court presents just such a question.

AMC Tech., LLC v. Cisco Sys., 2013 U.S. Dist. LEXIS 101372, 1-2 (N.D. Cal. July 15, 2013) [Emphasis added].

Here is the basic factual scenario of the case:

Defendant had a team negotiating a contract and royalty payments;

Employee not on the team contributed sales data for lead negotiator’s royalty payment schedule;

Employee kept his sales data on his computer and email;

Employee communicated by phone and email to negotiator;

Employee retired four days before Plaintiff files lawsuit;

Employee’s computer was wiped within the 30-day policy after someone leaves the company;

Neither party listed Employee as a custodian;

Defendant sought information from Employee slightly over one year from the filing of the lawsuit.

AMC Tech., LLC at *3-4.

The Plaintiff sought adverse inference instruction against the Defendant for what it called “reckless destruction of documents created by a key decisionmaker.” AMC Tech., LLC at *5.

The Court summarized its inherent authority over spoiliation as follows:

The court has “inherent discretionary power to make appropriate evidence rulings in response to the destruction or spoiliation of relevant evidence,” which arises out of its inherent power to direct “orderly and expeditious disposition of cases.” The range of appropriate sanctions is broad, and may take form in relatively minor sanctions, such as the award of attorney’s fees, to more serious sanctions, such as dismissal of claims or instructing the jury that it may draw an adverse inference. The court’s discretion is not, however, unbounded — it must weigh a number of factors to determine whether to grant sanctions, and if so, tailor the remedy according to the conduct that triggered the sanction. To determine whether to award spoiliation sanctions, the court considers whether the moving party has established: “(1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed with a culpable state of mind; and (3) that the evidence was ‘relevant’ to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.”

AMC Tech., at *6-7.

The Court had to answer the following question: Did the Defendant have an obligation to preserve the Employee’s computer/email at the time the ESI was destroyed?

The Court explained that there was “no question” that the ESI had to be preserved when the Plaintiff requested the ESI. This was not possible, since the ESI had been destroyed approximately 11 months earlier as part of the Defendant’s routine policy when an employee left the company. AMC Tech., at *7.

Had the duty to preserve already attached to the ESI prior to its deletion?

The Court explained the scope of the duty to preserve as follows:

A general duty to preserve evidence relevant to the litigation arises from the moment that litigation is reasonably anticipated. Because Cisco received notice of the complaint before McKeon’s documents were destroyed, and concedes that it had notice of the suit even before AMC filed the complaint on July 11, 2011, Cisco had a general duty to preserve evidence when it destroyed McKeon’s documents.

But the scope of this duty is not limitless. A litigant has an obligation to preserve only evidence “which it knows or reasonably should know is relevant to the action.” This duty requires a party to “identify, locate, and maintain, information that is relevant to specific, predictable, and identifiable litigation,” which includes identifying “key players” who may have relevant information and taking steps to ensure that they preserve their relevant documents. It is critical to underscore that the scope of this duty is confined to what is reasonably foreseeable to be relevant to the action. 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.

AMC Tech., at *7-9 [Emphasis added].

What did this mean for the Defendant and retired Employee? The Court explained the following:

AMC’s complaint plainly put Cisco on notice to identify and preserve documents that generally might reasonably be relevant to the AMC-Cisco Agreement, the Siebel Adapter, and the UCCX Connector. But should Cisco have known specifically that McKeon was a “key player,” such that his documents, just days before their demise, were relevant to the case? McKeon was an unlikely candidate to have documents relevant to the Agreement because he did not engage in negotiations of the Agreement in any way. Nor did he work on any internal committees deciding whether to commence the UCCX Connector project. He was merely the product manager for the underlying Cisco UCCX product. Although McKeon’s input might have informed Nijenhuis’ computation of the royalty schedule in the Agreement, which might be relevant to the issue of damages, these documents are only tangentially related to even that question because AMC does not allege that the royalty payment schedule was incorrect. Nothing in the complaint suggests that AMC would be making such a claim. Because Cisco could not reasonably have known that McKeon’s documents would be at all relevant to the litigation when those documents were destroyed, there was no duty to preserve them at that time.

AMC Tech., at *9-10.

The Court rejected the Plaintiff’s argument that the retired Employee was a “key player” that justified harsh sanctions. The Court zeroed in on the fact the Employee was just a project manager who had no role in the contract negotiations. Moreover, his data was not unique, because the Defendant produced its internal financial spreadsheets pertaining to the sales of the subject devices. Those files likely were created by the Employee. AMC Tech., at *12-13.

The Court held there was no prejudice to the Plaintiff and that the sanctions sought establishing full liability for the breach of the agreement to be “wholly inappropriate.” As such, the Court denied the Plaintiff’s motion.

Bow Tie Thoughts

Many litigation hold cases often have a theme where a party seeks to have the opposing party drawn and quartered for missing a tangential custodian. 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.

Litigation hold cases are fact intensive. They require asking the age old questions, “What did the President know and when did he know it?” This can require not just custodian interviews, but using ECA technology to see communication patterns to identify the key players involved in the dispute.

Judge Grewal conducted very detailed analysis on the timeline on this case and applying those facts to the law. This case is an excellent way to teach the scope of the duty to preserve. I encourage attorneys to read the full opinion.