There is surprisingly little case law on the duty of the transactional lawyer, whether in-house or outside counsel, in the preservation of electronic information that may be relevant to existing or foreseeable litigation. That is strange given that transactional lawyers are frequently on the scene long before the litigators arrive, and are often in the best position to ensure that businesses promptly take proper preservation steps. Indeed, by the time a litigator is involved, relevant information may already be lost. It is critical for law firms and corporations to ensure that their transactional lawyers know when information preservation duties arise and how to react when they do.
For transactional lawyers, there are numerous situations in which disputes and potential disputes can arise while a transaction is being negotiated and documented. Post-acquisition disputes over asset valuation and contract interpretation disputes have long been the subjects of commercial disputes, just to name a couple. For this reason, deal lawyers, contract negotiation and drafting history are frequently the subjects of discovery and trial evidence in commercial disputes.
What if, during the negotiation, a dispute arises that qualifies as potentially foreseeable litigation? What if that dispute does not ripen into litigation until months after the deal is closed? You can be sure that in litigation the parties will request production of, among other information, drafts of contracts, internal and external emails and myriad other information that could be relevant to the dispute. Did the deal lawyers or their corporate client custodians have a duty to preserve information relevant to the dispute when they became aware of it? Apart from the lawyers, corporate information custodians who are potentially subject to this duty could include anyone in the information chain who possesses relevant information, from the CEO to the mid-level management involved in the transaction.
If a transactional lawyer has no practical guidelines or experience with information preservation, he will not be in a position to provide appropriate advice when such disputes and potential disputes arise during a transaction. The result can be devastating if information relevant to a later dispute is lost at a time when there was a duty to preserve it. Sanctions can be awarded, and the company’s litigation position can be compromised.