17 Apr Avoiding the electronic discovery trap
With e-mail dramatically increasing the sheer volume of electronic information stored and disseminated on a daily basis, your organization can ill-afford the consequences of not being prepared to deal with the evolving legal landscape of electronic discovery. As one jurist noted: “The corporate graveyard is littered with data preservation plans that were not properly followed. . . [and] having a plan that is not followed is worse than having no plan at all.”
Loosely defined, electronic discovery is the collection, preparation, review, distribution and production of electronic documents associated with legal or government proceedings.
Whether we like it or not, electronic discovery is here to stay. The question is: Are you prepared?
The Benefits of Compliance Far Outweigh the Burden of Production
Courts are flexing their discretionary muscle in this area by imposing severe sanctions against companies unwilling to educate themselves on the law or who fail to implement and follow record-retention and litigation hold policies. Companies that do not keep pace with evolving laws related to electronic discovery do so at their own peril and invite a finding of spoliation, which often signals the death knell to an otherwise meritorious case.
Spoliation is generally defined as “the destruction or significant alteration or evidence, or the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation.” Sanctions take on various forms, including, dismissal of your case, monetary sanctions, a negative inference instruction (which allows jurors to infer that the lost or destroyed information would have been favorable to the other side), or shifting the costs of discovery to the non-compliant party. In short, the benefits of implementing a sound document retention and preservation policy greatly outweigh the financial risk of sanctions.
The first step to successfully navigating the electronic discovery waters is recognizing that a valid record-retention policy is not optional. You must have one. This is because electronic documents are no less subject to statutory retention requirements than their paper counterparts. That said, simply having a plan may not be enough. Your plan has to be both valid and reasonable under the circumstances.
Equally important is the need to establish a comprehensive “litigation hold” policy, which effectively advises employees of their obligation to preserve records relevant to anticipated litigation. If you think you don’t need to have a plan in place because you have never been, or only occasionally get sued, think again. A company’s duty to preserve electronic documents attaches the moment litigation is reasonably anticipated. Two fairly recent cases have come to symbolize what can go terribly wrong when a company fails to carry out its obligation to preserve and produce – the Zubulake V and Morgan Stanley decisions.
In Morgan Stanley, the jury awarded the plaintiff more than $1.4 billion as a result of Morgan Stanley’s practice of overwriting e-mails every 12 months in violation of federal regulations that required the firm to retain e-mails for two years. In addition to overwriting e-mails, Morgan Stanley failed to produce back up tapes, failed to conduct court ordered searches for documents, and failed to produce responsive documents in a timely fashion. Worse, the company did all of this after certifying that it had fully complied with the court’s electronic discovery order! These failures prompted the court to instruct the jury that Morgan Stanley’s destruction of e-mails and other electronic documents was harmful to the plaintiff, hence the dreaded inference of spoliation.
The defense lawyers in Zubulake seemed to do everything right, yet the corporation still found itself on the receiving end of sanctions. There, the lawyers issued (and re-issued) a litigation hold (a good thing) and even went so far as to meet with key players in the litigation to formulate a discovery strategy. The problem stemmed from the attorneys’ failure to adequately communicate with key personnel in order to ensure compliance. Despite the attorneys’ efforts, several employees deleted back up tapes and failed to produce e-mails within the scope of the litigation hold. In concluding that several employees had acted wilfully in destroying electronic information, the district court exacted steep sanctions against the defendant corporation, including the award of costs, fees, and an adverse inference instruction regarding the deleted e-mails.
While the cases cited above provide valuable insight into the current state of the law, it behooves corporations to consider the following steps in order to avoid the potential perils of electronic discovery:
1. Establish a written, comprehensive record retention and destruction policy.
2. Develop a preservation/litigation hold plan.
3. Create a litigation hold team. Team members may include people from the legal department, (including outside counsel to oversee compliance), a paralegal or project manager responsible for day-to-day supervision of the collection and production of electronic discovery materials, a records management person, senior management, and a member of the IT department (who may assist counsel in gaining familiarity with your retention policies and data preservation architecture).
4. Identify all sources of potentially relevant information.
5. Continually follow up and improve items 1, 2 and 3.