“Possession, Custody & Control” Tackled by The Sedona Conference

Both state and federal rules of civil procedure permit litigants to request documents and electronically stored information (ESI) from other litigants and third parties by serving document requests or subpoenas. If the document requests are not objectionable, recipients must produce any requested items “in their possession, custody and control.”

Because the phrase “possession, custody and control” is generally undefined by civil procedure rules, courts and parties must refer to case law for guidance. But case law interpreting “possession, custody and control” is inconsistent. As a result, the Sedona Conference, a “think tank” focused on complex litigation and other legal issues, compiled a “Commentary on Possession, Custody, or Control.”

The Commentary explains that is intended to “provide practical, uniform and defensible guidelines regarding when a responding party should be deemed to have ‘possession, custody, or control’ of documents and all forms of electronically stored information . . . subject to [Federal Rules of Civil Procedure] 34 and 45 requests for production.” To those ends, the Commentary suggests that for a party to have “possession, custody or control” of documents or ESI, they must be in actual possession of the material or have “the legal right to obtain and produce the [d]ocuments and ESI on demand.”

Three Current Tests to Determine “Possession, Custody and Control”

Currently, courts apply three general tests to determine if a party “controls” documents or ESI requiring them to preserve and produce the information for litigation: 1) The “Legal Right” Standard; 2) The “Legal Right Plus Notification” Standard; and 3) The “Practical Ability” Standard.

Under the “Legal Right” test, a party has “possession, custody or control” of documents if they have the legal right to obtain the information.

Under the “Legal Right Plus Notification” standard, not only does a party have “possession, custody or control” of documents to which it has a legal right, if the party does not have the legal right to obtain documents requested in discovery, but knows a third party possesses them, it must advise the requesting party that a third party has the documents.

Finally, under the “Practical Ability” standard, a party must produce documents and ESI requested in litigation even if they do not have the legal right to obtain the documents, but they have the “practical ability” to obtain them.

Criticism of “Practical Ability” Test

The Commentary is critical of the “Practical Ability” test. The Commentary points out that some courts interpret the “Practical Ability” test to require production of documents based on a possibility that the documents at issue could be obtained on demand even if the party has no legal right to them. Among other concerns, the Sedona group believes that the “Practical Ability” test could obligate parties to produce documents in violation of non-disclosure agreements and also believes the test is incompatible with modern technology. The group also faults the “Practical Ability” test for failing to recognize distinctions between sister companies:

[c]ourts have applied the Practical Ability Standard to obligate sister corporations to obtain documents from each other when each has ties to a common parent corporation, notwithstanding the fact that the entities may lack a sufficient relationship to warrant the imposition. Courts applying the Practical Ability Standard frequently bypass a thorough corporate veil analysis and order production of documents in the possession and custody of non-party sister entities.

The Sedona group also expressed concern that when the “Practical Ability” test is applied broadly, it could compel individuals to produce documents and ESI in their possession relating to companies they own, but not involved in the lawsuit for which the documents are requested. Of additional concern to the group is that under the “Practical Ability” test, employers could be obligated to produce documents in the possession of employees, but over which they have no legal right to demand.

Actual Possession and Legal Right to Obtain and Produce Documents is a More Reliable Standard

In the end, the Sedona Commentary offers five principles to govern questions of “possession, custody or control.” The first is based on the “Legal Right” test which the group believes is best suited for questions of “possession, custody, or control” and is consistent with other legal theories of control such as those under agency and tort law.

Principle 1: A responding party will be deemed to be in Rule 34 or Rule 45 “possession, custody, or control” of Documents and ESI when that party has actual possession or the legal right to obtain and produce the Documents and ESI on demand.

The commentary also offers examples of situations in which “possession, custody or control” exists and when it does not.

Illustrative situations/examples where “control” exists:

• actual possession of data;
• clear contractual right to access or obtain the data;
• deliberate decision to outsource critical business data;
• deliberate decision to move data to foreign jurisdiction for litigation advantage;
• individual obtaining information from their own ISP account (email, Facebook, etc.);
• separate sister/parent-subsidiary corporation has a legal right to obtain Documents and ESI from its sister corporation;

Illustrative situations/examples where “control” does not exist:

• customer relationships where there is no legal right to demand data from a customer;
• informal business relationships, i.e., the ability to “ask” for Documents or ESI;
• employer/employee relationships, e.g., employer does not have the legal right to obtain personal Documents and ESI from a director, officer or employee’s personal cell phone, personal email account or personal social networking sites; employee does not have the legal right to demand or remove data from his/her employer;
• former directors, officers and employee relationships where no legal right to demand data exists;
• separate sister/parent-subsidiary corporation does not have a legal right to obtain Documents and ESI from its sister corporation;
• partial ownership, minority control situations where no legal right to demand data exists;
• international affiliate subject to data privacy or blocking statutes (e.g., company compelled to collect and produce Documents and ESI or data from a country;

Other Principles Address Burdens of Proof and Other Applicable Legal Principles

The other principles drafted by the Sedona group address burdens of proof and legal principles to apply when questions of “possession, custody and control” are contested:

Principle 2: The party opposing the preservation or production of specifically requested Documents and ESI claimed to be outside its control, generally bears the burden of proving that it does not have actual possession or the legal right to obtain the requested Documents and ESI.

Principle 3(a): When a challenge is raised about whether a responding party has Rule 34 or Rule 45 “possession, custody, or control” over Documents and ESI, the Court should apply modified “business judgment rule” factors that, if met, would allow certain, rebuttable presumptions in favor of the responding party.

Principle 3(b): In order to overcome the presumptions of the modified business judgment rule, the requesting party bears the burden to show that the responding party’s decisions concerning the location, format, media, hosting and access to Documents and ESI lacked a good faith basis and were not reasonably related to the responding party’s legitimate business interests.

Principle 4: Rule 34 and Rule 45 notions of “possession, custody, or control” should never be construed to override conflicting state or federal privacy or other statutory obligations, including foreign data protection laws.

Principle 5: If a party responding to a specifically tailored request for Documents or ESI (either prior to or during litigation), does not have actual possession or the legal right to obtain the Documents or ESI that are specifically requested by their adversary because they are in the “possession, custody, or control” of a third party, it should, in a reasonably timely manner, so notify the requesting party to enable the requesting party to obtain the Documents or ESI from the third party. If the responding party so notifies the requesting party, absent extraordinary circumstances, the responding party should not be sanctioned or otherwise held liable for the third party’s failure to preserve the Documents or ESI.

The Commentary may be downloaded here.