DOCUMENT MANAGEMENT AND E-DISCOVERY IN CLASS ACTIONS Avoiding The Spoliation Trap Matthew P. McGuire 1 Getting served with a class action complaint presents a number of daunting challenges for a corporate defendant. Even if the case has no merit, a class action filing can be a financial and public relations nightmare. The heightened stakes of such cases means that companies must be prepared to manage proactively all aspects of such a case from the outset. One of the most important and immediate tasks is to locate and preserve all documents or electronically stored information within the company s possession or control that could conceivably be relevant to the matters alleged in the complaint. Document and data management has become a costly and time-consuming issue for many companies, both generally and in the context of litigation. In certain circumstances where a corporate defendant fails to take adequate steps to ensure the preservation of documents and electronic data, collateral litigation over alleged spoliation of evidence may pave the way for a plaintiff s victory, even when there is little evidence to support the plaintiff s underlying claims. Given the explosion of predatory lending litigation in recent years and the controversy surrounding the recent release of HMDA data, litigation concerning significant portions of a lender s loan portfolio is not far-fetched. The dilemma for financial institutions is when to institute litigation holds on the routine destruction of documents and data pursuant to existing retention policies. Failing to retain documents and electronic data that could be relevant to future litigation could result in draconian spoliation sanctions down the road. However, retaining vast quantities of documents and electronic data imposes severe burdens from both a 1 Matt McGuire is a partner in the Raleigh, North Carolina office of Nelson Mullins Riley & Scarborough LLP.
time and cost perspective. Given the proposed amendments to the Federal Rules of Civil Procedure that address discovery of electronically stored information, this is an issue that will become more prominent in the future, not less. Thus, companies that maintain extensive volumes of documents and electronic data must plan now to avoid costly and burdensome discovery battles. I. Spoliation Principles While asserting control over relevant documents, data and other evidence is important for obvious reasons, document control issues have taken on a growing importance in complex litigation in recent years. No longer can defendants wait until they are served with a request for production to begin collecting and preserving documents and electronic data. Federal and state courts are increasingly willing to impose heavy sanctions -- even outcome determinative sanctions such as a default judgment -- when a party fails to retain and produce relevant evidence after receiving notice of a potential dispute. Such sanctions are usually based on some variation of the legal theory called spoliation of evidence. Generally speaking, 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. 2 When spoliation occurs and evidence is lost because of a party s neglect or misconduct, courts may sanction the offending party to remedy the inequitable effects of the spoliation, to punish the spoliator, and to deter further misconduct by other litigants. 3 2 Byrnie v. Town of Cromwell, 243 F.3d 93, 107 (2d Cir. 2001). 3 Mosaid Technologies Inc. v. Samsung Elec. Corp., 348 F. Supp. 2d 332, 335 (D.N.J. 2004); see also Zubulake v. UBS Warburg LLC, 2004 WL 1620866 at *6 (S.D.N.Y.) (hereinafter Zubulake V) (noting that the Rules of Civil Procedure and the court s inherent powers permit a court to sanction litigants who fail to preserve evidence); 2
II. Scope of the Spoliation Doctrine Companies which frequently face class action litigation must understand the expansive scope of the spoliation doctrine. Sanctions are not limited simply to those entities which willfully destroy documents and attempt to cover it up. To the contrary, courts are increasingly inclined to impose spoliation sanctions in a wide variety of cases involving arguably innocent document destruction. A. Motive or Bad Faith May Be Irrelevant A party s motives are usually irrelevant to a spoliation charge. In many instances, companies shred documents and delete emails pursuant to routine document retention policies that are implemented by employees who are either totally unaware of pending litigation, or are unaware of the relevance of the destroyed documents to the pending litigation. Unfortunately, a document retention policy provides little or no defense to a spoliation claim. In general, courts expect a document retention policy to give way to a party s duties to preserve evidence for litigation. 