How the Failure to Preserve Led to Production of the Legal Hold Notice

 Join Kelly Twigger in this Episode of Case of the Week as she examines the EEOC v. Formel D USA, Inc. case, highlighting the consequences of failure to preserve electronically stored information (ESI) and the impact it had on the court ordering the production of a litigation hold notice. Kelly explores the court's analysis under Rule 37(e), spoliation sanctions for lost text messages, and the debate around the GDPR's role in protecting data from U.S. discovery. This Episode offers key takeaways on self-collection, attorney-client privilege, and best practices for preserving ESI in litigation. Don’t miss the practical insights for litigation professionals navigating modern eDiscovery challenges.

EEOC v. Formel D USA, Inc.
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Additional cases mentioned in this episode:
United Illuminating Co. v. Whiting-Turner Contracting Co.
Doe LS 340 v. Uber Techs. Inc
United Illuminating
EEOC v. M1 5100 Corp. 

Have questions for Kelly or have a specific decision you would like us to cover? Reach out at hello@ediscoveryassistant.com! 

Thank you for tuning in to Case of the Week with Kelly Twigger. If you found today’s discussion helpful, don’t forget to subscribe, rate, and leave a review wherever you get your podcasts. For more insights and resources on eDiscovery, visit eDiscovery Assistant and explore our practical tools, case law library, and on-demand education from the eDiscovery Academy. Join us next episode as we break down another important case shaping the future of eDiscovery.

Transcript

In Episode 156, Kelly Twigger discusses how the failure to preserve text messages and mobile devices led to sanctions including the production of the actual legal hold notice provided to custodians AND the process required for counsel to supervise collection of documents from custodians in EEOC v. Formel D USA, Inc. (September 12, 2024).

Introduction

Hi and welcome to this week week’s episode of our Case of the Week series, brought to you by eDiscovery Assistant in partnership with ACEDS. My name is Kelly Twigger. I am the CEO and founder at eDiscovery Assistant, your GPS for ediscovery knowledge and education, and the Principal at ESI Attorneys. Thanks so much for joining me this week.

Each week on our Case of the Week, I choose a recent decision in eDiscovery case law and talk to you about the practical implications. This week’s decision addresses key topics, including the discoverability of a litigation hold notice, self-collection, and whether the GDPR prevents the disclosure of data in an action in the United States.

Background

This week’s decision comes to us from the EEOC v. Formel D USA, Inc. case. It’s a decision from September 12, 2024, written by United States Magistrate Judge Curtis Ivy Jr. Magistrate Judge Ivy has 72 decisions in our database, and the issues for this week’s decision include attorney-client privilege, failure to preserve, failure to produce, sanctions, self-collection, search terms, spoliation, proportionality and in camera review.

Facts

We’re before the Court on two motions brought by the EEOC — to compel production and for sanctions for spoliation for failure to preserve. It’s not often that we see a decision that has both failure to preserve and failure to produce. But because we’ve got two separate motions here for different data sources, that’s what we’re talking about. The case was referred to Magistrate Judge Ivy for discovery matters, and the EEOC here accuses Formel D of failing to preserve emails, laptops, and cellular telephone data for four custodians, two of whom were the plaintiff’s supervisors during her employment.

The data from the laptops was backed up to the company server, so that information is available and is not subject to the spoliation analysis. The text messages from the cell phones, however, were lost and are the subject of the sanctions motion for failure to preserve. This kind of seems like a broken record here on Case of the Week, so the message you should be taking away is that almost every action is implicating data from a mobile device, and you need to be prepared to preserve and produce that information.

According to Formel D, the company did not have a policy of preserving employee’s telephones or laptops, so those items are either returned to the vendor or are overwritten and used by the next employee. As sanctions here on its motion, the EEOC sought production of the legal hold letters sent to custodians, to conduct a 30(b)(6) deposition regarding the ESI at defendant’s expense, and a forensic examination to determine the timing and cause of the missing ESI and whether it can be recovered. There are also multiple issues on the motion to compel for production of documents, and we’ll dive into those in the analysis.

Analysis

Motion for Sanctions

Let’s start the analysis with the motion for sanctions and the Court’s ruling on it.

The Court begins with the standard analysis under Rule 37(e) for the failure to preserve, noting that the EEOC sought sanctions under Rule 37(e)(1), claiming prejudice for the failure to preserve. We’ve covered it multiple times on Case of the Week, but it’s very important for you to understand the difference between Sections e(1) and e(2) in Rule 37. Section e(1) requires prejudice for sanctions and only allows for sanctions that are necessary to cure the prejudice. Section e(2) requires intent to deprive and carries more terminating sanctions —  adverse inference, default judgment, those kinds of things.

