Getting Demand Letters Right

Demand Letters and The Duty to Preserve Information

Two recent decisions by magistrate judges resolving motions for sanctions based on defendants’ discovery violations illustrate that (i) a party’s own conduct can inadvertently trigger an obligation to preserve, and (ii) unless a demand letter is specific regarding the possibility of litigation, a court might refuse to find that receipt of such a letter triggered an obligation to preserve. Google Inc. v. American Blind & Wallpaper Factory, Inc., 2007 WL 1848665 (N.D. Cal. June 27, 2007); Cache La Poudre Feeds, LLC. V. Land O’Lakes, Inc., 2007 WL 684001 (D. Colo. Mar. 2, 2007).

The decisions by Magistrate Judges Seeborg and Shaffer in Google and Cache, respectively, are rich sources of learning regarding preservation and production, but this post will focus on the demand letters sent by the parties before the litigation was filed or served. Future posts will cover other useful practice tips mined from the two decisions.

What? You Mean That Now I Have to Save Stuff?

Well, yes you do have to preserve information if you send a demand letter to a potential adversary. Indeed, depending on the circumstances, it may be that by sending a demand letter you may have imposed a duty on yourself without imposing a corresponding duty on the other side.

In Google the demand letter at issue was sent by the eventual defendant, American Blind. Not only did American Blind’s letter give Google a basis to file a declaratory judgment action at a time and in a forum convenient to Google, the company triggered an obligation to preserve its own documents and information relevant to the dispute. It was an obligation American Blind failed to discharge and did not even bother to contest.

In June of 2002 American Blind sent Google a “’cease and desist’ letter that portended litigation”. Some eighteen months later, in December of 2003, Google turned the tables on American Blind and served it with a complaint seeking declaratory relief.

After initial motion practice, the trial court found that a “justiciable controversy arose between the parties no later than June of 2002”, when American Blind sent a “cease and desist” letter to Google. Discovery by Google revealed that prior to May of 2006 – even after having been served with a complaint — American Blind had failed to preserve or collect information relevant to the dispute. In a subsequent motion to compel, Google alleged that this failure was the basis for “terminating, evidentiary, or monetary sanctions”.

On Google’s motion, the magistrate judge used the trial court’s earlier ruling on justiciability to support a factual finding that “American Blind’s duty to preserve relevant evidence arose not later than December of 2003, and likely arose some eighteen months earlier”, when the cease and desist letter was mailed by American Blind. The court imposed both evidentiary and monetary sanctions, holding that certain facts had been “judicially established” and fining American Blind $15,000.

I Guess We All Just Can’t Get Along

We can’t all just get along if we want our threats of litigation to be taken seriously.

In Cache, Plaintiff Cache argued that defendant Land O’Lakes should have anticipated litigation as early as April 4, 2002, when its outside counsel called Land O’Lakes’s general counsel and informed him that Cache had been using a particular trademark for at least ten years before Land O’Lakes started using it in about January 2002. Two months later, on June 5, 2002, Cache’s outside counsel followed up her April call with a letter repeating that Cache had been using the trademark for at least 10 years and expressing a concern that customers of both Cache and Land O’Lakes could be confused. In closing, Cache’s general counsel explained that the purpose of the letter was “’to clearly put [Land O’Lakes] on notice of our client’s trademark rights and clearly establish the opportunities we have given Land O’Lakes to avoid exposure. The second purpose of this letter is to determine whether this situation can be resolved without litigation and media exposure … We think you will agree that the company’s interests are best served by trying to resolve this unfortunate and difficult situation”.

A year later on June 3, 2003, Land O’Lakes’s outside counsel wrote to Cache’s outside counsel suggesting that the parties discuss the possibility of obtaining a consent to use the mark. Two weeks after receipt of the Land O’Lakes letter, on June 17, Cache’s outside counsel responded by expressing a concern over continued infringement, but indicating an interest in listening to a proposal. Not until February 24, 2004, almost eight months later, however, did Cache file a complaint. Cache subsequently brought a motion accusing Land O’Lakes of spoliation by failing to discontinue in April 2002 its practices of (i) automatically deleting e-mails older than 90 days and (ii) overwriting backup tapes.

The court found a number of flaws in Cache’s argument that the obligation to preserve was triggered in April 2002, focusing on Cache’s June 2002 letter. In the court’s view the letter did not threaten litigation; it did not demand that Land O’Lakes preserve potentially relevant information; and it raised the possibility that litigation was not the only solution to the dispute. The court also noted that the lawsuit was not filed until almost two years after the first telephone call in April 2002. The Magistrate Judge concluded that “a party’s duty to preserve evidence in advance of litigation must be predicated on something more than an equivocal statement of discontent, particularly when the discontent does not crystallize into litigation for nearly two years. Any other conclusion would confront a putative litigant with an intractable dilemma: either preserve voluminous records for an indefinite period at potentially great expense, or continue routine document management practices and risk a spoliation claim at some point in the future”.

However, because Land O’Lakes failed to adequately preserve and collect documents after the complaint had been filed, the court imposed a small monetary sanction and ordered that Land O’Lakes file a series of declarations and certifications regarding the completeness of its production.

Tips

If you decide to send a “cease and desist” or “demand” letter, be aware that a court is likely to conclude that you have triggered an obligation to preserve your own information. Whatever obligation or burden you seek to impose on your potential adversary will be imposed on you as well. If you automatically delete e-mails or overwrite backup tapes of key personnel, you should suspend those practices and institute a legal hold. Check your retention schedules to make sure that your documents or records will not be destroyed while you negotiate.

Your demand letter should be specific about the threat of litigation. Recognize that your time to file an action is beginning to run and that a court will probably not look favorably on an unreasonable delay between sending the letter and filing a complaint. The Cache court was very skeptical of “equivocal statement[s] of discontent” or unreasonable delays before bringing litigation.

Be as specific as you can about the need to preserve information. Do not overreach or send confusing or overbroad demands. Even more so than with equivocal demands, the court in Cache was scathing regarding “poorly drafted discovery requests”. (Discovery requests, by the way, that most of us have served or received: “’all documents concerning, referencing, evidencing, resulting from, or identifying []’”.)

If you enter into a tolling agreement, make sure that the agreement covers the preservation of information.