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The Emerging Duty To Preserve Electronic Data
June 16, 2006
Imagine that your business is involved in a dispute or a lawsuit. Your company will need to preserve, collect and produce the company’s relevant e-mail and other electronic documents. However, you may be too late if you have not already stopped the routine destruction of e-mail or recycling of back-up tapes that your IT department regularly uses. As a consequence, potentially relevant electronic data may have been lost.
Whether or not your company is routinely involved in litigation, the retention and destruction of electronic data is an issue that companies must address before disputes and lawsuits arise.
A recent study estimates that over 92% of all new information is stored electronically. By the end of 2006, it is estimated that 60 billion e-mail messages will be sent each day. It is also estimated that as of the end of 2005, corporations are generating 17.5 trillion electronic documents per year, up from 135 billion in 1995. Yet only 30% of the “important” documents that businesses deal with on daily basis are printed out on paper.
Unlike paper documents, electronic documents of all types (including e-mail, word processing documents and spreadsheets) are particularly susceptible to deletion and, in certain circumstances, overwriting. In that event, the underlying data comprising the electronic document is permanently lost. For example, many businesses operate systems which store e-mail messages in certain locations and routinely delete them after designated periods of time. The routine deletion of certain types of data is one of the ways in which IT departments attempt to address the problem of storing e-mail and electronic documents, which if allowed to accumulate, can result in bogged down servers and networks or “crashes.” As the use of e-mail has increased dramatically, companies have realized that more space (and therefore more money) is required to store active and archived e-mail on dedicated servers and back-up tapes. Even companies that have taken the disaster recovery measure of backing up their e-mail and other electronic documents on tapes run the risk of overwriting potentially relevant information when recycling back-up tapes.
In attempting to address the unique nature of electronic documents, courts around the country have recently established standards for the preservation of electronic data by companies and individuals. The clear message that the courts convey is litigants must now pay attention to potentially relevant electronic documents in computers and networks. If they do not do so, courts may impose sanctions. To avoid costly sanctions in the course of litigation, businesses need to educate their management and employees about the preservation obligations established by the courts, and take appropriate steps to ensure compliance with these obligations.
Courts have consistently held that an obligation to preserve relevant documents arises when a company reasonably anticipates a claim against it. In the past, a company could likely satisfy its preservation obligation by making certain that its paper documents were preserved when a notice of claim or a formal complaint was served upon it. However, unlike paper documents, e-mail and other electronic documents can be routinely deleted or overwritten long before these initial stages of litigation. Addressing this issue, one court held that the obligation to preserve electronic documents began a year before the lawsuit was filed with the court, when the company became aware of a potential claim by its former employee.
In an effort to address how e-mail and electronic documents are handled, courts encourage companies to adopt document retention policies that are disseminated to employees. These policies should clearly set forth the company’s policies with respect to the retention of certain types of records (e.g., e-mail, client files, corporate records, etc.). In addition, companies should familiarize their employees with the standards they adopt in the policy and ensure that the employees meet the company’s expectations concerning both the destruction and retention of electronic documents of various types.
However, even a company that has an electronic document retention policy in place can be subject to sanctions if it fails to place a “litigation hold” on the routine destruction of e-mail and other electronic documents. The sanctions imposed by courts when electronic data is lost or destroyed are significant and have included: the costs of an opponent’s forensic experts to retrieve the data or determine how and when it was lost; the costs of additional fact or expert discovery; adverse inference instructions (where the court instructs the jury that the loss or destruction of the data is deemed helpful to the opponent’s case); and even a default judgment (where the court simply rules that the opposing party wins the case).
These recent court decisions create an urgency for businesses utilizing e-mail, software to generate documents, spreadsheets, charts or graphs, and other electronic databases to implement the following measures:
(1) Establish a policy that addresses retention/destruction of electronic information;
(2) Make sure the policy is reasonable;
a. Maintain the information long enough for the particular needs of the business;
b. Create a “litigation hold” contingency, which stops the destruction of potentially important data on servers, backup tapes or in archived systems;
(3) Disseminate the policy to employees who will be affected by it or should be aware of its existence;
(4) Enforce and audit the data retention policy in the ordinary course of the business.
Addressing these issues now can significantly reduce the costs of litigating a business dispute and help companies avoid potential sanctions arising from the destruction (whether inadvertent or otherwise) of documents that should have been preserved. Courts now focus on the reasonableness of document retention policies and the conduct of litigants concerning their electronic information once litigation occurs. Accordingly, businesses should give careful consideration to the retention of electronic information and implement retention policies that address the modern realities of litigating business disputes.
For more information regarding document retention obligations and policies, or for a review of your company's current document retention policy, please contact:
CLIENT ADVISORY is provided for information purposes only, and does not constitute legal advice. According to Mass. SJC Rule 3:07, this material may be considered advertising. ©2007 Posternak Blankstein & Lund LLP. All rights reserved.