In the modern business world, employers rely heavily on electronic means of communication (e.g., e-mail, voicemail and Blackberries or other PDAs) and store a wide array of information on computers and through other electronic means. Since this "electronically stored information" has become critical during the discovery phase of most civil litigation, including employment litigation, on December 1, 2006, changes to the Federal Rules of Civil Procedure (the "Federal Rules") went into effect mandating some important new obligations with respect to the preservation and production of electronically stored information. In theory, these new obligations apply equally to both parties. However, in reality, in employment litigation, which generally pits an individual plaintiff-employee, with relatively limited possession of, or access to, electronically stored information against a larger, more sophisticated employer-defendant that possesses significantly larger amounts of electronically stored information, the employer typically bears the lion's share of the burden. Accordingly, employers who fail to meet their obligations with respect to the preservation and production of electronically stored information run a greater risk of sanctions or, even worse, a spoliation of evidence claim.
This article discusses and addresses the language of the new Federal Rules and provides guidance for employers with respect to the retention and preservation of electronically stored information. The new Federal Rules impose a number of obligations on the parties and their respective counsel. Specifically, at the outset of litigation, prior to conducting any discovery, the parties are required to confer about "any issues relating to the disclosure or discovery of electronically stored information, including the form or forms in which it should be produced." Fed. R. Civ. P. 26(f)(3). In addition, as part of their mandatory pre-discovery Initial Disclosures, the parties must now disclose "a copy of, or a description by category and location of, all documents, electronically stored information, and tangible things that are in possession, custody or control of the party and that the disclosing party may use to support its claims or defenses." Fed. R. Civ. P. 26(a)(1)(B).
Although, on their face, the new Federal Rules appear to address electronic discovery issues that arise only after litigation has been filed, in fact, a party's obligation to preserve electronically stored information commences long before suit is ever filed. With respect to physical evidence (including paper and other documentary evidence), it has long been the rule that a party "has a duty to preserve evidence where it is reasonably foreseeable that [the information] is material to a potential legal action and properly discoverable." Easton Sports, Inc. v. Warrior Lacrosse, Inc., No. 05-72031, 2006 U.S. Dist. LEXIS 70214, at *9 (E.D. Mich. Sept. 28, 2006) (emphasis added). In light of the fact that electronically stored information, in all its forms, is now subject to discovery under the Federal Rules, where litigation is reasonably foreseeable, a party is obligated to preserve all relevant information and documents, whether stored electronically or in hard copy. Thus, a party's obligation to preserve relevant evidence, including electronically stored information, pre-dates the filing of litigation (or any other type of formal charge, complaint, claim or grievance) and commences as soon as legal action is reasonably foreseeable. This requirement to retain and preserve relevant electronically stored information includes an obligation to cease and desist with the use of pre-existing automatic document destruction policies, practices or procedures. In 2004, before the new Federal Rules went into effect, the United States District Court for the Southern District of New York addressed a prime example of what the Federal Rules now seek to prevent -- the spoliation of relevant evidence. Zubulake v. UBS Warburg LLC, 29 F.R.D. 422 (S.D.N.Y. 2004). In Zubulake, a female employee filed suit against her former employer, UBS, alleging gender discrimination, failure to promote, and retaliatory discharge. When Zubulake filed her EEOC charge, in August 2001, UBS's in-house counsel gave oral instructions to UBS employees not to destroy or delete potentially relevant materials, including e-mails, and to segregate those materials into separate files for counsel's subsequent review. However, one year later, in August of 2002, after litigation had been filed, Zubulake issued formal discovery requests for e-mails stored on backup tapes. This document request prompted UBS's in-house counsel to instruct UBS's information technology ("IT") personnel to stop recycling backup tapes, thereby preserving the tapes and the information stored therein. However, over time, without proper structure or guidance, several e-mail messages, backup tapes, and other relevant electronically stored evidence had been destroyed. While some of the relevant evidence was recovered through expensive, time-consuming technologies, some evidence was lost for good. After a discussion of the applicable legal standards, the Zubulake court held that UBS violated its duties to preserve, protect, and disclose relevant evidence. Therefore, the court ordered that UBS: (1) pay for the re-deposition of relevant UBS employees, limited to the subject of the newly discovered e-mails; (2) restore and produce relevant documents from relevant backup tapes; and (3) pay Zubulake's reasonable expenses, including attorney’s fees, related to these discovery issues. Finally, the court permitted the jury to draw a negative inference against UBS for lost documents, if the jury found UBS to be at fault for such losses. As discussed in Zubulake, the employer's failure to take appropriate steps to retain and preserve relevant electronically stored information as soon as legal action became reasonably foreseeable proved costly. To avoid the pitfalls associated with electronic discovery, as soon as litigation becomes reasonably foreseeable, employers should:
(1) identify by location, category and content all potentially relevant documents and electronically stored information (e.g., computer servers, floppy disks, CDs, hard drives, zip drives, desktop computers, laptop or notebook computers, home computers, Blackberries or other PDAs, office telephones, cellular or mobile telephones, voicemail systems, e-mail accounts, etc.);
(2) identify automatic deletion processes, planned system upgrades, or equipment replacements and act accordingly to preserve relevant information;
(3) halt the destruction of documents under the employer's document retention policies;
(4) identify employees who have relevant electronic or paper data and address preservation issues with them, including the requirement to cease any planned document destruction and preserve relevant information;
(5) identify systems where data may be located and work with the employer's IT department to cease any planned document destruction, prevent unintentional document deletion or destruction, and preserve relevant information; and
(6) memorialize, in writing, all efforts related to the litigation hold process.
