PRESERVATION: E-Discovery

1. PRESERVATION: E-Discovery Marketfare Annunciation, LLC, et al. v. United Fire &Casualty Insurance Co.

2. Parties • Plaintiffs: Supermarkets with insurance policies who filed claims for Hurricane Katrina damage under United Fire & Casualty Insurance Co. policies • Defendants: Insurance companies and individuals responsible for adjusting insurance payments for claims filed

3. Procedural History • August 24, 2006, Plaintiffs filed separate actions against Defendants in state court seeking recovery for breach of insurance contracts and for breach of statutory duties under Louisiana law • Defendants removed actions to E.D. L.A. based on diversity jurisdiction where consolidated

4. Procedural History, cont’d • Discovery deadline: October 1, 2007 • Trial scheduled: November 26, 2007 • Court addressed Plaintiff’s Motion for Sanctions of United Fire’s Spoilation of Relevant Electronic Evidence seeking an order sanctioning Defendants • Defendants filed Memorandum in Opposition to Plaintiff’s Motion for Sanctions for Alleged Spoilation of Evidence

5. Background • Plaintiffs filed consolidated lawsuits against Defendants for dissatisfaction with payments for damage to their businesses • On September 25, 2006, Plaintiffs wrote to Defendants providing formal notice for “preserve electronic records” related to claims

6. Formal Notice of Potential Litigation • Plaintiffs requested that Defendants instruct their “clients as well as personnel to refrain from destroying any documents related to litigation, including electronic communications, emails and backup tapes.” • Notice: “Request that your clients discontinue any automatic destruction process.”

7. Discovery • Plaintiffs submitted interrogatories and request for production of documents seeking electronic discovery • Ps obtained various discovery responses from Ds; indicating that not all emails relevant to their claim were included in claims file • Ps discovered email from D EE encouraging Ds to send emails rather than make phone calls to encourage productivity & efficiency

8. Defendants’ Email Retention • Defendants contended that all emails relevant to claims file were imported to file • To preserve emails, an EE must send an email to another EE and then, exercise discretion about whether or not to add it to claims file • No specific policy relating to destruction, deletion, and/or preservation of emails

9. Lost or Destroyed Emails? • Defendants admit that it is unknown if or whether emails/electronic evidence was lost or destroyed, but to the best of Ds knowledge, nothing substantive to these claims was lost or destroyed since the action was fileed

10. Defendants’ System • System stores 1 week’s worth of date and the next week it is written over • Files never deleted forever; stored on system • Deleted files are just hidden from view • Emails backed up for 30 days

11. Plaintiffs’ Arguments • (1) Ds failed to place a mandatory litigation hold on all electronic data relating to processing & handling of Katrina claims based on various emails Ps later discovered • (2) Ds failed to preserve electronic information relating to Ps claims on backup systems • (3) Ds failed to request relevant emails from key players involved in claims process and instead, relied on information in claims file

12. Issues • Whether Plaintiffs’ Motion for Sanctions Against Defendants for failure to preserve electronic evidence is appropriate? • Why or why not?

13. Plaintiffs’ Proposed Orders • Ps request that they retain an expert at Ds expense to review Ds’ system • Ps argue that if Ds’ data has been irretrievably deleted, then Ps seek monetary sanctions and adverse jury instructions against Ds OR Ds’ defenses are stricken

14. Defendants’ Counterarguments • (1) All relevant emails were preserved by placing them in claims file and there is not evidence that emails were deleted/destroyed; • (2) Despite not producing all relevant emails that were not in claims file, once identified, Ds produced them when they located them; • (3) A “Litigation Hold” would cripple there operations if they had been required to preserve all emails relative to Katrina claims; • (4) If Ds did not produce complete responses, then Ps should have filed a Motion to Compel rather than seek sanctions

15. F.R.C. P. Rule 16 • Rule 16(b) “authorizes district courts to control, manage, and expedite the discovery process through a scheduling order.” (Broad Discretion) • Rule 16(f) provides that if “a party or party’s attorney fails to obey a scheduling order…the judge, upon motion or the judge’s own initiative, may make such orders with regard thereto as are just.”

16. Court’s Findings • Ps failed to explain why delay in filing motions for sanctions on the eve of discovery deadline • Ps should have (a) asked for expedited relief or (b) requested an extension in the discovery deadline • Pursuant to Rule 37, Ps should have filed a Motion to Compel rather than sought sanctions. Ps failed to show that Ds violated court order mandating the preservation of electronic evidence

17. Holding • Court denied Ps Motion for Sanctions reasoning that trial is imminent and discovery has closed; Court declined to address the merits of Ps’ motions for sanctions because it would contravene Scheduling Order

18. Sedona Conference Guidelines for Preservation 1. Where litigation is anticipated but no plaintiff has emerged or other considerations make it impossible to initiate a dialogue, the producing party should make preservation decisions by a process conforming to that set forth in the Decision Tree in Figure 1. 2. As soon as feasible, preservation issues should be openly and cooperatively discussed in sufficient detail so the parties can reach mutually satisfactory accommodation and also evaluate the need, if any, to seek court intervention or assistance. • In conjunction with the initial discussions or where appropriate in the response to discovery requests, parties should clearly identify the inaccessible sources reasonably related to the discovery or claims which are not being searched or preserved.

19. Sedona Conference Working Guidelines Cont’d (July 2008) 4. A party should exercise caution when it decides for business reasons to move potentially discoverable information subject to a preservation duty from accessible to less accessible data stores. 5. It is acceptable practice, in the absence of an applicable preservation duty, for entities to manage their information in a way that minimizes accumulations of inaccessible data, provided that adequate provisions are made to accommodate preservation imperatives. 6. An entity should encourage appropriate cooperation among legal and other functions and business units within the organization to help ensure that preservation obligations are met and that resources are effectively utilized.