The Electronic Information Age has transformed the way parties engage in discovery. Courts around the country are issuing opinions almost daily that are forcing companies to rethink not only the way they manage the discovery process but also the way that they do business. It is not enough to wait until a lawsuit is filed to grapple with electronic discovery issues. Because the obligations to preserve information often arise well before the lawsuit is filed, these issues must be addressed with careful planning, including implementation of document retention policies.

Recent court cases address many of the mounting questions regarding litigants’ preservation obligations including: (1) When is a party’s obligation to preserve electronic data triggered? (2) What is the scope of the duty to preserve? (3) How do courts deal with a party that breaches the duty to preserve electronic data? (4) Can a company’s compliance with a document retention policy constitute a breach of the duty to preserve? This article will briefly address these issues.

1. When is a party’s obligation to preserve electronic data triggered?

Federal and state courts have recognized for many years that electronically saved information is subject to discovery under the Rules of Civil Procedure (including the Federal Rules of Civil Procedure and applicable state rules of procedure). Recently, courts have confirmed that discovery obligations, including the obligation to preserve electronic data, may attach before discovery requests are served and even before a lawsuit is filed. Specifically, one recent court ruled: “[t]he obligation to preserve evidence arises when the party has notice that the evidence is relevant to litigation or when a party should have known that the evidence may be relevant to future litigation.” (1)

The more difficult question is deciding when litigation is sufficiently foreseeable so that the duty to preserve has been triggered. Courts have made clear that any number of events and factors may render litigation sufficiently foreseeable to trigger the duty to preserve. Events that almost certainly trigger the duty to preserve include, among many others:

• threats by an employee that he or she intends to take legal action;
• a decision to terminate or discipline an employee;
• a material breach of performance on a contract; and
• notice to the company of an injury for which there may be liability.

2. What is the scope of the duty to preserve?

Must a company preserve every piece of relevant electronic data? Must a company preserve the relevant documents from the files of every employee?

Although the law continues to develop in this area, the best practice is for companies to issue a “litigation hold” and take additional affirmative steps to retain all potentially relevant documents once litigation is pending or reasonably foreseeable. The duty to preserve may be construed to apply in certain situations to all employees of the corporate litigant, and certainly will be construed to apply to the “key players,” i.e., “those employees likely to have relevant information.”(2)

3. How do courts address a litigant’s breach of its duty to preserve electronic data?

Destroying or failing to preserve evidence may give rise to a range of sanctions, including attorney’s fees and costs; monetary penalties; contempt; adverse inferences; striking of pleadings; switching the burden of proof to the defendant to prove that he is not liable; and entering judgment against the offending party. In recent months, courts have awarded monetary sanctions of many millions of dollars and other crippling procedural and evidentiary sanctions for spoliation of electronic data.

Courts frequently grant whatever remedy is necessary to remove the harm caused by the destruction. Notably, a party need not act in bad faith for a court to award sanctions. Indeed, inadvertent destruction of electronic data may give rise to sanctions.

4. Can a company’s compliance with document retention policies breach the duty to preserve?

Yes. Even when a party destroys documents in good faith and consistent with a valid and effective document retention policy, a party may be deemed to have breached its duty to preserve electronic documents. Case law addressing e-discovery issues makes clear that once the duty to preserve is triggered, a company must suspend its document retention/destruction policy with respect to relevant documents, and if it does not do so, sanctions may be entered.

Thus, in the Electronic Information Age, any effective document retention policy should consider the steps that the company will take when the duty to preserve electronic documents arises. To be effective and to avoid sanctions, the policy must be applied consistently throughout the company. Any effective document retention policy must also take into account the company’s particular software and computer infrastructure so that data is not automatically and inadvertently purged from the company’s system after the duty to preserve arises.

Learn More

This article only scratches the surface of electronic information’s implications for discovery. Please join us for a more detailed discussion of these issues at one of the following events:

• March 22, 2006 at the Capitol City Club in the Capitol City Center at 1201 Main Street, Columbia, South Carolina.
• March 29, 2006 at Parker Poe’s offices in the Wachovia Capital Center, 150 Fayetteville Street Mall, Suite 1400, in Raleigh, North Carolina.
• April 25, 2006 at Parker Poe’s offices in Three Wachovia Center, 401 South Tryon Street, Suite 3000 in Charlotte, North Carolina.

Each program will begin at 9:00 a.m. and conclude with lunch, which will be served at noon. It has been approved for the following CLE credit: 2.75 general hours (.75 of which are ethics) in South Carolina and 2.75 general hours in North Carolina.

If you are interested in registering for the seminar or would like more information, click here.

(1) See Zubulake v. U.B.S. Warburg, LLC, 220 F.R.D. 212 (2003).
(2) Id. at 218.

This update is intended to inform its readers of current developments in the law. It should not be considered as providing conclusive answers to specific legal problems. If you have any questions concerning any aspect of the discovery process, please feel free to contact one of the following members of our E-Discovery Committee, Bob Spearman, Charlie Castner, Dwight Floyd, Ken Harris, Josephine Hicks or Charles Raynal.