Rule 37 and the Supreme Court on Document Destruction

ShredderThe Supreme Court articulated its policy on corporate document destruction in Arthur Andersen v. United States, 544 U.S. 696 (2005).  This case considered the appeal of the criminal conviction of Enron’s auditor, Arthur Andersen, once the biggest accounting firm in the world.  Arthur Andersen was convicted of obstruction of justice because it destroyed records pertaining to Enron, and did so knowing that a government investigation was imminent.  The “substantial destruction of paper and electronic documents” by Arthur Andersen was supposedly done in compliance with its records retention policy. Id. at 710.   It argued that had its policies been followed, these documents would already have been destroyed.  But, as the Supreme Court points out, in so doing, Arthur Andersen ignored other sections of its records retention policy prohibiting the destruction of relevant records when litigation is threatened.  Id. at pg. 700, fn. 4. 

There is little doubt that the accounting giant suddenly began to enforce its previously ignored record retention policies in order to prevent the government from getting information on its “creative” accounting services for Enron.  The Supreme Court even notes one incident where a document was destroyed by the firm’s senior accountant for Enron, David Duncan. This document had already been labeled, believe it or not, “smoking gun,” and Duncan destroyed it with the comment “we don’t need this.” Id. pg. 702 Fn. 6.

Arthur Andersen was convicted of obstruction of justice, and the conviction was affirmed by the Fifth Circuit Court of Appeals. How did the Supreme Court react?   It reversed in a unanimous opinion holding that the jury instruction was too stringent.  The Court had this to say on document destruction:

“Document retention policies,” which are created in part to keep certain information from getting into the hands of others, including the Government, are common in business. (citations omitted)  It is, of course, not wrongful for a manager to instruct his employees to comply with a valid document retention policy under ordinary circumstances.   . . . .

A “knowingly … corrupt persuader” cannot be someone who persuades others to shred documents under a document retention policy when he does not have in contemplation any particular official proceeding in which those documents might be material.

Id. pgs.704, 708.

This same Court the next year (2006) approved all of the recent revisions to the Federal Rules of Civil Procedure, including Rule 37(f) which states:

Rule 37. Failure to Make Disclosures or Cooperate in Discovery; Sanctions
 * * * * *
(f) Electronically Stored Information. Absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.

Considering the new rule on ESI destruction, and the Arthur Andersen opinion, you might wonder why some companies are so skittish about following their usual document retention policies.  I have heard some well known e-discovery experts go so far as to state that the entire pharmaceutical industry now never recycles their back-up tapes, instead they save them all forever, for fear of a later spoliation charge.  When I asked Kevin Esposito, the attorney in charge of Pfizer’s internal e-discovery team about this last month at the ABA First National Institute on E-Discovery, he told me that was untrue.  He said it was a matter of public record that Pfizer sticks  by its usual six week back-up tape recycling policies.  He said he is having success rebutting attacks by plaintiffs on this, noting that the courts have now caught on to this plaintiff’s lawyer trick to try to run up expenses and force settlements by frivolous demands for backup tape ESI that would be very expensive to try to restore, search and retrieve.

Most of the attorneys I have heard speak on this issue consider Rule 37(f) a very unsafe harbor, and many counsel unlimited backup tape retention, just to be safe.  They do so in spite of the many burdens, exposure and expenses that they acknowledge a “forever” retention policy will create.   As justification, they point out how difficult district courts have been on spoliation in general, even though there are no cases yet on the new Rule 37(f).  Many seem to forget the  Supreme Court’s strong endorsement of document destruction in Arthur Andersen.  Of course, the destruction must be done in accordance with prior policies, and performed before notice of actual or reasonably anticipated litigation.  (Also see the Rules Committee Commentary on Rule 37(f) quoted in full in the Rule 37 Page at the top of this Blog.)

