When Corporate Records Become Evidence: In-house Counsel and Management’s Obligations When Litigation Looms

Once litigation is anticipated, corporate records quickly turn into evidence. Therefore, as Zubulake v. UBS Warburg, LLC and its progeny have made clear, in-house counsel and corporate management must understand their obligations to preserve these important documents and effectively implement litigation holds.

When litigation looms, counsel must send a litigation hold letter to everyone who may be a source of relevant information, including IT and human resource professionals, supervisors, and others. The letter should order that all routine destruction of relevant information must stop and all relevant information must be preserved. The letter should define “relevant information” and the places where it may be found. (Note: it may be in the hands of third parties).

After sending the letter, the next step is collecting and preserving the relevant information. There may be pitfalls in using inhouse IT staff for this collection. For example, the simple copying of information may change a file’s date-and-time stamp, and booting computers may change or delete files. Also, IT may overlook some information, such as that stored on hand-held or home computers and that found in social media. In some instances, a forensic copy of data may be important, and therefore, an expert may need to be called. Also, using vendors for collection may avoid corporate IT professionals from being called for depositions.

The duty to preserve is ongoing, and the process of preservation must be actively monitored. As new sources of relevant information are discovered, the litigation hold letter should be updated and redistributed. Counsel should record all steps taken to preserve relevant information.

The consequences of failing to properly implement litigation holds may include denial of dispositive motions, striking of claims and defenses, and, in the most egregious cases, even dismissal. Some courts have subjected in-house counsel and corporate management to personal fines and sanctions for not taking responsibility for the preservation of data. For example,

in Danis v. USN Communications, $10,000 in fines were levied against a CEO who delegated all responsibility of implementing a litigation hold to an in-house attorney who had no litigation experience. In Swofford v. Eslinger, an in-house government lawyer was sanctioned for failing to take affirmative steps to monitor the compliance of a litigation hold.

To minimize risk, companies should create a discovery team and discovery checklist, even before litigation is anticipated.

A discovery team should include, at minimum, in-house counsel, management, and personnel from IT, human resources, and accounting. This team will analyze and document how corporate data and records flow and where data is stored. The team will create a discovery checklist that identifies IT plans, organizational charts, how emails are handled, whether document retention policies are in place and who is managing them, what systems are being used, which systems have been abandoned, and where tangible files are stored.

Creating a discovery team and checklist will help the company quickly educate outside counsel when litigation does arise, and ensure litigation holds are effectively implemented. It may also help explain why information is unavailable and address other concerns early in the process to help minimize surprises down the road. Lastly, if ever called into question, it helps demonstrate good faith efforts on the part of the company to understand its obligations to preserve relevant evidence.

Take-aways:

• Send litigation hold letters to key players in a timely manner;

• Monitor compliance of litigation holds;

• Update litigation holds as new information arises;

• Create a corporate discovery team and establish a discovery checklist; and have document retention policies in place that are consistently applied and routinely monitored.

For more information, please contact:

Jennifer A. Mucha

716-848-1549

jmucha@hodgsonruss.com

Jennifer A. Mucha was part owner of a technology company and vice president of operations for the online division of a large telecommunications company before becoming an attorney at Hodgson Russ.

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