The continuing explosive growth of electronically-stored information (“ESI”), combined with the now established requirements for electronic discovery, have caused increasing focus to be placed on mechanisms by which companies can address e-discovery. By planning proactively, companies can decrease the business interruption and expense of complying with e-discovery requirements during litigation. This article addresses three aspects of early planning in preparation for e-discovery:

1I The litigation hold process

2I The process of preserving data

3I Planning for litigation

Litigation Holds

Litigation holds, the process by which documents are preserved so that they can be identified and collected, are increasingly common in today’s world. When new litigation is filed, or even reasonably anticipated, a company must stop destroying relevant documents, turn off some or all of its retention systems, and preserve relevant information. This poses a number of potential pitfalls.

The first of these is the question of when a litigation hold must be put in place.

• Problem – When is litigation “reasonably anticipated” in such a way that it requires a litigation hold to be put in place?
• Case Study – Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. July 20, 2004)

In Zubulake, an employee sued her employer after she had complained to her group supervisor about allegedly discriminatory behavior. The supervisor, who had only three people reporting to him, was considered part of management by the Court. Accordingly, the company was held to have knowledge that litigation should be reasonably anticipated. The Court went on to explain that when a supervisor learns that an employee is contemplating litigation (or, as in Zubulake, perhaps merely complaining of acts which reasonably lead to litigation) that
the company is placed on notice that it should reasonably anticipate litigation.

• Suggested Solution – Educating supervisors as to what could be “reasonably anticipated litigation” is the first step. For example, the Zubulake case, where an employee was complaining of discriminatory behavior, provides a concrete example of a situation where a supervisor should bring the incident to the attention of higher management and/or the Legal Department.

The second component of addressing this issue is the development of an internal procedure for determining when litigation is reasonably likely. Zubulake does not require, nor can most companies accomplish, a litigation hold every time there is a remote possibility of litigation. Rather, Zubulake requires a litigation hold to be put in place when litigation is “reasonably anticipated.” The legal department, or management in those companies where there is no separate legal department, can develop a procedure where they review the information gathered by supervisors. They can then conduct a further inquiry, and, with the assistance of counsel, determine whether the particular complaint is reasonably likely to lead to litigation. If it is, a litigation hold is appropriate. If not, a well-documented process will provide the company with an understanding of why a litigation hold was not put in place, as well as the ability to defend its decision.

Once a litigation hold is triggered, the next problem is what the scope of the litigation hold should be.

• Problem – There are usually technological limitations that prevent a company from simply turning off all document deletion. E-mail alone can rapidly overwhelm the storage capacity of the servers if it is not being deleted on a rolling basis. The problem that arises is who should receive the litigation hold, what material should be covered by it, and when can it be released?
• Case Study – In Consol. Alum. Corp. v. Alcoa, 244 F.R.D. 335 (M.D. LA 22006), four employees received a litigation hold notice once litigation was anticipated. These employees preserved the data they were requested to keep and it was produced. However, several months down the line, counsel for the company identified another individual as a “critical” witness whose testimony should be preserved. That individual had not been part of the litigation hold. Accordingly, the Court made a determination that the litigation hold should have encompassed the employee, and sanctioned the company for destruction of evidence.
• Suggested Solution – This situation demonstrates the critical importance of coordination between in-house counsel, outside counsel, and the business units to identify relevant persons to participate in a litigation hold from the time the litigation hold is implemented. The more that the people closest to the litigation are involved in identifying the correct people, the more accurate the list will be.

In addition to the coordination described above, a tiered legal hold can be used. Under the tiered approach, a broad litigation hold is issued to an entire business unit, or the entire company. This is intended to be in place for only a short period while counsel and the business units identify the correct custodians. This extra time for investigation is especially useful where the allegations are nebulous or unexpected, and an internal inquiry is required before correct custodians can be identified. Once the proper custodians are identified, a more tailored litigation hold can be put in place, the broader one released, and the non-relevant custodians of the company can return to their regular data maintenance procedures.

Once a litigation hold is triggered, its implementation is also critical. Failures in that process can also lead to sanctions.

• Problem – The timeliness and effectiveness of a litigation hold could put a company at risk of negligence and face the possibility of a severe sanction of an adverse jury instruction. Companies cannot afford to take the requirement of issuing a litigation hold lightly.
• Case Study – Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities

In this case, the Pension Committee failed to institute a written litigation hold in a timely manner and when they finally instituted the litigation hold they failed to preserve relevant ESI and consequently lost the data. Spoliation occurring from failure to preserve can result in serious sanctions. Judge Shira A. Scheindlin, U.S. D.J., determined that the negligence of failing to timely institute written litigation holds and the resulting loss of data were grossly negligent and she instructed the jury to presume that the lost data would have been favorable to the defendant.

