Anticipating and Preempting the "Endless" Search for Electronic Documents in Discovery Requests

I. Introduction

According to the International Data Corporation, the total number of email messages sent daily soon will exceed 60 billion worldwide. It is further estimated that approximately 25 billion messages will be business-related. Each of these messages could become part of a discovery request in workplace litigation. Examples of how dangerous emails can be are as close and as public as the daily news.

The process that has come to be known as "e-discovery" now impacts most cases. Various federal and local court rules impose a duty upon counsel to review a client's information management systems and the digital information files at the commencement of litigation. Counsel then must confer with opposing counsel regarding the e-discovery phase of the litigation.

In October 2003, the District Court of New Jersey adopted Local Rule 26.1(d) "Discovery of Digital Information Including Computer Based Information." The rule provides that, before a Fed. R. Civ. P. 26(f) conference, counsel must review with the client its information management systems to understand how information can be retrieved. Counsel also must identify a person with knowledge about the client's information systems and the ability to facilitate reasonably anticipated discovery. At or before the initial scheduling conference, counsel must notify the opposing party regarding the categories of computer-based or other digital information that will be sought.

Numerous issues may emerge during this process, such as the procedure to deal with inadvertent production of privileged information, whether restoration of deleted digital information is necessary, and whether historic legacy data is within the scope of discovery. One of the most important questions for defense counsel is who will bear the costs of preservation, production and restoration of digital discovery. In one case, a company embroiled in an electronic discovery dispute estimated that it would cost $9.75 million to retrieve all emails on its backup tapes. How counsel addresses and responds to these issues is becoming more important and potentially costly, as courts more frequently impose sanctions for e-discovery violations in the form of fines, attorneys' fees, reimbursement, preclusion orders, adverse inferences, jury instructions or dismissals.

II. When Does the Duty to Preserve Electronic Evidence Arise?

When must a company take steps to retain and preserve electronic information? This can be a difficult question, particularly for large corporations that consistently are involved in litigation. As a general rule, there are three "triggers" to the duty to preserve electronic information: (1) anticipated or actual litigation; (2) notification; and (3) statutory or regulatory requirements.

A. Actual or Anticipated Litigation

A party has the duty to preserve information, both on paper and in electronic form, when the party is on notice of either "potential" or "pending" litigation in which that information could be relevant. Trevino v. Ortega, 969 S.W.2d 950 (Tex. 1998); Silvestri v. General Motors Corp., 271 F.3d 583 (4th Cir. 2001); E*Trade Securities LLC et al. v. Deutsche Bank AG et al., 2005 U.S. Dist. LEXIS 3021 (D. Minn. Feb. 17, 2005). In determining whether there is a preservation obligation, courts will consider the totality of the circumstances using either an objective or subjective test: did the party actually anticipate litigation, or would a reasonable person in the party's position anticipate litigation? Trevino, 969 S.W.2d at 956; Madden v. Wyeth, 2003 U.S. Dist. LEXIS 6427 (N.D. Tex. Apr. 16, 2003).

If a party has knowledge of an incident that is likely to give rise to litigation, courts recognize the duty to preserve evidence, even though no complaint has been filed. Howell v. Maytag, 168 F.R.D. 502 (M.D. Pa. 1996); Kronisch v. United States, 150 F.3d 112 (2d Cir. 1998). One court recently held that a party need not show direct evidence of willful destruction of pre-litigation evidence to support a finding that an adversary engaged in "bad faith." Rather, bad faith can be implied by a party's behavior, for example: (1) a party's decision to selectively preserve some evidence while failing to retain other evidence; or (2) a party's use of the same type of evidence as the missing evidence to its advantage in prior instances. E*Trade Securities LLC et al., 2005 U.S. Dist. LEXIS 3021 at 14. Further, once a party receives a demand letter, a lawsuit, a subpoena or similar legal process, the duty to preserve attaches. McLain v. Taco Bell Corp., 527 S.E.2d 712 (N.C. Ct. App. 2000); Abramowitz v. Inta-Boro Acres, Inc., 1999 WL 1288942 (E.D.N.Y. 1999). The filing of an Equal Employment Opportunity Commission charge clearly gives rise to an anticipation of litigation. Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003).

