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The prevalence of e-mail and e-data as the primary means of business communication today raises fundamental questions for companies attempting to harmonize their record-retention policies with their obligations to preserve records in the face of litigation. While the preservation of e-data poses significant challenges to companies and their counsel once litigation has been commenced, a well-crafted record-retention policy can reduce the risk that opponents will prevail in spoliation claims and sanctions motions. However, litigants must carefully weigh, on a case-by-case basis, the risks and benefits of continuing the destruction portion of their record-retention policy�as it relates to records that are not relevant to the litigation�once they face litigation or a regulatory investigation. Imagine a law firm attorney in the following hypothetical case: The attorney represents a construction company in a suit brought by one of its clients arising out of the design and construction of a recently completed commercial building. While interviewing Tim, the principal architect on the project, the attorney learns that as part of Tim’s regular monthly “housekeeping routine,” he runs a virus scan and reviews the documents stored on his desktop computer to see if he can delete any files to free up space. Tim tells the attorney that having just completed the project that is the subject of the litigation, he was anxious to get rid of documents he thought he would not need any more, and that while reviewing the files on his computer, he found a copy of the final version of the blueprints, which contained embedded comments critical of the drastic cost-cutting measures that his client, the plaintiff, had forced him to make toward the end of the project. Tim had written the comments because he had been concerned that the last-minute cost-cutting created a safety issue and he was afraid that there might be problems after the building was finished. Tim had also been concerned because his client had threatened to sue the construction company in the event it was not satisfied with the building upon completion. While Tim deleted the file from his computer, he had first printed out the final version of the blueprints and put them into the project file in his office because he was aware that the company’s record-retention policy requires that final versions of blueprints be preserved as “official company records.” However, the attorney later discovers that the copy Tim had placed in the project file did not contain his comments-which would likely be helpful to the client in defending the lawsuit. As the attorney wades through this fact pattern, the following questions will undoubtedly come to mind: Does it present a spoliation issue? Did Tim have an obligation to preserve the final blueprints with his comments? Does the fact that the comments would serve to exculpate the construction company change this analysis? Might another electronic copy of the final blueprint with Tim’s embedded comments be available elsewhere? If so, could it be recovered from a backup-tape? The duty to preserve The duty to preserve records�whether they are in electronic or paper form�is triggered when a party learns of pending litigation, reasonably anticipates litigation or is put on notice that litigation is imminent. Once the duty arises, parties should be prepared to take affirmative steps to preserve records that they know or should reasonably know are relevant to the action, that are reasonably calculated to lead to the discovery of admissible evidence, that are reasonably likely to be requested during discovery or that are the subject of a pending discovery request. See William T. Thompson Co. v. General Nutrition Corp., 593 F. Supp. 1443, 1455 (C.D. Calif. 1984); see also Lewy v. Remington Arms Co., 836 F.2d 1104 (8th Cir. 1987). These steps should include notifying all employees likely to have relevant records in their possession, custody or control that such records must be preserved, and at the same time suspending the destruction of relevant records pursuant to the company’s record-retention policy. Failure to satisfy the duty to preserve could result in severe sanctions. In In re Prudential Insurance Co., 169 F.R.D. 598 (D.N.J. 1997), the court ordered the defendant, on several occasions, to preserve potentially relevant records that would have otherwise been destroyed in the normal course of business pursuant to the company’s record-retention policy. Senior management, however, failed to properly distribute the court’s preservation order to employees who had relevant records in their control, and, as a result, certain agents and employees of the company continued to destroy relevant sales material. Imposing a $1 million fine on Prudential for failing to preserve records relevant to the litigation, the court noted that the obligation to preserve documents that are potentially discoverable is an affirmative one that rests squarely on the shoulders of senior management. Id. at 615. Retention requirements are often self-defining: That is, companies operate in environments governed by legal and regulatory specifications that mandate the retention of certain records. Competitive and other business needs may likewise require that particular records be retained. Generally, it is up to the company to determine what records fall into the latter category. Because companies have an interest in