Some Tactical Options for Businesses Faced With Pre-Litigation Preservation Demands

After litigation starts, a business faced with unreasonable preservation or discovery demands can resort to the court’s procedural rules to request relief from a judge.  However, the duty to preserve potentially responsive information often arises in a “free for all” zone before litigation is commenced.  In that situation, there is no umpire to call balls and strikes.  Businesses may over preserve – wasting money – or risk sanctions for under preserving.

This blog suggests two options for businesses and in-house counsel faced with an unreasonable pre-litigation preservation demand.  They are to counter-offer or mediate.  No suggestion is bullet-proof, and neither are these. However, the suggested concepts provide some additional tools that may be worthy of consideration. 

The goal is to legitimately demonstrate objective reasonableness at an early stage in order to, at least partially, estop or blunt a later spoliation claim.  The basic premise is that , under Texas v. City of Frisco, 2008 WL 828055, at *1 (E.D. Tex. Mar. 27, 2008), a business faced with a disproportionate preservation demand cannot seek judicial relief; however, it may offer non-judicial mediation or employ other reasonable tactics discussed below.

THE DUTY TO PRESERVE IS OFTEN TRIGGERED BEFORE LITIGATION BEGINS

Frequently, the duty to preserve potentially responsive information is triggered before litigation begins.  For a plaintiff, the duty to preserve often begins when counsel is retained.

For a defendant, it may be triggered prior to litigation, either by a preservation letter or the reasonable anticipation of litigation.  See generally “Triggering the Duty to Preserve ESI,”  M. Berman, et al., eds., “Electronically Stored Information in Maryland Courts” (Md. State Bar Ass’n. 2020), and “The Duty to Preserve & the Spoliation Doctrine in the Maryland State Courts.”

“Trigger,” i.e., when the duty to preserve attached, is often critical in spoliation analysis:

The first consideration is whether the alleged spoliator had a duty to preserve the lost evidence and breached that duty. “Absent some countervailing factor, there is no general duty to preserve documents, things, or information, whether electronically stored or otherwise.” Paul W. Grimm, Michael D. Berman, Conor R. Crowley, Leslie Wharton, Proportionality in the Post–Hoc Analysis of Pre–Litigation Preservation Decisions, 37 U. Balt. L.Rev. 381, 388 (2008).

Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497, 521 (D. Md. 2010) (emphasis added).

MANY PRESERVATION DECISIONS FOR BUSINESSES AND IN-HOUSE COUNSEL ARISE IN A “FREE FOR ALL” ZONE WHEN THERE IS NO “JUDICIAL UMPIRE”

When the duty is triggered before litigation, there is little guidance.  The Federal Rules of Civil Procedure do not directly apply before litigation is commenced.  The Hon. P. Grimm, M. Berman, et al., “Proportionality in the Post-Hoc Analysis of Pre-Litigation Preservation Decisions,” 37 U.Balt.L.Rev. 381, 383 (2008).

Further, the scope of the duty to preserve information may be unclear:  “Because the duty to preserve electronically stored information (ESI) may arise before a lawsuit is filed, decisions regarding the scope of that preservation duty may have to be made in the absence of a clear standard providing practicable guidance regarding what a court subsequently would require to be preserved….”  Id. at 383.

That creates uncertainty.  There is no “judicial umpire” available to call the balls and strikes in this pre-litigation, “free for all” period.  Id. at 407.  In some instances, there may not even be an opposing attorney with whom to negotiate.  Id.  Further, the forum and choice of applicable law may be unknown or unclear.  Id.

That can present problems: “[T]his lack of guidance suggests that prudent counsel and cautious litigants may expend enormous sums to preserve ESI that need not be preserved, will never be produced in discovery, and that may exceed the economic value of the claims presented….” Id. at 407.

That makes no sense and is not required.  The difficulty is how to define limits on the duty.

TEXAS v. FRESNO:  AN ELEGANT SOLUTION THAT MISFIRED

The State of Texas came up with an elegant solution.  It tried to find a judicial umpire using the declaratory judgment statute.

Faced with an extensive litigation hold sent by the City of Frisco, the State of Texas filed suit against the City:

“In its Original Complaint and Request for Declaratory Relief and Protective Order, Plaintiff, the State of Texas, states that it is seeking a declaratory judgment and the Court’s protection from a general litigation hold request, initiated by a letter sent by the City of Frisco requesting the Texas Department of Transportation to generally preserve all electronic data associated with the State Highway 121 toll project from Dallas County North Tollway to U.S. 75.”

Texas v. City of Frisco, 2008 WL 828055, at *1 (E.D. Tex. Mar. 27, 2008).

