WeChat Woes: How Failing to Preserve Ephemeral Data Led to Sanctions in Two Canoes LLC v. Addian Inc

Unlock the secrets to a winning litigation strategy by mastering the art of preserving ephemeral data. What happens when critical evidence vanishes into thin air? This episode promises to arm you with essential insights from the pivotal case of Two Canoes LLC versus Addian Inc., where the loss of WeChat messages led to significant legal sanctions. Join me, Kelly Twigger, as I dissect the crucial role of early planning and the often-overlooked data sources like mobile devices that can make or break a case. Learn from the pitfalls of neglecting evidence preservation, drawing parallels from the 2020 3M lawsuit over counterfeit N95 masks, and understand the profound implications on litigation tactics and risk management.

Throughout our discussion, I unravel the challenges faced by Addian's CEO, Adam Woolworth, who failed to preserve essential messages, highlighting the ever-important themes of possession, custody, and control of data. We'll also delve into the broader landscape of eDiscovery case law, offering practical tips and insights to enhance your discovery practices. Whether you're a seasoned legal professional or navigating the complexities of eDiscovery for the first time, this episode is packed with valuable guidance to keep you ahead in managing electronically stored information. Subscribe and leave a review to stay informed on this rapidly-evolving field, and join me next week for more cutting-edge insights into the world of electronic discovery. 

Two Canoes LLC v. Addian Inc. (April 30, 2024)
Read the blog about this case- eDiscovery Assistant Blog
eDiscovery Assistant Website
Sign up for Kelly's Case of the Week Newsletter here
eDiscovery Assistant Free 7 day Trial (no credit card required)

*This broadcast originally aired on 7/9/2024

#eDiscovery #CaseLaw #DataPreservation #mobiledevice #Sanctions #LegalTech #legalhold #failuretopreserve #wechat #LitigationStrategy #ElectronicDiscovery #DataRetention #CourtDecisions #LegalInsights #spoliation

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.

Chapters

• 0:13 Introduction
• 1:30 eDiscovery Case Law Discussion and Analysis
• 12:20 Key Takeaways

Transcript

Kelly Twigger: 0:13

Welcome to the Case of the Week podcast, where each week, we break down a recent decision in electronic discovery case law and talk about the practical impact for you and your clients and keep you up to date on your obligations with electronically stored information as evidence. If you're a litigator, legal professional or you love the power of ESI as much as I do, this is the place to be. I'm Kelly Twigger, the CEO and founder of eDiscovery Assistant and the principal at ESI Attorneys, with more than 25 years of experience navigating the evolving landscape of litigation and eDiscovery. I'm a practicing attorney, author, speaker, entrepreneur and now podcaster who works as a discovery strategist and expert for clients at ESI Attorneys and to provide that knowledge to all legal professionals through our e-discovery assistant platform. In each episode, we'll tackle a new decision in e-discovery case law and how it shapes both your litigation strategy and planning for risk mitigation. If you're ready for blunt, actionable insights that keep you ahead of the curve, and maybe a few laughs along the way, this is your go-to podcast. Subscribe or follow now to start embracing's episode of the Case of the Week series brought to you by eDiscovery Assistant. We are inching ever closer to the 150th episode of the Case of the Week. My name is Kelly Twigger. I am the CEO and founder at eDiscovery Assistant, your GPS for eDiscovery, knowledge and education. Thank you so much for joining me today.

Kelly Twigger: 1:52

As you know, each week on the case of the week, I choose a recent decision in eDiscovery and talk to you about the practical implications of it. This week's decision involves a motion for sanctions following the loss of WeChat messages on a mobile device. It highlights two of our regular themes here on the case of the week the need to do early planning and consideration of data sources, especially mobile devices, and paying careful attention to the timeline when data is lost relative to the duty to preserve All right. Let's dive in. This week's decision comes to us from Two Canoes LLC versus Addian Inc. This is a decision from April 30th 2024, so a month or so ago and is written by United States Magistrate Judge Jose Almonte. As always, we identify each of the issues in the decisions within our e-discovery assistant database, and this week's issues include ephemeral data possession, custody and control, spoliation, bad faith, mobile device text messages, legal hold, scope of preservation, sanctions, cloud computing and failure to preserve All right. Facts of the case. We are before the court here on two canoes. Motion for sanctions for spoliation of WeChat messages by the defendant's CEO. This is the magistrate judge's report and recommendation to the district judge.

