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ABA Section of Business Law


Business Law Today

E-Discovery and Electronic Evidence in the Courtroom
A Primer for Business Lawyers
By Timothy J. Chorvat
No matter how diligently business lawyers work to guide clients away from litigation, some disputes will end up before the courts. When that happens, a party must be able to tell its side of the story and to address the merits of the dispute without facing distracting or even disabling issues concerning the spoliation of electronic evidence.

Spoliation is a nasty-sounding word, and for good reason. Lawyers have heard stories of woe about unfortunates who have faced serious, even case-dispositive sanctions for spoliation, which is defined as the destruction of discoverable evidence in violation of a duty to preserve that evidence. Those horror stories have produced concern that, in turn, has fueled news reports and CLE sessions full of updates and filled e-mail inboxes with solicitations from parties who seek to help us understand, or cope with, the new reality. Making things even more complex, the Federal Rules of Civil Procedure have been amended with new provisions designed to integrate electronic evidence and materials into every stage of the litigation process.

So, is spoliation really something that the business lawyer needs to be worried about?

Yes. With a caveat: e-discovery and spoliation issues call for planning, not panic. With preparation, follow-through, and an eye toward what a judge will see as reasonable, the risks can be managed. The most critical advice is to avoid anything that could be seen as bad faith and to be especially careful that information provided to a court be verifiable and correct. Most of the horror stories involve a lapse on one or more of those basic principles. One of the greatest ongoing challenges for business lawyers facing the new world of electronic information will be to deal with e-discovery and electronic evidence issues, and to avoid spoliation, on the budgets available in real-world business situations.

E-Discovery
The 2006 amendments to the Federal Rules of Civil Procedure changed the landscape of electronic discovery, but they did not create electronic discovery in the federal courts. Electronic discovery has existed in one form or another for as long as information has been stored in computer memories and other electronic media.

The Federal Rules have referred to electronic materials that may be sought and produced during discovery since the 1970 amendments, which added the term "data compilations" to many of the rules. Although "data compilation" is an awkward way to describe an e-mail or many other forms of computerized information, courts were receptive to discovery of electronic sources of information and applied existing concepts to govern discovery of computer-based information. Nonetheless, electronic discovery presented issues that were fundamentally different from those that paper discovery had created, including questions concerning the scope of discovery that would be permitted into electronic materials as well as the allocation of the cost of electronic discovery.

Dealing with those issues, courts developed principles that now are embodied in the 2006 amendments. One especially prominent case was Zubulake v. UBS Warburg, a gender discrimination case from the Southern District of New York. The plaintiff in that case, a former trader at UBS Warburg, sought production of e-mails from backup tapes. In a series of published opinions, Judge Shira Scheindlin set out principles that have been widely applied.

In Zubulake, the defendant initially opposed producing e-mails from backup tapes, contending that the cost of restoring the backup tapes would be prohibitive. The district court crafted a seven-factor test to determine which materials would be produced. The court's test focused on the relevance of the information, the absolute and relative costs and benefits of producing the information, and the importance of the issues involved. In subsequent opinions, Judge Scheindlin dealt with follow-on issues, including who pays for the discovery (the court allocated the expense between the parties) and the consequences of the defendant's failure to suspend the recycling of backup tapes (the court imposed an adverse-inference instruction, as discussed below).

As to who pays for e-discovery, courts often start from the perspective that a party is responsible for maintaining its own records and makes its own decisions as to how to keep those records. Accordingly, courts are reluctant to shift the cost of responding to discovery requests to parties requesting information as long as the requests bear a reasonable relation to the litigation. However, courts have ordered requesting parties to bear some or all of the costs of restoring backup tapes or assembling responsive data when requests look like fishing expeditions or if the requesting party has acted unreasonably.

The 2006 amendments to the Federal Rules of Civil Procedure replaced the term "data compilations" with "electronically stored information" and added new provisions that require electronic materials to be considered and discussed at every stage of a case in federal court. When a complaint is filed, one of the first events to occur (often after the resolution of a Rule 12 motion to dismiss) is the discovery planning conference required by Rule 26(f). Parties always were free to discuss electronic evidence issues at that conference, but the 2006 amendments require such a conversation. Rule 26(f)(3) mandates that parties discuss, and include in their discovery plan, "any issues relating to disclosure or discovery of electronically stored information, including the form or forms in which it should be produced."

Similarly, Rule 26(a)(1) now specifies electronically stored information along with documents and tangible things as categories of items that must be produced, without a request, at the outset of discovery. That means that a party must be prepared, at the very beginning of the case, to provide the other side with every e-mail and electronic file that the party may use to support its claims or defenses. Likewise, Rule 16 has been amended to include "provisions for disclosure or discovery of electronically stored information" among the topics that a court may address in a case management order.

