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On April 6, 2005, a jury in the U.S. District Court for the Southern District of New York awarded Laura Zubulake, a former equities trader at UBS Warburg, in excess of $29 million (which includes over $20 million in punitive damages) in her highly publicized action for gender discrimination, failure to promote and retaliation. Practitioners and commentators alike have closely followed this litigation, which has generated several written decisions by Judge Shira Scheindlin relating to an employer’s responsibilities in connection with the discovery of electronic documents. Just recently, Scheindlin had issued the seventh written opinion in the case, Zubulake v. UBS Warburg, 2005 U.S. Dist. LEXIS 4085 (SDNY March 16, 2005). The staggering Zubulake verdict, the case’s numerous electronic discovery decisions and the attention courts across the country have given the various Zubulake decisions highlight the potential dangers workplace e-mail can create for employers and the need to take steps to minimize such dangers and their related potential costs. WORKPLACE E-MAIL PROBLEMS Many employees use workplace e-mail informally, sending impulsive, colloquial messages — or messages that are otherwise inappropriate — without checking the messages as they would more traditional business correspondence. Combine this fact with e-mail’s ready distribution, its potential for large-scale inadvertent forwarding, “discoverability” in litigation, that “deleted” e-mail may be retrievable from backup tapes, and that previously whispered conversations over the water cooler are now often reduced to e-mail, and it amounts to a significant increase to an employer’s potential liability. Furthermore, employees often have their own ideas as to whether and how long to retain e-mails, leading to widely varying levels of retention of e-mails that are potentially relevant to a litigation. As many companies are learning, this may be costly for a defendant faced with a plaintiff’s request for the production of e-mails (such as e-mails relating to his/her employment with a defendant employer). ‘ZUBULAKE V. UBS WARBURG’ In Zubulake, the plaintiff sought from her former employer the production of e-mails that she alleged contained evidence of her claims, which only existed on backup tapes and in “inaccessible” form requiring an estimated over $100,000 to retrieve and restore — exclusive of reviewing the e-mails for privilege and relevance. [FOOTNOTE 1] The Zubulake court previously examined the technology involved and ruled on several electronic discovery issues, such as: � the discoverability of and duty to preserve electronic documents once litigation is reasonably anticipated (distinguishing between inaccessible backup tapes maintained solely for disaster recovery that may continue to be recycled pursuant to a company’s policy and accessible backup tapes actively used for information retrieval that would likely be subject to a litigation hold, and noting that if the location of particular employee documents may be identified, then tapes storing documents of key players — those likely to have relevant information — should be preserved if the information is otherwise unavailable); and � who should bear the costs of retrieving, reconstructing, reviewing and producing e-mails by applying a weighed seven-factor test for cost-shifting (typically, where inaccessible e-mail is sought) that looks to: (1) the extent to which the request is specifically tailored to discover relevant information; (2) the availability of such information from other sources; (3) the total cost of production, compared to the amount in controversy; (4) the total cost of production, compared to the resources available to each party; (5) the relative ability of each party to control costs and its incentive to do so; (6) the importance of the issues at stake in the litigation; and (7) the relative benefits to the parties of obtaining the information. The importance of compliance with electronic discovery obligations was highlighted by the court’s order of sanctions against UBS despite its efforts to meet its electronic discovery obligations, including through instructions by in-house and outside counsel and instructions to stop recycling backup tapes following plaintiff’s request for e-mails stored on the tapes. Noting that relevant e-mails had been destroyed after the duty to preserve them had arisen, the late production of certain e-mails, and the non-production of other e-mails which had not been retained, the court ordered several sanctions for spoliation [FOOTNOTE 2] (defined as the destruction or significant alteration of evidence, or the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation), including: � an adverse inference instruction about the irretrievable e-mails (whereby, the court instructed the jury