Firm wipes out millions of emails under legal hold

By Heather Cole
The Daily Record Newswire

ST. LOUIS, MO — Fidelity National Title Insurance Co. accidentally deleted nearly eight million older emails that were supposed to be preserved in case they were needed in litigation, a federal judge’s recent order reveals.

A contractor trying to start up an email retention system wiped out the emails in September 2011, U.S. District Judge Carol Jackson said in a sanctions order last month that outlined a number of other recordkeeping mistakes by the large title insurance company.

All told, as many as 13 million emails were obliterated in 2011 and 2012. Of those, nearly 8 million — all dated before Sept. 13, 2006 — were under legal holds, meaning they should have been kept for litigation or potential litigation.

Fidelity “is unaware of those deletions [in September 2011] having any effect on litigation or claims existing as of the date of deletion, which was five years later,” the company said in a statement emailed by one of its attorneys, Shawn Briner of the Chesterfield office of Martin, Leigh, Laws & Fritzlen.

The order didn’t identify the contractor. In the statement, Fidelity said only that it was a “nationally recognized third party contractor.” The mass deletions came to light after Jackson allowed a Lake of the Ozarks real estate investor to call in an outside expert to look into Fidelity’s electronic recordkeeping. The investor, Captiva Lake Investments, claims Fidelity should cover Captiva’s losses on a real estate investment — part of a condominium subdivision Captiva acquired in foreclosure. Mechanics’ liens foiled attempts to sell or use the property as collateral, Captiva says in court documents. Fidelity is seeking a declaration that it doesn’t owe the coverage.

The outside expert’s report also pointed out other broader problems with Fidelity’s recordkeeping: New entries into the title insurer’s claim processing system overwrite existing data without retaining a copy, and logs generated by the system are destroyed after a month.

The emails deleted in 2011 weren’t relevant to Captiva’s case in U.S. District Court in St. Louis because they predated Captiva’s insurance claim, Jackson said. But starting between December 2011 to July 2012, Fidelity also deleted emails older than 180 days that could have been relevant, the judge said.

Jackson found Fidelity and its attorneys were unaware but not unethical as they dealt with discovery struggles over three years in the case.

She issued sanctions that include an as-yet-undetermined amount of attorneys’ fees and an instruction to any jury in the case that “they may, but are not required to, assume the contents of the deleted emails would have been adverse to Fidelity.”

The company also could put on evidence to show an “innocent explanation” at trial, which has not yet been scheduled.

“We are pleased the Court ruled in Fidelity’s favor with respect to allegations incorrectly suggesting Fidelity acted in bad faith,” the company said in an email forwarded by Briner.

“As to the aspect of the ruling finding fault with Fidelity’s implementation of its document retention policies, Fidelity respectfully accepts it,” the statement continued.

Richard Wunderlich, a Lewis, Rice & Fingersh attorney representing Captiva, made the case at an April 23, 2013, hearing for having an outsider inspect Fidelity’s computer systems. Wunderlich declined to comment for this story.

Armed with a slide presentation, Wunderlich said that Captiva attorneys had been unable to obtain “critical” claims reports that Fidelity officials said were kept only electronically and were sent to supervisors by email. Captiva also couldn’t get documents they needed from Fidelity’s electronic claims processing system, he said, according to a transcript of the hearing.

Wunderlich also asked that Fidelity put an e-discovery specialist on the case with more computer expertise than the assistant vice president the title company previously had tapped. Wunderlich said the staffer had nothing in his résumé that indicated he knew anything about computer systems, though he did say in his online résumé that “he’s an actor who specializes in legalese.”

Jackson told Briner at the hearing that she found it troubling that documents were being produced “piecemeal.”

“Some of the stuff that has happened here is making Fidelity look like the bad guy,” Jackson said. “I’m not saying you are, but that’s how it’s looking.”

“Some of the stuff that has happened here is making Fidelity look like the bad guy. I’m not saying you are, but that’s how it’s looking.” - U.S. District Judge Carol Jackson

Jackson ordered the inspection of Fidelity’s systems by a Washington, D.C., area-based expert, W. Anthony Whitledge, who attended the hearing with the Lewis Rice attorneys.

Jackson expressed concerns about giving “unfettered access” to Fidelity’s computers and ordered the two sides to work out a “mutually agreeable protocol,” for the inspection.

According to Jackson’s summary of his findings, Whitledge’s June 2014 report found other problems in addition to the deleted emails and data overwriting. Among them: Fidelity had not instituted a litigation hold and didn’t conduct a systematic search of its computer systems, including its email archive, before May 2013, two years after Captiva’s first request for document production. The report itself is sealed.

Fidelity attorneys had argued that a litigation hold was unnecessary because the company already had a system in place to preserve documents. The judge was unimpressed.

“The mere existence of a procedure is insufficient to satisfy Fidelity’s obligations to preserve discoverable evidence if it does not actually preserve evidence,” Jackson wrote in her sanctions order.

The “discovery debacle” arose in large part because attorneys for Fidelity didn’t know until a 2012 deposition about materials a former Fidelity employee had, the judge wrote.

Fidelity’s statements that it had done everything possible to find records it needed to turn over to Captiva attorneys “were the product of its incomplete grasp of its own documents,” Jackson said.

Fidelity attorneys argued that Captiva wasn’t put at a disadvantage by the loss of emails, because nearly 35,000 relevant emails were produced, Jackson recounted — and discounted — in her sanctions order.

“The fact that Fidelity retained some emails from the deletion period is meaningless because Fidelity does not know the quantity or contents of emails that were deleted,” the judge wrote.

Fidelity accidentally also produced at least one email it didn’t have to: a message from a claims handler to Jay Levitch, an in-house Fidelity attorney.

Communications with the insurer’s attorney usually are privileged and don’t have to be disclosed in litigation, Jackson said in her order, but Fidelity didn’t ask for the document back quickly enough after being notified about it, the judge said.

That mistake may have helped soften the judge’s sanctions decision. She bore that disclosure in mind when deciding that the discovery problems didn’t reach the level that would make dismissing Fidelity’s case appropriate.

“The court is mindful that Captiva received privileged documents it otherwise would not have obtained,” Jackson wrote, “But for Fidelity’s mishandling of discovery.”

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