Essentially, Texas asserted that it need not incur costs of preservation for “potential” litigation.  In support of its request for a declaratory judgment, it alleged that there was an actual controversy, and it asserted that the court should declare the parties’ rights.

In short, Texas appeared to present a perfect request for a declaratory judgment that fit squarely within the declaratory judgment act.  It had received a demand.  It thought the demand unreasonable. And, it asserted that a judicial decision could resolve the uncertainty.

The City’s preservation demand asked Texas “to generally preserve all electronic data regarding the State Highway (‘SH’) 121 toll project from Dallas County North Tollway to US 75, in Collin County, Texas.”  Id., ¶3.  Texas recited that it had spent hundreds of hours to preserve documents.  Id., ¶14.

Texas’ declaratory judgment solution was elegant.  However, there was one problem. It didn’t work.

The Fresno court held that the lawsuit was premature and the claim was not ripe.  It wrote that Texas “asks this Court to determine ‘[w]hether it is a violation of Rules 26(f) and 34 to require an entity to broadly preserve and retain any and all electronic documents based on a required [sic – request] made before suit is filed.’”  Id. at *3.  The court did not view the controversy as a “concrete or developed disagreement by the parties as to the preservation of documents.”  Id.  It dismissed the action, writing:

Further, while they do not specifically address pre-suit litigation hold requests, the Rules of Civil Procedure contemplate that the parties will act in good faith in the preservation and production of documents. See Fed. R. Civ. P. 37. The Court encourages both parties to handle the preservation of documents in response to their respective litigation holds in such good faith. The Court declines, however, to intervene now and issue an advisory opinion as to what actions by the State would constitute good faith as to the City’s request.

AFTER FRESNO, THERE IS NO JUDICIAL UMPIRE AVAILABLE FOR PRE-LITIGATION GUIDANCE

The result of Fresno, if accepted by other courts, is clear.  Under Fresno, “there is no option to seek early court guidance when disputes arise.”  Thomas Y. Allman, “Preservation Uncertainty Revisited: Addressing Spoliation by Rulemaking,” 56 The Advoc. (Texas) 25, 27 & n. 47 (2011).

“Because there is no litigation pending, the parties cannot secure an adjudication of their disagreements over preservation.”  Theodore C. Hirt, “The Quest for ‘Proportionality’ in Electronic Discovery-Moving from Theory to Reality in Civil Litigation,” 5 Fed. Cts. L. Rev. 171, 200 (2011); accord Thomas Y. Allman, “The 2015 Civil Rules Package As Transmitted to Congress,” 16 Sedona Conf. J. 1, 54 n. 39 (2015) (citing 2014 Rules Committee Report stating that, “[u]ntil litigation commences, reference to the court may not be possible”).

One recent thought leader explains that: “[I]t is next to impossible to obtain an advisory opinion from a court to guide preservation activities.”  Kenneth J. Withers, “Risk Aversion, Risk Management, and the ‘Overpreservation’ Problem in Electronic Discovery, 64 S.C. L. Rev. 537, 543 (2013).

Suggestions to address pre-filing preservation by rule makers were made, but not adopted.  Thomas Y. Allman, “Preservation Rulemaking After the 2010 Litigation Conference,” 11 Sedona Conf. J. 217, 220 (2010).

The bottom line is that Fresno leaves potential litigants with no judicial umpire, stuck in the free for all zone with scant guidance.

FRESNO MAKES SENSE IN CONTEXT OF THE COURTS’ CASELOADS

The Fiscal Year 2019 Annual Report of the United States District Court for the District of Maryland, which is the most recent report available, reports that ten active District Judges and three Senior Judges.

During FY 2018, 3,884 civil cases were filed.  An additional 497 criminal cases were filed.  The weighted case filing per judgeship was 466 cases.  In addition, there was multi-district litigation and inter-circuit assignments. Sixty-one cases were pending three years or more.  There were 30 criminal and 16 civil jury trials, with 15,250 jurors summoned.  Additionally, there were five active grand juries.

If every overly broad or disproportionate preservation demand supported a declaratory judgment action, the courts would have to close their doors.

BETTER WAYS FOR POTENTIAL DEFENDANTS TO DO THE PRESERVATION TANGO

However, while there may be no judicial umpire, there are some other tools in the toolbox.

Embrace a Reasonable and Proportionate Preservation Demand

If a preservation demand from a potential plaintiff is reasonable and proportionate, a potential defendant may want to embrace it.  That, however, is often not the case and this blog began with the assumption that an unreasonable or disproportionate demand had been made.

Counter-Offer:  The Potential Defendant May Wish to State What it Will Preserve, and Counter-Offer to Preserve “Everything Else” if the Potential Plaintiff Pays the Cost

If the demand is overbroad, a potential defendant may want to respond by describing what it is willing to preserve, and providing a factually-supported cost estimate for the rest of what the potential plaintiff requests.  That could be combined with an offer to preserve the rest, as demanded, if the plaintiff pays the costs.

