Discovery Resources

Lessons Learned about Electronic Preservation of Relevant Data for Reasonably Anticipated Litigation

By Frank Gonnello, Jr.

Peskoff v. Faber, 251 F.R.D. 59 (D.D.C. 2008)

Employee Implicated: Owner/Executive

eLesson Learned:  Make all reasonable efforts to preserve relevant data for pending or reasonably anticipated litigation, and if you can’t, be prepared to explain why.  This includes having a data management protocol in place for managing the routine maintenance and deletion of data, stopping automated maintenance mechanisms and hiring experts to handle the preservation of relevant data at first notice of potential litigation, and performing a thorough search of discoverable data on the first attempt.

I’m only a semester into law school.  In fact, I haven’t even received a grade yet.  But I can still tell when a client has destroyed all hope of winning his or her case.  In the civil action of Peskoff v. Faber, the defendant shot himself in the foot with the starting gun.

Despite only having taken a few classes in the subject of law, while reviewing Peskoff, I felt like a learned attorney that even wise ol’ Professor Sullivan would be proud to call a former pupil.  The facts of the case are simple to understand: Partner A (Peskoff) of a venture capital fund sued Partner B (Faber) because he had reason to believe that Partner B was fraudulently siphoning money into B’s own holdings company and, effectively, into B’s pocket.  After the complaint was filed on March 31, 2004, and in accordance with the Federal Rules of Civil Procedure and a motion to compel discovery granted by Magistrate Judge John M. Facciola, Partner B was obligated to produce any email records to, from, and relating to Partner A that were in B’s possession and were accessible.  In addition, the court told Partner B exactly where to search for the relevant data amongst the collection of data that B had or should have had available:

1. Partner A’s Hard Drive (from an archived backup)
2. Partner A’s Email Account
3. Other Email Accounts
4. Slack Space* on A’s Computer
5. Back-up Tapes on the Leased Back-up Server

* - Slack space of a computer’s hard drive consists of unwritten parts of partially written sections of the disc.  Hard drives record data in predefined-sized sections known as blocks or clusters, and frequently, computer forensic technicians can recover data which has only been partially overwritten in these blocks.

Partner B opted to produce the archived hard drive, without any preliminary search of relevant data, as well as an Outlook archive file of Partner A’s email account form.  The problem with this file, however, was that there was an unexplained absence of any emails between mid-2001 to mid-2003.  There were, however, emails contained in the archive dated prior to and well after the mysterious gap in communications.

Seem odd, to you?  Judge Facciola thought so, too.

Upon request of the court, Partner B submitted an (inadequate) explanation of the inaccessibility of further email records and a denial of inconsistent production.  B made no mention of any attempts to recover data from the other three previously suggested sources.  Judge Facciola reasoned that electronic forensic investigation was now the only way to obtain the relevant data which Partner A has shown to be “reasonably calculated to lead to the discovery of admissible evidence,” (Federal Rules of Civil Procedure Rule 26(b)(1)) and Partner B’s inaction seemingly affirms.

After a joint bid by the parties as to the lowest cost of a forensic investigation, the parties agreed to a price tag of $33,000, and to no one’s surprise, disagreed on who would foot the bill.  Judge Facciola concluded that to impose the costs of the extensive discovery on Partner B would not be undue or offend justice, since the mistakes of Partner B were the very reasons for which an extensive investigation was made necessary. 

But to say that Partner B was punished for laziness and inadequacy would be an understatement, and would grossly overlook the lessons to be learned from Peskoff v. Faber.  This case will probably never be discussed as a malpractice suit; likewise, its significance does not arise out of the seemingly fraudulent withholding of information by a guilty defendant. 

The lessons to learn are applicable to a much wider audience, and they’re of utmost importance to today’s employers and employees:

Make all reasonable efforts to preserve relevant data for pending or reasonably anticipated litigation, and if you can’t, be prepared to explain why.

Employers today have to be prepared for any reasonably anticipated litigation.  This usually means keeping information around for a while.  As the usage and storage of electronic documents becomes more commonplace, the preservation and future discovery of data becomes much easier. Today, most employers in businesses that rely on data communications and computer software have networking systems, scheduled back-ups and either leased or privately owned back-up servers. 

Faber, Partner B, had leased back-up servers from a third party.  However, as the data grows over time, so do costs.  This leads us to Faber’s first mistake.  Faber’s back-up system had an automated maintenance function, which would delete data older than fourteen days.  When Faber initially received notice of litigation by Peskoff, he did not disable the automated maintenance.  Under Federal Rule 37 (advisory committee’s notes (2006)), parties under a duty to preserve electronic information relevant to reasonably anticipated litigation are obligated to intervene in automated operations of information systems.  And more importantly, under Some Rule of Common Sense (2009), a defendant who hopes to prove his or her innocence should make sure not to destroy evidence that favors the defendant’s position.

Another mistake that Faber made, that must not be overlooked, is that only expert technicians should extract and handle the data being preserved, from the very start.  To this day, the reasons for incomplete email records in the Outlook archive (as well as previously produced, unreadable files by Faber to Peskoff) are unknown.  While some inferences can be made that foul play was the cause, it is just as likely that an inexperienced employee exported the data to an improper format.  The burden of hiring a technician to create a collection of relevant data from any available back-up mediums following the anticipation of litigation far outweighs the hefty price of hiring one later to run forensic analysis on the hardware potentially yielding nothing.

Also, just as technology giveth easy storage of electronic documents, technology taketh away.  Deletion of electronic data is incredibly easy, whether intentional or not, and the storage mediums themselves can be quite fragile.  The spilling of your company IT guy’s Mountain Dew can potentially cause the same destruction as a fire at your company’s headquarters.  It is important to back up litigation-relevant data into multiple physical locations and keep them secure.  Doing so is the only way to ensure the preservation of data over the course of what can be a very lengthy litigation.

Finally, what I truly believe to be the single most important lesson to extract from Peskoff is that having a well documented data management plan and sticking to it is critical to a smooth and successful litigation process.  Had Faber presented to Judge Facciola a well drafted data management plan from 2000 regarding the deletion of old emails, recycling of back-up tapes, and other details explaining the discrepancies and absences in his production, he would have preserved his credibility and may have even avoided being compelled to produce the information he claimed was no longer in existence. 

Employers and employees should realize that following a well-documented data management protocol is the best way to back-up credibility when managing electronic data.  It also ensures a speedy and convenient trial unit for all parties involved when data needs to be searched and reproduced.  Like in Peskoff, such plans can often save a case, or greatly reduce discovery costs. 

At the very least, it will prevent first-year law students from making a bad example out of you.

Frank is a Computer Science graduate of Seton Hall University and first-year law student at Seton Hall’s School of Law.  His aspirations include a career in corporate law, contracts, and intellectual property.

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