safeguarding their assets, including their “official records,” they need a record-retention policy that acts as a protocol for retaining those records that are critical to the operation of the business and discarding those that are not. Preservation requirements, on the other hand, are different from, and supersede, record-retention policies because they arise only in the context of litigation or regulatory investigations. Preservation obligations require a party to a lawsuit or investigation to preserve records that are relevant to the proceeding until it is concluded and those records are no longer needed or otherwise subject to preservation obligations. An effective record-retention policy requires the collaborative effort of all affected constituencies: the company’s legal team (both in-house and outside counsel), information technology personnel, record-management personnel, human resources personnel and senior management. The development of the policy should be done in a systematic and clear manner. First, there should be a complete and thorough assessment of the locations of all of the records that are critical to the operation of the company, including how and where records are created, modified, stored and destroyed. Next, there should be a complete assessment of the legal, regulatory and business requirements concerning the retention and destruction of the company’s critical records. This assessment must include a detailed survey of all state and federal laws and regulations that might apply to the company’s record-retention obligations. It is imperative that the company clearly distinguish, from the outset, between records that the company merely uses and records that are critical for business in order to avoid confusion, misinterpretation or misapplication of the record-retention policy by employees. Record-retention policies should be media neutral: They should focus not on the media in which the information is maintained but, rather, on the content of a record because that is what determines whether it is critical for business and, therefore, subject to retention. In the most often-cited case on this subject, the 8th U.S. Circuit Court of Appeals instructed the district court to evaluate the record-retention policy at issue under a reasonableness test that includes consideration of the following issues: whether the policy “is reasonable considering the facts and circumstances surrounding the relevant documents . . . whether lawsuits concerning the complaint or related complaints have been filed, the frequency of such complaints, and the magnitude of the complaints . . . and whether the document retention policy was instituted in bad faith.” Lewy, 836 F.2d at 1112. However, the analysis does not end there; even if a company has a policy that appears reasonable on its face, a court may still determine, based on the circumstances and the facts before it, that a document should have been retained. For example, in a recent patent infringement action, Rambus Inc. v. Infineon Technologies A.G., 220 F.R.D. 264 (E.D. Va. 2004), the U.S. District Court for the Eastern District of Virginia assessed the validity of Rambus’ document-retention and -destruction policy. Infineon had moved to compel the production of documents and testimony relating to, among other things, Rambus’ document-retention and -destruction policy. Infineon alleged, based upon evidence produced by Rambus, including a reference to “shred day”�when Rambus employees shredded documents as part of the company document-retention and -destruction policy�that Rambus had destroyed approximately 2 million pages of records as part of its document-destruction program despite being on notice of threatened litigation concerning the patents at issue. Although Rambus admitted that it instituted the document-retention policy out of discovery-related concerns�company executives felt that the company was retaining too many documents and if it were ever sued, it would require vast resources to review those documents�Rambus contended that these concerns were related to a legitimate purpose of reducing search and review costs, not for the purpose of destroying potentially damaging documents. In granting Infineon’s motion to compel, the court noted that even if Rambus did not create its document-retention and -destruction policy in bad faith, if it reasonably anticipated litigation on these patents when it instituted this document-retention and -destruction policy, it was liable for spoliation. Id. at 284-85. While the creation and development of the record-retention policy is a collaborative effort, the ultimate responsibility to develop, implement and monitor compliance with a comprehensive record-retention policy that governs all employees rests with senior management because senior management ultimately bears the responsibility of ensuring the preservation of records relevant in litigation or regulatory investigations. In re Prudential Insurance Co., 169 F.R.D. at 615. Litigation response plans Preparation is key. Before litigation or a regulatory investigation is threatened or is reasonably anticipated, the company should consider instituting, as part of its record-retention policy, a “litigation response plan” that provides a road map for the company to quickly identify the types and location of records, both paper and electronic, in the company’s possession, custody or control that are potentially relevant to the litigation or investigation. The