[E180]Electronic Discovery And Evidence

With practitioners struggling to apply new amendments to the Federal Rules of Civil Procedure dealing with electronically stored information, the recent opinion in In Re NTL, Inc., illustrates the dangers of missteps in electronic discovery. Magistrate Judge Andrew J. Peck administered the harsh sanction of an adverse inference instruction for spoliation of electronic evidence.

The problems began in 2002 when Plaintiffs filed a class-action suit against NTL (Old NTL) for securities violations. Attorneys issued “hold memos," instructing employees not to destroy documents that could be relevant to litigation. NTL went through a bankruptcy, after which it emerged as two distinct organizations: NTL Europe, the successor to Old NTL and a continuing defendant in the litigation, and NTL, Inc. (New NTL). When Plaintiffs requested discovery, NTL Europe responded by denying it had any responsive documents because they were all in the hands of New NTL. Therefore, Plaintiffs went through the process of obtaining, at their own expense, non-party discovery from New NTL. Even so, a large percentage of emails and electronic documents from key officers were missing.

A series of discovery missteps was revealed by depositions. First, there was an access agreement, established as part of the bankruptcy demerger, that allowed NTL Europe to freely obtain documents from New NTL for use in complying with its legal obligations. In addition to being angry that counsel did not reveal the agreement at an earlier stage, Magistrate Judge Peck held that the access agreement gave NTL Europe control over the documents, regardless of the physical dislocation. NTL Europe therefore had a responsibility to turn them over in discovery, rather than force Plaintiffs to go through the expensive process of obtaining informal, non-party discovery.

The second misstep was NTL’s failure to preserve electronically-stored information. As soon as NTL reasonably anticipated litigation, it had a duty to preserve relevant documents by suspending its normal document destruction policies and implementing a litigation hold. The two hold memos issued were insufficient. Many employees did not receive them, and others ignored them. Neither NTL company reminded its employees to preserve relevant documents and electronically-stored information. New NTL outsourced its IT systems to IBM without communicating any litigation-hold instructions. Moreover, New NTL replaced its computers, donating the old ones to charity, without any regard for saving the emails on the computers. As a result of all this, responsive e-mails and documents from key players involved in the litigation were lost. Magistrate Judge Peck held that the conduct constituted gross negligence, a culpable state of mind. Because NTL had control over relevant documents, and with a culpable state of mind failed in its duty to preserve those documents, a negative inference instruction was warranted.

There are several lessons to be learned from the case. In the global, electronic business environment, control is an expansive concept unlimited by physical geography. It is essential for counsel to get a handle on the client’s information system and know exactly what information the client actually controls. It is not sufficient to passively issue litigation hold memos. Counsel must take active steps to ensure compliance with the litigation hold and to prevent destruction of electronically stored information. This requires a working familiarity with client’s technology, and technological policies. As illustrated in the case, allowing business to proceed as usual can be extremely costly.