An Examination of Litigation Holds and the Preservation of Electronic Documents in the Context of Zubulake

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1 November 2004 An Examination of Litigation Holds and the Preservation of Electronic Documents in the Context of Zubulake Documents and other potentially relevant evidence are subject to preservation when litigation is pending or reasonably anticipated, and the failure to take appropriate actions to preserve them may result in sanctions that can affect both liability and damages. These obligations and risks are commonly known. In today s computerized workplace, however, preservation of electronically created and stored documents and data, including messages, presents significant challenges and dangers. The recent decision from the Southern District of New York in Zubulake v. UBS Warburg LLC, No. 02 Civ. 1243, 2004 WL (S.D.N.Y. July 20, 2004) ( Zubulake V ) (Hon. Shira A. Scheindlin), addresses the challenges and risks of preserving and timely producing electronically stored information. The decision is notable because Judge Scheindlin, a leading jurist in the area of electronic discovery, undertook a detailed analysis and commentary to provide guidance in this area, particularly regarding the duties of counsel. Zubulake V Plaintiff Laura Zubulake was an equities trader specializing in Asian securities who is suing her former employer (UBS Warburg) for gender discrimination, failure to promote, and retaliation under federal, state, and city law. Pre-trial disputes regarding the preservation and production of electronic documents (such as ) by UBS Warburg have been substantial. The district court s July 20, 2004 decision sets forth a detailed analysis of the facts and circumstances that prompted the court to find spoliation arising from the failure to preserve s. The court issued several pronouncements, some of which are commonplace and some of which are novel. Businesses and their counsel should be familiar with both. The court summarized the law governing spoliation and the standards for sanctioning offending parties: 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 determination of an appropriate sanction for spoliation, if any, is confined to the sound discretion of the trial judge, and is assessed on a case-by-case basis. The authority to sanction litigants for spoliation arises jointly under the Federal Rules of Civil Procedure and the court s inherent powers. 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. A party seeking an adverse inference instruction (or other sanctions) based on the spoliation of evidence must establish the following three elements: (1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed with a culpable state of mind ; and (3) that the destroyed evidence was relevant to the party s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense. Id. at *6 (footnotes and citations omitted). The court then framed the application of this law to the facts regarding UBS Warburg s loss of s: As noted, the central question implicated by this motion is whether UBS and its counsel took all necessary steps to guarantee that relevant data was both preserved and produced. If the answer is no, then the next question is whether UBS acted wilfully when it deleted or failed to timely produce 2004 Jones Day. All rights reserved.

2 relevant information resulting in either a complete loss or the production of responsive information close to two years after it was initially sought. If UBS acted wilfully, this satisfies the mental culpability prong of the adverse inference test and also demonstrates that the deleted material was relevant. If UBS acted negligently or even recklessly, then Zubulake must show that the missing or late-produced information was relevant. Id. at *7 (footnotes and citations omitted; emphasis added). The open issue posed by the court is what constitutes all necessary steps to guarantee preservation and production. In the context of the facts presented, the court concluded that UBS Warburg s in-house counsel and outside counsel took a number of steps to ensure preservation and production, but they did not do enough. With respect to the obligations of a party, the court noted that [o]nce a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a litigation hold to ensure the preservation of relevant documents. Id. (citations omitted). The court stated that once a litigation hold is in place, a party and its counsel must take steps to make sure that the hold notice is sufficient. In particular, the court held that counsel must: make certain that all sources of potentially relevant information are identified and placed on hold, to the extent required in Zubulake IV. To do this, counsel must become fully familiar with her client s document retention policies, as well as the client s data retention architecture. This will invariably involve speaking with information technology personnel, who can explain system-wide backup procedures and the actual (as opposed to theoretical) implementation of the firm s recycling policy. It will also involve communicating with the key players in the litigation, in order to understand how they stored information. In this case, for example, some UBS employees created separate computer files pertaining to Zubulake, while others printed out relevant s and retained them in hard copy only. Unless counsel interviews each employee, it is impossible to determine whether all potential sources of information have been inspected. A brief conversation with counsel, for example, might have revealed that another UBS employer maintained archive copies of s concerning Zubulake, and that archive meant a separate on-line computer file, not a backup tape. Had that conversation taken place, Zubulake might have had relevant s from that file two years ago. Id. at *8 (footnotes omitted). The court recognized the challenges that may be presented: To the extent that it may not be feasible for counsel to speak with every key player, given the size of a company or the scope of the lawsuit, counsel must be more creative. It may be possible to run a system-wide keyword search; counsel could then preserve a copy of each hit. Although this sounds burdensome, it need not be. Counsel does not have to review these documents, only see that they are retained. For example, counsel could create a broad list of search terms, run a search for a limited time frame, and then segregate responsive documents. When the opposing party propounds its document requests, the parties could negotiate a list of search terms to be used in identifying responsive documents, and counsel would only be obliged to review documents that came up as hits on the second, more restrictive search. The initial broad cut merely guarantees that relevant documents are not lost. Id. (footnotes omitted). The court concluded: In short, it is not sufficient to notify all employees of a litigation hold and expect that the party will then retain and produce all relevant information. Counsel must take affirmative steps to monitor compliance so that all sources of discoverable information are identified and searched. This is not to say that counsel will necessarily succeed in locating all such sources, or that the later discovery of new sources is evidence of a lack of effort. But counsel and client must take some reasonable steps to see that sources of relevant information are located. Id. (emphasis in original; footnotes omitted). The court further stated that counsel has a continuing duty to ensure preservation: The tricky question is what that continuing duty entails. What must a lawyer do to make certain that relevant information especially electronic information is being retained? Is it sufficient if she periodically re-sends her initial litigation hold instructions? What if she communicates with the party s information technology personnel? Must she make occasional on-site inspections? Above all, the requirement must be reasonable. A lawyer cannot be obliged to monitor her client like a 2

