Inadequate Information Management Policy Leads to Third Party eDiscovery


Many organizations have adopted an Information Governance policy of “not having a policy” for many reasons such as to save on costs associated with managing information or… to frustrate eDiscovery requests, i.e. if I can’t find it, then I can’t produce it.

The policy of purposely deleting (not retaining) business records is not necessarily illegal, unless you put that policy in place to thwart eDiscovery or you have federal or state retention requirements. The “no information governance” policy can have unforeseen consequences. Case in point: Peter Kiewit Sons’, Inc. v. Wall Street Equity Group, Inc., No. 8:10CV365, 2012 WL 1852048 (D. Neb. May 18, 2012).

The case involves claims by the Plaintiff Peter Kiewit Sons’, Inc. against Defendants Wall Street Equity Group, Inc., Wall Street Group of Companies, Inc., Shepherd Friedman, and Steven West for the alleged violation of various aspects of federal and state trademark law, unfair competition, and commercial misrepresentation including the misuse of the “Kiewit” brand.

The Defendants assist business owners in marketing their businesses to prospective buyers. One strategy the Defendants allegedly use is to suggest to some of their potential clients that Kiewit may be a potential buyer of the client’s business

During the course of discovery, the defendants had objected to a number of the plaintiff’s interrogatories and requests for production on the grounds that the requests are “not reasonably calculated to lead to admissible evidence” – that is, the information requested in not relevant. The Defendants also argue that many of the requests are meant solely to harass the defendants (The court found no merit to that claim). This case has many interesting aspects but the one piece that interested me was the part where the defendants record retention policy and practices were called out.

In a section of the court’s memorandum titled “Defendant’s Inability to Serve as a Reliable Source of Discovery”, the Judge remarks;

“The corporate defendants claim that, consistent with their standard practice, they do not retain any correspondence unless it results in a completed sale. Thus, the defendants claim they would have no documents showing how often and to what entities they sent proposals (to include any proposals using the Kiewit mark for marketing). The record itself includes evidence of this practice; specifically, defendant West acknowledges that he submitted a proposed merger to the plaintiff concerning a company called Agra, but the defendants have produced no documents regarding that proposal, presumably because it did not result in a sale.

Since the defendants have a document retention practice of destroying all marketing records unless a closing occurs, to obtain a complete picture of the extent to which the Kiewit mark may have been used by the defendants, records identifying those who received the defendants’ marketing must be obtained. As a result of the defendants’ own document destruction practices, the only remaining sources for information regarding the content of defendants’ marketing materials are the recipient third parties. Information regarding the identity of these third party business contacts, whether obtained by a third party subpoena or in response to written discovery served on the defendants, is relevant to determining the extent of defendants’ use of the Kiewit service mark.

There is nothing necessarily improper about a company’s reasonable pre-litigation document retention policy whereby documents are disposed of in periodic intervals. Generally speaking, spoliation arguments are unsuccessful if relevant documents were destroyed in accordance with the business’ reasonable document retention policy and/or practices.

However, even a reasonable practice of destroying documents may have unintended consequences. By failing to retain any documentation, a defendant may lose its ability to credibly defend claims asserted against it, and it may open avenues of third party discovery which would have been closed had the defendant retained documents consistent with standard business practices, and thereby been considered a reliable and complete source of the relevant discovery.”

As the Judge stated, there is nothing potentially improper about deleting records on an on-going basis, but those who choose this policy should be aware of the third part consequences. Do you really want opposing attorneys causing your customers and suppliers to have to respond to your eDiscovery?

In this case the Judge granted the plaintiff’s request to identify the defendant’s contacts and client lists to and to proceed with third party discovery on some or all of these clients. The Judge also ordered the defendants to turn over financial information, such as the defendants’ accounts receivable and record of its various completed business transactions to further help in identifying potential targets of third party discovery.

Putting some real teeth in eDiscovery sanctions will drive effective information management


Ok, I know there is a push back from the legal industry in reference to the problem of the cost of discovery. Yes, companies create, use, receive and delete huge amounts of electronic information on a daily basis and it is unreasonable to expect an organization to have enough of a handle on this moving target to be able to place an effective legal hold – quickly, and provide all responsive information in response to an eDiscovery request. But come on… organizations live and die by their information, especially electronic information and if an organization doesn’t have enough of a handle on their data to be able to place a legal hold on select data, then I’m sorry they have other problems.

It all comes down to effective information management. Why is it unreasonable for a Judge to expect a company knows what data it has at any point in time and can find it when it needs to?

I understand the proportionality doctrine argument, and it makes sense. If proportionality did not exist, a plaintiff’s counsel could win every case just based on how they construct their discovery request.

Many businesses in the United States have long given employees total control of the company records, with a few exceptions, with little or no central control or even knowledge the information exists and how it pertains to the business. This does not seem the best business decision for the long run.

