Practical Strategies For Satisfying Preservation Obligations - Part I Why A Preservation Plan Is A Critical Component Of Any Electronic Discovery Protocol

Friday, September 1, 2006 - 00:00

In the wake of several recent case law decisions in which companies have been sanctioned for failing to preserve and produce discoverable electronic data, many companies are rightfully concerned about how best to satisfy their obligation to preserve "e-discovery" in the event of a litigation. See, for example, Zubulake v. UBS Warburg, LLC, 220 F.R.D. 212, 216 (S. D. N. Y. 2003); Silvestri v. General Motors Corp., 271 F.3d 583, 591 (4th Cir. 2001).

The more specific challenge is how to meet those obligations without spending a fortune in time, money and human resources. In light of the increasing focus on e-discovery, as well as the proposed amendments to the Federal Rules of Civil Procedure (which were approved by the Supreme Court on April 12, 2006, and incorporate specific preservation requirements), the necessity for a company to have a solid preservation plan is critical.

Defining Preservation Obligations

A "haphazard and uncoordinated approach" to e-discovery can make the discovery process longer, more stressful, unduly costly, and possibly lead to sanctions. In re Prudential Ins. Co. of Am. Sales Practices Litig. , 169 F.R.D. 598 (D.N.J. 1997); see also Mastercard Int'l., Inc. v. Moulton, 2004 U.S. Dist. LEXIS 11376 (S.D.N.Y. 2004)(granting motion for spoliation sanctions where defendants failed to retain relevant emails). There are, however, several practical strategies which companies can employ to satisfy their preservation obligations that are also feasible from an economic and business perspective.

A company has an obligation to preserve information and documents, including electronic data, when it knows, or reasonably should know, that litigation is anticipated. MOSAID Techs. Inc. v. Samsung Electronics Co. Ltd., 348 F. Supp. 2d 332, 336 (D.N.J. 2004)(stating that even before litigation is commenced, a party has a "duty to preserve what it knows, or reasonably should know, will likely be requested in reasonably foreseeable litigation") (internal citations omitted); Fujitsu Ltd. v. Fed. Express Corp., 247 F.3d 423 (2d Cir. 2001)(duty to preserve arose when a customer complaint was made).

The duty to preserve applies to data that is relevant to a pending or prospective action and reasonably calculated to lead to the discovery of admissible evidence. Fed. R. Civ. P. 26(b)(1)(stating that discovery extends to "any matter relevant to the subject matter involved in the action" and information which "appears reasonably calculated to lead to the discovery of admissible evidence").

Holding Data For Litigation

In addition to retaining discoverable material, the company is required to prevent the disposal, alteration or destruction of such material. This requires the company to depart from any established document retention policy and implement a "litigation hold" through which the company's employees are directed to preserve any data relevant to an anticipated or pending litigation.In light of the sanctions imposed in several recent spoliation cases for failure to retain and produce discoverable information, ( Coleman (Parent) Holdings, Inc. v. Morgan Stanley & Co., Inc., 2005 Extra LEXIS 94 (Fla. Cir. Ct. 2005); MOSAID, 348 F. Supp. 2d at 336; Zubulake, 220 F.R.D. at 216), companies often feel led to take the extreme step of retaining and storing every shred of paper in the event that it is sued. Such extreme measures, however, are neither practical nor required. Zubulake, 220 F.R.D. at 217 (stating that a party is under no duty to "preserve every shred of paper, every email or electronic document"). At the same time, however, the "obligation to preserve d[ata] that [is] potentially discoverable is an affirmative one that rests squarely on the shoulders of senior corporate officers." In re Prudential Ins. Co., 169 F.R.D. at 615.

Avoiding Business Disruption

The recently approved proposed amendments to the Federal Rules (which are slated to take effect on December 1, 2006) make it possible to craft and implement a sound, but practical, preservation plan. The benefits of the right preservation plan serve the bottom line of every company involved in a litigation - to meet its discovery obligations without unreasonably interrupting its business objectives, imposing extreme cost or expense, or otherwise causing undue burden. This is especially true for smaller, privately-held enterprises which may not have a large or experienced information technology or litigation support department to aid in managing the e-discovery process.

