Practical Strategies For Satisfying Preservation Obligations - Part II The Components Of An Effective E-Discovery Preservation Plan

Sunday, October 1, 2006 - 01:00

As discussed in Part One - Why A Preservation Plan Is A Critical Component Of Any Electronic Discovery Protocol, the new electronic discovery obligations imposed by advanced technology require that companies develop, implement and maintain an effective preservation strategy. The component parts of an effective preservation strategy, as discussed in detail below include: a data retention policy, litigation hold procedures, an electronic data coordinator, a preservation order and continued education and compliance.

Data Retention Policy. In their effort to avoid potential sanctions, companies should resist the urge to retain any and all data that could be relevant to litigation. A comprehensive data retention policy that is not too broad or restrictive, but suits the needs of the business, can be used as a tool to manage the e-discovery process. With the exception of documents that a company is legally required to retain (such as for SEC regulated entities), a data retention policy need only specify that data be retained for a reasonable period, which typically amounts to a few years. If a data retention policy mandates that a company maintain data indefinitely, or for too long, the company will have more to review and possibly produce, which could increase discovery expenses exponentially. The less data that is retained, the less data that there is to manage. This, however, is not a call to implement an unduly restrictive policy either. The company should be wary of prematurely disposing of data that might be helpful to its case, or claims that a restrictive policy was designed to dispose of discoverable data. It is a fine line. Documents and electronic data should be retained for a period that the company, or its client base, may forseeably need them for business purposes.

For many companies, e-discovery is a relatively new concept. While many companies have document retention policies, fewer have policies that extend to the retention of electronic data. An effective data management policy must encompass all data - both electronic and documentary. Because most people rely heavily on email communication today, it is best to maintain an electronic data retention policy that includes a formal email retention policy. When emails and other electronic data (including back-up tapes) are retained for a specified period, the company does not have to spend time and money wading through old data that may be irrelevant to litigation. As with a document retention policy, a formal email retention policy should specify how and when emails will be deleted or otherwise disposed of, and how long the company will store back-up tapes or other residual electronic data. Moreover, a formal email retention policy may be used as a defense to spoliation claims, specifically, claims of destruction of electronic data . See In re Prudential Ins. Co., 169 F.R.D. 598, 613 (stating that Prudential lacked "a clear and unequivocal document preservation policy" and imposing $1 million in sanctions).

Litigation Hold. The proper implementation of litigation hold procedures sets the tone for the rest of the litigation and is the best defense against spoliation claims. The preservation plan should specifically outline when and how to implement the litigation hold. As soon as the company's management suspects that litigation is imminent, they should disseminate a clear, detailed litigation hold advisory letter to all relevant employees and divisions. It is best (and effectively required by case law) to issue the letter if litigation is suspected or threatened, but not instituted. While this may seem premature, in the long run it can save money and provide the company with time to implement the preservation plan. In addition, the sooner the litigation hold is implemented, the less likely it is that inadvertent document destruction will occur or that spoliation claims will survive. Early attention to electronic discovery makes life easier in the later stages of litigation.

If the company maintains a document destruction policy as part of its overall document management plan (and, ideally, it should), the litigation plan should specifically direct that the document destruction policy be suspended with respect to data relevant to the litigation. Courts have imposed sanctions for even the inadvertent destruction of evidence. In Clark Construction Group v. City of Memphis , 229 F.R.D. 131 (D. Tenn. 2005), the court imposed a rebuttable adverse inference sanction against the City of Memphis for disposing of discoverable data (including emails), even though the City's actions were not willful. The electronic data was discarded because one employee did not believe it was relevant and "the City did not instruct its employees or agents that they should not discard or destroy documents that might be considered relevant to th[e] action." Id. at 135. Because "there was a duty to preserve the documents, it was incumbent upon the City to establish a procedure that would eliminate the likelihood that potentially relevant documents would be destroyed." Id . at 137. Thus, a litigation hold should be a central part of a preservation plan to avoid the inadvertent destruction of data and the prospect of sanctions. However, proposed Federal Rule 37(f)), specifies that absent exceptional circumstances, sanctions may not be imposed for failure to produce electronic data that was disposed of in good faith through the routine operation of electronic information disposal systems.

Ideally, the company should coordinate with outside counsel before any impending litigation to draft a hold letter. This way, there is no delay in drafting the letter, and the litigation hold can take effect immediately after it becomes apparent that litigation is imminent. The litigation hold letter, to be effective, should: (i) specify that all documents relating to the litigation must be preserved and identify the sources of all possible evidence (i.e., correspondence, memoranda, faxes, all network and email servers, handheld devices, etc.); (ii) specify a point person (see discussion below) to oversee the preservation process and field questions; (iii) identify a relevant time frame; and (iv) specifically direct that discoverable evidence may not be destroyed or otherwise disposed of, and suspend any routine document destruction procedures.

Electronic Data Coordinator. It is much easier for a company to maintain, gather, assess, review and produce differing forms of electronic data when it has a sophisticated information technology or litigation support department. Even if a company does not have these resources, however, it is critical to the ease and expense of the e-discovery process for the company to have a designated electronic data coordinator who knows and memorializes where and how various types of electronic data are stored, maintained, deleted or otherwise disposed of. Irrespective of whether the company is involved in litigation, the coordinator should know where and how all data (documentary and electronic) is stored and maintained, including the nature or type of back-up tapes and servers that the company employs, back-up schedules, data storage venues and the type of information stored on various servers or networks. The data retention/preservation plan should include some internal memoranda which identifies the coordinator(s) and generally outlines these details and who within the company is knowledgeable about and responsible for the various data systems.

Designating a coordinator and memorializing these details in the preservation plan does not leave the company scrambling to determine how data is stored, which saves time, money and human resources. In addition, the company will be less likely to neglect to produce discoverable data if a designated coordinator knows where and how it is maintained. As we know from Coleman (Parent) Holdings, Inc. v. Morgan Stanley & Co., Inc. and other cases, a company's ignorance with respect to where and how electronic data is maintained does not shield it from sanctions for failure to timely produce discoverable information. Coleman (Parent) Holdings, Inc., 2005 Extra LEXIS 94 (Fla. Cir. Ct. 2005)(ordering an adverse inference against Morgan Stanley even though the firm argued that it discovered certain back-up tapes after it was ordered to search for and produce them because the tapes were "not clearly labeled as to their contents, were not found in locations where email backup tapes customarily were stored, and were in a different format than other e-mail backup tapes.")

An effective coordinator may also help the company avoid costly sanctions. If the company has complex, large or multiple electronic systems, it is best to designate a coordinator (preferably from the company's information technology department) who solely handles the company's electronic systems. This coordinator should have training on how to handle the data retrieval and production involved in litigation. Then, when litigation arises, the coordinator can oversee electronic data retrieval and review with counsel and vendors, allowing other employees to focus on their business objectives to the greatest possible extent.

An electronic data and systems coordinator is also critical because outside counsel can readily learn about the company's electronic systems and policies. Some jurisdictions, like the federal courts in New Jersey, specifically require that counsel know and understand their clients' information technology systems and identify a client representative knowledgeable about those systems before the parties meet to discuss initial disclosures pursuant to Federal Rule 26(f). New Jersey Local Civil Rule 26.1(d), for example, requires that counsel review and understand their clients' information technology systems and be able to identify client representatives who are knowledgeable about those systems before the Rule 26 conference. Moreover, an electronic data coordinator is readily available to serve as the Federal Rule 30(b)(6) witness to testify about the company's data systems, infrastructure and procedures.

Preservation Order. To avoid unnecessary e-discovery disputes and to streamline the exchange of initial disclosures, the parties should discuss as early as possible all issues related to e-discovery (either at the Rule 16 or Rule 26 conference). A litigation strategy, which doubles as a preservation strategy, is to use one of these conferences to negotiate the scope of discoverable information and seek a preservation order specific to that universe of information. A company should limit the scope of electronic and other discovery solely to issues relevant to litigation. If possible, the relevant subject areas should be outlined in the preservation order. Depending on the nature of the claims, and the amount of email and other relevant electronic data, this step could narrow down the scope of electronic discovery considerably, saving time and costs.

Education and Compliance. The data retention policy, litigation hold procedures and other preservation strategies have little utility unless employees and senior managers are fully aware of and implement them properly. The company should enlist its senior officers, information technology personnel, designated electronic data coordinators and in-house counsel to conduct training sessions regarding the policies, as well as annual compliance audits to ensure that the polices satisfy current legal standards and otherwise are effective.

By employing these strategies, companies can satisfy their electronic discovery obligations in a streamlined and cost effective manner.

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. Her telephone number is (212) 649-4725.

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