E-Discovery Governance & Litigation Response Plans
An Ounce of Prevention is Worth a Pound of Cure
A litigating party expects to resolve its disputes on the merits of its claims or defenses, whether it is by settlement, dispositive motion, or trial. However, a party’s failure to preserve information (especially electronically stored information (ESI)) may preclude a merit-based resolution—no matter how compelling the merits may be. Therefore, unquestionably, a party must recognize when it has a duty to preserve information and take reasonable good faith efforts to do so. News abounds, however, with organizations failing to abide by their preservation duties. The reasons for those failures are many. Some simply did not appreciate their obligations. Others considered implementing proactive measures, but were caught off guard and made reactive mistakes. Most unfortunate results could have been avoided if the organizations had implemented proactive e-discovery governance and a litigation response plan. As Benjamin Franklin once stated: “An ounce of prevention is worth a pound of cure.” This is particularly true when it comes to ediscovery.
What Triggers A Party’s Preservation Duty And Where Does It Come From?
Generally, a party must preserve information when litigation (or another adversarial proceeding, such as an administrative proceeding or arbitration) is "reasonably anticipated,” i.e., at that time the party should know that information it has within its possession, custody, or control might be relevant to an anticipated legal dispute. The duty arises whether a party is the target or initiator of the action or, even as a third-party, when it receives notice that it may have discoverable information. Although there are many statutes, regulations, and rules that require certain parties, particularly organizations, to preserve information (regardless of any anticipation of litigation), the general duty stems from a common-law goal to avoid spoliation of evidence, which not-so-coincidently supports the normative view of allowing parties to achieve merits-based resolutions to their disputes.
When Does A Party "Reasonably Anticipate" Litigation?
Undeniably, the analysis is inherently case-specific and fact-intensive. According to The Sedona Conference, an influential, charitable institute dedicated to advancing antitrust, complex litigation, and intellectual property law and policy:
Reasonable anticipation of litigation arises when a party is on notice of a credible threat it will become involved in litigation or anticipates taking action to initiate litigation. Also, the determination of whether litigation is reasonably anticipated should be based on good faith, reasonableness, a reasonable investigation and an evaluation of the relevant facts and circumstances.
The key concept and a party’s guiding light, of course, is reasonableness. The receipt of a legitimate demand letter or preservation notice in most instances would create a reasonable anticipation of litigation. Certainly, being served with a summons and complaint suffices. Alternatively, if a party is the initiator, reasonable anticipation arises when there is a recognition that the party has been wronged and that litigation is likely to ensue. Reasonable anticipation, however, generally requires more than a mere possibility of litigation or general statement of discontent by another party. Nevertheless, a mere telephone call may suffice depending on its content.
As a result, a party should proactively implement policies and procedures that will allow it to obtain all available information to analyze whether litigation is reasonably anticipated. Conducting a half-hearted analysis likely will not produce results sufficient enough to make a reasoned, reasonable, and, ultimately, defensible judgment. Likewise, conducting an analysis in a reactive vacuum has similar risks. In other words, failing to conduct an appropriate analysis based on the relevant facts may well be viewed as unreasonable. Furthermore, as notice to and knowledge of a party’s employees may be imputed to a party, the party’s policies and procedures should include an appropriate reporting mechanism (and training) to allow the party to know when to conduct the baseline preservation analysis in the first place. Again, vetting these issues and putting policies and procedures in place before there is a need to conduct the actual analysis is best and will save the party unnecessary expenses that would result from the alternative, after-the-fact approach.
A word of caution: The concept of “reasonable anticipation” is closely related to specific concepts engrained in the attorney work-product doctrine, which may serve to shield information from discovery. According to the work-product doctrine, information prepared by counsel “in anticipation of litigation” generally is not discoverable. Therefore, for example, if a party asserts that it did not reasonably anticipate litigation prior to September 21st for the purposes of determining when the party’s preservation duty arose, it will be very difficult to assert reasonably that materials created by its counsel prior to that date were “in anticipation of litigation” and covered by the work-product doctrine. The converse also reveals the potential pitfalls, e.g., if a party asserts that its counsel created a summary legal memorandum candidly analyzing the party’s claims and defenses (something that counsel and the party would not want to disclose) and that the memorandum was created “in anticipation of litigation” on September 21st, the party may run into preservation problems if it failed to preserve information existing on that date. A party should take great care to ensure that those two concepts and assertions are reconcilable. Otherwise, the party may be stuck with a “Morton’s Fork” and have to choose between disclosing counsel’s work product or defending against a spoliation claim.
