The Journal of The DuPage County Bar Association

Back Issues > Vol. 23 (2010-11)

Avoiding Spoliation Claims: Practical Tips for Business Entities Regarding Litigation Holds and Document Retention
by  J. Matthew Pfeiffer

Business litigation often involves a substantial volume of document production. Even a garden-variety commercial case involving a small corporation may spawn thousands of pages of paper during the course of discovery. Given the technological advances accomplished in the past couple of decades, attorneys and their business clients now find themselves digging through not only hard copies of documents but electronically stored information as well, such as current and archived e-mail, word processing documents, computer-generated spreadsheets, and so forth.

During the course of a lawsuit, your client might be accused of having intentionally or negligently discarded documents or materials pertaining to a pending or potential legal matter that arguably should have been preserved. How should an attorney handle this situation , and what can an attorney do before such a situation arises?

Pleading of a Spoliation Claim. The Supreme Court of Illinois has held that spoliation of evidence is a tort that can be pled under existing negligence principles, not as a separate intentional tort. An action for negligent spoliation may be brought concurrently with the underlying suit on which it is based. To sufficiently plead a spoliation claim, a plaintiff must allege the standard negligence elements: that the defendant owed a duty, breached that duty, and such breach proximately caused the plaintiff’s damages.

In order to grant sanctions, the court must find: (1) that there was a duty to preserve the specific documents or evidence, (2) that the duty was breached, (3) that the other party was harmed by the breach, and (4) that the breach was caused by the breaching party’s willfulness, bad faith, or fault. If the Court finds that sanctions are appropriate, it then must determine whether the proposed sanction can ameliorate the prejudice that arose from the breach. If a lesser sanction can accomplish the same goal, the Court must award the lesser sanction, because sanctions "must be proportionate to the circumstances surrounding the failure to comply with discovery."

Duty Preserve. There is no general duty to preserve evidence. However, a duty to preserve evidence can be established when: (1) it arises by agreement, contract, statute, special circumstance, or voluntary undertaking (called the "relationship" prong), and (2) a reasonable person should have foreseen that certain evidence at issue was material to a potential civil action (called the "foreseeability" prong). A plaintiff must satisfy both prongs of this test for a court to determine that a duty existed to preserve evidence.

A party has a duty to preserve evidence that it has control over and which it reasonably knows or can foresee would be material (and thus relevant) to a potential legal action. A document is potentially relevant, and thus must be preserved for discovery, if there is a possibility that the information therein is relevant to any of the claims. The existence of a duty to preserve evidence does not depend on a court order. Instead, it arises when a reasonable party would anticipate litigation.

Breach of Duty. There must also be allegations from which to conclude that the duty to preserve evidence has been breached. In the Northern District of Illinois, a party’s failure to issue a litigation hold is not per se evidence that the party breached its duty to preserve evidence. Instead, reasonableness is the key to determining whether or not a party breached its duty to preserve evidence. A party fulfills its duty to preserve evidence if it acts reasonably. It may be reasonable for a party to not stop or alter automatic electronic document management routines when the party is first notified of the possibility of a suit. However, parties must take positive action to preserve material evidence. "More than good intentions [are] required; those intentions [must] be followed up with concrete actions reasonably calculated to ensure that relevant materials will be preserved," such as giving out specific criteria on what should or should not be saved for litigation.

Resulting Harm. Third, the breach must have harmed the other party. This criterion is self-explanatory: the destruction of documents sought must have caused some prejudice to the party seeking them.

Bad Faith or Willfulness. Finally, there must be a sufficient level of fault to warrant sanctions. Findings of willfulness, bad faith, and fault are all sufficient grounds for sanctions. However, a court may only grant an adverse inference sanction upon a showing of bad faith. To find bad faith, a court must determine that the party intended to withhold unfavorable information. This intent may be inferred when a party disposes of documents in violation of its own policies or if a document’s destruction violates regulations (with the exception of EEOC record regulations). Fault is defined not by the party’s intent, but by the reasonableness of the party’s conduct. Mere negligence is not enough for a factfinder to draw a negative inference based on document destruction. Rather, gross negligence of the duty to preserve material evidence is generally held to be fault.

