Consequence for Failure to Impose a Litigation Hold – Monetary Sanctions and More
By: CYNTHIA A. MOYER
April 2011
The United States District Court for the Eastern District of Texas recently imposed a $250,000 civil contempt sanction on a defendant for its failure to issue a litigation hold, its failure to produce relevant documents in the litigation, and the destruction of documents during the litigation. Green v. Blitz U.S.A., Inc., 2011 WL 806011 (E.D. Tex. March 1, 2011). It also required the defendant to furnish a copy of the court’s order and memorandum to all parties in other cases in which the defendant participated for the past two years and going forward for next five years.
In Green, plaintiff Rene Green brought a products liability lawsuit against Blitz U.S.A., Inc. for a death allegedly caused by Blitz’s failure to include a flame arrester on a gas can it manufactured. One of Blitz’s defenses was that it did not include a flame arrester because flame arresters do not work. The case went to trial, and at the conclusion of the evidence, while the jury was deliberating, the parties settled. After the case was closed, counsel for the plaintiff learned of relevant documents that were not produced by Blitz and filed a motion to re-open the case and for sanctions based on discovery abuses. The court denied the motion to re-open the case (based on statute of limitations grounds), but granted the motion for sanctions.
In the show cause hearing on Blitz’s efforts to gather and preserve relevant documents, it came to light that Blitz placed a single employee in charge of searching for and collecting documents relevant to ongoing litigation (including but not limited to Ms. Green’s case). That employee said he was a “face-to-face” guy, meaning he would go talk to various employees in their offices about the information he was seeking and the types of documents that had been requested. Significantly, however, he did not issue a written litigation hold, he did not do any electronic word searches for emails or other documents, and he did not talk to anyone in the company’s IT department about preserving back-up tapes or searching for electronic documents. The court held that the defendant’s conduct in failing to produce relevant documents constituted a willful violation of its discovery order.
The defendant’s misconduct was not limited to a failure to produce relevant materials, however. Blitz also failed to preserve relevant documents. The evidence revealed that Blitz actually asked its employees to routinely delete electronic documents from 2004 to 2007. According to the court, “during this precise time period, Blitz was actively defending multiple products liability lawsuits relating to its gas cans…” Id. at *8. Nor were back-up tapes preserved.
The court imposed a civil contempt sanction of $250,000, finding it reasonable in light of the “extreme prejudice” suffered by the plaintiff by not having access to important documents. In addition, the court imposed a $500,000, which was stayed for thirty days, during which time Blitz was required to furnish a copy of the court’s order and memorandum opinion to every plaintiff in every lawsuit it had proceeding against it for the past two years. Upon certification by Blitz to the court that the notice and opinion had been so furnished, the $500,000 sanction would be stayed. Lastly, the court imposed a sanction to encourage future compliance: For the next five years, Blitz is required to file a copy of the court’s order and memorandum with its first pleading in every lawsuit in which it participates in any capacity.