But, even after notice, does a company have to go so far as to stop its usual recycling of backup tapes on the possibility that only these tapes might contain relevant information, that the relevant ESI is otherwise not available on the “live systems”? Pfizer apparently routinely argues that this is not necessary, and presses the courts for relief on this issue.  But what do the district courts say that causes many pundits to attack Pfizer’s position as too risky?  You have only to look to the opinions of Judge Scheindlin, whom all agree is one of the strictest and most knowledgeable judges in the Country on these issues.  Zubulake IV, an often overlooked opinion in the Zubulake saga, provides the answer.  Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003):

The scope of a party’s preservation obligation can be described as follows: Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a litigation hold to ensure the preservation of relevant documents. As a general rule, that litigation hold does not apply to inaccessible backup tapes, for example, typically maintained solely for the purpose of disaster recovery, which may continue to be recycled on the schedule set forth in the company’s policy. On the other hand, if backup tapes are accessible, that is, they are actively used for information retrieval, then such tapes would likely be subject to the litigation hold. However, it does make sense to create one exception to this general rule. If a company can identify where particular employee documents are stored on backup tapes, then the tapes storing the documents of key players to the existing or threatened litigation should be preserved if the information contained on those tapes is not otherwise available. This exception applies to all backup tapes. (emphasis added)

So, according to Judge Scheindlin, some backup tapes should be preserved, and some need not, even after litigation.  If it is an “enterprise disaster recovery” type of backup tape, one that is very hard to access, then it does not have to be included in a litigation hold.  In other words, it can be destroyed by recycling if the normal procedures call for that.  The only exception is when the backup tapes allow for identification of particular records custodians, such as a particular Outlook user’s PST file, then the particular tape with the particular identified custodian must be included in the hold,  but even then, only “if the information contained on those tapes is not otherwise available.”  

On the other hand, if it is a more accessible type of backup tape, one for instance that is fully indexed and much more easy to search and retrieve, which is  really more like an archive than disaster recovery system, then these type of backup tapes should be included in a hold, even if you do not have evidence that “the information contained on those tapes is not otherwise available.”  

Bottom line, you really have to know and understand what type of backup tapes you are dealing with. Frequently an organization will have more than one kind of backup tapes.  Some may be the later type that are “actively used for information retrieval”, and others may not, they may be “disaster recovery type” that are seldom if ever so used. This later type is usually very expensive to restore and search for relevant evidence.  These inaccessible backup tapes need not be subject to a litigation hold on authority of Judge Scheindlin in Zubulake IV, the Supreme Court in Arthur Andersen and new Rule 37(f).  Nevertheless, until we get a little more guidance on this issue, you should probably still take them out of the normal recycle routine, at least until your opposing counsel agrees, or failing that, you obtain relief from the court on this issue.

4 Responses to Rule 37 and the Supreme Court on Document Destruction

  1. Adam says:

    As the dispositive element in this seems to be “knowledge” of impeding litigation, isn’t this an incentive for corporate officers to bury their heads in the sand to avoid liability?

    So what’s to keep a company from adopting this “ostrich” approach in tandem with a draconian document retention policy (destroy everything every six weeks) in order to protect themselves?


  2. ralphlosey says:

    In situations like that courts usually adopt a known or “should reasonably have known” policy to preempt just such a tactic. The “three monkeys” strategy probably would not work. Besides, the knowledge of a company’s employees are usually imputed to the company itself. The Zubulake case provides a good example of this. The emails of Laura Zubulake’s supervisor (cant recall his name off hand) showed that he knew Laura Zubulake was sure to sue the company, and later showed he knew about the EEOC charge before he decided to fire her.


  3. […] 220 F.R.D. 212, 218 (S.D.N.Y. 2003) on that, as I have done several times in this blog. See eg. Rule 37 and the Supreme Court on Document Destruction and Should a Litigation Hold Include Backup […]


  4. […] Losey, R., Rule 37 and the Supreme Court on Document Destruction (March 31, […]


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