This is the third in a series of articles exploring how e-discovery costs can be contained by limiting discovery with mutually agreed-upon terms in commercial contracts (Part 1 and Part 2). In this installment, we show you how to use contract terms to specify when the parties’ duty to initiate preservation of documents is triggered.
The Federal Rules and the law of spoliation provide that parties have a duty to preserve potentially relevant evidence whenever it can be reasonably anticipated that a lawsuit will be filed. Exactly when litigation is reasonably anticipated, however, is oftentimes more gray than black and white. And while a smattering of courts have addressed when this standard is satisfied, there are many subtle variations as to when the duty to preserve attaches, which can vary by jurisdiction and venue. Since decisions with respect to the timing and scope of preservation are frequently required to be made prior to filing of a case, a party is required to determine its preservation obligations without benefit of knowing the specific rule that will be applied. The practical effect of this is a least common denominator approach; parties end up adopting the most conservative features of each jurisdiction’s rule resulting in requirements that are more onerous than any one single jurisdiction. This type of over-preservation costs money, and lots of it.
Moreover, much of the case law is quite fact-dependent, leaving a prospective party to interpret application of the standard in one’s own litigation context. For these reasons, inside counsel will often find themselves playing a guessing game, where the penalty for guessing wrong can be an adverse inference instruction and loss of the case. Because of this, the conservative approach has been useless over-preservation, with all of its attendant monetary and operational costs.
To avoid the guesswork surrounding the triggering of preservation duties, you can create greater certainty and direction through the use of contract provisions. For example, insert clauses in your contracts providing that no party to the contract has any affirmative obligation to preserve evidence absent a specific written request from another party. This clause could likewise preclude any party from seeking sanctions due to the failure to preserve evidence absent such written notice. Such contract provisions could simply require a written request, or go further in prescribing that the request be detailed in terms of time frame, subject matter scope, and even target sources of information for preservation.
A provision that identifies exactly when preservation is triggered removes the gray area — the uncertainties — associated with this confusing and oftentimes contentious area of the law. In its place, it provides a bright line rule. Moreover, it rids parties of the staggering burden and expense associated with over-preservation, an ill-fated alternative for those who desire not to find themselves the targets of spoliation claims.
Here is an example of what such a clause would look like. (For the full model, see “Using Contract Terms to Get Ahead of Prospective e-discovery Costs and Burdens in Commercial Litigation”.)
I. Preservation of Information.
a. Within a reasonable time after receipt of a Notice of Dispute, the Parties shall:
i. Issue a Legal Hold Notice to its current employees directly involved with the subject matter of the dispute directing those employees to preserve relevant documents in their possession (with notices sent to additional current employees directly involved as those additional employees are identified);
ii. Take reasonable steps to preserve responsive Documents in the custody of current employees subject to a Legal Hold Notice who are terminated or transferred; and
iii. Take reasonable steps to preserve responsive Documents located in Server Based Systems.
b. No Party shall be required to preserve any Documents or other information beyond these steps. Specifically excluded from preservation are [include as appropriate]:
i. Backup tapes;
ii. Information or Documents in the possession of third party service providers;
iii. Server logs;
iv. Information stored in volatile memory; and
v. Transient metadata.
c. No party is obligated to take preservation efforts prior to receiving the written Notice of Dispute and the Parties agree that they will not argue that any failure to preserve information prior to receiving the written Notice of Dispute is culpable, wrongful, or sanctionable in any fashion.
d.The Parties acknowledge that these preservation steps may be less than what might be otherwise required absent this agreement and may be insufficient to preserve many documents that might ultimately be discoverable in litigation, but expressly agree to limit the Parties’ preservation obligations as set forth herein.
This model language also clarifies limits on the preservation requirements relating to systems which are often very expensive to preserve and which frequently contain only data which is useless to the case. When negotiating this language, you and the other party should think carefully about the subject matter of the agreement and determine ahead of time whether things like server logs or backup tapes would be likely to have relevant data.
One of the great challenges facing records management and information governance professionals within an enterprise today is the problem of legacy data repositories, which may or may not have data under legal hold. Because of the uncertainty, you end up in a situation where you can’t dispose of anything. By adopting these contract terms in your standard language, you can slowly move to a world where your legal holds are more rigorously defined, which allows you to apply your records retention schedule with far fewer exceptions for data that may or may not be subject to hold.
Despite the unquestionable benefits of such a provision, it is not without its potential downsides. First, it does not obviate the potential need to preserve information relevant to non-contractual disputes between the parties and other persons. Nor does it affect any statutory or regulatory obligations to retain information. As a result, parties could over-rely on the existence of such clauses, which could create a false sense of security. Second, a party could lose the opportunity to demonstrate its legitimate claims or defenses under the contract if another party destroys relevant information prior to receipt of any written notice demanding preservation. This, however, is a two-way street: Each party realizes the possibility that it could miss out on relevant information, but it is done knowingly, willingly, and in service of the greater good of streamlining and reducing the expense and burden associated with litigation.
Litigation is a game and games should have rules. But the rules always apply to both sides. The question is: Are you ready to apply rules in an effort to make gameplay easier and less expensive, even if these same rules could someday cut against you?
Next in this series: Language to include in your contracts to limit the number and type of data sources subject to discovery.