Federal Trade Commission v. Roomster Corp.

Background

The plaintiffs filed a discovery motion concerning two issues: possible spoliation, meaning the loss or destruction of evidence that should have been preserved, and the defendants’ alleged failure to meaningfully engage in discovery. The defendants admitted that they were not compliant with a litigation hold until late winter 2023. They acknowledged that their pre-investigation document-retention and destruction practices continued during that period and that at least some responsive Slack material had been destroyed.

The Federal Trade Commission had served a Civil Investigative Demand on January 23, 2020. The demand required the defendants to stop routine document destruction and take steps to prevent the destruction of documents related to the investigation. The court stated that it was undisputed that the defendants had an obligation to preserve documents and failed to do so.

Spoliation discovery

Under Federal Rule of Civil Procedure 37(e), sanctions for failing to preserve electronically stored information may be available when a party acted with the intent to deprive another party of the information’s use in the litigation. The court explained that a party seeking a jury instruction concerning spoliation must show that the opposing party controlled the evidence, had a duty to preserve it, acted with a culpable state of mind, and lost evidence relevant to the claim.

The court held that the plaintiffs were entitled to discovery concerning the defendants’ state of mind. Within one week, the defendants were ordered to produce defense counsel’s litigation hold, if any, and other communications giving clear guidance about the consequences of failing to comply. The defendants also had to produce their routine document-destruction protocols and policies.

The court further concluded that attorney-client privilege did not protect the litigation-hold communications from production in these circumstances. Because the defendants had admitted spoliation, the court stated that the remaining questions included whether the lost documents were relevant and whether the defendants acted in bad faith. Unless the defendants intended to admit that they destroyed documents in bad faith, the court stated that they had waived attorney-client privilege concerning any good-faith defense.

Other discovery deficiencies

The court understood the remaining discovery dispute to concern the plaintiffs’ view that the defendants were not sufficiently engaged, rather than specific individual discovery disputes. The defendants said they had produced thousands of documents and continued searching for responsive material. They also asserted that the plaintiffs had not meaningfully engaged regarding electronic-search terms.

The court ordered the defendants, within one week, to serve supplemental responses complying with Rule 34(b)(2)(B) and (C). The defendants had to produce responsive documents or specifically identify documents being withheld and the basis for withholding them. The parties also had to meet and confer within one week about search terms for electronic discovery. If appropriate, the defendants were to provide reports showing the number of documents returned by proposed searches. By June 23, 2023, the parties had to report whether they had agreed on an electronic-discovery protocol and, if not, identify the remaining disputes.

Disposition

The court ordered the specified production, supplemental responses, meet-and-confer process, and report. It stated that all other requests for relief were denied. The order also said the parties could contact the court if they wanted to schedule a settlement conference.