4 Some courts have sanctioned defendants for acting negligently by failing to take reasonable precautions to preserve evidence. 5 In jurisdictions which apply this standard, a plaintiff need only show that the destruction of relevant evidence occurred, and that such destruction could have been prevented if the defendant had taken reasonable precautions. Wal-Mart Stores, Inc. v. Johnson, 106 S.W.3d 718, 721 (Tex. 2003) (noting that a trial court has discretion to fashion an appropriate remedy for spoliation). 4 See, e.g., Stevenson v. Union Pacific R.R. Co., 354 F.3d 737, 750 (8 th Cir. 2004)(defendant cannot rely on its routine document retention policy as a shield ); Renda Marine v. United States, 58 Fed. Cl. 57, 61 ( The court does not believe that a records retention policy which is inconsistent with a party s obligations to a potential or actual adversary in litigation operates to excuse the party s failure to respond to discovery. ). 5 See Zubulake V, 2004 WL 1620866 at *6 (negligence standard); Mosaid, 348 F. Supp. 2d at 338 (negligence standard); Ward v. Texas Steak Ltd., 2004 U.S. Dist. LEXIS 10575 at *8 (W.D. Va.) (negligence standard; applying Virginia law); Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99, 108 (2d Cir. 2002); Kucala Ents. Ltd. v. Auto Wax Co., 2003 U.S. Dist. LEXIS 8833 at *13-14 (N.D. Ill. May 27, 2003)(discovery sanctions can be imposed for gross negligence); Pfantz v. Mid-Century Ins. Co., 85 P.3d 564, 569 (Colo. 2003) (negligence standard). 3
Conversely, some jurisdictions require a showing that the destruction of evidence occurred either intentionally or in bad faith. 6 Since most large financial institutions conduct business in many jurisdictions across the country, they should design their document retention and litigation hold policies with the negligence standard in mind. B. Lack of Relevance of Destroyed Evidence Is No Defense An oft-heard defense to spoliation charges is that the destroyed evidence or data is not relevant to any issue or claim in the case. This no harm, no foul argument has intuitive appeal, since in many cases plaintiffs serve overly broad document requests. But there is no safe harbor in such a defense. Some courts may presume the relevance of destroyed documents and data. 7 C. The Key Question -- When Does the Duty to Preserve Arise? Perhaps the greatest problem facing companies that must manage significant volumes of data and documents is determining when the duty to preserve evidence arises. Unfortunately, there is no bright line test to follow. In Stevenson v. Union Pacific Railroad, 354 F.3d 739 (8 th Cir. 2004), for example, the court upheld spoliation sanctions imposed when the defendant railroad destroyed a tape recording of a train engineer made contemporaneously with an accident that caused serious injury. Although no lawsuit had been filed at the time the tape was destroyed, the court based its holding in part on defendant s knowledge that litigation is 6 See, e.g., Hodge v. Wal-Mart Stores, Inc., 360 F.3d 446 (4 th Cir. 2004); Stevenson v. Union Pacific R.R. Co., 354 F.3d 739, 746-47 (8 th Cir. 2004); Bashir v. Amtrak, 119 F.3d 929, 931 (11 th Cir. 1997); Renda Marine, Inc. v. United States, 58 Fed. Cl. 57, 60 (2003); Aramburu v. Boeing Co., 112 F.3d 1398, 1407 (10 th Cir. 1997). Cf. Concord Boat Corp. v. Brunswick Corp., 1997 WL 33352759 (W.D. Ark.) (noting split among the federal circuits as to whether bad faith was a required element of spoliation). 7 See, e.g., Residential Funding, 306 F.3d at 109 (holding that where a spoliator s gross negligence is demonstrated, the fact finder may infer that the destroyed evidence is relevant); Kucala, 2003 U.S. Dist. LEXIS 8833 at *18 (although the trial court admitted it had no direct evidence that relevant documents were among those destroyed, the court expressly considered the likelihood that relevant documents were lost in mass deletion in determining appropriate spoliation sanction). 4
frequent when there has been an accident involving serious injury or death. 8 The duty to preserve evidence often arises not only during litigation but also... [during] that period before the litigation when a party reasonably should know that the evidence may be relevant to anticipated litigation [emphasis added]. 