WeChat Woes: How Failing to Preserve Ephemeral Data Led to Sanctions in Two Canoes LLC v. Addian Inc

Unlock the secrets to a winning litigation strategy by mastering the art of preserving ephemeral data. What happens when critical evidence vanishes into thin air? This episode promises to arm you with essential insights from the pivotal case of Two Canoes LLC versus Addian Inc., where the loss of WeChat messages led to significant legal sanctions. Join me, Kelly Twigger, as I dissect the crucial role of early planning and the often-overlooked data sources like mobile devices that can make or break a case. Learn from the pitfalls of neglecting evidence preservation, drawing parallels from the 2020 3M lawsuit over counterfeit N95 masks, and understand the profound implications on litigation tactics and risk management.

Throughout our discussion, I unravel the challenges faced by Addian's CEO, Adam Woolworth, who failed to preserve essential messages, highlighting the ever-important themes of possession, custody, and control of data. We'll also delve into the broader landscape of eDiscovery case law, offering practical tips and insights to enhance your discovery practices. Whether you're a seasoned legal professional or navigating the complexities of eDiscovery for the first time, this episode is packed with valuable guidance to keep you ahead in managing electronically stored information. Subscribe and leave a review to stay informed on this rapidly-evolving field, and join me next week for more cutting-edge insights into the world of electronic discovery. 

Two Canoes LLC v. Addian Inc. (April 30, 2024)
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*This broadcast originally aired on 7/9/2024

#eDiscovery #CaseLaw #DataPreservation #mobiledevice #Sanctions #LegalTech #legalhold #failuretopreserve #wechat #LitigationStrategy #ElectronicDiscovery #DataRetention #CourtDecisions #LegalInsights #spoliation

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Episode Transcript

Kelly Twigger (00:13):
Welcome to the Case of the Week podcast, where
each week, we break down arecent decision in electronic
discovery case law and talkabout the practical impact for
you and your clients and keepyou up to date on your
obligations with electronicallystored information as evidence.
If you're a litigator, legalprofessional or you love the
power of ESI as much as I do,this is the place to be.

(00:34):
I'm Kelly Twigger, the CEO andfounder of eDiscovery Assistant
and the principal at ESIAttorneys, with more than 25
years of experience navigatingthe evolving landscape of
litigation and eDiscovery.
I'm a practicing attorney,author, speaker, entrepreneur
and now podcaster who works as adiscovery strategist and expert
for clients at ESI Attorneysand to provide that knowledge to

(00:55):
all legal professionals throughour e-discovery assistant
platform.
In each episode, we'll tackle anew decision in e-discovery
case law and how it shapes bothyour litigation strategy and
planning for risk mitigation.
If you're ready for blunt,actionable insights that keep
you ahead of the curve, andmaybe a few laughs along the way
, this is your go-to podcast.
Subscribe or follow now tostart embracing's episode of the

(01:33):
Case of the Week series broughtto you by eDiscovery Assistant.
We are inching ever closer tothe 150th episode of the Case of
the Week.
My name is Kelly Twigger.
I am the CEO and founder ateDiscovery Assistant, your GPS
for eDiscovery, knowledge andeducation.
Thank you so much for joiningme today.
As you know, each week on thecase of the week, I choose a

(01:54):
recent decision in eDiscoveryand talk to you about the
practical implications of it.
This week's decision involves amotion for sanctions following
the loss of WeChat messages on amobile device.
It highlights two of ourregular themes here on the case
of the week the need to do earlyplanning and consideration of
data sources, especially mobiledevices, and paying careful

(02:16):
attention to the timeline whendata is lost relative to the
duty to preserve All right.
Let's dive in.
This week's decision comes tous from Two Canoes LLC versus
Addian Inc.
This is a decision from April30th 2024, so a month or so ago
and is written by United StatesMagistrate Judge Jose Almonte.

