The legal reasons to have an e-data maintenance system
The consequences for failing to save e-mail in the face of potential litigation can be disastrous. As discussed in our related article in the Nov. 11-24 New Hampshire Business Review (“To avoid legal catastrophe, preserve you e-mail”), courts now require companies to produce evidence from electronic data, and impose severe sanctions for the destruction of it, even if inadvertent. Avoiding this problem requires businesses to get a step ahead, implementing policies to manage electronic data well before litigation occurs. Waiting to address this issue until a lawsuit occurs is a sure path to trouble. Mistakes occur even before a lawsuit starts. Critical evidence is accidentally (and sometimes intentionally) destroyed after the company becomes aware of a potential claim, but before a lawsuit is filed. Such monumental mistakes are irreversible and expensive to address in litigation. Establishing a system for the preservation and recovery of electronic data for the first time at the filing of a lawsuit is inefficient. It detracts from the substantive work by diverting key legal and corporate personnel. It also can be very costly to undertake in a short amount of time under “fire drill” circumstances. By contrast, tackling the issue in advance enables the company to create well-thought-out policies and procedures that protect both its business and legal interests. Implementing the system in advance also allows the company to do so at a lower cost and more effectively, avoiding problems that will otherwise become the topic of heated and expensive court battles and negatively impact the outcome of a case. There are three steps to setting up an effective electronic data maintenance system: audit and assess the company’s electronic data; create written policies and procedures governing electronic data retention and destruction; and implement and maintain the system. The first step is to audit the company’s information technology practices, assess the type and scope of the data and devices at issue, determine the importance of the data for the business and whether there are legal regulations requiring preservation, and define the justifiable business reasons for determining what data should be retained. When it comes to data retention, “more” is not always better. For a majority of companies, disaster recovery is the most important reason to retain copies of old data. It is common for companies to unnecessarily save multiple versions of past electronic data, simply because it is easy and seems like a safe thing to do. Rather than serving the company’s business interests, these vast quantities of information often serve the interests of the opposing party in a lawsuit. This comes at a great cost to the company, when it is required to restore and search the data for any evidence potentially relevant to the case. Once a company audits its information technology practices and identifies its justifiable business reasons for retaining data, it should then create a written policy detailing the rules and procedures for the retention versus permissible destruction of data. There is a natural tension here between the general rule (i.e., less is better) and the strict legal requirement that all potentially relevant evidence must be preserved for litigation. A company must preserve all evidence that may be relevant to a claim when it “reasonably anticipates” potential future litigation. As a result, business managers must know how to recognize when a potential lawsuit is reasonably anticipated, and the company must have the resources in place to “flip the switch” from a business mode into a litigation mode. That requires the company (and counsel, if appropriate) to assess the subject matter of the likely claim, determine which employees may have information potentially relevant to the claim and where that information is stored, and take appropriate action to secure the data. The following are critical for every company’s policy: • Designate a “point person” for notification about potential litigation and to coordinate the preservation process. The person should have knowledge and authority within the company with respect to business, legal and technology issues. • Create standards to identify when the company reasonably anticipates litigation, procedures to assess which employees may have potentially relevant information and what that information may be and protocols that secure the information. • Design mechanisms to effectively communicate a “litigation hold” notice to employees, informing them about the potential litigation and the obligation to preserve relevant evidence, what data must be preserved, and how to do so. • Implement the company’s policy by training the business managers, “point person” and information technology personnel about the company’s legal obligations, so that you are ready if a lawsuit is filed. Knowing how to handle vital electronic data in the face of contentious litigation is, without a doubt, a daunting task under the best circumstances. Getting your company’s electronic data maintenance policies and procedures in place in advance of any such litigation is the only way to manage this issue effectively. Bruce Felmly is co-chair of the McLane Law Firm’s litigation department and is listed in Woodward-White’s “Best Lawyers in America.” Cameron Shilling chairs McLane’s Employment Litigation Group as well as the American Bar Association’s sub-committees on non-competition and trade secret litigation.