VOL. CLXXX – NO. 4 – INDEX 293
APRIL 25, 2005
ESTABLISHED 1878
COMPLEX LITIGATION
What Clients Can Do To Prepare for E-Discovery
Companies should be proactive in controlling and managing the potential e-evidence they generate
By Donald W. Kiel, Kathy Dutton Helmer
and Tammy E. Henderson
o a company striving to compete
and succeed in today’s global and
Web-based market places, electronic communication is essential to
doing business. Should the company be
sued, however, those electronic communications are subject to discovery
and may be a source of damaging or
embarrassing information. Information
accessible from computers, servers, laptops, hard drives, internal and external
e-mails, electronic reports, Power Point
presentations, backup files or tapes, and
disaster recovery systems are all popular targets of increasingly aggressive
efforts aimed at discovering so-called
“e-evidence.”
E-evidence has become a “high
value” litigation target and one that can
escalate litigation costs and increase
potential exposure. The horror stories
abound.
In a breach of contract claim, plaintiff sought e-mails sent by over 700 of
the defendants’ employees and stored
on 93 backup tapes. Restoration of the
T
Kiel is a partner, Dutton Helmer is
counsel and Henderson is an associate in
the insurance coverage group at
Kirkpatrick & Lockhart Nicholson
Graham of Newark.
e-mails was estimated to take six
months at a cost over $6.2 million.
Murphy Oil USA, Inc. v. Flour Daniel,
Inc., 202 WL 246439, *3 (E.D. La.
2002).
In SEC proceedings, a broker-dealer paid $2.1 million in fines and penalties to settle charges that it violated
securities laws by failing to preserve email communications in an easily
accessible place. In Matter of J.P.
Morgan Securities Inc., Admin Proc.
File No. 3-11828 (Feb. 14, 2005) (decision available at http://www.sec.gov/liti
g
a
t
i
o
n
/
admin/34-51200).
Individual defendants who were not
based in New Jersey but who used the
company’s electronic message board
“with knowledge that the messages
would be published in New Jersey”
were subject to jurisdiction in New
Jersey. Blakey v. Continental Airlines,
Inc., 164 N.J. 38 (2000).
A recent survey of 840 companies
by the ePolicy Institute and American
Management Association found that
one out of every five has either received
subpoenas for employee e-mail or used
e-mail to defend the company against
allegations of sexual, racial or other discrimination
claims.
See,
http://www.epolicyinstitute.com/
survey/index.html. Recognizing that
electronic communications or data
could well become e-evidence in litigation, there are a number of pro-active
measures that companies can and
should consider implementing to prepare in advance for potential e-discovery.
Conduct pre-emptory due diligence. Before being confronted with litigation involving e-discovery, learn
how your computer and electronic systems are structured and how they actually operate. Identify the individuals or
organization responsible for your systems and understand the chain of command so you can quickly and effectively disseminate information and instructions pertinent to e-discovery when necessary. See, Keir v. Unumprovident
Corp., 2003 WL 21997747 (S.D.N.Y.
Aug. 22, 2003) (criticizing defendant’s
delayed and abortive efforts to comply
with court order to preserve e-mail and
appointing an expert to determine
whether “all that needs to be done to
retrieve the email … is being done”).
Also, familiarize yourself with document retention and e-mail policies.
Where such policies do not exist, propose their immediate creation; where
such policies do exist, make sure they
are being applied to computers and
other electronic devices. Consider hiring outside counsel to conduct a “due
diligence” review of the policies.
Finally, make sure that the policies are
This article is reprinted with permission from the APRIL 25, 2005 issue of the New Jersey Law Journal. ©2005 ALM Properties, Inc. Further duplication without permission is prohibited. All rights reserved.
2
actually followed. See, Murphy Oil,
supra (defendant, by not following its
own document retention policy, had
failed to recycle the 93 backup tapes at
issue).
Limit the creation of e-data.
Consider means to reduce the types and
amounts of e-data currently created.
These efforts can save time and money
while also reducing the volume of data
later subject to discovery. E-mail is a
good first target because of its sheer
volume and ever-increasing use. The
International Data Corporation predicts
that in 2006, the total number of e-mail
messages sent daily will exceed 60 billion worldwide, up from 31 billion in
2002.
See
h t t p : / / w w w. c o m p u t e r w o r l d . c o m /
softwaretopics/software/group
ware/story/0,10801,74682,00.html?fro
m=story_picks. Because of the speed
and informality of e-mail, people tend
to write and disseminate things in email that they would never say in person. See, Blakey, supra (despite pendency of a sexual discrimination lawsuit, male co-workers continued to post
a series of electronic messages that the
plaintiff viewed as harassing, genderbased messages, e.g. “if the porn bothers you, don’t look”). Consider creating
an e-mail policy limiting use to business purposes and educate all personnel
about the dangers of overuse, informal
use and misuse of e-mail. Engage computer professionals to help identify specific measures to limit the creation of edata.
Identify and protect confidential
materials. Because of the sheer volume
of e-data created, maintained and distributed, e-discovery often raises
thorny issues of confidentiality. By taking steps to identify and protect confidential business information, clients
can avoid future problems and expense.
Documents containing confidential
information should be appropriately
labeled in their electronic version. Staff
should be educated on how to classify
e-data as, among other things, confidential, proprietary, privileged, workproduct or related to settlement. Access
to such documents should be restricted
to the personnel responsible for such
NEW JERSEY LAW JOURNAL, APRIL 25, 2005
matters. See, Target Advertising, Inc. v.
Miller, 202 WL 999280 (S.D.N.Y. May
15, 2002) (plaintiff advertising company alleged that after firing two graphic
designers, numerous computer files
and data disks had been removed from
the offices and the company’s intellectual property, work product, customer
information and financial information
had been stolen). Companies subject to
laws or regulations that require certain
data to be maintained in “accessible
form,” must also assure that data generated years earlier is either stored in a
format compatible with current,
upgraded systems or that the equipment and software used to create the
data remain available and functional.
See, J.P. Morgan Securities, supra.
Preserve potential evidence.
Whether potential evidence has been
preserved is often at the focal point of
e-discovery battles. Organizations must
create and consistently follow a document retention policy that specifically
addresses all computers, servers and
other electronic devices used to create
or store e-communications or data. A
sound document retention policy: (1)
complies with any statutory or regulatory obligations governing the different
types of documents to be retained; (2)
specifies the length of time each type of
document will be retained; (3) establishes a destruction schedule and
method of destruction; and (4) provides
a detailed protocol for halting the routine destruction of documents in the
event of anticipated or actual litigation
(i.e., a “litigation hold” or “freeze”).
The obligation to preserve e-data
can be triggered even before a lawsuit is
filed. Zubulake v. UBS Warburg, 203
U.S.Dist. LEXIS 18771, at *16
(S.D.N.Y. Oct. 22, 2003) (“Once a party
reasonably anticipates litigation, it must
suspend its routine document retention/destruction policy and put in place
a ‘litigation hold’ to ensure the preservation of relevant documents.”) The
obligation to preserve e-data can also be
triggered by statutory and regulatory
obligations (including the SarbanesOxley Act), court-issued preservation
orders, and “preservation letters” sent
by litigants to their opponents. See, e.g.,
180 N.J.L.J. 293
J.P. Morgan Securities, supra (discussing obligation under SEC regulations to preserve e-mail documents in
easily accessible form).
Courts have sanctioned litigants
engaged in intentional, or even innocent, spoliation of e-data by imposing,
among other things, monetary sanctions, evidentiary sanctions precluding
the offer of certain evidence, adverse
inferences, default judgments and socalled “rummaging” (i.e., giving the
discovering party “hands-on” access to
the respondent’s computer system.”)
See, e.g., Mosaid Techs. Inc. v.
Samsung Elecs. Co., Ltd., 348
F.Supp.2d 332 (D.N.J. 2004) (Where
defendant failed to produce e-mails
requested in discovery and allowed emails to continue to be deleted, the
court imposed sanctions including an
adverse inference instruction to be
given to the jury, along with the fees
and costs associated with trying to
obtain the required discovery); United
States v. Philip Morris USA Inc., 327
F.Supp.2d 21 (D.C. 2004) (for noncompliance with court order requiring
preservation of e-evidence, court
imposed $2.9 million sanction and precluded certain employees from testifying at trial). In light of these preservation issues, it is important that those
responsible for a client’s computer system not only implement the document/data retention policies that are
adopted but also design effective procedures for interrupting the deletion
process in the event of a “litigation
hold.” See Keir, supra.
Understand the costs. E-discovery
differs from traditional paper discovery
because e-data tends to be more voluminous, harder to retrieve and is frequently in need of translation. These
characteristics can render e-discovery
vastly more expensive than paper discovery and increase the risk that discovery will be used offensively. While
it is generally presumed that the
responding party bears the costs, where
a litigant has requested data that is not
readily “accessible,” some courts have
been willing to shift or allocate the
costs to the party requesting the discovery. Zubulake v. Warburg LLC, 216
3
F.R.D. 280 (S.D.N.Y. 2003) (shifting to
requesting party one-fourth of the estimated $166,000 cost of restoring and
searching backup tapes, but declining to
shift the estimated $108,000 cost of
producing the restored e-mails); AntiMonopoly, Inc. v. Hasbro, Inc., 1996
NEW JERSEY LAW JOURNAL, APRIL 25, 2005
U.S. Dist. LEXIS 563 (S.D.N.Y. Jan.
23, 1996) (requiring requesting party to
bear the cost of special programming to
recover electronically restored data).
Be proactive, not reactive. The
adage that an ounce of prevention is
worth a pound of cure certainly
180 N.J.L.J. 293
applies to the modern-day dilemma of
balancing the business necessity and
convenience of computers and other
electronic media while effectively
controlling and managing all the
potential e-evidence that they generate. ■