Candor Pays Off When It Comes to Alleged Spoliation: Notice + Accrual = Claims Bar

Nicassio v. XYZ Law Firm, 2023 WL 2661156 (Apls. Ct. Md. Mar. 28, 2023)(unreported), demonstrates the wisdom of candor when it comes to potential spoliation.[1]

It also reinforces the well-established need to periodically remind custodians of their duty to preserve potentially responsive information. Litigation often drags on long after issuance of an initial litigation hold.  Memories dim. Mistakes happen.

Here, in an alleged malpractice action, a law firm commendably informed its client that: certain physical evidence had gone missing; the loss might be prejudicial; and, the client could consider suing the firm. However, the client waited until after an adverse discovery sanction was imposed, and then sued.  As a result, the former client’s malpractice claim was time barred.

Just like a spoliation motion seeking sanctions should be filed promptly, see When Should a Spoliation Motion Be Filed and Decided?, the Appeals Court of Maryland held that a malpractice action based on alleged spoliation must be filed promptly.

The Court wrote:

Although obvious, it’s worth emphasizing that our holding here is limited to the facts of this case, where the piece of evidence lost was significant (indeed, the evidence on which Mr. Nicassio’s entire underlying litigation rested), the loss was disclosed, and the attorney disclosed the potential malpractice claim. In other words, in combination, the significance of the evidence lost and the malpractice disclosure would have led a reasonable person to seek additional legal advice and would have made Mr. Nicassio’s injury immediately clear to another attorney. It is far less clear that disclosing the loss of the bed would, in the absence of the malpractice disclosure, have put Mr. Nicassio was on inquiry notice as of October 13, 2016. [emphasis in original]

I have written about the need for candor in connection with spoliation.  See Is There a Duty to “’Fess Up?”

I have also written about the strategic value of doing so.  See Damage Control Method.  Voluntary disclosure of a preservation error – – transparency – – “is good practice and, likely, required.”

Nicassio provides additional support in a unique context.  Mr. Nicassio was injured when, after surgery, a rented hospital bed collapsed, causing him to fall to the floor.  He retained XYZ Law Firm to sue the rental company.

XYZ took possession of the bed. It moved it to a storage place in the basement of the law firm’s building.  The law firm notified the building manager; however, the bed was twice relocated and “ultimately discarded – according to the firm, without [the law firm’s] knowledge.”

While preparing the lawsuit, the law firm learned of the loss.  It “informed Mr. Nicassio that the bed could not be located,” and in a series of emails, “outlined several ways in which the loss of the bed could affect the case.”  XYZ law firm wrote to Mr. Nicassio that “[t]he defense will likely attempt to raise the loss of the bed as an issue at trial,” the trial judge could possibly permit an adverse inference, and he “could consider” suing the firm.

Further, during the underlying litigation, XYZ firm “informed [the opposing litigant] that the bed had been lost and provided Medi-Rents with the photographs” of the bed.

The matter went to binding arbitration by agreement of the parties.  In pertinent part, the arbitrator found that there was “extraordinary” prejudice to the bed rental company that denied it the ability to adequately defend the case.

As a sanction, the arbitrator dismissed Mr. Nicassio’s claims.  Because it was a high-low arbitration, the arbitrator awarded the stipulated floor figure of $25,000.

Shortly after the arbitration, but more than three years after being told of the loss of the bed, Mr. Nicassio sued XYZ for alleged malpractice.

The claims were barred by the three-year statute of limitations.  The “you may want to sue us” email put Mr. Nicassio on inquiry notice.  And, the claim accrued on the date of the alleged spoliation.  The Court wrote:

[W]e might not conclude in every case involving spoliation that the injury occurred the moment the evidence was lost. We can imagine, for example, a case in which the lost evidence was less central to the claim than the bed was here, and thus it might well remain unclear until much later in the life of the case whether its loss would affect the ultimate outcome. In that hypothetical, the cause of action might not accrue the moment the client learned that the evidence was lost because the harm would remain a mere possibility until the case concluded. In this case, though, nobody, least of all Mr. Nicassio, had any doubt on October 13, 2016 about whether the loss of the bed—the piece of evidence on which Mr. Nicassio’s entire products liability case rested—would affect the ultimate outcome of the Underlying Litigation. Once the bed was lost, the only outstanding question was how much harm the loss would do to Mr. Nicassio’s products liability claim. And although it’s true that the precise answer wasn’t known until December 6, 2021, the damage had been done, and his claim accrued, long before. [emphasis in original].

XYZ law firm commendably fulfilled its duty of candor.  Doing so provided an added benefit.

Mistakes happen.  Perfection is not, and never has been, the standard.  See What Does “The Making of a Surgeon” Have to Do With ESI and “Software Glitches?”  The test is whether preservation protocols were reasonable.

However, as a general matter, the duty to preserve is not fulfilled by providing a litigation hold notice.  Ever since Zubulake, periodic reminders have been mandated.

It is not possible to determine from the Nicassio decision, whether the landlord received reminders after the initial notice to put the bed on legal hold.

It is always prudent to issue periodic reminders of a legal hold.  “After a notice is sent, counsel should discuss implementation with key personnel, ask appropriate questions, and send out timely reminders.”  See Plaintiff Sanctioned for Spoliation of Automobile Engines Due to Inadequate Implementation of Litigation Hold;   “[I]t is no longer amateur hour”; and, M. Berman, et al., eds., “Managing E-Discovery and ESI: From Pre-Litigation Through Trial” (ABA 2011), 233-34.

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[1] Although the defendant law firm is named in the case caption, I am anonymizing it based on the facts described.