Stolen Laptops, Lost Data, But No Sanctions For Spoliation

Posted by Gregg Mayer on Monday, February 25th, 2008   

In a lawsuit in Texas, both sides claimed that the other side failed to preserve email that was relevant to the litigation. However, the judge in a Feb. 5, 2008 decision declined to order sanctions.

As brief background, Diabetes Center of America, Inc. (DCOA), a treatment center for persons with diabetes, is suing Healthpia America, Inc., a company that develops mobile healthcare devices, for breach of contract. As part of the litigation, both sides sought email.

First, DCOA alleged Healthpia should have backed-up email messages that were lost when two laptop computers were stolen. According to the court opinion, one laptop was stolen “from a friend’s car outside Kennedy Airport,” and the other laptop was stolen from an employee’s Healthpia office cubicle. Healthpia had a standard procedure of not backing up email from laptops. The court declined to order sanctions. The judge wrote:

Defendants may not have taken adequate steps to preserve emails through a back-up process, but Defendants followed the company’s standard procedures. If anything, there has been a showing of negligence derived from lax electronic document maintenance procedures.

But any “negligence” was not enough to warrant sanctions. Consequently, the judge denied DCOA’s request that Healthpia be sanctioned.

Next, Healthpia argued DCOA failed to preserve email that was contrary to DCOA’s position in the litigation. Healthpia later obtained the relevant email from third parties, but Healthpia argued there may be more email that it had not received. DCOA acknowledged that a junior lawyer was assigned to search through the databases for the appropriate email messages to give to Healthpia. The junior associate used “inadequate” search terms, the judge wrote, but neither the junior associate nor DCOA’s senior lawyer acted in bad faith. The judge wrote:

(A)t most, Plaintiff’s counsel may have been lax in that inadequate direction and oversight was given to the associate to guide her search for relevant and responsive emails. There is no evidence that he or the associate acted in bad faith.

As a result, the judge declined to order sanctions.

As an aside, in regard to the stolen laptops from Healthpia, it is worth noting that this is not a Rule 37 (“safe harbor” provision) ruling from the judge, but the underlying premise for the rule is important here. As you may know, Rule 37 provides:

Absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.

Here, stolen laptops do not equate losing data as part of a routine, good faith operation. However, the fact that Healthpia maintained a formal retention policy, and followed that policy, certainly was helpful – if not determinative – in precluding sanctions once those laptops were stolen and there was nowhere else to gather the email.

The case is Diabetes Centers of America, Inc. v. Healthpia America, Inc. It is filed in the southern district of Texas. Read more about the case and see the opinion at this blog.

Glossary For E-Discovery Terms

Posted by Gregg Mayer on Friday, February 22nd, 2008   

The Sedona Conference, a legal think tank, has released an updated glossary of terms related to e-Discovery. Here’s a sample entry:

Legal Hold: A legal hold is a communication issued as a result of current or reasonably anticipated litigation, audit, government investigation or other such matter that suspends the normal disposition or processing of records. Legal holds may encompass procedures affecting data that is accessible as well as data that is not reasonably accessible. The specific communication to business or IT organizations may also be called a “hold,” “preservation order,” “suspension order,” “freeze notice,” “hold order,” or “hold notice.”

The glossary is a helpful resource in maneuvering through e-Discovery terminology. Get the entire glossary here.

‘Smoking Gun’ May Be In Email

Posted by Gregg Mayer on Friday, February 22nd, 2008   

A federal judge in Wisconsin ruled a former county employee, who is suing alleging the county retaliated against him, may search databases of the county in pursuit of “unguarded statements” in email that confirms the county’s liability.

The judge’s ruling, which came last fall, ordered the county to permit the employee to search the archive system, splitting the cost 50-50.

The employee alleges the county eliminated his position for his having filed a false claims complaint alleging improper child support billing.

If there were retaliatory statements made by other county employees, the judge explained, then those employees were unlikely to admit them at depositions or freely say them again. Instead, if those statements were made, then they may be in email where there is often an electronic snapshot of intent.  The judge wrote:

[The county’s email archives are] are a potentially fecund source of relevant information that is not easily obtained from other sources. I say “potentially” because no one can say for sure what’s there without looking, but if defendants or their agents made any unguarded statements tending to show animus toward plaintiff, then they likely did so in their e-mails to each other. (The odds of any defendant in a civil lawsuit remembering and admitting to such statements while being deposed are low).

The case highlights the importance of email in litigation. Lawyers often come looking for the “smoking gun” email once a lawsuit is underway.  It may prove to be a critical source of evidence.