The Court here found that Formel D’s duty to preserve arose as early as August 28, 2018, when the plaintiff texted one of the custodians that she was contacting her lawyer, and then that person forwarded the communication to HR. A few days later, on September 7, 2018, plaintiff emailed HR directly to advise them of unwanted inappropriate sexual advances from one of her supervisors. That communication spurred defendant to seek legal advice. So, either way we look at it as when the duty to preserve has attached, which is the first step of analysis under Rule 37. Having found that the duty to preserve attached, the Court then considered whether Formel D took reasonable steps to preserve the ESI that it had a duty to preserve. That’s step two.

This is where the opinion gets a little bit confusing when the Court addresses the different sources of ESI. I think to sum it up, the EEOC was satisfied that it could obtain the information from the laptops via the company server. So really, two issues remained: the lost text messages and the deletion of email accounts for two of the custodians.

With regard to the text messages, the Court found that the defendant did not take reasonable steps to preserve them, stating that, “The record shows no attempt to preserve cellular telephone data. Defendant’s lack of a policy to preserve cellular telephone data does not absolve it of responsibility to preserve ESI under the federal rules.” As late as September 7, 2018, the defendant anticipated litigation and thus had the duty to preserve telephone communications from these key custodians.

As to the emails, defendant could not explain how the two email accounts which were stored on the company’s server in Germany were lost. The Court acknowledged that the EEOC had suspicions about the loss, but found that neither party sufficiently addressed the issue of which party has the burden to show that reasonable steps were not taken. That’s a new issue for me. I would have thought that the burden lies solely with the party who failed to preserve the data. Nevertheless, we’ll have to look into that issue more closely. The Court found that there was insufficient evidence to determine whether reasonable steps were taken to preserve the emails, regardless of who had the burden, meaning that remedial measures could not be granted.

The Court did find, however, that remedial measures were appropriate for the loss of the text messages and then turned to what those sanctions would be. The Court found that the plaintiffs were prejudiced by the loss under Rule 37(e)(1) and ordered Formel D to produce the litigation hold letters sent to custodians, as well as the list of recipients, categories of information included for preservation, and any specific actions the recipients were asked to take. That’s critical here. Formel D argued that the litigation hold notice was protected by the attorney-client privilege. This is where the decision is key, because Magistrate Judge Ivy found that:

Defendant’s privilege argument stretches the attorney-client privilege. “Fundamentally, legal advice involves the interpretation and application of legal principles to guide future conduct or to assess past conduct.” . . . The Court accepts that Defendant’s counsel’s litigation hold letter to Defendant’s employees is a communication between client and attorney. That said, the “predominant purpose of that communication was to give recipients forceful instructions about what they must do, rather than advice about what they might do.”

Citing United Illuminating Co. v. Whiting-Turner Contracting Co. from the Connecticut District Court, the Court also found that even if the litigation hold notices were not discoverable — which is what we’ve seen generally — when a party has made an adequate showing that the material is protected by the attorney-client privilege or the work product doctrine, litigation hold letters may be discoverable upon a finding of spoliation.

So, we’ve got two issues here:

1. that the litigation hold, according to the Court, delivers forceful directions instead of legal advice, and
2. the fact that even if they aren’t discoverable — meaning the Court’s analysis is wrong — then if a party can show spoliation, those litigation notices then become discoverable.

As such, the Court ordered defendant to produce the litigation hold notice (having found the spoliation), the date that the notice was sent to the employees, and the names of all of the recipients of the notice, within 14 days of the order. The Court also allowed the EEOC to inquire into the actions taken by those custodians in response to the notice once it had the list of names. The Court declined to order the disclosure of other communications, but did leave the door open if evidence surfaces that demonstrates there was an intent to destroy evidence.

The Court also found that requiring the defendant to pay for retaining a forensic examination and the 30(b)(6) deposition regarding spoliation exceeded what was necessary to cure the prejudice of the missing text messages, finding instead that the Court’s further ruling on the motion to compel was more likely to provide a cure.

We’re going to get into the motion to compel now, but there really is no discussion from the Court as to how that satisfies the missing text messages. So I’m not really sure how those two things get tied together.

Motion to Compel

Let’s look at the motion to compel. That motion really posed three distinct issues.

First, with regard to alleged privileged documents, the Court agreed to review those documents in camera and make a determination as to whether or not the privilege applies. That’s different than last week’s Case of the Week, in which the Court refused to review the documents in camera. Here, there was a very small number, so that could have been an impact on the Court, but it’s interesting that we’re getting different decisions from different courts on whether or not they will undertake an in camera review.

