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The recent decision In re Keurig Antitrust Litigation, 2022 WL 1082087 (S.D.N.Y. Apr. 11, 2022), offers timely examples of how extensive, well-intentioned preservation efforts can go awry – leading to costly motion practice and potential sanctions – because of poor execution.

The recent decision In re Keurig Antitrust Litigation, 2022 WL 1082087 (S.D.N.Y. Apr. 11, 2022), offers timely examples of how extensive, well-intentioned preservation efforts can go awry – leading to costly motion practice and potential sanctions – because of poor execution.

Defendant Keurig manufactures a coffee maker that produces a single cup of coffee for each brewing cycle. The process uses disposable, plastic cups containing ground coffee.  Keurig and its successor, Green Mountain Coffee, also manufacture the plastic cups used in the coffee maker. The plaintiffs manufacture plastic cups for use in Keurig’s coffee makers and compete with Keurig / Green Mountain in that market. Plaintiffs accused Keurig / Green Mountain of multiple anti-competitive acts, including re-designing its coffee machines to prevent the use of competitors’ cups, using tying and exclusive dealing arrangements, and threatening companies doing business with competitors.

Preservation notices and custodian interviews

The defendant, Keurig, sent litigation preservation notices to 400 personnel within six days of receipt of the complaint and later notified an additional 300 people. However, Keurig did not send notices to six of the 54 personnel (11%) ultimately defined as key custodians. Keurig also failed to interview 11 of the 54 key custodians (20%) in a timely matter about their documents and data.

The court found that Keurig violated both the Rule 37(e) mandate to take reasonable steps to preserve evidence and the parties’ stipulated, court-adopted ESI order – meaning that Keurig failed to follow a discovery order in violation of Rule 37(b)(2). The court noted that preservation efforts, including interviews, extend to former personnel, and that the failure to interview certain custodians was negligent and possibly grossly negligent. Issues of prejudicial impact aside, the failure to identify key custodians and complete preservation efforts exposed Keurig to costly motions and potentially severe sanctions.

Hardware tracking and data recovery

Keurig’s policy was to sequester any departing personnel’s hard drive or full computer subject to litigation preservation notices. Plaintiffs sought sanctions for 23 hard drives for which Keurig provided no discovery, including 16 that were preserved but inaccessible due to damage or lost encryption keys and nine drives that were lost.

By the time discovery began, none of Keurig’s IT personnel knew how to retrieve encryption keys from a retired server, nor did they know the server password. Vendor consultations yielded limited results.

For years, Keurig also failed to catalog its inventory of departed personnel’s preserved hard drives to identify those subject to a hold, plus Keurig took no action concerning equipment issued to current personnel subject to the hold. Further, although one former employee had returned his computer to the human resources department upon his departure, the computer inexplicably was not preserved.

Performing a custodian-by-custodian analysis, the court ruled that the unavailability of three of the 23 hard drives prejudiced plaintiffs. The court also found no evidence that Keurig intended to deprive plaintiffs of the information, precluding severe Rule 37(e)(2) sanctions such as an adverse inference instruction. The court ruled instead that plaintiffs could present evidence of the three missing hard drives as a curative measure under Rule 37(e)(1), which does not require a showing of intent.

Another 2022 case, Schnatter v. 247 Group, LLC (W.D. Ky.), applied a similar analysis to the loss of text messages from multiple mobile phones belonging to plaintiff Schnatter, the former CEO of Papa John’s. Upon filing suit, Schnatter’s phone was imaged, and a second phone was imaged later in the litigation. Despite instructions to preserve communications, Schnatter continued his pre-litigation routine of deleting messages. He also discarded several phones he used during the course of the lawsuit. With two phones imaged, the magistrate judge found insufficient evidence of an intent to deprive the defendants of evidence, thus denying the defendants’ request for an adverse inference instruction. But the magistrate found the prerequisites for sanctions: a duty to preserve, unreasonable steps to preserve, a loss of evidence, and resulting prejudice for which the court recommended two remedies: (a) the defendants would be allowed to present evidence of the missing texts and (b) Schnatter would pay the defendants’ attorneys’ fees for the discovery disputes. The 49-page opinion is ample evidence that those fees will be substantial.


Hard copy documents

The Keurig plaintiffs sought sanctions for the failure to produce hard copy documents. For four custodians, plaintiffs failed to show that any hard copy documents existed or were relevant. However, the court found that another custodian had discarded notebooks with potentially significant information upon his departure even though he had received a preservation notice four months earlier. The court found that Keurig failed to take reasonable steps to ensure the custodian’s compliance with the preservation notice but found no intent to deprive plaintiffs of the discarded notebooks. The court ruled that plaintiffs could present evidence of the missing notebooks at trial.

Risks of incorporating preservation requirements into ESI / discovery orders

The opinion also underscores the tangible risk of incorporating preservation requirements in a discovery order. Counsel should avoid this potential “gotcha,” which creates an additional basis for sanctions.

Under the Federal Rules, severe Rule 37(e)(2) sanctions for failing to preserve evidence such as adverse inference jury instructions or evidence preclusion orders are appropriate only when there is clear and convincing evidence of an intent to deprive the other party of the information – a high bar.

In a stipulated ESI order, the parties in Keurig incorporated a generalized platitude that they would "take reasonable steps in good faith to prevent the loss, destruction, alteration, overwriting, deletion, shredding, incineration, or theft of any document or data the party knows, or reasonably should know, falls within the scope of Federal Rule of Civil Procedure 26(b)(1)." The parties agreed that these steps included preservation notices, preventing automatic or manual deletions, and custodian interviews. When the court found errors in Keurig’s execution, Keurig was exposed to adverse inference or evidence preclusion sanctions for violating a discovery order under Rule 37(b)(2), with a far lower standard of proof.

The court found these weighty sanctions to be inappropriate because of the limited prejudice plaintiffs suffered, the sufficiency of other remedies to cure such prejudice, and the preference for resolving actions on the merits rather than through sanctions. The practice point, however, is that by inserting preservation requirements into the discovery order, the parties “opted in” to the potential for the most draconian sanctions available but without the protections of Rule 37(e)(2) – a leap that ought to be considered carefully before it is taken.

This document provides a general summary and is for information/educational purposes only. It is not intended to be comprehensive, nor does it constitute legal advice. Specific legal advice should always be sought before taking or refraining from taking any action.