An opinion sure to make everyone’s “Top Ten” list of ediscovery decisions for the year

October 13th, 2009 | By Steve Puiszis

Goodman v. Praxair Servs. Inc., 632 F.Supp.2d 494 (D.Md. 2009)

Near the end of the year, various commentators and bloggers will typically post their list of top ediscovery decisions for the year. While it may be a bit early for predictions, one decision that should make everyone’s top ten list this year is Goodman v. Praxair Services. The decision was written by Judge Paul Grimm who also was the author of the Hopson, Victor Stanley and Mancia decisions. Judge Grimm always seems to be on the leading edge of ediscovery issues.

Praxair is notable for its comprehensive treatment of issues that frequently arise involving the preservation of electronically stored information (“ESI”) and sanctions that can result for the failure to do so. The decision contains more ediscovery law than many book chapters on the topic. Even the most experienced ediscovery practitioner will find some helpful insights in the decision. If there is one ediscovery decision you read this year, Praxair should be the one. The issues addressed by Judge Grimm in Praxair include:

• The trigger date for a duty to preserve
• The timeliness of a spoliation motion.
• Identifying the “key players” to whom the litigation hold should be directed.
• Determining what ESI is under a party’s control.
• Distinguishing the duty to preserve from the duty to produce.
• Ediscovery and small “mom and pop” companies.
• Whether sanctions can be imposed for the spoliation of evidence by an agent.
• State of mind required for spoliation sanctions.
• Four scenarios when costs and attorney fees are allowed.
• Sanctions for unilaterally preserving only the ESI that a party deems relevant.

Judge Grimm even traces the “historic roots” of spoliation to Armory v. Delamirie, 93 Eng. Rep. 664 (K.B. 1722), which he describes as a Dickensian tale of avarice and greed involving a chimney sweep’s discovery of a jewel and a goldsmith’s subsequent attempt to keep it for himself. Because of Judge Grimm’s comprehensive treatment of the issues noted above, we have divided our review and commentary on Praxair into multiple parts that will appear over the next few days on Practical Ediscovery. This first part outlines Praxair’s factual background and addresses when a duty to preserve is triggered.

Factual background

Tracer developed a patented technological process for detecting fuel container leaks involving the injection of chemical “tracers” into containers. The company learned that that several of its chemical tracers could be subject to the Clean Air Act’s testing requirements. After learning the cost of that testing could exceed a million dollars, the company began seeking ways to exempt its tracers from those testing requirements.

Plaintiff was hired to work on securing those exemptions. Tracer’s CEO entered into the contract with plaintiff, which called for the payment of a set fee for any tracer exempted from testing through his negotiations with the EPA, the payment of a separate fee for the performance of a package of services and the payment of a success fee if plaintiff was able to remove the tracers from certain waiver requirements of the Clean Air Act.

Plaintiff submitted material to the EPA and met with EPA officials but was unsuccessful in obtaining the exemption. Tracer agreed that plaintiff had performed the package of services specified in their contract and paid plaintiff his fee for those services. Tracer and plaintiff then agreed to revise their strategic approach and plaintiff began working with an attorney to develop legal arguments to bolster their position. Tracer’s CEO subsequently advised the plaintiff to have no further contact with the EPA until he had refined a “complete strategy” on exempting the tracers. Separately, Tracer retained an attorney (Gade) who formerly worked with the EPA, and at that attorney’s suggestion contacted two consultants (Wilson and Himmelstein) who had previously worked for the EPA.

Because of extended delays, plaintiff sought a $20,000 advance on his success fee. Tracer’s CEO advised plaintiff in an email that she was willing to modify their contract to advance a payment, but also informed him that they needed to rework their contract if it turned out that Gade was primarily responsible for achieving success with the EPA. Plaintiff responded that he regarded Gade as a partner in their EPA efforts and viewed her participation as “an additional asset to lower the risk of failure.” In a subsequent email, Tracer’s CEO agreed to the advance and again commented on the need to modify the contract to allow for the partial payment. However, the parties never formally modified their agreement.

