The High Cost of Document Destruction | Practical Law

The High Cost of Document Destruction | Practical Law

A jury recently awarded $9 billion in punitive damages against two pharmaceutical companies. The result was partly due to evidence that the jury heard concerning one of the defendant's failure to preserve documents and destruction of evidence. Despite a broad litigation hold, the defendant destroyed, deleted or lost the files of several custodians, including senior management. Companies and counsel must not only issue litigation holds, but ensure that they are updated, enforced and lifted as appropriate.

The High Cost of Document Destruction

Practical Law Legal Update 7-566-0285 (Approx. 4 pages)

The High Cost of Document Destruction

by Practical Law Litigation
Published on 01 May 2014 • USA (National/Federal)
A jury recently awarded $9 billion in punitive damages against two pharmaceutical companies. The result was partly due to evidence that the jury heard concerning one of the defendant's failure to preserve documents and destruction of evidence. Despite a broad litigation hold, the defendant destroyed, deleted or lost the files of several custodians, including senior management. Companies and counsel must not only issue litigation holds, but ensure that they are updated, enforced and lifted as appropriate.
The cost of failing to preserve information may not result in a monetary sanction with a specific dollar amount. Instead, a party may be precluded from arguing a claim or raising a defense, or a jury may be given an instruction adverse to the spoliating party. A recent pharmaceutical case demonstrates the potentially catastrophic consequence of spoliation. A jury awarded $9 billion in punitive damages based in part on evidence presented to the jury of the defendants' failure to preserve documents and their destruction of electronic data.
On April 7, 2014, a jury in the US District Court for the Western District of Louisiana awarded $9 billion in punitive damages against Takeda Pharmaceuticals and its related entities (Takeda), and Eli Lilly after determining that Takeda failed to warn of the potential danger of bladder cancer associated with taking the diabetes medication Actos and other drugs containing pioglitazone. As a sanction against Takeda for destroying documents in bad faith, the court allowed the jury to hear evidence of Takeda's failure to preserve documents and destruction of electronic data. Reportedly, the court instructed the jurors that they could infer that the missing files may have supported the claims against Takeda.
In January 2014, the Actos court found that Takeda acted in bad faith in destroying and failing to preserve relevant documents (In re Actos (Pioglitazone) Prods. Liab. Litig., No. 6:11-MD-2299, (W.D. La. Jan. 30, 2014)). The court determined that Takeda had a duty to preserve documents relating to Actos since 2002, when the company instituted a general products liability litigation hold to its Japanese and US entities with instructions to interpret the hold broadly and to preserve all documents, including electronic data, related to Actos.
Although the first Actos-related lawsuit concerning bladder cancer did not commence until July 2011, Takeda's 2002 litigation hold was never lifted, and in fact, was "refreshed" at least five times. The litigation hold was also made available to the European entities in 2006. Despite the long-standing litigation hold, 38 of the 46 missing custodial files of Takeda clinical employees and sales representatives, including those of senior management, were destroyed after 2002.
In finding that Takeda acted in bad faith, the court noted:
  • Although Takeda had actual knowledge of its duty to preserve evidence, it destroyed, deleted or otherwise lost files of at least 46 witnesses, many of whom were critical in developing and marketing Actos.
  • The number of custodians whose files were destroyed after the 2002 litigation hold suggested deliberate disregard of the hold.
  • The scale of spoliation continued across three continents over a period of approximately ten years.
  • Takeda failed to follow its own document retention policies.
  • Takeda repeatedly made material misrepresentations concerning litigation holds.
  • When the plaintiffs became aware of the missing files, instead of being forthcoming, Takeda engaged in a cover-up scheme.
The Actos case teaches that companies, especially ones with relevant evidence located worldwide, cannot simply issue a litigation hold. The litigation hold must be enforced across all applicable entities and must be periodically revised or updated. Practical Law's Litigation Hold Toolkit contains resources to help companies and counsel preserve documents and implement a litigation hold, including: