Navigating in the Brave New World of E-Discovery: Ethics, Sanctions and Spoliation

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1 NAVIGATING THE NEW WORLD OF E-DISCOVERY Navigating in the Brave New World of E-Discovery: Ethics, Sanctions and Spoliation Allison O. Van Laningham I. INTRODUCTION E-discovery is a fact of life in nearly all litigation. Some indicate that more than 90 percent of potentially discoverable information is generated and stored electronically in today s environment. 1 Since the new Federal Rules of Civil Procedure addressing electronic discovery issues went into effect on December 1, 2006, the focus on e-discovery will only intensify. And as that intensity amplifies, so will the potential pitfalls and issues that lawyers and their clients will face in the e-discovery arena. The concerns that lawyers must address affect both ethical considerations and litigation strategies. In the ethics arena, lawyers must understand their ethical obligations with respect to the preservation, organization and production of a potentially unwieldy amount of electronic information. In addition, because of the electronic nature of the material 2 and its sheer volume in many cases, lawyers and clients must determine who will be responsible for identifying and gathering potentially discoverable information and readying it for possible production. Submitted by the author on behalf of the FDCC Commercial Litigation Section. 1 Christopher D. Wall, Ethics in the Era of Electronic Evidence, 41 TRIAL 56, 56 (Oct. 2005). 2 See Ashish S. Prasad et al., Federal Rules of Civil Procedure: The Proposed E-Discovery Amendments, IN-HOUSE DEF. Q., Fall 2006, at 18, which identifies a number of electronic information sources, including active , databases, websites, near-line archival storage, deleted data on hard drives, magnetic disaster recovery tapes, and off-line storage. 327

2 FDCC QUARTERLY/SUMMER 2007 Allison O. Van Laningham is a partner at Smith Moore LLP in Greensboro, North Carolina. Her practice is focused on complex civil litigation and appeals. Ms. Van Laningham regularly handles cases in the areas of commercial litigation, products liability and legal malpractice defense. She also has an active First Amendment and media practice. Prior to joining Smith Moore, Ms. Van Laningham clerked for the Honorable N. Carlton Tilley, Jr. of the United States District Court for the Middle District of North Carolina in and for the Honorable Susan H. Black of the United States Court of Appeals for the Eleventh Circuit in She graduated from Wake Forest University School of Law in 1996 cum laude and Order of the Coif. Ms. Van Laningham has been named by Law & Politics Magazine as a North Carolina Super Lawyer, Civil Litigation Defense (2006, 2007) and as one of the Top 50 Women attorneys in North Carolina (2007). She has also received the Triad Business Journal s 40 Leaders under Forty award (2005), honoring outstanding young business and community leaders in the Greensboro area. In addition to the Federation of Defense & Corporate Counsel, Ms. Van Laningham is a member of DRI, the Council of Appellate Lawyers, and the DRI s Appellate Advocacy Committee. She serves in the leadership groups for both the Litigation Section and the Constitutional Rights and Responsibilities Section for the North Carolina Bar Association and is a member of the North Carolina Association of Defense Attorneys. The relationship and interaction among lawyers, clients and any outside e-discovery vendors carry many ethical implications. The fairly recent experience of the Boies, Schiller & Flexner law firm, when asked by its client Adelphi to withdraw from representation based on the undisclosed financial interest of a partner s family in the outside e-discovery vendor recommended by the firm, is but one example of the potential issues in that area. 3 Another facet of the e-discovery minefield is the potential for sanctions or adverse spoliation instructions when material is not properly preserved and produced. The case of 3 See Roger Parloff, Boies firm says: Where s the beef?, CNNMONEY.COM, Feb. 6, 2006, com/2006/02/06/news/newsmakers/boies2_fortune/index.htm. The article indicates that the judge in the underlying case would consider whether to appoint a special examiner to investigate a possible conflict of interest related to a Boies family member s financial interests in an e-discovery vendor hired by the firm on behalf of its client Adelphia. See additional discussion of the Boies Schiller matter infra note 41 and accompanying text. 328

3 NAVIGATING THE NEW WORLD OF E-DISCOVERY Zubulake v. UBS Warburg LLC, 4 for example, is often mentioned in the same breath as the new federal rules on e-discovery. Due to the defendant s failure to properly fulfill electronic discovery obligations, the court there ordered an adverse inference instruction. The result was a verdict that ultimately cost the defendant twenty-nine million dollars. Although new Federal Rule 37(f) dictates that courts may not impose rule-based sanctions for the routine, good faith operation of an electronic information system absent exceptional circumstances, it remains to be seen (likely on a case-by-case basis) how courts will interpret good faith and exceptional circumstances. 5 II. ETHICAL CONSIDERATIONS OF E-DISCOVERY The Model Rules of Professional Conduct begin with the admonition that a lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. 6 In contrast to rummaging through dusty boxes in a client s warehouse and short of becoming engineers, lawyers in the electronic discovery age are now tasked with determining what will allow them to fulfill their duty of competence with regard to electronic discovery issues. As noted above, although the potential ethical issues are many, they generally will fall into two broad categories. First are the challenges related to ensuring that documents are initially preserved and are not discarded before being properly produced. The second set of challenges involves identification, organization and management of the client s electronic litigation information. A. Preservation and Production Rule 3.4 of the Model Rules of Professional Conduct provides that a lawyer shall not unlawfully obstruct another party s access to evidence or unlawfully alter, destroy or conceal a document or other material having potential evidentiary value. A lawyer should not counsel or assist another person to do any such act. 7 The comment to that rule makes 4 Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004) ( Zubulake V ); see also Zubulake v. UBS Warburg LLC, 217 F.R.D. 309 (S.D.N.Y. 2003) ( Zubulake I ); 230 F.R.D. 290 (S.D.N.Y. 2003) ( Zubulake II ); 216 F.R.D. 280 (S.D.N.Y. 2003) ( Zubulake III ); 220 F.R.D. 212 (S.D.N.Y. 2003) ( Zubulake IV ); 382 F. Supp. 2d 536 (S.D.N.Y. 2005) ( Zubulake VI ). 5 See FED. R. CIV. P. 37(f), available at In all events, given the breadth of electronic information and the complexity of dealing with that information, the e-discovery environment is filled with potential litigation issues for both the lawyer and the client. 6 MODEL RULES OF PROF L CONDUCT R. 1.1 (2003) (hereinafter MRPC ). Except as otherwise noted, this article will cite to the ABA s Model Rules of Professional Conduct. The practitioner, of course, should consult the rules of his or her own jurisdiction for additional guidance regarding all these issues. 7 See MRPC