Olivarius v. Tharaldson Property Management, Inc. In Olivarius, a hotel guest and her husband asserted actions for negligence and loss of consortium against the hotel and its property manager, Tharaldson Property Management, Inc., alleging that she cut her foot in her room due to a dangerous condition and suffered significant permanent damage to her leg as a result of the cut. During discovery, the plaintiffs sought relevant documents from the defendants, including daily cleaning reports, deep cleaning logs, employee names and contact information, employee schedules, and complaint reports. However, it was discovered that Tharaldson’s practice was to destroy daily cleaning logs monthly and to destroy deep cleaning logs, service logs, and complaint logs yearly. Tharaldson further responded that it provided all known contact information about the former housekeeping employees to the plaintiffs’ counsel and that it had no record of Olivarius’ injury complaint or the four letters she allegedly sent. The defendants claimed they were first notified of the incident when the plaintiffs filed the lawsuit.

The plaintiffs subsequently sought leave to amend their complaint to add a spoliation claim based on their discovery of the defendants’ document retention practices. In their proposed amended complaint, the plaintiffs alleged that Tharaldson knowingly destroyed or made unavailable evidence necessary for them to prove its negligence after it knew of the alleged injury. Specifically, they alleged that Tharaldson destroyed documents related to their claims after the injury occurred but before the litigation began, including daily cleaning reports, deep cleaning logs, service logs, complaint logs, and employee work shift information.

The court denied the plaintiffs’ motion to add a count for spoliation of evidence. In so ruling, the court noted that, as to the "relationship" prong, the plaintiffs did not plead a duty by agreement, contract, statute, or that Tharaldson ever voluntarily undertook to preserve the evidence. Therefore, the plaintiffs were left with the allegation that Tharaldson had a duty to preserve evidence under a "special circumstance," contending that such a duty arose because Olivarius notified it of her injury the morning after it occurred and through four letters. The court determined that neither the fact that the defendant was alerted to an accident nor the mere opportunity to exercise control over the evidence was sufficient to create a duty to preserve evidence. Furthermore, even requesting an adverse party or third party to preserve evidence is not always sufficient to create a duty to do so. The court considered prior case law where no special circumstance imposing a duty to preserve evidence was found when a defendant sent a letter to a third party requesting preservation of the truck’s hose that was allegedly the cause of the plaintiff’s injury. On the other hand, the court stated that a duty may arise when a plaintiff sends a very specific and limited demand placing defendant on notice not to "alter, repair, destroy, or modify" allegedly injurious equipment before the plaintiff’s counsel can inspect it.

In Olivarius, the court did not accept the plaintiffs’ argument that the sending of four letters to Tharaldson regarding the injury created a duty to preserve evidence of the cleaning, service, and employee complaint logs. Instead, the court pointed out the lack of any allegation in the proposed amended complaint that there was any request to preserve the records. The court determined that those letters merely notified Tharaldson of Olivarius’ injury and requested information about future steps it would take to prevent others from being injured. Thus, Olivarius’ letters to Tharaldson were deemed insufficient to give rise to a duty to preserve evidence.

The court also stated that the fact that Tharaldson’s records were incomplete or that some of Tharaldson’s former employees could not be located was, on its own, not a basis for a spoliation claim. Tharaldson previously had been ordered to produce the personnel files of individuals who might have knowledge of the alleged incident, and it represented to the court that it had produced to the plaintiffs all relevant documentation in its possession. This was enough to satisfy the Olivarius court that the defendants had complied with discovery requirements and led to the conclusion that a spoliation claim could not be maintained given that compliance.

Jones v. Bremen High School Dist. 228. In Bremen, the plaintiff sued her employer of twenty-five years, a school district, for employment discrimination based on race. She alleged that from April 2006 onward, she and other black secretaries were given more responsibilities than similarly situated white secretaries, that she was subject to insults and criticisms not given to similarly situated white secretaries, and that her employer was aware of this discriminatory behavior. She further alleged that the defendant’s discharge of her constituted retaliation for complaints she filed alleging racial and disability discrimination with the EEOC in October 2007 and with the IDHR in November 2007. Jones received a right to sue letter in April 2008 and filed a lawsuit against the defendant in June 2008.

