Magistrate Declines to Enter Preservation Order, Orders Defendants to Answer Document Retention Questionnaire, and Orders Production of Electronic Documents in Native Format

Treppel v. Biovail Corp., 2006 WL 278170 (S.D.N.Y. Feb. 6, 2006)

In this case, plaintiff alleged that Biovail Corp., its general counsel and certain others engaged in a “smear campaign” that destroyed plaintiff’s career as a securities analyst. He asserted claims of defamation, tortious interference with prospective economic advantage and civil conspiracy. Plaintiff moved for an order compelling defendants to: (a) preserve all potentially discoverable data, whether maintained in electronic or paper form; (b) answer a range of questions concerning their electronic data management practices; and (c) produce all accessible data and documents responsive to his First Request for Production of Documents. Magistrate Judge James C. Francis denied the motion as to the preservation order, but granted the other relief requested.

Plaintiff originally filed his complaint in April 2003, but did not serve it. In August 2003, plaintiff filed and served an amended complaint, and motion practice ensued on various motions to dismiss. In December 2003, plaintiff’s counsel sent a letter to defendants demanding that all information relevant to the claims and defenses in the action, including electronically-stored data, be preserved. There was then little activity in discovery until February 2005, when plaintiff’s counsel sent a letter to the attorneys for all defendants enclosing a proposed Stipulation and Order Regarding Electronic Data Preservation and Discovery Protocols (the “Proposed E-Discovery Stipulation”). The proposed order reflected a detailed and comprehensive approach to e-discovery:

It provided that the parties exchange information about their document retention policies, identify a deposition witness with knowledge of their computer systems, and preserve relevant data in a variety of specifically identified media and storage devices according to a highly detailed protocol. Further, the proposed order would require the parties to produce in native file format all relevant information currently maintained in “accessible” form, that is, on existing hard drives, servers, and removable media such as CDS, DVDs, or ZIP discs. At the same time, the parties would identify but not immediately produce information contained on inaccessible media such as back-up tapes and would provide detailed information about the ability to restore data from that media. The parties would also identify any relevant information that was no longer available and explain the circumstances of its loss or destruction. Finally, the parties would answer a Document Retention Questionnaire that was attached as Schedule A to the proposed order. That form contained 19 questions, together with subparts, relating to the operation of each party’s network servers, e-mail services, hard drives, and use of non-firm computers.

Counsel for the defendants declined the invitation, arguing that they were aware of their preservation obligations under the Federal Rules and would abide by them; that the proposed order was unnecessarily onerous in light of the relatively narrow issues presented in the case; and that it was inappropriate to consider production of information, electronic or otherwise, in the absence of specific requests for the production of documents.

Plaintiff thereafter served his First Request for Production of Documents. Defendants objected on various grounds, but also agreed to produce some responsive documents. A separate dispute then arose. Because much of the responsive information was maintained in electronic form, defense counsel proposed that the parties agree which employees’ files were to be searched and what search terms were to be used. Plaintiff’s counsel demurred, stating that plaintiff had no obligation to assist defendants in the process by providing search terms or any other guidance. When counsel were unable to resolve these disputes among themselves, plaintiff filed the instant motion.

Preservation Order
In determining whether to enter the preservation order, the court applied a balancing test that weighed three factors: (1) the danger of destruction; (2) the content of the destroyed documents; and (3) the burden of preservation.

As to the first factor, the court found that plaintiff had “demonstrated neither that evidence has been lost nor that the steps Biovail has now taken are inadequate to preserve existing documents.” The court found that defendants’ duty to preserve arose when they became aware of plaintiffs’ complaint in April 2003, not in December 2003 when plaintiff’s counsel issued a letter formally demanding preservation of evidence, as defendants had argued. Although Biovail was “tardy” in establishing a preservation program, plaintiff had not shown that the delay in fact led to the loss of any evidence. Moreover, the court found that the threat of future spoliation had been diminished by the steps Biovail ultimately took to preserve evidence, which included creating backups of servers and imaging the hard drives of the laptops of key players. “Thus, as of the time that the back-ups were made, Biovail ‘froze’ the information so that in the future it would be neither destroyed beyond recovery nor downgraded from an accessible format to an inaccessible one.” In a footnote, Magistrate Francis explained further:

One of my colleagues recently declined to sanction a party for converting data to an inaccessible format, taking the position that there is no obligation to preserve electronic data in an accessible form, even when litigation is anticipated. See Quinby v. Westlab AG, No. 04 Civ. 7406, 2005 WL 3453908, at *8 n. 10 (S.D.N.Y. Dec. 15, 2005). I respectfully disagree. The Second Circuit has held that conduct that hinders access to relevant information is sanctionable, even if it does not result in the loss or destruction of evidence. See Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99, 110 (2d Cir.2002). Accordingly, permitting the downgrading of data to a less accessible form – which systematically hinders future discovery by making the recovery of the information more costly and burdensome – is a violation of the preservation obligation.

As to the second factor, the court stated:

Since the plaintiff has not demonstrated that any documents have in fact been destroyed, he necessarily has failed to identify the content of such documents. To be sure, it is not incumbent upon the plaintiff to show that specific documents were lost. It would be enough to demonstrate that certain types of relevant documents existed and that they were necessarily destroyed by the operation of the autodelete function on Biovail’s computers or by other features of its routine document retention program. But the plaintiff has not yet made even the most basic showing that any documents potentially relevant to this litigation were lost.

Regarding the last factor, the court observed that neither party had provided information with respect to the extent of the burden that would be imposed on Biovail if a preservation order were entered. Noting that the stipulation proposed by plaintiff was “sweeping,” the court concluded that plaintiff had failed to demonstrate that the requested preservation order was “not unduly burdensome.”

Accordingly, the court denied as premature plaintiff’s application for a preservation order. It ruled that, in the event plaintiff could later demonstrate that evidence had in fact been lost, that it was likely relevant to claims or defenses in this action, and that an order would not impose undue hardship on Biovail, it would again consider the application.

Document Retention Questionnaire
Although the court agreed with defendants that the Document Retention Questionnaire and two supplementary letter inquiries by plaintiff were best characterized as interrogatories, it did not agree that defendants should be relieved of the obligation of responding to them. It found that plaintiff had shown ample justification for exceeding the 25-interrogatory limit set out in Rule 33(a). Defendants did not deny that some relevant information was likely to have been electronically created and stored; Biovail was tardy in imposing a preservation program, and some relevant data may therefore have been lost. Further, the court found that the cost of responding to the plaintiff’s inquiries was likely to be “modest and certainly paled in comparison to the millions of dollars that each side alleged to have lost as a result of the other’s depredations.” Finally, it found that a deposition was not an efficient substitute: “in this instance any deposition concerning the operation of Biovail’s document system would be an exercise in frustration if counsel were not previously provided basic information about the system. That information is best obtained by interrogatory.” The court ordered Biovail to treat the Document Retention Questionnaire and the supplementary inquiries as interrogatories, and provide substantive responses.

Search Protocol
The court observed that plaintiff’s refusal to stipulate to a search methodology was a “missed opportunity,” since plaintiff might have convinced Biovail to broaden its search in ways that would uncover more responsive documents and avoid subsequent disputes. However, it found that plaintiff’s recalcitrance did not excuse Biovail’s failure to produce any responsive documents whatsoever. It stated that, absent agreement with the plaintiff about a search strategy, Biovail should have proceeded unilaterally, producing all responsive documents located by its search. The court ordered Biovail to conduct its search now, and also provide a detailed explanation of the search protocol used. The court noted:

This ruling is not an endorsement of the methodology that Biovail has suggested, either in relation to the choice of files to be searched or the terms to be applied. It is, instead, an interim step that is subject to revision once Biovail has responded to the interrogatories relating to its electronic data and the plaintiff has articulated any specific concerns about the scope of the search.

In addition, the court ordered Biovail to produce responsive documents in native file format, as requested by plaintiff, since Biovail failed to provide any substantive basis for its objection to the requested format.