B. Preservation Letters

Even before litigation begins, attorneys increasingly are sending "preservation letters" to the potential adversaries requesting that they preserve certain information from destruction. While such a letter alone, without an accompanying court order, does not create a legal duty to preserve evidence, the destruction of evidence after the receipt of such a letter may suggest an intentional spoliation of evidence. Wiginton v. CB Richard Ellis, Inc., 2003 WL 22439865 (N.D. Ill. 2003). Plaintiffs' attorneys often will use the preservation letter and any response to obtain a court order requiring preservation. Newby v. Enron Corp., 302 F.3d 295 (5th Cir. 2002); Wiginton, 2003 WL 22439865.

In Metropolitan Opera Ass'n v. Local 100, 212 F.R.D. 178 (S.D.N.Y. 2003), sanctions were imposed because defense counsel failed to give "adequate" instructions ". . . (on) overall discovery obligations," including "what constitutes a document, failed to implement a systematic procedure for document production or for retention of documents, including electronic documents, and inappropriately delegated 'document production to a layperson' who was unaware that 'document' included computer files and e-mail."

III. "Spoliation" of Evidence

A. Be Cautious

"Spoliation" is 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." West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir. 1999). Spoliation is a concept that, while relatively uncommon prior to e-discovery, is very common in that context.[1] Spoliation can occur intentionally or negligently. Landmark Legal Foundation v. EPA, 272 F. Supp. 2d 70 (D.D.C. 2003); Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 113 (2d Cir. 2002).

Proof of intent is not required to support a spoliation finding by a court. Even suspicious circumstances can lead to a finding of spoliation. Kucala Enterprises v. Auto Wax Co., 56 Fed. R. Serv. 3d (Callaghan) 487 (N.D. Ill. 2003). The Kucala case provides a good example of the "suspicious circumstances" rationale in spoliation of evidence by the plaintiff. Pursuant to a court ordered inspection of the plaintiff's laptop computer, the defendant's expert discovered a software program called "Evidence Eliminator" had been used to delete files from the laptop's hard drive. The "suspicious circumstances" of a plaintiff using a file-wiping software led the court to sanction the plaintiff for spoliation of evidence.

In Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99 (2d Cir. 2002), the court noted that a party's failure to retain an expert to retrieve electronic evidence could establish spoliation based on negligence once it was determined that the client did not have the resources in-house to retrieve the evidence from a computer.

Proposed Federal Rule 37(f) would provide a limited "safe harbor" for the loss of information due to the "routine operation of the party's electronic information system if the party also took reasonable steps to preserve the information after it knew or should have known the information was discoverable in the action." However, this proposed rule would not give much comfort to parties failing to provide evidence, since the facts necessary to establish the "safe harbor" would create a heavy burden, and the hard-won protection would be lost if "a court order requiring presentation of electronically stored information is violated."

B. Consequences of Spoliation

What are the implications of engaging in spoliation of evidence?

Courts have several options, none good for the spoliator. Depending on the degree of culpability, courts frequently punish parties for spoliation of evidence by imposing financial sanctions, including fines and/or an award of attorneys' fees and costs. Mathias v. Jacobs, 197 F.R.D. 29 (S.D.N.Y. 2000); partially vacated on other grounds, 167 F. Supp. 2d 606 (S.D.N.Y. 2001). Another common sanction, particularly where the evidence has been deleted and cannot be restored, is the negative implication inference. i.e., that the "lost" evidence would have adversely affected the spoliator, or supported the adversary's position. Townsend v. American Insulated Panel Co., 174 F.R.D. 1 (D. Mass. 1997). Other sanctions include the striking of defensive pleadings or the dismissal of claims; and suppression of evidence. Kucala Enterprises v. Auto Wax Co., 56 Fed. R. Serv. 3d (Callaghan) 487 (N.D. Ill. 2003); United States v. Phillip Morris USA, Inc., 327 F. Supp. 2d 21 (D.D.C. 2004) (precluding witnesses that had violated a document retention policy from testifying at trial). A few states even have recognized an independent cause of action for negligent or intentional spoliation: Alaska, California, Florida, New Mexico, New Jersey and Ohio. See Trevino v. Ortega, 969 S.W.2d 950, 951 n.3 (Tex. 1998).