3 parent watching a child. At some point, the client must bear responsibility for a failure to preserve. At the same time, counsel is more conscious of the contours of the preservation obligation; a party cannot reasonably be trusted to receive the litigation hold instruction once and to fully comply with it without the active supervision of counsel. There are thus a number of steps that counsel should take to ensure compliance with the preservation obligation. While these precautions may not be enough (or may be too much) in some cases, they are designed to promote the continued preservation of potentially relevant information in the typical case. First, counsel must issue a litigation hold at the outset of litigation or whenever litigation is reasonably anticipated. The litigation hold should be periodically re-issued so that new employees are aware of it, and so that it is fresh in the minds of all employees. Second, counsel should communicate directly with the key players in the litigation, i.e., the people identified in a party s initial disclosure and any subsequent supplementation thereto. Because these key players are the employees likely to have relevant information, it is particularly important that the preservation duty be communicated clearly to them. As with the litigation hold, the key players should be periodically reminded that the preservation duty is still in place. Finally, counsel should instruct all employees to produce electronic copies of their relevant active files. Counsel must also make sure that all backup media which the party is required to retain is identified and stored in a safe place. In cases involving a small number of relevant backup tapes, counsel might be advised to take physical possession of backup tapes. In other cases, it might make sense for relevant backup tapes to be segregated and placed in storage. Regardless of what particular arrangement counsel chooses to employ, the point is to separate relevant backup tapes from others. One of the primary reasons that electronic data is lost is ineffective communication with information technology personnel. By taking possession of, or otherwise safeguarding, all potentially relevant backup tapes, counsel eliminates the possibility that such tapes will be inadvertently recycled. Id. at *8 (footnotes and citations omitted). After establishing these standards, the court found that the efforts of UBS and its lawyers fell short: Counsel failed to communicate the litigation hold order to all key players. They also failed to ascertain each of the key players document management habits. By the same token, UBS employees for unknown reasons ignored many of the instructions that counsel gave. This case represents a failure of communication, and that failure falls on counsel and client alike. At the end of the day, however, 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. Though more diligent action on the part of counsel would have mitigated some of the damage caused by UBS s deletion of s, UBS deleted the s in defiance of explicit instructions not to. Id. at * In light of these findings, and the court s view of the conduct of UBS and its counsel in providing tardy and insufficient disclosures and responses during discovery, the court determined that UBS acted wilfully in destroying potentially relevant information, which resulted either in the absence of such information or its tardy production.... Id. at *12. Because the court found that UBS s spoliation was willful, the lost information was presumed to be relevant excusing Zubulake from any need to make a showing of relevance. The court then sanctioned UBS by: (a) imposing an adverse inference instruction with respect to s deleted after August 2001, and in particular, with respect to s that were irretrievably lost when UBS s backup tapes were recycled; (b) ordering UBS to pay the costs of any depositions or re-depositions required by the late production; and (c) ordering UBS to pay the costs of the motion. Lessons from Zubulake V and Beyond While the holding in Zubulake V is specific to the facts pre- sented and questions can (and will) be raised regarding specific actions recommended by the Zubulake court, Zubulake V and other recent cases may provide some useful guidance regarding preservation steps that should be considered in litigation. 3