members that they may infer that those e-mails which UBS failed to produce may be adverse or unfavorable to UBS’s case); � financial sanctions, including requiring UBS to bear the costs of any additional/re-opened depositions that the plaintiff thought necessary as a result of the failure to turn over responsive e-mails for such a long period of time, the plaintiff’s costs and attorney’s fees of bringing the motion; and � the costs associated with further restoration and production of e-mails from backup tapes. Furthermore, Judge Scheindlin noted in one of her pre-trial Zubulake opinions that the “belated production has resulted in a self-executing sanction”: “[n]ot only was [Ms.] Zubulake unable to question UBS’s witnesses using the newly produced e-mails, but UBS was unable to prepare those witnesses with the aid of those e-mails. Some of UBS’s witnesses, not having seen these e-mails, have already given deposition testimony that seems to contradict the newly discovered evidence.” THE CURRENT RULING Most recently, the Zubulake court agreed with UBS that the court’s previous decisions (e.g., relating to UBS’s failures in connection with the discovery of e-mails and the imposition of sanctions) were not relevant to Zubulake’s allegations of discrimination and would unfairly prejudice UBS. The court held that “placing the five previous decisions in this case before the jury would serve no legitimate purpose” and that the “jurors will be told all they need to know through the evidence admitted at trial and [the court's] charge.” Therefore, at trial, the plaintiff was permitted to introduce correspondence between counsel on discovery matters only if UBS “opened the door” by introducing evidence as to whether its failure to produce e-mails was reasonable. As Scheindlin noted, if the former employer “decide(s) not to offer proof that their failure to produce certain e-mails (or late production of other e-mails) was justified, Plaintiff will not be permitted to introduce any of the correspondence between counsel in her case in chief.” Similarly, the court held that whether the plaintiff was permitted to introduce evidence concerning UBS’s failure to preserve “several months of back-up tapes” depended upon whether UBS first “opened the door” (e.g., in an effort to justify the failure to produce certain e-mails). Courts around the country (including in New York, New Jersey, California, Illinois, Maryland, Texas and Wisconsin) have noted and/or favorably cited to the decisions in Zubulake, which has not been the only case in recent months to order spoliation sanctions for e-discovery failures. ‘MOSAID TECH. V. SAMSUNG’ For example, in MOSAID Technologies v. Samsung, 2004 U.S. Dist. LEXIS 25286 (D.N.J. Dec. 7, 2004), a New Jersey court upheld an adverse inference instruction as a result of defendant’s destruction of e-mails and ordered monetary sanctions, including attorneys’ fees and costs in connection with plaintiff’s attempts to obtain electronic discovery. The court noted that defendant knew of the duty to preserve potentially discoverable evidence, knew of potentially relevant e-mails and was aware of how to institute a litigation hold yet failed to do so — leading to the deletion of e-mails pursuant to the defendant’s e-mail retention policy. The court found that this conduct went beyond mere negligence and concluded that defendant’s conduct was knowing and intentional. As such, the court imposed sanctions of over $500,000 to compensate plaintiff for the time and effort it was forced to expend pursuing electronic discovery from defendant. In connection with its decision, the court rejected the defendant’s argument that intent required an element of fraud or a desire to suppress the truth that was not met by the destruction of e-mail pursuant to an employer’s document retention policy. In short, the court in MOSAID Technologies found that other courts had not required bad faith as a prerequisite to imposing spoliation sanctions and that even negligent destruction of e-mail could further the primarily remedial rationale for the sanctions. Thus, the court ordered an adverse inference jury instruction regarding the e-mails that were not produced. The ‘E-TRADE SECURITIES’ CASE In E-Trade Securities v. Deutsche Bank, 2005 U.S. Dist. LEXIS 3021 (D. Minn. Feb. 17, 2005), a magistrate judge in Minnesota similarly recommended sanctions, including an adverse jury inference and monetary damages for the spoliation of evidence in connection with electronic discovery. In that case, one defendant had erased its computer hard drives and the other failed to place a litigation hold on e-mail where it knew that its backup system would erase relevant e-mail. Furthermore, the loss of these documents prejudiced plaintiff’s case. The court held that if the destruction of relevant information occurs before any litigation has