Kelly Twigger: 3:12

The underlying facts of the case allege that Addie and sold allegedly fraudulent in 95 masks manufactured by 3M, purchased to two canoes during the pandemic purchased to two canoes during the pandemic. So recall that the N95 masks were in very short supply during the early part of the pandemic, when everyone was scrambling to get their hands on personal protective equipment, otherwise known as PPE. Adian is a small, family-owned company that provides logistic services to its customers and is headed by Adam Woolworth. Aobvious was one of Adian's customers. Aobvious also provided logistics services and included two canoes on its client roster. So we've really got a chain of three companies Adian buying the masks, selling them to Aobvious, who then sold them to two canoes. In 2020, woolworth reached out to Robert Fisher, a contact in China who Woolworth understood could supply N95 masks from a 3M manufacturer in China. Fisher supplied those masks to Addian, who then supplied the masks to Aobvious, who then supplied the masks to two canoes. Two canoes then supplied the masks to resellers who sold the masks to end users. Makes you wonder whether the N95 masks you bought were actually real.

Kelly Twigger: 4:29

Here's where the timeline comes into play in the case. In November 2020, 3m sued Addian and other entities, alleging the masks were counterfeit. Woolworth was aware of his duty to preserve as of the filing of that case, and took steps to preserve data related to his Google accounts and other sources of ESI Addie and settled the lawsuit in June of 2021, and the 3M lawsuit was officially terminated in February 2022. On July 14, 2021, so a few weeks after Addie and settled out of the 3M case, two canoes threatened litigation against Aobvious via email. On July 16, 2021, aobvious's counsel forwarded the email to Addian's counsel putting Addian on notice of that litigation. Two canoes then filed this action that's currently pending before us against Aobvious on November 4, 2021, and Aobvious added Addian as a third party on January 7th 2022.

Kelly Twigger: 5:29

During discovery of this litigation, woolworth, addian's principal, collected and produced ESI, including emails, documents and text messages with Fisher, the contact in China. He did not produce any messages from WeChat. Now, if you're not familiar with it, WeChat is a very popular ephemeral messaging application from China that allows messages to disappear from WeChat servers, and at the time of the decision here, wechat worked like this Once 72 hours had lapsed since a chat message was sent, or 120 hours for images, audio, videos and files, wechat permanently deleted the content of the message on their servers. After deletion, neither WeChat nor any third party would be able to view the content of that message. Now, although the messages disappeared from the WeChat servers, it remained within the user's application only on the user's device, such as a cell phone, unless it has been otherwise backed up. So those messages would have lived on Woolworth's device and Fisher's device after they were deleted from the WeChat servers. Woolworth testified at his deposition that while he communicated with Fisher primarily by phone call, he did correspond with Fisher a few times on WeChat, but he no longer had those messages due to a loss of his phone.

Kelly Twigger: 6:50

And here's our twist and where we talk about early preservation. Woolworth testified that he discarded at least three cell phones in the span of approximately a year and a half the first one in September 2020, so before the November 2020 duty to preserve in the 3M case. The second in October 2021, after both cases were arisen, which was broken and recycled, and the third one in February 2022. Woolworth did not back up the WeChat messages from the phones. Now the parties dispute whether Woolworth made reasonable efforts to recover any lost WeChat messages to the extent they existed. Fisher is in the wind at this point and unresponsive to any subpoena, so there is no other way to recover the messages. All right, those are the facts before us.

Kelly Twigger: 7:35

On our motion for sanctions, let's talk about what the court's analysis is Now. Plaintiff here sought sanctions under Rule 37E2 of the Federal Rules of Civil Procedure for failure to preserve and asked for an adverse inference instruction to be applied at the summary judgment stage. Now, this case is an excellent example of analysis done under Rule 37, and I recommend that you spend a few minutes reading it and bookmarking it for reference when you're addressing these issues. The court goes into the initial elements of despoliation of the data more than usual because of the facts of this case, and it's not an analysis that we see very often. Now the court goes through, as I mentioned, each step of the analysis under Rule 37 in the context of the timeline of the case and held, not surprisingly, that Addian had a duty to preserve as of November 5th 2020, and that continued with the filing of the case against a obvious in which Addian was later made a third party.

Kelly Twigger: 8:32

Since the communications with Fisher were clearly relevant, the court considered whether the chat messages were lost after the duty to preserve attached. Now, critical to the court's analysis here was that Woolworth initially lost the phone with the WeChat messages on it in September 2020, before the 3M litigation was filed, which meant it was not subject to spoliation analysis. The court then looked at two relevant time periods after the duty attached November 5th 2020 through October 2021 and October 2021 through February 2022. And the court found that WeChat messages from between November 5th 2020 and October 2021 were lost. Plaintiff did not meet its burden to show that messages were lost during the subsequent time period, so we've established the messages were lost for purposes of this bulliation analysis.

Kelly Twigger: 9:25

The court next determined that Woolworth did not take reasonable steps to preserve the WeChat messages and then moved to discuss available sanctions, including whether prejudice and intent to deprive existed. Now, based on the evidence that Woolworth communicated primarily with Fisher via phone, the court found it quote difficult to ascertain the extent to which plaintiffs suffered prejudice, if any, from defendant's spoliation. Now, the court's discussion here relative to the timing of the facts is very important and I urge you to read it. It's too detailed for us to cover completely today. This is the kind of factual analysis that's so critical to motion practice and it's what you're going to want to include in your motion papers to be able to make the most effective arguments for your client. As a result of that analysis, the magistrate judge recommended that the court defer a decision on prejudice until trial, when quote the court will be in a better position to evaluate two canoes evidence and determine what the missing WeChat messages could plausibly establish. Close quote.