• Suggestion – Once a litigation hold has been triggered it is important to make sure that it is updated and resubmitted as the scope of the hold is determined and as the scope of the ESI becomes more focused and the witnesses are identified. The development of a reminder system (VIA e-mail or calendar systems) will help lessen the risk of spoliation.

Preservation

Once data is no longer subject to deletion because a litigation hold is in place, the next question becomes how to properly preserve that data so that it can be collected and, ultimately, produced. There are several risks inherent with this step as well.

• Problem – The first risk is the unintentional loss of data during the collection process. This is the situation that arises where, despite the efforts of the company to comply with the collection protocols in place, some data is not properly preserved, or falls outside of the litigation hold due to inadvertence or neglect.
• Case Study – Arteria Property Pty, Ltd. v. Universal Funding VTO, Inc. (DNJ Action No. 05-4896, October 1, 2008) (2008 WL 4513696) involved a case where a party had admitted that its website existed on the date that the litigation began. There was a request by the opposing party for images of portions of the website. Despite claims by the producing party that the images were being gathered, the website was altered and the data was lost before it could be collected.

The Court determined that the destruction of data in the possession of a party, during the pendency of litigation, when there is no doubt that the data was relevant, constituted spoliation and merited the imposition of sanctions against the party that destroyed the data. Accordingly, the Court determined that the jury would hear an adverse inference instruction regarding the destruction of this data.

• Suggested Solution – The best method by which to avoid the unintentional loss of data is to have planned for e-discovery before litigation occurs, and to have early involvement in the process once the litigation has begun.

This early involvement requires counsel to speak to IT personnel, data custodians, and other relevant people to identify the locations of potentially relevant data, the nature of that data, and any particularly fragile sites, e-mail that is subject to a rapid deletion policy, back-up tapes subject to frequent recycling, etc.

This process requires a disciplined and organized approach in identifying the data sources and preserving them, but can be facilitated by the use of items such as data maps, which identify the location of data sources within an organization.

In addition to unintentional destruction of data, companies also have to deal with the repercussions of the intentional destruction of data.

• Problem – Although companies may institute strong litigation holds in a timely manner, it is feasible and quite common for an individual to intentionally take measures to delete or destroy evidence. Today’s technology provides many tools to assist someone in permanently deleting information from computer or storage device. These tools are inexpensive and readily available.

Such actions can negatively impact the discovery process in litigation, cause severe sanctions and possible adverse judgments.

• Case Study – TR Investors, LLC, et al. v Genger, C.A. No. 3994-UCS, 2009 WL 4696062 (Del. Ch., Dec. 9, 2009)

Weeks after this case was settled, TR Investors, LLC, the plaintiffs, moved to reopen the case and pursue sanctions against the defendant, Arie Genger, for intentionally causing computer “wiping” and destroying relevant information. The case was reopened and the court found Genger in contempt for causing ESI on his and the plaintiff’s office computer to be intentionally destroyed.

The court sanctioned Genger, increasing his burden of proof, required him to provide additional corroborative evidence at trial, required him to produce information that he previously claimed to be privileged, as well as awarded attorney’s fees over $700,000.

• Suggested Solution – Companies should take time to reevaluate their corporate employee policies and provide restrictions on the installation and the use of information deletion tools.

Information Technology departments are reaching out to third party security solutions to help prevent the unintentional or intentional coping and transfer of corporate data. However, it is important that these tools be evaluated to determine if they have built in information deletion tools that employees would have access to.

The scope of ESI sources in which companies have to concern themselves as being relevant to litigation hold has expanded and non-traditional systems and devices have become a target for discovery.

• Problem – As technology becomes more advanced and much more readily available and affordable, the scope of what companies have to consider preserving has expanded. Mass amounts of corporate data can be stored on USB storage devices, iPod’s etc., and then transferred over free web-based e-mail accounts. The problem occurs when a company fails to identify, preserve, and collect the relevant ESI on these alternative sources.
• Case Study – Easton Sports, Inc. v. Warrior LaCrosse, Inc., 2006 WL 2811261 (E.D. Mich. Sept. 28, 2006) involved an issue over relevant ESI that was transfer over web e-mail. The plaintiff claimed that before leaving his employment with plaintiff, an employee used a personal Yahoo e-mail account to communicate with the defendants and used the account to e-mail corporate documents. The day after the complaint was filed, the employee canceled the Yahoo account.

The court found that the employee’s cancellation of his account “resulted in the destruction of Yahoo records concerning his computer use.”

The magistrate Judge decided the appropriate sanction for the “defendants’ failure to prevent the spoliation of evidence by its agent, the employee,” would be: (1) an order allowing plaintiff to present evidence of the defendants’ failure to preserve the ESI; (2) an instruction to the jury that it may presume, based upon the spoliation, that the evidence destroyed would have been favorable to plaintiff; and (3) an order permitting counsel for plaintiff to argue in favor of the negative inference.