begun, then a showing of bad faith was required in order for sanctions to be imposed (although bad faith may be implied by the party’s behavior). If the destruction of evidence occurs after litigation is imminent or has begun, however, then a showing of bad faith is not required and it is not a defense to spoliation sanctions that e-mails were destroyed pursuant to a company’s document retention policy. Since the defendant had not suspended its document retention policy after the duty to preserve was triggered, relevant information was irretrievably destroyed and no finding of bad faith was required. Therefore, the magistrate ordered an adverse inference instruction with respect to the information that defendant failed to preserve and furthered ordered that defendants pay $10,000 for plaintiff’s costs related to the pursuit of electronic discovery. CONCLUSIONS, OBSERVATIONS As the above cases and other similar actions across the country demonstrate, employers must be aware of the myriad issues surrounding electronic discovery before becoming embroiled in a situation in which the duty to preserve electronic documents arises. It is important to work closely with counsel to establish your company’s electronic capabilities with respect to current and past electronic documents and communications. Moreover, these cases demonstrate that the already-high costs of electronic discovery can further escalate where mistakes are made that lead to the late production of responsive electronic documents or to their irretrievable loss. In addition, the cost of carelessly worded e-mails themselves may contribute to establishing liability in litigation. Employers can take several steps to minimize this exposure: � Develop, communicate and enforce a policy prohibiting nonbusiness use of e-mail. Such a policy should stress to employees that workplace e-mail, even if password protected, is not private. If employees are aware that their workplace e-mails are not private, they may think twice before sending offensive, sarcastic or otherwise inappropriate messages — which also may reduce the sheer volume of e-mails to deal with in discovery. � Instruct employees (particularly managerial and human resources employees) about the appropriate use of workplace e-mail and that e-mail should be treated as they would more formal business correspondence in both content and tone. � Develop, communicate and enforce an electronic document retention policy through careful analysis of the company’s computer systems and retention goals. Bearing in mind legal retention requirements, establish a schedule for the regular backup, storage and purging of electronic documents. Periodically communicating this policy to employees and auditing compliance should help to organize and reduce the sheer volume of workplace e-mail, and minimize the inconsistent treatment of e-mail by employees. Of course, employers must develop, communicate and regularly monitor compliance with a procedure to suspend the automatic document retention policy once the duty to preserve arises, or they may face spoliation sanctions if electronic documents are irretrievably lost. � Actively involve counsel in the initial search for, preservation of and production of relevant e-mails and related supplemental document productions. The active involvement of counsel is crucial to facilitate compliance with electronic discovery obligations. Simply informing employees that e-mails must be retained once litigation is reasonably anticipated may be insufficient to avoid sanctions if the e-mails are lost or otherwise not produced. In conclusion, the potential costs associated with the discovery of workplace e-mail and related electronic information are staggering. Efforts are under way to revise the Federal Rules of Civil Procedure to address this issue. Following the suggestions outlined above will aid in the successful navigation of these muddy waters and minimize the risks associated with workplace e-mail and the related costly potential pitfalls of electronic discovery while retaining workplace e-mail’s clear benefits. Albert J. Solecki Jr. is a partner in the labor and employment law group at Goodwin Procter. Melissa G. Rosenberg is an associate in Goodwin Procter’s labor and employment law group. ::::FOOTNOTES:::: FN1 These costs lead many employers to feel acute pressure to settle even meritless claims -particularly in the class action context, where such costs may be exponentially increased. FN2 Spoliation sanctions are warranted where: The party having control over the evidence had an obligation to preserve it at the time it was destroyed; the records were destroyed with a culpable state of mind; and the destroyed evidence was relevant to the party’s claim or defense (this is presumed where destruction is intentional/willful).

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