Where an employer has taken the above steps as soon as litigation becomes reasonably foreseeable, the discovery process becomes much simpler and there is less likelihood that the employer will run afoul of its discovery obligations under the Federal Rules. Although the Federal Rules obligate employers to take steps to retain and preserve relevant evidence, including electronically stored information, those obligations are not unlimited. For example, Federal Rule of Civil Procedure 26(b)(2)(B) provides that: "[a] party need not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden or cost." Thus, although the employer is obligated to retain and preserve all relevant electronically stored information, the more voluminous and costly an employee's formal discovery request, the less likely an employer will be compelled to produce the requested information. Furthermore, as with standard written discovery, where the request is unduly burdensome or expensive, it is foreseeable that a court might require the plaintiff to bear some or all of the costs associated with production. Fed. R. Civ. P. 26(c). See also Rowe Entertainment, Inc. v. William Morris Agency, Inc., 205 F.R.D. 421, 428 (S.D.N.Y. 2002). Finally, of great concern to many employers is the risk of sanctions for failure to produce electronically stored information that may have been inadvertently lost as a result of the employer's data retention and/or automatic destruction policies. However, while employers are obligated to cease the automatic destruction of electronically stored information when litigation becomes reasonably foreseeable, Rule 37(f) makes clear that:
Absent exceptional circumstances, a court may not impose sanctions under these rules 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.
According to the Committee Notes commenting on the new Federal Rules, Rule 37(f) focuses on "information lost due to the 'routine operation of an electronic information system.'" Many employers have processes in place that purge electronic systems of information as part of a "routine business practice." Rule 37 will not support sanctions where an employer continues this routine business practice in good faith. However, employers must never forget about the continuing obligation to preserve relevant evidence, regardless of such routine business practices. An employer's blind continuance of a routine document destruction policy might provide grounds for sanctions where the employer acted in bad faith or knew, or had reason to know, about potential litigation. As the Committee Notes to Rule 37(f) state, "a party is not permitted to exploit the routine operation of an information system to thwart discovery obligations by allowing that operation to continue in order to destroy specific stored information that it is required to preserve." Before the December 1, 2006 amendments to the Federal Rules of Civil Procedure, the employer in Zubulake discovered the difficulties and dangers involved in electronic discovery. Today, a simple Google News Search containing the terms "electronic discovery" and "civil procedure" yields the following headlines on the first page: (1) Oracle Case E-Discovery Fight Heats Up; (2) Is Your Company Destined to Make Headlines for Its Handling of Sensitive Records and Information; (3) Rising Costs of E-Discovery Requirements Impacting Litigants; (4) Pay Now Or Pay Later: How Changes In Electronic Discovery Will Impact Your Business; and (5) New Electronic Discovery Rules May Challenge Litigators Not Familiar with Digital Evidence says K&F Consulting. Thus, failure to comply with the Federal Rules and recognize obligations could lead to sanctions and lost time and money for an employer. No employer wants to make headlines for the destruction of electronic documents, whether unintentional or not. Accordingly, employers should take appropriate steps to retain and preserve all relevant electronically stored information, thereby avoiding the risk of sanctions or a spoliation of evidence claims.