The Duty To Preserve: Help Me Hold On

Introduction

When litigation or government inquiry is reasonably anticipated, threatened, or pending, there is a duty to timely identify, locate, and preserve data.1 This duty to preserve applies to all litigants or parties to investigation, ranging from individuals,2 to large healthcare systems,3 to the government.4 How can you help your clients hold on to their data and documents? A recent decision by the U.S. District Court for the District of New Mexico, United States v. Community Health Systems, Inc. outlines how to properly implement a "litigation hold."

Duty to Preserve

The duty to preserve arises from the common law duty to avoid spoliation of relevant evidence for use at trial.5 The duty requires reasonable and good-faith actions to preserve potentially relevant information related to the threatened litigation.6 Potentially relevant information includes documents that the party knows, or reasonably should know, are relevant in the action, are reasonably calculated to lead to the discovery of admissible evidence, are reasonably likely to be requested during discovery, or are subject to a pending discovery request.7 To decide what should be preserved, counsel must be able to identify all potential custodians of relevant data. Counsel must also identify potential sources of data, and means by which that data could be destroyed. A party must then "suspend its routine document retention/destruction policy and put in place a 'litigation hold' to ensure the preservation of relevant documents."8

Background: United States v. Community Health Systems, Inc. et al.

In Community Health Systems, the government intervened in a qui tam case alleging Medicaid fraud based on violations of the False Claims Act.9 The government began investigating the case in 2005. It issued a "preservation notice," or notice to issue a litigation hold to preserve evidence, to the defendants in December 2005. The government did not intervene, however, until February 2009. It initiated its own litigation hold on the day it intervened.

The defendants had asserted the "government knowledge inference" as a defense. This defense arises when the government knows and approves of the facts underlying an allegedly false claim prior to presentment, because no violation exists where the government has not been deceived.10 Two employees of the Centers for Medicare & Medicaid Services (CMS) were believed to have custody of documents that could demonstrate the government's knowledge. The first, James Frizzera, was a division director for CMS from 2006 to December 2008, when he retired. The second, Robert Cowan, was the CMS New Mexico financial analyst from 2007 until his retirement in September 2010.

When the government's litigation hold went into effect, Frizzera had already retired. Following an employee's departure, CMS' policy was to automatically delete computer files and emails. That auto deletion could have been avoided or halted. However, the attorney implementing the litigation hold did not take any steps to preserve Frizzera's computer files or emails.

Cowan, on the other hand, was still employed at CMS when the litigation hold went into effect. His documents were initially preserved, but when he retired there was no effort to continue to preserve them until several months later. His documents were then found to be missing.

Untimely and Inadequate Litigation Holds

In Community Health Systems, defendants filed a motion for sanctions against the government, claiming that the government's litigation hold was: (1) untimely; and (2) inadequate, which caused the destruction of relevant...