An opinion out of the U.S. District of New Jersey weighed in on a gray area of data preservation when it ruled that “independent agents” were subject to the parent company’s preservation obligation and therefore required to receive a litigation hold. The case delved into issues pertaining to First American Insurance’s “possession, custody and control” of the agents who are critical to their business but are not employees as per FRCP Rule 34(a).
The dispute in Haskins v. First American Title Insurance Co., No. 10-5044 (RMB/JS), 2012 U.S. Dist. LEXIS 149947 (D.N.J. Oct. 18, 2012) centered on the allegation that the defendant overcharged for title insurance so the plaintiffs were interested in the closing files from agents in order to learn of the amounts charged to homebuyers – clearly relevant to the matter at hand. U.S. Magistrate Judge Joel Schneider weighed the arguments after First American took the position that “it should not be required to produce documents in the physical possession of its agents because it does not possess or control the requested documents.” (p.8)
The Court rejected First American’s assertion after reviewing the contractual obligations of the independent agents. Judge Schneider reviewed the contracts and showed that the company had “control” of the documents due to contractual language that First American “may claim that the agent breached its contract if the agent does not produce the requested files” (p.9). The party may not have physical possession of documents but as long as it “has the legal right or ability to obtain the documents from another source upon demand.” (p.3)
Judge Schneider then reviewed the need to implement a legal hold after determining that the defendant had “control” of the documents. He cited a number of recent opinions including Major Tours v. Colonel and Mosaid v. Samsung among others and resolved that “the duty to preserve clearly applies to First American because litigation is already in progress” (p.11) and that “a litigation hold may extend to third parties, and courts have issued orders to this effect.” (p.10)
The court’s finding in Haskins v. First American closed up a possible loophole that First American was attempting to exploit. Judge Schneider showed that the legal obligation to preserve information extends to third parties when there is a contractual obligation to preserve documents and a legal right to access them is in place.