atLaw
Christopher M. Morrison
617 226-3465
Associate
Areas of Concentration
Business Litigation
Office
Almost twenty years ago, a federal judge observed: “From the largest corporations to the smallest families, people are using computers to cut costs, improve production, enhance communication, store countless data and improve capabilities in every aspect of human and technological development.” Bills v. Kennecott Corp., 108 F.R.D. 459, 461 (D.Utah 1985). Although modern technology has indeed revolutionized business, it also presents a virtual treasure trove of information that is susceptible of discovery when a business finds itself in litigation.
A single CD-ROM can hold 325,000 pages of text, the average laptop computer (with a 2 gigabyte hard drive) can hold up to 1,000,000, and the average desktop personal computer up to 2,000,000. It would take at least 333, 24-inch filing cabinets to hold those same 2,000,000 pages of text. It is easy to see why electronic discovery has become one of the hottest topics in complex business litigation.
The watershed cases concerning e-discovery originate in the United States District Court for the Southern District of New York. One case in particular, Zubulake v. UBS, has resulted in three separate opinions that have reverberated across the country. Laura Zubulake was an equities trader for UBS, making approximately $650,000 a year. When UBS hired Zubulake in August 1999, it told her that she would be considered for her supervisor’s position when it became vacant. In December 2000, Zubulake’s supervisor transferred to a different UBS office. Instead of considering Zubulake, UBS replaced her supervisor with another man, who Zubulake claimed treated her differently than the other traders in the office, all of whom were men. Zubulake filed a charge of gender discrimination with the EEOC in August 2001, and was fired two weeks later.
What naturally followed was contentious and expensive litigation. During discovery, Zubulake requested “all documents concerning any communication by or between UBS employees concerning” her. The definitions accompanying Zubulake’s document requests expressly noted that electronic or computerized data was included in the request. In response, UBS produced some 100 pages of emails. Because Zubulake herself had produced about 450 pages of emails, she knew UBS’s production was not complete. As it turned out, UBS had not searched any backup tapes to locate old or “deleted” emails, claiming the cost of such a search would be about $300,000.
A few technical clarifications are in order at this point. First, the term “deleted” is something of a misnomer. In fact, deleting a file has no real effect on the portion of the hard drive where that file is stored. Instead, deleted files are merely identified in the disk’s directory as available space that can be overwritten when needed. Until it is overwritten, data remains recoverable even if it no longer appears on the directory. Such data is known as “residual data.” Deleted data may also exist on one or more backup devices, including backup tapes, optical disks, or other media. Depending on their size and type, organizations may back up their data daily, weekly, monthly, or all of these, by taking a “snapshot” of extant data at a given point so that, in the event of a catastrophe, the firm’s systems can be reconstructed and only data of the most recent vintage will be compromised.
In Zubulake, UBS had not searched its backup tapes or optical disks for old or deleted emails. Faced with this conflict, Judge Shira Scheindlin addressed two related questions: whether UBS should be forced to recover data from backup resources and produce it, and which party ought to bear the cost of that production.
Under Rule 34 of both the Federal and Massachusetts Rules of Civil Procedure, a party may seek production of any document, “including writings, drawings, graphs, charts, photographs, phonorecords, and other data compilations.” Courts have generally recognized that the rule encompasses electronic data compilations. See, e.g., Antioch Co. v. Scrapbook Borders, Inc., 210 F.R.D. 645, 652 (D. Minn. 2002). Who pays for such discovery, however, is a question rarely litigated.
Rule 26, which contains the guideposts for discovery, permits courts to limit the scope of discovery if a request is unreasonable or burdensome. The general presumption is that each party will bear the costs of producing its own discovery. Judge Scheindlin noted, however, that this presumption may be difficult or unfair to apply when a party seeks electronic information because “otherwise discoverable evidence is often only available from expensive-to-restore backup media.”
Judge Scheindlin crafted a neutral cost-shifting approach that requires a court to weigh seven factors, each of which ought to afforded different weight. The first two factors, (1) the extent to which the discovery request is specifically tailored to discover relevant information, and (2) the availability of the information from other sources, are the most important. If the information sought is relevant, the party producing the information is more likely to have to continue to bear the costs.
