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Idaho Court Warns Plaintiff That Their Litigation Hold Policies Are “Clearly Unacceptable”

Scentsy, Inc. v. B.R. Chase, L.L.C., et al, 2012 U.S. Dist. LEXIS 143633 (D. Idaho Oct. 2, 2012).

Our e-discovery department has often expressed concern regarding the importance of when and how to preserve potentially relevant evidence by implementing effective litigation holds.  Here is why – on October 2, 2012, a United States District Court for the District of Idaho warned a Plaintiff that “spoliation is a serious matter, and [its] document retention and litigation hold policies are clearly unacceptable.”[1]

The action, Scentsy, Inc. v. B.R. Chase, L.L.C., et al, 2012 U.S. Dist. LEXIS 143633 *24 (D. Idaho Oct. 2, 2012), involves alleged trade dress infringement, copyright infringement, and related claims.  The allegations relate to a product designed by the Plaintiff sometime between 2006 and 2009. A discovery dispute arose after a co-defendant, Harmony Brands, LLC, made a request for all the documents related to the creation, design and development of the product, but the Plaintiff could not comply with the request mainly for two reasons: (1) its document retention policy and litigation hold did not successfully preserve the documents; and (2) the computer that the documents were on was destroyed prior to the issuance of the litigation hold.[2]  After the Plaintiff realized that the computer containing the files was destroyed, it sent the hard drive to a forensic computer specialist in an attempt to recover the lost material, but was unsuccessful.[3]

In analyzing the Defendant’s spoliation claim, the Court noted that the legal standards governing sanctions for spoliation “typically depend[s] on the timing of the spoliation.” That is, “if the spoliation occurs before the litigation is filed, the sanctions are generally governed by the inherent power of the Court to make evidentiary rulings in response to the destruction of relevant evidence. If the spoliation occurs after the case is filed, Rule 37(b)(2) typically governs the sanctions.”[4]  The Court then looked at the Plaintiff’s document retention policy and the timing of when they implemented its litigation hold.

In regard to the timing of Plaintiff’s document retention retention policy:

… the lawsuit was filed in May 2011. [Plaintiff’s General Counsel] issued his oral litigation hold “roughly concurrent with the filing of the Complaint.”  Scentsy’s document retention policy routinely deletes emails, but not other documents, that are over six months old. [5]

In regard to the timing of Plaintiff’s litigation hold:

Here, Scentsy, the plaintiff, did not issue a written litigation hold to anyone at Scentsy. Instead, its [General Counsel] “spoke to the individuals that would have information regarding [the Defendant] or the subject [product], and asked – requested that those documents not be deleted ….”[6]

The Court had “serious concerns” with both the Plaintiff’s retention policy and its litigation hold process. More specifically, “[g]enerally not deleting documents, and orally requesting certain employees to preserve relevant documents concurrently with filing a lawsuit, is completely inadequate. It is very risky – to such an extent that it borders on recklessness.” [7]    Nevertheless, the Court held that it was “unlikely that relevant documents were destroyed” due to the timing of the spoliation, but was more likely because the computer was destroyed.[8]   As such, using its “inherent power” the Court held that the only immediate sanction available for the Plaintiff would be paying for deposition costs relating to the spoliation motion. The Court, however, added that “if information is uncovered that spoliation occurred, the Court will consider giving an adverse inference instruction at trial or dismissing some or all of Scentsy’s claims.”

If you or your company has any questions or concerns regarding litigation holds, spoliation, or any other e-discovery related questions, please e-mail Cynthia A. Augello at caugello@cullenanddykman.com or call her at (516) 357-3753.

A special thanks to Sean R. Gajewski, a law clerk at Cullen and Dykman LLP, for help with this post.

  1. [1] Scentsy, Inc. v. B.R. Chase, L.L.C., et al, 2012 U.S. Dist. LEXIS 143633 *24 (D. Idaho Oct. 2, 2012).
  2. [2] Id. at *14
  3. [3] Id.
  4. [4] Id. at *12-13 (internal citations omitted).
  5. [5] Id. at *13.
  6. [6] Id. at *13.
  7. [7] Id. at *16.
  8. [8] Id. at *9