In Surowiec v. Capital Title Agency, Inc., the United States District Court for the District of Arizona held that failure to issue a timely litigation hold justified sanctions in the form of an adverse inference.  --- F.Supp.2d ----, 2011 WL 1671925 (D.Ariz. 2011).

There, the plaintiff sued a title agency for failure to disclose junior liens on a condominium project under theories of breach of contract, breach of fiduciary duty, fraud and negligent misrepresentation.  In April, 2007 Capital Title Agency received a letter from a developer that sold the condominium to plaintiff indicating that several homeowners had "sought independent legal advice and [were] anticipated to claim approximately two million dollars in damages" based on Capital's failure to record releases.  The developer wrote the letter only to request a copy of Capital's insurance policy on the property.  Capital did not issue a litigation hold and, as a result, the routine destruction of emails after thirty days continued. 

In addressing sanctions, the Court found that "[w]here a letter openly threatens litigation, then the recipient is on notice that litigation is reasonably foreseeable and the duty to preserve evidence relevant to that dispute is triggered."  Accordingly, the Court held that Capital had a duty to preserve as of the date of receiving the April letter despite the fact that the actual plaintiff was not named in the letter, nor did it draft the letter.  In analyzing culpability for spoliation, the Court expressly reject Pension Committee's holding that "a failure to issue a litigation hold constitutes gross negligence per se."  Finding that "[p]er se rules are too inflexible for this factually complex area of the law where a wide variety of circumstances may lead to spoliation accusations," the Court treated the lack of a litigation hold as an "important factor in determining culpability" and found that Capital was grossly negligent. Finally, the Court recognized that there is no question that emails of key personnel are within the scope of a preservation obligation, stating that "[t]he Court need not determine the outer contours of the duty in this case. Whatever those outer boundaries, they clearly encompassed ongoing emails to and from [key players] and information on [key player's] computer[s]."  Accordingly, the Court ordered an adverse inference jury instruction as a sanction and instructed the parties to submit proposed adverse inferences.

For a copy of the opinion, click here.