In this age of electronic discovery, lawsuits are often won or lost based on a client’s, and counsel’s, knowledge of e-discovery processes, control of e-discovery costs and surveillance of an opponent’s e-discovery compliance. Because e-discovery so often is “the tail that wags the dog,” a working knowledge of e-discovery obligations and processes is essential to the successful outcome of every litigation.

  1. The duty to preserve electronically stored information (ESI)

The duty to preserve all potentially relevant information arises when a party reasonably anticipates litigation (Silvertri v. General Motors, 271 F.3d 583, 591 (4th Cir. 2001)) and applies to a party who contemplates asserting a claim against another party, as well as to a party who anticipates a claim maybe asserted against it. Guideline 1 of The Sedona Principles: Best Practices, Recommendations & Principles for Addressing Electronic Document Production (“Sedona Principles”), Vol. 11, Fall 2010, p. 269.

The duty to preserve evidence arises not only when a complaint is served, a governmental action is initiated or a subpoena is served, but also whenever a person or organization has information from which it can reasonably anticipate any of the foregoing. Caston v. Hoaglin, 2009 WL 1687927 (S.D. Ohio, 2009) (service of subpoena gives rise to obligation to preserve evidence). However, preservation is not required if the burdens and costs of preservation are disproportionate to the reasonably anticipated value of the data. For example, in Proctor & Gamble Company v. Haugen, All F.3d 727 (10th Cir. 2005), the Court of Appeals reversed a sanctions order because preservation of the evidence would have required installation of a new server or the purchase of archival data from a third party.

  1. Preservation of evidence

When a duty to preserve arises, a party must suspend its routine document retention/destruction policy, impose a “litigation hold” preserving relevant information, and take reasonable steps to preserve “what it knows, or reasonably should know, is relevant in an action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery and/or is the subject of a pending discovery request.” Zubalake v. UBS Warburg, 220 F.D.R. 212 (S.D.N.Y. 2003); and Wm. T. Thompson Co. v. General Nutrition Corp. 593 F. Supp. 1442 (CD. Cal. 1984). Some courts have held that a party’s counsel has an independent duty to actively supervise his client’s discovery compliance. Phoenix Four, Inc., v. Strategic Resources Corp., 2006 WL 1409413 (S.D.N.Y. 2006).

  1. Notice of duty to preserve evidence

A party must give notice of the litigation hold to all persons under its control who potentially possess relevant information. In Pension Plan v. Banc of America Securities, LLC, 685 F. Supp. 2d 456, 465 (S.D.N.Y. 2010), the court held that the failure to issue a litigation hold letter constitutes gross negligence; and in Point Blank Solutions v. Toyota America Inc., 2011 WL 1456029 (S.D. Fla. 2011), the court held that an oral litigation hold was inadequate.

In Zubulake v. UBS Warburg (Zubulake V), 229 F.R.D. 422, 434 (S.D.N.Y. 2004), the court held that a party’s “counsel must issue a ‘litigation hold’ at the outset of litigation or whenever litigation is reasonably anticipated, communicate directly with the ‘key players,’ instruct all employees to produce electronic copies of their relevant active files, and secure unique backup media that should be retained.” A party must also give notice to third parties that control its data under contractual or other relationships, e.g., cloud computing service providers and data storage facilities.

A litigation hold letter typically includes a statement that litigation has been filed or is imminent, the operative facts which give rise to the causes of action asserted or to be asserted, and a direction to preserve all information relevant to such claims, which, depending on the facts of the case, may include all relevant electronic records, emails, metadata, data logs, date/time stamps, text messages, instant messages and voicemail messages that reside on any computer, server, laptop, archive, backup tape or other memory storage device, in the possession of the party and third parties under the party’s control. The notice should also prohibit access to ESI in its original form to prevent alteration or destruction of metadata relating to such information and direct that all manual and automatic document retention and other policies and routines, including defragging and wiping operations, that could result in the destruction of ESI be suspended until further order of the court. (Defragging can destroy evidence of wiping operations). A party should also send a litigation hold letter to each opposing party when litigation is reasonably anticipated or, at the latest, when the complaint is filed.

  1. Managing e-discovery

Federal Rule of Civil Procedure, Rule 26(f)((2), provides that the parties shall address “issues about preserving discoverable information” at their Rule 26(f) conference, and Rule 16(b)(3)((iii) provides that the Court’s Rule 26 Scheduling Order “may provide for disclosure or discovery of electronically stored information.” Topics that should be discussed by counsel at their initial conference include computer system architecture for each relevant system; the name, title, responsibilities and employer of each custodian of relevant information; any data that are not reasonably accessible; the person responsible for ESI retention; arrangements for imaging devices on which potentially relevant ESI may reside; and an agreed procedure for data review, including the timing and method of searching, e.g., search terms or computer-assisted review.

