In the post-Enron age of business, you would probably never dream of shredding documents that might be relevant to a threatened or pending lawsuit. But what safeguards does your business have in place to prevent the destruction or concealment of electronic evidence?
As a litigant or potential litigant, you have a duty not to destroy evidence that might be discoverable in a lawsuit, but many parties do not realize that this includes more than just paper records. Information stored electronically, such as your e-mails, electronic calendars and drafts of documents on your computer system are not only fair game, but are routinely requested.
What Needs to Be Preserved?
Information that is relevant or even arguably relevant to your dispute should be preserved. It is not always clear at the outset of litigation what is considered "relevant." At a bare minimum, documents and data routinely kept as a part of your business records should not be erased, even if you would normally conduct periodic purges of the data. For instance, many companies automatically purge deleted e-mails after a few weeks or months. Employees should not queue information for deletion if that information could be relevant and discoverable down the road. You should back up, print out or save to disk or CD-ROM any "stale" information that is in danger of being erased. While the rules do not require prescience or paranoia on your part, it may not look good to a judge or jury if you have destroyed routine accounting files, client database information, or e-mails to your customers or vendors about important issues in the lawsuit. For instance, in a pending case being handled by Maslon, a federal district court judge recently indicated her intent to sanction a party for using sophisticated software to clean her hard drive, which may or may not have contained evidence relevant to the case, despite the party's insistence that running this program was part of her routine maintenance. Another court remanded a case after entry of a $96.4 million jury verdict when the court found that the prevailing party had delayed, not even destroyed, production of electronic data. See Residential Finding Corp. v. DeGeorge Financial Corp., 306 F.3d 99 (2d Cir. 2002) (vacating court's order denying sanctions and remanding for the district court to decide whether a new trial was appropriate.)
In addition to your paper files, data stored on your network, on individuals' computers, on hard disk, on external media and on backup tapes all should be preserved. If you have employees who save work-related information on laptop computers, home computers, personal e-mail accounts and PDAs (Blackberries, Palm Pilots), that information is also discoverable. The storage medium is not the issue; if you have relevant information, whatever the form, it will be discoverable.
Although you are not required to produce redundant information, such as hard copies of electronic data you have already produced, it is advisable to have some redundancies in place in case information is accidentally removed from the electronic system. Likewise, you may find it more convenient to produce the information in one form versus another, such as producing hard copies of documents an employee has stored on a home computer rather than the computer itself or a mirror image of the hard drive.
When Do We Need to Preserve It?
Your duty to preserve evidence certainly attaches when you commence a lawsuit, if you are the plaintiff, or when you are served with the complaint, if you are a defendant. However, a number of courts have issued rulings imposing a duty to preserve before litigation begins if a party knows of the existence of a potential claim and can identify relevant evidence. See, e.g., Silvestri v. General Motors Corp., 271 F.3d 583, 590 (4th Cir. 2001) (upholding sanctions for failure to preserve a car involved in an accident, which plaintiff reasonably should have known would be material evidence in anticipated litigation against auto manufacturer). Therefore, as a practical matter, it is our general advice that you should instruct your colleagues and subordinates to retain records of any business activities for which litigation is anticipated, especially when it becomes apparent (through a demand letter or other saber-rattling) that a business relationship is "going south" and may be headed to court.
In addition to this general duty, litigants also have a duty not to destroy documents once a discovery request has been served for particular materials. For example, if your opponent serves you with a request for all records of complaints relating to the product you manufacture, that, of course, is not the time to go through your computer system and purge old records of complaints. [1] This is true even if your document retention policy calls for destruction of such records at that time. If, on the other hand, your policy is rigorously followed and it resulted in the destruction of certain data before you were on notice of the lawsuit, you are much more likely to receive a sympathetic reception from a court if the destruction is challenged by the opposing side.
How Do We Preserve It and Who Pays for Its Retrieval?
The casual computer user may be unaware that just because someone hits the "delete" key does not mean that a document or e-mail is gone forever. Most companies maintain backup tapes of all data for a set period of time, and you can, with some effort from your IT department, retrieve data you thought was gone. Eventually, however, data are overwritten by new data entered into your system. Be sure you know what your company's storage methods and protocols are, and tell your employees to preserve information accordingly.
