A Litigation Hold Alone Is Not Enough to Satisfy the Preservation Duty
NuVasive, Inc. v. Madsen Med., Inc., No. 13cv2077, 2015 WL 4479147 (S.D. Cal. July 22, 2015).
Merely implementing a legal hold is not enough to satisfy a party’s duty to preserve; rather, the party must take affirmative steps to implement the hold, follow up with custodians to ensure they are preserving data, and ensure that the hold covers all forms of data, including text messages and other emerging data formats.
In this case involving a series of disputes that evolved from a soured business relationship, the plaintiff, NuVasive, alleged a number of contract-based claims, and the defendants argued that NuVasive intended to interfere with defendant Madsen Medical Inc.’s (MMI’s) business by removing it from NuVasive’s distribution chain and soliciting MMI’s employees, among other things. During discovery, the defendants filed a motion for sanctions, claiming that NuVasive allowed its employees to destroy evidence. The destruction occurred despite the defendants notifying NuVasive of its duty to preserve evidence, including e-mails and text messages, as early as August 2012. NuVasive implemented a legal hold in August 2012 and renewed it in September 2013, when both parties filed lawsuits against the other.
Although the legal hold was in place, NuVasive failed to ensure that four key employees preserved text messages that could have served as “evidence of secret coordination” between NuVasive and former MMI employees to end NuVasive’s contractual relationship with MMI and hire its former employees:
- NuVasive did not ask one employee to bring his phone in for imaging until January 2014. When he did, he brought his current phone, not the one he used before terminating the relationship with MMI. The employee still had that phone but ultimately wiped it before giving it to his son later in 2014—without NuVasive capturing its data.
- NuVasive did not ask another employee to turn over his phone until January 2014, and all of his text messages dated before September 20, 2012 were missing, allegedly due to an iPhone software update released on September 19, 2012.
- A third employee’s text messages were missing because he had turned in his phone for upgrades twice since NuVasive terminated MMI. NuVasive believed the phones were wiped before being recycled.
- The final employee shared his phone with NuVasive in 2013 but suggested that he might have deleted relevant texts.
The defendants asked for an adverse inference instruction and $10,000 for attorneys’ fees and costs. The court applied a three-factor test to determine which sanction was appropriate: (1) NuVasive’s degree of fault, (2) the prejudice to MMI, and (3) whether a lesser sanction were available that would “avoid substantial unfairness to the opposing party.” Here, despite the litigation hold, NuVasive failed to take “adequate steps to make sure that its employees complied with the litigation hold” and destroyed evidence it had a duty to preserve. This is true even though the defendant also should have taken steps to preserve the text messages of two of its former employees during their employment.
The court also found the loss of texts prejudiced the defendants. It based this conclusion on texts between other NuVasive and MMI sales representatives about terminating the MMI relationship. Given the tenor of these texts, the court inferred that texts from the four key employees “might have furthered MMI’s claims” that NuVasive planned to terminate its relationship with MMI and hire MMI’s sales personnel. NuVasive was unable to provide any evidence to dispel these claims.
NuVasive suggested that the defendants were able to collect the majority of the lost text messages from others, but it could not confirm that the defendants had access to all relevant texts. Therefore, a permissive adverse inference was an appropriate sanction. The court refused to award attorneys’ fees or costs because the defendants were partially responsible for not preserving its employees’ text messages while they were still employed with MMI.
Parties that anticipate litigation must do more than merely impose a legal hold. To satisfy the duty to preserve, they must take steps to enforce the legal hold.
It is also imperative that parties consider nontraditional sources of evidence, such as evidence from smartphones, when they institute a legal hold. The hold should apply to mobile devices, including any personal devices used for work, and it should include text messages as well as e-mails.