In a recent District Court of New Jersey case, the court ordered sanctions, including an adverse inference charge against a defendant who did not institute a "litigation hold" regarding email. The defendant lacked an appropriate electronic document retention policy, including an "off switch" on automatic files destruction when litigation was anticipated, until well after the case was filed. The defendant's e-mail program "allowed emails to be deleted, or at least to become inaccessible, on a rolling basis." The court concluded the defendant "willfully blinded itself" to the need for email production and therefore, failed to prevent its destruction. In addition to equitable relief, the court ordered the defendant to pay $566,839.97 in fees and costs.

Relying on Schmid v. Milwaukee Electric Tool Corp., 13 F.3d 76 (3d Cir. 1994), and Brewer v. Quaker State Oil Refining Corp., 72 F.3d 326 (3d Cir. 1995), the court found that four essential factors must be reviewed before imposing a spoliation adverse inference charge:

First, it is essential that the evidence in question be within the party's control. Second, it must appear that there has been actual suppression or withholding of evidence. Third, the evidence destroyed or withheld was relevant to claims or defenses. And fourth, it was reasonably foreseeable that the evidence would later be discoverable.

C. Spoliation in the Ordinary Course of Business

The reuse of back-up tapes or deletion of emails, which occurs in the ordinary course of business, may lead to problems with spoliation. If a company ordinarily reuses back-up tapes, and thus eliminates information previously stored on them, that practice should be suspended during litigation. See Applied Telematics v. Sprint Communs. Co., L.P., 1996 U.S. Dist. LEXIS 14053 (E.D. Pa. Sept. 17, 1996). Failure to do so may result in the financial sanctions or the negative inference discussed above.

D. What To Do if Your Opponent "Spoliates"

Although less common among plaintiffs in employment cases, there are situations where defendants are able to level accusations of spoliation against former employees, who sometimes alter or destroy computer records, particularly in anticipation of termination. It is not at all uncommon to find an ex-employee's work-issue computer completely devoid of files, and relevant information is stored on a home computer is particularly susceptible to spoliation. For example, in Anderson v. Crossroads Capital Partners, L.L.C. et al., 2004 WL 256512 (D. Minn. 2004), a case involving allegations of sexual harassment and retaliation, the defendant sought the plaintiff's home computer because it allegedly contained a document outlining the alleged harasser's behavior. After obtaining a court order to search the computer, it was discovered that the hard drive contained a data wiping software application. Although the plaintiff claimed that she never used the software to delete evidence, the defendants sought to have the case dismissed. The court denied the motion but held that the plaintiff's "exceedingly tedious and disingenuous claim of naiveté … defies the bounds of reason" and warranted an adverse inference charge against the plaintiff at trial.

What can be done to prevent spoliation? As is often the case in employment matters, the answer is to take immediate proactive measures. For example, if litigation is anticipated, it may be prudent to send the opposing party a preservation letter, or in some cases, obtain a pre-suit preservation order [for an example, see Landmark Legal Foundation v. EPA, 272 F. Supp. 2d 70 (D.D.C. 2003)].

When a plaintiff has destroyed electronic information, the same sanctions are available to defense counsel, depending upon the plaintiff's degree of culpability. Since former employees often object to discovery of information that may be on a private computer, it may be advisable to ask the court to appoint a special master or a forensic computer expert to review the information and determine whether it is relevant and discoverable. See In re Triton Energy Ltd., 2002 U.S. Dist. LEXIS 4326 (E.D. Tex. Mar. 7, 2002). Establishing that a former employee has destroyed electronic information may provide the basis for the appointment of a forensic computer expert, or even the employer's own expert, to reconstruct the destroyed evidence at the plaintiff's expense. Id.; Mathias v. Jacobs, 197 F.R.D. 29 (S.D.N.Y. 2000) (holding that destruction and deletion of information from a PDA warrants reconstruction costs to moving party in non-compete matters); partially vacated on other grounds, 167 F. Supp. 2d 606 (S.D.N.Y. 2001).

