Concluding Litigation Hold and Document Retention Policies are “Clearly Unacceptable,” Court Allows Depositions to Determine if Spoliation Occurred

Scentsy Inc. v. B.R. Chase LLC, No. 1:11-cv-00249-BLW, 2012 WL 4523112 (D. Idaho Oct. 2, 2012)

In this case involving alleged trade dress and copyright infringement and related claims, the court addressed Defendants’ allegations of spoliation and focused in particular on Plaintiff’s litigation hold and document retention policies, which it concluded were “clearly unacceptable.”  Recognizing that it was “unlikely” that relevant documents were destroyed, the court nonetheless allowed depositions to be taken at Plaintiff’s expense and indicated its potential willingness to issue an adverse inference instruction or to dismiss some or all of Plaintiff’s claims if it was determined that spoliation occurred.

Defendants filed a motion to compel Plaintiff to conduct a forensic examination of its own computer systems or for some other appropriate relief alleging that Plaintiff “failed to produce key documents because of an insufficient litigation hold.”  Plaintiff did not issue a written litigation hold.  Instead, General Counsel “spoke to the individuals that would have information regarding [the company and products at issue], and asked—requested that those documents not be deleted.”  This oral litigation hold was issued “roughly concurrent with the filing of the Complaint” (May 2011) but approximately two months after Plaintiff claimed to have first anticipated litigation (which would trigger the obligation to preserve).  Moreover, Plaintiff’s document retention policy resulted in the routine deletion of emails over six months old, while other documents saved to an employee’s hard drive, a shared drive, or to the Plaintiff’s server were preserved “indefinitely” or until the creator chose to delete them.

Plaintiff contended that any relevant documents not produced were "long destroyed" before litigation was contemplated, either as a result of its general retention policy or when the hard drive of its lead designer crashed—at a time before Plaintiff even knew the relevant defendant existed (a premise the court accepted absent evidence to the contrary).  Regarding emails, the court acknowledged that the at-issue products entered the market no later than November 2009 and that relevant emails were likely automatically deleted before Plaintiff anticipated litigation.

The court indicated it had “serious concerns” with Plaintiff’s document retention policy and litigation hold process: “Generally not deleting documents, and orally requesting certain employees to preserve relevant documents concurrently with filing a lawsuit, is completely inadequate.  It is very risky—to such an extent that it borders on recklessness.”  Thus, despite acknowledging that it was unlikely that relevant documents were destroyed as a result of Plaintiff’s policies, the court recognized that there was a two month window between the initial anticipation of litigation and the filing of the complaint (longer if you believed the defendant) where relevant documents stored on an employee’s computer or a server could have been destroyed.  Moreover, while there was no way to know for sure if documents were deleted, the court noted that that uncertainly was “caused by Scentsy’s inadequate retention policy coupled with its late and imprecise litigation hold.”

Thus, noting that the remedy for Plaintiff’s “inadequate policies” was difficult to craft, and that forensic examination could be both time-consuming and costly and would be an undue burden under the circumstances presented, the court ordered that a defendant would be allowed to depose “appropriate individuals” to determine whether relevant information was destroyed, with Plaintiff to bear the costs.  Moreover, the court indicated its willingness to consider more serious sanctions if spoliation was revealed.

Addressing Plaintiff’s litigation hold and document retention policies specifically, the court indicated that the policies were “clearly unacceptable” and went on to caution Plaintiff against continued reliance upon them:

Spoliation is a serious matter, and Scentsy’s document retention and litigation hold policies are clearly unacceptable.  The Court assumes that Scentsy will improve those policies in any future litigation.  The failure to do so may result in this or some other court finding that Scentsy’s failure to act, in the face of the warnings given in this decision, constitutes the kind of willfulness or recklessness which may result in serious repercussions.