4 FDCC QUARTERLY/SUMMER 2007 clear that it is applicable to civil discovery and provides that the rule applies to evidentiary material generally, including computerized information. 8 In addition, Rule 3.4 provides that a lawyer shall not fail to make reasonably diligent effort to comply with a legally proper discovery request by an opposing party. 9 In the context of electronic discovery, however, questions arise about what a lawyer must do to properly comply with those principles and to make a reasonably diligent effort to gather responsive electronic information. In company with the ethics rules, the Federal Rules of Civil Procedure also impose similar discovery duties on lawyers. Rule 26(g), for example, provides that an attorney executes a certification when she signs discovery responses. 10 According to the comment, the Rule does not require the signing attorney to certify the truthfulness of the client s factual responses to a discovery request. Rather, the signature certifies that the lawyer has made a reasonable effort to assure that the client has provided all the information and documents available to him that are responsive to the discovery demand. 11 Prior to enactment of the Federal Rules of Civil Procedure amendments that now address electronic discovery issues, this limited certification principle found in the comment was the platform for many electronic discovery opinions. The determination in Metropolitan Opera Ass n, Inc. v. Local 100, Hotel & Restaurant Employees International Union, 12 later cited in one of the Zubulake decisions, offers one such opinion. In Metropolitan Opera, the court stated: While, of course, it is true that counsel need not supervise every step of the document production process and may rely on their clients in some respects, the rule expressly requires counsel s responses to be made upon reasonable inquiry under the circumstances. 13 As a result of the discovery abuses in that case, the court entered judgment on liability in favor of the plaintiff and also awarded attorney s fees to the plaintiff. As part of their initial conference, the new requirements in Rule 26(f) require parties to meet and confer regarding any issues relating to preserving discoverable information as well as the dictates of Rule 26(b)(2)(B), which relates to electronic information. 14 The rule thus presumes that the parties involved in the Rule 26(f) conference will be knowledgeable about the client information systems that may be implicated since these include potentially relevant and discoverable information. 8 Id. cmt. [2]. 9 Id. R See FED R. CIV. P. 26(g). 11 Id. cmt F.R.D. 178 (S.D.N.Y. 2003). 13 Id. at FED. R. CIV. P. 26(f). 330

5 NAVIGATING THE NEW WORLD OF E-DISCOVERY Although the judicial decisions dwell in the realm of the rules and do not necessarily forewarn of ethical implications, the same conduct that created issues for attorneys and clients under the rules could likewise create issues for attorneys under the Model Rules of Professional Conduct. 15 Moreover, in the absence of formal ethics opinions, 16 judicial decisions affecting the civil procedure rules are a primary source of information regarding the recommended and required steps for electronic discovery. Furthermore, fulfilling the obligations imposed by the civil procedure rules should likewise fulfill the competence requirement of Rule 1.1. As well, it should allow a lawyer to fulfill his or her ethical discovery obligations under Rule 3.4. In fact, two of the Zubulake decisions, Zubulake IV and Zubulake V, are now often recognized as providing appropriate standards for an attorney s obligations regarding e-discovery. 17 A first step toward fulfilling electronic discovery obligations is to make sure that appropriate material is preserved. The duty to preserve documents and electronic information is clearly in place when a party reasonably anticipates litigation. 18 However, the Zubulake IV court noted that the obligation may exist much earlier, in fact arising when almost everyone associated with [the eventual plaintiff] recognized the possibility that she might sue the defendant company. 19 When a lawyer becomes involved in the litigation, that lawyer must put a litigation hold in place that will supplant the client s document destruction policies and procedures so as to ensure that potentially relevant electronic data is preserved for review and possible production. 20 Rather than including an obligation to preserve all documents, the Zubulake court indicated that the duty to preserve is based on what [the preserving party] knows or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery and/or is the subject of a pending discovery request. 21 However, as further noted by the 15 See MRPC 3.4. This rule makes clear that the duty to preserve and produce documents runs to the attorney as well as to the client. 16 from Kathryn A. Thompson ETHICSearch Research Counsel, ABA Center for Professional Responsibility, to Allison Van Laningham (October 25, 2006) (on file with author). The ABA confirms that, as of October 2006, it had not issued any formal ethics opinions on e-discovery obligations. 17 See Kemper Mortgage Inc. v. Russell, No. 3:06-CV-042, 2006 WL , at *1 (S.D. Ohio Apr. 18, 2006) (noting that, although the Zubulake IV decision is not technically binding, it has received wide recognition at the federal bar as authoritative ). In addition to Zubulake IV, Zubulake V contains additional guidance for lawyers involved in e-discovery. 18 Zubulake IV, 220 F.R.D. at Id. at Id. at 218; Zubulake V, 229 F.R.D. at Zubulake IV, 220 F.R.D. at 217 (quoting William T. Thompson Co. v. General Nutrition Corp., 593 F. Supp. 1443, 1455 (C.D. Cal. 1984)). 331