What Is The Scope Of The Duty?
A party need not preserve all of its information; rather, a party must take reasonable and necessary steps to preserve information that is relevant to the dispute. Again, the critical concept is reasonableness; however, what is reasonable in one case may not be reasonable in another. Unquestionably, a party must quickly assess and understand the merits of the dispute to determine what information may be relevant to the parties’ claims or defenses (or more broadly, the subject matter of the dispute). Also, when ascertaining the scope of the duty in a particular case, it is important to recognize that there are two tiers of relevance—particularly when litigating in federal court. Generally, an opposing party is entitled to the first tier (information relevant to “claims or defenses”); however, with “good cause” shown, an opposing party may obtain discovery into the broader “subject matter” of the litigation. As such, subject to the limitations set forth below, a party should preserve information that would fall into the second tier—even though it may never be produced. Also, an opposing party may amend or seek leave to amend its claims or defenses during the litigation, which, if allowed, may broaden what a party may need to preserve under tier one. Accordingly, a party likely is best served to focus its preservation efforts on the broader second tier of relevancy from the outset of the dispute—subject to the limitations on the scope of discovery set forth below and subject to negotiating the scope of preservation with the opposing party, which ultimately may be narrower than the full subject matter of the litigation. Regardless of the tier, the assessment also necessarily requires an understanding of the temporal scope of the dispute so that a party may define the time period governing its preservation efforts.
Furthermore, and again subject to the limitations set forth below, a party should preserve relevant information in its “possession, custody, or control.” This requires a party to understand where and how it stores its information—i.e., how it possesses or has custody of the information—as well as who internally has access to that information and who uses it. For many parties, particularly large organizations, this may present a daunting task, which is best tackled wellbefore the need to understand the information arises. Doing so will save a party considerable time and expense. The party’s obligations, however, do not stop there as "control” connotes the legal right to obtain the information on demand and applies to information that, by definition, is not in a party’s possession or custody. As such, a party must know who or what other entities have actual possession or custody of the party’s information and notify that person or entity to ensure relevant information is preserved as well. Indeed, if a third-party has possession or custody of a party’s information (e.g., a warehouse, or third-party storage facility), a party is well served to include specific terms concerning the third-party’s preservation duty in the agreement or writing governing the party’s relationship with that third-party.
Are There Any Reasonable Limitations?
The concept of relevance in litigation is relatively broad, and the rules allow discovery into any non-privileged information that is reasonably calculated to lead to the discovery of admissible evidence—even if that information itself is not admissible as evidence. Courts, however, may limit discovery (and the scope of the duty to preserve information) in a number of ways.
First, in federal court, all discovery demands—whether seeking tangible documents or ESI—are subject to the express limitations set forth in Federal Rule 26(b)(2)(C), which may limit a party obtaining discovery when (i) the discovery sought is unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive, (ii) the party seeking discovery has had ample opportunity to obtain the information by discovery in the action; or (iii) the burden or expense of the proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the parties’ resources, the importance of the issues at stake in the action, and the importance of the discovery in resolving the issues. The last prong of Rule 26(b)(2)(C) encapsulates the concept of “proportionality” in discovery and has become particularly applicable to dealing with e-discovery—considering the potential cost associated with locating, preserving, processing, and producing ESI.
Second, Federal Rule 26(b)(2)(B) contains additional limitations concerning ESI in particular. Specifically, a party need not provide discovery of ESI from sources that the organization identifies as not reasonably accessible because of undue burden or cost. When identifying such a source, a party should, to the extent possible, provide the opposing party with enough detail to enable the opposing party to evaluate the alleged burdens and costs of providing the requested discovery and the likelihood of finding responsive information on the identified sources. A common example of such a source is a party’s legacy data, as a party may no longer have the software necessary to read the information on that source. That does not mean that a party need not preserve the information once it identifies it as being not reasonably accessible. That is because, once identified, the organization bears the burden to show that the information is not reasonably accessible because of undue burden or cost if challenged by an opposing party or if the party seeks a protective order. If a party does not meet that burden, it must produce the information. Even meeting the burden does not mean that a party need not preserve the information. That is because—even if the burden is met—a court may still order discovery from such sources if the requesting party shows “good cause” for obtaining the discovery. When ordering production of information that is not reasonably accessible, however, a court must consider the limitations set forth in Rule 26(b)(2)(C). As such, even if a partyidentifies and proves that there exists information that is not reasonably accessible, a party may still have to produce that information; however, in such a circumstance, a party may ask to shift some or all of the costs of production to the opposing party.