9 In Renda Marine, Inc. v. United States, the court held that the defendant s duty to preserve evidence arose when defendant received notice from the plaintiff demanding cure of an alleged breach of contract. When a party reasonably should know that litigation is imminent is in many ways akin to crystal-ball gazing. This uncertainty may force companies to treat virtually every customer complaint as a triggering point for retaining documents and data relevant to that complaint. This defensive posture is both time consuming and burdensome, however, because it creates repeated exceptions that swallow the document and data retention rules. III. Spoliation Sanctions The cost of spoliating evidence, even inadvertently, can be devastating. Courts may impose a wide variety of sanctions, including granting default judgment in favor of the prejudiced party, suppressing the offending party s evidence, imposing fines, awarding attorney s fees, or, most commonly, giving an adverse inference instruction that permits a jury 8 354 F.3d at 748. Compare id. with Concord Boat Corp. v. Brunswick Corp., 1997 WL 33352759 (E.D. Ark. Aug. 29, 1997) (noting that corporation was under a duty to preserve documents where the corporation knew or should have known that the documents would become material at some point in the future, and holding that duty to preserve arose upon filing of action). 9 Renda Marine, Inc. v. United States, 58 Fed. Cl. 57 (2003) (quoting Silvestri v. General Motors Corp., 271 F.3d 583, 591 (4 th Cir. 2001)) (alterations in original). Compare id. to Wal-Mart Stores, Inc. v. Johnson, 106 S.W.2d 718 (Tex. 2003) (holding that duty to preserve evidence arises upon party s knowledge of a substantial chance of litigation; no substantial chance of litigation arose where personal injury plaintiff was not severely injured and had not yet made any threat to sue). 5
to infer that destroyed evidence might or would have been unfavorable to the position of the offending party. 10 The court in Mosaid Technologies Inc. v. Samsung Elec. Corp. observed that sanctions are generally available when a party s spoliation of evidence threatens the integrity of this Court. 11 In determining the appropriate level of sanction, the court must consider the degree of the spoliator s fault, the degree of prejudice suffered by the opposing party, and whether a lesser sanction that would serve the remedial, and any punitive purpose of the sanction. 12 The most common sanction, the spoliation inference jury instruction, may be imposed when (1) the evidence in question is in the spoliator s control; (2) there has been actual suppression or withholding (e.g., destruction) of the evidence; (3) the evidence destroyed was relevant to underlying claims or defenses; and (4) it was reasonably foreseeable that the destroyed evidence would later be discoverable. Lest anyone doubt the potential impact of a spoliation sanction, the recent case of Coleman (Parent) Holdings, Inc. v. Morgan Stanley & Co., Inc. 13 provides a harsh reminder. This case arose out of Sunbeam s acquisition of Coleman Company. After accounting fraud was discovered at Sunbeam, its stock price collapsed and Coleman s parent sued Morgan Stanley for allegedly knowing about the fraud and Sunbeam s inflated stock price, and failing to disclose material information. During discovery, Morgan Stanley falsely certified in June 2004 that it had complied with a court order to review its oldest email backup tapes and produce emails relevant to the Sunbeam/Coleman deal. 14 In fact, Morgan Stanley failed to 10 Schmid v. Milwaukee Elec. Tool Corp., 13 F.3d 76, 79 (3d Cir. 1994). 11 Mosaid, 348 F. Supp. 2d at 335. 12 Id. 13 No. 2005 WL 679071 (Fla. 15 th Jud. Cir. Mar. 1, 2005). 14 Id. at *2. 6
review well over two thousand back-up tapes, the existence of which it was objectively aware of at the time of the certification, failed to notify Coleman about the additional tapes until November 2004, continued to discover back-up tapes that had not been searched for relevant emails well into 2005, and did not withdraw its certificate of compliance until shortly before the trial was due to begin. 15 The court found that Morgan Stanley had committed numerous willful and gross abuses of its discovery obligations and imposed a number of harsh sanctions to level the playing field. 16 The sanctions included giving an adverse inference jury instruction; reading a statement of conclusive facts to the jury regarding Morgan Stanley s discovery abuses; allowing Coleman to argue in the punitive damages phase of the case that Morgan Stanley s concealment of its role in the Sunbeam transaction was evidence of malice or evil intent; shifting the burden of proof on some of the elements of the fraud and conspiracy claims to Morgan Stanley; and ordering Morgan Stanley to pay the costs and fees associated with the sanctions motion. 17 At the conclusion of the five week trial, the jury deliberated for only two days and returned a verdict for $604 million in compensatory damages and $850 million in punitive damages. As noted above, the most common remedy imposed for spoliation is an adverse inference instruction. In other words, the court will instruct the jury that it may infer that the missing evidence would have been harmful to the spoliator s case. 18 A adverse inference 15 Id. at *2-5. 16 Id. at *6. 17 Id. at *7-8. 18 See Saul v. Tivoli Systems, Inc., 2001 U.S. Dist. LEXIS 9873 at *55-56 (S.D.N.Y. July 17, 2001); see also Gath v. M/A-COM, Inc., 802 N.E.2d 521, 528 (Mass. 2003)(plaintiff permitted to present extensive evidence and argument regarding the actual occurrence of spoliation); Pfantz v. Kmart Corp., 85 P.3d 564, 567 (Colo. 2003) (describing more aggressive instruction that the jury must presume certain substantive points proven); Mosaid Technologies, Inc. v. Samsung Elec. Corp., 348 F. Supp. 2d 332, 334 (D.N.J. 2004)(providing a sample 7
