In Episode 148, Kelly Twigger discusses whether a party’s failure to preserve WeChat messages on a mobile device that may have been relevant to two overlapping litigation matters resulted in sanctions in Two Canoes LLC v. Addian Inc. (April 30, 2024).
Introduction
Welcome to this week’s episode of our Case of the Week series brought to you by eDiscovery Assistant in partnership with ACEDS. We are inching ever closer to the 150th episode of the Case of the Week! My name is Kelly Twigger. I am the CEO and founder at eDiscovery Assistant, your GPS for ediscovery knowledge and education. Thanks so much for joining me today.
One announcement before we get started. On July 18th, I will be hosting the final workshop for the Midwest Chapters of ACEDS four-part series on ESI protocols. The first three episodes have already aired, but are available to stream here. You can use the link to sign up to receive more details and also for the workshop which will be on July 18th. Please join us. We’re going to be doing an interactive session on creating an ESI protocol.
All right, now on with our show.
As you know, each week on the Case of the Week, I choose a recent decision in ediscovery and talk to you about the practical implications of it. This week’s decision involves a motion for sanctions following the loss of WeChat messages on a mobile device. It highlights two of our regular themes here on the Case of the Week — the need to do early planning and consideration of data sources, especially mobile devices, and paying careful attention to the timeline when data is lost relative to the duty to preserve.
Let’s dive in.
Background
This week’s decision comes to us from Two Canoes LLC v. Addian Inc. This is a decision from April 30, 2024, and is written by United States Magistrate Judge Jose Almonte. As always, we identify each of the issues in the decisions within our eDiscovery Assistant database, and this week’s issues include ephemeral data, possession, spoliation, bad faith, mobile device, text messages, legal hold, scope of preservation, sanctions, cloud computing, and failure to preserve.
Facts
We are before the Court here on Two Canoes’ motion for sanctions for spoliation of WeChat messages by the defendant’s CEO. This is the Magistrate Judge’s report and recommendation to the District Judge. The underlying facts of the case allege that Addian sold allegedly fraudulent N95 masks manufactured by 3M, purchased by Two Canoes during the pandemic. So, recall that the N95 masks were in very short supply during the early part of the pandemic when everyone was scrambling to get their hands on personal protective equipment, otherwise known as PPE.
Addian is a small family-owned company that provides logistics services to its customers and is headed by Addam Wolworth. Aobvious Studio LLC was one of Addian’s customers. Aobvious also provided logistic services and included Two Canoes on its client roster. So, we’ve really got a chain of three companies — Addian buying the masks, selling them to Aobvious, who then sold them to Two Canoes.
In 2020, Wolworth reached out to Robert Fisher, a contact in China, who Wolworth understood could supply N95 masks from a 3M manufacturer in China. Fisher supplied those masks to Addian, who then supplied the masks to Aobvious, who then supplied the masks to Two Canoes. Two Canoes then supplied the masks to resellers who sold the masks to end users. It makes you wonder whether the N95 masks you bought were actually real.
Here’s where the timeline comes into play in the case. In November 2020, 3M sued Addian and other entities alleging the masks were counterfeit. Wolworth was aware of his duty to preserve as of the filing of that case and took steps to preserve data related to his Google accounts and other sources of ESI. Addian settled the lawsuit in June of 2021, and the 3M lawsuit was officially terminated in February of 2022.
On July 14, 2021 — so a few weeks after Addian settled out of the 3M case — Two Canoes threatened litigation against Aobvious via email. On July 16, 2021, Aobvious’ counsel forwarded the email to Addian’s counsel, putting Addian on notice of that litigation. Two Canoes then filed this action that’s currently pending before us against Aobvious on November 4, 2021, and Aobvious added Addian as a third party on January 7, 2022.
During discovery of this litigation, Wolworth, Addian’s principal, collected and produced ESI, including emails, documents, and text messages with Fisher, the contact in China. He did not produce any messages from WeChat.
