To avoid legal catastrophe, preserve your e-mail

Fines, attorneys fees, punitive damages and adverse instructions to the jury — all are dire consequences that businesses face for failing to prepare for litigation in the electronic age. Despite these dangers, most businesses are unprepared, meaning that a legal catastrophe may be looming for your company.

We live during a technological revolution. Computers have fundamentally altered our businesses and personal lives, and the Internet has reinvented the way in which we communicate, transact commerce and obtain information. Businesses have leveraged these advancements by integrating technology into their operations. In doing so, they also have created systems that generate enormous volumes of electronic data, often without evaluating how to manage it.

E-mail is at the center of this issue. It is a spontaneous form of correspondence, resulting in communications that never before would have happened or that would have occurred only in undocumented conversations. E-mail also is relatively permanent, often being stored in multiple locations, such as hard drives, servers, back-up tapes, PDAs, cell phones, zip disks and seemingly innumerable other devices. In fact, there is a burgeoning industry of computer experts who specialize in cutting through this data like a hot knife through butter.

Finally, despite illusions of confidentiality held by most employees, e-mail can be easily accessed by people other than the intended recipients, including a business’ information technology department or a plaintiff’s computer expert.

This all means that businesses possess enormous “haystacks” of electronic data containing tiny “needles” of evidence that managers often are unaware exist.

Hypothetical example

The law is having a revolution of its own with respect to electronic data. Courts now recognize that it is evidence just like a paper document, and that electronic data often is the most critical evidence in business disputes.

As a result, judges are requiring businesses to preserve all electronic data that may contain evidence in a lawsuit. This duty is triggered as soon as a business can reasonably anticipate that a dispute is likely.

In addition, the law now requires businesses to find and disclose electronic evidence to the other side, usually at great time and expense to the company.

As if all of that were not difficult or costly enough, businesses face severe sanctions for failing to fulfill their duties in this regard, such as fines, attorney fees, punitive damages and adverse instructions to the jury. These penalties can be assessed even without any fraudulent or intentional destruction.

Consider this hypothetical, common in business lawsuits. Ajax Services Company is being sued for sex discrimination by a female employee based on allegations that her boss, the vice president, did not treat her equal to her male peers. Some of the e-mails that the plaintiff saved from her employment show the vice president making gender-based criticisms about her performance. The plaintiff’s co-workers also recall receiving e-mails from the vice president that were highly critical of the plaintiff and derogatory of her as a female employee, including a particularly scathing e-mail that the vice president fired off from his Blackberry while boarding a plane at O’Hare. Neither the vice president nor any of the co-workers saved copies any of these e-mails.

Like most businesses, Ajax’s IT department maintains back-up tapes for its servers, but frequently reuses old tapes. Three critical months of back-up tapes from the last year are missing, even though the president had sent a company-wide e-mail ordering the preservation of all possible evidence, including e-mails.

In addition, after the plaintiff filed the lawsuit, the vice president was issued a new Blackberry, and neither he nor the company can find his old one.

In court, Ajax’s president, its vice president and the IT director received a thrashing in from the judge for failing to save or locate the critical e-mails and preserve all of the back-up tapes. As a result, the judge ordered Ajax to restore all of the data from the remaining nine months of back-up tapes and search through all of those documents for any evidence requested by the plaintiff. The work cost Ajax in excess of $100,000 for computer experts and attorneys.

Although Ajax found many e-mails (all of which were damaging to it), it could not recover several critical e-mails, due to the missing tapes, including the e-mail from the Blackberry. Ajax will have to face the judge again to explain the situation, and the judge will make a decision about what to do next.

This is not fiction — it is happening in lawsuits every day.

This legal nightmare is common because, while most businesses rely heavily on electronic communications, few have developed adequate protocols to manage the vast quantities of data generated.

For Ajax, it means that the judge will likely impose monetary sanctions and require it to pay the plaintiff’s attorneys fees related to the electronic discovery battle — easily another $100,000 or more. In addition, the judge may instruct the jury that it can “infer” that the evidence destroyed by Ajax would have showed that the vice president made derogatory remarks to the plaintiff and discriminated against her on the basis of her sex.

Such an instruction will likely lead a jury to award not only regular damages, including money for lost wages and emotional distress, but also punitive damages. In a recent noteworthy example, a jury awarded the plaintiff $9 million in regular damages and another $20 million in punitive damages, in part due to the instructions given to the jury about the reckless destruction of e-mails.

Even well-intentioned companies often cannot fulfill their duties to preserve and produce electronic evidence after a lawsuit is filed, because mistakes have already occurred by that time. Fortunately, courts are now charting a path for businesses to follow to avoid to these problems.

The steps that a company should take now to prepare themselves for litigation in the electronic age will be outlined in a future article in New Hampshire Business Review.

Bruce Felmly, co-chair of the McLane Law Firm’s litigation department, is listed in Woodward-White’s “Best Lawyers in America.” Cameron Shilling, a litigator specializing in employment and intellectual property litigation, chairs the American Bar Association’s Subcommittee on Non-Competition Agreements and frequently presents on the subject of electronic discovery.

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