instruction can have a devastating impact on a defendant s case and, conversely, can greatly aid a plaintiff with an otherwise weak case. Instead of arguing about the actual evidence and the merits of its case, a plaintiff can focus the jury on the mere fact that certain evidence is missing. A adverse inference instruction naturally draws the jury s attention away from the actual facts of the case and invites jury speculation as to whether the defendant was engaged in a cover up scheme. Spoliation sanctions may also prevent a defendant from prevailing on an otherwise valid dispositive motion. In the context of a class action, such a result can be disastrous. In Martino v. Wal-Mart Stores, Inc., 835 So.2d 1251, 1257 (Fla. App. 2003), the court held that the trial judge improperly directed a verdict for the defendant where the jury could have reasonably relied on an adverse spoliation inference and found for the plaintiff. In other circumstances, the court might suppress certain evidence that is key to the spoliator s case. In United States v. Phillip Morris USA Inc., 327 F. Supp. 2d 21 (D.D.C. 2004), certain key employees of the defendant continued to delete emails in clear violation of a court order expressly requiring preservation of such emails, and in violation of defendant s own document retention policy. As a spoliation sanction, the court disallowed any employee who had violated the defendant s document retention policy from testifying on defendant s behalf. 19 In extreme cases, particularly where a court finds that a party intentionally destroyed relevant evidence, a court may dismiss a claim brought by the spoliator or enter default spoliation inference instruction); Mastercard, Int l, Inc. v. Moulton, No. 03-3613, 2004 WL 1393992 (S.D.N.Y.) (adverse inference given, notwithstanding defendants lack of bad faith). 19 327 F. Supp. 2d at 25. See also Gath, 802 N.E.2d at 526-27 (trial court disallowed the spoliator from offering any evidence or argument as to certain pivotal issues). 8
judgment against the spoliator. 20 For example, in Kucala Ents. Ltd. v. Auto Wax Co., 2003 U.S. Dist. LEXIS 8833 (N.D. Ill.), the plaintiff failed to produce requested electronic data and computer files. The plaintiff had installed software that appeared to be specifically designed to destroy discoverable computer files, and in fact had succeeded in destroying many files. As a sanction, the court dismissed the plaintiff s claim and assessed an attorney s fees award. Courts may also impose stiff fines or force the reimbursement of another party for its costs. 21 IV. Electronic Discovery Creates Unique Problems The latest and most controversial battleground in the spoliation arena is electronic discovery. Electronic data is extremely difficult to manage, particularly in the context of litigation, because it is voluminous, dynamic, and may be useless if it is separated from the system used to create it. The Coleman case discussed above, and the Zubulake case, demonstrate the increasing importance of adequately preserving and producing electronic documents and data. This includes not only all current electronic data stored on a party s computer system, but all information retained on back-up tapes or other storage media. The costs of retrieving and producing such information can be staggering, and courts must find some way to allocate those costs. 22 20 See Metropolitan Opera Ass n, Inc. v. Local 100, 212 F.R.D. 178 (S.D.N.Y. 2003) (entering default judgment against defendants and awarding attorneys fees to plaintiff as sanctions for defendants and their counsel s discovery abuses). 21 See Phillip Morris, 327 F. Supp. 2d at 26 ($2,750,000 fine imposed for reckless disregard and gross indifference... toward their discovery and document preservation obligations ); Zubulake V, 2004 WL 1620866 at *13 (defendant ordered to pay costs of motion to compel and any deposition costs caused by belated production or failure to produce requested evidence); Capellupo v. FMC Corp., 126 F.R.D. 545, 551 (D. Minn. 1989) (court found destruction of documents was willful and ordered defendant to pay twice the total of plaintiff s attorneys fees and costs incurred with respect to all motions related to the issue of document destruction, as well as additional fees for unnecessary consumption of the court s time). 