One of the most important features of the 2006 amendments is a presumption against having to produce materials that are "not reasonably accessible." Rule 26(b)(2) now provides that a party responding to a discovery request need not produce materials "from sources that the party has identified as not reasonably accessible because of undue cost or burden." However, the responding party's assertion that materials are not reasonably accessible does not end the matter: the requesting party can challenge that designation in court, in which case the responding party will have to prove that the burden or cost involved in producing the materials makes them "not reasonably accessible." Even if the responding party makes that showing, the court still can order production if the requesting party shows good cause, although the court may impose conditions on that discovery. Also, keep in mind that, although "not reasonably accessible" materials may be withheld from production, a party is not free to destroy those materials. The safer course is to preserve those materials while seeking a court order permitting their destruction.

The 2006 amendments also changed procedures governing discovery requests and subpoenas. Rule 34(b) now provides that a document request "may specify the form or forms in which electronically stored information is to be produced." Requesting parties can be expected to request materials in native format, that is, in the electronic form in which the material was generated, in order to maximize the information that can be gleaned from the data. Conversely, if a request does not specify the form for production, the responding party "must produce the information in a form or forms in which it is ordinarily maintained or in a form or forms that are reasonably usable." Rule 45, which governs subpoenas, contains equivalent language. A key lesson is that a party seeking electronically stored information should specify the format in which it wants to receive the information.

Because the volume of data involved in the production of electronically stored information often dwarfs the amounts that would have been produced in an otherwise similar case in the past, the new rules specify a procedure for handling claims of the inadvertent production of privileged materials. The amendments do not change the substantive law of waiver governing inadvertent production, however.

Another aspect of the 2006 amendments that has garnered attention is a provision in Rule 37, sometimes referred to as a "safe harbor." Rule 37(f) now provides that "[a]bsent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system." What does that mean? Clearly, the key phrase is "the routine, good-faith operation" of a computer system. Over time, courts will have to give content to that language, which is imprecise on first glance. In the meantime, a business lawyer should not assume that a party will receive any protection under Rule 37 if it fails to suspend the recycling of backup tapes after it is aware that the tapes contain information relevant to a dispute that may result in litigation, or if the party fails to take steps that a court would conclude are prerequisites to qualifying for Rule 37(f)'s "good-faith" protections. Rule 37(f) will protect truly routine deletions of data such as when data in a computer's RAM memory is erased and a file is saved to a hard disk, or when a file is moved from one storage medium to another. But those "routine, good-faith" actions have not been the source of clients' concern. If Rule 37(f) protects only conduct that never would have been sanctioned, then it is not a safe harbor in any useful sense.

Spoliation
As noted above, spoliation is the destruction of discoverable evidence in violation of a duty to preserve that evidence. The hoary Latin phrase was omnia presumuntur contra spoliatorem: all things are presumed against a spoliator. That principle applies to electronic information just as it does to paper documents or tangible things. The key difference with respect to electronic information is that such evidence can come into existence and be destroyed in new and different ways, sometimes without the conscious awareness of the individuals responsible for maintaining that information.

The elements of spoliation are

  • an act of destruction;
  • discoverability of the evidence;
  • an intent to destroy the evidence; and
  • destruction of the evidence after the party was on notice to preserve it.
The intent issue is particularly critical, as a party need not maliciously destroy evidence for a court to impose sanctions—recklessness and even negligence have been held sufficient. That is not to say that the level of intent is irrelevant; courts try to make the punishment fit the crime, and the most severe sanctions are imposed when courts are convinced that bad faith is involved.

Courts have deployed a wide variety of sanctions against parties who have spoliated electronic information. Some courts have imposed the ultimate sanction available in a civil case, an adverse judgment (that is, a default judgment against a defendant or dismissal against a plaintiff). Other courts have determined specific issues against the spoliating party. A common sanction is an adverse inference instruction: the court instructs the jury that the spoliator was under a duty to preserve the information and that the jury may infer that the destroyed evidence would have been adverse to the spoliator's position. An instruction like that carries a huge weight with a jury. The Zubulake case provides an example—Judge Scheindlin gave such an instruction and the jury returned with a large verdict for the plaintiff.

Courts impose lesser sanctions when the judge concludes that entry of judgment or the imposition of an adverse inference is too severe. Courts have required spoliators to pay their opponents' fees and expenses in pursuing further discovery, for example. Other courts have fashioned creative ways to address the effects of the destruction, like barring the spoliator from introducing certain evidence or limiting cross-examination of a witness. Overall, courts have wide discretion to deal with discovery abuses like the wrongful destruction of evidence.

Beyond the possibility of sanctions, some jurisdictions recognize the spoliation of evidence as an independent tort. The law is not uniform on this point; some jurisdictions permit an action only for intentional destruction of evidence; others permit an action for negligent spoliation as well; and the majority of states do not recognize an action for spoliation at all. Nonetheless, the possibility of tort liability provides an additional reason, if one were needed, to take care to avoid spoliation.

How can a business lawyer ensure that his or her client will not be found to have committed spoliation? The easy answer—keep everything—remains impractical, although that may not be the case forever if the price of data storage continues to fall quickly enough. In the meantime, the key is to take all practicable steps to ensure that at least one copy of each nonduplicative, relevant piece of information is retained somewhere, starting from the moment a party first receives notice of potential litigation.

