Hitting the Delete Key    May Have New Meaning

Serious Potential Liabilities Exist

Despite the lack of attention that has been given to document retention at some companies, the consequences for not being able to produce supporting evidence in the event of litigation can be severe. If an IT department, for example, tapes over electronic records that are later deemed to be evidentiary, the company could be charged with ‘virtual shredding' of evidence and penalties could be imposed.

A company could also be charged with ‘adverse interference' if it does not comply with e-discovery in a federal case. In one gender discrimination lawsuit, which is described in the box below, a judge penalized the company in question for destroying e-mail messages that were deemed to be relevant to retain.

With such dire consequences, companies need to create formal electronic document retention programs.

One way to help deal with the issue is to have a trained individual responsible for handling relevant paper and electronic documents. Many corporations have a governance risk and compliance manager - sometimes called a GRC manager - to direct their retention programs. With the time and costs involved, however, other companies outsource document retention to outside firms that specialize in the area. In fact, "e-discovery vendor" is now a burgeoning career field.

While outsourcing may solve technical, time and cost concerns, it is sometimes criticized when it comes to electronic document retention. Reason: Company insiders have the best handle on an operation and its employees. A happy medium struck by some companies is to bring in a trusted vendor with a standardized software solution while retaining in-house management of the document retention policy.

When it comes to complying with the expanding e-discovery net, one step is to confine the avenues through which your staff members do business. Many employees with demanding responsibilities often work from home or remote locations during off-business hours. Since those e-mails and messages could be subject to federal e-discovery procedures, erecting a stricter barrier between work and personal communications can go a long way toward compliance.

For example, if employees are restricted to using company e-mail and messaging systems for business communications regardless of where they are working, the discovery net narrows considerably. While enforcing such a policy can be difficult, merely enacting internal rules and expectations may safeguard a company from liability.

Company policies will play an important role in the event of a legal challenge. Demonstrating that you are mindful of the need to preserve relevant data may offer some measure of protection. The federal rules contain a safe harbor provision that protects parties from sanctions for failing to produce electronically stored information that were lost as a result of a "routine" good faith operation of a company's system. But the provision under Rule 37(f) is complex and meeting the element of good faith can be difficult.

For business executives and IT departments, the task of managing electronic information is a daunting one. But the potential costs of not having a well-defined document retention policy are high. Your company could be required to spend a fortune attempting to produce information in a discovery request. Even worse, you could be hit with court-imposed sanctions, be forced into an expensive settlement, or lose a frivolous lawsuit because you can't produce documents considered reasonable to retain.

One Case Highlights the Issues and Implications The importance of preserving electronic data that might have legal significance was illustrated in one U.S. District Court case. Laura Zubulake, a former UBS Warburg equities trader, contended in a lawsuit that the company fired her after she filed an EEOC discrimination charge. She alleged the firm denied her a promotion because she is a woman. As the litigation began, the company's in-house lawyer instructed employees via e-mail to preserve electronic and hard copy files related to Zubulake's employment and to set them aside for the attorney's review. This warning, however, didn't specifically extend to backup tapes made of e-mails and other documents. Some backup tapes were recycled (or overwritten) and Zubulake argued relevant material was destroyed. There was also evidence that some company officials ignored orders to preserve e-mails and continued to delete them. Judge Shira Scheindlin agreed that the backup tapes and e-mail deletions were mishandled. Among other penalties, she ordered the company to pay the plaintiff's attorney fees generated in investigating the evidence destruction. The judge also instructed jurors at trial that they could infer the destroyed e-mails contained information that would have helped Zubulake in her case. Judge Scheindlin said the company's lawyers erred in simply instructing employees to preserve electronic evidence rather than taking steps to actively monitor whether those orders were being carried out. She said instructions should be communicated to "key players" in litigation and "periodically re-issued" so that new employees are aware of them and they remain fresh in the minds of all staff members. (Zubulake v. UBS Warburg, LLC., No. 02-Civ. 1243, S.D.N.Y., 7/20/04)