Notably, when seeking limitations under Federal Rule 26(b)(2)(B) or Federal Rule 26(b)(2)(C), a party does not satisfy its burden with bald assertions or vague claims.1 Rather, a party most likely will be required to produce evidentiary support supporting the requested limitations.2
Should A Party, Inside Counsel, Or Outside Counsel Unilaterally Determine The Scope Of The Party’s Preservation Duty?
Although a party, with the assistance of counsel, should analyze and determine the scope of preservation it believes is reasonable in each case, it is advisable for a party to try to attempt to reach agreement with its adversary as to the scope of the preservation duty and memorialize the agreement, if possible. Making unilateral decisions concerning the scope of preservation creates a risk of sanctions if relevant information is not preserved. If the litigating parties do not agree on the scope of preservation, a party seeking limitations to its preservation duty should consider seeking court intervention.3 One way that a party can insulate itself from the risk of sanction is to send a “sunshine letter” to the opposing party, notifying the adversary what steps the party took to satisfy its preservation duty, identifying, in particular, those sources the party deems not reasonably accessible. These letters could include setting a date certain by which a party will no longer preserve specific information (because of undue burden or cost), suggesting that, if the opposing party does not agree, that party should seek a reservation order from the court. Of course, a court may not agree that the party’s views about undue burden or cost, or whether the assumptions in the “sunshine letter” are reasonable, and thus there is risk associated with sending such letters, too. Whether and how to draft such “sunshine letters” are, of course, fact-intensive questions, and must be weighed on a case-by-case basis.
Should A Party Suspend Its Document Retention/Destruction Policies And Preserve Back-Up Or Archival Data?
Once a party reasonably anticipates litigation, it should suspend its routine document retention/destruction policies that would delete relevant information. A party may also have to preserve back-up or archival data depending on the circumstances—even if such data is identified as not reasonably accessible. This is especially true if the back-up data is used for information retrieval purposes. That does not mean, however, that those back-up or archival data need be restored and produced. Rather, a party should secure the information and confer with the opposing party to determine what to do with the back-up or archival data, if anything. Also, if appropriate, a party may consider notifying the opposing party of the party’s intent to continue ongoing destruction of back-up or archival data in a "sunshine letter,” as discussed above.
Are There Any Safe Harbors?
The Federal Rules of Civil Procedure do contain a “safe harbor” for ESI that is lost as a result of a routine, goodfaith operation of an electronic information system (prior to the triggering of the duty to preserve information). This safe harbor relates to the changes computers make to ESI based on their normal operations or to automatic deletion programs that a party may use prior to its preservation duty being triggered. In general, the safe harbor is swallowed up by an exception, namely that a party cannot allow routine operations to overwrite information once a preservation duty arises.4 If suspending routine processes will interfere with business operations or if there is an issue concerning the necessary, continued use of computer systems deleting relevant information, a party is best served by conferring with the opposing party to come to an agreement on how to handle the situation.
Who Is Responsible For Satisfying A Party’s Preservation Duty?
