When Did the Duty to Preserve Arise? – At Time of Plaintiff’s Pre-Suit Investigation

The date on which the duty to preserve is triggered is foundational to application of the spoliation doctrine.[1]

It was addressed in Valmarc Corp. v. Nike, Inc., 2024 WL 5112441 (D. Or. 12/31/2024).  Defendants, Nike and Converse, filed a motion requesting a determination that plaintiff Valmarc d/b/a “Vi3” had spoliated evidence.  Vi3’s Complaint alleged in part that defendants had misappropriated Vi3’s anti-counterfeiting technology.

The court wrote that:

• “Defendants allege that Vi3 intentionally deleted seven employees’ email accounts that contained relevant evidence shortly before filing this action…. Defendants seek a determination that Vi3 spoliated evidence and sanctions under Federal Rule of Civil Procedure 37(e).”
• “Vi3 opposes the motion, arguing that (1) it had no duty to preserve most of the deleted accounts, (2) the deletion was not intended to deprive Defendants of evidence, and (3) Defendants have not been prejudiced.”
• “For the reasons stated below, this Court determines that Defendants have only demonstrated spoliation as to the deletion of Paul Foley’s email account. Specifically, this Court finds that Vi3 breached its duty to preserve Foley’s emails, the deletion of his emails prejudiced Defendants, and Vi3’s deletion of Foley’s emails was intentional.”

The court stated that it would give a permissive adverse inference instruction.

This blog focuses on only the court’s trigger analysis.

Vi3 alleged that Paul Foley left Nike; began working for it; and, that is when it learned that Nike had allegedly copied Vi3’s system.  It alleged that, in early 2019, videos began appearing on YouTube showing QR codes on Nike products.  A Vi3 executive circulated links of those videos to other Vi3 executives on February 27, 2019.

The next day, [that executive] sent an email to two Vi3 executives with the subject line “SECURE DOCUMENTS,” calling for Vi3 to secure as much documentation as possible, including any “smoking gun” evidence on Nike’s communication with Vi3 on its intellectual property.

However, Vi3 asserted that it saw no evidence of patent infringement at that time and thus did nothing in response to the email.

In March 2019, Vi3 began transitioning from an internal Microsoft Exchange Server to a cloud-based MS 365 system.  “As part of managing the accounts, Henrichon [the migration administrator] would delete the email accounts of employees who left Vi3.”  Once deactivated, the messages were kept on “soft deleted status” for 30 days.  After 30 days, they were permanently deleted.  “Henrichon testified that the practice of routinely deleting employee email accounts after they left the company was a cost-cutting measure that began when Doug Olsen became the CEO of Vi3 in October 2020.”

In 2020, as a cost-cutting measure, Vi3 began terminating employees.  Paul Foley was terminated in December 2020.

It is unclear exactly when Foley’s account was initially deleted and by whom. The day Foley left Vi3, December 7, 2020, Henrichon forwarded Foley’s account to Foley’s supervisor, but Henrichon did not delete the mailbox at that time…. Then, sometime between “approximately July 13, 2021, and August 25, 2021,” Foley’s account was deleted…. Henrichon discovered Foley’s email account was missing on September 25, 2021…. He tried to restore the email data that day, but was unable to do so…. Henrichon contacted Microsoft to recover Foley’s account, but was still unable to do so…. Henrichon deleted Foley’s account on September 30, 2021, when he “realized there was no way to recover any data.”

Vi3 began to prepare for this lawsuit by communicating with its attorneys on February 12, 2021.

Vi3’s privilege log[2] describes an email “requesting and reflecting legal advice regarding fact development in anticipation of litigation.” …. A file named “Claim 1 Nike Tongue Label” was attached to the email.

Communications with counsel continued:

Vi3’s privilege log describes each email communication as “reflecting legal advice regarding fact development in anticipation of litigation.”

Additionally:

Vi3 and its counsel conducted a “pre-suit investigation” beginning in April 2021…. The investigation involved running search terms on employee’s emails, including their vi3global.com email accounts, and collecting emails that contained those search terms…. Vi3 and its counsel also began instructing some Vi3 employees to preserve documents through litigation “hold notices.” Bartlit Beck, Vi3’s outside counsel for its then-potential trade secret misappropriation claim against Nike, sent the first document preservation notices to four Vi3 executives on June 2, 2021…. It sent litigation hold notices to two more Vi3 executives on September 29, 2021.

