Past issues of Liability Alert have addressed the subject of document retention and destruction.(1) The Enron scandal highlighted the impropriety of document destruction in the face of a lawsuit or regulatory investigation. Courts in the Carolinas have also made clear that "the obligation to preserve evidence . . . arises prior to the filing of a complaint where a party is on notice that litigation is likely to be commenced."(2)
The duty to preserve documents extends to electronic records as well. The October 2003 issue of Liability Alert addressed the importance of a document retention policy specifically designed for e-mail.(3) A recent court decision confirms that electronic documents must be preserved if they relate to a dispute that may result in litigation.(4) The case concerned a plaintiff who alleged gender discrimination. As part of the lawsuit, she sought evidence of e-mails relating to her that were sent to or from certain company employees. The e-mails were stored on the company’s back-up tapes. The court ordered the company to restore and produce e-mails from those back-up tapes. The cost of restoring the data on the back-up tapes was substantial. After a lengthy analysis, the court ordered the company to pay 75% of that cost and the plaintiff to pay 25% of that cost.(5)
One lesson from this court ruling is this: technology has increasingly permitted companies to reconstruct lost or previously inaccessible data. Litigants and courts are well aware of that capability. Companies will now be required to produce all data relevant to a dispute, including electronic data, even if it is stored only on back-up tapes.
The overall lesson remains the same: if your company is involved in a dispute that may lead to litigation or in something that may lead to a regulatory investigation, do not destroy any evidence relevant to that dispute, be it on paper or on a computer data base.
(1) See, e.g., Think Twice Before Destroying Documents, Liability Alert (December 2001); Documents: To Destroy or Not to Destroy? At least Ask the Question Liability Alert (May 1998)
(2) See, e.g., McLain v. Taco Bell Corp., 137 N.C. App. 179, 188, 527 S.E. 2nd , 712, 718 (2000); See also Silvestri v. General Motors Corp., 271 F.3d 583 (4th Cir. 2001)
(3) E-mail Can Be Dangerous and Costly, Liability Alert (Oct. 2003)
(4) Zubulake v. UBS Warburg LLC, No. 02-CIV.1243 (July 24, 2003)