This Note was reviewed in October 2012 by our editorial team and the contributors as part of ongoing maintenance. This Note is also continually monitored for any necessary changes due to legal or practice developments.
This Practice Note discusses the key issues companies should consider to ensure that they comply with their obligations to preserve and produce electronically stored information in federal civil litigation.
Electronic discovery (www.practicallaw.com/8-107-6127), commonly referred to as e-discovery, is the process of identifying, searching, collecting, reviewing and potentially producing (www.practicallaw.com/4-521-0519) electronically stored information (www.practicallaw.com/8-517-6434) (ESI) in litigation. Most discovery requests in US civil litigation seek ESI, particularly e-mail. Given the broad scope of discovery permitted by US courts, any type of ESI (for example, e-mail, word processing documents, images, web pages, instant messages, text messages, audiovisual recordings and voicemail messages), as well as all sources of ESI, may be targets of the discovery process. The sources of ESI may include databases, network servers, computer systems, back-up and archival media (www.practicallaw.com/6-521-0047) such as tapes, disks and drives, desktop and laptop computers and handheld devices.
Companies doing business in the US must be especially mindful of the rules concerning electronic discovery, due to the liberal amounts of discovery litigants are afforded in the US and the harsh sanctions that may be handed down to parties who fail to preserve relevant evidence. This Note discusses the key issues companies should consider to ensure that they comply with their obligations to preserve and produce ESI in federal civil litigation. It also proposes ways for companies to meet their e-discovery obligations in a cost-efficient manner.
On December 1, 2006, the FRCP were amended to address the obligations of parties to produce ESI. These amendments reflect the importance of understanding and managing ESI issues at the outset of the litigation and developing an e-discovery protocol even before litigation arises.
A party must, at the outset of a lawsuit and without waiting for a discovery request from its adversary, provide to that adversary a description, by category and location, of ESI and tangible things that it has in its possession, custody or control which it may use to support its claims or defenses (FRCP 26(a)(1)(A)(ii)). Moreover, the FRCP specifically allow parties to serve discovery requests that seek ESI (FRCP 34(a)(1)(A)).
There is a broad scope of permissible discovery under the FRCP. Discovery is permitted for information relevant to a dispute as well as any information that may "lead to the discovery" of admissible evidence at a trial (FRCP 26(b)(1)). If a discovery request does not seek irrelevant, privileged or work product-protected information and is not excessively burdensome, a US court is likely to permit the requested discovery. A party, however, does not need to produce ESI from sources that it identifies as "not reasonably accessible" due to "undue burden or cost" unless the requesting party shows "good cause" requiring production (FRCP 26(b)(2)(B)). In these instances, courts can require the party seeking the information to share in the cost of accessing and restoring the ESI.
At the outset of a federal civil lawsuit, the parties must participate in a formal meet and confer (www.practicallaw.com/0-502-3063) in an attempt to develop a written discovery plan (FRCP 26(f)(1)). At the meet and confer, the parties must discuss (among other things) any issues relating to the preservation of ESI (FRCP 26(f)(2)). After the meet and confer, the parties must jointly submit a discovery plan to the court that specifically discusses the parties' views on the disclosure of ESI, including the form or forms in which ESI should be produced (FRCP 26(f)(3)(C)).
The parties must hold this initial conference and develop a discovery plan "as soon as practicable" after the lawsuit is filed, and in any event at least 21 days before a scheduling conference is to be held by the court or a scheduling order is due under FRCP 16(b) (FRCP 26(f)(1)). The court must issue its FRCP 16(b) scheduling order within the earlier of 120 days after any defendant has been served with the complaint or 90 days after any defendant has appeared in the lawsuit (FRCP 16(b)(2)).
Essentially, the FRCP require the parties to discuss many aspects of ESI preservation and production with their adversaries and the court within three to four months after the lawsuit is filed. Specifically, the parties must be prepared to discuss the following topics:
Availability of ESI. What ESI is available, in what form does it exist and where does it reside? For example, is ESI readily available in e-mail boxes or stored in back-up tapes that are difficult to retrieve?
Scope. What is the scope of the sought-after ESI? Key issues include whether the parties must:
retrieve all forms of the ESI;
produce metadata (www.practicallaw.com/1-205-6240); and
restore all back-up tapes.
Cost. What is the expected cost of accessing, retrieving and producing the ESI? In particular, if the ESI is hard to retrieve, what will be the cost to retrieve it and who will cover the costs?
Preserving ESI. Has the company put out sufficient notice to its employees and information technology department to preserve relevant ESI?