Kelly Twigger: 10:30

Now the magistrate judge took a similar approach on the intent issue, finding that while Woolworth should have kept the broken phone instead of recycling it, it could not find bad faith based on Addian's preservation of other ESI. But the court left the final determination up to the jury following the process outlined in the advisory notes from 2015. Quote because the issue of intent is one that might hinge on credibility, I recommend that two canoes be given the opportunity at trial to inquire about Woolworth's intent so that the court or the jury may determine what sanction, if any, is appropriate after evaluating Woolworth's credibility close quote. The court also recommended that two canoes be given the opportunity to examine witnesses at trial to determine whether Addie and acted in bad faith. Now this is the second decision we've seen recently where the court is sending that intent determination on a sanctions motion to a jury and that has pros and cons to it. So let's talk about that in terms of the takeaways.

Kelly Twigger: 11:31

This sending of a determination of intent to a jury can be very fraught One. It removes the focus of the original evidence and forces a trial team to have almost a separate intent inquiry and to deal with that at trial. That's not something you want to be dealing with, especially when you're calling your main witness's credibility into question. Credibility into question. So Woolworth is the one who had all the communications for Addie and he's the one whose credibility is going to be most at key in determining whether or not Addie knew that these masks were fraudulent when they resold them to Aobvious and then to two canoes. So that credibility issue is going to be hugely complicated, very important, and to add the intent element to sanctions associated with it really complicates things from a trial perspective. It's not something you want to have happen. For that reason, our very first takeaway is critical, and that is early, early planning. Conducting custodian interviews and identifying sources of ESI is critical is critical. These types of factual scenarios, like Woolworth losing his phone three times, come up in almost every case in which a custodian may not have every relevant piece of ESI. It may be custodian-based, it may be enterprise-based right.

Kelly Twigger: 12:48

Oftentimes, databases are an issue that gets shut down, that were never implicated in the litigation and sometimes just come up at some point and there's a spoliation argument made. Figuring out and identifying issues related to lost data early that will allow you to strategize and figure out how to deal with them. You always have options that need to be considered strategically Should you advise counsel about the lost data and the timeline when it was lost. Prep your witness to address the issue at their deposition. Come up with strategic alternatives on how to address the court, how to approach this particular issue. But you can only have that ability to think strategically if you know about those potentially lost data sources, and you can only know that by asking custodians and your companies very early so that you're aware of those data sources when you are dealing with them retroactively ie finding out that there's spoliation of a potential data source later in the litigation. You are on your back heels just trying to survive.

Kelly Twigger: 13:51

Next takeaway mobile devices are such an incredibly important part of e-discovery today and counsel have to be aware of the types of data that's stored on phones that can be lost without taking active steps to preserve them. Here it's likely that the data was lost before counsel even knew about the case in November 2020, but the cost of preserving Woolworth's phone would have been a drop in the bucket compared to defending this motion for sanctions and the risk that will come at trial. On the issues of prejudice and intent, here it seems that if we had addressed this issue very early on and maybe counsel had right we're Monday morning quarterbacking here on Case of the Week. Maybe they knew about this issue from the outset of the 3M litigation, but you've got to be able to address it factually and it didn't seem like from the portions of Woolworth's testimony that are cited in the decision that he was clear and concrete about when he communicated with Woolworth or Fisher via WeChat and when his phones were lost. If he could have done that better at his deposition, this issue might have been precluded, the court might have been able to better determine his credibility on this motion, or the motion could have been not brought in the first place if the information was sufficient that the motion wouldn't have carried.

Kelly Twigger: 15:08

Finally, keep in mind that, as you're reading the facts of this case. This is how WeChat worked at the time at issue. Applications are constantly changing their retention practices and it's imperative to know what was in place as of the time frame under consideration for the data that is at issue in your case, based on your timeline. Don't rely on the facts about how WeChat operates in this decision. At some later point You'll want to confirm how data can be retained. At the time your duty to preserve arises. Best course, take what WeChat does off the table and preserve the data sources that you have for your custodians so you can eliminate motion practice like this one. All right, that's our case of the week.

Kelly Twigger: 15:52

For this week, thanks for joining me. We'll be back again next week with another decision from our eDiscovery Assistant Database. Have a great week. Thanks for joining me on the Case of the Week. Podcast. Tune in next episode as I discuss a new decision in eDiscovery case law and identify the issues you need to be paying attention to and how they can help you do better discovery for your clients and leverage the power of ESI. Be sure to subscribe and leave a review to help others discover the show and be kept in the know on all things electronic discovery. I'm Kelly Twigger. See you next time.