The second issue involved the EEOC’s allegation that defense counsel allowed custodians to self-collect, contrary to an agreement between the parties. The Court noted on the self-collection an issue that “counsel cannot merely rely on custodians to self-collect ESI. Rather, counsel must ‘test the accuracy of the client’s response to document requests to ensure that all appropriate sources of data have been searched and that responsive ESI has been collected —and eventually reviewed and produced.” The Court found that defense counsel’s collection efforts came close to that standard but failed to mention “testing of the accuracy” of the response and required defense counsel to test the accuracy of the searches if it was not supervising the search in person. The Court left that issue open, telling the parties to contact the Court if further issues come up.  

The final issue on the documents discovery on the motion to compel was whether the defendant should search for more custodians and which additional search terms proposed by the EEOC should be used. This one really breaks down to two sub-issues: (1) the date range for production, and (2) the location of the documents to be searched. The timeline issues are resolved fairly easily, with the Court setting a limit for the dates based on the timeline of the case.

The second sub-issue arises because the defendant’s server resides in Germany, and Formel D argues that the GDPR (General Data Protection Regulation) requires production through a GDPR compliant vendor at a cost of between $38,000-$64,000. The defendant, of course, argues that that’s not proportional to the needs of the case. The Court looked at the four factors to be considered as to whether or not the GDPR prevented the Court from ordering the production of documents here and found that: (1) it was unconvinced that the defendant needed a GDPR vendor to produce the documents, and (2) that the request from the EEOC seeking additional search terms and custodians was relevant and proportional to the needs of the case, with some caveats and limitations discussed in the opinion.

With that, the Court granted the motion to compel as well as the motion for sanctions in part.

Takeaways

What are our takeaways here?

Well, this is one of the first decisions I’ve seen where the Court has ordered a party to provide the actual litigation hold notice to the other side. To date on Case of the Week, we’ve seen a decision in the Doe LS 340 v. Uber Techs. Inc case where the Court ordered all of the information around the legal hold, but not the notice itself, to be produced. The difference is here that the Court made two distinctions. First, that the notice contains forceful directions versus legal advice, thereby obfuscating the attorney-client privilege associated with the legal hold notice. That ruling here is baffling to me. Yes, we call the recommendations that we make to clients legal advice. But in this situation, we are advising the employees at the client on how to meet the company’s obligations to preserve data. That’s legal advice. And that’s not a distinction that’s ever been made by another court. But the important point here is this — the entirety of a litigation hold letter is discoverable upon a finding of spoliation. The United Illuminating decision that’s cited by the Court here states that very clearly. That means if you want to protect your hold notices, you need to ensure that you have a process in place to preserve all forms of ESI that may be relevant to a matter so you are not liable for spoliation.

That leads us to our next takeaway, which is perhaps the most obvious one. You need to have a plan in place to preserve data from mobile devices or laptops, or you will be subject to sanctions for spoliation. The Court here is clear. From my review of the case law, every court would agree that not having a policy at all is not taking reasonable steps as required by Rule 37 for the sanctions analysis. There are tools that will allow for remote self-collection anywhere in the world at a cost point that is much more affordable than defending a motion for sanctions. If you’re not aware of what those tools are, you can reach out to us at support@ediscoveryassistant.com, and we’ll share them with you.

Also, keep in mind that having those text messages here may have also benefited the merits of defendant’s case. That can cut either way. It could have benefited plaintiffs. But a failure to preserve is always going to be in the back of the mind of both the opposing party and the judge that you didn’t want to keep the evidence and that you aren’t taking your obligations for preserving ESI seriously.

Next takeaway. We’ve discussed self-collection on the Case of the Week many times, citing back to Judge Matthewman’s decision in the EEOC v. M1 5100 Corp. case. This court agreed that counsel must either supervise the collection in person or test the accuracy of the client’s response to document requests. Practically, the first one is easier. Testing requires counsel to go back to the client’s data sources after the fact, recreate searches, and test new ones. It’s just going to be harder. Get on a zoom call and see what your custodian has to collect during the custodial interview. This is more complicated now by the use collaboration tools that may be less custodian-based, but you still need to know from the custodians what they use to create, store, send, and receive ESI. You’re also going to have to set up searches for each different type of ESI based on search terms because, as we’ve discussed, the way we communicate in text messages, the way we communicate in collaboration tools, and what we say in emails are all different, and they require different search terms.

Finally, if you have a situation where data is stored in the EU, you’ll want to revisit Magistrate Judge Ivy’s decision here on the blocking nature of that statute and whether it applies.

Conclusion

That’s our Case of the Week for this week. Be sure to tune in next week, whether you’re watching us via our blog, YouTube, or downloading it as a podcast on your favorite podcast platform. Thanks and have a great week!

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