IV. The Discovery and Admissibility of Electronic Evidence

In terms of general discoverability and relevancy, electronic evidence is no different than paper evidence. Rule 26 of the Federal Rules of Civil Procedure anticipates the production of e-discovery as part of "all documents, data compilations and tangible things that are in the possession, custody or control of the party and that the disclosing party may use to support its claims or defenses . . ." Fed. R. Civ. P. 26(a)(1)(b). New Jersey specifically instructs counsel to discuss such discovery very early in the life of a case. N.J. Local Fed. R. 26.1(d).

A. Specific Inclusion in Procedural Rules

Rule 34 has been amended specifically to encompass electronically stored data: "Any party may serve on any other party a request to produce . . . other data compilations from which information can be obtained, translated, if necessary, by the respondent through detection devices into reasonably usable form." Fed. R. Civ. P. 34.

B. Objections to Production of Electronically Stored Information

More important than the basis for asking for e-discovery is a company's basis for objecting to the production of it. The following grounds have supported objections to producing electronically stored information:

1. Overbroad/Unduly Burdensome

Federal courts regularly sustain objections to the typically overbroad production requests from plaintiffs' attorneys for electronic information. Under Fed. R. Civ. P. 26(b)(2), much of the information requested by plaintiffs' attorneys may be unreasonable as cumulative, duplicative, or obtainable from some other source. Moreover, this information is often expensive to produce and unlikely to lead to the discovery of admissible evidence, particularly in employment cases. See Wright v. AmSouth Bankcorp., 320 F.3d 1198 (11th Cir. 2003); Fennell v. First Step Designs, 83 F.3d 526 (1st Cir. 1996); Van Westrienen v. Americontinental Collection Corp., 189 F.R.D. 440 (D. Or. 1999); Symantec Corp. v. McAfee Assocs., 1998 U.S. Dist. LEXIS 22591 (N.D. Cal. Aug. 13, 1998). More limited e-discovery requests, such as a request for the defendant's "computer list files screen," are more likely to be granted in a Title VII case. See Momah v. Albert Einstein Medical Ctr., 164 F.R.D. 412 (E.D. Pa. 1996).

2. Privilege

An important objection in responding to any e-discovery request is that privileged documents may be located within the vast inventory of electronic data requested by the plaintiff. The party asserting privilege has the burden to establish it, as well as the likelihood that the privileged information is located within the scope of information sought by the discovery request. For example, in Baptiste v. Cushman & Wakefield, Inc., 2004 U.S. Dist. LEXIS 2579 (S.D.N.Y. Feb 20, 2004), an employment discrimination case, the plaintiff claimed that an email containing legal advice concerning her was anonymously left on her desk. The plaintiff argued that any privilege attendant to the email was waived. The defendant argued that the document was privileged, as it was not produced by the defendant during discovery and was identified in the defendant's privilege log. The court held that portions of the document were "clearly conveying information and advice given" by outside counsel, but further held that one paragraph of the email was not protected because it discussed the defendant's impressions and frustrations regarding the plaintiff's job performance. The court ordered the plaintiff to return the original document and ordered the defendant to produce a redacted version.

The risk that a privileged document inadvertently may be produced is greatest when a large amount of information has been requested and a "mirror image" copy of a disc is made. To avoid this hazard, the defendant should ask the court to restrict forensic examination of the disc to certain parts and to prohibit the examination of any privileged documents. A request for the appointment of a master to review claims of privilege also may be advisable. See Playboy Enterprises v. Welles, 60 F. Supp. 2d 1050 (S.D. Cal. 1999).

The cost of reviewing all information requested for privilege can be an important consideration. In Rowe Entertainment, Inc. v. William Morris Agency, Inc., 205 F.R.D. 421 (S.D.N.Y. 2002), the court found that the cost of producing thousands of emails should be shifted to the plaintiff, since, among other concerns, the large scale production of the emails would necessitate the expenditure of funds by the defendant to ensure that no privileged documents were disclosed. See also Murphy Oil USA, Inc. v. Fluor Daniel, Inc., 52 Fed. R. Serv. 3d (Callaghan) 168 (E.D. La. 2002).

