|March 25, 2005|
Previously published on March 2005
Electronic discovery in today's quickly-changing litigation environment presents many new demands and dangers for counsel and risk management executives. Dire warnings are being issued about the consequences of electronic discovery, and with good reason. In cases such as Zubulake v. UBS Warburg LLC, 2004 U.S. Dist. Lexis 13574 (S.D.N.Y)(Zubulake V), companies have been punished for failing, in the court's eyes, to preserve electronic evidence properly. The penalties range from the severe - fines or attorney's fees - to the extreme - the entry of default judgment. There are, however, steps that you can take now - before a lawsuit is filed - that may improve your company's ability to preserve electronic evidence without unduly burdening day-to-day operations.
Spoliation Principles and Explosion in Data Forms
Common law forbids "spoliation," generally defined as the destruction or alteration of "material" evidence in pending or foreseeable litigation. Spoliation is recognized as a separate tort in some jurisdictions. In general, if a court finds that spoliation has occurred and that sanctions are warranted, it will attempt to "level the playing field" by imposing one or more of the following sanctions: (1) monetary sanctions; (2) preclusion of evidence beneficial to the spoliator; (3) an adverse inference to the jury that the spoliated evidence would have been unfavorable to the spoliator; and (4) "termination sanctions," such as the entry of default or dismissal against the spoliator.
Courts tend to apply common law principles to spoliation of electronic discovery as well as to traditional "paper" forms of discovery. While the application of common law principles have facial appeal (at least in part because they are considered "comfortable" by the Court), it overlooks the fact that technological advances have exponentially increased the amount of available information. Today, one must keep track of (1) the many types of data that companies are able to keep; (2) the wide variety of electronic devices used over the years; (3) the perpetual enhancements made to technology; and (4) how technology is implemented to maintain the type of information relevant to an individual company. General counsel - through their Information Technology (IT) or legal colleagues, outside counsel and outside vendors - are now faced with the daunting tasks of understanding and applying changing legal requirements for information "preservation" to all of the technological apparatuses that a company may use to maintain its data.
Unique Problems Created By Multiple Forms of Electronic Information
Some examples of these "new" forms of electronic information and associated difficulties are:
- E-mail messages, "instant messages," text messages and other forms of written electronic communication have greatly increased the sheer volume of electronic information available for discovery. In 2000, an estimated 1.4 trillion e-mail messages were sent in North America alone, about 35 times as many as were sent only five years previously.
- In order to manage this enormous volume of electronic data, it must be routinely destroyed from time to time, often automatically. Failure to stop these processes can result in spoliation, possibly on a massive scale.
- At the same time, electronic information is far more persistent than paper. This persistence not only contributes to the huge volume of electronically stored information, but it can lead to unpleasant surprises in discovery. Information thought to have been destroyed can turn up on backup servers, laptops and disaster-recovery tapes; "deleted" information may persist for a long time before finally being overwritten. Even worse, electronic data leaves evidence of its existence, so even if it cannot be recovered, its contents can be surmised or reconstructed from other sources (e.g., an e-mail message that quotes earlier messages in its "thread").
- Electronic information is stored on a bewildering variety of devices, some of which are not easily controlled by the company, such as servers maintained by third parties and individual employees' desktop computers, laptop computers, archival files, and mobile devices such as personal digital assistants (such as Blackberries® and Palm Pilots®) or even cellular telephones.
- Electronic information can be spoliated in ways paper-based information cannot. For example, "metadata" - information about a computer file, such as "last modified" and "last accessed" dates - and temporary files are routinely and unknowingly altered and destroyed by merely booting a computer, accessing a file or changing a file's format (such as saving a Word document in .pdf format).
Zubulake and Cost-Shifting Principles
The "poster child" case for electronic discovery is Zubulake v. UBS Warburg (Zubulake V), an employment case filed in 2002 alleging sexual harassment. As of 2005, the judge and parties continue to grapple with pre-trial discovery disputes. In a widely reported e-discovery ruling in mid-2004, the federal district court concluded that the defendant willfully spoliated evidence. The court not only levied monetary sanctions, but also granted an adverse-instruction sanction - even though the court acknowledged that the defendant's inside and outside counsel had taken substantive steps to manage discovery. Some of the steps taken by inside and outside counsel in Zubulake to preserve data underscore the need for your immediate action:
- Counsel sent multiple "litigation hold" instructions to employees likely to be involved in the litigation - but managed to overlook one key employee. By the time the "litigation hold" was communicated to that employee, many e-mail messages had been destroyed and the rest were produced two years after the relevant discovery requests.