If you’re not familiar with it, WeChat is a very popular ephemeral messaging application from China that allows messages to disappear from WeChat servers. At the time of the decision here, WeChat worked like this: once 72 hours had lapsed since a chat message was sent, or 120 hours for images, audio, videos, and files, WeChat permanently deleted the content of the message on their servers. After deletion, neither WeChat nor any third party would be able to view the content of that message. Although the messages disappeared from the WeChat servers, it remained within the user’s application — only on the user’s device, such as a cell phone — unless it has been otherwise backed up. Those messages would have lived on Wolworth’s device and Fisher’s device after they were deleted from the WeChat servers. Wolworth testified at his deposition that, while he communicated with Fisher primarily by phone call, he did correspond with Fisher a few times on WeChat, but he no longer had those messages due to a loss of his phone.
Here’s our twist and where we talk about early preservation. Wolworth testified that he discarded at least three cell phones in the span of approximately a year and a half — the first one in September 2020 (before the November 2020 duty to preserve in the 3M case), the second in October 2021 (after both cases had arisen) which was broken and recycled, and the third one in February 2022. Wolworth did not back up the WeChat messages from the phones. The parties dispute whether Wolworth made reasonable efforts to recover any lost WeChat messages to the extent they existed. Fisher is in the wind at this point and unresponsive to any subpoena, so there is no other way to recover the messages.
All right, those are the facts before us on our motion for sanctions.
Analysis
Let’s talk about the Court’s analysis.
Plaintiff here sought sanctions under Rule 37(e)(2) of the Federal Rules of Civil Procedure for failure to preserve and asked for an adverse inference instruction to be applied at the summary judgment stage. This case is an excellent example of analysis done under Rule 37, and I recommend that you spend a few minutes reading it and bookmarking it for reference when you’re addressing these issues. The Court goes into the initial elements of spoliation of the data more than usual because of the facts of this case, and it’s not an analysis that we see very often.
The Court goes through each step in the analysis under Rule 37 in the context of the timeline of the case and held — not surprisingly — that Addian had a duty to preserve as of November 5, 2020, and that duty continued with the filing of the case against Aobvious in which Addian was later made a third party. Since the communications with Fisher were clearly relevant, the Court considered whether the WeChat messages were lost after the duty to preserve attached. Critical to the Court’s analysis here was that Wolworth initially lost the phone with the WeChat messages on it in September 2020 — before the 3M litigation was filed — which meant it was not subject to spoliation analysis.
The Court then looked at two relevant time periods after the duty attached — November 5, 2020 – October 2021 and October 2021 – February, 2022. The Court found that WeChat messages from between November 5, 2020 – October, 2021 were lost. Plaintiff did not meet its burden to show that messages were lost during the subsequent time period. So, we’ve established the messages were lost for purposes of this spoliation analysis.
The Court next determined that Wolworth did not take reasonable steps to preserve the WeChat messages and then moved to discuss available sanctions, including whether prejudice and intent to deprive existed. Based on the evidence that Wolworth communicated primarily with Fisher via phone, the Court found it “difficult” to ascertain the extent to which plaintiffs suffered prejudice, if any, from defendant’s spoliation.
The Court’s discussion here relative to the timing of the facts is very important, and I urge you to read it. It’s too detailed for us to cover completely today. This is the kind of factual analysis that is so critical to motion practice, and it’s what you’re going to want to include in your motion papers to be able to make the most effective arguments for your client.
As a result of that analysis, the Magistrate Judge recommended that the Court defer a decision on prejudice until trial when “the Court will be in a better position to evaluate Two Canoes’ evidence and determine what the missing WeChat messages could plausibly establish.” The Magistrate Judge took a similar approach on the intent issue, finding that while Wolworth should have kept the broken phone instead of recycling it, it could not find bad faith based on Addian’s preservation of other ESI. But the Court left the final determination up to the jury following the process outlined in the advisory notes from 2015:
[B]ecause the issue of intent is one that might hinge on credibility, I recommend that Two Canoes be given the opportunity at trial to inquire about Wolworth’s intent so that the Court or the jury may determine what sanction, if any, is appropriate after evaluating Wolworth’s credibility.
