eDiscovery Daily Blog

Court Rules that Australian Company’s Duty to Preserve Only Begins when US Court Has Jurisdiction: eDiscovery Case Law

In Lunkenheimer Co. v. Tyco Flow Control Pacific Party Ltd., No. 1-11-cv-824 (S.D. Ohio Feb. 12, 2015), Ohio District Judge Timothy S. Black ruled that the duty to preserve for the defendant (an Australian company with offices and facilities only in Australia) did not begin until the complaint was filed in US courts in December 2011, denying the assertion of the intervenor/counter defendant that the duty to preserve arose in 2002.

Case Background

The intervenor/counter defendant alleged that the defendant refused to fully comply with the court’s October 2014 discovery order by failing to preserve, or satisfactorily search for and produce, evidence relating to the case and requested sanctions including striking the defendant’s counterclaims and what amounted to a summary judgment in favor of the plaintiff for $24.7 million.

With regard to the duty to preserve, the intervenor/counter defendant argued that the defendant’s duty to preserve began no later than October 1, 2002, about a month after the License had been signed, when an email from an executive at the defendant company questioned ownership of the assets and intellectual property associated with the license and the intervenor/counter defendant claimed that, from at least that date, the parties were in constant dispute over the existence of, and the defendant’s compliance with, the License.

The defendant argued that any duty to preserve under U.S. law could not have arisen before August 3, 2012, the date when the defendant answered the complaint and consented to U.S. jurisdiction, and, even if it had, it was not before the defendant was served on December 8, 2011. The defendant also noted that, throughout the nine years prior to Plaintiffs’ filing of this lawsuit, the plaintiffs continued to accept regular royalty payments of over $1.6 million for the first five years, took no action for another four years while the defendant continued to use the IP and never sent a dispute notice or termination notice during that time.

Judge’s Opinion

Citing In re Uranium Antitrust Litigation, 480 F. Supp. 1138 (N.D. Ill. 1979) in a footnote, Judge Black stated the following:

“The power of a U.S. Court to require compliance with U.S. discovery obligations does not arise until and unless the Court has jurisdiction.”

Judge Black noted that the defendant “is an Australian company with offices and facilities only in Australia”, that “Australian Law governs the License and was the anticipated jurisdiction for License-related disputes” and that “[n]o significant sales of Licensed Products were made into the U.S.” While acknowledging that the defendant “is not excused from an obligation to preserve evidence simply because it is a foreign company”, Judge Black ruled that “the only place litigation might at some point have been anticipated was in New South Wales, Australia—not Ohio or anywhere else in U.S. Accordingly, notwithstanding the fact that it may not have had jurisdiction over the PFCP until 2012, and in the absence of evidence that PFCP should have reasonably anticipated litigation in the United States any earlier, the Court finds that the duty to preserve began on December 8, 2011.”

So, what do you think? Do you agree that the defendant did not have a duty to preserve any earlier than the filing of the complaint? Please share any comments you might have or if you’d like to know more about a particular topic.

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