Back to eDiscovery Basics — How One Party’s Failure to Recognize When the Duty to Preserve Arose Resulted in Waiver of Privilege

Unlock the secrets of managing privilege and document preservation with Kelly Twigger on the Case of the Week podcast. What happens when giants like Lubrizol and IBM clash over contract breaches and the nuances of electronic information law? This episode promises to equip you with critical insights into Rule 502(d) and the timing of preservation duties—a must-know for any litigator in the digital age. Judge Jennifer Dow Armstrong's expert navigation through the competing motions between these corporate titans provides a rich tapestry of lessons on strategic litigation.

In a groundbreaking discussion, we unravel IBM's document preservation practices and their consequential waiver of privilege in spoliation claims. Discover why the timing of preservation duties is pivotal and how a well-crafted privilege log can tip the scales in litigation anticipation. This episode serves as a cautionary tale, highlighting the importance of timely data preservation in an era of rapid technological change. Whether you're a seasoned attorney or just starting out, this episode offers indispensable strategies for staying ahead in the legal realm.


Lubrizol Corp. v. IBM Corp
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Chapters

• 0:13 E-Discovery Case Law Analysis Podcast
• 1:29 Introduction
• 2:39 Case Facts
• 5:16 Case Analysis
• 15:36 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 the episode of our Case of the Week series brought to you by eDiscovery Assistant.

Kelly Twigger: 1:35

This week's decision is a big one, which raises the issues of the scope of 502d, as well as the importance of knowing when the duty to preserve arises and the potential implications for waiver of privilege when that argument is made incorrectly. All right, let's dive into this week's decision, which comes to us from the Lubrizol versus IBM breach of contract action. We covered the initial sanctions motion from this case back on episode 108 of Case of the Week. This week's decision, as I mentioned, comes to us from Judge Jennifer Dow Armstrong. She's a United States magistrate judge in the Northern District, ohio, and this decision is dated February 8, 2024. Judge Armstrong has four total decisions in our eDiscovery Assistant database and, as always, we add the issue tags for each of the decisions in our database. And this week's issues include attorney-client privilege waiver, legal hold, spoliation, proportionality, failure to produce and failure to preserve.

Kelly Twigger: 2:39

All right, what are the facts we're talking about here? The underlying facts of this case include a breach of contract between the parties related to the construction of an enterprise resource planning piece of software. Lubrizol alleges that IBM committed fraud and various torts in connection with the project to implement a new ERP software, and Lubrizol subsequently amended its complaint to allege spoliation when it learned that IBM had deleted the electronically stored information of several IBM personnel who worked on the ERP project, which included both current and former employees of IBM. Now, that's key because the email boxes of departed employees that were relevant were deleted after Lubrizol alleged IBM duty to preserve arose. There are a number of facts in this case that go to the timeline on the motions and that emphasize, as we do regularly here on Case of the Week, that the timeline in a case is crucial. The short story is that IBM argues its duty to preserve did not arise until the filing of the complaint in April 2021, and it implemented legal holds and preservation in May 2021. Lubrizol alleges that the duty to preserve for IBM arose much earlier. Given multiple facts, including that Lubrizol sent to IBM a notice terminating the party's contract for cause in April 2020, a full year before the complaint was filed. The parties exchanged letters addressed to senior legal personnel at both companies, labeled quote subject to Rule 408 and the Ohio and Federal Rules of Evidence close quote, in which Lubrizol described its legal claims and damages in correspondence to IBM and was quote explicit about its plan to sue IBM. Ibm informed Lou Brasol that it had hired outside counsel in September of 2020, and the parties conducted a mediation in November 2020, during which they acknowledged that there was quote a massive gulf close quote between their respective positions on claims, defenses and damages. Now, despite all of those facts occurring prior to the filing of the complaint, ibm maintains its position that its duty to preserve did not arise until after the filing of the complaint in April 2021.

