Legal Disaster Coming: How Can Businesses Handle E-mail To Avoid Legal Problems?

By Bruce W. Felmly and Cameron G. Shilling
McLane, Graf, Raulerson & Middleton, Professional Association

The President of Ajax Services Company sat in shock after the phone call from the lawyer. The Judge just ordered Ajax to pay to retrieve and produce to the plaintiff all e-mail and electronic documents from a year of backup tapes. There will be a hearing in one month to decide if monetary sanctions should be assessed against Ajax. Not only has the discrimination claim of Ajax's former female Director of Sales distracted the company for over two years, but now Ajax seems to be losing the case, just because the Judge is questioning Ajax's good faith and imposing unrealistic obligations on the company. How did we ever get into such a mess?

The proliferation of electronic records and e-mail has revolutionized business lawsuits. Such evidence must be painstakingly extracted from vast quantities of electronic data, and the spontaneity of e-mail communications, the illusion of its privacy, and the electronic trail make this type of evidence a prime target of discovery.

Assume the document that Ajax most dreads is a derogatory "smoking gun" e-mail initiated by his Vice President of Sales on his wireless Blackberry. If the document is not found and produced to plaintiff, it may result in catastrophic sanctions against Ajax.

A business that first addresses electronic discovery in the context of existing litigation is destined to fail. By that point mistakes have already occurred. Operating a business successfully in this environment requires the understanding and creation of systems to manage electronic data, making defensible choices of what information to save and what to delete, and deciding how to respond at the first sign of a legal claim. There are five key elements to design an effective electronic document storage system:

1. Design and implement a policy governing retention or destruction of data, and make sure it meets the company's needs and complies with the law.
2. Educate and train key employees on the risks and essentials of electronic data.
3. Identify the types and relative importance of the company's electronic data.
4. Establish a policy for handling legal claims as they arise or are anticipated.
5. Identify and train a point person to coordinate and handle electronic information requests and issues.

No one is surprised by the legal consequences to litigants who shred documents. We read about such cases in the newspaper. Electronic data shares that importance, but lends itself to mishandling and destruction even without wrongful intent. Inadvertence, carelessness, failure to instruct employees on retention, and simple obliviousness are often the hallmarks of expensive, court-imposed monetary sanctions. Here are an array of sanctions commonly assessed by courts for failing to properly preserve electronic evidence:

1. The "Death Penalty" default judgment against the offending party.
2. Decision of an issue in the case adverse to the offending party.
3. Ordering the jury to "presume" that destroyed data was harmful to the company.
4. Making the company pay the plaintiff's attorney's fee for document discovery.
5. Assess huge fines or other monetary sanctions.

It is critical to determine when the company must take action to preserve electronic evidence, by recognizing the factors that trigger the duty to preserve. The duty to preserve arises when litigation is "reasonably anticipated." While some cases are straightforward (i.e., a business has received a threat of litigation or plans to file suit itself), legal advice and guidance is frequently required to make this determination. Here are a few practical tips for managing electronic evidence:

1. Identify the key players involved and the likely array of data in existence.
2. Issue a "litigation hold" to all appropriate persons requiring preservation .
3. Work with the point person and the information technology group to gather and secure electronic data and make sure routine document destruction is stopped.
4. Consider making forensic images of hard drives of key people.

Bruce Felmly is Co-Chair of McLane's Litigation Department, a former President of the N.H. Bar Association, and listed in the Best Lawyers in America. Cameron Shilling is Chair of McLane's Employment Litigation Group, and specializes in complex business litigation. They can be reached at www.mclane.com or (603) 625-6464.