Electronic Data Discovery: Duty To Preserve Evidence

Article by Ms Kerry A. Brennan, Mr Charles R. Ragan and Ms Amy C. Gross

As businesses increasingly communicate, operate and store information electronically, they face new challenges in complying with the obligation to preserve electronic data that may be used in litigation. The ease with which electronic information can be deleted, altered or overwritten raises unique issues. Most recently, in Zubulake v. UBS Warburg LLC, No. 02 Civ. 1243, 2003 WL 22410619 (S.D.N.Y. October 22, 2003), the court outlined a party’s duty to preserve electronic evidence in the face of current or anticipated litigation. The Zubulake court earlier set forth a new legal standard for determining the cost allocation among parties for producing inaccessible electronic data. Zubulake v. UBS Warburg LLC, 217 F.R.D. 309 (S.D.N.Y. 2003). In its most recent decision, the court applied the established standard that a party has a duty to preserve evidence, including electronic data, when the party knows or should know that the evidence is relevant to pending or anticipated litigation. The court further addressed the consequences of a party’s failure to preserve evidence. Applying traditional rules, the court determined that the defendants had a duty to preserve several backup tapes of e-mails. The defendants’ conduct in failing to maintain the evidence was, for the most part, deemed negligent primarily because standards on backup tapes have been ambiguous, although in one instance the defendants were found to be grossly negligent. Because the plaintiff was unable to demonstrate that the lost backup tapes favorably supported her claims, the court declined to impose an adverse inference against the defendant, but ordered the defendant to pay the costs for additional depositions to inquire about the questions raised by the missing evidence.

In federal courts, a party has an obligation to preserve evidence when it has notice that the evidence is relevant to a litigation, or when the party should have known that the evidence may be relevant to an anticipated litigation that is probable in the future. See, e.g., Fujitsu Ltd. v. Fed. Express Corp., 247 F.3d 423, 436 (2d Cir. 2001). A party is under an obligation to preserve information, including documents and electronic data, that it knows or reasonably should know are relevant, calculated to lead to the discovery of admissible evidence, reasonably likely to be requested during discovery, or the subject of a pending discovery request. See, e.g., William T. Thompson Co. v. Gen. Nutrition Corp., 593 F. Supp. 1443, 1455 (C.D. Cal. 1984).

A company should, as part of this duty, warn its employees that are central to a lawsuit to preserve information, documents and electronic data potentially relevant to an actual or threatened litigation, investigation or document request. See, e.g., Diersen v. Walker, No. 00 C 2437, 2003 WL 21317276 *5 (N.D. Ill. June 6, 2003) (party’s failure to warn its employees to preserve potentially relevant documents evinces disregard of duty to preserve evidence). The recent trial of former investment banker Frank Quattrone demonstrates the potential perils involved with communication with employees about preservation. Quattrone was charged with obstructing pending federal investigations by sending an e-mail to colleagues to "clean up" their files. Quattrone claimed at trial that he did not know the scope of the pending investigations. After jurors failed to agree on a verdict, the judge declared a mistrial. Federal prosecutors intend to retry Mr Quattrone.

While many companies have automatic document retention policies to maintain information for regulatory purposes and necessary business operations and to eliminate unnecessary data, whenever a litigation or threat of litigation arises, a company needs to assess its preservation of relevant evidence. For example, many companies implement protocols to delete employees’ e-mails or overwrite backup tapes after a certain time period. A party may need to suspend its automatic retention and destruction policy to the extent necessary to preserve electronic evidence. See, e.g., Bradley v. Sunbeam Corp., No. Civ.A. 5:99CV144, 2003 WL 21982038 (N.D. W.Va. Aug. 4, 2003). An automatic retention and destruction policy can lead to inadvertent destruction of evidence particularly with respect to e-mail. Litigants also need to monitor preservation throughout the duration of litigation. Recently, in Keir v. UnumProvident Corp., 02 Civ. 8781 (DLC), 2003 U.S. Dist. LEXIS 14522 (S.D.N.Y. Aug. 26, 2003), the defendant was ordered to preserve backup tapes containing e-mails. Although the defendant had already suspended its policy of overwriting backup tapes, a week prior to the court order, the outside vendor who provided the defendant’s electronic-data disaster services, inadvertently reset the protocols, and for several weeks certain backup tapes were overwritten. While the court found that it was premature to estimate the prejudice caused by the lost evidence, it took a dim view of the vague instructions given the outside vendor: if the defendant "had been as diligent as it should have been in complying promptly with the [retention] Order, many fewer tapes would have been inadvertently overwritten."

In Zubulake, the plaintiff filed a complaint with the Equal Employment Opportunity Commission (EEOC) on August 16, 2001 and commenced a suit against her former employers in February 2002. In July 2003, the court ordered the parties to share the costs of restoring certain of the employers’ back up tapes that contained e-mails relevant to Zubulake’s claims. Zubulake v. UBS Warburg LLC, 216 F.R.D. 280 (S.D.N.Y. 2003). During the restoration of the back up tapes, it was discovered that certain tapes from April 2001-October 2001 were missing. Zubulake sought (i) to require her former employer to pay the full costs of restoring the tapes; (ii) an adverse inference instruction against the defendants; and (iii) an order directing the defendants to pay the costs of redeposing certain individuals.