• Suggested Solution – Certainly, broadening the scope of sources that are covered under a litigation hold and the preservation effort is a good start to avoiding this problem. However, these sources are most often unknown to the IT department and corporate executives. An in-depth interview or a detailed survey sent to the employees involved in the litigation will help uncover non-traditional sources.

A list of potential non-traditional ESI sources should be developed to assist with the interview or survey. Examples include personal e-mail accounts, external devices, iPods, and Cloud Storage like Yahoo or Google.

Planning

There are several aspects of ESI and the e-discovery process which can be addressed more efficiently by early and proactive planning. One of those aspects is the handling of metadata.

• Problem – Metadata is a term that is by now familiar to many litigants. The metadata is, literally, data about data. It is the hidden information that shows where a file was stored, when it was created, who modified it, and similar information. The problem is determining what metadata exists, how it exists, and how it can be collected.
• Case Study – In Aguilar v. ICE, 255 FRD 350 (SDNY 2008), involving a suit against the Immigration and Customs Enforcement Bureau, there was a request for certain electronic documents. However, the parties did not discuss metadata for several months after their documents were requested. ICE had almost completed the document collection efforts before anyone addressed the issues of metadata. The parties then litigated the issue of what metadata needed to be collected and produced, and the Court ordered that only limited metadata be collected due to the efforts already put in by the producing party.
• Suggested Solution – Communication between opposing counsel is key. The attorneys for each party should meet, confer, and discuss what metadata they believe to be relevant, collectible, and what is necessary for the case considering the costs and other issues.

In preparation for this meeting however, counsel needs to have a thorough understanding of what metadata exists on the client’s systems. This requires IT and legal to have a substantive conversation where the attorneys can be educated as to what metadata exists, what can be meaningfully collected, and, perhaps, what metadata would be useful in analyzing documents received from the other side.

There is a potential difficulty with identifying the location of all relevant data. This leads to problems when data is not identified for initial collection, but is later discovered and leads a court to determine that the preservation efforts were insufficient, resulting in sanctions.

• Problem – After the collection of all known data, additional data sources are discovered.
• Case Study – In Coleman v. Morgan Stanley, 2005 WL 679071 (Fla. Cir. Ct. Mar. 1, 2005), voluminous amounts of e-mail were preserved, collected, and produced. Morgan Stanley certified that it had produced all relevant and non-privileged email. As litigation progressed, however, Morgan Stanley continued to discover various backup tapes and produce new e-mails from backup tapes, despite the prior certification. As a result, the Court imposed numerous sanctions.
• Suggested Solution – Identifying data sources can be done long before any litigation is anticipated or filed. IT personnel can likely identify all authorized data sources, whether back-up tapes, servers, legacy systems, or active systems. This can be greatly facilitated by the IT department’s use of the data maps mentioned above. Network mapping software is an easy way to begin this process, as it identifies the sources that are part of the active network, including data locations that may escape easy recollection, including offices of former employees, etc.

It is critical, however, that the identification of data sources be up to date. No matter how good the initial effort is, if it is not kept up to date, any eventual attempts at preservation will fail as newly created data sources will escape the map.

In addition to the difficulty in identifying all relevant data sources, litigants also face the challenge of addressing the coordination of their standard procedures with the new requirements of the litigation hold process and the needs of the litigation.

• Problem – Too often, processes and procedures are overlooked or undervalued in the litigation hold and preservation efforts. Manual and electronic policies of data deletion are very common and necessary to preserve storage capacities. Most companies retain former employee’s e-mails and corporate files for a selected period of time and have a policy to delete that data after that date. If the individuals that perform those task do not fully understand the scope of the litigation hold, this deletion can occur and will inevitably follow with sanctions.
• Case Study – Broccoli, et al. v. Echostar Communications Corp., et al., 229 F.R.D. 506 (D.Md. 2005). In this case, Dino Broccoli sued Echostar Communications Corp. and Dish Network Corp. (collectively referred to as “Echostar”) and others in connection with employment discrimination. In the course of discovery, it was uncovered that the defendants’ document retention policy was not suspended during the litigation efforts. Electronic files belonging to former employees are completely deleted 30 days after an employee leaves.

The defendants’ actions resulted in an adverse spoliation of evidence jury instruction and limited Echostar’s ability to present certain evidence. Broccoli was awarded attorneys’ fees.

• Suggested Solution – Once a litigation triggering event happens the IT department should be interviewed and any retention policies and procedures identified and suspended. While manual processes are easy to suspend, some of the more automatic technical processes like e-mail deletion procedures and scheduled file server compression tasks are difficult to identify.

Conclusion

The problems and suggested possible solutions described above lay out some of the more common issues that arise in the e-discovery process. However, there are innumerable other issues that can arise in any given case. The early involvement of counsel and e-discovery experts is the best way to identify the issues that exist in any particular case, as well as the solutions to those issues.