The U.S. District Court for the District of New Mexico recently upheld a Magistrate Judge’s recommendation for sanctions against the government for failing to preserve electronically stored information (ESI) in a False Claims Act case, ordering the government to produce certain privileged materials and to pay costs associated with the motion for sanctions.
In United States ex rel. Baker v. Community Health Sys., Inc, No. 05-279-WJ-ACT (D.N.M. Oct. 3, 2012), the government issued a notice to preserve documents to the defendants in 2005 when it began investigating Medicaid fraud claims by relator Robert C. Baker. However, the government did not issue its own litigation hold order until February 2009 when it filed its notice to intervene. The court found that, by this time, relevant evidence had been destroyed. Further, even after the government issued its legal hold order, the court determined that the government’s “lackadaisical attitude” toward implementing steps to preserve relevant ESI resulted in further spoliation.
The government argued that its duty to preserve did not arise until it received permission from the Department of Justice to intervene. The court rejected this, however, finding that the government should have reasonably anticipated litigation at least six months before the government intervened, when the defendants rejected the government’s settlement offer. Citing “overwhelming evidence,” the court concluded that the defendants were prejudiced by the lost documents because they were “critical to one of the Defendants’ theories of defense” – namely, government knowledge.
Although the court declined to impose the more severe sanctions defendants requested, such as an adverse inference instruction to the jury, the court nonetheless imposed significant sanctions on the government. The court required the government (1) to produce certain documents withheld under a claim of work product, attorney client privilege or the deliberative process privilege; (2) to pay reasonable attorneys fees and costs associated with the defendants’ motion for sanctions, and (3) to show cause why it should not be required to conduct an additional forensic search for the missing ESI. In ordering the government to produce privileged documents, the court reasoned that the government’s destruction of documents had deprived the defendants of non-privileged documents needed to test the government’s allegations. The court also noted that the government – by trying to withhold documents related to the very same individuals whose email messages had been destroyed – was “attempting to use the work product doctrine, the deliberative process privilege and the attorney client privilege as both a sword and a shield.”
Baker instructs that the government’s duty to preserve evidence may arise long before it receives approval to intervene in a case. Extrapolating beyond the specific context of government intervention, the court’s decision generally suggests that an opposing party’s refusal to settle a dispute may trigger a duty to preserve documents potentially relevant to that dispute. Baker also warns that spoliation can result in privilege waiver – including the attorney client privilege – where privileged documents bear on the same important issue as the documents that were lost or destroyed. Finally, the court’s decision provides a valuable reminder that merely issuing a litigation hold is not in and of itself sufficient to satisfy the duty to preserve – parties also must take diligent steps to implement and monitor compliance with preservation obligations.