22 As discussed in Rowe Entertainment, Inc. v. The William Morris Agency, Inc., 205 F.R.D. 421, 428 (S.D.N.Y. 2002), courts balance a variety of different factors in determining which party should bear the expense of restoring or retrieving relevant electronic data such as email server back-ups. Among the factors considered are: (1) the specificity of the discovery request, (2) the likelihood of discovering critical information, (3) the availability of the requested information from other sources, (4) the purposes for which the responding party 9
The court s opinions in the Zubulake v. UBS Warburg LLC case provide an instructive overview of how spoliation principles can alter the course of litigation. The case arose out of a fairly routine employment dispute, but it gave rise to a costly side battle over electronic discovery. In that case, the plaintiff filed a motion for sanctions after re-deposing a number of defendant s employees and discovering that some of them continued to delete relevant emails long after the defendant had notice of the plaintiff s claims. Some of the emails had been deleted even after a litigation hold had been put in place. Moreover, plaintiff had failed to produce some electronic files that had been retained. The court held that spoliation sanctions were warranted in response to at least some of these failures, and it observed that reasonable defense counsel should take the following affirmative steps to preserve evidence: 23 (1) Identify sources of discoverable information. (2) Implement a litigation hold : 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. 24 A litigation hold memorandum should be re-circulated periodically to remind employees of their continuing duty to preserve documents and data. (3) Communicate directly with the key players (i.e., those company employees most involved in the subject matter of the litigation) regarding document collection and preservation issues. Since these key players are the employees likely to have relevant information, it is particularly important that the preservation duty be communicated clearly to them. 25 maintains the requested data, (5) the relative benefit to the parties of obtaining the data; (6) the ability of each party to control costs; and (7) the total cost and relative resources of the parties. See also McPeek v. Ashcroft, 202 F.R.D. 31 (D.D.C. 2001). 23 The Zubulake V court did indicate that these steps might be sufficient, or might be overkill, in a given case. 24 Zubulake v. UBS Warburg LLC, (Zubulake IV), 220 F.R.D. 212, 218 (S.D.N.Y. 2003). 25 Zubulake V, 2004 WL 1620866 at *9. 10
(4) Instruct all employees to produce copies of relevant electronic files, and take control of any relevant electronic back-up media to ensure it is not recorded over or otherwise destroyed. The Zubulake court found that defense counsel had neglected to communicate the litigation hold to all key players and failed to actually request production of documents and data from certain key players. In addition, some of the defendants employees continued deleting relevant emails despite having received explicit instructions not to do so. As a result, certain emails were permanently deleted and the production of other emails was significantly delayed because they had to be retrieved from backup media. The Zubulake court ruled that it would give an adverse inference spoliation instruction with regard to emails deleted after the notice of litigation was communicated; that the defendant must pay the costs of any depositions or re-depositions necessitated by the belated productions; that the defendant would bear all reasonable expenses, including attorneys fees, incurred by plaintiff in bringing the motion for sanctions; that plaintiff could introduce at trial testimony of defendant s employees which was later contradicted by the belatedly produced emails; and that defendant pay for restoring the remaining relevant backup files. V. Proposed Amendments to the Federal Rules of Civil Procedure On September 20, 2005, the Committee on Rules of Practice and Procedure of the Judicial Conference of the United States adopted a number of proposed amendments to the Federal Rules of Civil Procedure, many of which directly address the discovery of electronically stored information. The rules must still be approved by the U.S. Supreme Court, and unless Congress disapproves them they are expected to take effect by December 1, 2006. The following is a brief overview of the most significant proposed changes. The 11