The second group of factors addresses the costs of production more directly. These factors include: (3) the total cost of production compared to the amount in controversy, (4) the total cost of production compared to the resources available to each party, and (5) the relative ability of each party to control costs and its incentive to do so. An additional consideration—(6) the importance of the litigation itself—rarely comes into play, but when it does it has “the potential to predominate over” the other factors. Finally, the least important factor is (7) the relative benefits of production as between the requesting and producing party.
Judge Scheindlin stopped short of actually allocating the costs of discovery in her May 2003 opinion, instead finding that the application of the above-stated factors was fact-intensive. She ordered UBS, therefore, to restore and produce documents from a small subset of backup tapes. This sampling, she reasoned, would inform the overall costs of production, as well as help determine the likelihood that relevant information was contained in other tapes.
Zubulake selected backup tapes corresponding to a five month period following her initial EEOC charge. By hiring an outside vendor, UBS was able to recover and produce approximately 853 pages of additional responsive emails at a cost of $19,003.43. UBS estimated the cost of reviewing all relevant backup tapes and producing relevant emails to be $273,649.39, including $165,947.67 to restore the tapes and $107,64.72 in attorney and paralegal costs.
Applying her own newly-fashioned test, Judge Scheindlin determined, under the first factor, that the emails produced from the backup tapes were of marginal importance—although they provided evidence of a hostile environment, they were not direct evidence of discrimination. Applying the second factor, Judge Scheindlin noted that there was evidence in the new production that the supervisor Zubulake accused of discriminating had taken steps to conceal or destroy particularly relevant emails. Judge Scheindlin went on to apply all seven factors, noting that the value of the case was in the millions, and that only the seventh factor—consideration of which party stood to benefit from production—weighed in favor of cost-shifting. Nonetheless, she determined that some cost-shifting was appropriate, and allocated 75% of the cost to UBS and 25% to Zubulake.
A few months later, the parties were back before Judge Scheindlin, this time because certain backup tapes containing potentially relevant data (specifically emails) were missing. Zubulake asked the court to sanction UBS for spoliation (destruction) of evidence. Specifically, Zubulake wanted the court to (1) force UBS to pay the full cost of restoring the remainder of the backup tapes, (2) give a so-called “adverse inference” instruction at trial, and (3) require UBS to pay for re-deposing some witnesses concerning issues raised in newly-produced emails.
Judge Scheindlin described a party’s obligation to preserve documents in the following way: “Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents.” As a general rule, a litigation hold does not apply to inaccessible backup tapes maintained solely for the purpose of disaster recovery, but if backup tapes are accessible (i.e., actively used for information retrieval), then such tapes must be preserved. Judge Scheindlin created one exception to this general rule: “If a company can identify where particular employee documents are stored on backup tapes, then the tapes storing the documents of ‘key players’ to the existing or threatened litigation should be preserved if the information contained on those tapes is not otherwise available.”
Judge Scheindlin’s opinion raises two important and relatively novel points. First, at least in the Southern District of New York, and probably elsewhere, litigants are now officially on notice that anticipated or pending litigation gives rise to a requirement that “key players” backup tapes be preserved. Second, Judge Scheindlin highlighted the importance of a company policy about preservation of data, or so-called Document Retention Policies. Because she concluded that, at least until the date of her decision, UBS might have been unaware of the scope of its duty to preserve, Judge Scheindlin imposed the least of Zubulake’s three requested sanctions, ordering UBS to fund the depositions of four witnesses.
For some time, the Business Litigation Department at Hanify & King has made it a practice to expressly include electronic media in all document requests. The practice has already yielded concrete benefits for our clients, whose litigation positions are improved by access to documents they might not otherwise have ever seen, including emails and archival versions of websites. We often notify opposing parties even before discovery is commenced, and in some cases before filing a Complaint, of their duty to preserve all relevant documents, including those stored on electronic media.
Over the course of the past year, we have also been drafting Document Retention Policies for clients. These policies are designed to ensure that appropriate documents are preserved (in accordance with case law and various statutory requirements like the Sarbanes-Oxley Act). By adhering to a well-crafted Document Retention Policy, businesses achieve the dual purposes of ridding themselves of unwanted and unnecessary documents and data at regular intervals, and insuring against a charge that relevant evidence was knowingly destroyed. Document Retention Polices should address how often files are backed-up, how often tapes are recycled, how archives will be searched if necessary, and perhaps most importantly, how destruction procedures will be suspended in the event of actual or anticipated litigation.
