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The Duty to Preserve Electronic Evidence

11.20.2008

 

Did you know that your company may have a legal duty to suspend the ordinary procedures through which its computer systems handle, recycle, and dispose of electronic data simply because you reasonably anticipate facing litigation in the near future? In other words, even before your company serves, or is served with, a summons and complaint, a legal duty arises to preserve documents and data if they are relevant to a lawsuit that you reasonably anticipate will be filed in the future. See, e.g., Zubulake v. UBS Warburg, LLC, 220 F.R.D. 212, 217 (S.D.N.Y. 2003) (Zubulake IV); Shamis v. Ambassador Factors Corp., 34 F.Supp. 2d 879, 889 (S.D.N.Y. 1999).

Preserving information relevant to a pending lawsuit is important for many reasons, but a reason that should get your particular attention is this: If your company fails to preserve evidence after litigation is reasonably anticipated, this failure can lead to serious punitive consequences for evidence “spoliation”—i.e., the negligent or intentional destruction or alteration of evidence. Silvestri v. General Motors Corp., 271 F.3d 583, 590 (4th Cir. 2001). These consequences can include: monetary sanctions, awards of attorneys fees and costs for the price of investigating and litigating document destruction, and litigation consequences such as default judgments, dismissal of certain claims or defenses, or court instructions allowing a jury to draw adverse inferences about what destroyed evidence would have shown. See, e.g., Arista Records, LLC v. Tschirhart, 2006 WL 2728927 (W.D. Tex. 2006) (imposing a default judgment on defendant after finding that defendant used “wiping” software to erase data); Nursing Home Pension Fund v. Oracle Corp., 2008 WL 4093497 (N.D. Cal. 2008) (sanctioning defendant with adverse inference at trial); Great Am. Ins. Co. of N.Y. v. Lowry Dev., LLC, 2007 WL 4268776 (S.D. Miss. 2007) (reducing the plaintiff’s burden of proof as spoliation sanction against defendant).

Indeed, recent cases have reported some eye-opening sanction awards. See, e.g., United States v. Philip Morris, USA, Inc., United States v. Philip Morris USA, Inc., 327 F. Supp. 2d 21, 26 (D.D.C. 2004) (sanctioning Philip Morris $2.75 million for failing to comply with document preservation order by destroying emails); Prudential Ins. Co. of Am. Sales Practices Lit., 169 F.R.D. 598, 615 (D.N.J. 1997) (sanctioning Prudential $1 million for “haphazard and uncoordinated approach to document retention” and failure to act quickly to prevent destruction of electronic data).

You might think consequences for evidence spoliation are reserved for businesses that make a specific decision to destroy or delete data that is unhelpful to their case. This is not necessarily true. Indeed, it is likely that the coming years will see a number of spoliation awards entered against honest businesses that simply were unaware of the technical steps necessary to keep relevant electronically stored information from being lost or deleted. See, e.g., Mosaid Techs., Inc. v. Samsung Elecs. Co., LTD, 348 F.Supp.2d 332, 339-340 (D.N.J. 2004) (imposing an adverse jury inference and award of monetary sanctions after defendant failed to issue a “litigation hold” and allowed its usual e-mail destruction practices to continue after the duty to preserve was triggered).

The problem stems in large part from the nature of electronically stored data. Items or files that exist when a “duty to preserve” first arises, for example, may be subject to automatic deletion procedures that make them irretrievable by the time you start searching for materials subject to your adversary’s document production request. “Deleted” emails, for example, may still exist on your computer’s hard drive or on company backup tapes for a period of time after deletion. Eventually, however, the hard drive may be overwritten and the backup tapes recycled in accord with your company’s normal data retention procedures. Thus, in many instances, companies will be required to take affirmative steps to alter or suspend their normal automated data storage and destruction procedures once they reasonably anticipate litigation. See, e.g., Mosaid Techs., supra; see also Fed. R. Civ. P. 37(e), Committee Note (explaining that under the 2006 Amendments to the Rule, parties may not “exploit the routine operation of an information system to thwart discovery obligations by allowing that operation to continue in order to destroy specific stored information that it is required to preserve”).

