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Trendspotting in Legal Holds, Part 1 – Gibson Dunn Mid-Year E-Discovery Update

Two major reports on the electronic discovery sector were released within the last month.  The first is the Gibson Dunn & Crutcher 2010 Mid-Year Electronic Discovery and Information Law Update in mid-July followed by The 2010 Socha-Gelbmann Electronic Discovery Survey at the beginning of August. It is interesting to see in both reports – of case law and business trends, respectively – that preservation is front and center. Both reports, in their own way, reiterate what we’ve been saying: 2010 is the Year of the Legal Hold.

2010 Mid-Year Electronic Discovery and Information Law Update

Today we look at the Gibson Dunn mid-year report which reviews case law for the first six months of 2010 and summarizes key cases involving e-discovery.  It’s no lightweight at nearly 7,000 words, but it is an invaluable resource for its comprehensive analysis. Interestingly, nearly one quarter of that focuses on opinions relating to legal holds.  Here are some of the points relating specifically to legal holds in the areas of preservation and sanctions (with cited cases in parentheses):

Preservation Trends:

• “The 2010 opinions addressing the preservation of electronic evidence continued to emphasize that the duty to preserve ESI may be triggered before the filing of a complaint.”  (Pension Committee, Crown Castle v. Nudd)
• “Courts also continued to hold that parties need to preserve ESI that is stored in formats other than email, including ‘outlier ESI’ and ephemeral data that might otherwise be overlooked.”  (OCE N. Am., Inc. v. Brazeau, No. 09 C 2381, 2010 U.S. Dist. LEXIS 25523 at *19 (N.D. Ill. Mar. 18, 2010), Passlogix v. 2FA, Wilson v. Thorn Energy, LLC, No. 08 Civ. 9009 (FM), 2010 WL 1712236 (S.D.N.Y. Mar. 15, 2010))
• “Courts placed increased responsibility on parties and counsel to ensure that preservation measures are effectively implemented.”  (Pension Committee, Jones v. Bremen H.S., John B. v. Goetz, No. 3:98-0168, 2010 U.S. Dist. LEXIS 8821, at *85 (M.D. Tenn. Jan. 28, 2010))
• “Reflecting the maturation of e-discovery law, courts this year have stated that, going forward, what is reasonable will be judged instead according to ‘clearly established applicable standards.’” (Rimkus v. Cammarata)
• “Several courts emphasized that the litigation hold must be written.” (Pension Committee, Crown Castle v Nudd)

Sanctions Trends:

• “Courts have continued to impose monetary sanctions on outside counsel for failing to adequately supervise a client’s collection and preservation of ESI.” (In re A&M Florida Properties, No. 09-01162, 2010 WL 1418861 (S.D.N.Y. Apr. 7, 2010), Qualcomm, Inc. v. Broadcom Corp., No. 05-cv-1958, 2010 WL 1336937, (S.D. Cal. Apr. 2, 2010))
• “The most notable and widely reported sanctions cases in the first half of 2010 concerned the imposition of adverse inference sanctions for failure to preserve relevant evidence.” (Pension Committee, Passlogix, Kwon v. Costco Wholesale Corp., Civ. No. 08-00360, 2010 WL 571941 (D. Haw. Feb. 17, 2010))
• “[T]he court imposed an adverse inference sanction for gross negligence where the defendants had lost all data relevant to a large transaction when a USB drive was erased.” The court did not allow a safe harbor under FRCP 37(e) because “erasure occurred outside of any routine document management procedures.” (Wilson v. Thorn Energy, LLC, No. 08 Civ. 9009 (FM), 2010 WL 1712236 (S.D.N.Y. Mar. 15, 2010))
• “In contrast with these cases, courts in other circuits have required a showing of willfulness before imposing an adverse inference, and have held that even grossly negligent electronic discovery failures are insufficient to impose such a severe sanction.  (Rimkus v. Cammarata, OCE N. Am.. v. Brazeau)
• “Although courts demonstrated their willingness to impose sanctions on parties and counsel, there appears to be reluctance in most circuits to impose the harsher sanctions of dismissal and adverse inferences, particularly in the absence of intentional misconduct.” (Pension Committee, Passlogix, Diocese of Harrisburg v. Summix Dev. Co., No. 1:07-CV-2283, 2010 WL 2034699, Kwon v. Costco)

What It Means about Legal Holds

With the tone set by Judge Scheindlin’s Pension Committee opinion making waves right after the New Year, it clearly uncorked similar frustrations in lacking preservation efforts in jurisdictions around the country. The Gibson Dunn report clearly points to the need for counsel to take a careful look at their current data preservation and legal hold practices.

Counsel (both inside and outside) must be far more actively engaged in the preservation process, including recognition of when a duty to preserve has attached and what actions an organization needs to take in response.   Lackadaisical efforts – failing to send a hold in writing, failing to clearly articulate the scope of preservation actions, failing to actively supervise the implementation of those actions are – and will continue to be – met with increasingly harsh penalties.  It also reinforces the critical value of well-articulated and consistently practiced information management and preservation procedures.

Please visit our blog on Thursday to read Part 2…

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