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By:  Brian K. Stewart, Esq. & Robert R. Walker, Esq. – Collins Muir +Stewart, LLP.

More than ten years ago when we hit the proverbial “Y2K,” individuals and organizations around the world were frantically backing up their electronic files and systems in an effort to save the computer data that was becoming so critically important to everyday life.  Now, more than a decade later, companies and individuals are doing everything they can to delete and destroy electronically stored information they fear could hurt them in a lawsuit or arbitration.   Our information age and reliance on massive amounts of electronic data raises a salient and somewhat daunting conundrum for businesses in California.

What do we do with our data and what happens if we delete it before or during a lawsuit?

ESI and the Courts

Electronically Stored  Information  (“ESI”)  is  becoming  an  increasingly  important  part  of  the litigation discovery process throughout the country.  Plaintiffs and defendants alike are seeking recovery of electronic files, emails, system server information, even text messages and “Tweets” or Facebook messages and the courts are increasingly willing to allow this discovery to proceed. This signals an alarming trend for businesses potentially faced with not only having to save ESI, but  to  also  assist  the  opposition in  recovery efforts  to  produce  ESI  stored  on  computers, networks, and even cell phones.

At least initially, the courts were reluctant to impose sanctions or to delve too far into the electronic landscape, but this is changing.  Perhaps this was simply a function of the law lagging behind the hard disk or an older judiciary being replaced by tech savvy judges, but over the past couple of years there have been a series of decisions, many of them coming out of the 9th Circuit Federal Court (the Federal Circuit for California and several other Western states) and the rulings are predominantly in favor of saving and producing data.

9th Circuit’s Message is Save That Data!

The first question anyone should ask is: “What kind of data do I have to preserve?”  In California, the answer may well be anything that is potentially relevant evidence in your possession or control. (Leon v. IDX Systems Corp., 464 F.3d 951 (9th Cir. 2006).)  This may include information and ESI on  computers, laptops, and  even portable electronic devices, and the duty to protect this information extends to what one court has called the “key players” of an organization. A “key player” is someone in the organization that has access to relevant information that is associated with the claims or disputes at issue in the case.  (Hous. Rights Ctr. V. Sterling, 2005 WL 3320739 (C.D. Cal. Mar. 2, 2005)).

So what happens when a “key player” decides to delete or destroy ESI they know to be relevant to the dispute at hand?  If the court determines the loss of data (called spoliation of evidence) substantially denies the opposing party’s ability to support or defend a claim, the answer may be expensive sanctions and even dispositive rulings against the party destroying the ESI.

The determination of whether or not it was reasonable for ESI to be destroyed is becoming a careful balancing act and some California courts have already ruled that a showing of bad faith is not required. Dae Kon Kwon v. Costco Wholesale Corp., No. CIV 08-360 JMSBMK (2010 WL 571941).

This means the party seeking the ESI may not even have to prove the deleting party acted improperly; instead, all that must be shown is the deletion or destruction of the ESI was negligent or that it was somehow disobedient conduct that resulted in the loss of data that could have been relevant. (Henry v. Gill Indus., 983 F.2d 943 (9th Cir. 1993)).

And, as this article’s title suggests, some judges (outside the 9th Circuit) have even recently handed down decisions where sanctions were granted over deletion of ESI that included jail time for flagrant attempts to delete ESI during an ongoing proceeding. (Victor Stanley v. Creative Pipe, 269 F.R.D. 497 (D. MD. 2010)).

Standards and Safeguards for Businesses to Comply with ESI Requirements

With the threat of sanctions, dispositive rulings, and even jail time in some states all looming over our heads, the real issue today regarding ESI is how companies and individuals can protect themselves and what safeguards need to be considered.

At the very least, sound document retention policies must be in place in every organization and must be strictly followed.  Any deviation from the retention policy is cause for alarm.  For most companies, document retention policies are already in effect.  What these companies need to do now is make sure their retention policies extend to ESI and that the information is being properly handled in compliance with the stated policy.  Putting this safeguard in place protects the data and also helps to avoid the appearance of impropriety if and when disputes arise.

Beyond standard data retention, all businesses need to recognize that once a dispute has ripened into litigation, there is a very real possibility that a court is going to place strict requirements on the parties to ensure data is not lost or deleted.  In many situations, a “litigation hold” is sent out by the opposing party demanding retention of ESI.  Often, these “litigation holds” demand that a party must not erase, destroy, alter, or otherwise dispose of any document or ESI. Further, the court may also impose onerous requirements to back-up and recover data during the litigation.

As our business world continues into the 21st  Century, electronic data is becoming increasingly important, and the courts have recognized that ESI is an integral part of the discovery process. Please contact us  at  either the  South Pasadena or  Orange offices to  discuss how ESI  is impacting you and your organization.

About the Authors: Brian Stewart and Robert Walker are attorneys with the law firm of Collins Collins Muir + Stewart, LLP, 1100 El Centro Street, South Pasadena, CA 91030, Phone: (626) 243-1100; www.ccmslaw.com; e-mail:  bstewart@ccmslaw.com and rwalker@ccmslaw.com