Law Practice Today

Corporate litigation is a costly, time consuming proposition. There are several traps a company can fall into in the very early stages of litigation if it’s not aware of its preservation duties and has an effective strategy and procedures to ensure that responsibilities are met. One of the major traps is not ensuring that responsive record deletion has stopped when litigation is anticipated or pending. The rise of email as a universal business platform for both communications and transactions has made email and other collaboration related documents a prime target for electronic discovery. Yet, due to the transitory nature of email and the distributed systems in which it resides, identifying the correct documents to hold and then ensuring the hold is carried out presents a major challenge for organizations of all sizes. This article will make the point that current best practices and litigation risk management for messaging environments dictate a detailed, hands-on approach to ensure end-users are aware of and follow litigation hold instructions. We will look in detail at two ways to ensure email deletion is stopped using the Microsoft Exchange email system to illustrate our point.

Litigation Holds

A litigation hold or stop destruction request must alert employees as to the risk to the company and the employee if they fail to heed the litigation hold request. In many companies, the email system is the largest repository of responsive records due to the nature of corporate email. Email messages can include business instructions, legal contracts, financial data, presentations and unguarded opinions about many business related activities and is therefore a major target of discovery in litigation.

Stopping the destruction of email, including calendar entries, contacts and task lists, because of anticipated or pending litigation is an absolute must and also very challenging. Companies around the world are experiencing a higher risk level based on increased litigation, more intrusive discovery requirements and legal strategies that take advantage of this difficulty. In a recent Osterman Research survey, almost 50% of the companies responding have had to perform three or more searches of electronic records to respond to a discovery order in the last 12 months. At a recent ABA TechShow symposium in Chicago, a federal court judge commented that approximately 95% of all discoveries are against a company’s email system. Recognizing and planning for litigation holds and discovery can dramatically lower the adverse effects on your employees and lower your overall cost of legal defense.

Halting email message deletion when legal action is anticipated or actually pending is a legal requirement imposed on all businesses, whether privately or publicly held by various U.S. legal precedents as well as the Federal Rules of Civil Procedure (FRCP). Failure to stop this destruction can cause several unwanted consequences including spoliation (the hiding or destruction of litigation evidence), court sanctions such as fines and the imposition of an adverse inference instruction by the judge. An adverse inference instruction tells the jury that they may presume that the failure to produce the requested records was because the records would have been harmful to that party.

A recent example of an adverse inference instruction is the Ron Perelman versus Morgan Stanley Case. In mid-May 2005, a Florida jury awarded billionaire investor Ronald Perelman a total of $1.45 billion, consisting of $604.3 million in compensatory damages and $850 million in punitive damages from Morgan Stanley. Morgan Stanley lost this case due to their inability to provide responsive emails asked for in the discovery order. The verdict was recently overturned. 

Based on an adverse inference ruling for electronic discovery abuse, the Court instructed the jury in part that:  

"Morgan Stanley participated in a scheme to mislead [plaintiff] and others and cover up the massive fraud at Sunbeam until Morgan Stanley and Sunbeam could close the purchase."   

In reality, this adverse inference instruction reversed the burden of proof. Morgan Stanley would now have to prove they were not guilty.

The Intent and Expectation of the Litigation Hold (Stop Destruction):

Some corporate legal departments treat a litigation hold as a one-time communication (usually an email) to employees, requesting that all information relating to specific content be held and protected for possible production in an anticipated or pending legal case. Many companies wrongly believe an email message to the employee base removes responsibility from the company. Take a look at the Danis vs. USN case or the current Intel situation. In most cases, this litigation hold email is sent to all employees and will be the only communication they ever see. This practice will not ensure all responsive email records are protected. For example, some employees could be behind in reviewing their incoming email and they may not actually read it for weeks. Some employees may be on the road and may not sync to their company email systems for days. Some employees may have reached their mailbox limit and not see the litigation hold message because their email box is refusing new email traffic. Of course, as cases often last for extended periods of time it’s easy to see how even the most diligent employee could forget about a corporate communication sent months or years earlier.

A company’s failure to quickly impose a litigation hold on all responsive records including email can result in court-ordered sanctions, including monetary sanctions and the imposition of adverse inference instructions relating to the information destroyed because an effective litigation hold was not put in place and refreshed in a timely manner.

The following are two examples involving miss-managed litigation holds:

In 2004, a court in the District of Columbia imposed a $2.7 million fine against Phillip Morris after finding that company emails had been erased in contravention of an existing litigation hold. The court ordered that the company's e-mail custodians not be permitted to testify at trial. Also, each of the 11 executives named in the litigation received individual fines of $250,000.

