Information Management or Evidence Spoliation: Is the Best Defense a Good Offense?
by William S. Fox and Charles L. Callear, MAXIMUS Federal Inc., Reston, VA
In today's business environment, most crucial information is created, received, managed and stored electronically. In the ever-increasing push toward "paperless environments," much of this data is never reduced to paper. Due to the seemingly limitless ability of this data to be retained indefinitely, new challenges are arising for business managers and their counsel to create workable business policies that can effectively and efficiently manage retention of electronically stored information while, at the same time, maintain an ability to suspend usual retention policies should the need arise due to actual or anticipated litigation, investigation, or audit. Business risks of inadequate management of electronic information can range from an inability to productively and inexpensively use information to an inability to comply with statutory or regulatory requirements, governmental inquiries and litigation related orders. The consequences of an inability to comply with production orders could include increased litigation costs, sanctions and even criminal liability.
The Sedona Guidelines
It is in this context that five crucial guidelines for managing information and records in the electronic age were formulated by the Sedona Conference in September of 2005. The editors of the Sedona Conference referred frequently to an evolving series of discovery decisions in the United States District Court of the Southern District of New York in a gender discrimination lawsuit brought by Laura Zubulake against her former employer, UBS Warburg, LLC.
The Sedona Conference Guidelines recommend:
- An organization should have reasonable policies and procedures for managing its information and records.
- The policies and procedures should be realistic, practical and tailored to the circumstances of the organization.
- An organization need not retain all electronic information ever generated. Courts have recognized that organizations have the right to destroy electronic information that does not meet their internal criteria of information or records requiring destruction. To the question, must a corporation, upon recognizing the threat of litigation, preserve every shred of paper, every e-mail or electronic document and every back up tape, the Court in Zubulake said the answer is clearly "no." Such a rule would cripple large corporations that are almost always involved in litigation.
- Procedures should be developed to address the creation, identification, retention, retrieval and ultimate disposition or destruction of information and records.
May a business entity destroy electronically stored information and records pursuant to a set of reasonable policies and procedures? The answer would appear to be "yes". Indeed, the editors of the Sedona Conference recognize that, in the ordinary course of business, it is expected that organizations will delete or destroy information by choice or necessity. The Supreme Court recognized in Arthur Andersen, LLP v. United States that document retention policies, which are created in part to keep certain information from getting into the hands of others, including the Government, are common in business. However, this affirmative answer is not unconditional.
When You Should Stop Deleting Data
As the Sedona Conference Guidelines recommend:
- An organization's policies and procedures must mandate the suspension of ordinary destruction practices and procedures as necessary to comply with preservation obligations related to actual or reasonably anticipated litigation, government investigation or audit.
Suspension of the ordinary destruction practices must commence when a preservation obligation arises related to actual or reasonably anticipated litigation, a government investigation, or an audit. The purpose of such a suspension is to prevent spoliation, which is defined as willful destruction or failure to preserve evidence.
In the Zubulake litigation, the issue was the spoliation of evidence by the defendant, UBS Warburg. The plaintiff had filed a complaint with the Equal Employment Opportunity Commission on August 16, 2001. The court found that since relevant people at UBS Warburg anticipated litigation in April of 2001, the duty to preserve may have arisen even before the complaint was filed and that the duty to preserve attached at that time.
In Rambus, Inc. vs Infineon Technologies, AG, the issue was spoliation by the plaintiff. Rambus was found to have committed various acts of litigation misconduct, including the intentional destruction of documents relevant to the law suit they brought for patent infringement at en event they termed as "Shred Day". Rambus attempted to persuade the Court that "Shred Day" was merely a part of its ongoing document retention and destruction program; however, the Court found that their position was "significantly undermined by the fact that Rambus has not shown that it was exposed to litigation other than the patent litigation which it was itself formulating."
The Consequences of "Shred Day"
Spoliation of evidence by both UBS Warburg and Rambus resulted in litigation consequences, including sanctions. Following an evidentiary hearing on the issue of spoliation, the court ruled that Infineon had shown that Rambus had intentionally spoliated evidence, and consequently, it applied the crime/fraud exception to pierce Rambus' claims that such information was protected from disclosure by the attorney-client privilege and the work product doctrine. The court noted that the available sanctions for spoliation of evidence can range from adverse inferences being drawn against the party whose records have been destroyed -- to the harshest sanction, namely the outright dismissal of complaints. In this matter, UBS Warburg was ordered to pay the costs incurred to take additional depositions and re-depositions.
A very significant issue for trial counsel is the adverse inference jury instruction by the Court due to its potentially devastating impact to a party's ability to defend itself. In Zubulake, an adverse inference jury instruction was ordered, stating in part that if the jury found UBS Warburg could have produced certain e-mail evidence, that the evidence was within its control and that the evidence would have been material in deciding facts in dispute in this case, the jury is permitted, but not required, to infer that the evidence would have been unfavorable to UBS Warburg.
Attorneys representing clients involved in evidence spoliation have been criticized for their conduct in coordinating those clients' discovery efforts. Counsel for UBS Warburg issued a litigation hold in August, 2001 and repeated the instruction several times over the following year. The court observed that UBS Warburg's counsel spoke personally with some, but not all, of their client's key employees in August 2001 to request that documents be preserved and to halt recycling of back up tapes. Despite these efforts, the court ruled that counsel had failed to properly oversee UBS Warburg in a number of important ways, both in terms of its duty to locate relevant information and its duty to preserve and timely product that information.
Potential Criminal Liability
Improper retention or destruction of documents relevant to trial may even lead to criminal prosecutions. Arthur Andersen, LLP was indicted and tried for obstruction under 18 U.S.C. §1512(b) (which makes it a crime to knowingly use intimidation, threaten or corruptly persuade another person with intent to withhold testimony or a record document or other object from an official proceeding or to alter, destroy, mutilate or conceal an object with intent to impair it's integrity or availability for use in an official proceeding). the government alleged that Andersen continued destroying documents after being notified of the commencement of an SEC investigation. Ultimately, the U.S. Supreme Court reversed the accounting company's conviction, after determining that the jury instructions submitted on the element of corrupt persuasion were flawed.
In another example, Thomas Trauger, a CPA and former partner in Ernst and Young, pled guilty to falsifying records in a federal investigation for not telling the SEC that documents related to an annual audit of NextCard, Inc. had been altered or destroyed. He was sentenced to one year in prison. The Sarbanes-Oxley Act of 2002 provides penalties of up to 20 years imprisonment for knowingly altering, destroying, mutilating, concealing, covering up, falsifying or making a false entry in any record, document or tangible object with intent to impede, obstruct or influence the investigation or proper administration of any matter within the jurisdiction of the United States.
As the editors of the Sedona Conference recognize, no single standard or model can fully meet every business' needs or satisfy every court's requirements in advance. Before it is under the gun, every business should implement, communicate, update and enforce reasonable policies and procedures for record and information management for its own unique business environment. A business may still be called upon to explain or defend its management policies and procedures. The question of whether destruction of a particular record is found to be reasonable record or information management or evidence spoliation may turn on the existence and application of sound and reasonable information management policies and procedures.
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