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Court Enforces Limits on Duty to Preserve Evidence

By Angela Foster, Litigation News Associate Editor – July 8, 2015


Companies often struggle to determine how long to retain electronically stored information. At least one court has weighed in, finding that the duty to preserve evidence does not extend indefinitely. In United Corp. v. Tutu Park Ltd., No. ST-2001-cv-361, 2015 WL 457853 (V.I. Jan. 28, 2015), the Superior Court of St. Thomas of the Virgin Islands held that a corporation is justified when it fails to produce records more than nine years old because they were no longer available.

Food Wars Spark Discovery Battle
In 1991, the plaintiff contracted with the defendant to lease premises at a shopping mall in exchange for an exclusive right to operate a supermarket in the shopping area (1991 agreement). Two years before the 1991 agreement, the defendant leased property in the shopping mall to Kmart, a national retailer that sells food products in some of its stores. The plaintiff alleged that the contract between defendant and Kmart contained a provision that prohibited Kmart from operating a supermarket at the mall.

The supermarket exclusion clause, plaintiff contended, was incorporated into the 1991 agreement. In 1993, Kmart began to sell food at its store and expanded its food sales in 1995 and 2000. The plaintiff alleged that Kmart’s additional food sales transformed its business into a “supermarket” in violation of the 1991 agreement. In 2001, plaintiff sued the defendant seeking damages for breach of contract.

In 2002, the parties filed simultaneous motions for summary judgment. The Superior Court denied plaintiff’s summary judgment motion and granted defendant’s motion. The appellate court reversed, reinstating plaintiff’s complaint and remanding back to the trial court, leaving the parties to conduct discovery.            

In 2012, the Superior Court issued a subpoena directing Kmart, a nonparty to the lawsuit, to produce 21 categories of documents. The plaintiff sought comprehensive financial information relating to merchandise sales at the Kmart store at defendant’s mall from 1991 until the present. Kmart filed a motion to quash the subpoena while the plaintiff sought to compel Kmart to produce responsive documents in accordance with the subpoena.

No Sanction If Retention Policy Is Reasonable
The court granted the plaintiff’s motion to compel and instructed Kmart to produce the documents. Kmart produced documents pertaining to food and beverage sales for years 2006 through 2013. Because of Kmart’s nine year document retention policy, no responsive documents existed for years prior to 2006.

Kmart also indicated that it could not estimate pre-tax income for goods sold for the years 2010 forward because of changes in sales reporting. Kmart stated that its information technology (IT) department determined that changes in technology over time precluded Kmart from recreating responsive electronically stored information (ESI) with any degree of integrity. The plaintiff asked the Superior Court to hold Kmart in contempt and impose to sanctions for failure to comply with the subpoena.

The court noted that Kmart identified reasonable explanations for the scope of its production. The court also observed that more than nine years had passed since 2005 and Kmart was justified in no longer retaining the records. Because the court determined that Kmart diligently attempted to comply with the court’s order, it denied plaintiff’s request for an order of contempt.      

Defensible Retention Policy Is Key
Here, “the court recognized that the duty to preserve evidence does not extend indefinitely,” says Jeffrey G. Close, Chicago, cochair of Pretrial Practice & Discovery Committee of the ABA Section of Litigation. “Additionally, the case demonstrates that Kmart was privileged to lose or destroy its own data, or allow the technology to access it to lag, unless or until it was put on notice—presumably by the subpoena—of the duty to preserve. If the nonparty has reason to believe it will be named as a party, the duty to preserve would arise as it would for any potential party to litigation,” cautions Close.

“Parties must maintain a defensible records retention policy,” advises James A. King, Columbus, Ohio, cochair Trial Evidence Committee of the ABA Section of Litigation. “Even the most brilliantly written policy is not enough standing alone. If employees do not follow the terms of the policy, and the organization fails to police their deviations from the policy, the inconsistency likely to arise can cast a suspicious light on the organization’s erratic retention of evidence and can trigger sanctions,” adds King.

No Substitute for Attorney Diligence
“Before filing a motion for sanctions, ask the court to intervene by requesting an informal status conference,” advises King. King cautions that the “defense must provide a thorough explanation why they do not have the documents and cannot rely on the client that the material does not exist. Attorneys must do their own due diligence.”      

Keywords: Federal Rule of Civil Procedure 37.1, Federal Rule of Civil Procedure 37.2, sanctions, motion to compel, electronic stored information (ESI), retention policies, contempt, nonparty subpoena

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