General concern over litigation does not trigger a duty to preserve evidence

May 14th, 2009 | By Steve Puiszis

Realnetworks, Inc. v. DVD Copy Control Ass’n, Inc., 2009 WL 1258970 (N.D. Cal. May 5, 2009)

Determining when the duty to preserve evidence arises can be a “sticky wicket” as our friends “across the pond” like to say. Clearly, when a party has decided it will pursue litigation, a duty to preserve ESI or documents potentially relevant to the claim is triggered. On the other side of the ledger, certainly by the time a defendant is served with a lawsuit, the duty to preserve relevant information has arisen. However, courts have recognized that a duty to preserve can be triggered long before a lawsuit is filed – the duty is recognized once litigation is “reasonably anticipated.” There are no bright lines to follow under the “reasonable anticipation” standard. Attempting to determine when the potential for litigation crosses the threshold from mere possibility to reasonable anticipation can depend on a number of different factors that can vary in importance from case to case.

In Realnetworks, the district court concluded that “[a] general concern over litigation does not trigger a duty to preserve evidence.” A “theoretical threat of litigation” or a “general apprehension of lawsuits,” does not suffice. The district court in Realnetworks held that a duty to preserve relevant documents or information was not triggered until a specific potential claim was identified or future litigation became probable.

In Realnetworks, the defendants claimed that ever since a July, 2000 internal presentation, plaintiff knew litigation was “inevitable,” and therefore had a duty to preserve potentially relevant information. However, the district court rejected the defendants’ argument finding that the presentation merely referenced “a theoretical threat of litigation ‘by Hollywood,’ and not an actual threat by any particular party.” The court further ruled that a duty to preserve was not triggered by evidence suggesting that a few employees at the company recognized that litigation concerning its new product was a possibility. The court noted that statements like “there may be litigation ‘one day’” did not “rise to a probability” that litigation would result.

Additionally, the fact that plaintiff was negotiating in good faith with several parties over the very issues that subsequently resulted in a lawsuit being filed did not trigger a duty to preserve when none of the parties involved in those negotiations had threatened litigation. Once objections were made to the plaintiff’s release of its new product because it purportedly violated the parties’ license agreement, a duty to preserve was triggered.

Delay in issuing a preservation directive did not warrant sanctions when no data or evidence was destroyed during that time frame

The district court in Realnetworks noted that there was “an obvious gap” in time between when the duty to preserve was triggered and when the plaintiff issued a preservation directive to its employees. The court declined to enter any sanctions, however, because the defendants did not allege or demonstrate that any potentially relevant information or data was destroyed during that time.

Preserve the records of terminated employees

In Realnetworks, sanctions were ultimately imposed against the plaintiff because it failed to produce one or more notebooks of an employee who had been terminated one week before the lawsuit was filed. The district court concluded that the plaintiff should have known at the time of its employee’s termination that the employee’s work product on the project was potentially relevant to the litigation. The fact that the plaintiff did not willfully destroy the notebook, but apparently had misplaced it, was not a basis for dodging sanctions.

However, because that employee’s notebooks were not the only possible source of information relating to the various issues involved in the litigation, and because there were other sources of information relevant to plaintiff’s knowledge and awareness of the issues, the court denied defendants’ request to preclude the plaintiff from challenging its former employee’s testimony on the various topics that were referenced in her notebook(s). The court also refused to issue an adverse inference instruction based on the missing notebook(s). In the court’s view, an award of attorney’s fees and costs relating to the missing evidence, and for bringing that aspect of the defendants’ motion for sanctions was sufficient punishment under the circumstances.

Conclusion

Determining when litigation should be reasonably anticipated can be elusive. Therefore, Sedona Conference’s Commentary on Legal Holds The Trigger & The Process (Warning: PDF) is a resource that should be consulted whenever questions on this issue arise. That Commentary explains that there are a number of factors that should be considered in determining whether to issue a litigation hold including:

• the nature and specificity of the complaint or threat;
• the party and the position of the party making the claim;
• the business relationship between the accused and accusing parties;
• whether the threat is direct, implied or inferred;
• whether the party making the claim is known to be aggressive or litigious;
• whether a party who could assert a claim is aware of the claim;
• the strength, scope, or value of a potential claim;
• the likelihood that data relating to a claim will be lost or destroyed;
• the significance of the known or reasonably anticipated issues;
• whether the company has learned of similar claims;
• the experience of the industry;
• whether the relevant records are being retained for some other reason; and
• press or industry coverage of the issue either directly pertaining to the client or of complaints brought against someone similarly situated in the industry.

Obviously not all of these factors may be relevant in any particular instance, and some may carry more weight than others depending on the circumstances presented. However, they demonstrate the fact-driven nature of the required analysis.

Since the party bringing the motion for sanctions bears the burden of proof, just as with a misstep on a sticky wicket in a game of cricket, the failure to timely issue a written litigation hold directive should not result in sanctions where the movant fails to establish that any data or evidence was destroyed before the hold was issued.

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