6 FDCC QUARTERLY/SUMMER 2007 Zubulake court, the litigation hold is not the end of a lawyer s obligation; rather, it is only the beginning. 22 The litigation hold should be periodically re-issued so that it remains fresh in the minds of all employees, including new employees. 23 Counsel also has a duty to become familiar with the client s systems and with the client s method of managing and destroying documents. As the Zubulake court observed, counsel must become fully familiar with her client s document retention policies, as well as the client s data retention architecture. 24 Fulfilling this requirement will usually entail speaking directly with the key players in the litigation, as well as the client s information technology personnel. 25 In addition, the lawyer must communicate directly with the key players in the litigation, specifically including the persons identified in the party s initial disclosures. 26 Those key players should be periodically reminded that the preservation duty is still in place. 27 As a final step toward fulfilling counsel s duties with regard to electronic discovery, counsel must... call for employees to produce copies of relevant electronic evidence and must arrange for segregation and safeguarding of any archival media (e.g., backup tapes) that the party has a duty to preserve. 28 The Zubulake court admonished that counsel should instruct all employees to produce electronic copies of their relevant active files. 29 Furthermore, [c]ounsel must also make sure that all backup media [that] the party is required to retain is identified and stored in a safe place. 30 To ensure that proper archival material is preserved, the Zubulake court suggested that at the outset of the litigation, counsel search the client s system using particular key words to find materials that might be requested in or relevant to the litigation. 31 Once counsel conducts such a search with broad terms, those materials need not be reviewed immediately. Instead, the material can be preserved until documents are requested in the litigation; at that time, they can be reviewed and produced. Alternatively, the parties can negotiate an appropriate set of search terms that presumably would be narrower than the original set. 22 Zubulake V, 229 F.R.D. at Id. at Id. at Id. at Id. at Id. at Id. at Id. at Id. 31 Id. at 432. The court suggested that running such a search will be especially appropriate when either the client organization or the scope of the litigation is too large for counsel to speak effectively with each of the potential key players in the litigation. 332

7 NAVIGATING THE NEW WORLD OF E-DISCOVERY After counsel has taken these steps (likely modified as necessary to meet the needs of a particular case), the client is on notice of its discovery obligations. 32 Beyond that point, [i]f a party acts contrary to counsel s instructions or to a court s order, it acts at its own peril. 33 It is worth noting the observation of the Zubulake court that the standards for electronic discovery continue to evolve. In fact, although the defendant s lawyers in that case did not fully comply with the required standards articulated by the court, under the standards existing at the time, counsel acted reasonably to the extent that they directed UBS to implement a litigation hold. 34 It thus seems clear that, as the standards for addressing electronic discovery continue to evolve, the requirements for managing and responding to electronic discovery in any particular case will continue to evolve or increase as well. If there is one benchmark for complying with these evolving standards, it likely is a measure of early, often, and effective communication with the client. As the Zubulake court reasoned, [o]ne of the primary reasons that electronic data is lost is ineffective communication with information technology personnel. 35 Moreover, the court found that counsel in that case had failed to adequately communicate with key players in the litigation to ensure that electronic material was preserved and produced. It concluded that counsel has a duty to effectively communicate to her client its discovery obligations so that all relevant information is discovered, retained, and produced. 36 Thus, communicating fully and adequately with the client, while developing a good understanding of the client s technology systems, may be the best means for ensuring that lawyers maintain their ethical obligations regarding the preservation and production of electronic discovery materials. B. Electronic Document Management Another aspect of electronic discovery that may be rife with potential ethical issues is that of electronic document management. Given the volume of electronic information that may be involved especially in a complex case or with a good-sized corporate client lawyers and clients must deal with the challenge of managing large amounts of electronic data. There are three primary approaches for dealing with that data. First, the client may choose (and/or the lawyer may recommend) that an outside vendor be hired to manage the client s electronic information. Second, the law firm (or a related entity created for that purpose) may be able to address the electronic data management issues. As a third option, the client may have the ability and choose to manage the data itself. For the lawyer, potential ethical issues permeate each of these document management choices. 32 Id. at Id. 34 Id. at Id. at Id. at