Another important objection to the production of electronic data is the anticipation of litigation privilege. The same "triggering events" that create the duty to preserve information also can create the privilege of protecting that information from disclosure. Trevino v. Ortega, 969 S.W.2d 950, 956 (Tex. 1998).

3. Effort Does Not Support Potential Return

There are many evidentiary objections that can be made to information contained in electronic discovery, such as authentication, hearsay, and the best-evidence rules. While admissibility does not necessarily determine discoverability, such objections may be useful in trimming broad electronic discovery "fishing expeditions." Convincing the court of the plaintiff's inability to prove authenticity or defeat hearsay objections may lead to a limitation on e-discovery simply because it will not be worth the effort and substantial cost. For example, in St. Clair v. Johnny's Oyster & Shrimp, Inc., 76 F. Supp. 2d 773 (S.D. Tex. 1999), the court noted the lack of foundation as an important basis for excluding information obtained from the internet.

Do not assume that the business records exception of Federal Rule of Evidence 803(6) always makes employer's stored electronic information admissible. See, e.g., New York v. Microsoft Corp., 2002 U.S. Dist. LEXIS 7683 (D.D.C. Apr. 12, 2002); United States v. Ferber, 966 F. Supp. 90 (D. Mass. 1997).

4. Same Information Exists in Other Forms

Courts are willing to consider the argument that, rather than enduring the time consuming process and expense of copying electronic discovery and reviewing it, paper documents containing the same information may exist and will be more suitable for production. The company generally should require the plaintiff to prove that the electronic data is relevant evidence in the case and that it cannot be produced or obtained by other means. For example, in Fennell v. First Step Designs, 83 F.3d 526 (1st Cir. 1996), the court denied a discharged employee's motion to permit discovery of the contents of his employer's hard drive, determining the plaintiff had failed to demonstrate a "particularized" likelihood of discovering appropriate information. The court further found the information could be obtained through other means, and, most importantly, that any alleged benefit was outweighed by the substantial risks and costs of the process, including exposure of confidential information that was proprietary or subject to the attorney-client privilege. See also Bethea v. Comcast, 218 F.R.D. 328 (D.D.C. 2003) (court refused to order computer inspection without cause).

V. Shifting the Cost of Producing E-Discovery

One of the biggest factors to consider in e-discovery is the cost of producing it, particularly when the information must be reconstructed or obtained through the use of forensic computer experts. While some forensic computer experts charge a flat rate, most charge between $150 to $350 per hour. Although the production of e-discovery can be done through in-house means, there are several drawbacks to this. First, employee time is not "free," and the day-to-day demands on the MIS department are often considerable. Second, there may be allegations of tampering or corruption of electronic information.

A. Who Bears the Cost

When the time comes to produce e-discovery, the big question is who bears the cost. There are a number of cases addressing this, with the dominant one involving employment discrimination.

(a) Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003)

Laura Zubulake filed a gender discrimination and retaliation lawsuit after she was not promoted and when her new supervisor took actions against her that she claimed were retaliatory. In discovery, she requested the production of "all documents concerning any communication by or between UBS employees concerning plaintiff." The production request sought documents including "without limitation, electronic or computerized data compilations."

UBS responded by producing 350 pages of documents which included 100 pages of emails from the firm's computer system. The plaintiff knew the defendant had not produced all the emails related to her case because she had saved and printed a number of the missing emails herself. UBS asserted that it could not obtain all emails without retrieving them from the company's back-up tape and optical disc storage from the three years prior to Zubulake's employment at a cost of approximately $175,000.