In the Testa verses WalMart case, WalMart lost a lawsuit based on the fact that they had deleted records which would have proven their case. In this case, WalMart should have anticipated that a suit would be brought but did not have an effective policy for holding records involved in anticipated litigation.

Ensuring that all related email content is protected immediately will reduce a company’s risk and potentially costs dramatically.

Current Best Practices for Litigation Hold:

Assuming an email message alone to your employees is not the best way to handle a litigation hold request, let’s look at a detailed process flow based on current, conservative best practices.

The process flow diagram shown to the right is a relatively detailed process flow. The actual details can change based on your company’s infrastructure and culture but the individual steps will point out the thought process that should be followed to ensure a litigation hold has been instituted. You should ask yourself, where are the tasks in the process that can cause the company risk? And what can I do to eliminate or at least reduce the risk to acceptable levels?

In this process flow, there are four specific areas of responsibility; the Internal Corporate Counsel, the legal department Paralegal or Litigation Specialist, the IT department and the employee. Additionally, depending on your company culture we could include a fifth, the employee’s manager.

The Internal Corporate Counsel is usually the first “person of authority” to be made aware of anticipated or pending litigation. Any employee can be the first to become aware of potential litigation thereby triggering the company’s litigation hold responsibility; but, the Internal Counsel will officially start the litigation hold and discovery process.

The company Paralegal, depending on the company’s infrastructure, will be the individual that actually performs and manages most of the above process steps.

The IT department will have the responsibility of ensuring specific systems including backup tapes, are identified and protected until the Internal Counsel decides they are no longer required for discovery.

The Employee’s main job in the above litigation hold procedures is to quickly acknowledge the litigation hold instructions from the legal department and to not delete potential responsive content unless approved in writing by the legal department.

By adopting and enforcing a written set of litigation hold procedures, a company sends a strong message to the trial Judge that the company takes litigation holds seriously. This practice can soften reactions from the court when inadvertent deletion occurs. The Internal Counsel and Paralegal should meet with IT department on an annual basis to become familiar with the company’s IT infrastructure including data producing applications and their assigned storage resources.

The above litigation hold process reflects risk reducing best practices to ensure litigation holds are put in place as soon as possible, are communicated to affected employees, that affected employees acknowledgements are tracked and that a “paper” trail is generated to prove effort to the court in case responsive email is inadvertently lost. The risk of data loss, even with detailed procedures and processes in place, is not zero. This “paper” trail will show the court the company’s efforts in meeting legal requirements. A litigation hold/discovery policy with detailed procedures adopted before the company faces litigation will lower litigation cost and reduce risk overall. That being said, the above process is still costly and time consuming. The above litigation hold process can take between 3 to 6 weeks to step through during litigation.

Lowering the Costs of Litigation Holds with Technology

Any litigation hold process will require careful planning and preparation to implement. A vital part of any smart litigation hold strategy is leveraging leading technologies to produce the most effective solution. An email archiving solution can be used to address an enterprise’s litigation hold requirements at a reduced cost and in a timelier manner.

An enterprise-wide email archiving solution meets all obligations discussed above with far less effort and cost while lower risk of spoliation.

With an email archiving solution, the above best practices litigation hold procedure would be condensed into the following steps:

As shown in the above graphic, an email archiving solution automates the protection of the email messages and attachments. Instead of relying on employees to find and safeguard potentially responsive messages, the corporate legal department can find and secure all potentially responsive emails centrally. Also, litigation holds can be released easily.

If the email archive solution is setup to capture all email flowing through the system, then during discovery, only the archive needs to be checked, removing the need to restore backup tapes, check employee workstations, look through portable storage devices and potentially employee home PCs.

Conclusion

A company’s legal obligations include stopping responsive records deletions promptly when required. Responding to anticipated or pending litigation in a timely manner can lower a company’s overall liability. Wrongful destruction of documents can lead to penalties in both civil and criminal cases. In civil litigation, document destruction can lead to an adverse inference instruction to the jury as a penalty for spoliation. In the criminal context, destroying documents can lead to a charge of obstruction of justice. Penalties in both the civil and criminal contexts can affect the bottom line for the company who purposely or inadvertently destroys records. a manual process for ensuring records deletions suspension is time consuming, labor intensive and expensive. In large companies, it is very difficult to enforce a manual litigation hold across thousands of mailboxes. For companies looking to reduce or eliminate this risk, an email archiving solution provides automated live content archiving of all email content for centralized discovery, secure storage, and the ability to promptly apply and manage litigation holds. Automating the litigation hold processes with email archiving lowers the companies risk for spoliation; reduces your overall legal costs and increases IT and end-user productivity.