If a party keeps copies of everything on backup tapes, does that fulfill its obligation so that the party need not worry about other copies of the information? Not necessarily, as courts are divided on this point. Some courts hold that a party's only responsibility is to preserve one copy of everything and that backup tapes fulfill that obligation. The other view is that backups are inherently less accessible than active file copies of data so that a party degrades the available information, and violates its duty to preserve that information, by relying solely on backup tapes.

What about the flip side: is a client safe in continuing to recycle backup tapes if one of everything relevant has been preserved in another form? The answer may be different in theory than in practice. In principle, a party fulfills its obligations if it keeps at least one copy of every relevant document and file; duplicates can be destroyed without penalty. In reality, it will be difficult for a party to prove that it has kept one of everything if backup tapes from the relevant time no longer exist. In other words, even a party that has kept all responsive materials may not be able to convince a judge that it has done so if backup tapes that used to hold copies of those materials have been destroyed. This is an area in which it is better to be safe than sorry, particularly where the opposing side may be motivated to create difficulties.

Electronic Evidence at Trial
Most cases involving business disputes are resolved before trial, but when a case does reach the end of the road, it is critical to be able to tell your story to the fact finder—that is, to get your key materials into evidence.

Courts consistently admit electronic information into evidence when an appropriate foundation has been laid. On the other hand, electronic records frequently have been excluded where lawyers have failed to lay a foundation or to overcome an objection that the exhibit is hearsay. In many cases, the need to prove up the foundation of every document and computer file can be eliminated by a stipulation with opposing counsel, who may not want to take the risk that their important evidence may be excluded. Of course, you cannot count on that kind of cooperation.

To lay a foundation, a lawyer must present evidence sufficient to show that the evidence is what it purports to be. As courts have become familiar with computers and comfortable with their operations, the need for technical testimony concerning computer systems has decreased in routine cases so that it is often unnecessary to have a technical witness establish a foundation for a simple e-mail, word-processing document, or spreadsheet. Of course, more complex or unusual forms of data will require more elaborate foundations, and some courts impose higher hurdles than others for establishing the authenticity and integrity of a proposed exhibit. Also, it remains the case that a party may have a hard time gaining admission for its truth of information found on the Internet, in the absence of specific evidence corroborating the source of that data. The case law suggests that parties seeking to introduce information from the Internet would do well to provide evidence establishing the credibility of the Web site from which the information is drawn, particularly if the source is a government site that carries an official imprimatur.

Complicating things, most statements in computer records are hearsay (statements made outside of court) if offered to prove the truth of the statement. That includes e-mails and statements found on Web sites, as well as statements and data contained in other computer files. To come into evidence, such statements need to qualify for an exception to the rule against hearsay.

Lawyers often think first of the business-records exception to the hearsay rule, but e-mails may not qualify as business records because they are too irregular and informal. That doesn't mean that a particular e-mail will not qualify as a business record, but counsel looking to get an e-mail into evidence may need to consider other exceptions to the hearsay rule, such as those for admissions of a party opponent and statements against interest.

Where a party seeks to introduce electronic information as a business record, Rule 902 of the Federal Rules of Evidence now permits a foundation to be laid through a written declaration rather than testimony, with a live witness necessary only if the opponent objects to the certification. Electronic evidence issues, like those involving the preservation of electronic information, place a premium on advance planning.

Conclusion
The expense of preserving and producing ESI can swamp the amount at issue in many business disputes. That cost factor may discourage litigation and encourage alternative ways of resolving disputes. It also should encourage a degree of pragmatism among counsel involved in cases that do not involve bet-the-company scenarios, since both sides often face similar costs. On the other hand, parties sometimes face asymmetrical incentives, as when only one side needs to preserve and produce electronic information, so sweet reason is unlikely to prevail in every case. But expense concerns do not change the fact that business lawyers can promote their clients' interests by anticipating how they will deal with e-discovery and electronic evidence issues before a dispute arises in the first place.

The 2006 Amendments to the Federal Rules of Civil Procedure

The Federal Rules of Civil Procedure have been amended to expressly take account of electronically stored information. The key changes:

Rule 26(a)(1). The rule that requires parties to exchange information at the outset of a case now includes electronic information among the types of documents and things that must be produced to the other side.

Rule 26(b)(2). Parties can decline to produce electronic information that the other side requests if that information is not reasonably accessible (maybe it is on an unrestored backup tape). The court nonetheless can order production for good cause.

Rule 26(f)(3). Parties to litigation are directed to address issues relating to electronically stored information at their discovery planning conference and to include the results of their discussions in their report to the court.

Rule 34(b). Parties now may specify the format in which the other side is to produce electronically stored information.

Rule 37(f). Absent exceptional circumstances, a court will not sanction a party for the loss of electronically stored information due to the routine, good-faith operation of a computer system.
Chorvat is a partner in the Chicago office of Jenner & Block LLP. His e-mail is tchorvat@jenner.com.

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