Read the opinion here posted by the E-Discovery Blog, with Lexis’s permission.

Be Ready For E-Discovery Before It Is Necessary

Posted by Gregg Mayer on Thursday, February 21st, 2008   

“Too many CIOs think of litigation as something that belongs to the legal department,” an attorney who heads the e-Discovery team at Arnold and Porter law firm recently told NetworkWorld. The attorney continued:

Litigation is something that belongs to the company, and whether the company is a plaintiff or defendant, the company as a whole must be able to meet document preservation and production obligations.

This brief, but helpful, article in NetworkWorld outlines a series of tips for CIOs to prepare for e-Discovery issues in the event of litigation. Here are a few of the tips:

1. Get in sync with legal and business leaders
2. Get rid of unneeded documents
3. Know where email is stored

Read the full article here.

Following The Trails Of Metadata

Posted by Gregg Mayer on Thursday, February 21st, 2008   

As discussed in an earlier post, metadata is the hidden stuff in electronically stored information (”ESI”), including email. Under the Federal Rules of Civil Procedure, metadata may have to be disclosed to the other side in litigation, although not always.

Once metadata is disclosed, lawyers often start looking for information to use.  Sometimes lawyers start perusing another party’s metadata even if it is unclear whether the metadata was intended to be disclosed.

A recent article on law.com nicely explores the different aspects - and troubles - of metadata:

Metadata, often described as “data about data,” is electronically stored information that generally is not visible from the face of a document that has been printed out, or as first seen on a computer screen. Embedded in the software, metadata gives information about the creation or modification of the document — information which often is mundane but at other times, can be quite significant and perhaps even privileged.

By “mining” the metadata in a document, someone may be able to identify the document’s author, changes made during various stages of its preparation, comments made by others who reviewed the document and other documents embedded within the document.

Read the full article here.

Unwrapping Zubulake - Part II

Posted by Gregg Mayer on Thursday, February 21st, 2008   

In Part I, we discussed the opening stages of the Zubulake e-Discovery opinions, including the court’s order that UBS restore a sampling of backup tapes to determine the extent of the costs involved in restoring all of the backup tapes. Now we continue with the court’s later opinions.

*Zubulake IV – October 22, 2003

While restoring the backup tapes, UBS and the employees discovered some backup tapes were “missing.” Moreover, some email was deleted even though UBS knew it should have preserved them.

Despite these troubling developments, the judge was still not ready to drop the hammer on UBS. Instead, the judge ordered that Laura Zubulake could redepose certain witnesses to learn more about the missing email and backup tapes. UBS had to pay for those depositions.

In addition, UBS was not yet slammed with any sanctions for spoliation of evidence. As explained by the judge:

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. The spoliation of evidence germane to proof of an issue at trial can support an inference that the evidence would have been unfavorable to the party responsible for its destruction.

Put another way, once a company is under a duty to preserve evidence, if the company fails to do so, it can be sanctioned.

In explaining the duty to preserve, the judge wrote: “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.”

This analysis involves two different boundaries: when did the duty to preserve start and what must be preserved. Implementing the process is known as a legal hold.
The judge said UBS had a duty to preserve the missing backup tapes. However, since it appeared the loss of the tapes was at best only negligent, the judge ruled she would not yet give an adverse inference jury instruction since Zubulake had not shown that the lost evidence would have supported her claims.

The additional depositions, though, were scheduled to learn about the apparent deletion of email. UBS was running out of time. The deleted email would prove costly.

*Zubulake V – July 20, 2004

Eight months later, the deleted email resulted in the judge ordering an adverse jury instruction. The reason: since UBS employees deliberately deleted the email, and there was no way to retrieve them, then an adverse instruction was the only way to level the playing field for Zubulake’s day in court.

“The proof is clear,” the judge wrote. “UBS personnel unquestionably deleted relevant e-mails from their computers…”  The judge continued:

At the end of the day … the duty to preserve and produce documents rests on the party. Once that duty is made clear to a party, either by court order or by instructions from counsel, that party is on notice of its obligations and acts at its own peril.

As a result, UBS was found to be a spoliator. To remedy the destruction of evidence, the judge ordered an adverse inference instruction, which read:

You have heard that UBS failed to produce some of the e-mails sent or received by UBS personnel in August and September 2001. Plaintiff has argued that this evidence was in defendants’ control and would have proven facts material to the matter in controversy.
 If you find that UBS could have produced this evidence, and that the evidence was within its control, and that the evidence would have been material in deciding facts in dispute in this case, you are permitted, but not required, to infer that the evidence would have been unfavorable to UBS.
 In deciding whether to draw this inference, you should consider whether the evidence not produced would merely have duplicated other evidence already before you. You may also consider whether you are satisfied that UBS’s failure to produce this information was reasonable. Again, any inference you decide to draw should be based on all of the facts and circumstances in this case.

