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A series of five recent decisions out of the Southern District of New York in the case Zubulake v. UBS Warburg ( Zubulake I-V), No. 02 Civ. 1243, underscore the perils of litigating in the digital age. The Zubulake decisions, the most recent of which was issued on July 20, confront head-on several important electronic-discovery issues: When does the duty to preserve documents (including e-data) arise? What types of media must be preserved? And who is to pay for the retrieval, review and production of that e-data? The Zubulake decisions answer these critical questions, but whether other courts will follow Judge Shira Scheindlin’s lead or develop their own e-discovery protocols remains to be seen. The duty to preserve documents, historically, has arisen in two principal ways. First, many federal and state statutes, regulations and agency rules impose mandatory retention periods on certain kinds of documents generated in the ordinary course of business. For example, the Internal Revenue Service, the Occupational Safety and Health Administration, the Age Discrimination in Employment Act of 1967, the Employee Retirement Income Security Act of 1974, the Consolidated Omnibus Budget Reconciliation Act of 1985, the Immigration Reform and Control Act of 1986, the Family Medical Leave Act of 1993 and the Sarbanes-Oxley Act of 2002 each prescribe preservation protocols. Although these protocols can cover significant amounts of data, they also tend to provide reasonably clear guidance as to what to preserve and for how long. The second way in which the duty to preserve can trigger is more amorphous, and occurs when documents are “relevant” to the claims or defenses in a litigation. See, e.g., Kronisch v. United States, 150 F.3d 112, 126 (2d Cir. 1998). Unlike the statutory and regulatory protocols, the duty to preserve documents in the litigation context has no clearly defined time period, subject matter or scope. Thus it can pose a logistical and financial nightmare for companies involved in even the most basic litigation. This is particularly the case when the duty to preserve predates the onset of formal litigation: “The obligation to preserve evidence arises when the party has notice that the evidence is relevant to litigation or when a party should have known that the evidence may be relevant to future litigation.” Zubulake IV, No. 02 Civ. 1243, 2003 WL 22410619 (S.D.N.Y. Oct. 22, 2003), at 2 (quoting Fujitsu Ltd. v. Federal Express Corp., 247 F.3d 423, 436 (2d Cir. 2001)). But recognizing precisely the moment in time when the duty arises can be particularly vexing. For example, in Zubulake, the plaintiff filed a complaint for gender discrimination against her former employer in February 2002. Before filing her civil suit, the plaintiff had filed an administrative complaint with the Equal Employment Opportunity Commission in August 2001. In her civil suit, the plaintiff maintained that the evidence she needed to prove her case resided in e-mail sent among various of the defendant’s employees prior to her filing the EEOC charge, and were stored on the defendant’s computer systems and backup tapes. In the first three Zubulake decisions, the court considered whether the plaintiff was entitled to conduct certain discovery, including discovery of the defendant’s backup tapes, and, if so, how that discovery was to be conducted and who was to pay for it. The court decided that the defendant was required to produce the electronic discovery, but, after applying a new, seven-factor cost-allocation test, also decided that the plaintiff would bear 25% of the costs of production. In the fourth and fifth Zubulake decisions, the court was asked to consider whether sanctions should be imposed against the defendant for failing to preserve and produce in a timely manner responsive electronic data. In Zubulake IV, the court found that the defendant’s duty to preserve was triggered four months before the plaintiff filed her EEOC complaint in August 2001 and 10 months prior to the actual filing of her civil complaint. The court based its conclusion on a series of recovered e-mails indicating that certain of the defendant’s employees (the “key players”) at least recognized the possibility that the plaintiff might sue as early as April 2001. What must be preserved? Despite the inherent murkiness in pinpointing the precise moment in time when the duty to preserve was triggered, the court in Zubulake IV observed that, once the duty arises, parties should immediately guard against routine alteration or destruction of relevant documents until the matter has been finally resolved. Given the obvious hurdles in knowing before the onset of formal litigation just what will-or will not-be relevant to a claim or defense, however, must a company faced with pending or threatened litigation save every relevant hard copy and electronic document? “The answer is clearly, ‘no,’ ” according to Scheindlin in Zubulake IV, 2003 WL 22410619, at 3. What then must be preserved? Recognizing that the digital universe presents unique challenges to potential litigants, the court in Zubulake IV held that upon reasonable anticipation of litigation, a party must suspend routine document retention and destruction policies (assuming any exist at all) and institute a “litigation hold.” Id. at 4. The litigation hold should apply to all “accessible” data and, in some cases, can extend to “inaccessible” data that concern the key players in the underlying dispute. Id. According to the court in Zubulake I, whether electronic data are accessible or inaccessible depends largely on the media on which they are stored. Given the dynamic and tangled nature of information-technology systems, however, the line between accessible and inaccessible data will not always be clear. In fact, the line may best be viewed as a continuum-ranging from data stored in a readily usable format (such as hard copy files, active Web sites, networks or optical disks or drives) to data that require extensive manipulation to be retrieved and restored (such as disaster recovery back-up tapes, obsolete software applications