Written by Attorneys Robert T. Horst and Erin Nulty

Note: This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.

Two recent federal court opinions imposing sanctions on prominent corporations for the deletion of electronic information underscores the importance of preserving electronic documents in the discovery process.

In Zubulake v. UBS Warburg LLC, 2004 WL 1620866 (S.D.N.Y. July 20, 2004) (“Zubulake V ”), the United States District Court for the Southern District of New York ordered sanctions against the defendant, including the issuance of an adverse jury instruction, for the deletion of potentially relevant emails, and set forth an effective communication procedure regarding discovery obligations to be followed by attorneys and clients in preserving electronic evidence.

In United States v. Philip Morris USA Inc., 2004 WL 1627252 (D.D.C. July 21, 2004), the District of Columbia District Court imposed sanctions of $2.75 million on Philip Morris for the willful destruction of emails and precluded the calling of 11 individuals, who had deleted the evidence in violation of the company’s document retention policy, as fact or expert witnesses during trial. In the modern corporate world where electronic communication has taken on such a prominent role, these decisions place both businesses and attorneys on notice that courts are paying close attention to parties’ discovery obligations regarding electronic information.

Zubulake V follows four previous opinions by the District Court addressing electronic document discovery issues during an over two-year discovery period in this case. In Zubulake IV, the court held that the defendant’s negligent destruction of backup tapes neither required it to reconsider its earlier cost-shifting order nor issue an adverse instruction to the jury regarding the destruction of those tapes.[i] The court ordered the re-deposition of several key UBS employees, during which plaintiff learned about the purposeful deletion of emails and the existence of other emails that had not been produced. The court dealt with these issues in Zubulake V.

The central question addressed by the court in Zubulake V was whether defendant and its counsel took all necessary steps to guarantee that relevant data was both preserved and produced. In answering this question, the court examined counsel’s obligations to ensure the preservation of relevant information through clear instructions to the client, as well as the client’s obligation to comply with those instructions. After examining all the evidence, the court concluded that a failure of communication resulted in the willful destruction of evidence, laying the blame for the failure on both counsel and client.

Recognizing that the obligation to preserve electronic evidence falls on both the party and counsel, the court set forth several steps that counsel should take to ensure compliance with discovery obligations and avoid communication failures. First, the court found that counsel must issue a “litigation hold” at the beginning of litigation, or when litigation is reasonably anticipated, that should be periodically re-issued to keep employees aware of its existence. Second, the court determined that counsel needs to communicate directly with all “key players” identified in the litigation to ensure awareness of the discovery obligations and to ascertain the location of relevant electronic information. Lastly, the court found that counsel must instruct employees to produce electronic copies of relevant active computer files and ensure that required backup tapes are correctly identified and stored in a safe place. The court stressed the importance of counsel’s role in monitoring compliance with these steps. Once these steps are taken, the court noted that a party has received full notice of its discovery obligations and “acts at its own peril” if it fails to heed counsel’s instructions or a court’s order.

In Zubulake V, the Court found that the defendant had a duty to preserve emails and that this duty was breached through the destruction of relevant emails, even after the entry of court orders and the receipt of warnings from counsel. After concluding that this conduct was willful, the Court held that the deleted information was presumed to be relevant and that a jury instruction to that effect would be given to the jury. The court also ordered the defendant to pay costs and fees associated with the motion, the re-deposition of several key UBS employees and the restoration of a backup tape.

In Philip Morris, the United States filed a Motion for Evidentiary and Monetary Sanctions against the defendant for the deletion of email over 60 days old on a monthly system wide basis for a period of at least two years after a court order was entered requiring the preservation of electronic documents. The court found that high level corporate employees of Philip Morris directly involved in work relevant to the litigation had continued to delete emails, in direct contravention of the Order and the company’s own document retention policies. The court noted that the employees who deleted the emails held some of the highest, most responsible positions in the company and found it “astounding” that they failed to meet their document preservation duties.

In fashioning a remedy, the court refused the government’s request for an adverse inference regarding several key issues in the case related to youth marketing, finding that “such a far-reaching sanction is simply inappropriate.” Instead, the court, looking to deter the destruction of electronic evidence, imposed a monetary sanction of $2.75 million to “fully reflect the reckless disregard and gross indifference displayed by [the defendants] toward their discovery and document preservation obligations.” In imposing a large monetary sanction, the court hoped to deter any future destruction of electronic evidence and warned the corporate and legal community that “such conduct will not be tolerated.” Additionally, the court precluded those individuals who had deleted the emails from testifying in any capacity at trial, which would clearly affect the defendants’ ability to successfully defend their case.

As can be seen from the above decisions, a party’s obligation to preserve and produce emails and other electronic files is a responsibility that should not be taken lightly by either counsel or client. The steps outlined in Zubulake V present a clear and straightforward method to prevent the destruction of relevant electronic information. It is clear that courts are becoming more sophisticated in their analysis of electronic discovery issues and are setting new standards for preservation and production that can only be ignored at a company’s own peril.