The proposed amendments to the Federal Rules provide that electronic information is discoverable if it is readily and reasonably accessible. Specifically, the amendment to Federal Rule 26(b)(2)(B) provides that a party need not produce electronic discovery from sources that are not "reasonably accessible due to undue burden or cost." Rule 45 of the Federal Rules of Civil Procedure also was amended to provide that a party may be subpoenaed to produce electronic information, but only such information as is "reasonably accessible." Under this proposed Rule, parties are not required to produce electronic data that is particularly difficult to retrieve, absent extreme burden or cost.

This, however, is not a license to frustrate the discovery process. The requesting party may, on a motion, demonstrate that the relevant data is reasonably accessible and, if they are successful, the court may order production of the data . Super Film of America, Inc. v. UCB Films, Inc., 219 F.R.D. 649, 657 (D. Kan. 2004)(granting defendant's motion to compel the production of electronic data and finding that the plaintiff failed to make the requisite showing of undue burden with respect to the production of the data).

A company, however, does not bear the burden of ensuring that all possibly discoverable data be readily available and easily accessible. Specifically, companies need not retain, store, search for and produce every piece of data, electronic or otherwise. Indeed, such an undertaking could effectively shut down the business affairs of a small company.

Thus, pursuant to the proposed amendments to Rule 26, data that is no longer reasonably accessible because it has been deleted or disposed of through routine means may be deemed inaccessible and, therefore, not discoverable. A court, however, may order a party to produce data that has been deemed inaccessible if the requesting party can establish that there is a good cause for the production of the data, in light of the limitations and considerations set forth in Federal Rule of Civil Procedure 26(b)(2).

Developing A Preservation Plan

A solid preservation plan, as well as other litigation and data management strategies, will enable a company to appropriately manage what data is available and discoverable in litigation and, thereby, better manage the costs of the litigation.

Ideally, every company should have an overall plan for document and electronic data management, of which the preservation plan is one component. Preservation is a critical aspect of the overall plan because the preservation of discoverable data is the first critical step that a company must take upon learning that litigation is imminent.

If the preservation of evidence is managed in an organized and streamlined fashion, the company will be better able to handle the other aspects of the discovery process (i.e., issues of privilege, nature and scope of information to be produced, and timing and format of production). A company with an effective preservation plan can manage the discovery process (and the vagaries of litigation in general) in a practical and fiscally sound manner, while also meeting all of their discovery obligations.

To ensure that the plan is one suited to the company, however, it must also stem from an assessment of the company's business, infrastructure, regulatory requirements and responsibilities to shareholders and clients.

An effective preservation strategy requires planning far in advance of any litigation, and should encompass the following components: a data retention policy, litigation hold procedures, an electronic data coordinator, a preservation order and continued education and compliance for employees. Each of these components, which will be addressed in the next segment of this article, are necessary to achieve a balanced and effective preservation plan that serves the company's needs and also fulfills its obligations under the new rules.

Ghillaine A. Reid is a Director in the Business & Commercial Litigation Department of Gibbons, Del Deo, Dolan, Griffinger & Vecchione, P.C . She also is a member of the firm's Electronic Discovery & Information Management Counseling Team. Ms. Reid concentrates her practice in Commercial Litigation, Securities Litigation, and Corporate Compliance matters. Ms. Reid formerly served as a Branch Chief and Staff Attorney in the Northeast Regional Office of the Securities and Exchange Commission's Division of Enforcement. Ms. Reid currently represents individuals and corporations in civil and regulatory investigations conducted by the United States Attorney's Office, the Securities and Exchange Commission, the National Association of Securities Dealers, as well as other government and regulatory agencies. In addition, Ms. Reid handles a variety of commercial litigation matters in the federal and state courts of New Jersey and New York. Her telephone number is (212) 649-4725.

Part I of this article provides an overview of the case law, evolving Federal Rules of Civil Procedures and business imperatives that underpin successful strategies for preservation of discoverable information. Part II will provide practical tips for complying with preservation obligations in a streamlined, cost-effective manner and will appear in the October issue of The Metropolitan Corporate Counsel.