Judicial Conference s report can be viewed at www.uscourts.gov/rules/reports/st09-2005.pdf. RULE 16: The proposed amendments will invite the court to address discovery of electronically stored information in the Rule 16 scheduling order. In addition, courts will be given discretion to enter an order adopting any agreements the parties reach for asserting privilege claims after inadvertent production in discovery. RULE 26(a): The revised rule will clarify a party s duty to include electronic data in its initial disclosures by substituting electronically stored information for data compilations. RULE 26(b)(2): The proposed amendment clarifies the parties obligations regarding discovery of electronically stored information that is not reasonably accessible. It 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. In the event of a motion to compel or motion for protective order, the party opposing discovery has the burden of proof to show that the information is not reasonably accessible. Even if that showing is made, the court may order the requested discovery if the requesting party shows good cause and subject to the general discovery limitations in Rule 26(b)(2)(C). (NB The party resisting discovery must identify sources of potentially responsive information it did not search due to cost/burden considerations. Also, the proposed amendment does not alter a party s duty to preserve responsive information.) RULE 26(b)(5): The revised rule includes a clawback procedure for asserting a claim of privilege or of protection as trial-preparation material following inadvertent production. RULE 26(f): Under the revised rule, the parties Rule 26(f) conference is to include a discussion of any issues regarding discovery of electronically stored information, including the form of production, preservation issues, and approaches to asserting privilege claims in the event of inadvertent production. RULE 33: The revision clarifies that a party may answer an interrogatory involving review of business records by providing access to the information if the requesting party can find the answer as readily as the responding party. RULE 34: The proposed amendments (1) expressly recognize electronically stored information as subject to discovery; (2) authorize a requesting party to specify the form of production and the responding party to object; and (3) provide that unless the parties otherwise agree or the court otherwise orders, (a) if a request does not specify the form for producing electronically stored information, the responding party must produce it in 12
a form in which is it ordinarily maintained or in a form that is reasonably usable and (b) a party need not produce the same electronically stored information in more than one form. RULE 37: The proposed amendment provides a limited safe harbor against sanctions for a party s failure to produce electronically stored information. The amendment states: 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. (NB to show good faith, a party likely will have to demonstrate that it took all reasonable steps to prevent the loss or destruction of data subject to a preservation duty. This is consistent with the general rule that document retention policies do not give companies license to destroy responsive information.) VI. Proactive Steps to Avoid Spoliation Disputes The trend towards increasingly severe sanctions for even inadvertent spoliation of evidence demonstrates how crucial it is for a company, at the first hint of potential litigation, to (1) identify and preserve the entire universe of potentially relevant documents and electronic data, and (2) take proactive steps that it can later rely upon to show reasonable efforts to comply with its legal duties to preserve evidence. In the context of class action litigation, the importance (and difficulty) of that task is magnified. Tens of thousands of customers could potentially belong to any one putative class. The class action complaint also might allege that entire segments of the company s business (or, even worse, the company s entire business) have been carried on in violation of the law. The breadth of the plaintiff class and the loose restrictions of notice pleading mean that plaintiffs can effectively force a company to suspend its document retention policy and retain almost all documents and electronic data indefinitely. Thus, asserting control over all potentially relevant documents and data must be a company s top priority when served with a class action complaint. While it is impossible to completely eliminate the risk that a company might accidentally destroy relevant documents or 13