8 FDCC QUARTERLY/SUMMER Third-Party Vendors There are numerous third-party vendors that provide document management services. 37 Although involving such a vendor may afford some comfort about the quality and comprehensiveness of the services provided, ethical issues still lurk for the litigation lawyers. As a starting point, the lawyer ultimately is responsible for production of the documents while the client ultimately holds responsibility for proper preservation of the documents. That being the case, the lawyer must be vigilant in monitoring the third-party vendor s conduct regarding the client s electronic data and material. Over time, a lawyer or a law firm may become comfortable with a particular third-party vendor and may want to utilize the services of that vendor more frequently. However, Model Rule 7.2 provides ethical dictates for a lawyer who refers the client to a non-lawyer service provider. Although a lawyer may have an agreement with a provider to refer clients, that agreement cannot be exclusive. 38 The rationale is that an exclusive referral agreement could interfere with the lawyer s independent exercise of judgment as required under Model Rule 1.7, and might prevent the client from obtaining the most economical or best third-party service. Even a non-exclusive referral agreement could create an ethical issue under Rule 1.7 if it interferes with the lawyer s exercise of independent judgment. Rule 5.7 dictates that a lawyer who employs a third-party vendor to provide ancillary services during litigation must inform the client that communications with the third-party vendor may not be protected from disclosure. 39 In matters involving issues of great sensitivity, this concern may counsel against employment of a third-party vendor for electronic data services. In addition, Rule 1.8 mandates that, when a lawyer transacts business with a client, the lawyer must fully disclose all of the interests that the lawyer retains in a transaction. 40 To the extent that referring a client to a third-party vendor could be considered a business arrangement with a client, the lawyer must disclose to the client the full extent of any relationship that the lawyer maintains with that vendor. 37 See, e.g., Electronic Evidence Discovery, Inc. Homepage, (last visited June 11, 2007); Kroll Ontrack, Inc. Homepage, (last visited June 11, 2007) (offering assistance with gathering, preserving and managing electronic data for litigation purposes). 38 MRPC 7.2(b)(4). 39 Id. R The comment to the Rule states: When a lawyer performs law-related services or controls an organization that does so, there exists the potential for ethical problems. Principal among these is the possibility that the person for whom the law-related services are performed fails to understand that the services may not carry with them the protections normally afforded as part of the client-lawyer relationship. 40 Id. R. 1.8(a). 334

9 NAVIGATING THE NEW WORLD OF E-DISCOVERY This is one of the issues that arose for the Boies Schiller & Flexner law firm in the Adelphia matter in The Boies Schiller firm had hired a third-party vendor (Amici, LLC) in litigation during which Boies Schiller represented Adelphia. 41 No one at Boies Schiller had a financial interest in Amici, but several of David Boies s relatives did hold an indirect financial interest in the company. When Adelphia learned about the Boies family s interest in the company, it demanded that Boies Schiller withdraw as counsel in the case. It also complained that Boies Schiller should have disclosed that the founder of Amici, LLC had been convicted of crimes, including overcharging clients. Beyond the ethical pitfalls regarding the e-discovery issues, the episode was likely very embarrassing for the firm. 2. Lawyer-Provided Services In other cases, the lawyer may want to provide electronic data services to the client in addition to legal representation services. These lawyer-provided services pose yet another set of ethical issues. First, the requirement in Rule 1.7 that a lawyer provide competent services to the client extends as well to the provision of law-related services. When those services are reasonably simple and non-technical, that standard is likely to be easily met. In contrast, the more technical or complex the requirements of the ancillary services needed by the client, the more difficult it may be for the lawyer to meet the competency standard in providing such services. For the same reason, before a lawyer commits to provide or undertakes such auxiliary services for a client, the lawyer should fully understand the requirements of the engagement and should investigate whether he or she is capable of competently providing such services. Rule 5.7 allows lawyers to provide ancillary services to clients but provides that the Rules of Professional Conduct must be followed with regard to such services. Comment 3 to that Rule cautions that the obligations of the Rule apply [e]ven when the law-related and legal services are provided in circumstances that are distinct from each other, for example through separate entities or different support staff within the law firm. 42 A lawyer providing law-related services either directly or through a related entity also must be careful to follow Rule 1.7, which requires that a lawyer engaging in a business relationship with a client provide full disclosure to the client with regard to the lawyer s 41 Robert Frank, Abstract, Adelphia, Boies Firm Agree to Split, WALL ST. J., Aug. 30, 2005, at A3. 42 MRPC 5.7 cmt

10 FDCC QUARTERLY/SUMMER 2007 interests in the transaction. 43 Moreover, Rule 1.5 dictates that a lawyer may not charge the client an unreasonable fee or expense. Although a lawyer or a related entity may be well positioned to know and provide the needed services, there could be issues about the extra charges incurred if the lawyer provides these services for the client. Especially if those charges are higher (or the client thinks they are higher) than other entities providing similar services, questions might arise about whether the client received the best value for the money and whether the expenses incurred were unreasonable. To the extent that discovery disputes could require testimony from the provider of electronic data services (and recent cases might suggest the increasing likelihood of such disputes), a lawyer whose firm or firm-related entity is providing such services to the client also could find herself facing issues under Rule 3.7. That Rule prohibits a lawyer from serving as counsel in a case when the lawyer is likely to be a necessary witness. 44 In addition, the lawyer would be prohibited from serving as counsel if another lawyer in the firm would be a witness following a conflict of interest. It is feasible that a court would find a lawyer conflicted if electronic discovery services provided by the lawyer s firm or a firm-related entity become an issue in the case. 3. Client-Provided Services If the client wants to provide its own electronic data services, the lawyer still has ethical considerations to address. As indicated earlier, the ethics rules, the rules of civil procedure, and the judicial analysis in cases like Zubulake demonstrate that the lawyer as well as the client has obligations during discovery. Although the Zubulake court noted that a lawyer cannot be obliged to monitor her client like a parent watching a child, 45 it also stated that counsel is responsible for coordinating her client s discovery efforts. 46 Moreover, the lawyer is charged with providing competent legal representation, and that obligation alone would not permit the lawyer to eschew issues of electronic discovery management simply because the client is providing the services. In fact, depending on the client, client-provided services may provide one of the greatest challenges to the lawyer since the client may feel confident about its abilities to provide the 43 Id. R Rule 1.7 provides that: A lawyer shall not make a false or misleading communication about the lawyer or the lawyer s services. A communication is false or misleading if it contains a material misrepresentation of fact or law, or omits a fact necessary to make this statement as a whole not materially misleading. Moreover, comment 10 to Rule 1.7 provides that a lawyer may not allow related business interests to affect representation, for example, by referring clients to an enterprise in which the lawyer has an undisclosed financial interest. 44 Id. R Zubulake V, 229 F.R.D. at Id. at

