As companies become more technologically sophisticated, discovery of electronically stored information in litigation is becoming more common. More importantly, it is fast becoming a very significant trap for the unwary. A party's failure to adequately and reasonably fulfill the discovery obligations associated with ESI is likely to carry a very high price – as Blitz USA recently discovered – when a court concluded that its e-discovery efforts were so woefully inadequate as to constitute willful and blatant violations of a discovery order.
The crux causing this latest wave of discovery abuse cases is the historical practice of many companies to "self-collect" ESI for their outside litigation counsel. This trap is most often sprung on companies involved in litigation that alleged that the same (or similar) product defect has caused an injury. In these cases, Plaintiff lawyers often share, compare and scrutinize the discovery produced in similar cases to ensure they have all relevant documents and to seek a litigation advantage if a defendant failed to produce something important. But, the trap can be sprung anytime an opposing party can show that you failed to produce all relevant documents.
As Blitz USA and others have learned the hard way, failure to provide all relevant ESI or allowing spoliation of ESI can result in sanctions. Sanctions, however, are not the only risk of improperly handled and collected ESI in discovery. When ESI collection is poorly planned or executed, companies risk spending more than should be necessary to repeat what inevitably is a very expensive process to ensure that every relevant document was collected, reviewed and produced.
Blitz involved a products liability litigation in which the plaintiff successfully convinced the Court to re-open the case over a year after it was settled following trial and levy sanctions for alleged discovery abuses. In a post-settlement show cause hearing, the Court found that Blitz willfully violated its court order by systematically destroying ESI evidence, failing to produce relevant e-mails and documents and committing other discovery violations in bad faith. Plaintiff's counsel discovered these abuses nearly a year after the case settled while conducting discovery in another case alleging the same claims against Blitz.
In Blitz, the company relied solely on its own employees to search for, collect and produce relevant e-mails – a practice called self-collection. The use of self-collection creates many inherent risks, some caused by inadvertence, laziness, or lack of technical or legal training and some very serious risks caused by interested employees seeking to protect their reputations by withholding or deleting incriminating e-mails. These risks might have been minimized if Blitz had involved its IT department, as supervised by legal, in the ESI search and allowed attorneys to review and identify the relevant documents. Instead, Blitz over-delegated to its own employees the legal obligation to conduct a thorough search and that effort was totally botched.
In its analysis, the court found that the e-mails and documents that Blitz failed to produce were extremely valuable and "resulted in manifest injustice" for the plaintiff. Although Federal Rule of Civil Procedure 26(g) only requires parties to make a reasonable effort to search for and produce documents responsive to a discovery request, the court found it completely inadequate and unreasonable for Blitz to assign responsibility for searching for and collecting ESI to a single manager who described himself to the court as being "as computer illiterate as they get." The evidence showed that Blitz made no effort to search e-mail. None. They only looked at paper. The manager admitted never seeking professional IT help to search for ESI; preferring instead to talk to relevant document custodians "face to face" to ask them to look for documents. In fact, the court found that "[a]ny competent electronic discovery effort would have located [the relevant] e-mail" because the major issue in the case was written in the subject line of the e-mail and the person in charge of collecting documents in this discovery was a recipient of that e-mail. It is hard to defend an ESI data collection effort as being reasonable when an inexperienced person is placed in charge of a process. Today, a reasonable discovery effort for a case like this clearly requires a competent e-mail search.
Another glaring issues in this case involved Blitz's failure to issue a litigation hold. Indeed, Blitz's IT department (again, not involved in the ESI discovery efforts) actually instructed employees to routinely delete electronic data, as documented by at least 10 e-mails across a two-year span, and repeatedly rotated its backup tapes permanently deleting data.
Ultimately, the court found that the failure to produce was intentional, not reasonable error. Although the court declined to re-open the case because statutory deadlines had passed, it ordered the defendant to pay $250,000 in civil contempt sanctions. It also imposed a "purging" sanction of $500,000, extinguishable if the defendant furnished a copy of the order to every plaintiff in every lawsuit proceeding against it for the past two years. Finally, it ordered the defendant to file a copy of the order with its first pleading or filing in all new lawsuits for the next five years.
This case demonstrates the necessity of knowing how to fulfill your ESI discovery obligation the right way and creating and implementing a competent discovery process to find, collect, organize, review and produce ESI. When ESI becomes discoverable it is extremely important to identify all custodians with relevant information and instruct them to maintain the integrity of their data. This generally means having a well-developed litigation hold policy and process in place to ensure that e-mails and documents later collected for processing and review are not altered or become corrupt and no longer retrievable. This requires a company to have a thorough understanding of how it processes and stores ESI because it is too risky to rely on employees to recall where they stored ESI especially if the information is a few years old.
Collecting ESI data is an area where it is almost always advisable to rely on the help of a third-party expert who can testify about the processes used and defend them if they are called into question. An investment in an e-discovery expert will help ensure that your company avoids sanctions such as the ones imposed in this case.
There may be cases in which reliance on self-collection is justified. It all depends on the case, the amount in controversy, whether legal counsel is supervising the discovery effort, and whether the case is unique and stands alone or it is just one of many similar lawsuit against the company. With proper and knowledgeable legal counsel to ensure the integrity of the process, companies can minimize the need to incur the additional expense of full IT collection and attorney review.
Over the past decade, the legal obligation to preserve ESI has been shaped by case law across the United States. Blitz is just the latest in a line of cases (Ford Motor Co. v. Edgewood Properties Inc., 257 F.R.D. 418 (D.N.J. 2009) and Phillip M. Adams & Assoc., LLC v. Dell, Inc., 621 F. Supp. 2d 1173 (D. Utah 2009)) that have been highly critical of self-collection efforts by the individual custodians.
At Gardere, we have that knowledge and experience, and the resources to address any e-discovery issue you may face. For example, David Grant – the Firm's Director of Electronic Discovery – practiced as in-house for 12 years at Enron Corp. and Wal-Mart Stores Inc., where he obtained experience in all aspects of electronic discovery. In these positions, he developed and implemented electronic discovery solutions designed to address both the legal and technical requirements of his employers' nationwide electronic discovery obligations and ensured compliance with state and federal rules on electronic discovery.
If you have any questions about discovery of electronically stored information, please contact Gardere Partners Peter McLauchlan (firstname.lastname@example.org or 713.276.5730) or Peter Vogel (email@example.com or 214.999.4422).