Admit it – it feels strange, in an e-discovery world, to include “tangible things” in a legal hold notice. Litigation has always been document-intensive, and preserving ESI has been the crux of compliant legal hold practice ever since Judge Scheindlin took us to school in Zubulake. But as Starbucks recently learned the hard way, we forget “things” at our peril.
Starbucks not only sells lots of coffee – it provides the ambiance to enjoy it, such as by hanging out on a Starbucks deck in a patio chair, sipping an Americano while perusing the blogosphere. With thousands of such chairs and ensconced customers, something was bound to go awry.
From 2009 to 2013, Kettler International sold nearly 14,000 patio chairs for use at Starbucks’ stores. By 2013, Starbucks had received notice of four injury claims involving collapsing or broken chair legs, including a personal injury lawsuit filed by a California customer. Starbucks Legal sent one chair to an independent testing laboratory, and the lab’s November 2013 report indicated that the sample chair failed certain impact tests.
Starbucks then hired a company to “recycle” (i.e. destroy) all but 200 chairs selected at random for storage. The thousands of chairs were removed from Starbucks’ locations between March and May 2014. Starbucks also sent an April 8, 2014, letter to Kettler, notifying Kettler of the alleged warranty breach, stating that Starbucks would pursue all available remedies and damages, indicating that independent laboratory testing had confirmed the chair failures, and advising of the recycling of all but a “discrete sample” of the chairs for inspection purposes. Lawyerly correspondence ensued. On May 2, 2014, Kettler advised Starbucks that it must preserve all chairs on which any claim would be made, and also filed an action for a declaratory judgment of non-liability. Starbucks was served on May 7, 2014, yet the chair recycling continued until May 18.
In Kettler International v. Starbucks, the federal District Court ruled upon Kettler’s motion for spoliation sanctions. Discovery had by then revealed the scope of Starbucks’ recycling activities – including disposal of three of the four chairs involved in the individual customer claims, and also destruction of the single chair tested by the independent laboratory. Starbucks Legal had apparently checked the lab’s Service Request Form box “Destroy/Discard Sample after 30 days.”
The court determined that the preservation duty arose back in October 2013, when Starbucks retained the independent lab to test the sample chair. Starbucks’ assertion of work-product protection for the lab report was a factor in the court’s conclusion that litigation was reasonably foreseeable at that point. The court also ruled that Starbucks committed spoliation by destroying the chairs, withholding imposition of sanctions pending further briefing on the extent of prejudice to Kettler.
After review of the parties’ subsequent filings, the court determined that Starbucks’ actions were willful, not merely negligent. Starbucks’ conduct also prejudiced Kettler’s defenses as to the nearly 99 percent of the chairs that were not preserved, because, among other matters, there was no evidence to indicate whether the 200 chairs were a representative sample. Accordingly, the court entered an order limiting Starbucks’ recoverable damages solely to the surviving 200 chairs. Ironically, in a lawsuit over defective chair legs, Starbucks was left without a leg to stand on.
While this case provides an interesting study of how to handle evidence specifically in a breach of warranty setting, it also offers lessons on preservation generally:
- The preservation duty is not limited to documents and ESI. If a pending or impending lawsuit involves tangible things that are potentially relevant evidence, such tangible things must be carefully considered when scoping and executing the legal hold.
- Referring generically to “tangible things” in a legal hold notice will likely be no more effective than simply instructing recipients to preserve “relevant information.” When scoping a legal hold, identify what tangible things are relevant given the subject matter of the dispute, and be as specific as possible in the hold notice.
- Be especially mindful of documenting chain of custody when preserving tangible things. Don’t merely preserve the object – preserve your ability to use it as evidence.