Ultimately, the court was forced to address who should bear the cost of recreating the emails, and it devised a three-step approach to determine whether cost-shifting is appropriate. First, the court said that if the materials sought are "accessible," such as the readily available optical discs, the responding party bears the cost of production absent undue burden or expense warranting protection. In Zubulake, the court found that the use of a software system called "Tumbleweed" would allow the company to locate emails relating to the plaintiff at a reasonable cost. Second, if the materials sought are inaccessible, such as emails retrievable only from warehoused back-up tapes or through forensic means, the court could consider cost-shifting and undertake a factual inquiry to identify what type of information is likely to reside in any inaccessible media. If this factual inquiry is necessary, the third step of the analysis takes place, with the court considering seven factors:

1. Is the request specifically tailored to discover relevant information?

2. How does the cost of production compare to the amount in controversy?

3. What are the relative positions of the parties in terms of resources?

4. Is the information available from other sources?

5. Who is best able to control costs and has an incentive to do so?

6. Are the issues in discovery key to the issues at stake in the litigation?

7. What are the relative benefits to the parties of obtaining the data?

In a subsequent opinion, the Zubulake court determined that some cost-shifting to the plaintiff was appropriate, but that the producing party should shoulder the burden of the cost. Zubulake v. UBS Warburg LLC, 216 F.R.D. 280 (S.D.N.Y. 2003). Other courts have utilized the Zubulake cost-shifting analysis. See e.g. OpenTV v. Liberate Techs., 219 F.R.D. 474 (N.D. Cal. 2003); Multitechnology Servs. v. Verizon Southwest, 2004 WL 1553480 (N.D. Tex. 2004).

Although Zubulake did not address the cost of outside forensic experts,[2] it is likely that a defendant will bear this cost, particularly where the defendant's failure to preserve information resulted in the need for forensic reconstruction. As in this case, the sheer volume of email can compound the inherently significant expense to the party with the burden of locating, producing, and reviewing it for relevancy or privilege.

(b) Rowe Entertainment, Inc. v. William Morris Agency, Inc., 205 F.R.D. 421 (S.D.N.Y. 2002)

Another instructive case on email production is Rowe Entertainment, Inc., et al. v. William Morris Agency, Inc., 205 F.R.D. 421 (S.D.N.Y. 2002). In Rowe, concert promoters sued booking agencies for allegedly freezing them out of the business. The promoters sought the production of all emails between the 34 defendant agencies and their employees relating to the selection of concert promoters. Most of the emails would have to be retrieved from back-up tapes and laptop computer hard drives. Once the emails were obtained, they would have to be reviewed for relevancy, catalogued, and ultimately reviewed for privilege before production. The overall cost would be in the millions for each defendant.

The defendants raised a number of objections, including burden, cost, and relevance. They also argued that most of the relevant information was contained in other communications such as phone conversations. The court issued a protocol effectively allocating to the plaintiff the cost for forensic experts to isolate and copy the emails, and to the defendants the cost of the review of privilege and relevancy.

There are a number of cases that analyze the discovery costs for complying with Rules 26 and 34. Examples are Sattar v. Motorola, Inc., 138 F.3d 1164 (7th Cir. 1998) (allowing the defendant to download emails onto discs as opposed to printing them out on paper or, in the alternative, requiring plaintiff to bear burden of half cost of printing documents); Wiginton v. CB Richard Ellis, Inc., 2004 WL 1895122 (N.D. Ill. 2004) (shifting 75% of e-discovery costs to the plaintiffs in a class action sexual harassment suit).

[1] For a detailed analysis of cases where sanctions for spoliation have been granted, see Electronic Discovery Sanctions in the Twenty-First Century, 11 Mich. Telecomm. Tech L. Rev. 71 (Fall 2004). Of note, the article was co-authored by the Honorable Shira A. Scheindlin, U.S.D.J., who also authored the widely cited Zubulake v. UBS Warburg LLC opinions.

[2] It should be noted that the Zubulake saga is ongoing. On July 20, 2004, the court entered sanctions against the defendant, including payment for the plaintiff's need to re-depose witnesses and for the plaintiff's costs in moving for sanctions related to the destruction of evidence. In addition, the court noted that an adverse inference jury charge against the defendant would be allowed at trial. On February 5, 2005, the court denied the defendant's motion to assert an additional affirmative defense based on after-required evidence. On March 16, 2005, the court ruled on a number of motions in limine.