“ELECTRONICALLY STORED INFORMATION” OR “ESI”—THE HIDDEN LITIGATION TRIPWIRE
October 12, 2010
New York: (212) 682-5700 Connecticut: (203) 221-3100
We live in a digital world. So prevalent is “data” that we forget that we are surrounded by visual portrayals of streams of zeroes and ones. We have computers at work as well as at home, and laptops, PDA’s, and “Blackberrys” to keep us connected to e-mail, voice mail, and text messages while we vacation or commute (and blur the distinction between the two). It has been said that technology is a wonderful slave and a terrible master. Technology may also present the least understood and a most dangerous trap for the unwary litigant—one that can lose a case before it is even begun. The solution is a timely and thoughtful “litigation hold” letter, and this article will explain when one has to be sent, and what it should say.
In 1938, there was a tectonic shift in the litigation landscape with the adoption of the Federal Rules of Civil Procedure. “Trial by ambush” gave way to liberal pretrial discovery and mandatory exchange among litigants of information and evidence. State Rules of Court soon followed suit. The theory was that while everyone is entitled to their own opinion of right and wrong, they are not entitled to their own set of facts held tightly to their vest like a poker hand. Free and expansive pretrial discovery had at long last leveled the courtroom playing field. Or so it seemed.
Over the years, the Federal and State Rules governing pretrial discovery have generally kept pace with societal changes so that discovery vehicles such as Requests for Production could be tailored to fit the myriad and unique circumstances that surround any case, and perform as designed. Recent technological advances, however, have pulled far ahead of the rules, and Courts have been scrambling to catch up. Thus began the evolution of discovery of “electronically stored information”, or “ESI.” Court interpretation of the discovery rules has given lawyers and litigants guidance on how to uncover ESI, but they also impose draconian penalties for conduct that heretofore might have been countenanced by a well meaning and lenient jurist. The purpose of this article is to warn business owners and their counsel of the unseen pitfalls of ESI, and ensure by means of a “litigation hold” letter that devastating sanctions are avoided. Simply stated, a “litigation hold” letter commands a party (or client) to locate, segregate, and preserve documents and data that may be relevant to pending or threatened litigation.
In 2003 and 2004, Judge Shira A. Scheindlin of the United States District Court for the Southern District of New York, decided two in the series of the Zubulake v. UBS Warburg LLC cases and introduced a brave new world of ESI discovery. In 2010, Judge Scheindlin decided Pension Committee of the University of Montreal Pension Plan v. Bank of America Securities, LLC, 2010 U.S. Dist. LEXIS 1839 and dispelled any doubt about the duty to preserve and produce ESI, and the penalties to be imposed for its breach.
One teaching of Pension Committee is that the rules articulated in Zubulake are now “well established” and lawyers and litigants ignore them at their peril. Judge Scheindlin leaves no room for interpretation or debate:
“Possibly after October, 2003, when Zubulake IV was issued, and definitely after July, 2004, when the final relevant Zubulake opinion was issued, the failure to issue a written litigation hold constitutes gross negligence because that failure is likely to result in the destruction of relevant information.” 2010 U.S. Dist. LEXIS at * 10.
The corollary teaching of Pension Committee is that if a party is currently in litigation or reasonably anticipates litigation, then such party in conjunction with its counsel must issue a timely and written litigation hold and supervise and oversee that hold diligently and in good faith, or face sanctions to include termination of the underlying case to its extreme prejudice.
A party to litigation or a party that reasonably anticipates litigation (more on that amorphous concept later) has a duty to preserve, collect, review and/or produce relevant evidence. In failing to discharge that duty with respect to ESI, the party’s conduct may amount to negligence, gross negligence (a failure to exercise even that care which a careless person would use), or willful and bad faith misconduct (an intentional act of an unreasonable character in disregard of a known or obvious risk that was so great as to make it highly probable that harm would follow). In each instance, available sanctions ratchet up accordingly. With regard to the duty to preserve, post-Zubulake, the failure to issue a timely, written litigation hold will likely rise to the level of gross negligence. With respect to the duty to collect, the failure to collect paper or electronic records from “key players” (another “fuzzy” concept that may even include former employees) constitutes gross negligence or willfulness, in contradistinction to failing to collect records from all employees, which may be viewed as mere negligence and carry a lesser penalty. As noted by Judge Scheindlin, “[e]ach case will turn on its own facts and the varieties of efforts and failures is [sic] infinite.” Id. At * 12-13.
So what is a business owner/HR executive/general counsel to do?
The first step is to understand when the ESI duty to preserve, collect, etc. attaches. Where a party sues or is sued, that particular point in time is clearly defined. But when must a party “reasonably anticipate” litigation? If one or two employees get a mere whiff of threatened litigation, that does not impose an “all hands on deck” company-wide duty to preserve. If those same employees, however, document their concerns with an identifiable plaintiff and targeted defendant, then the duty to preserve would arise well in advance of the actual filing of the lawsuit. Often, it is middle-management that first sees litigation storm clouds on the horizon, and they need to be conditioned to alert senior management and outside counsel to threatened litigation.
Once the alarm is sounded, the litigation hold letter must be carefully drafted and quickly disseminated. Each situation is different, and this is not an area where a generic, “one size fits all” form letter can be sent. Management and counsel should collaborate on ensuring company-wide compliance and the letter should emanate from the company’s upper echelons (e.g., CEO, COO, and CIO). Implementation and supervision of the litigation hold cannot be delegated away and senior management must remain involved and responsible throughout the process. In the words of Judge Scheindlin, “[i]n short, it is not sufficient to notify all employees of a litigation hold and expect that the party will then retain and produce all relevant information. Counsel must take affirmative steps to monitor compliance so that all sources of discoverable information are identified and searched.” Zubulake V, 229 F.R.D. at 432.
The litigation hold letter is both a sword and a shield. It is a recognized and ubiquitous “terrain feature” on any litigation landscape and litigants and lawyers are now on notice that they are expected to be familiar with the evolving law and conform fully to its requirements. Every case is different, however, and must be analyzed and evaluated on its own peculiar facts and circumstances. If you have any questions relating to ESI in general, or litigation hold letters, in particular, please contact Maya Murphy by phone at (203) 221-3100.