11 NAVIGATING THE NEW WORLD OF E-DISCOVERY services and may not welcome the lawyer s involvement (or paying for that involvement) in the process. For the lawyer, however, fulfillment of his or her discovery and ethical obligations will require an understanding of the client s electronic information as well as its management and production of that information. A communication and understanding at the outset that clearly defines the obligations between the lawyer and the client may pave the way for the lawyer to have the access needed to fulfill his ethical and discovery obligations. III. SPOLIATION AND SANCTIONS The effects on litigation of a failure to properly preserve or produce electronic data represents another set of issues related to electronic discovery. The possible effects are many but they fall primarily into the categories of spoliation and sanctions. A. The Spoliation Doctrine Spoliation generally refers to altered or lost evidence. 47 The court s ability to sanction spoliation arises from a court s inherent power to control the judicial process and litigation, but the power is limited to that necessary to redress conduct which abuses the judicial process. 48 As a general rule, courts mold spoliation sanctions to serve the prophylactic, punitive, and remedial rationales underlying the spoliation doctrine. 49 Accordingly, when imposing spoliation sanctions, the trial court has discretion to pursue a wide range of responses both for the purpose of leveling the evidentiary playing field and for the purpose of sanctioning the improper conduct Practitioners in certain jurisdictions should be aware that the alteration or loss of electronic data may result not only in sanctions under the spoliation doctrine but also in an independent cause of action. It is noteworthy that a tort for spoliation exists in several jurisdictions including Alaska, Florida, Montana, New Mexico, and Ohio. John M. Barkett et al., The Prelitigation Duty to Preserve: Look Out!, Address at the ABA Annual Meeting, Chicago (Aug. 4-7, 2005) (transcript available at prelitigationduty_1735.pdf, at 3). As Barkett discusses in greater detail, other spoliation-related torts may be cognizable in Illinois, New Jersey, and New York. 48 Silvestri v. General Motors Corp., 271 F.3d 583, 590 (4th Cir. 2001) (quoting Chambers v. NASCO, Inc., 501 U.S. 32, (1991)). 49 West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir. 1999). 50 Vondusek v. Bayliner Marine Corp., 71 F.3d 148, 156 (4th Cir. 1995). Likewise, the Southern District of New York noted in Phoenix Four, Inc. v. Strategic Resources Corp., No. 05 Civ. 4837(HB), 2006 WL , at *3 (S.D.N.Y. May 23, 2006) that [t]he sanctions imposed should serve the threefold purposes of deterring parties from engaging in spoliation, placing the risk of an erroneous judgment on the party who wrongfully created the risk, and restoring the prejudiced party to the position it would have been in had the misconduct not occurred. 337

12 FDCC QUARTERLY/SUMMER 2007 Determining whether the alteration or loss of evidence creates an uneven evidentiary playing field that requires leveling, or constitutes misconduct that requires redress, is often a fact-intensive process. As courts across the nation have confronted this issue in various factual contexts, it is not surprising that the case law in each jurisdiction is somewhat unique. Broad statements of law with cross-jurisdictional applicability are not readily discernable. Nonetheless, the courts do tend to follow the same general path of inquiry, considering first whether there was a duty to preserve the altered or lost evidence and, if so, whether the circumstances of the case warrant sanction. The duty to preserve is an obvious predicate to any sanction for the alteration or loss of evidence. As noted in the previous sections, the moment when the duty to preserve attaches is not always a simple question. Certainly, that duty is likely to attach at least as early as the filing of the complaint. However, since the inquiry generally focuses on the point at which a party reasonably should know that the evidence may be relevant to anticipated litigation, a prelitigation duty to preserve is often present. 51 After finding that a duty to preserve existed at the time that evidence was altered or lost, the courts examine the factual circumstances to determine whether to impose sanctions and, if so, which sanctions are appropriate. An instruction that the jury may draw an adverse inference from the spoliation of evidence appears to be the sanction most commonly sought for spoliation by litigants. Accordingly, the focus of the analysis in many spoliation cases concerns whether an adverse inference is appropriate. In this regard, courts generally consider the following: (1) the degree of fault of the party who altered or destroyed the evidence; (2) the degree of prejudice suffered by the opposing party; and (3) whether there is a lesser sanction that will avoid substantial unfairness to the opposing party and, where the offending party is seriously at fault, will serve to deter such conduct by others in the future. 52 The first two considerations go to (1) the state of mind of the party who altered or lost evidence and (2) the relevance of the evidence to the opposing party s case. These two factors are interrelated. As the United States District Court for District of Maryland observed: 51 Silvestri, 271 F.3d at 591. A discussion and a table summarizing a circuit-by-circuit survey of the analysis employed across the federal courts to determine whether there was a duty to preserve at the time that evidence was altered or lost is available in John M. Barkett et al., supra note 47, at Trigon Ins. Co. v. United States, 204 F.R.D. 277, 288 (E.D. Va. 2001) (quoting Schmid v. Milwaukee Elec. Tool Corp., 13 F.3d 76, 79 (3d Cir. 1994)). 338