Kelly Twigger: 4:53

Now we are before the court here on two competing motions. Lubrizol has made a motion to compel the production of documents and a motion from IBM asking the court to enter an FRE 502D order allowing it to produce documents without waiving privilege. The basis of both motions is the timing of when IBM's duty to preserve arose. Now the court really undertakes an analysis of each individual step here, which is different. Sometimes we get the court saying, hey, you've argued this, this and this, but really this issue is dispositive so I'm not going to address the other ones. That's not the case here. The court goes through each of the individual motions and there's interesting content for each and interesting implications, so we're going to cover those.

Kelly Twigger: 5:38

Let's start with IBM's motion for an FRE 502D order. The court cites the language of FRE 501 and notes that Rule 502 was enacted to achieve two main goals. First, resolving disagreement among the courts regarding the effect of certain disclosures of privileged information. And second, preventing litigation costs from spiraling due to fears that any disclosure of a privileged document would result in subject matter waiver of all other communications on the same topic. Now IBM's motion asks the court to authorize IBM to produce, without waiving the attorney-client privilege or the attorney work product protection, all documents and communications concerning quote the preparation, implementation, institution, application and dissemination by IBM of document preservation and litigation holds close quote through May 15, 2021. And second, responses to Lubrizal's interrogatories on the same subject. And third, a Rule 30b-6 witness on the same subject. Lubrizal argues that such an order would permit IBM to intentionally, rather than inadvertently, disclose privileged information without constituting a subject matter waiver of all other documents and communications on the same topic, and that the court lacks the authority to do so. Now the court notes initially that a court may enter into a Rule 502d order on its own initiative and without the consent of both parties.

Kelly Twigger: 7:06

We covered that same issue on Episode 127 of the Case of the Week in the decision US versus Captive Alternatives LLC and, as I mentioned, deja will drop the link to that decision as part of the post on whatever platform you're viewing us on. But the court acknowledges here that whether it has the authority to enter a 502d order that covers intentional rather than inadvertent disclosures of privileged information is unclear. The court then goes into some analysis on different case law as well as the Sedona conference, and the court notes that the position of the Sedona conference is that a court can do so. But then the court also cites the several other decisions from other courts that have held that it does not have that authority. And following a review of case law the court also cites the several other decisions from other courts that have held that it does not have that authority.

Kelly Twigger: 7:46

And following a review of case law the court determines that it remained unconvinced that it had the authority to enter a Rule 502D order that preemptively authorizes IBM to make intentional disclosures without waiving the privilege, even assuming that it did have the authority. The court concluded here that the Rule 502d order that IBM proposes is not appropriate in scope and is not likely to narrow and refine the party's arguments for two reasons. First, the time frame IBM selected did not cover all relevant discussions and IBM's proposed order would allow it to disclose documents that support its spoliation provision but allow it to withhold less favorable documents. As to the latter point, the court also noted several cases that have identified that issue and refused to grant 502D orders. On this issue, the court held that IBM's proposed scope of a 502D order did not eliminate the risk of selective disclosure and that it is not likely to narrow the disputes between the parties. The court also found that nothing in the text of 502D gave the court the authority to unilaterally impose a broader waiver of privilege than IBM had agreed to. With that, the court denied IBM's motion.

Kelly Twigger: 9:03

Now the court then moved to Lubrizol's motion to compel, which involved an interrogatory and multiple requests for production. The motion involves an interrogatory that Lubrizol sent to IBM and I want you to listen carefully to the language of the interrogatory. The interrogatory asked IBM to identify quote all communications before 2022 concerning IBM preparing, implementing, instituting, applying and disseminating document preservation and litigation holds in connection with quote the ERP project. The instructions to the interrogatory state that identify means to provide the date of the communication, whether the communication was oral or written, and the individuals who participated in the communication. Now Lubrizol acknowledges the privilege in those documents, but wants a log of the actions taken to identify whether IBM put a hold in place when its duty to preserve arose. Now the court notes that quote under both federal and Ohio law, the mere fact that a party communicated with counsel is not privileged. Quote, quote. The court also notes that the interrogatory does not impose an undue burden on IBM and that the existence, timing and frequency of the communications is relevant to Lubrizol's argument that IBM anticipated litigation at the time of the alleged spoliation, ie before the complaint was filed in April 2021.