Although the defendants’ employees were instructed to preserve electronic information in August 2001 when the EEOC complaint was filed, the court determined that the trigger date to preserve evidence arose in April 2001. Importantly, the court ruled that "[m]erely because one or two employees contemplate that a fellow employee might sue does not generally impose a firm-wide duty to preserve. But in this case, it appears that almost everyone associated with Zubulake recognized the possibility she might sue [as of April 2001]." Pursuant to the defendants’ retention policy, backup tapes of e-mails should have been kept for three years. Despite this policy, however, backup tapes were lost.

Spoliation is not limited to the intentional or negligent destruction or alteration of evidence; it also includes the failure to preserve evidence in a pending or reasonably foreseeable litigation. West v. Goodyear Tire & Rubber Co., 167 F.3d. 776, 779 (2d Cir. 1999). If a party intentionally or negligently fails to maintain evidence it had a duty to preserve, the courts have discretion to grant a wide array of penalties, from awarding costs for additional discovery necessitated by the missing evidence to, in the most severe cases, dismissing the suit or granting judgment for the opposing party.

Another form of sanction that a court may impose is the application of an inference, or instruction to the jury, that missing or destroyed evidence was unfavorable to the party that would have naturally been expected to produce it. Although courts are often reluctant to impose an adverse inference against a party because it may be a difficult hurdle to overcome, where the party intentionally destroys important evidence, the court will likely grant an inference. For example, one district court allowed an adverse inference where an officer of the plaintiff destroyed handwritten notes containing a contemporaneous account of the claims in the action. Positran Mfg., Inc. v. Diebold, Inc., No. 02-466 GMS, 2003 WL 21104954 (D. Del. May 15, 2003). The notes were disposed of one month after Positran case was filed. The court found that the prejudice to the defendant from the loss of this evidence, coupled with the officer’s behavior, justified an inference that the evidence would have been unfavorable. The court emphasized that this remedy was necessary to avoid unfairness to the defendant, while at the same time deterring the plaintiff and future litigants from similar behavior.

The Zubulake court declined to reconsider its previous order and require the defendants to bear the cost of retrieving the lost e-mails from certain inaccessible backup tapes. The court stated that the lost tapes had influenced its earlier decision that the parties share the costs of restoration.

The Zubulake court applied the following test to determine if the plaintiff was entitled to an adverse inference against the defendant: the plaintiff had to prove that: (i) the party controlling the evidence had an obligation to preserve it at the time it was destroyed; (ii) the evidence was destroyed with a culpable state of mind, and (iii) the destroyed evidence would have supported the claim of the party seeking the adverse inference. If the evidence was destroyed in bad faith (intentionally or willfully), this alone would demonstrate that the evidence supported plaintiff’s claim. However, if the destruction was merely reckless or negligent, the plaintiff would have to affirmatively prove that the evidence would have supported her claim.

The Zubulake court found that the plaintiff had demonstrated the first factor, a duty to preserve. All of the lost backup tapes sought to be reviewed by the plaintiff were created after April 2001, the date determined by the court that the defendants reasonably should have known that there was a threat of litigation by the plaintiff.

Although the defendants argued that the backup tapes were inadvertently recycled well before the plaintiff filed her complaint, the court held that the plaintiff satisfied the second factor of the adverse inference test – that the party destroying the evidence have a culpable state of mind. The court acknowledged that the duty to preserve backup tapes "has been a grey area" and that, therefore, the defendants’ failure to preserve backup tapes was merely negligent. However, the court found that the destruction or loss of one backup tape containing the human resource manager’s communications with plaintiff after Zubulake filed her EEOC charge was grossly negligent.

The court recognized that litigants have many ways to manage electronic data. The court suggested that a litigant should, with respect to key personnel relevant to a litigation, consider (i) taking a mirror-image of the computer systems; (ii) retaining all then existing accessible back-up tapes; and (iii) segregating later created electronic documents. The court noted that this "litigation hold" does not typically apply to inaccessible electronic data, for example, back-up tapes maintained for disaster recovery purposes.

The third prong of the test requires that the party seeking the adverse inference prove that the missing evidence favorably supported the party’s claim (unless the destruction is willful in which instance it is presumed that the evidence supports the claim). Although the plaintiff was able to show the missing evidence was relevant, none of the e-mails restored from other back-up tapes supported her claim of gender discrimination. The court declined to apply an adverse inference against the defendants, and instead, ordered the defendants to pay the costs of additional depositions necessary to inquire into issues raised by the destruction of the e-mails and any newly-discovered e-mails.

Given the duty of a litigant to retain relevant evidence as soon as litigation is "reasonably anticipated," a litigant should take reasonable steps to preserve diligently electronic evidence, including e-mails, accessible backup tapes, and other electronic data that might be reasonably be expected to be relevant to the case. Clear directives to employees to preserve evidence and the monitoring of preservation throughout litigation are necessary to abide by a litigant’s duty and will minimize the imposition of an adverse inference instruction should evidence be inadvertently lost or destroyed.

If a litigant determines during the discovery process that any relevant e-mails or backup tapes, or any evidence, that it had a duty to preserve are lost or destroyed, counsel should investigate the circumstances of the loss or destruction and consider notifying the opposing party as soon as reasonably practical. If the litigant is under a specific court order to preserve the documents, the litigant should consider apprising the court at the same time as the opposing party. Prompt disclosure may yield a more immediate record of the events that led to the evidence loss, instead of leaving the issue to grow clouded with time. A showing of good faith may help to avoid more dire results, such as an adverse inference instruction or the ultimate sanctions of judgment for the opposing party if the issue is not dealt with swiftly and forthrightly.