The adverse jury instruction would make it nearly impossible for UBS to win.     

*Zubulake VI – March 16, 2005

This opinion tidied up what the jury could hear in terms of the prior court rulings, including the prior sanctioning of UBS for spoliation.

The judge ruled the jury would not hear any evidence regarding those prior decisions. Of course, the adverse inference instruction would still be given.

Other orders in this opinion also determined what evidence could be admitted, including preventing Zubulake’s attorney from calling UBS’s attorney to the stand to talk about the e-Discovery issues.

Conclusion

In the end, the jury awarded Zubulake a $29 million verdict in 2005.

As noted above, Zubulake’s precedent-setting rulings on e-Discovery are often cited in other e-Discovery court opinions.  Familiarity with the issues raised in the opinions helps understand future developments of e-Discovery law. 

Once You Have A Retention Policy, Enforce It!

Posted by Gregg Mayer on Wednesday, February 20th, 2008   

Beyond just having a document retention policy, CIOs must ensure that it is also enforced. As one article explains:

Be aware that enforcement can be a ticklish business. Studies have shown 10 percent of employees given an order to destroy documents in accordance with a DRP simply will not do so. Sometimes, they believe they will some day need the document for some reason or another. Some are just lazy. Others are naturally disinclined to obey orders. Whatever the reason, it will create headaches, so anticipate the problem as best you can. Periodically, you might wish to conduct audits to make sure the company’s deletion edicts have been followed.

With so much electronically stored information in the business world, CIOs must ensure employees are actually deleting files in line with the retention policy; this may prove a critical fact in future litigation.

Read the full article here.

Who Pays To Produce ESI?

Posted by Gregg Mayer on Wednesday, February 20th, 2008   

Electronically stored information (“ESI”), particularly old email, can be expensive to retrieve if you do not have an effective archiving system. Moreover, if you move email to backup tapes after you anticipate litigation, the costs could skyrocket.

Why? In litigation you often have to pay to produce your evidence and the other side has to pay to produce theirs.

One exception that has evolved with ESI involves the production of inaccessible information on backup tapes if – and this is a big if – the company could not reasonably anticipate the litigation before it moved the ESI to the backup tapes. Under these circumstances, you may be able to shift the cost to produce the ESI to the other side.

One way to avoid ever worrying about this risk is simply to have an efficient, searchable archive where you store all of your email without resorting to backup tapes. But if you do resort to backup tapes for old email, then cost-shifting may be possible, even if it is for only part of the costs.

An illustrative case for cost-shifting is Quinby v. WestLB, a federal employment discrimination case in New York.

In this case, the company wanted to shift the costs of restoring backup tapes for old email to the plaintiff. The company claimed the tapes were inaccessible and costly to restore. As noted above, backup tapes are generally considered “inaccessible,” so they do not have to be produced for litigation unless the other side shows good cause – or, unless the company reasonably anticipated the litigation for which the email is relevant prior to moving them to backup tapes.

In Quinby, the judge found the company could reasonably anticipate litigation for some email prior to moving them to back-up tapes. As explained by the judge:

(C)ost-shifting may be considered concerning the restoration and search of backup tapes because the process is burdensome and costly, the appropriateness of cost-shifting is less clear here because it appears that defendant converted the Former Employees’ e-mails into an inaccessible format after it should have anticipated this litigation.

It cost the company $226,266.60 to restore the backup tapes. In determining whether any of those costs should be shifted to the plaintiff, the judge walked through a series of factors – a legal test – to determine if any of the costs should be shifted. These factors are:

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 costs of production, compared to the amount in controversy;
4. The total costs 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

After reviewing those factors, the judge decided that the plaintiff – the employee suing – would have to pay 30 percent of the costs. The company had to bear the other 70 percent.

For a nice discussion about cost-shifting written by a federal judge, read this article.

Be Ready for Legal Holds

Posted by Gregg Mayer on Monday, February 18th, 2008   

What’s a legal hold? A legal hold is a communication throughout your company that all information that may be relevant to litigation must be preserved, including the outpourings and influx of hundreds of email messages. A legal hold is triggered when your company reasonably anticipates litigation.

