In Part I, Kelly Twigger reviewed the decision on the plaintiffs’ motion for sanctions under Rule 37(b) and 37(e) for failure to preserve and violation of the ESI Protocol agreed to by the parties, and discuss how the defendant’s failure to comply with its preservation obligations set out in an ESI protocol can lead to sanctions.
Good morning, and welcome to episode 77 of our Case of the Week series, published in partnership with ACEDS. My name is Kelly Twigger. I am the CEO and founder of eDiscovery Assistant, as well as the Principal at ESI Attorneys. Thanks so much for joining me here today.
As you know, each week on our Case of the Week series, we choose a recent decision in eDiscovery that highlights key issues for litigators and talk about the practical application of that decision and what it means for you, your practice, and for your clients.
If you were with us for last week on our Case of the Week series, you heard part one of my discussion of this decision from In re Keurig Green Mountain Single-Serve Coffee Antitrust Litigation, where we covered the Court’s ruling on the plaintiffs’ motion for sanctions. Today, as part two of that discussion, we’re going to cover the ruling on the defendant’s motion for sanctions against two plaintiffs in the case.
Let’s dive in. Now, we covered a lot of specific information about the Court’s analysis under Rule 37 on a motion for sanctions last week. We also covered in detail a lot of facts, most of which were only pertinent to the plaintiff’s motion for sanctions. We’re going to dive back into this case, talking specifically about the motions for sanctions brought by Keurig against two of the plaintiffs, specifically under Rule 37(e)(1) for failure to preserve information. Both are seeking issue preclusion sanctions.
Now, this is a decision from April 11th of 2022, so very recent, from United States Magistrate Judge Sarah Cave. As we mentioned last week, Judge Cave has 30 decisions in our database and is very thoughtful about her decisions in electronic discovery, and this one is no different. I very much encourage you to read this decision. It’s long, but it details for you essentially a roadmap of what you need to consider in terms of timing on preservation when your client is either considering bringing litigation or it reasonably anticipates litigation. It’s a very factual analysis that needs to be done in each situation, and there are a lot of risks of spoliation with ESI for failure to preserve.
As always, we label our issues for each decision in our eDiscovery Assistant database and the issues for this decision include:
- Competency of Counsel
- Legal Hold
- Exclusion of Evidence
- Adverse Inference
- ESI Protocol
- Failure to Preserve
- Bad Faith
- Costs and Fees
Now, not all of those issues are implicated in the part two discussion that we’re having today, but several of them are.
As we discussed last week, this decision is one of numerous discovery disputes in this case, all of which are included in our eDiscovery Assistant database. The underlying facts of the case are that Keurig manufactures the Keurig coffee machines, as well as the K-Cups used in the machines. The plaintiffs here manufacture and sell disposable cups that are used in Keurig’s coffee makers and compete with Keurig’s K-Cups in the market.
This action is an antitrust class action that is brought by the plaintiffs against Keurig, alleging violations of the Sherman Act, the Clayton Act, and the Lanham Act. That essentially, by modifying Keurig’s 2.0 model of its machine and designing new K-Cups design for that machine, they have effectively done it to eliminate competition from the plaintiffs in this case.
On the portion of the decision that we’re reviewing on part two today, Keurig brings two motions for sanctions, one against plaintiff TreeHouse and one against plaintiff JBR. Under both motions, it’s seeking preclusion of evidence under Rule 37(e)(1) for failure to preserve.
Let’s talk about what the motions are really looking at here. Keurig’s motion directed at TreeHouse argues that TreeHouse failed to preserve ESI starting in the fall of 2013 when it began contemplating a suit against Keurig, and alleges that instead, TreeHouse waited months or years to implement the litigation hold, leading to the spoliation of critical evidence and significant prejudice to Keurig. As a result of that, as I mentioned, Keurig asks for the exclusion of evidence as well as costs and fees.
Keurig also argues, with regard to JBR, that JBR failed to produce documents corroborating an allegation that Costco told JBR that it would not expand its distribution because of the Keurig 2.0 brewing cup change, and asks that the Court exclude evidence related to that issue. Those are the two motions we’re going to look at today.
