How the Failure to Preserve Led to Production of the Legal Hold Notice

In EEOC v. Formel D USA, Inc. (September 12, 2024), the U.S. District Court’s ruling underscored a critical lesson for litigators: failure to preserve electronically stored information (ESI) can lead to severe sanctions, including the unprecedented production of a litigation hold notice. This case emphasizes the consequences of failing to implement proper preservation policies and sheds light on key topics in eDiscovery, including the discoverability of legal hold notices, self-collection of documents, and the obligations to preserve mobile device data.

Case Background

The Equal Employment Opportunity Commission (EEOC) filed motions to compel production and for sanctions related to spoliation, accusing Formel D USA, Inc. of failing to preserve crucial data, including emails, text messages, and data from laptops and cell phones belonging to key custodians. The plaintiff, a former employee, had notified Formel D of inappropriate conduct by her supervisors, triggering the company’s duty to preserve relevant ESI as early as August 28, 2018.

While data from the custodians’ laptops had been backed up on company servers, the text messages and emails were lost due to Formel D’s lack of any preservation policies for laptops or mobile devices. The EEOC sought sanctions, including the production of the legal hold letters sent to custodians, a forensic examination, and a deposition, bothat the defendant’s expense.

Court’s Analysis and Sanctions

In its analysis under Rule 37(e) of the Federal Rules of Civil Procedure, the Court focused on two distinct issues: the lost text messages and the deletion of email accounts. The Court found that Formel D failed to take reasonable steps to preserve text messages and cellular telephone data, despite being on notice of the duty to preserve. The Court concluded that the defendant’s lack of a policy did not absolve it from its duty to preserve ESI.

In an unusual move, the Court ordered Formel D to produce the actual legal hold notices sent to its custodians. Magistrate Judge Curtis Ivy Jr. determined that the legal hold notices, which provided forceful instructions to employees, were not protected by attorney-client privilege, as they primarily conveyed directives rather than legal advice. Furthermore, the Court found that spoliation had occurred, which justified the production of the hold notices, including the date they were sent and the names of all recipients.

The Court declined to order a forensic examination or deposition, finding that such measures would exceed what was necessary to cure the prejudice caused by the lost text messages. However, it allowed the EEOC to inquire into the custodians’ actions after receiving the legal hold notice, providing a path for further investigation.

Self-Collection and Counsel’s Obligations

The Court also addressed the issue of self-collection by custodians. Citing the EEOC v. M1 5100 Corp. case, the Court reiterated that counsel must either supervise the collection of documents in person or thoroughly test the accuracy of the client’s response to document requests. In this case, defense counsel’s collection efforts were found insufficient, as they failed to test the accuracy of the searches. The Court warned that unsupervised self-collection poses significant risks, particularly when key ESI from mobile devices and other non-email communications is involved.

International Considerations: GDPR and ESI

Finally, the Court addressed the issue of producing documents from Formel D’s servers located in Germany, where the General Data Protection Regulation (GDPR) applies. While Formel D argued that complying with GDPR would require a costly vendor, the Court was unconvinced that such measures were necessary and found that the request for additional search terms and custodians was both relevant and proportional to the needs of the case.

Key Takeaways for Litigators

1. Legal Hold Notices May Be Discoverable: This case marks one of the first instances where a court ordered the production of a litigation hold notice due to spoliation. The Court’s decision to classify the hold notice as providing “forceful directions” rather than legal advice challenges traditional views of the attorney-client privilege and what constitutes legal advice. Litigators should ensure their preservation practices are sound to avoid the risk of having to produce these sensitive documents.
2. Mobile Device Preservation Is Critical: Failing to preserve text messages and other data from mobile devices is a recurring issue in eDiscovery. Courts are increasingly unwilling to accept that the absence of preservation policies absolves parties from their duties under Rule 37. Litigators should ensure that preservation protocols extend to all relevant ESI, including mobile devices and collaboration tools.
3. Self-Collection Is Not Enough: Reliance on custodians to self-collect ESI without proper oversight is a dangerous practice. Counsel must supervise collections or test the accuracy of searches to ensure compliance with discovery obligations. Remote self-collection tools are available at a fraction of the cost of defending against sanctions motions.
4. International Data and GDPR: When dealing with ESI stored in the European Union, courts may not accept blanket assertions that GDPR compliance requires costly procedures. Litigators should be prepared to explain the necessity and proportionality of such measures and anticipate challenges when seeking or opposing international discovery.

Conclusion

EEOC v. Formel D USA, Inc. provides critical lessons on the importance of proactive preservation practices and the evolving standards for discoverability in eDiscovery. Litigators must be vigilant in preserving all forms of ESI to avoid severe sanctions and potentially losing privileged materials like legal hold notices.

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