Legal Hold and Litigation Discovery Procedures for Electronically Stored Information

By Gary Rotkop

The ability to use electronically stored information (ESI) has complicated the discovery process by burying potentially relevant information in a multitude of devices.

Currently, ESI can be stored on personal computers, flash-drives, back-up tapes and even virtual storage is available via online “cloud” storage in addition to many other forms of data storage. Nevertheless, when an organization anticipates litigation, relevant ESI must be identified and preserved. Organizations, from large to small, private and government sector, utilize a legal hold to preserve all forms of relevant information when litigation is reasonably anticipated. Furthermore, the legal hold process must be specifically tailored for your company’s infrastructure. A generic plan may prove to be both insufficient and inefficient.

            A proper legal hold protocol occurs when the attorney and the organization have performed their duty to preserve discoverable information. The duty to preserve ESI is triggered when an organization concludes, based on credible facts and circumstances, that litigation or a government inquiry is likely to occur. The courts have recently held that a loss of electronically stored data due to negligence is punishable by sanctions. The knowledge of an agent may be imputed on the organization so litigant companies as well as their attorneys should be familiar with what is expected of them before litigation takes place.

ESI Legal Holds

Zubulake v. UBS Warburg is the landmark decision in the area of ESI legal holds. In this case, Judge Shira Scheindlin of the U.S. District Court of the Southern District of New York determined that electronic discovery was included under FRCP 26(b)(1). The court specifically focused on the following language: “Parties may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense,” recognizing the wide scope of the rule.[1]

Under FRCP 34, one may request the discovery of documents even if they may “be obtained only with the use of detection devices,” such as electronic data. Judge Scheindlin also validated the Oppenheimer presumption: That the side responding to the discovery request must pay for the expense of discovery.[2]

This presumption is subject to the limitation of FRCP 26(c), which allows the presiding judge to use discretion to force the requesting party to pay for the cost of discovery if he finds an existence of “undue burden or expense,” a concept known as cost shifting.[3] Therefore, electronic documents are now subject to the same rules of discovery as traditional paper documents.[4]

The amended Federal Rules of Civil Procedure that became law on December 1, 2006 expanded the Zubulake ruling by amending the FRCP to include various kinds of ESI.[5] The main interest of this ruling was backup tapes. However, the 2006 amendment to the FRCP also captured additional types of ESI.

Rule 34(a)(1) is intentionally expansive, covering a broad category of ESI subject to discovery, “The wide variety of computer systems currently in use, and the rapidity of technological change, counsel against a limiting or precise definition of electronically stored information. Rule 34(a)(1) is expansive and includes any type of information that is stored electronically.”[6] Currently, instant messages are potentially a discoverable form of ESI. Furthermore, cell phone images, metadata, information stored in RAM, and deleted files and backup tapes are all potentially discoverable.[7]

Adapting to Electronic Discovery

Federal courts are not the only arenas struggling with the adaptation of electronic discovery. Attorneys and litigant clients must also be familiar with electronic discovery in California state courts. In the wake of the 2006 FRCP amendment, many states, California included, have adopted new e-discovery rules. In June 2009, Governor Schwarzenegger signed Assembly Bill 5 into law; it is now known as the Electronic Discovery Act.

This new California law closely resembles the federal e-discovery rules.[8] However, one notable distinction is that California rules start with the presumption that all ESI is accessible.[9] FRCP 26(b)(2)(B) explicitly limits discovery seeking inaccessible ESI.[10] California law places the burden on the responding party to identify and detail any accessibility objections in their response to discovery requests.[11]

When a dispute arises as to the production of ESI, the judge weighs the burdens and benefits of the discovery at issue.[12] Even if the ESI is determined to be reasonably available for production, a judge is entitled to limit the scope of production if the probative value of the electronic information is outweighed by the production burden.[13]

Whether the party responding to a discovery request must provide the actual ESI or printed document has not been decided definitively in California. In a recent appeal to the Supreme Court of California, petitioner Ponani Sukumar contends that the production of printed emails does not fulfill the respondent’s obligation to produce ESI.[14] Sukumar explains that the ESI produced in its native format would include metadata regarding creation, manipulation and deletion of files that printed documents lack.[15] If the California Supreme Court elects to consider this issue, it would be a watershed moment in California discovery rules, perhaps heightening the standard for what types of information must be produced in discovery.