Maybe eDiscovery can serve as the impetus to nudge companies to start taking information management seriously. If Judges start imposing even larger penalties and fines for what amounts to eDiscovery failings because of ineffective or no information management policies in an organization, then we may see a corporate change of attitude.

In a recent LTN Law Technology News article, e-discovery analyst Barry Murphy of Murphy Insights noted that very few sanctions for e-discovery have had any real teeth, and the few that have involved large dollar amounts have been overturned. In some cases, e-discovery snafus have led to negative inferences that almost certainly impacted the outcome, but he says even those rulings seem to have had little impact. “The sanctions we’re seeing are too small to register with many people, and while negative inferences may lead to a bad outcome, the impact is not always obvious,” says Murphy. “Once we see a sanction for many millions of dollars because of a failure to preserve electronic evidence, the point will be clearer.”

Let me offer some common sense suggestions around information management and eDiscovery:

  1. Have regularly updated and tested records retention policies
  2. Get rid of data your business no longer needs
  3. Really know what electronically stored information (ESI) you have and don’t have
  4. Be ready to find it quickly
  5. If you are a big enough organization, have tools on hand to help in the searches
  6. Have a tested litigation hold process. Be able to stop records deletions based on content, employee, date etc. quickly
  7. Have a tested eDiscovery process

Too many organizations are willing to risk the consequences; “It’s never happened to me before”. If you manage your ESI effectively, then discovery response should not be a problem

eDiscovery ROI and ESI Archiving


The Cost of Collection:

Medium to large sized organizations are being driven to lower their overall litigation costs by bringing more of the eDiscovery processes in-house. To do this, organizations need to understand and proactively plan for the eDiscovery process. The most cost effective way to quickly lower eDiscovery costs are to prepare for the collection phase by putting in place an ESI archive to capture and manage those ESI silos that are most requested…Email, File System and SharePoint ESI.

The average cost to acquire all potentially responsive ESI from all corporate infrastructure locations including email servers, file shares, SharePoint systems, as well as from all custodian locations including desktop/laptops, local external storage devices, portable media such as USB thumb drives, CDs and DVDs in a defensible manner is between $1000 and $2000 per custodian discovered.

Realistically, the cost of eDiscovery can be reduced dramatically if your organization understands the eDiscovery process and proactively plans for it. Some areas to look at include:

  1. The number one way to reduce e-discovery expense (besides not getting sued/investigated) is having less data to collect/review
  2. Create, follow and enforce an ESI records retention policy to control legacy data including backup retention which should be in sync with the retention ESI retention policies
  3. Eliminate custodian PSTs. These little bombs are the biggest contributor to the cost of collection and review
  4. Develop and implement a litigation hold policy and have all custodians review and signoff on it
  5. For medium to large organizations, the most effective cost and risk reducer, besides reducing the amount of ESI in your organization, is to put a centrally managed ESI archive in place with centrally managed ESI retention policies. If, for example, you have an ESI archive which collects and manages your email data, file system data and your SharePoint data, the most requested ESI data types in discovery, then for those data types, you no longer have to search every custodian’s workstations, removable media, etc. A simple query of the archive will let you find, place legal holds, cull, review and export responsive ESI in a fraction of the time you normally take.

Eight Tenets for Building Effective Records Retention Policies


Corporate records retention policies for many companies are afterthoughts with little understanding of how the company truly uses its documents/records/ESI. In my experience, many companies leave the decision of whether to keep records and for how long to their employees. This strategy is dangerous and costly when litigation is potentially possible. Allowing your employees total control over records and ESI drives the cost of eDiscovery up because you greatly multiple the number of possible storage ares you must check for responsive records. It also increases the risk of spoliation when a litigation hold is required.

So to lower your cost and risk during eDiscovery, creating and enforcing effective records retention policies is a great first step to take.

Building effective records retention policies for eDiscovery preparedness, storage management, regulatory requirements etc. is not an exercise that should be done by a single individual or department. Put a cross departmental team together to fully understand how your organization uses and discards records.

The Eight Tenets:

  1. Understand any and all regulatory retention requirements you may have. Every organization will have federal or state retention requirements. The most obvious is the HR related regulations.
  2. Understand how and why your employees use data. You don’t want to create policies that make employees less productive or take away their ability to use and reference the data the need for their jobs.
  3. Create a common sense retention schedule. Don’t create an overly complex schedule that employees will quickly find ways to work around or ignore. Keep in mind the 5 second rule: If it take employees more than 5 seconds to decide how long to keep a record/document, they will almost always choose the longest retention period available.
  4. Build in a ESI litigation hold process…and test it.
  5. Train your employees on the new policies and insure they understand why the policies were created.
  6. Enforce the retention policies with audits and punishments if not followed. This step is important in litigation to be able to show the Judge of your “good faith intent” to insure ESI is not recklessly destroyed.
  7. Insure the language of the poplicy stands up to scutinity in the event of litigation by having your external counsel review the policies annually.
  8. And lastly, document everything you have done.

Depending on the size and complexity of your infrastructure, an ESI archive may be appropriate.