13 NAVIGATING THE NEW WORLD OF E-DISCOVERY The more culpable the state of mind, the easier it is for the party seeking a spoliation adverse inference to demonstrate... relevance. When evidence is destroyed in bad faith (i.e., intentionally or willfully), that fact alone is sufficient to demonstrate relevance. By contrast, when the destruction is negligent, relevance must be proven by the party seeking the sanctions. 53 Not surprisingly, the fact-specific analysis of these interrelated issues has resulted in varying determinations with respect to the level of culpability required to support an adverse inference instruction. Indeed, bad faith is required in some jurisdictions but not in others. 54 While an adverse inference instruction may be one of the sanctions most commonly sought, there are other sanctions available to the court. For example, rather than simply instructing the jury that it may draw an adverse inference from the spoliation, the court can instruct the jury to presume certain facts concerning the evidence or can preclude testimony on the subject of the evidence. Such an instruction might include adverse inferences as to the substance and credibility of expert witness testimony or even preclusion of that testimony. An even harsher sanction dismissal of the spoliator s action is also available. In some jurisdictions, a dismissal may be granted when the discovering party has been greatly prejudiced, even if the spoliator s conduct was simply negligent. The following cases provide a few examples of the profound consequences that may result from spoliation of electronic evidence. 1. Zubulake IV 55 This case arose out of an employment discrimination charge. Based on internal correspondence and testimony by key employees, UBS anticipated litigation even prior to Zubulake s termination. The court concluded that UBS had a duty, as of that time, to preserve relevant information, including correspondence. However, certain s were deleted and certain backup tapes were overwitten. The court recognized that the duty to preserve the backup tapes was a grey area and therefore concluded that UBS s failure to preserve most of the tapes was negligent, but not grossly negligent or reckless. The court then placed all potential litigants on notice that they had a duty to preserve certain backup tapes in particular circumstances. The court found that UBS acted with gross negligence, 53 Thompson v United States Dept. of Housing and Urban Dev., 219 F.R.D. 93, 101 (D.Md. 2003) (quoting Zubulake v UBS Warburg LLC, 220 F.R.D. 212, 220 (S.D.N.Y. 2003)). 54 A discussion and a table summarizing a circuit-by-circuit survey of whether bad faith is required to support an adverse inference instruction is available in John M. Barkett et al., supra note 47, at Note that Barkett includes some cases that involve discovery sanctions imposed pursuant to the Federal Rules of Civil Procedure F.R.D. 212 (S.D.N.Y. 2003). 339

14 FDCC QUARTERLY/SUMMER 2007 if not recklessly, when it failed to preserve tapes backing up the s of a key player in the underlying termination. However, in the absence of willful conduct, the court refused to presume that the lost tapes would have supported Zubulake s claims. Therefore, the court refused to issue an adverse inference instruction. The court did require UBS to bear the costs of further depositions concerning these issues, however. 2. Zubulake V 56 During the course of the limited discovery subsequently allowed by Zubulake IV concerning the destruction of evidence, Zubulake developed evidence that additional s were deleted and that some were not recoverable. As noted above, the court took counsel and UBS to task for the failure to preserve evidence. The court outlined three preservation obligations for counsel: (1) issuing and periodically reissuing a litigation hold, (2) directly communicating with employees likely to have relevant information, and (3) instructing all employees to produce electronic copies of their relevant active files and ensuring that all backup media which the party is required to retain is identified and stored in a safe place. 57 The court further determined that UBS willfully destroyed evidence and then presumed that the lost evidence was relevant. Therefore, the court granted an adverse instruction as to the deleted s, particularly those permanently lost when the backup tapes were overwritten. Of note, [o]n April 12, 2005, the jury returned a verdict against UBS Warburg of $9.1 million in compensatory damages and about $20.2 million in punitive damages DaimlerChrysler Motors v. Bill Davis Racing, Inc. 59 Finding that defendant Bill Davis Racing did not willfully destroy messages that were automatically purged by its computer system, the Magistrate Judge concluded that the court could not dismiss claims and/or defenses. However, the court concluded that sanctions were appropriate even for Bill Davis Racing s negligent loss of evidence. Specifically, the Magistrate Judge recommended (a) an order allowing plaintiff to present evidence of the defendant s failure to preserve electronic data; (b) an instruction to the jury that it may presume, based upon the spoliation, that the evidence destroyed would have been favorable to plaintiff; and (c) an order permitting counsel for DaimlerChrysler Motors to argue in favor of the negative inference. 60 The Magistrate Judge also ordered Bill Davis Racing to pay DaimlerChrysler Motors reasonable attorney fees and the costs incurred to bring the motion for sanctions F.R.D. 422 (S.D.N.Y. 2004). 57 Id. at John M. Barkett et al., supra note 47, at No. Civ. A , 2005 WL (E.D. Mich. Dec. 22, 2005). 60 Id. at *3. 340