Kelly Twigger: 10:26

The court also found that IBM failed to meet its burden on proportionality. Finding that quote beyond the bare assertion that responding to interrogatory number six would require it to list numerous communications, ibm has not provided any specific evidence regarding the volume of communications at issue or the burden that responding to the interrogatory would impose. Close quote Now. We've discussed that multiple times on Case of the Week You've got to provide specific facts to prevail on a proportionality argument. Finding that the documents were relevant to Lubrizal's foliation claim, the court also required IBM to produce documents and communications regarding one any written legal hold notices.

Kelly Twigger: 11:09

Two any steps IBM took to preserve relevant evidence. Three the potential for litigation. Four the parties failed November 18, 2020 mediation to the extent those documents relate to the potential for litigation. Five IBM's policies, practices and procedures for preserving or deleting the data of the former employees at issue, six steps IBM took to determine whether it was possible to restore or retrieve the information deleted from the email boxes of the former IBM employees. Seven communications from IBM and the former IBM employees regarding data preservation and deletion, eight communications from a former employee regarding data-related passwords. And nine documents and communications regarding the separation of the former IBM employees from IBM and the preservation of their files. The court also found that IBM had produced extensive non-privileged materials on these topics and that IBM had challenged Lubrizol's claim of relevance and ordered IBM to produce any additional non-privileged documents. So at this point we've got the log has to be produced and non-privileged documents have to be produced.

Kelly Twigger: 12:26

Regarding when the duty to preserve arose, the next question is whether or not IBM waived its privilege with regard to the other privilege materials that would apply related to the duty to preserve, and the court here applied a three-factor test under Ohio law and found that IBM did waive its privilege with respect to IBM's document preservation efforts. Whether IBM recently anticipated litigation at the time of the alleged spoliation and when IBM identified the disputed custodians as individuals who might possess information relevant to the case. That's a pretty important holding here. Now, under that test, which is dictated by the Hearn case, the court found that IBM asserted the privilege through an affirmative act when it sent a letter on October 29, 2021, in which it alleged that it did not reasonably anticipate litigation at the time the documents were deleted and that it did not identify departed employees as custodians until Lubrizol included them in their ESI disclosures. Remember that the complaint was filed in April 2021, six months prior to this letter stating IBM's idea of when its duty to preserve arose.

Kelly Twigger: 13:42

Evaluating the Hearn test, the court found that, by arguing it did not reasonably anticipate litigation until the complaint was filed, ibm made the advice that it had received from counsel regarding its document preservation efforts and whether litigation was reasonably likely prior to that day relevant evidence. According to the court quote if counsel was telling IBM before April 2021 that litigation was reasonably likely, that is certainly relevant to Lubrizol's claim. Similarly, if IBM's counsel identified the disputed employees as potentially relevant custodians before their email boxes were deleted, that would impact IBM's state of mind and the strength of Lubrizol's spoliation claim. Close quote the court also found that applying the privilege here would deny Lubrizol access to information that is quote vital to its spoliation claim. Close quote as such, the court granted Lubrizol's motion to compel and required IBM to produce all non-privileged documents responsive to the interrogatory and RFPs at issue all documents responsive to interrogatory number 16 and the relevant request for production for which IBM was currently claiming privilege. That addressed IBM's document preservation efforts, whether IBM reasonably anticipated litigation prior to the alleged spoliation or when IBM identified the disputed custodians as individuals possessing potentially relevant information. Now, this is a really important ruling because this essentially says, by issuing a letter to Lubrizol claiming that the duty to preserve arose after the filing of the complaint, ibm waived all of its privilege in communications that would have shown that it's foliated data, because its duty to preserve arose earlier than it contemplated.

