«Research Project Underwritten by: The Greater Los Angeles Chapter of ARMA International The Orange County Chapter of ARMA International And The ARMA ...»
LEGAL HOLDS FOR “ANTICIPATED
LITIGATION”: New Case Developments to
Determine Triggering Events & Scope of
John J. Isaza, Esq.
Research Project Underwritten by:
The Greater Los Angeles Chapter of ARMA International
The Orange County Chapter of ARMA International
The ARMA International Educational Foundation Endowment
© 2007 ARMA International Educational Foundation 1609 Terrie Drive Pittsburgh PA 15241 USA www.armaedfoundation.org Copyright ARMA International Educational Foundation www.armaedfoundation.org
TABLE OF CONTENTSINTRODUCTION
SPOLIATION, LEGAL HOLDS AND THE DUTY TO PRESERVE
Overview of the Spoliation Doctrine
The Duty to Preserve in General: Legal Holds
The Rambus Decisions
BRIEF DISCUSSION OF TRIGGERING EVENTS FOR “PENDING” LITIGATION.............. 9 TRIGGERING EVENTS FOR POTENTIAL LITIGATION
Letter from Party Threatening Legal Action
Letters From Party’s Attorney Before Litigation
Notice to Insurance Carrier
Filing Claims with Administrative Agencies
Substantive Conversations with Supervisors & Others
Retainer of Counsel and/or Experts
Imminent Lawsuit Apparent or Other Red Flags
PartialSettlement of Claims
Quinby v. WestLB AG (S.D. NY 2006) 2006 U.S. Dist. LEXIS 64531
Letter Requesting Explanation for Non-Hiring May Have Triggered Duty to Preserve.......... 17 Circulation of Internal “Document Hold” Memoranda
Severity of Injuries Combined with Totality of Circumstances
DETERMINING THE SCOPE OF THE LEGAL HOLDS
Determining Scope of Litigation Holds for Electronic Records in General
The Sedona Principles
The New & Revised Federal Rules
Specific Case Examples Regarding the Scope of Litigation Holds
Manufacturing & Product Design Records
Maintenance Inspection Records
Key Players and Their Documents
Drafts of Employee Evaluation Documents
Employment Decision Documents
Computer Networks and Hard Drives
Server Log Data
Inaccessible Back-Up Tapes
INTRODUCTIONIn 2004, the ARMA International Educational Foundation sponsored a study entitled “Legal Holds and Spoliation: Identifying a Checklist of Considerations that Trigger the Duty to Preserve” (hereafter the “2004 Study”).1 The 2004 Study identified a duty to preserve continuum for records retention in general. It also provided parameters for triggering a “legal hold”2 on destruction of records subject to destruction not only under the records retention policy, but also for any other documents or information in the company’s possession at the time.
Since the 2004 Study was published, companies continue to struggle with litigation holds for foreseeable, potential or anticipated litigation, as contrasted with “pending” litigation where the company has already been served or is aware of the lawsuit being filed in court. Foreseeable, potential or anticipated litigation is a thorny case or fact-specific issue. On top of that, the revised Federal Rules of Civil Procedure, effective December 1, 2006, have made the issue a top priority. Accordingly, the purpose of the instant supplemental study is to survey cases that address when the duty to preserve attaches for such potential or anticipated litigation, including the all-important determination of scope (i.e., what to preserve).
As noted in the 2004 Study, a comprehensive treatment of the spoliation doctrine was not within its scope, and the same goes for this supplemental study. Other authors have
documented the subject extensively.3 That said, at the core, this supplemental study will:
To download a copy of the study, go to www.armaedfoundation.org.
Also known as “litigation hold” and referred interchangeably throughout this document with the phrase “legal holds.” See, e.g., Kaye, Richard. “Effect of Spoliation of Evidence in Product Liability Action.” 102 ALR 5th 99 (2004 West Group). This article provides a comprehensive and current treatment of the effect of spoliation of evidence in all 50 states; see also, Eng, Kevin. “Spoliation of Electronic Evidence.” 5 BU Journal of Sci & Tech 13 (1999); Egan, Christopher. “Arthur Andersen’s Evidence Destruction Policy: Why Current Spoliation Policies Do Not Adequately Protect Investors.” 34 Tex. Tech L. Rev. 61 (2002).