(02:36):
As always, we identify each ofthe issues in the decisions
within our e-discovery assistantdatabase, and this week's
issues include ephemeral datapossession, custody and control,
spoliation, bad faith, mobiledevice text messages, legal hold
, scope of preservation,sanctions, cloud computing and

(02:57):
failure to preserve All right.
Facts of the case.
We are before the court here ontwo canoes.
Motion for sanctions forspoliation of WeChat messages by
the defendant's CEO.
This is the magistrate judge'sreport and recommendation to the
district judge.
The underlying facts of the caseallege that Addie and sold
allegedly fraudulent in 95 masksmanufactured by 3M, purchased

(03:21):
to two canoes during thepandemic purchased to two canoes
during the pandemic.
So recall that the N95 maskswere in very short supply during
the early part of the pandemic,when everyone was scrambling to
get their hands on personalprotective equipment, otherwise
known as PPE.
Adian is a small, family-ownedcompany that provides logistic
services to its customers and isheaded by Adam Woolworth.

(03:42):
Aobvious was one of Adian'scustomers.
Aobvious also providedlogistics services and included
two canoes on its client roster.
So we've really got a chain ofthree companies Adian buying the
masks, selling them to Aobvious, who then sold them to two
canoes.
In 2020, woolworth reached outto Robert Fisher, a contact in

(04:03):
China who Woolworth understoodcould supply N95 masks from a 3M
manufacturer in China.
Fisher supplied those masks toAddian, who then supplied the
masks to Aobvious, who thensupplied the masks to two canoes
.
Two canoes then supplied themasks to resellers who sold the
masks to end users.

(04:24):
Makes you wonder whether theN95 masks you bought were
actually real.
Here's where the timeline comesinto play in the case.
In November 2020, 3m suedAddian and other entities,
alleging the masks werecounterfeit.
Woolworth was aware of his dutyto preserve as of the filing of
that case, and took steps topreserve data related to his

(04:45):
Google accounts and othersources of ESI Addie and settled
the lawsuit in June of 2021,and the 3M lawsuit was
officially terminated inFebruary 2022.
On July 14, 2021, so a fewweeks after Addie and settled
out of the 3M case, two canoesthreatened litigation against

(05:05):
Aobvious via email.
On July 16, 2021, aobvious'scounsel forwarded the email to
Addian's counsel putting Addianon notice of that litigation.
Two canoes then filed thisaction that's currently pending
before us against Aobvious onNovember 4, 2021, and Aobvious
added Addian as a third party onJanuary 7th 2022.

(05:29):
During discovery of thislitigation, woolworth, addian's
principal, collected andproduced ESI, including emails,
documents and text messages withFisher, the contact in China.
He did not produce any messagesfrom WeChat.
Now, if you're not familiarwith it, WeChat is a very
popular ephemeral messagingapplication from China that

(05:49):
allows messages to disappearfrom WeChat servers, and at the
time of the decision here,wechat worked like this Once 72
hours had lapsed since a chatmessage was sent, or 120 hours
for images, audio, videos andfiles, wechat permanently
deleted the content of themessage on their servers.

(06:10):
After deletion, neither WeChatnor any third party would be
able to view the content of thatmessage.
Now, although the messagesdisappeared from the WeChat
servers, it remained within theuser's application only on the
user's device, such as a cellphone, unless it has been
otherwise backed up.
So those messages would havelived on Woolworth's device and

(06:34):
Fisher's device after they weredeleted from the WeChat servers.
Woolworth testified at hisdeposition that while he
communicated with Fisherprimarily by phone call, he did
correspond with Fisher a fewtimes on WeChat, but he no
longer had those messages due toa loss of his phone.
And here's our twist and wherewe talk about early preservation
.
Woolworth testified that hediscarded at least three cell

(06:56):
phones in the span ofapproximately a year and a half
the first one in September 2020,so before the November 2020
duty to preserve in the 3M case.
The second in October 2021,after both cases were arisen,
which was broken and recycled,and the third one in February
2022.