No universal answer exists for when litigation is “reasonably anticipated.” It is a highly fact-intensive analysis. Generally, reasonable anticipation of litigation “arises when an organization is on notice of a credible threat it will become involved in litigation or anticipates taking action to initiate litigation,” according to The Sedona Conference Commentary On Legal Holds: The Trigger & The Process. The Sedona Conference is a popular and well-regarded think tank made up of judges, lawyers and academics who discuss issues of complex litigation.

Once triggered, a legal hold must be implemented efficiently. Failing to properly preserve ESI after litigation is reasonably anticipated may result in sanctions from a court, including an adverse jury instruction that whatever the company destroyed should be considered in the worst possible light against the company.

As explained by the Sedona Conference:

Once the duty to preserve information arises, an organization must decide what to preserve and how to accomplish that preservation. In some circumstances, the duty to preserve requires only that a limited number of known historical documents be located and preserved. In other circumstances, the scope of the information is larger and the sources of the information may not be known to counsel.

Knowing about legal holds, and having the capability to implement them quickly and seamlessly, is critical to being ready when your company faces legal trouble.

To read the complete Sedona report on legal holds: The Sedona Conference Commentary On Legal Holds: The Trigger & The Process.

Unwrapping Zubulake – Part I

Posted by Gregg Mayer on Friday, February 15th, 2008   

No legal case receives more attention regarding electronically stored information (“ESI”) than Zubulake v. UBS Warburg LLC. Without question, it is a landmark case in e-Discovery circles. Judges across the country turn consistently to the reasoning in Zubulake when rendering e-Discovery opinions.

One problem for lawyers and non-lawyers alike is trying to understand everything laid out in Zubulake. The case is spread over six different opinions written in a period of two years. Throughout, we read about the important of maintaining an effective email archiving system and ability to retrieve email.

In the end, CIOs will be convinced that email retention policies are not only important but necessary. More importantly, a company should have an archiving system with the ability to retrieve email – even those purposely deleted by rogue employees.

Zubulake is an employment discrimination case. At issue in the e-Discovery opinions are back-up tapes and deleted email. Ultimately, we learn UBS could not retrieve deliberately deleted email. That results in extraordinary consequences.

This post summarizes the key Zubulake opinions leading up to the multi-million dollar jury verdict. It is meant to provide a basic understanding to CIOs about how Zubulake developed and why it is important. These opinions are chock full of key legal phrases most often used in e-Discovery matters.

CIOs should be familiar with these key phrases and understand a company’s responsibility in retaining and retrieving email and other ESI.

Background

Laura Zubulake, an equities trader who was fired from UBS shortly after filing an EEOC complaint, sued UBS for gender discrimination, failure to promote, and retaliation under federal, state and city law. Zubulake argued key evidence to prove her case was contained in email sent by UBS employees and stored with UBS. At the beginning of the litigation, the email was believed to be on back-up tapes in the control of UBS.

Zubulake I - May 13, 2003

In this first opinion, we learn that UBS claims it will cost approximately $175,000 to restore email on backup tapes that Zubulake wants to review. In this opinion, the judge discusses cost-shifting analysis – that is, who has to pay all that money to restore those backup tapes. In this case, there were 94 backup tapes with potentially responsive email.

Courts may consider cost-shifting analysis when the ESI sought is “not reasonably accessible” – such as back-up tapes – and the other side was not under a duty to preserve the data before moving it onto back-up tapes.

At this stage, the judge believed cost-shifting may be appropriate. In other words, the employee, Laura Zubulake, would have to pay some of the costs associated with retrieving the email. In deciding this, the judge developed a seven-part test to determine how much costs should be shifted:

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 first two factors are the most important, the judge wrote. But in order to do a thorough analysis, the judge ordered UBS to restore five backup tapes and detail the results. By examining those five, then the judge could determine how much – if any – of the costs to restore the entire 94 backup tapes should be split with the employee.

Zubulake III – July 24, 2003

Just over two months later, after Zubulake II (which was not an e-Discovery opinion), the court issued its next opinion involving e-Discovery issues.

The judge considered the costs predicted by the sample restoration ordered in the last opinion. Examining the five backup tapes, which cost more than $19,000 to restore, UBS found approximately 600 responsive messages. UBS now estimated it would cost $273,649 to restore the rest of the backup tapes.

With that information at hand, the judge applied the seven-factor test it developed in Zubulake I.

The judge ruled UBS should pay 75 percent of the cost to restore the remaining tapes and the employee the other 25 percent.

Now the stage is set to have the backup tapes restored and the case to move forward. Unfortunately for UBS, it doesn’t go that smoothly.

Coming Soon: Part II - Problems for UBS

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