The judicial landscape concerning when to award sanctions for spoliation of electronically stored information (“ESI”) continues to evolve, as three recent federal district court decisions awarded significant sanctions against pharmaceutical companies, finding spoliation despite the issuance of legal holds in all three cases. See In re Pradaxa (Dabigatran Etexilate) Prods. Liab. Litig., No. 3:12–md–02385–DRH–SCW, 2013 WL 6486921 (S.D. Ill. Dec. 9, 2013) (“Pradaxa”); In re Actos (Pioglitazone) Prods. Liab. Litig., MDL No. 6:11–md–2299, 2014 WL 355995 (W.D. La. Jan. 30, 2014) (“Actos”); and In re Ethicon, Inc. Pelvic Repair Sys. Prod. Liab. Litig., MDL No. 2327, 2014 WL 439785 (S.D. W.Va. Feb. 4, 2014) (“Ethicon”).

In each of these cases, plaintiffs claimed that defendants acted in bad faith by allegedly failing to preserve relevant evidence. Plaintiffs requested sanctions in the form of either a default judgment or a combination of, inter alia, cost-shifting, adverse inference jury instructions, and/or attorneys’ fees and costs. To varying degrees, the district courts agreed with plaintiffs that some form of sanctions was warranted. Notably, each court liberally drew upon the Zubulake v. UBS Warburg, LLC I-V decisions issued by Judge Shira Scheindlin.

Pradaxa The court in Pradaxa granted the plaintiffs’ steering committee’s request for sanctions against defendants for various alleged discovery abuses, including, according to the court, the failure to identify a key custodian, the failure to preserve and produce material in the possession of certain employees, production issues related to one of defendants’ shared networks, and the failure to preserve business-related text messages from certain employees’ cell phones. The court also held that the scope of defendants’ litigation hold was grossly inadequate. The court ruled that defendants had sufficient information to understand the potential size and scope of the litigation by June 2012, at the latest, when the creation of a multidistrict litigation (“MDL”) was sought, and were obligated to replace a limited litigation hold with a broad hold commensurate with the size of the impending litigation.

Ultimately concluding that defendants’ actions and omissions were in “bad faith,” the court stated that it had previously been required to address numerous discovery issues relating to defendants’ “untimely, lost, accidentally destroyed, missing, and/or ‘just recently discovered’ evidence.” The court had previously warned defendants that “there is a cumulative effect that the court not only can but should take into account.” On December 9, 2013, the court fined defendants nearly $1 million in sanctions ($500 per MDL case) based on the court’s finding of discovery abuses.

Actos On January 20, 2014, the court granted in part plaintiffs’ motion for sanctions for spoliation of ESI. Plaintiffs sought sanctions that included a default judgment or, in the alternative, a combination of cost shifting, a fine, an adverse jury instruction, restoration of deleted files, and attorneys’ fees and costs. Although the court declined to enter a default judgment, it deferred its decision on other potential sanctions until after the first bellwether trial. And, the court decided to allow evidence of defendant’s purported bad faith to go to the jury, ruling that the court would devise an appropriate jury instruction.

The key issue underlying plaintiff’s request for sanctions was that electronic files of certain key employees were either deleted or discarded, despite defendant’s issuance of a litigation hold in 2002. The 2002 litigation hold, although not directed toward preservation of documents specifically related to the malady at issue in the MDL, was sufficiently broad to extend to all documents relating to Actos. The broad language of the hold notice, and the fact that it had been “refreshed” over a period of 12 years, was sufficient to trigger a duty to preserve evidence for the MDL. In light of the volume of deleted data, evidence that more than one custodian failed to preserve data after receiving multiple preservation notices, and purported misrepresentations about the timing of the litigation hold, the court found that plaintiffs met their burden to show defendant’s culpable state of mind, relevance of the destroyed evidence, and prejudice. The court also concluded, however, that plaintiffs had not demonstrated sufficient bad faith to support further sanctions.

Ethicon In Ethicon, the court awarded monetary sanctions against defendant, opining that there had been spoliation of evidence and a failure to implement a sufficiently thorough and timely litigation hold notice. The court concluded that defendant’s failure to properly preserve data after it should have reasonably anticipated litigation was negligent, but there was no evidence that defendant acted willfully or intentionally to delete evidence. To the contrary, the court found that the system used by defendant to implement and monitor litigation holds was “riddled with holes.” Importantly, the loss of evidence had typically occurred when an employee left the company and a technician in the IT department unknowingly deleted or repurposed the hard drives.

With regard to a triggering event for the litigation hold relevant to the MDL, the court applied logic from Pradaxa in reasoning that defendant’s duty to preserve evidence related to the MDL was not triggered by prior, isolated litigation. The duty to preserve evidence for the MDL was triggered, according to the court, by prior hold notices relating to the products at issue in the MDL that had been “refreshed,” similar to the situation in Actos.

The rationale behind the award of sanctions in each one of these decisions relies on case-specific facts. Nevertheless, these decisions highlight that issuance of a legal hold alone is not sufficient to insulate companies from findings of “bad faith” or the imposition of severe sanctions. If a judge concludes that a hold was not sufficiently broad or broadened, or that some employees failed to comply (even in the face of repeated reminders), that can result in severe sanctions. These cases serve as a reminder that parties must ensure that hold notices and procedures are sufficiently timely and comprehensive, and that sufficient follow-up takes place to ensure employee compliance.

Client Alert 2014-089