Since the highly-publicized demise of Arthur Anderson, reports of businesses facing severe legal sanctions for destroying documentation and deleting data that could be relevant to future litigation have instilled caution, even fear, in corporate boardrooms. The computer age and transition to a paperless society have seen an exponential growth and rapid accumulation of electronically-stored information, including email, data files and digital documents, raising issues for businesses concerned with regulatory compliance and record keeping. Without a crystal ball to predict litigation, are businesses obligated to retain and store every single document and email?

The Federal Rules of Civil Procedure and subsequent legal cases have addressed many of the questions surrounding the preservation of electronic information in legal challenges. When a party has notice of, or reason to anticipate, litigation, the party is obligated to take reasonable steps to preserve all documentation and electronic information that could be considered relevant to the litigation. From the moment a complaint is filed, litigants should implement a plan to preserve whatever they know, or assume could be relevant information or admissible evidence and determine the format(s) in which it should be produced for pre-trial and trial. Reasonable consideration means that the need to preserve the data should not interfere with the activities necessary to operate the business. It is neither reasonable nor necessary for a party to preserve every byte of data or backup tape (unless a tape is the only source of relevant data).

A business can minimize potential legal disputes by implementing a policy for the preservation and/or destruction of all digital and physical data. The digital procedures should be developed with the IT department and be part of the routine system of data back up and computer maintenance for the company. Corporate counsel should be contacted to assist in the development of these policies.

A. Litigation Holds on Documents/Files

Once a company knows about or anticipates a lawsuit, it must implement a "litigation hold" and suspend normal procedures to preserve relevant data the court might request. Counsel should inform all employees, the IT department and the "key players" of the pending litigation as well as ensure that all relevant information or sources of relevant information are discovered and preserved, and that non-privileged material is produced to the opposing party upon request. Failure to conduct an adequate search of documents before they are destroyed could constitute bad faith and warrant sanctions.

B. Obligations & Sanctions

If potential evidence is destroyed after the duty to preserve has been triggered, then the responsible party can be sanctioned for spoliation, which is the destruction, alteration or failure to preserve the potential evidence that could be needed by the other party. In addition to possible fines, sanctions for spoliation could include terminating litigation by default judgment or dismissal, suppression of evidence, instructing the jury on adverse inference, or finding the guilty party in contempt.

The purpose of the spoliation sanctions is to help restore the prejudiced party to the position it would have been without spoliation, to punish the spoliator for its actions, and to send a message to other litigants that the court will not tolerate such actions. The "safe harbor" amendment protects companies from sanctions if data is inadvertently destroyed in accordance with routine operations, if they demonstrate a good faith effort to preserve information once the litigation hold has been triggered.

C. The Bottom Line

Litigation can be lengthy and expensive, and should not be further burdened with the questionable destruction of potential evidence. The best protection for an organization is to establish and follow in advance a consistent document retention/destruction policy that includes an intervention and preservation plan in case of a litigation hold.

Disclosure: This is a summary of a detailed legal brief. The original, which cites case law and greater details, was developed for the clients of Stites & Harbison.

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