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Duty to Preserve ESI: The Stakes Just Got Higher

Court Orders $3M in Punitive Sanctions and Adverse Inference for Senior Manager’s Deletion of Emails

A recent federal court decision highlights the potentially severe consequences for companies that do not take the proper steps to preserve electronically stored information (“ESI”) in anticipation of or in connection with litigation. In GN Netcom, Inc. v. Plantronics, Inc., the U.S. District Court for the District of Delaware imposed $3 million in punitive sanctions after one of the defendant’s senior managers deleted thousands of emails. The court also ordered that the jury be permitted to infer that the information contained in the deleted emails was unfavorable to defendant.

The underlying case is what the court describes as a “hotly-contested antitrust lawsuit between fierce competitors.” The plaintiff’s Motion for Sanctions arose from the intentional and admitted deletion of emails by defendant’s Senior Vice President of Sales who was also a member of the company’s 12-person executive committee. Defendant argued that it took reasonable steps to preserve the emails, including the issuance of a litigation hold, updating the litigation hold, and by conducting training sessions for its employees to promote compliance with the litigation hold. The court, however, found that the defendant’s reliance on those actions could not, and should not, excuse the intentional, destructive behavior of its senior manager. The court held that defendant’s “extensive document preservation efforts do not absolve it of all responsibility for the failure of a member of its senior management to comply with his document preservation obligations.”

So what steps can a company take to avoid a similar result, particularly where that outcome was caused, in large part, by the ill-advised behavior of a rogue employee? First, understand the scope of the duty to preserve and when it arises. The duty to preserve evidence, including ESI, is triggered when a party has notice that the evidence is relevant to litigation, or when a party should have known that the evidence may be relevant to future litigation. Zubulake v. UBS Warburg, LLC, 220 F.R.D. 212, 216 (S.D.N.Y. 2003). Once the duty arises, a party is not typically obligated to preserve every shred of paper in its possession, but it is required to preserve what it knows, or reasonably should know is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery, and/or is the subject of a pending discovery request. Wm. T. Thompson Co. v. Gen Nutrition Corp., Inc., 593 F.Supp. 1443, 1455 (C.D. Cal 1984).

Second, monitoring is critical. While working with counsel to prepare and issue a litigation hold to appropriate employees is always a necessary step, issuing a litigation hold alone is not enough to satisfy a company’s obligation to preserve.  In some cases, such as in GN Netcom, it may not even be enough for a company to educate its employees on their duty to comply with a litigation hold notice.  Whether a company allows their employees discretion to determine how best to comply with a litigation hold, or uses software-based preservation systems, ensuring compliance and continuous monitoring is key.  For example, a company may consider requiring a certification from each person that receives the litigation hold acknowledging that he or she has read, understands, and will comply with the hold.  To help in capturing all potentially relevant documents and records, a company may also consider copying certain users’ hard drives, devices and paper files before formally issuing the written litigation hold notice to reduce the risk that employees will delete relevant material.  Ongoing compliance with the litigation hold can be monitored by conducting periodic reviews and audits of the information that has been preserved weeks and months after the hold is issued, to ensure that there are no gaps in the evidence that is being preserved.  Finally, it is always necessary to keep the litigation hold in place until the matter is concluded.

For additional information, please contact Justin M. Alaburda.

Robert A. Hager Awarded the John Carroll University 2017 Alumni Medal

Robert A. Hager awarded the John Carroll University 2017 Alumni Medal

Ohio Court of Claims Explains Surety’s Obligations After Contractor Default

A surety thinking of funding its bankrupt principal for the purpose of completing a project should take notice of the recent decision in Jutte Elec., Ltd v. Ohio Facilitates Constr. Comm.

Affordable Care Act Nondiscrimination Final Rule

On May 13, 2016, the U.S. Department of Health and Human Services (“HHS”) issued a final rule implementing Section 1557 of the Affordable Care Act (“Section 1557”) protecting individuals from discrimination in health care on the basis of race, color, national origin, age, disability, and sex, including discrimination based on pregnancy, gender identity, and sex stereotyping (the “Rule”).

It Is Time To Update Your Compliance Plans

In 1997, the Office of the Inspector General (“OIG”) began to actively promote that health care providers adopt written compliance plans to assist providers to follow government rules and regulations regarding health care.

HIPAA Compliance Update

HIPAA compliance has been a part of the regulatory landscape of healthcare since the privacy rules became effective in 2003. Since that time, most providers have taken steps to develop their compliance plans, including distributing notices of privacy practices, obtaining authorizations for release of information as needed, and obtaining business associate agreements from third parties.