In Hyundai Motor Amer. Corp. v. N. American Automotive Svcs., Inc., et al., 2021 WL 3111191 (S.D. Fl. Jul. 22, 2021), sanctions were imposed against the plaintiff, Hyundai Motor America Corp. (“HMA”). At bottom, HMA failed to follow basic, well-established procedures to implement a litigation hold, and crucial evidence then went missing. The court wrote:
Plaintiff’s conduct in this case is frankly shocking to this Court. It violates principles of fundamental fairness for a large sophisticated corporation like Plaintiff to file a lawsuit alleging that one of its dealers, Napleton #121, along with other Defendants, engaged in a fraudulent scheme to purposely damage and blow Theta II engines to obtain warranty monies from Plaintiff, and then fail to preserve any of the 144 of the engines which were returned by Defendants after its duty to preserve evidence arose. Those 144 engines were crucial evidence that were lost forever due to the conduct of Plaintiff.
Id. at *13 (emphasis added).
In Hyundai Motor, an in-house HMA attorney sent a litigation hold notice to HMA. However, there was no follow-up and the preservation instruction in the notice was not followed.
It has long been established that after an attorney sends a litigation hold notice to their client, sending counsel must follow up to implement the hold. Id. at *12; see Blog, “The Duty of Inquiry and Sanctions for Failure to Investigate Client’s Claim.” As far back as Zubulake in 2003, the duty to properly supervise a litigation hold had been recognized, M. Berman, et al., eds., “Electronically Stored Information in Maryland Courts” (Md. State Bar Ass’n. 2020), 41, 844. Sending a litigation hold notice is only one step in a multi-faceted process. It is not sufficient in and of itself, as demonstrated in Hyundai Motor.
HMA offered no explanation for its inaction:
At the hearing, Plaintiff’s counsel admitted that there is no known history to Mr. Kim’s [litigation hold notice] email or any other evidence to explain how or why the 144 engines went missing. Plaintiff’s counsel didn’t “think anybody ever checked to see that [the engines] were being physically retained.” [DE 172 at 39]. Plaintiff’s counsel explained this as the “left hand” not knowing “what the right hand was doing.” [Id. at 35]. However, the Court sees it more as Plaintiff throwing up its hands and not properly following its procedure, as instructed by in-house counsel Mr. Kim, to preserve and maintain the engines. The inexplicable failure by a large sophisticated corporation like Plaintiff to ensure compliance with Mr. Kim’s preservation email was not merely negligent. It is far worse. Although the record does not reflect that Plaintiff specifically intended to harm Defendants or act with malice by allowing the engines to go missing, Defendants have demonstrated that the loss of the engines was solely caused by Plaintiff’s inexplicable failure to ensure compliance with a preservation email reflecting its own internal policies.
Id. at *10 (Emphasis added). The court went as far as to speculate that adverse test results on some engines may have “provided some motivation” for the failure to follow the litigation hold instructions and failure to follow up on those instructions. Id. at *11. It wrote:
That is, the circumstances infer an awareness by Plaintiff that the non-preserved 144 engines would likely not help its case, leading Plaintiff to perhaps be deliberately ignorant of whether the engines were, in fact, being preserved as required.
The court explained that Rule 37(e) did not apply: “As the instant matter involves the alleged spoliation of physical evidence as opposed to electronically stored information (‘ESI’), the Court is guided by the fundamental principles of spoliation sanctions jurisprudence in non-ESI cases.” It then applied Eleventh Circuit common law and imposed an adverse inference sanction. Id. at *14. It wrote:
The jury is to be instructed to presume that the lost engines were relevant and favorable to Defendants and unfavorable to Plaintiff, but that Plaintiff can attempt to rebut this presumption through its presentation of evidence, including expert testimony.
As an aside, plaintiff’s counsel stated on the last day of discovery that “all engines” in its possession “have been made available for inspection.” Any such statement is inherently risky. See Blog, “Requests for ‘Any and All’ Documents Are Obsolete.”
Here, only eight out of more than 900 engines had been made available. Plaintiff’s counsel later filed an affidavit stating that counsel did not know that the other engines had been disposed of. The court wrote:
[W]hile the Court notes that Plaintiff’s counsel has filed an affidavit stating that Plaintiff’s counsel did not know the engines had been disposed of by their client until June 15, 2021 [DE 167-2 ¶ 6], the Court is nonetheless troubled by the fact that Defendants were led to believe all engines had been preserved up until the very last day of discovery, only to find out that only eight engines were available for inspection. Without ascribing any misconduct to Plaintiff’s counsel, this factor is one that militates in favor of a finding of bad faith on the part of Plaintiff as it seems highly unusual that the loss of all 144 engines returned after Mr. Kim’s preservation email would only be discovered by Plaintiff after the close of discovery. Moreover, the fact that Defendants were only advised after the close of discovery, and on the eve of an August 2021 trial, that 144 engines that were supposed to be preserved were inexplicably lost seems to increase the prejudice to Defendants.
In similar situations, sanctions have been imposed under Rule 26(g). See, Blog, The Duty of Inquiry and Sanctions for Failure to Investigate Client’s Claim and District of Maryland’s Recent Application of Spoliation Doctrine in Discrimination Case. There, sanctions was imposed for counsel’s failure to make adequate inquiry.
Even though it was not an “ESI case,” Hyundai Motors demonstrates the need to follow up on a litigation hold notice by checking on its implementation and providing additional guidance. After a notice is sent, counsel should discuss implementation with key personnel, ask appropriate questions, and send out timely reminders.