Conundrum of Preserving Backup Tapes and Inaccessible Sources of Information

Forest Laboratories, Inc. v. Caraco Pharmaceutical Laboratories, Ltd., 2009 WL 998 402 (E.D. Mich. April 14, 2009)

By now, any attorney worth his or her salt knows that the federal rules have set up a two-tier system for the discovery of electronically stored information (“ESI”). Under Rule 26(b)(2)(B), a party need not produce ESI from sources that it “identifies as not reasonably accessible because of undue burden or cost.” The federal rules themselves do not provide any guidance as to what “sources” of ESI should be considered “inaccessible.” Indeed, the Advisory Committee Notes explain: “it is not possible to define in a rule the different types of technological features that may affect the burdens and costs of accessing electronically stored information.”

One of the conundrums created by the federal ediscovery rules is whether there is any duty to preserve ESI from a source that a party has designated as “inaccessible.” The Advisory Committee Notes to Rule 26(b)(2) explain that the identification of a source as inaccessible “does not relieve the party of its common law or statutory duties to preserve evidence.” The Advisory Committee Notes furnish no guidance for counsel in this scenario. The Notes to Rule 26(b)(2) state that whether a party is required to preserve ESI from an inaccessible source “depends on the circumstances of each case.” The Note then observes, “[i]t is often useful for the parties if you discuss this issue early in discovery.”

In Forest Labs, the defendants filed a spoliation motion claiming the plaintiff failed to preserve backup tapes concerning the drug it manufactured which was the focus of the litigation. The district court concluded that the backup tapes in question were inaccessible because they were used solely for disaster recovery purposes. Nonetheless, the court ordered that a hearing be held on the defendant’s spoliation motion. The court also noted that if ESI is destroyed intentionally or willfully, “that fact alone is sufficient to demonstrate [the] relevance” of the lost evidence, and would be sufficient to warrant the entry of sanctions. However, as our last post indicated, the Fifth Amendment’s Due Process Clause can limit the type of sanctions which may be imposed for the loss of ESI, and requires a nexus be demonstrated between the information destroyed, and the plaintiff’s claim or the defendant’s defense.

Federal Law Governs Spoliation Sanctions

Forest Labs initially noted that the Sixth Circuit in Adkins v. Wolever, 554 F.3d 650, 652 (6th Cir. 2009)(en banc), recently held that federal law governs the imposition of sanctions for spoliation in all federal cases. The Sixth Circuit in Adkins observed that previously the Second, Fourth, and Ninth Circuits had reached the same conclusion. Those courts recognized that the authority to impose sanctions for spoliation stems from a court’s inherent power to control the judicial process, and “is evidentiary in nature.” Adkins also explained that “federal courts generally apply their own evidentiary rules in both federal question and diversity matters.”

No Sanctions For Destroying Evidence Before A Duty To Preserve Is Triggered

The district court in Forest Labs also recognized that a party seeking sanctions must first show that the opposing party had a duty to preserve the allegedly spoliated ESI at the time it was destroyed. As the district court aptly noted: “any destruction of potentially relevant evidence that occurs before the trigger date would be harmless, since the party was unaware of the need to safeguard evidence.”

Party Seeking Sanctions Must Provide Support For Its Position That A Duty To Preserve Was Triggered

In Forest Labs, the defendants asserted that the plaintiffs “should have known by the late 1990’s, when [they] first began developing [the drug], that litigation over the patent was inevitable.” The court rejected that argument noting that the defendants had proffered no evidence that could support such a finding. The district court explained that the defendants provided no proof that anyone “under plaintiffs’ control had reason to anticipate, or actually did anticipate litigation in the 1990’s.” The court rejected the argument that a duty to preserve is triggered simply when future litigation was merely possible. The court explained that such an approach would be crippling for large corporations.

However, in 2003 plaintiffs brought suit against another company alleging infringement of the same patent as the one at issue in this case. As a result, the court concluded that a duty to preserve was triggered in August 2003 by virtue of that prior litigation. Because plaintiffs acknowledged that they did not halt the recycling of their backup tapes until almost two years later in May, 2005, the court in Forest Labs then analyzed whether the backup tapes in question were inaccessible, and/or needed to be preserved.

Preservation of Inaccessible Sources of Information

In addressing whether there was any duty to preserve backup tapes in this instance, the court in Forest Labs turned to Zubulake where the court explained:

As a general rule, [a] litigation hold does not apply to inaccessible backup tapes (e.g., those typically maintained solely for the purpose of disaster recovery), which may continue to be recycled on the schedule set forth in it’s policy. On the other hand, if the backup tapes are accessible (i.e., actively used for information retrieval), then such tapes would be likely subject to the litigation hold.