Copyright ARMA International Educational Foundation www.armaedfoundation.org
I. SPOLIATION, LEGAL HOLDS AND THE DUTY TO PRESERVE
Although a comprehensive look at spoliation is not within the scope of this supplemental study, a brief summary of the doctrine is a necessary foundation. Failure to preserve evidence (or its destruction) or the failure to produce evidence is generally known as “spoliation.”4 It is legally defined as "the destruction or significant alteration of evidence, or the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation." 5 Courts have a great deal of discretion in imposing sanctions for the destruction of potentially relevant documents. The decision to sanction a party for spoliation depends on several factors, including whether the conduct at issue was intentional, the degree of prejudice to the opposing party, and the availability of alternative evidence. The penalties for spoliation vary widely among the states and can include the following: (1) adverse inference instructions to the jury; (2) evidentiary sanctions; (3) dismissal of the case; and (4) an independent cause of action for either intentional or negligent spoliation. Various state and Federal acts, most notably Sarbanes-Oxley, have increased the reach of the spoliation doctrine from mere litigation matters to pending state and Federal investigations. Incarceration is also a potential penalty for spoliation, such as under Sarbanes-Oxley. 6
B. The Duty to Preserve in General: Legal Holds
A variety of sources gives rise to a duty to preserve potentially relevant evidence.
These include the following continuum of the duty to preserve: (1) statutes or regulations; (2) statutes of limitations; (3) potential, anticipated or threatened litigation;
(4) receipt of a preservation letter from opposing counsel or an investigation notice from an agency; and (5) service of a complaint, discovery requests, court orders, or other events that occur in conjunction with litigation. This supplemental study will focus on legal holds and the duty to preserve in the context of potential, anticipated or threatened litigation. This area is the most critical for the “legal hold” decision. It is the most difficult to predict or standardize in light of the courts’ use of the “reasonable foreseeability” test to determine when the duty to preserve arises. As a result, decisions in this context are fact-specific, so similar situations can lead to different results.
Pronunciation: "spO-lE-'A-sh&n; Function: noun Etymology: Middle English, from Anglo-French spoliacion, Latin spoliation-, spoliatio, from spoliare to plunder -a : the act of plundering b : the state of having been plundered especially in war; 2 : the act of injuring especially beyond reclaim. Merriam Webster Online Dictionary at http://www.m-w.com/dictionary/spoliation.
Zubulake v. UBS Warburg (S.D.N.Y. July 20, 2004) 220 F.R.D. 212, 217.
18 USC 1519 (imposing fines and prison sentences of up to 20 years for anyone who knowingly alters, destroys, mutilates, conceals, covers up, falsifies or makes false entry in any record, document or tangible object with the intent to impede, obstruct or influence the investigation or proper administration of any department or agency of the United States)(Emphasis added.)
One instructive example on how unpredictable the doctrine of spoliation can be, especially in the pre-litigation scenario, arose in an intellectual property case. Courts in Virginia and California reached dramatically different conclusions about whether a technology development company had engaged in actionable destruction of documents under the same set of underlying facts. Under the facts in Hynix v. Rambus (N.D. Cal.
2006) 2006 U.S. Dist. LEXIS 30690, as well as Rambus v. Infineon (E.D. Va. 2004) 220 F.R.D. 264, rev’d on other grounds 318 F.3d 1081, and Samsung v. Rambus (E.D. Va.
2006) 439 F.Supp. 2d 524, Rambus had created and implemented a retention policy in conjunction with its intellectual property defense strategy. At least two years before filing its patent infringement claims, Rambus employees participated in so-called office “shred days.” Hynix v. Rambus (N.D. Cal. 2006) at 30690 (p.11). The goal of the exercise was to make the company “battle ready.” Samsung v. Rambus (E.D. Va. 2006) 2006 U.S. Dist. LEXIS 50007. Two Virginia court decisions found that Rambus committed various acts of litigation misconduct, including the intentional destruction of documents. Rambus, Inc. v. Infineon Techs. AG, (E.D. Va. 2004) 222 F.R.D. 280, 286, citing Rambus, Inc. v. Infineon Techs. AG, (E.D. Va. 2001) 155 F.Supp.2d 668, 680-83, rev’d on other grounds 318 F.3d 1081. In an interesting twist, the California court did not find spoliation, though its decision was based on the same basic set of facts. This remarkable and unusual set of inapposite decisions lends itself to careful analysis.