4 Reasonableness and Good Faith. The Zubulake V deci- sion recognizes that perfection is not the standard. Instead, there is a recognition that the law requires good faith and reasonable steps to preserve evidence. Organizations should examine their litigation response procedures to see if they would withstand scrutiny as being reasonable if challenged in litigation. Consider whether existing procedures could avert the problems encountered in Zubulake (and other reported decisions). Consider what evidentiary record could be made of efforts to identify and preserve evidence to demonstrate reasonableness and good faith. Litigation Hold Notices. Consider sending a litigation hold notice to key employees and pertinent information custodians and advising information technology (IT) staff to suspend auto-delete functions. If a litigation hold notice is not appropriate, or its dissemination needs to be limited, the organization should: (a) take such other steps as may be reasonable to preserve relevant evidence, and (b) be prepared to explain why no litigation hold notice was distributed. Litigation Hold Process. The litigation hold notice starts a process, and someone must oversee compliance with the litigation hold, monitoring the party s efforts to retain and produce relevant documents. Id. at *7. The Zubulake V court commended counsel for instructing employees orally as well as in writing to preserve relevant documents and information. Id. at * The lessons: The legal hold process should be discussed internally and with outside counsel, including the need for oversight; use employee interviews as an opportunity to confirm preservation of evidence in accord with legal holds; and consider repeating and updating notices when litigation is continuing or the document collection is delayed. Coordination Between In-House and Outside Counsel. The respective roles of in-house and outside counsel regarding litigation hold compliance should be well-defined. Communication and coordination between outside and in-house counsel in this area are important. Ordinarily the in-house lawyer (and client) will be primarily responsible for document preservation and production, although it may be beneficial to explicitly confirm that arrangement. All involved in-house counsel and staff as well as discovery vendors should be made aware of the preservation considerations. Steps that will be taken to oversee compliance with the litigation hold should be discussed, with due regard to the organization s document retention policies and data retention architecture. Understanding Electronic Data that May Need to be Preserved. The preservation steps to be taken in each case are highly fact-specific, and there is no single blueprint. What is critical, however, is that there is a good faith effort and that the decisions made can be defended if challenged. This will include giving consideration to potential sources of electronic information. This process may involve interviews with key players, discussions with IT personnel, follow-up investigation, audits and documentation of the steps taken. The ABA litigation standards addressing e-discovery (revised in August 2004) provide an expansive list of potential locations to consider in preserving evidence: Standard 29. Preserving and Producing Electronic Information. a. Duty to Preserve Electronic Information. i. A party s duty to take reasonable steps to preserve potentially relevant documents, described in Standard 10 above, also applies to information contained or stored in an electronic medium or format, including a computer word-processing document, storage medium, spreadsheet, database and electronic mail. Types of electronic data as to which a duty to preserve may exist include, without limitation: A. (including attachments); B. Word processing documents; C. Spreadsheets; D. Presentation documents; E. Graphics; F. [Omitted in original]; G. Animations; H. Images; I. Audio, video and audiovisual recordings; and J. Voic . ii. Electronic data as to which a duty to preserve may exist may be located in the possession of the party or a third person under the control of the party (such as an employee or outside vendor under contract). The platforms on which, and places where, such data may be found include, without limitation: A. Databases; B. Networks; C. Computer systems, including legacy systems (hardware and software); 4

5 D. Servers; E. Archives; F. Back up or disaster recovery systems; G. Tapes, discs, drives, cartridges and other storage media; H. Laptops; I. Personal computers; J. Internet data; K. Personal digital assistants; L. Handheld wireless devices; M. Mobile telephones; N. Paging devices; and O. Audio systems, including voic . iii. Electronic data subject to preservation may include data that have been deleted but can be restored. 1 This expansive list in the new ABA Civil Discovery Standards must be tempered with an understanding of what is at issue in the case, including a recognition of unreasonable burdens and costs. Organizations may wish to consult other resources, such as The Sedona Principles and the recently re- leased public comment draft of The Sedona Guidelines (Septem- ber 2004), which are available at org. Conclusion The identification and preservation of electronic data and documents present substantial challenges and risks for organizations of all sizes. Analyzing the unique issues that arise with electronic data is a difficult task. Organizations need to create and implement litigation hold processes for electronic documents that are reasonable and defensible under the circumstances. Of course, the nature and scope of these processes will vary widely between and even among organizations of different sizes and types there is no one size fits all solution. This conclusion is dictated not only by cases such as Zubulake, but also by good business judgment that recognizes that the preservation, retrieval, and use of electronic information may well be key to success on the merits of disputes. Further Information For further information, readers are urged to consult their regular contacts at Jones Day, the principal author of this publication, Jonathan Redgrave (telephone: ; jredgrave@jonesday.com), the chair of Jones Day s e-discovery committee, Steven Bennett (telephone: ; scbennett@jonesday.com), or any other member of the Firm s e-discovery committee concerning their own situations or any specific legal questions they may have. General messages may be sent using our web site feedback form, which can be found at This Jones Day Commentaries is a publication of Jones Day and should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general informational purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at its discretion. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. 1 See Discovery%20Standards.doc 5