Keurig’s Motion for Sanctions Against TreeHouse
Let’s start with the motion against TreeHouse. The Court starts, as it always does, on the duty to preserve with a review of the timeline leading up to the launch of the Keurig 2.0 Brewer. As we talked about last week, timing is incredibly key on the decision of when the duty to preserve arose. That’s the first element under Rule 37(e)(1).
Now, so timeline. Keurig announced the release of the Keurig 2.0 Brewer during an investor call in September 2013. As part of that call, Keurig acknowledged that it had not yet determined whether unlicensed K-Cups, such as those made by Plaintiffs, were going to function in the new Keurig 2.0 Brewer. Essentially, as of September 2013, we’ve got the start of information in the market that Keurig is going to put out a new brewer, and it’s saying that all of those plaintiffs who make K-Cups that compete with Keurig and who sell them to various retailers may not have business anymore as a result of the change in design of the K-Cup with the 2.0 Brewer.
Now, as of October 3rd, 2013, a month later, Keurig is still considering what the design of the new K-Cups for the 2.0 Brewer are going to be. October 24th, 2013, the Chairman of the Board of TreeHouse sends a letter to the entire board that included a discussion of the strategic risks inherent in the new brewer from Keurig and talked about that TreeHouse had kicked off “a comprehensive defense agenda” executed by external and in-house counsel working with its single-serve beverage team on October 21st, 2003. That letter also detailed an agenda that that group, referred to as the Steering Group, was going to be led by Bill Ford, who was a consultant for TreeHouse.
Initially, TreeHouse claimed that this letter from the Chairman of the Board was privileged. It later produced the letter, subject to a 502(d) order, and then ultimately withdrew the privilege claim over the letter at all. We’ve got this letter from October 24th that’s going to become an issue on the duty to preserve.
October 29th, 2013, so five days later, Keurig’s CEO says they’re still deciding on how to handle unlicensed pods as a result of the design of the Keurig 2.0 Brewer. A few weeks later, November 15th, 2013, the Steering Group at TreeHouse meets to discuss a “defense approach” in response to a potential threat of non-compatibility with the 2.0 Brewer. The first prong of the agenda for that meeting was “legal action.” Testimony about that meeting later showed that at the time of the meeting, TreeHouse was consulting with outside counsel about legal action against Keurig for the change in design.
Fast forward a month to December 19th, 2013. R. A. Jones, a supplier for TreeHouse, told TreeHouse in an email to Adam Spratlin, an employee at TreeHouse, that R. A. Jones’ non-compete agreement with Keurig precluded it from giving TreeHouse a quote for packaging supplies. Essentially, what we’re finding now is that as of December 19th, 2013, one of TreeHouse’s suppliers is saying that it has a non-compete with Keurig and can no longer provide the supplies needed for TreeHouse to create K-Cups.
Fast forward another month to January 28th, 2014. The email that was sent to Adam Spratlin from R. A. Jones is forwarded to outside counsel that TreeHouse has now engaged to represent it in potential litigation against Keurig. That same day that it receives the email, the lawyers for TreeHouse request additional information from TreeHouse to help it draft TreeHouse’s complaint.
February 4th, 2014, so just a week later, TreeHouse sends its first round of legal hold notices out to employees. That first round of legal hold notices did not include Adam Spratlin, the individual who received the email from R. A. Jones. He did not receive a legal hold until January 25th, 2017, essentially three years later.
Fast forward a week after the first round of legal holds, when the hold notices are sent. On February 11th, 2014, TreeHouse files its complaint against Keurig. Now, as we discussed in last week’s Part I of the case, the Court entered an ESI order agreed upon by the parties on July 1st of 2014. That ESI order delineated the parties’ obligations to preserve information in detail.
Now, that language of the ESI order does not come into play here on these two motions brought by Keurig, because Keurig only brings motions under 37(e)(1) for failure to preserve. It does not bring a motion under 37(b)(2), which is violation of a court order. That was the basis that the plaintiffs moved forward on a motion for sanctions and the basis on which the plaintiffs were successful. So while the ESI order is important, not important for purposes of Defendant’s motions because they did not move under Rule 37(b)(2).
Discovery was stayed pending a motion to dismiss, and the Court denied the motion to dismiss basically three years later on November 29th, 2017, and the parties began conducting discovery in earnest. At that time, during the pendency of the motion to dismiss, TreeHouse sent additional legal hold notices and ultimately produced nearly 2 million documents from 35 custodians and central databases.