The Court also recommended that Two Canoes be given the opportunity to examine witnesses at trial to determine whether Addian acted in bad faith. This is the second decision we’ve seen recently where the court is sending that intent determination on a sanctions motion to a jury, and that has pros and cons to it.
Let’s talk about that in terms of the takeaways.
Takeaways
This sending of a determination of intent to a jury can be very fraught. First, it removes the focus of the original evidence and forces a trial team to have almost a separate intent inquiry and to deal with that at trial. That’s not something you want to be dealing with, especially when you’re calling your main witness’ credibility into question. So Wolworth is the one who had all the communications for Addian. He’s the one whose credibility is going to be most at key in determining whether or not Addian knew that these masks were fraudulent when they resold them to Aobvious and then to Two Canoes. That credibility issue is going to be hugely complicated, and very important. And to add the intent element to sanctions associated with it really complicates things from a trial perspective. It’s not something you want to have happen. For that reason, our very first takeaway is critical — and that is early, early planning, conducting custodian interviews, and identifying sources of ESI is critical. These types of factual scenarios, like Wolworth losing his phone three times, come up in almost every case in which a custodian may not have every relevant piece of ESI.
It may be custodian-based, it may be enterprise-based, right? Oftentimes, databases are an issue that gets shut down, that were never implicated in the litigation and sometimes just come up at some point and there’s a spoliation argument made.
Figuring out and identifying issues related to lost data early will allow you to strategize and figure how to deal with them. You always have options that need to be considered strategically. Should you advise counsel about the lost data and the timeline when it was lost? Prep your witness to address the issue at their deposition? Come up with strategic alternatives on how to address the court, how to approach this particular issue. But you can only have that ability to think strategically if you know about those potentially lost data sources. And you can only know that by asking custodians and your companies very early so that you’re aware of those data sources. When you are dealing with them retroactively, i.e., finding out that there’s spoliation of a potential data source later in the litigation, you are on your back heels just trying to survive.
Second, mobile devices are such an incredibly important part of ediscovery today and counsel have to be aware of the types of data that’s stored on phones that can be lost without taking active steps to preserve them. Here, it’s likely that the data was lost before counsel even knew about the case in November 2020, but the cost of preserving Wolworth’s phone would have been a drop in the bucket compared to defending this motion for sanctions and the risk that will come at trial on the issues of prejudice and intent.
Here, it seems that if we had addressed this issue very early on — and maybe counsel had, we’re Monday morning quarterbacking here on Case of the Week. Maybe they knew about this issue from the outset of the 3M litigation, but you’ve got to be able to address it factually. It didn’t seem like it from the portions of Wolworth’s testimony that are cited in the decision that he was clear and concrete about when he communicated with Fisher via WeChat and when his phones were lost. If he could have done that better at his deposition, this issue might have been precluded. The Court might have been able to better determine his credibility on this motion, or the motion could have not been brought in the first place if the information was sufficient that the motion wouldn’t have carried.
Finally, keep in mind that as you’re reading the facts of this case, this is how WeChat worked at the time at issue. Applications are constantly changing their retention practices, and it’s imperative to know what was in place as of the time frame under consideration for the data that is at issue in your case, based on your timeline. Don’t rely on the facts about how WeChat operates in this decision at some later point. You’ll want to confirm how data can be retained at the time your duty to preserve arises. Best course — take what WeChat does off the table and preserve the data sources that you have for your custodians so you can eliminate motion practice like this one.
Conclusion
That’s our Case of the Week for this week. Thanks for joining me. We’ll be back again next week with another decision from our eDiscovery Assistant database.
As always, if you have suggestions for a case to be covered on the Case of the Week, drop me a line. If you’d like to receive the Case of the Week delivered directly to your inbox via our weekly newsletter, you can sign up on our blog. If you’re interested in doing a free trial of our case law and resource database, you can sign up to get started.
Have a great week!
