Today is the Time to Prepare for Tomorrow's Lawsuit - What Businesses and Government Entities Need to Know about Preserving Electronically Stored Information

Monday, October 15, 2007
Contributed by: Alan Rhodes and Andrea L. Slater Gulley

On December 1, 2006, the amended Federal Rules of Civil Procedure changes on electronically stored information went into effect. In light of these changes, the Underwood Law Firm is encouraging businesses and government entities to review internal policies on electronically stored information ("ESI"), to ensure that compliance with the new ESI Rules. Every business owner and government entity should be aware of the following:

  • If a business or government entity knows (or "should" know) that ESI may be relevant to litigation (or anticipated litigation), failure to preserve the ESI generally constitutes "spoliation." Spoliation is the destruction or significant alteration of evidence, or the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation. Courts may sanction or fine parties who allow spoliation of ESI. Courts have also allowed juries to infer that the evidence the party failed to preserve was adverse to that party. In short, the appropriate sanction is left to the discretion of the trial court, is assessed on a case-by-case basis, and can be devastating. For example:
    • A judge sanctioned a defendant with $556,000 in attorneys' fees and costs because it failed to issue a litigation hold to preserve all relevant documents once the lawsuit was filed. The sanction was imposed because the defendant failed to produce a single e-mail - the "smoking gun" e-mail.
    • Phillip Morris was fined $2.75 million for "reckless disregard and gross indifference" for document preservation obligations. Specifically, eleven key employees continued to delete e-mails after a court order was issued. The court fined Phillip Morris $250,000 per key executive who violated the order, and prohibited the executives from testifying at trial.
  • Courts recognize that requiring businesses and government entities to keep all ESI would be a crippling burden. The Rules do, however, require the retention of relevant ESI if the business or government entity has notice of or anticipates litigation, or "should" have known that the ESI could be relevant to future litigation. Unique, relevant evidence that might be useful to an adversary are the types of ESI that must be preserved.
  • The Rules create a "safe harbor" that limits sanctions on parties in the event they lose ESI due to routine, good-faith retention programs.

How can businesses and government entities prepare for ESI discovery and avoid costly sanctions?

  • Have a thorough understanding of the company's or government entity's computer system, electronic storage mechanisms, and electronic destruction practices;
  • Understand when the duty to preserve ESI attaches and the type of ESI that must be preserved; and,
  • Develop (or revise) retention and litigation plan, and provide thorough training to administrators and appropriate employees on those plans.

The Underwood Law Firm is prepared to assist in developing retention and litigation plans, and will help its clients proactively take steps to avoid costly ESI-related discovery problems. Nobody plans on being sued. But, in this day and age, lawsuits are a reality. At-will employees get fired, employment contracts are terminated, contracts are breached, and accidents happen. By planning ahead and developing and putting into place the appropriate plans, businesses and government entities can better their positions in court by preventing the spoliation of ESI.

Please contact Alan Rhodes or Andrea L. Slater Gulley at (800) 876-5613 for additional information or assistance.

This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author's law firm or its individual partners.