Although this depends on how a party is structured, most often, the party, its inside counsel, and its outside counsel are responsible for preservation of information. In other words, “it takes a village.” If all responsible players are not on the same page as to the scope of the duty, conflicts may arise. Among other things, Federal Rule 26(g)(1) requires counsel of record (in a litigation) to sign each discovery response and, in doing so, counsel certifies that—to the best of counsel’s knowledge, information, and belief “formed after a reasonable inquiry”— that (A) each initial and pretrial disclosure (under Rule 26(a)(1) and (3)) is complete and correct and (B) each response or objection is (i) consistent with the Federal Rules and warranted by existing law or by a non-frivolous argument for extending, modifying, or reversing existing law, or for establishing new law; (ii) not interposed for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation; and (iii) neitherunreasonable nor unduly burdensome or expensive, considering the needs of the case, prior discovery in the case, the amount in controversy, and the importance of the issues at stake in the action. The third prong of Rule 26(g)(1) actually dovetails with the proportionality aspects of Rule 26(b)(2)(C). Also, the certification concerning objections and responses even applies to discovery requests being propounded by a party’s counsel. Overall, Rule 26(g)(1) imposes on counsel the duty to be reasonable in propounding and responding to discovery. Rightly or wrongly, courts have relied on Rule 26(g)(1) to issue sanctions when a party does not fulfill a preservation duty.5 Courts have sanctioned counsel personally for blind-faith acceptance of a party’s representations that its discovery responses were complete, where common sense would dictate nonacceptance.6 Courts also have found that a party has an obligation to supervise its outside lawyers and inside counsel cannot blindly rely on outside counsel’s advice.7 Courts have even sanctioned parties for not appropriately staffing their legal team to deal with discovery.8 Corporate officers have been sanctioned personally for their role in litigation misconduct.9 Accordingly, best practices dictate that a party and its counsel work together and carefully and collaboratively address the party’s preservation obligations.
What Types Of Sanctions Are There For Failing To Abide By The Duty?
Courts have broad discretion in issuing sanctions for not abiding a party’s preservation duty. Sanctions may include (and have included), among other things:
- extensive monetary fines and payment of attorneys’ fees and other e-discovery costs;
- striking evidence, witnesses, and arguments;
- permissive and mandatory adverse inferences;
- permissive and mandatory adverse presumptions;
- reversing the burden of proof; and
- entry of judgment.
These sanctions underscore the importance of carefully addressing a party’s preservation obligations.
How Should A Party Satisfy Its Preservation Duty?
A party may satisfy its preservation duty by implementing and following a legally defensible “legal hold” as soon as the party reasonably anticipates litigation. Some courts conclude that failure to issue a timely, written litigation hold “amounts to gross negligence.”10 Other courts focus more on the overall reasonableness of a party’s preservation efforts, including whether a party issued a written litigation hold.11 As such, in appropriate circumstances, it may be sufficient and reasonable not to send a written litigation hold. These critical determinations are extremely fact-intensive and any decision concerning the form or method of litigation hold should be well-reasoned, documented, and based on the readily available information — as arrived at with the advice of counsel knowledgeable in e-discovery law and practice. The breadth of the parties’ preservation duties, including identifying who will implement and document a party’s efforts to satisfy them, will depend on the underlying circumstances of each case. What a court may deem reasonable to satisfy a party’s preservation duty in a $25,000 contract dispute will differ from what is reasonable in a nationwide wage-and-hour class action litigation.
A party should not wait until there is “an issue” before thinking long and hard about its preservation duty. Rather, a party puts itself in the best position to satisfy its preservation duty by proactively adopting sound ediscovery governance and a litigation response plan. Such a program will contain policies and procedures to assess when the duty has been triggered andwho will implement and document a party’s efforts to satisfy it. This will require a party to identify persons in the appropriate business units (legal, IT, records management, etc.) that will work closely with counsel responsible for ensuring that the party’s preservation obligations are met. The program will also identify where and how the party stores its information (particularly ESI) by giving the party — particularly larger organizations — a clear picture of its information management systems, who is responsible for maintaining those systems, who uses and stores information on those systems, and how information is stored and in what form. This will allow the preservation team to determine all of the custodial and non-custodial sources of information as well as those that should be identified as not reasonably accessible. For organizations with an active litigation profile, it may very well be best to select one counsel to act as “coordinating e-discovery counsel” so that multiple counsel need not recreate the wheel or take inconsistent positions concerning preservation and e-discovery. When separate counsel represent a party, there is a greater chance the party will take different positions with regard to e-discovery, including, for example, what is and what is not reasonably accessible. A coordinating e-discovery counsel that fully understands and handles a party’s e-discovery should actually reduce a party’s e-discovery costs. Adopting sound e-discovery governance and a litigation response plan will generate substantial savings by preventing the party from having to react too quickly, which will create unnecessary costs, and also guard against the risk of not reacting at all, which can cost the party in terms of sanctions, as well as costing the party its proverbial “day in court.”