  1. Data acquisition, search and analysis

Encase is a computer forensic tool (www.guidancesoftware.com/forensic.htm) that has a suite of tools for the acquisition, indexing, search and analysis of the raw data residing on a hard-drive and the recovery of deleted files. Forensic Toolkit and WinHex are comparable tools. These tools can be used to create a forensic image of the raw data on a hard-drive. The image can then be preserved by use of a “write-blocker” to prevent the data from being written to or altered in any other way, and these tools can then be used to examine, index and search the data and recover deleted files. While these tools are useful for key word searches of large quantities of imaged data, they have limited capability for searching combinations of words. Advanced key word searches require the use of an index tool with a fully developed search capability, such as dtSearch (http://www.dtsearch.com/).

  1. Burden and cost of production

Notwithstanding a party’s duty to preserve evidence, Federal Rule of Civil Procedure 26(b)(2)(B) provides that if a party identifies electronically stored information that is not reasonably accessible because of undue burden or cost, it need not provide discovery of such information, although the court may order otherwise. Further, Rule 26(b)(2)(C)(iii) states that a court “must limit the frequency or extent of discovery otherwise allowed ... if it determines ... the burden or expense of the proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the parties’ resources, the importance of the issues at stake in the action, and the importance of the discovery in resolving the issues.”

In Zubulake v. UBS Warburg (“Zubulake I), 111 F.R.D. 309, 321-322 (S.D.N.Y. 2003), the court fashioned the following seven-factor test to determine if the cost of production should shift to the requesting party: (1) the extent to which the request is specifically tailored to discover relevant information; (2) the availability of such information from other sources; (3) the total cost of production compared to the amount in controversy; (4) the total cost of production compared to the resources available to each party; (5) the relative ability of each party to control costs and its incentive to do so; (6) the importance of the issues at stake in the litigation; and (7) the relative benefits to the parties of obtaining the information.

  1. Remedies for breach of duty to preserve evidence

A court’s authority to sanction a party for failure to preserve documents is both inherent and statutory. Cambers v. NASCO, Inc., 501 U.S. 32, 50-51 (1991); Federal Rule of Civil Procedure, Rule 37. However, Rule 37(e) provides, “Absent exceptional circumstances, a court may not impose sanctions ... on a party for failing to provide electronically stored information lost as a result of the routine, good faith operation of an electronic information system.” The rule only applies to routine destruction that occurs prior to receipt of notice of the need to preserve records scheduled for destruction. Wilmington v. Ellis, 2003 WL 22439865, *7 (N.D. Ill. 2003); Plunk v. Village of Elwood, 2009 WL 1444436, *14 (N.D. Ill. 2009).

The court has broad discretion to fashion an appropriate sanction to remedy the wrong done to plaintiffs, but the sanction must be proportionate with the circumstances involved. Barnhill v. U.S., 11 F.3rd 1360, 1367 (7th Cir. 1993). The court must analyze: (1) whether there was there a duty to preserve the specific evidence; (2) whether that duty was breached; (3) whether plaintiffs were harmed by the breach; (4) whether there was willfulness, bad faith or fault; and (5) whether the proposed sanction can ameliorate the prejudice from the breach, or whether there is a lesser sanction available which will accomplish that goal. See Larson v. Bank One Corp., 2005 WL 4652509, at *9 (N.D. Ill. 2005). The standard of proof for any sanction other than a dismissal with prejudice against the plaintiff or a default judgment against the defendant is a preponderance of the evidence. Maynard v. Nygren, 332 F.3d 462, 468-69 (7th Cir. 2003).

Typical issue-related sanctions include entry of an order that the jury shall be informed that the offending party failed to preserve relevant information even though it was on notice the evidence should be preserved, an order that the offending party shall be precluded from arguing that the other party lacks documentary evidence in support of its contentions, and an adverse inference jury instruction that the jury may infer that the spoliated records supported the other party’s contentions. The offending party is also typically ordered to pay the other party’s attorneys’ fees and costs in connection with discovering that information had been destroyed and preparing and presenting the sanctions motion and fee petition. Plunk v. Village of Elwood, 2009 WL 1444436, *14 (N.D. Ill. 2009). Penalties for civil contempt, including incarceration, may also be awarded. Green v. Blitz U.S.A, 2011 U.S. Dist. LEXIS 20353 (E.D. Tex. 2011); Victor Stanley, Inc. v. Creative Pipe, Inc. (2010 U.S. Dist. LEXIS 93644 (Md. 2010).

Before a court will enter a dismissal with prejudice against a plaintiff or a default judgment against a defendant, the loss of evidence must have caused irreparable damage to the opposing party. Danis v. USN Communications, Inc., 2000 WL 1694325, *34-35 (N.D. 111. 2000), and the evidence of misconduct must be clear and convincing. Maynard v. Nygren, 332 F.3d 462, 468-69 (7th Cir. 2003). A party seeking such relief should request the court to conduct an evidentiary hearing for the purpose of proving bad faith. Plunk v. Village of Elwood, 2009 WL 1444436, *12, 14 (N.D. 111. 2009). An independent action in tort may also lie for a party’s violation of its duty to preserve information. Keaney v. Foley & Lardner, 582 F.3d 396 (9th Cir. 2009).

Summary

It is important to keep up to date as e-discovery case law develops.