“[A] a party is not required to preserve all its documents but rather only documents that the party knew or should have known were, or could be, relevant to the parties’ dispute.”
Blue Sky Travel & Tours, LLC v. Al Tayyar, —Fed. Appx.—, 2014 WL 1451636 (4th Cir. Mar. 31, 2015)
In this case, a magistrate judge imposed severe sanctions for Defendants’ failure to preserve “all documents” once litigation began. Specifically, the magistrate judge held that “once litigation began, [Defendants] had a duty to stop its document retention policies ‘and to preserve all documents because you don’t know what may or may not be relevant.’ (Emphasis added.)” The sanction was upheld by the district court and resulted in a $10 million award for lost profits damages. On appeal, however, the Fourth Circuit found that the “standard applied by the magistrate judge constituted an abuse of discretion, because a party is not required to preserve all its documents but rather only documents that the party knew or should have known were, or could be, relevant to the parties’ dispute.” Accordingly, the circuit court vacated the lower court’s profit-based damages award and remanded the case for a determination regarding: 1) when Defendants should have known that the at-issue evidence (original invoices) could be relevant; 2) when the at-issue evidence was destroyed; and 3) whether a new trial on lost profits damages was necessary.