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.
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