Those are the facts for purposes of the TreeHouse motion. Let’s talk about the Court’s analysis on sanctions against TreeHouse based on what Keurig argues. Keurig’s now argued that TreeHouse’s duty to preserve arose as of the date of the October 30th letter discussing legal action. TreeHouse argues instead that its duty to preserve began no earlier than February 5th of 2014, when its board began discussing the possibility of litigation.
The Court took a look at Second Circuit case law on when the duty to preserve arises and recognized that a party’s obligation to preserve relevant documents arises when the litigation is filed or threatened. Based on that, the Court found that the letter from October or any discussions in November were not sufficient to trigger the duty to preserve, and found that Keurig presented no evidence that TreeHouse had intended to sue any earlier than the very end of January or early February 2014, when they engaged counsel who drafted the complaint.
Based on that date of the duty to preserve, the Court found that the legal hold notices sent on February 4th, 2014, complied with TreeHouse’s obligations to inform custodians and to set the duty to preserve in motion.
Essentially, the thing that I think is key here is that the Court’s analysis that some of these earlier actions by TreeHouse did not trigger the duty to preserve is going to vary by jurisdiction. We’ll talk about that in the takeaways, but you’ll want to look at the timing of the duty to preserve and when it arises in your jurisdiction very carefully. That’s a key issue and a key takeaway from this case.
The Court then turns to the reasonableness of TreeHouse’s efforts to preserve evidence, specifically with regard to six custodians that Keurig complaints about. The Court goes through, like it did on the plaintiffs’ motion, a very detailed discussion of each custodian that is at issue on the motion. In this particular set of facts, the Court looks at whether the employees’ emails were automatically archived via TreeHouse’s Enterprise Vault system, the number of documents that were provided for each custodian, when the custodian received a legal hold notice, and whether Keurig chose to depose that custodian.
There were six of them, and the Court goes through that analysis for each one of the six. For Adam Spratlin, the custodian who received the email from R. A. Jones back in 2013 that was ultimately forward to counsel, there’s an additional layer of analysis. That one’s key that we want to discuss because, as we mentioned, Mr Spratlin did not receive a legal hold notice until three years after the complaint was filed and after he had forwarded that email to counsel.
Now, the Court found that based on the fact that that email was a key factor in drafting TreeHouse’s complaint, that in fact, TreeHouse should have sent a notice to Mr Spratlin in 2014, and as a result, was negligent in not doing so. But what the Court then goes on to say is that TreeHouse took steps to mitigate any loss of Mr. Spratlin’s ESI, especially because those emails were captured by the Enterprise Vault system.
For those of you who are not familiar with Enterprise Vault, it’s a software that’s not in the market as much anymore, but at this time is essentially a black box that captures every email that goes in and out of the system it’s connected to, so in this case, TreeHouse’s email system. Every single email in there is archived, so no emails can be deleted from that archive black box, regardless of actions that employees take.
So even though Mr Spratlin was not put on a specific legal hold by receiving a notice, the emails that he had sent or had been sent to him were still preserved in the Enterprise Vault system. There was no loss of ESI. What the Court is saying is that that step taken to preserve information using Enterprise Vault essentially mitigated the fact that Mr Spratlin did not receive a legal hold notice.
Now, for each of the other custodians, the Court also found that TreeHouse’s preservation efforts were reasonable and that Keurig had not shown that there was any spoliation of ESI that would have been favorable to Keurig’s defenses or unfavorable to TreeHouse’s claims.
It seems to me almost that the Court here is looking for some… It’s creating an affirmative obligation on Keurig to be able to demonstrate this prejudice. It’s not articulated in this way, but it seems to go a little bit further than in cases we’ve other seen where there’s analysis of prejudice. But here, essentially, the Court couldn’t find any specific ESI to point to. If there’s no ESI to point to that was lost, there’s no ability to determine whether or not it was prejudicial. It’s the same analysis. It’s just that the wording here is a little bit different than we’ve seen in other cases.
The Court essentially found as a result, because all the efforts were reasonable, that there was no prejudice and denied Keurig’s motion as to TreeHouse. That’s the first motion that we have here.