Although the 2006 Amendments to the Federal Rules of Civil Procedure address procedural issues concerning electronic discovery, the Amendments are not the source of pre-discovery obligations to preserve electronically stored information. These obligations stem from the common law, see Silvestri, 271 F.3d 583, and the lead cases discussing the scope of a company’s duty to preserve evidence are a series of five separate court opinions issued in the employment discrimination case of Zubulake v. UBS Warburg LLC. In the fourth Zubulake opinion, reported at 220 F.R.D. 212 (S.D.N.Y. 2003) (Zubulake IV), the Court provided a particularly thorough explanation of the nature of a litigant’s duty to preserve relevant electronic information:

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. As a general rule, that litigation hold does not apply to inaccessible backup tapes (e.g., those typically maintained solely for the purpose of disaster recovery), which may continue to be recycled on the schedule set forth in the company’s policy. On the other hand, if backup tapes are accessible (i.e., actively used for information retrieval), then such tapes would likely be subject to the litigation hold.

Zubulake IV, 220 F.R.D. at 218. The opinion also set forth an exception to the general rule, specifically:

If a company can identify where particular employee documents are stored on backup tapes, then the tapes storing the documents of ‘key players’ to the existing or threatened litigation should be preserved if the information contained on those tapes is not otherwise available. This exception applies to all backup tapes.

Id. (emphasis in original).

The Court elaborated on this duty, while further discussing the duties of outside counsel, in the fifth Zubulake opinion, 229 F.R.D. 422, 430 (S.D.N.Y. July 2004) (Zubulake V). According to Zubulake V, outside counsel has a duty to “make certain that all sources of potentially relevant information are identified and placed ‘on hold.’” Id. To identify the sources of relevant information, outside counsel needs to do the following:

  1. Communicate directly with the client’s IT personnel to become familiar with the client’s document retention policies, actual document retention and destruction procedures, and data retention architecture, including system-wide backup procedures.
  2. Communicate with “key players” in the litigation (i.e., those who would be identified in Rule 26(a) initial disclosures) to understand how they store information that may be relevant to the case. This would presumably include: how they store email and other electronic documents, what programs they use, and what they may have in electronic storage that is not part of the company network, such as on laptops or other personal electronic devices.

Once this information is identified, the lawyer should advise the client to place a litigation “hold” on all identified potentially relevant materials. How to do that will depend on the case and the circumstances, but in some cases it may include the following:

  1. Either instruct key witnesses to gather and segregate electronic copies of all potentially relevant accessible files (whether officially “active” or “archived”) or create “mirror” copies of actively stored information on computer hard drives, networks, laptops, personal digital devices, etc.
  2. Segregate and secure appropriate backup or archival data in appropriate instances. For instance, if backup tapes for key witnesses are stored separate from backup tapes for other employees, consideration should be given to segregating these backup tapes and protecting them from recycling.
  3. After the initial “litigation hold” is placed, counsel has an ongoing duty to periodically remind the client and all key witnesses of their continuing document preservation obligations. This includes preservation of relevant documents created after the commencement of litigation.

The Zubulake opinions form just one of many indications that issues involving the discovery of electronically stored data are no longer reserved for special disputes involving extremely large dollar amounts. Indeed, it should now be the norm in all cases for parties to at least consider what duties they have to preserve electronically stored data.

Meanwhile, even before your company faces its next lawsuit, it is prudent to do the following:

  1. Communicate with IT and other appropriate personnel to ensure that the appropriate people are aware of your company's potential document preservation duties in the event of litigation.
  2. Evaluate and update as necessary your company's document retention policy, particularly with respect to the storage and deletion of emails and the preservation/recycling of backup tapes.
  3. Develop in advance a procedure for effectively gathering and preserving relevant electronic data in the event of litigation.

Taking these steps will make it easier for your company to comply with its document preservation duties, and avoid spoliation sanctions, the next time you face a lawsuit.

 

 

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