Failure to Enforce a Proper Litigation Hold for Text Messages Can Be Costly

As the business world becomes more digital and mobile, the swords and shields used in litigation often take the form of electronically stored information. We frequently advise clients and remind opposing counsel to preserve all documents, including electronically stored information, when they reasonably know that litigation might ensue or as soon a potential claim is identified. (See In re Napster, Inc. Copyright Litigation (N.D.Cal. 2006) 462 F.Supp.2d 1060, 1067.)  This advice may be addressed in a litigation hold letter. When parties fail to comply with California Code of Civil Procedure requirements to preserve documents related to litigation, a court may impose a costly penalty: precluding the party from prosecuting or defending the lawsuit. This penalty is called a “terminating sanction.”

In July, the United States District Court for the Southern District of California issued a terminating sanction against the plaintiff in NuVasive, Inc. v. Madsen Medical, Inc. (July 22, 2015) Case No. 13CV2077 BTM(RBB). The lawsuit involved NuVasive’s termination of a contract with Madsen Medical and NuVasive’s subsequent hiring of some of Madsen’s employees. Madsen filed a lawsuit in Nevada against the former employees, and filed counterclaims in the NuVasive lawsuit. NuVasive was aware of the potential litigation before filing its lawsuit and issued litigation holds to its employees in August 2012 and September 2013. The Court determined NuVasive did not take adequate steps to make sure its employees complied with the litigation hold.

Madsen argued that text messages from four NuVasive employees may have contained evidence of secret discussions related to the termination of Madsen Medical’s contract and hiring of Madsen’s sales personnel. NuVasive asked its employees to produce their smartphones for imaging, but one employee produced a newer phone (and later “wiped” the old one); another employee’s text messages were deleted, possibly as the result of an operating system upgrade; a third employee’s text messages were lost because he turned in his phone for an upgrade after the Madsen contract was terminated; and the fourth employee testified that he had deleted relevant text messages.

The court found that NuVasive destroyed evidence it had a duty to preserve and failed to enforce compliance with the litigation hold. The court also found that Madsen made a sufficient showing of prejudice by producing evidence that text messages were exchanged between the NuVasive employees and Madsen employees shortly before termination of the contract. These text messages referenced decisions by NuVasive about Madsen and assurances of support for the Madsen sales representatives and might have furthered Madsen Medical’s claims.

As a result of NuVasive’s failure to preserve the text messages on smartphones, the Court issued a sanction by formulating this instruction to the jury:

NuVasive has failed to prevent the destruction of evidence for MMI’s and Ms. Madsen’s use in this litigation after its duty to preserve the evidence arose. After considering all of the pertinent facts and circumstances, you may, but are not obligated to, infer that the evidence destroyed was favorable to MMI and unfavorable to NuVasive.

Ouch! This case illustrates that it may not matter whether an employer or employee owns the smartphone or device containing the relevant evidence. An employer with a Bring Your Own Device practice should develop a clear policy that requires employees to preserve and produce the devices they use in the course of employment when directed by the employer. This case also serves as a reminder that when issuing a litigation hold, employers must collect and preserve all information that may lead to discoverable information. This information includes not only paper documents but all potentially responsive electronically stored records — emails, text messages, chats, and voicemail recordings.

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