A Penny Saved is a Penny Earned:
Navigating Your Company through
Spoliation Claims and Strategies
to Maximize Recovering
Chris Hanslik, Craig Dillard & Matt Veech
ACC Houston Chapter May 2013
Five Big Issues in Spoliation Battles
When did duty to preserve arise?
Did the accused party breach the duty?
Did the accused party act with a ―culpable mental
Did the spoliation prejudice the other party?
What level of sanction is warranted?
When Does Duty to Preserve Arise?
― When litigation reasonably anticipated?
― When you receive a demand letter or preservation letter from
― When suit is filed?
Courts in agreement on ―reasonably anticipated.‖
― E.g. Zubulake IV, Rimkus, Apple v. Samsung
Compare to work product protection.
Apple v. Samsung Ruling on Duty to Preserve
Court rejected Samsung’s argument that duty arose
when Apple filed suit.
― Samsung had duty to preserve when Apple communicated
specific positions that Samsung was infringing.
― Samsung’s own litigation hold used against it.
― Apple’s failure to issue hold did not absolve Samsung.
Reasonably anticipate litigation – fact issue.
Litigation Reasonably Anticipated
What do you need to do?
Send litigation hold to document custodians?
Send preservation letter to the other guy?
Send response to preservation letter?
Engage outside counsel?
Sit down with opposing counsel?
Consider conference requirements imposed by rules or
What Should Litigation Hold include?
― ―Key players‖ likely to have relevant information.
― Relevant documents.
― One way: retain all backup tapes for relevant personnel,
catalog later-created documents, make mirror-image of
Scope of Litigation Hold
Suspend document retention/destruction system to
preserve relevant documents.
Include all accessible backup media (data in readily
Include inaccessible backup media for key players if
information not otherwise available.
What to Include in Litigation Hold?
What devices? BYOD policy?
― Laptop computers? Thumb drives? Disks?
― Voice mail?
― Smart phones?
― Home computers?
― Personal email accounts? Instant messages?
― Social media?
How do you determine ―key players‖?
Is the Litigation Hold Enough?
Zubulake V says counsel must oversee compliance:
― Periodically re-issue litigation hold.
― Interview employees.
― Communicate directly with key players.
― Familiar with client’s ―data retention architecture‖.
― Speak with IT personnel.
― Secure backup media.
Samsung breached duty to preserve by failing to
monitor compliance with litigation hold.
Samsung’s August 2010 Litigation Hold
Court found Samsung’s hold inadequate.
― Litigation hold sent to small group of employees.
― Did not suspend auto-delete feature of email system.
― No record of preserving backup media.
― No follow up with employees for seven months.
“Culpable Mental State”?
What state of mind is sufficient to support an adverse
― Fifth Circuit: requires ―bad faith‖. (Rimkus)
― Second Circuit: negligence sufficient (Residential Funding).
― Apple v. Samsung: ―conscious disregard‖.
Proposed amendment to Federal Rule 37(e).
― Overrule Residential Funding.
― Adverse inference would require: (A) willful or bad faith
spoliation or (B) irreparable deprivation.
Who has burden to prove prejudice?
Proof of prejudice required if spoliation willful or in bad
― Residential Funding and Zubulake V: in 2d Cir. willful spoliation
creates presumption of relevance and prejudice.
― Texas and Fifth Circuit: not clear?
How do you prove prejudice?
― The ―we’ll never know‖ argument.
― Extrinsic evidence.
Remedies for Spoliation
The available remedies for spoliation range from minor sanctions such as
paying the cost of re-deposing witnesses to case-dispositive ―death
penalty‖ sanctions such as dismissal or a default judgment. Included in
these available remedies is the option for the Court to exclude evidence or
to give an ―adverse inference‖ instruction to the jury.
The spoliation instruction to the jury can vary in harshness depending on
the degree of spoliation:
― A ―mild‖ adverse inference instruction may merely inform the jury that a party
failed to comply with its duty to preserve relevant evidence, and the jury can
decide what conclusion to draw.
― A ―intermediate‖ adverse inference instruction can tell the jury that it can, but is
not required to, presume that the spoliated evidence would have been
unfavorable to the spoliating party.
― A ―harsh‖ adverse inference instruction can tell the jury that certain facts are
deemed proven as a result of the spoliation.
Strategies to Maximize
Recovering Attorneys’ Fees
Recovery of Attorneys’ Fees
In Texas, the general rule is that in the absence of
legislation providing otherwise, litigants must pay their
own attorneys’ fees – a.k.a. the ―American Rule.‖
MBM Fin. Corp. v. Woodlands Oper. Co., 292 S.W.3d 660 (Tex. 2009)
Texas has some 155 different statutory provisions that
allow for the recovery of attorneys’ fees.