and “deleted” network files). Ironically, because most inaccessible data are static and reside safely beyond the reach of active computer networks, in some circumstances, it actually may be more difficult-and costly-to preserve accessible data, particularly when multiple offices and types of active media-i.e., laptops, desktops and disks-are involved. Despite the Zubulake accessible/inaccessible distinction, for some companies, preserving and producing data off backup tapes may be a simpler and better solution. Consequences of spoliation The cost of complying with the duty to preserve-regardless of the technological challenges in doing so-may pale in comparison, however, to the potential consequences of spoliating evidence. Court-ordered sanctions for altering or destroying evidence can vary significantly-ranging from no sanctions at all to the harshest of sanctions, including dismissal of the spoliator’s claims or defenses or entry of judgment against the spoliator-and are highly dependent on the facts and circumstances of each case. For example, the court in Zubulake IV found that the defendant had a preservation policy in place but that its employees had ignored it after the duty had arisen. In deciding whether to award sanctions, however, the court noted that the plaintiff had failed to establish that she likely would have discovered relevant information within the destroyed tapes. As a result, the court declined to impose the harshest sanctions (such as judgment against the defendant), but did award the plaintiff her costs and attorney fees incurred pursuing the missing data and redeposing certain witnesses. But, illustrating just how slippery the slope can be for parties in cases in which e-data are not immediately preserved after the duty to do so has arisen, Zubulake V addressed yet another motion for sanctions and, this time, imposed much harsher sanctions on the defendant. Zubulake, No. 02 Civ. 1243, 2004 WL 1620866 (S.D.N.Y. July 20, 2004). After the court’s decision in Zubulake IV, the plaintiff found additional evidence that certain key players had deleted e-mails from their active computers after outside counsel had issued the litigation hold. The court concluded that the e-mails contained potentially relevant information and that some of them were willfully deleted, and not merely discarded by negligence as the court had found in Zubulake IV. The court therefore issued an “adverse inference” instruction that ultimately could permit the jury to infer that the deleted e-mails contained evidence that was relevant and adverse to the defendant’s case. The court also ordered the defendant to pay for the costs to redepose certain key players, to restore and produce additional backup tapes, and to pay the plaintiffs’ costs incurred in connection with its motion for sanctions. Both Zubulake IV and V serve as important reminders that deliberate actions, inadvertent actions or even actions of a few employees taken in the ordinary course of business may cost a company a great deal in litigation expense alone-not to mention potentially undermine the company’s substantive claims and defenses-if such conduct results in the spoliation of relevant electronic evidence. Because of this danger, a company should seek to preserve relevant electronic data as soon as litigation becomes reasonably foreseeable. Preservation pointers Among other precautionary measures, a company should consider: Creating, implementing, publicizing and ensuring strict compliance with reasonable electronic document and e-mail management policies. Upon reasonable anticipation of litigation, suspending all routine document destruction or alteration required by the document-management policies, instituting a “freeze” for all likely relevant documents and involving counsel as soon as possible to ensure compliance with all preservation obligations. Circulating a litigation freeze memorandum to all employees that may have relevant documents (including information technology personnel). The memorandum should clearly identify the subject matters covered by the freeze and the types of “accessible” and “inaccessible” documents that must be preserved. Familiarizing relevant staff with the technology. Before circulating the freeze memorandum, counsel should develop a working knowledge of the company’s information technology systems and may want to consult with a computer technology consultant to formulate a coherent e-discovery strategy. Designating an employee to work with counsel to ensure proper distribution of the memorandum and full compliance with the freeze, including quarantining the frozen data to satisfy applicable chain of custody and authentication criteria. These are just a few of the steps that can be taken when the duty to preserve triggers. Of course, each matter is unique, and just what should and should not be preserved, and when, will turn on the particular facts and circumstances of each case. Thus, management should confer with experienced counsel when a business dispute looks as though it may deteriorate into full-blown litigation. In short, an ounce of prevention is still worth a pound of cure (or, more appropriately perhaps, a megabyte of prevention is worth a gigabyte of cure). Well-conceived electronic document management protocols can go a long way toward minimizing a company’s litigation risk profile in the digital age, particularly when winning and losing no longer turn solely on whether the company’s position on the merits is correct. Today, whether a company acted with proper dispatch and caution in responding to a perceived litigation risk may be every bit as important. Stephen D. Whetstone ([email protected]) is a litigation partner at Boston’s Testa, Hurwitz & Thibeault, where he focuses on securities, intellectual property and other complex litigation and investigative matters. Many of his cases have involved complex electronic data and discovery issues. Kara A. Millonzi was a litigation associate at the firm until August. She is currently clerking for U.S. District Judge Louis F. Oberdorfer of the District of Columbia.

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