Keurig’s Motion for Sanctions Against JBR
The second motion is Keurig’s motion as to JBR. Again, Keurig seeks preclusion sanctions as a result of failure to preserve evidence. This one is very specific. There was a meeting on January 31, 2014, between JBR and Costco. JBR distributes K-Cups to Costco in large quantities. If you’re a Costco shopper, the way that I am, you’ve seen the large boxes of K-Cups that exist in the various Costco warehouses.
At this point during the meeting, Costco told JBR that despite JBR having lower prices than all of the other suppliers’ packs, including Costco’s own private labeling, Costco could not widen distribution for JBR or any other competing portion pack supplier until the Keurig 2.0 compatibility issue was resolved. Again, we’re back to the fact that nobody knows at this point how Keurig is going to handle the compatibility of K-Cups that worked with the Keurig 1.0 Brewer on the 2.0 Brewer.
The second thing that happened at that meeting is that JBR was told by Costco that it would have to implement a design change to its Costco packaging to inform customers that JBR’s products were not compatible with the Keurig 2.0 Brewer if, in fact, that became the case. Important meeting both from a duty to preserve perspective, but also from a damages perspective.
Now, at the time, there was no date that was set for commencing the labeling change by Costco because there was still no information yet as to whether there was going to be a K-Cup design change with the Keurig 2.0 Brewer. When Keurig finally accelerated the release date of the 2.0 Brewer to August of 2014, that’s when Costco started requiring relabeling from JBR. We know that as of that 2014, with the issuance of the Keurig 2.0 Brewer, that the design of the K-Cups did change, and that’s why Plaintiffs were locked out of the market for competition.
Those are our facts. The issue before us is whether JBR failed to preserve documents related to that January 31, 2014 meeting. The first question before the Court is whether or not JBR had a duty to preserve as of that January 31, 2014 date. Court looks at all the facts and says that JBR had a duty to preserve as of March 13th, 2014, the day it filed its complaint, six weeks after the Costco meeting. The Court applied the same reasoning in the duty to preserve on the JBR motion as it did on the TreeHouse motion, and didn’t impose anything earlier than the date that JBR had filed its complaint.
The Court issues an interesting quote that goes back to that language that I was telling you about, where you’re going to want to understand what your jurisdiction’s take is on the duty to preserve. Here’s that quote: “While the Rogers email suggests that JBR may have been considering in January 2014 bringing an action against Keurig, Keurig has not shown any evidence that JBR decided it was going to bring an action against Keurig as of the date of the Costco meeting.”
Again, it’s key here that the Court is saying that under Second Circuit law, the party moving for sanctions has to have evidence to show that the other party had made a decision to bring an action. Evaluation of an action, hiring of counsel — neither one of those was considered sufficient to trigger the duty to preserve in the Second Circuit in this case.
With the duty to preserve established as of the date of the filing of the complaint, the Court turns to look at what the reasonableness was of steps that JBR took to preserve information. The Court noted that JBR issued legal hold notices three weeks after the filing of its complaint, so not until April of 2014, and that JBR produced 1.3 million documents, including 23 emails related to the Costco meeting.
The Court found that JBR was negligent in not sending those notices until April 4th because they had filed their complaint on March 13th. They also found that JBR referenced in its motion a number of preservation notices that it claimed to have sent, but they didn’t really explain who had received those notices, what was preserved, or what the substance of the notices were. There was simply not enough information for the Court to determine whether or not they met that duty to preserve prior to the filing of the complaint when their duty to preserve arose.
And so the Court says, “Look, you can’t send the notices three weeks after you file the complaint. If you’re going to file a complaint, you know that you’re on a notice of a duty to preserve. Those notices have to go as of the same time or prior to it.” Court finds that JBR was negligent in failing to issue those litigation hold notices no later than March 13th of 2014. The next question then becomes whether there are alternative sources of information that are available for information about the Costco meeting and whether or not there is any prejudice to Keurig under Rule 37(e)(1).
The big issue here, as the Court looks at, are some potential handwritten notes by a man named Jim Rogers of JBR, who attended the meeting with Costco. Mr. Rogers noted that he may have taken handwritten notes, but could not remember definitively, and stated that if he had taken those handwritten notes, he would have thrown them away. The question is whether or not he took the notes and threw them away prior to the duty to preserve attaching.
