The contractual right to something-even if you don't have it in your hands-can qualify as possession, custody and control.
This is how the U.S. District Court for New Jersey saw it recently in holding that the contractual right to have access and control over independent title insurance agent files, even without physical possession, was enough to establish "possession, custody, and control" under Federal Rule of Civil Procedure 34. The court determined that First American Title Insurance Company was required, therefore, to instruct its agents to preserve those documents.
The ruling in Haskins v. First American Title Insurance Company means that documents in the agent files, while not in First American's actual physical possession, are still subject to the reach of a litigation hold because First American's contracts with its independent agents obligated the agents to grant First American control over and access to its agents' closing files. The court ordered First American to serve a litigation hold letter on its present and former independent title agents in New Jersey.
In Haskins, plaintiffs sued First American because of an alleged scheme to overcharge customers for title insurance when they refinanced their residential mortgages. First American had entered into separate, but similar, agency contracts with each agent, which addressed the agent's duties and responsibilities, including the maintenance of their First American files.
The pivotal issue before the court was whether First American was required to direct its agents to implement a litigation hold. In deciding, U.S. Magistrate Judge Joel Schneider noted that federal courts construe "control" broadly for Rule 34 purposes. Consequently, First American had control if it had "the legal right or ability to obtain the documents from another source upon demand."
Judge Schneider rejected First American's claim that it lacked control over its agents' files. "First American's agency contracts contain language plainly indicating that it has control over and access to its agents' closing files," he wrote, noting that, in the course of discovery, the parties produced copies of several agency contracts that were representative of the "thousands" of contracts it may have entered into. The contracts specifically granted First American with access to and the right to examine, copy, and audit information from the files.
"Since First American has the legal right to obtain its agents' documents on demand, this establishes control pursuant to Rule 34," Judge Schneider wrote, adding that the fact that some of the contracts specified that the files were the property of the agents did not negate control for purposes of Rule 34. He likewise rejected First American's claim that it could not force its agents to comply, because First American could claim that the agent breached its contract if the agent did not produce the requested files.
Having determined that First American "controls" its agents' closing files, he turned to the plaintiffs' request that First American be ordered to direct its agents to preserve their closing files for the possible use or production in the case. A duty to preserve documents arises when a party "knows or reasonably should know" that litigation is foreseeable.
"Here, the duty to preserve clearly applies to First American because litigation is already in progress. Further, the closing files of First American's agents are plainly relevant to plaintiffs' claim. Thus, if it has not already done so, First American must implement a litigation hold to preserve all documents relevant to this litigation that are in its possession, custody, or control," Judge Schneider wrote. The agent documents may be within First American's control even if it did not have physical possession of them.
Key takeaways:
1. Physical possession is not essential to establishing control. Your client may be found to have control for Rule 34 purposes by virtue of contractual obligations.
2. "Control" extends beyond your client's own bricks and mortar. In cases where control is derived from contractual obligations, clients will need to implement systems and procedures for preservation of documents outside their organization-control extends beyond the client's in-house personnel to outside agents and affiliates.