15 NAVIGATING THE NEW WORLD OF E-DISCOVERY 4. Consolidated Aluminum Corp. v. Alcoa, Inc. 61 At the time that Alcoa sent a demand letter to Consolidated, Alcoa put a litigation hold on s for just four individuals, instructing them to place relevant s into certain folders to prevent their deletion. Alcoa failed, however, to suspend its destruction policy to ensure that any relevant s from the months leading up to the demand were preserved through the system s backup feature. Two and a half years after sending the letter and twenty months after Consolidated filed suit, Alcoa expanded the litigation hold to include eleven other individuals. It then suspended its destruction policy when it received certain additional discovery requests from Consolidated. Though the court questioned the adequacy of Alcoa s hold, given that it came months after Alcoa had initially identified 100 individuals who held potentially discoverable information, the court found that Alcoa s efforts at preservation made a finding of bad faith difficult. More importantly, the court held Consolidated s reliance on the number of individuals and timing of disclosure insufficient to establish that the lost s would have supported Consolidated s claims. The court therefore concluded that an adverse inference was not warranted. However, the court did determine that Alcoa s conduct in negligently failing to preserve electronic evidence should not go unpunished. 62 Accordingly, it ordered Alcoa to pay the costs of re-deposing witnesses concerning evidence destruction and newly discovered s. The court also allowed Consolidated to serve additional discovery as to electronic evidence Alcoa failed to preserve. Finally, the court ordered Alcoa to pay Consolidated s reasonable costs and the attorneys fees incurred when bringing the motion to obtain discovery. B. Discovery Sanctions In addition to spoliation sanctions, the court may impose a variety of discovery sanctions. Apart from spoliation sanctions, the most pronounced discovery sanctions generally occur when the court has entered an order regarding electronic information and a party fails to follow that order. In such circumstances, the court may impose sanctions pursuant to Rule 37(b)(2). Rule 37(b)(2) provides that the court may enter such orders as are just if a party fails to obey an order to provide or permit discovery. Such discovery orders would include a Rule 37(a) order compelling discovery for, among other things, the production of electronic data, 61 No C-M2, 2006 WL (M.D. La. July 19, 2006). 62 Id. at *9. 341

16 FDCC QUARTERLY/SUMMER 2007 or an order under Rule 26(f). 63 Rule 37(b)(2) delineates the following potential sanctions, among others: (A) An order that the matters regarding which the order was made or any other designated facts shall be taken to be established for the purposes of the action in accordance with the claim of the party obtaining the order; (B) An order refusing to allow the disobedient party to support or oppose designated claims or defenses, or prohibiting that party from introducing designated matters in evidence; (C) An order striking out pleadings or parts thereof, or staying further proceedings until the order is obeyed, or dismissing the action or proceeding or any part thereof, or rendering a judgment by default against the disobedient party; (D) In lieu of any of the foregoing orders or in addition thereto, an order treating as a contempt of court the failure to obey any orders except an order to submit to a physical or mental examination Rule 37(b)(2) further permits the court to award expenses and attorneys fees resulting from the failure to comply with a discovery order, and specifically permits the court to require that the award be paid by the disobedient party or that party s counsel. When deciding motions for sanctions, courts appear to consider factors similar to those considered under the spoliation doctrine. For example, the United States District Court for the District of Maryland employed the following five factors (identified by the Fourth Circuit in the context of Rule 37(c)) to determine appropriate Rule 37(b)(2) sanctions following incomplete production of 80,000 s well past court ordered deadlines and just ninetydays prior to trial: (1) surprise to the party against whom the evidence would be offered; (2) the ability of that party to cure the surprise; (3) the extent to which allowing the evidence would disrupt the trial; (4) the importance of the discovery; and (5) the explanation of the non-disclosing party for its failure to provide the discovery There is some question whether Rule 37 reaches the prelitigation alteration or loss of electronic data. For a discussion of case law supporting and case law rejecting application of Rule 37 sanctions to prelitigation conduct, see John M. Barkett et al., supra note 47, at Barkett concludes that whether prelitigation conduct falls within Rule 37(b)(2) may not matter because the inherent power of the courts is broad enough to impose a sanction for prelitigation destruction of documents. Id. at See FED. R. CIV. P. 37(b)(2). 65 Thompson, 219 F.R.D. at

17 NAVIGATING THE NEW WORLD OF E-DISCOVERY Indeed, these five factors approach many of the same concerns addressed by the sanctions analysis under the spoliation doctrine, including the culpability of the spoliator. Just as there is no clearly articulated standard across the jurisdictions regarding the state of mind required to impose spoliation sanctions, the case law regarding the state of mind required to impose Rule 37(b)(2) sanctions is varied. In that regard, the following cases provide examples of the heavy sanctions a party might face pursuant to Rule 37 for contempt of a court s document preservation or discovery production order. 1. United States v. Philip Morris USA Inc. 66 The Philip Morris case involved what the court found to be a systemic failure to suspend Philip Morris s policy of deleting s that were over sixty days old. That failure extended for a period of at least two years following entry of a document preservation order. Even after learning of the problem, Philip Morris continued to follow its deletion policy for at least another month. Moreover, Philip Morris specifically identified at least eleven employees [who held] some of the highest, most responsible positions in the company 67 who failed to follow the internal print and retain 68 policy which would have preserved the lost s. The court imposed a total fine of $2,995,000 (based on a fine of $250,000 for each corporate manager and/or officer identified) and added the cost of the Rule 30(b)(6) deposition on destruction for this egregious violation of the court s order. 69 Noting that a proportional discovery sanction could not be fashioned because it was impossible to know what value the documents represented to the plaintiff s case, the court imposed the monetary fine because it is essential that such conduct be deterred, that the corporate and legal community understand that such conduct will not be tolerated, and that the amount of monetary sanction fully reflect the reckless disregard and gross indifference displayed by Philip Morris and Altria Group toward their discovery and document preservation obligations F. Supp. 2d 21 (D.D.C. 2004). 67 Id. at Id. at 26, n Id. at Id. 343