1 See City of Seattle v. Prof’l Basketball Club, LLC, No. C07-1620MJP, 2008 WL 539809, at *3 (W.D. Wash. Feb. 25, 2008); Kelly v. Montgomery Lynch & Assocs., Inc., No. 1:07-cv-919, 2007 WL 4412572, at *2 (N.D. Ohio Dec. 13, 2007); U&I Corp. v. Advanced Med. Design, Inc., No. 8:06-CV-2041-T-17EAJ, 2007 WL 4181900, at *3 (M.D. Fla. Nov. 26, 2007).
2 See Sanbrook v. Office Depot, No. C 07-5938 RMW (PVT), 2009 WL 840019, at *2 (N.D. Cal. Mar. 30, 2009).
3 See Cason-Merenda v. Detroit Med. Ctr., No. 06-15601, 2008 WL 2714239, at *2-3 (E.D. Mich. July 7, 2008) (denying costsharing motion because party filed it after incurring the costs);Comm. Concerning Cmty. Improvement v. City of Medesto, No. CV-F-04-6121 LJO DLB, 2007 WL 4365584, at *5 (E.D. Cal. Dec. 11, 2007) (burdensomeness of discovery should be raised through motion for protective order), vacated on other grounds, 583 F.3d 690 (9th Cir. 2009).
4 See Wells v. Berger, Newmark & Fenchel, P.C., No. 7 C 3061, 2008 WL 4365972, at *6-7 (N.D. Ill. Mar. 28, 2008) (sanctions for allowing witness to continuing working on laptop for a year without preserving evidence).
5 See Cache La Poudre Feeds, LLC v. Land O’Lakes, Inc., 244 F.R.D. 614, 626-27 (D. Colo. 2007) (litigation hold not appropriate as defendant failed to follow up with key employees and monitor collection efforts by IT department); Fendi Adele S.R.L. v. Filene’s Basement, Inc., No. 06 Civ. 244RMBMHD, 2009 WL 855955 (S.D.N.Y. Mar. 24, 2009) (failing to locate and produce all responsive documents).
6 See Qualcomm, Inc. v. Broadcom Corp., No. 05cv1958-B (BLM), 2008 WL 66932 (S.D. Cal. Jan. 7, 2008) (counsel sanctioned for intentionally and recklessly failing to meet discovery obligations and for accepting company’s representations about completeness of discovery without question), vacated in part, No. 05CV1958-RMB (BLM), 2008 WL 638108 (S.D. Cal. Mar. 5, 2008) (permitting sanctioned counsel to use privileged attorney-client communications to defend their decision-making with respect to collection and production of ESI in order defend against initial findings of sanctionble attorney misconduct); R&R Sails Inc. v. Ins. Co. of the State of Pa., 251 F.R.D. 520, (S.D. Cal. 2008) (company and counsel jointly liable for failing to produce discovery); 1100 West, LLC v. Red Spot Paint & Varnish Co., No. 1:05-cv-1670-LJM-JMS, 2009 WL 1605118, at *35 (S.D. Ind. June 5, 2009) (counsel liable for failing to guide company to make appropriate disclosures).
7 See Bray & Gillepsie Mgmt. LLC v. Lexington Ins. Co., 259 F.R.D. 568, 588 (M.D. Fla. 2009),aff’d in part, quashed in part, No. 6:07-cv-0222-Orl-35KRS, 2009 WL 5606058 (M.D. Fla. Nov. 16, 2009).
8 See L.H. v. Schwarzenegger, No. CIV S-06-2042 LKK GGH, 2008 WL 2073958, at *2 (E.D. Cal. May 14, 2008).
9 See PML N. Am., LLC v. ACG Enters. of NC, Inc., No. 05-CV-70404, 2007 WL 4218971 (E.D. Mich. Nov. 29, 2007), amended in part by No. 05-CV--70404, 2008 WL 440995 (E.D. Mich. Feb. 14, 2008).
10 See e.g., Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC, 685 F. Supp. 2d 456, 488 (S.D.N.Y. 2010).
11 Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497, 524 (D.Md. 2010).