Timing. How long will it take to restore, collect, review and produce the ESI?
Form of production of ESI. Will ESI be produced using paper, native (www.practicallaw.com/9-521-0041) format, PDF (www.practicallaw.com/2-519-5176)/TIFF (www.practicallaw.com/6-521-0028) image, imaged format with metadata and/or searchable text?
A litigation hold (www.practicallaw.com/9-501-9293) is a directive within a business organization to employees advising them of their duty to preserve documents and other materials that may be relevant to a lawsuit or government investigation. The common law and certain statutes such as the Sarbanes-Oxley Act (www.practicallaw.com/8-382-3784) impose on companies a duty to preserve electronic and paper records whenever litigation or a government investigation is reasonably anticipated (see, for example, Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003)). Once the duty to preserve has been triggered, companies must issue a litigation hold notice and suspend routine document destruction under their document retention policies (www.practicallaw.com/3-501-8809) to prevent the loss of information relevant to the proceeding or investigation. To view a sample litigation hold notice, see Standard Document, Document Preservation Notice (www.practicallaw.com/0-501-1545).
Determining when to issue a litigation hold is a fact-specific inquiry. A clear-cut case would be when a company receives a subpoena (www.practicallaw.com/2-501-7136) for documents or a complaint in which it is named as a party. Similarly, when a company initiates a lawsuit, it is obviously under a duty to preserve evidence relevant to the lawsuit. In these situations, the company must immediately preserve relevant information and issue a litigation hold notice to relevant employees (see Practice Note, Implementing a Litigation Hold (www.practicallaw.com/8-502-9481)).
However, if a company has not yet been served with a summons or subpoena, it may be more difficult to determine when the duty to preserve ESI and other documents is triggered. Generally, in these cases, courts hold that a duty to preserve arises once the company receives a credible threat that it will become involved in a lawsuit or investigation. For example, a company's duty to preserve may be triggered if it receives a non-frivolous cease and desist letter from its adversary's lawyer. In contrast, unsubstantiated rumors of possible litigation, or a patently frivolous threat from an unrepresented individual might not necessarily trigger a company's preservation duty. The ultimate consideration here is whether the party reasonably evaluated all the facts and circumstances known to it at the time the decision to issue (or not to issue) a litigation hold was made.
Failure to preserve relevant information, including ESI, may lead to sanctions being imposed by the court. Although routine, good faith destruction of ESI is permitted (FRCP Rule 37(e)), courts do not allow parties to use routine document destruction policies as an excuse for failing to preserve relevant ESI. Rather, when litigation is commenced or reasonably anticipated, courts expect parties to suspend their normal document destruction policies to prevent the loss of pertinent information.
Since the 2006 amendments to the FRCP, federal courts have increasingly imposed sanctions on parties who fail to preserve and produce relevant ESI. Depending on the nature of the misconduct, the sanction can include any or all of the following:
Monetary penalties. In Qualcomm Inc. v. Broadcom Corp., No. 05-cv-1958-B, 2008 WL 66932, vacated in part, 2008 WL 638108 (S.D. Cal. Jan. 7, 2008), the court ordered the plaintiff to pay $8.5 million of the defendant's attorneys' fees and costs for failing to produce tens of thousands of e-mails and documents that were requested but intentionally not produced during discovery. In addition, in Treppel v. Biovail Corp., 249 F.R.D. 111, 124 (S.D.N.Y. 2008), the court ordered the defendant to search for and restore several e-mail back-up tapes and conduct a forensic search of one of its executive's laptops, all at its own cost, because the defendant failed to adequately preserve relevant ESI.
Adverse inference jury instructions. In another case, the court allowed the jury to take an adverse inference against certain plaintiffs who were found to be grossly negligent in their failure to preserve ESI and other information that might have been relevant to the lawsuit. The court held that these plaintiffs were grossly negligent for:
initiating a litigation hold too late;
continuing to delete electronic documents after the preservation duty arose;
not requesting documents from key players; and
destroying back-up data.
Specifically, the jury was permitted to infer that the lost evidence would have been helpful to the defendants (subject to the plaintiffs' ability to rebut that inference). (Pension Committee of the Univ. of Montreal Pension Plan v. Banc of Am. Secs., LLC, 685 F. Supp. 2d 456, 465, 496-97 (S.D.N.Y. Jan. 15, 2010), abrogated in part by Chin v. Port Auth., 685 F.3d 135, 162 (2d Cir. 2012) (clarifying that failure to initiate a litigation hold is not negligence per se).)