Next, because there are no real answers to the question as Mr. Rogers can’t remember whether he took any handwritten notes and they were not produced, the Court looks to additional factors.
Both parties subpoenaed Costco, and Costco produced little less than a thousand documents in response to the subpoenas. But Keurig on its subpoena did not ask for any documents related to the January meeting, and then Keurig deposed Costco’s representative following the subpoena and did not ask any questions about the meeting. Keurig also failed to ask any of JBR’s witnesses about the meeting with Costco.
The Court looked at all of those facts and said that as a result, there was no prejudice in the delay of issuing the legal hold notices till three weeks after the filing of the complaint, and as a result, no sanctions under Rule 37(e)(1).
Really important point there as we hit our takeaway section, clearly this meeting as a focal point became a strategy or a thought process on the sanctions motion that Keurig wanted to follow up on. Unfortunately, it’s something that came up after a lot of the discovery had been done. Witnesses and specific document requests had not been issued to get documents about the meeting, and questions were not asked to be able to support that argument that they wanted to make on the motion for sanctions.
What are our other takeaways here? Well, we talked about this a little bit at the very outset. This decision and this court’s analysis on what constitutes reasonable efforts to preserve data here, it’s a great roadmap for both what steps need to be taken and how to defend against a motion for sanctions for failure to preserve, whether we’re talking about under Rule 37(b) or Rule 37(e).
As I’ve mentioned multiple times on our Case of the Week series, another takeaway is that our timing on the duty to preserve is always key. Here, the Court finds that the filing of the complaint was a trigger. Other jurisdictions, as I mentioned, have found that the duty to preserve would’ve been triggered more by the hiring of counsel or by the board letter that was sent by TreeHouse. So you want to know when the duty to preserve attaches in your jurisdiction very early on and take steps early to preserve that data.
As outside counsel, when your client comes to you with a potential issue, that understanding of duty to preserve is one of the first things you need to take on. You need to understand exactly what your client’s obligations are so that you can take affirmative steps to get legal hold notices out and set that duty to preserve in motion.
Now, does that impact you? Does that create additional obligations for your client if you take those early steps for preservation? The answer is no. It doesn’t mean that you’re creating any earlier duty to preserve under the law or that you’re required to produce ESI from any earlier date because of steps you take. Getting your legal hold notices out, ensuring that you’ve got preservation in place for sources of ESI, doing the investigation to understand the scope of preservation for your client is an insurance policy that you are taking out. It’s an insurance policy that prevents against these kinds of motion for sanctions, which are very, very expensive.
We talked about last week on the Case of the Week that we have this constant balancing act of how much money do we spend early on when we’re sitting on a motion to dismiss, and we don’t yet know whether a case is going to move forward? Well, putting preservation in place, making sure that you have the correct analysis as to who the custodians are, who’s receiving legal holds, tracking that information, monitoring those legal holds and those employees if they leave the organization, as well as the sources of ESI — that’s all an insurance policy that you are essentially taking out to preclude these motions for sanctions.
Here, TreeHouse and JBR had email archive systems in place that meant data was retained without significant effort, and so that was a huge bonus for them from a perspective of mitigating any issues associated with not sending legal hold notices to custodians in a timely manner.
However, the use of Enterprise Vault and the use of archived email systems that capture and maintain every single email that goes into and out of the organization is not a process that is being widely followed anymore. Organizations that have moved now to using Office 365 or other web-based email providers — they are not archiving every single email that is sent to or from the organization unless an actual step is taken to put a legal hold in place. If that had been the case for the custodians with JBR or TreeHouse, then there would have been spoliation of ESI.
Take this decision that we have here in front of us with a grain of salt, understanding that it’s ruling on technology from basically 10-plus years ago. You’ve got to look at your duty to preserve and your obligations based on the technology that you have in front of you with your clients. If your clients are using web-based email, they’re not using those sort of archives that keep every email, then you’ve got to take more active steps to preserve, or you will find yourself on the other side of the Court’s ruling from today.
Okay, that’s our Case of the Week for this week. Thank you so much for joining me. We will be back next week with another decision from our eDiscovery Assistant database. If you are traveling to the ILTA Conference next week, I wish you safe travels. We will be back with Case of the Week despite ILTA going on.
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