Legal Update: Evidence Preservation and ESI
Photo courtesy of Flickr user Mary Cullen
The recent case of EPAC Technologies, Inc. v. HarperCollins Christian Publishing, Inc., 2018 WL 1542040 (M.D. Tenn. March 29, 2018) provides a detailed example of the pitfalls of an inadequate litigation hold and the complexities of preserving ESI. The case revolves around a contractual dispute between a book publisher and a printing company, and it provides an interesting case study in the application of the changes to the Federal Rules of Civil Procedure governing spoliation of Electronically Stored Information (“ESI”).
In EPAC, the plaintiff was a printing company and the defendant was a publisher of Christian-themed literature. After a dispute between the parties regarding the EPAC’s ability to provide cost-effective, timely and quality printing, HarperCollins terminated the contract. EPAC claimed the termination resulted in $25 million in damages. The substantive case, however, was derailed by three years of a discovery disputed, described by the district court as “a quagmire of adversarialism, spanning hundreds of pages of briefing that have passed through the dockets of six district judges and two magistrate judges.” The dispute arose from HarperCollins’ loss of both ESI and physical evidence, including emails, electronic warehouse data and the physical books - which HarperCollins alleged were defective and a breach of the contract.
The district court appointed a special master to investigate HarperCollins’ alleged spoliation of ESI and physical evidence. The special master’s investigation took more than a year, and his report was lengthy. Notable findings included a finding that HarperCollins failed to adequately alter its email retention policy to prevent the purging of relevant emails, which the special master attributed to “arrogance by management, lack of initiative by IT and a pitiable lack of legal leadership, the last [of which is] at the very heart of the failure.”
The trial court largely adopted the special master’s finding of fact when imposing sanctions on HarperCollins. The court noted that under the Federal Rules of Civil Procedure, a different standard applies to sanctions for loss of ESI. Under Fed. R. Civ. P. 37(e), the harshest sanctions for spoliation are available only on a finding “that the party acted with the intent to deprive another party of the information’s use in the litigation.” In contrast, a court may impose an adverse instruction for the loss of physical evidence for knowing or even negligent conduct.
The district court noted that regarding ESI, the special master described HarperCollins’ actions as variously: "fail[ing] to meet minimum standards of diligence and competence;” “culpable instances of incompetence, misinformation and lack of diligence;” “arrogance by management, lack of initiative by IT and a pitiable lack of legal leadership;” “casual and careless;” showing “paralysis or even purposeful sluggishness;” “homebrew, sluggish and sloppy; its commitment to defensible collection and search, at best, perfunctory;” and “negligent, even grossly so.” Despite these findings, the district court could not find that HarperCollins’ actions were “motivated by an intent to deprive EPAC of information to use in this litigation.”
Reviewing the special master's findings, the district court concluded that it appeared “that the e-mail lost in the...purge has been restored through additional discovery.” Ultimately, the only sanction the court imposed for the initial purge of emails was a holding that EPAC would be allowed to re-depose key witnesses regarding information in belatedly discovered emails. The district court’s decision regarding EPAC Technologies, Inc. is a striking example of both the inherent dangers of preserving ESI and the potential for spoliating parties to use Fed. R. Civ. P. 37(e) as a defense against harsh sanctions.