Vi3 formally retained outside counsel in October 2021. Vi3 filed suit against Nike on October 26, 2021.  Vi3’s administrator in charge of the transition to MS 365 “did not receive a litigation hold notice until November 11, 2021, weeks after Vi3 filed suit.”

Outside counsel asserted that Henrichon was orally told to preserve potentially discoverable material on April 13, 2021.  However, the administrator, Henrichon, “testified that no one told him, orally or in writing, to preserve emails before Vi3 filed suit on October 26, 2021, and that if they had, he would have preserved those emails.”

On October 26, 2021, the day Vi3 filed suit against Nike, Vi3 held a company-wide call where Olsen instructed employees, including Henrichon, to preserve all documents.

Fed.R.Civ.P. 37(e) permits sanctions only when ESI is lost, “a party failed to take reasonable steps to preserve” the ESI, and the other elements of the Rule are shown.  The Valmarc court wrote that the party seeking sanctions must show that there was a duty to preserve the information.

Here, the parties do not appear to contest that, if subject to a duty to preserve information, Vi3 did not take reasonable steps to preserve evidence. But Vi3 argues that it was not subject to such a duty….

Focusing in this blog solely on Mr. Foley and trigger: “The lost information at issue in this motion includes: … The Office 365 mailbox of Paul Foley, former Executive Vice President for Global Sales and Strategy at Vi3 and previously Director of Brand Protection and Intelligence at Nike….”

So, when was Vi3’s duty to preserve triggered?  “For the reasons discussed below, this Court concludes that Vi3’s duty to preserve evidence attached at the latest in April 2021….”

The Valmarc court wrote that the duty arises when “a potential claim is identified or future litigation becomes probable.”  It stated that litigation “need not be imminent to be probable….”  It is enough if it is “more than a mere possibility.”  Importantly:

“This is an objective standard, asking not whether the party in fact reasonably foresaw litigation, but whether a reasonable party in the same factual circumstances would have reasonably foreseen litigation.” [citation omitted].

To summarize the chronology:

• February 27, 2019: a Vi3 executive told two others to “secure documents.”  Vi3 asserted it did nothing;
• March 2019: Vi3 began migration to cloud;
• October 2020: Vi3 deployed an information governance policy to delete email accounts of departing employees;
• December 2020: Foley was terminated;
• February 2021: Vi3’s privilege log describes an email requesting legal advice in anticipation of litigation;
• February 12, 2021: Vi3 began communicating with its attorneys in preparation for a potential lawsuit;
• April 2021: Vi3 and its counsel began a “pre-suit investigation,” which involved running search terms on employee emails, collecting some emails, and instructing some employees to preserve documents using litigation hold notices to do so;
• April 13, 2021: Vi3’s outside counsel allegedly orally instructed Henrichon, the administrator in charge of the transition to MS 365, to preserve potentially discoverable material. The administrator denied receiving any such instruction;
• June 2, 2021: Vi3’s outside counsel sent the first document preservation notices to four Vi3 executives;
• July 13, 2021, to August 25, 2021: Paul Foley’s email account was deleted sometime between these dates;
• September 25, 2021: Henrichon discovered that Mr. Foley’s account was missing;
• September 29, 2021: Two additional litigation hold notices were sent;
• September 30, 2021: Henrichon deleted Mr. Foley’s account after realizing that no data could be recovered;
• October 26, 2021: Vi3 sued Nike.  Vi3 had a company-wide call with instructions to preserve documents.  Henrichon later “testified that no one told him, orally or in writing, to preserve emails before Vi3 filed suit on October 26, 2021, and that if they had, he would have preserved those emails.”;
• November 11, 2021: Henrichon received a litigation hold notice.