(07:17):
Woolworth did not back up theWeChat messages from the phones.
Now the parties dispute whetherWoolworth made reasonable
efforts to recover any lostWeChat messages to the extent
they existed.
Fisher is in the wind at thispoint and unresponsive to any
subpoena, so there is no otherway to recover the messages.
All right, those are the factsbefore us.
On our motion for sanctions,let's talk about what the

(07:38):
court's analysis is Now.
Plaintiff here sought sanctionsunder Rule 37E2 of the Federal
Rules of Civil Procedure forfailure to preserve and asked
for an adverse inferenceinstruction to be applied at the
summary judgment stage.
Now, this case is an excellentexample of analysis done under
Rule 37, and I recommend thatyou spend a few minutes reading
it and bookmarking it forreference when you're addressing

(08:00):
these issues.
The court goes into the initialelements of despoliation of the
data more than usual because ofthe facts of this case, and
it's not an analysis that we seevery often.
Now the court goes through, asI mentioned, each step of the
analysis under Rule 37 in thecontext of the timeline of the
case and held, not surprisingly,that Addian had a duty to

(08:23):
preserve as of November 5th 2020, and that continued with the
filing of the case against aobvious in which Addian was
later made a third party.
Since the communications withFisher were clearly relevant,
the court considered whether thechat messages were lost after
the duty to preserve attached.
Now, critical to the court'sanalysis here was that Woolworth

(08:44):
initially lost the phone withthe WeChat messages on it in
September 2020, before the 3Mlitigation was filed, which
meant it was not subject tospoliation analysis.
The court then looked at tworelevant time periods after the
duty attached November 5th 2020through October 2021 and October

(09:04):
2021 through February 2022.
And the court found that WeChatmessages from between November
5th 2020 and October 2021 werelost.
Plaintiff did not meet itsburden to show that messages
were lost during the subsequenttime period, so we've
established the messages werelost for purposes of this
bulliation analysis.

(09:25):
The court next determined thatWoolworth did not take
reasonable steps to preserve theWeChat messages and then moved
to discuss available sanctions,including whether prejudice and
intent to deprive existed.
Now, based on the evidence thatWoolworth communicated
primarily with Fisher via phone,the court found it quote
difficult to ascertain theextent to which plaintiffs

(09:47):
suffered prejudice, if any, fromdefendant's spoliation.
Now, the court's discussionhere relative to the timing of
the facts is very important andI urge you to read it.
It's too detailed for us tocover completely today.
This is the kind of factualanalysis that's so critical to
motion practice and it's whatyou're going to want to include
in your motion papers to be ableto make the most effective

(10:09):
arguments for your client.
As a result of that analysis,the magistrate judge recommended
that the court defer a decisionon prejudice until trial, when
quote the court will be in abetter position to evaluate two
canoes evidence and determinewhat the missing WeChat messages
could plausibly establish.
Close quote.

(10:30):
Now the magistrate judge took asimilar approach on the intent
issue, finding that whileWoolworth should have kept the
broken phone instead ofrecycling it, it could not find
bad faith based on Addian'spreservation of other ESI.
But the court left the finaldetermination up to the jury
following the process outlinedin the advisory notes from 2015.

(10:50):
Quote because the issue ofintent is one that might hinge
on credibility, I recommend thattwo canoes be given the
opportunity at trial to inquireabout Woolworth's intent so that
the court or the jury maydetermine what sanction, if any,
is appropriate after evaluatingWoolworth's credibility close
quote.
The court also recommended thattwo canoes be given the

(11:13):
opportunity to examine witnessesat trial to determine whether
Addie and acted in bad faith.
Now this is the second decisionwe've seen recently where the
court is sending that intentdetermination on a sanctions
motion to a jury and that haspros and cons to it.
So let's talk about that interms of the takeaways.
This sending of a determinationof intent to a jury can be very

(11:36):
fraught One.
It removes the focus of theoriginal evidence and forces a
trial team to have almost aseparate intent inquiry and to
deal with that at trial.
That's not something you wantto be dealing with, especially
when you're calling your mainwitness's credibility into
question.
Credibility into question.
So Woolworth is the one who hadall the communications for
Addie and he's the one whosecredibility is going to be most