      In the case where relevant ESI cannot be produced despite the best efforts of the responding party, lawyers and litigant clients can take a deep sigh of relief. Similar to the FRCP, the California Electronic Discovery Act creates a safe harbor for the failure to maintain and produce electronic information based on the “routine, good faith operation of an electronic information system.”[16] However, once a prospective litigant learns of potential legal claims, a litigation hold should be put into place in order to preserve ESI that relates to those claims.[17] The legal hold must be established notwithstanding existing retention and destruction ESI policies of the litigant client.[18]

Threshold for Data Preservation

The courts have established a heightened threshold for preservation of relevant data for discovery in cases such as Zubulake and may take it further in cases in the near future. To meet this threshold, an attorney must recognize what triggers the duty of preservation and implement a proper and timely litigation hold.

      The basic principle that an organization has a duty to preserve relevant information in anticipation of litigation is easier to articulate than to apply. The duty to preserve relevant information arises when litigation is “reasonably anticipated.”[19] The duty to preserve is definitely triggered when a complaint is served, subpoena is received or a government proceeding is initiated, but the duty may arise much earlier.[20] The key is timely recognition of any information available to the company that may put them on notice of possible litigation.[21]

      There is no one approach that fits every company and situation, but some of the factors that tend to suggest a company should be in reasonable anticipation of litigation are: (1) the level of knowledge within the organization about the claim; (2) the risk posed by the claim to the organization; (3) the risk of losing information if the litigation hold is not implemented; and (4) the number and complexity of sources where information is reasonably likely to be found in addition to many other conceivable factors.[22] Whether the litigation is reasonably expected is based on a good faith and reasonable determination of the facts and circumstances as they are known at the time.[23]

      The adoption and consistent compliance with a policy that defines preservation and the decision-making process demonstrates reasonableness and good faith in meeting the preservation obligation.[24] This process should include the procedure for reporting the threat of litigation to a responsible decision maker working within the litigating organization.[25]

In implementing a legal hold, courts expect litigation hold notices to be issued in written form.[26] Anything short of this standard may be deemed grossly negligent.[27] Courts demand an established preservation protocol.[28] However, the protocol is merely the game plan, proper implementation is equally important.

The protocol must be written in such a way that it is clearly understood and targeted to the relevant players in the pending litigation.[29] Direct communication with every source of relevant information is crucial and establishes a solid and defensible discovery foundation.[30] For instance, the legal department must ensure that the IT department understands what is expected of them. Thus, the preservation plan must be clear and concise.

The attorney writing the protocol should have a proper understanding of the data management process and the cycling of data through the back-up hardware in order to write and execute the game plan. Conversely, a generic, broad statement, being broadcast throughout the company, falls short of legal hold obligations.[31] Anyone that handles data relevant to the case is a custodian and must be instructed and educated about how to handle ESI.

The duty to preserve arises when the organization should be reasonably aware that the evidence may be relevant to future litigation.[32] This duty extends to the key players in the company, basically, any employee likely to have relevant information.[33] The duty to preserve also encompasses any relevant documents at the time the duty arises and any other documents created afterwards that are relevant to the case.[34]

Media that is difficult to access such as backup tapes should be preserved if they are actively used for information retrieval.[35] In other words, if employees are able to contact the IT department to retrieve an erroneously deleted file from backup tapes, then the backups are considered “accessible” and should be preserved.

If employees are prohibited from retrieving such files, and the policy is to use backup tapes only for disaster recovery, then the files are less likely to fall under the duty to preserve. However, if the documents of key players can be traced to a specific set of backup tapes, then those tapes should be preserved if the original documents are unavailable.[36] Beware, since no bright line test exists, it is best to err on the side of caution and save as much relevant information as can be deemed reasonable under the circumstances.

Failing to Preserve Information

Possible remedies for failure to preserve relevant information include spoliation sanctions and an adverse inference instruction. Spoliation sanctions are used sparingly and require a higher burden of proof with regards to culpability in some jurisdictions. However,[G1]  an adverse instruction is very damaging to the litigating party’s case. Whereas a negative piece of evidence can be spun in such a way as to mitigate its effect, an adverse instruction leaves it up to the jury to use their imagination to contemplate the gravity of evil encompassed in the destroyed evidence. In practice, the adverse instruction can be far more damaging than the evidence.

            Three key steps to creating an adequate legal hold are: (1) have a defensible legal hold strategy, understood by all potential ESI custodians in the organization; (2) recognize the triggering event for the legal hold; and (3) execute the legal hold strategy, resolving preservation issues with caution. Recent rulings have held explicitly that a legal hold strategy must be followed; otherwise the remedy will be harsh.

Gary Rotkop practices Corporate and Contracts law at the Law Office of Gary L. Rotkop, a Professional Corporation.