Courting Trouble: To Reduce Liability, Companies Must Know How to Manage Electronic Records and How to Respond to Electronic Discovery Requests

Article excerpt

When Amy Wiginton filed a sexual harassment lawsuit against her employer, C.B. Richard Ellis, Inc., her attorney sent a detailed letter to the company's counsel requesting that the firm stop all destruction of potential evidence, both paper and electronic. Several months later, the two parties finally agreed to a preservation order detailing what type of documents should be protected. However, between the time that it received the letter and the time that the agreement was reached, the company continued to follow its normal document destruction routine. This resulted in the destruction of data stored on e-mail backup tapes and employee hard drives, including that of Wiginton's supervisor.

Wiginton's attorney filed a motion for sanctions. After listening to the company's justification for its actions--including the cost of routine backups and the fact that those backups were used for disaster recovery only--the judge ruled in favor of sanctions. He noted that the costs involved and the procedures established did not excuse the fact that the defendant had willfully and intentionally violated the duty to preserve evidence in this case (Wiginton v. C.B. Richard Ellis, U.S. District Court for the Northern District of Illinois, 2004).

In another case (Stevenson v. Union Pacific Railroad Company, U.S. Court of Appeals for the Eighth Circuit, 2004), Frank Stevenson was severely injured and his wife was killed when a train hit his car. The owner of the train, Union Pacific Railroad Company, destroyed a voice tape of a conversation between the train crew and dispatch that occurred around the time of the accident. The company also destroyed track maintenance records after the accident.

The court issued an adverse-inference instruction--that is when the court instructs the jury to presume that the evidence, if produced, would have been adverse to the party that destroyed it. In its decision, the court noted that Union Pacific had been involved in many crossing collisions and knew that the taped conversations and track maintenance records would be relevant to any pending litigation.

And in a third case (Kucala Enterprises, Ltd. v. Auto Wax Co, U.S. District Court for the Northern District of Illinois, 2003), the court dismissed a patent infringement lawsuit after it found that the plaintiff had used specialized software to delete 12,000 files a few hours before the defendant's expert was to inspect the computer by order of court.

As these cases show, no company can afford to be ignorant about the laws governing electronic document management and electronic discovery issues. Yet industry surveys show that many are.

A 2003 Electronic Records Management Survey (the most current available) by Cohasset Associates found that of the respondents whose companies had a formal records-management program, many did not address electronic records. For example, 47 percent did not have comprehensive retention schedules that included electronic records; and 59 percent did not subject e-mail to any retention policy.

Almost half of the respondents said that their organizations did not have either a formal plan for responding to discovery requests seeking records or a formal system for responding to a legal order to hold records. Finally, 65 percent of respondent organizations did not include electronic records in their responses to legal orders to hold records.

Clearly, companies that have not addressed electronic-records management have a considerable liability exposure. To remedy the problem, senior management must consider the current state of the law and then, working with legal counsel, business units, and IT, craft a comprehensive program.

The law. Electronically stored information has been considered discoverable since federal law was amended more than 30 years ago to allow data compilations to be included in discovery. However, the rules governing the specifics of electronic discovery are in flux. …