In one case, I did just that.  I defined what I thought was reasonable to preserve, given the claim, and retained forensic experts to provide a cost estimate for preserving what the potential plaintiff demanded.  Faced with a seven-figure, fully-supported estimate of costs, the claimant changed course.

This approach finds some support in case law.

In this regard, defendant will be required to expend up to 40 hours of time to search for these documents. It will submit with its responses an affidavit, signed under penalty of perjury by a person with personal knowledge of the facts in the affidavit, that contains a particularized itemization of the time spent to locate the documents, to enable plaintiff and the Court, if the sufficiency of the search is challenged, to determine whether or not it was diligent, and done in good faith. …  If, following review of the documents produced as a result of the search ordered, plaintiff contends that it is entitled to additional documents within this category, it may file a motion seeking additional documents. If meritorious, the plaintiff will be allowed additional discovery of these documents, provided it pays to defendant the actual cost to defendant for the time needed to locate, assemble and reproduce any such additional documents.

Marens v. Carrabba’s Italian Grill, Inc., 196 F.R.D. 35, 39 (D. Md. 2000) (emphasis added).  “The goal is to attempt to quantify a workable ‘discovery budget’ that is proportional to what is at issue in the case.”  Mancia v. Mayflower Textile Servs. Co., 253 F.R.D. 354, 364 (D. Md. 2008).

If the potential plaintiff demurs, and if the response is reasonable and well-supported factually, plaintiff’s refusal may later be viewed by a court as an admission that the demand was disproportionate or unreasonable.

Mediation: A Potential Defendant May Escape the “Free for All” by Suggesting a Non-Judicial “Umpire”

If Fresno is followed, a defendant cannot obtain a judicial umpire.  However, nothing prevents suggesting a non-judicial umpire, such as a mediator.  Some of the benefits of mediation are discussed on a separate page on this site.

Here, however, the focus is solely on the pre-litigation duty to preserve potentially responsive information.  The offer to mediate may put an overreaching opponent on the horns of a dilemma.

If the offer is accepted, a mediator may narrow the requests and facilitate a reasonable agreement, providing a “win-win.”

However, you say, that’s naïve.  It won’t be accepted.  Perhaps that is correct.  In fact, that is what occurred in Fresno.  In its Complaint at ¶6, Texas alleged:

“[T]he City and its attorney has failed to respond to requests from TxDOT to meet and confer, as required under Rule 26(f) of the Federal Rules of Civil Procedure, on the specific subject matter or specific claims that it might assert in litigation and to attempt to reach an agreement on the extent and scope of the requested litigation hold. The State has attempted to comply with this general litigation hold, but it is extremely burdensome and expensive without specific guidance as to the documents and information that it would encompass.”

Complaint, 2007 WL 4835762.

Faced with such a refusal, you will then have to do your best to implement a reasonable, proportional, litigation hold on your own.

But, let’s fast forward the video.  Assume that eight months later, the plaintiff who rejected mediation asserts that the scope of the litigation hold was inadequate.  Assume that the rejecting plaintiff complains that ESI has gone missing.  The rejecting plaintiff then files a spoliation motion at the appropriate time.

One viable response may be –

“Judge, I tried to cooperate.  I offered to mediate.  I offered to preserve more if they picked up the cost.  They refused. In fact, they wouldn’t even cooperate at all.  After they refused to respond, I did the best I could — in a free-for-all zone with no umpire — to apply an amorphous duty to complex information technology systems, with little facts to analyze proportionality.  Perfection is not required.  I acted reasonably and in good faith.  The problem is all their fault.  Please deny the sanctions motion.”

Use of mediation in connection with ESI is well-established.  K. McLeroy, “The Next Frontier of Mediation: Mediating E-Discovery Issues,” (ABA Mar. 13, 2018); J. Gill, “The Sooner the Better: 4 Ways Mediation Can Resolve E-Discovery Disputes,” (Exterro Jun. 23, 2017); D. Garrie, “Mediating E-Discovery Disputes Can Save Time and Money,” (JAMS Dec. 23, 2016);.

Here, the idea is to offer to expand it to the pre-litigation phase as one tool to blunt overbroad or disproportionate preservation demands in the “free for all” zone.

CONCLUSION

In short, by either making an offer to preserve some information and including an offer to do more if the potential plaintiff pays the costs, or by offering pre-litigation mediation, i.e., a non-judicial umpire, a defendant may avoid the “free for all” zone.  Doing so may create a form of estoppel, at least in part, against a subsequent sanctions motion.