Zubulake v. UBS Warburg, LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003). As a result, the court in Forest Labs concluded that if the backup tapes that had been destroyed were “inaccessible,” there could be no sanctions for spoliation. The court then concluded that the backup tapes were inaccessible because they were solely used by the plaintiff for disaster recovery.

However, the district court also noted Zubulake further held that if a party can identify where a particular employee’s documents are stored on backup tapes, then those tapes should be preserved if the information contained on the tapes is not otherwise available. Zubulake noted that when the exception is applicable, it applies to all backup tapes. Zubulake, 220 F.R.D. at 218.

Accordingly, the court ordered that a hearing be held to determine whether or not the Zubulake exception was applicable. The court in Forest Labs observed that the Zubulake exception has three requirements. First, a party must be able to identify where particular documents are stored on backup tapes. Second, it must be shown that documents of those key players are actually stored on the tapes. Finally, the information stored on the tapes must not be “otherwise available.” The court ordered that the hearing was to focus on the application of Zubulake’s exception for the backup tapes in question.

Culpability and Relevance

Forest Labs noted that the failure to produce information can fall “along a continuum of fault ranging from innocence through the degrees of negligence to intentionality.” It observed that Turner v. Hudson Transit Lines, Inc., 142 F.R.D. 68, 75 (S.D.N.Y. 1991), recognized that the sanction of an adverse inference should be available even for the negligent spoliation of ESI. The court in Turner explained: “it makes no difference to the party victimized by the destruction of evidence whether the act was done willfully or negligently. The adverse inference provides the necessary mechanism for restoring the evidentiary balance.”

However, Forest Labs also recognized that the party seeking sanctions must produce some evidence suggesting that the documents destroyed were relevant to their claim. The court noted that relevance in this context means something more than “sufficiently probative to satisfy Rule 401.” Rather, the relevancy test to obtain sanctions for spoliation requires that a party demonstrate the lost evidence “would naturally have been introduced into evidence.”

However, Forest Labs also recognized that prior decisions had concluded that “when evidence is destroyed in bad faith (i.e., intentionally or willfully), that fact alone is sufficient to demonstrate relevance. By contrast, when the destruction is negligent, relevance must be proved by the party seeking the sanctions.”

The Federal Rule’s Approach to Inaccessible Sources of Information

While the district court in Forest Labs relied exclusively upon Zubulake in ordering the hearing, it should be noted that the approach taken by the federal rules for determining whether a source is “inaccessible” involves an analysis of the costs, and burdens of retrieving and producing ESI from that source. Thus, a number of factors including the condition of the backup tapes, and whether they are indexed, organized, electronically searchable or have to be restored are factors to consider on the issue. The number of hours it would take to restore, search and produce the information could vary significantly based on these and other factors. Thus, counsel should resist the temptation of simply focusing on a single factor as in Zubulake in determining whether information on backup tapes is inaccessible.

So what are your options when it comes to preserving inaccessible sources of information? You essentially have four. A party can do nothing, and continue to reuse its tapes or backup storage media on its regular rotation cycle. However, as the Forest Labs decision demonstrates, that approach can result in sanctions, even when the backup tapes are considered inaccessible. Additionally, it a party uses its backup tapes for anything other than for disaster recovery, it is unlikely that a court will conclude those backup tapes are inaccessible.

A somewhat less risky approach is to remove selected tapes from their normal rotation cycle which may contain relevant information. However, a party still runs the risk that an argument will be made that relevant information was contained on other tapes that were not preserved, and that a motion for sanctions be brought. We do not recommend either of these approaches, but recognize that some clients are more risk tolerant than others.

What the Advisory Committee Notes encourage is a discussion between the parties, and if possible, an agreement between the parties concerning whether there is any obligation to preserve ESI from an inaccessible source. If such an agreement cannot be reached, the safest course to action is to bring the issue to the court’s attention, and seek a ruling that the preservation of information from an inaccessible source is unnecessary. When such a ruling is sought, be sure to provide the court with a declaration explaining in detail not only why the source of information is inaccessible, but also outlining the cost to the client of having to preserve the information on those tapes indefinitely.

Finally, in our last post, we addressed a recent decision recognizing the Fifth Amendment’s Due Process Clause can in appropriate instances, limit the nature and/or extent of the sanctions imposed for the spoliation of ESI. We suggest that such an instance is presented when a party claims that it does not need to prove the “relevancy” of the lost information because it was allegedly disposed of “intentionally or in bad faith” as noted in Forest Labs. If the lost or missing information has nothing to do with any party’s claim or defense, it would seem that the Fifth Amendment should preclude the issuance of an adverse inference or a default judgment. A party case or defense should not be prejudiced in that way by the loss or destruction of ESI which is not relevant to the case.