(12:01):
at key in determining whether ornot Addie knew that these masks
were fraudulent when theyresold them to Aobvious and then
to two canoes.
So that credibility issue isgoing to be hugely complicated,
very important, and to add theintent element to sanctions
associated with it reallycomplicates things from a trial
perspective.
It's not something you want tohave happen.
For that reason, our very firsttakeaway is critical, and that

(12:24):
is early, early planning.
Conducting custodian interviewsand identifying sources of ESI
is critical is critical.
These types of factualscenarios, like Woolworth losing
his phone three times, come upin almost every case in which a

(12:45):
custodian may not have everyrelevant piece of ESI.
It may be custodian-based, itmay be enterprise-based right.
Oftentimes, databases are anissue that gets shut down, that
were never implicated in thelitigation and sometimes just
come up at some point andthere's a spoliation argument
made.
Figuring out and identifyingissues related to lost data
early that will allow you tostrategize and figure out how to

(13:05):
deal with them.
You always have options thatneed to be considered
strategically Should you advisecounsel about the lost data and
the timeline when it was lost.
Prep your witness to addressthe issue at their deposition.
Come up with strategicalternatives on how to address
the court, how to approach thisparticular issue.
But you can only have thatability to think strategically

(13:27):
if you know about thosepotentially lost data sources,
and you can only know that byasking custodians and your
companies very early so thatyou're aware of those data
sources when you are dealingwith them retroactively ie
finding out that there'sspoliation of a potential data
source later in the litigation.

(13:47):
You are on your back heels justtrying to survive.
Next takeaway mobile devices aresuch an incredibly important
part of e-discovery today andcounsel have to be aware of the
types of data that's stored onphones that can be lost without
taking active steps to preservethem.
Here it's likely that the datawas lost before counsel even
knew about the case in November2020, but the cost of preserving

(14:11):
Woolworth's phone would havebeen a drop in the bucket
compared to defending thismotion for sanctions and the
risk that will come at trial.
On the issues of prejudice andintent, here it seems that if we
had addressed this issue veryearly on and maybe counsel had
right we're Monday morningquarterbacking here on Case of
the Week.
Maybe they knew about thisissue from the outset of the 3M

(14:32):
litigation, but you've got to beable to address it factually
and it didn't seem like from theportions of Woolworth's
testimony that are cited in thedecision that he was clear and
concrete about when hecommunicated with Woolworth or
Fisher via WeChat and when hisphones were lost.
If he could have done thatbetter at his deposition, this

(14:55):
issue might have been precluded,the court might have been able
to better determine hiscredibility on this motion, or
the motion could have been notbrought in the first place if
the information was sufficientthat the motion wouldn't have
carried.
Finally, keep in mind that, asyou're reading the facts of this
case.
This is how WeChat worked atthe time at issue.

(15:16):
Applications are constantlychanging their retention
practices and it's imperative toknow what was in place as of
the time frame underconsideration for the data that
is at issue in your case, basedon your timeline.
Don't rely on the facts abouthow WeChat operates in this
decision.
At some later point You'll wantto confirm how data can be

(15:38):
retained.
At the time your duty topreserve arises.
Best course, take what WeChatdoes off the table and preserve
the data sources that you havefor your custodians so you can
eliminate motion practice likethis one.
All right, that's our case ofthe week.
For this week, thanks forjoining me.
We'll be back again next weekwith another decision from our
eDiscovery Assistant Database.
Have a great week.

(15:59):
Thanks for joining me on theCase of the Week.
Podcast.
Tune in next episode as Idiscuss a new decision in
eDiscovery case law and identifythe issues you need to be
paying attention to and how theycan help you do better
discovery for your clients andleverage the power of ESI.
Be sure to subscribe and leavea review to help others discover
the show and be kept in theknow on all things electronic

(16:21):
discovery.
I'm Kelly Twigger.
See you next time.