It was undisputed that the defendant did not place a litigation hold on electronically created documents when it first learned in October 2007 that Jones had filed an EEOC charge against it. Instead, prior to June 2008 (when the lawsuit was filed), only three of the defendant’s employees were asked to search and preserve electronic mail, and they did so without any supervision by counsel based on what each of them deemed relevant. Three additional employees were added to this list in June 2008, after Jones’ complaint was filed. Any e-mail that existed prior to October 2008, which these employees did not preserve because they did not deem it relevant, could no longer be recovered. Other e-mail, which was deleted in the normal course of business by other employees who were not asked to preserve e-mail before October 2008, could not be recovered. By contrast, all e-mail created after October 2008 could be searched for relevant materials because they were backed up pursuant to a change in the defendant’s document retention procedures that called for automatically saving all e-mails from the district’s users in a searchable archive, which was a departure from its prior procedure of rewriting its backup tapes every thirty days. It was not until the spring of 2009 that the defendant instructed all of its employees to preserve e-mails which might be relevant to the litigation.

During the course of the litigation, she filed a motion for sanctions due to spoliation of evidence, alleging that the defendant failed to ensure that relevant documents were preserved during litigation and that such failure severely prejudiced plaintiff’s case. Jones asked for an adverse inference instruction to the jury that the destroyed documents would have supported her claims by containing discriminatory statements. She also asked the court to preclude the defendant from arguing that the absence of discriminatory comments in existing documents showed that no discriminatory comments were made or that she was not subject to discrimination or a hostile work environment.

The Bremen court determined that sanctions were appropriate given the defendant’s conduct, and that the defendant had a duty to preserve documents relevant to Jones’ claims when it received notice of her EEOC charges around November 2007. The court also found that the defendant breached its duty to preserve relevant documents. Although it was aware at least by November 2007 that the plaintiff was challenging its treatment of her on the basis of her race and alleged disability and that its employees had the capability of permanently deleting e-mail relevant to her claims, the defendant did not request all employees who had dealings with her plaintiff to preserve their electronic records so they could be searched further by counsel for possible relevance to her case. Instead, it directed just three employees (one of whom was at the center of her complaints) to search their own e-mail without help from counsel and to cull from that e-mail what would be relevant documents. The court held that it would be unreasonable to allow a party’s interested employees to make the decision about the relevance of documents, especially when those same employees have the ability to permanently delete unfavorable e-mail from a party’s system. The Bremen court also expressed that "[m]ost non-lawyer employees... do not have enough knowledge of the applicable law to correctly recognize which documents are relevant to a lawsuit and which are not. Furthermore, employees are often reluctant to reveal their mistakes or misdeeds."

The court further noted the lack of evidence that a simple litigation hold to preserve existing e-mail would have placed any burden on defendant. "Such preservation efforts would have required very little effort; defendant’s technology department could have easily halted the auto-deletion process and asked all employees who supervised plaintiff... to preserve information." It also was "troubled that the policy followed in this case is not the same document retention policy that defendant publically [sic] espouses on its web site and which was discovered by plaintiff in this lawsuit."

Ultimately, the court in Bremen determined that while there was no evidence of the defendant having willfully chosen its document retention system as a way to minimize exposure of potentially relevant documents for future lawsuits, the defendant was grossly negligent in its attempts to secure relevant documents at the first sign of litigation and prevent its employees at that time from destroying documents concerning the plaintiff’s claims. Noting the broad discretion that rested with it to fashion an appropriate sanction to remedy the prejudice to Jones, the court decided that because there was no deliberate effort to conceal harmful evidence, there would not be a finding that an adverse inference be drawn against the defendant that any e-mail it did not preserve contained discriminatory statements. However, the court granted the plaintiff the following sanctions: that the jury would be informed that the defendant had a duty to preserve all e-mail concerning the plaintiffs’ allegations beginning in November 2007, but did not do so until October 2008; that the defendant would be precluded from arguing that the absence of discriminatory statements from that period was evidence that no such statements were made; that the defendant would be assessed the costs and fees of the plaintiff’s preparation of the motion for sanctions; that the plaintiff would be permitted to depose witnesses concerning e-mails suddenly produced after the filing of her sanctions motion; that the defendant would pay for the cost of the court reporter for those depositions; and that the plaintiff would be permitted to submit a final fee petition after completion of those depositions.

Practical Tips. Olivarius and Bremen are instructive in terms of identifying the criteria and walking through a thorough analysis of what courts consider in determining whether to impose sanctions against a business entity for spoliation of evidence. Based on these recent cases, what should your business clients do to protect themselves from spoliation claims for potential or existing disputes?