Recovery of Attorneys’ Fees in Commercial Disputes
The provisions that generally arise in commercial disputes:
CPRC 38.001 – Breach of Contract actions
Contractual provisions for prevailing party
CPRC 37.009 – Texas Uniform Declaratory Judgment Act
CPRC 134.005 – Texas Theft Liability Act
TRCP 91a – Texas’ new Motion to Dismiss rule
Attorneys’ Fees ― CPRC 38.001
Recovery of fees is permissible i.e. ―may‖.
TEX. CIV. PRAC. & REM. CODE § 38.001
The standard under section 38.001:
― The party must prevail on a claim for which fees are
recoverable and the party must recover a judgment for
damages or injunctive relief.
Nominal damages are not sufficient to support an award
of attorneys’ fees.
ITT Commercial Fin. Corp. v. Riehn, 796 S.W. 2d 248 (Tex. App. – Dallas 1990, no
writ); MBM Fin, 292 S.W. 3d at 666 (―[T]his court has never said whether nominal
damages are enough.‖)
A prevailing party is whatever the contract defines a
prevailing party to be.
If the contract does not define ―prevailing party,‖ the
court will give the term its ordinary meaning.
Epps v. Fowler 351 S.W. 3d 832 (Tex 2011)
The prevailing party may be defined in the contract in a
way such that a party defending the action may recover
its fees if successful in the defense.
Attorneys’ fees – Prevailing Party Provision
The court may award costs and reasonable and
necessary attorney's fees as are equitable and just.
TEX. CIV. PRAC. & REM. CODE §37.009
The equitable and just standard means that the award
of fees is within the trial court’s discretion and a
party is not entitled to recover fees.
Importantly, an award of attorneys’ fees as are equitable
and just may mean that the party defending the
declaratory judgment action recovers its fees.
Mirror image rule.
Texas Uniform Declaratory Judgments Act
Section 15.52 – Preemption of Other Law
The criteria for enforceability of a covenant not to
compete provided by Section 15.50 of this code and the
procedures and remedies in an action to enforce a
covenant not to compete provided by Section 15.51 of
this code are exclusive and preempt any other
criteria for enforceability of a covenant not to compete
or procedures and remedies in an action to enforce a
covenant not to compete under common law or
Texas Covenants Not to Compete Act
No Fees for Employer Enforcing a 15.50 Covenant
An employer enforcing a 15.50 covenant will not be entitled
to an award of attorneys’ fees.
Glattly v. Air Starter Components, Inc., 332 S.W.3d 620 (Tex. App.—Houston
[1st Dist.] 2010, pet. denied)
In Glattly, the Houston First Court of Appeals upheld the trial court’s
decision refusing to award attorneys’ fees even where the employment
agreement at issue contained a prevailing party provision. The First Court
of Appeals made three important conclusions regarding Section 15.52:
― It does not contain a provision that allows employers to recover
― It expressly states the remedies in the Act are the exclusive remedies;
― It expressly states that it preempts any other remedies in an action to
enforce a covenant not to compete.
However, an employee defending against enforcement of a
15.50 covenant may be entitled to an award of attorneys’
fees if successful in such defense in two ways:
Under the statue if the employee shows that the employer knew at
the time of execution of the agreement that the covenant did not
contain restrictions that were reasonable and the employer sought
to enforce the covenant to a greater extent than was necessary to
protect the goodwill or other business interest of the employer; or
Pursuant to a declaratory judgment action seeking a declaration
that the covenant is not enforceable.
Employee Defending Enforcement May Be Entitled to Fees
Texas Theft Liability Act
Each person who prevails in a suit under this chapter
shall be awarded court costs and reasonable and
necessary attorney's fees.
TEX. CIV. PRAC. & REM. CODE 134.005(B)
The award of fees is mandatory.
Brown v. Kleerekoper WL 816393 (Tex. App. – Houston [1st Dist.] 2013, no pet.
Grounds for the Motion to Dismiss
― The cause of action has no basis in law or fact.
TEX. R. CIV. P. 91A
A motion to dismiss must be heard within 60 days after
the pleading containing the cause of action is served.
― The court must award the prevailing party on the motion all
costs and reasonable and necessary attorney fees incurred
with respect to the challenged cause of action in the trial court.
The court must consider evidence regarding costs and fees in
determining the award.
Dismissal of Baseless Causes of Action