Kelly Twigger: 15:36

So what are our takeaways from this case? Well, as I just mentioned, there's a lot to unpack in this decision. Let's start with the scope of Federal Rule of Evidence 502d, while there is still a question here, we are seeing more and more courts come down, as Judge Armstrong did here, and find that Federal Rule of Evidence 502d does not cover an intentional production of privileged material, only one that is inadvertent. It's not a shield to prevent a party having to review only one that allows cover when you inadvertently produce privileged material. Now, interestingly, that seems to beg the question material Now interestingly, that seems to beg the question how is 502d different than rule 26? That requires reasonable efforts. Is it just another easier layer of protection, but not all-encompassing? And if that's the case, is the rule really meeting the underlying rationale for 502d, which was meant to curb costs? In review, we'll have to keep an eye on how that continues to develop. I do agree that allowing a party to engage in a document dump and then use 502d to claim a privilege isn't right. So we'll have to just keep our eyes open as to how things happen here. But keep in mind that the scope of 502d is for inadvertent production under most courts' rulings at this time rejecting the Sedona Conference's statement that intentional disclosure should also be covered.

Kelly Twigger: 16:58

Now the next issue here on Lubrizol's motion to compel identifies an excellent strategic angle to take when you suspect or allege spoliation based on the date of the duty to preserve. Lubrizol has the court ordering IBM to first produce a privilege log of the documents regarding its discussions about when the duty to preserve arose and what actions were taken internally to identify custodians and preserve data. Just a log, but still monumental in the log's application to Lubrizol's ability to show that IBM anticipated litigation long before it claimed it did at the filing of the complaint. This is a great strategy to use, especially one where you don't get the court to find waiver the way that the court did here. There can be no sanctions for failure to preserve where the duty to preserve has not attached. So getting a log may demonstrate when a party believed that a duty arose is a huge step and just a terrific strategic plan to be able to use. So file that one away.

Kelly Twigger: 17:58

But as we know, the court goes even further than the log here, and the huge element in the room of this decision lies in the court's ruling that, by asserting that it did not anticipate litigation until the filing of the complaint, ibm waived privilege in documents between counsel that it may have thought otherwise were privileged. Now that's a big waiver, folks, and it's a wake-up call. If you aren't already doing this. You need to have a clear understanding of when the duty to preserve arises and how you can support your argument. The facts here in this case that we went over are pretty suggestive that IBM should have known the duty to preserve arose much earlier, and they absolutely suggest that the duty to preserve arose long before the filing of the complaint. Now, this decision is key in a number of respects, but it all comes down to the fact that you need to advise your clients carefully on when the duty to preserve arises and what obligations that duty imposes on your need to identify, preserve and collect data to prevent spoliation. This is a hard concept and it gets harder the more technology gets complicated. As we talk about Slack and Microsoft Teams, data and hyperlinked files and all of those issues that have to be dealt with. You've got to have a plan in place now more than ever to be able to identify when the duty to preserve has arisen and what you're going to do to identify and preserve information quickly. Okay, we'll keep an eye on this. Loopers all matter going forward, as there's very likely to be additional sanctions motions if the case progresses.

Kelly Twigger: 19:35

That's our case of the week for this week. Thanks so much for joining me. We'll be back again next week with another decision from our eDiscovery Assistant database. As always, if you have suggestions for a case to be covered, please drop me a line. If you'd like to receive our newsletter and have the Case of the Week delivered directly to your inbox. You can sign up at ediscoveryassistantcom If you're interested in doing a free trial of our case law and resource database. You can also jump to ediscoveryassistantcom to get started. Resource database you can also jump to ediscoveryassistantcom to get started. Thanks for joining me on the Case of the Week podcast Tune in next episode as I discuss a new decision in e-discovery 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.