Be proactive, not reactive. Businesses should create and adopt document retention and litigation hold policies before destruction of evidence even becomes an issue. Circumstances that would result in a temporary suspension of usual document destruction procedures should be identified, and employees should be instructed on how to identify those situations. Such circumstances may include receipt of employee or customer complaints of any kind, a pre-litigation demand letter from an employee or his or her attorney, or – most obviously – a summons and complaint against the company.

Give authority to specific personnel. Businesses should identify and give authority to one or more persons, or perhaps even a committee, authorized to impose a litigation hold at any time. Those same persons should also be charged with the task of setting the parameters for and spreading notice of the litigation hold companywide to ensure that no one violates the policy or structure established for retaining documents. To that end, and to the extent that these persons are not in-house counsel, they should be in contact with the entity’s internal legal department or with outside counsel immediately upon learning of an issue that potentially or actually would trigger a litigation hold to discuss the particulars of implementing the litigation hold.

Disseminate written notice of document retention procedures. A written notice or policy should be distributed companywide that clearly articulates the procedures that the employees and the company must follow to ensure retention of relevant documents related to a potential or existing claim. This helps to serve as a paper trail for your client to show exactly what steps were taken to preserve electronic and paper evidence and that it made good-faith efforts to save relevant documents from destruction. The notice should be carefully worded, of course, as it may be attached to a pleading or serve as evidence in the future.

"Quarantine" particular personnel. Businesses also must take appropriate measures to ensure that any employees who might have reason to conceal, delay providing, or destroy document evidence or who might be in a position to "accidentally" destroy evidence are isolated until the dispute giving rise to a litigation hold is fully resolved. This might include limiting computer access to certain records by password protection, putting certain records under lock and key with access restricted to only authorized personnel, and requiring all personnel to sign a log in order to gain access to an area where retained records are being stored.

Identify and preserve relevant documents. This should go without saying. Documents that could or should be protected from inadvertent or intentional destruction must be safeguarded. A specific location should be identified as the place where such documents will be maintained during the entirety of a litigation hold. Diligence should be exercised in performing an exhaustive review of all regularly used data sources as well as backup or archive sources, and notes or logs should be maintained regarding the date and time of such reviews as well as what was reviewed and by whom those materials were reviewed.

Monitor the document search and retention process. Businesses (and their attorneys, if necessary) should monitor the litigation hold during the course of a perceived legal issue, dispute, or litigation to ensure that the proper measures are continuing to be taken to protect relevant documents from intentional or inadvertent destruction. The employer must ensure that all sources of discoverable information are identified and searched and that any relevant documents located as a result of such searches are preserved until the dispute has been resolved completely. It would also be prudent to issue reminders about any existing litigation holds and document retention directives on a regular basis to ensure continued compliance.

Don’t "hide the ball". Part of the reason the Bremen court imposed sanctions upon the defendant was that it appeared to have withheld documents from prior productions of discovery materials. Try to produce everything, or as close to that as possible, that is responsive to the opponent’s discovery request. This does not mean that you should try to bury an opponent with documents, relevant or not. It simply means that the specific request should be considered carefully and that all documents, whether you consider them to be relevant or not, should be produced. That way, if the court entertains a motion for sanctions or otherwise becomes involved in a discovery dispute, your client will be able to point to its good-faith effort right off the bat to turn over all physical evidence related to the request.

Maintain consistency in application of the system. If your client’s procedures for document retention and litigation holds are firmly established and strictly and consistently followed, that greatly would improve the chance of a court deciding that its actions are reasonable and in good faith and thus, increases the chance of its success in defending against a spoliation claim. Make sure that any published document retention policy is the policy that actually is followed. Otherwise, the court will raise an eyebrow with respect to why some different procedure was followed, just as the Bremen court did when it learned that the defendant’s actual policy and procedures differed significantly from those stated on its website.

Conclusion. Although there is no surefire method of completely avoiding it, there are plenty of actions that businesses may take to forestall a spoliation claim. Based on the continually increasing emergence of case law in this area and the judiciary’s apparent crackdown on evidence destruction through the assessment of sanctions, even a little effort to establish document retention policies and procedures for litigation holds will go a long way in protecting your business clients.

 
 
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