The Changing World of Electronic Evidence
from
July/August 2005
by Lisa Ferri
If the only thing better than learning from your mistakes is learning from the mistakes of others, then directors need to take a lesson from Philip Morris. Last year the tobacco giant was slapped with a $2.75 million fine by a federal court. The offense? Wrongful destruction of e-mails, otherwise known in legal circles as spoliation of evidence. The court found that at least 11 Philip Morris executives “at the highest corporate level” were guilty of violating a court order concerning document retention. In other words, they purged and paid the price.
United States of America v. Philip Morris USA Inc., et al. is a cautionary tale of the problems awaiting companies that are either unaware of or unprepared for the world of electronic evidence. The rules governing that world are evolving at warp speed.
A court case needn’t be under way to send a company scrambling to retrieve backup e-mail files from the recycling bin. In the words of Brian Coggio, an intellectual-property partner in the New York City office of Orrick Herrington & Sutcliffe who has written about the emergence of electronic information, litigation can be simply “in the air.” Remember, you can face serious legal consequences for destroying could-be evidence in the face of what one judge described as the reasonable anticipation that litigation is about to occur.
“Companies have been laissez-faire too long about document retention,” says M. Sean Royall, a former deputy director of the Federal Trade Commission’s Bureau of Competition. “Changing that attitude starts with the board.”
If shredding documents and deleting e-mails seems far removed from the boardroom, it isn’t. “Board directors can’t bury their heads in the sand anymore,” says Coggio’s associate Todd Krause, who points out that lawsuits involving botched document retention have specifically named directors. Such suits are more common at smaller companies, where it can be easier to trace whether the board has ignored requests for guidance on document retention.
The cost of error is steep. Sanctions aside, even if a company has done nothing wrong and will ultimately win in court, the price tag for unearthing lost or not-easily-found electronic evidence can be staggering. “If nothing else,” says Carl Roberts, a partner with Philadelphia’s Ballard Spahr Andrews & Ingersoll, “board members have to be concerned about something that could abruptly cost their company hundreds of thousands, or even millions, of dollars.”
Companies must strike a delicate balance between document destruction and retention, he adds. “Otherwise you’ll be buried under a tsunami of paper and e-documents when you need to act on litigation quickly.” There must be a sound policy on what is purged and when. Putting it another way, Coggio asks, “If you’re Merck, how long do you hold on to those adverse-event reports on Vioxx? And what about the e-mails back and forth discussing those adverse-event reports? What is your precise policy on that?” Equally important, he says, is having a mechanism to instantly stop the destruction of potentially important data when litigation appears likely.
Luckily, directors don’t have to micromanage that process. “We don’t expect board members to make a personal visit to the computer room to see how they’re storing backup e-mails,” says Roberts. But the board does have to make sure a process is in place. Roberts recommends that general counsel keep tabs on triggers of potential litigation. For example, he says, “you open a new international office, you’re subject to new international regulations, and you have new litigation possibilities.”
Roberts suggests getting management to set specific timelines detailing how long to keep just about everything. That’s because what constitutes evidence is hard to pin down. The list includes not only paper documents, electronic documents, faxes, and e-mails but also voice mails, Blackberry messages, hard drives, and those difficult-to-erase computer backup files. With that much data, even when a company thinks it has all its evidentiary ducks in a row, it might not.
“The information your average computer-using employee never sees”—backup tapes and metadata—“is exactly what’s requested in a government investigation,” says Roberts.
The good news, for now, is that companies aren’t expected to get it right 100% of the time. An e-mail will inevitably slip through the cracks; an employee will inadvertently destroy something important. But, says former FTC deputy director
Sean Royall, if a company can demonstrate through policies and practices that it takes seriously its obligation to preserve evidence, a court may just give it the benefit of the doubt: “If your record shows it wasn’t a failure on the part of the management or the board, you should be able to avoid catastrophic consequences.”
