In anticipating litigation, one of the first items on a prudent litigator's checklist is ascertaining what documents must be preserved and putting a preservation plan in place. A duty to preserve arises when a party "knows or reasonably should know" that litigation is foreseeable.1 Once the duty to preserve arises, a party must put a litigation hold in place to ensure that relevant documents are preserved.2 Notably, "[t]he preservation obligation runs first to counsel, who has a duty to advise his client of the type of information potentially relevant to the lawsuit and of the necessity of preventing its destruction."3 Consequences for failing to observe the duty to preserve can be serious, including spoliation and monetary sanctions.4
Federal Rule of Civil Procedure 34(a) provides that a party may request another party to produce documents within that party's "possession, custody, or control." Federal courts construe "control" broadly for Rule 34 purposes. Control may exist if a party has "the right, authority, or practical ability, to obtain the documents from a nonparty to the action."5 Control is easy to establish when a party to the litigation has possession or custody of the documents ascertain. When third parties possess documents that may be relevant to an action, however, determining whether there is "control" can be more complicated.
The parameters of "control" have been explored in many cases. For example, parent corporations have sometimes been found to have control over their subsidiaries' documents.6 Indeed, the Third Circuit has noted that where the relationship is "such that the agent-subsidiary can secure documents of the principal-parent to meet its own business needs and documents helpful for use in the litigation, the courts will not permit the agent-subsidiary to deny control for purposes of discovery by an opposing party."7 A recent case illustrates an instance in which a contract between parties provides control, and finds that where such control exists, there is also a duty to preserve. In other words, a party may not only have "control" for discovery purposes, but also may have a duty to extend litigation holds to third parties in order to preserve documents.
In Haskins v. First American Title Insurance,8 a case in the U.S. District Court for the District of New Jersey, plaintiffs sued First American for allegedly overcharging title insurance customers. Most of First American's policies were issued by "independent title agents." First American had entered into separate agency contracts with each agent, which addressed the agent's duties and responsibilities. Among those duties was maintaining their First American files.
Plaintiffs moved to compel First American both to provide copies of independent title agents' "closing files" and to direct these agents to preserve relevant documents. First American claimed that it could not produce the documents because they were owned by the independent agents and thus were not in its possession, custody, or control. It also argued that it could not extend a litigation hold to the independent agents because it could not force them to comply. The court rejected both arguments.
First, the court addressed whether First American had control over the independent agents' documents for Rule 34 purposes. First American's contracts with its independent title agents contained two provisions relevant to control. The contracts required the agents to maintain and carefully preserve documents for no less than 10 years and to "make all Documentation available for inspection and examination by [First American] at any reasonable time."9 The contracts also provided that agents "shall forward all relevant information to First American when it learns of a legal claim as well as cooperate in a timely manner in the handling of any such claim." The court found that the first provision alone was sufficient for purposes of "control" because "a party has control of documents if a contractual obligation requires a non-party to provide the requested documents to the litigating party upon demand."10 In short, because First American's contracts gave it the right to access and use its agents' files, it controlled the files within the meaning of Rule 34(a).
After determining that First American had "control" over the independent agents' documents, the court addressed whether First American also had a duty to preserve them. The court stated:
Since a spoliation inference is a possible sanction for failure to implement a litigation hold, it follows that a litigation hold only applies to documents within a party's possession, custody, or control … . [T]his includes documents that are not necessarily in the party's physical possession.11
The court thus reasoned that the duty to preserve extended to documents that are not in a party's possession, but nonetheless are within its control. Accordingly, the court required First American to serve litigation hold letters on its current and former independent title agents.
Haskins serves as a reminder that counsel must carefully consider whether there are third parties that might have documents of potential relevance to anticipated litigation. As Haskins demonstrates, contractual language may provide the requisite control for purposes of the Federal Rules. As a result, before entering into any contract that provides a right of access to documents in the possession of another, parties should evaluate whether they are signing up for an exponential expansion of their production and preservation obligations and, if so, whether the right of access is worth the risk.