Preclusion of evidence. In In re Napster, Inc. Copyright Litigation, 462 F. Supp. 2d 1060 (N.D. Cal. 2006), the court, among other things, ordered the preclusion of evidence after learning that the defendant's employees deleted e-mails according to the defendant's "long-standing" document retention policy without regard to whether the deleted e-mails were relevant to the litigation.
Default judgment. In Gutman v. Klein, No. 03-cv-1570, 2008 WL 4682208 (E.D.N.Y. Oct. 15, 2008), the court ordered a default judgment against a defendant who had intentionally and irretrievably deleted computer files from a laptop containing relevant ESI.
In light of the potentially draconian consequences for failing to preserve and produce ESI in litigation, parties must become familiar with the location, type and custodians of potentially relevant ESI as soon as litigation is reasonably anticipated and act quickly to prevent the destruction of that ESI.
ESI is extremely mobile and portable. It can be replicated and stored easily on computers and other media across the globe. Non-party foreign corporations may often possess documents and ESI that are relevant to US litigation involving their US-based affiliates.
Compelling the production of documents and ESI located outside the US may be achieved through the courts. US courts have consistently interpreted FRCP 34 (governing requests for documents and ESI directed to parties) and 45 (governing subpoenas requesting discovery from non-parties) as requiring the production of records and materials in the "possession, custody or control" of the US-based entity that is served with a document request or subpoena. That is, the test for production is based on the control over the requested information, not its location.
In deciding whether to compel production of documents and ESI from a party's foreign affiliate, US courts generally examine the following factors:
The nature and structure of the relationship, including the commonality of ownership, directors, officers or employees, between the US-based entity and the foreign affiliate.
The degree to which information and records are accessed and exchanged between the entities in the ordinary course of business.
The involvement of the foreign entity in the events leading to the pending lawsuit.
Although none of these factors is conclusive, courts have increasingly focused on whether the US-based entity has the legal right, authority or practical ability to request and obtain the information and records from its foreign affiliate on demand in the ordinary course of business. For further discussion of the issues courts consider in determining whether a US company controls documents and ESI in the possession of its non-US parent or affiliate, see Article, Protecting Foreign Corporations from US Discovery (www.practicallaw.com/6-502-5304).
Given the importance the FRCP place on preserving, collecting and producing ESI, companies should take appropriate steps to comply with their discovery obligations and mitigate the risk of sanctions. Specifically, companies should:
Develop written records retention policies, including those for ESI, that further legitimate business purposes. This should demonstrate to a court that the company's preservation and destruction of electronic information is not haphazard, but rather has a business purpose.
Educate and train employees regarding the company's document preservation policies.
Educate and train employees on best practices in corresponding electronically. While letters commonly undergo several drafts, e-mails and text messages are often written in a stream of consciousness that does not always convey the authors' true intent. These types of messages often become some of the most damaging documents when litigation arises.
Create a "data map" to understand where and how the company's ESI and traditional paper records are located, stored and deleted.
Set up a protocol for identifying, preserving and collecting information and materials geared toward litigation activities, including a litigation hold policy.
Once litigation is reasonably anticipated or pending, companies should:
Identify a team to preserve, collect, review and potentially produce the ESI. Typically, it should include members of the company's information technology and legal departments, the manager of the business unit involved in the litigation and outside US counsel.
Broadly identify key witnesses and custodians of information and materials relevant to the litigation and the location of the relevant data.
Communicate, document and enforce a litigation hold in writing. The notice should instruct key technology staff and likely key witnesses and custodians in writing to preserve relevant categories of information and materials. The company's normal procedures for electronic data destruction or recycling should be suspended to preserve relevant data, including back-up tapes and similar storage media. Until the matter is concluded, keep the hold in place and periodically monitor compliance.
Early in the litigation, determine what ESI (types and sources) is relevant to the parties' claims and defenses. Determine if ESI can be retrieved in a usable format without undue burden or expense (that is, whether it is reasonably accessible (see Permissible Discovery)) and consider forms of production.
Be prepared to discuss e-discovery issues, including the scope and format of production, with the company's litigation adversaries at the initial discovery conference. The company's lawyers should also be prepared to discuss these issues with the court at the initial scheduling conference, especially where the company has valid objections to discovery requests based on overbreadth, cost and burden.
Following these steps will help companies meet their e-discovery obligations under the FRCP, and lead to cost-efficient, effective preservation and production of electronic information in civil litigation.