This blog post was co-authored by Margaret M. (Peggy) Koesel and Tracey L. Turnbull.

A company may discard data, documents or records in the ordinary course of its business. But routine destruction of information that may be relevant to a government investigation or a lawsuit must be suspended and information must be saved as soon as possible after a party has notice that it must preserve evidence. A recent case from the district court for the Southern District of Ohio looks at the events that triggered a bank’s duty to save particular data considered relevant by its opponent and the consequences of its failure to stop the routine purging of that data on a timely basis.

In E.E.O.C. v. JP Morgan Chase, No. 2:09-cv-00864, the Equal Employment Opportunity Commission claimed that a bank treated a class of female mortgage consultants differently than their male counterparts by, among other things, directing more lucrative calls in the call queue to male employees based on the skills it assigned to each individual mortgage consultant. In an effort to establish this theory, the Commission asked the bank to produce “skill login data” for a five-year time period, claiming that a statistical analysis of that data would show discrimination.

After a disagreement over the scope of the data to be produced, the court ordered the bank to produce data from July 2006 to December 2009. But the bank had failed to preserve some of that data, allowing it to be purged as part of its routine destruction of any data of that kind that was over three years old. The bank’s destruction of ten months of the data led the Commission to request sanctions.

The court first focused on the pre-lawsuit events that triggered the bank’s duty to preserve the data because sanctioning the bank for destroying the data before it had notice it was required to save it would not be appropriate. The court pointed to a number of pre-lawsuit notices from the Commission that the bank should have known triggered its duty to suspend the bank’s automatic purging process, long before the Commission filed a class action lawsuit. These events included a notice from the Commission that it was investigating class allegations, a request for information from the Commission concerning allegedly unfair call distribution, and a class-wide cause determination, all of which the bank received before it started its automatic purge of the relevant data. The district court also found it “curious” the bank recognized that it should save the email of the female mortgage consultants while the charge of discrimination was pending, yet it took no steps to safeguard the login data at the same time. That failure ultimately allowed data from July 2006 to September 2007 to be automatically destroyed.

As a result of the Commission’s notices and the bank’s own recognition of the need to save select email, the court found the bank’s “failure to establish a litigation hold. . . inexcusable.” The court found that the bank had “multiple notices” from the Commission that should have triggered it to issue a litigation or legal hold suspending its automatic records destruction program. It, therefore, concluded that the bank was not protected by the “safe harbor” exception for failing to produce electronically stored information lost as a result of a good faith routine deletion program. The court also found fault with the bank’s “dubious failure if not outright refusal to recognize or accept” that the scope of its preservation obligation included safeguarding data that would be helpful and relevant to the Commission’s theory of the case.

Before determining the appropriate sanction, the district court addressed the parties’ detailed arguments on the bases for a sanctions award under Rule 37 of the Federal Rules of Civil Procedure and/or the court’s inherent power. Ultimately, the court concluded that it would use its inherent power to sanction the bank’s conduct since it disrupted the judicial process, explaining the importance of “the need to preserve the integrity of the judicial process in order to retain confidence that the process works to uncover the truth.” As the court explained, the bank’s “destruction of evidence under the auspices of routine purging has hampered the case if not the ability to uncover exactly what if anything impermissible has transpired here.”

The court emphasized the importance of proportionality and truth seeking in determining the appropriate sanctions, explaining that devising a spoliation sanction that serves both fairness and punitive functions can be “a tricky balancing act.” Considering this delicate balance, the court found the bank’s conduct was “at least negligence and reaches for willful blindness bordering on intentionality,” which warranted more than a “slap on a wrist.”

Sanctions must also be proportionate to the harm. Since the destroyed data hampered the Commission’s ability to prove its case, but did not destroy it, entering summary judgment or a default judgment in favor of the Commission was too harsh. Yet, merely allowing a permissive adverse inference was insufficiently punitive given the possibility that one of the bank’s dispositive motions could prevent the Commission from reaching a jury. The district court also considered and rejected imposing attorneys’ fees and costs because that did not focus on restoring the “search for truth.”

Instead, the court’s sanction combined denial of the bank’s summary judgment motion, which relied in part upon the spoliated data, with imposition of a permissive adverse inference. The court applied a three part test for imposing an adverse inference and concluded that: 1) the bank had control over the data and had an obligation to preserve it at the time it was destroyed; 2) the data was spoliated with a “culpable state of mind” and 3) the destroyed data was relevant to the parties’ claims and defenses.

The court acknowledged the potential impact of the bank’s spoliation on the Commission’s pending motion for partial summary judgment. It concluded the sanction it imposed would allow the case to be decided on its merits, noting that giving a permissive adverse inference would address the effects of the spoliation and allow the jury to determine the outcome.

Key takeaways:

If a company has reason to know of a particular potential lawsuit because it receives a charge of discrimination, a request for information, or a similar notice of a particular claim, it must promptly take steps to make sure it preserves, potentially relevant documents and other evidence. That means, it must issue a legal hold notifying key employees to safeguard relevant records and immediately suspend automatic purging of relevant electronic information, even if a lawsuit has yet to be filed.

A company should err on the side of caution when deciding what to safeguard since “relevance” is very broad under the state and federal rules of civil procedure. Always consider a potential opponent’s theory of the case when preparing a legal hold notice and deciding what should be preserved. A company is obliged to preserve not only what it may need to defend itself, but also data and documents that may be helpful and relevant to the case of the company’s opponent.

Also remember, courts considering sanctions take a broad view of an alleged spoliator’s state of mind and may impose sanctions for knowing or negligent destruction of data, even if the alleged spoliator did not intend to breach its duty to preserve evidence.

Peg Koesel
Tracey Turnbull