For Failure to Preserve, Court Orders Production of Privileged Documents and Work-Product

United States ex rel. Baker v. Cmty. Health Sys., Inc., No. 05-279 WJ/ACT, 2012 WL 5387069 (D.N.M. Oct. 3, 2012) overruling objections to United States ex rel. Baker v. Cmty. Health Sys., Inc., No. 05-279 WJ/ACT (D.N.M. Aug. 31, 2012)

In this case, the Magistrate Judge determined that sanctions were warranted for the Government’s untimely and inadequate litigation holds, which resulted in prejudice to Defendants.  As a sanction, the Magistrate Judge recommended that that the Government be ordered to produce documents that it had withheld as privileged and/or work product, that Defendants were entitled to recover reasonable attorneys fees and costs, and that the Government must show cause why additional searching should not be required.  The District Court overruled objections to the order.

Summarizing broadly, this is a qui tam case alleging violations of the False Claims Act.  The Relator in this case initially filed the action in April of 2005 and the Government filed its Notice of Intervention in February 2009.  At that time, the Government also issued its first litigation hold.  Two more holds were subsequently issued, one in March and one in June.  In their motion for sanctions, Defendants alleged that the Government’s litigation holds were untimely and inadequate and resulted in prejudice to the defendants. 

Upon examination of the facts and arguments, the court found that the litigation holds issued by the Government were untimely.  Specifically, the court found that the duty to preserve arose upon Defendants’ rejection of the Government’s offer to settle the case in September 2008 but that the Government failed to issue a litigation hold until February 2009, when it filed its Notice of Intervention.  In so finding, the court noted certain “evidence that the Government was aware of the importance and necessity of preserving relevant documents,” including that it had requested that Defendants and others preserve their relevant documents.

A second question was the adequacy of the Government’s litigation holds.  The court found that the litigation holds were inadequate and characterized the Government’s attitude toward preservation as “lackadaisical.”  In particular, the court took issue with the Government’s failure to preserve information from two key employees, including “the most informed person about the donations and taxes that are the main elements of this case.”  His information was lost as the result of the Government’s failure to preserve it following his retirement, which occurred after the date on which the court found the duty to preserve was triggered.  Similarly, the Government also failed to preserve the ESI of the second key employee following his retirement.  In that case, the information was initially preserved but then went “missing.” 

The court was also critical of counsel, noting, for example, her lack of awareness regarding who was responsible for preservation of certain information, her failure to specifically identify custodians subject to the litigation hold, and her reliance instead on her contacts in certain government offices to ensure that proper parties were instructed regarding preservation.  The court further criticized the Government’s failure to submit evidence regarding who was specifically notified of the litigation hold and what directives, if any, were given to key players and concluded that “[a]pparently, the Government and the DOJ believed that the litigation hold information would ‘trickle down’ to the appropriate personnel and that ESI and other relevant documentation would be preserved.”

Turning to the question of appropriate spoliation sanctions, the court identified culpability and prejudice as the two “most important factors” in determining an appropriate sanction.  Once again summarizing liberally: the Magistrate Judge found that “the Government’s misconduct may not rise to the level of bad faith or willful misconduct, but that its pre-litigation attempts to preserve ESI and other documents were ‘woefully inadequate and go beyond mere negligence.’”  Regarding prejudice, the Magistrate Judge rejected the Government’s repeated assertions that the lost information was not relevant and found that prejudice was established because the lost or destroyed ESI went to critical issues for which the evidence at hand was conflicting.

Notably, some emails from the key employees at issue and other important documents were being withheld by the Government under claims of attorney-client or deliberative process privilege and work-product immunity (“the privileges”).  Indeed, the defendants had “pieced together their theory, in part, by viewing entries on the Government’s privilege log.”  Thus, Defendants sought production of those documents to remediate the spoliation, in addition to more drastic sanctions (e.g. an adverse inference and/or dismissal of claims).

Regarding the Government’s position that the employees’ documents were not relevant, the court noted that the Government nonetheless claimed various privileges over documents created by or about them.  Thus, the court concluded that the Government was “attempting to use [the privileges] as both a sword and a shield”—an impermissible position:  “‘A litigant cannot use the work product doctrine as both a sword and a shield by selectively using the privileged documents to prove a point but then invoking the privilege to prevent an opponent from challenging the assertion.’”  Accordingly, the court found that the claims were overridden by the fairness doctrine and by the spoliation that had occurred.  The court went on to reason that “Defendants cannot obtain this information from any other sources and they have shown substantial need for this information.”

Summarizing its own findings, the court reasoned that “[t]he failure to issue a timely hold, the failure to identify key witnesses, the failure to take measures to suspend routine deletion of ESI, the failure to put in place an adequate litigation hold, the failure to ensure that proper procedures were being followed, and the failure to monitor the litigation hold all indicate that it is more probable than not that relevant evidence was destroyed.”  The court was also “troubled” by the Government’s arguments that the two at-issue employees were not “key players” and their subsequent concession that the men were not key players “for the Government.”  In short, the court found that sanctions were warranted.

As a sanction, the court ordered the production of certain documents withheld under claims of privilege or work-product immunity, including all emails from or to the at-issue key employees; that Defendants were entitled to recover their attorneys fees and costs; and that Defendants must show cause why additional searching of certain shared drives should not be required.

The Government’s objections to the Magistrate Judge’s order were overruled by the District Court.

A full copy of the opinions of both the Magistrate Judge and the District Court are available (by clicking the links provided).

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