There once was a time businesses relied upon their attorneys, in-house legal departments, and a few select employees to manage the preservation of documents that might be needed in litigation.  That time is long gone, and all businesses must immediately address their issues of document preservation, particularly with regard to electronic documents and email correspondence, in order to comply with the increasingly stringent guidelines restricting the destruction of documents.  The most challenging aspect of the new rules is the implicit reliance on all employees to understand and comply with the rules.  Businesses are no longer allowed to educate only a select few, but now must develop a comprehensive system to enforce rules that require preservation of any document that may be relevant to any current or future litigation. 

These policies are commonly referred to as “litigation holds,” whereby all documents related to an account or a particular party are preserved for so long as any litigation may arise with relation to that account or party.  The guidelines for litigation holds were brought to the forefront of emerging legal issues when the U.S. District Court for the Southern District of New York issued its opinion in Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. July 20, 2004) ("Zubulake V").  In Zubulake V, the Court held that once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a litigation hold to ensure the preservation of relevant documents.  When a party fails to meet these obligations and that failure results in the destruction of evidence, sanctions may be warranted.  Although the nature of the sanction depends in part on the state of mind of the destroyer, some remedy may be appropriate even where the destruction is merely negligent. 

The preservation requirement discussed in Zubulake V becomes extremely arduous when applied to electronic documents.  Since the ruling, the issue of document preservation and the scope of electronic discovery has been the subject of proposed amendments to the civil procedure rules on both the federal and state levels.  Depending on the jurisdiction of the case, a party’s failure to comply with document preservation rules may result in various penalties, including adverse instructions to the jury, dismissal of the case by the court, or even monetary sanctions.

In order to avoid sanctions by the court, you should consider implementing the following three step process:  Establish, Educate, and Enforce. 

(1)               Establish.  You must first establish a document preservation policy that protects any and all documents which may become relevant in any civil action, whether it be bankruptcy, collection on an account, defending lender liability claims, or disputing contract terms.  Counsel can assist you in developing a system that will comply with the rules of discovery and protect you from sanctions by reflecting your efforts to preserve documents in compliance with the rules.  A well-demonstrated effort to comply with the rules goes a long way in protecting a company from sanctions.

(2)               Educate.  Each and every employee who comes into contact with documents related to any contract or account must be educated in order to prevent the inadvertent destruction of documents or deletion of emails.  Businesses can work with their IT department to coordinate an archiving policy that will protect aging email correspondence.  In turn, employees must also be aware that the content of an email may later be discoverable and all emails should be written with the anticipation that they may one day be used as evidence in a trial.

(3)               Enforce.  Enforcement of litigation holds and document production during litigation is a collaborative effort.  Large corporations often face the additional challenge of multiple departments and office locations handling one account or contract.  For example, both consumer and business credit card and creditline accounts often begin at the local branch with a local loan officer setting up the account.  If the account holder makes a specific request to the creditor for changes on the account or an increase of credit limit, there will be an additional layer of communication and some documentation of the communication on file with the company’s risk management department.  Communications with the creditor may also create notes with the “bank card department” or a general customer service officer.  Upon default, the account is then transferred to a recovery department that often has little or no contact with the initial loan officer or the risk management department.  These various layers of communication are obvious pitfalls for enforcing a clear documentation preservation policy.  Enforcement should be consistent and widespread, which requires frequent communication among departments, management, and counsel.

The ever-changing landscape of electronic storage and document preservation creates many challenges for both large and small companies.  Establishing a clear policy, educating employees, and enforcing the policy at all levels are critical steps in protecting yourself and preserving your rights in litigation.  

If you have any questions regarding this article, please contact Deborah Sperati at 252.446.7095 or dsperati@poynerspruill.com or Judy Thompson at 704.342.5299 or jthompson@poynerspruill.com.

This electronic publication is published by Poyner & Spruill LLP to provide general information about significant legal developments. Because the facts in each situation vary, the legal precedents noted herein may not be applicable to individual circumstances.