Applying the “trigger” principles to the facts presented, the Valmarc court wrote:

There is no question that Vi3 knew or should have known about its potential claims and the evidence relevant to those claims by April 2021, when Vi3, along with outside counsel, began its pre-suit investigation, which included selecting evidence to use in this litigation. The pre-suit investigation involved running search terms in Vi3’s email database, preserving emails, and issuing litigation hold notices to select employees. This shows that Vi3 knew of its potential claims against Nike—it was actively assessing a potential claim and preparing for litigation by reviewing and collecting evidence. Litigation was reasonably foreseeable at this point. [Emphasis added].

The Valmarc court found it “conceivable” that the duty was triggered earlier; however, it found the facts were not sufficiently clear as to February 2019 or February 2021.

In February 2019, one executive emailed others to secure documentation.  However, “[a]t least some of the evidence underlying that event appear to this Court to be in dispute, and both parties declined this Court’s offer to hold an evidentiary hearing.”  The Valmarc court could have added: “Merely because one or two employees contemplate the possibility that a fellow employee might sue does not generally impose a firm-wide duty to preserve.”  Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 217 (S.D.N.Y. 2003)

In February 2021, “Vi3’s privilege log identifies communication with outside counsel about ‘fact development in anticipation of litigation.’”  However, the court wrote:

Because such communications are privileged, this Court cannot determine specifically what those communications involved, but it is highly likely that they involved a potential claim against Nike and Converse. Accordingly, although the obligation to preserve evidence likely attached by February 2021, there is no doubt that Plaintiff was required to preserve emails by April 2021.

Thus, as of April 2021, Vi3 was obligated to suspend its email deletion policy.

And, at that point, Vi3’s executives were required to communicate its preservation obligations “to employees in possession of discoverable materials.”

Defendants “clearly” showed that Mr. Foley’s email account was deleted after the duty to preserve was triggered.  The court then proceeded to analyze the other elements of the sanctions doctrine.  “For the reasons stated above, this Court determines that Vi3 willfully spoliated evidence of Foley’s email account after its duty to preserve attached, and that the spoliation prejudiced Defendants.”

CM/ECF No. 298 is a December 20, 2024, order of dismissal upon notice that the action has  been settled.

It is often good practice to document when the duty to preserve was – – or reasons why it was not – – triggered:  Documenting When the Duty to Preserve Potentially Responsive Information Was Triggered – E-Discovery LLC

For more information on when the common-law duty to preserve is triggered, please see:

• Consulting an Attorney Did Not Trigger the Duty to Preserve – E-Discovery LLC
• Is Marking Documents as “Work Product” an Admission that the Duty to Preserve is Triggered? – E-Discovery LLC
• Designation of “Work Product” Supports Inference of Intentional Spoliation – E-Discovery LLC
• Discovery About Discovery – When Was Duty to Preserve Triggered? – E-Discovery LLC
• v. Merck Addresses: Trigger; Spoliation Discovery; and, Document Unitization – E-Discovery LLC
• Golden Oldie #1 – Is a Preservation Letter Necessary to Trigger an Opponent’s Duty to Preserve? – E-Discovery LLC
• Duty to Preserve Triggered in Administrative Appeal of Employment Decision – E-Discovery LLC
• Berman and A. Shelton, “The Common-Law Duty to Preserve ESI (Its Trigger, Scope, and Limit) in Maryland State Courts,” in M. Berman, et al., eds. “Electronically Stored Information in Maryland Courts” (Md. State Bar Ass’n. 2020), Chap. 9
• The Sedona Conference, “Commentary on Legal Holds, Second Edition: The Trigger & the Process,” 20 Sedona Conf. L.J. 341, 366 (2019)
• Triggering the Duty to Preserve ESI – E-Discovery LLC
• Perils of a Vague Preservation Letter – E-Discovery LLC
• A Focused Preservation Letter – E-Discovery LLC
• Some Tactical Options for Businesses Faced With Pre-Litigation Preservation Demands – E-Discovery LLC
• The Duty to Preserve & the Spoliation Doctrine in the Maryland State Courts – E-Discovery LLC

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[1] Documenting When the Duty to Preserve Potentially Responsive Information Was Triggered – E-Discovery LLC

[2] Privilege logs may be an important aid in determining when the duty to preserve was triggered.  Is Marking Documents as “Work Product” an Admission that the Duty to Preserve is Triggered? – E-Discovery LLC