Even "deleted" data can usually be recovered by forensic computer experts. But as a practical matter, forensic experts cost money. It will save you a great deal of time and expense simply to keep relevant information than to rely on technical know-how after it has been deleted. Although in rare instances a court will require the party requesting information to bear the cost of production, you should not assume that this will be the case. While the general rule is that a party generating data must bear the costs of preserving and producing it, we note a recent development in which some courts have adopted a balancing test to determine which party need bear these sometimes staggering costs. See McPeek v. Ashcroft, 202 F.3d 31, 33-34 (D. D.C. 2001). The court, ordering the defendant to conduct a preliminary search of its computer backup tapes, noted:
[M]aking the producing party pay for all costs of restoration as a cost of its "choice" to use computers creates a disincentive for the requesting party to demand anything less than all of the tapes. American lawyers engaged in discovery have never been accused of asking for too little. To the contrary, like the Rolling Stones, they hope that if they ask for what they want, they will get what they need.
Musical allusions aside, the court properly identified the problems of requiring businesses and government agencies (in this case, the Department of Justice) to pay for searches for electronic documents sought by an opponent in litigation.
If litigation looms on the horizon, advise your colleagues and employees to begin preserving their electronic files related to that issue or to print out all relevant documents and e-mails. Whether the facts in these files are helpful or harmful to your case, destruction of files, once discovered, will invariably come back to haunt you. For instance, in the Maslon case discussed earlier, the party first deleted the requested data and then used software to purge the still-recoverable information from her computer. While the data then became lost forever, the party's misconduct is what met the ire of the court and is what the jury will hear about.
For How Long Do We Preserve It?
Unfortunately, it depends. Therefore, regardless of whether you are involved in litigation, your business should have a stated document retention policy. The length of time you should retain documents depends on a number of industry-specific factors and pragmatic concerns, ranging from whether you have governmentally-mandated reporting requirements to how much physical space you maintain for storing information. If you have deleted, erased or recycled records (electronic or otherwise) consistent with your document retention policy and before it became apparent that a lawsuit was likely, you are far less likely to be deemed to have destroyed evidence intentionally and, therefore, less likely to face sanctions from a court. Since the determination of whether there will be a sanction and, if so, what it will be is wholly within the discretion of the court, it is important to be able to establish that the retention policy is reasonable and rigorously followed. If you do not have a document retention policy, you should consult your legal adviser to set one up.
What Are the Consequences of Destruction of Evidence?
Sanctions for destruction of evidence are wide-ranging and completely in the hands of the court. At a minimum, if you have been found to have destroyed evidence, the judge may draw or the jury may be told it can draw an inference that the materials you destroyed were harmful to your case. Courts can also impose monetary sanctions and exclude evidence and witness testimony as a result of misconduct. In extreme circumstances, if a court finds clear and convincing evidence that you have intentionally concealed or destroyed evidence, your case could be dismissed (if you are the plaintiff), or you could be found summarily liable without a trial (if you are the defendant). See Martin v. DaimlerChrysler Corp., 251 F.3d 691, 693 (8th Cir. 2001) (dismissing a complaint where plaintiff lied to conceal the existence of evidence); Everyday Learning Corp. v. Larson, 242 F.3d 815 (8th Cir. 2001) (employing dismissal as a sanction for spoliation).
In a recent case handled by Maslon, failure to disclose computer evidence and alleged tampering with electronic data resulted in counsel for an opposing party being removed as trial counsel from the case. Most sanctions will fall somewhere in the middle of these extremes, but none will benefit your case.
The rules vary from jurisdiction to jurisdiction on the type of sanction and whether a court will sanction a party that has destroyed relevant evidence. Typically, the penalty is harsher if a court finds that the destruction was in bad faith (e.g., intentional) or if the other side is prejudiced by the destruction. However, a court may assume that deleted data was harmful to your case, so it is likely that a court will find some prejudice to the other side once it has been determined that evidence has been destroyed. Because electronic data discovery has become commonplace, a trend is developing in the courts toward issuing more severe sanctions for destruction. In any event, the order of the day is CAUTION: If it might be relevant, keep it.
Conclusion
Litigation affects many aspects of your business, and most litigants are not prepared for the time and expense involved in recovering electronic files and data that, with foresight, could easily have been preserved. If you make sure that you know how your business stores electronic data and where the information is kept, it will go a long way toward preserving information that is critical to your claims and avoiding being on the wrong end of an allegation that you have destroyed evidence. Consult with your IT department and your legal counsel if you have questions in this area. The time to plan is before the complaint gets served and filed.
[1] In some state courts, and in the federal courts, parties must make initial disclosures to their opponents identifying all documents and data that may be relevant to the lawsuit. These obligations attach regardless of whether the other side has served specific requests for your information.