Electronic Discovery and Data Retention Policies

The management of electronic records in litigation is important. In general, there should be a data retention policy for all business entities especially if they are part of a highly-regulated industry such as health care, energy, securities, and banking. There are state and federal laws that regulate the management of electronic records. For example, HIPAA, Sarbanes Oxley Act, and GLBA are the relevant and applicable federal statutes. These laws require the responsible officers to maintain records for a certain period and enforce penalties for intentional document alteration or destruction.

The litigants have the right to engage in discovery and demand the production of electronic records such as emails, letters, pictures, reports, and spreadsheets. The recipient of the discovery documents usually has a limited time to respond but if it fails to produce the requested electronic records, the court may issue sanctions. The courts have the authority to penalize the parties for overwriting emails in bad faith even though they were supposed to retain them for a certain time. So, in other words, the courts may issue monetary sanctions for not following the rules.

What is a data retention policy?

A data retention policy is the procedure of labeling, categorizing, and storing electronic records. It includes deleting electronic records as part of the routine course of business operations. However, the party must show the deletion of its electronic records was conducted in good faith. The courts have held that there is no duty to preserve every shred of paper, email, or electronic record, and backup tape because it’s not practical. Zubulake v. UBS Warburg, LLC (SD NY 2003) 220 FRD 212, 217.

The courts have held that it is not wrongful or improper for a company manager to instruct his or her employees to comply with a valid document retention policy. Arthur Andersen, LLP v. United States (2005) 544 U.S. 696, 704, 125 S. Ct. 2129. In addition, Rule 37(e) of the Federal Rules of Civil Procedure provides a safe harbor from sanctions for electronic record’s loss or alteration and states that a court may not impose sanctions on the party for failing to provide electronic records lost as a result of routine good-faith operation of its electronic information system.

California Electronic Discovery Act

The California Electronic Discovery Act limits the duty of production of electronic records when the party proves that the likely burden or expense of the proposed discovery outweighs the likely benefit. Its federal law counterpart – i.e., FRCP 26(b)(2)(B) – also states that a party need not provide discovery of electronic records from sources that are not reasonably accessible because of undue burden or cost. In the past, data deletion could have been justified because of the lack of storage capacity or high cost. However, nowadays, with the emergence of third-party cloud service providers, it is much easier to store electronic records. Hence, the parties cannot reasonably justify their data deletion practices. For example, technology product providers like Google and Apple permit users to seamlessly backup their electronic records to large drives which they maintain – e.g., Google Drive, iCloud – with a very low cost. Therefore, the courts are not inclined to relieve a party of its electronic records preservation duties especially if the probative value outweighs the burden related to its preservation, identification, collection, and production. Also, backup tapes are not used as much as before since storage hard drives and blades are taking over the job because they can store more than 1000 terabytes – i.e., one petabyte – in an effective and inexpensive way.

Moreover, the parties have a duty to cooperate in defining legitimate discovery needs and limiting the high cost of electronic discovery. The parties also have a duty to craft proper keywords in an effort to exclude false positives. Therefore, it may be a wise decision to include electronic discovery consultants to your team to properly manage electronic records.

It’s important to know your legal rights and responsibilities when it comes to electronic discovery and data retention policies. Please contact our law firm to speak with a knowledgeable internet and technology attorney at your convenience.