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Managing Electronic Data in a Litigation WorldMarch 14, 2008The prevalent form of business communication today is electronic mail. It is estimated that over 60 billion e-mails are exchanged every day. Beyond e-mail, most business records were created, exchanged or stored electronically. Because electronic documents are much cheaper to keep than paper documents, they are often kept indefinitely. This proliferation of data could be problematic in the event of litigation because lawyers love to discover an adverse party's electronic data, including e-mails and electronic documents. As the volume and form of electronic data expands exponentially, it is increasingly difficult to apply traditional litigation discovery rules to such data. The discovery rules are broad. A party may discover anything reasonably calculated to lead to admissible evidence. Although electronic data is easily stored, it is not always easily searchable. There may be limited searchability of many forms of stored data and some older forms of data are incompatible with current operating systems. If you have vast quantities of data that cannot be effectively searched, how can a client or his counsel certify that everything within the scope of discovery has been produced? A series of decisions from the federal courts in New York, the Zubulake decisions, provide guidance for companies evaluating record retention policies in this electronic age. These cases also address one's obligation to preserve documents when on notice of potential litigation. Finally, a recent California decision, the Qualcomm decision, demonstrates that merely preserving the electronic data is not enough-companies must be able and willing to carefully search the data. The Zubulake Decisions In Zubulake v. UBS Warburg, Inc., Laura Zubulake was fired by UBS as the director and senior sales manager on its U.S. Asian sales desk. Following her dismissal, Zubulake sued UBS alleging sex discrimination and retaliation. UBS claimed they fired Zubulake because she undermined associates and disobeyed her superior. In the course of discovery, it was determined that UBS employees had deleted relevant e-mails. The Court sanctioned UBS because it found the e-mails had been deleted after UBS was under an obligation to preserve evidence. The Court found that UBS and its lawyers should have initiated a "hold" on the destruction of any documents, including electronic documents, as soon as they were aware of the threat of litigation. This notice is known as a litigation hold. The Zubulake decision suggests that company policies should incorporate the following procedures when litigation is asserted:
The issuance of a litigation hold is critically important and should be designed to preserve documents and electronic storage media known to contain relevant and discoverable information. Zubulake also addressed the responsibility for the cost of restoring back-up tapes. The court found that the producing party should pay for data that is readily accessible. For data that is accessible only through expensive retrieval methods, the cost responsibility could shift. The factors that may cause the cost to shift include the following:
The Zubulake decisions provide insight into how a court views a party's duty regarding spoliation of evidence. Spoliation of evidence is the destruction or significant alteration or the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation. Routine document retention and destruction policies must be suspended to preserve potentially relevant documents when litigation is "reasonably anticipated." The penalties for spoliation of evidence are severe and may include fines, adverse jury instructions and having defenses stricken. Companies must also consider whether there are any special retention statutes that would apply, including corporate audit records (Sarbanes Oxley Act), employment records pending discrimination claim (Equal Employment Act), and the Equal Credit Opportunity Act. Record Retention Guidance So what guidelines do these cases provide for a company's record retention policy? First of all, record retention policies, also known as destruction policies, are allowed. In Zubulake, the court found that even companies in contentious litigation are not required to keep every "shred of paper, every e-mail or electronic document and back-up tape.... Such a requirement would cripple large operations." In addition, apart from the spoliation of evidence and the specific regulations that may apply to your business, a company need only keep electronic information as long as necessary for business purposes. In a recent case involving Arthur Andersen, Chief Justice Rehnquist noted that document retention policies are common and created in part to keep certain information from getting into the hands of others, including the government. The Chief Justice found that it was not wrongful for a manager to instruct his employees to comply with a valid documents retention policy under ordinary circumstances. Note that Federal Rules of Civil Procedure Rule 37(f) now provides that absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of a routine, good faith operation on an electronic information system. But, this rule does not eliminate liability for conduct that could constitute spoliation of evidence. The following should be considered in a record retention policy:
Searching Electronic Data: The Recent Qualcomm Decision Having the appropriate record retention policy in place and successfully preserving electronic documents is only a part of the challenge facing large companies today. To be able to effectively respond to discovery requests, a company needs to have the necessary programs available to access the relevant data. A company must carefully consider how it will search for electronic data, including the identification of key players and the selection of search terms. A recent decision by the California federal court provides a stark reminder of some of the risks associated with the production of electronic data. Qualcomm initiated a patent infringement action against Broadcom. One of Broadcom's affirmative defenses was that Qualcomm had participated in a Joint Video Team ("JVT") in 2002 which, if true, could have rendered the Qualcomm's patents unenforceable. Broadcom sought information regarding Qualcomm's participation in the JVT through discovery requests and Qualcomm responded. Qualcomm's position was that it did not participate in the JVT prior to 2003. While preparing a witness to testify during trial, one of Qualcomm's attorneys discovered an August 2002 e-mail that was relevant to the issue of Qualcomm's participation in the JVT. This discovery led to a search of the witnesses laptop computer which revealed 21 separate e-mails relating to the issue, none of which had been produced in discovery. The e-mails had not been produced because the trial team determined that they were not responsive to Broadcom's discovery requests, apparently, because the e-mails did not reveal direct participation in the JVT. The trial judge found that Qualcomm had actively participated in the JVT and hid this from the court, the jury and the opposing counsel. The issue of sanctions was referred to the magistrate judge. The magistrate judge found that the Qualcomm trial team failed to conduct any investigation to determine whether there were more e-mails that had not been produced. Specifically, search terms which revealed the 21 additional documents were used and an additional 46,000 documents which had not been produced in discovery were located. The Court found that "[a]n adequate investigation should include an analysis of the sufficiency of the document search, and when electronic documents are involved, an analysis of the sufficiency of the search terms and locations.... This minimal inquiry would have revealed the existence of suppressed documents." Because Qualcomm chose not to do so, it was sanctioned. Qualcomm shows how the adequacy of a search of a client's electronic data will be judged with the benefit of hindsight. Last month, Qualcomm was sanctioned $8 million and six California attorneys were referred to the State Bar for ethics violations. For more information, please contact Michael Hunt. |
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