critical parts of the litigation response plan are the instructions for identifying, capturing and preserving, in the format in which they were maintained in the normal course of business if possible, the company’s relevant records so as to maintain the status quo of the records during the pendency of the action. In order to supervise the implementation of the litigation response plan, the company should establish a team of dedicated and knowledgeable representatives from various departments in the company to spearhead implementation of, and compliance with, the plan. The company’s record-retention policy will intersect with its obligation to preserve relevant records once litigation or a regulatory investigation is pending or reasonably anticipated. As part of the litigation response plan, the company should have a process under which it can quickly evaluate whether it needs to suspend, in whole or in part, the document-destruction component of its retention policy, and to distribute a notice to all employees who are likely to have relevant records in their possession, custody or control. Such notices generally referred to as preservation notices, should advise employees of the pendency of the litigation or investigation, their obligation to preserve relevant records and the suspension of the usual retention policy. The preservation notice should also include, in clear, concise and bold language, a description of the types of records�by subject if necessary�that are relevant, and therefore subject to preservation, and instructions on how to preserve them. It is also important that the preservation notice inform employees that they must preserve relevant records until advised otherwise. While preservation obligations apply to all relevant evidence, this does not mean that a company must preserve “all” the information in its possession, custody or control. See Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 217 (S.D.N.Y. 2003). While a company might not have to preserve every backup tape�whether created for disaster recovery or for archive storage�the key questions are: How many backup tapes does it have to preserve? And which backup tapes does it have to preserve? (This question is sometimes harder to answer.) Unfortunately, the courts have not been clear in terms of what actions need to be taken to suspend recycling of disaster-recovery backup tapes, either on a temporary or ongoing basis, pending further litigation developments. Compare Zubulake, 220 F.R.D. at 218 (obligation to preserve relevant records generally does not extend to backup tapes typically maintained solely for purposes of disaster recovery, but does extend to backup tapes typically created and maintained for archival storage purposes) with Keir v. UnumProvident Corp., No. 02 Civ. 8781, 2003 U.S. Dist. Lexis 14522, at 7-8 (S.D.N.Y. Aug. 26, 2003) (obligation to preserve information during the pendency of litigation extends to backup tapes containing e-mail that may be relevant). Thus companies should consider suspending their rotation of backup tapes until such time as the parties can agree on or, if necessary, seek a court order defining the scope of their preservation obligations with regard to backup tapes. In a “litigation free” atmosphere, if the company has created and implemented a clearly defined and reasonable record-retention policy that identifies those business-critical records that should be maintained for legal, business or regulatory reasons and has set appropriate retention periods, then information not meeting the retention guidelines can be destroyed. See Lewy, 836 F.2d at 1112. However, with pending or threatened litigation, a company should suspend the destruction component of the record-retention policy either in full or at least with respect to relevant records to prevent the possibility of destroying records that might later turn out to have been relevant to the litigation and then facing a spoliation charge and possible sanctions. To return to the hypothetical, does this mean that because Tim destroyed the copy of the blueprints containing his embedded comments that was stored on his computer, that his comments are lost and that his company may be liable for spoliation? Not necessarily. For example, if the company made backup tapes of Tim’s computer, and if it still has those tapes, the blueprints containing Tim’s comments could be retrieved for use in the litigation-therefore, avoiding a spoliation charge and potential sanctions. Record-retention policies are an asset that can help companies facing litigation. They have two facets: the “retention” of business-critical records and the “destruction” of records that are not critical for business and not otherwise subject to a preservation obligation. While companies involved in litigation or regulatory investigations must carefully weigh the need to suspend the destruction portion of their record-retention policy to avoid the possibility of destroying documents relevant to pending or reasonably anticipated litigation, the bottom line is that a well-crafted record-retention policy can help companies avoid spoliation charges and potential sanctions. Kevin F. Brady is counsel, and Matthew I. Cohen is an associate, in the complex mass torts and insurance litigation group at Skadden, Arps, Slate, Meagher & Flom. Brady is resident in the firm’s Wilmington, Del., office, and Cohen in the firm’s New York office.

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