There are many options when it comes to preserving electronically stored information (ESI). These range from less to more complete, and from less to more expensive. Which point on the spectrum you choose may depend on a number of factors, but such choices should never be based solely on cost. You must identify and evaluate risk factors as well.
Fortunately, the e-discovery jurisprudence has provided some guidelines to complement common sense in choosing the right preservation method for any particular investigation or litigation.
Many companies conduct preservation by sending out hold notices to custodians who are likely to have relevant information in their possession, admonishing them to refrain from destroying designated ESI. This method relies on the custodians for compliance. It assumes that they will read, understand and implement the instructions. There can be no doubt that this is, at least before the efficacy of the preservation effort has been tested, the lowest-cost means of attempted compliance with preservation obligations.
However, common sense and case law counsel that such simple and inexpensive steps are, alas, inadequate in many cases. Increasingly, courts are frowning on what they perceive as misplaced trust and confidence in custodians to uphold the integrity of the truth-seeking process. Moreover, with the increasing sophistication of parties demanding assurances that discovery disclosures are complete, the bar for acceptable ESI preservation has been raised.
Inside counsel are often left in a quandary when assessing the competing factors of cost and risk in determining how to implement a litigation hold. While every matter is unique, certain guidelines can help shape the analysis. These guidelines suggest that there are many common situations when collecting the information from the custodians is the better way to assure preservation.
- Consider the allegations in relation to the custodians. Ask whether the allegations directly or indirectly implicate the behavior of certain custodians. For example, does the employment case involve allegations of discrimination carried out by specifically named individuals? If so, then leaving it up to them whether and what to preserve is probably ill-advised.
Their incentive to “lose” information is too great. Even if the allegations against them are false, if they inadvertently lose ESI they were supposed to preserve, no one will believe it was an accident.
Rule #1: The wolf should not guard the henhouse. A conservative approach does not rely on people to preserve their own data where the preservation obligation arises from allegations that directly or indirectly implicate their personal behavior. Accordingly, collecting the ESI—taking it out of the custodians’ hands—is the preferred method of preservation here.
- Consider the importance of the custodians in the corporate organizational chart. Senior executives, such as the CEO, have major responsibilities that require their constant attention and focus. Presumably, it is more valuable for the company to have them attending to these weighty business matters rather than reviewing and implementing hold notices. For this reason alone, it would make sense to preserve their ESI by collecting it rather than leaving it up to them.
Moreover, the reputational damage to a company whose CEO or other senior executives destroy evidence can be significant. This is not the kind of news shareholders like to read about.
Rule #2: Where senior executives of the company, such as the CEO, are custodians, caution dictates collecting their information rather than imposing the burden of ESI preservation on them.
- Consider the stakes involved in the matter. Does the matter involve a Department of Justice investigation with potential criminal liability at stake? Does the matter involve a complex intellectual property dispute that attacks the company’s rights to its only product? Does the plaintiff state a viable cause of action with a well supported and whopping billion dollar damages claim?
Rule #3: The higher the stakes, which could include consequences other than money, such as jail or reputational damage, the more the balance weighs in favor of collecting the ESI rather than leaving it in the hands of the custodians.
While it is beyond the scope of this column to discuss the variety of collection methods, inside counsel always face the overarching balancing of cost and risk. For example, it may be difficult to explain to a judge why the company did not collect data in the most comprehensive way possible, such as by forensically imaging hard drives, where there were five custodians and the amount in controversy is in the tens of millions of dollars.
Nevertheless, the first and highest risk is at the preservation stage, involving difficult decisions of timing and scope at a time that often significantly precedes the institution of any formal legal process. Following the guidelines outlined above can help jumpstart the effort to figure out how to accomplish a defensible litigation hold.
The views expressed herein are those of the author and do not necessarily reflect the views of Ernst & Young LLP.