Equivocal Demand Letters Did Not Trigger Duty to Preserve; No Duty To Run System-Wide Key Word Searches

Cache La Poudre Feeds, LLC v. Land O’ Lakes, Inc., 2007 WL 684001 (D. Colo. Mar. 2, 2007)

In this trademark infringement case, plaintiff sought various forms of relief for defendants’ alleged discovery violations, including the appointment of a special master (at defendants’ expense) who would be charged with evaluating defendants’ discovery production efforts and, if necessary, directing “completion of full and thorough efforts to locate and produce all documentation in all forms available.” Plaintiff also sought additional depositions on the issue of spoliation and attorneys fees and costs, among other things. The court denied most of the requests, but concluded that a $5,000 monetary sanction was appropriate based upon defendants’ failure to preserve the hard drives of departed employees and failure to confirm the accuracy and completeness of its discovery production.

The court noted that the case had spawned numerous discovery disputes, and that neither side was immune from criticism. Ruling on an earlier motion to compel, the court had observed that plaintiff’s requests for production were not “models of clarity.” Because the record was not clear as to the existence of additional documents, the court had permitted plaintiff to take a Rule 30(b)(6) deposition to explore the procedures that Land O’Lakes had taken to identify, preserve and produce responsive documents. Based upon the testimony obtained at that deposition, plaintiff filed the instant motion.

Allegations of Spoliation Predating Complaint

The court first addressed defendants’ alleged destruction of evidence. Plaintiff based its spoliation claim on defendants’ failure to discontinue its practice after April 2002 of routinely eliminating e-mail and overwriting backup electronic media. Plaintiff argued that by allowing these practices to continue, defendants destroyed relevant and otherwise discovery emails and other ESI, thereby insuring that the material would not be available through discovery.

The court described the necessary inquiry: First, it must determine whether the missing documents or materials would be relevant to an issue at trial. If so, it must decide whether defendants were under an obligation to preserve the records at issue. If there was a duty, it must consider what sanction, if any, would be appropriate given the non-moving party’s degree of culpability, the degree of any prejudice to the moving party, and the purposes to be served by exercising the court’s power to sanction.

The court found that the material was relevant, but concluded that the record did not support plaintiff’s argument about when the duty to preserve arose. Although correspondence was exchanged between the parties in 2002 and 2003 about the trademark issues, there were no threats of impending litigation and plaintiff’s counsel implied that her client preferred and was willing to explore a negotiated resolution. Plaintiff filed its complaint against defendants in February 2004, and in March 2004, plaintiff’s counsel for the first time sent a letter to defense counsel that specifically put defendants on notice to prevent spoliation or destruction of evidence.

The court concluded that, under difference circumstances, a demand letter alone may be sufficient to trigger an obligation to preserve evidence and support a subsequent motion for spoliation sanctions. However, such a letter must be more explicit and less equivocal than plaintiff’s 2002 and 2003 correspondence with defendants. The court observed that the letters did not threaten litigation and did not demand that defendants preserve potentially relevant materials. The court added: “Given the dynamic nature of electronically stored information, prudent counsel would be wise to ensure that a demand letter sent to a putative party also addresses any contemporaneous preservation obligations.” The court also noted that plaintiff waited two years after the first contact to file suit. It found that delay, coupled with the “less than adamant tone” of plaintiff’s letters, belied plaintiff’s contention that defendants should have anticipated litigation as early as 2002 and therefore had a duty to preserve evidence as of that date.

The court acknowledged that the common-law obligation to preserve relevant material was not necessarily dependent upon the tender of a "preservation letter." It continued:

However, a party’s duty to preserve evidence in advance of litigation must be predicated on something more than an equivocal statement of discontent, particularly when that discontent does not crystallize into litigation for nearly two years. Any other conclusion would confront a putative litigant with an intractable dilemma: either preserve voluminous records for a indefinite period at potentially great expense, or continue routine document management practices and risk a spoliation claim at some point in the future.

The court noted that the recently enacted amendments to the Federal Rules of Civil Procedure recognize that suspending or interrupting automatic features electronic information systems can be prohibitively expensive and burdensome:

[I]t is unrealistic to expect parties to stop such routine operation of their computer systems as soon as they anticipate litigation. It is also undesirable; the result would be even greater accumulation of duplicative and irrelevant data that must be reviewed, making discovery more expensive and time consuming.

2007 WL 684001, at *10 (quoting May 27, 2006 Report of the Advisory Committee on the Federal Rules of Civil Procedure, at 71.) Accordingly, the court held that defendants’ duty to preserve evidence was not triggered until the filing of plaintiff’s complaint in 2004, and denied plaintiff’s motion for spoliation sanctions predicated on actions or omissions that occurred before that date.

Post-Filing Discovery Failings

The court found that, although they instituted a legal hold within days of the lawsuit, defendants’ in-house and outside counsel failed in many respects to discharge their obligations to coordinate and oversee discovery. They directed employees to produce all relevant information, and then relied upon those same employees to exercise their discretion in determining what specific information to save. They took no independent action to verify the completeness of the employees’ document production, and instead simply accepted whatever documents or information might be produced by the employees. Without validating the accuracy and completeness of its discovery production, defendants continued the routine practice of wiping clean the computer hard drives of former employees.

The court opined: “Once a “litigation hold” has been established, a party cannot continue a routine procedure that effectively ensures that potentially relevant and readily available information is no longer “reasonably accessible” under Rule 26(b)(2)(B).” It continued:

While instituting a “litigation hold” may be an important first step in the discovery process, the obligation to conduct a reasonable search for responsive documents continues throughout the litigation. See Fed. R. Civ. P. 26(e)(2) (a party is under a duty seasonably to amend discovery responses “if the party learns that the response is in some material respect incomplete or incorrect and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing”). A “litigation hold,” without more, will not suffice to satisfy the “reasonable inquiry” requirement in Rule 26(g)(2). Counsel retains an on-going responsibility to take appropriate measures to ensure that the client has provided all available information and documents which are responsive to discovery requests. As the Advisory Committee Notes make clear, “Rule 26(g) imposed an affirmative duty to engage in pretrial discovery in a responsible manner that is consistent with the spirit and purposes of Rules 26 through 37.” In this case, I find that Defendants failed to meet this standard.

2007 WL 684001, at *17 (citation omitted). However, the court rejected plaintiff’s arguments that Zubulake V created a new obligation for litigants to conduct “system-wide keyword searches,” or that defendants had violated this alleged duty by failing to do so. The court stated:

I do not interpret Judge Scheindlin’s suggestion as establishing an immutable “obligation.” To the contrary, in the typical case, “[r]esponding parties are best situated to evaluate the procedures, methodologies, and technologies appropriate for preserving and producing their own electronic data and documents.” See The Sedona Principles, at 31.

2007 WL 684001, at *14.

Specific Discovery Responses and Sanctions

The court went on to evaluate specific discovery responses that plaintiff claimed were inadequate, and plaintiff’s requests for various sanctions. Unable to find that defendants’ failure to preserve relevant documents was the product of bad faith, or that plaintiff’s ability to litigate its claims was substantially prejudiced, the court denied most of the requested sanctions. However, because defendants’ failure to preserve potentially relevant information by wiping clean computer hard drives and counsels’ failure to properly monitor the discovery process interfered with the judicial process, and forced plaintiffs to incur additional expense, the court found that monetary sanctions of $5,000 were appropriate.