The consultants retained by Tracer subsequently met with EPA’s representatives without the plaintiff and ultimately convinced the EPA that testing wasn’t required. Tracer’s CEO advised plaintiff that he was not responsible for the project’s success and would not pay him any remaining portion of the success fee. Tracer offered to let plaintiff retain the $20,000 advance in exchange of a release of all claims. Plaintiff rejected the offer and sent a series of letters to Tracer’s CEO demanding full payment and threatening to retain legal counsel.

Tracer’s CEO also sought legal counsel and on February 19, 2001, its CEO instituted her own litigation hold, no longer deleting emails that she received. Prior to that time, the CEO would typically delete her emails after reading them, but would print and file any email she thought relevant. Further complicating matters, Tracer’s CEO typically saved documents locally a laptop computer’s hard drive and not onto Tracer’s servers. Unfortunately, Tracer’s counsel never instructed Tracer to impose a formal litigation hold, and none of Tracer’s employees or consultants, other than its CEO, implemented a hold.

In October of 2002, Tracer was acquired by Praxair Services, Inc. and its IT infrastructure was transferred to the Praxair system. During the transition process, Tracer computers were replaced with Praxair computers. Once the new computers were installed, data saved on the old Tracer computers was not transferred to the new ones unless requested by an employee. The laptop used by Tracer’s CEO was reimaged, given to a different employee and ultimately replaced in the normal course of business. Tracer’s email systems were converted to Praxair’s system and taken off line. Emails from Tracer’s old system that were not deleted in the ordinary course of business were retained on backup tapes for disaster recovery purposes. It was subsequently determined that Tracer had 280 and backup tapes that were not labeled or marked in any way.

On February 13, 2004, plaintiff filed a breach of contract action. Five months after the close of discovery, plaintiff brought a motion seeking sanctions for spoliation claiming that emails and electronic information relevant to his claim had not been preserved.

The trigger date for imposing a litigation hold

A duty to preserve ESI can be triggered long before a lawsuit is ever filed. However, as we noted in a prior blog post, a “general concern” over the potential for litigation does not trigger a duty to preserve evidence. A theoretical threat of litigation or a general apprehension of a lawsuit being filed does not suffice. Rather, the duty to preserve is not triggered until a specific claim is identified and made or future litigation becomes probable. Praxair further explains “[t]he mere existence of a dispute does not necessarily mean that the party should reasonably anticipate litigation or that a duty to preserve arises.” 632 F.Supp.2d at 510.

Prefiling communication between parties can trigger a duty to preserve. However, Praxair explained that pre-filing correspondence which merely identifies a dispute and “expresses an invitation to discuss or otherwise negotiate” does not trigger such a duty. 632 F.Supp. at 511, citing Cache LaPoudre Feeds, LLC v. Land O’Lakes, Inc., 244 F.R.D. 614, 622 (D. Colo. 2007) (addressing a presuit letter asking if a party was willing to “determine whether the situation [could] be resolved without litigation and media exposure”). Because the plaintiff’s letter in Praxair openly threatened litigation, Judge Grimm concluded that the defendant was on notice at that point that litigation was reasonably foreseeable triggering a duty to preserve.

While this distinction is easily recognizable at the outer edges, in many instances it may prove quite difficult to apply. Attempting to distinguish an “open threat” to sue from “an invitation to resolve” potential litigation can involve an exercise in “hair splitting.” The Sedona Conference has issued a Commentary on Legal Holds which attempts to provide additional guidance. In Guideline 4 of that Commentary, Sedona identifies a series of factors pertinent to the issue of whether litigation should be reasonably anticipated. They include:

• The nature and specificity of the complaint or threat;
• The party making the claim;
• The position of the party making the claim;
• The business relationship between the accused and the accusing party;
• 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 and value of a potential claim;
• The likelihood that data relating to a claim will be lost or destroyed;
• The significance of the data to 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 and/or industry coverage of the issue directly pertaining to the client, or of complaints brought against someone similarly situated in the industry.

The Sedona Commentary further explains that this list of factors should not be viewed as exhaustive and that “other considerations must be weighed reasonably in good faith” in your analysis of whether litigation should be reasonably anticipated. In baseball, “ties go to the runner.” Given the potential ramifications that the failure to impose a litigation hold can have, in a close case, a party should always consider instituting a litigation hold.

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