‘Halfhearted attempts’ at preservation don’t prove intentional spoliation

This contract dispute has been bogged down in a “quagmire of adversarialism” since 2012. In this opinion, the magistrate addressed the spoliation caused by the defendant’s grossly negligent preservation efforts. To cure the resulting prejudice, the magistrate imposed sanctions including adverse inference jury instructions, evidentiary preclusion, and attorneys’ fees.

The plaintiff, EPAC Technologies, sought millions in damages for its terminated publishing contract with defendant Thomas Nelson. EPAC sent its first preservation letter to Thomas Nelson in April 2011 and filed its complaint on May 8, 2012.

A host of discovery disputes ensued. At EPAC’s request, the court appointed Craig Ball as an Ediscovery Special Master in November 2014. In this opinion, the magistrate considered the Special Master’s findings and recommendations.

Both the Special Master and the magistrate excoriated Thomas Nelson’s preservation efforts. Thomas Nelson’s general counsel issued a legal hold to just one executive in April 2011. He circulated a broader hold notice in January 2012. However, counsel sent this “boilerplate” notice without any guidance or follow up and everyone reportedly ignored it. The warehouse records manager, for instance, stated that he didn’t know about the legal hold until 2015.

Ultimately, Thomas Nelson lost, sold, or discarded “tens of thousands” of the books that were at the heart of the contractual issues. It also failed to preserve the archives of its warehouse data system or suspend its automatic email deletion protocol. In total, Thomas Nelson lost at least 750,000 potentially relevant emails and attachments.

The magistrate applied the amended Federal Rule of Civil Procedure 37(e) to the spoliation of electronic evidence. As to the physical evidence — the lost books — it relied on its broad discretion to manage discovery.

The magistrate agreed with the Special Master that Thomas Nelson’s duty to preserve evidence began in April 2011. This date corresponded to the first of EPAC’s four preservation letters. Thomas Nelson argued that EPAC’s “long periods of silence” indicated that litigation was not, in fact, reasonably likely. The court rejected this assertion, pointing in part to EPAC’s periodic preservation demands.

Because the books, warehouse sales data, and emails were all relevant to potential claims or defenses, Thomas Nelson had a duty to preserve them. Instead, Thomas Nelson lost that evidence through sheer inaction. The Special Master and the magistrate attributed the spoliation to “arrogance,” “lack of initiative,” and “a pitiable lack of legal leadership” above all. The Special Master characterized Thomas Nelson’s overall preservation effort as “casual and careless,” “sluggish and sloppy,” and incompetent.

Still, neither concluded that Thomas Nelson intended to deprive EPAC of evidence. Thomas Nelson’s “halfhearted attempts” to issue a legal hold demonstrated “glaring incompetence” but not intent. The failure was all the more striking for its contrast to Thomas Nelson’s “meticulous preservation” in a concurrent regulatory investigation.

The magistrate split from the Special Master regarding sanctions. In doing so, the magistrate concluded that the Special Master “stray[ed] from his intended role into the province of the jury.”

As to the books, the magistrate imposed a permissive adverse inference jury instruction. He also precluded Thomas Nelson from offering evidence about the books. Finally, he ordered Thomas Nelson to provide EPAC with all available information about the quality of the books and their sales.

For the electronically stored information (ESI), the magistrate examined whether it could be replaced through additional discovery. While the warehouse sales data was irretrievably lost, the information in the emails was largely replaced through additional discovery. EPAC suffered prejudice for both, whether due to the complete loss of ESI or merely the delay in its production. To cure the prejudice of the lost sales data, the magistrate ordered another instruction advising the jury of Thomas Nelson’s spoliation. For the delayed email information, the magistrate allowed EPAC to re-depose key witnesses at Thomas Nelson’s expense.

As a further penalty, the magistrate ordered Thomas Nelson to pay 75 percent of the Special Master’s costs and 50 percent of EPAC’s attorneys’ fees. This allocation recognized that Thomas Nelson’s deficiencies turned a straightforward case into a “seemingly endless marathon of discovery about discovery.”

Takeaways on Properly Issuing Legal Holds

Here, the magistrate spelled out counsel’s duty in implementing a legal hold. Counsel must, as he stated, “take an active and primary role” not only in issuing the hold but also in providing guidance and following up on preservation efforts. That role encompasses both consultation with IT to identify potentially relevant data and evaluation of data retention settings.