electronically stored information, by taking the following objectively reasonable steps to preserve documents and data, a company can minimize the chance that it will face a spoliation motion: Do Your IT Homework Sooner Rather Than Later. Make sure you fully understand the architecture of your company s document and data retention system and the backup systems that are utilized, including where documents and data are stored and how they can be retrieved and searched. Get the IT Department Involved Early and Often. As soon as the decision is made to instigate a litigation hold, the very next phone call should be to the head of your company s IT Department. Emails have become so important to everyday corporate communications that retention of existing email files, and recovery of archived files, is every bit as important as producing paper documents. Be Proactive. As noted above, it is not always clear when document/data retention duties arise, so it is best to err on the side of retaining documents. Once anyone, particularly an attorney, starts making any kind of inquiry that could lead to a claim against the company, evaluate the need to institute a litigation hold, at least as to documents concerning the inquiring party and any employee that has dealt with them. Class actions are typically based upon thousands of incremental losses, so a very small complaint could potentially be the tip of a very large litigation iceberg. Make Sure Your Employees Understand the Scope of a Litigation Hold. When you institute a litigation hold, make sure your employees know that you are talking about all kinds of electronic and non-electronic media. Moreover, make sure everyone knows that retention duties require the retention of multiple drafts of the same document. Key employees and administrators should be trained on how to comply with a litigation hold. Make Sure Your Employees Actually Produce Information in Response to a Litigation Hold. In your litigation hold memorandum, identify a location for employees to send non-active files that may contain relevant documents, and identify a contact person to assist employees in determining whether their active files might contain relevant information. Be sure to explicitly instruct all key employees to physically search through their own files and to produce responsive documents and data to a discovery coordinator. Make employees (particularly key players ) accountable by having them sign a certification that they have read the litigation hold memorandum, understand it, and have complied with it. Coordinate with your outside counsel regarding this process. Make sure your employees understand that they may be visited by outside attorneys, and that the company desires their cooperation with those attorneys. 14
Do Not Forget Anyone. Be over inclusive when you identify key employees. Follow up with them regularly and make sure they searched everywhere for responsive documents. Have they checked offsite files? The files in the hallway outside their office? Do they keep documents on their hard drive in addition to the network drive? Do they save documents to transportable media like flash drives and CD-ROMs? Do they save documents on blackberries or PDAs? Do they ever store documents on laptops or home computers? Do Not Let Employees Tell You What is Relevant. Define the categories of documents and data that are subject to the litigation hold very clearly and broadly. It is better to be overly inclusive. Instruct your employees to err on the side of inclusiveness if they have a question about whether to retain any particular document or electronic file. When your employees shake their heads and tell you how ridiculous it is to retain these documents and how they have nothing to do with anything, tell them to let the company s lawyers worry about that. Fix Document Retention Problems Now. Document retention policies are generally designed with efficiency rather than litigation in mind. Still, certain information is simply too sensitive to be treated just like any other document. Review your document retention policy with an eye towards avoiding spoliation problems. While compliance with internal document retention policies will not provide you any excuse for failing to preserve evidence, putting some advance thought into a document retention policy may prevent a large number of headaches down the road. Think about the types of documents the company usually creates and categorize them according to the likelihood that they might someday be relevant to a lawsuit. Is there any way to help employees to easily differentiate and label documents that have particular legal significance? Consult with your outside counsel regarding the statutes of limitation for various causes of action that a plaintiff could bring against the company. These steps will not make a company immune from a spoliation fight, but they will go a long way towards minimizing the potential collateral exposure to spoliation sanctions. 15