Maryland Business Law Blog

Litigation Hold: Businesses May Be Sanctioned for Failing to Preserve Electronic Data Held by a Third Party

Posted by Jeanine Gagliardi on Thu, 09/27/2012 - 15:48

In Maryland, and in most jurisdictions, the law requires businesses to preserve records and information which may be relevant to a lawsuit. The duty to preserve arises as soon as a business reasonably anticipates litigation. The duty extends to information which is stored electronically, like e-mail.

One step a business must take in order to satisfy its duty to preserve is to issue a business litigation hold. This is a process by which a company informs its employees of pending or anticipated litigation and the obligation to preserve relevant records. Business litigators are becoming more familiar with the nature and scope of litigation holds, especially as it pertains to a business's own documents. A new judicial opinion now illustrates how a business may have responsibilities for documents held by third parties.

Courts have severely penalized companies for failing to preserve documents and information in their custody. The penalties handed down by courts include monetary sanctions, preclusion of beneficial evidence, admission of adverse inferences, default judgments, and dismissal of claims. The United States District Court for the Southern District of New York recently opined that a business may also be penalized for failing to take steps to preserve relevant documents and information in the custody of a third party.

In the case, a plaintiff sued a contractor for a declaration that the contractor was not entitled to additional compensation under a construction contract. The contractor moved to have the plaintiff sanctioned for failing to preserve relevant, electronically stored information that was held by a third party. The third party was a consulting firm that had been hired by the plaintiff’s business lawyer to help audit the contractor’s project costs and, potentially, with litigation that might arise out of the contract.

Relying on two factors, the court found that the third party would have complied with a request from the plaintiff to preserve the information. The first factor was that the plaintiff and third party had an ongoing relationship. The second was that the third party held itself out as having knowledge about litigation. On this basis, the court determined that the plaintiff had practical control of the information. Accordingly, it had a duty to preserve it. The plaintiff's failure to take any steps to do so was negligent. Ultimately, the plaintiff was able to avoid sanctions because there was no evidence that the failure to preserve prejudiced the contractor.

Other businesses cannot take comfort in the fact that the plaintiff in this case successfully avoided a sanction. The opinion makes it clear that a business that is on notice of a dispute has a duty to preserve potentially relevant documents held by a third party. At minimum, when confronted with the prospect of litigation, a business should consider whether there are third parties in possession of relevant documents who would be expected to comply with a request to preserve. A court may find that the business has "practical control" over such documents.

Can a Parent Release a Child's Potential Injury Claim?

Posted by Jeanine Gagliardi on Fri, 09/21/2012 - 18:06

If you are a parent, you are probably used to signing waivers and releases for your child. Schools and businesses often require parents to release a child's potential claim for injury before allowing the child to participate in a given activity. The releases normally say two things: (1) the provider is released from liability for negligently injuring the child, and (2) the parents will indemnify the provider if any claim is brought.

If you have wondered whether such a release can be enforced, you are not alone.

Surprisingly, until recently, Maryland’s courts had not addressed whether such releases could be enforced to defend a business against a claim for injury to the child. In an August 30, 2012 opinion that has tremendous implications for Maryland businesses that serve children, Maryland’s intermediate appellate court held that they are not enforceable.

In the case, a child was injured in a play center that BJ’s Wholesale Club (“BJ’s”) provides to entertain children while their parents shop. Before permitting the child to use the play center, BJ’s required a parent to execute a release that provided that (1) BJ’s is released from all claims arising out of the child’s use of the play center and (2) the child’s parents will indemnify BJ’s for any such claim.

Although they had signed the agreement, the injured child’s parents sued BJ’s, on their own behalf and on behalf of the child, for negligence. The trial court summarily rejected the parents’ claims, finding that (1) the agreement was enforceable against the adult parents and (2) there is no Maryland public policy which precludes enforcement against the child.

On appeal, the question before the Court of Special Appeals was whether a release, presented by a for-profit, commercial entity that principally serves private interests (“commercial entity”) and executed by a parent on a minor child’s behalf before the child is injured, is enforceable against the child or whether public policy precludes enforcement. The Court held that such releases are invalid and unenforceable.

The Court relied on four considerations. First, enforcing such releases may remove business’s incentive to act with reasonable care. In addition, most releases are imposed unilaterally without a real opportunity to negotiate. Also, commercial enterprises are more able than children to eliminate hazards and insure against risks that cannot be eliminated. Most importantly, the State has an interest in protecting children.

The Court further held that, because enforcement of the indemnification clause would circumvent this public policy, the indemnification clause is also invalid and may not be enforced.

The takeaway: Unless it is changed by the legislature, the holding is the controlling law in Maryland. Business owners who provide activities for children should be mindful of, and insure against, their increased exposure to liability.

Pending Case May Overturn Business-Friendly Maryland Law

Posted by Edward Sharkey on Mon, 09/17/2012 - 04:00

A case currently before the Maryland Court of Appeals will determine whether a 160-year-old legal rule in the state will be overturned, and it may have tremendous implications for Maryland businesses and business litigators. The legal principle is called “contributory negligence.” It provides that plaintiffs who contribute to their injuries through their own negligence, however slight, are not entitled to recover compensation, regardless of the defendant’s negligence.

In 2008, a soccer coach was injured when a metal soccer goal tipped over and fell on top of him after he jumped, grabbed onto the goal’s crossbar, and attempted to hang from it. The question before the court is whether the coach’s own negligence in using the soccer goal in a manner for which it was not intended should act as an absolute bar to any financial recovery for his injuries.

Lawyers for the injured coach argue that Maryland’s courts should adopt a rule called “comparative negligence,” under which a plaintiff would be able to recover despite his own negligence. The recovery would be reduced by the percentage of fault the jury attributes to the plaintiff. For example, if a plaintiff suffers $100,000 of damages and is found 40% responsible for his own injury, he may still recover $60,000 under a comparative negligence rule.

Today, 46 states use some form of comparative negligence. Contributory negligence remains the rule, however, in nearby DC, Virginia, and North Carolina. Businesses favor contributory negligence. It reduces litigation and insurance costs. Critics contend that it is unfair to deprive an injured person of compensation simply because they were partially at fault.

For now, the law is unchanged, but businesses should stay tuned for the court’s ruling, as it may have substantial effects on their exposure to liability.

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