- Counsel interviewed the employees who received a "litigation hold" in order to understand what electronically stored information they had and how best to preserve it. Despite these interviews, counsel misunderstood how one employee maintained computer files and came away with the mistaken belief that the employee did not have discoverable documents.
- Counsel collected discoverable documents from most employees who received the "litigation hold," but failed to collect documents from two such employees, including the employee whose system for maintaining computer files was misunderstood by counsel.
- Counsel monitored the employees' compliance with the "litigation hold," but not well enough to prevent several employees from deleting many discoverable, possibly important (from the plaintiff's perspective), e-mail messages, including an allegedly crucial e-mail message deleted by the accused harasser, who may have had the greatest motivation to delete information.
Once it became clear that discoverable e-mail messages were missing, counsel ordered the preservation of disaster-recovery back-up tapes that would contain the missing messages. However, several of the relevant tapes could not be found.
Despite the demonstrable actions of inside and outside counsel to preserve evidence, the district court found that, in the aggregate, the mistakes and destruction of evidence warranted serious sanctions. Difficulties in communication and in understanding the relevant technologies were substantial contributing factors to the adverse result for the employer.
One of the biggest factors in electronic discovery disputes is the expense of production. Traditionally, the party responding to discovery requests must bear the cost of discovery. One of the earlier decisions in the Zubulake case articulated a seven-factor balancing test to determine whether the producing or requesting party must bear the costs of a discovery request in the e-discovery arena. Other courts approach the problem differently. A recent California decision, Toshiba Am. Elec. Components, Inc. v. Lexar Media, Inc., held that the requesting party must pay for "reasonable" expenses when it is "necessary" to translate a data compilation (such as a back-up tape) into a form which is usable. California courts are not alone in shifting costs of e-discovery production to the requesting party.
Steps To Take NOW
To preserve electronic evidence and reduce the threat of sanctions, inside counsel and others responsible for litigation management should take steps to improve counsel-employee communication, educate counsel about the relevant technologies, and prepare counsel and the company - ahead of time, before the stress of litigation takes hold - to address the need to preserve discoverable, electronically stored information. The Zubulake V court recommended that counsel (1) become familiar with the company's document retention policies, (2) become familiar with the company's data retention and storage architecture, and (3) interview all "key players" about how he or she maintains and retains computer files and instruct employees to produce relevant electronic copies, including back-ups.
Building upon the experiences in Zubulake V and many other recent e-discovery cases, your company should consider doing the following, now:
- If your company does not already have one, create and enforce a uniform document retention policy that covers electronic data. The policy need not be written, but having such a policy in place and enforced will help deflect charges of arbitrary or willful destruction of documents. You must make sure, however, that such policy is actually followed and enforced, or else it may have the opposite effect.
- If your company already has a document retention policy, review and update it to make sure it adequately addresses electronic data. It might also be worth assessing actual compliance with the policy, because an employee's violation not only eviscerates the policy's salutary effects but can be argued to evidence bad intent.
- Before litigation becomes imminent, become familiar with the company's data retention and storage architecture. Assess and address where the destruction or alteration ("spoliation") of electronic evidence might arise. Consider cost-effective changes to minimize the risk of spoliation and reduce the cost of litigation, such as limiting the use of back-up tapes for disaster-recovery only, not for archiving.
- Become familiar with the basics of data storage technology, such as metadata, how "deletion" works, and so forth. This will help reduce the sort of miscommunication between counsel and information technology specialists that plagued the defendant in Zubulake V.
- Create and implement a comprehensive plan for gathering, retaining and securing discoverable information, before litigation becomes imminent. Such a plan should include comprehensive form "litigation hold" instructions, a process for interviewing "key players" and working with information technology personnel to create and store, in native formats, discoverable electronic data.
- Just as inside counsel should learn the basics of information technology, the company's information technology personnel could benefit from learning the basics of discovery obligations and the consequences of spoliation. As Zubulake V demonstrates, the more that legal personnel and information technology personnel can "speak each other's language," the less likely spoliation is to occur.
- Educate your company's regular outside counsel about the company's document retention policies and data retention and storage architecture. It may be beneficial for outside counsel to talk to the company's information technology personnel directly.