The Underlying Facts of the Cases
Rambus is a company that develops and licenses technology to companies that manufacture semi-conductor memory devices. Beginning in early 1998 and continuing through 1999 and 2000, Rambus developed, refined, and implemented a patent licensing and litigation strategy, which was aimed at several specifically identified manufacturers.
Among the targeted manufacturers were Infineon, Samsung, and Hynix Semiconductor, Inc.7 In October 1997, Rambus hired a consultant to implement its plan to secure royalties from manufacturers whose products Rambus considered infringing its patents and entrenching on its technology. Samsung v. Rambus, 439 F. Supp. 2d at 545. At a meeting with prospective lawyers in early 1998, Rambus stressed that it needed to make itself "battle ready" by gathering critical documents to put into a searchable, coded electronic database and that the company needed a "document retention policy."8 Even before the first “shred day” in 1998, Rambus had sent 1,268 computer tapes to be Because Rambus technology is so unique, their patents are extensive and fundamental. Thus, companies would not be able to develop Rambus-compatible technology or Rambus-like technology without infringing on multiple fundamental claims of their patents. Samsung v. Rambus, 439 F. Supp. 2d at 545. By the late 1990s, Rambus realized that manufacturers were using its technology and patented inventions to make infringing products. And, by then, Rambus noted that steps must be taken to have the industry take Rambus' intellectual property rights seriously.
Meeting notes reflected that it would be necessary to clean out all attorney notes from patent prosecution files so that they would conform with the official files. Further notes reported that Rambus needed to litigate against someone to establish its patent rights. Id. at 546. In fact, Rambus had identified, as components of aggressive readiness, the need to prepare a discovery database and the need to select experts. Id.
Copyright ARMA International Educational Foundation www.armaedfoundation.org degaussed on or before July 1, 1998. Id. at 50007 (p.36). At least one document identified specific litigation targets and articulated the strategy that those targets should be sued in separate suits, so as to minimize the ability of the targets to cooperate with each other in defending the case. 9 The California Court’s Findings in Hynix v. Rambus Despite the above noted apparent acts of spoliation in the face of anticipated litigation, the court in California did not find spoliation. The complaint in this case was filed on August 29, 2000. The primary question before the court was whether Rambus adopted and implemented its document retention policy in advance of reasonably foreseeable litigation for the purpose of destroying relevant information. Hynix v.
Rambus, (N.D. Cal. 2006) 2006 U.S. Dist. LEXIS 30690 (p.16). The court determined that the retention policy and the so-called “shred days” were not adopted in bad faith. The court first noted that “a legitimate consequence of a document retention policy is that relevant information may be kept out of the hands of adverse parties.” Id. citing Arthur Andersen LLP v. United States, 544 U.S. 696, 125 S. Ct. 2129, 2135, 161 L. Ed. 2d 1008 (2005).10 In contrast, however, the court acknowledged that a document retention policy adopted or utilized to justify the destruction of relevant evidence is not a valid document retention policy.” Id. at 30690 (p.16).
Although Rambus began to plan a litigation strategy as part of its licensing strategy, the court deemed that it could not be said to be “reasonably probable” because several patent-issuance contingencies had to occur before Rambus could engage in litigation. Thus, the court ruled that Rambus's adoption and implementation of what it deemed a “content neutral” Document Retention Policy was a permissible business decision. The destruction of documents on the shred days in 1998, 1999 and even into 2000 pursuant to the policy did not constitute unlawful spoliation. Id. at 30690 (p.18-19).
Even a reference to “work product” on privilege logs did not support the conclusion that litigation was anticipated. Id. at 30690 (p.19). The court clarified that California law protects a lawyer’s work-product even if prepared “in a non-litigation capacity.” Id.