18 FDCC QUARTERLY/SUMMER Krumwiede v. Brighton Associates, L.L.C. 71 After his termination, Krumwiede sued Brighton Associates. Brighton counterclaimed and specifically demanded return of its laptop computer without alteration of the laptop contents. When Krumwiede failed to do so, the court ultimately ordered its return. Krumwiede later failed to comply with the court s order. At the ensuing show cause hearing, the parties agreed that the computer should be placed in the custody of Forensicon, Inc. for analysis. When Brighton then moved for sanctions pursuant to Federal Civil Procedure Rules 26 and 37, the court found that Krumwiede: admittedly failed to put in place a litigation hold with respect to Brighton s laptop computer and continued to delete, alter, modify, and access thousands of files after being put on notice that the contents of the laptop were the subject of litigation. The deletion, alteration, and modification of these documents continued at least until 7 p.m. the night before Krumwiede turned Brighton s laptop computer over to Forensicon [an independent forensic expert]. 72 Furthermore, there existed clear and convincing evidence that Krumwiede acted willfully and in bad faith and that Brighton was prejudiced by the spoliation, since it would no longer be able to rely on evidence essential to its underlying claims. On this basis, the court entered default judgment on Brighton s claims, concluding that no lesser sanction would adequately address Krumwiede s misconduct nor cure the prejudice to Brighton. By its action, the court also intended to send a strong message to other litigants, who scheme to abuse the discovery process and lie to the Court, that this behavior will not be tolerated and will be severely sanctioned. 73 It is noteworthy that the court invoked both the sanction power of Rule 37 and its inherent power when imposing these sanctions. Since some of Krumwiede s acts occurred prior to the order requiring production of the computer, that duality is reasonable. It is not clear, however, whether the court relied on its inherent power to some extent because it wished to avoid determining whether Rule 37 reaches prelitigation activity or because it had determined that Rule 37 would not. 71 No , 2006 WL (N.D. Ill. May 8, 2006). 72 Id at *9. 73 Id. at *

19 NAVIGATING THE NEW WORLD OF E-DISCOVERY 3. Linnen v. A.H. Robbins Co., Inc. 74 The court in Linnen had entered an ex parte document preservation order the same day the complaint was filed. Two weeks later, the court vacated the order based on defendant Wyeth s representations that it understood its discovery obligations and would not destroy evidence. Wyeth failed to suspend its computer backup tape destruction policy until four months after the action was filed, however, resulting in the loss of electronic information that included s sent for three months prior to and four months following the commencement of litigation. When considering sanctions, the court refused to impose the $1,000,000 in fines sought by plaintiffs, finding that Wyeth was not in contempt of an explicit court order requiring preservation. The court also denied plaintiffs request that information concerning a broad category of communications be excluded from evidence under the spoliation doctrine. Absent additional information regarding the content of the destroyed backup tapes, the court could not define an appropriate category of evidence for exclusion. However, the court did grant an adverse inference jury instruction under the spoliation doctrine. The court also granted fees and costs related to this issue. In addition, the court s determination with respect to Wyeth s failure to timely restore and produce other electronic backup tapes that fell within plaintiffs discovery requests is noteworthy. The court awarded plaintiffs the costs and attorneys fees related to efforts made to discover the tapes and determined that Wythe would bear the cost of any further depositions owing to the untimely disclosure of the information. The court denied a motion to revoke the pro hac vice admission of Wyeth s counsel because it could not determine whether the delay in production was attributable solely to Wyeth s actions or also to the actions of its counsel. At a minimum, the case serves as a strong reminder of the obligation to promptly produce electronic data. IV. CONCLUSION As demonstrated by the analysis in this article, electronic discovery poses a variety of potential ethical and litigation issues for attorneys. With the new federal rules governing e- discovery and the continuing evolution of technology, lawyers and their clients must remain informed of new developments to ensure that ethical and litigation requirements are met in each case. As with many litigation issues, early and frequent communication between lawyer and client is essential. The lawyer also is advised to learn as much as possible about the sources of electronic information since these may prove the key to successful navigation through the minefield of e-discovery. 74 No , 1999 WL (Mass. Super.Ct. June 16, 1999). 345

20 FDCC QUARTERLY/SUMMER 2007 FUTURE MEETINGS 2008 WINTER 2008 Sunday, February 24 Sunday, March 2 Westin Our Lucaya Grand Bahama Island, Bahamas ANNUAL 2008 Sunday, July 27 Sunday, August 3 Fairmont Banff Springs Banff, Alberta WINTER 2009 Saturday, February 21 Saturday, February 28 Grand Hyatt Kauai Resort & Spa Kauai, Hawaii ANNUAL 2009 Sunday, July 26 Sunday, August 2 The Greenbriar West Sulfur Springs, West Virginia